CONDITIONAL VOLUNTARY PUBLIC TAKE-OVER OFFER
on all Distribution Shares (coupon No. 20 and following attached) and all Capitalisation Shares issued by
IMMO CROISSANCE Société d’investissement à capital variable (SICAV) incorporated under Luxembourg law Registered office: 69, route d’Esch L-1470 Luxembourg Grand-Duchy of Luxembourg Company Register of Luxembourg B 28872
by
BAUGUR Group hf Registered Office : Túngötu 6 101 Reykjavik Iceland Register of Companies Fyrirtækjaskrá Ríkisskattstjóra: 480798-2289 ("BAUGUR")
The terms of the Offer have been reviewed by the board of IMMO CROISSANCE at a meeting on 13 July, 2007. The following is the conclusion of the “avis motivé” of the board: Considering the foregoing, and that IMMO CROISSANCE has not received at the date of the present opinion other shows of interest in the form of a firm acquisition offer, the Board recommends to the shareholders to subscribe to the offer of BAUGUR. The full text of the “avis motivé” is reproduced as Annex 5 to this Prospectus. The “avis motivé” is circulated together with this Prospectus but has not been reviewed by nor approved by the CSSF.
1 Offer price: Per Capitalisation Share: a cash payment of EUR 926.16 Per Distribution Share (coupon No. 20 and following attached): a cash payment of EUR 329.15
Period: from 18 July 2007 to 31 August 2007
Centralising Agents: Banque Degroof in Belgium and Dexia Banque Internationale in Luxembourg
Financial Intermediaries:
In Belgium: Banque Degroof S.A., Tel: +32(2) 287 97 59 In the Grand-Duchy of Luxembourg: Dexia Banque Internationale, Tel: +352 4590 4278
Investors are especially asked to refer to section 2.5. "Terms and conditions of the Offer" and to section 2.5.4. "Condition precedent".
IN TAKING THEIR DECISION, THE SELLERS MUST USE AS A BASIS THEIR OWN EXAMINATION OF THE TERMS OF THE OFFER, INCLUDING THEIR EXAMINATION OF THE SUITABILITY OF THE OFFER AND THE RISKS WHICH IT IMPLIES. ANY SUMMARY OR DESCRIPTION OF LEGAL PROVISIONS, RULES OF COMPANY OR TAX LAW OR CONTRACTUAL RELATIONS IN THE PROSPECTUS IS SUPPLIED EXCLUSIVELY FOR INFORMATION PURPOSES AND CANNOT IN ANY CASE BE INTERPRETED AS CONSTITUTING A LEGAL OR FISCAL OPINION AS REGARDS THE INTERPRETATION OR THE BINDING NATURE OF THESE PROVISIONS, REGULATIONS OR RELATIONS.
THIS OFFER HAS NOT BEEN RECOMMENDED BY ANY SECURITIES COMMISSION OR REGULATORY OR PRUDENTIAL AUTHORITY.
IN THE CASE OF DOUBTS AS TO THE CONTENT OR MEANING OF THE INFORMATION CONTAINED IN THIS PROSPECTUS, INVESTORS ARE INVITED TO CONSULT AN AUTHORISED ADVISOR OR A PROFESSIONAL SPECIALISING IN THE SALE AND PURCHASE OF FINANCIAL INSTRUMENTS.
It is possible that the information in the Prospectus is only accurate as at the date of this Prospectus. Any amendment within the meaning of the Takeover Law and, more generally, any new material event or any material error or inaccuracy concerning the information in this Prospectus occurring before the end of the Offer Period will be the object of a supplement to the published Prospectus in accordance with the arrangements authorised by the CBFA and the CSSF. Subject to the legal obligations arising from article 8 of the Takeover Law or any other legal obligation, the Bidder is not required to update the Prospectus.
This Prospectus does not constitute either a purchase offer or a sales offer or a solicitation by a person in a country where such an offer or solicitation is not authorized or to any person for which it is illegal to make such an offer or solicitation. No initiative has been (nor will be) taken by the Bidder elsewhere than Belgium and the Grand-Duchy of Luxembourg to permit a public offer relating to the Shares. Neither this Prospectus,
2 nor any other announcement or other information relating to it can be made available to the public in a country other than Belgium and the Grand-Duchy of Luxembourg. BAUGUR expressly declines any responsibility in the event of breach of these restrictions by anyone.
This Prospectus cannot be circulated without the appendices which are attached to it and which are integral parts of it.
