20 Apr 2009 07:00
Dragon-Ukrainian Properties & Development Plc
("DUPD" or the "Group")
Final Results for the Year Ended 31 December 2008
The Company announces is annual financial results for the year ended 31 December 2008.
Chairman's statement
I am pleased to present the annual results of Dragon-Ukrainian Properties and Development plc for the year ended 31 December 2008. Despite the unprecedented economic downturn and consequent rapid decline of property values, we have made good operational progress on all of our projects and been successful in managing and minimizing the impact of adverse market conditions. Throughout the year, our management effort was focused on risk management and tight control of capital expenditures, coupled with constant review of performance of each project, and our drive towards long-term value creation makes me believe that we are well positioned to cope with the current market downturn. Our initial decision to refrain from leveraging the development projects prior to exhausting the equity capital assigned on each project, coupled with our strong cash balance, clearly distinguishes us among our competitors and allows to ultimately take advantage of market opportunities as they arise.
In line with the rest of the sector, our financial results are, of course, significantly impacted by the general economic situation which has resulted in significant asset value writedowns throughout the industry. During the year our NAV per share has decreased by 4.5% to USD 2.35 per share. The Company's loss before taxes for the year amounted to USD 62 million, which is stated after accounting for changes in the value of our investment properties. Excluding these, our operating profit before tax for the year would be USD 8.9 million.
In accordance with the resolutions of Shareholders at meetings dated July 31 and December 1, the Company has been actively pursuing a share buy-back program, starting from August, 2008. As of December 31, 2008 we have successfully acquired 8,943,000 shares, or 6.3% of the Company's share capital for a total consideration of GBP 3.9 million (USD 6.4 million). All of the acquired shares were canceled immediately post acquisition. It is our strong belief that such effort resulted in creating substantial long-term value for our shareholders as all of the aforementioned acquisitions were made at a substantial discount to the Company's NAV, and in some instances even at a discount to our cash balance.
Given the difficult situation in the Ukrainian banking sector and absence of project financing products, we feel privileged to have no gearing at the moment and to possess adequate equity capital to continue funding the soft development costs throughout 2009 and construction works thereafter. At the same time our focus is on the cash flow management and preservation of the Company's strong cash position. We are constantly reviewing our cost base and strategy on every project and believe we maintain a lean operation. During the year we have reduced our commitments on existing projects by USD 18.3 million, which allowed us to have a strong cash balance of USD 121.2 million as of year end. It is the intention of the Board to continue exercising tight control over our capital and operational expenditures.
Outlook
Clearly we see the immediate future for our industry, and Ukrainian real estate market in particular, as rather challenging. At the same time, such market environment creates opportunities that we could take advantage of. We expect our hands-on management together with local presence and market expertise to give us an opportunity to assess possibilities of acquiring existing quality properties at distressed valuations. At the same time we continue to build value on our existing assets through pro-active management and constant reassessment of our strategy for each particular project. Based on the progress to date, I am confident that the permitting and development processes on existing projects will continue as planned, thus creating additional value for our shareholders. In my opinion, our continued focus on efficient cash flow management coupled with the quality of our asset base puts us into an advantageous position to weather the storm throughout the financial crisis and outperform our peers in the mid-term prospective.
