IRF.L Regulatory News (IRF)

9 Jun 2006 16:52

IRF European Fin Investments Ltd 09 June 2006 IRF European Finance Investments Limited (A Development Stage Enterprise) Annual Accounts 31 December 2005 Statement of Directors' responsibilities in respect of the annual accounts The Directors are responsible for preparing annual accounts for each financialyear which present fairly the financial position and the performance of theCompany in accordance with applicable law and regulations. They have elected to prepare the annual accounts in accordance with IFRSs asadopted by the EU. In preparing these annual 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 IFRSs as adopted by the EU; and • prepare the annual accounts on the going concern basis unless it is inappropriate to presume that the Company 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 enable them to ensure that its annual accounts comply withapplicable laws and regulations. They have general responsibility for takingsuch steps as are reasonably open to them to safeguard the assets of the Companyand to prevent and detect fraud and other irregularities. KPMG Audit Plc8 Salisbury SquareLondonEC4Y 8BB Report of the independent auditors to the Board of Directors of IRF EuropeanFinance Investments Limited We have audited the annual accounts of IRF European Finance Investments Limited("the Company") for the period ended 31 December 2005 which comprise the incomestatement, the balance sheet, the cash flow statement, the statement of changesin equity and the related notes. These accounts have been prepared under theaccounting policies set out therein. The Company's Directors are responsiblefor the preparation of the accounts in accordance with applicable law andInternational Financial Reporting Standards (IFRSs) as adopted by the EU. Ourresponsibility is to express an opinion on these accounts based on our auditconducted in accordance with International Standards on Auditing (UK andIreland) and our profession's ethical guidance. This report has been prepared, on terms that have been agreed, for the Companyand the Company's Directors, as a body, solely in connection with their wish tohave audited accounts. Our audit work has been undertaken so that we mightstate to the Company's Directors, as a body, those matters that we have agreedto state to them in our report, in order to assist the Company to meet itsobligations under the AIM Rules to procure such a report and for no otherpurpose. This report was designed to meet the agreed requirements of theCompany's Directors determined by their needs at the time. This report shouldnot therefore be regarded as suitable to be used or relied on by any partywishing to acquire rights against us other than the Company or the Company'sDirectors, as a body, for any purpose or in any context. Any party other thanthe Company or the Company's Directors who obtains access to this report or acopy and chooses to rely on this report (or any part of it) will do so at itsown risk. To the fullest extent permitted by law, KPMG Audit Plc assumes noresponsibility and will accept no liability in respect of our audit work, thisreport or the opinions we have formed to any other party. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing(UK and Ireland) issued by the Auditing Practices Board. An audit includesexamination, on a test basis, of evidence relevant to the amounts anddisclosures in the accounts. It also includes an assessment of the significantestimates and judgements made by the Directors in the preparation of theaccounts, and of whether the accounting policies are appropriate to theCompany's circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information andexplanations which we considered necessary in order to provide us withsufficient evidence to give reasonable assurance that the accounts are free frommaterial misstatement, whether caused by fraud or other irregularity or error.In forming our opinion we also evaluated the overall adequacy of thepresentation of information in the accounts. Opinion In our opinion the accounts give a true and fair view, in accordance with IFRSsas adopted by the EU, of the state of the Company's affairs as at 31 December2005 and of its loss for the period then ended and have been properly preparedin accordance with the accounting policies described therein. KPMG Audit PlcChartered AccountantsRegistered Auditor Income statement for the 4 month period from incorporation (8 September 2005) to 31 December2005 Note 4 month period ended 31 December 2005 • Administrative expenses (72,441) Operating loss (72,441) Financial income 5 5,533 Financial expenses 5 (1,328,617) Net financing costs (1,323,084) Loss before tax (1,395,525) Taxation 6 - Loss after tax for the period (1,395,525) Results per share (•) Basic 12 (0.05) Diluted 12 (0.05) The results above relate to continuing operations. Statement of recognised income and expense for the 4 month period from incorporation (8 September 2005) to 31 December2005 4 month period ended 31 December 2005 • Loss for the period (1,395,525) Total