Kimberly Enterprises Regulatory News (KBE)

Kimberly Enterprises N.V.

('Kimberly' or 'the Company')

Results for the nine month period ended 30 September 2014

Kimberly Enterprises N.V., the AIM-listed Central and Eastern European property developer (KBE: L), announces its results for the nine month period ended 30 September 2014. These quarterly results are being published by Engel Resources and Development Ltd. ("ERD"), the parent company of the Company's immediate parent company, Engel General Developers Ltd. ("EGD"), as required by the Tel Aviv Stock Exchange.

Financial Summary

"Kimberly is focusing on realising the assets that are part of the joint ventures with Heitman, concluding the sales of apartments in finished projects in Prague and Warsaw and finding strategic partner for the Marina Dorcol project in Serbia.

Kimberly's main target is to try and meet its obligations towards its creditors and to reach a payments schedule with Engel Resources and Development Ltd. ("ERD") in order to repay the Group's outstanding loans from ERD."

Liron Or, CEO of Kimberly Enterprises N.V.

Enquiries:

Financial Position

The interim financial statements have been prepared on a going concern basis, which assumes that the Group will be able to raise funding to meet its obligations to the banks, its employees and service providers.

As of 30 September 2014, the financial condition of the Group remains weak and is not certain that it will be able to meet its obligations to its employees and service providers as they fall due.

Since January 2011, the Group has been in breach of the obligation to make the monthly lease payments for Marina Dorcol. During the reporting period management recorded an expense of EUR 3,416 thousands in relation with the lease interest, inflation and loss of discount from unpaid overdue lease contracted payments.

As of 30 September 2014, the Group is in breach of EUR 21.3 million. After the reporting date, the Company further breached its obligation to pay by an additional amount of EUR 0.1 million.

Following the above, the municipality initiated several claims during recent periods to collect those debts.

In case it will not settle the debt, the Company is exposed to the following sanctions and risks:

· Termination of the lease contracts which will cause the loss of the right to use of land;

· Should any party commence bankruptcy procedure against Marina Dorcol, the Company would lose control of Marina Dorcol and would be exposed to uncertainty with respect to compensation from the bankruptcy estate, since the Company will be in the "last row of creditors".

In that the Serbian municipality decides to terminate the lease contract, it has to give to the Company a written notice on its intention to do so and detail the reasons for the termination. The Company will have 90 days to remedy the breach in order to avoid the agreement termination (i.e. perform the payment obligation, and if it fails to do so the municipality is entitled to terminate the agreement).

In case that the Company does not accept the reasons for the termination, they should initiate a procedure before the Commercial Court in Belgrade for the determination of the validity of the request for the termination and whether the request is based on valid legal and commercial reasons.

In of termination, the final result of termination would be the restitution of the amounts paid by Marina Dorcol based on the agreements with the municipality, decreased with the amount of compensation for usage of such land for the period of duration of lease and for compensation of damages which occurred for the municipality, if any.

However, the management of the Company estimates, inter alia, based on its legal advisor that it is not likely that the Serbian municipality will act to terminate the agreement between the parties and/or that bankruptcy procedure against Marina Dorcol will commence. The Group is currently in the process of negotiation with the municipality of Belgrade to restructure the liability.

Management considers it is unlikely that some of the projects related to the joint ventures will generate sufficient cash inflows to repay all obligations when they fall due.

In order to manage its financial situation, the Company approached Engel Resources and Development Ltd. ("ERD"), the parent company of the Company's immediate parent company, Engel General Developers Ltd. ("EGD"), to provide additional financial assistance to fund the Company's immediate liabilities.

During the reporting period, ERD provided several bridge loans for a total amount of approximately EUR 0.7 million. After the reporting period the Company received additional loans from ERD for a total amount of EUR 0.1 million.

The management is also examining other solutions to fund the Company's immediate liabilities and to stabilise its financial position.

At 30 September 2014 the Group has current liabilities totalling EUR 55,915 thousands, which exceeds its current assets amounting to EUR 217 thousands and a negative equity which amounts to EUR 29,959 thousands.

Management believes that the above mentioned conditions indicate the existence of material uncertainties which cast significant doubt on the Group's ability to continue as a going concern.