Aloysius Wilhelmus Johannes Van der Heijden
Non Executive Chairman
Enquiries:
For further information, please contact:
Dragon-Ukrainian Properties & Development Plc (www.dragon-upd.com)
Tomas Fiala
+380 44 490 7120
Dragon Capital Partners Limited
Chris Kamtsios: + 380 44 490 7120
KBC Peel Hunt Ltd (Nominated Adviser and Broker)
Capel Irwin: + 44 20 7418 8900
Daniel Harris
Consolidated Balance Sheet as at 31 December 2008
| Consolidated | Consolidated | ||
| 2008 | 2007 | ||
| (in thousands of USD) | |||
| Assets | |||
| Non-current assets | |||
| Investment properties | 70,225 | 105,796 | |
| Property under construction | 2,559 | - | |
| Prepayments for land |
| 122,440 | 96,000 |
| Investments in subsidiaries | - | - | |
| Investments in associate |
| 13,151 | 16,209 |
| Long-term loan | 1,378 | - | |
| Property and equipment | 63 | 28 | |
| Intangible assets | 24 | - | |
| Total non-current assets | 209,840 | 218,033 | |
| Current assets | |||
| Inventories | 70 | 168 | |
| Loans to Group companies | - | - | |
| Trade and other receivables | 757 | 4,839 | |
| Prepaid income tax | 16 | - | |
| Cash and cash equivalents | 121,216 | 178,350 | |
| Total current assets | 122,059 | 183,357 | |
| Total assets | 331,899 | 401,390 | |
| Consolidated | Consolidated | ||
| 2008 | 2007 | ||
| (in thousands of USD) | |||
| Equity and Liabilities | |||
| Equity | |||
| Share capital | 2,668 | 2,813 | |
| Share premium | 292,127 | 293,994 | |
| Retained earnings | 18,429 | 53,139 | |
| Total equity attributable to equity holders of the Parent Company | 313,224 | 349,946 | |
| Minority interests | - | 16,216 | |
| Total equity | 313,224 | 366,162 | |
| Non-current liabilities | |||
| Deferred tax liabilities | 15,929 | 25,051 | |
| Total non-current liabilities | 15,929 | 25,051 | |
| Current liabilities | |||
| Trade and other payables | 2,735 | 10,163 | |
| Income tax payable | 11 | 14 | |
| Total current liabilities | 2,746 | 10,177 | |
| Total liabilities | 18,675 | 35,228 | |
| Total equity and liabilities | 331,899 | 401,390 | |
| Consolidated Statement of Operations | For the year ended 31 December 2008 | For the period From 23 February to 31 December 2007 |
| Consolidated | Consolidated | |
| (in thousands of USD) | ||
| Rental income | 818 | - |
| Fair value (losses) gains on revaluation of investment properties | (70,907) | 10,159 |
| Management and performance fees | (4,769) | (10,388) |
| Administrative expenses | (2,035) | (835) |
| Other expenses | (51) | - |
| Other income | 37 | - |
| Loss from operating activities | (76,907) | (1,064) |
| Gain on acquisition of subsidiary | - | 36,503 |
| Gain on recognition of joint venture | 8,398 | - |
| Net financial income | 10,586 | 5,498 |
| Share of the (loss) profit of associates | (4,116) | 8,209 |
| (Loss) profit before income tax | (62,039) | 49,146 |
| Income tax benefit (expense) | 14,553 | (3,260) |
| Net (loss) profit | (47,486) | 45,886 |
| Attributable to: | ||
| Equity holders of the Parent Company | (46,457) | 46,039 |
| Minority interests | (1,029) | (153) |
| Net (loss) profit for the year | (47,486) | 45,886 |
| (Loss) earnings per share | ||
| Basic (loss) earnings per share (in USD) | (0.34) | 0.61 |
| Diluted (loss) earnings per share (in USD) | (0.34) | 0.60 |
The Directors believe that all results derive from continuing activities.