17 July 2007
3 TABLE OF CONTENTS : DEFINITIONS...... 7 CHAPTER 1. GENERAL INFORMATION...... 10 1.1 PERSONS RESPONSIBLE FOR THIS PROSPECTUS ...... 10 1.2 APPROVAL BY THE COMMISSION DE SURVEILLANCE DU SECTEUR FINANCIER...... 10 1.3 RECOGNITION BY THE COMMISSION BANCAIRE FINANCIERE ET DES ASSURANCES ...... 10 1.4 LANGUAGES AND AVAILABILITY OF THE PROSPECTUS...... 10 1.5 FORWARD-LOOKING STATEMENTS...... 11 1.6 PRESENTATION OF FINANCIAL INFORMATION AND OTHER INFORMATION ...... 11 1.7 CURRENCY...... 11 1.8 LEGAL ADVISOR...... 12 1.9 FINANCIAL ADVISOR...... 12 1.10 REAL ESTATE ADVISOR ...... 12 1.11 FINANCIAL INTERMEDIARIES AND CENTRALISING AGENTS ...... 12 1.12 EXPENSES AND TAXES...... 12 1.13 DEFINED TERMS ...... 13 CHAPTER 2. INFORMATION RELATING TO THE OFFER...... 14 2.1 FINANCING OF THE OFFER ...... 14 2.2 LEGAL FRAMEWORK FOR THE OFFER...... 14 2.3 OBJECTIVES OF BAUGUR...... 14 2.3.1 General Strategy Rationale...... 14 2.3.2 Investment Criteria ...... 15 2.4 INTENTIONS OF BAUGUR ...... 16 2.4.1 Future governance and management of IMMO CROISSANCE...... 16 2.4.2. Reopening of the Offer...... 16 2.4.3 Delisting and Reopening in the Event of Delisting...... 16 2.4.4 Obligatory Withdrawal and Obligatory Purchase ...... 17 2.5 TERMS AND CONDITIONS OF THE OFFER ...... 17 2.5.1 Purpose of the Offer ...... 17 2.5.2 Offer Price...... 18 2.5.3 Duration of the Offer...... 18 2.5.4 Condition Precedent...... 18 2.5.5 Commitment to bring the Offer to its conclusion...... 19 2.5.6 Procedure – Acceptance of the Offer ...... 19 2.5.7 Payment of the Offer Price...... 20 2.5.8 Publication of the results of the Offer ...... 20 2.6. DETERMINATION AND JUSTIFICATION OF THE PRICE...... 21 2.6.1. Determination of the Price ...... 21 2.6.2. Justification of the Price...... 22 2.7 TAX REGIME FOR THE OFFER ...... 27 2.7.1 Tax regime applicable in Belgium...... 28 2.7.2 Tax regime applicable in Luxembourg...... 29 CHAPTER 3. INFORMATION PERTAINING TO BAUGUR ...... 32 3.1 GENERAL INFORMATION ...... 32 3.2 GENERAL INFORMATION ON THE SHARE CAPITAL...... 34 3.3 INFORMATION ON THE SHARE OWNERSHIP STRUCTURE OF BAUGUR...... 34 3.4 MANAGEMENT, ADMINISTRATION AND CONTROL...... 35 3.4.1 Board of Directors...... 35 3.4.2 Day-to-day management ...... 35 3.4.3 Audit ...... 36
4 3.4.4 Portfolio overview ...... 36 3.4.5 Corporate Governance Charter ...... 37 3.4.6 Amendments to the articles...... 37 3.5 GENERAL INFORMATION ON BAUGUR’S BUSINESS ACTIVITIES...... 38 3.5.1 Company profile...... 38 3.5.2 Consolidated portfolio as at 31 December 2006 as updated on 28 June 2007 ...... 41 3.6 FINANCIAL INFORMATION RELATING TO BAUGUR – ...... 42 3.6.1 Key figures...... 42 3.6.2 Consolidated balance sheet as at 31 December 2006 ...... 44 3.6.3 Consolidated income statement as at for the year 2006...... 46 CHAPTER 4. INFORMATION PERTAINING TO IMMO CROISSANCE ...... 48 4.1 GENERAL INFORMATION ...... 48 4.2 GENERAL INFORMATION ON THE SHARE CAPITAL...... 50 4.2.1 Share capital ...... 50 4.2.2 Shares...... 51 4.2.3 Subscription of Shares...... 52 4.2.4 Repurchase...... 52 4.2.5 Net asset value...... 53 4.3. BOARD OF DIRECTORS, MANAGEMENT AND CONTROL...... 54 4.3.1 Board of Directors...... 54 4.3.2 Day to day management...... 54 4.3.3 Financial Services in Luxembourg and Belgium...... 54 4.3.4 Investment advisory services ...... 55 4.3.5 Audit of the annual financial statements - Auditor...... 55 4.3.6 Valuation of the real estate portfolio - Property appraiser...... 55 4.3.7 Depositary bank ...... 55 4.3.8 Listing...... 56 4.3.9 Changes in the share price...... 56 4.3.10 Sponsors ...... 58 4.4 GENERAL INFORMATION ON THE BUSINESS ACTIVITIES OF IMMO CROISSANCE...... 60 4.4.1 Business profile ...... 60 4.4.2 Consolidated portfolio at 31 December 2006 ...... 60 4.4.3 Key developments in 2006 and early 2007...... 63 4.5 FINANCIAL INFORMATION ON IMMO CROISSANCE ...... 64 4.5.1 Consolidated statement of changes in net assets...... 64 4.5.2 Consolidated statement of net assets...... 66 APPENDIX 1...... 68
ACCEPTANCE FORM FOR IMMO CROISSANCE SHARES ...... 68
APPENDIX 2...... 74
IMMO CROISSANCE 2006 ANNUAL REPORT...... 74
APPENDIX 3...... 75
BAUGUR CONTRACTED CONSOLIDATED FINANCIAL STATEMENTS ...... 75
FOR THE YEAR ENDED 2006...... 75
APPENDIX 4...... 76
PRESENTATION OF BAUGUR...... 76
APPENDIX 5...... 77
5 AVIS MOTIVE ISSUED BY THE BOARD OF IMMO CROISSANCE ON 13TH JULY, 2007 ...... 77
6 DEFINITIONS
The terms and expressions used in this Prospectus and beginning with a capital letter shall have the meaning ascribed thereto below. Definitions used for terms in the singular apply equally for the same terms used in the plural, and conversely.