recognised income and expense for the (1,395,525)period Balance sheetAt 31 December 2005 Note 2005 2005 • •Current assetsTrade and other receivables 9 5,309Restricted cash held in Trust 7, 13 210,294,081Cash and cash equivalents 2,206,324 Total current assets 212,505,714 Current liabilities Related party notes payable 10, 15 17,276Trade and other payables 10 152,550Compound instrument 8, 13 203,426,153 Total current liabilities 203,595,979 Net assets 8,909,735 EquityShare capital 11 71,418Warrant reserve 11 10,233,842Retained earnings 11 (1,395,525) Total equity 8,909,735 These annual accounts were approved by the Board of Directors on 9 June 2006 andwere signed on its behalf by: Georgios KintisDirector Cash flow statementfor the 4 month period from incorporation(8 September 2005) to 31 December 2005 Note 2005 •Cash flows from operating activitiesLoss for the period (1,395,525)Adjustments for:Financial expense 5 1,328,421 Operating loss before changes in working capital and provisions (67,104)Increase in trade and other receivables 9 (5,309)Increase in trade and other payables 10 169,172Increase in notes payable 655 Net cash generated from operating activities 97,414 Cash flows from investing activitiesRestricted cash placed in Trust 7 (209,493,368) Net cash flow from investing activities (209,493,368) Cash flows from financing activitiesGross proceeds from initial public offering 11 228,538,219Payment of costs of initial public offering 11 (16,950,225)Proceeds from the issue of share capital 11 14,284Proceeds from shareholders loans and advances 10, 15 237,133Repayments of shareholders loans and advances 10, 15 (237,133) Net cash from financing activities 211,602,278 Net increase in cash and cash equivalents 2,206,324Cash and cash equivalents at 8 September 2005 - Cash and cash equivalents at 31 December 2005 2,206,324 Notes(forming part of the accounts) 1 Organisation and business operations IRF European Finance Investments Ltd. (the "Company") was incorporated inBermuda on 8 September 2005 as a company with the main objective of acquiring anoperating business in the financial services industry. The offering circularfor the Company's initial public offering (the "Offering") was declaredeffective on 7 November 2005. The Company consummated the Offering on 14November 2005 and received proceeds of €228,538,219 (US$275,000,040) beforeoffering expenses. The Company's management has broad discretion with respect tothe specific application of the net proceeds of the Offering, althoughsubstantially all of the net proceeds of the Offering are intended to begenerally applied toward consummating a business combination with a company thatis engaged in the financial services industry (a "Business Combination"). €209,493,368 (US$252,083,370) of the net proceeds of the Offering were placed ina trust account (the "Trust Fund") to be held there until the earlier of thecompletion of a Business Combination, the exercise by any person who acquiredcommon shares and warrants at the offering (a "New Shareholder") of hisrepurchase rights or the distribution of such funds to the New Shareholders.Under the agreement governing the Trust Fund, funds will only be invested inUnited States government securities having a maturity of 180 days or less. Themarket value of investments held in Trust amounted to €210,294,081(US$253,046,867) at 31 December 2005. The remaining net proceeds received fromthe Offering, may be used to pay for business, legal and accounting duediligence on prospective acquisitions and continuing general and administrativeexpenses. The Company, after signing a definitive agreement for the acquisition of atarget business, will submit such transaction for shareholder approval. All ofthe Company's shareholders prior to the Offering, which include all of theOfficers and Directors of the Company ("Founding Shareholders"), have agreed tovote their 11,458,335 founding shares of common stock in accordance with thevote of the majority in the interest of the New Shareholders of the Company withrespect to the Business Combination. After consummation of a BusinessCombination, these voting provisions will no longer be applicable. If a business combination has not been consummated within 18 months (or within24 months if a letter of intent or definitive agreement was entered into priorto the end of the 18 month period or unless extended by majority shareholderapproval) after the effective date of the initial registration statement, fundsheld in the Trust account will be returned to the shareholders of the Company. 