Consolidated Statement of Cash Flow
| For the year ended 31 December 2008 | For the period from 23 February to 31 December 2007 | ||
| Consolidated | Consolidated | ||
| (in thousands of USD) | |||
| Cash flow from operating activities | |||
| Profit (loss) before income tax | (62,039) | 49,146 | |
| Adjustments for: | |||
| Gain on acquisition of subsidiary and minority interest | - | (36,503) | |
| Gain on acquisition of joint venture | (8,398) | - | |
| Fair value losses (gains) on revaluation of investment properties | 70,907 | (10,159) | |
| Depreciation | 7 | - | |
| Share of the loss (profit) of associates | 4,116 | (8,209) | |
| Net financial income | (10,586) | (5,498) | |
| Operating cash flow before changes in working capital | (5,993) | (11,223) | |
| Decrease (increase) in inventories | 98 | (140) | |
| Decrease (increase) in trade and other receivables | 3,739 | (4,103) | |
| Decrease (increase) in loans to Group companies | - | - | |
| Increase (decrease) in trade and other payables | (3,015) | 10,092 | |
| Share based payments | 19 | 18 | |
| Income tax paid | (78) | - | |
| Cash flows (used in) from operating | |||
| activities | (5,230) | (5,356) | |
| For the year ended 31 December 2008 | For the period from 23 February to 31 December 2007 | ||
| Consolidated | Consolidated | ||
| (in thousands of USD) | |||
| Cash flow from investing activities | |||
| Interest received | 10,839 | 4,780 | |
| Acquisition of investment properties | (15,691) | (8,038) | |
| Acquisition of property, equipment and intangible assets | (66) | - | |
| Prepayments for land | (26,440) | (96,000) | |
| Disbursement of long-term loan | (1,350) | - | |
| Acquisition of subsidiary and minority interest, net of cash acquired | (3,455) | (12,925) | |
| Acquisition of joint venture, net of cash acquired | (3,455) | - | |
| Investments in associates | (6,000) | (8,000) | |
| Cash flows (used in) from investing | |||
| activities | (45,618) | (120,183) | |
| Cash flow from financing activities | |||
| Proceeds from issue of share capital | - | 303,889 | |
| Purchase of own shares | (6,444) | - | |
| Cash flows (used in) from financing | |||
| activities | (6,444) | 303,889 | |
| Net (decrease) increase in cash and cash equivalents | (57,292) | 178,350 | |
| Cash and cash equivalents at 1 January | 178,350 | - | |
| Effect of the foreign exchange fluctuation on cash balances | 158 | - | |
| Cash and cash equivalents at 31 | |||
| December | 121,216 | 178,350 | |
Consolidated Company statement of Changes in Equity
| Attributable to equity holders of the Parent Company | ||||||
| Share capital | Share premium | Retained earnings | Total | Minority interests | Total | |
| (In thousands of USD) | ||||||
| Balances at 23 February 2007 | - | - | - | - | - | - |
| Net profit (loss) for the period from 23 February to 31 December 2007 | - | - | 46,039 | 46,039 | (153) | 45,886 |
| Share based compensation | 18 | 18 | - | 18 | ||
| Total recognized income and expenses | - | - | 46,057 | 46,057 | (153) | 45,904 |
| Shares issued | 2,813 | 305,187 | - | 308,000 | - | 308,000 |
| Cost of shares issued: | ||||||
| Cash | - | (4,111) | - | (4,111) | - | (4,111) |
| Share based payments | - | (7,082) | 7,082 | - | - | - |
| Acquisition of subsidiary | - | - | - | - | 16,369 | 16,369 |
| Balances at 31 December 2007 | 2,813 | 293,994 | 53,139 | 349,946 | 16,216 | 366,162 |
| Net loss for the year ended 31 December 2008 | - | - | (46,457) | (46,457) | (1,029) | (47,486) |
| Share based compensation | - | - | 19 | 19 | - | 19 |
| Total recognized income and expenses | - | - | (46,438) | (46,438) | (1,029) | (47,467) |
| Shares issued to pay performance fee | 34 | 4,398 | - | 4,432 | - | 4,432 |
| Purchase of own shares | (179) | (6,265) | - | (6,444) | - | (6,444) |
| Acquisition of minority interest | - | - | 11,728 | 11,728 | (15,187) | (3,459) |
| Balances at 31 December 2008 | 2,668 | 292,127 | 18,429 | 313,224 | - | 313,224 |
Notes to this results announcement
Below is an extract from the notes to the full Annual Report and Accounts of the Company for the period ended 31December 2008.
1. Basis of Preparation
These consolidated financial statements are prepared in accordance with International Financial Reporting Standards.
2. Segment Reporting
Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate assets and expenses.
