IRF.L Regulatory News (IRF)

30 Nov 2006 08:56

IRF European Fin Investments Ltd 30 November 2006 IRF European Finance Investments Limited Interim Financial Statements for the nine month period from the 1st of Januaryto the 30th of September 2006 30 November 2006 IRF European Finance Investments Ltd (AIM:IRF) announces its interim results forthe nine months ended 30 September 2006. Highlights: 2006 is IRF's first year of actual operation, and as a result there is nocomparison available for the previous year. In addition, reference is confinedto the most significant figures of 2006. - IRF's main investment activity was the acquisition of a controlling stake inProton Bank. Following the acquisition, Proton merged with Omega Bank on 29September 2006. As a result, IRF currently owns 20.16 per cent of Proton. - Shareholders' equity increased from • 8.9 million to • 225 million followingthe acquisition of Proton Bank and the release from trust of the net proceedsfrom IRF's initial public offering. - Profit after tax for the period 1 January to 30 September reached €14.3million (including minority interests of €4.4 million) and was derived from netinterest income on funds invested in short term money instruments as well astrading profit. - IRF's results for the period include Proton's bank results for the periodpost-acquisition but do not include Omega bank results. - (diluted) earnings per share reached • 0.16 based on 63.4 million fullydiluted shares. Commenting on the results, Angeliki Frangou, chairperson of IRF European FinanceInvestments Ltd, said: "We are pleased to announce IRF's interim results forthe period 1 January to 30 September 2006. The acquisition of Proton Bank hasalready been reflected in the Group's increase in equity while the profit forthe period has resulted in earnings per share of €0.16. We look forward to thecontinued implementation of our strategic business plan over the coming months." For further information: IRF European Finance Investments Ltd Angeliki Frangou, Chairperson Tel: +30 (0) 210 4280560 Collins Stewart Europe LimitedKripa Radhakrishnan / Stewart Wallace, Corporate Finance Tel: +44 (0) 20 7523 8350 About IRF IRF was formed to invest in the financial services industry throughout Europewith a primary focus on credit institutions and insurance companies in SouthEastern Europe. IRF's current strategy is the acquisition of financialinstitutions having valuations which do not reflect their potential and wheremarketing and operational efficiencies are possible. IRF owns a 20.16 per cent.interest in Proton Bank S.A.. About Proton Bank Proton Bank is a full service financial services institution, including retailand investment banking as well the provision of specialised corporate advisoryand investment services. Proton Bank is listed on the Athens Stock Exchange. Statement of Directors' responsibilities in respect of the interim accounts The Directors are responsible for preparing the interim accounts andconsolidated interim accounts which present fairly the financial position andthe performance of the Company and the Group (ref. par. 6.5) in accordance withapplicable law and regulations. They have elected to prepare the interim financial statements and consolidatedinterim financial statements in accordance with the IFRS as adopted by the EU. In preparing these interim accounts, the Directors: • select suitable accounting policies and then apply them consistently; • make judgments and estimates that are reasonable and prudent; • state whether they have been prepared in accordance with the IFRS asadopted by EU and; • prepare the interim accounts on the going concern basis unless it isinappropriate to presume that the Group will continue in business. The Directors are responsible for keeping proper accounting records thatdisclose with reasonable accuracy at any time the financial position of theCompany and the Group and enable them to ensure that their interim accountscomply with applicable laws and regulations. They have general responsibilityfor taking such steps as are reasonable open to them to safeguard the assets ofthe Group and the Company and to prevent and detect fraud and otherirregularities. Auditor's Review Report To the shareholder of "IRF European Finance Investments Limited" We have reviewed the accompanying Interim Financial Statements and theConsolidated Interim Financial Statements of the "IRF European FinanceInvestments Limited", as of and for the nine-month period ended 30 September2006. These interim financial statements are the responsibility of the Company'smanagement. We conducted our review in accordance with the Greek Review Standard, which hasadopted the International Standard on Review Engagements. This Standard requiresthat we plan and perform the review to obtain moderate assurance as to whetherthe interim financial statements are free of material misstatement. A review islimited primarily to inquiries of company personnel and analytical proceduresapplied to financial data, and thus provides less assurance than audit. We havenot performed an audit and, accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believethat the accompanying Interim Financial Statements of the Company and of that ofthe Group do not give a true and fair view in accordance with the InternationalFinancial Reporting Standards that have been adopted by the European Union. Without qualifying our review conclusion, we draw attention to note 23.2 to theinterim financial statements that the tax obligations of the Group for periodscovering one to five years and the period ended 30 September 2006 have not yetbeen audited by the tax authorities and accordingly its tax obligations forthese years are not considered final. The outcome of a tax audit cannot be atthis stage reliably estimated. 1. Income Statement THE GROUP THE COMPANYAmounts in thousands • Note 01/01 - 30/09/ 01/07 - 30/09/ 01/01 - 30/09/ 01/07 - 30/09/ 2006 2006 2006 2006Continuing OperationsInterest and Similar Income 10.030 3.550 7.031 550Interest and Similar Charges (1.374) (1.374) (1) (1)Net Interest Income 8.656 2.176 7.030 550Fee and Commision Income 3.065 3.065 0 0Fee and Commision Expense (2.197) (2.153) (430) (385)Net Fee and Commission Income 867 912 (430) (385)Dividend Income 661 661 0 0Net Trading Income 8.338 8.338 0 0Other Operating Income 930 930 888 888Total Net Income 19.452 13.016 7.489 1.053Operating Expenses (3.567) (3.388) (348) (169)Total Operating Expenses (3.567) (3.388) (348) (169)Profit before Income Tax 15.886 9.628 7.141 884Income Tax Expense 20 (1.534) (1.534) 0 0Profit for the Period 14.351 8.094 7.141 884 Attributable to: Equity holders of the parent 9.941 3.684 7.141 884 Minority Interests 4.410 4.410 0 0 14.351 8.094 7.141 884 Basic earnings per Share (in Euro / 21 0,17 0,06 0,12 0,02share)Diluted earnings per Share (in Euro 21 0,16 0,06 0,11 0,01/share) The results above relate to continuing operations. The notes on the followingpages form an integral part of these interim financial statements andconsolidated interim financial statements. 2. Balance Sheet Amounts in thousands • THE GROUP THE COMPANY Note 30/9/2006 31/12/2005 30/9/2006 31/12/2005ASSETSCash and balances with central bank 11 31.646 0 0 0Loans and advances to Credit Institutions 12 153.087 0 0 0Cash and other cash equivalents 13 6.749 2.206 4.685 2.206Loans and advances to customers, net 839.916 0 0 0Restricted cash held in Trust 15 0 210.294 0 210.294Insurance Related Assets 21.817 0 0 0Financial Assets at Fair Value through 214.744 0 0 0profit or lossAvailable-for-sale Financial Assets 16 187.840 0 0 0Derivative financial instruments - assets 781 0 0 0Investments in Subsidiaries 0 0 126.687 0Investments in Associates 4.363 0 0 0Property, plant and equipment, net 33.662 0 0 0Investment Property 50 0 0 0Goodwill and other Intangible Assets 10 179.180 0 0 0Deferred Tax Assets 1.393 0 0 0Other Assets 80.960 5 148.942 5Total Assets 1.756.189 212.506 280.314 212.506 LIABILITIESDue to banks 44.221 0 0 0Due to Customers 1.002.643 0 0 0Derivative financial instruments - 2.413 0 0 0liabilitiesObligations from bonds 1.500 0 0 0Provision for insurance contracts 35.336 0 0 0Retirement benefit obligations 1.625 0 0 0Other borrowed funds 17 75.000 0 75.000 0Other liabilities 67.473 170 507 170Compound financial instrument 18 134 203.426 134 203.426Total Liabilities 1.230.344 203.596 75.641 203.596 SHAREHOLDERS' EQUITYEquityShare Capital 19 71 71 71 71Warrants Reserve 19 198.856 10.234 198.856 10.234Revaluation Reserves 1.742 0 0 0Other reserves 16.099 0 0 0Retained Earnings / (losses) 8.278 (1.396) 5.746 (1.396)Equity attributable to shareholders' of the 225.047 8.910 204.673 8.910parentMinority Interest 300.799 0 0 0Total Shareholders