Ablon Group Limited : Final Results

25March 2013                                                                                                         

ABLON GROUP LIMITED

FINAL RESULTS

FOR THE YEAR ENDED 31 DECEMBER 2012

ABLONGroup Limited ("ABLON" or "the Company" and, together with its subsidiaries, the "Group"), a leading real estate owner and developer in Central Europe, today announces its final results for the year ended 31 December 2012 which were prepared in accordance with International Financial Reporting Standards as adopted by the EU (EU IFRSs) and in compliance with the Companies (Guernsey) Law, 2008.

Copies of the Company's Annual Report and Accounts will be sent to shareholders shortly  and will be shown on the Company's websitewww.Ablon-group.comfollowing such date. 

FINANCIAL HIGHLIGHTS

·     Revenue at €30.2 million (2011: €30.4 million).

·     Loss after tax for the year of €78.3 million (2011: €25.1 million loss after tax)

·     Total equity at €128.7 million (2011: €207.5 million)

·     Property portfolio value, on comparable terms, €370 million (2011: €484 million)

·     Loan to equity ratio of 172.1% (31 December 2011: 110.1%)

·     Positive operative cash flow of €7.5 million (2011: €5.6 million)

For further information, please contact:

ABLON Group Limited 
Kristóf Skwarek                                                            Tel. +36 1 225 6600

NOTES TO EDITORS

About ABLON Group Limited

Founded in 1993 in Budapest (Hungary), ABLON and its subsidiaries (together the "ABLON Group") has properties at 33 locations, of which there are 15 completed projects and 23 development projects in Budapest, Prague, Bucharest, Warsaw. Its portfolio comprises a diversified mix of office, residential, retail, logistics and hotel developments valued at approximately €370 million by external independent appraiser (Colliers International), as at 31 December 2012. The ABLON Group had, as at 31 December 2012, approximately 208,800 square metres of existing and income generating office, residential, hotel, retail and logistics assets (at 15 locations) in Budapest and Prague, with a significant development land bank comprising a further circa. 1,164,500 square metres (at 23 locations) in Budapest, Prague, Bucharest and Warsaw. ABLON's shares are traded on the Main Market of the London Stock Exchange under the ticker 'ABL'.

chairman's statement

The countries and segments in which the Group operates are experiencing continuing difficult market conditions. The prolonged overall economic difficulties had a marked effect on business sentiment throughout the region with profound losses in property values. The Group continued to cope with the challenges maintaining its revenues while improving its cash-flow.

The performance of the Groupremains focused on our income generating assets while our development activities are on hold with new constructions starting only commencing in case of availability of financing.

We have reviewed the cost structure across the Group and have been implementing changes in order to reduce regular expenditure at both the central and operational levels.

We recognise the need to generate further income within the Group and are focused on generating positive cash flow which we expect to achieve through a combination of cost reductions, asset realisations and, where applicable, refinancings.

ABLON has made several important steps during the year to progress this strategy:

·     Asset realisation: The Group sold 50% of the Karolkowa Business Park in November 2012.

·     New developments: The Group has secured financing and started and completed construction of a new storage facility in the Airport City Logistics Park in Budapest.

·     Refinancings: The Group prolonged its MEUR 37 expiring loan with Deutsche Pfandbriefbank for a period of up to five years.

Working capital

Whilst we believe that the Group has sufficient cash (including cash equivalents) for its present requirements, if the Group is unable to renew, refinance or extend expired or expiring loans, then it may be required to repay such loans; and, if the Group is unable to raise sufficient sales proceeds from the disposal of the Group's interest in the properties secured against such loans, then it would default on those loans.

However, we believe, based on past experience during the recent turmoil in the financial markets, that the Group will be able to renegotiate covenants, extend or refinance all loans that breach or will breach covenants or have or will fall due for repayment in the next 12 months and that we will be able to renegotiate, extend, refinance or renew all relevant loans on commercially acceptable terms. I would also like to bring to your attention, note 2 (c) of the financial statements which explains further the assumptions the Board has made in confirming that the Group is a going concern, and that the auditors have not qualified their audit opinion in this regard although they too draw your attention to this statement.

I would like to bring to your attention, note 31 of the financial statements which describes the loan transfer between Volksbank and CPI Beta a.s. and the loan agreement between Volksbank and Ablon, both dated 21 March 2013.