2 Basis of preparation The following accounting policies have been applied consistently in dealing withitems which are material in relation to the financial information of IRFEuropean Finance Investments Limited set out in this report. The annual accounts are presented in Euros, the functional currency of theCompany and are prepared on the historical cost basis except that financialinstruments are recorded at their fair value. Judgements made by the Directors, in the application of these accountingpolicies that have significant affect on the annual accounts and estimates witha significant risk of material adjustment in the next year are discussed innote 13. Statement of compliance The accounts have been prepared in accordance with International FinancialReporting Standards as adopted by the European Union ("Adopted IFRSs") andeffective at the reporting date. 3 Accounting policies The accounting policies set out below have been used to prepare the annualaccounts on pages 3 to 17. Use of estimates Estimates and associated assumptions used in the preparation of the accounts arebased on historical experience and various other factors that are believed to bereasonable under the circumstances, the results of which form the basis ofmaking judgments about carrying values of assets and liabilities that are notreadily apparent from other sources. Actual results may differ from theseestimates. Offering costs Offering costs consist principally of legal and underwriting fees related to theoffering and incurred up to the offering date of 14 November 2005. These costshave been charged to equity after receipt of the proceeds raised on the issue ofcapital. Loss per share Loss per share is computed by dividing net loss by the weighted-average numberof shares outstanding during the period. Trade and other receivables Trade and other receivables are stated at their nominal amount (discounted ifmaterial) less impairment losses. Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits. Bankoverdrafts that are repayable on demand and form an integral part of theCompany's cash management are included as a component of cash and cashequivalents for the purpose only of the statement of cash flows. Impairment The carrying amounts of the Company's assets are reviewed at each balance sheetdate to determine whether there is any indication of impairment. If any suchindication exists, the asset's recoverable amount is estimated. An impairment loss is recognised whenever the carrying amount of an asset or itscash-generating unit exceeds its recoverable amount. Impairment losses arerecognised in the income statement. Trade and other payables Trade and other payables are recognized initially at fair value and subsequentlymeasured at amortised cost. Trade payables are classified as currentliabilities unless the Company has an unconditional right to defer settlement ofthe liability for at least twelve months after the balance sheet date. Restricted cash held in Trust Cash held in Trust is recorded at market value at the balance sheet date. Foreign currency Transactions in foreign currencies are translated at the foreign exchange rateruling at the date of the transaction. Monetary assets and liabilitiesdenominated in foreign currencies at the balance sheet date are translated atthe foreign exchange rate ruling at that date. Foreign exchange differencesarising on translation are recognised in the income statement. Non-monetaryassets and liabilities that are measured in terms of historical cost in aforeign currency are translated using the exchange rate at the date of thetransaction. Non-monetary assets and liabilities denominated in foreigncurrencies that are stated at fair value are translated at foreign exchangerates ruling at the dates the fair value was determined. Taxation Tax on the profit or loss for the period comprises current and deferred tax. Taxis recognised in the income statement except to the extent that it relates toitems recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the period,using tax rates enacted or substantively enacted at the balance sheet date, andany adjustment to tax payable in respect of previous years. Deferred tax is provided on temporary differences between the carrying amountsof assets and liabilities for financial reporting purposes and the amounts usedfor taxation purposes. The following temporary differences are not provided for:the initial recognition of goodwill; the initial recognition of assets orliabilities that affect neither accounting nor taxable profit other than in abusiness combination, and differences relating to investments in subsidiaries tothe extent that they will probably not reverse in the foreseeable future. Theamount of deferred tax provided is based on the expected manner of realisationor settlement of the carrying amount of assets and liabilities, using tax ratesenacted or substantively enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable thatfuture taxable profits will be available against which the asset can beutilised. Classification of financial instruments issued by the Company In accordance with IAS 32, financial instruments issued by the Company aretreated as equity (i.e. forming part of shareholders' funds) only to the extentthat they meet the following two conditions: (a) they include no contractual obligations upon the Company to deliver cash or other financial assets or to exchange financial assets or financial liabilities with another party under conditions that are potentially unfavourable to the Company; and (b) where the instrument will or