Entity 525.846 8.910 204.673 8.910Total Equity and Total Liabilities 1.756.189 212.506 280.314 212.506 3. Statement of Changes in Equity (Group) Consolidated Statement of Changes in Equity Share Capital Attributable To Shareholders Minority TotalAmounts in thousands • Share Warrants Revaluation Other Retained Total Interest Capital Reserve Reserves Reserves Earnings / (losses) Company's Equity at 1st January 2006 71 10.234 0 0 (1.396) 8.910 0 8.910according to IFRSNet Profit for the period 01/01-30/09/2006 0 0 0 0 9.941 9.941 4.410 14.351Decrease in Share Capital due to the (0,5) 0 0 0 0 (0,5) 0 (0,5)cancelled shares (Note 19)Conversion of Compound Financial 0 188.623 0 0 0 188.623 0 188.623Instruments to Common Shares (after theacquisition of PROTON)Minority Interest from the Acquisition of 0 0 0 0 0 0 148.987 148.987the Subsidiary (PROTON BANK) on 30 June2006Reserves from the revaluation of 0 0 1.742 0 0 1.742 0 1.742Available-for-Sale Financial AssetsExchange Differences on translating 0 0 0 0 0 0 (7) (7)foreign operationsAcquisition (absorption) of OMEGA BANK by 0 0 0 16.099 (267) 15.832 147.409 163.241PROTON BANKTotal Profit /Loss for the Period 0 188.623 1.742 16.099 9.673 216.137 300.799 516.936 Total shareholders' equity at 30 September 71 198.856 1.742 16.099 8.278 225.047 300.799 525.8462006 The notes on the following pages form an integral part of these interimfinancial statements and consolidated interim financial statements. 4. Statement of Changes in Equity (Company) Company Statement of Changes in Equity Share Capital Attributable To ShareholdersAmounts in thousands • Share Capital Warrants Reserve Retained Earnings Total / (losses) Equity at 1st January 2006 according to IFRS 71 10.234 (1.396) 8.910Changes in Equity for the period 01/01 - 30/09/2006Net Profit for the period 01/01-30/09/2006 0 0 7.141 7.141Decrease in Share Capital due to the cancelled shares (0,5) 0 0 (0,5)(Note 19)Conversion of Compound Financial Instruments to 0 188.623 0 188.623Common Shares (after the acquisition of PROTON BANK at30 June 2006)Total Profit /Loss for the Period 0 188.623 7.141 195.763 Total shareholders' equity at 30 September 2006 71 198.856 5.746 204.673 The notes on the following pages form an integral part of these interimfinancial statements and consolidated interim financial statements. 5. Cash Flow Statement Amounts in thousands • Notes THE GROUP THE COMPANYCash Flows from operating activities 01/01 - 30/09/ 01/01 - 30/09/2006 2006Profit Before Taxation 15.886 7.141Adjustments forAdd: Impairment Losses on financial assets 261 0Add: Depreciation 134 0Add: Retirement Benefit Charge 12 0Gains/Losses from valuation of trading securities (5.039) 0Reverse of provisions (1.944) (1.944)Exchange Differences (888) (888)Cash Flows from operating activities before changes in operating 8.422 4.309assets and liabilities Changes in operating assets and liabilities:Net (increase) / decrease in trading securities (19.503) 0Net (increase) / decrease in derivatives (288) 0Net (increase) / decrease in loans and advances to customers 144.048 0Net (increase) / decrease in other assets (9.465) (148.937)Net increase / (decrease) in due to banks (41.750) 0Net increase / (decrease) in due to customers 62.720 0Net increase / (decrease) in other liabilities (105.555) 330Net cash flow from operating activities before tax payment 38.629 (144.298)Income Tax Paid (1.328) 0Net cash flow from operating activities 37.301 (144.298) Cash flows from investing activitiesAcquisition of subsidiaries, net of cash acquired 9.3 22.105 (126.687)Restricted cash placed on Trust 201.266 201.266Purchases / (proceeds) of tangible & intangible assets (69) 0(Purchases) / proceeds of Available for Sales Securities (154.805) 0Amount Payable for Compound Financial Instruments (1.782) (1.782)Net cash flow from investing activities 66.715 72.798 Cash flows from financing activitiesPurchases of treasury shares (2.446) 0Sales of treasury shares 2.558 0Net increase / (decrease) in other borrowed funds 75.000 75.000Net cash flows from financing activities 75.112 75.000 Net increase /)decrease) in cash and cash equivalents 179.129 3.500Cash and Cash Equivalents at the beginning of period 2.206 2.206Unrealised gains and losses arising from changes in foreign (1.021) (1.021)currency exchange rates of the account "Cash & cash equivalents"Cash and Cash Equivalents at the end of period 14 180.314 4.685 The notes on the following pages form an integral part of these interimfinancial statements and consolidated interim financial statements. 6. Additional Information 6.1 Organization and business operations IRF European Finance Investments Ltd. (the "Company") was incorporated on 8thSeptember 2005 under the Bermuda Companies Act. The Company was formed as aninvesting company (or cash shell) to serve as a vehicle for the acquisition ofan entity in the financial services industry in Europe, with a primary focus oncredit institutions and insurance companies in Greece, Bulgaria, Romania andTurkey. IRF European Finance Investments Limited (IRF) is a company listed onAIM, a market operated by the London Stock Exchange plc (AIM). The principal legislation governing the Company is the Bermudian Companies Actand regulations issued thereunder. The Company comply with the CorporateGovernance Guidelines for AIM Companies as published by the Quoted CompaniesAlliance (as far as applicable) following the Company's Acquisition as discussedbelow. In November 2005, the Company completed its Initial Public Offering ("theOffering") in which 45.833.340 units were sold to institutional and otherinvestors at a price of $ 6.00 per unit. Each unit consisted of one Share andtwo Warrants. The Shares and Warrants were admitted to trading on AIM on 14thNovember 2005. The net proceeds of the Company's Offering, after payment of underwritingdiscounts and expenses, being • 209.493.368 ($252.083.370) was placed in a trustand invested in U.S. Treasury bills having a maturity date of 180 days or less.The funds in the Trust were only be used by the Company to finance one or morebusiness combinations approved by the Shareholders. However, since a QualifiedBusiness Combination(as defined in the Company's Offering Circular) wascompleted, funds in Trust were released to the Company and the Company may usethese funds without restriction. On 27th June 2006, a special general meeting of the Shareholders' approved theacquisition of the 28 per cent of the issued share capital of PROTON InvestmentBank SA (being 12.638.050 shares), a Greek investment bank, listed on the AthensStock Exchange at a price of • 9.50 per Proton share, for a total considerationof • 120.061.475. The acquisition of PROTON INVESTMENT BANK SA completed on 30June 2006. PROTON INVESTMENT BANK SA was formed in September 2001 under the name ArrowInvestment Bank S.A.. Proton's trade name was changed to Proton Investment BankS.A. in November 2001. In the same year, Proton was licensed by the Bank ofGreece to operate as a financial institution in Greece. Proton focuses oninvestment banking and the provision of specialized corporate advisory andinvestment services. Proton operations are dividend into four segments:investments, banking, brokerage and mutual funds and asset management. The change in the business name from "PROTON INVESTMENT BANK SA" to "PROTON BANKSA" was registered in the Registry of Societes Anonyme on November 4th 2006. TheBank is listed in the Athens Stock Exchange since December 2005 and apart fromthe General Index it is included in FTSE-40 index. On 7th September 2006, theExtraordinary General Meeting of Shareholders of PROTON INVESTMENT BANK decidedthe merger of the Bank with the companies OMEGA BANK and PROTON SECURITIES. Themerger was completed on 29th September 2006. 6.2 Statement of Compliance The interim financial statements and consolidated financial statements for thenine months ended 30 September 2006 have been prepared in accordance with theInternational Financial Reporting Standards (IFRS), IAS 34 "Interim FinancialStatements" as adopted by the European Union (EU) and conform to the interimfinancial reporting. 6.3 Basis of Presentation The following accounting principles (par. 7) have been applied consistently indealing with the items which are material in relation to the financialinformation of IRF European Finance Investments Limited set out in this report.The Consolidated Financial Statements of the Group have been prepared inaccordance with International Financial Reporting Standards (IFRS) as adopted bythe European Union. The accounts are prepared on the historical cost basis except for financialinstruments classified as available-for-sale securities, financial assets andfinancial liabilities held at fair value through the income statement andderivatives which are valued at fair value. The amounts presented in these financial statements are in thousands euros,unless otherwise stated. 