Board changes

Saydam Salaheddin was nominated by the Board as a director in October 2012 and Wolfhard Fromwald and Marek Modecki were nominated at the 5 December 2012 EGM. Uri Heller was removed from the Board at the same EGM while Mordechai Bignitz, Marek Modecki and Saydam Salaheddin were removed from the Board in EGMs held on 31 January and 1 February 2013.  Mr Radovan Vítek and Mr. Martin Nemecek were elected as directors on 1 February 2013 and in conjunction with CPI's offer they resigned on 6 February 2013. We are grateful to the leaving directors for their contribution to the Company.

Prospects

We continue to monitor potential development opportunities within our land bank and we have the flexibility within our portfolio to commence developments according to market needs as well as to realise value on appropriate terms. This flexible approach will enable ABLON to realise and generate value for our shareholders.

We welcome the developments of the cash offer by CPI Group a.s., which has been ABLON Group's parent company since 22 February 2013.

Alex Borrelli,

Chairman

-ends-

RESULTS IN BRIEF

Summary Consolidated Statement of Financial Position

Summary CONSOLIDATED Statement OF CASH FLOWS

DIRECTORS' REPORT

The Directors' Report is prepared under the Companies (Guernsey) Law, 2008 as amended.

Operational Review

Budapest

Office segment

The office segment occupancy and annualised gross rent figure decreased. Occupancy is at 67% (31 December 2011: 72%), annualised rental income is at €10.2 million (31 December 2011: €11.3 million).

Larger moves include the Fogarasi building, which is now empty since the tenant that fully occupied the building moved out in January 2012, whereas the occupancy was 100% with €0.4 million annualised gross rent as at 31 December 2011.  Vacancy increased considerably in BC 91, currently at 50% (67% as at 31 December 2011).

Most expiring leases are prolonged, but at lower rent levels, producing lower annualised rental income generally over the portfolio.

Retail segment

The retail segment continued its favourable trend of increasing occupancy reaching 76% for the three properties combined (68% as at 31 December 2011). The driver was Buy-way Dunakeszi with 81% of the area occupied currently (64% as at 31 December 2011). Annualised gross rent decreased to€2.6 million (31 December 2011: €2.9 million) as a result of lower turnovers and with the close of the casino in Europeum that was a result of new state regulations on casino activities.

Logistics segment

The logistics segment continued its growth this year, occupancy reaching 95% (31 December 2011: 69%) and annualised gross rent at €1.7 million (31 December 2011: €1.0 million). This year's increase was boosted with the December 2012 handover of the third building at the Airport City Logistics Park, a 6,900 sqm storage and office facility. The building was constructed for the purposes of a 10 year built to suit contract.

Hotel segment

The Marriott Courtyard revenue was €3.9 million in 2012 unchanged from the last year (2011: €3.9 million), but lower operational costs have decreased the segment loss (€0.3 million loss in 2012 compared to a €0.5 million loss in 2011). Occupancy did not change recording 64% for both 2012 and 2011.

Prague

Office segment

At the end of December 2012, the total Prague occupancy was 81% (90% as at 31 December 2011), while annualised gross rent decreased to €2.3 million (€2.6 million as at 31 December 2011).

The decrease in occupancy and annualised gross rent has been caused by moves in Palmovka building, where a tenant that occupied apr. 50% of the building moved out as of December 31, 2012. Until December 31, 2012 (including) the occupancy was 96% with €0.75 million annualised gross rent. 

Residential segment

In the residential development, 27 units were delivered to buyers during 2012, compared to 20 in 2011. As at 31 December 2012, 101 units had been sold out of a total of 162.

Bucharest

The Group's developments in Bucharest remain on hold until market conditions improve.

Poland

The Group has sold 50% of the Karolkowa Business Park and management is secured by the purchasing party. The Gdansk project has come under liquidation due to unresolved differences with the 49% minority owners. The Group's remaining development in Poland, Salomea Business Park, remains on hold until market conditions improve.

Income Statement review

Rental activities

Gross rental income was €16.8 million for the year ended 31 December 2012, in line with the €16.6 million generated during the year ended 31 December 2011.  The decrease in office rental income was compensated by the Europeum Shopping Centre operating for the full 12 months in 2012 compared with 2011 as the Centre opened in April 2011.  Revenue from the logistics segment (Airport City) also increased.