Acceptance form Form attached under Appendix 1 to this Prospectus to be completed by the Shareholders who wish to tender their Shares as part of this Offer.
Banque Degroof Banque Degroof S.A., a société anonyme (public limited company) under Belgian law having its registered office at 44, Rue de l'Industrie, B- 1040 Bruxelles and registered with the Belgian companies register under number RPM0403.212.172.
Bidder BAUGUR.
Capitalisation Shares The capitalisation shares issued by IMMO CROISSANCE, i.e. 46,084 capitalisation shares on 17 July 2007, according to information received from IMMO CROISSANCE.
Cash Flow Net result after taxes plus amortisation.
CBFA The Commission bancaire, financière et des assurances (Banking, Finance and Insurance Commission).
CSSF Commission de Surveillance du Secteur Financier, the Luxembourg Financial Sector Supervisory Commission.
Company code The Belgian Company Code, coordinated by the Law of 7 May 1999, as amended several times.
Consolidated Financials The BAUGUR Contracted Consolidated Financial Statements for the year ended 31 December 2006.
Dexia Banque Internationale Dexia Banque Internationale à Luxembourg having its registered office at 69, route d’Esch, L-2953 Luxembourg and registered with the Luxembourg Trade and Companies Register under number B6307.
Distribution Shares The distribution shares issued by IMMO CROISSANCE, i.e. 310,853 distribution shares on 17 July 2007, according to information received from IMMO CROISSANCE.
7 Elvinger, Hoss & Prussen Elvinger, Hoss & Prussen, based at 2, place Winston Churchill, B.P. 425 L-2014 Luxembourg.
Financial Intermediaries Banque Degroof S.A. in Belgium and Dexia Banque Internationale in Luxembourg are acting as financial intermediaries for the Offer respectively in Belgium and in Luxembourg.
IMMO CROISSANCE IMMO CROISSANCE, a société d’investissment à capital variable (SICAV) under Luxembourg law, having its registered office at 69, route d’Esch, L-1470 Luxembourg, Grand-Duchy of Luxembourg, registered with the Luxembourg Trade and Company Register under the number RCS Luxembourg B 28872.
Kaupthing Kaupthing Bank Luxembourg S.A., having its registered office at 35a, avenue J.F. Kennedy, L-1855 Luxembourg, Grand-Duchy of Luxembourg, registered with the Luxembourg Trade and Company Register under number RCS Luxembourg B63997, acting as financial adviser to BAUGUR and as arranger of the Offer.
Offer The takeover bid by BAUGUR for all the Distribution Shares (coupon No. 20 and following attached) and Capitalisation Shares of IMMO CROISSANCE, on the terms and conditions set forth or to which reference is made in this Prospectus including, if the context requires this, any further amendment made thereto in accordance with the current law, as well as any Reopening of the Offer.
Offer Price The meaning of this term is given at section 2.5.2.
Period of the Offer The period of the Offer starting on 18 July 2007 and ending on 31 August 2007 at 16:00 (Luxembourg and Brussels time).
Proof of Title Certificate delivered by IMMO CROISSANCE concerning the ownership of the registered shares in its shareholders registers in accordance with Article 40 of the Luxembourg law of 10 August 1915 on commercial companies (as amended).
Prospectus This prospectus and all the annexes or appendices which form an integral part thereof, including where appropriate any supplement published in accordance with current law.
Reopening of the Offer The reopening of the Offer organised either in accordance with section 2.4.2. or section 2.4.3., or both, the conditions for which
8 are described in section 2.5.3.
Seller Any Shareholder who has validly accepted the Offer.
Shareholder Any holder of one or more Shares
Shares Capitalisation Shares and Distribution Shares.
Takeover Law The Luxembourg Law of 19 May 2006 implementing Directive 2004/25/EC of the European Parliament and Council of 21 April 2004 concerning takeover bids.
Working day Any working day in the banking sector in both Belgium and in the Grand-Duchy of Luxembourg.
9 Chapter 1. GENERAL INFORMATION
1.1 PERSONS RESPONSIBLE FOR THIS PROSPECTUS
The Bidder, BAUGUR, a public limited company (hlùtafelag) incorporated under Icelandic law and registered in the Reykjavik Register of Companies (Fyrirtækjaskrá Ríkisskattstjóra) under company number 480798-2289 having its registered office at Túngötu 6, 101 Reykjavik, Iceland (hereafter, the '"Bidder" or "BAUGUR"), assumes responsibility for the information contained in this Prospectus. To the best knowledge of the Bidder, the information appearing in the Prospectus corresponds to the reality and there is no omission likely to alter its import.
1.2 APPROVAL BY THE COMMISSION DE SURVEILLANCE DU SECTEUR FINANCIER
The decision to make an offer was published by the Bidder in accordance with Article 6 paragraph (1) of the Takeover Law on the Internet site of the Bidder on 27 June 2007 and was the subject of a communication through a press release published on 28 June 2007.
