IRF.L Regulatory News (IRF)

31 Aug 2006 18:23

IRF European Fin Investments Ltd 31 August 2006 IRF European Finance Investments Limited ("the Company") Interim Results 31 August 2006 IRF European Finance Investments Ltd (AIM:IRF) announces its interim results forthe six months ended 30 June 2006. Financial highlights Amounts in • THE GROUP THE COMPANY Note 01/01 - 30/06/2006 01/01 - 30/06/2006TurnoverProfit for the Period 6,257,390 6,257,390 Profit before interest, income tax (222,692) (222,692) Profit before interest, income tax & depreciation (222,692) (222,692)Profit before income tax 6,257,390 6,257,390Income Tax Expense Profit for the Period after taxes 6,257,390 6,257,390 Attributable to: Equity holders of the parent 6,257,390 6,257,390 Minority Interests 6,257,390 6,257,390 Basic earnings per Share (in Euro /share) 16 0.11 0.11Diluted earnings per Share (in Euro /share) 16 0.10 0.10 Commenting on the results, Angeliki Frangou, Chairperson of IRF European FinanceInvestments Ltd, said: "We are pleased with Proton's results. We also lookforward to the pending merger between Proton and Omega, which is progressingsmoothly, and which we expect to occur by end September 2006". Proton, following the merger, will focus on a wide range of commercial andinvestment banking services and is expected to have a capital base ofapproximately €300 million, total assets exceeding €1.5 billion, advances of€900 million and a deposit base of €1.1 billion. For further information: IRF European Finance Investments LtdAngeliki Frangou, Chairperson Tel: +30 - 210 - 4280560 Collins Stewart LimitedKripa Radhakrishnan / Stewart Wallace, Corporate Finance Tel: +44 (0) 20 7523 8350 About IRF IRF was incorporated to serve as a vehicle for the acquisition of interests inthe financial services industry in Europe. IRF's strategy is to invest in afinancial services institution having one or more of the followingcharacteristics: an attractive franchise with opportunities for geographicexpansion and/or the addition of new products and services; an institution thatis constrained by its current capital and limited in access to the capitalmarkets due to its size or other considerations; or an institution that isundervalued because the institution is too small for larger acquirers, has acapital deficiency, or is in a geographic market not currently being sought bylarger banks. IRF was listed on AIM in November 2005. On 30 June 2006, IRFacquired a 28 per cent. interest in Proton Investment Bank S.A. ('Proton'). About Proton Proton focuses on investment banking and the provision of specialised corporateadvisory and investment services. Proton was listed on the Athens StockExchange in December 2005. 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 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 IFRS as adopted by EU and; • prepare the interim accounts on the going concern basis unless it is inappropriate 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 reasonably 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 shareholders of "IRF European Finance Investments Limited" We have reviewed the accompanying Interim Financial Statements and theConsolidated Interim Financial Statements of "IRF European Finance InvestmentsLimited", as of and for the six-month period ended 30 June 2006. These interimfinancial statements are the responsibility of the Company's management. 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 on audit. Wehave not performed an audit and, accordingly, we do not express an auditopinion. Based on our review, nothing has come to our attention that causes us to believethat the accompanying Interim Financial Statements and the accompanyingConsolidated Interim Financial Statements do not give a true and fair view inaccordance with the International Financial Reporting Standards that have beenadopted by the European Union. Without qualifying our review conclusion, we draw attention to note 13.2 to theinterim financial statements that the tax obligations of the Group for the year2005 and the period ended 30 June 2006 have not yet been audited by the taxauthorities and accordingly its tax obligations for these years are notconsidered final. The outcome of a tax audit cannot presently be determined. 