IRF European Fin Investments Ltd
31 August 2006
IRF European Finance Investments Limited ('the Company')
Interim Results
31 August 2006
IRF European Finance Investments Ltd (AIM:IRF) announces its interim results for
the six months ended 30 June 2006.
Financial highlights
Amounts in € THE GROUP THE COMPANY
Note 01/01 - 30/06/2006 01/01 - 30/06/2006
Turnover
Profit for the Period 6,257,390 6,257,390
Profit before interest, income tax (222,692) (222,692)
Profit before interest, income tax & depreciation (222,692) (222,692)
Profit before income tax 6,257,390 6,257,390
Income Tax Expense
Profit for the Period after taxes 6,257,390 6,257,390
Attributable to:
Equity holders of the parent 6,257,390 6,257,390
Minority Interests 6,257,390 6,257,390
Basic earnings per Share (in Euro /share) 16 0.11 0.11
Diluted earnings per Share (in Euro /share) 16 0.10 0.10
Commenting on the results, Angeliki Frangou, Chairperson of IRF European Finance
Investments Ltd, said: 'We are pleased with Proton's results. We also look
forward to the pending merger between Proton and Omega, which is progressing
smoothly, and which we expect to occur by end September 2006'.
Proton, following the merger, will focus on a wide range of commercial and
investment banking services and is expected to have a capital base of
approximately €300 million, total assets exceeding €1.5 billion, advances of
€900 million and a deposit base of €1.1 billion.
For further information:
IRF European Finance Investments Ltd
Angeliki Frangou, Chairperson Tel: +30 - 210 - 4280560
Collins Stewart Limited
Kripa Radhakrishnan / Stewart Wallace, Corporate Finance Tel: +44 (0) 20 7523 8350
About IRF
IRF was incorporated to serve as a vehicle for the acquisition of interests in
the financial services industry in Europe. IRF's strategy is to invest in a
financial services institution having one or more of the following
characteristics: an attractive franchise with opportunities for geographic
expansion and/or the addition of new products and services; an institution that
is constrained by its current capital and limited in access to the capital
markets due to its size or other considerations; or an institution that is
undervalued because the institution is too small for larger acquirers, has a
capital deficiency, or is in a geographic market not currently being sought by
larger banks. IRF was listed on AIM in November 2005. On 30 June 2006, IRF
acquired a 28 per cent. interest in Proton Investment Bank S.A. ('Proton').
About Proton
Proton focuses on investment banking and the provision of specialised corporate
advisory and investment services. Proton was listed on the Athens Stock
Exchange in December 2005.
Statement of Directors' responsibilities in respect of the interim accounts
The Directors are responsible for preparing the interim accounts and
consolidated interim accounts which present fairly the financial position and
the performance of the Company and the Group (ref. par. 6.5) in accordance with
applicable law and regulations.
They have elected to prepare the interim financial statements and consolidated
interim financial statements in accordance with IFRS as adopted by the EU.
In preparing these interim accounts, the Directors:
• select suitable accounting policies and then apply them consistently;
• make judgments and estimates that are reasonable and prudent;
• state whether they have been prepared in accordance with IFRS as adopted
by EU and;
• prepare the interim accounts on the going concern basis unless it is
inappropriate to presume that the Group will continue in business.
The Directors are responsible for keeping proper accounting records that
disclose with reasonable accuracy at any time the financial position of the
Company and the Group and enable them to ensure that their interim accounts
comply with applicable laws and regulations. They have general responsibility
for taking such steps as are reasonably open to them to safeguard the assets of
the Group and the Company and to prevent and detect fraud and other
irregularities.
Auditor's Review Report
To the shareholders of 'IRF European Finance Investments Limited'
We have reviewed the accompanying Interim Financial Statements and the
Consolidated Interim Financial Statements of 'IRF European Finance Investments
Limited', as of and for the six-month period ended 30 June 2006. These interim
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with the Greek Review Standard, which has
adopted the International Standard on Review Engagements. This Standard requires
that we plan and perform the review to obtain moderate assurance as to whether
the interim financial statements are free of material misstatement. A review is
limited primarily to inquiries of company personnel and analytical procedures
applied to financial data, and thus provides less assurance than on audit. We
have not performed an audit and, accordingly, we do not express an audit
opinion.
Based on our review, nothing has come to our attention that causes us to believe
that the accompanying Interim Financial Statements and the accompanying
Consolidated Interim Financial Statements do not give a true and fair view in
accordance with the International Financial Reporting Standards that have been
adopted by the European Union.
Without qualifying our review conclusion, we draw attention to note 13.2 to the
interim financial statements that the tax obligations of the Group for the year
2005 and the period ended 30 June 2006 have not yet been audited by the tax
authorities and accordingly its tax obligations for these years are not
considered final. The outcome of a tax audit cannot presently be determined.
1. Income Statement
Amounts in € THE GROUP THE COMPANY
Note 01/01 - 30/06/2006 01/01 - 30/06/2006
Continuing Operations
Administrative Expenses (248,618) (248,618)
Other Operating Expenses 25,926 25,926
Profit before interest and income tax (222,692) (222,692)
Financial income 6,480,409 6,480,409
Financial Expenses (327) (327)
Profit before income tax 6,257,390 6,257,390
Income Tax Expense 0 0
Profit for the Period 6,257,390 6,257,390
Attributable to:
Equity holders of the parent 6,257,390 6,257,390
Minority Interests 0 0
6,257,390 6,257,390
Basic earnings per Share (in Euro /share) 16 0.11 0.11
Diluted earnings per Share (in Euro /share) 16 0.10 0.10
The results above relate to continuing operations. The notes on the following
pages form an integral part of these interim financial statements and
consolidated interim financial statements.
