Kimberly Enterprises Regulatory News (KBE)

Kimberly Enterprises N.V.

("Kimberly" or the "Company")

Results for the year ended 31 December 2015

Kimberly Enterprises N.V. ("Kimberly" or "the Company"), the AIM listed Eastern European property developer (KBE.L), announces its consolidated audited results for the year ended 31 December 2015.

The audited annual accounts for the year ended 31 December 2015 will shortly be available on the Company's website: www.kimberly-enterprises.com.

Financial summary:

 Financial Position

Total revenue for the year ended 31 December 2015 was €1.8 million compared to €0.4 million in 2014. The increase in 2015 is due to the revenue generated from the sale of housing units in the Veleslavin project, Prague, Czech Republic, from the date the Company obtained control in ENMAN (the parent company of Veleslavin).

Total gross loss for 2015 was €0.9 million (2014: €1.9 million gross loss). The decrease in the loss was due to a negative investment property revaluation of €0.7 million for 2015 compared to a negative investment property revaluation of €1.7 million in 2014.

The write-down of inventory relates to the plots located in Romania and the Czech Republic. The negative revaluation of the investment property relates to the commercial part of a plot located in Serbia (Marina Dorcol).

General and administrative expenses increased to €0.8 million (2014: €0.3 million). The change is mainly caused by reversal of previously booked provisions for legal claims (in the amount of €0.5 million) in 2014.

Net financing costs increased to €11.1 million (2014: €7.8 million). This reflects an increase in the finance costs due to the finance lease in Serbia of €7.1 million (2014: €5.4 million) and an increase in foreign exchange losses to €2.8 million (2014: €1.3 million).

The share of profit of equity-accounted investments increased to a profit of €1.7 million in 2015 compared to a loss of €0.1 million in 2014. This increase is mainly due to the sales of plots in ENMAN which were executed during 2015 and the reversal of a previously recorded write down in Canada (the Company's share was €0.6 million).

As a result of the above, the loss after tax for the year remained similar to 2014, €10.4 million compared to €10.4 million in 2014.

Equity-accounted investments and loans decreased to €2.0 million (2014: €7.7 million). The reason for the decrease is that during 2015 the Company acquired control over Arces International B.V. and ENMAN B.V. which were presented as equity-accounted investments in 2014.

General

The consolidated 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 disclosed in note 27.a.iii.

During the reporting period, the Group reached settlement agreements with former employees and service providers for past open debts. As a result an income was recognised under general administrative expenses in the consolidated statement of comprehensive income.

Since January 2011, the Group has been in breach of the obligation to make the lease payments for Marina Dorcol. During the reporting period, management recognised an expense of €7,085 thousands as a result of the lease interest, inflation and loss of discount on the unpaid overdue lease contracted payments, see note 24.

At 31 December 2015, the Group was in breach of EUR33.3 million (2014: €21.6 million) of lease payments. After the reporting date, the Company further breached its obligation to pay by an additional amount of €0.1 million.

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

In the event that it does 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 proceedings 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 the event that the Serbian municipality decides to terminate the lease contract, it has to give to the Company written notice of 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 the event 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 the event of termination, the final result of termination would be the restitution of the amounts paid by the Group in respect of Marina Dorcol based on the agreements with the municipality, decreased by 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.

The Group is currently in the process of negotiation with the municipality of Belgrade to restructure the arrangement.

During the reporting period and 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 first and second quarters of 2015, ERD provided several bridge loans for a total amount of €304 thousands (2014: €1 million). As of 31 December 2015, the outstanding debt toward ERD is €25.1 million (2014: €24.8 million) and is due by 30 April 2016, see note 13.

In order to finance the Company's immediate liabilities and to stabilise its financial position, management decided to realise several assets. During the reporting period, the Company realised several assets in Poland, Czech Republic and Canada (see below the effect on previous and current equity-accounted investments).

At 31 December 2015, the Group has current liabilities totalling €70,796 thousands, which exceeds its current assets amounting to €9,842 thousands and a negative equity which amounts to €41,779 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 financial statements.

The notes to the consolidated financial statements (in particular see notes 27.a.iii and 12) disclose all the key risk factors, assumptions made and uncertainties of which the management of the Company are aware that are relevant to the Company's ability to continue as a going concern, including significant conditions and events.

During the reporting period, before acquiring controlling interest in the previous jointly controlled entities, Arces and ENMAN repaid part of the loans granted by the Company in the total amount of €4,705 thousands. The amount was generated from the sale of the plot in Troja (see note 9.b.ii.5) and sales of assets in Poland and the Czech Republic.

An amount of €4,000 thousands was used to repay part of the loans granted by ERD (see note 31.c.2) while the remainder was used to repay the overdue liabilities of the Company and to finance the Group's operational activity in the upcoming few months.

During the reporting period, the jointly controlled entity, MLP, repaid part of the loans granted by the Company in the total amount of €351 thousands. The amount was generated following the sale of Trianon plot in Montreal, Canada (see note 9.c.iv.2).

Serbia

GDP growth in 2015 was 0.5 per cent and the rate of inflation was 1.7 per cent. Forecast GDP growth for 2016 is 1.8 per cent.

Since January 2011, the Group has been in breach of the obligation to make the monthly lease payments for Marina Dorcol.

At 31 December 2015, the Group is in breach of €33.3 million (2014: €21.6 million) of lease payments in total. After the reporting date, the Company further breached its obligation to pay by an additional amount of €0.1 million, see note 2.b.

The Group is currently in the process of negotiation with the municipality of Belgrade to restructure the liability.

Czech Republic

GDP in 2015 was 3.9 per cent and the rate of inflation was 0.33 per cent. Forecast GDP growth for 2016 is 2.7 per cent.

On 30 July 2015, two wholly owned subsidiaries of ENMAN sold the residential plot designed for the second stage of the Veleslavin project, for a total cash consideration of CZK 63 million (€2.3 million). The net proceeds of the disposal were €1.8 million (the Company's share was €0.45 million). The profit in the amount of EUR 37 thousands (the Company's share is EUR 9 thousands) was recognised under the "share of profit (loss) of equity-accounted investments, net of tax" in the consolidated financial statements for the year ended 31 December 2015.

On 22 January 2015, a wholly owned subsidiary of ENMAN signed an agreement to sell a plot designed for residential purposes in Czech Republic ("Troja") for a total cash consideration of CZK 195 million (€7,113 thousands). As a result of the above, the Group has chosen to reverse a previously recorded write down in the total amount of €1,944 thousands in the consolidated financial statements for the year ended 31 December 2014. On 30 April 2015, the above mentioned sale agreement has been finalised following which the Company recognised a profit before tax on income in the amount of €0.5 million (and it was recognised under the "share of profit (loss) of equity-accounted investments, net of tax") in the consolidated financial statements for the year ended 31 December 2015. The net proceeds of the disposal were €5,890 thousands (the Company's share was €2,945 thousands) and were distributed to the joint venture's partners during the reporting period.

On 16 December 2015, Arces signed a conditional agreement to sell its shares and receivables in the wholly owned subsidiary Palace Engel Vokovice s.r.o ("Vokovice s.r.o"). After the reporting period, the agreement became binding and the sale was completed. As the plot of land held by Vokovice s.r.o is recorded as of 31 December 2015 based on its net realisable value, as determined in the conditional agreement the transaction will not generate any material result in the profit or loss at the condensed consolidated interim financial statements for the first quarter of 2016.

Hungary

GDP growth in 2015 was 3.0 per cent and the rate of inflation -0.06 per cent. Forecast GDP growth in 2016 is 2.5 per cent.

On 11 December 2015, a compulsory strike-off was ordered and registered by the Company Registry Court of Budapest in Burlington Hungary Kft. ("Burlington"). Based on the ruling of the Company Registry Court of Budapest, Burlington is declared to be dissolved. As a consequence the Company does not control Burlington, therefore ceased to consolidate it in its consolidated financial statements. The Company recognised an income in the amount of €17 thousands which is recognised under "other income (expense)" in the consolidated statements of profit or loss.

On 4 May 2015, a receiver was appointed by a court in Hungary due to a claim of the Hungarian tax authorities in the subsidiary, Turlington Kft. ("Turlington"). As a consequence the Company does not control Turlington, therefore ceased to consolidate it in its consolidated financial statements. Since the Company did not provide any guarantees for Turlington it recognised an income in the amount of €437 thousands which is recognised under "other income (expense)" in the consolidated statements of profit or loss.

Canada

GDP growth in 2015 was 1.0 per cent and the rate of inflation 1.13 per cent. Forecast GDP growth in 2016 is 1.9 per cent.

On 8 May 2015, MLP sold one of the plots in Montreal, Canada ("Trianon") for a total consideration of CAD 3,050 thousands (€2,230 thousands). MLP recognised a profit before tax on income in the amount of €342 thousands (the Company's share was €68 thousands and it was recognised under the "share of profit (loss) of equity-accounted investments, net of tax") in the consolidated financial statements for the year ended 31 December 2015. The Company's share in the net proceeds of the disposal was €351 thousands which were distributed to the Company during the reporting period.