may be settled in the Company's own equity instruments, it is either a non-derivative that includes no obligation to deliver a variable number of the Company's own equity instruments or is a derivative that will be settled by the Company's exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments. To the extent that this definition is not met, the proceeds of issue areclassified as a financial liability and recorded at the discounted fair value ofthe liability. Where the instrument so classified takes the legal form of theCompany's own shares, the amounts presented in these annual accounts for calledup share capital and share premium account exclude amounts in relation to thoseshares. The shares issued on 14 November 2005 at the Company's initial public offeringare considered to be a financial instrument that contains both equity andfinancial liability components. These components are separated and accountedfor individually under the above policy. The finance cost on the financialliability component is correspondingly higher over the life of the instrument. The debt portion of the compound instrument was recognised initially at fairvalue, calculated as the original sum paid into the Trust, plus interest for twoyears at the same rate as that earned during the period then discounted to itspresent value at a rate representing the cost of borrowing a similar amountsecured on the Trust assets. The fair value is then increased to the amount dueover the two year period via an interest charge to the income statement. Ratesused are reassessed in each accounting period. The equity portion of the compound instrument was calculated as the proceeds onissue of shares (net of issue costs) less the amount calculated as the debtportion of the instrument. The equity total was then allocated between theequity accounts by recognising the nominal value of the shares in share capital,and the remainder in the warrant reserve representing the equity portion of thecontributed surplus paid for the warrants. The debt portion of the compound instrument is classified as a current liabilitybecause although the amount is payable at the latest after 24 months from thedate of the offering if no business combination has taken place, if the businesscombination does take place within one year, the liability will be reallocatedto equity and the Company does not have an unconditional right to defersettlement for longer than 12 months. Finance payments associated with financial liabilities are dealt with as part offinance expenses. Finance payments associated with financial instruments thatare classified in equity are dividends and are recorded directly in equity. Investments in debt and equity securities Restricted cash held in Trust represents amounts invested in short-term treasurybills which are recorded at market value. These funds will be held in Trustuntil the earlier of the completion of a business combination, the exercise by aNew Shareholder of his Repurchase Rights or the distribution of such funds tothe New Shareholders. Income on these investments is recorded in the restrictedcash account and as an additional liability within the compound instrument. Derivative financial instruments Derivative financial instruments Derivative financial instruments are recognised at fair value. The gain or losson remeasurement to fair value is recognised immediately in profit or loss,except as described above. Interest-bearing borrowings Interest-bearing borrowings are recognised initially at fair value lessattributable transaction costs. Subsequent to initial recognition,interest-bearing borrowings are stated at amortised cost with any differencebetween cost and redemption value being recognised in the income statement overthe period of the borrowings on an effective interest basis. Segment reporting A segment is a distinguishable component of the Company that is engaged eitherin providing products or services (business segment), or in providing productsor services within a particular economic environment (geographical segment),which is subject to risks and rewards that are different from those of othersegments. At this time the Company has only one segment which is investmentbusiness in Europe. Adopted IFRS not yet applied The following Adopted IFRSs were available for early application but have notbeen applied by the Company in these annual accounts: • IFRS 7 'Financial instruments: Disclosure' applicable for years commencing on or after 1 January 2007 The application of IFRS 7 in 2005 would not have affected the balance sheet orincome statement as the standard is concerned only with disclosure. The Companyplans to adopt it in 2006. 4 Staff numbers and costs The Company had no employees other than the Directors during the period. Nosalaries were paid to the Directors for the period. 