6.4 Currency Presentation The financial statements are presented in Euros which is the functional currencyof the Group. The functional currency is the currency of the primary economic environment inwhich an entity operates and is normally the one in which it primarily generatesand expends cash. Management used its judgment to determine the functionalcurrency that most faithfully represents the economic effects of the underlyingtransactions, events and conditions. As part of this approach, managementconsiders various factors stated on IAS 21. Priority is given to factors such asthe currency that mainly influences costs and sales. This currency is mainlyEuro since the Group is and will be engaged in a business combination in Europe.The Company has also issued financial instruments in USD. However, according topar. 12 of IAS 21, these factor is not given priority. 6.5 Basis of consolidation The consolidated financial statements include the financial statements of theCompany and its subsidiaries and hereafter referred to as ''Group". Subsidiariesare entities which are controlled by the parent company (ref. par.8). Controlexists when the Company has the power, directly or indirectly, to govern thefinancial and operating policies of an entity so as to obtain benefits from itsactivities. The financial statements of the subsidiaries have been prepared according to theparent company's balance sheet date. Accounting policies of subsidiaries havebeen changed where necessary to ensure consistency with the policies adopted bythe Company. All subsidiaries are consolidated according to the method of full consolidation.Subsidiaries are included in the consolidated financial statements from the datethat control commences until that control ceases. In the income statement theproportion of the subsidiaries is included from the day of their acquisition.The associate company is consolidated under the Equity Method. 6.6 Comparative Figures The Group prepared the consolidated financial statements for the first time forthe six month period ended on 30th June 2006. Thereby, the consolidated interimbalance sheet does not present relevant comparative figures for the year ended31st December 2005. The Company's interim balance sheet for the nine month period ended 30 September2006 presents relevant comparative figures with those reported for the yearended 31 December 2005 (8th September 2005 to 31st December 2005). The Income Statement does not include comparative information since the Companywas incorporated in Bermuda on 8th September 2005 and PROTON BANK was acquiredon 30th June 2006. 6.7 Income seasonality The Group and the Company operate in the sectors of banking, financial services,portfolio management, insurance and other services, the income of which are notcharacterized by seasonality. 7. Accounting Principles The accounting policies applied and the judgment and estimates used in theseinterim financial statements conform to the International Financial ReportingStandards (IFRS) that have been issued by the International Accounting StandardsBoard (IASB) and their interpretations that have been issued by theInternational Financial Reporting Interpretations Committee (IFRIC) of the IASB. The interim financial statements and consolidated financial statements of IRFEuropean Finance Investments Ltd for the nine month period of 2006, do notinclude all the information that are necessary during the annual financialstatements, therefore the use of the annual financial statements of 2005 isappropriate. The accounting principles that had been used in the preparation ofthe annual financial statements of 2005 have not been changed during 2006. The preparation of the financial statements according to IFRS requires the useof estimates and assertions. Major assumptions made by the management in orderto apply certain accounting policies have been highlighted were appropriate. Theestimations and the assertions in which the management proceeds are alwaysvalued and come from the experience and other factors, included futureexpectations under reasonable circumstances. The Group adopted the revised International Accounting Standard (IAS 39) from1st January 2006 with respect to "financial guarantee contracts". 7.1 Consolidation Subsidiaries: All the companies that are managed or controlled, directly orindirectly, by another company (parent) either through the majority of votingrights or through control of the business decisions taken. Therefore,subsidiaries are companies in which control is exercised by the parent. Theexistence of potential voting rights that are exercisable at the time thefinancial statements are prepared, is taken into account in order to determinewhether the parent exercises control over the subsidiaries. Subsidiaries areconsolidated completely (full consolidation) using the purchase method from thedate that control over them is acquired and cease to be consolidated from thedate that control no longer exists. The acquisition of a subsidiary by the Group is accounted for using the purchasemethod. The acquisition cost of a subsidiary is the fair value of the assetsgiven as consideration, the shares issued and the liabilities undertaken on thedate of the acquisition plus any costs directly associated with the transaction.The individual assets, liabilities and contingent liabilities that are acquiredduring a business combination are valued during the acquisition at their fairvalues regardless of the participation percentage. The acquisition cost over andabove the fair value of the individual assets acquired is booked as goodwill. Ifthe total cost of the acquisition is lower than the fair value of the individualassets acquired, the difference is immediately transferred to the incomestatement. Inter-company transactions, balances and unrealized profits from transactionsbetween Group companies are eliminated in consolidation. Unrealized losses arealso eliminated except if the transaction provides indication of impairment ofthe transferred asset. The accounting principles of the subsidiaries have beenamended so as to be in conformity to the ones adopted by the Group. Associates: Associates are companies on which the Group can exercise significantinfluence but not "control" and which do not fulfill the conditions to beclassified as subsidiaries or joint ventures. The assumptions used by the groupimply that holding a percentage between 20% and 50% of a company's voting rightssuggests significant influence on the company. Investments in associates areinitially recognized at cost and are subsequently valued using the Equitymethod. At the end of each period, the cost of acquisition is increased by theGroup's share in the associates' net assets change and is decreased by thedividends received from the associates. Any goodwill arising from acquiring associates is contained in the cost ofacquisition. Whether any impairment of this goodwill occurs, this impairmentdecreases the cost of acquisition by equal charge in the income statement of theperiod. The Group, applying IFRS 3, does not amortize goodwill. Therefore,goodwill is presented at its net book value as at 31.12.2003, less anyimpairment losses. After the acquisition, the Group's share in the profits or losses of associatesis recognized in the income statement, while the share of changes in reserves isrecognized in Equity. The cumulated changes affect the book value of the investments in associated companies. Whenthe Group's share in the losses of an associate is equal or larger than thecarrying amount of the investment, including any other doubtful debts, the Groupdoes not recognize any further losses, unless it has guaranteed for liabilitiesor made payments on behalf of the associate or those that emerge from ownership. Unrealized profits from transactions between the Group and its associates areeliminated according to the Group's percentage ownership in the associates.Unrealized losses are eliminated, except if the transaction provides indicationsof impairment of the transferred asset. The accounting principles of theassociates have been adjusted to be in conformity to the ones adopted by theGroup. 