The initial draft of this Prospectus was submitted for review and approval of the COMMISSION DE SURVEILLANCE DU SECTEUR FINANCIER, the Luxembourg Financial Sector Supervisory Commission ("CSSF)" on 9 July 2007.
After review, the Prospectus was approved by the CSSF on 17 July 2007, in accordance with Article 6 paragraph (2) of the Takeover Law. The approval of this Prospectus does not imply any opinion of the CSSF as to the economic or financial suitability or as to the merits of the Offer nor does it contain any opinion relating to the legal situation or to the solvency of the Bidder or of IMMO CROISSANCE.
The announcement of the launch of the Offer will be published in the Luxembourg press (d'Wort and Tageblatt) and in the Belgian press (De Tijd, L'Echo and Le Soir) on 18 July 2007.
1.3 RECOGNITION BY THE COMMISSION BANCAIRE FINANCIERE ET DES ASSURANCES
The Prospectus has been recognised by the COMMISSION BANCAIRE FINANCIERE ET DES ASSURANCES ("CFBA") on 17 July 2007 by virtue of Article 6 of the Directive 2004/25/EC. Recognition of this Prospectus does not imply any opinion from the CFBA as to the economic, financial suitability or as to the merits of the Offer nor as to its quality and it does not contain any judgment relating to the situation of the persons making the Offer.
1.4 LANGUAGES AND AVAILABILITY OF THE PROSPECTUS
1.4.1 The English version of the Prospectus is the official version. English and French versions are available in the Grand-Duchy of Luxembourg. The French, Dutch and English versions of the
10 Prospectus are available in Belgium. BAUGUR has prepared the three versions of the Prospectus and has made sure they conform to each other. It assumes responsibility for this.
1.4.2 The public can obtain the Prospectus at Kaupthing Bank Luxembourg (T: +352 (0) 46 31 31 431 or +352 (0) 46 31 31 687) and at Dexia Banque Internationale in the Grand-Duchy de Luxembourg and at Banque Degroof in Belgium. The Prospectus can also be consulted and downloaded on the following website: www.kaupthing.lu. The text of the Prospectus can also be accessed, strictly for information purposes, on the Internet site of the Bidder, at www.BAUGURGROUP.com.
1.5 FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements, including, inter alia, statements containing the terms "to believe", "to anticipate", "to expect", "to have the intention", "to envisage", "to seek", "to estimate", "to be able", "to continue", and other similar expressions, or using verbs in the future tense. These forward- looking statements pertain to known and unknown risks, uncertainties and other factors likely to make substantial differences between the results, the financial situation, the performance or achievements of BAUGUR or of IMMO CROISSANCE, or the sector results and the results, performance or future achievements expressed or suggested in the forward-looking statements. These forward-looking statements are only valid as at the date of the Prospectus.
BAUGUR expressly rejects any obligation to update the forward-looking statements contained in this Prospectus with the purpose of reflecting any change in its expectations in this regard or any changes in the events, conditions or circumstances on which these statements were founded, unless (and to the extent that) such update is required by virtue of any applicable legal provision.
1.6 PRESENTATION OF FINANCIAL INFORMATION AND OTHER INFORMATION
Certain financial information in this Prospectus has been rounded off and consequently the numbers appearing as totals in this Prospectus may slightly differ from the exact arithmetical sum of the numbers composing it.
For calculating the Offer Price of the Shares (section 2.5.2. of the Prospectus), the cumulative sum of the purchase price for each Shareholder holding several Shares will be rounded off to the nearest Eurocent. For any amount in Eurocents, the decimals which follow the eurocent and which are between x.00 to x.49 will be rounded down to the next lower eurocent. The decimals which follow the eurocents and are between x.50 to x.99 will be rounded up to the next higher eurocent.
1.7 CURRENCY
In this Prospectus, all the references to the "'Euro" and "EUR" relate to the single currency of Member States participating in the European Monetary Union. If not stated otherwise foreign currencies are translated at the foreign exchange rates as of 29 June 2007 being 84.2583 ISK/EUR and 1.4773 EUR/£. In this Prospectus, all the references to the “Icelandic krónur” and “ISK” relate to the currency of Iceland and all references to “£” relate to the currency of the United Kingdom.
11 1.8 LEGAL ADVISOR
Elvinger, Hoss & Prussen advises on legal matters relating to Luxembourg law in the context of this Offer. This advice is provided for the sole benefit of BAUGUR and third parties cannot base their judgment thereon. Elvinger, Hoss & Prussen declines all responsibility for the information contained in this Prospectus, and nothing to be found in this Prospectus can be or might be considered as an opinion, advice or a declaration by Elvinger, Hoss & Prussen.
1.9 FINANCIAL ADVISOR
The financial advisor of BAUGUR for the Offer is Kaupthing Bank Luxembourg. Kaupthing Bank Luxembourg declines any responsibility for the information contained in this Prospectus, and nothing which is to be found in this Prospectus can or might be considered as an opinion, advice or a declaration by Kaupthing Bank Luxembourg.
1.10 REAL ESTATE ADVISOR
The real estate advisor of BAUGUR is Property Partners S.A., whose registered office is at 12, rue Jean Engling, L-1466 Luxembourg. Property Partners S.A. declines all responsibility for the information contained in this Prospectus, and nothing which can be found in this Prospectus can or might be considered as an opinion, advice or a declaration by Property Partners S.A.
