IRF European Fin Investments Ltd
19 March 2007
4. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
Accounting estimates and judgements are continually evaluated and are based on
historical experience and other factors, including expectations of future events
that are believed to be reasonable under the circumstances.
The Group makes estimates and assumptions concerning the future. The resulting
accounting estimates will, by definition, seldom equal the related actual
results. The estimates, judgements and assumptions that have a significant risk
of causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year are discussed below:
(a) Impairment losses on loans and advances
The Group reviews its loan portfolio to assess impairment at least quarterly.
In determining whether an impairment loss should be recorded in the income
statement, the Group makes judgements as to whether there is sufficient evidence
indicating that the balance of a loan or a portfolio of homogenous loans
outstanding will not be fully recovered. This evidence includes:
• violation of the contractual terms resulting in the delay of capital or interest payment,
• significant deterioration in the loan repayment ability,
• legal action,
• bankruptcy, and
• other objective evidence that leads to the conclusion that the Group will not collect the full amount
due.
For a loan that has been characterized as impaired, the realisable value of its
securities is considered to be the present value of its future cash flows. In
addition, for significant amounts other factors such as the financial status of
the customer, the alternative sources of funds available and the extent to which
credit worthy guarantors can support the customer are considered. The provision
amount is calculated as the difference between the loan's carrying amount and
the realisable amount, including all securities and guarantees.
(b) Fair value of financial instruments
The fair value of financial instruments that are not quoted in an active market
is determined using valuation techniques. The Group uses its judgement to
select a variety of methods and make assumptions that are mainly based on market
conditions existing at each balance sheet date. The valuation techniques used
are frequently assessed to ensure their validity and appropriateness. Changes in
methods and assumptions about these factors could affect the reported fair value
of financial instruments.
(c) Impairment of available for sale financial assets
The Group follows the guidance in IAS 39 to determine if an investment has been
impaired. This decision requires critical judgement. Available for sale equity
investments are impaired when there has been a significant or prolonged decline
in fair value below its cost. When the declines in fair value are considered
significant or prolonged, the fair value reserve is transferred to the income
statement. Furthermore, estimates are used to determine the fair value of
equity investments which are not quoted in active markets. For those
investments, the fair value is determined by using valuation techniques taking
under consideration assumptions about industry and sector performances as well
as the financial health of the investee.
(d) Income taxes
The Group is subject to income tax according to the tax legislation in Greece.
In order to establish the corporation tax, as presented in the balance sheet,
significant assumptions are required. For specific transactions and
calculations the ultimate tax determination is uncertain. The Group recognises
liabilities for anticipated tax issues based on estimates of whether additional
taxes will be due. Where the final tax outcome of these matters is different
from the amounts that were initially recorded, such differences will impact the
income tax and deferred tax provisions in the period in which such determination
is made.
(e) Retirement benefits
The present value of liabilities arising from staff retirement benefits is
determined by means of an actuarial valuation using specific assumptions. These
assumptions are disclosed in Note 39.
According to the relevant Group's accounting policy for retirement benefits, any
changes in the assumptions are likely to have an effect on the level of the
unrecognised actuarial gain or loss.
(f) Insurance claims
Insurance liabilities for claims are calculated by using information relating to
the claim. The Group assesses each claim separately and the estimated liability
is based on the facts of each claim, experience and other relevant factors, on a
case-by-case basis. The Group is liable for all events covered by the policy
even if the loss is discovered after the policy's expiry date. A provision is
made for claims incurred but not yet reported (IBNR). Reserve adequacy test was
performed through the link ratio methodology, using last six years data. The
methodology assumes persistence of accumulated losses ratios (paid and
outstanding claims).
(g) Financial Instruments Classification
The Group's accounting policies require financial assets and liabilities to be
classified into different categories at their inception:
• Investments held to maturity. Management judgement is required when applying this classification,
which takes into account the Group's intention & ability to hold investment to maturity.
• Financial instruments for trading purposes include Investments and derivatives held to achieve
short-term profit.
(h) Control over subsidiaries
The Group has adopted a policy to consider as a subsidiary an entity over which
it has the 'de facto' power to control its financing and operating activities no
matter whether it holds less than half of the voting rights. Management
exercises its judgment and has developed certain criteria to determine whether
effective control exist, such as representation in the entities governing body,
ability to control the General Meeting of Shareholders decision and structure of
voting rights of the entity.
5. STRUCTURE OF THE GROUP
The following table indicates the Group structure as at 31/12/2006:
Company Name Head Office Direct Indirect Total Proton's Relation that
Share-holding % share- dictated the
Share- Share- consolidation
holding % holding % holding
IRF European Finance Bermudes Parent
Investments Limited
SUBSIDIARIES
Mimosa Trading SA Marshall 100.00% 0.00% 100% The
Islands participation
percentage
Myrtle Trading Company Marshall 100.00% 0.00% 100% The
Islands participation
percentage
Proton Group
Proton Bank AE Greece 20.16% 0.00% 20.16% Parent of Control over
Proton the entity
Group
Proton Asset Management Greece 0.00% 20.14% 20.14% 99.90% Control over
AENEY the entity
Proton Mutual Funds Mgt Greece 0.00% 20.14% 20.14% 99.90% Control over
Co SA the entity
First Global Brokers SA Serbia 0.00% 16.63% 16.63% 82.49% Control over
the entity
Omega Mutual Funds Mgt Greece 0.00% 18.76% 18.76% 93.07% Control over
Co SA the entity
Omega Insurance & Greece 0.00% 13.31% 13.31% 66.00% Control over
Reinsurance Services SA the entity
Omega Insurance SA Greece 0.00% 16.69% 16.69% 82.78% Control over
the entity
Intellectron Systems Greece 0.00% 11.42% 11.42% 56.64% Control over
the entity
Omega Kahn Financial Switzerland 0.00% 16.13% 16.13% 80.00% Control over
Services SA the entity
Omega SA Financial Greece 0.00% 20.16% 20.16% 100.00% Control over
Advisors - Investments & the entity
Real Estate Mgt
ASSOCIATES
Omega Porfolio Greece 0.00% 5.80% 5.80% 28.75%
Investment SA
PROTON BANK is fully consolidated because of the 'de facto' power of the Company
to control its financial and operating activities. In particular, the Company
owns the 20.16% of the voting rights of PROTON while the percentage of voting
rights controlled be the Company is increased to 26.14% after taking into
consideration the holding of two other shareholders of PROTON who are committed
to vote in accordance with IRF's instructions based on an agreement.
Company's directors use their judgment in order to ascertain whether IRF has the
effective control of PROTON according to the accounting policy adopted. Based
on all relevant information currently available, Company concludes that it has
the ability to control PROTON and therefore fully consolidated its financial
statements. The following reasons advocate that IRF has control over PROTON:
a) IRF has already exercised its effective power and appointed six members in the eleven-member Board of
Directors of PROTON, including PROTON's chairman,
b) Based on the Purchase Agreement, the vendors, who are currently directors and shareholders of PROTON,
agree to vote in such a way that will protect IRF's power to appoint the majority of the PROTON's Board
of Directors,
c) There is no realistic possibility that all the other shareholders, who represent the 73.86% of the voting
rights, will be organized in such a way as to in practice block the exercise of IRF's power. In
particular, the 73.86% of the shares of PROTON is held by more than 10.000 investors, the majority of
whom do not usually attend the Shareholders' Meeting. Moreover, no one of them controls more than 5% of
the entity and
d) The relevant judgment is compliance the relevant Greek regulations.
All other subsidiaries comprising PROTON Group are consolidated because of the
indirect, through PROTON Bank, ownership of the majority of their voting rights.
The method of consolidation is the Purchase Method. Investment in associates is
accounted under the equity method.
5.1 Changes in Group Structure during the Year 2006
During the financial year the following changes took place in the Group
Structure:
1) PROTON BANK: On 29th June 2006 IRF European Finance Investments Ltd acquired a 28% stake in the share
capital of the listed on the Athens Stock Exchange company 'PROTON BANK'. The range of activities of
PROTON Group of Companies covers almost the whole spectrum of the financial industry. More precisely,
PROTON Group is specialised in investment banking. The IRF Group consolidated PROTON BANK for the first
time at 30/06/2006, date at which control was deemed to be acquired. 'Control' is the right to lead the
financial and business policies of an entity in order to receive benefits from its operation.
On 7th September 2006, the Extraordinary General Meeting of shareholders of PROTON BANK approved the
merger of the Bank with Omega Bank and Proton Securities. According to the Merger Contract, which was
approved by the General Assembly, the exchange ratio was 1 share of Omega Bank for 0.90 shares of PROTON
BANK. As Proton Bank holds 100% of Proton Securities shares, there was no exchange ratio. Additionally,
the General Assembly decided the amendment of article 5 of its Articles of Association in order for the
bank's share capital to rise after the merger, to a total amount of € 281,450,360.78 divided into
62,683,822 common voting shares of nominal value € 4.49 each. The merger was completed on 29th September
2006. Following Proton's Bank merger with Omega and taking into account the shares issued therewith, the
Company now owns a 20.16% interest in PROTON BANK. For the above merger the provisions of IFRS 3 '
Business Combinations' were followed which applies to business combinations after 31st March 2004.
2) ARROW ASSET FINANCE SA: The consolidated financial statements for the year ended 31st December 2006 do
not include ARROW ASSET FINANCE SA, since on 30th September the dissolution of ARROW ASSET FINANCE SA was
completed, as the Extraordinary General Meeting of the PROTON's shareholders, approved the start up and
liquidation balance sheet according to the article 47 of Law 2190/1920 and 35 of the company's Articles
of Association. The dissolution and liquidation of the company had no material effect on the Group's net
assets since PROTON's investment in the particular subsidiary with a cost of € 369 thous. was written
off. The impairment loss of € 369 thous. was charged against the income statement of PROTON of the year
2005. Consolidated P&L for the year 2006, includes the net result 01/07-30/09/2006.
3) MIMOSA TRADING SA: The Company is duly incorporated and has filed articles of incorporation under the
provisions of the Marshall islands Business Corporation Act on 6th July 2006. The IRF European Finance
Investments Ltd is the owner of five hundred (500) fully paid and non-assessable shares of the capital
stock of the corporation. The aggregate number of shares of stock that the Corporation is authorized to
issued to issue is five hundred (500) registered and/or bearer shares without par value.