2. Balance Sheet
Amounts in € THE GROUP THE COMPANY
Note 30/6/2006 31/12/2005 30/6/2006 31/12/2005
ASSETS
Cash and balances with 2,217,445 0 0 0
central bank
Due from Banks 217,169,824 2,206,324 202,431,218 2,206,324
Restricted cash held in 10 11,860 210,294,081 11,860 210,294,081
Trust
Financial Assets at fair 151,560,318 0 0 0
value through profit or
loss
Loans and advances to 276,961,358 0 0 0
customers,net
Assets classified as held 854,760 0 0 0
for sale
Property, plant and 1,125,390 0 0 0
equipment, net
Goodwill and other 9 68,842,814 0 0 0
Intangible Assets
Investments in 8 0 0 126,686,519 0
Subsidiaries
Deffered Tax Assets 419,630 0 0 0
Other Assets 22,030,263 5,309 45,587 5,309
Total Assets 741,193,663 212,505,713 329,175,184 212,505,713
LIABILITIES
Due to banks 44,138,000 0 0 0
Due to Customers 62,705,488 0 0 0
Derivative financial 159,227 0 0 0
intruments
Retirement benefit 220,662 0 0 0
obligations
Other liabilities 279,286,497 169,827 123,478,129 169,827
Compound financial 11 1,907,805 203,426,153 1,907,805 203,426,153
instrument
Total Liabilities 388,417,679 203,595,980 125,385,934 203,595,980
SHAREHOLDERS' EQUITY
Equity
Share Capital 71,418 71,418 71,418 71,418
Share Premium 198,855,969 10,233,842 198,855,969 10,233,842
Reserves 0 0 0 0
Other reserves 0 0 0 0
Retained Earnings / 4,861,863 -1,395,527 4,861,863 -1,395,527
(losses)
Equity attributable to 203,789,250 8,909,734 203,789,250 8,909,734
shareholders' of the
parent
Minority Interest 148,986,734 0 0 0
Total Shareholders Entity 352,775,984 8,909,734 203,789,250 8,909,734
Total Equity and Total 741,193,663 212,505,713 329,175,184 212,505,713
Liabilities
These interim accounts were approved by the Board of Directors on 30 June 2006
and were signed on behalf by:
Georgios Kintis
Chief Executive Officer
3. Statement of Changes in Equity (Group)
Consolidated Statement of Changes in Equity
Share Capital Attributable To Shareholders
Amounts in € Share Share Retained Total Minority Total
Capital Premium Earnings / Interest
(losses)
Company's Equity at 1st January 2006 71,418 10,233,842 (1,395,527) 8,909,734 0 8,909,734
according to IFRS
Net Profit for the period 01/01-30/ 0 0 6,257,390 6,257,390 0 6,257,390
06/2006
Conversion of Compound Financial 0 188,622,126 0 188,622,126 0 188,622,126
Instruments to Common Shares (after
the acquisition of the subsidiary)
Minority Interest from the 0 0 0 0 148,986,734 148,986,734
Acquisition of the Subsidiary on 30
June 2006
Total Profit /Loss for the Period 0 188,622,126 6,257,390 194,879,516 148,986,734 343,866,250
Total shareholders' equity at 30 71,418 198,855,969 4,861,863 203,789,250 148,986,734 352,775,984
June 2006
4. Statement of Changes in Equity (Company)
Company Statement of Changes in Equity
Share Capital Attributable To Shareholders
Amounts in € Share Capital Share Premium Retained Total
Earnings /
(losses)
Equity at 1st January 2006 according to IFRS 71,418 10,233,842 (1,395,527) 8,909,734
Changes in Equity for the period 01/01 - 30/06/2006
Net Profit for the period 01/01-30/06/2006 0 0 6,257,390 6,257,390
Conversion of Compound Financial Instruments to 0 188,622,126 0 188,622,126
Common Shares (after the acquisition of the
subsidiary)
Total Profit /Loss for the Period 0 188,622,126 6,257,390 194,879,516
Total shareholders' equity at 30 June 2006 71,418 198,855,969 4,861,863 203,789,250
The notes on the following pages form an integral part of these interim
financial statements and consolidated interim financial statements.
5. Cash Flow Statement
Cash Flow Statement Notes THE GROUP THE COMPANY
Amounts in € 01/01 - 30/06/2006 01/01 - 30/06/2006
Operating Activities
Profit for the period 6,257,390 6,257,390
Plus (Less) Adjustments:
Bank Interest Income (6,480,409) (6,480,409)
Exchange Differences (20,370) (20,370)
Prior year adjustments 877 877
Total Adjustments to Profit after Tax (6,499,903) (6,499,903)
(242,513) (242,513)
Plus (Less) Adjustments for working capital
Decrease / (Increase) in Trade and other Receivables (40,279) (40,279)
(Decrease) / Increase in Trade and other Payables (except banks) 123,308,154 123,308,154
123,267,875 123,267,875
Cash flow from Operating Activities 123,025,362 123,025,362
Net cash flow from Operating Activities 123,025,362 123,025,362
Investing Activities
Acquisition of subsidiaries (less cash & cash equivalents of the 8 (109,730,468) (126,686,519)
acquired Subsidiary)
Restricted cash placed on Trust 201,253,664 201,253,664
Interest received 4,559,948 4,559,948
Net cash flow from Investing Activities 96,083,144 79,127,093
Financing Activities
Net cash flow from Financing Activities (0) (0)
Effects of exchange rates change on 'Cash & cash equivalents' (1,927,561) (1,927,561)
Net increase / decrease in cash and cash equivalents 217,180,945 200,224,894
Cash and cash equivalents at the beginning of the period 2,206,324 2,206,324
Cash and cash equivalents at the end of the period 219,387,269 202,431,218
Amounts in € THE GROUP THE COMPANY
Cash and balances with central bank 2,217,445 0
Due from Banks 217,169,824 202,431,218
Cash and cash equivalents at the end of the period 219,387,269 202,431,218
The notes on the following pages form an integral part of these interim
financial statements and consolidated interim financial statements.
