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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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The success of developing and selling residential apartments will be measured in terms of the price achieved for each apartment, the profit margin earned over construction cost and as a proportion of sales and the overall rate of return from a development. Information on sales is detailed in the Review of the Property Manager on pages 8 to 17.

For yielding assets the measure of the yield of an asset relative to its cost to the Group is of key importance. Also the overall valuation of the portfolio will drive the value to the Company and ultimately the Company’s share price. Details of total return targets and increases in net asset value per share are included within the Chairman’s Statement and Review of the Property Manager.

The key financial risk policies are stated within the financial sections of this report on pages 45 to 47.

Going concern As described in the Chairman’s Statement and in the Review of the Property Manager, the economic environment still continues to present a lot of challenges for the Group and its management. Despite this the Group has reported a loss for the year of €13.0 million (compared to loss of €21.2 million in 2011).

The Directors consider that the outlook presents ongoing challenges in terms of the markets in which the Group operates, the effect of fluctuating exchange rates in the functional currencies of the Group and the availability of bank financing for the Group.

As at 31 December 2012 the Group held land and building assets with a market value of €304.2 million, compared to external debt of €205.9 million. Subject to the time lag in realising the value in these assets in order to generate cash, this “loan to value ratio” gives a strong indication of the Group’s ability to generate sufficient cash in order to meet its financial obligations as they fall due. Any land and building assets and associated debts which are ring-fenced in unique, specific, corporate vehicles, which are subject to any repossession by the bank on default of loan terms would clear the outstanding debt and not result in additional finance liabilities for the Company or for the Group. There are also unencumbered assets which could potentially be leveraged to raise additional financial.

In assessing the going concern basis of preparation of the consolidated financial statements for the year ended 31 December 2012, the directors have taken into account the status of current negotiations on loans. These are disclosed in note 24 as part of the bank loans note. The Company has also continued to provide funds to service interest and capital repayments on these loans on behalf of its subsidiary companies.

Nevertheless, the directors are aware that the liquidity position of the company has been and still continues to be tight.

The company so far has been successful in managing its cash position carefully and will continue to do so, despite the various pressures. Managing this situation will require the company to use its various pockets of liquidity within its portfolio of assets and at the same time delicately manage its ongoing operations and relationships with its lending banks.

The Group’s forecasts and projections have been prepared taking into account the economic environment and its challenges and the mitigating factors referred to above. These forecasts take into account reasonably possible changes in trading performance, potential sales of properties and the future financing of the Group. They show that the Group will have sufficient facilities for its ongoing operations.

While there will always remain some inherent uncertainty within the aforementioned cash flow forecasts, the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly they continue to adopt the going concern basis in preparing the consolidated financial statements for the year ended 31 December 2012.

–  –  –

Directors and Directors’ share interests The non-executive Directors who served during the year are detailed in Table 2 below. No Director had any direct interest in the share capital of the Company or any of its subsidiaries during the year or the preceding year.

Table 2 – Non-executive Directors

–  –  –

Biographical details for all current Directors are set out on page 20.

The Board is of the view that non-executive appointments for a fixed term would be inappropriate for each of the nonexecutive Directors due the nature of the management of the Company. The Articles of the Company do provide for the retirement by rotation of a third of the Board each year.

The Remuneration Report contains details of Directors’ remuneration, terms of their appointment and those of the Property Manager and is set out on pages 31 to 33. No other Director had, during the accounting year or in the period to 21 March 2013, any material beneficial interest in any significant contract in the Group’s business.

Directors’ Responsibilities

Guernsey company law requires that Directors prepare financial statements for each financial period. These must give a true and fair view of the state of affairs of the Group as at the end of the financial period and of the results of the Group

for that period. In preparing those financial statements, the Directors are required to:





Select suitable accounting policies and then apply them consistently;

• Make judgements and estimates that are reasonable and prudent;

• Ensure the financial statements comply with IFRS as adopted by the EU; and • Prepare the financial statements on the going concern basis, unless it is inappropriate to presume that the • Group will continue in business.

The Directors are responsible for ensuring that proper accounting records are maintained, which disclose with reasonable accuracy the financial position of the Group, and that the financial statements comply with Guernsey Law.

They are also responsible for the system of internal control, for safeguarding the assets of the Group and hence for taking reasonable steps for the detection and prevention of fraud and other irregularities.

Company website To provide a portal for investor information and in accordance with the requirements of WSE, the Company maintains a website accessed at www.atlasestates.com.

The Directors are responsible for the maintenance and integrity of the website. There is, however, some uncertainty regarding the legal requirements of the website as information published on the internet is accessible in many countries with different legal requirements relating to the preparation and dissemination of financial statements. The work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

24

ATLAS ESTATES LIMITED

Auditors

The Directors confirm that as at 21 March 2013:

So far as they are aware, there is no material relevant information (that is, information needed by the Group’s • auditors, in connection with preparing their report) of which the Group’s auditors are unaware;

The Directors have taken all the steps that they ought to have taken as Directors in order to make themselves • aware of any relevant audit information and to establish that the Group’s auditors are aware of that information.

On 16 July 2012 during the Annual General Meeting it was resolved that the partnership BDO LLP were to be reappointed as the auditor of the financial reports of the Company for the year 2012.