1.11 FINANCIAL INTERMEDIARIES AND CENTRALISING AGENTS
Banque Degroof and Dexia Banque Internationale are acting as financial intermediaries (the "Financial Intermediaries") for the Offer respectively in Belgium and in Luxembourg. Banque Degroof is acting as centralising agent in Belgium and Dexia Banque Internationale is acting as centralising agent in Luxembourg for this Offer.
1.12 EXPENSES AND TAXES
BAUGUR will be responsible for all the costs relating to the Offer, including the Belgian tax on stock exchange transactions due on the purchase and the sale of the Shares following the Offer and when applicable, the Belgian tax on the delivery of bearer securities.
The Financial Intermediaries will not charge any commission or any other costs to Sellers for the purposes of the Offer. The Sellers submitting the Acceptance Form through institutions other than the Financial Intermediaries must enquire about any extra costs occasioned by the involvement of such an institution and are required to take responsibility for all costs that may be charged by such institutions or resulting from the involvement of the latter.
12 1.13 DEFINED TERMS
Certain terms starting with a capital used in this Prospectus or to which the latter refers are defined in the section "Definitions" above.
13 Chapter 2. INFORMATION RELATING TO THE OFFER
2.1 FINANCING OF THE OFFER
The Offer will partly be financed through own funds of BAUGUR and partly through a financing by Kaupthing Bank Luxembourg. Kaupthing Bank Luxembourg has pursuant to Article 3 e) of the Takeover Law confirmed to the CSSF that BAUGUR has both the means and financial strength to provide the necessary cash to fund its obligations according to the Offer. Kaupthing Bank Luxembourg has also confirmed that it will secure the financing of the Offer.
2.2 LEGAL FRAMEWORK FOR THE OFFER
This Offer is launched on a voluntary basis and in this regard meets all legal requirements set forth in the Takeover Law and in any other applicable legislation.
2.3 OBJECTIVES OF BAUGUR
2.3.1 General Strategy Rationale
BAUGUR hf (BAUGUR or “Group”) is an international investment company which primarily focuses on investments in the retail, real estate and media sectors within the UK and the Nordic countries. BAUGUR’s investment portfolio has a good geographic, end-market and asset diversification, with over 45% of the portfolio invested in publicly listed assets providing financial flexibility; and the remainder in private companies.
Annual turnover for companies in which BAUGUR’s is a major shareholder totaled £8,800 million (EUR 13,054m) as of 31 December 2006, with approximately 70,000 employees in over 3,700 stores. Over the last four years, management has focused on expanding BAUGUR’s portfolio mainly through investments in the UK retail sector and in real estate. BAUGUR’s portfolio has grown significantly from a total value of £404 million (EUR 599m) as of December 2003 to £1,375million (EUR 2,040m) as of December 2006 at a CAGR of 52.6% over the period.
BAUGUR primarily targets minority, controlling stakes in its investments (typically 30%-50%) and often co- invests and works closely with a number of selected well-known partners or the target’s management that have extensive experience in the relevant sectors and hold similar investment criteria as BAUGUR (including well known retail investors such as Kevin Stanford, Sir Tom Hunter and Don McCarthy). This strategy ensures collective majority control, while minimising risk and capital employed. When working with other investors, BAUGUR often takes the lead role.
Over the years, through management buy-outs or buy-ins, BAUGUR has added value by buying strong brands with significant growth potential and experienced management teams. Investments are then developed through organic expansion and selected add-on acquisitions. BAUGUR will extend this philosophy in future
14 investments, targeting in particular Nordic and UK retail assets, whilst maintaining strong portfolio liquidity. Today BAUGUR is one of the most influential investors in the UK retail sector.
2.3.2 Investment Criteria
BAUGUR mainly pursues selected investments that it intends to hold with a long-term horizon, taking advantage of growth opportunities for the brands. BAUGUR’s decision-making process is streamlined and robust, ensuring that every new investment is thoroughly considered and fits with its investment and returns criteria. BAUGUR’s key investment criteria when evaluating potential investment options include: • Well-established local players with growth opportunities • strong incumbent management teams in place • proven cash generation ability • a good fit with existing portfolio
BAUGUR has the ability to support management teams executing agreed business plans. The objective is to collaboratively share best practices within BAUGUR’s portfolio in order to create immediate value for the companies and consequently enhance long-term shareholder equity. This distinguishes BAUGUR from other Private Equity houses.
BAUGUR targets additional geographic markets worldwide and aims to be the largest privately owned retail and property investor in the world in the medium term. To do so, BAUGUR will continue • to focus its investments on Mid Market sized companies in the retail, property and media sectors, • to support and drive value enhancement of its companies and • to maintain a strong liquidity of the portfolio by aiming to have 50% of its assets in listed securities.