1. Income Statement Amounts in • THE GROUP THE COMPANY Note 01/01 - 30/06/2006 01/01 - 30/06/2006Continuing OperationsAdministrative Expenses (248,618) (248,618)Other Operating Expenses 25,926 25,926Profit before interest and income tax (222,692) (222,692)Financial income 6,480,409 6,480,409Financial Expenses (327) (327)Profit before income tax 6,257,390 6,257,390Income Tax Expense 0 0Profit for the Period 6,257,390 6,257,390 Attributable to: Equity holders of the parent 6,257,390 6,257,390 Minority Interests 0 0 6,257,390 6,257,390 Basic earnings per Share (in Euro /share) 16 0.11 0.11Diluted earnings per Share (in Euro /share) 16 0.10 0.10 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 • THE GROUP THE COMPANY Note 30/6/2006 31/12/2005 30/6/2006 31/12/2005ASSETSCash and balances with 2,217,445 0 0 0central bankDue from Banks 217,169,824 2,206,324 202,431,218 2,206,324Restricted cash held in 10 11,860 210,294,081 11,860 210,294,081TrustFinancial Assets at fair 151,560,318 0 0 0value through profit orlossLoans and advances to 276,961,358 0 0 0customers,netAssets classified as held 854,760 0 0 0for saleProperty, plant and 1,125,390 0 0 0equipment, netGoodwill and other 9 68,842,814 0 0 0Intangible AssetsInvestments in 8 0 0 126,686,519 0SubsidiariesDeffered Tax Assets 419,630 0 0 0Other Assets 22,030,263 5,309 45,587 5,309Total Assets 741,193,663 212,505,713 329,175,184 212,505,713 LIABILITIESDue to banks 44,138,000 0 0 0Due to Customers 62,705,488 0 0 0Derivative financial 159,227 0 0 0intrumentsRetirement benefit 220,662 0 0 0obligationsOther liabilities 279,286,497 169,827 123,478,129 169,827Compound financial 11 1,907,805 203,426,153 1,907,805 203,426,153instrumentTotal Liabilities 388,417,679 203,595,980 125,385,934 203,595,980 SHAREHOLDERS' EQUITYEquityShare Capital 71,418 71,418 71,418 71,418Share Premium 198,855,969 10,233,842 198,855,969 10,233,842Reserves 0 0 0 0Other reserves 0 0 0 0Retained Earnings / 4,861,863 -1,395,527 4,861,863 -1,395,527(losses)Equity attributable to 203,789,250 8,909,734 203,789,250 8,909,734shareholders' of theparentMinority Interest 148,986,734 0 0 0Total Shareholders Entity 352,775,984 8,909,734 203,789,250 8,909,734 Total Equity and Total 741,193,663 212,505,713 329,175,184 212,505,713Liabilities These interim accounts were approved by the Board of Directors on 30 June 2006and were signed on behalf by: Georgios Kintis Chief Executive Officer 3. Statement of Changes in Equity (Group) Consolidated Statement of Changes in Equity Share Capital Attributable To Shareholders Amounts in • Share Share Retained Total Minority Total Capital Premium Earnings / Interest (losses) Company's Equity at 1st January 2006 71,418 10,233,842 (1,395,527) 8,909,734 0 8,909,734according to IFRS Net Profit for the period 01/01-30/ 0 0 6,257,390 6,257,390 0 6,257,39006/2006 Conversion of Compound Financial 0 188,622,126 0 188,622,126 0 188,622,126Instruments to Common Shares (afterthe acquisition of the subsidiary) Minority Interest from the 0 0 0 0 148,986,734 148,986,734Acquisition of the Subsidiary on 30June 2006 Total Profit /Loss for the Period 0 188,622,126 6,257,390 194,879,516 148,986,734 343,866,250 Total shareholders' equity at 30 71,418 198,855,969 4,861,863 203,789,250 148,986,734 352,775,984June 2006 4. Statement of Changes in Equity (Company) Company Statement of Changes in Equity Share Capital Attributable To ShareholdersAmounts in • Share Capital Share Premium Retained Total Earnings / (losses) Equity at 1st January 2006 according to IFRS 71,418 10,233,842 (1,395,527) 8,909,734Changes in Equity for the period 01/01 - 30/06/2006Net Profit for the period 01/01-30/06/2006 0 0 6,257,390 6,257,390Conversion of Compound Financial Instruments to 0 188,622,126 0 188,622,126Common Shares (after the acquisition of thesubsidiary)Total Profit /Loss for the Period 0 188,622,126 6,257,390 194,879,516 Total shareholders' equity at 30 June 2006 71,418 198,855,969 4,861,863 203,789,250 The notes on the following pages form an integral part of these interimfinancial statements and consolidated interim financial statements. 5. Cash Flow Statement Cash Flow Statement Notes THE GROUP THE COMPANYAmounts in • 01/01 - 30/06/2006 01/01 - 30/06/2006 Operating ActivitiesProfit for the period 6,257,390 6,257,390Plus (Less) Adjustments:Bank Interest Income (6,480,409) (6,480,409)Exchange Differences (20,370) (20,370)Prior year adjustments 877 877Total Adjustments to Profit after Tax (6,499,903) (6,499,903) (242,513) (242,513)Plus (Less) Adjustments for working capitalDecrease / (Increase) in Trade and other Receivables (40,279) (40,279)(Decrease) / Increase in Trade and other Payables (except banks) 123,308,154 123,308,154 123,267,875 123,267,875Cash flow from Operating Activities 123,025,362 123,025,362 Net cash flow from Operating Activities 123,025,362 123,025,362 Investing ActivitiesAcquisition of subsidiaries (less cash & cash equivalents of the 8 (109,730,468) (126,686,519)acquired Subsidiary)Restricted cash placed on Trust 201,253,664 201,253,664Interest received 4,559,948 4,559,948Net cash flow from Investing Activities 96,083,144 79,127,093 Financing Activities Net cash flow from