Kimberly Enterprises Regulatory News (KBE)

Kimberly Enterprises N.V.

("Kimberly" or the "Company")

Results for the year ended 31 December 2014

Kimberly Enterprises N.V. ("Kimberly" or "the Company"), the AIM listed Eastern European property developer (KBE.L), announces its audited results for the year ended 31 December 2014.

The audited annual accounts for the year ended 31 December 2014 will shortly be sent to shareholders and will also be available on the Company's website: www.kimberly-enterprises.com.

Financial summary:

Financial Position

Total revenue for the year ended 31 December 2014 was €0.4 million, remaining at a similar level to the total revenue of €0.4 million in 2013.

Total gross loss for 2014 was €1.9 million (2013: €0.1 million gross profit). This was due to a negative investment property revaluation of €1.7 million for 2014 compared to a positive investment property revaluation of €0.2 million in 2013, as well as an increase in write down of inventory in 2014 (write down of €0.3 million in 2014 compared to €0.1 million in 2013).

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

General and administrative expenses decreased to €0.3 million (2013: €1.1 million). The change is mainly caused by decreasing staff numbers and cutting current expenses in each country and reversed of previously book provisions for legal claims (in the amount of €0.5 million).

Net financing costs increased to €7.8 million (2013: €5.7 million). This reflects an increase in the finance costs due to the finance lease in Serbia of €5.4 million (2013: €3.3 million) and an increase in foreign exchange losses to €1.3 million (2013: €1.0 million).

Income tax expense decreased to €1,000 (2013: €1.9 million). This decrease was due to a one off expense in 2013, when the Company de-recognised previously recognised deferred tax assets in Serbia, resulting from losses carried forward due to management reassessment of its probability of utilisation.

As a result of the above, the loss after tax for the year increased to €10.4 million (2013: €9.5 million).

Equity-accounted investments and loans increased to €7.6 million (2013: €7.2 million), representing the total investment in the three joint ventures: Arces International B.V. ("Arces"), ENMAN B.V. ("ENMAN") and Montreal Residential Holdings Master Limited Partnership ("MLP").

General

The consolidated financial statements have been prepared on a going concern basis, which assumes that the Company will be able to raise funding to meet its obligations to the banks, its employees and service providers, as disclosed in note 4.c.

The financial position of the Group remains weak and is not certain that it will be able to meet its obligations to its employees and service providers as they fall due.

Since January 2011, the Group has been in breach of the obligation to make the lease payments for Marina Dorcol. During 2014, the management recorded an expense of €3.8 million as a result of the lease interest, inflation and loss of discount from unpaid overdue lease contracted payments. See note 25 for further details.

At 31 December 2014, the Group is in breach of €21.6 million (2013: €12.9 million). After the reporting date, the Company further breached its obligation to pay by an additional amount of €0.1 million - see note 13.

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

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

During 2014, ERD provided several bridge loans for a total amount of €1 million (2013: €0.9 million). After the reporting date, the Company received additional loans from ERD for a total amount of €0.3 million.

The management is also examining other solutions (such as asset realisations) to fund the Company's immediate liabilities and to stabilise its financial position.

At 31 December 2014, the Group has current liabilities totaling €55.5 million, which exceeds its current assets amounting to €0.2 million and a negative equity which amounts to €31.1 million.

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 4.c and 13) 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.

Poland

GDP growth in 2014 was 3.1 per cent and the rate of inflation was -0.9 per cent. Forecast GDP growth for 2015 is 3.5 per cent.

On 4 July 2014, Palace Engel Wilanow 1 S.p. Z.o.o, a wholly owned subsidiary of ENMAN sold the plot in "Wilanow 1" in Warsaw, Poland, for a total cash consideration of €1.2 million. In order to reflect the plot realisable value, ENMAN recognised a write down of inventory in the amount of €46,000. The Company's share is €12,000 which is accounted for "share of loss of equity-accounted investments, net of tax".

During 2014, following management reassessment of the Emilii Plater's project future proceeds, the Group recognised a write-down of inventory in the amount of €0.3 million. The Company's share is a €0.15 million which is accounted for as "share of loss of equity-accounted investments, net of tax".