6. Additional Information
6.1 Organization and business operations
IRF European Finance Investments Ltd. (the 'Company') was incorporated on 8
September 2005 under the Bermuda Companies Act. The Company is an investing
company (or cash shell) formed to serve as a vehicle for the acquisition of an
entity in the financial services industry in Europe, with a primary focus on
credit institutions and insurance companies in Greece, Bulgaria, Romania and
Turkey. The IRF European Finance Investments Limited (IRF) is a company listed
on AIM, a market operated by the London Stock Exchange plc (AIM).
The principal legislation governing the Company is the Bermudian Companies Act
and regulations issued thereunder. The Company comply with the Corporate
Governance Guidelines for AIM Companies as published by the Quoted Companies
Alliance (as far as applicable) following the Acquisition.
In November 2005, the Company completed its Initial Public Offering ('the
Offering') in which 45.833.340 units were sold to institutional and other
investors at a price of $ 6.00 per unit. Each unit consisted of one Share and
two Warrants. The Shares and Warrants were admitted to trading on AIM on 14
November 2005.
The net proceeds of the Company's Initial Public Offering, after payment of
underwriting discounts and expenses, being € 209.493.368 ($252.083.370) was
placed in a trust and invested in U.S. Treasury bills having a maturity date of
180 days or less. The funds in the Trust were only be used by the Company to
finance one or more business combinations approved by the Shareholders. However,
since a Qualified Business Combination was completed, funds in the Trust
Accounts were released to the Company and the Company may use these funds
without restriction.
On 27 June 2006, the Special General Meeting of the Shareholders' approved the
acquisition of the 28 per cent of the issued share capital of PROTON Investment
Bank SA being 12.638.050 shares, a Greek investment bank, listed on the Athens
Stock Exchange at a price of € 9.50 per Proton share, for a total consideration
of € 120.061.475. The acquisition of PROTON Investment Bank SA completed on 30
June 2006.
PROTON Investment Bank SA was formed in September 2001 under the name Arrow
Investment Bank S.A.. Proton's trade name was changed to Proton Investment Bank
S.A. in November 2001. In the same year, Proton was licensed by the Bank of
Greece to operate as a financial institution in Greece. Proton's head offices
are located in Kallithea, where the sole branch of Proton is also located.
Proton's shares were listed on the Athens Stock Exchange in December 2005.
Proton focuses on investment banking and the provision of specialised corporate
advisory and investment services. Proton operations are dividend into four
segments: investments, banking, brokerage and mutual funds and asset management.
Proton is also expanding its business out into commercial banking through a
proposed merger with Omega.
6.2 Statement of Compliance
The interim financial statements and consolidated financial statements for the
six months ended 30 June 2006 have been prepared in accordance with the
International Financial Reporting Standards (IFRS), IAS 34 'Interim Financial
Statements' as adopted by the European Union (EU) and conform to the interim
financial reporting.
6.3 Basis of Presentation
The following accounting principles (par. 7) have been applied consistently in
dealing with the items which are material in relation to the financial
information of IRF European Finance Investments Limited set out in this report.
The Consolidated Financial Statements of the Group have been prepared in
accordance with International Financial Reporting Standards (IFRS) as adopted by
the European Union.
The accounts are prepared on the historical cost basis except for financial
instruments classified as available-for-sale securities, financial assets and
financial liabilities held at fair value through the income statement and
derivatives which are valued at fair value.
6.4 Currency Presentation
The financial statements are presented in Euros which is the functional currency
of the Group.
The functional currency is the currency of the primary economic environment in
which an entity operates and is normally the one in which it primarily generates
and expends cash. Management used its judgment to determine the functional
currency that most faithfully represents the economic effects of the underlying
transactions, events and conditions. As part of this approach, management
considers various factors stated on IAS 21. Priority is given to factors such as
the currency that mainly influences costs and sales. This currency is mainly
Euro since the Group is and will be engage in a business combination in Europe.
The Company has also issued financial instruments in USD. However, according to
par. 12 of IAS 21, these factor is not given priority.
6.5 Basis of consolidation
The consolidated financial statements include the financial statements of the
IRF European Finance Investments Limited (''Company') and its subsidiaries and
hereafter referred to as ''Group'. Subsidiaries are entities which are
controlled by the parent company (ref. par.8). Control exists when the Company
has the power, directly or indirectly, to govern the financial and operating
policies of an entity so as to obtain benefits from its activities.
The financial statements of the subsidiaries have been prepared according to the
parent company's balance sheet date. Accounting policies of subsidiaries have
been changed where necessary to ensure consistency with the policies adopted by
the Company.
All subsidiaries are consolidated according to the method of full consolidation.
Subsidiaries are included in the consolidated financial statements from the date
that control commences until that control ceases. In the income statement the
proportion of the subsidiaries is included from the day of their acquisition.
6.6 Comparative Figures
The Group prepared the consolidated financial statements for the first time for
the six month period ended on 30 June 2006. Thereby, the consolidated interim
balance sheet does not present relevant comparative figures for the year ended
31 December 2005.
The Company's interim balance sheet for six month period ended 30 June 2005
present relevant comparative figures with those reported for the year ended 31
December 2005 (8 September 2005 to 31 December 2005).
The Income Statement does not include comparative information since the Company
incorporated in Bermuda on 8th September 2005 and the Subsidiary acquired on 30
June 2006.
7. Accounting Principles
The accounting policies applied and the judgment and estimates used in these
interim financial statements conform to the International Financial Reporting
Standards (IFRS) that have been issued by the International Accounting Standards
Board (IASB) and their interpretations that have been issued by the
International Financial Reporting Interpretations Committee (IFRIC) of the IASB.