4) MYRTLE TRADING COMPANY: The Company is duly incorporated and has filed articles of incorporation under
the provisions of the Marshall islands Business Corporation Act on 6th July 2006. The IRF European
Finance Investments Ltd is the owner of five hundred (500) fully paid and non-assessable shares of the
capital stock of the corporation. The aggregate number of shares of stock that the Corporation is
authorised to issued to issue is five hundred (500) registered and/or bearer shares without par value.
6. RISK MANAGEMENT
For risk management purposes, financial risks are monitored at two different
levels: risks faced by Proton Group and risks faced by the Company. The nature
of these risks and the ways they are dealt with by management are explained
below.
The Proton Group is exposed to several risks, as all financial institutions.
These risks are continually monitored through various methods so that the
concentration of unreasonable risks is avoided.
On the other hand, the Company (including the wholly owned subsidiaries - Myrtle
Trading Company and Mimosa Trading SA) is exposed to a limited level of risks.
The Company indents to minimise its exposure to credit, liquidity and interest
rate risk, while it is exposed to market risks due to its investments in equity
shares.
6.1 Credit Risk
Group is exposed to credit risk, which is the risk of default of a counterparty,
regarding its contractual obligations. Specifically in the case of loans, it is
the risk of a counterparty to default on part, of its debt. Provisions for
losses (impairment) are recognised when it is estimated that losses exist at the
balance sheet date. The Group gives great consideration to the proper
management of credit risk, due to the fact that significant changes in economy
or in business sector represent a material part of the Group's portfolio and
might cause losses that exceed existing provisions.
The Group mitigates the level of credit risk it undertakes by setting acceptable
risk levels for each counterparty or group of counterparties in each business
and geographical segment. The risks are periodically reviewed and adjusted.
Limits have been placed on a product and sector level.
The undertaken risk for each borrower including banks, is furthermore reduced by
placing sub-limits on and off balance sheet items. Loan balances are compared
to credit limits on a daily basis.
The Group controls the exposure to credit risk with regular reviews on the
borrowers capability to satisfy their interest and principal obligations by
adjusting credit limits when necessary. Credit risk is partially covered with
acceptable collaterals.
6.2 Market Risk
The Group takes on exposure to market risks. Market risk is the risk that the
fair value of future cash flows of a financial instrument will fluctuate because
of changes in market prices. Market risks arise from open positions in interest
rate, currency and equity products, all of which are exposed to general and
specific market movements and changes. The Group applies modern methodologies,
such as 'value at risk', to measure market risk.
VAR is a statistically based estimate of the potential loss on the current
portfolio from adverse market movements. It expresses the maximum amount the
Bank might lose, but only to a certain level of confidence over a certain
period. The method does not estimate the potential loss extreme market
movements (non normal). The Group calculates a VAR estimate for a 99%
confidence level and a 10 day holding period.
The Group regularly applies on a daily basis a back testing program to control
the VAR estimates, by comparing the actual changes in the portfolio with the
respective VAR measures.
6.3 Liquidity Risk
Liquidity risk arises from the Group's financing process and management of the
open positions in the market. Liquidity risk is the risk that the Group is
unable to meet its payment obligations associated with financing liabilities
when they fall due and to replace funds when are withdrawn. The consequence may
be the failure, to meet obligations to repay depositors, to fulfil commitments
to lend, and to liquidate its financial assets at fair value.
The Group uses a large financing base which is achieved through a wide range of
products including, deposits, debt securities and equity. This improves its
financing capability, reduces the dependence on a single source, and generally
lowers its borrowing cost. The Group tries to balance the need between
financing and flexibility, by maintaining a portfolio with different maturities.
The Group continually assesses liquidity risk by controlling and monitoring the
required changes in order to meet its business goals in the frame of its
strategy.
The table below presents the Group's net liquidity gap by taking into
consideration the contractual maturity assets and liabilities as well as
guidelines issued by the Bank of Greece.
Liquidity Risk
THE GROUP
Amounts presented in € '000 Up to 1 1 to 3 3 to 12 1 to 5 years Over 5 years Total
month months months
As at 31st December 2006
Asset liquidity
Cash and balances with Central 37,397 - - - - 37,397
Bank
Loans and advances to financial 151,903 16,227 13,755 - - 181,885
institutions
Derivative financial instruments 2,611 - - - - 2,611
Trading Portfolio and other 117,972 134,390 11,812 - - 264,174
financial instruments at fair
value through Profit & Loss
Loans and advances to customers 220,072 65,563 227,536 428,043 - 941,214
Insurance Receivables - - 16,721 - - 16,721
Investment Portfolio 5,884 - 354 6,739 25,000 37,977
Investments in associates - - - - 4,604 4,604
Property, plant and equipment - - - - 33,402 33,402
Investment Property - - - - 50 50
Non current assets held for sale - - 64 - - 64
Goodwill and other intangible - - - - 186,216 186,216
assets
Reinsurance contracts - - 1,339 - - 1,339
Deferred tax assets - - - 3,200 - 3,200
Other assets 2,767 2,484 10,400 1,203 18,031 34,885
Total assets 538,606 218,664 281,981 439,185 267,303 1,745,739
Up to 1 1 to 3 3 to 12 1 to 5 years Over 5 years Total
month months months
Liability liquidity
Due to financial institutions 33,934 6,165 35,235 15,563 - 90,897
Derivative financial instruments 6,319 - - - - 6,319
Due to Customers 90,379 399,953 398,922 152,903 - 1,042,157
Issued Debt Securities - - - - 1,500 1,500
Provisions for insurance - - 34,093 - - 34,093
contracts
Retirement benefit obligations - - - 1,228 - 1,228
Current income tax liabilities - - 1,349 - - 1,349
Other liabilities 199 - 7,356 13,889 - 21,444
Total liabilities 130,831 406,118 476,955 183,583 1,500 1,198,987
Net liquidity gap 407,776 (187,454) (194,974) 255,602 265,803 546,752
As at 31st December 2005
Total assets 538,606 218,664 281,981 439,185 267,303 1,745,739
Total liabilities 130,831 406,118 476,955 183,583 1,500 1,198,987
Net liquidity gap 407,776 (187,454) (194,974) 255,602 265,803 546,752
THE GROUP
Amounts presented in € '000 Up to 1 1 to 3 3 to 12 1 to 5 Over 5 Total
month months months years years
As at 31st December 2005
Asset liquidity
Cash and balances with Central 2,206 - - - - 2,206
Bank
Restricted cash held in Trust - - 210,294 - - 210,294
Other assets 5 - - - - 5
Total assets 2,212 - 210,294 - - 212,506
Up to 1 1 to 3 3 to 12 1 to 5 Over 5 Total
month months months years years
Liability liquidity
Other liabilities 170 - - - - 170
Compound financial instrument - - - 203,426 - 203,426
Total liabilities 170 - - 203,426 - 203,596
Net liquidity gap 2,042 - 210,294 (203,426) - 8,910
As at 31st December 2005
Total assets 2,212 - 210,294 - - 212,506
Total liabilities 170 - - 203,426 - 203,596
Net liquidity gap 2,042 - 210,294 (203,426) - 8,910
6.4 Currency Risk
The Group undertakes currency risk arising from the exposure to the effects of
fluctuations in the prevailing foreign currency exchange rates on its financial
position and cash flows. The Proton Group sets limits on the level of exposure
by currency and in aggregate for both overnight and intra-day positions, which
are monitored daily.
The following tables summarise the Groups' exposure to currency risk. The
Group's assets and liabilities at carrying amounts, categorized by currency are
included in the table.
THE GROUP
Amounts presented in € '000 EUR USD GBP JPY Other Total
Currencies
As at 31st December 2006
Currency risk for assets
Cash and balances with Central 37,257 129 9 - 2 37,397
Bank
Loans and advances to financial 167,957 7,044 2,466 835 3,582 181,885
institutions
Derivative financial instruments (123,901) (4,525) (20) 171,523 (40,466) 2,611
Trading portfolio and other 253,563 7,504 650 - 2,457 264,174
financial assets at fair value
through Profit & Loss
Loans and advances to customers 849,089 58,168 9 - 33,948 941,214
Investment Portfolio 37,753 224 - - - 37,977
Investments in associates 4,550 - - - 54 4,604
Goodwill and other intangible 186,216 - - - - 186,216
assets
Investment Property 50 - - - - 50
Property, plant and equipment 33,402 - - - - 33,402
Non current assets held for sale 64 - - - - 64
Insurance Receivables 16,721 - - - - 16,721
Reinsurance contracts 1,339 - - - - 1,339
Deferred tax assets 3,200 - - - - 3,200
Other assets 32,178 2,338 227 (38) 179 34,884
Total assets 1,499,439 70,882 3,341 172,320 (244) 1,745,739
Amounts presented in € '000
Currency risk of liabilities EUR USD GBP JPY Other Total
Currencies
Due to financial institutions 70,016 20,881 - - - 90,897
Derivative financial instruments 6,312 7 - - - 6,319
Due to customers 811,020 50,825 3,535 175,636 1,141 1,042,157
Issued Debt Securities 1,500 - - - - 1,500
Provision for insurance contracts 34,093 - - - - 34,093
Retirement benefit obligations 1,228 - - - - 1,228
Current income tax liabilities 1,349 - - - - 1,349
Other liabilities 21,169 494 55 (16) (257) 21,445
Total liabilities 946,687 72,207 3,590 175,620 884 1,198,987
Net on-balance sheet position 552,752 (1,325) (249) (3,300) (1,128) 546,752
As at 31st December 2006
Total assets 1,499,439 70,882 3,341 172,320 (244) 1,745,739
Total liabilities 946,687 72,207 3,590 175,620 884 1,198,987
Net on-balance sheet position 552,752 (1,325) (249) (3,300) (1,128) 546,752
Net off-balance sheet position
THE GROUP
Amounts presented in € '000 EUR USD GBP JPY Other Total
Currencies
As at 31st December 2005
Currency risk for assets
Loans and advances to financial - 2,206 - - - 2,206
institutions
Restricted cash held in Trust - 210,294 - - - 210,294
Other Assets - 5 - - - 5
Total assets - 212,506 - - - 212,506
Currency risk of liabilities EUR USD GBP JPY Other Total
Currencies
Other liabilities 85 (48) 133 - - 170
Compound financial instrument - 203,426 - - - 203,426
Total liabilities 85 203,378 133 - - 203,596
Net on-balance sheet position (85) 9,127 (133) - - 8,910
As at 31st December 2005
Total assets - 212,506 - - - 212,506
Total liabilities 85 203,378 133 - - 203,596
Net on-balance sheet position (85) 9,127 (133) - - 8,910
6.5 Interest Rate Risk
Interest rate risk is the risk of a negative impact on the Group's financial
condition due to its exposure to interest rates. Fluctuations in market
interest rates significantly affect the present value of expected future cash
flows from investments and liabilities.