Serbia

GDP growth in 2014 was 2.0 per cent and the rate of inflation was 2.3 per cent. Forecast GDP growth for 2015 is 2.9 per cent.

Since January 2011, the Group has been in breach of the obligation to make the lease payments for Marina Dorcol. During 2014, the management recorded an expense of €3.8 million in relation with the lease interest, inflation and loss of discount from unpaid overdue lease contracted payments, see note 25.

At 31 December 2014, the Group is in breach of €21.6 million (2013: €12.9 million) of lease payments. After the reporting date, the Company further breached its obligation to pay by an additional amount of €0.1 million - see note 13.

Czech Republic

GDP in 2014 declined by 1.5 per cent and the rate of inflation was 0.08 per cent. Forecast GDP growth for 2015 is 2.61 per cent.

During 2014, the Company finalised the construction of the first phase in the the Veleslavin project in Prague. The project will include 85 units with total estimated income of €15.3 million (the Company's share is 25%). As of 31 December 2014, the Company recognised the sale of 15 units with total value of €3 million (the Company's share is 25%). The Company's share is €0.75 million which is accounted for as "share of loss of equity-accounted investments, net of tax". As of today, 28 units have been sold.

During 2014, an inventory designed for the second phase of the Veleslavin project in Czech Republic was written down to its net realisable value, in the total amount of €83,000. The Company's share is a €21,000 which is accounted for as "share of loss of equity-accounted investments, net of tax".

On 22 January 2015, the Company signed an agreement to sell a plot designed for residential purposes in Czech Republic ("Troja") for a total cash consideration of CZK 195 million (approximately €7 million). The net proceeds of the disposal are expected to be approximately €6 million of which the Company's entitle to receive €3 million. The disposal agreement has been finalised and completion is due to take place within the next month.

As a result of the above, the Group has chosen to reverse a previously record write down to net reasonable value in the total amount of €0.7 million (the Company's share which is booked under the "share of loss of equity-accounted investments, net of tax").

Hungary

GDP growth in 2014 was 1.19 per cent and the rate of inflation -0.9 per cent. Forecast GDP growth in 2015 is 1.52 per cent.

In 2014, receivers were appointed by a court in Hungary due to an appeal of creditors in the subsidiaries, Engel Sun Palace Kft. ("Sun Palace") and Engel Haz Kft. ("Haz") held by Arces International B.V., a jointly controlled entity. As a consequence the Group does not control Sun Palace and Haz, and therefore ceased to consolidate them in its consolidated financial statements. This resulted in recognised gain in the amounts of €509,000 and loss in the amount of €61,000, respectively. The Company's shares are a gain of €255,000 and a loss of €30,000 thousands, which are accounted for as "share of loss of equity-accounted investments, net of tax".

In 2012, one of the Group project's previous contractors issued a lien against Arces' bank account, for the total amount of €0.4 million (the Company's share is €0.2 million). After the reporting period, the high court in Hungary received the Group's appeal, rejected the claim and as a result the Company is taking actions to remove the lien. 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 loss of equity-accounted investments, net of tax".

Canada

GDP growth in 2014 was 2.63 per cent and the rate of inflation 1.47 per cent. Forecast GDP growth in 2015 is 2.61 per cent.

The Company and MLP are in the 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 is CAD 13 million (approximately €8.7 million).

According to the court decision, disposal of assets in Canada will require the approval of the court. In 2013, the trial in regards 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 a plaintiff and ordered the plaintiff to pay the Company a total amount of CAD 80,000 plus interest (approximately €57,000 plus interest). The plaintiff filed an appeal on the above verdict, which was rejected by the court after the reporting period.

Provision for this claim was initially recognised by the Group in its 2007 consolidated financial statements. As a result of the verdict, the relative provisions have been released in its consolidated financial statements, see note 16.

Chief Executive Officer statement

"Kimberly is focusing on realising the assets that are part of the joint ventures with Heitman, concluding the sales of apartments in finished projects in Prague and Warsaw in order to strengthen the Company's cash position.

Kimberly's main target going forward is to try and meet its commitments towards its creditors and to reach a payments schedule with ERD in order to repay the Group's outstanding loans from ERD.

The Board looks forward to updating the market in due course, and thanks shareholders, employees and ERD for the ongoing support to the Company."