On 16 September 2015, MLP reached a conditional agreement ("the agreement") to sell two plots of land held for residential development purposes in Canada for a total cash consideration of CAD 20,227 thousands (€13,095 thousands). The gross profit (before income tax expense) is expected to be CAD 9,418 thousands (€6,097 thousands). As a result of the above, the Group has chosen to reverse a previously recorded write down in the total amount of €3,225 thousands (the Company's share was €645 thousands) and it was recognised under the "share of profit (loss) of equity-accounted investments, net of tax" in the consolidated financial statements for the year ended 31 December 2015. The net cash proceeds of the disposals received by MLP (before income tax expense) are CAD 19,733 thousands (€12,775 thousands). The net cash proceeds of the disposals will be distributed by MLP after completion of the disposals and the approval of the Company's partner in MLP. The Company's expected share of the distribution will be 20%, equating to approximately CAD 3.5 million (€2.3 million). On 13 January 2016, the agreement became binding and the sale was completed.

Based on prior agreements with ERD, all the net future proceeds generated from the Company's assets in Canada will be used to repay the outstanding debts of the Company to ERD.

Board of Directors' statement

"During 2015 the main strategy of the Company was to reduce its obligations toward third parties. As of today, apart from the outstanding loans granted by its parent company Engel Resources and Development Ltd ("ERD"), the Company does not itself have any material obligations towards any creditors"

For further information, please contact:

Consolidated statement of financial position

Consolidated statement of profit or loss

Consolidated statement of comprehensive income

Consolidated statement of changes in equity

Notes to the consolidated financial statements

NOTE 1 - REPORTING ENTITY

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

These consolidated financial statements comprise the Company, its subsidiaries and the Group's interests in associates and joint ventures (together referred to as the "Group").

The Group is primarily involved in holding and selling real estate assets in Eastern Europe.

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

Copies of these consolidated financial statements of the Group are available on the Company's website (www.kimberly-enterprises.com) and upon request from the Company's registered office.

NOTE 2 - BASIS OF ACCOUNTING

a. Statement of compliance

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the EU ("EU IFRS"). They were authorised for issue by Company's board of directors on 8 March 2016.

Details of the Group's accounting policies are included under note 3.

These consolidated financial statements are not intended for statutory filing purposes. The Company is required to file consolidated financial statements prepared in accordance with the Dutch Civil Code.

At the date of preparing these consolidated financial statements the Company had not yet filed consolidated financial statements for the year ended on 31 December 2015 in accordance with the Dutch Civil Code, however the management expects to file the report on the determined schedule.

b. Going concern basis of accounting

The consolidated 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 disclosed in note 27.a.iii.

During the reporting period the Group reached settlement agreements with former employees and service providers for past open debts. As a result an income was recognised under general administrative expenses in the consolidated statement of comprehensive income.

Since January 2011, the Group has been in breach of the obligation to make the lease payments for Marina Dorcol. During the reporting period, management recognised an expense of EUR 7,085 thousands as a result of the lease interest, inflation and loss of discount on the unpaid overdue lease contracted payments, see note 24.

At 31 December 2015, the Group was in breach of EUR 33.3 million (2014: EUR 21.6 million) of lease payments. 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 the event that it does 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 proceedings 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 the event that the Serbian municipality decides to terminate the lease contract, it has to give to the Company written notice of 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 the event 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 the event of termination, the final result of termination would be the restitution of the amounts paid by the Group in respect of Marina Dorcol based on the agreements with the municipality, decreased by 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.

The Group is currently in the process of negotiation with the municipality of Belgrade to restructure the arrangement.

During the reporting period and 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 first and second quarters of 2015, ERD provided several bridge loans for a total amount of EUR 304 thousands (2014: EUR 1 million). As of 31 December 2015, the outstanding debt toward ERD is EUR 25.1 million (2014: EUR 24.8 million) and is due by 30 April 2016, see note 13.

In order to finance the Company's immediate liabilities and to stabilise its financial position, management decided to realise several assets. During the reporting period, the Company realised several assets in Poland, Czech Republic and Canada (see below the effect on previous and current equity-accounted investments).

At 31 December 2015, the Group has current liabilities totalling EUR 70,796 thousands, which exceeds its current assets amounting to EUR 9,842 thousands and a negative equity which amounts to EUR 41,779 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 financial statements.

The notes to the consolidated financial statements (in particular see notes 27.a.iii and 12) disclose all the key risk factors, assumptions made and uncertainties of which the management of the Company are aware that are relevant to the Company's ability to continue as a going concern, including significant conditions and events.

During the reporting period, before acquiring controlling interest in the previous jointly controlled entities, Arces and ENMAN repaid part of the loans granted by the Company in the total amount of EUR 4,705 thousands. The amount was generated from the sale of the plot in Troja (see note 9.b.ii.5) and sales of assets in Poland and the Czech Republic.

An amount of EUR 4,000 thousands was used to repay part of the loans granted by ERD (see note 31.c.2) while the remainder was used to repay the overdue liabilities of the Company and to finance the Group's operational activity in the upcoming few months.

During the reporting period, the jointly controlled entity, MLP, repaid part of the loans granted by the Company in the total amount of EUR 351 thousands. The amount was generated following the sale of Trianon plot in Montreal, Canada (see note 9.c.iv.2).

c. Basis of measurement

The consolidated financial statements have been prepared on the historical cost basis except for the following item, which is measured on an alternative basis on each reporting date.

· Investment property - measured at fair value.

d. Functional and presentation currency

These consolidated financial statements are presented in Euro (EUR), which is the Company's functional currency. All amounts have been rounded to the nearest thousand, unless otherwise indicated.

e. Use of judgments and estimates

In preparing these consolidated financial statements, management has made judgments, estimates and assumptions that affect the application of the Group's accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognised prospectively.

1. Judgments

Information about judgments made in applying accounting policies that have the most significant effect on the amounts recognised in the consolidated financial statements are included in note 33.

2. Measurement of fair values

A number of the Group's accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities.

The Group has an established control framework with respect to the measurement of fair values. The Company reviews significant unobservable inputs and valuation adjustments. If third party information, such as broker quotes or pricing services, is used to measure fair values, then the Company assesses the evidence obtained from the third parties to support the conclusion that such valuations meet the requirements of IFRS, including the level in the fair value hierarchy in which such valuations should be classified.

Significant valuation issues are reported to the Group's Audit Committee.

When measuring the fair value of an asset or a liability, the Group uses observable market data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:

· Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.

· Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

· Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

If the inputs used to measure the fair value of an asset or a liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.

The Group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.

Further information about the assumptions made in measuring fair values is included in the following notes:

· Note 8 - Investment property.

f. Operating cycle

The Group is involved in projects some of which may take 5-6 years to complete. The cost of inventory and loans which finance residential development projects are presented as current assets and liabilities, unless they are not expected to be realised within the normal operating cycle in which case they are classified as non-current.

NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES

The Group has consistently applied the following accounting policies to all the periods presented in these consolidated financial statements.

a. Basis of consolidation

1. Business combinations

The Group accounts for business combinations using the acquisition method when control is transferred to the Group. The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase is recognised in profit or loss immediately. Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities.

The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in profit or loss.

Any contingent consideration is measured at fair value at the date of acquisition. If an obligation to pay contingent consideration that meets the definition of a financial instrument is classified as equity, then it is not remeasured and settlement is accounted for within equity. Otherwise, the contingent consideration is remeasured at fair value at each reporting date and subsequent changes in the fair value of the contingent consideration are recognised in profit or loss.

If share-based payment awards (replacement awards) are required to be exchanged for awards held by the acquiree's employees (acquiree's awards), then all or a portion of the amount of the acquirer's replacement awards is included in measuring the consideration transferred in the business combination. This determination is based on the market-based measure of the replacement awards compared with the market-based measure of the acquiree's awards and the extent to which the replacement awards relate to pre-combination service.

2. Subsidiaries

Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases.

3. Non-controlling interests

Non-controlling interests are measured at their proportionate share of the acquiree's identifiable net assets at the date of acquisition.

Changes in the Group's interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.

4. Loss of control

When the Group loses control over a subsidiary, it derecognises the assets and liabilities of the subsidiary, and any related non-controlling interests and other components of equity. Any resulting gain or loss is recognised in profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost.

5. Interest in equity-accounted investments

The Group's interests in equity-accounted investments comprise interests in associates and joint ventures.

Associates are those entities in which the Group has significant influence, but not control or joint control, over the financial and operating policies. A joint venture is an arrangement in which the Group has joint control, whereby the Group has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities.

Interests in associates and joint ventures are accounted for using the equity method. They are recognised initially at cost, which includes transaction costs. Subsequent to initial recognition, the consolidated financial statements include the Group's share of the profit or loss and other comprehensive income of equity-accounted investments, until the date on which significant influence or joint control ceases.

6. Transactions eliminated on consolidation

Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated. Unrealised gains arising from transactions with equity-accounted investments are eliminated against the investment to the extent of the Group's interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

b. Foreign currency

1. Foreign currency transactions

Transactions in foreign currencies are translated to the respective functional currencies of Group companies at exchange rates at the dates of the transactions.

Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rate at the reporting date. Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated into the functional currency at the exchange rate when the fair value was determined. Non-monetary items that are measured based on historical cost in a foreign currency are translated at the exchange rate at the date of the transaction. Foreign currency differences are generally recognised in profit or loss.

However, foreign currency differences arising from the translation of the following items are recognised in other comprehensive income:

· available-for-sale equity investments (except on impairment, in which case foreign currency differences that have been recognised in other comprehensive income are reclassified to profit or loss);

· a financial liability designated as a hedge of the net investment in a foreign operation to the extent that the hedge is effective; and

· qualifying cash flow hedges to the extent that the hedges are effective.

2. Foreign operations

The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated into Euro at the exchange rates at the reporting date. The income and expenses of foreign operations are translated into Euro at the exchange rates at the dates of the transactions.