Financing Activities (0) (0) Effects of exchange rates change on "Cash & cash equivalents" (1,927,561) (1,927,561)Net increase / decrease in cash and cash equivalents 217,180,945 200,224,894 Cash and cash equivalents at the beginning of the period 2,206,324 2,206,324Cash and cash equivalents at the end of the period 219,387,269 202,431,218 Amounts in • THE GROUP THE COMPANYCash and balances with central bank 2,217,445 0Due from Banks 217,169,824 202,431,218Cash and cash equivalents at the end of the period 219,387,269 202,431,218 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 8September 2005 under the Bermuda Companies Act. The Company is an investingcompany (or cash shell) formed to serve as a vehicle for the acquisition of anentity in the financial services industry in Europe, with a primary focus oncredit institutions and insurance companies in Greece, Bulgaria, Romania andTurkey. The IRF European Finance Investments Limited (IRF) is a company listedon AIM, 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 Acquisition. 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, after payment ofunderwriting discounts and expenses, being • 209.493.368 ($252.083.370) wasplaced in a trust and invested in U.S. Treasury bills having a maturity date of180 days or less. The funds in the Trust were only be used by the Company tofinance one or more business combinations approved by the Shareholders. However,since a Qualified Business Combination was completed, funds in the TrustAccounts were released to the Company and the Company may use these fundswithout restriction. On 27 June 2006, the 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's head officesare located in Kallithea, where the sole branch of Proton is also located. Proton's shares were listed on the Athens Stock Exchange in December 2005.Proton focuses on investment banking and the provision of specialised corporateadvisory and investment services. Proton operations are dividend into foursegments: investments, banking, brokerage and mutual funds and asset management.Proton is also expanding its business out into commercial banking through aproposed merger with Omega. 6.2 Statement of Compliance The interim financial statements and consolidated financial statements for thesix months ended 30 June 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. 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 engage 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 theIRF European Finance Investments Limited (''Company") and its subsidiaries andhereafter referred to as ''Group". Subsidiaries are entities which arecontrolled by the parent company (ref. par.8). Control exists when the Companyhas the power, directly or indirectly, to govern the financial and operatingpolicies of an entity so as to obtain benefits from its activities. 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. 6.6 Comparative Figures The Group prepared the consolidated financial statements for the first time forthe six month period ended on 30 June 2006. Thereby, the consolidated interimbalance sheet does not present relevant comparative figures for the year ended31 December 2005. The Company's interim balance sheet for six month period ended 30 June 2005present relevant comparative figures with those reported for the year ended 31December 2005 (8 September 2005 to 31 December 2005). The Income Statement does not include comparative information since the Companyincorporated in Bermuda on 8th September 2005 and the Subsidiary acquired on 30June 2006. 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 first semester of 2006, do not includeall the information that are necessary during the annual financial statements,therefore the use of the annual financial statements of 2005 is appropriate. Theaccounting principles that had been used in the preparation of the annualfinancial statements of 2005 have not been changed during the first semester of2006. 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. 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 its significant influence and control of the businessdecisions taken. The IRF European Finance Investments Limited acquires andexercises control through significant influence and control of the businessdecisions taken. Therefore, subsidiaries are companies in which control isexercised by the parent. The existence of potential voting rights that areexercisable at the time the financial statements are prepared, is taken intoaccount in order to determine whether the parent exercises control over thesubsidiaries. Subsidiaries are consolidated completely (full consolidation)using the purchase method from the date that control over them is acquired andcease to be consolidated from the date 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. 