Kimberly Enterprises Regulatory News (KBE)

Kimberly Enterprises N.V.

("Kimberly" or the "Company")

Results for the year ended 31 December 2013

Kimberly Enterprises N.V.  ("Kimberly" or "the Company"), the AIM listed Eastern European property developer (KBE.L), announces its results for the year ended 31 December 2013.

Financial summary:

* Retrospective application - Following the application of IFRS 11, the Group's joint ventures are now accounted for using the equity method, whereas previously the Company's accounting policy was the proportionate consolidation method (see notes 2.g and 35 regarding initial application of the new suite of standards in the consolidated financial statements). 

Financial Position

Total revenue for the year ended 31 December 2013 was €0.4 million compared to €0.1 million in 2012. The increase is mainly due to the commencement of management fees being charged for the project Veleslavin in the Czech Republic.

Total gross profit for 2013 was €0.1 million (2012: €0.7 million gross profit) which reflects a positive investment property revaluation of €0.2 million for 2013 compared to a positive investment property revaluation of €1.6 million in 2012 and a decrease in write down of inventory in 2013 (write down of €0.1 million in 2013 compared to €0.2 million in 2012).

The write-down for 2013 relates to the projects in Romania. The positive revaluation of the investment property for 2013 reflects the change in the Serbian market.

General and administrative expenses decreased to €1.1 million (2012: €1.3 million). The change is mainly caused by decreasing staff numbers and cutting current expenses in each country.

Net financing costs decreased to €5.7 million (2012: €7.4 million). This reflects a loss due to a decrease in the finance costs related to the finance lease in Serbia (predominantly finance costs in relation to the inflation rate in Serbia) of €3.3 million (2012: €4.9 million) and a decrease in foreign exchange losses to €1.0 million (2012: €1.4 million).

Income tax expenses increased to €1.9 million (2012: €0.5 million benefits). This reflects the de-recognition of previously recognised deferred tax assets, due to management reassessment of the probability of utilization the losses carried forward, which was booked under tax expenses at the reporting period.

As a result of the above, the loss after tax for the year increased to €9.5 million (2012: €6.7 million).

Equity-accounted investments and loans decreased to €7.2 million (2012: €8.5 million), representing the total investment in the three joint ventures: Arces International B.V.; ENMAN B.V and Montreal Residential Holdings Master Limited Partnership (MLP). This presentation is following the application of IFRS standards - IFRS 11, see notes 2.g and 35 in the financial statements.

Current assets decreased to €0.2 million (2012: €13.5 million). This is mainly due to the Group management deciding to reclassify the plot of land at Marina Dorcol, Belgrade as long term land due to uncertainties in relation to completing the development of the plot or selling it at the determined normal operating cycle. Such uncertainties relate to the Group's ability and timing to raise finance or alternatively to find an investor to initiate the project development.

 General

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

The financial position of the Group continued to be weak during the reporting period and it continues to be so. The Group experiences difficulties to meet its obligations as they fall due; as well the Group is in breach of:

· Interest bearing loan from bank - totalling €3.0 million (2012: €2.8 million).

· The obligation to make lease payments totalling €12.9 million (2012: €6.4 million), relating to the lease of Marina Dorcol in Belgrade, Serbia. After the reporting date, the Company further breached is obligation to pay by an additional amount of €1.41 million.

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

The notes to the consolidated financial statements (in particular see notes 4.c, 12 and 13) disclose all the key risk factors, assumptions made and uncertainties of which the management of the Company aware that are relevant to the Company's ability to continue as a going concern, including significant conditions and events.

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

During the reporting period, ERD provided several bridge loans for a total amount of approximately €0.9 million. After the reporting period, the Company received additional loans from ERD for a total amount of €0.2 million. As 31 December 2013, the Company owed ERD €22.1 million.

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

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 realized other than in the normal course of business and at amounts which could differ significantly from the amounts stated in the consolidated financial statements.

Poland

GDP growth in 2013 was 1.3 per cent and the rate of inflation was 1.0 per cent. Forecast GDP growth for 2014 is 2.5 per cent.

During the reporting period an agreement to sell the plot of Wilanow 2 to a third party for a total consideration of €4.14 million was concluded (see note 32).

As a result of the above and since the significant risks and rewards related to the ownership of the investment property held by the subsidiary were transferred to ERD, the Company ceased to consolidate the Polish subsidiary in its consolidated financial statements.

The Company has agreed an amendment to the agreements signed with ERD, according to which the net consideration of €3.5 million in aggregate for the sale of Wilanow 2 will be deducted from the total debts of the Group to ERD.

