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Equest Inv Balkans (TBI)

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Tuesday 31 March, 2009

Equest Inv Balkans

Pre close trading update

RNS Number : 8753P
Equest Investments Balkans Ltd
31 March 2009
 



31 March 2009



EQUEST INVESTMENTS BALKANS LIMITED



Pre close trading update for the year ended 31 December 2008



Equest Investments Balkans Limited ('EIB' or the 'Company') today announces a pre close trading update ahead of the publication of its results for the year ended 31 December 2008, which are expected to be released in June 2009. EIB will, for the first time, be reporting consolidated financial statements prepared in accordance with International Financial Reporting Standards, International Accounting Standards and Interpretations (collectively 'IFRSs') issued by the International Accounting Standards Board.


The Company will also be announcing today, by means of a separate formal announcement the appointment, of Ian Schmiegelow as non-executive Chairman to replace John Carrington who is retiring.



Trading Update


The operating environment for EIB's portfolio companies in the retail, waste management, financial services and property development sectors in South East European markets became significantly more challenging in the second half of 2008 as the worsening effects of the global downturn impacted the local economies in which we operate. There appears to be little respite to date in 2009 and the outlook for 2009 remains challenging.


The management of EIB is focusing on taking immediate measures to protect the value of its investments and is currently focusing on (i) active management and control of its core holdings (ii) repayment of certain debt facilities particularly with respect to Novera and the Serdika development project, and (iii) the protection of Novera's waste disposal franchises in Sofia.


The Board of the Company has been significantly changed over the last few months with the appointment of a new independent non-executive Chairman together with two representatives of each of EIB's largest shareholders, the State General Reserve Fund of the Sultanate of Oman (the 'SGRF') and Kairos Investment Management Limited, joining the board as non executive directors. The Directors of EIB currently represent around 64% of the shares in the Company. 


The new Board is also in the process of re-evaluating the Company's strategy, including the disposal of non core businesses in order to raise capital to assist with further debt repayment, to improve liquidity for operations and to enable the Group to focus more closely on its core investments, particularly TechnomarketDomo N.V. ('TMD') and Borovets.


  

TechnomarketDomo (TMD) 


Despite the difficult trading conditions in 2008, the TMD group, which comprises our Technomarket and Domo branded electronics retail operations in Bulgaria and Romania, achieved growth in sales and in the 12 months ended 31 December 2008. Unaudited sales in the period were EUR 614 million (2007: EUR 569 million) of which EUR 416 million were from the Bulgarian operations (approximately 12% ahead of the corresponding period in 2007) and EUR 200 million in sales from the Romanian operations (approximately 4% ahead of the corresponding period in 2007). 

 

TMD, as the market leader in Bulgaria and one of the market leaders in Romania, continues operating profitably and gaining market shares in their respective core markets in Bulgaria and Romania. Overall gross margins for the TechnomarketDomo group remained strong in 2008 but marginally below budgets for 2008.


TMD has completed a reorganisation of its subsidiary shareholding structure in which the founders of Domo Retail SA (Romania) will exchange their remaining 25% minority shareholding in the Romanian Domo retail operation for newly issued shares of TMD, which represent 13% of the enlarged share capital of TMD. Following this share exchange, EIB will hold 61.8% of the shares in TMD (previously 71.2%) and TMD will own 100% of both the local Bulgarian and Romanian operating companies. 


The Board believes that the TMD group remains capable of servicing its debt from its current cash flows, however, it is expected that TMD and its shareholders will start discussing subscribing some further equity or equity linked investment in the business as well as seek to syndicate a part of the loan with other lenders in order to improve its debt ratios.



Borovets 


The investors in Borovets (Rila Samokov 2004 AD) are working on updating the project plan and the market study for this proposed large scale development to create an all year round leisure resort in Borovets, which is approximately 73 kilometers from the capital Sofia.  


The project is being divided into six separate sub-developments that can be individually developed, thus lowering the development risk of this large scale EUR 800 million project. The Borovets development company continues to add value to the project by preparing full architectural master designs and a detailed market study for current demand of residential apartments, whilst no construction works have been started and the project remains debt free. The investors will decide on further development commitments and timetable following the results of the updated market study. 


EIB currently indirectly owns 33.5%, and the SGRF currently indirectly owns 33.5%, of Rila Samokov 2004 AD.


Novera


As previously announced on 17 March 2009 Novera and its operating subsidiaries received letters from the Municipality of Sofia informing them that it was terminating with immediate effect the Concession Agreements. As grounds for such termination, the Municipality cited a letter from the local Environmental Inspectorate raising health and safety hazards and claimed 'non-performance' of the Concession Agreements by the Concessionaires. Novera received on 31 March 2009 notice dated 27 March 2009 from its senior lender to the effect that termination of the Concessions constitutes an event of default under the senior lender facility. 

 

EIB continues to reject the basis for such a termination and is consulting with its lenders, as well as both its own and its lenders' international and local legal counsel, with a view to seeking urgent redress and to the upholding of the Concession Agreements.

 

Novera remains fully committed to providing waste collection services to the Municipality of Sofia but actions taken by the Municipality prevent it from doing so.