The interim financial statements and consolidated financial statements of IRF
European Finance Investments Ltd for the first semester of 2006, do not include
all the information that are necessary during the annual financial statements,
therefore the use of the annual financial statements of 2005 is appropriate. The
accounting principles that had been used in the preparation of the annual
financial statements of 2005 have not been changed during the first semester of
2006.
The preparation of the financial statements according to IFRS requires the use
of estimates and assertions. Major assumptions made by the management in order
to apply certain accounting policies have been highlighted were appropriate. The
estimations and the assertions in which the management proceeds are always
valued and come from the experience and other factors, included future
expectations under reasonable circumstances.
7.1 Consolidation
Subsidiaries: All the companies that are managed or controlled, directly or
indirectly, by another company (parent) either through the majority of voting
rights or through its significant influence and control of the business
decisions taken. The IRF European Finance Investments Limited acquires and
exercises control through significant influence and control of the business
decisions taken. Therefore, subsidiaries are companies in which control is
exercised by the parent. The existence of potential voting rights that are
exercisable at the time the financial statements are prepared, is taken into
account in order to determine whether the parent exercises control over the
subsidiaries. Subsidiaries are consolidated completely (full consolidation)
using the purchase method from the date that control over them is acquired and
cease to be consolidated from the date that control no longer exists.
The acquisition of a subsidiary by the Group is accounted for using the purchase
method. The acquisition cost of a subsidiary is the fair value of the assets
given as consideration, the shares issued and the liabilities undertaken on the
date of the acquisition plus any costs directly associated with the transaction.
The individual assets, liabilities and contingent liabilities that are acquired
during a business combination are valued during the acquisition at their fair
values regardless of the participation percentage. The acquisition cost over and
above the fair value of the individual assets acquired is booked as goodwill. If
the total cost of the acquisition is lower than the fair value of the individual
assets acquired, the difference is immediately transferred to the income
statement.
Inter-company transactions, balances and unrealized profits from transactions
between Group companies are eliminated in consolidation. Unrealized losses are
also eliminated except if the transaction provides indication of impairment of
the transferred asset. The accounting principles of the subsidiaries have been
amended so as to be in conformity to the ones adopted by the Group.
7.2 Investments in debt and equity instruments
The Group classifies its investments as held for trading, held-to-maturity or
available-for-sale. The classification is decided upon at initial recognition.
Initially, all investments are recorded on the trade date at fair value.
Transactions costs are capitalized, pertain to available-for-sale and
held-to-maturity investments, whereas they are recorded directly to the income
statement if they pertain to held-for-trading investments.
Trading securities: This category includes investments which are acquired in
order to generate short term profit and include securities such as stocks,
bonds, and mutual fund units. After initial recognition, investments held for
trading are stated at fair value. The gains or losses arising from the changes
in the fair value of these investments are included in the income statement.
Available-for-sale securities: This category includes financial assets that are
intended to be held for on indefinite period of time, to maturity or sold in
response to needs for liquidity or to gain from the changes in interest rates or
foreign currency exchange rates. After initial recognition, the investments
classified as available-for-sale are carried at fair value. Gains and losses
arising from changes in fair value of these investments are recognized directly
in equity. These gains or losses are removed from equity and recognized in the
income statement when they are sold or there is objective evidence of
impairment.
Fair value of financial instruments:
Fair value is the value that a financial instrument can be traded (purchase/
sale) between two parties that are aware of the market and this trade is
executed for commercial reasons. The financial instruments of the Group, as
indicated by the IFRS, are included on balance sheet captions and on off balance
accounts in cases that these concern letters of guarantee of the Bank. Short
term positions of the Group as well as short term deposits from clients are
reported on cost value since these financial instruments have short term
expirations and are turned into cash or redeem without significant transaction
costs. Loans to clients and letters of guarantee are reported at their cost
value minus estimated impairement. Trading Portfolio and available for sale
securities are reported at their fair value, which is determined by their market
price on the balance sheet date.
Trade Date
All regular purchases or sales of a financial asset are recognized on the trade
date which is the date that the Group commits itself to purchase or sell an
asset. The term 'regular' transactions requires that the delivery of a financial
asset is realized within the time period specified by either the responsible
committee or is established by the existing practice.
7.3 Sale and Repurchase agreements (Repos)
Securities sold subject to a linked repurchase agreement (Repos) are disclosed
in the financial statements as available-for-sale investments either as held for
sale, while the respective liability is disclosed, depending on the counter
party, as amounts due to credit institutions, to customers or other deposits.
Securities purchased under agreements to resell (Reverse Repos) are recorded in
the financial statements as due from credit institutions. The difference between
sale and repurchase price is recorded in the income statement and is accrued
over the term of the agreement using the effective interest rate method.
7.4 Derivative financial instruments and hedging
The Group uses Derivative financial instruments for the purpose of acquisition
of profit and for its customers. Derivative financial instruments include
forward foreign exchange contracts, interest rate swaps, foreign exchange swaps
and other derivative financial instruments.
Derivatives for trading purposes: Derivatives that do not qualify for hedging
purposes are considered as entered into for trading purposes. Initially,
derivatives are recognized in the balance sheet at fair value (which is
essentially the transaction cost) on the date on which the contract is entered
into. Subsequently they are remeasured at fair value. Fair values are obtained
from quoted market prices, discounted cash flow models and options pricing
models as appropriate. All derivatives are carried as assets when their fair
value is positive and as liabilities when their fair value is negative.
Embedded Derivatives: A derivative may be a component of a financial instrument.