7.2 Investments in debt and equity instruments The Group classifies its investments as held for trading, held-to-maturity oravailable-for-sale. The classification is decided upon at initial recognition. Initially, all investments are recorded on the trade date at fair value.Transactions costs are capitalized, if they relate to available-for-sale andheld-to-maturity investments, whereas they are recorded directly to the incomestatement if they pertain to held-for-trading investments. Trading securities: This category includes investments that are acquired inorder to generate short term profit and includes securities such as stocks,bonds, and mutual fund units. After initial recognition, investments held fortrading are stated at fair value. The gains or losses arising from the changesin the fair value of these investments are included in the income statement. Available-for-sale securities: This category includes financial assets that areintended to be held for an indefinite period of time, to maturity or to be soldin response to needs for liquidity or to gain from the changes in interest ratesor foreign currency exchange rates. After initial recognition, the investmentsclassified as available-for-sale are carried at fair value. Gains and lossesarising from changes in fair value of these investments are recognized directlyin equity. These gains or losses are removed from equity and recognized in theincome statement when they are sold or when there is objective evidence ofimpairment. Fair value of financial instruments: Fair value is the value at which a financial instrument can be traded (purchase/sale) between two parties that are aware of the market and this trade isexecuted for commercial reasons. The financial instruments of the Group, asindicated by the IFRS, are included on the balance sheet captions and on offbalance sheet accounts in cases where these concern letters of guarantee of theBank. Short term positions of the Group as well as short term deposits fromclients are reported on cost value since these financial instruments have shortterm expirations and are turned into cash or redeem without significanttransaction costs. Loans to clients and letters of guarantee are reported attheir cost value minus estimated impairment. Trading Portfolio and available forsale securities are reported at their fair value, which is determined by theirmarket price on the balance sheet date. Trade Date All regular purchases or sales of a financial asset are recognized on the tradedate which is the date that the Group commits itself to purchase or sell anasset. The term "regular" transactions requires that the delivery of a financialasset is realized within the time period specified by either the responsiblecommittee or is established by the existing practice. 7.3 Sale and Repurchase agreements (Repos) Securities sold subject to a linked repurchase agreement (Repos) are disclosedin the financial statements as available-for-sale investments either as held forsale, while the respective liability is disclosed, depending on the counterparty, as amounts due to credit institutions, to customers or other deposits.Securities purchased under agreements to resell (Reverse Repos) are recorded inthe financial statements as due from credit institutions. The difference betweensale and repurchase price is recorded in the income statement and is accruedover the term of the agreement using the effective interest rate method. 7.4 Derivative financial instruments and hedging The Group uses Derivative financial instruments for the purpose of acquisitionof profit and for its customers. Derivative financial instruments includeforward foreign exchange contracts, interest rate swaps, foreign exchange swapsand other derivative financial instruments. Derivatives for trading purposes: Derivatives that do not qualify for hedgingpurposes are considered as entered into for trading purposes. Initially,derivatives are recognized in the balance sheet at fair value (which isessentially the transaction cost) on the date on which the contract is enteredinto. Subsequently they are remeasured at fair value. Fair values are obtainedfrom quoted market prices, discounted cash flow models and options pricingmodels as appropriate. All derivatives are carried as assets when their fairvalue is positive and as liabilities when their fair value is negative. Embedded Derivatives: A derivative may be a component of a financial instrument.The combined financial instrument includes both a derivative and a host contractand is known as embedded derivative. An embedded derivative should be separatedfrom the host contract and accounted for as a derivative if all of the followingconditions are met: a) the economic characteristics and risks of the embeddedderivative are not closely related to the economic characteristics and risks ofthe host contract, b) a separate instrument with the same terms as the embeddedderivative would meet the definition of a derivative and c) the hybrid(combined) instrument is not measured at fair value with changes in fair valuereported in the income statement. Changes in the fair value of derivatives are reported in the income statement. Hedging: For the purposes of hedge accounting, hedging is designated as a fairvalue hedge, when the exposure to changes in the fair value of a recognizedasset or liability is hedged or as cash flow hedge when the exposure tovariability in cash flows that is attributable to a particular risk associatedwith a recognized asset or liability is hedged. For the derivatives that areused for hedging purposes the Group applies hedge accounting which includes adescription of the hedged item, of the hedging instrument, the nature of therisk being hedged and the enterprise's risk management strategy. Furthermore, itdocuments whether or not the hedging is effective at inception and throughoutthe life of the hedge. That is whether or not fair value changes derived fromthe hedged exposure are offset by the changes of the hedging instrument and arewithin a range of 80% to 125%. In fair value hedge transactions which meet the criteria for hedge accounting,gains or losses which are due to the valuation of the hedging instrument to fairvalue are recorded in the income statement. The hedged item is valued at fairvalue and the gains or losses are recorded in the income statement. Changes in the fair value of the effective portion of derivatives that aredesignated and qualify as cash flow hedges and that prove to be highly effectivein relation to the hedged risk, are recognized in the hedge reserve in equity.Otherwise, gains and losses which refer to the ineffective portion of the hedgeare recorded in the income statement. When the criteria for hedge accounting are no longer met, due to the hedgingbeing no longer effective or due to the fact that the hedged exposure has beenderecognized, then the related accumulated gains or losses recognized in equityare transferred to the income statement. 7.5 Property, Plant & Equipment Land and buildings are used by the Group either for operational purposes of theGroup or for administrative purposes. Fixed assets include land, buildings,leasehold improvements, furniture and other equipment and vehicles. Fixed assetsare stated at cost less accumulated depreciation and impairment losses. Depreciation: Depreciation on the other assets is calculated using thestraight-line method over their expected useful life, which is reviewedannually, as follows: Furniture and other equipment 5 - 8 years Machinery 7 - 14 years Vehicles 7 - 9 years Leasehold improvements are depreciated over either the useful life of theimprovement or the duration of the lease whichever is the shorter. Impairment: The Group reviews annually its fixed assets in order to find anyindications of impairment. If there are indications of impairment the carryingvalue of the fixed asset is reduced to its recoverable amount with therespective decrease in the operating results. 7.6 Intangible Assets Goodwill: All business combinations are accounted under the purchase methodaccording to IFRS 3. The difference between the cost of acquisition of thesubsidiaries and the Group's portion in the fair value of their net assets isrecognized as goodwill and is presented under "Goodwill and other intangibleassets". At each balance sheet date, on annual basis, the carrying amount of goodwill isreviewed by the Group management for evidence of impairment. In case where therecoverable value is lower than the carrying amount, the goodwill is reduced toits recoverable amount. Software: Software which is acquired and can be clearly identified iscapitalized at each cost of acquisition. Subsequently, software is carried ateach cost less any accumulated amortization and any impairment losses. Softwareis amortized over 3 years. 