For further information, please contact:

Consolidated statement of financial position

Consolidated statement of profit or loss

Consolidated statement of comprehensive income

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Consolidated statement of changes in equity

Notes to the consolidated financial statements

NOTE 1 - REPORTING ENTITY

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

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

The Group is primarily involved in developing, 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 11 March 2015.

Details of the Group's accounting policies, including changes during the year, are included in note 3.

These consolidated financial statements have been prepared by the Company. 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 years ended 31 December 2012, 31 December 2013 and 31 December 2014 in accordance with The Dutch Civil Code.

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 4.c.

The financial position of the Group remains weak and is not certain that it will be able to meet its obligations to its employees and service providers as they fall due.

Since January 2011, the Group has been in breach of the obligation to make the lease payments for Marina Dorcol. During 2014, the management recorded an expense of EUR 3,785 thousands as a result of the lease interest, inflation and loss of discount from unpaid overdue lease contracted payments, see note 25.

At 31 December 2014, the Group is in breach of EUR 21.6 million (2013: EUR 12.9 million). After the reporting date, the Company further breached its obligation to pay by an additional amount of EUR 0.1 million - see note 13.

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

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

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

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

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

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

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

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

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

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

During 2014, ERD provided several bridge loans for a total amount of EUR 1 million (2013: EUR 0.9 million). After the reporting date, the Company received additional loans from ERD for a total amount of EUR 0.3 million.

The management is also examining other solutions (such as asset realisations) to fund the Company's immediate liabilities and to stabilise its financial position.

At 31 December 2014, the Group has current liabilities totalling EUR 55,479 thousands, which exceeds its current assets amounting to EUR 176 thousands and a negative equity which amounts to EUR 31,146 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 4.c and 13) 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.

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.

The functional currency of each subsidiary and jointly controlled entity is the local currency in the specific country in which it is located.

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 payable is measured at fair value at the acquisition date. If the contingent consideration is classified as equity, then it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes in the fair value of the contingent consideration are recognised in profit or loss.

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 the 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 investment 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 to 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 to the functional currency at the exchange rate when the fair value was determined. Foreign currency differences are generally recognised in profit or loss. Non-monetary items that are measured based on historical cost in a foreign currency are not translated.

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 is recognized 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.

Rental incomes from other properties are recognised as revenue.

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 or straight line method unless it is not material.

Borrowing costs are capitalized if they are directly attributable to the acquisition or construction of a qualifying asset. Capitalization of borrowing costs commences when the activities to prepare the asset are in progress and expenditures and borrowing costs are being incurred. Capitalization 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 capitalization 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 capitalized 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 capitalized 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. Assets held for sale

Non-current assets, or disposal groups comprising assets and liabilities, are classified as held-for-sale if it is highly probable that they will be recovered primarily through sale rather than through continuing use.

Such assets, or disposal groups, are generally measured at the lower of their carrying amount and fair value less costs to sell. Any impairment loss on a disposal group is allocated first to goodwill, and then to the remaining assets and liabilities on a pro rata basis, except that no loss is allocated to inventories, financial assets, deferred tax assets, employee benefit assets or investment property, which continue to be measured in accordance with the Group's other accounting policies. Impairment losses on initial classification as held-for-sale or held-for-distribution and subsequent gains and losses on re-measurement are recognised in profit or loss.

Once classified as held-for-sale, intangible assets and property and equipment are no longer amortised or depreciated, and any equity-accounted investment is no longer equity accounted.

k. 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 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.

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.

1. Non-derivative financial assets - measurement

The Group classifies non-derivative financial assets into the following categories: cash and cash equivalents and cash in escrow and 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.

2. 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.

l. 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.

m. Impairment

1. Non- derivative financial assets

Financial assets not classified as 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.

n. 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.

o. 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 - FINANCIAL RISK MANAGEMENT

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

· Credit risk

· Liquidity risk

· Market risk

a. 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 committee reports regularly to the board of directors on its activities.

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.

b. 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 of the Group at the reporting date.