As previously announced, on November 2013, Arces International B.V. (a jointly controlled entity), sold its shares and loans receivable in the wholly owned subsidiary Palace Engel I S.p Z.o.o (Zabki) for the a total consideration of €850,000, which resulted in a profit in the amount of approximately €822,000 (the Company's share of which is €411,000 and which is booked under the "Share in loss of equity-accounted investments, net of tax") from the transaction at the period, see note 31.c.

Serbia

GDP growth in 2013 was 2.6 per cent and the rate of inflation was 2.2 per cent. Forecast GDP growth for 2014 is 2.9 per cent.

Since January 2011, the Group has been in breach of the requirement to pay the monthly lease payments for Marina Dorcol. As of 31 December 2013 the total breach was €12.9 million. The Group is in the process of negotiation to restructure the liability.

Czech Republic

GDP in 2013 declined by 1.0 per cent and the rate of inflation was 1.4 per cent. Forecast GDP growth for 2014 is 1.8 per cent. 

As previously announced, on June 2013, the Company Palác Engel Šafranka s.r.o., a wholly owned subsidiary of Arces International B.V. (a jointly controlled entity), sold the plot designed for the fourth stage of the Safranka project in the Czech Republic (the "Safranka Project") for a total cash consideration of €2.5 million, which resulted in recognition of a loss in the amount of €17,000 (the Company share is €8,500 which is booked under the "Share in loss of equity-accounted investments, net of tax") from the transaction at the period.

Romania

GDP growth in 2013 was 2.2 per cent and the rate of inflation was 3.3 per cent. Forecast GDP growth for 2014 is 2.1 per cent.

The Joint venture ENMAN B.V. ("ENMAN") owns the voting power rights of two Romanian entities Engel Lylia s.r.l and Engel Crizantema s.r.l, the management re-assessed the control over the entities in accordance with IFRS 10 new controlling model, and it no longer believes that control exists.

Management evaluated the rights obtained by the lending bank in terms of their effect in the context of the Engel Lylia s.r.l and Engel Crizantema s.r.l and whether they are mitigated by other factors. Since Engel Lylia s.r.l and Engel Crizantema s.r.l are in breach of the loan agreements, the relevant activity of the entity is to maximize the sales proceeds from selling the asset and by doing so to maximize the recovery of the bank loan for the bank. In the case of Engel Crizantema s.r.l the lender bank has initiated several auctions in order to sell the asset and although the bank did not initiate any action to exercise its rights due to the breach in Engel Lylia s.r.l, this is not a barrier to exercising its rights.

Hungary

GDP growth in 2013 was 0.7 per cent and the rate of inflation 2.1 per cent. Forecast GDP growth in 2014 is 1.8 per cent.

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

As a consequence the holding joint venture of Ingatlan, "ENMAN" ceased to consolidate the wholly owned subsidiary. The Group recognized a gain in the amount of €0.6 million under the "Share in loss of equity-accounted investments, net of tax".

ENMAN B.V., the parent company of Ingatlan, provided guarantees for the interest payments and the costs overruns, to the lender bank. The amount of the loan as of the reporting period is €6,099,000 (the Company's share is €1,525,000), see note 31.e.

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Board statement

"Despite the difficulties the Group is experiencing, we will strive to be able to go forward and continue to develop additional projects from the Company's portfolio, while selling some of them in the course of 2014, in order to strengthen the Company's cash position.

The Board wants to thank and deeply appreciates the Group staff for their contribution during this challenging period".

Consolidated statement of financial position

Consolidated other comprehensive income

* Retrospective application - see note 2.g regarding initial application of the new suite of standards.

The notes below are an integral part of these consolidated financial statements.

Notes to the consolidated financial statements

NOTE 1 - REPORTING ENTITY

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

The consolidated financial statements of the Company as at and for the year ended 31 December 2013 comprise the Company, its subsidiaries and the Group's interests in associates and joint ventures (collectively, the "Group").

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

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

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 authorized for issue by Company's board of directors on 20 March 2014.

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 Netherlands Civil Code.

At the date of preparing these financial statements the Company had not yet filed consolidated financial statements for the years ended 31 December 2012 and 31 December 2013 in accordance with The Netherlands Civil Code.

b. Going concern

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 continued to be weak during the reporting period and it continues to be so. The group is not able to meet its obligations to its employees and service providers; as well the Group is in breach of:

· Interest bearing loan from bank - totalling EUR 3,011 thousands (2012: EUR 2,777 thousands) - see note 12.

· The obligation to make lease payments totalling EUR 12.9 million (2012: EUR 6.4 million), relating to the lease of Marina Dorcol in Belgrade, Serbia. After the reporting date, the Company further breached is obligation to pay by an additional amount of EUR 1.41 million - see note 13.