The following tables summarise the Group's exposure to interest rate risks.
Included in the tables are the Group's assets and liabilities at carrying
amounts categorised by contractual reprising date for floating rate items and
maturity day for fixed rate items.
THE GROUP
Amounts presented in € '000 Up to 1 1-3 3-12 1-5 years Over 5 Non-interest Total
month months months years bearing
As at 31st December 2006
Assets
Cash and balances with Central 15,776 - - - - 21,621 37,397
Bank
Loans and advances to financial 151,765 16,227 13,765 - - 128 181,885
institutions
Derivative financial - - - - - 2,611 2,611
instruments
Trading portfolio and other - - 3,197 66,026 68,364 126,587 264,174
financial assets at fair value
through Profit & Loss
Loans and advances to customers 116,712 437,380 240,513 146,609 - - 941,214
Insurance Receivables - - - - - 16,721 16,721
Investment Portfolio - - - 447 31,646 5,884 37,977
Investments in associates - - - - - 4,604 4,604
Property, plant and equipment - - - - - 33,402 33,402
Investment Property - - - - - 50 50
Non current assets held for - - - - - 64 64
sale
Goodwill and other intangible - - - - - 186,216 186,216
assets
Reinsurance contracts - - - - - 1,339 1,339
Deferred tax assets - - - - - 3,200 3,200
Other assets - - - - - 34,885 34,885
Total assets 284,253 453,607 257,475 213,082 100,010 437,312 1,745,739
Liabilities
Due to financial institutions 34,371 6,165 34,798 15,563 - - 90,897
Derivative financial - - - - - 6,319 6,319
instruments
Due to customers 768,154 155,005 86,150 32,848 - - 1,042,157
Obligations from bonds - - - - 1,500 - 1,500
Provision for insurance - - - - - 34,093 34,093
contracts
Retirement benefit obligations - - - - - 1,228 1,228
Current income tax liabilities - - - - - 1,349 1,349
Other liabilities - - - - - 21,445 21,445
Total liabilities 802,525 161,170 120,948 48,411 1,500 64,434 1,198,987
Total interest sensitivity gap (518,272) 292,437 136,527 164,671 98,510 372,878 546,752
As at 31st December 2005
Total assets 284,253 453,607 257,475 213,082 100,010 437,312 1,745,739
Total liabilities 802,525 161,170 120,948 48,411 1,500 64,434 1,198,987
Net interest sensitivity gap (518,272) 292,437 136,527 164,671 98,510 372,878 546,752
THE GROUP
Amounts presented in € '000 Up to 1 1-3 3-12 1-5 years Over 5 Non-interest Total
month months months years bearing
As at 31st December 2005
Asset liquidity
Cash and balances with Central 2,206 - - - - - 2,206
Bank
Restricted cash held in Trust - - 210,294 - - - 210,294
Other assets - - - - - 5 5
Total assets 2,206 - 210,294 - - 5 212,506
Up to 1 1-3 3-12 1-5 years Over 5 Non-interest Total
month months months years bearing
Liability liquidity
Other liabilities - - - - - 170 170
Compound financial instrument - - - 203,426 - - 203,426
Total liabilities - - - 203,426 - 170 203,596
Net liquidity gap 2,206 - 210,294 (203,426) - (165) 8,910
As at 31st December 2005
Total assets 2,206 - 210,294 - - 5 212,506
Total liabilities - - - 203,426 - 170 203,596
Net liquidity gap 2,206 - 210,294 (203,426) - (165) 8,910
7. SEGMENTAL ANALYSIS
7.1 By Business segment (primary segment)
The Group has defined the following business segments: Investment Banking, other
banking activities and insurance and other activities
Amounts presented in € '000 Investment Other Banking Insurance and Total
Banking Activities other activities
Financial year 1st January - 31st
December 2006
Net Income
- from interest 8,535 8,231 (37) 16,729
- from fees and commissions (1,698) 9,569 (5) 7,866
- from insurance activities - - 7,790 7,790
- from dividends 1,620 - 6 1,626
- net trading income and other income 28,677 943 234 29,854
Total Net Income 37,133 18,743 7,988 63,864
Profit before tax 27,498 9,699 (372) 36,825
Tax (2,916)
Result after Tax 33,909
Other items by segment
Depreciation (Note 16) (483) (355) (40) (878)
Insurance claims (Note 17) - - (4,968) (4,968)
Impairment Losses (Note 18) 1,809 (2,367) - (558)
Investments in associates - - - 240
Financial Year 8th September - 31st
December 2005
Net Income -
- from interest (1,323) - - (1,323)
Total Net Income (1,323) - - (1,323)
Profit before tax (1,396) (1,396)
Tax -
Result after Tax (1,396)
Other items by segment
Other operating expenses (72) - - (72)
Amounts presented in € '000 Investment Other Banking Insurance and Total
Banking Activities other activities
31st December 2006
Assets 1,066,959 505,359 173,422 1,745,739
Total Liabilities & Equity 822,640 533,216 389,884 1,745,739
31st December 2005
Assets 212,506 - - 212,506
Total Liabilities & Equity 212,506 - - 212,506
7.2 By Geographical segment
A geographical segment is defined as a particular economic environment in which
the Group is engaged in providing services and that is subject to different
risks and return from those in other economic environments. The substantial
part of assets and liabilities are currently held in Greece.
8. NET INTEREST INCOME
Amounts presented in € '000 THE GROUP THE COMPANY
31/12/2006 31/12/2005 31/12/2006 31/12/2005
Interest and Similar Income
From loans and advances to banks 8,466 6 5,797 6
From securities 3,070 - - -
From Loans and receivables 17,424 - - -
Other Interest related income 31 - - -
Total 28,992 6 5,797 6
Interest and Similar Expenses
Due to financial institutions 81 - - -
Due to customers 9,281 - - -
Contribution Law 128 1,321 - - -
Interest on Compound instrument - 1,328 - 1,328
Interest on Borrowing Funds (Financing Loans) 726 - 726 -
Other Interest related expenses 853 0.2 29 0.2
Total 12,263 1,329 756 1,329
Net Interest Income 16,729 (1,323) 5,042 (1,323)
During the year the Company fully utilized a financial facility of € 75 mil.
granted by three banks. The relevant funds were raised in October 2006 and were
fully repaid in the end of November.
9. NET FEE AND COMMISSION INCOME
Amounts presented in € '000 THE GROUP THE COMPANY
31/12/2006 31/12/2005 31/12/2006 31/12/2005
Fee and commission income from:
Loans and advances to customers 989 - - -
Letters of guarantee 111 - - -
Imports-Exports 106 - - -
Credit Cards 676 - - -
Foreign Exchange Transactions 86 - - -
Securities brokerage 5,840 - - -
Remittance 32 - - -
Management of Securities and Investment Banking 2,456 - - -
Total 10,296 - - -
Fee and commission expense from:
Guarantees, Credit Cards 275 - - -
Securities brokerage 1,780 - - -
Loans Fees and Commissions 375 - 375 -
Total 2,430 - 375 -
Net fee and commission income 7,866 - (375) -
10. NET INCOME FROM INSURANCE SERVICES
Amounts presented in € '000 THE GROUP
31/12/2006 31/12/2005
Income from insurance activities 7,284 -
Expenses from insurance activities 506 -
Total 7,790 -
11. DIVIDEND INCOME
Amounts presented in € '000 THE GROUP THE COMPANY
31/12/2006 31/12/2005 31/12/2006 31/12/2005
Dividends from AFS securities 23 - - -
Dividends from trading securities 1,603 - - -
Dividends from Subsidiaries (Note 49) - - 15,095 -
Total 1,626 - 15,095 -
12. NET RESULT FROM FINANCIAL ACTIVITIES
Amounts presented in € '000 THE GROUP
31/12/2006 31/12/2005
Foreign Exchange Differences 522 -
Purchase and sale of securities 24,176 -
Valuation of securities 11,853 -
Foreign Exchange Differences 177 -
Derivative instruments (8,243) -
Discount interests 70 -
Total 28,555 -
13. OTHER OPERATING INCOME
Amounts presented in € '000 THE GROUP THE COMPANY
31/12/2006 31/12/2005 31/12/2006 31/12/2005
Building rentals 20 - - -
Non-banking activities 392 - - -
Proceeds from sale of fixed assets 2 - - -
Exchange Differences (other than trading 897 - 897 -
activities)
Other income (12) - - -
Total 1,299 - 897 -
14. STAFF COSTS
Amounts presented in € '000 THE GROUP THE COMPANY
31/12/2006 31/12/2005 31/12/2006 31/12/2005
Wages and salaries 6,853 - 155 -
Social insurance contribution 1,289 - - -
Pension and retirement costs (8) - - -
Other employee costs 97 - - -
Total 8,233 - 155 -
The number of staff is given below:
On 31st December 2006 the Group employed 640 employees, while the Company
employed just 1 employee.
THE GROUP THE COMPANY
31/12/2006 31/12/2005 31/12/2006 31/12/2005
Number of employees 640 - 1 -
15. OTHER OPERATING EXPENSES
Amounts presented in € '000 THE GROUP THE COMPANY
31/12/2006 31/12/2005 31/12/2006 31/12/2005
Rentals 1,151 - - -
Maintenance costs 363 - - -
Promotion and advertising costs 247 - - -
Telephone expenses and postage 556 - - -
Other third parties fees 1,484 - 204 -
Contribution to Hellenic Deposit Guarantee Fund 277 - - -
Subscriptions and other contribution expenses 3,238 - - -
Insurance fees 72 - - -
Consumables 259 - - -
Taxes (Value Added, Property, etc.) 905 - - -
Insurance agency costs 1,994 - - -
Other operating expenses 2,096 72 252 72
Total 12,642 72 457 72
16. DEPRECIATION
Amounts presented in € '000 THE GROUP
31/12/2006 31/12/2005
Property, plant & equipment 601 -
Intangible assets 277 -
Total 878 -
17. INSURANCE CLAIMS
Amounts presented in € '000 THE GROUP
31/12/2006 31/12/2005
Automobile third party liability 1,838 -
Non-motor property and casualty lines 3,130 -
Total 4,968 -
18. IMPAIRMENT LOSSES
Amounts presented in € '000 THE GROUP
31/12/2006 31/12/2005
Loans and receivables 275 -
Financial investments 261 -
Other assets 22 -
Total impairment charge for credit losses 558 -
19. INCOME TAX EXPENSE
The tax charge for the year is analysed below:
Amounts presented in € '000 THE GROUP
Current Year Tax 31/12/2006 31/12/2005
Current Tax expense 2,285 -
Deferred Tax 631 -
Total tax charge 2,916 -
The reconciliation of the income tax expense for the year is as follows:
Amounts presented in € '000 THE GROUP
31/12/2006 31/12/2005
Profit before tax 36,825 -
Less: Taxable profits in other jurisdictions at 0% (20,047) -
Taxable in Greece at 24% 16,778 -
Income tax at normal rates (24%) 4,027 -
Adjustments for:
Non-taxable income (3,577) -
Non-deductible expense 8 -
Addition tax on property, plant and equipment 5 -
Special taxation of prior years' reserves 2,453 -
Income tax expense 2,916 -
Current income tax 2,285 -
Deferred tax 631 -
Total income tax expense 2,916 -
The Group operates in a number of different jurisdictions. Income generated by
entities established under Greek Law is subject to income tax according to the
Greek Income Taxation Code. Profits recorded in the jurisdictions of Bermuda
and Marshall Islands are tax free.