Foreign currency differences are recognised in other comprehensive income and accumulated in the translation reserve, except to the extent that the translation difference is allocated to non-controlling interests.

When a foreign operation is disposed of in its entirety or partially such that control, significant influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. If the Group disposes of part of its interest in a subsidiary but retains control, then the relevant proportion of the cumulative amount is reattributed to non-controlling interests. When the Group disposes of only part of an associate or joint venture while retaining significant influence or joint control, the relevant proportion of the cumulative amount is reclassified to profit or loss.

The functional currencies of the Group entities are: Hungarian Forint ("HUF"), Czech Koruna ("CZK"), Polish Zloty ("PLN"), Canadian Dollar ("CAD"), Romanian Leu ("RON"), New Israeli Shekel ("ILS"), Serbian Dinar ("RSD") and Euro ("EUR").

c. Revenue

1. Sale of housing units and land

Revenue from the sale of housing units and plots of land is recognised when the risks and rewards of ownership have been transferred to the buyer provided that the Group has no further substantial acts to complete under the contract.

Contract expenses are recognised as incurred unless they create an asset related to future contract activity. An expected loss on a contract is recognised immediately in profit or loss.

2. Investment property and rental income

Rental income from investment property is recognised as revenue on a straight-line basis over the term of the lease. Lease incentives granted are recognised as an integral part of the total rental income, over the term of the lease.

3. Other revenue

Other revenues, including project management fees, are recognised in the accounting period in which the services are rendered, by reference to completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided, and are measured at the fair value of the consideration received or receivable for goods and services provided in the normal course of business, net of VAT and other sales related taxes.

No revenue is recognised if there are significant uncertainties regarding recovery of the consideration due, associated costs or continuing management involvement with the assets.

d. Employee benefits

Short-term employee benefits

Short-term employee benefits are expensed as the related service is provided. A liability is recognised for the amount expected to be paid if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

e. Finance income and finance costs

The Group's finance income and finance costs include:

· interest income;

· interest expense;

· changes in the local retail price index in Belgrade, Serbia on finance lease and changes in the customer price index in Israel on loans received from related parties;

· the foreign currency gain or loss on financial assets and financial liabilities;

· impairment losses recognised on financial assets (other than trade receivables).

Interest income or expense is recognised using the effective interest method.

Borrowing costs are capitalised if they are directly attributable to the acquisition or construction of a qualifying asset. Capitalisation of borrowing costs commences when the activities to prepare the asset are in progress and expenditures and borrowing costs are being incurred. Capitalisation of borrowing costs may continue until the assets are substantially ready for their intended use. If the resulting carrying amount exceeds the qualifying assets recoverable amount, an impairment loss is recognised. The capitalisation rate is arrived at by reference to the actual rate payable on borrowings for development purposes or, with regard to that part of the development cost financed out of general funds, to the average rate.

Borrowing costs that are not directly attributable to the acquisition or construction of a qualifying asset are recognised in profit or loss using the effective interest method.

f. Income tax

Income tax expense comprises current and deferred tax. It is recognised in profit or loss except to the extent that it relates to a business combination, or items recognised directly in equity or in other comprehensive income.

1. Current tax

Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to tax payable or receivable in respect of previous years. It is measured using tax rates enacted or substantively enacted at the reporting date. Current tax also includes any tax arising from dividends.

Current tax assets and liabilities are offset only if certain criteria are met.

2. Deferred tax

Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for:

· temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss;

· temporary differences related to the investments in subsidiaries, associates and joint arrangements to the extent that the Group is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future; and

· taxable temporary differences arising on the initial recognition of goodwill.

Deferred tax assets are recognised for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be used. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised; such reductions are reversed when the probability of future taxable profits improves.

Unrecognised deferred tax assets are reassessed at each reporting date and recognised to the extent that it has become probable that future taxable profits will be available against which they can be used.

Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date.

The measurement of deferred tax reflects the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. For this purpose, the carrying amount of investment property measured at fair value is presumed to be recovered through sale, and the Group has not rebutted this presumption.

Deferred tax assets and liabilities are offset only if certain criteria are met.

g. Inventories

Inventories are measured at the lower of cost and net realisable value. The cost of inventories includes direct materials, direct labour costs, subcontracting costs and those direct overheads which have been incurred in bringing the inventories to their present condition.

Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.

Borrowing costs are capitalised if they are directly attributable to the acquisition or construction of a qualifying asset.

The Group is involved in projects some of which may take several years to complete. The cost of inventory and loans which finance residential development projects are presented as current assets and liabilities, unless they are not expected to be realised within the operating cycle of 5-6 years and then they are classified as non-current.

h. Property and equipment

1. Recognition and measurement

Items of property and equipment are measured at cost less accumulated depreciation and any accumulated impairment losses.

If significant parts of an item of property and equipment have different useful lives, then they are accounted for as separate items (major components) of property and equipment.

Any gain or loss on disposal of an item of property and equipment is recognised in profit or loss.

2. Depreciation

Depreciation is calculated to write off the cost of items of property and equipment less their estimated residual values using the straight-line method over their estimated useful lives, and is generally recognised in profit or loss. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. Land is not depreciated.

The estimated useful lives of property and equipment are as follows:

· Furniture, office equipment and other assets 3-15 years

Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.

i. Investment property

Investment property is property held either to earn rental income or for capital appreciation or for both, but not for sale in the ordinary course of business, use in the production or supply of goods or services or for administrative purposes. Investment property is measured at cost on initial recognition and subsequently at fair value with any change therein recognised in profit or loss.

Cost includes expenditure that is directly attributable to the acquisition of the investment property. The cost of self-constructed investment property includes the cost of materials and direct labour, any other costs directly attributable to bringing the investment property to a working condition for their intended use and capitalised borrowing costs.

An external, independent valuation company, having appropriate recognised professional qualifications and recent experience in the location and category of property being valued, values the Group's investment property. The fair values are based on market values, being the estimated amount for which a property could be exchanged on the date of the valuation between a willing buyer and a willing seller in an arm's length transaction after proper marketing wherein the parties had each acted knowledgeably.

In the absence of current prices in an active market, the valuations are prepared by considering the aggregate of the estimated cash flows expected to be received from renting out the property or by a method where the property is being valued by the residual method; the appraiser estimated an expected selling price of the completed development based on external evidence.

A market yield is applied to the estimated rental value to arrive to the gross property value. When actual rents differ materiality from the estimated rental value, adjustments are being made to reflect actual rents.

Any gain or loss on disposal of investment property (calculated as the difference between the net proceeds from disposal and the carrying amount of the item) is recognised in profit or loss. When investment property that was previously classified as property and equipment is sold, any related amount included in the revaluation reserve is transferred to retained earnings.

j. Financial instruments

The Group classifies non-derivative financial assets into the following categories: loans and receivables and available-for-sale financial assets.

The Group classifies non-derivative financial liabilities into the trade and other financial liabilities category.

1. Non-derivative financial assets and financial liabilities - recognition and de-recognition

The Group initially recognises loans and receivables issued on the date when they are originated. All other financial assets and financial liabilities are initially recognised on the trade date when the entity becomes a party to the contractual provisions of the instrument.

The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred, or it neither transfers nor retains substantially all of the risks and rewards of ownership and does not retain control over the transferred asset. Any interest in such derecognised financial assets that is created or retained by the Group is recognised as a separate asset or liability.

The Group derecognises a financial liability when its contractual obligations are discharged or cancelled, or expire.

Financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously.

2. Non-derivative financial assets - measurement

The Group classifies non-derivative financial assets into the following categories: cash and cash equivalents, cash in escrow, restricted bank deposit, loans and receivables.

Cash and cash equivalents

In the statement of cash flows, cash and cash equivalents includes bank overdrafts that are repayable on demand and form an integral part of the Group's cash management.

Loans and receivables

These assets are initially recognised at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at amortised cost using the effective interest method.

3. Non-derivative financial liabilities - measurement

Non-derivative financial liabilities are initially recognised at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these liabilities are measured at amortised cost using the effective interest method.

k. Share capital

Ordinary shares

Incremental costs directly attributable to the issue of ordinary shares, net of any tax effects, are recognised as a deduction from equity. Income tax relating to transaction costs of an equity transaction is accounted for in accordance with IAS 12.

l. Impairment

1. Non- derivative financial assets

Financial assets not classified at fair value through profit or loss, including an interest in an equity-accounted investment, are assessed at each reporting date to determine whether there is objective evidence of impairment.

Objective evidence that financial assets are impaired includes:

· default or delinquency by a debtor;

· restructuring of an amount due to the Group on terms that the Group would not consider otherwise;

· indications that a debtor or issuer will enter bankruptcy;

· adverse changes in the payment status of borrowers or issuers;

· the disappearance of an active market for a security; or

· observable data indicating that there is measurable decrease in expected cash flows from a group of financial assets.

For an investment in an equity security, objective evidence of impairment includes a significant or prolonged decline in its fair value below its cost. The Group considers a decline of 20% to be significant and a period of nine months to be prolonged.

Financial assets measured at amortised cost

The Group considers evidence of impairment for these assets at both an individual asset and a collective level. All individually significant assets are individually assessed for impairment. Those found not to be impaired are then collectively assessed for any impairment that has been incurred but not yet individually identified. Assets that are not individually significant are collectively assessed for impairment. Collective assessment is carried out by grouping together assets with similar risk characteristics.