Statement of operations information by business segment for the year ended 31 December 2008 is as follows:
| Land banking | Mixed-use | Retail | Residential | Unallocated | Total | |
| (in thousands of USD) | ||||||
| Rental income | - | 818 | - | - | - | 818 |
| Fair value losses on revaluation of investment properties | - | (56,328) | (11,900) | (2,679) | - | (70,907) |
| Management and performance fees | (2,606) | (726) | (765) | (672) | - | (4,769) |
| Administrative expenses | (29) | (729) | (70) | (157) | (1,050) | (2,035) |
| Other expenses | - | - | - | (51) | - | (51) |
| Other income | - | 36 | - | 1 | - | 37 |
| Loss from operating activities | (2,635) | (56,929) | (12,735) | (3,558) | (1,050) | (76,907) |
| Gain on recognition of joint venture | - | - | 8,398 | - | - | 8,398 |
| Net financial income (expense) | 3 | (70) | (121) | (132) | 10,906 | 10,586 |
| Share of the loss of associate | - | - | (4,116) | - | - | (4,116) |
| Profit (loss) before income tax | (2,632) | (56,999) | (8,574) | (3,690) | 9,856 | (62,039) |
| Income tax benefit (expense) | - | 13,804 | 2,727 | (1,938) | (40) | 14,553 |
| Net segment profit (loss) | (2,632) | (43,195) | (5,847) | (5,628) | 9,816 | (47,486) |
Assets and liabilities by business segments as at 31 December 2008 are as follows:
| Land banking | Mixed-use | Retail | Residential | Unallocated | Total | |
| (in thousands of USD) | ||||||
| Segment assets | 116,955 | 32,561 | 21,188 | 30,143 | - | 200,847 |
| Investment in associates | - | - | 13,151 | - | - | 13,151 |
| Unallocated assets | - | - | - | - | 117,901 | 117,901 |
| Total assets | 116,955 | 32,561 | 34,339 | 30,143 | 117,901 | 331,899 |
| Segment liabilities | 1,013 | 8,316 | 3,079 | 5,531 | 736 | 18,675 |
| Total liabilities | 1,013 | 8,316 | 3,079 | 5,531 | 736 | 18,675 |
| Capital expenditures | 20,940 | 4,588 | 13,202 | 16,353 | 24 | 55,107 |
| Depreciation | - | - | - | - | 7 | 7 |
3. Taxation
(i) Income tax expense
Income taxes for the year ended 31 December 2008 and for the period from 23 February to 31 December 2007 are as follows:
| Consolidated | Consolidated | |
| 2008 | 2007 | |
| (in thousands of USD) | ||
| Current tax expense | (59) | (14) |
| Deferred tax benefit 0(expense) | 14,612 | (3,246) |
| Total benefit (expense) | 14,553 | (3,260) |
The applicable tax rate is 25% for Ukrainian companies and 10% for Cyprus companies.
(ii) Reconciliation of effective tax rate
The difference between the total expected income tax (benefit) expense for the year ended 31 December 2008 and for the period from 23 February to 31 December 2007 computed by applying the Ukrainian statutory income tax rate to (loss) profit before tax and the reported tax (benefit) expense is as follows:
| 2008 | % | 2007 | % | |
| (in thousands of USD) | ||||
| (Loss) profit before tax | (62,039) | 100 | 49,146 | 100 |
| Computed expected income tax (benefit) expense at statutory rate | (15,510) | 25 | 12,286 | 25 |
| Effect of lower tax rates | (2,835) | 5 | (5,958) | (12) |
| Non-taxable income (income earned by holding companies) | (840) | 1 | (3,438) | (7) |
| Non-deductible expenses | 3,399 | (5) | 18 | 1 |
| Change in unrecognized temporary differences | 1,233 | (2) | 352 | - |
| Effective income tax (benefit) expense | (14,553) | 24 | 3,260 | 7 |
4. Earnings per share
Basic earnings per share
The calculation of basic earnings per share is based upon the loss for the year ended 31 December 2008 attributable to the ordinary shareholders of USD 47,486,000 (for the period from 23 February to 31 December 2007: based on the profit of USD 45,886,000) and a weighted average number of ordinary shares outstanding calculated as follows:
| 2008 | 2007 | |
| (in number of shares weighted on the period outstanding) | ||
| Shares issued on incorporation on 23 February | 2 | 1 |
| Sub-division of GBP 1 shares into GBP 0.01 shares on 16 May | 198 | 10 |
| Shares issued on 1 June | 104,000,000 | 60,333,449 |
