TIDMOCH
RNS Number : 9935B
Orchid Developments Group Ltd
25 April 2012
25 April 2012
Orchid Developments Group Limited
("Orchid", "the Company" or "the Group")
Final Results 2011
Orchid Developments Group Limited (Orchid), the Bulgarian
focused property developer and investor, today announces its
audited final results for the year ended 31 December 2011.
Operational Highlights
o Grand Mall Varna - current leased area is 81.6% of which 72.8%
is occupied and 8.8% is to be occupied by the end of the first half
of 2012. Further 2,200 sqm (c.4.5%) of lettable space currently
under negotiation.
-- During 2011 and 2012 to date, the Group let an additional
area of 5,300 sqm representing more, than 10% of its entire
lettable area.
-- Tenants include numerous well-known international brands such
as Carrefour, Zara, Bershka, Intersport, Deichman Adidas, Nike, Tom
Taylor, Bata, H&M and McDonalds, some of them appearing for the
first time in the local market.
o Orchid Hills Varna - project construction completed in August
2011 within budget; occupancy permit granted in October 2011.
-- During 2011 the company recognised the income from the sale
of 40 apartments and 11 parking spaces.
o Orchid Gardens Varna - this project has been delayed as a
result of which practicalcompletion has been postponed to the
second half of 2012.
-- Following the year end, the Group secured an extended credit
facility for Orchid Gardens Varna
Financial Highlights
o Profit before tax was EUR0.3 million (2010: loss EUR22.0
million);
o Profit before tax includes the net valuation profit, relating
to the Investment Property items in the amount of EUR3.6 million
(2010: loss: EUR19.2 million);
o Net asset value stood at EUR73.1 million (2010: EUR73.3
million), equating to a net asset value per share of EUR0.83 (2010:
EUR0.83);
o Revenues from rent and operation of the Grand Mall Varna
totalled EUR8.0 million (2010: EUR4.4 million);
o Bellport Corporation has agreed to the deferral of
approximately EUR0.9 million in payments due under the management
services agreement (outstanding liabilities for 2011 and future
liabilities for 2013), which constitutes a related party
transaction.
Guy Meyohas, Chief Executive Officer of Orchid, said:
"During the last twelve months, the Group has noticed no
significant change in the challenging nature of the markets, which
as anticipated has resulted in trading in line with management's
expectations.
"Grand Mall Varna, our flagship development, has become one of
the leading malls in the City of Varna with 131 leased units
occupying more than 80% of its lettable area".
"Management remains focused on the successful completion of
Orchid Gardens Varna, letting the remaining area in the Grand Mall
Varna and the sale of the remaining apartments in Orchid Hills
Varna and Orchid Hills Sofia.
"In addition, having successfully restructured our project
credit facilities, we continue to progress and pursue measures to
realise value from the Group's assets,including reviewing the
undeveloped portfolio for development or realisation."
Ends
Contacts:
Orchid Developments
Guy Meyohas +35 92 981 9955
Shore Capital and Corporate Limited
Dru Danford / Bidhi Bhoma / Toby
Gibbs +44 20 7408 4090
MHP Communications
Reg Hoare / Tim McCall / Vicky
Watkins +44 20 3128 8100
Notes to Editors:
Orchid Developments Group Ltd. (OCH.L), which listed on the AIM
market in June 2005, was established with the aim of generating
value for shareholders by investing in real estate and leisure
business opportunities initially in Bulgaria.
The Group is active in all principal sub-sectors of the
Bulgarian real estate and leisure markets and currently holds three
residential and six commercial property developments in Sofia and
Varna. Its principal investment is the Grand Mall in Varna,
Bulgaria's leading shopping mall. www.orchid-dev.com
Chief Executive's Review
Market overview
The economic environment in 2011 has been challenging and the
Group has faced tough market conditions as real estate prices
remained vulnerable due to uncertainties in the financial markets
and the very low volume of transactions.
However, by the end of 2011 some positive trends became
apparent: the number of real estate transactions (mainly apartment
purchases and sale of yielding assets) rose,whilst housing loans in
Bulgaria became more accessible despite the domestic real estate
market continuing to perform poorly for a third year in a row.
These trends provide some comfort, although they do not necessarily
indicate that the market is starting to recover.
During 2011 and especially at the end of the second half of
2011, prices for apartments declined compared to 2010 by 5%-10%
(according to the Bulgarian National statistic institute).
According to some forecasts, expectations are that the prices will
remain at around current levels in 2012 with a possibility of a
slight decline.
The retail property market remained unchanged during 2011 as far
as new openings are concerned. Rental levels remained relatively
stable during the second half of 2011. Leasing transactions are
occurring, however, at a much slower pace compared to previous
years.
Given the mix of trends outlined above, the Board continue to
carefully consider its next steps with regards to its undeveloped
properties and have continued to postpone its expansion and
investment decisions, until such time as management has witnessed
clear signs of the market recovering. At the same time the Board
continue to progress and pursue measures to realise the value of
its assets.
Portfolio review
Grand Mall (Orchid Multi Use Complex Varna)
Net Leasable Area: 49,750 sq.m.
Market Value: EUR137 m
Principal tenants: Carrefour, Zara, Pull & Bear,
Bershka, Arena (Cinema), Thechnomarket,
H&M.
Number of tenants: 131
Weighted average unexpired 7.14 years
lease term:
The Grand Mall is the Group's landmark retail development in
Varna. The Grand Mall opened on 27 May 2010 with numerous well
known international brands, some of them appearing for the first
time in the local retail market, including Carrefour, Zara, Pull
& Bear, Bershka, Technomarket, Humanic, Deichman, Intersport,
Adidas, Nike, Tom Taylor, Butlers, Bata and DM. In September 2011
the company signed a lease agreement with one of the leading
retailers on the market H&M.
The leased area of the Grand Mall is 81.6 %, of which 72.8% is
occupied and 8.8% is expected to be occupied in the first half of
2012. This takes the total area occupied and soon to be occupied to
approximately 40,500 sqm. The Group is also negotiating with
potential tenants over a further 2,200 sqm (c. 4.45%) of lettable
space.
Since the opening of the Grand Mall footfall levels have
increased to 22,000 per day on average. As a consequence of this
increased traffic, the Group has seen increased interest from
retailers in renting available space.
Orchid Hills Varna
Total Gross area: 49,984 sq.m.
Gross area apartments built/units: 30,190 sq.m./336 units
Gross area apartments under construction/units: 8,700 sq.m./89 units
Parking area: 11,094 sq.m
Apartments sold as at 31.12.2011: 300 units
Inventory Book value: EUR5.6m
The Group had secured financing for the current (third) stage of
its gated residential complex with Unicredit Bulbank Bulgaria and
in August 2011 completed the construction of the project. In
October 2011 the Company obtained an occupancy permit for this part
of the project, thus completing all its legal obligations. As
announced in 2009, the Group scaled back construction to two
buildings (comprising of 46 apartment units) due to the marked
slowdown in the sales of apartment units caused by the ongoing
adverse economic conditions. The remaining two buildings remain
postponed.
As at 31 December 2011 the Group has 63 units available for sale
from stages I and II, and 58 units available for sale from stage
III, these representing a total book value as at 31 December 2011
of EUR4.8 million (expected sales value is EUR5.0 million). In
addition to this the Group has 174 available parking spaces with a
total book value of EUR0.8 million. As at 31 December 2011 the
Group had sold 271 units with final agreement and two units with
preliminary agreement out of 336 units from stage I and stage II.
In addition the Group has signed preliminary agreements for the
sale of two units and final agreement for 29 units out of 89
available in stage III of the projects.
Orchid Gardens Varna
Total Gross Area 42,570 sq.m.
Residential Area/units: 12,100 sq.m./107 units
Office Area/units: 9,500 sq.m./88 units
Retail Area/units: 7,700 sq.m./39 units
Parking/units: 13,270 sq.m./237 units
Investment Value (*): EUR29.8m (EUR21.7m WIP, EUR8.1m
Retail part value)
* WIP presented in book Value, Retail is valuated as investment
property.
The construction of this high-end mixed-use development on a
prime location in Varna city centre is progressing significantly
behind the original schedule due to financial problems the general
contractors was experiencing. Completion is now expected to take
place in the second half of 2012. On completion the project will
consist of 16 floors above ground and 3 underground parking levels.
The project will consist of 107 apartments, 88 office units, and 39
retail units. On 11 April 2012 the Group announced it had reached
an agreement with Unicredit Bulbank Bulgaria for a
project-dedicated credit facility agreement to complete the
project.
As stated in the 2010 annual report, the Group changed its
marketing strategy as it believes that it will achieve better sales
closer to completion as local and foreign potential clients, due to
the market situation, are expected to purchase apartments only
after completion of the construction and the issuance of the
occupancy permit by the developer. As at 31 December 2011 the Group
has signed preliminary agreements for the sale of 10 apartments out
of 107, and 2 office units out of 88.
Orchid Hills Sofia
Total Gross Area 25,158 sq.m.
Gross Area/units: 17,703 sq.m./163 units
Gross area Parkings: 7,455 sq. m.
Apartments sold as at 31.12.2010: 150 units
Inventory Book value: EUR0.8 m
As at 31 December 2011, the Group had signed 150 final sale
contracts, and had 12 units available for sale and 20 parking
spaces with a total book value of EUR0.8 million (expected sales
value c. EUR0.9 million).
The Group also continues to own and operate the Golden Yavor
Hotel on the Black Sea. As in previous years, the hotel operates
during the summer months and is closed for the low season.
Management continues to seek ways to maximise shareholder value
from this asset.
The Group continues to review its other projects with the
intention to maximize value of the Group's assets when market
conditions are appropriate.
Future Plans
The Group will continue to focus its efforts in the near future
on progressing the construction of its existing development, Orchid
Gardens Varna, as well as on letting the retail space in the Grand
Mall, selling the remaining residential units in Orchid Hills Varna
and Orchid Hills Sofia and marketing the various segments in the
mixed used project Orchid Gardens Varna.
Outlook
In light of the economic downturn and the lack of funding
available, the Group has limited its on-going developments to three
projects, which the Board believes have the best prospects in terms
of market demand and financing availability. These projects are:
the Grand Mall retail centre; the Orchid Gardens Varna multi-use
commercial and residential development; and the Orchid Hills Varna
residential complex. Further to the EGM announcement of 15 February
2012, management will continue to focus their efforts to complete
successfully the Group's current projects under construction with a
plan to realise these assets over the course of the next two years.
Proceeds will be used to both - strengthen the Group's cash
position and to return cash to shareholders.
Financial review
The Group's net loss for the year ended 31 December 2011 was
EUR182,000 (2010: Loss EUR20,203,000).
The revaluation of the Grand Mall by MBL, part of the CBRE
Affiliate Network, at EUR136.9 million (2010: EUR133.6 million)
(resulting in fair value increase of EUR3.3 million as at 31
December 2011) is the principal contributor to the smaller loss for
the period. The main factors which have influenced this fair value
adjustment are the increase of rentals due to steps historically
agreed with the tenants of the Mall which are indexed to the Euro
CPI. In addition new tenants have occupied the mall during 2011 at
relatively better terms for the Group than the initial agreements
signed before the opening. These changes are a direct result of the
leading position that the Mall has taken in the City of Varna, a
better diversity of tenants and higher number of visitors we are
witnessing on a daily basis. The net change in fair value
adjustment of EUR3.6 million has resulted in an increase in the
deferred tax liability by EUR0.5million.
The Group recognises income and costs from the sale of
residential units on transfer of ownership. The Group recognises
rental income based on the straight line method in accordance with
IAS 17. The revenue of EUR12.3 million (2010: EUR7.9 million)
mainly consists of revenues from the rent and operation of the
Grand Mall (EUR8.0 million) and from sales of completed apartment
units in the Orchid Hills Sofia and the Orchid Hills Varna
residential projects (EUR3.3 million).
The majority of the operating expenses are attributable to the
development costs of the sold apartment units in the Orchid Hills
Sofia and the Orchid Hills Varna residential projects and the
operational costs of the Grand Mall. The level of hired services
expenses has increased to EUR2.4 million (2010: EUR2.2 million) as
a result of the first year of full operation for Grand Mall
Varna.
As at 31 December 2011, the Group's net asset value stood at
EUR73.1 million, (2010: EUR73.3 million), equating to a net asset
value per share of EUR0.83 (2010: EUR0.83).
Non-current assets of EUR166.9 million increased from EUR163.5
million at the end of 2010 mainly due to the increase in fair value
of the Grand Mall. Current assets of EUR38.7 million (2010: EUR42.4
million) include residential projects under development and
inventory of residential units for sale of EUR29.7 million (2010:
EUR29.9 million) that are recorded at cost.
Long-term borrowing liabilities have increased to EUR102.6
million (31 December 2010: EUR95.3 million) as a result of the
drawdown of construction loans primarily to finance the
construction of the Orchid Gardens Varna project. Short-term
borrowing facilities of EUR3.1 million were repaid during the year.
Short-term borrowing liabilities of EUR15.8 million consist mainly
of credit facilities which are to be repaid in 2012 according to
the following schedule:
-- EUR3.1 million overdue payment since October 2011 (details
are set out in note 20 (Borrowing liabilities) of these financial
statements);
-- EUR1.2 million in 3 quarterly payments till Aug 2012; and
-- EUR11.5 million by the end of 2012.
All of the Group's major projects under development are being
financed by committed facilities at the project level without
recourse to the holding company. The Group has successfully
restructured the repayment of its credit facilities due to the
market downturn in the residential property market and in order to
strength the cash position of the Group.
The current status of the loans as of 31 December 2011 before
any extensions as detailed below can be presented as follows:
More then
Project loan financing: 1 year 2-5 years 5 years Total
EUR'000 EUR'000 EUR'000 EUR'000
Orchid Multi-Complex Varna
EOOD 2,317 10,986 83,173 96,476
Orchid Gardens Varna EOOD* 9,205 8,449 - 17,654
Orchid Center Varna EOOD** 3,106 - - 3,106
Orchid Seaside Apartments EOOD 1,200 - - 1,200
Total 15,828 19,435 83,173 118,436
* Extension agreed as announced on 11 April 2012, further
details are provided below
** The Group is presently renegotiating the repayment terms of
this short term loan
Post year end events
In January 2012, the Group reached agreement with Bellport
Corporation, the vehicle which is controlled by and provides the
services of the joint Chief Executive Directors, Guy Meyohas and
Ofer Miretzky, to amend the provisions of Bellport's management
agreement to capitalise part of an accrued bonus, to formalise the
terms on which balance of the accrued bonus will be paid and to
enter into a new bonus arrangement to replace the existing bonus
scheme.
At the same time, the Board confirmed that its primary focus for
the immediate and medium term is to maximise shareholder value and
returns. To this end, the Group may, if market conditions permit
and realistic valuations can be achieved to dispose of the Group's
assets in such manner as it sees fit and in the best interests of
shareholders and if circumstances arise, these measures could also
involve the return of capital to shareholders.
The Company also completed amendments to the Articles of
Association such that a general meeting will be called on or before
31 December 2013, where resolutions will be put to shareholders to
allow them to decide whether the Group should realise its assets at
that time, to defer such a decision for a year or to continue in
its current form.
The Bellport agreement and amendments to the Articles were
ratified by shareholders at an EGM held in February 2012.
In April 2012, the Group secured an extension to its credit
agreement with UniCredit Bulbank JSC (a division of UniCredit
Group) relating to the subsidiary Orchid Gardens Varna EOOD. The
Revised Facility extends the facility term, including the repayment
dates, with the facility amount and interest rate remaining
unchanged, enabling the Group to market the development for an
extended period. The details are set out in note 34 (Post-reporting
date events of these financial statements).
Current trading
As previously stated, the economic environment in which the
Group is operating in Bulgaria remains difficult and, with the
continuing crisis in the Eurozone, will in all probability remain
volatile for the foreseeable future. The recession and lack of
available credit have had a negative effect on the ability of both
local and international retailers to expand and the Group estimates
that this climate will continue during 2012 and perhaps beyond.
Notwithstanding the economic backdrop, the Group completed the
Orchid Hills Varna development in August 2011 and continues to
focus on selling its stock of remaining apartments. In addition,
the completion of Orchid Gardens Varna, which was delayed
significantly during 2011, is expected to occur in the second half
of 2012.
As announced on 19 March 2012, the Board is cognisant of the
large gap between the Group's market capitalisation and net asset
value and the Board remains committed to closing this gap, in part
through delivering on operational and financial milestones and in
part through improving the understanding of Orchid's business and
prospects.
The directors believe that Group is able to continue to operate
within its current levels of funding in the immediate term.
However, the quantum of free cash flow, which may be generated in
the medium term from the sales of apartments and other assets,
remains uncertain. In addition, the margin of forecast available
cash over requirements remains small. The directors have further
considered the Group's cash flow forecasts together with the
associated judgments and the uncertainties related to the
forecasted volumes of sales of residential units from the projects
Orchid Varna Hills and Orchid Gardens Varna, the rescheduling of
the loan payments in the subsidiary Orchid Center Varna EOOD and
the deferral of certain payments to the joint executive
directors.
After reviewing the Group's budgets, in addition to analysing
the possibilities of selling some of the Group's property or
renegotiating payment terms with suppliers, the directors have a
reasonable expectation that the Group has adequate resources to
continue in operational existence for the foreseeable future.
Accordingly, the financial statements have been prepared on a going
concern basis.