In assessing collective impairment, the Group uses historical information on the timing of recoveries and the amount of loss incurred, and makes an adjustment if current economic and credit conditions are such that the actual losses are likely to be greater or lesser than suggested by historical trends.

An impairment loss is calculated as the difference between an asset's carrying amount and the present value of the estimated future cash flows discounted at the asset's original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account. When the Group considers that there are no realistic prospects of recovery of the asset, the relevant amounts are written off. If the amount of impairment loss subsequently decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, then the previously recognised impairment loss is reversed through profit or loss.

Equity-accounted investments

An impairment loss in respect of an equity-accounted investment is measured by comparing the recoverable amount of the investment with its carrying amount. An impairment loss is recognised in profit or loss, and is reversed if there has been a favourable change in the estimates used to determine the recoverable amount.

1. Non-financial assets

At each reporting date, the Group reviews the carrying amounts of its non-financial assets (other than investment property, inventories and deferred tax assets) to determine whether there is any indication of impairment. If any such indication exists, then the asset's recoverable amount is estimated.

For impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or cash generating units ("CGU").

The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. Value in use is based on the estimated future cash flows, discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU.

An impairment loss is recognised if the carrying amount of an asset or CGU exceeds its recoverable amount.

Impairment losses are recognised in profit or loss. They are allocated first to reduce the carrying amount of any goodwill (if exists) allocated to the CGU, and then to reduce the carrying amounts of the other assets in the CGU on a pro rata basis.

An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

m. Provisions

Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as finance cost.

Warranties

Provision for warranty costs is recognised at the date of sale of housing units, at the Company's best estimate of the expenditure required to settle the Group's liability. Such estimates take into consideration warranties given to the Group by subcontractors.

n. Leases

1. Determining whether an arrangement contains a lease

At inception of an arrangement, the Group determines whether the arrangement is or contains a lease.

At inception or on reassessment of an arrangement that contains a lease, the Group separates payments and other consideration required by the arrangement into those for the lease and those for other elements on the basis of their relative fair values. If the Group concludes for a finance lease that it is impracticable to separate the payments reliably, then an asset and a liability are recognised at an amount equal to the fair value of the underlying asset; subsequently, the liability is reduced as payments are made and an imputed finance cost on the liability is recognised using the Group's incremental borrowing rate.

2. Leased assets

Assets held by the Group under leases that transfer to the Group substantially all of the risks and rewards of ownership are classified as finance leases. The leased assets are measured initially at an amount equal to the lower of their fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the assets are accounted for in accordance with the accounting policy applicable to that asset.

3. Lease payments

Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease.

Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.

NOTE 4 - CASH AND CASH EQUIVALENTS

NOTE 5 - RESTRICTED BANK DEPOSIT

The Group pledged all restricted bank deposit to secure the credit facility granted to the Group by a bank in the Czech Republic, see note 11.

The deposit carries no interest.

NOTE 6 - PREPAYMENTS AND OTHER ASSETS

NOTE 7 - INVENTORIES OF HOUSING UNITS AND LANDS

a. Reconciliation of carrying amount

(a) At 31 December 2015 the inventories of housing units include capitalisation of borrowing costs in the amount of EUR 129 thousands.

(b) Write-down of inventory - represents the adjustment of the lands to their net realisable value when estimated lower than cost. Refer to note 7.b.1 as per the way the Company determine the net realisable value of the plots.

During 2015, inventory of EUR 118 thousands was written down to its net realisable value (2014: EUR 342 thousands), see note 20.

The Group's intention is to sell the plots and to continually examine the possibilities to do so. Except for two plots which the management does not predict to be sold within the normal operating cycle and thus classified as non-current inventory, other inventories are classified as current inventories.

The Group has pledged the shares of the entity which holds the inventory in Serbia having a carrying amount of EUR 8,405 thousands (2014: EUR 8,451 thousands) to secure credit facilities granted to the Group by the parent company, see note 31.c.1.ii.

b. Measurement of net realisable value

1. General

The net realisable value of the inventory is based on the Group's best estimation of the expected selling price and costs of completion less selling expenses. In determining the expected selling price of the plot the Group used the services of external, independent valuation companies, having appropriate, recognised professional qualifications and recent experience in the location and category of the inventories being valued, see note 33.d.

At 31 December 2015 the inventories of land balance consists of three plots:

1. A plot located in Romania which is presented, at 31 December 2015, at net realisable value in the total net amount of EUR 902 thousands (2014: EUR 924 thousands).

The management used the services of an external independent valuer ("DTZ") in order to determine the plot's net realisable value.

2. A plot located in the Czech Republic which is presented, at 31 December 2015, at net realisable value in the total net amount of EUR 814 thousands.

The management based its estimation on the plot's net realisable value as agreed in a conditional agreement, which was signed during the reporting period, to sell the entity which holds the plot (Palace Engel Vokovice s.r.o). The sale was finalised after the reporting period, see note 34.b.

3. An amount of EUR 8,405 thousands (2014: EUR 8,451 thousands) relates to a part of the plot in Serbia planned for developing residential units. This part of plot was valued by an independent valuer ("CBRE D.o.o") which estimated its fair value in the amount of EUR 12,840 thousands at 31 December 2015 (2014: EUR 13,320 thousands). The fair value concluded by the valuer was used as indication of the plot's net realisable value.

2. Valuation technique and significant unobservable inputs

The following information shows the valuation technique used in measuring the net realisable value of the plot of land in Romania, as well as the significant unobservable inputs used. For the valuation technique and the significant unobservable inputs used in measuring the net realisable value of the plot of land in Serbia, please refer to note 8.b.3.

· Valuation technique

Market comparison approach: In estimating the property value in Romania the valuer used the comparison approach, and estimated the value of the plot compared to three similar plots.

· Significant unobservable inputs

- The valuer used "asking prices" with the adjustment of 10%.

- The compared plots were in the range from sqm 10,000 to sqm 30,000. Due to the differences in the size of the compared plots to the valued plot, the valuer used an adjustment of (-5%) and (-10%).

- The valuer compared plots in different locations and used adjustment between (-25%) to 20%.

- The valuer compared plots with different accesses available level and used adjustment between (-20%) to 10%.

· Inter-relationship between key unobservable inputs and measurement of net realisable value

The estimated net realisable value would increase (decrease) if:

- The valuer used lower (higher) adjustment on the used "asking prices".

- The valuer used lower (higher) adjustment on the compared plot size in the case of smaller plots than the subject property.

- The valuer used lower (higher) adjustment range which relates to superior/inferior location.

- The valuer used lower (higher) adjustment range which relates to superior/inferior accesses available to the plot.

NOTE 8 - INVESTMENT PROPERTY

a. Reconciliation of carrying amount

(a) The functional currency of the subsidiary which holds the investment property ("Marina Dorcol D.o.o") is Serbian Dinar ("RSD").

During 2015, the EUR has strengthened vs. the RSD in the rate of 0.55% (2014: 5.22%) following which the Group has recognised in the reporting period a loss in the amount of EUR 96 thousands in the equity under translation reserve (2014: EUR 1,053 thousands, loss).

At 31 December 2015, the Group holds one plot in Serbia partly for purposes of commercial development.

The Group classified the asset as investment property since management's intention is to hold the property for long term, for capital appreciation or to earn future rentals or both.

The change in fair values is recognised as loss in the consolidated statement of profit or loss and included under "change in fair value of investment property".

b. Measurement of fair value

1. General

The fair value of the investment property was determined by an external, independent property valuer, holding appropriate, recognised and relevant professional qualifications and having recent experience in the location and category of the property being valued, see note 33.c.

2. Fair value hierarchy

The fair value measurement for investment property in the amount of EUR 17,450 thousands has been categorised as a Level 3 fair value based on the inputs to the valuation technique used.

3. Valuation technique and significant unobservable inputs

The following information shows the valuation technique used in measuring the fair value of investment property, as well as the significant unobservable inputs used.

· Valuation technique

Residual method: In estimating the property value in Serbia using the residual method, the appraiser estimated an expected selling price of the completed development based on external evidence such as current prices for similar developed properties in a similar location and condition adjusted for future price changes. The cost of development was also estimated based on construction projections by the Group and market estimates of construction costs taking into consideration an IRR of 16.8% (2014: 17.1%). Under the residual method the fair value of the land is calculated as the difference between the estimated selling price of the developed property and the sum of the estimated cost of construction of the commercial structures and the developer's profit.

· Significant unobservable inputs

- Urbanistic project for 76,000 sqm building area.

- Sales price per sqm of gross building area in the range from EUR 2,150 (for residential apartments) to EUR 2,400 (for business apartments).

- 4% annual growth is expected in sales prices for apartments, office space and underground parking, starting from 2018.

Yield of 9.25% for office segment and 8.25% for retail segment.

- Construction cost per sqm of gross building area in the range from EUR 575 (for apartments in the second phase) to EUR 850 (for business apartments) with an increase of 2% each year.

- Interest rate of 7% on 80% of the total funds financing of the project.

- Developer's profit is estimated at 22.5%.

· Inter-relationship between key unobservable inputs and fair value measurement

The estimated fair value would increase (decrease) if:

- Urbanistics project for gross building area will be higher than 76,000 sqm.

- Expected sales price per sqm of gross building area will be higher (lower).

- Expected annual growth for sales prices for apartments, office space and underground parking will be higher (lower).

- Yield for office segment and retail segment will be higher (lower).

- Expected construction cost per sqm will be lower (higher).

- Interest rate of 7% will be lower (higher).