There are no significant concentrations of credit risk. The Group's exposure to credit risk in most of the countries of activity is minimized by the requirement for customers to pay most of the amount due on purchased housing units prior to 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.

c. Liquidity risk

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

The Group relies on external funding to finance its current and future development projects. Future acquisitions of investment properties and land designated for residential projects and the ability of the Group to expand its operations is partly dependent on its ability to obtain future bank financing. The Group intends to repay its existing bank loans from its operating activity (mainly sales of housing units and undeveloped plots). Despite the tightening of the availability of credit, the Group has so far been able to secure additional project funding when needed largely because the Group's bank financing is project-specific and generally secured by the physical assets of the relevant project company. However, there is no assurance that banks will provide funding for new projects or prolong overdue loans, see note 2.b.

1. Interest bearing loans from banks

Whilst in the past financing banks have agreed to prolong existing loan facilities of the Company and its joint ventures project's subsidiaries, there is no assurance that these banks will be prepared to extend existing loan facilities beyond currently committed maturity dates. In the event that a bank is not willing to extend a project loan, it has the option to call in its security. In most cases these loans are secured by the assets they are financing.

The Group has breached project bank loans under its joint ventures in the total amount of EUR 9,671 thousands (Group's share):

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

In 2011, following a liquidation process, Arces ceased to consolidate the Hungarian subsidiary (Engel-Projekt Kft.) which held the project in Gyor in its consolidated financial statements.

· ENMAN B.V. ("ENMAN"), a jointly controlled entity, has provided guarantees for interest payments and costs overruns, to the bank which finances the Ingatlan project in Budapest, Hungary.

In 2013, a receiver was appointed by a court in Hungary and the entity which holds the Ingatlan project entered into bankruptcy process, following which it ceased to be consolidated into ENMAN consolidated financial statements. The amount of the unpaid loan at the disposal date was EUR 6,099 thousands (the Company's share is EUR 1,525 thousands), part of the related interest and cost overrun was not paid before the liquidation process, see note 10.b.v.4.

· In 2012, the Group has breached two project bank loans under its joint venture in the total amount of EUR 1,822 thousands (Group's share). Following the breach of these loans and as a result of the adoption of IFRS 10, at the beginning of 2013, the Group has re-assessed whether the joint venture have control over the related entities and ceased to consolidate these jointly controlled entities in the consolidated financial statements of the joint venture starting the annual reports of 2013, see notes 10.b.v.2 and 10.b.v.3.

2. Lease agreement

Since January 2011, the Group has been in breach of the obligation to make the monthly lease payments for Marina Dorcol. During 2014, the management recorded an expense of EUR 3,785 thousands as a result of the lease interest, inflation and loss of discount from unpaid overdue lease contracted payments, see note 25.

At 31 December 2014, the Group is in breach of EUR 21.6 million. After the reporting date, the Company further breached its obligation to pay by an additional amount of EUR 0.1 million.

d. 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 14 and note 28.b.

The Group is exposed to changes in the local retail price index in Belgrade, Serbia, on the on the future and overdue finance lease payments of the property in Belgrade, Serbia, see note 13 and note 28.b.

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

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 minimize the exposure to these risks.

NOTE 5 - CASH AND CASH EQUIVALENTS

NOTE 6 - PREPAYMENTS AND OTHER ASSETS

NOTE 7 - INVENTORIES OF LAND

a. Reconciliation of carrying amount

The Group's intention is to develop or sell the plots and to continually examine the possibilities to do so. Since the management does not predict that the assets will be sold within the normal operating cycle, the assets were classified as non-current inventory.

Write-down of inventory - represents the adjustment of the land to its net realisable value when estimated lower than cost. For determining the net realisable value, the Company used the services of an external independent valuator and/or its estimations for the project future results see note 33.d.

During 2014, inventory of EUR 342 thousand was written down to its net realisable value (2013: EUR 139 thousand), see note 21.

The Group has pledged the shares of the entity which holds the inventory in Serbia having a carrying amount of EUR 8,451 thousands (2013: EUR 8,921 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 an external, independent valuation companies, having appropriate, recognised professional qualifications and recent experience in the location and category of the inventory being valued, see note 33.d.

As of the reporting period, the inventory of land balance consists of two plots:

1. A plot located in Romania which is presented, at 31 December 2014, at net realisable value in the total net amount of EUR 924 thousands (2013: EUR 1,262 thousands). The plot was valued by an independent valuer ("DTZ").

