Kimberly Enterprises Regulatory News (KBE)

Kimberly Enterprises N.V.

(formerly Engel East Europe N.V.)

Results for the six months period ended 30 June 2012

Kimberly Enterprises N.V. ('Kimberly' or 'the Company') the AIM-listed Central and Eastern European property developer (KBE: L), announces results for the six months period ended 30 June 2012.

Financial Summary

Although the markets remain weak, there are initiatives in various regions in which the Company operates whereby subsidies and support are provided by central government and local authorities for the development and acquisition of small apartments.

In general, in the countries we operate in, we continue to notice a modest but steady return of the banks in providing small to medium size mortgage funding to borrowers that can demonstrate a stable and ongoing income.

Gad Raveh, CEO of Kimberly Enterprises N.V.

Enquiries:

Financial Position

As of 30 June 2012, the financial condition of the Company remains weak and it is not able to meet its obligations to its employees and service providers as they fall due. The Group is in breach of:

• Interest bearing loans from banks - totalling EUR 5,923 thousands. After the reporting date the Company breached is requirements to pay an additional amount of EUR 787 thousands.

• The requirement to pay lease payments totalling EUR 3.8 million (relating to the lease of Marina Dorcol in Belgrade, Serbia). After the reporting date the Company breached is requirements to pay an additional amount of EUR 0.7 million.

a. Interest bearing loans from banks

In respect of breached project loans totalling EUR 4,918 thousands management considers it is unlikely that the projects will generate sufficient cash inflows to repay all obligations which fall due within one year. The Group is discussing possible solutions with the financing banks, including extension of the loans, as well as potential sales of the projects.

After the reporting date the Company breached is requirements to pay an additional amount of EUR 787 thousands.

Whilst in the past financing banks have agreed to prolong existing loan facilities, 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 underlying project company's assets only. Loans granted by the financing banks to the projects are non-recourse loans, except for:

• The bank loans which finance the project in Gyor Hungary (an Arces International B.V. subsidiary, which is in liquidation process) in the amount of EUR 12,648 thousands (the Company's share is EUR 6,324 thousands), are additionally guaranteed by Arces International B.V., a jointly controlled entity. The company has disputed the validity of this guarantee with the bank and there is legal dispute between the Company and Heitman regarding the responsibility of this guarantee, however, no official legal claim has been filed by any of the parties.

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

In all other cases, the exposure is limited to the value of the specific securities pledged in each project.

Management considers it is unlikely that some of the projects will generate sufficient cash inflows to repay all obligations when they fall due. Management believes that the above mentioned conditions indicate the existence of material uncertainties which cast significant doubt on the Company's ability to continue as a going concern.

b. Lease agreement

Since January 2011, the Group has been in breach of the requirement to pay the monthly lease payments. As of 30 June 2012 the total breach was EUR 3.8 million.

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".

The management of the Company estimate, 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.

In order to manage its financial situation the Company has requested Engel Resources and Development Ltd., the parent company of the Company's immediate parent company, Engel General Developers Ltd. ("ERD"), 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 0.6 million. After the reporting period the Company received additional loans from ERD for a total amount of EUR 118 thousands regarding the related guarantees granted to ERD.

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

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.

Trading Performance

During the period, the total number of units sold and handed over was 21 (6 months ended 30 June 2011: 24).

The revenues decreased by 12 per cent to EUR 1.7 million (6 months ended 30 June 2011: EUR 1.9 million).

Further to the announcement issued on 28 March 2012 regarding the appointment of a receiver by the court in Poland due to the overdue bank loan, the Group recognized a profit on the book value of its investment in Krakow as a result of the above appointment, in the amount of EUR 1.8 million in the statement of profit and loss under "other income". 

Outlook

Following the acquisition of Engel Resources and Development Ltd. by GBES Ltd last year, the Company plans to continue to develop and improve its current portfolio of projects.

The Company plans to continue to focus on investing in the stable markets of The Czech Republic and Poland.