- Developer's profit will be lower (higher).

c. Information regarding ownership right for the investment property

The Group leases the investment property under a finance lease from the municipality of Belgrade, Serbia. The end of the lease period, at 31 December 2015, is 90 years (will expire in 2105).

Further information about the finance lease terms and conditions are included under notes 12 and 27.a.iii.2.

The Group has pledged the shares of the entity which holds the investment property to secure credit facilities granted to the Group by the parent company, see note 31.c.1.ii.

d. Amounts recognised in profit or loss

NOTE 9 - INVESTMENT IN AND LOANS TO EQUITY-ACCOUNTED INVESTMENTS

At 31 December 2015 the Company holds interest in one joint venture, Montreal Residential Holdings Master Limited Partnership ("MLP").

MLP is not a publicly listed entity and consequently does not have published price quotation.

Until August 2015 the Company also held interests in the following joint ventures:

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

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

On 31 July 2015 the Company reached an agreement with its previous joint venture partner and as a result acquired control in Arces and ENMAN (a process which was completed during August 2015) and began to consolidate both companies in its consolidated financial statements, see note 29.

The following trading transactions and balances with equity-accounted investments are included in the consolidated financial statements:

(a) The statement of financial position includes balances with MLP.

The statement of profit or loss includes transactions with Arces and ENMAN which occurred before the Company obtained control over these entities and transactions with MLP.

(b) The statement of financial position and the statement of profit or loss include balances and transactions with Arces, ENMAN and MLP.

(c) Total amount of EUR 894 thousands (2014: EUR 2,678 thousands) was recognised as a loss with respect to equity-accounted investments relating to loans granted by the Company which management considers as being part of the net investment.

a. Arces International B.V.

Arces International B.V. ("Arces") - a holding company domiciled in The Netherlands. Until August 2015, the Company and HCEPP II Luxembourg Master S.à r.l ("Heitman") each held 50% of Arces' issued share capital.

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

The following trading transactions and balances with Arces are included in the consolidated financial statements of the Group:

(a) Including transactions with Arces which occurred until the date the Company obtained control of the entity.

The following table summarises the financial information of Arces as included in its own consolidated financial statements (figures in the table represent 100% of the consolidated figures of Arces). The table also reconciles the summarised financial information to the carrying amount of the Group's interest in Arces.

(a) Including transactions with Arces which occurred until the date the Company obtained control of the entity.

Comments in respect to the investment in Arces:

i. Loans granted by the Company to the previously held joint venture -

· Denominated in Euro currency.

· The loan bears interest of 15% per annum.

· Until the acquisition date of Arces (see note 29), a total amount of EUR 1,700 thousands was repaid by Arces to the Company.

· The finance income described above refers to the period till the acquisition date of Arces by the Company.

ii. Significant events during the current and the comparative reporting periods:

1. In 2014, a receiver was appointed by a court in Hungary due to an appeal of one of the creditors in the subsidiary, Engel Sun Palace Kft. ("Sun Palace"), which built the Sun Palace project in Hungary.

As a consequence Arces does not control Sun Palace, therefore ceased to consolidate Sun Palace in its consolidated financial statements for the year ended 31 December 2014 and recognised an income in the amount of EUR 509 thousands (the Company's share was EUR 256 thousands and it was recognised under "share of profit (loss) of equity-accounted investments, net of tax", in the consolidated financial statements for the year ended 31 December 2014).

The following table summarises the derecognised amounts of assets and liabilities in the 2014 consolidated financial statements of Arces due to the loss of control of Sun Palace (the amounts below present the Company's share):

2. In 2014, a compulsory strike-off was ordered and registered by the Company Registry Court of Budapest in Engel HAZ Kft. ("Haz"). Based on the ruling of the Company Registry Court of Budapest, Haz is declared to be dissolved.

As a consequence Arces does not control Haz, therefore ceased to consolidate Haz in its consolidated financial statements for the year ended 31 December 2014 and recognised a loss in the amount of EUR 61 thousands (the Company's share was EUR 30 thousands and it was recognised under "share of profit (loss) of equity-accounted investments, net of tax", in the consolidated financial statements for the year ended 31 December 2014).

The following table summarises the derecognised amounts of assets and liabilities in the 2014 consolidated financial statements of Arces due to the loss of control of Haz (the amounts below present the Company's share):

3. During 2014, following management reassessment of the project future proceeds, the Group recognised a write-down of inventory in the amount of EUR 315 thousands related to the project Emilii Plater, Poland (the Company's share was EUR 158 thousands and it was recognised under "share of profit (loss) of equity-accounted investments, net of tax", in the consolidated financial statements for the year ended 31 December 2014).

4. In 2012, one of the Group project's previous contractors issued a lien against Arces' bank account, for the total amount of EUR 0.4 million (the Company's share was EUR 0.2 million).

During 2015, the high court in Hungary accepted the Group's appeal, rejected the claim following which the Company succeeded in removing the lien against Arces' bank account.

In 2014, an additional sub-contractor of the Group's previous project filed a claim against Arces.

Provision for this claim was initially recognised by Arces and has been included in "share of profit (loss) of equity-accounted investments, net of tax" in the consolidated financial statements for the year ended 31 December 2014, see note 15 and note 29.

b. ENMAN B.V.

ENMAN B.V. ("ENMAN") - a holding company domiciled in The Netherlands. Until August 2015, the Company and HEPP III Luxembourg Master S.à r.l. ("Heitman") each held 50% of ENMAN's issued share capital.

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, until the date of the Company's acquisition, see note 29.).

ENMAN was incorporated with the purpose of investment in real estate development project companies in Eastern Europe. ENMAN has investments mainly in the Czech Republic.

The following trading transactions and balances with ENMAN are included in the consolidated financial statements of the Group:

(a) Including transactions with ENMAN which occurred until the date the Company obtained control of the entity.

The following table summarises the financial information of ENMAN as included in its own consolidated financial statements (figures in the table represent 100% of the consolidated figures of ENMAN). The table also reconciles the summarised financial information to the carrying amount of the Group's interest in ENMAN.

(a) Including transactions with ENMAN occurred till the date the Company obtained control of the entity.

Comments in respect to the investment in ENMAN:

i. Loans granted by the Company to the previously held joint venture -

· Denominated in Euro currency.

· The loans bear interest of 8% per annum.

· Until the acquisition date of ENMAN (see note 29), a total amount of EUR 3,005 thousands was repaid by ENMAN to the Company.

· The finance income described above refers to the period till the acquisition date of ENMAN by the Company.

ii. Significant events during the current and the comparative reporting periods:

1. On 4 July 2014, Palace Engel Wilanow 1 S.p. Z.o.o, a wholly owned subsidiary of ENMAN sold the plot in Wilanow district in Warsaw, Poland, for a total cash consideration of EUR 1,200 thousands. In order to reflect the plot's realisable value, ENMAN recognised a write down of inventory in the amount of EUR 46 thousands (the Company's share was EUR 12 thousands and it was recognised under "share of profit (loss) of equity-accounted investments, net of tax") in the consolidated financial statements for the year ended 31 December 2014.

2. At the beginning of 2013, following the adoption of IFRS 10, the Group has re-examined the existence of control at Engel-Lylia s.r.l ("Lylia"), a subsidiary held by ENMAN, and determined that ENMAN no longer controlled Lylia. As a consequence, ENMAN ceased to consolidate Lylia in its consolidated financial statements for the year ended 31 December 2013.

See note 33.e.1, regarding management's reassessment and judgment of having control as of 31 December 2015.

3. At the beginning of 2013, following the adoption of IFRS 10, the Group has re-examined the existence of control at Engel Crizantema s.r.l ("Crizantema") (which holds Engel Tulip s.r.l ("Tulip")), a subsidiary held by ENMAN and determined that ENMAN no longer controlled Crizantema. As a consequence ENMAN ceased to consolidate Crizantema in its consolidated financial statements for the year ended 31 December 2013.

See note 33.e.1, regarding management's reassessment and judgment of having control as of 31 December 2015.

4. During 2014, a residential plot designed for the second phase of the Veleslavin project in Prague, Czech Republic was written down to its net realisable value. The recognised write down amounted to EUR 83 thousands (the Company's share is EUR 21 thousands and it was recognised under "share of profit (loss) of equity-accounted investments, net of tax") in the consolidated financial statements for the year ended 31 December 2014.

On 30 July 2015, two wholly owned subsidiaries of ENMAN sold the residential plot designed for the second stage of the Veleslavin project, for a total cash consideration of CZK 63 million (EUR 2.3 million).

The net proceeds of the disposal were EUR 1.8 million (the Company's share was EUR 0.45 million). The profit in the amount of EUR 37 thousands (the Company's share is EUR 9 thousands) was recognised under the "share of profit (loss) of equity-accounted investments, net of tax" in the consolidated financial statements for the year ended 31 December 2015.

5. On 22 January 2015, a wholly owned subsidiary of ENMAN, signed an agreement to sell a plot designed for residential purposes in Czech Republic ("Troja") for a total cash consideration of CZK 195 million (EUR 7,113 thousands). As a result of the above, the Group has chosen to reverse a previously recorded write down in the total amount of EUR 1,944 thousands in the consolidated financial statements for the year ended 31 December 2014.

On 30 April 2015, the above mentioned sale agreement has been finalised following which the Company recognised a profit before tax on income in the amount of EUR 0.5 million (and it was recognised under the "share of profit (loss) of equity-accounted investments, net of tax") in the consolidated financial statements for the year ended 31 December 2015.