Should the going concern assumption not be appropriate, adjustments would have to be made to reflect a situation where the assets may need to be realised other than in the normal course of business and at amounts which could differ significantly from the amounts stated in the consolidated interim financial statements.

Trading Performance

In July 2014, Palace Engel Wilanow 1 sp.zoo a wholly owned subsidiary of ENMAN B.V. (a jointly controlled entity), sold the plot in "Wilanow 1" in Warsaw, Poland, for a total cash consideration of EUR 1.2 million. As a result, ENMAN recognised a write down of inventory in the amount of EUR 46 thousands (the Company's share is EUR 12 thousands which is presented under the "Share in loss of equity-accounted investments, net of tax").

The Company has finalised the construction of 85 units on the plot designed for the first stage in the Veleslavin project located in Prague, Czech Republic. During August 2014, the Company received the occupancy permit and starts to work on registering the units in the cadaster. The estimated sale value of the first phase is €15.5 million. The project is part of the ENMAN joint venture. 

The Company continues to examine the possibility of disposing further assets in its portfolio.

Condensed consolidated statement of changes in equity

Condensed consolidated statement of cash flows

Notes to the unaudited condensed consolidated interim financial statements

1. Reporting entity

Kimberly Enterprises N.V. (the "Company") is a company domiciled in The Netherlands. The Company's registered office is at Laurierstraat 71, 1016 PJ Amsterdam, The Netherlands.

These condensed consolidated interim financial statements ("interim financial statements") as at and for the nine months ended 30 September 2014 comprise the Company, its subsidiaries and the Group's interests in associates and joint ventures (collectively, the "Group").

The Company owns subsidiary companies and has joint ventures mainly in Eastern Europe which develop, hold and sell real estate assets.

The Company has been listed on the Alternative Investment Market ("AIM") of the London Stock Exchange, United Kingdom since 15 December 2005. 

The consolidated financial statements of the Group as at and for the year ended 31 December 2013 are available on the Company's website (www.kimberly-enterprises.com) and upon request from the Company's registered office.

2. Basis of accounting

These interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU. They do not include all the information required for a complete set of financial statements. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group's financial position and performance since the last annual consolidated financial statements as at and for the year ended 31 December 2013.

The accounting policies applied in these interim financial statements are the same as those applied in the Group's consolidated financial statements as at and for the year ended 31 December 2013.

These interim financial statements were authorised for issue by Company's Board of Directors on 5 November 2014.

3. Use of judgements and estimates

In preparing these interim financial statements, management has made judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

The significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as at and for the year ended 31 December 2013.

4. Going concern

The interim financial statements have been prepared on a going concern basis, which assumes that the Group will be able to raise funding to meet its obligations to the banks, its employees and service providers.

As of 30 September 2014, the financial condition of the Group remains weak and is not certain that it will be able to meet its obligations to its employees and service providers as they fall due.

Since January 2011, the Group has been in breach of the obligation to make the monthly lease payments for Marina Dorcol. During the reporting period management recorded an expense of EUR 3,416 thousands in relation with the lease interest, inflation and loss of discount from unpaid overdue lease contracted payments.

As of 30 September 2014, the Group is in breach of EUR 21.3 million. After the reporting date, the Company further breached its obligation to pay by an additional amount of EUR 0.1 million.

Following the above, the municipality initiated several claims during recent periods to collect those debts.

In case it will not settle the debt, the Company is exposed to the following sanctions and risks:

· Termination of the lease contracts which will cause the loss of the right to use of land;

· Should any party commence bankruptcy procedure against Marina Dorcol, the Company would lose control of Marina Dorcol and would be exposed to uncertainty with respect to compensation from the bankruptcy estate, since the Company will be in the "last row of creditors".

In case that the Serbian municipality decides to terminate the lease contract, it has to give to the Company a written notice on its intention to do so and detail the reasons for the termination. The Company will have 90 days to remedy the breach in order to avoid the agreement termination (i.e. perform the payment obligation, and if it fails to do so the municipality is entitled to terminate the agreement).