The consolidated financial statements of the Group for 2012 were audited by BDO LLP on the basis of an engagement letter concluded on 19 December 2012. The consolidated financial statements of the Group for 2011 were audited by BDO LLP on the basis of an engagement letter concluded on 15 December 2011.

–  –  –

Annual General Meeting The Annual General Meeting is planned to be held on 18 June 2013.

Information about court proceedings The Company is not aware of any proceedings instigated before a court, a competent arbitration body or a public administration authority concerning liabilities or receivables of the Company, or its subsidiaries, whose joint

value constitutes at least 10% the Company’s net equity, except for legal proceeding against:

Atlas Estates Limited and Atlas Estates Investment B.V.

Atlas Estates Limited (“AEL”) was notified on 9 March 2011 that Stronginfo Consultants Ltd and Columbia Enterprises Ltd (the “Plaintiffs”) have submitted to an arbitrator a statement of claim against Atlas Estates Investment B.V. with its seat in Amsterdam, the subsidiary of AEL as the primary debtor and AEL itself as the guarantor (the “Defendants”) asking arbitrator to order the Defendants to provide a full and accurate accounting basis for the calculation of the Completion Consideration as defined in the agreement dated May 8, 2006 on transfer of shares from the Plaintiffs to Atlas Estates Investment B.V. and demanding payments of Completion Consideration which in the absence of any actual accounting yet was estimated by the Plaintiffs of total 55,420,000 PLN.

AEL hereby informs that at the current stage it is not able to assess the legitimacy of the claim as both legal and factual basis of the claim are subject of the investigation of the AEL’s legal advisors.

There are no other material legal cases or disputes that are considered material to the financial statements that would either require disclosure or provision within the financial statements.

–  –  –

In addition to the Property Management Agreement detailed in the Remuneration Report, the Group entered into the

following significant agreements:

Agreement of 6 September 2012, between Capital Art Apartments AEP Sp. z o.o. SKA and Unibep S.A.

On 6 September 2012 a general contractor agreement was signed between the Company’s subsidiary Capital Art Apartments AEP Sp. z o.o. SKA and Unibep S.A. for the construction of multi-apartment residential buildings (Capital Art Apartments, Stage III) in Warsaw. Total value of the contract amounts to PLN 38.3 million (excluding VAT). The term of the contract is 24 months.

Agreement of 28 July 2011, between Zielono Sp. z o.o. and Unibep S.A.

On 28 July 2011 a general contractor agreement was signed between the Company’s subsidiary Zielono Sp. z o.o. and Unibep S.A. for the construction of multi-apartment residential building (Apartamety przy Krasińskiego) in Warsaw. Total value of the contract amounts to PLN 60.6 million (excluding VAT). The term of the contract is 22 months.

Agreement of 12 April 2011, between Atlas Estates (Cybernetyki) Sp. z o.o. and Warbud S.A.

Under the above agreement, Warbud S.A. agreed to carry out construction works with regard to the Concept House residential project. The value of the agreement amounts to PLN 39.5 million (excluding VAT). Expected completion date of the construction works is the first quarter of 2013.

Details of the bank financing agreements are disclosed as required in note 24 to the financial statements.

Related party transactions Related party transactions are stated within note 15 of the financial statements of this report, on page 53.

Credit and loan facilities, guarantees and sureties Key changes in credit and loan facilities are presented in Review of Property Manager Report on page 11.

Guarantees and sureties – changes in 2012 Capital Art Apartments Sp. z o.o. SKA On 21 December 2012 a bank loan agreement was signed between Capital Art Apartments Sp. z o.o. SKA (“Capital Art Apartments”), a company in which AEP Sp. z o.o. and Atlas FIZ AN holds 100% of the shares, and Bank Zachodni WBK S.A. Capital Art Apartments Sp. z o.o. SKA, AEP Sp. z o.o and Atlas FIZ AN are the subsidiaries of Atlas Estates Limited. This loan provides financing for the third stage of Capital Art Apartments project.

This bank loan is secured by, inter alia: (these agreements have not been signed but will be till release date of this report)

- a first ranking contractual mortgage up to the amount of 200% of the loan;

- financial and registered pledges established on (i) the rights from certain bank account agreements concluded by Capital Art Apartments and (ii) all the shares in the share capital of Capital Art Apartments;

- the assignment of certain receivables due to Capital Art Apartments in connection with the project;

- a subordination agreement;

- statement of Capital Art Apartments of voluntary submission to execution pursuant to Art. 97 of the Banking Law up to the amount of 200% of the loan;

- submission to execution granted by Atlas FIZ AN in favour of the Bank in accordance with 777 of Polish Procedure Code; and

- a cost overrun guarantee agreement relating to the project executed between Capital Art Apartments, shareholder of the general partner of Capital Art Apartments and other entity having direct or indirect control over Capital Art Apartments and bank pursuant to which the shareholders agreed to act as guarantors for the payment of Capital Art Apartments’ liability to cover cost overruns amounting to up to 10% of the project costs.

–  –  –

Guarantees and sureties – changes in 2013 On 18 January 2013 the following registered and financial pledge agreements were executed with Österreichische Volksbanken AG (“Bank”) and HGC AEP Spółka z ograniczoną odpowiedzialnością S.K.A (“Borrower”) in fulfilment of the

Borrower’s obligations towards Bank resulting from the loan agreement:



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