The net proceeds of the disposal were EUR 5,890 thousands (the Company's share was EUR 2,945 thousands) and were distributed to the joint venture's partners during the reporting period.

c. Montreal Residential Holdings Master Limited Partnership

Montreal Residential Holdings Master Limited Partnership ("MLP") - a holding partnership domiciled in Canada.

The Company owns ECG Trust Canada Holding Trust ("ECG") (95% interest) which holds 20% interest in future distributions of MLP. The Company owns 50% of the voting rights in 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").

During the reporting period, MLP sold one parcel of land in Montreal, Quebec, Canada, see note 9.c.iv.2.

At the end of the reporting period, MLP holds two parcels of land in Montreal, Quebec, Canada which are designed for residential purposes. After the reporting period, both plots were sold, see note 9.c.iv.3.

Set out below is a list of material subsidiaries of MLP at 31 December 2015:

a. Trianon Sur Le Golf Quebec LP - 99.99% in the partnership rights - owned a land in Montreal, Canada, which was sold during the reporting period, see note 9.c.iv.2.

b. Le Quartier Quebec LP - 99.99% in the partnership rights - owns a land in Montreal, Canada, which was sold after the reporting period, see note 9.c.iv.3.

c. Le Chagall Quebec LP - 99.99% in the partnership rights - owns a land in Montreal, Canada, which was sold after the reporting period, see note 9.c.iv.3.

d. Le Quartier Parisien Inc. - 99.99% in the share capital - beneficial title holder company, Canada

e. Trianon Sur Le Golf Inc. - 99.99% in the share capital - beneficial title holder company, Canada.

f. Le Chagall Condominiums Inc. - 99.99% in the share capital - beneficial title holder company, Canada.

The following trading transactions and balances with MLP are included in the consolidated financial statements of the Group:

The following table summarises the financial information of MLP as included in its own consolidated financial statements (figures in the table represent 100% of the consolidated figures of MLP). The table also reconciles the summarised financial information to the carrying amount of the Group's interest in MLP.

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 that is part of the net investment and presents the loss as share of profit (loss) of equity-accounted investments in the consolidated 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 joint venture; 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.

· During the reporting period, a total amount of EUR 351 thousands was repaid by MLP to the Company.

iv. Significant events during and after the reporting period:

1. The Company and MLP were in a legal proceeding with a minority shareholder who was employed as technical manager for the Canadian projects and was dismissed by the Company. The amount of the claim was CAD 13 million (approximately EUR 9.4 million).

According to the court past decision, disposal of assets in Canada will require the approval of the court.

In 2013, the trial in regard to the above legal procedure was held in the Canadian court.

In August 2014, the Canadian court delivered a verdict which dismissed the claims of the plaintiff. The plaintiff filed an appeal on the above verdict, which was rejected by the court during 2015.

Following the above verdicts, the courts ordered the plaintiff to pay the Company an aggregate amount of CAD 148 thousands (approximately EUR 98) plus interest and expenses return.

2. On 8 May 2015, MLP sold one of the plots in Montreal, Canada ("Trianon") for a total consideration of CAD 3,050 thousands (EUR 2,230 thousands).

MLP recognised a profit before tax on income in the amount of EUR 342 thousands (the Company's share was EUR 68 thousands and it was recognised under the "share of profit (loss) of equity-accounted investments, net of tax") in the consolidated financial statements for the year ended 31 December 2015.

The Company's share in the net proceeds of the disposal was EUR 351 thousands which was distributed to the Company during the reporting period.

Based on prior agreements with ERD all the net future proceeds generated from the Company's assets in Canada will be used to repay the outstanding debts of the Company to ERD. As of the reporting period the net proceeds were not transferred to ERD.

3. On 16 September 2015, MLP reached a conditional agreement ("the agreement") to sell two plots of land held for residential development purposes in Canada for a total cash consideration of CAD 20,227 thousands (EUR 13,095 thousands).

The gross profit (before income tax expense) is expected to be CAD 9,418 thousands (EUR 6,097 thousands). As a result of the above, the Group has chosen to reverse a previously recorded write down in the total amount of EUR 3,225 thousands (the Company's share was EUR 645 thousands) and it was recognised under the "share of profit (loss) of equity-accounted investments, net of tax" in the consolidated financial statements for the year ended 31 December 2015.

The net cash proceeds of the disposals received by MLP (before income tax expense) are CAD 19,733 thousands (EUR 12,775 thousands).

The net cash proceeds of the disposals will be distributed by MLP after completion of the disposals and the approval of the Company's partner in MLP. The Company's expected share of the distribution will be 20%, equating to approximately CAD 3.5 million (EUR 2.3 million).

On 13 January 2016, the agreement became binding and the sale was completed.

Based on prior agreements with ERD all the net future proceeds generated from the Company's assets in Canada will be used to repay the outstanding debts of the Company to ERD.

NOTE 10 - LIST OF SUBSIDIARIES

Set out below is a list of subsidiaries of the Company as of 31 December 2015:

1. Arces International B.V. - a wholly owned subsidiary - holding company, the Netherlands. See note 29 as per the acquisition of the partner's share during the reporting period.

2. ENMAN B.V. - a wholly owned subsidiary - holding company, the Netherlands. See note 29 as per the acquisition of the partner's share during the reporting period.

3. Engel Management s.r.o - a wholly owned subsidiary - management company, Czech Republic.

4. Engel Management S.p. Z.o.o - a wholly owned subsidiary - management company, Poland.

5. Marina Management D.o.o - a wholly owned subsidiary - management company, Serbia.

6. Marina Dorcol D.o.o - 95% interest subsidiary - plans to build mix-use project with a majority of residential in Belgrade, Serbia.

7. Engel-Rose s.r.l - a wholly owned subsidiary - holds a plot for residential project in Bucharest, Romania.

8. Davero Invest s.r.l ("Davero") - a wholly owned subsidiary - management company, Romania. The Company sold its investment in Davero after the reporting period, see note 34.a.

9. EURO-BUL Ltd. - a wholly owned subsidiary - administration services company, Israel.

10. Palace Engel Troja a.s - a wholly owned subsidiary, Czech Republic - inactive.

11. 6212964 Canada Inc. - 95% interest subsidiary - Canada.

12. 9152-8372 Quebec Inc. - a wholly owned subsidiary - management company, Canada - inactive.

13. Palace Engel Dejvice s.r.o - through its wholly owned subsidiary Palac Engel Safranka s.r.o (a wholly owned subsidiary of Arces) - built a residential project in Prague, Czech Republic.

14. Palace Engel Estate s.r.o - a wholly owned subsidiary of Arces - built a residential project in Prague, Czech Republic.

15. Palace Engel Vokovice s.r.o ("Vokovice s.r.o") - a wholly owned subsidiary of Arces - holds a plot designed for the third residential building in the project Vokovice in Prague, Czech Republic. Arces sold its investment in Vokovice s.r.o after the reporting period, see note 34.b.

16. Engel-Apartmenty Emilii Plater S.p. Z.o.o - a wholly owned subsidiary of Arces - built a residential project in Warsaw, Poland, see note 9.a.ii.3.

17. Palace Engel Wilanow 1 S.p. Z.o.o - a wholly owned subsidiary of ENMAN - see note 9.b.ii.1.

18. Palace Engel Veleslavin a.s and Palace Engel Villa s.r.o - wholly owned subsidiaries of ENMAN - built the first stage of a residential project. During the reporting period the entities sold the plot designed for the second stage of the project in Prague, Czech Republic - see note 9.b.ii.4.

19. Troja Gardens s.r.o ("Troja") - a wholly owned subsidiary of ENMAN - held a plot for residential project in Prague, Czech Republic, which was sold during the reporting period - see note 9.b.ii.5.

NOTE 11 - INTEREST-BEARING BANK LOANS

The terms and conditions of outstanding loans are as follows:

The loan denominated in the CZK currency, has been taken in respect of the Veleslavin project in Prague, Czech Republic. The security for the loan is a first ranking lien on the assets of the project company. The first ranking lien includes: lien on the rights for the land and the projects for which the loans were received and lien on rights, including by way of assignment of rights, to the receivables from customers.

The loan was fully repaid after the reporting period.

The loans denominated in the EUR currency, were taken by a wholly controlled entity EURO-BUL Ltd. ("Eurobul") and are secured by guarantees provided by ERD, the indirect parent company of the Company (see note 31.c.1.i).

In September 2014, ERD and Eurobul reached an agreement ("agreement") with the lender bank to restructure the overdue loan granted to Eurobul.

According to the agreement, the overdue loan was replaced by three new loans which their terms are as follows:

1. Loan 1("loan 1") - a loan in the amount of EUR 1.4 million, which carries an annual interest of 3m Libor + 3.68%. The loan is repaid in quarterly instalments till 2019. As of the reporting date, the loan was paid at the agreed timeline.

2. Loan 2 ("loan 2") - a loan in the amount of EUR 1 million, which carries an annual interest of 3m Libor + 3.5% (the annual interest was adjusted during 2015 to 3m Libor + 3.4%). The loan is extended on a quarterly basis till 31 December 2015.

3. Loan 3 ("loan 3") - a loan in the amount of EUR 0.5 million, which carries an annual interest of 3m Libor + 3.5%. The maturity year of the loan is 2019. In case the above two loans will be fully repaid by the Company, the lender bank agrees to forgive this loan to the Company.

During the reporting period, as part of the above agreement with the lender bank, the Company and ERD repaid an amount of EUR 320 thousands. The amount repaid by ERD (EUR 80 thousands) was recognised as additional loan provided by ERD.