In case that the Company does not accept the reasons for the termination, they should initiate a procedure before the Commercial Court in Belgrade for the determination of the validity of the request for the termination and whether the request is based on valid legal and commercial reasons.

In case of termination, the final result of termination would be the restitution of the amounts paid by Marina Dorcol based on the agreements with the municipality, decreased with the amount of compensation for usage of such land for the period of duration of lease and for compensation of damages which occurred for the municipality, if any.

However, the management of the Company estimates, inter alia, based on its legal advisor that it is not likely that the Serbian municipality will act to terminate the agreement between the parties and/or that bankruptcy procedure against Marina Dorcol will commence. The Group is currently in the process of negotiation with the municipality of Belgrade to restructure the liability.

Management considers it is unlikely that some of the projects related to the joint ventures will generate sufficient cash inflows to repay all obligations when they fall due.

In order to manage its financial situation, the Company approached Engel Resources and Development Ltd. ("ERD"), the parent company of the Company's immediate parent company, Engel General Developers Ltd. ("EGD"), to provide additional financial assistance to fund the Company's immediate liabilities.

During the reporting period, ERD provided several bridge loans for a total amount of approximately EUR 0.7 million. After the reporting period the Company received additional loans from ERD for a total amount of EUR 0.1 million.

The management is also examining other solutions to fund the Company's immediate liabilities and to stabilise its financial position.

At 30 September 2014 the Group has current liabilities totalling EUR 55,915 thousands, which exceeds its current assets amounting to EUR 217 thousands and a negative equity which amounts to EUR 29,959 thousands.

Management believes that the above mentioned conditions indicate the existence of material uncertainties which cast significant doubt on the Group's ability to continue as a going concern.

Should the going concern assumption not be appropriate, adjustments would have to be made to reflect a situation where the assets may need to be realised other than in the normal course of business and at amounts which could differ significantly from the amounts stated in the consolidated interim financial statements.

5. Financial risk management objectives and policies

All the aspects of the Group's financial risk management objectives and policies are consistent with that disclosed in the consolidated financial statements as at and for the year ended 31 December 2013.

a. Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group's approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation.

The Group relies on external funding to finance its current and future development projects. Future acquisitions of investment properties and land designated for residential projects and the ability of the Group to expand its operations is partly dependent on its ability to obtain future bank financing. The Group intends to repay its existing bank loans from its operating activity (mainly sales of housing units and undeveloped plots). Despite the tightening of the availability of credit, the Group has so far been able to secure additional project funding when needed largely because the Group's bank financing is project-specific and generally secured by the physical assets of the relevant project company. However, there is no assurance that banks will provide funding for new projects or prolong overdue loans.

See note 4 which includes the group going concern analysis and describes the financial difficulties and liquidity risks.

b. Fair value

The carrying amounts of certain financial assets and liabilities, including cash and cash equivalents, prepayments and other assets, trade payables and other payables are the same or proximate to their fair value.

The fair values of the other assets and liabilities, together with the carrying amounts shown in the statement of financial position, are as follows:

Reconciliation of the financial assets carrying amounts:

6. Tax expense

Tax expense is recognised based on management's best estimate of the weighted-average annual income tax rate expected for the full financial year multiplied by the pre-tax income of the interim reporting period.

The Group's consolidated effective tax rate in respect of continuing operations for the nine months ended 30 September 2014 was 0% (nine months ended 30 September 2013: 23%).

The change in effective tax rate was caused mainly by current year losses for which no deferred tax asset was recognised.

7. Related parties

a. Related party transactions

In order to manage its financial situation the Company approached ERD to provide additional financial support to assist the Company to settle its immediate liabilities.

During the reporting period ERD provided several bridge loans in the total amount of approximately EUR 0.7 million. After the reporting period the Company received additional loans from ERD in the total amount of EUR 0.1 million.

The revenues in the amount of EUR 185 thousands in the consolidated statement of profit and loss comprise of management fee charges from the joint venture of Arces and ENMAN. The related cost in the amount of EUR 181 thousands is presented under cost of sales.

The Group's consolidated finance costs in respect of the loan granted to the Group by ERD for the nine months ended 30 September 2014 was EUR 1.6 million.