7.7 Loans and advances to customers and provision for loan losses Loans and advances are recorded on the disbursement date at cost, which is thefair value of the capital, including the direct expenses and income which relateto the loan. Subsequent to initial recognition, loans and advances are carriedat amortized cost using the effective interest rate method. Loans and advancesare carried on the balance sheet after deducting provisions for losses. The recoverability of loans and advances is reviewed on an individual basis forthose loans which the Group considers as significant. The evaluation takes intoaccount the financial position, past repayment pattern, the credit worthiness ofguarantors and the realizable value of collaterals. When a loan is considered as doubtful, its carrying value is reduced to itsrecoverable amount. Reversal of provision for loan losses is conducted only inthe case that the credibility of the client has improved to such extend as toconsider the collectibility of capital and interest according to the terms ofthe loan contract possible or without delay. Loans and advances are written off against the related provision, when they areconsidered uncollectible. 7.8 Leases Operating Leases The Group has entered into operating lease contracts where risks and rewards ofownership of the assets remain with the lessor. Payments made under operatingleases are charged to the income statement on a straight-line basis over theperiod of the lease. Finance Leases The Group has entered into finance lease contracts where risks and rewards ofownership of the leased assets have been assumed by the Group. Finance leases are carried at the lower between the fair value of the leasepayments and the present value of the minimum lease payments. The leased assets are depreciated over the shorter period between the length ofthe contract and the useful life unless it is almost certain that the Group willassume the property of the asset upon the termination of the contract. If thelease transfers the ownership of the asset upon the termination of the contractor if there is the option of purchase at a lower price, then the depreciableperiod is the asset's useful life. Lease payments are distinguished in the amount referring to capital repaymentand interest repayment. The distinction is made in order to achieve a fixedrepayment schedule. Interest payments are charged to the income statement. 7.9 Pension Benefits The Group participates both to defined benefit and defined contribution plans. For the defined contribution plans the Group is obliged to pay on a regularbasis specific amounts to the pension funds. A defined benefit plan is essentially a pension plan according to which theGroup obligation is determined by the compensation amount determined by Law 2112/1920, that the employee will receive at retirement date based on his or herage, years of employment and salary. The liability in respect of a definedbenefit pension plan reported on the Balance Sheet is calculated annually byindependent actuaries using the projected unit credit method. The present valueof the defined benefit obligation is determined by discounting the estimatedfuture cash outflows using interest rates of government securities which haveterms to maturity approximating the terms of the related liability. Accumulated actuarial gains and losses which arises due to the deviation fromthe estimated amounts and the realized amounts as well as variations of the usedactuarial assumptions, for the portion that is in excess of 10% of accruedobligations, are charged to the income statement over the service lives of therelated employees. 7.10 Borrowing Costs Borrowing cost, according to IAS23, is recognized as an expense in the incomestatement of the year in which it incurred. 7.11 Custodian Services The Bank offers custodian services to its subsidiary that manages mutual funds.The value of securities that the Bank holds through this activity is notincluded in the attached financial statements as they are not considered assetsof the Bank as of 30 September 2006. 7.12 Offsetting Financial assets and liabilities are offset and the net amount is reported inthe financial statements when there is a legal right to offset and there isintention to settle on a net basis, to realize the asset and settle theliability simultaneously. 7.13 Derecognition of a financial instrument from the financial statements The Group derecognizes a financial asset when, and only when: (a) the contractual rights to the cash flows from the financial asset expire;or (b) it transfers the financial asset and the transfer qualifies forderecognition in accordance with IAS39. 8. Group Structure and Method of Consolidation Group companies, included in the consolidated financial statements of 30September 2006 are: Companies consolidated under the full consolidation method: Company Country Participation Relation that Note Percentage dictated the consolidationIRF European Finance Investments Limited Bermudes Parent MIMOSA TRADING COMPANY Marshall 100% The participation Direct stake Islands percentage MYRTLE TRADING COMPANY Marshall 100% The participation Direct stake Islands percentage PROTON BANK SA Greece 20,16% Control over the Direct stake entity PROTON ASSET MANAGEMENT SA Greece 20,14% Control over the Indirect stake through entity "PROTON BANK" PROTON MUTUAL FUNDS MANAGEMENT CO SA Greece 20,14% Control over the Indirect stake through entity "PROTON BANK" FIRST GLOBAL BROKERS SA Serbia 16,63% Control over the Indirect stake through entity "PROTON BANK" OMEGA MUTUAL FUNDS MGT CO SA Greece 18,76% Control over the Indirect stake through entity "PROTON BANK" OMEGA INSURANCE SERVICES SA Greece 13,31% Control over the Indirect stake through entity "PROTON BANK" OMEGA INSURANCE SA Greece 16,69% Control over the Indirect stake through entity "PROTON BANK" INTELLECTRON SYSTEMS Greece 11,42% Control over the Indirect stake through entity "PROTON BANK" OMEGA KAHN FINANCIAL SERVICES SA Switzerland 16,13% Control over the Indirect stake through entity "PROTON BANK" OMEGA SA FINANCIAL ADVISORS - Greece 20,16% Control over the Indirect stake throughINVESTMENTS & REAL ESTATE MGT entity "PROTON BANK" Companies consolidated under the equity method: Company Country Participation Note Percentage OMEGA PORTFOLIO INVESTMENT SA Greece 5,80% Indirect stake through "PROTON BANK" PROTON BANK SA: On 30th June 2006 IRF European Finance Investments Ltd acquired a 28% stake inthe share capital of the listed on the Athens Stock Exchange company "PROTONINVESTMENT BANK SA". The range of activities of PROTON Group of Companies coversalmost the whole spectrum of the financial industry. More precisely, PROTONGroup is specialized on investment banking. The IRF Group consolidated "PROTONINVESTMENT BANK SA" for the first time at 30/06/2006, date at which control wasdeemed to be acquired. "Control" is the right to lead the financial and businesspolicies of an entity in order to receive benefits form its operation. On 7th September 2006, the Extraordinary Meeting of Shareholders of PROTONINVESTMENT BANK SA (the acquirer) decided the merger of the Bank with thecompanies OMEGA BANK (first acquiree) and PROTON SECURITIES (second acquiree). According to the Draft Merger Contract, which was approved by the GeneralMeeting, the exchange ratio was 1 share of the first acquiree for 0,90 shares ofthe acquirer. As the bank held 100% of the second acquiree's shares, there wasno exchange ratio. Additionally, the General Meeting decided the amendment ofarticle 5 of its Articles of Association in order for the bank's share capitalto rise after the merger, to a total amount of • 281.450.360,78 divided into62.683.822 common voting shares of nominal value • 4,49 each. The merger wascompleted on 29th September 2006. Following Proton's Bank merger with Omega andtaking into account the shares issued therewith, the Company now owns a 20,16%interest in PROTON BANK. For the above merger the provisions of IFRS 3 "BusinessCombinations" were followed which applies for business combinations after 31stMarch 2004. The Company continues to maintain a controlling position within PROTON BANK andhas now appointed six of the eleven members on PROTON BANK's board. Inparticular on 7th September 2006, the Extraordinary General Meeting of PROTONBANK elected a new Board of Directors and redefined responsibilities (sixmembers of the Board out of eleven, are nominated by IRF). Also, under thepurchase agreement the two other main shareholders agree to vote in the nextGeneral Meetings of the Shareholders in such a way that IRF will always appointmore than half of the BoD members. Under all these circumstances IRF effectivelycontrols Proton and therefore required to present consolidated financialstatements and includes Proton's financial statements. ARROW ASSET FINANCE SA: These consolidated financial statements for the period ending 30 September 2006do not include ARROW ASSET FINANCE SA, since on 30 September the dissolution ofARROW ASSET FINANCE SA was completed, as the Extraordinary General Meeting ofthe