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

The notes to the consolidated financial statements (in particular see notes 4.c, 12 and 13) disclose all the key risk factors, assumptions made and uncertainties of which the management of the Company aware that are relevant to the Company's ability to continue as a going concern, including significant conditions and events.

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

During the reporting period ERD provided several bridge loans for a total amount of approximately EUR 0.9 million. After the reporting period the Company received additional loans from ERD for a total amount of EUR 0.2 million.

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

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 realized other than in the normal course of business and at amounts which could differ significantly from the amounts stated in the consolidated financial statements.

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 recognized prospectively.

Information about judgments made in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements are included in note 34.

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 Audit Committee.

When measuring the fair value of an asset or a liability, the Group uses market observable 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 might be categorised in 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 under:

· Note 7 - Inventories of land.

· 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.

g. Changes in accounting policies

Except for the changes below, the Group has consistently applied the accounting policies set out in note 3 to all periods presented in these consolidated financial statements.

The Group has adopted the following new standards and amendments to standards, including any consequential amendments to other standards, with a date of initial application of 1 January 2013.

(1) Consolidation

· IFRS 10 Consolidated Financial Statements,

· IFRS 11 Joint Arrangements and

· IFRS 12 Disclosure of Interests in Other Entities, as well as the consequential amendments to IAS 28 Investments in Associates and Joint Ventures (2011).

(2) Fair value measurement 

· IFRS 13 Fair value measurement.

(3) Presentation of items of other comprehensive income

· Amendments to IAS 1 Presentation of items of Other Comprehensive Income.

The nature and effects of the changes are explained below.

1. Consolidation

IFRS 10 Consolidated Financial Statements and the consequential amendments to IAS 28 Investments in Associates and Joint Ventures (2011) had an effect on the Company consolidated financial statements, which described under notes 31.f and 31.g.

As a result of the adoption of IFRS 11, the Group has changed its accounting policy with respect to its interests in joint arrangements.

Under IFRS 11, the Group classifies its interests in joint arrangements as either joint operations or joint ventures (see definition below) depending on the Group's rights to the assets and obligations for the liabilities of the arrangements. When making this assessment, the Group considered the structure of the arrangements, the legal form of any separate vehicles, the contractual terms of the arrangements and other facts and circumstances. Previously, the structure of the arrangement was the sole focus of classification.

Joint operations or joint ventures are defined as follow:

· Joint operation: a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement.

· Joint venture: a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement.

The Group evaluated its involvement in the joint arrangements it holds and classified them as joint ventures. Following the application of IFRS 11 joint ventures are accounted for using the equity method, whereas until the application of the standard the Company's accounting policy was the proportionate consolidation method.

Since the Company did not provide guarantees to the joint ventures and did not incur legal or constructive obligations on behalf of the JVs, losses from the joint ventures are accounted for until the interest is reduced to zero. If the joint venture subsequently reports profits, the Company resumes recognizing its share of those profits only after its share of the profits equals the share of the losses not recognized. Any unrecorded losses at the date of transition are recorded in the retained earnings.

The Group disclosed the interests at the joint ventures as required under IFRS 12 (see note 10).

Note 35 includes a summary of the adjustments made to the Group's statements of financial position at 1 January 2012 and 31 December 2012, and its statements of profit or loss and other comprehensive income and cash flows for the year ended 31 December 2012 as a result of the implementation of the equity method instead of proportionate consolidation.

2. Fair value measurement

IFRS 13 Fair value measurement provides a single framework for measuring fair value (see definition below). The measurement of the fair value of an asset or liability is based on assumptions that market participants would use when pricing the asset or liability under current market conditions, including assumptions about risk. The Company adopted IFRS 13 on 1 January 2013 on a prospective basis. The adoption of IFRS 13 did not require any adjustments to the valuation techniques used by the Company to measure fair value and did not result in any measurement adjustments as at 1 January 2013; however results in additional disclosure requirements which are noted here (see notes 7 and 8).

Fair value is defined as follows:

· Fair value: the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

3. Presentation of items of other comprehensive income

As a result of the amendment to IAS 1, the Group has modified the presentation of items of other comprehensive income in its consolidated statement of other comprehensive income to present separately items that would be reclassified to profit or loss in the future from those that would never be. Comparative information has also been re-presented accordingly.

The adoption of the amendment to IAS 1 has no impact on the recognized assets, liabilities and other comprehensive income of the Group.

NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES

Except for the changes explained in note 2.g, The Group has consistently applied the following accounting policies to all the periods presented in these consolidated financial statements.

Certain comparative amounts in the consolidated statement of financial position, statement of profit or loss and consolidated statement of cash flows have been reclassified or re-presented as a result of a change in the accounting policy.