The combined financial instrument includes both a derivative and a host contract
and is known as embedded derivative. An embedded derivative should be separated
from the host contract and accounted for as a derivative if all of the following
conditions are met: a) the economic characteristics and risks of the embedded
derivative are not closely related to the economic characteristics and risks of
the host contract, b) a separate instrument with the same terms as the embedded
derivative would meet the definition of a derivative and c) the hybrid
(combined) instrument is not measured at fair value with changes in fair value
reported in the income statement.
Changes in the fair value of derivatives are reported in the income statement.
Hedging: For the purposes of hedge accounting, hedging is designated as a fair
value hedge, when the exposure to changes in the fair value of a recognized
asset or liability is hedged or as cash flow hedge when the exposure to
variability in cash flows that is attributable to a particular risk associated
with a recognized asset or liability is hedged. For the derivatives that are
used for hedging purposes the Group applies hedge accounting which includes a
description of the hedged item, of the hedging instrument, the nature of the
risk being hedged and the enterprise's risk management strategy. Furthermore, it
documents whether or not the hedging is effective at inception and throughout
the life of the hedge. That is whether or not fair value changes derived from
the hedged exposure are offset by the changes of the hedging instrument and are
within a range of 80% to 125%.
In fair value hedge transactions which meet the criteria for hedge accounting,
gains or losses which are due to the valuation of the hedging instrument to fair
value are recorded in the income statement. The hedged item is valued at fair
value and the gains or losses are recorded in the income statement.
Changes in the fair value of the effective portion of derivatives that are
designated and qualify as cash flow hedges and that prove to be highly effective
in relation to the hedged risk, are recognized in the hedge reserve in equity.
Otherwise, gains and losses which refer to the ineffective portion of the hedge
are recorded in the income statement.
When the criteria for hedge accounting are no longer met, due to the hedging
being no longer effective or due to the fact that the hedged exposure has been
derecognized, then the related accumulated gains or losses recognized in equity
are transferred to the income statement.
7.5 Property, Plant & Equipment
Land and buildings are used by the Group either for operational purposes of the
Group or for administrative purposes. Fixed assets include land, buildings,
leasehold improvements, furniture and other equipment and vehicles. Fixed assets
are stated at cost less accumulated depreciation and impairment losses.
Depreciation: Depreciation on the other assets is calculated using the
straight-line method over their expected useful life, which is reviewed
annually, as follows:
Furniture and other equipment 5 - 8 years
Machinery 7 - 14 years
Vehicles 7 - 9 years
Leasehold improvements are depreciated over either the useful life of the
improvement or the duration of the lease whichever is the shorter.
Impairment: The Group reviews annually its fixed assets in order to find any
indications of impairment. If there are indications of impairment the carrying
value of the fixed asset is reduced to its recoverable amount with the
respective decrease in the operating results.
7.6 Intagible Assets
Goodwill: Acquisitions of subsidiaries are recorded in the mother company's
books according to the purchase method. The difference between the cost value of
the subsidiaries and the fair value of their net assets is considered to be
goodwill and is recorded in a separate account in the intangible assets caption.
In the financial statement of the mother company prepared in accordance to the
IFRS. goodwill from the acquisition of subsidiaries presented according to IFRS
3 which provides that the difference between cost value and fair value is
recorded as goodwill.
At each balance sheet date, on annual basis, the carrying amount of goodwill is
reviewed by the Group management for evidence of impairment. In case that the
recoverable value is lower than the carrying amount, then the goodwill is
reduced to its recoverable amount.
Software: Software which is acquired and can be clearly identified is
capitalized at the cost of acquisition. Subsequently, they are carried at cost
less any accumulated amortization and any impairment losses. Software is
amortized over 3 years.
7.7 Loans and advances to customers and provision for loan losses
Loans and advances are recorded on the disbursement date at cost, which is the
fair value of the capital, including the direct expenses and income which relate
to the loan. Subsequent to initial recognition, loans and advances are carried
at amortized cost using the effective interest rate method. Loans and advances
are carried on the balance sheet after deducting provisions for losses.
The recoverability of loans and advances is reviewed on an individual basis for
those loans which the Group considers as significant. The evaluation takes into
account the financial position, past repayment pattern, the credit worthiness of
guarantors and the realisable value of collaterals.
When a loan is considered as doubtful, its carrying value is reduced to its
recoverable amount. Reversal of provision for loan losses is conducted only in
the case that the credibility of the client has improved to such extend as to
consider the collectibility of capital and interest according to the terms of
the loan contract possible or without delay.
Loans and advances are written off against the related provision, when it is
considered uncollectible.
7.8 Leases
Operating Leases
The Group has entered into operating lease contracts where risks and rewards of
ownership of the assets remain with the lessor. Payments made under operating
leases are charged to the income statement on a straight-line basis over the
period of the lease.
Finance Leases
The Group has entered into finance lease contracts where risks and rewards of
ownership of the leased assets have been assumed by the Group.
Finance leases are carried at the lower between the fair value of the lease
payments and the present value of the minimum lease payments.
The leased assets are depreciated over the shorter period between the length of
the contract and the useful life unless it is almost certain that the Group will
assume the property of the asset upon the termination of the contract. If the
lease transfers the ownership of the asset upon the termination of the contract
or if there is the option of purchase at a lower price, then the depreciable
period is the asset's useful life.
Lease payments are distinguished in the amount referring to capital repayment
and interest repayment. The distinction is made in order to achieve a fixed
repayment schedule. Interest payments are charged to the income statement.
7.9 Pension Benefits
The Group participates both to defined benefit and defined contribution plans.
For the defined contribution plans the Group is obliged to pay on a regular
basis specific amounts to the pension funds.
A defined benefit plan is essentially a pension plan according to which the
Group obligation is determined by the compensation amount determined by Law 2112
/1920, that the employee will receive at retirement date based on his or her
age, years of employment and salary. The liability in respect of a defined
benefit pension plan reported on the Balance Sheet is calculated annually by
independent actuaries using the projected unit credit method. The present value
of the defined benefit obligation is determined by discounting the estimated
future cash outflows using interest rates of government securities which have
terms to maturity approximating the terms of the related liability.