It should be noted that the Group's forecasts include the
following assumptions:
-- the Group will be able to generate sufficient funds from the
sales of its residential units during the next year in order to
repay debt as follows: in relation to Orchid Gardens Varna EOOD an
amount of approximately EUR3.4 million; and in relation to Orchid
Seaside Apartments EOOD an amount of approximately EUR1.2
million;
-- that the Group will successfully renegotiate the repayment
terms of its short term loan of EUR3.1 million in the subsidiary
Orchid Center Varna EOOD; and
-- that certain payments to the joint executive directors can also be deferred.
The Group has agreed with Bellport Corporation that the
liabilities of EUR541,660 due to Bellport as at 23 April 2012 under
the management services agreement (the "Agreement") will not be
paid to Bellport during the twelve month period commencing 25 April
2012, unless property owned by the Group is sold or the Group's
cash flow during this period will allow such payment or part
thereof.
In addition to the above, Bellport Corporation has agreed to
postpone future payments under the Agreement of EUR324,996,
relating to the period 1 January 2013 to 30 June 2013, unless
property owned by the Group is sold or the Group's cash flow during
this period will allow such payment or part thereof.
In consideration for the deferral of the above mentioned
EUR866,656 in payments, (the "Deferral") Bellport Corporation shall
be entitled to receive interest of five per cent per annum on the
accrued, outstanding payments, commencing on 1 January 2012.
Further details are provided in Note 34 of these financial
statements.
The deferral of the EUR866,656 in payments due to Bellport and
the related interest accrued under the Agreement constitutes a
related party transaction under the AIM Rules for Companies. With
the exception of Guy Meyohas and Ofer Miretzky, who together
control Bellport Corporation and, therefore are, involved in the
Deferral as related parties, the directors consider, having
consulted with the Group's nominated adviser Shore Capital and
Corporate Limited, that the terms of the Deferral are fair and
reasonable insofar as the Group's shareholders are concerned.
Further disclosures regarding the assumptions used in the
preparation of the Group's forecast financial information are made
in note 4.25(i) of the notes to the financial statements.
These matters mentioned above, along with other matters
explained in note 4.25(i), indicate the existence of a material
uncertainty that may cast significant doubt about the ability of
the Group to continue as a going concern.
Guy Meyohas
Joint Chief Executive
25 April 2012
Directors' Biographies
Joseph Drescher (aged 72), Non-Executive Chairman of the Board.
He was appointed on 22 September 2010. Mr. Drescher has experience
in the banking and finance sectors. Mr. Drescher has over 40 years
of professional experience of banking in Switzerland and spent 25
years in management positions with the Dow Financial Services
Group, the Royal Trust Bank (Switzerland), DG Bank (Switzerland)
and BSI Banca della Svizzera Italiana. He currently serves on the
Board of Orex Minerals Inc., a mineral exploration company listed
on the TSX Venture Exchange.
Guy Meyohas (aged 47), Joint Chief Executive, is an experienced
property developer and has undertaken real estate related
transactions in several countries including Israel, the EEC,
Switzerland and the United States. He is the Chief Executive of
Orchid Group International Limited, an investment company which is
separate from the Group.
Since qualifying as an industrial engineer in 1993 at Tel Aviv
University, he has been involved in various businesses including
Aquarius Capital Properties Ltd. ("Aquarius"), a major Israeli
investment and development company, of which he was the President
and CEO from 1997 to 2001.
He has been involved in the development and operation of
commercial properties, shopping centres, hotels and residential
project.
Ofer Miretzky (aged 56), Joint Chief Executive, was formerly the
Joint Chief Executive of Ofer Miretzky Construction, a construction
and real estate development business, founded in 1988, which
established itself as one of Israel's leading construction
companies. Projects included the construction of 50 duplex
apartments in Petah Tikva and 350 apartments, office space and a
business centre in Shikun Dan. Ofer has also served as a board
member of the Association of Contractors and Builders in Israel for
several years.
Mark Holdsworth, (aged 41) Non-Executive Deputy Chairman of the
Board was appointed on 22 September 2010. Mr. Holdsworth has over
20 years' experience in property, including residential and
commercial developments. He also has more than 15 years experience
in Eastern European and other emerging markets. During his eight
years at ING Barings in London he travelled extensively to the
region, building up a network of contacts in the banking, business
and governmental sectors. From January 2001, Mr. Holdsworth was the
managing director in charge of all equity, broking and trading
operations in Eastern Europe, South Africa and Latin America at the
bank. In 2005, Mr. Holdsworth established the Fabian Romania
Property Fund as a vehicle for investing in the Romanian property
market. Fabian Romania was listed on AIM in 2006 and Mr. Holdsworth
remained a Director until its sale in 2009 to Black Sea Global
Properties. Mr. Holdsworth was a non-executive director of Netia
S.A., Poland's alternative telecoms operator between 2004 and 2006.
Mr. Holdsworth has a MA Hons. Degree in history from the University
of Edinburgh and a postgraduate Masters Degree in political science
from the University of Pennsylvania, where he was a Thouron
Scholar. Mr Holdsworth has also graduated from the Owner President
Manager programme, Harvard Business School's top executive
education programme. Current Directorships: Fabian Capital Ltd;
Fabian Romania Ltd (dormant); Holdsworth Property Holdings Ltd
(dormant); RGI International LTD (Non executive director). Past
directorships in the previous 5 years: XXI Century Investment PLC
(2005-2007); Fabian Romania Ltd (2005-2009); AIG BVB Lakeview S.A.
(2006-2009)
Amir Rosentuler, (aged 45)Non-Executive Director, was appointed
on 22 September 2010. Mr. Rosentuler has over 20 years' management
experience. He is currently a vice president of ECI Telecom, a
supplier of networking infrastructure for carrier and service
provider networks worldwide. Prior to this, he was a president of
Press-Sense, a market leader in business flow automation systems
and earlier to this, he acted as vice-president of international
operations at Magic Software Enterprises, a developer of enterprise
application technology. He also established the European
organization of OpTier, a provider of transaction workload
management software, and managed the sales operation in 20
countries for Novell, for which he was the sole European recipient
of the Novell President's Award.
Directors' Report
The Directors present their report together with the audited
financial statements for the year ended 31 December 2011.
Principal activities
Orchid is a real estate developer, investment property owner and
hotel operator in Bulgaria. It is active in three principal
sub-sectors of the Bulgarian real estate and leisure markets:
-- commercial property development;
-- residential property development;
-- hotels and related leisure facilities.
Business review
A review of the Group's activities during the year and future
prospects is contained in the Chief Executive's Review.
Results
The net fair value adjustment of the investment portfolio
recognised in the Consolidated Statement of Comprehensive income
amounted to EUR3.6 million. Revenues for the year ended 31 December
2011 comprise mainly of rent and operational incomes for the Grand
Mall and sales of apartments and hotel services. Our operational
costs reflect the cost of the sold residential units, that we have
recognised revenue on and the operational costs for the Mall.
Directors' remuneration and service contracts
The Group's Remuneration Policy and details of the Directors'
service contracts are set out in the Directors' Remuneration
Report.
Directors' interests in the Group's shares
As at 1 April 2012 the Directors and the Senior Management were
interested in an aggregate of 28,162,688 ordinary shares,
representing approximately 29.98 % of the Group's issued share
capital.
In February 2012 5,500,000 new ordinary shares, were issued to
the Directors of the Group.
Number Number % of
of Ordinary of Share Issued
Shares Options Capital
Guy Meyohas - held by HSBC Global
Custody Nominee (UK) 11,196,344 - 11.92
Ofer Miretzky - held by HSBC Global
Custody Nominee (UK) 11,196,344 - 11.92
Bellport - held by Guy Meyohas and
Ofer Miretzki 5,770,000 - 6. 14
Other substantial interests
As at 1 April 2012 the persons having interests in 2% or more of
the Group's issued ordinary share capital were as follows:
Number %
of Shares
HSBC Global Custody Nominee
(UK)* 25,197,284 29.98
Midas Capital Partners Limited 11,035,000 11.74
Progressive Asset Management 6,565,447 6.99
Value investment Limited 4,750,000 5.06
Henderson Global investors 4,581,108 4.88
Barclays Stockbrokers Limited 4,253,880 4.53
Thames River Capital LLP 3,400,000 3.62
TD Direct investing 3,229,256 3.44
Shore Capital Group PLC 3,080,558 3.28
Smith & Willamson 2,499,532 2.47
Selftrade 2,022,849 2.15
*including executive directors'
interests
Payments to creditors
The Group's policy is to settle suppliers' invoices in
accordance with their terms of business. Where no specific terms
have been agreed, payment is usually made within one month of
approval of invoice. At 31 December 2011 EUR5,069,000 (2010:
EUR12,036,000) was due to trade creditors, the majority of which
relates to Orchid Gardens Varna, the contractors of the multi use
complex and residential developments in Varna.
Independent auditors
The financial statements are audited by Grant Thornton OOD,
Bulgaria.
Approved by the Board and signed on its behalf by:
Guy Meyohas
Joint Chief Executive
25 April 2012
Corporate Governance and
Statement of Directors' Responsibilities
Operation of the Board
The Board currently consists of the two Joint Chief Executive
Directors, Guy Meyohas and Ofer Miretzky, and three non-executive
directors; Joseph Drescher (Chairman), Mark Holdsworth (Deputy
Chairman) and Amir Rosentuler. Biographies are included separately.
The non-executive directors, appointed by the management of the
Group have experience in real estate financing and management. The
non-executive directors are considered by the Board to be
independent.
According to the articles of association of the Group, at each
annual general meeting one third of the Directors who are subject
to retirement by rotation or, if their number is not three nor a
multiple of three, the number nearest to but not exceeding one
third, shall retire from office. Furthermore, all Directors are
required to seek re-appointment at the next annual general meeting
after their appointment.
The Board convenes approximately every month. A formal schedule
of matters reserved for their decision covers key areas of the
Group's affairs including property development, acquisitions and
disposals, remuneration for their decision management, treasury and
fund raising. In 2011, 10 board meetings were convened and save for
4 meetings the rest of the meetings were attended by all
Directors.
Audit and Remuneration Committees
The Group has established an audit committee and a remuneration
committee with formally delegated responsibilities.
The Audit Committee is comprised of Joseph Drescher and Amir
Rosentuler. This committee is presently chaired by Joseph Drescher.
The Audit Committee is responsible for ensuring that the financial
performance of the Group is properly reported and monitored and for
reviewing the auditors' reports relating to accounts and internal
control systems. Two meetings of the Audit Committee were held
during the year.
The Remuneration committee comprised, Mark Holdsworth, Joseph
Drescher and Amir Rosentuler and is chaired by Mark Holdsworth. The
Remuneration Committee is responsible for the review and
recommendation of the scale and structure of remuneration for
senior management including the award of share options. During 2011
there was 1 meeting.
Internal Control
The Board is responsible for maintaining a sound system of
internal control to safeguard shareholders' investment and the
Group's assets.
The systems of internal control are designed to manage rather
than eliminate the risk of failure to achieve business objectives
and can only provide reasonable, but not absolute assurance against
material misstatement or loss. The Board has established a process
for identifying, evaluating and managing the Group's key risks,
mainly the group liquidity and projects time schedule control,
which, in the context of the relative simplicity of the Group's
business model, they believe to be adequate. The Board reviews this
process. The Group's risk management objectives and policies are
set out in note 33 (Risk management objectives and policies) to
these consolidated financial statements.
The Group follows procedures for:
-- evaluating capital investment, with detailed appraisal,
authorisation and post investment review and
-- production of management information on a monthly basis
appraising the status of each project, along with the quarterly
P&L reports.
Board performance evaluation procedures were not taken as the
Board believes it will not add any value to its performance at the
current stage.
Strategic Review Process
The Board reviews the strategic direction of the Group on a
regular basis. Additional Board meetings will be called when it is
felt necessary to devote more time to discussion of general
strategic issues or a specific proposal that cannot be accommodated
within the agenda of a regular Board meeting.
Going Concern
The directors have prepared cashflow forecasts based on their
best estimate of the cashflows of the Group, which cover a period
of over one year from the date of approval of these financial
statements. The assumptions used in the forecast are set out in
note 4.25(i) (Critical accounting estimates and judgements) of
these financial statements.
The cash flow forecasts were prepared by taking into
consideration the renegotiated terms between Orchid Gardens Varna
EOOD and Unicredit Bulbank from 5 March 2012, which are described
in details in note 34 (Post-reporting date events). According to
the signed annex for restructuring the loan repayment, the
short-term portion of EUR8.5 million as at 31 December 2011 was
rescheduled as follows: a principal payment of EUR1 million by 30
September 2012, another principal payment of EUR2 million by 30
December 2012, EUR5 million until the end of the first quarter of
2013 and the remaining EUR0.5 million should be paid as monthly
payments starting from 30 June 2012.
One of the subsidiaries of the Group, Orchid Center Varna EOOD
is still negotiating with its financing bank the short-term loan
liabilities amounting to EUR3.1 million as at 31 December 2011.
Although the due date for repayment of the loan has past (October
2011) the bank did not recall the loan or the interest for
immediate payment, but instead it opened discussions on a
compromise solution that would serve both parties. The directors,
considering all the information available to them and based upon
the discussions with the bank, have no reason to believe that the
bank will call for the loan repayment as such act will not serve
the immediate interest of the bank. These conditions indicate the
existence of a material uncertainty, which may cast doubt on the
ability of the subsidiary Orchid Center Varna EOOD to continue as a
going concern.If discussions with the bank fail, the legal recourse
is limited only to this subsidiary and the real estate property
owned by it and will not affect the remaining companies within the
Group or any other projects and developments.
The directors have considered the forecasts together with the
associated judgments and the uncertainties related to the
forecasted volumes of sales of residential units from the projects
Varna Hills and Orchid Gardens Varna, the rescheduling of the loan
payments in Orchid Centre Varna and the deferral of certain
payments to the joint executive directors. After reviewing the
Group's budgets, in addition to analysing the possibilities of
selling some of the Group's property or renegotiating payment terms
with suppliers, the directors have a reasonable expectation that
the Group has adequate resources to continue in operational
existence for the foreseeable future. Accordingly, the financial
statements have been prepared on a going concern basis.
Statement of Directors' Responsibilities
The Directors prepare the financial statements for each
financial year, which give a true and fair view of the state of
affairs of the Group and of the profit or loss for that period. In
preparing these financial statements, the Directors are required
to:
1. Prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group will continue
in business;
2. Select suitable accounting policies and then apply them consistently;
3. Make judgments and estimates that are responsible and prudent;
4. State whether applicable International Financial Reporting
Standards have been followed, subject to any material departures
disclosed and explained in the financial statements.
In so far as the directors are aware:
(1) there is no relevant audit information of which the Group's auditors are unaware; and
(2) the directors have taken all steps that they ought to have
taken to make themselves aware of any relevant audit information
and to establish that the auditors are aware of that
information.
The Directors are responsible for keeping proper accounting
records that disclose with reasonable accuracy at any time the
financial position of the Group, for safeguarding the assets of the
Group and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
The maintenance and integrity of the Orchid Developments Group
Ltd. website is the responsibility of the Directors. The work
carried out by the auditors does not involve consideration of these
matters and, accordingly, the auditors accept no responsibility for
any changes that may have occurred to the financial statements
since they were initially presented on the website.
Directors' Remuneration Report
The Remuneration Report has been prepared by the Remuneration
Committee ("the Committee") and has been approved by the Board.
A) Joint Chief Executive Directors: Guy Meyohas and Ofer
Miretzky
The Group pays to the Joint Chief Executive Directors via a
"Management Service Company" a fee ("The Fee") of EUR325,000 per
annum in respect of each joint Chief Executive Directors (being in
total the sum of EUR650,000 per annum) which shall accrue from day
to day and shall be payable in arrears by equal monthly
instalments. For the avoidance of doubt, the fee shall only be
payable by the Group to the Management Service Company in respect
of services actually provided by the Joint Chief Executive
Directors, so that if the Management Services Company does not
provide the services of one of the Joint Chief Executive Directors
for any period, the respective fee shall be reduced by EUR325,000
per annum pro rata for the period during which the services of that
Joint Chief Executive Directors are not provided and if neither
Joint Chief Executive Director provides services to the Group for
any period, the fee for such period shall be nil.
The Management Services Company submits an invoice each month
stating the services provided in the period covered, any expenses
to be reclaimed and the amount of the fee due.
Expenses
The Group pays all expenses incurred by the Joint Chief
Executive Directors for expenses in or about the performance of
their duties under this Agreement including in relation to
travelling, hotels and entertainment.
Bonus scheme
Till the year end the Group was calculating for the Management
Services Company an annual performance related bonus ("The Bonus")
in respect of each Joint Chief Executive Director which will be
calculated as 5% of any profit before tax of the Group (on a
consolidated basis) on profits in excess of EUR3 million and up to
EUR8 million and 3% on any profits before tax thereafter. Such
profits before tax are to be as set out in the consolidated audited
accounts of the Group and payable 15 days after the Group's
consolidated audited accounts are signed off by the auditors.
The Management Services Company's entitlement to the bonus in
respect of each Joint Chief Executive Director shall accrue on a
daily basis, and on termination of this Agreement pursuant to
clause 2.1 of the Management Services Agreement, the amount of the
bonus due for payment by the Group to the Management Services
Company is calculated on a pro rata basis for the period from the
date of the commencement of the financial period (in which such
termination takes place) to the Termination Date.
On 15 of February 2012 the Management Service Company came to
arrangement with the Group concerning the Accrued bonus liability
on the amount of EUR1.9 million. In this arrangement the Management
Service Company agreed to convert part of the accrued bonus in the
amount of GBP1,100,000 to 5,500,000 shares of the company. The rest
of the amount GBP548,150 shall be considered as loan bearing annual
interest of 3% with repayment date scheduled for 31 December 2013.