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. Non-controlling interests

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

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

3. 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.

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 a 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. Revenue

1. Sale of housing units

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 income from other property is recognised as other income.

3. Other revenues

Other revenues, including project management fees, are recognized 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 recognized if there are significant uncertainties regarding recovery of the consideration due, associated costs or continuing management involvement with the assets.

c. Finance income and finance costs

Finance income comprises interest income on funds invested. Interest income is recognized as it accrues in profit or loss, using the effective interest method.

Finance costs comprise interest expense on borrowings, unwinding of the discount on provisions and impairment losses recognized on financial assets.

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 recognized. 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 recognized in profit or loss using the effective interest method.

d. 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 re-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.

If the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely to occur in the foreseeable future, then foreign currency differences arising from such item form part of the net investment in the foreign operation. Accordingly, such differences are recognised in other comprehensive income and accumulated in the translation reserve.

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

e. 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.

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.

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 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.

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.

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 realizable 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 realized within the operating cycle of 5-6 years and then they are classified as non-current.

h. 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, plant and equipment are no longer amortised or depreciated, and any equity-accounted investment is no longer equity accounted.

i. Property and equipment

1. Recognition and measurement

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

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

Any gain or loss on disposal of an item of property, plant and equipment (calculated as the difference between the net proceeds from disposal and the carrying amount if the item is recognised in profit or loss.

2. Depreciation

Depreciation is calculated to write off the cost of items of property, plant 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, plant 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.

j. 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 recognized 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 recognized professional qualifications and recent experience in the location and category of property being valued, value the Group's investment properties. 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 the gross property valuation. 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, plant and equipment is sold, any related amount included in the revaluation reserve is transferred to retained earnings.

j. Financial instruments

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

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

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

The Group initially recognises loans and receivables as 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.

2. 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.

3. Non-derivative financial liabilities - measurement

The Group classifies non-derivative financial liabilities into the following: loans and borrowing, bank overdrafts, and trade and other payables. Such financial liabilities are recognized initially at fair value less any directly attributable transaction costs. Subsequent to initial recognition these financial liabilities are measured at amortized cost using the effective interest method.

Trade payables

Trade payables are not interest bearing and are recognized initially at fair value, subsequent to which they are stated at amortized cost. 

Interest-bearing loans from banks

Interest-bearing loans from banks are recognized initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortized cost with any difference between cost and redemption value being recognized in the income statement over the period of the borrowings on an effective interest basis.

4. 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.

k. 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.

2. 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-generated 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.

l. Provisions and warranties

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.

Provision for warranty costs are recognized 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.

m. 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.

n. Earnings per share

The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the year, adjusted for own shares held. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding, adjusted for own shares held, for the effects of any dilutive potential ordinary shares.

o. Segment reporting

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group's other components. All operating segments' operating results are reviewed regularly by the Group's CEO to make decisions about resources to be allocated to the segment and to assess its performance, and for which discrete financial information is available.

Segment results that are reported to the CEO include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate assets (primarily the Company's headquarters), head office expenses, and tax assets and liabilities.

Segment capital expenditure is the total cost incurred during the year to acquire property, plant and equipment, and intangible assets other than goodwill, see note 33.

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 has established the Risk Management Committee, which 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.

There are no significant concentrations of credit risk. The Group 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.

The carrying amount of financial assets represents the maximum credit exposure of the Group at the reporting date.

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.

At 31 December 2013 the Group has current liabilities totalling EUR 46,270 thousands, which exceeds its current assets amounting to EUR 245 thousands and a negative equity which amounts to EUR 22,331 thousands.

As of 31 December 2013, the financial condition of the Group remains weak and is not certain that it will be able to meet its obligations to its employees and service providers as they fall due. The Group is in breach of:

· Interest bearing loan from bank - totalling EUR 3,011 thousands - see note 12.

· The obligation to make lease payments totalling EUR 12.9 million (relating to the lease of Marina Dorcol in Belgrade, Serbia). After the reporting date, the Company further breached is obligation to pay by an additional amount of EUR 1.41 million - see note 13.

1. Interest bearing loans from banks

In respect of breached project loan totalling EUR 3,011 thousands, management considers it is unlikely that the Group will generate sufficient cash inflow to repay the obligation which falls due within one year. The above bank loan was granted to the Company's subsidiary, Euro-bul Ltd., and is being secured by guarantees provided by Engel Resources and Development Ltd. ("ERD"), the parent company of the Company's immediate parent company, Engel General Developers Ltd.