2. Land includes an amount of EUR 8,451 thousands (2013: EUR 8,921 thousands) which relates to a part of the plot in Serbia planned for developing of 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 13,320 thousands, at 31 December 2014 (2013: EUR 23,800 thousands). The fair value was used as an approximation 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, as well as the significant unobservable inputs used.

· 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 compare to four similar plots.

· Significant unobservable inputs

- The valuator used "asking prices" with the adjustment of 15%.

- The compared plots were in the range from sqm 4,550 to sqm 19,137. Due to the differences in the size of the compared plots to the valued plot, the valuator used an adjustment of -15% and -25%.

- The valuer compared plots in different locations and use adjustment between -15% to +20%.

- The valuer compared plots with different accesses available level and use adjustment between ---20% to 0%.

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

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

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

- An adjustment higher (lower) than -15%/-25% on the compared plot size in the case of bigger plots than the subject property and adjustment lower (higher) than 15%/25% on the compared plot size in the case of smaller plots than the subject property.

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

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

NOTE 8 - INVESTMENT PROPERTY

a. Reconciliation of carrying amount

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

During 2014, the EUR has strengthened vs. the RSD in the rate of 5.22% (2013: 0.81%) following which the Group has booked in the reporting period a loss in the amount of EUR 1,053 thousands in the equity under translation and capital reserve (2013: EUR 172 thousands loss).

At 31 December 2014, 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 18,280 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 IRR of 17.1% (2013: 16.6%). 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.

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

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

- 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 apartment on 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 sale price per sqm of gross building area will be higher (lower).

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

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

- 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 with the municipality of Belgrade, Serbia. The end of the lease period, at 31 December 2014, is 91 years (will expire in 2105).

Further information about the finance lease terms and conditions are included under notes 13 and 4.c.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 - PROPERTY AND EQUIPMENT

NOTE 10 - INVESTMENT AND LOANS IN EQUITY-ACCOUNTED INVESTMENTS

At 31 December 2014, the Company holds interests in the following joint ventures:

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

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

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

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

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

(a) Total amount of EUR 2,678 thousands (2013: EUR 2,506 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. The Company and HCEPP II Luxembourg Master S.à r.l ("Heitman") each hold 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 in Poland, Hungary and the Czech Republic.

Set out below is a list of material subsidiaries of Arces at 31 December 2014:

a. Palace Engel Dejvice s.r.o. ("Dejvice") - through its wholly owned subsidiary Palac Engel Safranka s.r.o. ("Safranka") - built a residential project in Prague, Czech Republic, see note 10.a.v.5.

b. Palace Engel Estate s.r.o. ("Vokovice") - built a residential project in Prague, Czech Republic.

c. Palace Engel Vokovice s.r.o. ("Vokovice s.r.o.") - is planning to build or sell the third residential building in the project Vokovice in Prague, Czech Republic.

d. Engel-Apartmenty Emilii Plater S.p. Z.o.o ("Emilii Plater") - built a residential project in Warsaw, Poland, see note 10.a.v.4.

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

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 joint venture consolidated figures). The table also reconciles the summarised financial information to the carrying amount of the Group's interest in Arces.

Comments in respect to the investment in Arces:

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

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

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

· Denominated in Euro currency.

· The loan bears interest of 15% per annum.

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

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

In 2011, following a liquidation process, Arces ceased to consolidate the Hungarian subsidiary (Engel-Projekt Kft.) which held the project in Gyor in its consolidated financial statements.

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

1. On 30 October 2013, Arces sold its shares and loans in the wholly owned subsidiary Palace Engel I S.p. Z.o.o ("Zabki") for the total consideration of EUR 850 thousands, following which Arces recognised a profit in the amount of EUR 820 thousands (the Company's share is EUR 411 thousands which is booked under the "share of loss of equity-accounted investments, net of tax").

The following table summarises the derecognised amounts of assets and liabilities in Arces' report due to the loss of control of Zabki (the amounts below present the Company's share):

2. 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 and recognised a gain in the amount of EUR 509 thousands (the Company's share is EUR 255 thousands which is booked under the "share of loss of equity-accounted investments, net of tax").