These objective will be followed by further investments in listed and unlisted participations following its investment principles and criteria which are described in more detail in Chapter 3 and Appendix 4. This Offer is part of the desired development of BAUGUR’s investments in European real estate markets, which has started with investments in German and UK real estate assets. BAUGUR believes that IMMO CROISSANCE has a strong portfolio of assets, yet also has the potential for further growth, especially in the local market given the favourable macroeconomic conditions and the positive outlook of the Luxembourg real estate market. In particular, the Bidder is confident that the existing portfolio does offer a large redevelopment potential. BAUGUR is convinced that the current structure has the potential to serve as a hub for additional investments and BAUGUR is interested, if the Offer is successful, to provide the means, both from a financial and real estate expertise point of view, to further develop the portfolio of IMMO CROISSANCE.
15 2.4 INTENTIONS OF BAUGUR
2.4.1 Future governance and management of IMMO CROISSANCE
In the event that BAUGUR acquires control of IMMO CROISSANCE and being convinced that the operations of IMMO CROISSANCE have so far been a success and are run by a strong management, BAUGUR is interested, if the Offer is successful, to continue the effective collaboration with the existing structure at IMMO CROISSANCE, including its managing director and the two employees of IMMO CROISSANCE. Moreover, as outlined in Section 2.3, BAUGUR will be interested to provide the existing management the means of further developing the portfolio of IMMO CROISSANCE. In particular, the Bidder aims at providing the management with the necessary financial support, either under the form of debt or equity financing, to achieve the targeted growth strategy, through further acquisitions as well as redevelopment of the current high potential assets. BAUGUR is also willing to share with the local management its expertise in property development and to offer the opportunity to leverage on its vast existing network.
Kaupthing has agreed to act as promoter of IMMO CROISSANCE in the event of a successful completion of the Offer and to be represented on the Board of Directors of IMMO CROISSANCE. BAUGUR also intends, to the extent possible, to keep the existing custodial and advisory service providers in place, as outlined in the current IMMO CROISSANCE Prospectus.
2.4.2. Reopening of the Offer
In accordance with Article 7 (3) of the Takeover Law, if, at the conclusion of the Offer, BAUGUR’s holding of shares of each category of shares is equal to at least 33.33% of the voting rights, BAUGUR will reopen the Offer at the expiry of the Offer Period. Any such reopening will be performed in accordance with the provisions of applicable law and in particular in accordance with Article 7 (3) of the Takeover Law and as specified in section 2.5.3. below.
2.4.3 Delisting and Reopening in the Event of Delisting
It is contemplated to proceed to a delisting of IMMO CROISSANCE from the stock exchanges on which it is currently listed following successful completion of the Offer by BAUGUR. Any such delisting will be carried out in accordance with the applicable laws and regulations.
If, at the conclusion of the Offer, BAUGUR’s share of each category of shares is equal to at least 80% of the voting rights, it reserves the right to request the delisting of the IMMO CROISSANCE shares from the Bourse de Luxembourg and/or from Euronext Brussels, subject to the approval by the relevant authorities.
The delisting from Euronext Brussels may be decided by Euronext acting in consultation with the CBFA. The CBFA may oppose the delisting in the interest of the protection of the investors. The delisting from Euronext Brussels would, a.o., imply that the IMMO CROISSANCE shares shall no longer be negotiated on
16 Euronext Brussels in Belgium, and that IMMO CROISSANCE shall no longer be submitted to the rules which are applicable to the companies of which the shares are listed on a Belgian market.
Pursuant to the terms of the règlement d’ordre intérieur of the Luxembourg Stock Exchange, the delisting of the Shares is resolved by the Board of Directors of the Société de la Bourse de Luxembourg upon a reasoned application by the issuer or, in this case, BAUGUR. In taking its decision, the Board of Directors of the Société de la Bourse de Luxembourg considers the interests of the stock market, of investors and, if applicable, the issuer.
If the delisting is approved by the relevant authorities, the Offer will possibly be reopened in accordance with applicable laws and regulations and section 2.5.3. below.
2.4.4 Obligatory Withdrawal and Obligatory Purchase
If, at the conclusion of the Offer, BAUGUR has obtained Shares in numbers at least equal to the threshold of 95% provided by Article 15 of the Takeover Law, it will proceed with the mandatory repurchase (“squeeze out”) of the remaining shares in accordance with Article 15 of the Takeover Law. The method to be used for this squeeze out will be announced either by a press release published in accordance with Section 2.5.8 of the Prospectus, or in a separately published notice in the Luxembourg press (d'Wort and Tageblatt) and the Belgian press (De Tijd and l'Echo) within the three month period specified in Article 15 (4) of the Takeover Law.
If, at the conclusion of the Offer, it appears that BAUGUR has obtained Shares in numbers at least equal to the threshold of 90% provided by article 16 of the Takeover Law, the holders of the Shares not tendered in connection with the Offer may demand the mandatory purchase by BAUGUR of their shares, subject to the conditions specified in Article 16 of the Takeover Law. In this case, the holders of shares not tendered in connection with the Offer will be advised of this option in a press release published in accordance with Section 2.5.8 of the Prospectus.
In the two aforementioned cases, IMMO CROISSANCE will still remain registered in the official list of investments funds subject to the supervision of the CSSF.
2.5 TERMS AND CONDITIONS OF THE OFFER
2.5.1 Purpose of the Offer
BAUGUR offers to purchase, subject to the conditions set forth in the Prospectus, all of the Distribution Shares (coupon No. 20 and following attached) and Capitalisation Shares, i.e., 310,853 Distribution Shares as at 17 July 2007 and 46,084 Capitalisation Shares as at 17 July 2007.