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

After the reporting period the Company fully repaid loan 1 and loan 2 (see note 34.c). Based on the terms agreed with the lender bank loan 3 has been fully forgiven, as a result the Company will recognise a finance income in the profit or loss at the condensed consolidated interim financial statements for the first quarter of 2016.

NOTE 12 - FINANCE LEASE LIABILITY

(a) At 31 December 2015, the amount represents overdue instalments to the municipality in Serbia according to the finance lease agreement.

The balance consists of: overdue monthly rent instalments, an amount which is under disagreement with the municipality, overdue instalments according to the finance lease agreement and penalty interest. The classification between current and non-current lease liability follows the contractual due dates.

a. Terms and repayment schedule

The terms and conditions of the outstanding finance lease liability are as follows:

(a) The financial lease liability relates to a project in Serbia where the Group is obliged to pay monthly rent for land for 99 years (the end of the lease period is 90 years and will expire in 2105).

(b) The overdue amounts carry an average penalty interest of 1.2% per month, average interest of 14.18% for the year 2015 (2014: 16.83%).

(c) During 2015, the municipality began to charge penalty interest on the overdue monthly rent instalments.

The value of the finance lease and its payments are adjusted on a monthly basis by the local retail price index in Belgrade, Serbia. The increases of the local retail price index in Belgrade, Serbia during 2015 and 2014 were 1.7% and 1.9% respectively.

b. Finance lease liability - contractual cash flows

Finance lease liability is payable as follows:

c. Breach in requirements

Since January 2011, the Group has been in breach of the obligation to make the monthly lease payments for Marina Dorcol.

At 31 December 2015, the Group is in breach of EUR 33.3 million (2014: EUR 21.6 million) of lease payments in total. After the reporting date, the Company further breached its obligation to pay by an additional amount of EUR 0.1 million, see note 2.b.

The Group is currently in the process of negotiation with the municipality of Belgrade to restructure the liability.

NOTE 13 - LOANS AND AMOUNTS DUE TO RELATED PARTIES AND JOINT VENTURE

The terms and conditions of outstanding loans are as follows:

(a) The loans were received from Engel Resources and Development Ltd. ("ERD") and are due by 30 April 2016.

The interest conditions are as follows:

· The amount of EUR 22,871 thousands (2014: EUR 22,907 thousands) bears interest of 6% per annum and linked to changes in the customer price index in Israel.

· The amount of EUR 2,210 thousands (2014: EUR 1,865 thousands) bears interest of 6.5% per annum.

The loans are secured by the following guarantees (see note 31.c):

· Pledge over the shares of Marina Dorcol D.o.o in the total value of EUR 23.7 million.

· The future proceeds from the Group's assets in Canada. The Company will provide guarantee in the amount which will be double from the loan provided by ERD.

(b) The loans received from GBES Ltd. ("GBES") were due on 31 December 2014 and are overdue as of the date of the consolidated financial statements.

(c) No repayment dates have been set with regard to the loans and advances granted by the subsidiaries held by currently and previously held jointly controlled entities.

For more details about related parties transactions, see note 31.

NOTE 14 - OTHER PAYABLES

(a) See note 28.b.

NOTE 15 - PROVISIONS

(a) The Group estimated provisions in respect of its legal claims, based on the management's estimations following consulting its legal advisors.

(b) See note 29.

(c) See note 30.b.

NOTE 16 - CAPITAL AND RESERVES

a. Share capital and share premium

All ordinary shares rank equally with regard to the Company's residual assets.

b. Ordinary shares

Holders of these shares are entitled to dividends as declared from time to time and are entitled to one vote per share at general meetings of the Company. All rights attached to the Company's shares held by the Group are suspended until those shares are reissued.

On 15 December 2005, the Company initially offered its shares in the AIM stock exchange market in London ("the IPO"). The proceeds from the IPO were 30,000,000 British Pounds and 27,777,778 shares were issued, accordingly EUR 39,298 thousands were recognised as share premium.

c. Translation reserve

The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations to Euro.

d. Dividends

Dividends are declarable based on the retained earnings presented in the Company's financial statements prepared in accordance with The Dutch Civil Code and not from the retained earnings presented in these consolidated financial statements.

NOTE 17 - CAPITAL MANAGEMENT

The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stockholders and to maintain an optimal capital structure to reduce the cost of capital.

Due to the current financial position of the Group, the aim of the management is to enable the Group to continue and to operate as a going concern. Currently no specific target of return on capital was determined. There were no changes in the Group's approach to capital management during the year.

There are no externally imposed capital requirements on the Company.

NOTE 18 - NON-CONTROLLING INTRESTS

The following table summarises the information relating to the Group's subsidiary that has material non-controlling interests ("NCI"), before any intra-group eliminations.

The tables represent 100% of the financial figures of the subsidiary.

31 December 2015

31 December 2014

From 1 January 2010 the Group has applied the revised IAS 27 Consolidated and Separated Financial statements (2008) in accounting for acquisitions of non-controlling interests. The share of the non-controlling interests in the losses till the application date summed to EUR 503 thousands.

NOTE 19 - REVENUE

(a) The revenue from the sale of housing units represents the revenue generated from the sale of housing units in the Veleslavin project, Prague, Czech Republic, from the date the Company obtained control in ENMAN (its parent company).

NOTE 20 - WRITE-DOWN OF INVENTORY

Write down of inventory to its net realisable value was performed based on an independent valuer's report (in case of the plot in Romania) and based on the value reflected at a conditional agreement to sell the entity which holds the plot, that was signed with a third party during the reporting period (in case of the plot in Prague, Czech Republic). 

See note 34.b, as per the sale of the land in Czech Republic after the reporting period.

Refer to note 33.d regarding critical accounting estimations and judgments and note 7.b.1 as per the way the Company determines the net realisable value of the plots.

NOTE 21 - COST OF SALES EXCLUDING WRITE-DOWN OF INVENTORY

(a) The cost of sold housing units represents the cost generated from the sale of housing units in the Veleslavin project, Prague, Czech Republic, from the date the Company obtained control in ENMAN (its parent company).

NOTE 22 - SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

(a) See note 15.

NOTE 23 - OTHER INCOME (EXPENSE)

(a) See note 31.b.2.

(b) See notes 30.a, 30.b and 30.c

NOTE 24 - NET FINANCE COSTS

(a) Relates to loans given directly to project entities and being not part of the net investment due to different terms and priorities of repayments.

(b) The increases of the local retail price index in Belgrade, Serbia in 2015 and 2014 were 1.7% and 1.9% respectively.

(c) The overdue amounts carry an average penalty interest of 1.2% per month (average of 14.18% for the year 2015). The penalty for the year 2015 sums to an amount of EUR 3,435 thousands (2014: EUR 2,254 thousands).

(d) According to the revised lease agreement which was signed on 30 August 2010, the lease instalments which were due after the signature date of the agreement were postponed to the years 2014-2016 and carried a discount of 30% in case the Company would pay them on time (similar terms to the original agreement which was signed in 2006).

Since the Group did not pay the instalments which were due, the Company recognised a loss of discount in the amount of EUR 2,309 thousands (2014: EUR 1,531 thousands).

NOTE 25 - INCOME TAXES

a. Amounts recognised in profit or loss

Tax expense excludes the Group's share of the tax expense of the Group's previous equity-accounted investments of EUR 85 thousands (2014: income of EUR 270 thousands), which was included in "share of profit (loss) of equity-accounted investments, net of tax".

The Group believes that its accruals for tax liabilities are adequate for all open tax years based on its assessment of many factors, including interpretations of tax law and prior experience.

b. Reconciliation of effective tax rate

c. Movement in deferred tax balances

The following are the deferred tax assets and liabilities recognised by the Group before off-sets, and the movements thereon, during the current and prior reporting periods (positive balances are deferred tax assets and negative balances are deferred taxes liabilities):

(a) See note 29.

The following table sets out the Group's deferred tax assets and liabilities, net of off-sets:

d. Unrecognised deferred tax assets

Deferred tax assets have not been recognised in respect of losses carry forward amounting to EUR 36,735 thousands at 31 December 2015 (2014: EUR 28,771 thousands), because it is not probable that future taxable profit will be available against which the Group can use the benefits therefrom.

As per the limitation of the accumulated tax losses per each country, see note 25.e.

e. Main tax laws

The main tax laws to which the Group companies are subject in their countries of residence are as follows:

1. The Netherlands

Companies resident in the Netherlands are subject to corporate income tax at the general rate of 25% (2014: 25%). The first EUR 200,000 of profits is taxed at a rate of 20%. Tax losses may be carried back for one year and carried forward for nine years. As part of the measures to combat the consequences of the economic crisis, taxpayers can elect for an extension of the loss carry back period to three years (instead of one year). The election is only available for losses suffered in the taxable years 2009, 2010 and 2011. If a taxpayer makes use of the election, two additional limitations apply: (i) the loss carry forward period for the taxable years 2009, 2010 and/or 2011 will be limited to a maximum of six years (instead of nine years); and (ii) the maximum amount of loss that can be carried back to the second and third year preceding the taxable year will be limited to EUR 10 million per year. The amount of loss that can be carried back to the year directly proceeding the taxable year for which the election is made will remain unrestricted. As of the taxable year 2012, the election for extended loss carry back is not available anymore and the regular loss carry back and carry forward limitations apply.