Accumulated actuarial gains and losses which arises due to the deviation from
the estimated amounts and the realized amounts as well as variations of the used
actuarial assumptions, for the portion that is in excess of 10% of accrued
obligations, are charged to the income statement over the service lives of the
related employees.
7.10 Borrowing Costs
Borrowing cost, according to IAS23, is recognized as an expense in the income
statement of the year in which it incurred.
7.11 Custodian Services
The Bank offers custodian services to its subsidiary that manages mutual funds.
The value of securities that the Bank holds through this activity is not
included in the attached financial statements as they are not considered assets
of the Bank as of 30 June 2006.
7.12 Offsetting
Financial assets and liabilities are offset and the net amount is reported in
the financial statements when there is a legal right to offset and there is
intention to settle on a net basis, to realize the asset and settle the
liability simultaneously.
7.13 Derecognition of a financial instrument from the financial statements
A financial instrument is derecognized from the Groups financial statements when
the Group loses control of the contractual rights that comprise the financial
instrument. The Group loses such control if it realizes the rights to benefits
specified in the contract, the rights expire, or the enterprise surrenders those
rights.
8. Group Structure and Method of Consolidation
Group companies, included in the consolidated financial statements are:
Company Activity Participation Relation that Note
Percentage dictated the
consolidation
IRF European Finance Financial Services Parent
Investments Limited Industry
PROTON INVESTMENT Bank 28.00% Control over the entity Direct stake
BANK SA
PROTON SECURITIES SA Brokerage House 28.00% Control over the entity Indirect stake
through 'PROTON BANK'
PROTON ASSET Asset Management 27.97% Control over the entity Indirect stake
MANAGEMENT SA through 'PROTON BANK'
PROTON MUTUAL FUNDS Mutual Funds 27.97% Control over the entity Indirect stake
MANAGEMENT CO SA through 'PROTON BANK'
ARROW ASSET FINANCE SA Specialized corporate 27.97% Control over the entity Indirect stake
advisory through 'PROTON BANK'
FIRST GLOBAL BROKERS AD Brokerage House 23.10% Control over the entity Indirect stake
through 'PROTON BANK'
All subsidiaries are consolidated according to the method of full consolidation.
On 30th 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
INVESTMENT BANK SA'. The range of activities of PROTON Group of Companies covers
almost the whole spectrum of the financial industry. More precisely, PROTON
Group is specialized on investment banking.
Under the purchase agreement, IRF appoints the majority of the members of
Proton's Board of Directors and therefore IRF is in a position to control
Proton. In particular on 30 June 2006, due to same resigns there was a change in
the composition of the Board of Directors of PROTON Investment Bank SA (four
directors of the Bank resigned and replaced by four nominated by IRF). Also,
under the purchase agreement the two other main shareholders agree to vote in
the next General Meetings of the Shareholders in such a way that IRF will always
appoint more than half of the BoD members. The remaining shares are held by a
vast number of investors, no one of which helds more that 2%. Under all these
circumstances IRF effectively controls Proton and therefore required to present
consolidated financial statements and includes Proton's financial statements.
The IRF Group consolidated 'PROTON INVESTMENT BANK SA' 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 form its operation. The business combination had no effect in the
Group's results for the six month period ended at 30/06/2006. If the company was
consolidated from the beginning of the period the Group's Earnings after tax
would be increased by € 5.740.220 (€ 20.500.784*28%).
The effect of the above acquisition was the amount of € 68.754.226 as shown at
the following table:
Goodwill & other intagible assets from PROTON BANK acquisition
Date of acquisition 30/06/2006
Acquired percentage 28%
Shares (Total) : 45,135,892
Acquired shares : 12,638,050
Acquisition price (per share.) : 9.50
Cost of acquisition
Cash Paid 120,061,475
Direct Expenses related to acquisition 6,625,044
Total Cost of acquisition 126,686,519
Less: Fair Value of Assets and Liabilities acquired 57,932,292
Goodwill & other intagible assets from acquisition 68,754,226
The assets acquired and the liabilities undertaken due to the acquisition are as
follows:
Ammounts in Euro
Cash and balances with central bank 2,217,445
Due from banks 14,738,606
Financial Assets at fair value through profit or loss 151,560,318
Loans and advanes to customers,net 276,961,358
Assets classified as held for sale 854,760
Property, plant and equipment, net 1,125,390
Intangible assets, net 88,588
Deffered Tax Assets 419,630
Other Assets 21,984,676
Due to banks (44,138,000)
Due to Customers (62,705,488)
Derivative financial intruments (159,227)
Retirement benefit obligations (220,662)
Other liabilities (155,808,368)
206,919,026
Less: 'Minority Interest' (17,982)
Shareholders net assets 206,901,044
Acquisition Percentage of the Share Capital 28%
Net Assets Acquired 57,932,292
Plus: Goodwill & other intagible assets 68,754,226
Acuisition Cost 126,686,519
Less: 'Cash and balances with central bank' (2,217,445)
Less: 'Due from Banks' (14,738,606)
Net cash outflow from the acquisition of the Subsidiary 109,730,468
9 Goodwill & other intangible assets
The effect of the acquisition of PROTON INVESTMENT BANK SA was goodwill and
intangible assets of € 68.754.226 as shown above (par 8).
Through the acquisition the Group achieved banking license, trade name 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. At the
present stage it was not feasible to accurately value the licenses and therefore
it has not been accounted for as an intangible asset.
The Group is in the process of completing a fair valuation and purchase price
allocation of the acquisition of Proton Investment Bank SA as at the date of
acquisition. Consequently the Group has applied initial accounting determined
provisionally according to IFRS 3 'Business Combinations'.