The Group has breached project bank loans under its joint ventures in the total amount of EUR 1,698 thousands (Group share), (see note 10.b). Following the breach of these loans and as a result of the adoption of IFRS 10, the Group has re-assessed the existence of control over these entities and ceased to consolidate these jointly controlled entities in the consolidated financial statements of the joint venture, see notes 31.f and 31.g.

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.

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

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

2. Lease agreement

Since January 2011, the Group has been in breach of the obligation to make the monthly lease payments for the Marina Dorcol. As of 31 December 2013 the total breach was EUR 12.9 million and the municipality initiated several claims to collect those debts.

The Company is exposed to the following sanctions:

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

· In the case of termination the final result of termination would be restitution of the amounts paid by Marina Dorcol based on the agreements with the municipality, decreased for 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.

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 will wish to terminate the lease contract, it has to give to the Company a written notice on its intention to terminate the agreement and 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 Company does not accept the reasons for the termination, they should initiate the 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 the valid legal and commercial reasons.

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

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 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 Euro and 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.

Following the loans granted by ERD (see note 30) the Group is exposed also to the changes in arising from changes in the retail prices index in Israel and the change in the exchange rates of the New Israeli Shekel.

The Group is exposed also to the changes in future lease payments arising from changes in the retail prices index in Belgrade, Serbia, related to its finance lease of investment property in Belgrade, Serbia (see notes 13 and 27.b).

The Group does not currently engage in hedging or use any other financial arrangement to minimize currency exchange and the 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 flow 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

*Restated - see note 2.g.

NOTE 6 - PREPAYMENTS AND OTHER ASSETS

*Restated - see note 2.g.

NOTE 7 - INVENTORIES OF LAND

*Restated - see note 2.g.

(a) Non-current asset - the management does not predict that the assets will be sold within the normal operating cycle, thus the assets were classified as non-current inventory.

(b) Write-down of inventory - mainly represents the adjustment of the land to its net realizable value when estimated lower than cost. For determining the net realizable value, the Company used the services of an external independent valuator and/or its estimations for the project future results (see notes 20 and 34).

The Group intention is to develop or sell the plots and continually examining the possibilities to do so.

During the reporting period, the Group management reassessed the current classification of a plot in Serbia (Marina Dorcol, Belgrade) and due to uncertainties in relation to completing the development of the plot or selling it at the determined normal operating cycle, management decided to reclassify the plot as long term land. Such uncertainties relate to the Group's ability and timing to raise finance or alternatively to find an investor to initiate the project development.

The Group has pledged the shares of the entity which holds the holding of inventory in Serbia having a carrying amount of EUR 8,921 thousands (2012: EUR 8,993 thousands) to secure credit facilities granted to the Group by the parent company, see note 30(3)b.

This plot was valued by an independent valuer ("CBRE d.o.o") which estimated its fair value at the amount of EUR 23,800 thousands as of 31 December 2013 (2012: EUR 24,500 thousands).

Measurement of inventories net reasonable value

1. General

The net realizable 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 company, having appropriate, recognized professional qualifications and recent experience in the location and category of the inventory being valued (see Note 34(4)). 

The Group present the plot located in Romania in net realisable values, as of 31 December 2013 in the total net amount of EUR 1,262 thousands (2012: EUR 1,417 thousands).

Land includes an amount of EUR 8,921 (2012: EUR 8,993 thousands) thousands which relates to the part of the plot in Serbia and 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 at the amount of EUR 23,800 thousands as of 31 December 2013 (2012: EUR 24,500 thousands) the fair value was used as an indication for the plot net realizable value.

2. Fair value hierarchy

The net realizable value measurement for the plot of land in Romania at the amount of EUR 1,262 thousands has been categorised as a Level 3 fair value based on the inputs to the valuation technique used.

3. Level 3 fair value - valuation technique and significant unobservable inputs

The following information shows the valuation technique used in measuring the net realizable 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 2,248 to sqm 8,000. Due to the differences in the size of the compared plots to the valued plot, the valuator used an adjustment of 15%-20%.

- The valuer compared plots in different locations and use adjustment between -10% to +10%

- The valuer compared plots with different accesses available level and use adjustment between -10% to +10%

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

The estimated fair value of the plot would increase (decrease) if:

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

- An adjustment higher (lower)than 15%/20% on the compared plot size in the case of bigger plots than the subject property and adjustment lower (higher) than 15%/20% on the compared plot size in the case of smaller plots than the subject property .

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

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

NOTE 8 - INVESTMENT PROPERTY

a. Reconciliation of carrying amount

The movements of the investment property balances were as follows:

As of 31 December 2013 the Group holds one plot in Serbia 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.

b. Measurement of fair value

1. Fair value hierarchy

The fair value of the investment property was determined by external, independent property valuer, holding appropriate and recognized and relevant professional qualifications and having recent experience in the location and category of the property being valued (see note 34(3)).