Under Greek legislation, normal income tax rates applicable to all entities
incorporated in the form of societe anonyme are 29% for the year 2006 and 25%
thereafter. PROTON BANK took advantage of the Law 2992/2002 tax incentive
scheme, applicable to entities engaged into mergers, and was taxed at a reduced
rate of 24% in 2006. In 2007 PROTON BANK will be taxed at the reduced rate of
20%.
Certain types of income, such as profits from trading with securities, are
tax-free or taxed at lower rates as long as they are transferred into a special
reserve. However, the relevant profits are taxable at normal tax rates in the
event of distribution to the shareholders. According to the Ministry of
Finance's resolution 1135/22.11.06 a special tax was imposed on those reserves
during the year. The relevant income tax charge was € 2.453 thousand. After
taking into consideration the above, effective tax rate for the PROTON Group is
17.4%. The Group's effective tax rate is 7.9%.
Income tax liability for Proton Group is not considered as final as it is
further analysed in Note 50.2.
Deferred tax recognised in the income statement is attributable to:
Amounts presented in € '000 THE GROUP
31/12/2006 31/12/2005
Loans and receivables (523) -
Employee bonuses (195) -
Accrued income (214) -
Other assets (43) -
Financial receivables (13) -
Retirement benefit obligations 2 -
Financial liabilities 20 -
Revaluation on OTC forwards 128 -
Property, plant & equipment and intangible assets 207 -
Total deferred tax (631) -
20. CASH AND BALANCES WITH CENTRAL BANK
Amounts presented in € '000 THE GROUP
31/12/2006 31/12/2005
Cash on hand and cash in course of collection 10,014 -
Cheques receivable 12,018 -
Included in cash and cash equivalents (Note 45) 22,032 -
Mandatory reserve deposits with Central Bank 15,365 -
Total 37,397 -
Mandatory reserves with the central bank are not available for everyday use by
the Group.
21. LOANS AND ADVANCES TO FINANCIAL INSTITUTIONS
Amounts presented in € '000 THE GROUP THE COMPANY
31/12/2006 31/12/2005 31/12/2006 31/12/2005
Deposits placed in other financial institutions 48,264 2,206 3,880 2,206
Nostro accounts 47,877 - - -
Time deposits 84,367 - - -
Cheques receivables 1,377 - - -
Total 181,885 2,206 3,880 2,206
The Company's cash equivalents refer to sight deposits in other financial
institutions.
22. RESTRICTED CASH HELD IN TRUST
Amounts presented in € '000 THE GROUP THE COMPANY
31/12/2006 31/12/2005 31/12/2006 31/12/2005
Restricted cash held in Trust - 210,294 - 210,294
Total - 210,294 - 210,294
Under the terms of the Offering (Ref. Note 43), the net offering proceeds
amounting to € 209,493,368 (US$ 252,083,370) were placed in a trust Account.
Under the agreement the Trust Funds would only be invested in United States
government securities having a maturity of 180 days or less. The balance
recorded at market value, including interest and movements in the value of
investments at the balance sheet date at 31st December 2005. The market value
of investments held in trust amounted to € 210,294,081 (US$ 253,046,867) at 31
December 2005.
Following the acquisition of Proton and the relevant decision of the
Shareholders the funds held in Trust were released and were available for use by
the Company without any restriction.
23. TRADING PORTFOLIO AND OTHER FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT &
LOSS
Amounts presented in € '000 THE GROUP
31/12/2006 31/12/2005
Government bonds 18,441 -
Corporate entities bonds 119,146 -
Mutual funds 23,996 -
Securities 102,591 -
Total 264,174 -
24. DERIVATIVE FINANCIAL INSTRUMENTS
The notional and fair values of derivatives held at 31st December 2006 were:
THE GROUP
31st December 2006
FAIR VALUE
Amounts presented in € '000 Notional amount Assets Liabilities
Derivatives held for trading
a) trading in Exchanges
Options 12,648 224 (100)
Forwards / Futures 335,751 - -
348,399 224 (100)
b) OTC
Interest rate swaps 594,452 1,992 (2,427)
Options 3,037 28 (7)
FX Forwards 281,187 - (3,753)
Credit default swaps 13,417 42 (32)
Total return swap 10,000 325 -
902,093 2,387 (6,219)
Total recognised derivative assets /liabilities 1,250,492 2,611 (6,319)
The notional amount of certain types of derivative financial instruments provide
a basis for comparison with instruments recognised on the balance sheet but do
not necessarily indicate the amounts of future cash flows involved or the
current fair value of the instruments and, therefore, do not indicate the
Group's exposure to credit or price risks. The derivative instruments become
favourable (assets) or unfavourable (liabilities) as a result of fluctuations in
market interest rates or foreign exchange rates relative to their terms. The
aggregate contractual or notional amount of derivative financial instruments on
hand, to the extent to which instruments are favourable or unfavourable, and
thus the aggregate fair values of derivative financial assets and liabilities,
can fluctuate significantly from time to time.
The Group does not apply hedge accounting as described in IAS 39, therefore the
gains and losses arising on derivative financial instruments are recognised in
the income statement.
25. LOANS AND ADVANCES TO CUSTOMERS
The loan portfolio at a Group level is analyzed as follows:
Amounts presented in € '000 THE GROUP
31/12/2006 31/12/2005
Retail Customers
Mortgages 51,810 -
Consumer Loans /Loans to individuals 88,372 -
Credit cards 28,197 -
Total loans and receivables to individuals 168,379 -
Corporate Customers
Agriculture 5,259 -
Mining 1,149 -
Heavy industry 42,373 -
Small Industry 14,957 -
Building / construction 73,454 -
Energy 2,163 -
Commercial / Insurance 202,202 -
Transportation 93,516 -
Services 36,954 -
Other companies 328,720 -
Total loans and receivables to companies 800,745 -
Finance lease receivables 11,388 -
Total Loans and receivables 980,512 -
Less: Allowances for losses (impairment) on loans and advances to (39,298) -
customers
Total 941,214 -
Loans are measured at amortised cost. Loans fair value is not materially
different from their carrying amount.
The movements in the provisions account are as follows:
Amounts presented in € '000 Allowances for Allowances for Total
losses on loans to losses on loans
individuals to companies
Balance at beginning of year (01.01.2006) - - -
Allowances from acquisitions (Proton Bank) (265) (909) (1,174)
Allowances from acquisitions (Omega Bank) (16,957) (23,114) (40,071)
Expense for the year (212) (63) (275)
Loans written-off 1,163 1,059 2,222
Balance at end of year (31.12.2006) (16,271) (23,027) (39,298)
Loans and advances to customers include finance lease receivables:
THE GROUP
Amounts presented in € '000 31/12/2006 31/12/2005
Net investment in finance leases
Gross Investment in leased equipment 17,185 -
Less: unearned finance income (5,797) -
Net investments in leased equipment 11,388 -
The Net finance leases receivables comprises:
Less than 1 year 1,143 -
Between 1 to 5 years 3,734 -
More than 5 years 6,511 -
Total 11,388 -
26. INSURANCE ASSETS
Amounts presented in € '000 THE GROUP
31/12/2006 31/12/2005
Insurance Receivables
Insurance Debtors 8,498 -
Past due insurance debtors 1,248 -
Cheques receivable 7,520 -
Promissory notes and other receivables 110 -
Less: provisions for losses (impairment) (655) -
16,721 -
Reinsurance Receivables
Reinsurance Debtors 1,332 -
Receivables from reinsurance activities 7 -
1,339 -
Total Insurance Assets 18,060 -
27. INVESTMENT PORTFOLIO
The Group's investment portfolio comprises financial instruments available for
sale and held to maturity.
Amounts presented in € '000 THE GROUP THE COMPANY
31/12/2006 31/12/2005 31/12/2006 31/12/2005
Investments held to maturity
Government bonds 6,646 - - -
Total investment held to maturity 6,646 - - -
Available for sale portfolio (at fair value)
Corporate bonds 28,458 - - -
Equity securities 5,502 - - -
Mutual Funds 30 - - -
Other investments 345 - - -
Less: Provision for losses (impairment) (3,004) - - -
Total available for sale securities 31,331 - - -
Total Investment Portfolio 37,977 - - -
H-T-M investments mainly refer to Greek Government Bonds for which the Group has
the ability and the intention to hold to maturity. The fair value of the above
mentioned financial instruments at 31 December 2006 is calculated at 6.648
thousands euros.
The movement in the investment portfolio for the year ended 31/12/2006 may be
summarised as follows:
THE GROUP
Amounts presented in € '000 Investments Financial assets Total
held-to-maturity available for sale
Balance as at 1st January 2006 - - -
Additions from the acquisition of Proton Bank - 855 855
Additions from the acquisition of Omega Bank - 31,024 31,024
Additions 6,768 171,317 178,085
Redemptions - (171,876) (171,876)
Gains / (losses) from changes in fair value 11 11
Amortization of premium/ discount (122) - (122)
Balance as at 31st December 2006 6,646 31,331 37,977
During the year the Company, through its wholly owned subsidiaries, MYRTLE
TRADING COMPANY and MIMOSA TRADING SA, acquired a stake in Piraeus bank (a
company listed to ASE) for a total consideration of € 171 million. The
investment in Piraeus Bank was disposed in November 2006 at the total amount of
€ 185 million, generating a profit of € 13.9 million.