Condensed consolidated statement of financial position

Condensed consolidated income statement

Condensed consolidated statement of comprehensive income

Condensed consolidated statement of changes in equity

Condensed consolidated statement of cash flows

Notes to the condensed consolidated interim financial report

1. Reporting entity

Kimberly Enterprises N.V. (formerly Engel East Europe N.V.) (the "Company") is a Company domiciled in The Netherlands. The Company owns subsidiary companies and has jointly controlled entities mainly in Eastern Europe which purchase, develop, hold and sell real estate assets.

The condensed consolidated interim financial report of the Company as at and for the six months ended 30 June 2012 comprises the Company and its subsidiaries and the Group's interests in associates and jointly controlled entities (together referred to as the "Group").

At the Annual General Meeting of the Company held on 7 March 2012 it was approved to change the name of the Company from Engel East Europe N.V. to Kimberly Enterprises N.V.

The consolidated financial statements of the Group as at and for the year ended 31 December 2011 are available on the Company's website (www.kimberly-enterprises.com) and upon request from the Company's registered office at Keizersgracht 616, 1017 ER Amsterdam, The Netherlands.

2. Basis of preparation

a. Statement of compliance

This condensed consolidated interim report has been prepared in accordance with IAS 34 Interim Financial Reporting. Selected explanatory notes are included to explain events and transactions that are significant to the changes in financial position and performance of the Group since the last annual consolidated financial statements as at and for the year ended 31 December 2011. This condensed consolidated interim report does not include all the information required for full annual financial statements prepared in accordance with International Financial Reporting Standards.

This condensed consolidated interim financial report was approved by the Board of Directors on 17 August 2012.

b. Judgments and estimates

Preparing the interim financial report requires Management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

In preparing this condensed consolidated interim financial report, significant judgements made by Management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as at and for the year ended 31 December 2011.

3. Significant accounting policies

The accounting policies applied by the Group in this condensed consolidated interim financial report are the same as those applied by the Group in its consolidated financial statements as at and for the year ended 31 December 2011.

4. Operating segments

The chief operating decision-maker has been identified as the CEO of the Group who reviews the Group's internal reporting in order to assess performance and allocate resources. Management has determined the operating segments based on these reports.

The chief operating decision-maker assesses the performance of the operating segments based on a measure of adjusted earnings before tax.

The Group considers that the business has the following 2 operating segments:

·; Development and sale of residential real estate projects.

·; Land designated for commercial project.

5. Financial risk management

There has been no change in the Group's financial risk management objectives and policies as compared with those disclosed in the consolidated financial statements as at and for the year ended 31 December 2011.

Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when 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 dependant 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 30 June 2012 the Group has current liabilities totaling EUR 49,302 thousands, which exceeds its current assets amounting to EUR 38,258 thousands and a negative equity which amounts to EUR 9,564 thousands

As of 30 June 2012, the financial condition of the Company remains weak and it is not able to meet its obligations to its employees and service providers as they fall due. The Group is in breach of:

·; Interest bearing loans from banks - totaling EUR 5,923 thousands. After the reporting date the Company breached is requirements to pay an additional amount of EUR 787 thousands.

·; The requirement to pay lease payments totaling EUR 3.8 million (relating to the lease of Marina Dorcol in Belgrade, Serbia). After the reporting date the Company breached is requirements to pay an additional amount of EUR 0.7 million.

a. Interest bearing loans from banks

In respect of breached project loans totalling EUR 4,918 thousands management considers it is unlikely that the projects will generate sufficient cash inflows to repay all obligations which fall due within one year. The Group is discussing possible solutions with the financing banks, including extension of the loans, as well as potential sales of the projects.

After the reporting date the Company breached is requirements to pay an additional amount of EUR 787 thousands.

Whilst in the past financing banks have agreed to prolong existing loan facilities, 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 underlying project company's assets only. Loans granted by the financing banks to the projects are non-recourse loans, except for:

·; The bank loans which finance the project in Gyor Hungary (an Arces International B.V. subsidiary, which is in liquidation process) in the amount of EUR 12,648 thousands (the Company's share is EUR 6,324 thousands), are additionally guaranteed by Arces International B.V., a jointly controlled entity. The company has disputed the validity of this guarantee with the bank and there is legal dispute between the Company and Heitman regarding the responsibility of this guarantee, however, no official legal claim has been filed by any of the parties.