In addition the Management Service Company signed a new Bonus
scheme, which is described in details in note 34 (Post-reporting
date events).
Illness
In the event of illness or other incapacity beyond the control
of the Management Services Company as a result of which one or both
of the joint Chief Executive Directors Providers is unable to
perform his duties under this Agreement, the Management Services
Company shall remain entitled to receive the Fee in full and the
Bonus for any continuous period of six months or an aggregate
period of 130 days' absence of each Service Provider in any
consecutive twelve month period.
B) Non-Executive Directors
The non-executive directors (Amir Rosentuler and Joseph
Drescher) are entitled to a fee at the rate of EUR40,000 per annum,
in addition, the non-executive director (deputy chairman) Mark
Holdsworth is entitled to EUR60,000 per annum, payable in quarterly
instalments in arrears for so long as their appointment lasts or is
extended, their fee will be reviewed annually by the Board.
The directors are entitled to be reimbursed reasonable and
proper travelling expenses for attendance at board meetings and
other meetings at which the Group requires their attendance -
together with reasonable and proper accommodation expenses of
attending any such meetings, which necessitates an overnight
stay.
Director's Remuneration and Interests
Remuneration in respect of the Directors was as follows:
Salary Benefits* Total
& Fees
----------------------- ------- --------- -------
EUR'000 EUR000 EUR'000
----------------------- ------- --------- -------
A) Executive Directors
----------------------- ------- --------- -------
Guy Meyohas 325 12.5 337.5
----------------------- ------- --------- -------
Ofer Miretzky 325 12.5 337.5
----------------------- ------- --------- -------
B) Non - executive
Directors
----------------------- ------- --------- -------
Mark Holdworth 60 - 60
----------------------- ------- --------- -------
Amir Rosentuler 40 - 40
----------------------- ------- --------- -------
Joseph Dreschner 40 - 40
----------------------- ------- --------- -------
Total A+B 790 25 815
----------------------- ------- --------- -------
* Insurance premium
and medical insurance
----------------------- ------- --------- -------
(No pension contributions have been made on behalf of the
Directors. No share options have been granted to the
Directors.)
Mark Holdsworth
Chairman of Remuneration Committee
25 April 2012
INDEPENDENT AUDITOR'S REPORT
To the shareholders of
Orchid Developments Group Ltd.
Report on the consolidated financial statements
We have audited the accompanying consolidated financial
statements of Orchid Developments Group Ltd. and its subsidiaries,
for the year ended 31 December 2011 which comprise the consolidated
statement of financial position, the consolidated statement of
comprehensive income, the consolidated statement of changes in
equity, the consolidated statement of cash flows, summary of
significant accounting policies and the related notes. The
financial reporting framework that has been applied in their
preparation is International Financial Reporting Standards as
adopted by the European Union and applicable law.
This report is made solely to the company's members, as a body.
Our audit work has been undertaken so that we might state to the
company's members those matters we are required to state to them in
an auditor's report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to
anyone other than the company and the company's members as a body,
for our audit work, for this report, or for the opinions we have
formed.
Directors' Responsibility for the Consolidated Financial
Statements
As explained more fully in the Statement of Directors'
Responsibilities set out on pages 15 - 17 the directors are
responsible for the preparation of the consolidated financial
statements in accordance with International Financial Reporting
Standards as adopted by the European Union and for being satisfied
that they give a true and fair view.
Auditor's Responsibility
Our responsibility is to express an opinion on these
consolidated financial statements based on our audit. We conducted
our audit in accordance with International Standards on Auditing.
Those standards require that we comply with ethical requirements
and plan and perform the audit to obtain reasonable assurance
whether the consolidated financial statements are free from
material misstatement.
Scope of the audit of the financial statements
An audit involves performing procedures to obtain audit
evidence, on a test basis, about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend
on the auditor's judgment, including the assessment of the risks of
material misstatement of the consolidated financial statements,
whether due to fraud or error. In making those risk assessments,
the auditor considers internal control relevant to the entity's
preparation and fair presentation of the consolidated financial
statements in order to design audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the entity's internal control. An
audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of accounting estimates made
by management, as well as evaluating the overall presentation of
the consolidated financial statements.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our audit
opinion.
Opinion
In our opinion the consolidated financial statements:
-- give a true and fair view of the state of the financial
position of Orchid Developments Group Ltd. as at 31 December 2011
and of its financial performance and its cash flows for the year
then ended; and
-- have been properly prepared in accordance with International
Financial Reporting Standards as adopted by the European Union.
Emphasis of matter - going concern
In forming our opinion on the financial statements, which is not
modified, we have considered the adequacy of the disclosures made
in note 4.25 (i) to the financial statements concerning the
assumptions used in the preparation of the Group's forecast
financial information. These forecasts assume that the Group would
be able to generate funds from an increase in the sales of its
residential units during the next year, it will successfully
renegotiate the repayment terms of a short term loan of EUR3.1
million in the subsidiary Orchid Center Varna EOOD, and it could
defer certain payments to the joint executive directors.
These conditions, along with other matters explained in note
4.25 (i), indicate the existence of a material uncertainty that may
cast significant doubt about the ability of the Group to continue
as a going concern. The financial statements do not include the
adjustments that would result if the Group was unable to continue
as a going concern.
Report on other legal and regulatory requirements - Annual
Report for the year ended 31 December 2011.
We have reviewed the other information contained within the
Annual Report for the year ended 31 December 2011 of Orchid
Developments Group Ltd., which is not part of the consolidated
financial statements. The other information in the Annual Report,
prepared by the directors, complies in its main aspects with the
financial information, presented in the consolidated financial
statements for the year ended 31 December 2011, prepared in
accordance with International Financial Reporting Standards, as
adopted by the EU. The preparation of the Annual Report is
responsibility of the directors.
Grant Thornton OOD, Bulgaria
Chartered accountants
26, Cherni Vrah Blvd, 1421 Sofia
25 April 2012
Consolidated Statement of Financial Position
Notes 2011 2010
EUR'000 EUR'000
Assets
Non-current
Investment property 6 158,262 154,711
Property, plant and equipment 7 7,296 7,510
Investment in associates 8 218 237
Goodwill 9 3 3
Other intangible assets 10 15 17
Long-term loans due from associates 11 356 334
Deferred tax assets 12 707 680
-------- --------
Total non-current assets 166,857 163,492
Current
Development work in progress 13 22,911 23,640
Inventory - residential units for
sale 14 6,846 6,287
Trade receivables 15 3,506 3,410
Receivables from related parties 29.1 81 45
Tax receivables 16 848 1,882
Other receivables 17 922 970
Cash and cash equivalents 18 3,628 6,123
-------- --------
Total current assets 38,742 42,357
Total assets 205,599 205,849
-------- --------
Consolidated Statement of Financial Position (continued)
Notes 2011 2010
EUR'000 EUR'000
Equity and liabilities
Equity
Share capital 19.1 885 885
Share premium 19.3 69,122 69,122
Other reserves - 172
Retained earnings 3,100 3,110
Total equity 73,107 73,289
--------------- --------
Liabilities
Non-current liabilities
Long-term borrowing liabilities 20 102,608 95,266
Payables to employees 24.2 - 1,939
Deferred tax liabilities 12 4,021 3,521
--------------- --------
Total non-current liabilities 106,629 100,726
Current liabilities
Short-term liabilities to related
parties 29.1 108 66
Short-term borrowing liabilities 20 15,828 16,089
Trade payables 22 6,507 14,766
Deferred income 263 328
Interest payables 226 124
Tax liabilities 23 441 310
Payables to employees and social
security institutions 24.2 2,490 151
--------------- --------
Total current liabilities 25,863 31,834
Total liabilities 132,492 132,560
--------------- --------
Total equity and liabilities 205,599 205,849
--------------- --------
Approved by the Board and signed on its behalf by:
Guy Meyohas
Joint Chief Executive
25 April 2012
Consolidated Statement of Comprehensive Income
Notes 2011 2010
EUR'000 EUR'000
Revenue 25 12,304 7,856
Development costs 14 (3,205) (1,612)
Cost of materials 14 (839) (1,144)
Hired services expenses (2,379) (2,165)
Employee compensation and benefit expenses 24.1 (1,877) (2,095)
Depreciation and amortisation (302) (317)
Other expenses (1,782) (726)
Net change in fair value of investment
property 6 3,624 (19,208)
--------- ---------
Operating profit/(loss) 5,544 (19,411)
Share of loss from equity accounted
associates 8 (19) (14)
Interest expense 26 (5,229) (2,577)
Interest income 26 49 36
Exchange rate loss (14) (16)
Other financial expenses 27 (32) (36)
--------- ---------
Profit/(loss) for the year before tax 299 (22,018)
Tax (expenses)/income 28 (481) 1,815
--------- ---------
Net loss for the year (182) (20,203)
Total comprehensive loss for the year (182) (20,203)
--------- ---------
Loss and total comprehensive loss for
the year attributable to the owners
of the parent: (182) (20,203)
Loss per share EUR EUR
Basic and diluted loss per share 19.4 (0.002) (0.228)
Consolidated Statement of Changes in Equity
All amounts are presented Share Share Other Retained Total
in EUR'000 capital Premium reserves earnings Equity
Balance at 1 December
2010 885 69,122 224 23,261 93,492
---- ------- ------ --------- ---------
Share options expired - - (52) 52 -
---- ------- ------ --------- ---------
Transactions with
owners - - (52) 52 -
Net loss for the year - - - (20,203) (20,203)
---- ------- ------ --------- ---------
Total comprehensive
loss for the year - - - (20,203) (20,203)
Balance at 31 December
2010 885 69,122 172 3,110 73,289
---- ------- ------ --------- ---------
Share options expired - - (172) 172 -
---- ------- ------ --------- ---------
Transactions with
owners - - (172) 172 -
Net loss for the year - - - (182) (182)
---- ------- ------ --------- ---------
Total comprehensive
loss for the year - - - (182) (182)
Balance at 31 December
2011 885 69,122 - 3,100 73,107
---- ------- ------ --------- ---------
Consolidated Statement of Cash Flows
Notes 2011 2010
EUR'000 EUR'000
Cash flows from operating activities
Cash receipts from customers 13,281 8,832
Cash paid to suppliers (8,782) (20,376)
Cash paid to employees and social
security institutions (1,515) (2,193)
VAT received, net 414 6,935
Taxes paid, net (461) (524)
Other cash inflows 117 334
--------- ---------
Net cash flows from operating activities 3,054 (6,992)
Cash flows from investing activities
Cost of construction of investment
property (6,638) (18,944)
Purchase of property, plant and equipment (42) (44)
Purchase of intangible assets (4) (9)
Interest received 29 14
Loans granted (20) (92)
Loan repayments received 53 4
--------- ---------
Net cash flows from investing activities (6,622) (19,071)
Cash flows from financing activities
Proceeds from bank loans 10,178 39,858
Repayment of bank loans and related
fees (3,097) (6,546)
Discharge of finance lease liability - (2)
Interest paid (5,999) (4,445)
--------- ---------
Net cash flows from financing activities 1,082 28,865
Effect of exchange rate changes on
cash and cash equivalents (9) (16)
--------- ---------
Cash and cash equivalents, beginning
of year 6,123 3,337
Net (decrease)/ increase in cash
and cash equivalents (2,495) 2,786
--------- ---------
Cash and cash equivalents, end of
year 18 3,628 6,123
========= =========
Notes to the Consolidated Financial Statements
1. General information
As of 31 December 2011 Orchid Developments Group consists of
Orchid Developments Group Ltd. (parent enterprise) and the
following subsidiaries and an associate:
Name Country of incorporation % of ownership
Sica Holding Inc. British Virgin Islands 100
Midlung Company S.A. British Virgin Islands 100
Saint Vincent and the
Orchid Sofia Hills Ltd. Grenadines 100
Saint Vincent and the
Marington Inc. Grenadines 100
Saint Vincent and the
Crockett S.A. Grenadines 100
Saint Vincent and the
QC Investment Ltd. Grenadines 100
Saint Vincent and the
Rhodette Ltd. Grenadines 100
Saint Vincent and the
Norco Ltd. Grenadines 100
Orchid Multi Complex - Saint Vincent and the
Varna 2006 Ltd. Grenadines 100
Saint Vincent and the
Lakan Investments Ltd. Grenadines 100
Saint Vincent and the
Infocan Ltd. Grenadines 100
Saint Vincent and the
Digital Magic Ltd. Grenadines 100
Orchid Management - Bulgaria
EOOD Bulgaria 100
Orchid Capital Properties
EOOD Bulgaria 100
Orchid Seaside Apartments
EOOD Bulgaria 100
O.M. Razvitie EOOD Bulgaria 100
Orchid Sofia Hills EOOD Bulgaria 100
Orchid Center Varna EOOD Bulgaria 100
Orchid Multi Complex -
Varna EOOD Bulgaria 100
Orchid Gardens Varna EOOD Bulgaria 100
Orchid Airport City - Sofia
2006 EOOD Bulgaria 100
Orchid Logistic Centers
EOOD Bulgaria 100
Lyons Bulgaria EOOD Bulgaria 100
Kohav OOD Bulgaria 30
Orchid Developments Group Ltd. is a limited liability company
incorporated on 2 June 2004 and domiciled in George Town, Grand
Cayman, British West Indies.
The Group includes companies which have the following main
activities:
-- commercial, financial, lending, borrowing, trading
activities, sale and purchase of real estate;
-- tourist services, real estate property transactions and constructions of hotels; and
-- commercial property and residential property development.
During the year 2011 the Group finished the voluntary
liquidation process of five dormant companies (Nedlands Estate
Inc., Harvest Holding Inc., Black Sea Developments EOOD, Orchid
Projects EOOD, Orchid Airport City Sofia 2 EOOD).
2. Basis for preparation of the consolidated financial statements
The consolidated financial statements of the Group have been
prepared in accordance with International Financial Reporting
Standards (IFRS), applicable to accounting periods ended on 31
December 2011, as developed and published by the International
Accounting Standards Board (IASB) and as adopted by the European
Union.
All amounts for the periods ended 31 December 2011 and 31
December 2010 are presented in the financial statements in thousand
Euros (EUR'000).
The consolidated financial statements are prepared under the
going concern principle (see note 4.25(i)).
The consolidated financial statements for the year ended 31
December 2011, were approved by the Board of Directors on 23 April
2012.
3. Change in accounting policies
3.1 Overall considerations
The Group has adopted the following new interpretations,
revisions and amendments to IFRS issued by the International
Accounting Standards Board, which are relevant to and effective for
the Group's financial statements for the annual period beginning 1
January 2011:
-- IFRS 1 "First-time Adoption of International Financial
Reporting Standards" (amended) - Limited Exemption from Comparative
IFRS 7 Disclosures for First-time Adopters - effective from 1 July
2010, adopted by the EU on 30 June 2010;
-- IAS 24 "Related Party Disclosures" (amended) effective from 1
January 2011, adopted by the EU on 19 July 2010;
-- IAS 32 "Financial Instruments: Presentation" (amended)
effective from 1 February 2010, adopted by the EU on 24 December
2009;
-- IFRIC 14 "Prepayments of a Minimum Funding Requirement"
(amended) effective from 1 January 2011, adopted by the EU on 19
July 2010;
-- IFRIC 19 "Extinguishing Financial Liabilities with Equity
Instruments" effective from 1 July 2010, adopted by the EU on 23
July 2010;
-- Annual Improvements to IFRSs 2010 effective from 1 January
2011 unless otherwise stated, adopted by the EU on 18 February
2011, containing amendments to IFRS 1, IFRS 3, IFRS 7, IAS 1, IAS
21, IAS 28, IAS 31, IAS 34, and IFRIC 13.
The adoption of these new requirements did not have any impact
on the financial position or the performance of the Group.
3.2 Standards, amendments and interpretations to existing
standards that are not yet effective and have not been adopted
early by the Group
At the date of authorization of these consolidated financial
statements, certain new standards, amendments and interpretations
to existing standards have been published but are not yet
effective, and have not been adopted early by the Group.
Management anticipates that all of the pronouncements will be
adopted in the Group's accounting policies for the first period
beginning after the effective date of the pronouncement.
Information on new standards, amendments and interpretations that
are expected to be relevant to the Group's consolidated financial
statements is provided below.
IFRS 10 "Consolidated Financial Statements" effective from 1
January 2013, not yet adopted by the EU. It introduces a new,
principle-based definition of control which will apply to all
investees to determine the scope of consolidation.
IFRS 13 "Fair Value Measurement" effective from 1 January 2013,
not yet adopted by the EU. It defines fair value as the price that
would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the
measurement date. The Standard clarifies that fair value is based
on a transaction taking place in the principal market for the asset
or liability or, in the absence of a principal market, the most
advantageous market. The principal market is the market with the
greatest volume and level of activity for the asset or
liability.
IAS 12 "Income Taxes" - Deferred Tax, effective from 1 January
2012, not yet adopted by the EU. Currently IAS 12 "Income Taxes"
requires an entity to measure the deferred tax relating to an asset
depending on whether the entity expects to recover the carrying
amount of the asset through use or sale. It can be difficult and
subjective to assess whether recovery will be through use or
through sale when the asset is measured using the fair value model
in IAS 40 "Investment Property". Hence this amendment introduces an
exception to the existing principle for the measurement of deferred
tax assets or liabilities arising on investment property measured
at fair value. As a result of the amendments, SIC 21 "Income taxes-
recovery of revalued non-depreciable assets", would no longer apply
to investment properties carried at fair value. The amendments also
incorporate into IAS 12 the remaining guidance previously contained
in SIC 21, which is accordingly withdrawn.
The directors are currently considering the effects of these
standards on the accounting policies of the Group.