PROTON's shareholders, approved the start up and liquidation balance sheetaccording to the article 47 of Law 2190/1920 and 35 of the company's Articles ofAssociation. The dissolution and liquidation of the company had no materialeffect on the Group's net assets since PROTON's investment in the particularsubsidiary with a cost of 369 thousands euro was written off. The impairmentloss of 369 thousands euro was charged against the income statement of PROTON ofthe year 2005. MIMOSA TRADING COMPANY: The Company is duly incorporated and has filed articles of incorporation underthe provisions of the Marshall islands Business Corporation Act on 6th July2006. The IRF European Finance Investments Ltd is the owner of five hundred(500) fully paid and non-assessable shares of the capital stock of thecorporation. The aggregate number of shares of stock that the Corporation is authorized toissued to issue is five hundred (500) registered and/or bearer shares withoutpar value. MYRTLE TRADING COMPANY: The Company is duly incorporated and has filed articles of incorporation underthe provisions of the Marshall islands Business Corporation Act on 6th July2006. The IRF European Finance Investments Ltd is the owner of five hundred(500) fully paid and non-assessable shares of the capital stock of thecorporation. The aggregate number of shares of stock that the Corporation is authorized toissued to issue is five hundred (500) registered and/or bearer shares withoutpar value. 9 Financial effect of acquisitions 9.1 Acquisition of a 28% stake in the share capital of the "PROTON INVESTMENTBANK SA". The assets acquired and the liabilities undertaken due to the above acquisitionare as follows: Amounts in thousands • Cash and balances with central bank 2.217Due from banks 14.739Financial Assets at fair value through profit or loss 151.560Loans and advances to customers, net 276.961Assets classified as held for sale 855Property, plant and equipment, net 1.125Intangible assets, net 89Deferred Tax Assets 420Other Assets 21.985Due to banks (44.138)Due to Customers (62.705)Derivative financial instruments (159)Retirement benefit obligations (221)Other liabilities (155.808) 206.919Less: "Minority Interest" (18)Shareholders net assets 206.901Acquisition Percentage of the Share Capital 28%Net Assets Acquired 57.932Plus: Goodwill & other intangible assets 68.754Acquisition Cost 126.687Less: "Cash and balances with central bank" (2.217)Less: "Due from Banks" (14.739)Net cash outflow from the acquisition of the Subsidiary 109.730 The acquisition resulted in an increase of assets and liabilities by • 469.951thousands and • 263.032 thousands respectively. The business combination hadeffect in the Group's results for the period from 01/07 to 30/09/2006 since thedate of acquisition was the 30th June 2006. If the company was consolidated fromthe beginning of the period the Group's Earning after tax would be increased by• 5.406 thousands. 9.2 Acquisition (absorption) of OMEGA BANK SA by PROTON INVESTMENT BANK SA The identifiable assets and liabilities acquired on the date of acquisition areas follows: Amounts in thousands • Cash and balances with central bank 11.169Loans and advances to Credit Institutions 155.982Loans and advances to customers, net 766.608Insurance Receivables 20.176Financial Instruments at fair value through profit or loss 40.276Available-for-sale financial assets 31.024Derivative financial instruments - assets 368Investments in Subsidiaries 4.356Property, plant and equipment 32.632Investment Property 50Intangible assets, net 3.384Reinsurance contracts 1.641Deffered Tax Assets 1.120Other Assets 16.860Due to banks (95.417)Derivative financial instruments - liabilities (2.128)Obligations from bonds (1.500)Due to Customers (877.363)Provision for insurance contracts (35.336)Other liabilities (13.978)Retirement benefit obligations (1.392)Total Assets 58.532Less: "Minority Interest" (587)Net Assets Acquired 57.945 Acquisition CostLess: Cash consideration (costs directly attributable to (601)the acquisition)Plus: "Loans and advances to Credit Institutions" 155.982Less: "Elimination of cash and cash equivalents between (23.545)Omega Bank and Proton Bank"Net cash inflow to acquire business, net of cash acquired 131.836 The acquisition of OMEGA BANK SA by PROTON INVESTMENT BANK SA on the date ofacquisition (29/09/2006) resulted in an increase of assets and liabilities by •1.085.646 thousands and • 1.027.114 thousands respectively. The businesscombination had no effect in the Group's results for the nine month period endedat 30/09/2006 since the date of acquisition was the 29th September 2006. If theacquisition had occurred on 1st January 2006, the Group's Earning after tax forthe period ending 30 September 2006 would be decreased by • 1.527 thousands(loss • 7.573ths * 20,16%). 9.3 Net Cash flow from the acquisitions Net cash flow from the acquisitions THE GROUP THE COMPANY 01/01 - 30/09/2006 01/01 - 30/09/2006Amounts in thousands • Net cash outflow from the acquisition of the PROTON BANK at (109.730) (126.687)30/06/2006Net cash inflow from the absorption of the OMEGA BANK by 131.836 0PROTON BANK at 29/09/2006Acquisition of subsidiaries, net of cash acquired 22.105 (126.687) 10. Goodwill & other intangible assets Acquisition of a 28% stake in the share capital of the "PROTON INVESTMENT BANKSA". The effect of the acquisition of PROTON INVESTMENT BANK SA was goodwill andintangible assets of • 68.754.226 as shown as shown at the following table: Goodwill & other intangible assets from PROTON BANK acquisitionAmounts in thousands • Date of acquisition 30/6/2006Acquired percentage 28%Shares (Total): 45.135.892Acquired shares: 12.638.050Cost of acquisitionCash Paid 120.061Direct Expenses related to acquisition 6.625Total Cost of acquisition 126.687Less: Fair Value of Assets and Liabilities acquired (57.932) Goodwill & other intangible assets from acquisition 68.754 The fair value estimation process of the identifiable assets, liabilities andcontingent liabilities of PROTON BANK is under way. After the finaldetermination of the fair value of identifiable assets, the Company willallocate the cost of acquisition recognizing the assets, liabilities andcontingent liabilities of the acquiree at their fair values on the date ofacquisition. The excess between the cost of acquisition and the fair value ofidentifiable assets, liabilities and contingent liabilities, will be recognizedas goodwill. Consequently the Group has applied initial accounting determinedprovisionally according to IFRS 3 "Business Combinations". Through the acquisition the Group achieved banking license, trade name, clientrelationships and web banking licenses in Greece. The abovementioned licenseswill allow the Group to take advantage of significant growth margins of theGreek banking sector. Acquisition (absorption) of OMEGA BANK SA by PROTON INVESTMENT BANK SA The cost of acquisition amounted to 164.850 thousands euros and was determinedby the marker value of the acquirer's shares on 29 September 2006, and isanalyzed as follows: Goodwill & other intangible assets from acquisition (absorption) of OMEGA BANK SAAmounts in thousands EuroDate of acquisition (absorption) 29/9/2006 Fair value of equity instruments exchanged (17.547.930 * • 164.2499,36 per share)Direct Expenses related to acquisition 601Total Cost of business combination 164.850 Less: Fair Value of Assets and Liabilities acquired (57.945) Goodwill & other intangible assets from acquisition 106.905 The fair value estimation process of the identifiable assets, liabilities andcontingent liabilities of Omega Bank (the acquire) is under way. After the finaldetermination of the fair value of identifiable assets, the acquirer willallocate the cost of acquisition recognizing the assets, liabilities andcontingent liabilities of the acquiree at their fair values on the date ofacquisition. The excess between the cost of acquisition and the fair value ofidentifiable assets, liabilities and contingent liabilities, will be recognizedas goodwill. Consequently the Group has applied initial accounting determinedprovisionally according to IFRS 3 "Business Combinations". 