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«ATLAS ESTATES LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 Atlas Estates Limited Martello Court Admiral Park St Peter Port ...»

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Valuation movement The Group has reported a decrease in the valuation of investment properties of €19.5 million for 2012 (2011: increase of €2.6 million) in the consolidated income statement. This decrease is joint effect of the decrease in the occupancy ratio at Millenium Plaza as well as appreciation of the functional currencies (PLN and HUF) against EURO.

Other operating income and expenses

Other operating income and expenses are items that do not directly relate to the day-to-day activities of the Group. Such items include: income and expenses for items that are recharged to contractors and other suppliers at cost, and other

such items. The following are also included in other operating expenses:

Impairment of inventory and property, plant and equipment

Provisions for impairment of inventory of €0.6 million and hotel impairment of €0.6 million have been reported in the consolidated income statement (2011: €3.2 million and €2.1 million respectively). Provisions for impairment of inventory arise on potential loss of fair value less costs of sale of assets being less than the carrying value of inventory, as well as when the cost of the inventory is higher than the valuation of Jones Lang LaSalle. The impairment represents impairment of Romanian hotel due to decrease in external valuation.

Finance income and costs

The income statement includes finance costs of €7.3 million for the year ended 31 December 2012, compared with €10.4 million in 2011, representing mainly interests on bank loans and related bank charges. The decrease is mainly attributable to decrease of interests payable on bank borrowings.

Foreign exchange

There have been significant fluctuations in exchange rates in the underlying currencies in the countries in which the Group operates and owns assets. As a result in 2012 the Group’s net result was positively affected by significant foreign currency exchange gains of €10.2 million as compared to losses of €17.9 million in 2011.

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Net Asset Value The Group’s property assets are categorised into three classes, when accounted for in accordance with International Financial Reporting Standards. The recognition of changes in value from each category is subject to different treatment

as follows:

Yielding assets let to paying tenants – classed as investment properties with valuation movements being • recognised in the Income Statement;

Property, plant and equipment operated by the Group to produce income, such as the Hilton hotel or land held • for development of yielding assets (PPE) – revaluation movements are taken directly to reserves, net of deferred tax; and Property developments, including the land on which they will be built – held as inventory with no increase in • value recognised in the financial statements unless where an increase represents the reversal of previously recognized deficit below cost.

The Company sets out below the key measures relating to Net Asset Value (NAV) per share. This includes the NAV per share per the financial statements and the adjusted NAV per share as defined at IPO and previously disclosed by the Company.

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Notes:

The number of shares in issue as at 31 December 2012 and 2011 is 46,852,014.

The Property Manager’s basic and performance fees are determined by the adjusted NAV. For the twelve months to 31 December 2012 the combined fee payable to AMC was €1.9 million (€2.7 million to 31 December 2011).

Ongoing activities During the year ended 31 December 2012, the Company continued to identify ways by which it can generate added value through the active management of its yielding asset portfolio. It has also continued to crystallise the value of development projects by the pre-selling of apartments under construction and by the completion of development property in the course of construction.

The property portfolio is constantly reviewed to ensure it remains in line with the Company’s stated strategy of creating a balanced portfolio that will provide: future capital growth; the potential to enhance investment value through active and innovative asset management programmes; and the ability to deliver strong development margins.

15

ATLAS ESTATES LIMITED

A key management objective is to control and reduce construction costs at its development projects, particularly in the light of global variations in commodity prices. Another key objective is the refinancing of the portfolio, the securing of construction loans and the evaluation of various fund raising opportunities.

Financial management, operational management and material risks

In continuing to fulfil its obligations to its Shareholders and the markets, together with maintaining its policy of maximum disclosure and timely reporting, it is continually improving and developing its financial management and operational infrastructure and capability. Experienced operational teams are in place in each country, where there is significant activity, otherwise a central operational team and investment committee monitor and control investments and major operational matters. As such, the management team continually reviews its operating structures to optimise the efficiency and effectiveness of its network, which is particularly important given the current environment.





We continue to enhance our internal control and reporting procedures and IT systems in order to generate appropriate and timely management information for the ongoing assessment of the Group’s performance. There is in operation a financial reporting system which provides the Group with the required reporting framework, financial management and internal control.

Global economic conditions The Board and the Property Manger closely monitor the effects that the current global economic conditions have on the business and will continue to take steps to mitigate, as far as possible, any adverse impact that may affect the business.

An impact of the economic uncertainty is the fluctuations in exchange rates of countries in the region. AMC has been advising the Board on a regular basis with respect to financial performance and the effect of external factors on the business.

Financing and liquidity Management has experienced a change in the approach and requirements of lenders for financing in the CEE region which has been reflected in the covenants that are applied to facilities, such as a reduction of loan to value ratio, increasing margins and an increase in levels of required pre-sales on development projects. Negotiation and completion of financing agreements is also taking longer than previously experienced. The management team see this as a potential risk to the ongoing development of the Company and as a result are devoting significant resource to the management of banking relationships and the monitoring of risk in this area.