EIB owns 94% of the shares in Novera and the cost of EIB's equity investment in Novera as at 30 June 2008 was Euros 21.5 million. Since 30 June 2008, as a part of a debt reorganisation, EIB has issued a corporate guarantee for a current value of approximately Euro 12.6 million to the senior lender.


Uniqa Bulgaria AD    


The Bulgarian insurance market grew by 21.5% for the period January - November 2008, but is currently showing slower growth in both life and non-life segments coupled with the downturn in the local economy.


Uniqa Bulgaria AD, the fifth largest life and non-life insurance company in Bulgaria, experienced slower than expected growth in the final quarter of 2008, which together with the discontinuation of long dated third party motor insurance in early 2009 adversely affected Uniqa Bulgaria's growth in 2009. 


Growth in gross written premiums was 9.8% or EUR 66.5 million in unaudited premium income for the 12 month period to 31 December 2008. Uniqa Bulgaria AD is the second largest life insurer in Bulgaria during the period with a market share of nearly 14.4% and 21.4% growth in gross written premiums during 2008, compared to the same period last year. In non-life, the company grew gross written premiums by approximately 5.7% during the period. 


As at 31 December 2008 and currently, EIB owns 37.72% of Uniqa Bulgaria (31 December 2007: 37.72 %). Under an existing agreement EIB is selling down its holding to Uniqa International over the period to 2010, based on a pre agreed sale valuation methodology. In 2007, EIB sold 31% in Uniqa Bulgaria for total consideration of EUR 22.5 million, which was received in 2008.



Avto Union 


EIB's automotive distribution subsidiary, Avto Union, recorded 15% growth in cars sold or 3,769 vehicles sold during 2008 compared with the corresponding period in 2007. Unaudited sales for the 12 month period were EUR 70.5 million. Overall new car sales growth in Bulgaria over the last 12 months to 31 December 2008 has slowed to 6.1% versus 22.2% in the corresponding period in 2007.


As a result of the economic climate, the Bulgarian car market is currently experiencing a very significant drop in new car demand which has been exacerbated by the limited supply of available leasing financing in the market. In light of these adverse developments in the market EIB is also re-evaluating its options in regards to its investment in Avto Union.

 

Avto Union's 28,000 square meter flagship office and retail development, 'Avto Union Center', completed in 2008 and located near the Sofia International Airport still continues to seek tenants for its 10,400 square meter office section. 


Avto Union is currently in discussions with its lending bank to restructure the EUR 16 million loan (including overdue interest payments) related to the construction of the Avto Union Center.  The current facilities expire on 20 April 2017. This facility is guaranteed by Avto Union and its operating companies. 


EIB owns 80% of Avto Union. 



Non core property asset disposal program


EIB has previously announced that it is seeking to dispose of its non core property holdings held through Pelican, Immofinance and Citadel. EIB has been active in marketing its properties, and is in detailed negotiations for the disposal of certain properties; however the demand for commercial and residential property has slowed significantly. 


Additionally, Pelican Retail Holding Limited ('Pelican'), a wholly-owned subsidiary of EIB, is due to repay a EUR 15 million loan by 31 March 2009 to Uniqa Real Estate. Uniqa Real Estate advanced the loan to Pelican in relation to the expected acquisition by Uniqa Real Estate of a property in the Pelican portfolio, as a pre payment of part of the purchase price for the property. Uniqa Real Estate has now indicated that it no longer wishes to proceed with the purchase of the Pelican portfolio and it has requested repayment of the loan. Repayment of the loan is secured by a pledge over EIB's interest in 37.7% of the shares of Uniqa Bulgaria AD. EIB is in discussions with Uniqa Real Estate to extend the due date for the loan. 


Immofinance, the EIB owned residential development company, is also in negotiations with its lenders to restructuring its EUR 27.9 million construction loans and interest payments, as the sales of Immofinance's residential and leisure projects in Sozopol and Banya have been very significantly affected in the current market conditions.




For further information please contact:


Equest Investments Balkans Limited

+ 44 20 7240 7600

Petri Karjalainen

Naomi Kora


Financial Dynamics

+ 44 20 7831 3113

Nick Henderson

David Cranmer 


Collins Stewart Europe Limited (Nomad)

+ 44 20 7523 8350

Hugh Field


KBC Peel Hunt Limited (Broker)

+ 44 20 7418 8900

Capel Irwin



Notes to Editors:


Equest Investments Balkans Limited is an AIM traded industrial conglomerate for the South East European region which was established in 2004. Today the Company has majority controlling stakes in companies including TechnomarketDomo, the market leader in electronics retail in the region, as well as Novera, a waste collection operation for the city of Sofia, and Avto Union, an automotive importer and distributor for Bulgaria. The Company is also a strategic partner with Austria's leading insurance company Uniqa jointly holding the 5th largest insurer in Bulgaria and a joint venture partner with SGRF in the large scale Borovets mountain resort development project. Additionally the Company has select property investments and developments through its subsidiaries Pelican and Immofinance that are currently in a disposal program.



This information is provided by RNS
The company news service from the London Stock Exchange
 
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