11. Loans and balances with Central Banks Amounts in thousands • THE GROUP THE COMPANY 30/9/2006 31/12/2005 30/9/2006 31/12/2005 Cash in hand 7.611 0 0 0Cheques receivable 12.866 0 0 0Included in cash and cash equivalents (Note 14) 20.477 0 0 0Mandatory reserve deposits with Central Bank 11.169 0 0 0Total 31.646 0 0 0 12. Loans and advances to Credit Institutions Amounts in thousands • THE GROUP THE COMPANY 30/9/2006 31/12/2005 30/9/2006 31/12/2005 Placements with other banks 23.977 0 0 0Items in course of collection from other banks 743 0 0 0Reverse repurchase agreements 128.367 0 0 0Total - Included in cash and cash equivalents 153.087 0 0 0 13. Cash and cash equivalents THE GROUP THE COMPANYAmounts in thousands • 30/9/2006 31/12/2005 30/9/2006 31/12/2005 Bank Deposits 6.749 2.206 4.685 2.206Total 6.749 2.206 4.685 2.206 14. Cash and cash equivalents - Cash Flow Statement For the purposes of preparing the Cash Flow Statement, cash and cash equivalentsinclude balances with maturity less than three months such as: cash, balanceswith Central Bank and other credit institutions and money market instruments. THE GROUP THE COMPANYAmounts in thousands • 30/9/2006 30/9/2006 Cash and balances with Central Bank (Note 11) 20.477 0Loans and advances to credit institutions (Note 12) 153.087 0Bank Deposits (Note 13) 6.749 4.685Total - Included in cash and cash equivalents 180.314 4.685 15. Restricted cash held in Trust The Company funded the acquisition of PROTON INVESTMENTS BANK SA, entirely outof a portion of the net proceeds from its completed Initial Public Offering,which were held in the Trust. The market value of investments held in trust amounted to • 210.294.081 (US $253.046.867) at 31 December 2005. In November 2005, the Company completed its Initial Public Offering ("theOffering") in which 45.833.340 units were sold to institutional and otherinvestors at a price of $ 6.00 per unit. Each unit consisted of one Share andtwo Warrants. The Shares and Warrants were admitted to trading on AIM on 14November 2005. The net proceeds of the Company's Initial Public Offering wereplaced in a trust and invested in U.S. The funds in the Trust were only be used by the Company to finance one or morebusiness combinations approved by the Shareholders. Given the fact that aBusiness Combination was completed (acquisition at 30/06/2006 of PROTONInvestment Bank SA), funds in the Trust Accounts were released to the Companyand transferred to Bank Call Accounts, so the Company may use these fundswithout restriction. 16. Available for Sale Financial Assets Amounts in thousands • THE GROUP THE COMPANY 30/9/2006 31/12/2005 30/9/2006 31/12/2005 Corporate Bonds 34.727 0 0 0Listed Shares 149.343 0 0 0Unlisted Shares 6.502 0 0 0Other investments 272 0 0 0Less: Allowance for losses (3.004) 0 0 0Total 187.840 0 0 0 The Company through its wholly owned subsidiaries, MYRTLE TRADING COMPANY andMIMOSA TRADING COMPANY, both of the Marshall Islands has purchased a number ofshares in the BANK OF PIRAEUS SA ("Piraeus Bank"). The fair value of theabovementioned listed shares at 30 September 2006 amounts to • 149.343 ths. Theshares owned by the Group represent 2,8% of Piraeus Bank's outstanding shares asof September 30, 2006. The percentage 2,8% include a 2% position purchased byIRF in a block transaction on September 21st, 2006 at price • 20,50 per share. 17. Other borrowed funds On 26th September 2006 a financial agreement signed between the Company andINVESTMENT BANK OF GREECE SA, MARFIN BANK Societe Anonyme Bancaire of Greece andEGNATIA BANK SA of Greece for a loan facility of up to • 75 million to be madeavailable to the Company for the purpose of providing the Company withinvestment capital. With the Notice Drawdown of 28th September 2006 the Companyborrowed the amount of • 75 million (• 22 million from INVESTMENT BANK OF GREECESA, • 21,5 million from MARFIN BANK, • 31,5 million from EGNATIA BANK SA). The abovementioned facility is a long term liability and is payable by theCompany to the Banks in one amount in Euro on 26th September 2008 or such laterdate as the parties may agree. Interest on the outstanding amount of theFacility accrue at an annual rate of 2,25% over Euribor. 18. Compound financial instrument Amounts in thousands • THE GROUP THE COMPANY 30/9/2006 31/12/2005 30/9/2006 31/12/2005 Compound financial instruments 134 203.426 134 203.426Total 134 203.426 134 203.426 The Company's compound financial instruments at 31st December 2005 representedthe present value of the cash held in trust, including estimated interest, whichwould be payable to shareholders following the date when the businesscombination occurred ($ 244.782.690). On the Special General Meeting of the Shareholders' at 27 June 2006,Shareholders who held 430.000 shares voted against the resolution and hadrequested to have their shares repurchased. The price was determined inaccordance with its Bye-laws to $5.62 per Share, as of 31st May 2006, plus netinterest earned since that date (430.000 shares x 5,640447 = $ 2.425.392,21). Upto 30th September the Company had paid the shareholders of 400.000 shares ($2.256.178). The compound financial instrument as at 30th September 2006 amounted• 133.659,88 (30.000 shares x 5,640447 = $ 169.213,41) and refers to theremaining amount that must be paid to the shareholders who validly elected tohave their shares repurchased. 19. Share Capital - Warrants Reserve At 31st December 2005 the Company had issued 57.291.675 common shares for aconsideration of €228.552.504 (before offering costs), settled in cash. On theSpecial General Meeting of the Shareholders' on the 27th June 2006, Shareholderswho held 430.000 shares elected, conditional upon completion of the Acquisition,to have such shares repurchased by the Company. These shares would be cancelledby the Company upon receipt of original share certificates and payment of therepurchase price. Since 30th September 2006, 400.000 shares have been cancelledso the current number of issued common shares is 56.891.675 (ref. par. 18). The number of warrants remains unchanged. Preference Common Shares Preference Common Preference Common Shares of $ Shares of $ Shares Shares of $ Shares 0,0001 each 0,0001 each 0,0001 each Issued for cash Number Amounts in $ Amounts in • At 31 December 2005 - in issue - 57.291.675 - 85.938 - 71.41857.291.675 common shares of$0,0015 eachShares cancelled as a result - (400.000) - (600) - (499)of the repurchase at 28th July2006In issue at 30 September 2006 0 56.891.675 0 85.338 0 70.920- fully paid Authorized Shares Number Amounts in $ Common Shares of $ 0,0015 each 148.958.355 223.438 Preference Shares of $ 0,0001 each 2.500.000 250 Amounts in thousands $ • Shares classified as liabilities at 30 September 2006 169 134Shares classified in shareholders funds - Share Capital 85 71Shares classified in shareholders funds - Warrants reserve 252.110 198.856 Total 252.365 199.061 The holders of common shares are entitled to receive dividends as declared fromtime to time and are entitled to one vote per share on a poll at meetings of theCompany. The Company is authorised to issue 2.500.000 shares of preferred stock with suchdesignations, voting and other rights and preferences as may be determined fromtime to time by the Board of Directors. 20. Income Tax Expense THE GROUP THE COMPANYAmounts in thousands • 30/9/2006 30/9/2006 Current Income Tax 1.389 0Deferred Tax 145 0Total 1.534 0 According to the provisions of Tax Law 2992/2002, upon completion of the mergerwith other companies, entities define their income tax for the first absorptionbalance sheet, based on the tax rate in effect, reduced by ten (10) percentagepoints; and on the taxable profits of the second balance sheet based on the taxrate in effect reduced by five (5) percentage points. According to the articles of the Tax Law 3470/2006, the tax benefit for thecompanies which are entitled to a reduced tax ratio, based on the provisions ofLaw 2992/2002, is allocated in equal sums in three consecutive accountingperiods, starting from the accounting period within which the change wascompleted, and it concerns only cash management of the specific amount of tax. The tax rate used to define the income tax as well as the deferred tax was 24%(29% - 5%). 