Interim Results

RNS Number : 6023D

Equest Investments Balkans Ltd

17 September 2008

 



EQUEST INVESTMENTS BALKANS LIMITED

INTERIM RESULTS

FOR THE SIX MONTHS ENDED 30 JUNE 2008

Equest Investments Balkans ltd ('EIB' / 'Company'), a holding company operating in the Balkan region, today announces its interim results for the six months ended June 30, 2008.

Financial and Company Highlights

• Net Asset Value per share at Euro 24.6 (£19.4) an increase of 5% in Euro and 13% in sterling (YE 2007: Euro 23.40 / £17.2).

• EIB net assets 30 June 2008 at Euro 449.0 million (YE 07 Euro 405.4 million) valued by independent valuers. 

• EIB core holdings by value; TechnomarketDomo (Euro 139.0 million), Borovets Invest (Euro 69.7), Uniqa Bulgaria (Euro 54.9 million), Avto Union (Euro 47.9 million) and Novera (Euro 38.3 million).

• Internalisation process and strategic review completed; non core property assets in disposal program valued at Euro 78.8 million and additional disposals of assets planned.

• Kari Haataja and Georgi Krumov joined the Board as Executive Directors. 

• EIB shares delisted from Irish Stock Exchange with effect 17 June 2008.

Portfolio Highlights

• TechnomarketDomo, continued strong performance; interim unaudited sales Euro 260 million (+17% yoy) and EBITDA Euro 11.6 million (+100% yoy), IPO planned but pending market conditions.

• Borovets Invest, full scale business plan completed and implementation started for a Euro 800 million development program over 5 years, with estimated 25% IRR.

• Uniqa Bulgaria, continued strong performance; interim unaudited premium income Euro 39.2 million (+37% yoy).

• Avto Union, growth in operations and completion of land mark Avto Union Centre; interim unaudited sales Euro 34.4 million (+44% yoy) and EBITDA 2.1 million (+52% yoy).

• Novera, strategic partner negotiations ongoing; poor financial performance during period due to higher salary, fuel and fleet maintenance costs; Company in process of rearranging its €12.4 million debt facility, currently in breach of certain covenants; interim unaudited sales of Euro 12 million and EBITDA Euro 2.3 million.

Petri Karjalainen, Executive Director of EIB, said:

'The Company has continued making steady progress with its operations and companies and has progressed well with plans to dispose of non core assets and preparing strategic options for our waste management operations. Meanwhile, the planned IPO of TechnomarketDomo has been delayed pending market conditions. 

The focus of the management continues to be on streamlining our operations, selling off non core assets to raise liquidity and taking measures for narrowing the wide discount in our disclosed net asset value and the market price of our shares.'

For further information please contact:

Equest Investments Balkans Limited
Tel: + 44 20 7240 7600 Petri Karjalainen                 Naomi Kora
Collins Stewart Europe Limited - NOMAD and Broker Tel: + 44 20 7423 8350 Hugh Field KBC Peel Hunt Ltd - Joint Broker Tel: [phone] Capel Irwin
Financial Dynamics - Financial PR Tel: [phone] Nick Henderson David Cranmer

Chairman's Statement

Equest Investments Balkans (EIB), the AIM traded investment company, is pleased to report positive interim results to 30 June 2008. This is EIB's first set of results as an internally managed holding company. 

Introduction

I am pleased to be able to report on the successful internalisation of the company, following the recommended proposals in March 2008 and subsequent shareholder approval at the General Meeting on 25 April 2008. The Company's shares were de-listed from trading on the Irish Stock Exchange with effect from 17 June 2008 and the Group moved from an externally managed fund to an internally managed holding company.  

Subsequently, Kari Haataja and Georgi Krumov, formerly part of the EIB investment management team, joined the Board of the Company. Additional changes to the Board are expected to be made in due course to reflect the changed focus and structure of the Company.

Strategy

Our strategy remains holding significant, usually majority, stakes in unlisted companies in South East Europe in key growth sectors. We currently have investments in 10 operating companies, across four sectors, namely retail; finance; waste management and property development. At the period end the aggregate fair valuation was €449.7 million. The investments are located across Bulgaria, Romania, Serbia and Montenegro.

At the moment the company's strategy also incorporates measures for raising liquidity by asset sales in order to facilitate any share buy backs deemed value creating for our shareholders. The asset disposal program has commenced, beginning with the sale of our property development assets. The combined CBRE valuation for these assets at the end of the period is €78.8 million.

The planned listing of TechnomarketDomo, our consumer electronics and household appliance retailer and our largest strategic holding, has been delayed due to current market conditions. The Company continues to make progress on its planned listing with the launch pending suitable market conditions.

Cost savings

The Company is also in a process of implementing the cost saving measures arising from the internalisation of the EIB management, and streamlining operations of all levels of the holding structures. 

Net Asset Value

At 16 September our share price was 830 pence. EIB's Net Asset Value (NAV) based on independent valuations was €449.0 million at 30 June 2008. Denominated in Sterling as at 30 June 2008 exchange rate, this equates to 1,955 pence per share, which is an increase of 13.4% compared to year end 31 December 2007 (1,724 pence per share). In order to present valuations on a consistent basis the company has not applied specific liquidity discounts to its separate holdings, as it is the view of the Board that the stock market acts as the relevant mechanism for building any discount or premium in the company's listed shareprice.

Dividend

The Company has not declared a dividend for the period.