The fair value measurement for investment property in the amount of EUR 21,000 thousands has been categorised as a Level 3 fair value based on the inputs to the valuation technique used.

2. Level 3 fair value - 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 16.6% (2012: 17.42%). 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 2,400 (for residential apartment) to EUR 2,750 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 of the plot 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 rights for investment property

(a) The end of the lease period as of 31 December 2013 is 92 years (will expires on 2105).

d. Amounts recognised in the profit or loss (a)

(a) Includes also the results of the investment property which was classified under "Disposal group held for sale", see note 32.

(b) The property located in Serbia did not generate any rental income during the reporting period.

NOTE 9 - PROPERTY AND EQUIPMENT

*Restated - see note 2.g.

NOTE 10 - INVESTMENT AND LOANS IN EQUITY-ACCOUNTED INVESTMENTS

As at 31 December 2013 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 financial statements:

*Restated - see note 2.g.

** Total amount of EUR 2,506 thousands which was recognised as a loss with respect to equity- accounted investment relates to loans granted by the Company which management considers as a part of the net investment.

a. Arces International B.V.

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

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

As of 31 December 2013, Arces holds the following subsidiaries, each of which is wholly owned by Arces:

1. Engel Sun Palace Kft. ("Sun Palace") - built a mix-use project with a majority of residential in Budapest, Hungary

2. 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 29.d.

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

4. Palace Engel Vokovice s.r.o. - is planning to build the third residential building in the project Vokovice in Prague, Czech Republic.

5. Engel Apartmenty Emilii Plater S.p. Z.o.o. ("Emilii Plater") - built a residential project in Warsaw, Poland.

6. Engel HÁZ Ingatlanfejlesztő Kft. ("Haz") - inactive.

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

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

Comments in respect to the investment in Arces:

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

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

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

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

iv. Loans granted to the joint venture -

· Nominated in EUR currency.

· The loan bears interest of 15% per annum.

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

v. Refer also to the significant events during the reporting period described under notes 29.b, 29.d and 29.e.

b. ENMAN B.V.

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

On 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 25% and the Company's share in profit distributions from "Troya" project in 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.

As of 31 December 2013, ENMAN holds the following subsidiaries, each of which is wholly owned by ENMAN:

1. Palace Engel Wilanow 1 S.p. Z o.o. ("Wilanow") - holds a plot for residential project in Warsaw, Poland.

2. Palace Engel Veleslavin a.s. ("Veleslavin") and Palace Engel Villa s.r.o. ("Villa") - are building the first stage of a residential project and plan to build a residential project on the second stage of the plot in Prague, Czech Republic.

3. Troja Gardens s.r.o ("Troya") - plans to build a residential project in Prague, Czech Republic.

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

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

Comments in respect to the investment in ENMAN:

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

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

iii. As of the reporting period an interest bearing bank loans in the amount of EUR 6,789 thousands (the Company's share is EUR 1,698 thousands) were in breach of repayment terms as of the reporting date, see notes 31.f and 31.g. regarding the deconsolidation of the joint venture subsidiaries which those loans included in as of the reporting date.

iv. ENMAN has provided guarantees for interest payments and costs overruns, to the bank which finances the Ingatlan project in Budapest, Hungary, the amount of the loan as of the reporting period EUR 6,099 thousands (the Company's share is EUR 1,525 thousands). During the reporting period, a receiver was appointed by court in Hungary and the entity which holds the Ingatlan project entered into bankruptcy process, see note 31.e. 

v. Loans granted to the joint venture -

· Nominated in EUR currency.

· The loans bear interest of 8% per annum.

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

vi. Refer also to the significant events during the reporting period described under notes 29.f and 29.g.

vii. Since the group share in ENMAN is 25% apart from one subsidiary of ENMAN ("Troja"), the EUR 258 thousands gain reflected in the table above becoming a loss of EUR 252 thousands when considering the applicable proportions. 

c. Montreal Residential Holdings Master Limited Partnership

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

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

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

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

As of 31 December 2013, MLP holds (directly and indirectly) the following subsidiaries:

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

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

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

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

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

6. 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 financial statements:

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

Comments in respect to the investment in MLP:

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

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

iii. Loans granted to joint venture -

· Nominated 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. Refer also to the provision for legal claims described under note 16.a.

NOTE 11 - LIST OF SUBSIDIARIES

As at 31 December 2013, the Company holds interests in the following subsidiaries:

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

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

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

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

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

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

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

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

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

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

(k) Euro-bul Ltd. ("Eurobul") - a wholly owned subsidiary - administration services company, Israel.