21. Earnings per Share The calculation of basic and diluted earnings per share are calculated bydividing the profit for the period attributable to shareholders by the weightedaverage number of common shares outstanding during the period ended 30thSeptember 2006 of 57.199.482 shares. Basic Earnings per share THE GROUP THE COMPANY Amounts in thousands • 01/01 - 30/09/06 01/07 - 30/09/06 01/01 - 30/09/06 01/07 - 30/09/06 Profit before income tax 15.886 9.628 7.141 884Income Tax Expense (1.534) (1.534) 0 0Profit for the Period (1) 14.351 8.094 7.141 884 Attributable to: Equity holders of the parent (2) 9.941 3.684 Minority Interests 4.410 4.410 14.351 8.094 Weighted average number of shares (3) 57.199.482 Basic earnings per Share (in euro /share) (2)/(3): 0,17 (2)/(3): 0,06 (1)/(3): 0,12 (1)/(3): 0,02 THE GROUP THE COMPANYDiluted Earnings per Share 01/01 - 30/09/06 01/07 - 30/09/06 01/01 - 30/09/06 01/07 - 30/09/06Amounts in • Profit for the period attributable to equity 9.941 3.684 7.141 884holders of the parent (1) Weighted average number of shares (2) 57.199.482 Plus: Shares with no consideration (from assumed 6.230.040exercise of Warrants) Dilutive potential ordinary shares (3) 63.429.522 Diluted earnings per Share (in euro /share) (1)/(3): 0,16 (1)/(3): 0,06 (1)/(3): 0,11 (1)/(3): 0,01 22. Contingent Assets The rights on bonds issued by G.B.G Finance with a nominal value of 4 millioneuros have been assigned to Hypo Real Estate Dublin for entering into anInterest Rate Swap. The rights on bonds issued by Halcyon with a nominal valueof 2.5 million euros have been assigned to Hypo Real Estate Dublin as part of arepurchase agreement. The above contingent liabilities of the Group representassets pledged by OMEGA BANK. As a security for the Loan Facility (ref. par. 17) the Company authorized theINVESTMENT BANK OF GREECE (the Agent) to execute a Shares Pledge Agreement onbehalf of the subsidiaries MIMOSA TRADING COMPANY and MYRTLE TRADING COMPANY, inthe case of an occurrence of a Default, to pledge such number of shares owned bythe above subsidiaries as the Agent shall deem appropriate in its solediscretion and, in the plural, means all of them. 23. Contingent Liabilities & Commitments 23.1 Legal proceedings There are some receivables and lawsuits outstanding against the Group on thenormal course of business. No provision in relation to these claims has beenrecognized as the Group considers that it is unlikely that any significantchange in the consolidated total shareholder's equity will occur. The Company had one outstanding claim. In particular, the Amaranth LLC, ashareholder in the Company, issued proceedings against the Company alleging thatthe Company failed to repurchase shares owned by Amaranth in the Company, inaccordance with the Company's bye-laws. On 23rd October 2006, the Supreme Courtof Bermuda ordered that the legal action previously instituted by Amaranth LLCagainst the Company, be discontinued. No sums were paid by the Company toAmaranth in connection with this order. 23.2 Unaudited fiscal years by tax authorities Proton Group is subject to Greek tax legislation. Submitted tax returns are notconsidered as final until tax authorities audit the companies books and records,or until the statute of limitation expires. In Greece, it is common for the tax authorities to audit an entity's books andrecords before the expiration of the statute of limitation, which for income taxand indirect taxes (i.e. withholding taxes and VAT) is generally five yearsfollowing the fiscal year in which the taxes should have been paid (althoughthis time limit may be extended following special law provisions). The accounting years that have not been inspected yet by the tax authorities foreach of the Group's companies are as follows: Company Country Years not inspected by tax authorities PROTON BANK SA Greece 2005PROTON ASSET MANAGEMENT SA Greece 2005PROTON MUTUAL FUNDS MANAGEMENT CO SA Greece 2005FIRST GLOBAL BROKERS SA Serbia 2005OMEGA MUTUAL FUNDS MGT CO SA Greece -OMEGA INSURANCE SERVICES SA Greece -OMEGA INSURANCE SA Greece -INTELLECTRON SYSTEMS Greece 2001-2005OMEGA KAHN FINANCIAL SERVICES SA Switzerland 2004-2005OMEGA SA FINANCIAL ADVISORS - INVESTMENTS & REAL ESTATE Greece 2005MGTOMEGA SECURITIES SA Greece 2005 As a result of the above the Group's respective tax obligations for periodscovering one to five accounting years and the period ended on 30th September3006 have not been finalized. The outcome of the tax audit cannot be at thisstage reliably estimated. 23.3 Off balance sheet items Amounts in thousands • THE GROUP THE COMPANY 30/9/2006 31/12/2005 30/9/2006 31/12/2005 Letters of Guarantee 75.458 0 0 0Irrevocable letters of credit 1.891 0 0 0Total 77.349 0 0 0 From the above balance, an amount of • 65.750 thousands represent contingentliabilities transferred to PROTON BANK SA from OMEGA BANK SA. 24. Number of Employees On 30 September 2006 the Group employed 635 employees, while the Companyemployed just 1 employee for the period. 25. Related party transactions THE GROUP THE COMPANY BOD members and Associates BOD members and Subsidiaries Associates Key management Key management personnel personnelAmounts in thousands • 30/09/06 30/09/06 30/09/06 30/09/06 30/09/06Loans and advances to customers, 4.809 0 0 0 0netDeposits 20.946 3.076 0 0 0Other Receivables 1.507 54 0 148.912 0Total 27.262 3.130 0 148.912 0Letters of guarantee 127 0 THE GROUP THE COMPANY Amounts in thousands • BOD members and Associates BOD members and Subsidiaries Associates Key management Key management personnel personnel 30/09/06 30/09/06 30/09/06 30/09/06Interest and similar income 74 0 0 0 0Interest and similar charges 118 0 0 0 0Other income 0 0 0 0 0Other expenses 0 0 0 0 0Salaries and other remuneration 354 130 0 0Total 546 0 130 0 0 The Company financed its wholly owned subsidiaries, MYRTLE TRADING COMPANY andMIMOSA TRADING SA, with the amount of • 148.912 thousands, in order to purchasea number of shares in the BANK OF PIRAEUS SA ("Piraeus Bank"). Theabovementioned subsidiaries have undertaken the obligation to repay the parentcompany any and all amounts from time to time lent to them by the parentCompany, on first demand. Transactions with Key management personnel: Directors of the Company and their immediate relatives control 15,69 per cent ofthe voting shares of the Company. Apart from the abovementioned, no salaries or loans were they paid to theDirectors of the Company for the period. Other related party transactions An affiliated company of the Mrs Angeliki Frangou, Chairman of the BoD of theparent company, provided general and administrative services including officespace, utilities and secretarial support (for $10,000 per month). All sums duein connection with such services ceased to be payable on the completion of thebusiness combination. During the period the expenses that have been recognizedto Income Statements amounts to • 56.756. This balance bears no interest. Theamount payable as at 30 September 2006 amounts to • 18.550. 26. Other Events - Additional Information The accounts "Other Assets" and "Other Liabilities" include receivables of €41mand liabilities €14m approximately by the customers of PROTON SECURITIES SA,relating to brokerage transactions which were settled during the next threedays. 27. Changes in the supervisory board According to his letter of resignation dated 6th July 2006, Andreas VgenopoulosDeputy Chairman and Company Secretary resigned and at the same date SheldonGoldman was elected to hold office with immediate effect as Deputy Chairman andAlexander Meraclis as Secretary of the Company. Also, on September 29th 2006,George Kintis Chief Executive Officer and Director of the company resigned andLoukas Valetopoulos appointed to be a Director of the company and to act asChief Executive Officer of the company until the next annual General Meeting ofthe Company. Name Position Angeliki Frangou Chairman, Non - Executive DirectorSheldon Goldman Deputy ChairmanLoukas Valetopoulos Chief Executive Officer, DirectorAlexander Meraclis Secretary of the CompanyJohn Karakadas Non - Executive DirectorDennis Malamatinas Non - Executive Director 28. Post - Balance Sheet events a) On 11th November 2006 the subsidiaries of the Company, MIMOSATRADING COMPANY and MYRTLE TRADING COMPANY, disposed their entire holding ofapproximately 8.5 million shares in Pireaus Bank in the open market and realizeda net gain on this investment of approximately • 12,8 million. The Group hadacquired its stake in Piraeus earlier this year for a total cash considerationof approximately • 170 million. Part of this acquisition was funded by theCompany by means of a credit facility (ref. par.17). Following the disposal ofits interest in Pireaus Bank, and utilizing these sale proceeds, IRF has repaidthis credit facility in full on 21st November 2006. The remaining proceeds fromthe sale will be retained by the Group for future acquisitions on investments. b) The Company had one outstanding claim. In particular, the AmaranthLLC, a shareholder in the Company, issued proceedings against the Companyalleging that the Company failed to repurchase shares owned by Amaranth in theCompany, in accordance with the Company's bye-laws. On 23rd October 2006, theSupreme Court of Bermuda ordered that the legal action previously instituted byAmaranth LLC against the Company, be discontinued. No sums were paid by theCompany to Amaranth in connection with this order. Besides the above-mentioned events, there are no significant subsequent eventsthat should be disclosed under the provisions of IFRS. Athens November 29th, 2006 Angeliki Frangou Loukas Valetopoulos Chairman, Non - Executive Director Chief Executive Officer, Director This information is provided by RNS The company news service from the London Stock Exchange