Outlook

The outlook for our companies and operations remain positive and we continue our process of refocusing the company to an actively managed conglomerate with a concentrated portfolio of core holdings in growth sectors, whilst raising cash from the disposal of non core assets to improve liquidity and enable potential share buybacks and shareholder distributions.

John Carrington

Non Executive Chairman

Equest Investments Balkans Limited

BUSINESS REVIEW

The fair value of the main EIB investments shown below and in the financial statements were derived from independent valuers' reports as at 30 June 2008, adjusted where necessary for the fair value of the assets and liabilities of the respective holding companies. No marketability discounts have been applied.

Investment (€ m)                                                                                              Cost (€ m)                           Fair Value (€ m)

TechnomarketDomo                                                                  43.6                                  139.0

Borovets Invest                                                                         21.1                                    69.7

Uniqa Bulgaria (Vitosha Holding)                                               17.1                                    54.9

Avto Union Group                                                                     16.5                                    47.9

Novera                                                                                     36.1                                    38.3

Immofinance (non core property)                                               29.8                                    39.2

Pelican (non core property)                                                       21.0                                    35.7

Other investments                                                                     23.2                                    14.3

Total Investments                                                                    213.2                                  439.0

Cash and other assets and liabilities                                                                                      10.7

Net Assets                                                                           208.4                                 449.7

TECHNOMARKETDOMO

75% HOLDING AS AT 30 JUNE 2008

TechnomarketDomo NV (TMD) is the newly established parent company that owns 100% of the Bulgarian Technomarket retail and wholesale operations and 75% of the Romanian Domo retail operations. 

TMD is the largest player in the sector in the South East European region with an unaudited consolidated turnover during the first six months of 2008 of €260 million, up 17% on the corresponding period in 2007 and an EBITDA of €11.6 million. Sales and EBITDA in 2008, which are expected to grow strongly, are currently in line with budget. TMD's operations remain cash generative and able to support the company's debt of €86 million as well as current growth plans in new store openings in Bulgaria and Romania.

Technomarket, the largest electronics retailer and wholesaler in Bulgaria, had unaudited financial results for the 6 months ended 30 June 2008 with sales of €177 million and EBITDA €10 million, a 17% increase in sales and for the period a 69% increase in EBITDA.

Domo retail, the second largest electronics retailer in Romania, had unaudited financial results for the 6 months ended 30 June 2008 with sales of €83 million, an 18% increase, and EBITDA of €2.3 million.

TechnomarketDomo is in the final stage of preparation for an IPO on the Bucharest Stock Exchange and a GDR issue on the London Stock Exchange. The launch, however, still remains dependent on there being suitable market conditions and associated regulatory approvals by the Dutch Financial Authorities.

BOROVETS INVEST 

33.5% HOLDING AS AT 30 JUNE 2008

The investors in Borovets selected a development syndicate to work in parallel with them to sustainably develop the project. The advisors, including EC Harris (development management), KPMG (leisure & resort analysis, real estate consultancy), Faber Maunsell (infrastructure development), Bates Bulgaria (cost and Bulgarian development consultancy), Mmd (communication strategy) and Denkstatt (environmental consultancy), were appointed to deliver a new business plan which complies with the high standards of environmental and ecological regulations.  

Total development costs are projected at €800 million, including financing costs, with a levered IRR of over 25% for the development of the 1,977,131 sq m of land into a total of approximately 536,000 sq m of apartments, hotels and retail space, as well as associated infrastructure, including the creation of an additional 36.5 km of ski runs. The investors are now focusing on securing technical infrastructure and proceeding with early works and key actions.

UNIQA BULGARIA

37.72% HOLDING AS AT 30 JUNE 2008

Uniqa Bulgaria is the fifth largest insurance company in Bulgaria with life and non-life operations. Set up as a private company in 1994, it has been built up to more than 100 branches across the country and it is now ranked 2nd in life insurance and 6th in non-life insurance (source: Bulgarian Financial Supervisory Commission).

UNIQA Insurance, Austria's largest insurance company obtained operational control in 2006 and will continue to acquire up to 75% by the year 2010 under pre-agreed arrangements.

Uniqa Bulgaria had preliminary gross written premium income of €39.2 million for the first six months of 2008 (H1 2007: €28.6 million), representing an increase of 37%. 

EIB's remaining minority investment in Uniqa Bulgaria as at 30 June 2008 has been valued at €54.9 million based in part on the forward purchase contracts by Uniqa of EIB's shares held in the Company, the terms of which are based on the growth in the premium income and profitability of the Company.

The Bulgarian insurance market grew by 24.5% during H1 2008 and is expected to continue growing as the country has yet to achieve EU levels of insurance penetration and density.

AVTO UNION

80% HOLDING AS AT 30 JUNE 2008

Avto Union is a leading Bulgarian wholesaler and distributor of automotive products and services, and sells the following brands: Fiat, Lancia, Alfa Romeo, Maserati, Mazda, Opel and Chevrolet. It also sells Vespa, Piaggio and Gilera motorbikes, has the Avis Rent a Car franchise and distributes Castrol and BP lubricants.

For the first six months of 2008, Avto Union had sales of €34.4 million (up 44% over H1 2007) and profits before tax of €882,942 (up 135% over H1 2007). The Company had market share of 7.3% of new car sales for the first six months of 2008, positioning Avto Union in 6th place in Bulgaria. 