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, pertain 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 which are acquired inorder to generate short term profit and include 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 on indefinite period of time, to maturity or sold inresponse to needs for liquidity or to gain from the changes in interest rates orforeign 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 there is objective evidence ofimpairment. Fair value of financial instruments: Fair value is the value that 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 balance sheet captions and on off balanceaccounts in cases that these concern letters of guarantee of the Bank. Shortterm positions of the Group as well as short term deposits from clients arereported on cost value since these financial instruments have short termexpirations and are turned into cash or redeem without significant transactioncosts. Loans to clients and letters of guarantee are reported at their costvalue minus estimated impairement. Trading Portfolio and available for salesecurities are reported at their fair value, which is determined by their marketprice 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 yearsMachinery 7 - 14 yearsVehicles 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 Intagible Assets Goodwill: Acquisitions of subsidiaries are recorded in the mother company'sbooks according to the purchase method. The difference between the cost value ofthe subsidiaries and the fair value of their net assets is considered to begoodwill and is recorded in a separate account in the intangible assets caption. In the financial statement of the mother company prepared in accordance to theIFRS. goodwill from the acquisition of subsidiaries presented according to IFRS3 which provides that the difference between cost value and fair value isrecorded as goodwill. At each balance sheet date, on annual basis, the carrying amount of goodwill isreviewed by the Group management for evidence of impairment. In case that therecoverable value is lower than the carrying amount, then the goodwill isreduced to its recoverable amount. Software: Software which is acquired and can be clearly identified iscapitalized at the cost of acquisition. Subsequently, they are carried at costless any accumulated amortization and any impairment losses. Software isamortized 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 realisable 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 it isconsidered 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 June 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 A financial instrument is derecognized from the Groups financial statements whenthe Group loses control of the contractual rights that comprise the financialinstrument. The Group loses such control if it realizes the rights to benefitsspecified in the contract, the rights expire, or the enterprise surrenders thoserights. 8. Group Structure and Method of Consolidation Group companies, included in the consolidated financial statements are: Company Activity Participation Relation that Note Percentage dictated the consolidationIRF European Finance Financial Services ParentInvestments Limited Industry PROTON INVESTMENT Bank 28.00% Control over the entity Direct stakeBANK SA PROTON SECURITIES SA Brokerage House 28.00% Control over the entity Indirect stake through "PROTON BANK" PROTON ASSET Asset Management 27.97% Control over the entity Indirect stakeMANAGEMENT SA through "PROTON BANK" PROTON MUTUAL FUNDS Mutual Funds 27.97% Control over the entity Indirect stakeMANAGEMENT CO SA through "PROTON BANK" ARROW ASSET FINANCE SA Specialized corporate 27.97% Control over the entity Indirect stake advisory through "PROTON BANK" FIRST GLOBAL BROKERS AD Brokerage House 23.10% Control over the entity Indirect stake through "PROTON BANK" All subsidiaries are consolidated according to the method of full consolidation. 