Finance income of EUR 385 thousands in the consolidated statement of profit and loss relates to interest on given loans to the Company's joint ventures.

After the reporting period, ERD has reached an agreement with its bondholders to restructure the terms of its bonds. As part of the agreement, EGD granted to the bondholders security over the 60 million shares in the Company held by EGD (represent 68.35% of the issued share capital of the Company). In addition, ERD has pledged to the bondholders all future loan repayments made by the Company and Eurobul to ERD and assigned the pledges over the shares held by the Company in Marina Dorcol DOO ("MD"), which owns the Marina Dorcol project in Serbia. The pledges over MD shares were granted to ERD as part of the loan agreement between Eurobul, the Company and ERD.

b. Securities provided by parent company

During 2009, a wholly controlled entity Euro-bul Ltd. ("Eurobul") breached its requirement to repay bank loan in the amount of EUR 2.2 million granted by Bank Leumi Le-Israel Ltd. ("the lender bank"), the bank loan was secured by guarantees provided by ERD.

During September 2014, ERD and Eurobul reached an agreement ("agreement") with the lender bank to restructure the overdue loan. According to the agreement, the overdue loan will be replaced by three new loans which their terms are as follow:

1. Loan 1 - a loan of EUR 1.4 million, which carry an annual interest of 3m Libor + 3.68%. The loan will be repaid in quarterly instalments till 2019.

2. Loan 2 - a loan of EUR 1 million, which carry an annual interest of 3m Libor + 3.5%. The loan will be extended on a quarterly basis till 31 December 2015.

3. Loan 3 - a loan of EUR 0.5 million, which carry an annual interest of 3m Libor + 3.5%. The loan will be extended on a quarterly basis till 2019. In case the above two loans will be fully repaid by the Company, the lender bank agree to forgive this loan to the Company.

Upon the signature date of the agreement, ERD paid the bank an amount of ILS 900 thousands (EUR 0.2 million). The amount was recorded as a loan which was provided by ERD during the reporting period.

The above three new bank loans are being secured by guarantees provided by ERD to the lender bank.

As of 30 September 2014 the balance with the lender bank is in the amount of EUR 3,001 thousands (recorded at the condensed consolidated statement of financial position).

c. Transactions with former CEO

Mr Gad Raveh, who acted as the Company's Executive Director and CEO until June 2014 has withdrawn from the Company, during 2013 and 2014 a total amount of EUR 531 thousands.

Mr Raveh presented to the Company that these amounts were required for the purposes of: loan repayment to GBES Ltd. ("GBES"), fund raising and restructuring the Company's ownership and debts ("transaction costs").

The Company's Board of Directors ratified such withdrawals subject to the condition (which was accepted by Mr Raveh) that if for any reason the above fund raising and restructuring of the Company's ownership and debts did not succeed, Mr Raveh will be obligated personally to repay the Company all the above transaction costs.

The said financing and restructuring never materialised and the Company is investigating the purpose and the actual use of these transaction costs.

As of the reporting date the transaction costs have not been repaid by Mr Raveh to the Company and the Company intends to pursue the collection of the transaction costs.

Following the above, the Group recognised a provision in the amount EUR 328 thousands in the statement of profit or loss under "other loss".

d. Directors

As of 30 September 2014, the Company has 4 directors (31 December 2013: 4 directors).

During the reporting period two of the Company's directors have resigned from their position and two new directors were appointed.

8. Operating segments

Basis of segmentation

Following the disposal of the Company's Polish subsidiary in 2013 which held a plot of land designated for commercial development and presented as disposal group held for sale (previously classified as investment property), the Company's management reassessed its segment reporting requirements and concluded that the former reporting of segments which was based on commercial and residential segments are no longer relevant, and hence no information about operating segments is disclosed on this basis.

The Group's CEO (the chief operating decision maker) considers the whole operation as one operating segment while trying to ensure sufficient liquidity to meet the liabilities when due. The liquidity issues the Group and its joint ventures are currently facing create a more general decision making process which is different from a company or group of companies operating in a liquid position, hence, the Group's CEO no longer makes decisions about resources and reviews operating results of business activities based on the previous separation of segments.