Certain other new standards and interpretations have been issued
but are not expected to have a material impact on the Group's
consolidated financial statements:
-- IFRS 1 "First-time Adoption of International Financial
Reporting Standards" (amended) - Fixed dates and Hyperinflation,
effective from 1 July 2011, not yet adopted by the EU
-- IFRS 7 "Financial Instruments: Disclosures" - Derecognition,
effective from 1 July 2011, not yet adopted by the EU
-- IFRS 9 "Financial Instruments" effective from 1 January 2015, not yet adopted by the EU
-- IFRS 11 "Joint Arrangements" effective from 1 January 2013, not yet adopted by the EU
-- IFRS 12 "Disclosure of Interests in Other Entities" effective
from 1 January 2013, not yet adopted by the EU
-- IAS 1 "Financial Statement Presentation" - Other
Comprehensive Income, effective from 1 July 2012, not yet adopted
by the EU
-- IAS 19 "Employee Benefits" effective from 1 January 2013, not yet adopted by the EU
-- IAS 27 "Separate Financial Statements" (Revised) effective
from 1 January 2013, not yet adopted by the EU
-- IAS 28 "Investments in Associates and Joint Ventures"
(Revised) effective from 1 January 2013, not yet adopted by the
EU
-- IFRIC 20 "Stripping costs in the production phase of a
surface mine" effective from 1 January 2013, not yet adopted by the
EU
4. Summary of accounting policies
4.1 Overall considerations
The significant accounting policies that have been used in the
preparation of these consolidated financial statements are
summarised below.
The consolidated financial statements have been prepared using
the measurement bases specified by IFRS for each type of asset,
liability, income and expense. The measurement bases are more fully
described in the accounting policies below.
It should be noted that accounting estimates and assumptions are
used in preparation of the consolidated financial statements.
Although these estimates are based on management's best knowledge
of current events and actions, actual results may ultimately differ
from those estimates.
4.2 Presentation of consolidated financial statements
The consolidated financial statements are presented in
accordance with IAS 1 "Presentation of Financial Statements"
(revised 2007). The Group has elected to present the consolidated
statement of comprehensive income as a single statement.
Two comparative periods are presented for the consolidated
statement of financial position when the Group:
(i) applies an accounting policy retrospectively;
(ii) makes a retrospective restatement of items in its
consolidated financial statements, or
(iii) reclassifies items in the consolidated financial
statements.
4.3 Basis of consolidation
The consolidated financial statements incorporate the financial
statements of Orchid Developments Group Ltd. and its subsidiaries
drawn up to 31 December 2011. Subsidiaries are fully consolidated
from the date of acquisition, being the date on which the Group
obtains control, and continue to be consolidated until the date
when such control ceases. Subsidiaries are all entities over which
the Group has the power to govern their financial and operating
policies so as to obtain benefits from its activities. All
subsidiaries have a reporting date of 31 December.
Where necessary, adjustments are made to the financial
statements of subsidiaries to bring the accounting policies into
line with those used by the Group.
Where the Group acquires a subsidiary or group of assets which
are not deemed to constitute a business, the cost of acquisition is
allocated between the individual identifiable assets and
liabilities acquired, based upon their relative fair values at the
date of acquisition.
The results of subsidiaries acquired during the year are
included in the Consolidated Statement of Comprehensive Income from
the effective date of acquisition, as appropriate.
All intra-group transactions, balances, income and expenses are
eliminated on consolidation.
Unrealised gains and losses on transactions between Group
companies are eliminated. Where unrealised losses on intra-group
asset sales are reversed on consolidation, the underlying asset is
also tested for impairment from a group perspective. Amounts
reported in the financial statements of subsidiaries have been
adjusted where necessary to ensure consistency with the accounting
policies adopted by the Group.
Profit or loss and other comprehensive income of a subsidiary
acquired or disposed of during the year are recognised from the
effective date of acquisition, or up to the effective date of
disposal, as applicable. The difference between the proceeds from
the disposal of the subsidiary and its carrying amount as of the
date of disposal is recognised in profit or loss as the gain or
loss on the disposal of the subsidiary.
When the Group ceases to have control of a subsidiary, any
retained interest in the entity is remeasured to its fair value,
with the change in carrying amount recognised in profit or loss.
The fair value is the initial carrying amount for the purposes of
subsequently accounting for the retained interest as an associate,
joint venture or financial asset. In addition, any amounts
previously recognised in other comprehensive income in respect of
that entity are accounted for as if the Group had directly disposed
of the related assets or liabilities (i.e. reclassified to profit
or loss or transferred directly to retained earnings as specified
by applicable IFRSs).
The profit or loss on disposal is calculated as the difference
between i) the aggregate of the fair value of the consideration
received and the fair value of any retained interest and ii) the
previous carrying amount of the assets including goodwill and
liabilities of the subsidiary and any non-controlling interest.
4.4 Business combinations
Business combinations are accounted for using the purchase
method. For business combinations occurring since 1 January 2010,
the requirements of IFRS 3 (revised) have been applied. The
consideration transferred by the Group to obtain control of a
subsidiary is calculated as the sum of the acquisition-date fair
values of assets transferred, liabilities incurred and the equity
interests issued by the Group. The consideration transferred
includes the fair value of any asset or liability resulting from a
contingent consideration arrangement. Acquisition-related costs are
expensed as incurred.
The purchase method involves the recognition of the acquiree's
identifiable assets and liabilities, including contingent
liabilities, regardless of whether they were recorded in the
financial statements prior to acquisition. On initial recognition,
the assets and liabilities of the acquired subsidiary are included
in the consolidated statement of financial position at their fair
values, which are also used as the bases for subsequent measurement
in accordance with the Group's accounting policies.
Prior to 1 January 2010, business combinations were accounted
under the previous version of IFRS 3.
4.5 Investments in associates
Associates are those entities over which the Group is in a
position to exert significant influence, but not control or joint
control.
Investments in associates are initially recognised at cost and
subsequently accounted for using the equity method. However, any
goodwill or fair value adjustment attributable to the Group's share
in the associate is included in the amount recognised as investment
in associates.
All subsequent changes to the share of interest in the equity of
the associate are recognised in the Group's carrying amount of the
investment. Changes resulting from the profit or loss generated by
the associate are reported within "Share of loss from equity
accounted associates" in profit or loss. These changes include
subsequent depreciation, amortization or impairment of the fair
value adjustments of assets and liabilities.
Changes resulting from other comprehensive income of the
associate or items recognised directly in the associate's equity
are recognised in other comprehensive income or equity of the
Group, as applicable. However, when the Group's share of losses in
an associate equals or exceeds its interest in the associate,
including any unsecured receivables, the Group does not recognise
further losses, unless it has incurred legal or constructive
obligations or made payments on behalf of the associate. If the
associate subsequently reports profits, the investor resumes
recognizing its share of those profits only after its share of the
profits exceeds the accumulated share of losses that has previously
not been recognised.
Unrealized gains and losses on transactions between the Group
and its associate are eliminated to the extent of the Group's
interest in those entities. Where unrealized losses are eliminated,
the underlying asset is also tested for impairment losses from a
group perspective.
Amounts reported in the financial statements of associates have
been adjusted where necessary to ensure consistency with the
accounting policies of the Group.
4.6 Foreign currency translation
The consolidated financial statements are presented in Euro
(EUR), which is also the functional currency of the parent company.
The functional currency of all Bulgarian subsidiaries is the
Bulgarian leva, which has been fixed to the Euro since 17 July
1997.
The Group includes companies, whose functional currency is
either Euro or Bulgarian leva and there are no exchange movements
on retranslation to the presentational currency.
Foreign currency transactions are translated into the functional
currency of the respective Group entity, using the exchange rates
prevailing at the dates of the transactions (spot exchange rate).
Foreign exchange gains and losses resulting from the settlement of
such transactions and from the remeasurement of monetary items at
year-end exchange rates are recognised in profit or loss.
Non-monetary items measured at historical cost are translated
using the exchange rates at the date of the transaction (not
retranslated).
In the Group's financial statements, all assets, liabilities and
transactions of Group entities with a functional currency other
than the Euro(the Group's presentation currency) are translated
into Euroupon consolidation. The functional currency of the
entities in the Group have remained unchanged during the reporting
period.
On consolidation, assets and liabilities have been translated
into Euro at the closing rate at the reporting date. Income and
expenses have been translated into the Group's presentation
currency at the fixed rate of Bulgarian leva to the Euro over the
reporting period. Goodwill and fair value adjustments arising on
the acquisition of a foreign entity have been treated as assets and
liabilities of the foreign entity and translated into Euro at the
closing rate.
4.7 Segment reporting
In identifying its operating segments, management generally
follows the Group's service lines, which represent the main
products and services provided by the Group.
The operating segments are aggregated into reportable segments,
taking into consideration the nature of the business, operating
markets and other factors. The operating segments are consistent
with that which is reported to the chief operating decision
maker.
Reportable segments are divided into three main segments:
- Development of office space and shopping malls ("Commercial property development");
- Development and sale of apartment units ("Residential property development");
- Hotel.
The activities undertaken by the hotel segment include the
development, renovation and operation of a hotel on the Black Sea
coast. The development and letting out of premises for offices and
shops is undertaken by the commercial property segment. The
residential property segment develops and sells residential units.
All segments operate in Bulgaria.
All inter-segment transfers are priced and carried out at arm's
length.
Each of these operating segments is managed separately as each
of these service lines requires different technologies and other
resources as well as marketing approaches. All inter-segment
transfers are carried out at arm's length prices.
Management monitors the operating results of its business units
for the purposes of making performance assessment and decision
making. The resource allocation decisions made by the management
are based on analysis of the same segments as for financial
reporting purposes.
The measurement policies that the Group uses for segment
reporting under IFRS 8 "Operating Segments" are the same as those
used in its consolidated financial statements.
In addition, Group assets which are not directly attributable to
the business activities of any operating segment are not allocated
to a segment.
Information about the results of the separate segments that is
regularly reviewed by the chief operating decision maker does not
include isolated unrepeated events.
There have been no changes from prior periods in the measurement
methods used to determine reported segment profit or loss. No
asymmetrical allocations have been applied between segments.
4.8 Income and expense recognition
Revenue is measured at the fair value of the consideration
received or receivable taking into account the amount of any trade
discounts and volume rebates, allowed by the Group. Revenue
comprises revenue from rental income, sale of goods (residential
development units) and the rendering of services (mainly hotel and
tourist services). Revenue from major products and services is
shown in note 25.
Rental income
Rental income receivable from operating leases, less the Group's
initial direct costs of entering into the leases, is recognised on
a straight-line basis over the term of the lease, except for
contingent rental income which is recognised when it arises.
Incentives for lessees to enter into lease agreements are spread
evenly over the lease term, even if the payments are not made on
such a basis. The lease term is the non-cancellable period of the
lease together with any further term for which the tenant has the
option to continue the lease, where at the inception of the lease
the management is reasonably certain that the tenant will exercise
that option.
Amounts received from tenants to terminate leases or to
compensate for dilapidations are recognised in profit or loss when
they arise.
Income arising from expenses recharged to tenants is recognised
in the period in which the expense can be contractually recovered.
Service charges and other such receipts are included gross of the
related costs in revenue, as the management considers that the
Group acts as principal in this respect.
Sale of goods
Revenue from sale of goods is recognised, provided all of the
following conditions are satisfied:
-- the Group has transferred to the buyer the significant risks
and rewards of ownership of the goods;
-- the Group retains neither continuing managerial involvement
to the degree usually associated with ownership;
-- nor effective control over the goods sold;
-- the value of the revenue can be measured reliably;
-- it is probable that the economic benefits associated with the
transaction will flow to the Group; the cost incurred or to be
incurred in respect of the transaction can be measured
reliably.
Revenue relating to residential developments is treated as
revenue from the sale of goods. The Group considers that the
significant risks and rewards of ownership are transferred to the
purchaser on the execution of a notary deed for ownership
rights.
In cases where the notary deed is executed before completion of
the construction the Group recognises income through the remaining
development period using the percentage of completion method. The
Group commences the recognition of revenue on execution of the
notary deed. Revenue is recognised during the remaining development
period using the percentage of completion method as it
appropriately reflects the continuous transfer of the remaining
risk and rewards of the development to the purchaser to completion.
If the contract is considered profitable, profits are recognised by
reference to the percentage of completion at the reporting date.
Any expected loss on any individual contract is recognised
immediately as an expense in the income statement. Income from sale
of land and rights is recognised upon ownership transfer.
Rendering of services
Revenue from rendering of services comprises mainly hotel
services and is recognised when the outcome of the transaction can
be measured reliably. Revenue received from tour operators is
recognised on completion of a client's stay at the hotel. Rental
income is recognised as rental services are provided.
Operating expenses are recognised in profit or loss upon
utilisation of the service or at the date of their origin. Interest
income and expenses are reported on an accruals basis.
4.9 Borrowing costs
Borrowing costs are capitalised if these are directly
attributable to the construction and production of a qualifying
asset. They are included in the cost of that asset when it is
probable that they will result in future economic benefits to the
enterprise and the costs can be measured reliably. Other borrowing
costs are recognised as an expense in profit or loss in the period
in which they are incurred.
To the extent that funds are borrowed generally and used for the
purpose of obtaining a qualifying asset, the amount of borrowing
costs eligible for capitalisation is determined by applying a
capitalisation rate to the expenditure on that asset. The
capitalisation rate is calculated as the weighted average of the
borrowing costs applicable to the borrowings of the enterprise that
are outstanding during the period, other than borrowings made
specifically for the purpose of obtaining a qualifying asset.
During 2011 and 2010 the Group has not calculated a capitalization
rate, because each loan has been received for particular
project.
The capitalisation of borrowing costs as part of the cost of a
qualifying asset commence when:
-- expenditure for the asset is being incurred;
-- borrowing costs are being incurred; and
-- activities that are necessary to prepare the asset for its
intended use or sale are in progress.
Capitalisation of borrowing costs is suspended during extended
periods in which active development is interrupted and when
substantially all the activities necessary to prepare the
qualifying asset for its intended use or sale are complete.
4.10 Goodwill
Any excess of the cost of the acquisition over the acquirer's
interest in the fair value of the identifiable assets and
liabilities at the date of the exchange transaction is described as
goodwill and recognised as an asset. Goodwill is tested annually
for impairment, and is carried at cost less accumulated impairment
losses.
If the acquirer's interest in the net fair value of the
identifiable assets, liabilities and contingent liabilities exceeds
the cost of the business combination, the Group:
-- reassesses the identification and measurement of the
acquiree's identifiable assets, liabilities and contingent
liabilities and the measurement of the cost of the combination;
and
-- recognises immediately in profit or loss any excess remaining after that reassessment.
4.11 Other Intangible assets
Other Intangible assets include acquired software licences used
in administration and other intangible assets.
Intangible assets are measured initially at cost. If an
intangible asset is acquired separately, the cost comprises its
purchase price, including any import duties and non-refundable
purchase taxes, and any directly attributable expenditure on
preparing the asset for its intended use. If an intangible asset is
acquired in a business combination, the cost of that intangible
asset is based on its fair value at the date of acquisition.
After initial recognition, an intangible asset is carried at its
cost less any accumulated amortisation and any accumulated
impairment losses. Impairment losses are recognised in profit or
loss in the period in which they are identified.
Subsequent expenditure on an intangible asset after its purchase
or its completion is recognised as an expense when it is incurred
unless it is probable that this expenditure will enable the asset
to generate future economic benefits in excess of its originally
assessed standard of performance and this expenditure can be
measured and attributed to the asset reliably. If these two
conditions are met, the subsequent expenditure is added to the cost
of the intangible asset.
Amortisation is calculated using the straight-line method over
the estimated useful life of individual assets as follows:
-- Software 2 years
-- Others 7 years
Amortisation charges for the current period are included in the
line "Depreciation and amortisation" in the Consolidated Statement
of Comprehensive Income.
4.12 Property, plant and equipment
An item of property, plant and equipment is initially measured
at its cost, which comprises its purchase price and any directly
attributable costs of bringing the asset to working condition for
its intended use.
Subsequent to initial recognition as an asset, an item of
property, plant and equipment is carried at its cost less any
accumulated depreciation and any accumulated impairment losses.
Impairment losses are recognised in profit or loss in the period in
which they are identified.
Subsequent expenditure relating to an item of property, plant
and equipment that has already been recognised in the consolidated
financial statements is added to the carrying amount of the asset
when it is probable that future economic benefits, in excess of the
originally assessed standard of performance of the existing asset,
will flow to the Group. All other subsequent expenditure is
recognised as an expense in the period in which it is incurred.
Property, plant and equipment acquired under finance lease
agreements are depreciated based on their expected useful economic
lives, determined by reference to comparable assets or based on the
period of the lease contract if shorter.
Depreciation is calculated using the straight-line method over
the estimated useful life of individual assets as follows:
-- Buildings 25 years; 50 years
-- Machines and equipment 2 - 7 years
-- Vehicles 4 - 7 years
-- Furniture and fixtures 7 years
No residual values are assumed. Useful economic lives of
property, plant and equipment are reassessed annually.
Depreciation charges for the current period are included in the
line "Depreciation and amortisation" in the Consolidated Statement
of Comprehensive Income.
Assets under construction and land are not depreciated.
After commencement of a residential project land expenses and
construction in progress expenditures are transferred from
"Property, plant and equipment" to "Development work in
progress".
4.13 Finance and operating leases
In accordance with IAS 17 (rev. 2007), the economic ownership of
a leased asset is transferred to the lessee if the lessee bears
substantially all the risks and rewards related to the ownership of
the leased asset.