At this date, BAUGUR does not hold any shares of IMMO CROISSANCE, whether on its own behalf or in concert with other persons.
17 2.5.2 Offer Price
In accordance with the conditions specified or to which this Prospectus makes reference, the Offer is made on the following basis:
(i) for each Capitalisation Share, a cash payment of EUR 926.16; (ii) for each Distribution Share, (coupon No. 20 and following attached) a cash payment of EUR 329.15.
For the application of the rules pertaining to the rounding calculations for a shareholder who holds several Shares, see Section 1.6 of the Prospectus.
2.5.3 Duration of the Offer
The Offer will be accepted during normal banking hours from 18 July 2007 until 31 August 2007 at 16:00 (Luxembourg and Brussels time) ("Duration of the Offer).
BAUGUR reserves the right to reopen the Offer at the expiry of the Offer Period. Any such reopening will be performed in accordance with the provisions of applicable law and in particular in accordance with the Takeover Law including but not limited to article 7(3), and with section 2.4.2.
The dates of the reopening of the Offer will be published on the website of BAUGUR (www.BAUGURGROUP.com) and in the Luxembourg press (d’Wort and Tageblatt) as well as in the Belgian press (De Tijd and l’Echo) on the first following business day.
2.5.4 Condition Precedent
The Offer is subject to the condition precedent that the number of IMMO CROISSANCE shares tendered in connection with the Offer is such that at the conclusion of the Offer BAUGUR will hold at least 51% of the voting rights in the capital of IMMO CROISSANCE.
This is the sole condition of the offer.
The abovementioned condition is exclusively for the benefit of BAUGUR. In the event that this condition is not fulfilled, BAUGUR reserves the right to renounce this condition. BAUGUR’s decision in this regard will be announced in the press release in which the results of the Offer are published, in accordance with Section 2.5.8 of the Prospectus.
This means that if the condition has not been fulfilled by the closing date of the Offer, and if BAUGUR has not renounced its rights under this condition in the press release in which BAUGUR publishes the results of the Offer, this condition will be considered as still in force, and the Shares that have been tendered will not be accepted.
BAUGUR reserves the right to renounce this condition whatever the level of its share of ownership at the conclusion of the Offer or the Reopening of the Offer.
18 2.5.5 Commitment to bring the Offer to its conclusion
The decision to initiate the Offer was taken on 27 June 2007 by the Board of Directors of BAUGUR. In accordance with Icelandic law and the articles of incorporation of BAUGUR, the Board of Directors has the authority to confer such a delegation of powers upon the Executives of BAUGUR.
BAUGUR has made the commitment to carry out the Offer to its completion.
2.5.6 Procedure – Acceptance of the Offer a) Shareholders
The Shares are either in bearer form or registered and represented by a Proof of Registration.
In order for a holder of Shares to tender shares validly and without expenses under this Offer, two copies of the acceptance form attached to this Prospectus (the "Acceptance Form"), correctly completed and duly signed, as well as the documents mentioned below and any proxy or other required document, must be delivered during business hours, no later than 31 August 2007 at 16:00 (Luxembourg and Brussels time) as follows: for bearer shares to Dexia Banque Internationale in Luxembourg and to Banque Degroof in Belgium; and for registered shares, to RBC Dexia Investor Services Bank S.A., the transfer agent of IMMO CROISSANCE, whose registered office is located at Porte de France, 14, L-4360 Esch-sur-Alzette, Grand- Duchy of Luxembourg.
The Acceptance Form must be accompanied by:
í for bearer shares, the share certificate of the bearer Share, or for bearer Shares held in an account, proof of the registration and blocking of the bearer Share in the securities account, and í for registered shares, a Proof of Title.
The Acceptance Form may also be delivered to the business offices of the aforementioned institutions or other financial institutions and Financial Intermediaries1.
These institutions or intermediaries must conform to the procedures set forth in the Prospectus.
If the Shares are co-owned by two or more holders, each of them must sign the same Acceptance Form. If the Shares are subject to beneficial ownership, both the bare owner(s) and the beneficial owner(s) must sign the same Acceptance Form.
If the Shares are pledged, both the pledging debtor and the creditor(s) benefiting from such pledge must sign the Acceptance Form, with the understanding that the creditor(s) benefiting from the pledge must irrevocably and unconditionally renounce and release his (their) pledge on the Shares concerned.
1 Holders of Shares who wish to take advantage of this option should refer to Section 1.12 of the Prospectus pertaining to the expenses and taxes related to the Offer.
19 If the Shares are encumbered in any other manner or subject to any other right to follow, security interest, or any other right, claim or interest benefiting a third party, then all beneficiaries of these rights, titles, claims or interests in the Shares must sign the Acceptance Form and irrevocably and unconditionally waive all rights, titles, claims, securities, receivables or interests in these Shares.
The ownership and the risks pertaining to the ownership of Shares that are validly tendered during the Offer Period will be transferred to BAUGUR only at the time the Offer Price is paid. b) Acceptance – unconditional and irrevocable in nature
Acceptance of the Offer is unconditional and irrevocable. However, in accordance with Article 13 of the Takeover Law: (i) the Shareholders will be released from their acceptance in the event of a competing offer; (ii) any increase in the Offer Price will benefit the Shareholders who have accepted the Offer before such increase; (iii) the intentions to accept expressed by the Shareholders for the Offer before the publication of the Prospectus are not binding on the Shareholders. c) Applicable law and competent jurisdictions
Contracts signed between the Bidder and the Shareholders will be subject to the laws of Luxembourg and the competent jurisdictions will be those of Luxembourg.