9. Investments and loans in equity accounted investments

As at 30 September 2014 the Company holds interests in the following joint ventures:

a. Arces International B.V. ("Arces").

b. ENMAN B.V. ("ENMAN").

c. Montreal Residential Holdings Master Limited Partnership ("MLP").

None of the Group's equity-accounted investments are publicly listed entities and consequently do not have published price quotations.

a. Arces International B.V.

Arces International B.V. ("Arces") - holding company, Amsterdam, The Netherlands. The Company and HCEPP II Luxembourg Master S.à r.l ("Heitman") each hold 50% of Arces' shares.

Arces was incorporated with the purpose of investment in real estate development project companies in Eastern Europe. Arces has investments in Poland, Hungary and the Czech Republic.

The following table summarises the financial information of Arces (figures in the table represent 100% of the joint venture consolidated figures):

Comments in respect to the investment in Arces:

i. Due to the joint venture continuing to accumulate losses the Company recognised a loss related to given loan to Arces and is part of the net investment and presents the loss as share of profit (loss) of equity-accounted investments in the statement of profit or loss. 

ii. The Company did not provide any guarantees for the joint venture and has not incurred legal and constructive obligation on behalf of the JV; therefore losses are accounted only until the Company's interest is reduced to zero.

iii. Loans granted by the Company to the joint venture -

· Denominated in EUR currency.

· The loan bears interest of 15% per annum.

· No repayment date has been set. Repayment is expected from the proceeds of the sale of the related projects financed by the loans.

iv. Arces has an exposure with respect to the bank loan that financed the project in Gyor, Hungary in the amount of EUR 12,648 thousands (the Company's share is EUR 6,324 thousands). The bank claims that the loans were additionally guaranteed by Arces International B.V. The Company has disputed the validity of this guarantee with the bank and there is disagreement between the Company and its joint venture partner ("Heitman") regarding the responsibility of this guarantee, however, no official legal claim has been filed by any of the parties.

During 2011, following a liquidation process, the joint venture Arces International B.V. ceased to consolidate the Hungarian subsidiary ("Engel project") which held the project in Gyor in its consolidated financial statements.

v. During 2012, one of the Engel project's previous contractors issued a lien against a jointly controlled entity bank account, as of 30 September 2014, the Company's share in the lien account is EUR 0.2 million; the Company acts to remove the lien.

During 2014, additional contractor of Engel project filed a claim against Arces.

The Company estimated provisions in respect of these legal claims, based on the management's estimations following consulting its legal advisors.

vi. During the reporting period, a receiver was appointed by court in Hungary due to an appeal of one of the entity's creditors in the joint ventures subsidiary, Engel Sun Palace Kft. ("Sun Palace"), which built the Sun Palace project in Hungary.

As a consequence the joint venture does not control Sun Palace, therefore Arces ceased to consolidate Sun Palace in its consolidated financial statement and the Group recognised a gain in the amount of EUR 0.25 million under the "Share in loss of equity-accounted investments, net of tax".

vii. During the nine months period ended 30 September 2014, following management reassessment of the project future proceeds, the Group recognised a write-down of inventory in amount of approximately EUR 416 thousands (the Company's share is EUR 208 thousands) related to the project Emilii Plater, Poland.

b. ENMAN B.V.

ENMAN B.V. ("ENMAN") - holding company, Amsterdam, The Netherlands. The Company and HEPP III Luxembourg Master S.à r.l. ("Heitman") each hold 50% of ENMAN's shares.

In July 2010 the Company signed an amendment to its joint venture agreement with Heitman according to which the Company's share in profit distributions from ENMAN is 25% and the Company's share in profit distributions from "Troja" project in the Czech Republic is 50% (the percentage of shares holding remained unchanged).

ENMAN was incorporated with the purpose of investment in real estate development project companies in Eastern Europe. ENMAN has investments in Poland, Hungary, Romania and the Czech Republic.