The company now has 22 locations throughout Bulgaria, and owns 46,000 sq m of land which will be developed over the next three years for its sales and distribution network. Avto Unions flagship building, located near the Sofia international airport, opened in May 2008. The 28,000 sq m building accommodates showrooms and a workshop for the Italian car brands, a conference centre for 600 people, a restaurant, and 11,000 sq m of 'A class' office space. The new Mazda centre in Sofia is scheduled to open in late 2009. It will be the main training centre for South East European operations.

EIB's 80% investment in Avto Union as at 30 June 2008 has been valued at €47.9 million and is based on the valuations undertaken by the independent valuers of both the operating business and the Company's land/property portfolio.

NOVERA

94% HOLDING AS AT 30 JUNE 2008

The financial performance of Novera, the waste services operations in Bulgaria, has been disappointing during the period due to significantly higher than planned costs in operations resulting from increased fuel, salary and fleet maintenance costs coupled with higher expenditure in new trucks and equipment. Simultaneously, whilst waste collection volumes have increased according to plan, the company has not been able to push through inflation indexation in its prices with the Municipality of Sofia. 

As a result of this the company is currently in the process of rearranging its €12.4 million senior debt facility as the company has breached certain parts of its debt covenants. Separately, the company has initiated a review of all cost in operations as well as in detailed negotiations with leading companies in the waste management industry for a strategic partnership in Novera and expects to reach a positive conclusion on these discussions. Unaudited financial results of the three concession holding companies for the first six months of 2008 showed turnover of €12 million with an EBITDA of €2.3 million. 

Novera BVI is the EIB owned intermediate holding company for two investments (i) the investment in the waste collection business in Sofia which is independently valued at €23,749,000 and (ii) a loan back to EIB of €14,585,000, which is carried at cost.  By the end of this year, the issued share capital of Novera BVI will be reduced by the amount of the loan, so that the only investment at the BVI level will be the Group's interest in the waste collection business.

OTHER HOLDINGS

TECHNOMARKET SERBIA / MONTENEGRO 

23% AND 50% HOLDINGS AS AT 30 JUNE 2008

The Company has a 23% stake in Technomarket's operations in Serbia and 50% in its operations in Montenegro. The unaudited aggregate sales in these countries for the first six months of 2008 amounted to €40 million through 19 outlets. EIB's 23% and 50% investment in Technomarket Serbia and Montenegro as at 30 June 2008 has been valued at €6.81 million.

TECHNOMOBILE SERBIA

50% HOLDING AS AT 30 JUNE 2008

The Company owns a 50% stake of Technomobile Serbia, a chain of stores selling GSM sets, small consumer electronic devices and complimentary services. Sales for the first six months of 2008 amounted to €3.0 million through a chain of 58 shops. EIB's 50% investment in Technomobile Serbia as at 30 June 2008 has been valued at €1.78 million.

NON CORE PROPERTY ASSETS IN DISPOSAL PROGRAM

PELICAN 

100% HOLDING AS AT 30 JUNE 2008

Pelican is a developer and owner of five sites that are to be redeveloped for commercial use and let to tenants upon completion. Four of the sites are located in the centre of the densely populated area of Sofia and were previously used as cinemas, whilst the fifth is a former car factory located by the entrance to Varna, Bulgaria's second city. EIB is in ongoing negotiations with potential buyers for the Serdika, Iztok and Rodacar properties.

Serdika is a 29,700 sq m mixed office and retail scheme with underground parking for 234 cars adjacent to the Vasil Levski monument in the centre of Sofia. The development is being undertaken jointly between EIB (42% holding) and Equest Balkan Properties plc (58% holding). Approval from the Institute of Monuments and Cultural Protection was obtained in June 2008, and announcement procedures in the regional Municipality have been completed with no objections submitted. Building permissions are expected to be obtained by year end 2008. 

Evropa Palace has been let to an Italian fashion retailer. The architectural designs for the project have been approved, and building permission is expected to be received by year end 2008. A seven month grace period has been granted to the tenant, who is responsible for refurbishment costs. 

Iztok is to be demolished and reconstructed as a multi-storey retail and office building with approximately 14,000 sq m in build up area (excluding underground parking). Zoning, design works, additional land purchase and permits are ongoing and demolition and site mobilization are scheduled to start in Q2 2009. 

Urvich is to be sold or rented to a single tenant. The property has a built up area of approximately 450 sq m. Negotiations with potential tenants / buyers are ongoing. Brokerage agencies are appointed.

Rodacar is a former factory in Varna with a build up area of 12,300 sq m. A detailed urban plan allowing the construction of approximately 85,000 sq m was approved in January 2008. The site will be converted into a new build multipurpose development consisting of retail, office space, a hotel, residential and an expo centre. Construction is scheduled to start by Q2 2009.

IMMOFINANCE 

100% HOLDING AS AT 30 JUNE 2008

Immofinance is a residential property development company focusing on first and second homes in Bulgaria and neighbouring countries. The current portfolio consists of seven separate residential development projects at various stages of development. EIB is in the process of active marketing for the sale of all Immofinance properties.

Embassy Suites is a gated community next to Vitosha Mountain in Sofia. It consists of 80 apartments and 118 underground parking spaces and was completed in November 2006. 88% of the apartments have now been sold and 5% reserved. The remaining 7% are expected to be sold by year end 2008. The total developed area for Immofinance in the project is 26,000 sq m, of which 15,917 sq m is for residential apartments.