10 Restricted cash held in Trust
The Company funded the acquisition of PROTON Investment Bank SA, entirely out of
a portion of the net proceeds from its completed Initial Public Offering, which
were held in the Trust.
The market value of investments held in trust amounted to € 210.294.081 (US $
253.046.867) at 31 December 2005.
In November 2005, the Company completed its Initial Public Offering ('the
Offering') in which 45.833.340 units were sold to institutional and other
investors at a price of $ 6.00 per unit. Each unit consisted of one Share and
two Warrants. The Shares and Warrants were admitted to trading on AIM on 14
November 2005. The net proceeds of the Company's Initial Public Offering were
placed in a trust and invested in U.S.
The funds in the Trust were only be used by the Company to finance one or more
business combinations approved by the Shareholders. Given the fact that a
Business Combination was completed (acquisition at 30/06/2006 of PROTON
Investment Bank SA), funds in the Trust Accounts were released to the Company
and transferred to Bank Call Accounts, so the Company may use these funds
without restriction. The market value of investments held in trust at 30 June
2006 amounted to € 11.860 ($ 15.077).
11 Compound financial instrument
Amounts in € THE GROUP THE COMPANY
30/6/2006 31/12/2005 30/6/2006 31/12/2005
Compound financial instruments 1,907,805 203,426,153 1,907,805 203,426,153
Total 1,907,805 203,426,153 1,907,805 203,426,153
The Company's compound financial instruments at 31 December 2005 represented the
present value of the cash held in trust, including estimated interest, which
would be payable to shareholders following the date when the business
combination occurred ($ 244.782.690).
The compound financial instrument at 30 June 2006 amounted € 1.907.805
($2.425.392,21) refers to the amount that must be paid to those shareholders who
validly elected to have their shares repurchased. In particular on the Special
General Meeting of the Shareholders' at 27 June 2006, Shareholders who hold
430.000 shares voted against the resolution and had requested to have their
shares repurchased. The price determined in accordance with its Bye-laws to
$5.62 per Share, as of 31 May 2006, plus net interest earned since that date
(430.000 shares x 5,640447 = $ 2.425.392,21).
12 Contingent Assets
There are no litigations which have an important impact on company's and Group's
financial position.
13 Contingent Liabilities & Commitments
13.1 Legal proceedings
The Group, in the normal course of business, has a number of legal proceedings
outstanding for the period ended 30 June 2006. The Company is only aware of one
outstanding claim. Amaranth LLC, a shareholder in 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. The claim alleges that Amaranth LLC submitted a valid proxy requesting
its shares be repurchased in connection with the acquisition of an interest in
Proton by the Company. The Company is in the process of defending this claim,
which it believes is without merit.
No provision has been made for the above as the Company considers it is unlikely
that any significant change in the consolidated total shareholder's equity will
occur.
13.2 Unaudited fiscal years by tax authorities
Proton Group tax legislation is in Greece. Submitted tax returns are subject to
revision until such time as the tax authorities audit the books and records of
the companies and the related tax returns are accepted as final, or until the
stature of limitation expires.
In Greece, it is common for the tax authorities to audit an entity's books and
records before the expiration of the stature of limitation, which for income tax
and indirect taxes (i.e. withholding taxes and VAT) is generally five years
following the fiscal year in which the taxes should have been paid (although
this time limit may be extended following special law provisions).
The fiscal years that have not been inspected by the tax authorities for each of
the Group's companies are as follows:
COMPANY ACTIVITY YEARS NOT
INSPECTED BY
TAX AUTHORITES
PROTON INVESTMENT BANK SA Bank, Greece 2005
PROTON SECURITIES SA Brokerage House, Greece 2005
PROTON ASSET MANAGEMENT SA Asset Management 2005
PROTON MUTUAL FUNDS MANAGEMENT CO SA Mutual Funds, Greece 2005
ARROW ASSET FINANCE SA Specialized corporate advisory, Greece 2005
FIRST GLOBAL BROKERS AD Brokerage House, Serbia 2005
As a result of the above the Group's respective tax obligations for the FY2005
have not been finalized. The outcome of the tax audit cannot be foretold at this
stage.
13.3 Letters of Guarantee
The Group, in the normal course of business, has issued a number of letters of
guarantee on behalf of its clients totaling to € 32.400.000 approximately.
Besides, PROTON Investment Bank SA has issued letters of guarantee, on behalf of
its subsidiary undertaking totaling to € 72.400.000 approximately; that is, €
71.700.000 on behalf of PROTON Securities SA, € 234.776 of PROTON Asset
Management SA and € 500.000 of FIRST GLOBAL BROKERS SA.
For the issuing of letters of guarantee to third parties a standard process of
approval of the credit limit exists where the Group's policy is to obtain
collateral. Nevertheless, letters of guarantees on behalf of the subsidiary
undertakings are not subject to credit assessments and collateral.
14 Number of Employees
On 30 June 2006 the Group employed 128 employees, while the Company employed 1
employee.
15 Related party transactions
15.1 Directors and Key management personnel
Related Party Transactions
THE GROUP THE COMPANY
Directors and Key management Directors and Key management
personnel personnel
Amounts in € 30/06/2006 31/12/2005 30/06/2006 31/12/2005
Loans and advances to customers,net 3,281,469
Deposits 1,426,094
30/06/2006 30/06/2006
Personnel Costs 100,000 100,000
Directors of the Company and their immediate relatives control 31,81 per cent of
the voting shares of the Company.
Group enters into a number of banking transactions with related parties in the
normal course of business. These transactions are carried out on commercial
terms and at market rates where approval of the managing board is a
prerequisite.