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

(m) 6212-964 Canada Inc. ("Canada Inc.") - a wholly owned subsidiary - management company, Canada - inactive.

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

NOTE 12 - INTEREST-BEARING LOAN FROM BANK

(a) Restated - see note 2.g.

(b) The loan granted to the subsidiary of the Company and secured by guarantees provided by the indirect parent company of the Company (see note 30(3)a).

NOTE 13 - FINANCE LEASE LIABILITY

(a) As of 31 December 2013 the amount represents overdue instalments to the municipality in Serbia according to the lease agreement.

The balance consists of: overdue monthly rent instalments, an amount which is under disagreement with the municipality, overdue instalments according to the lease agreements and penalty interest.

Terms and conditions of outstanding financial lease liability were as follows:

(a) The financial lease liability relates to the project in Serbia where the Group is obliged to pay monthly rent for land for 99 years (the end of the lease period is 92 years, will expire on 2105).

(b) The overdue amounts carry an average penalty interest of 1.5% per month.

Finance lease liability is payable as follows (contractual cash flows):

The value of the finance lease and its payments are adjusted on a monthly basis by the local index of retail prices in Belgrade, Serbia.

The increases of the local index of retail prices in Belgrade, Serbia in 2013 and 2012 were 2.1% and 13% respectively.

As of 31 December 2013, the Group has breached its requirements to pay total amount of EUR 12.9 million which were determine by the lease agreement.

After the reporting date, the Company breached its requirements to pay an additional amount of EUR 1.41 million which become overdue.

The Group is in the process of negotiation to restructure the liability.

NOTE 14 - LOANS AND AMOUNTS DUE TO RELATED PARTIES AND JOINT VENTURE

*Restated - see note 2.g.

No repayment dates have been set with regard to the jointly controlled entities ventures loans and advances.

Loans from Engel Resources and Development Ltd. are due till 30 May 2014 and the loans due to GBES Ltd. are due till 31 December 2014.

Jointly controlled entities ventures loans are expected to be restructured or to be settled by proceeds generated from sales of the development projects to which these related to. As such, these are classified as current liabilities.

For more details about related parties transactions, see note 30.

(a) The loans were received from Engel Resources and Development Ltd. ("ERD").

The amount of EUR 20,404 thousands bears interest of 6% per annum and linked to an annual change in Israeli CPI and the amount of EUR 1,730 thousands bears interest of 6.5% per annum.

The loans are secured by the following guarantees (see note 30(3)):

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

· The future proceeds which is expected to be generated from the Group assets in Canada. The total amount will be twice the loans granted by ERD since the beginning of 2012 (i.e Kimberly will provide guarantee in the amount which will be double from the loan provided).

(b) The loans bear interest of 6% per annum.

(c) The loans bear mainly interest of 3 month Euribor + 1% per annum.

NOTE 15 - OTHER PAYABLES

*Restated - see note 2.g.

NOTE 16 - PROVISIONS

*Restated - see note 2.g.

During the reporting period the Company and its subsidiaries faced the below main legal procedures:

(a) The joint ventures in Canada and its parent company 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. Provision for this claim was initially recognised by the Group in its 2007 financial statements.

During the reporting period the trial in regards to the above legal procedure has been held in the Canadian court, the Company is waiting to receive the final verdict.

(b) By the end of 2008, the Company and part of its holding companies (in the past and in the present) were sued for brokerage fee and legal services in the amount of ILS 10 million (approximately EUR 2.1 million) in relation with the plot in Gyor, Hungary.

Provision for this claim was initially recognised by the Group in its 2008 and 2009 financial statements.

During 2012, the Company reached a compensation agreement with the plaintiff and the payment was fully settled during the reporting period (most of the amount was settled in 2012).

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

NOTE 17- EQUITY

Ordinary shares

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. All shares rank equally with regard to the Company's residual assets.

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.

Dividends

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

Translation reserve

Translation reserve booked at the equity arises from re-translation of the loans forming part of net investment in equity-accounted investees and from the translation of foreign operation's accounts to EUR.

NOTE 18 - 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. No changes in the Group's approach to capital management during the year.

There are no externally imposed capital requirements on the Company and the Group.

*Restated - see note 2.g.

NOTE 19 - REVENUE

*Restated - see note 2.g.

NOTE 20 - WRITE-DOWN OF INVENTORY

*Restated - see note 2.g.

Write down of inventory to net realizable value was preformed based on independent valuers report. Refer to note 34(4) regarding critical accounting estimations and judgments.

NOTE 21 - COST OF SALES

*Restated - see note 2.g.

NOTE 22 - OTHER INCOME

*Restated - see note 2.g.

(a) See note 31.a.