The following table summarises the financial information of ENMAN (figures in the table represent 100% of the joint venture consolidated figures):

Comments in respect to the investment in ENMAN:

i. Due to the joint venture continuing to accumulate losses the Company recognised a loss related to given loan to ENMAN and is part of the net investment and presents the loss as share of profit (loss) of equity-accounted investments in the statement of profit or loss. 

ii. The Company did not provide any guarantees for the joint venture and has not incurred legal and constructive obligation on behalf of the JV; therefore losses are accounted only until the Company's interest is reduced to zero.

iii. Loans granted by the Company to the joint venture -

· Denominated in EUR currency.

· The loans bear interest of 8% per annum.

· No repayment date has been set. Repayment is expected from the proceeds of the sale of the related projects financed by the loans.

iv. ENMAN has provided guarantees for interest payments and costs overruns, to the bank which finances the Ingatlan project in Budapest, Hungary, the amount of the loan as of the reporting period EUR 6,099 thousands (the Company's share is EUR 1,525 thousands). During 2013, a receiver was appointed by a court in Hungary and the entity which holds the Ingatlan project entered into bankruptcy process, following which it ceased to be consolidated into ENMAN accounts. 

v. Since the group share in ENMAN is 25% apart from one subsidiary of ENMAN ("Troja"), the Company's share in net assets of EUR 1,585 thousands, reflected in the table above, is becoming a net liability of EUR 585 thousands when considering the applicable proportions, and therefore the Group's share of the net assets is nil (see 9.b.ii).

vi. In July 2014, Palace Engel Wilanow 1 sp.zoo a wholly owned subsidiary of ENMAN B.V. (a jointly controlled entity), sold the plot in "Wilanow 1" in Warsaw, Poland, for a total cash consideration of EUR 1.2 million. As a result, ENMAN recognised a write down of inventory in the amount of EUR 46 thousands (the Company's share is EUR 12 thousands which is presented under the "Share in loss of equity-accounted investments, net of tax").

c. Montreal Residential Holdings Master Limited Partnership

Montreal Residential Holdings Master Limited Partnership ("MLP") - holding partnership, Quebec, Canada.

The Company owns "ECG Trust Canada Holding Trust" ("ECG") (95% interest subsidiary) which holds 20% interest in future distributions of MLP.

The remaining 80% in future distributions is owned by Lehman Brothers Real Estate Partners II ("Lehman Brothers") represented by Silverpeak Real Estate Partners ("Silverpeak").

MLP holds three parcels of land in Montreal, Quebec, Canada which are slated for the development of condominium projects.

The following table summarises the financial information of MLP (figures in the table represent 100% of the joint venture consolidated figures):

Comments in respect to the investment in MLP:

i. Due to the joint venture continuing to accumulate losses the Company recognised a loss related to given loan to MLP and is part of the net investment and presents the loss as share of profit (loss) of equity-accounted investments in the statement of profit or loss. 

ii. The Company did not provide any guarantees for the joint venture and has not incurred legal and constructive obligation on behalf of the JV; therefore losses are accounted only until the Company's interest is reduced to zero.

iii. Loans granted by the Company to joint venture -

· Denominated in CAD currency.

· The loans bear no interest.

· No repayment date has been set. Repayment is expected from the proceeds of the sale of the related projects financed by the loans.

10. New IFRS pronouncement

IFRIC 21 Levies

(Effective for annual periods beginning on or after 17 June 2014; to be applied retrospectively. Earlier application is permitted.)

The Interpretation provides guidance as to the identification of the obligating event giving rise to a liability, and to the timing of recognising a liability to pay a levy imposed by government.

In accordance with the Interpretation, the obligating event is the activity that triggers the payment of that levy, as identified in the relevant legislation and as a consequence, the liability for paying the levy is recognised when this event occurs.

The liability to pay a levy is recognised progressively if the obligating event occurs over a period of time.If the obligating event is the reaching of a minimum activity threshold, the corresponding liability is recognised when that minimum activity threshold is reached.

The Interpretation sets out that an entity cannot have a constructive obligation to pay a levy that will be triggered by operating in a future period as a result of the entity being economically compelled to continue to operate in that future period.

It is expected that the Interpretation, when initially applied, will not have a material impact on the financial statements, since it does not results in a change in the entity's accounting policy regarding levies imposed by governments.

***