The Special General Meeting of 27 June 2006 approved the proposed service
contract between the Company and Georgios Kintis, Company's Chief Executive
Officer. Under the service contract, he will be paid an annual salary of €
120.000 and a discretionary non-contractual bonus determined by the Board and
payable by the Company.
Except of the abovementioned, no salaries were paid to the Directors of the
Company for the period.
15.2 Other related party transactions
An affiliated company of the Chairman, Angeliki Frangou, provides 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 a business combination. During the
period the expenses been recognized to Income Statements amounts to 56.756. This
balance bears no interest. The amount payable as at 30 June 2006 amounts to €
16.573.
The Company appointed S Goldman Advisors to act as its financial adviser in
connection with the acquisition of Proton Investment Bank SA. Sheldon Goldman, a
Deputy Chairman and a Non-Executive Director of the Company, is also managing
director of S Goldman Advisors. In connection with such appointment S Goldman
Advisors is to be paid a fee of € 790.000. The Directors (other than Sheldon
Goldman) having consulted with Collins Stewart, believed the payment of such fee
is fair and reasonable so far as Shareholders is concerned. The amount of €
790.000 paid on 20 July 2006.
The Company appointed IBG and, on Special General Meeting of the Shareholders
(on 27 June 2006) has agreed to pay IBG a success based advisory fee of €
3.300.000 on Completion of Acquisition. IBG is affiliated with Marfin Financial
Group ('MFG') and Marfin Bank A.S., Andreas Vgenopoulos, Company's Non-Executive
Director, is the vice Chairman of MFG and Chairman of Marfin Bank S.A. The
Directors (other than Andreas Vgenopoulos) having consulted with Collins
Stewart, believed the payment of such fee is fair and reasonable so far as
Shareholders is concerned. The amount of € 3.300.000 paid on 30 June 2006.
16 Earnings per Share
The calculation of basic and diluted earnings per share are calculated by
dividing the profit for the period attributable to shareholders by the weighted
average number of shares outstanding.
Basic Earnings per share
THE GROUP THE COMPANY
Amounts in € 01/01 - 30/06/06 01/01 - 30/06/06
Profit before income tax 6,257,390 6,257,390
Income Tax Expense 0 0
Profit for the Period (1) 6,257,390 6,257,390
Attributable to:
Equity holders of the parent (2) 6,257,390
Minority Interests 0
6,257,390
Weighted average number of shares (3) 57,291,676
Basic earnings per Share (in euro /share) (2)/(3): 0,11 (1)/(3): 0,11
THE GROUP THE COMPANY
Diluted Earnings per Share 01/01 - 30/06/06 01/01 - 30/06/06
Amounts in €
Profit for the period attributable to equity holders of the parent 6,257,390 6,257,390
(1)
Weighted average number of shares (2) 57,291,676
Plus: Shares with no consideration (from assumed exercise of 5,996,886
Warrants)
Dilutive potential ordinary shares (3) 63,288,562
Diluted earnings per Share (in euro /share) (1)/(3): 0,10 (1)/(3): 0,10
17 Other Events
On 26 January 2006 the Managing Board of the PROTON INVESTMENTS BANK SA decided
to initiate a business combination with the OMEGA BANK SA (exchange of equity
interest) and PROTON Securities SA (parent - subsidiary) where PROTON is the
acquirer that obtains control of the other combining entities.
On 31 January 2006, Proton entered into a loan agreement with Omega and agreed
to advance Omega the sum of €30.000.000. The loan is for a term of 10 years but
allows for repayment of the total amount of the loan advanced after five years.
The loan carries interest at Euribor plus 2.5 per cent. for the first five
interest accrual periods and Euribor plus 4.5 per cent. for the remaining
interest accrual period. An interest accrual period is a period of 12 months,
starting from the date the loan was granted. Default interest is charged on the
loan at the rate of 2.5 per cent. and the loan is unsecured.
On 22 June 2006 the Draft Merger Contract was signed by the above mentioned
combining entities. The proposed exchange ration of entity interests between
PROTON and OMEGA BANK SA is: 1 ordinary share of OMEGA BANK SA per 0,9 ordinary
shares of the acquirer.
The business combination will occur according to the provisions and articles of
Greek Law 2190/1920, 2166/1993 and 2515/1997 while 31 March 2006 is the date
where the transitory financial statements of the combining entities will be
prepared. The relative due diligence based on the contractual agreement is
expected to be completed within September 2006.
On 30 March 2006 the Ordinary General Shareholder's Meeting of the subsidiary
undertaking ARROW ASSET FINANCE SA unanimously decided for the disillusion of
the entity and its full liquidation (in accordance with the provisions of the
articles of 47a of C.L. 2190/1920 and the statute 35 of the entity itself). This
decision has been strongly influenced by the fact that PROTON INVESTMENT BANK SA
overlaps and fully complements the activities and processes of this subsidiary
and these have been put forth in its statutes. In addition, the total
shareholders equity of the ARROW ASSET FINANCE SA are less than one tenth of its
share capital issued and authorized, thus, the decision of the shareholders'
meeting is in line with the provisions of the articles of 47 and 48 of CL2190/
20.
18 Changes in the supervisory board
According to his letter of resignation dated 6 July 2006, Andreas Vgenopoulos
Deputy Chairman and Company Secretary resigned and Sheldon Goldman elected to
hold office with immediate effect as Deputy Chairman.
Name Position
Angeliki Frangou Chairman, Non - Executive Director
Sheldon Goldman Deputy Chairman
Georgios Kintis Chief Executive Officer, Director
Alexander Meraclis Non - Executive Director
John Karakadas Non - Executive Director
Dennis Malamatinas Non - Executive Director
19 Post - Balance Sheet events
Besides the above-mentioned events, there are no significant subsequent events
which should be announced for the purposes of IFRS.
This information is provided by RNS
The company news service from the London Stock Exchange