The related asset is recognised at the time of inception of the
lease at the lower of the fair value of the asset and the present
value of the minimum lease payments. A corresponding amount is
recognised as a finance lease liability, irrespective of whether
some of these lease payments are payable at the date of inception
of the lease.
The corresponding finance lease liability is reduced by lease
payments less finance charges, which are expensed as finance
costs.
Assets acquired under the terms of finance leases are
depreciated in accordance with IAS 16 Property, plant and equipment
and/or IAS 38 Intangible assets.
All other leases are treated as operating lease agreements.
Operating lease payments are recognised as an expense on a
straight-line basis. Associated costs, such as maintenance and
insurance, are expensed as incurred.
Assets subject to operating lease agreements are presented in
the consolidated statement of financial position and are
depreciated and amortized in accordance with the depreciation and
amortization policy of the Group for similar assets and with the
requirements of IAS 16 "Property, Plant and Equipment" and IAS 38
"Intangible Assets". Income from operating lease contracts is
recognised on a straight-line basis in the consolidated statement
of comprehensive income for the reporting period.
4.14 Impairment testing of assets
The Group's assets are subject to impairment testing when an
indication for impairment is present.
For the purposes of assessing impairment, assets are grouped at
the lowest levels for which there are separately identifiable cash
flows (cash-generating units). As a result, some assets are tested
individually for impairment and some are tested at cash-generating
unit level.
Individual assets or cash-generating units that include goodwill
and other intangible assets with an indefinite useful life or those
not yet available for use are tested for impairment at least
annually. All other individual assets or cash-generating units are
tested for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable.
An impairment loss is recognised for the amount by which the
asset's or cash-generating unit's carrying amount exceeds its
recoverable amount. The recoverable amount is the higher of fair
value, reflecting market conditions less costs to sell, and value
in use, based on an internal discounted cash flow evaluation.
Impairment losses recognised for cash-generating units, to which
goodwill has been allocated, are credited initially to the carrying
amount of goodwill. Any remaining impairment loss is charged pro
rata to the other assets in the cash-generating unit. With the
exception of goodwill, all assets are subsequently reassessed for
indications that an impairment loss previously recognised may no
longer exist.
4.15 Investment property
The investment property of the Group includes land, buildings
and property that is being developed to hold to earn rentals, or
for capital appreciation or both, and not for use in manufacture or
supply of goods or services, or for administrative purposes.
The investment property is initially measured at cost, which
comprises the purchase price and any directly attributable
expenses, e. g. legal fees, property transfer taxes and other
transaction costs.
After initial recognition, investment property is carried at
fair value. It is revalued annually and is included in the
consolidated statement of financial position at its open market
value.This is determined by independent valuers with professional
qualification and significant experience with respect to both the
location and the nature of the investment property and supported by
sufficient market evidence.
Any gain or loss resulting from either a change in the fair
value or the sale of an investment property is immediately
recognised in profit or loss within 'Net change in fair value of
investment property'.
Fair value measurement on property under construction is only
applied if the fair value is considered to be reliably
measurable.
It may sometimes be difficult to determine reliably the fair
value of the investment property under construction. In order to
evaluate whether the fair value of an investment property under
construction can be determined reliably, management considers the
following factors, among others:
-- The provisions of the construction contract;
-- The stage of completion;
-- Whether the project/property is standard (typical for the
market) or non-standard;
-- The level of reliability of cash inflows after
completion;
-- The development risk specific to the property;
-- Past experience with similar constructions;
-- Status of construction permits.
Assets for which there is clear evidence that their fair value
is not reliably determinable ona continuing basis, are presented at
the lower of cost or recoverable amount.
The costs incurred to originate a lease (mainly brokers fees)
for available rental space are included in the carrying value of
investment property.
Subsequent expenditure relating to investment property, which is
already recognised in the Group's consolidated financial
statements, is added to the carrying amount of the investment
property when it is probable that this expenditure will enable the
existing investment property to generate future economic benefits
in excess of its originally assessed value. All other subsequent
expenditure is recognised as incurred.
The investment property is derecognised upon its sale or
permanent withdrawal from use where no future economic benefits are
expected from its disposal. Gains or losses arising from the
disposal of investment properties are determined as the difference
between the net disposal proceeds and the carrying amount of the
asset and are recognised in profit or loss.
4.16 Financial assets
The Group's financial assets include cash and trade and other
receivables, which comprise loans and receivables. All financial
assets are recognised on their transaction date. All financial
assets are initially recognised at fair value plus transaction
costs that are directly attributable to the acquisition or issue of
the financial asset.
Loans and receivables are non-derivative financial assets with
fixed or determinable payments that are not quoted in an active
market. They arise when the Group provides money, goods or services
directly to a debtor with no intention of trading the receivables.
Loans and receivables are subsequently measured at amortised cost
using the effective interest method, less provision for
impairment.
Derecognition of financial instruments occurs when the rights to
receive cash flows from the investments expire or are transferred
and substantially all of the risks and rewards of ownership have
been transferred.
An assessment for impairment is undertaken at least at each
reporting date whether or not there is objective evidence that a
financial asset or a group of financial assets is impaired.
Trade receivables are provided for when objective evidence is
received that the Group will not be able to collect all amounts due
to it in accordance with the original terms of the receivables. The
amount of the provision is determined as the difference between the
asset's carrying amount and the present value of estimated future
cash flows.
4.17 Inventories
Inventories comprise ready for sale residential units, raw
materials and others. At the reporting date, inventories are
carried at the lower of cost and net realisable value.
Net realisable value is the estimated selling price in the
ordinary course of business less any applicable selling expenses.
Where inventories have been impaired to their net realisable value
and in the following period the impairment conditions are no longer
present, then a new net realisable value is determined up to the
initial value prior to impairment. The inventory recovery amount is
accounted for as a decrease in inventory expenses for the period in
which the recovery takes place.
The cost of inventories is assigned by using the weighted
average cost.
When inventories are sold, the carrying amount of those
inventories is recognised as an expense in the period in which the
related revenue is recognised.
4.18 Accounting for income taxes
The tax expense recognised in profit or loss comprises the sum
of deferred tax and current tax.
Current income tax assets and/or liabilities comprise those
obligations to, or claims from, fiscal authorities relating to the
current or prior reporting period, that are unpaid at the reporting
date. They are calculated according to the tax rates and tax laws
applicable to the fiscal periods to which they relate based on the
taxable result for the year. All changes to current tax assets or
liabilities are recognised as a component of tax expense in the
Consolidated Statement of Comprehensive Income.
Tax losses available to be carried forward as well as other
income tax credits to the Group are assessed for recognition as
deferred tax assets. Deferred tax assets in relation to carried
forward losses are recognised to the extent that the realisation of
the related tax benefits through the future taxable profits is
probable. For management's assessment of the probability of future
taxable income to utilize against deferred tax assets, see note
4.25(i).
Deferred tax liabilities are always provided for in full.
Deferred tax assets are recognised to the extent that it is
probable that they will be able to be offset against future taxable
income.
Deferred tax assets and liabilities are calculated, without
discounting, at tax rates that are expected to apply to their
respective period of realisation, provided they are enacted or
substantively enacted by the end of reporting period.
Changes in deferred tax assets or liabilities are recognised as
a component of tax income or expense in profit or loss, except
where they relate to items that are recognised in other
comprehensive income or directly in equity, in which case the
related deferred tax is also recognised in other comprehensive
income or equity, respectively.
4.19 Cash and cash equivalents
Cash and cash equivalents include cash at bank and in hand,
including fiduciary deposits which may be revoked at any time by
means of written notification from the Group to the bank. Any short
term or highly liquid investments within three months, which can
easily be turned into money and contain insignificant risk of
change in value are also part of cash and cash equivalents.
4.20 Equity and other reserves
Share capital is determined using the nominal value of shares
that have been issued.
The share premium reserve in capital includes any premiums
received on the issue of the share capital.
Other reserves include amounts resulting from share options
schemes.
Retained earnings includes the current result as determined in
the Consolidated Statement of Comprehensive Income and all prior
period results.
4.21 Pension obligations and employee benefits
The Group does not provide pension plans for employees.
The Group reports short-term payables relating to unutilised
leave, which shall be compensated if the leave occurs within 12
months after the end of the accounting period, during which time
the employees have performed the related work. The short-term
payables to personnel include wages, salaries and related social
security payments.
4.22 Share-based compensation
The Group operates a number of equity-settled, share-based
compensation plans. The fair value of the employee services
received in exchange for the grant of the options is recognised as
an expense. The total amount to be expensed over the vesting period
is determined by reference to the fair value of the options
granted, excluding the impact of any non-market vesting conditions
(for example, profitability and sales growth targets). Non-market
vesting conditions are included in assumptions about the number of
options that are expected to vest. At each reporting date, the
Group revises its estimates of the number of options that are
expected to vest. It recognises the impact of the revision to
original estimates, if any, in profit or loss, with a corresponding
adjustment to equity.
The proceeds received net of any directly attributable
transaction costs are credited to share capital (nominal value) and
share premium and debited to cash.
4.23 Financial liabilities
The Group's financial liabilities include loans and overdrafts,
trade and other payables.
Financial liabilities are recognised when the Group becomes a
party to the contractual agreements of the instrument.
Loans are raised for support of long term funding of the Group's
operations. They are initially recognised at fair value and
subsequently measured at amortised cost using the effective
interest rate method. Finance charges, including premiums payable
on settlement or redemption and direct issue costs, are charged to
profit or loss on an accruals basis using the effective interest
method and are added to the carrying amount of the instrument to
the extent that they are not settled in the period in which they
arise.
Trade payables are recognised initially at fair value and
subsequently measured at amortized cost less settlement
payments.
Dividend distributions are recognised when the dividends are
approved by the shareholders.
4.24 Other provisions, contingent liabilities and contingent assets
Provisions, representing current obligations of the Group
arising from past events, the settlement of which is expected to
result in an outflow of resources, are recognised as liabilities. A
provision is recognised only when the following conditions are
present:
-- The Group has a present obligation as a result of a past event;
-- It is probable that an outflow of resources embodying
economic benefits will be required to settle the obligation;
-- A reliable estimate can be made of the amount of the obligation.
The amount recognised as a provision is the best estimate of the
expenditure required to settle the present obligation at the
reporting date. In reaching the best estimate of the provision, the
Group takes into account the risks and uncertainties that
inevitably surround many events and circumstances as well as the
effect of the time value of the money, when it is material.
Provisions are reviewed at each reporting date and adjusted to
reflect the current best estimate. If it is no longer probable that
an outflow of resources embodying economic benefits will be
required to settle the obligation, the provision is reversed.
The Group does not recognise contingent assets in the
consolidated financial statements as their existence is not yet
confirmed and this may result in the recognition of income that may
never be realised.
4.25 Critical accounting estimates and judgments
Estimates and judgments are continuously evaluated and are based
on historical experience and other factors, including expectations
of future events that are believed to be reasonable under the
circumstances.
Critical judgements in applying the Group's accounting policies
are:
(i) Going concern basis of preparation and cash flow forecasts
These financial statements are prepared on the going concern
basis which assumes that the Group will have sufficient funding,
cash flows and working capital resources available to it, to
continue trading for at least twelve months from the date of
approval of the consolidated financial statements.
The directors have prepared cashflow forecasts based on their
best estimation of the cashflows of the Group, which cover a period
of over one year from the date of approval of these financial
statements. Such forecasts inherently contain management judgments
and estimates in respect of future trading conditions, the timing
of receipts and payments and other relevant matters. The main
management judgments, estimates and assumptions used in the
prepared cash flow forecast are that the management will be
successful in its negotiations with the financing bank to
reschedule the capital repayments of the Orchid Center Varna EOOD
bank loan; there will be no breach in bank covenants during the
forecasted period; the reduction in selling price for apartments
and offices will drive sufficient sales in the projects Orchid
Varna Hills and Orchid Gardens Varna; the Mall collection rate will
run at 94% on average and the occupancy rate shall increase
gradually during the forecasted years and the Group will be
successful in deferring certain payments to the joint executive
directors.
The cash flow forecasts were prepared by taking into
consideration the renegotiated terms between Orchid Gardens Varna
EOOD and Unicredit Bulbank from 5 March 2012, which are described
in details in note 34 (Post-reporting date events). According to
the signed annex for restructuring the loan repayment, the
short-term portion of EUR8.5 million as at 31 December 2011 was
rescheduled as follows: a principal payment of EUR1 million by 30
September 2012, another principal payment of EUR2 million by 30
December 2012, EUR5 million until the end of the first quarter of
2013 and the remaining EUR0.5 million should be paid as monthly
payments starting from 30 June 2012.
One of the subsidiaries of the Group, Orchid Center Varna EOOD
is still negotiating with its financing bank the short-term loan
liabilities amounting to EUR3.1 million as at 31 December 2011.
Although the due date for repayment of the loan has past (October
2011) the bank did not recall the loan or the interest for
immediate payment, but instead it opened discussions on a
compromise solution that would serve both parties. The directors,
considering all the information available to them and based upon
the discussions with the bank, have no reason to believe that the
bank will call for the loan repayment as such act will not serve
the immediate interest of the bank. These conditions indicate the
existence of a material uncertainty, which may cast doubt on the
ability of the subsidiary Orchid Center Varna EOOD to continue as a
going concern. If discussions with the bank fail, the legal
recourse is limited only to this subsidiary and the real estate
property owned by it and will not affect the remaining companies
within the Group or any other projects and developments.
Nevertheless, the directors having considered the forecasts
together with the associated judgments and the material
uncertainties related to the forecasted volumes of sales of
residential units from the projects Varna Hills and Orchid Gardens
Varna, the rescheduling of the loan payments in Orchid Centre Varna
and the deferral of certain payments to the joint executive
directors have a reasonable expectation that the Group has adequate
resources to continue in operational existence for the foreseeable
future. In addition, it may sell some of its property and
renegotiate payment terms with suppliers. For these reasons, they
continue to adopt the going concern basis of accounting in
preparing the financial statements.
(ii) Revenue recognition
The timing of revenue recognition related to property
development in complex contractual arrangements is important and
judgemental. Revenue and costs on residential developments'
construction are recognised from the point when the significant
risks and rewards of ownership are transferred to the buyer, which
is usually the point at which a notary deed for sale of the land,
the right to build or the unfinished unit is executed. The
remaining contract to construct a residential unit is then
accounted for as a contract for the sale of goods where control and
the risks and rewards of ownership are continuously transferred to
the buyer. This is measured by reference to the stage of completion
of contract activity at the balance sheet date based on the
physical work performed. This assessment necessarily requires a
high degree of judgment. In addition, the percentage of completion
of the project works is determined by independent valuers at each
reporting date.
(iii) Classification of property
The Group determines whether a property is classified as
investment property or inventory (residential units for sale):
- investment property comprises land and buildings, which are
not occupied substantially for use by, or in the operations of, the
Group, nor for sale in the ordinary course of business, but are
held primarily to earn rental income and capital appreciation;
- inventory (residential units for sale) comprises property that
is held for sale in the ordinary course of business. Principally,
this is residential property that the Group develops and intends to
sell before or on completion of construction.
(iv) Operating lease contracts - the Group as lessor
The Group has entered into commercial property leases on its
investment property portfolio. The Group has determined, based on
an evaluation of the terms and conditions of the arrangements, that
it retains all the significant risks and rewards of ownership of
these property and so accounts for the leases as operating
leases.
(v) Impairment of property, plant and equipment
An impairment loss is recognised for the amount by which the
asset's or cash-generating unit's carrying amount exceeds its
recoverable amount. To determine the recoverable amount, management
estimates expected future cash flows from each cash-generating
unit, which is related to an ongoing project and determines a
suitable interest rate in order to calculate the present value of
those cash flows (see note 4.14). In the process of measuring
expected future cash flows management makes assumptions about
future gross profits. These assumptions relate to future events and
circumstances. The actual results may vary, and may cause
significant adjustments to the Group's assets within the next
financial year. In most cases, determining the applicable discount
rate involves estimating the appropriate adjustment to market risk
and the appropriate adjustment to asset-specific risk factors.
(vi) Fair value of investment property, including property under
construction
Investment property is carried at fair value which is
established annually by an independent registered valuer. The
valuation is based upon assumptions including future rental income,
anticipated maintenancecosts and theappropriate discount rate. The
valuer and directors also make reference to market evidence of
transaction prices for similar properties.
The changes in the fair value of investment property are
included in the statement of comprehensive income for the period in
which it arises.
The instability in the region's financial markets is continuing
to cause volatility and uncertainty in the capital and real estate
markets.
There is a low liquidity level in the real estate market and
transaction volumes are significantly reduced, resulting in a lack
of clarity as to pricing levels and the market drivers. As a result
there is less certainty with regard to valuations and market values
can change rapidly due tothe current market conditions.
Significant accounting judgements related to investment property
under construction are presented in note 4.15 and note 6.
Critical estimates in applying the Group's accounting policies
are:
(i) Deferred income tax
Deferred tax assets require management judgement in determining
the amounts to be recognised. In particular, significant judgement
is used when assessing the extent to which deferred tax assets
should be recognised with consideration given to the timing and
level of future taxable income. The assessment of the probability
of future taxable income in which deferred tax assets can be
utilised is based on the Group's latest approved cash flow
forecast. A deferred tax asset is usually recognised if a positive
forecast of taxable income indicates the probable use of a deferred
tax asset, especially when it can be utilised within the statutory
time limits (see note 12).
(ii) Useful lives of depreciable assets
Management reviews the useful lives of depreciable assets at
each reporting date.
At 31 December 2011 management assesses that the useful lives
represent the expected utility of the assets to the Group. The
carrying amounts are analyzed in notes 7 and 10.