| Shares issued on 29 November | 36,630,100 | 14,874,359 |
| Shares issued on April 2008 | 1,693,776 | - |
| Effect of own shares buyback | (1,289,612) | - |
| Weighted average number of shares for the period | 141,034,464 | 75,207,819 |
Diluted earnings per share
The calculation of diluted earnings per share is based on the loss for the year ended 31 December 2008 attributable to ordinary shareholders of USD 47,486,000 (for the period from 23 February to 31 December 2007: based on the profit of USD 45,886,000) and a weighted average number of ordinary shares outstanding after adjustment for the effects of all dilutive potential ordinary shares calculated as follows:
| 31 December 2008 | 31 December 2007 | |
| (in number of shares) | ||
| Weighted average number of shares for the year ended 31 December | 141,034,464 | 75,207,819 |
| Share options | - | 14,628 |
| Warrants | - | 912,807 |
| Weighted average number of shares for the period (fully diluted) | 141,034,464 | 76,135,254 |
Because during the year ended 31 December 2008 the average market price of ordinary shares was below the exercise price of the share options and warrants these options and warrants have no dilutive effect.
5. Related party transactions
(i) Transactions with management and close family members
Key management remuneration
Key management compensation included in the statement of operations for the year ended 31 December 2008 and for the period from 23 February to 31 December 2007 are as follows:
Key management personnel and director transactions
The Directors owned shares in the Parent Company as at 31 December as follows:
| 2008 | 2007 | |||
| Number of shares | Ownership, % | Number of shares | Ownership, % | |
| Aloysius Johannes van der Heijden | 200,000 | 0.15 | - | - |
| Tomas Fiala | 6,831,500 | 5.12 | 6,831,500 | 4.9 |
| 7,031,500 | 5.27 | 6,831,500 | 4.9 | |
Boris Erenburg, one of the Group's directors, is also an executive of Spinnaker Capital Group, which acquired 14,874,400 shares (10.5%) of the Group during the first and second share issues.
Tomas Fiala, one of the Group's directors, is the principal shareholder and managing director of Dragon Capital Group which acquired 6,831,500 shares (5.12%) of the Group during the first and second share issues. Also Tomas Fiala is a director in Dragon Capital Partners, which has received as settlement of 70% of the performance fee in the form of 1,698,416 newly issued ordinary shares.
(ii) Transactions with other related parties
Expenses incurred and outstanding balances of transactions for the year ended 31 December 2008 and for the period from 23 February to 31 December 2007 are as follows:
| 2008 | 2007 | |||
| Transactions | Balance outstanding | Transactions | Balance outstanding | |
| (in thousands of USD) | ||||
| Payment to DRGN LTD | ||||
| Brokerage fee for initial public offering | - | - | 2,048 | - |
| Brokerage fee for second issue of shares | - | - | 999 | 999 |
| Expenses to be reimbursed to Manager | 164 | 164 | - | - |
| 164 | 164 | 3,047 | 999 | |
All outstanding balances are to be settled in cash within six months of the balance sheet date. None of the balances are secured.
7. Results Announcement
This results announcement was approved by the Board on 16 April 2009. This announcement does not constitute the Company's statutory accounts and has been extracted from the statutory accounts, the full text of which can be read on the Company's web-site at www.dragon-upd.com.
8. Annual report and Accounts
The Annual Report and Accounts for the year ended 31 December 2008 will be posted to shareholders on or around 1 May 2009. Copies will also shortly be available at the Company's registered office address and on the Company's website.
9. Annual General Meeting
The Annual General Meeting of the Company will be held at 11.15 am on 29th May 2009 at Standard Bank House, One Circular Road Douglas, Isle of Man, IM1 1SB of which will be posted to shareholders with the Annual Report and Accounts.