Construction of Banya Spa & Wellness Resort, a complex of residential apartments, hotel, spa and sports facilities located in the Bulgarian Pirin Mountains, started in September 2006 and is expected to be completed in December 2008. The project has been launched for sales, with three completed. The gross floor area for Immofinance in the project is 18,924 sq m of which 12,029 sq m is for residential apartments and 6,895 sq m is for the hotel and spa.

Construction of Banya SPA II, a complex of holiday apartments, houses and a spa centre, is expected to start by year end 2008. A design permit has been obtained and construction of the spa centre is expected to be completed by mid 2009. The gross floor area for Immofinance in the project is projected at 26,500 sq m, of which 18,989 sq m is for residential apartments and 1,093 sq m is for the spa area.

Boyana Park is a modern gated community in Sofia which will consist of functional apartments, sports facilities, a community centre and retail premises. Immofinance sold 70% of the project in February 2008 to a Greek investor. Construction is expected to commence by year end 2008 and completed by year end 2010. The gross floor area is projected at 42,500 sq m, of which 26,438 sq m is for residential apartments and 3,490 sq m is for commercial use. 

Construction of The Boyana Diplomatic Club, a complex of luxury condominium apartments in Sofia aimed at the high-end residential market, is due to commence in Q2 2009. The gross floor area for Immofinance in the project is projected at approximately 5,000 sq m, all of which is for residential apartments.

Sozopolis is a complex of second home properties, a hotel, two restaurants, a spa centre and a supermarket on the Black Sea coast. Construction started in November 2007, with completion expected in Q3 2009. The gross floor area for Immofinance in the project is projected at 35,563 sq m, of which 29,962 sq m is for residential apartments and 2,534 sq m for the spa area. Five units (2,512 sq m) have been sold.

Construction of the Kavarna Blue Lagoon, a vacation complex for second home buyers by the Black Sea, is expected to commence by Q2 2009, with a completion date set for mid 2011. Immofinance is a 50% owner of the development. The total area developed for sale is projected at approximately 50,000 sq m. Detailed plans for the development are expected to be completed by Q2 2009.

CITADEL 

100% HOLDING AS AT 30 JUNE 2008

Citadel is a land holding company which has acquired 127 hectares of agricultural land in the northern outskirts of Bucharest, near the Snagov area some 25km outside the capital. EIB's 100% investment in Citadel as at 30 June 2008 has been valued at €3.86 million. EIB is in negotiations with a potential buyer for this land plot.

Statement of Net Assets

As at 30 June 2008

		(Unaudited) As at		(Audited) As at		(Unaudited) As at
	Notes	30 Jun 2008		31 Dec 2007		30 Jun 2007
		€000		€000		€000
Assets
Investments at fair value (cost:  30 Jun 2008: €208,429,000;  31 Dec 2007: €208,429,000;  30 Jun 2007: €106,625,000)	2	438,280		390,952		344,963
Cash and cash equivalents		17		1,938		8,068
Management fees in advance		1,996		-		2,880
Pending investments		-		-		7,400
Interest receivable		1		-		24
Loans receivable		35,288		31,735		-
Other debtors		22		911		882
		475,604		425,536		364,217
Liabilities
Loans payable		24,225		18,601		-
Agency and administration fees payable		38		37		203
Custodian fees payable		38		75		211
Directors' fees		45		-		44
Performance fees		-		1,201		4
Service fees		826		-		-
Aborted acquisition fees		576		-		-
Restructure cost fees		282		-		-
Technical support fees		165		-		-
Valuation fees		125		-		-
Other accrued liabilities		250		179		178
		26,570		20,093		640
Net assets attributable to shareholders		449,034		405,443		363,577
Number of shares	5	18,266		17,324		17,324
Net asset value per share	4	€24.58		€23.40		€20.99

The accompanying notes are an integral part of these financial statements.

  Unaudited Schedule of Investments

As at 30 June 2008

Investment	Cost €000	Fair value €000
			% of Net Assets
Electronics retail sector
AXIS Retail Holding	43,615	139,058	30.97%
AXIS R - Retail Holding	1,050	1,009	0.22%
AXIS S-RETAIL	5,750	6,814	1.52%
Techno-Mobile Holding Ltd	1,670	1,782	0.40%
	52,085	148,663
Automotive retail sector
Avto Union Holding Ltd	16,500	47,911	10.67%
	16,500	47,911
Property sector
BOROVETS Invest Ltd	21,070	69,689	15.52%
Citadel Financial Holding Ltd	3,395	3,858	0.86%
Familia Overseas Holding Ltd	11,428	-	0.00%
Immofinance Holding Ltd	29,773	39,186	8.73%
Pelican Retail Holding Ltd	21,000	35,746	7.96%
	86,666	148,479
Financial services sector
Vitosha Holding Ltd	17,100	54,893	12.22%
	17,100	54,893
Infrastructure sector
NOVERA Holding Limited	36,078	38,334	8.54%
	36,078	38,334
Total investments	208,429	438,280	97.61%
Cash		17	0.00%
Other assets and liabilities		10,737	2.39%
Total net assets		449,034	100.00%

The accompanying notes are an integral part of these financial statements.