5 Finance income and expense 2005 • Net exchange gain 5,533 Financial income 5,533 Interest on compound instrument 1,328,421Bank charges 196 Financial expenses 1,328,617 Interest on the compound financial instrument represents the charge for theperiod to increase the book value of the liability from its initial fair valueto the amount payable on the due date. 6 Taxation Recognised in the income statement 2005 • Current tax expense -Current period - Deferred tax expense -Origination and reversal of temporary differences -Benefit of tax losses recognised - Total tax in income statement - Reconciliation of effective tax rate 2005 • Loss before tax (1,395,525) Tax using the Bermudan corporation tax rate of 0% -Non-deductible expenses -Tax exempt revenues -Effect of tax losses utilised/generated -Under / (over) provided in prior years - Total tax in income statement - 7 Other financial assets 2005 •Current assetsRestricted cash held in Trust 210,294,081 210,294,081 €209,493,368 (US$252,083,370) of the net proceeds of the Offering were placed ina trust account (the "Trust Fund") to be held there until the earlier of thecompletion of a Business Combination, the exercise by any person who acquiredcommon shares and warrants at the offering (a "New Shareholder") of hisrepurchase rights or the distribution of such funds to the New Shareholders.Under the agreement governing the Trust Fund, funds will only be invested inUnited States government securities having a maturity of 180 days or less. Thebalance is recorded at market value including interest and movements in thevalue of investments at the balance sheet date. The market value of investmentsheld in Trust amounted to €210,294,081 (US$253,046,867) at 31 December 2005. 8 Other financial liabilities 2005 •Current liabilitiesCompound financial instrument 203,426,153 203,426,153 The compound financial instrument represents the present value of the cash heldin Trust, including estimated interest, which will be payable to shareholderswithin 24 months following the date of the offering if no qualifying businesscombination has occurred. 9 Trade and other receivables 2005 • Other trade receivables and prepayments 5,309 5,309 10 Trade and other payables 2005 • Amounts payable to related parties 17,276Trade and other payables 152,550 11 Capital and reserves Reconciliation of movement in capital and reserves Share Warrant Retained Total Equity capital reserve earnings • • • • Balance at 8 September 2005 - - - -Total recognised income and expense for the - - (1,395,525) (1,395,525)periodIssue of common stock to initial stockholders 14,284 - - 14,284Issue of shares on offering, net of offering 57,134 10,233,842 - 10,290,976costs Balance at 31 December 2005 71,418 10,233,842 (1,395,525) 8,909,735 On 15 September 2005, 8,000,000 common shares, having a par value of $0.0015each, were issued for a total consideration of $12,000 and the authorized sharecapital was increased to 136,500,000 common shares of $0.0015 each. On 4November 2005, a further 3,458,335 common shares of $0.0015 were issued for atotal consideration of $5,187.50 and the authorized share capital was increasedto $148,958,355 common shares of $0.0015 each. On 14 November 2005, the Company sold 45,833,340 units in the Offering at aprice of $6.00 per Unit, generating gross offering proceeds of $275,000,040(€228,538,220). Each Unit consisted of one share of the Company's common stock(the "Common Stock"), and two warrants ("Warrants"). Each Warrant entitles theholder to purchase from the Company one share of Common Stock at an exerciseprice of $5.00 per share. Each warrant will become exercisable on the earlierof (i) our completion of a business combination which, when combined with all ofour previous business combinations, has an aggregate transaction value of atleast 50 per cent of the initial amount placed in Trust together with such fundsas are deposited in the Trust fund following the stabilization period (a "Qualified Business Combination") and (ii) where a business combination hasoccurred but a Qualified Business Combination is not completed within 18 monthsafter admission, or within 24 months after admission if a letter or intent,agreement in principle or definitive agreement has been signed by the Companyduring the initial 18 month period but such acquisition has not beenconsummated, or unless extended by majority shareholder approval (the date bywhich such Qualified Business Combination has to occur in any of thesecircumstances being the "Extended Date"),the relevant date shall be the extendeddate and will expire on the earlier of redemption or the date that is four yearsafter the admission date. The proceeds received on issue have been allocated between debt and equityaccording to IAS 32. The total allocated to equity has been allocated to sharecapital based on the nominal value of the shares, and the remainder to thewarrant reserve representing the equity portion of the contributed surplus paidfor the warrants. Share capital Preference shares of Common $0.0001 each sharesIn thousands of shares 2005 2005 At 8 September 2005 - -Issued for cash - 57,292 In issue at 31 December 2005 - fully paid - 57,292 2005 2005 $ •Authorised148,958,355 common shares of $0.0015 each 223,438 185,6872,500,000 preference shares of $0.0001 each 250 208 223,688 185,895 Allotted, called up and fully paid57,291,675 common shares of $0.0015 each 85,938 71,418Nil preference shares of $0.0001 each - - 85,938 71,418 Proceeds from shares in issue (net of offering 211,602,278costs) Shares classified as liabilities at date of offering 201,297,018Shares classified in shareholders funds - share 71,418capitalShares classified in shareholders funds - warrants 10,233,842reserve 211,602,278 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. During the period the Company issued 57,291,675 common shares for aconsideration of €228,552,504 (before offering costs), settled in cash. 