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. Under the purchase agreement, IRF appoints the majority of the members ofProton's Board of Directors and therefore IRF is in a position to controlProton. In particular on 30 June 2006, due to same resigns there was a change inthe composition of the Board of Directors of PROTON Investment Bank SA (fourdirectors of the Bank resigned and replaced by four nominated by IRF). Also,under the purchase agreement the two other main shareholders agree to vote inthe next General Meetings of the Shareholders in such a way that IRF will alwaysappoint more than half of the BoD members. The remaining shares are held by avast number of investors, no one of which helds more that 2%. Under all thesecircumstances IRF effectively controls Proton and therefore required to presentconsolidated financial statements and includes Proton's financial statements. The IRF Group consolidated "PROTON INVESTMENT BANK SA" for the first time at 30/06/2006, date at which control was deemed to be acquired. "Control" is the rightto lead the financial and business policies of an entity in order to receivebenefits form its operation. The business combination had no effect in theGroup's results for the six month period ended at 30/06/2006. If the company wasconsolidated from the beginning of the period the Group's Earnings after taxwould be increased by • 5.740.220 (• 20.500.784*28%). The effect of the above acquisition was the amount of • 68.754.226 as shown atthe following table: Goodwill & other intagible assets from PROTON BANK acquisitionDate of acquisition 30/06/2006Acquired percentage 28%Shares (Total) : 45,135,892Acquired shares : 12,638,050Acquisition price (per share.) : 9.50Cost of acquisitionCash Paid 120,061,475Direct Expenses related to acquisition 6,625,044Total Cost of acquisition 126,686,519 Less: Fair Value of Assets and Liabilities acquired 57,932,292 Goodwill & other intagible assets from acquisition 68,754,226 The assets acquired and the liabilities undertaken due to the acquisition are asfollows:Ammounts in EuroCash and balances with central bank 2,217,445Due from banks 14,738,606Financial Assets at fair value through profit or loss 151,560,318Loans and advanes to customers,net 276,961,358Assets classified as held for sale 854,760Property, plant and equipment, net 1,125,390Intangible assets, net 88,588Deffered Tax Assets 419,630Other Assets 21,984,676Due to banks (44,138,000)Due to Customers (62,705,488)Derivative financial intruments (159,227)Retirement benefit obligations (220,662)Other liabilities (155,808,368) 206,919,026Less: "Minority Interest" (17,982)Shareholders net assets 206,901,044Acquisition Percentage of the Share Capital 28%Net Assets Acquired 57,932,292Plus: Goodwill & other intagible assets 68,754,226Acuisition Cost 126,686,519Less: "Cash and balances with central bank" (2,217,445)Less: "Due from Banks" (14,738,606)Net cash outflow from the acquisition of the Subsidiary 109,730,468 9 Goodwill & other intangible assets The effect of the acquisition of PROTON INVESTMENT BANK SA was goodwill andintangible assets of • 68.754.226 as shown above (par 8). Through the acquisition the Group achieved banking license, trade name and webbanking licenses in Greece. The abovementioned licenses will allow the Group totake advantage of significant growth margins of the Greek banking sector. At thepresent stage it was not feasible to accurately value the licenses and thereforeit has not been accounted for as an intangible asset. The Group is in the process of completing a fair valuation and purchase priceallocation of the acquisition of Proton Investment Bank SA as at the date ofacquisition. Consequently the Group has applied initial accounting determinedprovisionally according to IFRS 3 "Business Combinations". 10 Restricted cash held in Trust The Company funded the acquisition of PROTON Investment Bank SA, entirely out ofa portion of the net proceeds from its completed Initial Public Offering, whichwere 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. The market value of investments held in trust at 30 June2006 amounted to • 11.860 ($ 15.077). 11 Compound financial instrument Amounts in • THE GROUP THE COMPANY 30/6/2006 31/12/2005 30/6/2006 31/12/2005Compound financial instruments 1,907,805 203,426,153 1,907,805 203,426,153Total 1,907,805 203,426,153 1,907,805 203,426,153 The Company's compound financial instruments at 31 December 2005 represented thepresent 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). The compound financial instrument at 30 June 2006 amounted • 1.907.805 ($2.425.392,21) refers to the amount that must be paid to those shareholders whovalidly elected to have their shares repurchased. In particular on the SpecialGeneral Meeting of the Shareholders' at 27 June 2006, Shareholders who hold430.000 shares voted against the resolution and had requested to have theirshares repurchased. The price determined in accordance with its Bye-laws to$5.62 per Share, as of 31 May 2006, plus net interest earned since that date(430.000 shares x 5,640447 = $ 2.425.392,21). 12 Contingent Assets There are no litigations which have an important impact on company's and Group'sfinancial position. 