28. INVESTMENTS IN SUBSIDIARIES
Investments in subsidiaries are analyzed as follows:
Amounts presented in € '000 THE COMPANY
31/12/2006 31/12/2005
Opening balance - -
Acquisitions 126,687 -
Closing balance 126,687 -
Investments in Subsidiaries are measured at acquisition cost.
29. INVESTMENTS IN ASSOCIATES
Investment in associates refers to a 28.75% holding of Proton Bank to the
closed-end fund Omega AEEX, a company listed on ASE.
Some brief financial information on the associates is given below:
Amounts presented in € '000 Domicile Assets Liabilities Profits / Participation %
(losses)
Omega Portfolio Investment SA Greece 16,122 83 1,695 5.80%
The movement in the investment in associates account for the year 2006 was as
follows:
Amounts presented in € '000 THE GROUP
31/12/2006 31/12/2005
Beginning of year
Additions from acquisitions (Omega Bank) 4,356 -
Transfer from trading portfolio 8 -
Group share of profit /(loss) 240 -
Total 4,604 -
Investments in associates are accounted under the equity method. The market
value of the investment in Omega as at 31st December 2006 was € 3,777 thous.
30. PROPERTY, PLANT AND EQUIPMENT AND INVESTMENT PROPERTY
THE GROUP
Amounts presented in € Land and Mechanical Transportation Furniture & Total Investment
'000 Buildings Equipment means or other Property
vehicles equipment
Cost or revaluation at 1st - - - - - -
January 2005
Less: Accumulated - - - - - -
depreciation
Carrying amount at 1st - - - - - -
January 2006
Acquisition - PROTON BANK 1,246 23 169 2,304 3,742 -
Acquisition (absorption) - 24,666 37 50 7,267 32,020 50
OMEGA BANK
Additions 533 3 - 381 917 -
Write-off /Disposals - - - (259) (259) -
Depreciation for the year (220) (4) (19) (358) (601) -
Depreciation attributable - - - 200 200 -
to disposed - written off
Accumulated depreciation of (545) (20) (64) (1,988) (2,617) -
acquired subsidiary (Proton
Bank)
Carrying amount at 1st 25,680 39 136 7,547 33,402 50
January 2006
Cost or Revaluation at 31st 26,445 63 219 9,693 36,420 50
December 2006
Less: Accumulated (765) (24) (83) (2,146) (3,018) -
depreciation
Carrying amount at 31st 25,680 39 136 7,547 33,402 50
December 2006
31. NON CURRENT ASSETS HELD FOR SALE
THE GROUP
Amounts presented in € '000 31/12/2006 31/12/2005
Land resulting from foreclosure 64 -
The account includes land acquired by means of foreclosure and auctions.
According to IFRS 5, the Group must sell any assets of this category within
twelve months from the date of acquisition.
32. GOODWILL AND OTHER INTANGIBLE ASSETS
THE GROUP
Amounts presented in € '000 Goodwill & other Software Total
intangible assets
acquired in business
combination
Acquisition cost at 31st December 2005 - - -
Less: Accumulated depreciation - -
Carrying amount at 31st December 2005 - - -
Acquisition of PROTON BANK 68,754 1,124 69,878
Acquisition of OMEGA BANK 114,211 3,384 117,595
Impairment - (109) (109)
Additions - 164 164
Depreciation for the year - (277) (277)
Accumulated amortization of acquired subsidiary - (1,035) (1,035)
(Proton Bank)
182,965 3,251 186,216
Acquisition cost at 31st December 2006 182,965 4,563 187,528
Less: Accumulated Amortization - (1,312) (1,312)
Carrying amount at 31st December 2006 182,965 3,251 186,216
'Goodwill and other intangible assets' include business combination differences
as described in Note 46. The relevant amount has been determined provisionally,
since the process of identifying and measuring the identifiable intangible
assets has not been finalised. The significant intangible assets that it is
expected to arise are bank customer relationships, brokerage customer
relationships, trade name and core deposits. The first impairment test of
goodwill and intangible assets will take place when the purchase price
allocation is finalised.
33. DEFERRED TAX
Deferred tax has been calculated based on the nominal tax rate applicable for
the financial years in which a temporary taxable and deductible difference
reversal is expected.
Deferred income tax assets and liabilities are attributable to the following
items:
THE GROUP
Amounts presented in € '000
31/12/2006 31/12/2005
Deferred tax assets
Retirement benefit obligations 392 -
Financial liabilities 242 -
Staff bonuses and allowances 216 -
Property, plant & equipment and Intangible assets 118 -
Tax loss 276 -
Fair value adjustments to loans acquired in business combination 2,492 -
Total deferred tax assets 3,736 -
Deferred tax liabilities
Financial assets (6) -
Loan impairment and other credit risk provisions (37) -
Derivatives Listed in ADEX (10) -
Deferred income (440) -
Leasing (43) -
Total deferred tax liabilities (536) -
Total 3,200 -
34. OTHER ASSETS
The Group's other assets account is analysed as follows:
Amounts presented in € '000 THE GROUP
31/12/2006 31/12/2005
Other Assets
Advances to employees 26 -
Advances to third parties 50 -
Contributions to Co-Guarantee Fund and Supplementary Fund 4,901 -
Guarantee fees 7,698 -
Prepayments to third parties 68 -
Brokerage fees receivables 8 -
Credit card receivables 2,095 -
Prepaid Taxes and other tax advances 3,946 -
Sundry debtors and other receivables 16,904 5
Bad debts (other than loans and receivables) 1,199 -
36,895 5
Less Provisions for losses (impairment) of receivables besides (2,010) -
loans
Total 34,885 5
The Company's other assets are analysed as follows:
Amounts presented in € '000 THE COMPANY
31/12/2006 31/12/2005
Other Assets
Sundry debtors and other receivables 26 5
Loans to subsidiaries (Note 49) 73,395 -
Dividend receivables (Note 49) 15,095 -
Total 88,516 5
The Company is financing its wholly owned subsidiaries, MYRTLE and MIMOSA, for
their trading activities. The amount of € 73,395 thous. is the amount due from
the subsidiaries as at 31st December 2006. The abovementioned subsidiaries have
undertaken the obligation to repay the Company any amounts from time to time
lent to them, on first demand.
The amount of € 15,095 thous. refers to the dividend receivables of the Company
from its wholly owned subsidiaries, MYRTLE (amount of € 4,127 thous.) and MIMOSA
(amount of € 10,968 thous.).
35. DUE TO FINANCIAL INSTITUTIONS
Amounts presented in € '000 THE GROUP
31/12/2006 31/12/2005
Interbank deposits 33,933 -
Short-Term Loans 438 -
Sale and repurchase agreement (REPOS) 56,526 -
Total 90,897 -
All the Sale and repurchase agreements (REPOS) have a maturity of one month from
the date of 31st December 2006.
36. DUE TO CUSTOMERS
Amounts presented in € '000 THE GROUP
31/12/2006 31/12/2005
Due to Customers
Retail Customers
Savings account 64,497 -
Sight deposits 1,122 -
Time deposits 586,410 -
652,029 -
Corporate Customers
Sight deposits 72,104 -
Time deposits:
Companies 134,417 -
Public Organizations 7,788 -
Public companies 4,565 -
Other time deposits 84,401 -
Sale and repurchase agreement (REPOS) 920 -
304,195 -
Blocked deposits 29 -
Pledged deposits 50,361 -
Margin accounts 35,543 -
Total 1,042,157 -
All the Sale and repurchase agreements (REPOS) have a maturity of one month from
the date of 31st December 2006.
37. ISSUED DEBT SECURITIES
Amounts presented in € '000 THE GROUP
31/12/2006 31/12/2005
Issued Debt Securities 1,500 -
Total 1,500 -
Debt securities refer to a convertible bond issued by Omega Insurance SA and
which is hold by the Chief Executive Director of the subsidiary. The basic
characteristics of the convertible bond are the following:
Issue date : June 27th, 2006
Par value : € 1,500 thous.
Coupon rate : 5%
Title form and number : 500,000 coupon bonds with par value € 3 each, can be formed in a single or
multiple cumulative title.
Duration : Perpetuity with five-year notice of prepayment from the issuer, or relevant
decision of the general assembly of bondholders.
Conversion ratio : One (1) bond is convertible to one (1) ordinary share with par value € 3.
Use of funds : Improve solvency and capital adequacy ratio of Omega Insurance.
38. COMPOUND FINANCIAL INSTRUMENT
Amounts presented in € '000 THE GROUP THE COMPANY
31/12/2006 31/12/2005 31/12/2006 31/12/2005
Compound financial instruments - 203,426 - 203,426
Total - 203,426 - 203,426
The Company's compound financial instruments at 31st December 2005 represented
the present value of the cash held in trust, including estimated interest ($
244,783 thous.), which would be payable to shareholders within 24 months
following the date of the offering if no qualifying business combination had
occurred.
In 2006, following the acquisition of Proton Bank, the amount of € 1,915 thous.
($ 2,425 thous.) was repaid to shareholders and the balance was transferred to
share premium account (ref. Note 43).