Cash is managed both at local and head office levels, ensuring that rent collection is prompt, surplus cash is suitably invested or distributed to other parts of the Group, as necessary, and balances are held in the appropriate currency. The allocation of capital and investment decisions are reviewed and approved by local operational management, the executive team, the central finance and operational teams, by the investment committee of AMC and, finally, by Atlas’ Board. This approach provides the Company with a rigorous risk management framework. Where possible, the Company will use debt facilities to finance its projects, which the Company will look to secure at appropriate times and when available, depending on the nature of the asset – yielding or development.

Currency and foreign exchange Foreign exchange and interest rate exposures are continually monitored. Foreign exchange risk is largely managed at a local level by matching the currency in which income and expenses are transacted and also the currencies of the underlying assets and liabilities.

Most of the income from the Company’s investment properties is denominated in Euro and our policy is to arrange debt to fund these assets in the same currency. Where possible, the Company looks to match the currency of the flow of income and outgoings. Some expenses are still incurred in local currency and these are planned for in advance.

Development of residential projects has created receipts largely denominated in local currencies and funding facilities are arranged accordingly. “Free cash” available for distribution within the Company is identified and appropriate translation mechanisms put in place.

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Conclusions AMC’s key strategic objective is the maximisation of value for the Company’s Shareholders, which it continues to work towards. Its teams are very experienced in the active management of investment and development property and provide the Company with a great deal of valuable local market knowledge and expertise. Good progress has been made with the sales of two key development projects in Warsaw (Apartamenty przy Krasińskiego and Concept House), Capital Art Apartments (the second stage) and Platinum Towers. In October 2012 the Company commenced construction and sales of the third stage of Capital Art Apartments.

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Apartamenty przy Land with zoning and building permit for 303 apartments. The construction is in 100% Krasińskiego progress. Location in a residential area of Warsaw.

(previously Zielono)

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Concept House 3,100 square meters plot of land zoned for 11,000 square meters and with building 50% (previously Cybernetyki) permit for residential development. The construction is in progress. Location in Mokotow district close to the central business district of Warsaw.

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The Directors present their report and the audited financial statements for the twelve months ended 31 December 2012.

Results and dividends The results for the Company for the year are set out in the statement of comprehensive income on page 36 and show a profit after tax attributable to equity shareholders of €6.2 million (2011: loss after tax of €39.7 million).

The Company has not declared a dividend for 2012 (2011: €nil).

Activities and review of business

The Company is domiciled in Guernsey as a closed-ended investment company under Guernsey Law. The Company was admitted to the AIM market of the London Stock Exchange and commenced trading on 1 March 2006. In February 2008, the Company completed a listing on the Warsaw Stock Exchange.

The principal activity of the Company and the Group is property investment and development throughout Central and Eastern Europe (“CEE”), together with the management of its properties. The development of the Group’s business and future prospects, including a description of material risk factors and threats and information on the degree of the Group’s exposure to such risks or threats, is considered in the Chairman’s Statement on pages 5 to 7 and the Review of the Property Manager on pages 8 to 17.

There were no significant changes in the Company’s organisational structure in the year ended 31 December 2012 except for the acquisition of 24% of the voting shares in Zielono Sp. z o.o. As a result of this transaction the Group increased its interests to 100% in the one of its most attractive projects realized in Warsaw (Apartamenty przy Krasińskiego).

Investing Policy The Company mainly invests in Poland in a portfolio of real estate assets across a range of property types. The Group also operates in the Hungarian, Romanian and Bulgarian real estate markets.

The Company actively targets Poland, which economy is believed to be the most attractive amongst CEE economies.

The Company makes investments both on its own and, where appropriate, with joint venture partners in residential, industrial, retail, office and leisure properties in order to create an appropriately balanced portfolio of income-generating properties and development projects.

The Company may employ leverage to enhance returns on equity. Wherever possible, the Directors intend to seek financing on a non-recourse, asset by asset basis. The Company has no set limit on its overall level of gearing. However, it is anticipated that the Company shall employ a gearing ratio of up to 75 per cent of the total value of its interest in income-generating properties within its property portfolio.

The Board recognises that the current state of the credit markets and general downturn in the CEE economies in which the Company invests have had a negative effect on the overall value of the Group’s portfolio, causing a slight decline in the Company’s net asset value per share as compared to prior year. In order for the Company to achieve its long term investing policy, the Board’s short term investment strategy is cash focussed with new development activity in relation to parts of its portfolio being selectively deferred but with current active projects displaying good sales being progressed on time and on budget and being brought to a conclusion to achieve intended returns. No dividends are expected to be paid in the short term.

Diversification

In order to hedge against risks, the Group maintains a diversified portfolio of real estate investments. The diversification have three aspects: firstly, the Group diversifies its geographical reach by keeping its investments in various countries in the CEE region; secondly, the Group diversifies the type of investment (e.g. residential development, office, commercial, etc.); and thirdly, the Group intends to stagger the development phases of its various projects (e.g. the purchase of land, the design phase, the construction phase, the marketing and sale process) in order to maintain stable levels of income earned.

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Key performance Indicators Key performance indicators vary between the different areas of the Group’s business.



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