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. Shareholders voting against a business combination will be entitled at the timethey vote against such business combination either to exercise their repurchaserights if the business combination is approved and completed or to maintaintheir interest in the Company. Loss per share Basic and diluted loss per share The calculation of basic loss per share at 31 December 2005 is based on the netloss attributable to common shareholders of €1,395,525 and a weighted averagenumber of common shares outstanding during the period ended 31 December 2005 of28,134,141, calculated as follows: Weighted average number of common shares Number of shares Issued common shares at 8 September 2005 -Effect of shares issued on 15 September 2005 7,508,772Effect of shares issued on 4 November 2005 1,729,168Effect of shares issued on 14 November 2005 18,896,201 28,134,141 Financial instruments Interest rate and exchange rate risk In managing interest rate and currency risks the Company aims to reduce theimpact of short-term fluctuations on the Company's earnings. Over thelonger-term, however, permanent changes in foreign exchange and interest rateswould have an impact on earnings. Effective interest rates analysis In respect of income-earning financial assets and interest-bearing financialliabilities, the following table indicates their effective interest rates at thebalance sheet date and the periods in which they mature or, if earlier, arerepriced. 2005 Effective 0 to Interest rate Total < 1 year % €000 €000 Restricted cash - held in Trust 2.97 210,294 210,294Compound financial instrument 5.0 (203,426) (203,426)(liability) (9,074) (9,074) Fair values The fair values together with the carrying amounts shown in the balance sheetare as follows: Carrying amount Fair value 2005 2005 €000 €000 Restricted cash held in Trust 210,294 210,294Compound financial instrument (liability) (203,426) (203,426) (9,074) (9,074) Unrecognised (losses) / gains - Restricted cash held in Trust is recorded at fair value based on the marketvalue of investments at the balance sheet date as notified by the bank. Theinitial fair value of the compound financial instrument was calculated as theoriginal sum paid into the Trust, plus interest for 2 years at the same rate asthat earned during the period (2.97%) then discounted to its present value at arate of 5% representing the cost of borrowing a similar amount secured on theTrust assets, estimated to be the base rate plus 0.5%. The fair value is thenincreased to the amount due over the two year period via an interest charge tothe income statement. 12 Lease commitments An affiliated company of the Chairman has agreed to provide services (includingoffice space, utilities and secretarial support) to the Company. The Companyhas agreed to pay $10,000 per month for these services until a businesscombination takes place. 13 Related parties Identity of related parties Directors and Executive Officers Angeliki Frangou Chairman and DirectorAndreas Vgenopoulos Deputy Chairman and DirectorGeorgios Kintis Chief Executive Officer and DirectorSheldon Goldman DirectorJohn Karakadas DirectorAlexander Meraclis DirectorDennis Malamatinas DirectorNicos Koulis Deputy Chief Executive Officer Transactions with key management personnel Directors of the Company and their immediate relatives control 31.81 per cent ofthe voting shares of the Company. Other related party transactions Mrs Frangou, a Director and Founding Shareholder, has committed to providingfunds to cover the initial costs of the AIM Admission. These funds are providedon a draw down basis. During the period, €237,133 was drawn down and paid backto the Founding Shareholder. This balance bears no interest. The balance dueat 31 December 2005 was repaid on 30 May 2006. 14 Events after the balance sheet date On 31 May 2006, the Company announced that it had entered into a definitiveagreement with Antonios Athanasoglou and Ilias Lianos to acquire between 28percent and 30 percent of the issued share capital of Proton Investment Bank SA("Proton") for between €120.1 million and €128.5 million. Completion of the Acquisition constitutes a reverse takeover under AIM Rules andis conditioned on approval of the Company's shareholders. The Acquisition will constitute a "Qualified Business Combination" under theCompany's bye-laws. This information is provided by RNS The company news service from the London Stock Exchange