39. PROVISION FOR INSURANCE CONTRACTS
Amounts presented in € '000 THE GROUP
31/12/2006 31/12/2005
Total provisions for insurance contracts 01/01/2005 - -
Additions through acquisitions (Omega Bank) 35,336 -
Unearned premiums 01/10-31/12/2006 (1,424) -
Outstanding claim reserves 01/10-31/12/2006 181 -
Total provisions for insurance contracts 31/12/2006 34,093 -
Analysed as follows:
Amounts in € '000 Gross Provision Reinsure's share Net Provision
Unearned Premiums 10,720 975 9,745
Outstanding claims 23,373 574 22,799
Balance at 31 December 2006 34,093 1,549 32,534
40. RETIREMENT BENEFIT OBLIGATION
The retirement benefit obligations to personnel is described as follows:
Amounts presented in € '000 THE GROUP
31/12/2006 31/12/2005
Amount recognised in Balance Sheet
Present value of defined benefit obligations 1,382 -
Unrecognised actuarial profits / ( losses) (154) -
Total Liabilities at the end of period 1,228 -
THE GROUP
Amounts recognised in Income Statement 31/12/2006 31/12/2005
Current service cost 87 -
Interest cost 6 -
Unrecognised actuarial profits / ( losses) 1 -
Expense recognised in Income Statement 94 -
The change in liabilities is described below:
Amounts presented in € '000 THE GROUP
Change in liabilities: 31/12/2006 31/12/2005
Opening balance - -
Increase due to acquisition of Proton Bank 221 -
Increase due to business combination with Omega 1,124 -
Expense for the period 94 -
Compensation paid (211) -
Total liability recognised in Balance Sheet 1,228 -
The main actuarial assumptions used are provided below:
31/12/2006 31/12/2005
Discount Rate 4.10% 3.72%
Future salary increases 4.70% 4.70%
Expected return on plan assets 4.10% 3.72%
41. CURRENT INCOME TAX LIABILITIES
Amounts presented in € '000 THE GROUP
31/12/2006 31/12/2005
Income Tax on Taxable Profits 1,349 -
Total 1,349 -
42. OTHER LIABILITIES
Amounts presented in € '000 THE GROUP THE COMPANY
31/12/2006 31/12/2005 31/12/2006 31/12/2005
Withholding taxes arising from salaries 510 - - -
Taxes and duties payable from customers' deposits 253 - - -
Other withholding taxes and duties 2,332 - - -
Prior year income taxes (from tax audit) 1,320 - - -
Social security contributions 859 - - -
Dividends Payable 34 - - -
Withholdings in favour of third parties 2 - - -
Salaries Payable 311 - - -
Brokerage transactions in foreign derivatives 13,782 - - -
Brokerage services securities and derivatives 74 - - -
Brokerage services -Cyprus 31 - - -
Suppliers and other third party liabilities 1,919 153 167 153
Amounts payable to related parties (Note 49.4) 19 17 19 17
Total 21,445 170 185 170
43. SHARE CAPITAL & SHARE PREMIUM
Amounts in US $ Amounts in €
Amounts presented in € Number of Number of Nominal Share Share Share Share Total
'000 shares units value Capital Premium Capital Premium
(US$)
Balance at 8 September - - - - - - - -
2005
Issue of common stock to 8,000,000 - 0.0015 12 - 10 - 10
initial shareholders (15/
09/2005)
Share capital increase by 3,458,335 - 0.0015 5 - 4 4
issuing new shares (04/11
/2005)
Sold units on the - 45,833,340 6.0000 - - - - -
Offering on 14/11/2005
Issue of shares on 45,833,340 - 0.0015 69 (69) 57 (57) -
offering, net of offering
costs
Expenses related to issue - - - - 12,383 - 10,291 10,291
of shares on net offering
Shares classified as - - -
liabilities at date of
offering
Balance at 31 December 57,291,675 86 12,314 71 10,234 10,305
2005
Decrease in Share Capital (430,000) - 0.0015 (0.6) 0.6 (0.54) 0.54 -
due to the shares
cancelled as a result of
repurchase rights
Conversion of Compound - - - - 241,449 - 189,940 189,940
Financial Instruments to
Common Shares (after the
acquisition of PROTON
BANK at 30th June 2006)
Balance at 31 December 56,861,675 85 253,764 71 200,174 200,245
2006
Year 2005
On 15 September 2005, 8,000,000 common shares, having a par value of $0.0015
each, were issued for a total consideration of $12,000 and the authorized share
capital was increased to 136,500,000 common shares of $0.0015 each.
On 4 November 2005, further 3,458,335 common shares of $0.0015 were issued for a
total consideration of $5,187.50 and the authorised share capital was increased
to $148,958,355 common shares of $0.0015 each.
On 14 November 2005 the Company consummated its initial public offering (the
'Offering'). The Company sold 45,833,340 units in the Offering at a price of
$6.00 per Unit, generating gross offering proceeds of $275,000,040
(€228,538,220). Each Unit consisted of one share of the Company's common stock
(the 'Common Stock'), and two warrants ('Warrants'). Each Warrant entitles the
holder to purchase from the Company one share of Common Stock at an exercise
price of $5.00 per share.
According to the Offering circular, the net proceeds of the Offering, amounting
to € 209,493,368 (US$252,083,370), were placed in a trust account (the 'Trust
Fund') to be held there until the earlier of the completion of a Business
Combination, the exercise by any person who acquired common shares and warrants
at the offering (a 'New Shareholder') of his repurchase rights or the
distribution of such funds to the New Shareholders. Moreover, if a business
combination was not completed within 18 months (or within 24 months if a letter
of intent or definitive agreement was entered into prior to the end of the 18
month period or unless extended by majority shareholder approval) after the
effective date of the initial registration statement, funds held in the Trust
account would be returned to the shareholders of the Company.
On this basis and according to IAS 32, the proceeds received on issue of the
units were allocated between debt and equity. In particular, the amount of €
201,297,018 ($ 242,220,702) representing the present value of the cash held in
trust, including estimated interest, which would be payable to shareholders
within 24 months following the date of the offering if no qualifying business
combination had occurred was recognised in liabilities (compound financial
instruments). The amount allocated to equity was the difference between the net
proceeds and the value of the liability and represented the nominal value of the
shares issued and the relative fair market value of each warrant attached to the
Unit.
Year 2006
On 27 June 2006 the Special General Meeting of the Company's Shareholders
approved the acquisition of PROTON BANK. The respective acquisition qualified
as a business combination according to the Offering circular with the following
consequences:
• Funds held under the Trust Account were released and were available to the Company for the
acquisition of PROTON and for any other use.
• The Company was relieved from the obligation to repay the Offering proceeds to the shareholders,
except for the shareholder who elected in the General Meeting to redeem their shares. In
particular, shareholders of 430.000 shares elected to have their shares repurchased by the Company.
Based on the decision of the General Meeting of the shareholders:
• 430.000 shares were cancelled and therefore the number of common and fully paid shares was reduced
to 56,861,675.
• The amount of € 1,914,672 ($ 2,425,392) was repaid to these shareholders.
• The balance of € 189,940,006 ($ 241,449,403) was transferred from the liabilities (compound
financial instrument) to equity (share premium account).
• Warrants issued during the Offering became exercisable (refer below).
On 20 December 2006 the Annual General Meeting of Shareholders decided the
increase of the authorized share capital of the Company from US$ 223,687.53 to
US$ 300,250 by the creation of an additional 51,041,645 common shares of par
value US$ 0.0015 each and the relevant amendment of the bye-law 3 of the
Company's bye-laws in order to reflect the increase.
Warrants
On the Offering the Company issued 45,833,340 Units. Each Unit consisted of one
share of the Company's common stock and two warrants. Each Warrant entitles the
holder to purchase from the Company one share of Common Stock at an exercise
price of $5.00 per share.
According to the Offering, each warrant would become exercisable on the earlier
of (i) completion of a business combination which, when combined with all of
previous business combinations, has an aggregate transaction value of at least
50 per cent of the initial amount placed in Trust together with such funds as
are deposited in the Trust fund following the stabilization period (a 'Qualified
Business Combination') and (ii) where a business combination has occurred but a
Qualified Business Combination is not completed within 18 months after
admission, or within 24 months after admission if a letter or intent, agreement
in principle or definitive agreement has been signed by the Company during the
initial 18 month period but such acquisition has not been consummated, or unless
extended by majority shareholder approval (the date by which such Qualified
Business Combination has to occur in any of these circumstances being the '
Extended Date'),the relevant date shall be the extended date and will expire on
the earlier of redemption or the date that is four years after the admission
date.
Following the approval of the acquisition of PROTON BANK by the Special
Shareholders Meeting, the 91.666.680 Warrants became exercisable and may be
exercised by 14 November 2009.
Preference Shares of US$ Common Shares of US$
Amounts presented in € 0.0001 each 0.0015 each
Authorised Number Amount in Amount in € Number Amount in Amount in €
US$ US$
In issue at 31 December 2005 2,500,000 250 208 148,958,355 223,438 185,687
Increase of authorized share - - - 51,041,645 76,562 63,627
capital according the decision
of Annual General Meeting (20
December 2006)
Authorised at 31 December 2006 2,500,000 250 208 200,000,000 300,000 249,314
Amounts presented in € Preference Shares of $ 0.0001 each Common Shares of $ 0.0015 each
Alloted, called up and fully Number Amount in $ Amount in € Number Amount in $ Amount in €
paid
In issue at 31 December 2005 - - - 57,291,675 85,938 71,418
Decrease in Share Capital due - - - (430,000) (645) (536)
to the shares cancelled as a
result of repurchase rights
In issue at 31 December 2006 - - - - 56,861,675 85,293 70,882
fully paid
The holders of common shares are entitled to receive dividends as declared from
time to time and are entitled to one vote per share on a poll at meetings of the
Company.
The Company is authorised to issue 2,500,000 shares of preferred stock with such
designations, voting and other rights and preferences as may be determined from
time to time by the Board of Directors.
44. OTHER RESERVES AND RETAINED EARNINGS
THE GROUP THE COMPANY
Amounts presented in € '000 Revaluation Other Total Retained Retained
Reserve Reserves Reserves Earnings / Earnings /
(losses) (losses)
Opening balance as at 8th September 2005 - - - - -
Net result for the period 08/09-31/12/ - - - (1,396) (1,396)
2005
Total profit /(loss) recognised for the - - - (1,396) (1,396)
financial year
Balance as at 31st December 2005 - - - (1,396) (1,396)
Opening balance as at 1st January 2006 - - - (1,396) (1,396)
Net result for the period 01/01-31/12/ - - - 23,571 20,047
2006
Fair value gains of a.f.s. financial 1,740 - 1,740 - -
assets
Reversal of Revaluation Reserve due to (1,742) - (1,742) - -
disposal of a.f.s. financial assets
Total profit /(loss) recognised for the (2) - (2) 23,571 20,047
financial year
Acquisition of the Subsidiary (PROTON - 16,153 16,153 (0.43) -
BANK) on 30 June 2006
Exchange Differences on translating - 2 2 - -
foreign operations
Purchase of Treasury Shares of PROTON - - - (322) -
BANK
Sale of Treasury Shares of PROTON BANK - - - 355 -
- 16,156 16,156 32 -
Balance as at 31st December 2006 (2) 16,156 16,153 22,208 18,652
As mentioned in note 5 'Group Structure' on 7th September 2006 the Extraordinary
General Meeting of shareholders of PROTON BANK decided on the merger of the Bank
with Omega Bank and Proton Securities. According to the Merger Contract, which
was approved by the Proton's General Assembly, the exchange ratio was 1 share of
the Omega Bank for 0.90 shares of PROTON BANK. As the Bank held 100% of the
shares of Proton Securities, there was no exchange ratio.