Statement of Operations

For the period from 1 January 2008 to 30 June 2008

	Notes	(Unaudited) Period ended 30 Jun 2008		(Audited) Year ended 31 Dec 2007		(Unaudited) Period ended 30 Jun 2007
		€000		€000		€000
Income
Dividend income	2	-		9,735		814
Interest income		17		-		-
Investment income		-		1,038		-
Total investment income		17		10,773		814
Operating expenses
Investment management fees		887		5,747		2,874
Performance fees		-		1,172		(25)
Custodian fees		38		74		86
Amortisation of formation expenses		911		447		524
Audit fees		24		40		16
Legal fees		75		137		10
Administrative and agency fees		75		259		184
Directors' fees and expenses		162		96		56
Services fees		826		-		-
Aborted acquisition expense		656		-		-
Out of pocket expenses		417		-		-
Technical support fees		165		-		-
Valuation services expense		124		-		-
Other fees and expenses		134		975		244
Total operating expenses		4,494		8,947		3,969
Extraordinary expenses
Termination payment	3
- Performance fee cancelled		(1,201)		-		-
- Shares		12,647		-		-
- Warrants		480		-		-
Restructure expense		456		-		-
Total extraordinary expenses		12,382		-		-
Total expenses		16,876		8,947		3,969
Net investment (loss)/gain		(16,859)		1,826		(3,155)
Net realised (loss)/gain on foreign currency transactions		(4)		(3)		1
Net movement in unrealised gain on investments		47,327		93,552		56,663
Net increase in net assets resulting from operations		30,464		95,375		53,509

The accompanying notes are an integral part of these financial statements.

Statement of Net changes

For the period from 1 January 2008 to 30 June 2008

		(Unaudited) Period ended 30 Jun 2008		(Audited) Year ended 31 Dec 2007		(Unaudited) Period ended 30 Jun 2007
		€000		€000		€000
From operations
Net investment(loss)/gain		(16,859)		1,826		(3,155)
Net movement in realised (loss)/gain on currency transactions		(4)		(3)		1
Net movement in unrealised gain on investments		47,327		93,552		56,663
Net increase in net assets resulting from operations		30,464		95,375		53,509
From share capital transactions
Proceeds from shares issued		12,647		-		-
Issuance of warrants		480		-		-
Payments for shares redeemed		-		-		-
Net increase in net assets from share capital transactions		13,127		-		-
Net increase in net assets in the period		43,591		95,375		53,509
Net assets
Beginning of the period		405,443		310,068		310,068
End of period		449,034		405,443		363,577

The accompanying notes are an integral part of these financial statements.

  Statement of Cashflow

For the period from 1 January 2008 to 30 June 2008

	(Unaudited) Period ended 30 Jun 2008		(Audited) Year ended 31 Dec 2007		(Unaudited) Period ended 30 Jun 2007
	€000		€000		€000
Cash flows from operating activities:
Net increase in net assets resulting from operations	30,464		95,375		53,509
Adjustments for:
Net movement in unrealised gain on financial assets	(47,327)		(93,552)		(56,663)
Net cash flow before changes in financial assets and liabilities at fair value through profit and loss	(16,863)		1,823		(3,154)
Net decrease/(increase) in operating assets and liabilities	(257)		6,970		(4,157)
Net cash (used)/provided by operating activities	(17,120)		8,793		(7,311)
Purchase of investments	-		(69,793)		(60,693)
Net increase in loans receivable	(3,552)		(31,735)		-
Net increase in loans payable	5,624		18,601		-
Net cash provided/(used) by investment activities	2,072		(82,927)		(60,693)
Cash flows from share capital transactions
Shares issued	12,647		-		-
Issue of warrants	480		-
Shares redeemed	-		-		-
Net increase in net assets from share capital transactions	13,127		-		-
Net decrease in cash during the period	(1,921)		(74,134)		(68,004)
Cash and cash equivalents, being of period	1,938		76,072		76,072
Cash and cash equivalents, end of period	17		1,938		8,068
Supplementary cash flow information:
Interest received	16		-		-
Dividends received	-		9,735		-

The accompanying notes are an integral part of these financial statements

  Notes to the Financial Statements

For the period from 1 January 2008 to 30 June 2008

____________________________________________________________________________________

Note 1 - Operations

Equest Investments Balkans Ltd (the 'Company') was incorporated on 10 December 2003, as a private International Business Company under the British Virgin Islands International Business Companies Act (Cap. 291) and re-registered on 30 November 2006 as a British Virgin Islands Business Company under the British Virgin Islands Business Companies Act, 2004. The Company commenced operations on 14 April 2004. The shares of the Company were first listed on the Irish Stock Exchange on 19 April 2004. On 20 December 2006 the shares of the Company were listed on the AIM market of the London Stock Exchange ('AIM'). The Company delisted from the Irish Stock Exchange on 17 June 2008 as part of the reorganisation of the management of the Company and the transition of the Company from an investment fund to an industrial conglomerate (see Notes 3 and 7 below).

The Company's investment objective is to provide shareholders with long term capital growth. The Company will seek to achieve its investment objective by investing directly or indirectly in equity or equity related securities in developing enterprises organised or operating primarily in Bulgaria and Romania.

Note 2 - Basis of Preparation and Accounting Policies

During the period under review, the Company announced it is changing from an investment fund to an industrial conglomerate.  As a result of this change to the Company structure, the Company's Board of Directors believe it is appropriate to change the basis of estimate used to value the Company's investments.  