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

3. In 2014, a receiver was appointed by a court in Hungary due to a claim of the Hungarian tax authorities in the subsidiary, Engel Haz Kft. ("Haz").

As a consequence Arces does not control Haz, therefore ceased to consolidate Haz in its consolidated financial statements and recognised a loss in the amount of EUR 61 thousands (the Company's share is EUR 30 thousands which is booked under the "share of loss of equity-accounted investments, net of tax").

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

4. 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 (the Company's share is EUR 158 thousands which is booked under the "share of loss of equity-accounted investments, net of tax") related to the project Emilii Plater, Poland.

5. On 18 June 2013, the Company Palác Engel Šafranka s.r.o., a wholly owned subsidiary of Arces, sold the plot designed for the fourth stage of the Safranka project in the Czech Republic for a total cash consideration of EUR 2,500 thousands, which resulted in recognition of a loss in the amount of EUR 17 thousands (the Company's share is EUR 8.5 thousands which is booked under the "share of loss of equity-accounted investments, net of tax").

6. 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 is EUR 0.2 million).

After the reporting period, the high court in Hungary received the Group's appeal, rejected the claim and as a result the Company is taking actions to remove the lien.

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 loss of equity-accounted investments, net of tax".

b. ENMAN B.V.

ENMAN B.V. ("ENMAN") - a holding company domiciled in The Netherlands. The Company and HEPP III Luxembourg Master S.à r.l. ("Heitman") each hold 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).

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

Set out below is a list of material subsidiaries of ENMAN at 31 December 2014:

a. Palace Engel Wilanow 1 S.p. Z.o.o ("Wilanow 1") - see note 10.b.v.1.

b. Palace Engel Veleslavin a.s ("Veleslavin") and Palace Engel Villa s.r.o. ("Villa") -built the first stage of a residential project and plan to build or sell a residential project on the second stage of the plot in Prague, Czech Republic - see note 10.b.v.5.

c. Troja Gardens s.r.o ("Troja") - holds a plot for residential project in Prague, Czech Republic - see note 10.b.v.6.

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

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 joint venture consolidated figures). The table also reconciles the summarised financial information to the carrying amount of the Group's interest in ENMAN.

Comments in respect to the investment in ENMAN:

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

ii. The Company did not provide any guarantees for the joint venture and has not incurred legal and constructive obligation on behalf of the JV.

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

· Denominated in Euro currency.

· The loans bear interest of 8% per annum.

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

iv. Since the Group's share in ENMAN is 25% for all its subsidiaries apart from one ("Troja"), the Company's share in net assets of EUR 3,545 thousands (2013: EUR 2,280 thousands), reflected in the table above, is becoming a net asset of EUR 104 thousands (2013: net liability of EUR 320 thousands) due to the profit in the subsidiary Troja Gardens s.r.o for the year of EUR 850 thousands.

v. 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 1" in Warsaw, Poland, for a total cash consideration of EUR 1,200 thousands. In order to reflect the plot realisable value, ENMAN recognised a write down of inventory in the amount of EUR 46 thousands (the Company's share is EUR 12 thousands which is booked under the "share of loss of equity-accounted investments, net of tax").

2. At the beginning of 2013, following the adoption of IFRS 10, the Group has re-examined the existence of control at a jointly controlled entity's subsidiary Engel-Lylia s.r.l ("Lylia") held by ENMAN and believes that the joint venture no longer controls Lylia, see note 33.e.1.

As a consequence, ENMAN ceased to consolidate Lylia in its consolidated financial statements for the year ended 31 December 2013 and recognised a gain in the amount of EUR 479 thousands (the Company's share is EUR 120 thousands which is booked under the "share of loss of equity-accounted investments, net of tax").

The following table summarises the derecognised amounts of assets and liabilities in ENMAN's report due to the loss of control of Lylia (the amounts below present the Company's share):

3. At the beginning of 2013, following the adoption of IFRS 10, the Group has re-examined the existence of control at a jointly controlled entity's subsidiary Engel Crizantema s.r.l ("Crizantema") (which holds Engel Tulip s.r.l ("Tulip")) held by ENMAN and believes that the joint venture no longer controls Crizantema, see note 33.e.1.