Due to the share exchange ration, Proton's shareholders increased their portion
in the net assets of the combined entity. The net assets of Proton attributable
to the Company increased by € 16,156 thous. and the relevant amount was
transferred from minority rights to Group's reserves.
45. CASH AND CASH EQUIVALENTS - CASH FLOW STATEMENT
For the purposes of preparing the Cash Flow Statement of the Group, the
short-term placements in other financial institutions, which are either
immediately available or available within 90 days, were included in the cash
account.
Amounts presented in € '000 THE GROUP THE COMPANY
31/12/2006 31/12/2005 31/12/2006 31/12/2005
Cash and balances with Central Bank (Note 20) 22,032 - - -
Loans and advances to credit institutions (Note 21) 181,885 2,206 3,880 2,206
Total - Included in cash and cash equivalents 203,917 2,206 3,880 2,206
46. BUSINESS ACQUISITIONS
46.1 Acquisition of a 28% stake in the share capital of PROTON BANK
In June 2006 the Company entered into an acquisition agreement which was
conditional on approval of the shareholders. At a special shareholders general
meeting 75.74% of the votes and 69.67% of the shares voted in favour of the
acquisition. On June 29th 2006, the Company acquired a 28.00 per cent stake in
the share capital of PROTON BANK, a Greek investment bank, listed on the Athens
Stock Exchange. The acquisition was completed after the approval of the
company's shareholders.
Details of net assets acquired and goodwill are as follows:
Amounts presented in € '000
Purchase consideration:
- Cash paid 120,061
- Direct costs relating to the acquisition 6,625
Total purchase consideration 126,687
Less: Fair value of net assets acquired (57,932)
Goodwill & other tangible assets (Note 32) 68,754
The Group is in the process of completing the fair valuation of the net assets
acquired, including intangible assets. The excess between the cost of
acquisition and the fair value of identifiable assets, liabilities and
contingent liabilities, will be recognised as Goodwill and will be subject to
impairment testing. Consequently the Group has applied initial accounting
determined provisionally according to IFRS 3 'Business Combinations'. According
to the IFRS3, the purchase price allocation should be completed within one year
from the acquisition date.
Through the acquisition the Group achieved banking license, trade name, client
relationships and web banking licenses in Greece. The abovementioned licenses
will allow the Group to take advantage of significant growth margins of the
Greek banking sector.
The assets and liabilities arising from the acquisition are as follows:
Amounts presented in € '000 Fair Value recognised on Acquiree's
acquisition carrying amount
Cash and balances with central bank 2,217 2,217
Loans and advances to financial institutions 14,739 14,739
Trading Portfolio and other financial instruments at fair value 151,560 151,560
through Profit & Loss
Loans and advances to customers 276,961 276,961
Investment Portfolio 855 855
Property, plant and equipment 1,125 1,125
Goodwill and Intangible assets 89 422
Deferred tax assets 420 420
Other assets 21,985 21,985
Due to financial institutions (44,138) (44,138)
Due to Customers (62,705) (62,705)
Derivative financial instruments (159) (159)
Retirement benefit obligations (221) (221)
Other liabilities (155,808) (155,808)
206,919 207,253
Equity minority interests (18) (18)
Shareholders net assets 206,901 207,235
Acquisition Percentage of the Share Capital 28% 28%
Net Assets Acquired 57,932 58,026
Plus: Goodwill & other intangible assets 68,754
Total consideration 126,687
The acquisition resulted in an increase of assets and liabilities by € 469,951
thousands and € 263,032 thousands respectively. Proton's net profits for the
period 01/07-31/12/2006 amounting to € 13,528 thous. were fully consolidated to
the Group's Income Statement. If the acquisition was completed at 1st January
2006, then Group's net revenues and net profit after tax would be increased by €
42,679 thous. and € 20,485 thous. respectively.
46.2 Acquisition (absorption) of OMEGA BANK by PROTON BANK
On 7th September 2006, the Extraordinary General Assembly of shareholders of
Proton Bank decided on the merger of the Bank with Omega Bank and Proton
Securities (ref. Note 5.1). The acquisition (merger) of Omega Bank was affected
by means of issuing and exchanging shares. The purchase consideration was
determined based on the market price of Proton's share at the date of exchange.
Amounts presented in € '000
Purchase consideration:
Fair value of equity instruments exchanges (17,547,930 x € 164,249
9.36 share)
Direct costs relating to the acquisition 601
Total cost of business combination 164,850
Less: Fair value of net assets acquired (50,639)
Goodwill & other intangible assets (Note 32) 114,211
The assets and liabilities arising from the acquisition are as follows:
Amounts presented in € '000 Fair Value recognised Acquiree's carrying
on acquisition amount
Cash and balances with Central Bank 11,169 11,169
Loans and advances to financial institutions 155,982 155,982
Loans and advances to customers 756,641 766,608
Insurance Receivables 20,176 20,176
Trading Portfolio and other financial instruments at fair value 40,276 40,276
through Profit & Loss
Investment Portfolio 31,024 31,024
Derivative financial instruments 368 368
Investments in associates 4,356 4,356
Property, plant and equipment 32,020 32,632
Property Investment 50 50
Intangible assets 3,384 3,384
Reinsurance Receivables 1,641 1,641
Deferred Tax Asset 3,612 1,120
Other Assets 16,860 16,860
Due to financial institutions (95,417) (95,417)
Derivative financial instruments (2,128) (2,128)
Due to Customers (877,363) (877,363)
Issued Debt Securities (1,500) (1,500)
Provisions for insurance contracts (35,336) (35,336)
Other liabilities (13,465) (13,978)
Retirement benefit obligations (1,124) (1,392)
51,226 58,532
Equity minority interests (587)
Net Assets Acquired 50,639 58,532
Plus: Goodwill & other intangible assets 114,211
Total consideration 164,850 58,532
According to IFRS3 the above combination was accounted for by applying the
purchase method. The acquisition date is the date when control is transferred
to the Group. The merger of the two banks was approved by the General Meeting
of the Shareholders at 7th September 2006. However the merger was effective
since 29th September 2006 when it was approved by all relevant authorities.
The Group is in the process of completing the fair valuation of the net assets
acquired, including intangible assets. The excess between the cost of
acquisition and the fair value of identifiable assets, liabilities and
contingent liabilities, will be recognised as Goodwill and will be subject to
impairment testing. Consequently the Group has applied initial accounting
determined provisionally according to IFRS 3 'Business Combinations'. According
to IFRS3, the Purchase Price Allocation should be completed within one (1) year
from the acquisition date.
The acquisition of OMEGA BANK by PROTON BANK resulted in an increase of assets
and liabilities by € 1,077,599 thous. and € 1,026,333 thous. respectively. The
business combination had effect in the Group's results for the three month
period ended at 31/12/2006 since the date of acquisition was the 29th September
2006. If the acquisition had occurred on 1st January 2006, the Group's net
revenues would have been increased by € 61,687 thous. and net profit after tax
would be have been decreased by € 7.979 thous.
46.3 Net Cash flow from the acquisitions
THE GROUP THE COMPANY
Amounts presented in € '000 01/01 - 31/12/2006 01/01 - 31/12/2006
Net cash outflow from the acquisition of PROTON BANK at 30/06/ (109,730) (126,687)
2006
Net cash inflow from the absorption of OMEGA BANK by PROTON 131,836 0
BANK at 29/09/2006
Acquisition of subsidiaries, net of cash acquired 22,106 (126,687)
The net cash outflow from the acquisition of Proton Bank is analysed as follows:
Amounts presented in € '000
Cash flow on acquisition:
Cash Paid (126,687)
Less: 'Cash and balances with central bank' 2,217
Less: 'Due from Banks' 14,739
Net cash outflow (109,730)
The net cash inflow from the acquisition (merger) of Omega Bank is analysed as
follows:
Amounts presented in € '000
Cash flow on acquisition:
Cash Paid (costs directly attributable to the acquisition) (601)
Plus: 'Loans and advances to Credit Institutions' 155,982
Less: 'Elimination of cash and cash equivalents between (23,545)
Omega Bank and Proton Bank'
Net cash inflow 131,836
47. EARNINGS PER SHARE
Basic earnings per share are calculated by dividing the net profit attributable
to shareholders by the weighted average number of shares in issue during the
year. Diluted earnings per share are calculated by adjusting the weighted
average number of common shares outstanding to assume exercise of the warrants
(Note 43).
Basic and diluted earnings per share are analysed below:
Amounts presented in € '000 THE GROUP THE COMPANY
Basic Earnings per share 01/01 - 31/12 08/09 - 31/12/ 01/01 - 31/12/06 08/09 - 31/12/
/06 05 05
Profits / (Loss) attributable to the 23,571,472 (1,395,525) 20,047,191 (1,395,527)
Company's Shareholders
Weighted average number of shares in issue 57,118,508 28,134,141 57,118,508 28,134,141
Basic earnings per Share ( €/Share ) 0.41 (0.05) 0.35 (0.05)
Diluted Earnings per Share
Profits / (Loss) attributable to the 23,571,472 (1,395,525) 20,047,191 (1,395,527)
Company's Shareholders according to the
Income Statement of the year
Weighted average number of shares 57,118,508 28,134,141 57,118,508 28,134,141
Plus: Shares with no consideration 5,990,329 - 5,990,329 -
(adjustment in number of shares due to
probable exercise of Warrants)
Weighted average number of shares for the 63,108,837 28,134,141 63,108,837 28,134,141
purposes of diluted earnings per share
Diluted earnings per Share (€/Share ) 0.37 (0.05) 0.32 (0.05)
48. DIVIDEND PER SHARE
The Company's Board of Directors decided and will propose, at the Regular
General Shareholders Meeting the distribution of $ 0.26 dividend per share for
the year 2006. As the distribution of dividends requires approval of the
shareholder's meeting, no liability in this respect is recognised in 2006
financial statements.
49. RELATED PARTIES TRANSACTIONS
49.1 Transactions between companies included in Consolidation
Amounts presented in € '000 THE COMPANY
31/12/2006 31/12/2005
Asset Accounts
Loans 73,395 -
Receivables from dividends 15,095
Total 88,490 -
Income
Dividend Income 15,095 -
Total 15,095 -
The aforementioned balances of the Company with its subsidiaries have been
eliminated from the consolidated financial statements.
The Company is financing its wholly owned subsidiaries, MYRTLE TRADING COMPANY
and MIMOSA TRADING SA, for their trading activities. The amount of € 73,395
thous. is the amount due from the subsidiaries as at 31st December 2006. The
abovementioned subsidiaries have undertaken the obligation to repay the Company
any and all amounts from time to time lent to them, on first demand.