(b) See note 31.b.

NOTE 23 - GENERAL AND ADMINISTRATIVE EXPENSES

*Restated - see note 2.g.

NOTE 24 - NET FINANCE COSTS

*Restated - see note 2.g.

(a) Relates to loans given directly to project entities under the joint ventures and are not part of the net investment due to different terms and priorities of repayment.

(b) The increases of the local index of retail prices in Belgrade, Serbia in 2013 and 2012 were 2.1% and 13% respectively.

(c) The overdue amounts carry an average penalty interest of 1.5% per month the penalty for the year 2013 sum to the amount of EUR 1,235 thousands.

NOTE 25 - INCOME TAXES

a. Amounts recognized in profit and loss

*Restated - see note 2.g.

Tax expense (benefit) excluded the Group's tax expense (benefit) of the Group's equity-accounted-investment of EUR 261 thousands, benefits (2012: EUR 973 thousands, expense), which has been included in "share of profit (loss) of equity-accounted investments, net of tax".

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

b. Reconciliation of effective tax rate

*Restated - see note 2.g.

c. Movement in deferred tax balances

The following are the deferred tax assets and liabilities recognized 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):

*Restated - see note 2.g.

The de-recognition of previously recognized deferred tax assets due to management reassessment of the probability of utilization the losses carried forward, which was booked under tax expenses at the reporting period.

d. Unrecognised deferred tax assets

Deferred tax assets have not been recognised in respect of tax losses amounting to EUR 24,397 thousands as of 31 December 2013 (2012: EUR 6,856 thousands). See note 25.e as per the limitation of the accumulated tax losses per each country.

Deferred tax assets have not been recognised in respect of losses where it is not probable that future taxable profit will be available against which the Group can utilise the benefits from the losses.

e. Main tax laws

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

1. The Netherlands

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

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

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

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

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

2. Hungary

The corporation tax rate in Hungary is 10/19% in 2013 (the first HUF 500 million is taxed at 10% and any excess over HUF 500 million at 19%)). (2012: 10/19%). Since 2007 capital gains can be considered exempted income provided that certain criteria are fulfilled. Losses can be carried forward indefinitely. In 2012 the losses carry forward rules changed significantly (e.g: transformation, change in ownership limitation implemented and only of 50% of the profit of the current year could be covered by past losses).

3. Czech Republic

The corporation tax rate in the Czech Republic is 19 % in 2013 (2012: 19%). Capital gain could be tax exempted under certain circumstances. Tax losses can be carried forward up to five years to offset future taxable income (previously seven years), under certain circumstance (e.g no significant change in the business, ownership). Dividends paid out of net income are subject to a withholding tax of 15%/35%, subject to the relevant double taxation treaty or EU regulations.

4. Poland

The corporation tax in Poland (including capital gains) is 19% in 2013 (2012: 19%).Tax losses can be carried forward for five years and only 50% of a the current year profit could be cover by past losses. Dividends paid out of net income are subject to a withholding tax of 19%, subject to the relevant double taxation treaty or EU regulations.

5. Canada

The federal corporate tax rate of the subsidiaries incorporated in Canada (including capital gains) is 15% in 2013 (2012: 15%). The combined corporate and provincial tax rate is 26.5% (2012: 26.9%). Non-capital tax losses can be carried back three years and carried forward up to 20 years for losses arising in 2006 and later, 10 years for losses arising in taxation years ending after 22 March, 2004 and before 2006, 7 years for losses arising in taxation years ending before 23 March, 2004. Capital tax losses can be carried back three years and carried forward indefinitely against other capital gains. Dividends paid out of net income are subject to a withholding tax of 25%, subject to the relevant double taxation treaty.

6. Romania

The corporation tax in Romania (including capital gains) is 16% in 2013 (2012: 16%). Dividends paid out of net income are subject to a withholding tax of 16% (50%), subject to the relevant double taxation treaty or EU regulations. Tax losses can be carried forward and deducted from taxable profits in the following 7-year period (the carry forward period for losses recorded up to 31 December 2008 is 5 years), on a first-in-first-out basis.

7. Serbia

Corporate income tax is levied at a rate of 15% in 2013 (2012: 10%). Capital gains are taxable at the rate of 15 %. Losses may be carried forward for 5 years (capital loss could be carried forward separately), losses generated in the period 2003-2009 may be carried forward for 10 years. No carry-back of losses is permitted. Dividends paid outside the country are subject to a withholding tax of 20 % subject to the relevant double taxation treaty.

NOTE 26 - LOSS PER SHARE

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

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

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

There are no dilutive factors.

NOTE 27 - FINANCIAL INSTRUMENTS

a. Liquidity risk

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