Investments are reported at fair value. The 'fair value' of an investment is defined as the price that the Company might reasonably expect to receive upon the investment's sale. Ascertaining fair value requires a determination of the amount that an arm's-length buyer, under the circumstances, would currently pay for the investment. The fair value of investments held by the Company is determined in good faith pursuant to procedures established by the Company's Executive Management and the Board of Directors.

To determine the fair value of investments the Board of Directors has appointed independent third party valuers to prepare semi-annual independent valuations of the Company's assets. 

The valuers applied the following methodology:

• For investments in established businesses with an identifiable stream of continuing earnings the independent expert reports to the Board on the fair market value of the investment. The valuations are prepared in accordance with the International Valuation Standards. Any assumptions made by the valuer are reviewed by the Executive Management and the Board of Directors for reasonableness. 

• Where an investment's value is derived mainly from the underlying value of its property assets the independent expert appoints qualified valuers to value the properties in accordance with the Royal Institute of Chartered Surveyors Appraisal and Valuation Standards. Any assumptions made by the valuer are reviewed by the Executive Management and the Board of Directors for reasonableness.

In prior accounting periods, in determining the estimated value of the Company's assets, the Company applied European Venture Capital Association ('EVCA') guidelines as the Board of Directors believed that the application of these guidelines was appropriate for the Company in the circumstances where the Company was managed externally as an investment fund. Applying the EVCA guidelines resulted in a marketability discount of €37,500,000 as at 31 December 2007 and €19,500,000 as at 30 June 2007.  

For the current period, the Board of Directors has concluded that, as a result of the reorganisation of the management of the Company and the ongoing transition of the Company from an investment fund to an industrial conglomerate, it is no longer appropriate to apply the EVCA guidelines to the determination of the value of the Company's investments. The interim financial statements for the period have, in all other respects, been prepared on a basis consistent with accounting policies set out in the Equest Investments Balkans Ltd audited annual report and financial statements for the year ended 31 December 2007.  

As noted earlier, the company is in transition from a fund to an industrial conglomerate. The Company has prepared its interim financial statements as a fund, and in accordance with US GAAP. This transition process commenced with the delisting of the Company's ordinary shares (the 'Ordinary Shares') from the Irish Stock Exchange on 17 June 2008. The Company is currently considering the most appropriate form to prepare and publish its financial statements in future periods. 

Note 3 - Investment manager termination payment

At the general meeting of the Company held on 25 April 2008, the Company's shareholders voted in favour of resolutions approving, among other matters, (i) the termination of the investment management agreement between the Company and the Investment Manager (the 'Investment Management Agreement') and (ii) the termination of the investment advisory agreement between the Company, the Investment Manager and the Investment Adviser (the 'Investment Advisory Agreement'). The aforementioned agreements were terminated effective 17 June 2008 and in consideration for such termination, Equest Capital Limited (an affiliate of the Investment Manager) ('ECL') received:

-    941,540 Ordinary Shares (the 'Consideration Shares'), representing 5% of the Ordinary Shares currently in issue; and

-    warrants entitling the holder to purchase 564,925 Ordinary Shares (the 'Warrants') representing

approximately 3% of the Ordinary Shares currently in issue.  

Note 4 - Distributions to Shareholders

The Board of Directors may declare distributions out of such sources and at such times as it from time to time may determine at its sole discretion. The Company does not currently intend to distribute its income or net realised capital gains. For the period from 1 January 2008 to 30 June 2008 no distributions were declared. The Board of Directors will periodically review its distribution policy in light of the Company's ongoing needs and operations.

  Note 5 - Net Asset Value

	(Unaudited) 30 Jun 2008		(Audited) 31 Dec 2007		(Unaudited) 30 Jun 2007
	€000		€000		€000
Net Asset value per financial statements	449,034		405,443		363,577
Write back listing cost expensed in period	-		-		3,192
Net Asset value per valuation at the end of the period	449,034		405,443		366,769
Number of shares in issue at period end	18,266		17,324		17,324
Net Asset Value per share as published per valuation	€24.58		€23.40		€21.17
Net Asset Value per share as per financial statements	€24.58		€23.40		€20.99
Difference between published Net Asset Value per share and financial statements Net Asset Value per share	-		-		€0.18

The reported Net Asset Value per share is calculated by dividing the adjusted Net Assets of the Company by the number of participating shares in issue.

Note 6 - Warrants

In accordance with US GAAP the final valuation for the warrants occurs when they are due to vest on 31 December 2008.  The current fair value of the warrants is €6,800,000 and is expensed on a straight line basis over the vesting period, which is from 17 June 2008 to 31 December 2008. As at 30 June 2008 the total expensed is €480,000. If exercised, the warrants, which entitle the holder to 564,925 shares, will have a dilutive effect on the net asset value per share of the company. The change in the NAV calculation policy adopted by the Board could affect the warrants vesting threshold as and when this is applied.  

Note 7 - Share Capital Authorised

The authorised share capital of the Company is 50,000,000 Ordinary shares of no par value. Prior to the listing on AIM the authorised share capital of the Company was 20,000,000 Class A shares of €0.01 each and 4 Class B shares of €100 par value each. All A Class shares were converted into Ordinary Shares on a one for one basis. The four Class B shares were repurchased and cancelled. 