As a consequence ENMAN ceased to consolidate Crizantema in its consolidated financial statements for the year ended 31 December 2013 and recognised a gain in the amount of EUR 924 thousands (the Company's share is EUR 231 thousands which is booked under the "share of loss of equity-accounted investments, net of tax").

The following table summarises the derecognised amounts of assets and liabilities in ENMAN's report due to the loss of control of Crizantema (the amounts below present the Company's share):

4. In 2013, a receiver was appointed by court in Hungary due to an appeal of one of the creditors in the subsidiary, Engel Ingatlan Kft. ("Ingatlan"), which owns the Punko project in Hungary.

As a consequence ENMAN does not control Ingatlan, therefore ceased to consolidate Ingatlan in its consolidated financial statements and recognised a gain in the amount of EUR 2,456 thousands (the Company's share is EUR 615 thousands which is booked under the "share of loss of equity-accounted investments, net of tax").

ENMAN provided guarantees for the interest payments and the costs overruns, to the lender bank. The amount of the unpaid loan at the disposal date was EUR 6,099 thousands (the Company's share is EUR 1,525 thousands), part of the related interest and cost overrun was not paid before the liquidation process.

The following table summarises the derecognised amounts of assets and liabilities in ENMAN's report due to the loss of control of Ingatlan (the amounts below present the Company's share):

5. During 2014, an inventory designed for the second phase of the Veleslavin project in Czech Republic was written down to its net realisable value, in the total amount of EUR 83 thousands (the Company's share is EUR 21 thousands which is booked under the "share of loss of equity-accounted investments, net of tax").

6. On 22 January 2015, the Company signed an agreement to sell a plot designed for residential purposes in Czech Republic ("Troja") for a total cash consideration of CZK 195 million (approximately EUR 7 million).

The net proceeds of the disposal are expected to be approximately EUR 6 million (the Company's share is EUR 3 million).

The disposal agreement has been finalised and completion is due to take place within the next month.

As a result of the above, the Group has chosen to reverse a previously record write down to net reasonable value in the total amount of EUR 688 thousands (the Company's share which is booked under the "share of loss of equity-accounted investments, net of tax").

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

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

Set out below is a list of material subsidiaries of MLP at 31 December 2014:

a. Le Quartier Quebec LP - 99.99% in the partnership rights - owns a land in Montreal, Canada.

b. Trianon Sur Le Golf Quebec LP - 99.99% in the partnership rights - owns a land in Montreal, Canada.

c. Le Chagall Quebec LP - 99.99% in the partnership rights - owns a land in Montreal, Canada.

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 joint venture consolidated figures). 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 statement of profit or loss.

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

iii. Loans granted by the Company to joint venture -

· Denominated in CAD currency.

· The loans bear no interest.

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

iv. The Company and MLP are in the 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 is CAD 13 million (approximately EUR 8.7 million).

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

In 2013, the trial in regards 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 a plaintiff and ordered the plaintiff to pay the Company a total amount of CAD 80 thousands plus interest (approximately EUR 57 thousands plus interest). The plaintiff filed an appeal on the above verdict, which was rejected by the court after the reporting period.

Provision for this claim was initially recognised by the Group in its 2007 consolidated financial statements. As a result of the verdict, the relative provisions have been released in the consolidated financial statements, see note 16.

NOTE 11 - LIST OF SUBSIDIARIES

Set out below is a list of material subsidiaries of the Company at 31 December 2014:

1. Palace Engel s.r.o. ("Prokopsky") - 64% interest subsidiary - built a residential project in Prague, Czech Republic.

2. Palace Engel Development s.r.o. ("Barandov") - 64% interest subsidiary - built a residential project in Prague, Czech Republic.

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

4. Burlington Hungary Kft. ("Burlington") - a wholly owned subsidiary - management company, Hungary.

5. Turlington Kft. ("Turlington") - a wholly owned subsidiary - management company, Hungary.

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

7. Marina Management D.o.o ("Marina Management") - a wholly owned subsidiary - management company, Serbia.

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

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

10. Davero Invest s.r.l ("Davero") - a wholly owned subsidiary - management company, Romania.

11. EURO-BUL Ltd. ("Eurobul") - a wholly owned subsidiary - administration services company, Israel.

12. Palace Engel Troja a.s. ("Troja a.s") - a wholly owned subsidiary, Czech Republic - inactive.

13. 6212-964 Canada Inc. ("Canada Inc") - an owned subsidiary - Canada - inactive.