(iii) Inventories
Inventories are measured at the lower of cost and net realizable
value. In estimating net realizable values, management takes into
account the most reliable evidence available at the times the
estimates are made (see note 14).
5. Segment reporting
Management currently identifies the following Group's operating
segments as further described in note 4.7(Segment reporting). These
operating segments are monitored and strategic decisions are made
on the basis of adjusted segment operating results.
Segment information can be analyzed as follows for the reporting
periods under review:
Commercial Residential Hotel Total
development development
EUR'000 EUR'000 EUR'000 EUR'000
Year to 31 December 2011
Revenue from external customers 8,046 3,380 868 12,294
Depreciation and amortisation (21) (47) (223) (291)
Reportable segment operating
profit/(loss) 9,399 (1,757) (119) 7,523
Interest expense (5,166) (24) - (5,190)
Interest income 38 11 - 49
Other financial expenses (16) (11) (4) (31)
Income tax (expense)/income (507) 23 12 (472)
Net profit/(loss) for the year 3,748 (1,758) (111) 1,879
Reportable segment assets 158,852 39,812 6,819 205,483
Reportable segment property,
plant and equipment 100 706 6,478 7,284
Investment property 150,211 8,051 - 158,262
Reportable segment liabilities 104,966 24,792 88 129,846
Commercial Residential Hotel Total
development development
EUR'000 EUR'000 EUR'000 EUR'000
Year to 31 December 2010
Revenue from external customers 4,624 2,161 812 7,597
Depreciation and amortisation (12) (54) (225) (291)
Reportable segment operating
(loss)/profit (18,354) 914 (280) (17,720)
Interest expense (2,574) (25) (6) (2,605)
Interest income 29 13 - 42
Other financial expenses (40) (13) (4) (57)
Income tax income/(expense) 1,956 (149) 16 1,823
Net (loss)/profit for the year (18,983) 740 (274) (18,517)
Reportable segment assets 155,447 42,914 7,096 205,457
Reportable segment property,
plant and equipment 44 746 6,698 7,488
Investment property 147,074 7,690 - 154,764
Reportable segment liabilities 106,165 24,921 74 131,160
In the segment Residential development is included the Mixed Use
Project Varna Gardens, which has a retail part presented as
investment property.
The totals presented for the Group's operating segments
reconcile to the Group's key financial figures as presented in its
consolidated financial statements as follows:
Year to 31 Year to 31 December
December 2011 2010
EUR'000 EUR'000
Reportable segment liabilities 129,846 131,160
Reconciling items:
Other liabilities 2,653 2,179
Elimination of payables to central
management (7) (779)
-------------- -------------------
Group's liabilities 132,492 132,560
Year to 31 Year to 31 December
December 2011 2010
EUR'000 EUR'000
Segment revenue from external
customers 12,294 7,597
Reconciling items:
Other revenues 10 259
Group's revenue 12,304 7,856
Details for the revenue from products and services are
set out in note 25 (Revenue).
Year to 31 Year to 31 December
December 2011 2010
EUR'000 EUR'000
Reportable segment assets 205,483 205,457
Reconciling items:
Other assets 62,387 52,179
Elimination of payables to central
management (62,271) (51,787)
-------------- -------------------
Group's assets 205,599 205,849
Year to 31 Year to 31 December
December 2011 2010
EUR'000 EUR'000
Reportable segment operating profit/(loss) 7,523 (17,720)
Reconciling items:
Other income not allocated 10 741
Other expenses not allocated (1,989) (2,432)
-------------- -------------------
Group's operating profit/(loss) 5,544 (19,411)
Interest expense (5,229) (2,577)
Interest income 49 36
Other financial expenses (65) (66)
-------------- -------------------
Group's profit/(loss) before tax 299 (22,018)
-------------- -------------------
In 2011 an impairment charge of EUR21,000 was identified for the
Group's segment "Residential development" in relation to Other
receivables and in 2010 an impairment charge of EUR17,000 in
relation to receivables related to sold apartments.
In 2011, an impairment charge of EUR259,000 was identified for
the Group's segment "Commercial development" in relation to
receivables related to the Grand Mall.
In 2010 an impairment charge of EUR91,000 was identified for the
Group's segment "Hotel" in relation to receivables of the
hotel.
6. Investment property
The investment properties that are owned by the Group are land,
buildings and property under construction.
Following the amendments to IAS 16 "Property, plant and
equipment) with prospective application from 1 January 2009,
property being constructed or developed for future use as
investment property were reclassified from property, plant and
equipment at 1 January 2009 at their carrying amount.
As at 31 December investment property of the Group comprises the
following real estate property acquired and developed by the
Group:
2011 2010
Project Name EUR'000 EUR'000
Grand Mall Varna, Retail and Commercial
Project - completed 136,900 133,621
Logistic Centre, Varna - under construction 9,321 9,010
Airport City Commercial project - under
construction 1,159 1,250
Ring Road Project, Sofia - under construction 315 335
Business Park, Varna - under construction
(halted) 2,211 2,451
The retail element of Varna Gardens Mixed
Use Project - under construction 8,051 7,686
Other - completed 305 358
158,262 154,711
The investment property is measured at fair value as
follows:
2011 2010
EUR'000 EUR'000
Completed investment property 137,205 133,979
Investment property under construction 21,057 20,732
158,262 154,711
The fair value of the Group's investment property was determined
at the end of the reporting period by independent professionally
qualified valuers who hold a recognised relevant professional
qualification and have recent experience in the locations and
categories of the investment properties valued.
Properties are valued on an open market basis based on active
market prices adjusted, if necessary, for any differences in
thenature, location or condition of the specified asset. If this
information is not available, alternative valuation methods are
used such as recent prices on less active markets, ordiscounted
cash flow projections.
The valuation of Grand Mall Varna and "The rental element of
Varna Gardens Mixed Use Residential and Retail Project" was
performed by MBL part of the CBRE Affiliated Network in accordance
with RICS Valuation Standards. The market value estimate is based
on the Income approach, using the DCF method.
Key assumptions used by MBL in the valuations ofinvestment
property - completed and under construction, as 31 December are
presented below:
2011 Grand Mall Varna Gardens
Varna - completed Mixed Use
Project -
under construction
------------------- --------------------
* discount rate 10.5 % 10.5%
* terminal cap rate 9.5 % 9.5%
* weighted average rental level of rent per sqm EUR 16 EUR 10
2010 Grand Mall Varna Gardens
Varna - completed Mixed Use
Project -
under construction
------------------- --------------------
* discount rate 9 % 10%
7.75 %
* terminal cap rate /8.25% 8.25%
* weighted average rental level of rent per sqm EUR 17 EUR 10
The table below presents the sensitivity of profit before tax as
of 31 December due to change in underlying assumptions (the values
are presented in absolute numbers as a change can either be
positive or negative):
2011 2010
EUR'000 EUR'000
Change of 5 % in estimated rental income 1,298 1,149
Change of 0.25% in the discount rate 2,217 2,734
The valuations of Airport City Commercial project,Ring Road
Project, Sofia and Business park Varna were performed by Yavlena
Impact OOD, and the valuations of Logistic Centre, Varna and other
investment property were performed by Consulting Company Creativ
OOD. The market value estimates in these valuations are based on
the open market basis based on active market prices, adjusted, if
necessary, for any differences in the nature, location or condition
of the specified asset.
Changes to the carrying amounts presented in the consolidated
statement of financial position can be summarized as follows:
2011
EUR'000
Carrying amount at 1 January 2011 154,711
Additions
- from subsequent expenditures 1,259
- brokerage fees 54
Disposals (1,386)
Net gain from fair value adjustments 3,624
Carrying amount at 31 December 2011 158,262
--------
2010
EUR'000
Carrying amount at 1 January 2010 155,953
Additions
- from subsequent expenditures 17,860
- brokerage fees 106
Net loss from fair value adjustments (19,208)
---------
Carrying amount at 31 December 2010 154,711
---------
Borrowing costs capitalised within the carrying value of
investment property during 2011 amounted to EUR268,000 (2010:
EUR1,505,000)
Rental income for 2011 amounts to EUR6,131,000 (2010:
EUR2,767,000Error! Not a valid link.) included within
"Revenue".
In 2011 the Group has recognised direct operating rental
expenses at the total amount of EUR2,781,000 (2010: EUR1,740,000),
which includes the following lines: cost of materials - EUR485,000
(2010: EUR814,000), hired services expenses EUR1,448,000 (2010:
EUR742,000), other expenses EUR848,000 (2010: EUR184,000).
Bank borrowings are secured on investment property to the value
EUR147,162,000.
7. Property, plant and equipment
The carrying amounts of the property, plant, and equipment
presented in the financial statements at 31 December 2011 are
calculated as follows:
Land Buildings Machines Vehicles Furniture Total
and equipment and
fixtures
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
Gross carrying
amount
Balance at 1
January 2011 855 6,212 1,007 301 692 9,067
Additions - 2 2 80 84
Balance at 31
December 2011 855 6,212 1,009 303 772 9,151
Depreciation
Balance at 1
January 2011 - (633) (173) (262) (489) (1,557)
Depreciation - (134) (30) (20) (114) (298)
--------- ---------- --------------- --------- ---------- ---------
Balance at 31
December 2011 - (767) (203) (282) (603) (1,855)
Carrying amount
at 31 December
2011 855 5,445 806 21 169 7,296
========= ========== =============== ========= ========== =========
The carrying amounts of the property, plant, and equipment
presented in the financial statements at 31 December 2010 are
calculated as follows:
Land Buildings Machines Vehicles Furniture Assets Total
and and under
equipment fixtures construction
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
Gross
carrying
amount
Balance at 1
January 2010 855 6,212 995 298 644 10 9,014
Additions - - 14 3 48 - 65
Disposals -
cost - - (2) - - (10) (12)
Balance at 31
December
2010 855 6,212 1,007 301 692 - 9,067
Depreciation
Balance at 1
January 2010 - (499) (144) (207) (391) - (1,241)
Depreciation - (134) (29) (55) (98) - (316)
--------- ---------- ---------- --------- ---------- -------------------------------------- ---------
Balance at 31
December
2010 - (633) (173) (262) (489) - (1,557)
Carrying
amount
at 31
December
2010 855 5,579 834 39 203 - 7,510
========= ========== ========== ========= ========== ====================================== =========
As at 31 December 2011 the land and buildings included within
the property, plant and equipment of the Group comprise the
following real estate property acquired and developed by the
Group:
-- Golden Yavor Hotel in Golden Sands Resort, Varna
-- Administrative building, Varna (located in the project Orchid Hills Varna)
The Group has no property, plant and equipment pledged as
security for its liabilities.
8. Investment in associates
The Group holds a 30 per cent voting and equity interest in
Kohav OOD, which will act as a managing company for entertainment
and leisure complexes. Its shares are not publicly listed on a
stock exchange and hence published price quotes are not
available.
The carrying value of investments in associates is set out as
follows:
2011 2011 2010 2010
EUR'000 Share % EUR'000 Share %
Acquisition of share
capital 1 30 1 30
Goodwill 313 30 313 30
Share of previous years'
losses (77) 30 (63) 30
Share of current year
loss (19) 30 (14) 30
-------- -------- -------- --------
218 30 237 30
The investment is accounted for under the equity method.
Financial information for Kohav OOD is summarised as follows for
the period ended 31 December:
2011 2010
EUR'000 EUR'000
Assets 931 942
Liabilities (57) (5)
Revenue 18 30
Loss (62) (48)
Loss attributable to the Group (19) (14)
As of 31 December 2011 the total recognised loss for the Group
from 2004 to 2011 amounts to EUR 96,000.
The carrying amount presented on the Consolidated Statement of
Financial Position includes goodwill recognised on the initial
acquisition of Kohav OOD in year 2004. In 2011 the Group did not
receive any dividends (2010: Nil).
The Group has not incurred any contingent liabilities or other
commitments relating to its investments in associates.
9. Goodwill
The net carrying amount of goodwill is analysed as follows:
Goodwill
EUR'000
Opening net book amount at 1 January 2010 3
Closing net book amount at 31 December 2010 3
Closing net book amount at 31 December 2011 3
10. Other intangible assets
The carrying amounts of the other intangible assets presented in
the financial statements at 31 December 2011 are calculated as
follows:
Acquired software Others Total
licences
EUR'000 EUR'000 EUR'000
Gross carrying amount
Balance at 1 January 2011 15 40 55
Additions 1 3 4
Balance at 31 December 2011 16 43 59
Amortization and impairment
Balance at 1 January 2011 (15) (23) (38)
Amortization - (6) (6)
Balance at 31 December 2011 (15) (29) (44)
Carrying amount 31 December
2011 1 14 15
================== ======== ========
The carrying amounts of the other intangible assets presented in
the financial statements at 31 December 2010 are calculated as
follows:
Acquired software Others Total
licences
EUR'000 EUR'000 EUR'000
Gross carrying amount
Balance at 1 January 2010 15 32 47
Additions - 8 8
Balance at 31 December 2010 15 40 55
Amortization and impairment
Balance at 1 January 2010 (13) (18) (31)
Amortization (2) (5) (7)
------------------ -------- --------
Balance at 31 December 2010 (15) (23) (38)
Carrying amount 31 December
2010 - 17 17
================== ======== ========
All amortization is included within 'Depreciation and
amortization'.
No intangible assets were provided as security for Group's
liabilities.
11. Long-term loans due from associates
The amount of EUR 356,000 (2010: EUR334,000) recognised in the
Consolidated Statement of Financial Position refers to loan
receivables from Kohav OOD, which is an associate company to
Crockett S.A belonging to Orchid Group. The long-term loan was
discounted for a period of 4 years, starting 2007, with an interest
rate EUROLIBOR +2%. In the reporting period interest income on the
amortised loan in the amount of EUR21,632 was recognised. Refer to
note 26for the effect of the discount.
12. Deferred tax assets and liabilities
Deferred tax arising from temporary differences and unused tax
losses under the liability method, using a principal tax rate for
2011 of 10% according to the Bulgarian Corporate Income Tax Act,
can be summarised as follows:
Deferred tax liabilities 1 January Recognized 31 December Recognized 31 December
(assets) 2010 in profit 2010 in profit 2011
and loss and loss
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
Non-current assets
Investment property 5,095 (1,574) 3,521 500 4,021
Current assets
Inventory - - - (57) (57)
Trade receivables - - - (29) (29)
Current liabilities
Trade payables (12) 7 (5) (22) (27)
Short-term liabilities
to related parties (6) - (6) 5 (1)
Payables to employees
and social security
institutions (8) 4 (4) 2 (2)
Unused tax losses (370) (295) (665) 74 (591)
---------- ----------- ------------ ----------- ------------
4,699 (1,858) 2,841 473 3,314
---------- ----------- ------------ ----------- ------------
Recognized as:
Deferred tax asset (396) (680) (707)
---------- ------------ ------------
Deferred tax liability 5,095 3,521 4,021
========== ============ ============
The amount of deductible temporary differences and unused tax
losses for which no deferred tax asset is
recognised in the consolidated statement of financial position is EUR4,518,000.
The management is satisfied in view of the on going plans and
projects that the tax losses will be used. See note 28 for further
information on the Group's income tax expense.
13. Development work in progress
2011 2010
EUR'000 EUR'000
Orchid Hills Sofia residential
project - 775
Orchid Hills Varna residential
project 403 3,833
Orchid Gardens Varna mixed
project 21,725 19,032
Lyons Bulgaria residential
project 783 -
22,911 23,640
Revenue and costs on residential developments' construction are
recognised from the point when the significant risks and rewards of
ownership are transferred to the buyer, which is usually the point
at which a notary deed for sale of the land, the right to build or
the unfinished unit is executed. The remaining contract to
construct a residential unit is then accounted for as a contract
for the sale of goods where control and the risks and rewards of
ownership are continuously transferred to the buyer. This is
measured by reference to the stage of completion of contract
activity at the balance sheet date based on the physical work
performed.
During 2011 the Group has executed 51 notary deeds for the sale
of land or building rights in respect of Orchid Hills Varna
residential project.
EUR 2,608,905 has been recognised as revenue corresponding to
signed notary deeds. The percentage of completion of the project
works as of 31 December 2011 is 100% of the development costs of
stage 3. During October 2011 the project received it's occupancy
certificate.
The following table provides information about such continuous
transfer agreements that are in progress at the reporting date:
Notes 2011 2010
EUR'000 EUR'000
Revenue arising from residential
developments' construction 25 - 125
Aggregate costs incurred and expensed
to date - (70)
-------- --------
Profit (before tax) recognised to
date - 55
Advances from customers for residential
developments' construction 22 - 25
In 2011 EUR856,000 borrowing costs were capitalised in
development work in progress (2010: EUR402,000).
13.1 Development work in progress for the Orchid Gardens Varna
mixed use residential and retail project
Development work in progress for the Orchid Gardens Varna mixed
use residential and retail project of value EUR 21,725,000 includes
construction expenses of EUR 14,170,000 capitalized financial
expenses of EUR 1,486,000 and land cost of EUR 6,069,000 being the
relative value of the residential part of the total project.
The development work in progress for the Orchid Gardens
Varnamixed use residential and retail project is pledged as
security for a bank loan.
13.2 Development work in progress for the Orchid Hills Varna residential project
Development work in progress for the Orchid Hills Varna
residential project of EUR403,000 includes construction expenses of
EUR 321,000 and land cost of EUR 82,000 corresponding to withheld
stage 4 of the project.
The development work in progress for the Orchid Hills Varna
residential project is pledged as security for bank loan.