13 Contingent Liabilities & Commitments 13.1 Legal proceedings The Group, in the normal course of business, has a number of legal proceedingsoutstanding for the period ended 30 June 2006. The Company is only aware of oneoutstanding claim. Amaranth LLC, a shareholder in the Company, issuedproceedings against the Company alleging that the Company failed to repurchaseshares owned by Amaranth in the Company, in accordance with the Company'sbye-laws. The claim alleges that Amaranth LLC submitted a valid proxy requestingits shares be repurchased in connection with the acquisition of an interest inProton by the Company. The Company is in the process of defending this claim,which it believes is without merit. No provision has been made for the above as the Company considers it is unlikelythat any significant change in the consolidated total shareholder's equity willoccur. 13.2 Unaudited fiscal years by tax authorities Proton Group tax legislation is in Greece. Submitted tax returns are subject torevision until such time as the tax authorities audit the books and records ofthe companies and the related tax returns are accepted as final, or until thestature of limitation expires. In Greece, it is common for the tax authorities to audit an entity's books andrecords before the expiration of the stature 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 fiscal years that have not been inspected by the tax authorities for each ofthe Group's companies are as follows: COMPANY ACTIVITY YEARS NOT INSPECTED BY TAX AUTHORITESPROTON INVESTMENT BANK SA Bank, Greece 2005PROTON SECURITIES SA Brokerage House, Greece 2005PROTON ASSET MANAGEMENT SA Asset Management 2005PROTON MUTUAL FUNDS MANAGEMENT CO SA Mutual Funds, Greece 2005ARROW ASSET FINANCE SA Specialized corporate advisory, Greece 2005FIRST GLOBAL BROKERS AD Brokerage House, Serbia 2005 As a result of the above the Group's respective tax obligations for the FY2005have not been finalized. The outcome of the tax audit cannot be foretold at thisstage. 13.3 Letters of Guarantee The Group, in the normal course of business, has issued a number of letters ofguarantee on behalf of its clients totaling to • 32.400.000 approximately.Besides, PROTON Investment Bank SA has issued letters of guarantee, on behalf ofits subsidiary undertaking totaling to • 72.400.000 approximately; that is, •71.700.000 on behalf of PROTON Securities SA, • 234.776 of PROTON AssetManagement SA and • 500.000 of FIRST GLOBAL BROKERS SA. For the issuing of letters of guarantee to third parties a standard process ofapproval of the credit limit exists where the Group's policy is to obtaincollateral. Nevertheless, letters of guarantees on behalf of the subsidiaryundertakings are not subject to credit assessments and collateral. 14 Number of Employees On 30 June 2006 the Group employed 128 employees, while the Company employed 1employee. 15 Related party transactions 15.1 Directors and Key management personnel Related Party Transactions THE GROUP THE COMPANY Directors and Key management Directors and Key management personnel personnelAmounts in • 30/06/2006 31/12/2005 30/06/2006 31/12/2005Loans and advances to customers,net 3,281,469Deposits 1,426,094 30/06/2006 30/06/2006Personnel Costs 100,000 100,000 Directors of the Company and their immediate relatives control 31,81 per cent ofthe voting shares of the Company. Group enters into a number of banking transactions with related parties in thenormal course of business. These transactions are carried out on commercialterms and at market rates where approval of the managing board is aprerequisite. The Special General Meeting of 27 June 2006 approved the proposed servicecontract between the Company and Georgios Kintis, Company's Chief ExecutiveOfficer. Under the service contract, he will be paid an annual salary of •120.000 and a discretionary non-contractual bonus determined by the Board andpayable by the Company. Except of the abovementioned, no salaries were paid to the Directors of theCompany for the period. 15.2 Other related party transactions An affiliated company of the Chairman, Angeliki Frangou, provides general andadministrative services including office space, utilities and secretarialsupport (for $10,000 per month). All sums due in connection with such servicesceased to be payable on the completion of a business combination. During theperiod the expenses been recognized to Income Statements amounts to 56.756. Thisbalance bears no interest. The amount payable as at 30 June 2006 amounts to •16.573. The Company appointed S Goldman Advisors to act as its financial adviser inconnection with the acquisition of Proton Investment Bank SA. Sheldon Goldman, aDeputy Chairman and a Non-Executive Director of the Company, is also managingdirector of S Goldman Advisors. In connection with such appointment S GoldmanAdvisors is to be paid a fee of • 790.000. The Directors (other than