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

In all other cases, the exposure is limited to the value of the specific securities pledged in each project.

Management considers it is unlikely that some of the projects will generate sufficient cash inflows to repay all obligations when they fall due. Management believes that the above mentioned conditions indicate the existence of material uncertainties which cast significant doubt on the Company's ability to continue as a going concern.

b. Lease agreement

Since January 2011, the Group has been in breach of the requirement to pay the monthly lease payments. As of 30 June 2012 the total breach was EUR 3.8 million.

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".

The management of the Company estimate, 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.

In order to manage its financial situation the Company has requested Engel Resources and Development Ltd., the parent company of the Company's immediate parent company, Engel General Developers Ltd., ("ERD") 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 0.6 million. After the reporting period the Company received additional loans from ERD for a total amount of EUR 118 thousands regarding the related guarantees granted to ERD.

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

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.

6. Income tax expense

Income tax expense is recognised based on management's best estimate of the weighted average annual income tax rate expected for the full financial year applied to the pre-tax income of the interim period. The Group's consolidated effective tax rate in respect of continuing operations for the six months ended 30 June 2012 was -5% (for the period ended 30 June 2011: -3%).

The change in effective tax rate was caused mainly by the following factors:

·; Taxes adjustments in the current period relating to taxes from previous years.

·; Current year losses for which no deferred tax asset was recognized.

·; Write-off of deferred tax assets which are not expected to be utilized in the future.

7. Loans and borrowings

The following interest-bearing loans from banks were received and repaid during the six months period ended 30 June 2012:

* Represents the latest possible year of maturity.

The Group finances its projects primarily with commercial bank lines of credit. The loans are expected to be settled in the Group's normal operating cycle and therefore are classified as current liabilities, see also note 5 as per breached bank loans.

8. Related parties

a. Related party transactions

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

During the reporting period ERD provided several bridge loans in the total amount of approximately EUR 0.6 million. After the reporting period the Company received additional loans from ERD in the total amount of EUR 118 thousands.

b. Securities provided by parent company and related parties

During the reporting period the Company removed the pledge of the EUR 1.2 million which was granted to GBES Ltd.

c. Directors

During the reporting period the one of the Company's directors has resigned from his position, and two new directors were appointed.

As of 30 June 2012, the Company has 4 directors (31 December 2011: 3 directors).

9. Disposal of subsidiary

During the reporting period, a receiver was appointed by court in Poland due to the overdue bank loan in relation to Palace Engel III sp zoo ("Krakow"), a wholly owned subsidiary of the Company, which owns the Krakow project in Poland.

The bank loan is non-recourse to the rest of the Group.

As a consequence the Company has ceased to consolidate the jointly controlled entity in its consolidated financial report. The Group recognized a profit on the book value of its investment in Krakow as a result of this appointment, in the amount of EUR 1.8 million in the statement of profit and loss under "other income".

The disposal due to loss of control in the jointly controlled entity had the following effect on the Group's assets and liabilities:

10. Significant events during and after the reporting period

a. During December 2009 the Company transferred to ERD its entire shareholding in Wilanow 1 Development sp zoo ("Wilanow 2"), the company which owns the commercial plot in Wilanow.

During 2011 ERD has signed a preliminary agreement to sell the plot of Wilanow 2 in Poland for a total consideration of EUR 4.14 million.

According to the time table determined by the agreement, the final sale agreement ("final agreement") should have been signed no later than 30 April 2012.

Due to a delay in making the tax authority's position regarding certain tax liabilities, during the reporting period the Polish entity signed an addendum to the agreement for postponing the signature of the final agreement to no later than 31 July 2012. On the signature date of the addendum, the Polish entity received additional EUR 0.4 million for paying of the VAT.

As of the signature date on the accounts for the reporting period ended 30 June 2012, the final agreement has not been signed; the Polish entity appealed to a local arbitration court in order to enforce the above agreement.

b. During the reporting period one of the subsidiary's previous contractors issued a lien against a jointly controlled entity bank account, the Company share in the lien account is EUR 0.2 million.

The company acts to remove the lien.