14. Inventory - residential units for sale
2011 2010
EUR'000 EUR'000
Apartment units in Orchid Hills Sofia 838 1,795
Apartment units in Orchid Hills Varna 5,642 3,925
Others 364 387
Materials 2 180
-------- --------
6,846 6,287
Total development costs of EUR 3,205,000 were expensed in the
Consolidated Statement of Comprehensive Income in 2011 (2010:
EUR1,612,000).
Total expenses for materials of EUR 839,000 were recognised in
the Consolidated Statement of Comprehensive Income in 2011 (2010:
EUR1,144,000) under "Cost of materials".
In 2011, a total of EUR 567,000 of inventories has been
recognised within 'Other expenses' resulting from write down of
inventories to net realizable value. In 2011 impairment charges of
EUR139,000 related to apartments in Orchid Hills Sofia, of
EUR255,000 related to apartments in Orchid Hills Varna and of
EUR173,000 related to materials in Grand Mall was identified.
Based on the facility agreement signed with Unicredit Bulbank
for the financing stage 3 of Orchid Hills Varna the inventory of 58
units with value of EUR2,558,000 is pledged as security for the
facility loan granted by the Bank. Other then this no inventory is
pledged as securities for liabilities.
15. Trade receivables
2011 2010
EUR'000 EUR'000
Advances for development work paid to subcontractors
and suppliers 769 704
Receivables from tour operators 163 153
Receivables from clients in respect of
sold apartments 56 758
Receivables from clients of the Mall 587 1,122
Accrued rental incomes
Accrued rental incomes 1,754 481
Other 177 192
-------- --------
3,506 3,410
2011 2010
EUR'000 EUR'000
Trade receivables, gross 4,650 4,295
Impairment of trade receivables (1,144) (885)
-------- --------
Trade receivables, net 3,506 3,410
Trade receivables are usually due within 45 days (when there are
no specific requirements in the signed contracts) and do not bear
any interest. All trade receivables are short term. The net
carrying value of trade receivables is considered a reasonable
approximation of fair value. All trade receivables are subject to
credit risk exposure. All trade receivables of the Group have been
reviewed for indicators of impairment.
Certain trade receivables were found to be impaired and an
allowance for credit losses of EUR 259,000 (2010: EUR 108,000) has
been recognised within 'Other expenses'. The impaired trade
receivables are mostly due from trade customers that are
experiencing financial difficulties.
The movement in the allowance for credit losses can be
reconciled as follows:
2011 2010
EUR'000 EUR'000
Balance at 1 January 885 777
Impairment loss 259 108
Balance at 31 December 1,144 885
An analysis of unimpaired trade receivables that are past due is
presented in note 33.2.
16. Tax receivables
2011 2010
EUR'000 EUR'000
Refundable VAT 822 1,829
Others 26 53
-------- --------
848 1,882
The refundable VAT is attributable to the following companies
within the Group:
2011 2010
EUR'000 EUR'000
Orchid Gardens Varna EOOD 699 1,719
Lyons Bulgaria EOOD 66 1
OM Razvitie EOOD 49 50
Orchid Sofia Hills EOOD 6 -
Orchid Centre Varna EOOD 1 2
Orchid Logistics Centers EOOD 1 -
Orchid Multi Complex Varna EOOD - 52
Orchid Seaside Apartments EOOD - 5
-------- --------
822 1,829
17. Other receivables
2011 2010
EUR'000 EUR'000
Incentives paid to tenants 755 764
Prepayments 69 76
Advances to employees 8 3
Loans 57 93
Court claims 14 -
Others 19 34
-------- --------
922 970
Other receivables, gross 943 970
Impairment of other receivables (21) -
-------- --------
Trade receivables, net 922 970
The movement in the allowance for credit losses can be
reconciled as follows:
2011 2010
EUR'000 EUR'000
Balance at 1 January - -
Impairment loss 21 -
Balance at 31 December 21 -
18. Cash and cash equivalents
2011 2010
EUR'000 EUR'000
Bank deposits 242 2,852
Cash at bank 3,346 3,228
Restricted cash at bank 30 30
Cash in hand 10 13
3,628 6,123
-------- --------
The Group's projects are financed by loans to specific
subsidiaries in order to provide finance at the project level. All
loans are non recourse to the holding company. Cash and cash
equivalents available at the project level are required to be
utilised only by the particular subsidiary to which the loan has
been provided. As of 31 December 2011, an amount of approximately
EUR3.3 million was ring fenced and therefore not available to
finance the Group's other activities or any other subsidiary other
than that to which the loan relates.
19. Equity
19.1 Share capital
Authorised share capital 2011 2011 2010 2010
number EUR'000 number EUR'000
Ordinary shares of
EUR 0.01 each 125,000,000 1,250 125,000,000 1,250
2011 2011 2010 2010
Allotted, called up
and fully paid number EUR'000 number EUR'000
Ordinary shares of
EUR 0.01 each 88,466,260 885 88,466,260 885
Share capital for the year ended 31 December can be presented as
follows:
Analysis of movements
in shares 2011 2011 2010 2010
number EUR'000 number EUR'000
Shares issued:
- at the beginning
of the period 88,466,260 885 88,466,260 885
Shares outstanding
and fully paid at 31
December 88,466,260 885 88,466,260 885
19.2 Share options
Share options were granted to the former chairman of the board
and to selected employees. The options have different vesting
periods that are divided in tranches with lengths between six
months and three years. The exercise price of the granted options
is equal to the market price except for certain options granted in
the IPO in 2009.
The movements in the number of share options outstanding and
their related weighted average exercise price are as follows:
2011 2011 2010 2010
EUR per EUR per
share '000 share '000
Weighted Number Option Weighted Number Option
average average
exercise exercise
price price
At 1 January 1.42 555 1.42 590
Expired - (555) - (35)
---------------- ---------- -------------- ---------- --------------
At 31 December 1.42 - 1.42 555
EUR 172,000 was transferred from other reserves to retained
earnings in relation to the 555,000 share options which expired in
2011. As of 31 December 2011 there are no outstanding share
options.
The share options outstanding at the end of 2010 had the
following vesting date and exercise prices:
2010 2010
EUR per
share '000
Weighted
average
exercise
price Number Options
30 June 2007 1.35 176
30 June 2008 1.48 379
---------- ----------------
1.42 555
The share options were denominated in sterling. However, for
consistency the notes are disclosed in euro. The weighted average
fair value of options granted determined using the Black-Scholes
valuation model was EUR0.73 per option. The significant inputs into
the model were a weighted average share price of EUR1.87 at the
grant date, the exercise prices shown above, volatility of 20% and
expected option life of 2 years, and an annual risk free interest
rate of 4.82%. The volatility measured at the standard deviation of
continuously compounded share returns was based on statistical
analysis of monthly share prices since 2009.
19.3 Share premium
The share premium amounting to EUR69,122,000 (2010: EUR
69,122,000) as at 31 December 2011 comprises the difference between
the price paid for the issued shares of Orchid Developments Group
Ltd. net of related expenses and their par value.
19.4 Loss per share
The basic loss per share has been calculated using the net
results attributable to shareholders of the Group as the
numerator.
The weighted average number of shares used to calculate basic
loss per share and the loss attributable to shareholders is as
follows:
Basic and diluted loss (EUR per share) 2011 2010
EUR EUR
Loss for the year (182,000) (20,203,000)
Weighted average number of ordinary shares
in issue 88,466,260 88,466,260
----------- -------------
Basic and diluted loss (EUR per share) (0.002) (0.228)
----------- -------------
The diluted loss per share does not differ from the basic loss
per share as the exercisable share options would have the effect of
decreasing loss per share and are therefore not dilutive under the
terms of IAS 33.
The amounts per share are not influenced by any tax
consequences.
On 16 February 2012 the Group issued 5,500,000 new ordinary
shares. Details are set out in note 34(Post-reporting date
events).
20. Borrowing liabilities
The borrowings comprise the following components:
2011 2010
EUR'000 EUR'000
Long-tern borrowing liabilities 102,608 95,266
Short-tern borrowing liabilities 15,828 16,089
-------- --------
118,436 111,355
Changes in loans during the period are presented as follows:
EUR'000
For the period ended 31 December 2011
Beginning balance 1 January 2011 111,355
Received during the period 10,178
Repaid during the period (3,097)
--------
Ending balance 31 December 2011 118,436
The Group received funding for its projects in accordance with
the following loan agreements signed with banks and financial
institutions:
-- The Group has site-specific loan facilities with a European
banking consortium led by OTP Bank in respect of its Grand Mall
development. The investment facility totals EUR97.6 million and is
repayable in 78 quarterly instalments from 31 December 2010. The
revolving VAT facility of BGN 11.3 million (EUR5.8 million) has
been fully repaid. During the year 2010 the banks declared a market
disruption event, and consequently changed the calculation of the
annual interest rate from EURIBOR plus a margin to bank costs of
fund raising plus a margin. As collateral the Group provided
pledges over the subsidiary enterprise, its shares and its bank
accounts.
On the 24 March 2011 the Group signed an amendment to the credit
facility agreement according to which the payments of principal
start from 31 December 2011, in addition the Group has committed to
refinance from it's own sources or by another financing bank 50% of
the MKB bank share in the loan (reflecting the amount of EUR 24.2
Million as at the date of approval of the Financial statements)
with in 3 years from signing the amendment to the credit facility
agreement. As of the 31 December 2011 the remaining amount is
EUR96.5 million.
-- The Group has site-specific facilities with Raiffeisenbank,
Bulgaria in respect of its Business Center Varna office
development. The existing drawdown amount of EUR3.1 million was due
to be paid on October 2011. Until that date the Group was paying
quarterly interest, which consists of three-month EURIBOR plus
margin. The collateral provided to the bank is land in Varna owned
by the borrower with an area of 4,629 sq m and the right to build
related to it, a first ranking pledge on all future receivables
under lease agreements and a pledge over the shares of Orchid
Center Varna. As of the date of these financial statements the Bank
proposal is to grant additional 12 months grace period for payments
under the loan (both interest and principal) in order to ensure
needed time for voluntary sale of the asset (project) on fair
market price.
-- The Group has site-specific facilities with Unicredit
Bulbank, Bulgaria in respect of its Orchid Gardens mixed-use
development. The investment facility totals EUR21.4 million and is
repayable up to 30 May 2017 starting from 30 June 2012. The
revolving VAT facility totals EUR1.2 million repayable on 30 June
2012. The annual interest rate consists of three-month EURIBOR plus
margin. The collateral provided to the bank is land in Varna owned
by the borrower with an area of 6,850 sqm and pledges over the
borrower's receivables. As of the 31 December 2011 the remaining
amount of the investment facility is EUR16.9 million and the
remaining amount of the revolving VAT facility is EUR0.7
million.
-- On 5 March 2012 the Group has signed new annex for
restructuring the loan repayment and extending the
availability-drawing period till 31 May 2012, following the
additional delay with the completion of the project. More details
are set out in note 34 (Post-reporting date events). The Group has
site-specific facilities with Unicredit Bulbank, Bulgaria in
respect of its Orchid Hills Varna 3rd stage construction. The
investment facility totals EUR2.4 million and is repayable in 6
quarterly equal principal repayments to August 2012. The annual
interest rate consists of one-month EURIBOR plus margin. The
collateral provided to the bank is land in Varna owned by the
borrower with an area of 11,378 sqm and pledges over the borrower's
receivables. As of the 31 December 2011 the remaining amount
representing a short term liability is EUR1.2 million.
21. Operating leases
21.1 Operating leases - as a lessor
The Group has entered into leases on its property portfolio. The
commercial property leases typically have lease term between 5 and
15 years and include clauses to enable periodic upward revision of
the rental charge according to the prevailing market conditions.
Some leases contain options to break the lease agreement before the
end of the lease term.
Future minimum rentals receivable under non-cancellable
operating leases as at 31 December are as follow:
Minimum lease payments to be received
Lease Payments Up to 1 From 2 After Total
year to 5 years 5 years
EUR'000 EUR'000 EUR'000 EUR'000
As at 31 December 2011 5,982 24,195 15,286 45,463
As at 31 December 2010 4,986 21,418 13,043 39,447
21.2 Operating leases - as a lessee
Operating lease expenses in 2011 were as follows:
2011 2010
EUR'000 EUR'000
Rental expenses 17 44
The Group's future minimum operating lease payments are as
follows:
Lease Payments Up to 1 From 2 Total
year to 5 years
EUR'000 EUR'000 EUR'000
As at 31 December 2011 10 - 10
As at 31 December 2010 28 49 77
The rent agreements signed by the Group for the rent of the
offices located in Sofia and Varna do not contain any contingent
rent clauses. The contracts do not contain purchase options.
No contingent rents were recognised as an expense and no
sublease income is expected to be received as all assets are used
exclusively by the Group.
22. Trade payables
2011 2010
EUR'000 EUR'000
Advances from customers for residential
developments' construction - 25
Advances from customers for residential
units sold 1,385 2,704
Liabilities to building companies 3,518 11,270
Advances from clients for tourist services - 1
Others 1,604 766
-------- --------
6,507 14,766
The Directors consider the carrying amounts recognised in the
Consolidated Statement of Financial Position for trade payables to
be a reasonable approximation of their fair value.
23. Tax liabilities
2011 2010
EUR'000 EUR'000
VAT liabilities 219 207
Withholding tax liabilities 178 73
Others 44 30
-------- --------
441 310
24. Employees
24.1 Employee compensation and benefit expenses
Employee compensation and benefit expenses include:
2011 2010
EUR'000 EUR'000
Directors' remuneration (790) (877)
Key management remuneration (521) (534)
Wages and salaries (496) (602)
Social security (70) (82)
-------- --------
(1,877) (2,095)
24.2 Payables to employees and social security institutions
2011 2010
EUR'000 EUR'000
Non-current:
Payables to Directors - 1,939
-------- --------
- 1,939
Current:
Payables to Directors 2,469 108
Wages and salaries 19 40
Social security 2 3
-------- --------
2,490 151
Payables to Directors include a provision for profit related
bonus to the joint chief executive directors of EUR 1,939,000. In
February 2012 the Management service Company and the Group reached
to an agreement regarding to converting part of the amount to
5,500,000 shares and postponing part of the amount as a loan which
should be paid no later then 31 December 2013. More details are
provided in note 34 (Post-reporting date events).
25. Revenue
2011 2010
EUR'000 EUR'000
Rental income 6,131 2,767
Straight -lining of lease incentives (62) (30)
Service charge and utilities income 1,976 1,468
Advertisement income - 168
Recognised income from residential units
sold (sale of goods) 3,314 2,036
Revenue arising from residential developments'
construction - 125
Services rendered (tourist services) 856 755
Other income 89 567
-------- --------
12,304 7,856
Rental income includes income of EUR1,272,000 (2010: EUR481,000)
recognised on a straight-line basis under IAS 17 "Operating
leases".
26. Interest income and interest expense
The following amounts have been included in the Consolidated
Statement of Comprehensive Income for the reporting periods
presented:
2011 2010
EUR'000 EUR'000
Interest expense
Interest expense on borrowings (5,190) (2,574)
Other interest expenses (39) (3)
-------- --------
(5,229) (2,577)
Interest income
Interest income from fiduciary deposits 20 16
Other interest income 29 20
-------- --------
49 36
Interest expenses for 2011 are mainly in relation to the project
"Orchid Multi Complex Varna", "Orchid Hills Varna" (after
completion of the construction) and the project "Business Park,
Varna" (halted).
Other interest income includes interest on amortised loan to an
associate in the amount of EUR 22,000 (2010: EUR 20,000).
27. Other financial expenses
2011 2010
EUR'000 EUR'000
Bank charges (32) (36)
-------- --------
(32) (36)
28. Tax (expenses)/income
Orchid Developments Group Ltd. is a registered offshore company
exempt from taxes. Its offshore subsidiaries are also tax-exempt
companies. The current income tax expenses are attributable only to
the Bulgarian subsidiaries of the Group.
The net actual tax expenses are as follows:
2011 2010
EUR'000 EUR'000
Loss of Orchid Group for the year (182) (20,203)
* Loss attributable to non - Bulgarian subsidiaries the
financial result of which is not taxable (266) (20,443)
* Profit attributable to Bulgarian subsidiaries, the
financial result of which is taxable in Bulgaria 84 240
Corporate income tax rate 10% 10%
-------- ---------
Expected tax expense (8) (24)
Tax effect from deduction of the financial
result (permanent differences) - (19)
Deferred tax (expense)/income:
- origination of deferred tax related
to temporary differences and tax losses 189 317
- reversal of deferred tax related to
temporary differences and tax losses (162) (33)
- origination of temporary differences
related to fair value of investment property (500) 1,574
Actual tax (expenses)/income (481) 1,815
Please refer to note 12 (Deferred tax assets and liabilities)
for information on Group's deferred tax assets and liabilities.
29. Related parties transactions
The Group's related parties include the Group's key management,
directors and associates.
Orchid Developments Group Ltd. has not paid dividends to
shareholders in 2010. Should dividends have been paid, there would
not be tax consequences for the company as it is tax exempt.
One of the Group's companies signed contracts for sale of
apartment units to related parties. None of the transactions
incorporate special terms and conditions and no guarantee has been
given or received.
At 31 December 2011 the details of the signed contracts are as
follows:
Related party Number Total Instalments
of purchased price, received,
apartments net of net of
VAT VAT
EUR'000 EUR'000
Directors
Ofer Miretzky through Shahar EOOD
(in Orchid Gardens Varna) 1 304 30
Key management
Anatoly Drayluk through A.D. Razvitie
(in Orchid Gardens Varna) 1 183 37
In year 2010 Ofer Miretzky (through Noa Cafe EOOD and Adagio
Bulgaria EOOD) has signed lease agreements with Orchid Multi
Complex Varna EOOD for 4 units of 269 sq m in total, additional
sitting area of 230 sq.m. and a storage of 87 m2. The lease period
is non-breakable 5 years, plus additional 15 years, commencing as
from the opening date of Grand Mall Varna, with a break option on
each 5-th year. The total estimated rent receivables under these
agreement amounts to EUR84,000 per annum and depends on the
occupancy of the Mall. The reported rental income in year 2011 is
at the total amount of EUR 40,000.