SheldonGoldman) having consulted with Collins Stewart, believed the payment of such feeis fair and reasonable so far as Shareholders is concerned. The amount of •790.000 paid on 20 July 2006. The Company appointed IBG and, on Special General Meeting of the Shareholders(on 27 June 2006) has agreed to pay IBG a success based advisory fee of •3.300.000 on Completion of Acquisition. IBG is affiliated with Marfin FinancialGroup ("MFG") and Marfin Bank A.S., Andreas Vgenopoulos, Company's Non-ExecutiveDirector, is the vice Chairman of MFG and Chairman of Marfin Bank S.A. TheDirectors (other than Andreas Vgenopoulos) having consulted with CollinsStewart, believed the payment of such fee is fair and reasonable so far asShareholders is concerned. The amount of • 3.300.000 paid on 30 June 2006. 16 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 shares outstanding.Basic Earnings per share THE GROUP THE COMPANYAmounts in • 01/01 - 30/06/06 01/01 - 30/06/06 Profit before income tax 6,257,390 6,257,390Income Tax Expense 0 0Profit for the Period (1) 6,257,390 6,257,390 Attributable to: Equity holders of the parent (2) 6,257,390 Minority Interests 0 6,257,390 Weighted average number of shares (3) 57,291,676 Basic earnings per Share (in euro /share) (2)/(3): 0,11 (1)/(3): 0,11 THE GROUP THE COMPANYDiluted Earnings per Share 01/01 - 30/06/06 01/01 - 30/06/06Amounts in • Profit for the period attributable to equity holders of the parent 6,257,390 6,257,390(1) Weighted average number of shares (2) 57,291,676 Plus: Shares with no consideration (from assumed exercise of 5,996,886Warrants) Dilutive potential ordinary shares (3) 63,288,562 Diluted earnings per Share (in euro /share) (1)/(3): 0,10 (1)/(3): 0,10 17 Other Events On 26 January 2006 the Managing Board of the PROTON INVESTMENTS BANK SA decidedto initiate a business combination with the OMEGA BANK SA (exchange of equityinterest) and PROTON Securities SA (parent - subsidiary) where PROTON is theacquirer that obtains control of the other combining entities. On 31 January 2006, Proton entered into a loan agreement with Omega and agreedto advance Omega the sum of €30.000.000. The loan is for a term of 10 years butallows for repayment of the total amount of the loan advanced after five years.The loan carries interest at Euribor plus 2.5 per cent. for the first fiveinterest accrual periods and Euribor plus 4.5 per cent. for the remaininginterest accrual period. An interest accrual period is a period of 12 months,starting from the date the loan was granted. Default interest is charged on theloan at the rate of 2.5 per cent. and the loan is unsecured. On 22 June 2006 the Draft Merger Contract was signed by the above mentionedcombining entities. The proposed exchange ration of entity interests betweenPROTON and OMEGA BANK SA is: 1 ordinary share of OMEGA BANK SA per 0,9 ordinaryshares of the acquirer. The business combination will occur according to the provisions and articles ofGreek Law 2190/1920, 2166/1993 and 2515/1997 while 31 March 2006 is the datewhere the transitory financial statements of the combining entities will beprepared. The relative due diligence based on the contractual agreement isexpected to be completed within September 2006. On 30 March 2006 the Ordinary General Shareholder's Meeting of the subsidiaryundertaking ARROW ASSET FINANCE SA unanimously decided for the disillusion ofthe entity and its full liquidation (in accordance with the provisions of thearticles of 47a of C.L. 2190/1920 and the statute 35 of the entity itself). Thisdecision has been strongly influenced by the fact that PROTON INVESTMENT BANK SAoverlaps and fully complements the activities and processes of this subsidiaryand these have been put forth in its statutes. In addition, the totalshareholders equity of the ARROW ASSET FINANCE SA are less than one tenth of itsshare capital issued and authorized, thus, the decision of the shareholders'meeting is in line with the provisions of the articles of 47 and 48 of CL2190/20. 18 Changes in the supervisory board According to his letter of resignation dated 6 July 2006, Andreas VgenopoulosDeputy Chairman and Company Secretary resigned and Sheldon Goldman elected tohold office with immediate effect as Deputy Chairman. Name PositionAngeliki Frangou Chairman, Non - Executive DirectorSheldon Goldman Deputy ChairmanGeorgios Kintis Chief Executive Officer, DirectorAlexander Meraclis Non - Executive DirectorJohn Karakadas Non - Executive DirectorDennis Malamatinas Non - Executive Director 19 Post - Balance Sheet events Besides the above-mentioned events, there are no significant subsequent eventswhich should be announced for the purposes of IFRS. 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