Transactions in Ordinary Shares for the period were as follows:

	As at 30 June 2008
	Quantity of Warrants	Number of Shares	€000
Opening Balance as at 1 January 2008	-	17,324,350	242,145
Shares issued in period	-	941,540	12,647
Issuance of warrants	564,925	-	480
Payments from shares redeemed	-	-	-
Closing Balance as at 30 June 2008	564,925	18,265,890	255,272

Note 8 - Related Party Transactions 

Messrs. Karjalainen, Haataja and Krumov, Executive Directors of the Company, are the ultimate owners of the Investment Manager, the Investment Advisor and ECL, and the Company's entry into the agreements described below (all of which became effective on 17 June 2008) constituted related party transactions. Messrs. Karjalainen, Haataja and Krumov continue to have a material interest in these agreements. 

Termination Agreement and related Warrant Instrument

The Company, the Investment Manager, the Investment Adviser and ECL entered into the Termination Agreement, pursuant to which the Investment Management Agreement and the Investment Advisory Agreement were terminated in consideration for the Consideration Shares and the Warrants (as described in Note 3 above).

The Warrants were granted by the Company under a warrant instrument (the 'Warrant Instrument') and are exercisable at any time after the expiry of 12 months from 1 January 2008 on the condition that (i) the NAV per Ordinary Share reported immediately prior to the exercise of any Warrants is not less than the audited NAV per Ordinary Share as at 31 December 2007, and (ii) ECL is not in any material default at the date of exercise of such Warrants under the Termination Agreement, the Services Agreement or the Technical Support Agreement (details of which are set out below).

Pursuant to the Termination Agreement, the Investment Manager was entitled to management fees under the Investment Management Agreement at the annual rate of 2.5 per cent of committed capital up to 26 February 2008. Between 26 February 2008 and 17 June 2008, the Investment Manager is entitled to management fees under the Investment Management Agreement at the rate of 2.5 per cent of committed capital subject to the following adjustment - the Investment Manager is obliged to refund to the Company the difference between:

 (i)     any management fees paid to the Investment Manager for the period between 26 February 2008 and 17 June 2008 at the annual rate of 2.5 per cent of committed capital; and

(ii)     any fees that would have been payable to ECL under the Services Agreement and the Technical Support Agreement (based on the annual estimate of €480,000) pro rated for the period between 26 February 2008 and 17 June 2008 had the Services Agreement and the Technical Support Agreement been in force.

Both the Investment Manager and the Investment Advisor are entitled to receive reimbursement for any expenses accrued under the Investment Management Agreement up to 17 June 2008. 

The Consideration Shares and any Ordinary Shares issued upon the exercise of the Warrants are subject to certain lock-up arrangements.

Services Agreement

The Company together with each of Messrs. Karjalainen, Haataja and Krumov and ECL entered into a services agreement (the 'Services Agreement') pursuant to which, ECL agreed to procure that Messrs. Karjalainen, Haataja and Krumov and other senior managers are made available to the Company to perform such services as the Company may reasonably request and that Messrs. Karjalainen, Haataja and Krumov shall devote substantially all of their professional time and attention to the affairs of the Company for an initial term of four years, which shall renew automatically for successive one year terms unless either party gives to the other written notice of termination at least six months prior to the end of each anniversary. Under the Services Agreement, save as disclosed below, Messrs. Karjalainen, Haataja and Krumov are subject to certain non-compete and non-solicitation covenants. In addition, ECL and Messrs. Karjalainen, Haataja and Krumov are obliged to present any new business opportunities they identify in the target region (which includes Bulgaria, Romania, Albania, Croatia, FYR Macedonia, Kosovo, Bosnia and Herzegovina, the Republic of Serbia, Slovenia, the Republic of Montenegro, Turkey and Ukraine) (the 'Target Region') and which are within the remit of Company's investment objective and strategy to the Company on a pre-emptive basis. If the Board of Directors (excluding for these purposes Messrs. Karjalainen, Haataja and Krumov) determines that the Company is not interested in taking up a business opportunity, ECL and/or Messrs. Karjalainen, Haataja and Krumov shall be allowed to pursue it or make arrangements for someone else to pursue it on their behalf provided that the business opportunity does not compete with the Company's business activities and provided that Messrs. Karjalainen, Haataja and Krumov are still able to devote substantially all of their professional time and attention to the affairs of the Company.

Under the Services Agreement, ECL and Messrs. Karjalainen, Haataja and Krumov are allowed to own (directly or indirectly) interests in other businesses. If these businesses could compete with the Company, these ownership interests will be subject to a cap of 5% aggregate ownership or such higher percentage as may be approved by the Board of Directors. The Board of Directors must act reasonably in considering any request for approval of ownership interests exceeding 5% and, for this purposes, any of Messrs. Karjalainen, Haataja and Krumov will not be included in the consideration of the matter by the Board of Directors.

Under the Services Agreement, Messrs. Karjalainen, Haataja and Krumov are permitted to continue to provide consulting services to Equest Balkan Properties PLC, including assuming the position of non-executive directors and key individuals. In addition, Messrs. Karjalainen, Haataja and Krumov are permitted (i) to have executive appointments with ECL and its affiliates, (ii) to assume the position of director of any other companies provided such companies do not compete with the Company and, further provided, that such appointments are in a non-executive capacity and (iii) to own, directly or indirectly, and/or manage property developments in and outside the Target Region.

Under the Services Agreement, ECL is entitled to receive annual remuneration of €2.4 million payable in advance on a semi-annual basis. The remuneration shall be reviewed annually by the Board of Directors and may be increased at the discretion of a remuneration committee to be set up by the Board of Directors. In the event that the services of any two of Messrs. Karjalainen, Haataja and Krumov are no longer procured by ECL, the total compensation payable under the Services Agreement shall be reduced by 25 per cent until such time as ECL procures the services of a suitable replacement for at least one of such individuals. In addition to the annual remuneration, the Company must reimburse ECL for any reasonable out of pocket expenses incurred in the course of performance of the services under the Services Agreement.