Under the participation exemption rules, income (including dividends and capital gains) derived by Netherlands companies in respect of qualifying investments in the nominal paid up share capital of resident or non-resident investee companies, is exempt from Netherlands corporate income tax provided the conditions as set under these rules have been satisfied. Such conditions require, among others, a minimum percentage ownership interest in the investee company and require the investee company to satisfy at least one of the following tests:

· Motive Test, the investee company is not held as passive investment;

· Tax Test, the investee company is taxed locally at an effective rate of at least 10% (calculated based on Dutch tax accounting standards);

· Asset Test, the investee company owns (directly and indirectly) less than 50% low taxed passive assets.

2. Hungary

The corporation tax rate in Hungary is 10/19% in 2015 (the first HUF 500 million is taxed at 10% and any excess over HUF 500 million at 19%)). (2014: 10/19%). Since 2007 capital gains can be considered exempted income provided that certain criteria are fulfilled. Losses accumulated till 2014 can be carried forward till 2025, subject to certain limitations. Losses from 2015 can be carried forward up to five years. In 2012 the losses carry forward rules changed significantly (e.g. transformation, change in ownership limitation implemented and only of 50% of the profit of the current year could be covered by past losses). According to the rules effective in these financial years, losses incurred in the year of establishment and in the following 3 years may be carried forward for an unlimited period of time.

3. Czech Republic

The corporation tax rate in the Czech Republic is 19 % in 2015 (2014: 19%). Capital gain could be tax exempted under certain circumstances. Tax losses can be carried forward up to five years to offset future taxable income, under certain circumstance (e.g. no significant change in the business, ownership). Dividends paid out of net income are subject to a withholding tax of 15%/35%, subject to the relevant double taxation treaty or EU regulations.

4. Israel

The standard rate of company tax in Israel in 2015 is 26.5% (2014: 26.5%). Companies with a beneficial or approved or preferred enterprise are taxed at a reduced tax rate that varies depending on the circumstances. Capital gains are subject to the standard corporate tax rate. Dividends from foreign sources are subject to a 25% tax with a credit for foreign withholding tax, and in certain circumstances, at the standard corporate tax rate on the "grossed up dividend" with a credit granted on all foreign taxes paid by the direct and second tier subsidiary on the dividend and the income from which it is distributed.

5. Poland

The corporation tax in Poland (including capital gains) is 19% in 2015 (2014: 19%).Tax losses can be carried forward for five years and only 50% of a the current year profit could be cover by past losses. Dividends paid out of net income are subject to a withholding tax of 19%, subject to the relevant double taxation treaty or EU regulations.

6. Canada

The federal corporate tax rate of the subsidiaries incorporated in Canada (including capital gains) is 15% in 2015 (2014: 15%). The combined corporate and provincial tax rate is 26.5% (2014: 26.5%). Non-capital tax losses can be carried back three years and carried forward up to 20 years for losses arising in 2006 and later, 10 years for losses arising in taxation years ending after 22 March, 2004 and before 2006, 7 years for losses arising in taxation years ending before 23 March 2004. Capital tax losses can be carried back three years and carried forward indefinitely against other capital gains. Dividends paid out of net income are subject to a withholding tax of 25%, subject to the relevant double taxation treaty.

7. Romania

The corporation tax in Romania (including capital gains) is 16% in 2015 (2014: 16%). Dividends paid out of net income are subject to a withholding tax of 16%, subject to the relevant double taxation treaty or EU regulations. Tax losses can be carried forward and deducted from taxable profits in the following 7-year period (the carry forward period for losses recorded up to 31 December 2008 is 5 years), on a first-in-first-out basis.

8. Serbia

Corporate income tax is levied at a rate of 15% in 2015 (2014: 15%). Capital gains are taxable at the rate of 15%. Losses may be carried forward for 5 years (capital loss could be carried forward separately); losses generated in the period 2003-2009 may be carried forward for 10 years. No carry-back of losses is permitted. Dividends paid outside the country are subject to a withholding tax of 20% subject to the relevant double taxation treaty.

NOTE 26 - LOSS PER SHARE

Basic and diluted loss per share

The calculation of basic and diluted loss per share has been based on the following loss attributable to ordinary shareholders and weighted-average number of ordinary shares outstanding.

a. Loss attributable to ordinary shareholders (basic and diluted)

b. Weighted-average number of ordinary shares (basic and diluted)

There are no dilutive factors.

NOTE 27 - FINANCIAL INSTRUMENTS - FAIR VALUE AND RISK MANAGEMENT

a. Financial risk management

The Group has exposure to the following risks arising from financial instruments:

· Credit risk;

· Liquidity risk; and

· Market risk.

i. Risk management framework

The Company's board of directors has overall responsibility for the establishment and oversight of the Group's risk management framework. The board of directors is responsible for developing and monitoring the Group's risk management policies.

The Group's risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group's activities. The Group, through its training and management standards and procedures, aims to maintain a disciplined and constructive control environment in which all employees understand their roles and obligations.

The Group Audit Committee oversees how management monitors compliance with the Group's risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Group.

i. Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group's receivables from customers and investments in debt securities.

The carrying amount of financial assets represents the maximum credit exposure.

There are no significant concentrations of credit risk. The Group's exposure to credit risk in most of the countries of activity is minimised by the requirement for customers to pay most of the amount due on purchased housing units and/or sold plots prior to their handover.

The Group limits its exposure to credit risk arising from bank deposits by transacting only with reputable bank counterparties that have a credit rating higher than that of the Group. Additionally, the Group reduces its exposure to credit risk by depositing its financial funds in different and independent bank institutions.

ii. 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 loan from its operating activity (mainly sales of housing units and undeveloped plots).

See note 2.b which includes the Group's going concern analysis and describes the financial difficulties and liquidity risks.

Lease agreement

Since January 2011, the Group has been in breach of the obligation to make the monthly lease payments for Marina Dorcol. During 2015, management recognised an expense of EUR 7,085 thousands as a result of the lease interest, inflation and loss of discount from unpaid overdue lease contracted payments, see note 24.

At 31 December 2015, the Group is in breach of EUR 33.3 million (2014: EUR 21.6 million) of lease payments in total. After the reporting date, the Company further breached its obligation to pay by an additional amount of EUR 0.1 million.

Exposure to liquidity risk

The following are the remaining contractual maturities of the financial liabilities at the reporting date. The amounts are gross and undiscounted, and include estimated interest payments and exclude the impact of netting agreements.

31 December 2015

31 December 2014

The interest payments on variable interest rate loans and finance lease liability in the table above reflect market forward interest rates at the reporting date and these amounts may change as market interest rates change.

iv. Market risk

Market risk is the risk that changes in market prices - such as foreign exchange rates, interest rates and equity prices - will affect the Group's income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.

· Currency and inflation risk

The Group presents its consolidated financial statements in Euro. However, the Group's operations are based locally in a number of different countries including Hungary, Romania, the Czech Republic, Serbia, Canada, Israel and Poland, and therefore the Group is exposed to currency risk on sales, purchases and borrowings that are denominated in a currency other than the respective functional currencies of Group entities, primarily the Euro. The Group's financial results could, therefore, be adversely affected by fluctuations in the exchange rates between the Euro and the local currencies. The Group mitigates its foreign exchange risk by financing development projects through financial liabilities that are denominated in the currency of the country the project is located in and in which revenues from the projects will be generated.

The Group is exposed to changes in the customer price index in Israel and to the change in the exchange rates of the New Israeli Shekel on the loans granted by ERD, see note 13 and clause a.iv under this note.

The Group is exposed to changes in the local retail price index in Belgrade, Serbia, on the future and overdue finance lease payments of the property in Belgrade, Serbia, see note 12 and clause a.iv under this note.

The Group does not currently engage in hedging or use any other financial arrangement to minimise currency exchange and inflation risks or the translation risk related to foreign operations.

Exposure to currency and inflation risks

The tables below summarise the foreign exchange exposure on the net monetary position of each currency that is denominated in a currency other than the functional currency, expressed in the Group's presentation currency:

Additionally the Company has exposure to changes in the local retail price index in Belgrade, Serbia on a finance lease liability that amounted to EUR 43,479 thousands at 31 December 2015 (2014: EUR 36,641 thousands), and to changes in the customer price index in Israel on loans and amounts due to related parties that amounted to EUR 22,871 thousands at 31 December 2015 (2014: EUR 22,907 thousands).

The following significant exchange rates have been applied:

Sensitivity analysis

A reasonably possible strengthening (weakening) of the Euro against the below currencies and possible changes of the customer price and the local retail price indexes in Israel and Serbia at 31 December would have affected the measurement of financial instruments denominated in a foreign currency and affected profit or loss and equity by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant and ignores any impact of forecast sales and purchases.

At 31 December 2015, a 3% - 13% weakening of the Euro and/or (-0.9%) - 1.7% changes of the customer price and local retail price index in Israel and Serbia would have had the equal, but opposite effect on the profit for the year and equity to the amount shown above on the basis that all other variables remain constant.

· Interest rate risk

The Group's interest rate risk arises mainly from short-term borrowings. Borrowings issued at variable rates expose the Group to cash flows interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. The Group does not currently engage in hedging or use any other financial arrangement to minimise the exposure to these risks.

Exposure to interest rate risk

The interest rate profile of the Group's interest-bearing financial instruments as reported to the management of the Group is as follows:

Sensitivity analysis for variable-rate instruments

A reasonable possible change of (-45) till 58 basis points in interest rates at the reporting date would have increased (decreased) profit or loss and equity by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency exchange rates, remain constant.

There is no impact on the Group's equity, except of the profit or loss.