14. 9152-8372 Quebec Inc. ("Quebec Inc") - a wholly owned subsidiary - management company, Canada - inactive.

NOTE 12 - INTEREST-BEARING LOANS FROM BANK

The terms and conditions of outstanding loans are as follows:

The loans were granted to 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.a).

In 2009, Eurobul breached its requirement to repay bank loan in the carrying amount of EUR 2.2 million granted by Bank Leumi Le-Israel Ltd. ("the lender bank").

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

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

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

3. Loan 3 - a loan in the amount of EUR 0.5 million, which carry 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 agree to forgive this loan to the Company.

Upon the signature date of the agreement, ERD paid the bank an amount of ILS 900 thousands (EUR 191 thousands). The amount was recorded as a loan which was provided by ERD in the reporting period.

During the fourth quarter of 2014 and the first quarter of 2015, as part of the above agreement with the lender bank, ERD repaid the additional amount of EUR 160 thousands. The amounts were recorded as loans which were provided by ERD.

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

NOTE 13 - FINANCE LEASE LIABILITY

(i) At 31 December 2014, 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 91 years and will expire in 2105).

(b) The overdue amounts carry an average penalty interest of 1.4% per month, average interest of 16.83% for the year 2014 (2013: 19.07%).

(c) Overdue amounts which carry no penalty interest (mainly consists of 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 2014 and 2013 were 1.9% and 2.1% 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 2014, the Group is in breach of EUR 21.6 million. After the reporting date, the Company further breached its obligation to pay by an additional amount of EUR 0.1 million, see note 4.c.2.

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

NOTE 14 - 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 till 30 April 2015.

The interest conditions are as follows:

· The amount of EUR 22,907 thousands (2013: EUR 20,404 thousands) bears interest of 6% per annum and linked to changes in the costumer price index in Israel.

· The amount of EUR 1,865 thousands (2013: EUR 1,730 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 total amount will be twice the loans granted by ERD since the beginning of 2012 (i.e. the Company will provide guarantee in the amount which will be double from the loan provided).

(b) The loans received from GBES Ltd. ("GBES") were due till 31 December 2014 and are overdue as of the signature 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 jointly controlled entities. The loans and advances are expected to be restructured or to be settled by proceeds generated from sales of the development projects to which these relates to. As such, these are classified as current liabilities.

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

NOTE 15 - OTHER PAYABLES

NOTE 16 - PROVISIONS

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

NOTE 17 - 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 recorded 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 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.

31 December 2014

31 December 2013

(a) 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 minority in the losses till the application date summed to EUR 503 thousands.

NOTE 19 - 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 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 20 - REVENUE

NOTE 21 - WRITE-DOWN OF INVENTORY

Write down of inventory to its net realisable value was performed based on independent valuers report. Refer to note 33.d regarding critical accounting estimations and judgments.

NOTE 22 - COST OF SALES

NOTE 23 - OTHER INCOME (LOSS)

(a) See note 31.b.2.

(b) See note 30.

NOTE 24 - GENERAL AND ADMINISTRATIVE EXPENSES

NOTE 25 - NET FINANCE COSTS

(a) Relates to loans given directly to project entities under the joint ventures 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 2014 and 2013 were 1.9% and 2.1% respectively.

(c) The overdue amounts carry an average penalty interest of 1.4% per month (average 16.83% for the year 2014). The penalty for the year 2014 sums to an amount of EUR 2,254 thousands (2013: EUR 1,235 thousands).

(d) According to the revised lease agreement which was signed on 30 August 2010, the lease installments 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 installments which were due, the Company recorded a loss of discount in the amount of EUR 1,531 thousands.

NOTE 26 - INCOME TAXES

a. Amounts recognised in profit or loss

Tax expense excludes the Group's share of the tax benefit of the Group's equity-accounted investments of EUR 270 thousands, benefits (2013: expense of EUR 261 thousands), which has been included in "share of 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 deferred taxes liabilities):

In 2013, the Company de-recognised previously recognised deferred tax assets resulting from losses carried forward due to management reassessment of its probability of utilization.