Technical Support Agreement

ECL and the Company entered into a technical support agreement (the 'Technical Support Agreement') for an initial term of one year, renewable on an annual basis thereafter. Pursuant to the Technical Support Agreement, ECL is obliged to provide or procure the provision of back office technical support and other services necessary for the Company's day to day operations such as office premises in various locations, IT, administrative and finance services. The consideration payable to ECL under the Technical Support Agreement shall represent ECL's actual cost of providing the services (without any profit or mark up in favour of ECL). The Company may terminate any of the services being provided under the Technical Support Agreement (without prejudice to the continuance in force of the remainder of the agreement in respect of the provision of any other services) if it decides that it no longer needs such a service by giving ECL not less than 3 months' written notice of termination to take effect on or at any time after the expiry of the initial period.

Long Term Incentive Plan

The Company and ECL entered into a long term incentive plan (the 'LTIP') pursuant to which, ECL is entitled to an incentive fee (the 'Incentive Fee') if certain performance conditions are met. The first period for calculating an Incentive Fee began on 1 January 2008 and will end on 31 December 2008; each subsequent incentive period would be a period of twelve months ending on 31 December (an 'Incentive Period'). The LTIP shall be in place for an initial term of four years and thereafter shall remain in operation until termination of the Services Agreement.

The Company will pay the Incentive Fee in Ordinary Shares which shall be subject to certain lock-up arrangements. The Company has the right, at its absolute discretion, to pay the Incentive Fee in cash instead of in Ordinary Shares.

Directors' shareholdings in the Company

As at 30 June 2008:

-     Mr. Petri Karjalainen held 73,700 Ordinary Shares;

-     Mr. Kari Haataja held 11,402 Ordinary Shares;

-     Mr. George Krumov held 50,000 Ordinary Shares;

-     Mr. John Carrington  held 30,000 Ordinary Shares; and

-     Mr. James Ede-Golightly held 1,000 Ordinary Shares.

Save as disclosed above, no further material contracts for provisions of services existed during the period under review to which the Company is a party and in which any director was interested.

Note 9 - Financial Highlights

The financial highlights for the Company for the period from 1 January 2008 to 30 June 2008 are as follows:

Basic earnings per share for the period ended 30 June 2008 was €1.36. Basic earnings per share is based on the net investment loss in the statement of operations and the average number of shares in issue during the period 

	30 Jun 2008		31 Dec 2007		30 Jun 2007
	€		€		€
Per share operating performance (for a share of capital stock outstanding throughout the period)
Net Asset Value, beginning of period	23.40		17.90		17.90
Income from operations
Net investment loss/gain	(0.95)		0.11		(0.18)
Net unrealised gain on investment	2.13		5.39		3.27
Benefit of share premium on additional share issue	-		-		-
Net Asset Value, end of period	24.58		23.40		20.99
Total return	5.04%		30.73%		17.26%
Ratio of investment income to average net assets (annualised)	0.00%		2.97%		0.24%
Ratio of operating expenses to average net assets (annualised)	(1.05%)		(2.47%)		(1.18%)
Ratio of extraordinary expenses to average net assets (annualised)	(2.90%)		-		-
Ratio of unrealised gain on investments to average net assets (annualised)	11.08%		25.80%		16.82%
Ratio of net investment income to average net assets	7.13%		26.30%		15.88%

General Information

Registered Office HWR Services Craigmuir Chambers PO Box 71 Road Town Tortola British Virgin Islands

Irish Stock Exchange listing sponsor (from 1 January 2008 to 17 June 2008) Grant Thornton  24- 26 City House Dublin 2 Ireland

Board of Directors Kieron J O'Rourke - Independent Non Executive John Carrington - Independent Non Executive  James Ede-Golightly - Independent Non Executive  Robin James - Independent Non Executive  Petri Karjalainen - Executive Kari Haataja - Executive (appointed 23 June 2008) George Krumov - Executive (appointed 23 June 2008) Custodian Northern Trust (Ireland) Limited Georges Court 54-62 Townsend Street Dublin 2 Ireland Administrator, Secretary & Registrar Fastnet Ireland Limited* One Custom House Plaza Irish Financial Services Centre Dublin 1 Ireland Independent Auditor Grant Thornton  24- 26 City House Dublin 2 Ireland  Joint Broker KBC Peel Hunt Ltd 111 Old Broad Street London EC2N 1PH England

Legal Counsel to the Company Harney, Westwood & Riegels Craigmuir Chambers PO Box 71 Road Town Tortola British Virgin Islands Investment Advisor (from 1 January 2008 to 17 June 2008) Equest Partners Limited Manfield House 1 Southampton Street London WC2R 0LR  England Investment Manager (from 1 January 2008 to 17 June 2008) Equest Capital Management PO Box 3152 Road Town Tortola British Virgin Islands Nominated Adviser and Joint Broker Collins Stewart Europe Limited 9th Floor 88 Wood Street London EC2V 7QR England

*Fastnet Ireland Ltd acquired Olympia Capital (Ireland) Ltd on 31 May 2008.

 

END

 

 

IR SFFEEMSASELU