The Directors' shareholdings are disclosed in the Director's
Report. Please refer to Note 19.1 (Share capital) for information
on the entity's fully paid share capital. The remuneration and
benefits paid to the Directors during the year, together with
details of share options and other long term incentive plan details
are set out within the Directors' Remuneration Report on page 16 of
the Annual Report.
29.1 Year-end balances
2011 2010
EUR'000 EUR'000
Receivables from related parties
Receivables from Directors 81 45
-------- -------
81 45
Short-term liabilities to related parties
Loan to Directors 75 37
Liabilities to the associated company
of the Group 33 29
108 66
30. Contingent liabilities
30.1 Court claims
The court claims described below relate to Orchid Sofia Hills
EOOD.
There are two pending court claims at Sofia City Court, Civil
division, namely civil court case (1) 10556/2009 and civil court
case (1) 10558/2009 against "Orchid Sofia Hills" EOOD /hereinafter
"Orchid"/ as a defendant. Each claim is for the amount of EUR10,000
which amount represents a deposit paid under concluded preliminary
agreement for purchase and sale of a real estate property. The
plaintiffs request return of the paid deposits. Their claims
challenge the timely and qualitative delivery of units. Orchid as
Defendant has submitted to the Court its written statements of
defense. The Court has allowed preparation of technical expertises
with regards to the units and has appointed experts and specified
the fees due by the plaintiffs for the expertises. The Court
indicated it was the plaintiffs' task to prove that they were
correct parties under the agreements and that the defendant was in
delay for execution of its obligations. The court hearing for case
10556/2009 is scheduled for May 2012. Case 10558/2009 is waiting
for a court decision.
There is a pending court claim at Sofia City Court, Commercial
division, namely commercial court case (1) 2036/2010 against
"Orchid Sofia Hills" EOOD as a Defendant. The claim is submitted by
"Consortium Remi Group" AD - general contractor under the
Construction Contract dated 14 December 2005 between "Orchid Sofia
Hills" EOOD and "Consortium Remi Group" AD ("Remi Group") which was
signed for the development of the complex "Orchid Hills Sofia" in
Sofia city, Bulgaria, for a Contract lump sum. Under the concluded
Contract Remi Group has executed partially the agreed works, not
with the due quality and not according to the agreed term and
schedule. From the invoice No 503 dated 19 February 2008, issued by
Remi Group, Orchid has made a deduction for low quality execution
of works. Orchid has retained in total EUR186,000 under the
Contract for bad quality execution of works. In their court claim
Remi Group requested payment of the retained guarantee for
execution of works at the amount of EUR197,710 (according to an
excerpt from their accountancy books this is the due amount). Remi
Group pointed that the Project is finished; an occupancy permit is
issued; the guarantee amounts are subject to repayment and they
have issued invoices for this. The court case is pending on Sofia
City court. The first court hearing is scheduled for 20 April
2012.
There is a court case that "Orchid Sofia Hills" EOOD is not a
party of, but is a concerned party. The court claim is submitted by
Toshko and Evelina Goranovi on 18 June 2002 and challenges the
validity of an agreement for voluntary partition executed with
regards to land plots No 1724 and No 1088 included in a land plot
belonging to "Orchid Sofia Hills" EOOD having total area of 10 326
sq.m.The claim has been rejected in the first two court instances.
The Supreme Court - third and final instance, returned the case for
consideration to the Court of Appeal and the next court hearing is
scheduled for July 2012.
There are no other pending court claims against the Group, nor
any circumstances concerning the Group to give rise to claims.
31. Capital commitments
At 31 December 2011, the Group has signed contracts with
subcontractors and building companies for construction works,
project and design works, excavation and supervision for a total
amount of EUR 2,892,000 (31 December 2010: EUR 10,009,000) related
to commercial development property and EUR 1,036,000 (31 December
2010: EUR 3,857,000) related to residential development
property.
32. Capital management policies and procedures
The Group's capital management objectives are:
-- to ensure the Group's ability to continue as a going concern; and
-- to provide an adequate return to shareholders by pricing
products and services commensurately with the level of risk.
The Group monitors capital on the basis of the correlation
between equity and net debt.
Net debt is calculated as total liabilities less the carrying
amount of cash and cash equivalents.
The Group manages the capital structure and makes adjustments to
it in the light of changes in economic conditions and the risk
characteristics of the underlying assets. In order to maintain or
adjust the capital structure, the Group may adjust the amount of
dividends paid to shareholders, return capital to shareholders,
issue new shares, or sell assets to reduce debt.
The amount of the correlation for the presented accounting
periods is summarized as follows:
2011 2010
EUR'000 EUR'000
Equity 73,107 73,289
Debt 132,492 132,560
- cash and cash equivalents (3,628) (6,123)
-------- --------
Net debt 128,864 126,437
Equity to net debt 1:1.76 1:1.73
33. Risk management objectives and policies
The Group is exposed to a market risk, currency risk, interest
rate risk and certain other price risks, which result from both its
operating and investing activities. The Group does not use
financial instruments to decrease the level of financial risks.
The significant financial risks to which the Group is exposed to
are described below.
33.1 Foreign currency risk
Most of the Group's expenditure is carried out in Euros. All of
the Group's sale/lease contracts are denominated in Euros, as well
as its financing agreements. The exchange rate BGN to Euro has been
fixed since 1997.
33.2 Credit risk
The Group's trade and other receivables are monitored to avoid
significant concentrations of credit risk.
The Group's exposure to credit risk is limited to the carrying
amount of financial assets recognised at the reporting date, as
summarised below:
Classes of financial assets - carrying
amounts 2011 2010
EUR'000 EUR'000
Loans 356 334
-------- --------
Long-term exposure to credit risk 356 334
Trade and other receivables 1,140 2,397
Cash and cash equivalents 3,628 6,123
Short-term exposure to credit risk 4,768 8,520
The Group monitors defaults of customers and other
counterparties, identified either individually or by group, and
incorporates this information into its credit risk controls.
The Group's management considers that all the above financial
assets that are not impaired for each of the reporting dates under
review are of good credit quality.
In 2011 impairment was recognised at the amount of EUR280,000
(2010: EUR108,000).
Some of the unimpaired trade receivables are past due as at the
reporting date. Financial assets past due but not impaired can be
shown as follows:
Not more More than More than More than Total
than 3 3 months 6 months 1 year
months but not more but not
than 6 months more than
1 year
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
As at 31 December
2011 292 108 94 315 809
As at 31 December
2010 477 315 382 825 1,999
As at the date of approval of the financial statements EUR
393,000 from the unimpaired overdue receivables have been
received.
Part of the Group's financial assets is secured by bank
guarantees.
In respect of trade and other receivables, the Group is not
exposed to any significant credit risk exposure to any single
counterparty or any group of counterparties having similar
characteristics. The credit risk for liquid funds and other
short-term financial assets is considered negligible, since the
counterparties are reputable institutions.
33.3 Cash flow and Interest rate risks
As at 31 December 2011, the Group is exposed to changes in
market interest rate through its bank borrowings, which are subject
to variable interest rates. All other financial assets and
liabilities have fixed rates. The interest charges on bank
borrowings in relation of the project "Orchid Gardens Varna" are
capitalised. The amounts in relation of the halted project
"Business Park, Varna", Grand Mall Varna and the project "Orchid
Hills Varna" (after completion of the project) are assumed to have
an impact on the net result for the year.
The following table illustrates the sensitivity of the net
result for the year and equity to a reasonably possible change in
interest rates of +1% and -1% (2010: +/- 1%), with effect from the
beginning of the year. These changes are considered to be
reasonably possible based on observation of current market
conditions. The calculations are based on the Group's financial
instruments held at each reporting date. All other variables are
held constant.
Interest rate sensitivity 2011 2010
EUR'000 EUR'000
+1% -1% +1% -1%
Change in net result for the
year (1,000) 1,000 (563) 563
Change in equity (1,000) 1,000 (563) 563
33.4 Liquidity risk analysis
The Group manages its liquidity needs by monitoring scheduled
debt servicing payments for long-term financial liabilities as well
as cash-outflows due in day-to-day business. Liquidity needs are
monitored in various time bands, on a weekly basis, as well as on
the basis of a rolling 30-day projection. Long-term liquidity needs
for a 180-day and a 360-day lookout period are identified
monthly.
The Group maintains cash to meet its liquidity requirements for
up to 30-day periods. Funding for long-term liquidity needs is
additionally secured by an adequate amount of committed credit
facilities.
The additional available funds under signed loan contracts as of
31 December 2011 amount to EUR4.5 million (31 December 2010:
EUR13.8 million).
At the date of the financial reports there are no cross
guarantees between the companies with the exception of a new signed
amendment for a loan facility agreement with Orchid Gardens Varna
(see note 34 Post-reporting date events), nor recourse to the
holding company. Therefore, in a hypothetical event of financing
default, an underperforming asset can be released to the
appropriate lender to limit the financial damage to the Group.
As at 31 December 2011 the following are contractual maturities
of the financial liabilities including estimated interest
payables:
Gross cash flows
Carrying 1 year from 2 More
amount to 5 years than
5 years
Financial liabilities at carrying
amount:
Loans 118,737 22,689 41,823 129,990
Trade and other liabilities 5,155 5,155 - -
123,892 27,844 41,823 129,990
As at 31 December 2010 the following are contractual maturities
of the financial liabilities including estimated interest
payables:
Gross cash flows
Carrying 1 year from 2 More
amount to 5 years than
5 years
Financial liabilities at carrying
amount:
Loans 111,516 19,738 31,630 110,894
Trade and other liabilities 12,065 12,065 - -
123,581 31,803 31,630 110,894
The above contractual maturities reflect the gross cash flows,
which may differ from the carrying values of the liabilities at the
reporting date.
33.5 Summary of financial assets and financial liabilities by category
The carrying amounts of Group's financial assets and liabilities
as recognised at the reporting date of the reporting periods may be
categorised as follows:
2011 2010
EUR'000 EUR'000
Non current assets
Loans and receivables
Loans 356 334
Current assets
Loans and receivables:
Loans and receivables 1,140 2,397
Cash and cash equivalents 3,628 6,123
Non current liabilities
Financial liabilities measured at amortised
cost:
Loans 102,608 95,266
Current liabilities
Financial liabilities measured at amortised
cost:
Loans 16,129 16,250
Trade and other liabilities 5,155 12,065
The Group's loan facilities are project specific and secured at
the local company level.
34. Post-reporting date events
No adjusting or significant non-adjusting events have occurred
between the reporting date and the date of authorization, except
for those described below:
Bellport Bonus scheme
As of 31 December 2011 the Group has a bonus liability to the
Management Services Company in respect of the joint chief executive
officers for the amount of EUR1.9 million as described in note 24
to the financial statements. On 15 February 2012 the Management
Service Company came to arrangement with the Group, according to
which the Management Service Company agrees to convert part of the
accrued bonus in the amount of EUR1,294,000 (GBP1,100,000 at the
spot exchange rate on 11 January 2012) to 5,500,000 newly issued
ordinary shares of Orchid Developments Group Ltd. The rest of the
amount EUR645,000 (GBP548,150) is agreed to be considered as a loan
bearing annual interest of 3% with repayment date scheduled for 31
December 2013. In addition, the Management Service Company signed
with the Group a new Bonus scheme, according to which the new
performance related bonus will be calculated as:
-- zero per cent of the total shareholder returns up to and
including EUR0.24 (GBP0.20) per ordinary share;
-- 10 per cent of the total shareholder returns over EUR0.24
(GBP0.20) per ordinary share up to and including EUR0.36 (GBP0.30)
per ordinary share; and
-- 25 per cent of the total shareholder returns over EUR0.36 (GBP0.30) per ordinary share.
As a result of this post-reporting date event EUR1.9 million
short-term payables to employees and social security institutions
would be transferred to EUR1.3 million equity and EUR0.6 million
long-term liabilities to related parties in the consolidated
financial statements.
Bellport's potential entitlement to a replacement bonus shall
continue in the event that the management agreement is terminated
by the Group prior to 31 December 2013, other than where such
termination is for material breach. If the management agreement is
terminated by the Group prior to 1 January 2013 or any change of
control transaction, the full replacement bonus remains payable. If
the management agreement is terminated by the Group after 1 January
2013, or prior to such date but after a change of control
transaction occurs, a proportion of the replacement bonus is
payable, if applicable, to reflect the contribution made by
Bellport prior to termination.
Issue of new shares
On 16 February 2012 the Group issued 5,500,000 new ordinary
shares. Each share has the same right to receive dividend and the
repayment of capital and represents one vote at the shareholders'
meeting of Orchid Developments Group Ltd. Bellport Corporation, a
company in which the Company's joint Chief Executives, Ofer
Miretzky and Guy Meyohas are interested, has been allotted
5,500,000 ordinary shares of EUR0.01 each in the capital of the
Group in relation to the amendments to the Management Services
Agreement with Bellport Corporation.
Orchid Gardens Varna restructuring of Bank credit facility
On 5 March 2012 Orchid Gardens Varna EOOD, which develops the
high end mixed use project in Varna, has signed a new annex with
Unicredit Bank for restructuring the loan repayment and extending
the availability-drawing period till 31 May 2012. According to the
revised terms of the facility agreement, the repayment of the
principal amount of the facility is to be made as follows:
- EUR2.5 million in 60 monthly payments of EUR41,500;
- EUR1 million by no later then 30 September 2012;
- EUR2 million by no later then 30 December 2012;
- EUR5 million by no later then 30 March 2013;
- EUR5.45 million by no later then 30 September 2013;
- EUR5.45 million by no later then 30 March 2014.
Additionally, the bank has agreed to include interest due until
31 May 2012 amounting to EUR0.3 million into the aggregate
principal amount due under the revised facility agreement; the
payment of the VAT revolving loan to be no later then 30 December
2012 and it has requested additional collateral to be provided for
a value of EUR2.8 million, by 30 April 2012, in the form of a
second mortgage on the apartments for sale in Orchid Seaside
apartments EOOD, stage 3 (approximately 55 apartments) and the land
for stage II of the Orchid Seaside Appartments EOOD's project,
which is also mortgage in first rate mortgage for securing the
facility loan given by Unicredit Bulbank for financing of the third
stage of the project Orchid Hills Varna.
As e result of this post-reporting date event EUR8.5 million
short-term borrowing liabilities would be transferred to EUR3.4
million short-term borrowing liabilities and EUR5.1 million
long-term borrowing liabilities in the consolidated financial
statements.
Deferral of payments to Bellport
As of 31 December 2011 the Group has a liability to Bellport
Corporation under the management services agreement in respect of
the joint chief executive officers for the amount of EUR0.5 million
as described in note 24 to the financial statements.
The Group has agreed with Bellport Corporation that the
liabilities of EUR541,660 due to Bellport as at 23 April 2012 under
the management services agreement (the "Agreement") will not be
paid to Bellport during the twelve month period commencing 25 April
2012, unless property owned by the Group is sold or the Group's
cash flow during this period will allow such payment or part
thereof.
In addition to the above Bellport Corporation has agreed to
postpone future payments under the Agreement of EUR324,996, related
to the period 1 January 2013 to 30 June 2013, unless property owned
by the Group is sold or the Group's cash flow during this period
will allow such payment or part thereof.
In consideration for the deferral of the above mentioned
EUR866,656 in payments, (the "Deferral") Bellport Corporation shall
be entitled to receive interest of five per cent per annum on the
accrued, outstanding payments, commencing on 1 January 2012.
Notwithstanding the Deferral, Bellport will receive payments
pursuant to the Agreement for the period 24 April 2012 to 31
December 2012.
In case of insolvency of the Group all amounts due to Bellport
Corporation will become payable immediately.
The directors of the Group consider that for the period after
the reporting date until the date of the approval of the
consolidated financial statements no other significant and/or
material non-adjusting events took place concerning the activities
of the Group, the non-disclosure of which could influence the true
and fair presentation of the consolidated financial statements.
Directors Joseph Drescher (Non-executive Chairman) Appointed 22
September 2010
Guy Meyohas (Joint Chief Executive) Appointed 30 June 2005
Ofer Miretzky (Joint Chief Executive) Appointed 30 June 2005
Mark Holdsworth (Non-Executive Deputy Chairman) Appointed 22 September 2010
Amir Rosentuler (Non-Executive) Appointed 22 September 2010
Secretary The Secretary Ltd.
Boundary Hall, Cricket Square
P.O. Box1111
Grand Cayman KY1-1102
Cayman Islands
Registered Office Paget-Brown Trust Company Ltd.
Boundary Hall, Cricket Square
P.O. Box1111
Grand Cayman KY1-1102
Cayman Islands
Nominated Adviser Shore Capital and Corporate Limited
Bond Street House
14 Clifford Street
London W1S 4JU
United Kingdom
Broker Shore Capital Stockbrokers Limited
The Corn Exchange
Fenwick Street
Liverpool L2 7TP
United Kingdom
Auditors Grant Thornton OOD
Chartered Accountants
26, Cherni vrah Blvd.
Sofia, 1421 Bulgaria
Registrars Capita IRG (offshore) Ltd.
Victoria Chambers
Liberation Square
1/3 The Esplanade
St. Helier, Jersey, JE4 0FF
This information is provided by RNS
The company news service from the London Stock Exchange
END
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