The amount of € 15,095 thous. refers to the dividends of the Company from its
wholly owned subsidiaries, MYRTLE TRADING COMPANY (amount of € 4,127 thous.) and
MIMOSA TRADING SA (amount of € 10,968 thous.). In particular, at 29th December
2006 the Board of Directors of the abovementioned companies decided to
distribute the above amounts within the first quarter of 2007, as cash dividend.
49.2 Transactions with Associates
Amounts presented in € '000 THE GROUP
31/12/2006 31/12/2005
Asset Accounts
Other amounts due 11 -
Total 11 -
Liability Accounts
Deposits 6,574 -
Total 6,574 -
Income /Expenses
Interest and similar expenses 28 -
Other income 26 -
Total 54 -
The aforementioned balances regarding transactions have not been eliminated from
the consolidated financial statements.
49.3 Transactions with Management and Members of the Board of Directors
Amounts presented in € '000 THE GROUP THE COMPANY
31/12/2006 31/12/2005 31/12/2006 31/12/2005
Asset accounts
Loans 8,100 - - -
Other assets 375 - - -
Total 8,475 - - -
Liability accounts
Deposits 34,868 - - -
Other Liabilities 216 - - -
Total 35,084 - - -
Letters of Guarantee 127 - - -
Income
Interest and similar income 212 - - -
Other income 1,405 - - -
Total 1,617 - - -
Expenses
Remuneration 2,436 - 155 -
Interest and similar expenses 314 - - -
Other expenses 1,119 - - -
Total 1,433 - - -
Directors of the Company and their immediate relatives control 16,40 per cent of
the voting shares of the Company.
No salaries or loans were they paid to the Directors of the Company for the
period, apart from salaries paid to CEO of the Company.
49.4 Other related party transactions
An affiliated company of Mrs Angeliki Frangou, Chairman of the BoD of the
Company, provided general and administrative services including office space,
utilities and secretarial support (for $10,000 per month). All sums due in
connection with such services ceased to be payable on the completion of the
business combination. During the year the expenses that have been recognised in
the Income Statement amount to € 56.756. This balance bears no interest. The
amount of € 18.550 due at 31st December 2006 was repaid on 11th January 2007.
On 20 July 2006, the Company paid a success-based advisory fee of € 790,000 to S
Goldman Advisors Limited, in connection with the acquisition of PROTON BANK.
Sheldon Goldman, then a Director of the Company, is also managing director of S
Goldman Advisors Limited.
On 30 June 2006, the Company paid IBG a success-based advisory fee of €
3,300,000 on completion of the acquisition of PROTON BANK. IBG is affiliated
with Marfin Financial Group ('MFG') and Marfin Bank AS. Andreas Vgenopoulos, the
Company's Deputy Chairman, was also the Vice President of MFG and Chairman of
Marfin Bank SA.
50. COMMITMENTS, CONTINGENT ASSETS AND LIABILITIES
50.1 Contingent Legal Liabilities
As at 31 December, 2006 there were pending litigations against the Group in
connection with its activities. Based on legal advice the Board of Directors
believes that there is adequate defence against all claims and it is not
probable that the Group will suffer any significant damage. Therefore, no
provision has been made in the financial statements regarding these cases.
Material litigation settled during the year:
The Company had one claim during the year 2006. In particular, the Amaranth
LLC, a shareholder of the Company, issued proceedings against the Company
alleging that the Company failed to repurchase shares owned by Amaranth in the
Company, in accordance with the Company's bye-laws. On 23rd October 2006, the
Supreme Court of Bermuda ordered the legal action previously instituted by
Amaranth LLC against the Company to be discontinued. No sums were paid by the
Company to Amaranth in connection with this order.
50.2 Contingent Tax Liabilities
Proton Group is subject to Greek tax legislation. Under Greek Law, submitted
tax returns are not considered as final and are subject to revision by tax
authorities as a result of tax inspection in entities books and records. Tax
liabilities are considered as final by stature after the completion of five
years from the end of the relevant fiscal year, however it is common that the
tax authorities will audit the entity's books and records. The tax authorities
commonly seek to disallow expenses on the basis that they are not properly
documented or that they do not represent proper business expenses, relying on a
substantial degree of subjective judgement on the part of the tax management in
order an out-of-court settlement to be reached. In practice, both companies and
tax authorities tend to reach an out-of-court settlement at an acceptable level
of additional taxes.
The accounting years that have not been inspected yet by the tax authorities for
each of the Group's companies are as follows:
Company Name Domicile Open tax years
Mimosa Trading SA 1 Marshall Islands -
Myrtle Trading Company 1 Marshall Islands -
Proton Bank AE Greece 2005-2006
Proton Asset Management AE Greece 2005-2006
Proton Mutual Funds Management Co AE Greece 2005-2006
First Global Brokers SA Serbia 2002-2006
Intellectron Systems SA Greece 2001-2006
Omega Kahn Financial Services SA Switzerland 2004-2006
Company Name Domicile Open tax years
Omega SA Financial advisors - Investments & Real Estate Mgt Greece 2006
Omega Mutual Funds Mgt Co SA Greece 2006
Omega Insurance AE Greece 2006
OMEGA Insurance Services AE Greece 2006
Omega Portfolio investment SA Greece 2006
Note 1: Not subject to income tax
As a result of the above the Group's respective tax obligations for periods
covering one to six accounting years have not been finalised. No additional
provision was recorded as the outcome of the tax audit cannot be reliably
estimated at this stage.
50.3 Off balance sheet items
Amounts presented in € '000 THE GROUP THE COMPANY
31/12/2006 31/12/2005 31/12/2006 31/12/2005
Letters of Guarantee 85.172 - - -
Letters of credit 2.804 - - -
Total 87.976 - - -
50.4 Assets given as Collaterals
Government and Bank bonds of nominal value € 5,500 thous. and € 10,500
respectively have been pledged as securities for liquidity and credit limit
purposes.
50.5 Finance lease - Operating lease commitments
(a) The Group as a lessor, has signed non cancellable operating lease agreements with a value of 1,049
thousand euros.
(b) The Group leases for its operating purposes, offices for head quarters and branches. The future
minimum lease payments under non cancellable operating leases, are as follow:
Amounts presented in € '000 31/12/2006
Less than 1 year 3,712
Between 1 to 5 years 16,206
More than 5 years 39,969
Total 59,887
Monthly lease payment 309
Guarantees which will be offset at the lease termination 1,123
(c) The Group leases vehicles for private use. The future minimum lease payments for cars under non
cancellable operating lease arrangements are as follows:
• Leased tangible assets: vehicles for private use
• Lease term: 4 years per leased vehicle.
• Lease guarantees offset at the end of the lease: 14 thousand euros
• Accrued lease payments recognised in the income statement during the period: 101 thousand euros.
Amounts presented in € '000 31/12/2006
Less than 1 year 204
Between 1 to 5 years 309
More than 5 years -
Total 513
(d) The amount of unutilized approved finance lease facilities at 31st December 2006 was € 3,935 thous.
50.6 Stock Option Plan of Proton Group
On 24th November 2006, the Extraordinary General Meeting of Shareholders of
Proton Bank approved a share option plan for the members of the Board of
Directors, key management, its employees and the Bank's related companies in the
form of stock options according to the article 13 of Law 2190/1920 after the
proposition of the Board of Directors and the Remuneration Committee. The
program has a contractual term of six years ending in December 2012. According
to the plan, if all share options are exercised, then a number of up to
6.268.382 shares will be issued on behalf of the plan beneficiaries. The
exercise price will be 10.46 euro per share and the options are exercisable for
a three year period from the grand date. In the event that not all shares are
exercised and the share capital increase is not fully covered, then according to
the provisions of the article 13 (S)1 of Law 2190/1920, the share capital will
increase up to the amount of coverage. The above program has not been
implemented yet, since the final details of the program have not been set by the
Remuneration Committee and approved by the Board of Directors.
50.7 Purchase of treasury shares by Proton Group
On 24 November 2006, the Extraordinary General Meeting of Shareholders of Proton
Bank approved of the acquisition of up to 10% of the Bank's shares (6.268.382),
for a price range from five (5) to fifteen (15) euros per share for the twelve
month period starting from the date of approval by the General Meeting of
Shareholders. No treasury shares were acquired since the decision of the
General Meeting of Shareholders.
51. POST-BALANCE SHEET EVENTS
1. In the year 2007 the subsidiary of the Company MIMOSA TRADING SA completed
the acquisition in the open market of approximately 12,55 million shares in
Marfin Popular Bank, a commercial banking group listed on the Athens and Cyprus
Stock Exchange, for approximately € 105,1 million. This acquisition was funded
through cash balances and a loan facility. The Company's current intention is to
retain this minority stake as an investment. Marfin Popular Bank is the result
of a merger between Marfin Financial Group, Egnatia and Cyprus Popular Bank
which occurred in the last quarter of 2006 and as a result is a significant bank
in both Greece and Cyprus, with diversified banking interests in the retail,
commercial and investment banking sectors. These shares represent approximately
1.6% of Marfin Popular Bank's outstanding shares as of December 31, 2006.
2. On 31 January 2007, Proton Bank and the majority shareholders of the
insurance company 'International Life SA Life Insurance' agreed to the purchase
of 51% of the shares of International Life by the Proton in cash. The
agreement provides for the purchase price to be equal to 1.55 the book value of
International Life as of 31st December 2006 times the percentage to be acquired.
The completion of this agreement is subject to the due diligence on the
companies belonging to the International Life Group and the approval of the
relevant regulatory authorities. The transaction is expected to be completed
within three (3) months by April 30th 2007.
Apart from the events mentioned above there are no other subsequent events,
which regard the Company or the Group which, according to the International
Financial Reporting Standards, need to be mentioned.
52. APPROVAL OF FINANCIAL STATEMENTS
The financial statements of 'IRF European Finance Investments Limited' ('the
Company') as well as the consolidated financial statements of the Company and
its subsidiaries ('the Group'), for the year ended 31 December 2006 were
approved by the Company's Board of Directors on March 16th, 2007 and are subject
to the final approval of the General Meeting of the Shareholders according the
Company's Bye-laws.
Independent Auditors Report on pages 5 to 6.
Athens, March 16th 2007
Angeliki Frangou Loukas Valetopoulos
_________________________________ _________________________________
Chairman, Non - Executive Director Chief Executive Officer, Director
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