Residential activities

Residential income was €3.3 million for the year ended 31 December 2012, compared to €2.8 million for the year ended 31 December 2011. The income is attributed to 27 units delivered to buyers at the Viva Residence project in Prague (2011: 20 units delivered).

Hotel activities

Marriott Courtyard operations generated hotel sales income of €3.9 million in 2012, unchanged from the previous year (2011: €3.9 million).

Service and management activities

Service and management activities income was €6.2 million representing a decrease of €1 million, or 14% from the €7.2 million generated during the year ended 31 December 2011. The decrease is a result of reduced fit-out activity in 2012 compared to the 2011, when the handover of the Europeum Shopping Centre and new lettings at Buy Way Dunakeszi generated a one-off turnover.

Net losses on fair value adjustment of investment property

Net loss on the fair value adjustment of investment property for the year ended 31 December 2012 was €74.2 million, compared to a net gain of €17.9 million for the year ended 31 December 2011.  The reasons for the loss is the result of lower valuation of the investment properties held by the Group, while the gain in 2011 was solely a result of exchange differences caused by a 11.6% weakening of the Hungarian Forint and 11.5% weakening of the Polish Zloty.

Until 31 December 2011 the functional currencies of the Group's subsidiaries were the respective local currencies, which meant that valuations nominated in euro were translated into the local currency. Since 1 January 2012 most project companies that have investment properties have the euro as functional currency, which has limited the effect of FX changes in the valuation figures.

Impairment of inventory

Impairment losses on inventory for the year ended 31 December 2012 were €12.2 million against an impairment loss of €3.2 million for the year ended 31 December 2011. The losses incurred are due to decreasing comparable values on the Bucharest residential properties and on the Ritka project.

Impairment of property, plant and equipment

Impairment loss on property, plant and equipment for the year ended 31 December 2012 was €2.1 million. (There were no impairment gains or losses on property, plant and equipment in the year ended 31 December 2011).

Sales and marketing expenses

Sales and marketing expenses were €0.5 million for the year ended 31 December 2012, a decrease of €0.1 million from €0.6 million for the year ended 31 December 2011.

Administrative expenses

Administrative expenses were €4.7 million for the year ended 31 December 2012, unchanged from the previous year (€4.7 million for the year ended 31 December 2011).

Net financing expense

Net financing expense was €5.8 million for the year ended 31 December 2012, a decrease of €29.4 million, compared to the net financing expenses of €35.2 million for the corresponding period in 2011. The decrease in financial expense is primarily due to appreciation of the local currencies against the euro, while last year the local currencies weakened against the euro with the marked depreciation of 11.6% of the Hungarian Forint. The change of functional currency from the local currency to the euro has mitigated the effect of fx changes on the profit or loss of the Company in general.

Current income tax

Current income tax was €0.7 million for the year ended 31 December 2012 an increase of €0.4 million from €0.3 million for the year ended 31 December 2011.

Deferred income tax

Deferred tax income was €7.3 million for the year ended 31 December 2012, while in the year ended 31 December 2011 it was an expense of €15.3 million. The deferred tax income this year is a result of the lower valuation of properties.

Statement of financial position review

Investment property

The value of investment property was €297.5 million as at 31 December 2012, a decrease of €82.1 million or 21.6% from the €379.6 million as at 31 December 2011.

Property, plant and equipment

Property, plant and equipment decreased by €1.9 million, from €28.9 million as at 31 December 2011 to €27 million as at 31 December 2012.

Long-term inventory

Long-term inventory decreased by €18.1 million, from €50.5 million as at 31 December 2011 to €32.4 million as at 31 December 2012. The decrease is mainly due to further inventory provision on the Romanian residential purpose land portfolio.

Current assets

Current assets include inventories (in particular, residential property intended for sale), current receivables (rent receivables, receivables from property sales and receivables from shareholders) and other assets, bank balances and cash.  Total current assets decreased by €3.1 million, from €20.4 million as at 31 December 2011 to €17.3 million as at 31 December 2012.  The decrease was due to a €2.3 million decrease in inventory (sale of apartments in the Viva project), a €0.4 million decrease in cash and cash equivalents and a €0.4 million decrease in trade and other receivables.

Non