2.5.7 Payment of the Offer Price
Subject to the conditions of Article 13 of the Takeover Law, cash payment of the Offer Price for Shares validly tendered during the Offer Period in accordance with the procedures set forth in Section 2.5.6 "Procedures – Acceptance of the Offer", will take place (except in the event of force majeure or due to the fault of a third party for which BAUGUR is not responsible) in the 10 Working Days following the publication of the results of the Offer or the Reopening of the Offer made in accordance with Section 2.4.2 of the Prospectus, by transfer into the bank account specified by the Seller in the Acceptance Form.
2.5.8 Publication of the results of the Offer
(i) BAUGUR will communicate to the CSSF and the CBFA and publish on its website (www.BAUGURGROUP.com) without prejudicing paragraph (ii) below, the number of Shares (specifying the number of voting rights attached thereto) that were tendered in connection with the Offer, and shall do so:
1. every seven days beginning from the publication of this Prospectus; 2. every morning of the last seven day of the acceptance period, and 3. on the evening of the last days of the acceptance period.
20 (ii) The results of the Offer will also be announced in a press release published in the Luxembourg press (d'Wort and Tageblatt) and the Belgian press (De Tijd and l'Echo) beginning on the first Working Day following the end of the acceptance period.
2.6. DETERMINATION AND JUSTIFICATION OF THE PRICE
2.6.1. Determination of the Price
The Bidder, together with its advisers, has performed a valuation of each individual property held in the portfolio as of the date of the Prospectus (the “Valuation Date”). The valuation performed takes into account all the facts which were known to the Bidder as of the Valuation Date, including the significant events that occurred during the first half of 2007. In particular, the Bidder explicitly considered the following key events :
- IMMO CROISSANCE signed at the beginning of 2007 a long-term lease agreement regarding a large part of its Keyberg building in Diegem, Belgium. IMMOCROISSANCE is also about to sign a lease contract for the rental of an additional 8% of the lettable area for the said building, reflecting the SICAV’s active management to reduce the existing vacancy; - IMMO CROISSANCE signed, during the first quarter of 2007, two lease agreements for the rental of 2,000 sqm. (out of 6,700 sqm.) of the "Edison" building in Strassen, i.e. 29.8% of the total area. IMMO CROISSANCE is also about to conclude a lease for the rental of 20% (i.e. 2 of the 10 floors) of additional space in the same building; - In line with its announced strategy of focusing its activities on the Luxembourg market, IMMO CROISSANCE has signed an agreement for the sale of the building in Düsseldorf (Germany) which should be finalised by the end of July 2007; - The announcement on 13 July 2007 of the sale of the “Newton” building, located in Strassen (Luxembourg).
Please refer to the Section 4.4.3. of the Prospectus for further details on recent developments in relation to IMMO CROISSANCE.
The above-mentioned actions have contributed to lower the vacancy rate of the portfolio. The Bidder is confident that the situation will further improve, thanks to IMMO CROISSANCE’s active and successful management combined with the favourable outlook on the Luxembourg office real estate market.
The Bidder observed the decrease in rental income for 2007, which is duly explained by: - the disposal of the 2 French properties in the course of 2006; - a half year vacancy of the Arsenal building due to the anticipated construction work (the property still generates rental income for the first half of 2007); - the expiries of 2 of the Dexia Banque Internationale Luxembourg (« Dexia ») lease agreements relating to 2 buildings in Strassen.
BAUGUR is nonetheless confident that rental income will be back in line with the portfolio potential in the near future considering that: - recent transactions in the CBD (as defined below) show a strong demand for prime buildings at rents which are above current market practice;
21 - vacant spaces in the Strassen buildings have already been significantly reduced during the first half of the year, as explained previously; - several of the properties have current rents which are below market levels.
For the valuation of the Arsenal building, which is located in the city prime location (Central Business District, « CBD ») we assumed a total lettable area of 7,130 sqm., in line with the information publicly available as of the Valuation Date. The value retained for Arsenal takes into account the estimated demolition and construction costs, and is based on the estimated rental value and the anticipated market yield by the time the building will be on the market.
The Bidder is also of the opinion that there is a significant upside potential linked with the possible development of the « Royal Arsenal » and « Centre Monterey » properties which are both located within the CBD.
Beside the positive outlook of the CBD properties, the Bidder is convinced of the development potential of the « Auf der Hart » property in Hespérange, which offers a large unexploited plot of land. Moreover, the Bidder considered in its valuation the recent development of the Gasperich-Howald site and the positive impact it will have on the market rents.
The determination of the Price is derived from the above-mentioned considerations, the data available as of the date of the Offer and the conditions prevailing on the Luxembourg real estate market at that time.
In addition, BAUGUR took into account the objectives it is pursuing (see Section 2.3. "Objectives of BAUGUR ") and the future synergies of the businesses of BAUGUR and IMMO CROISSANCE (see section 2.4.1."Future governance and management of IMMO CROISSANCE") in determining the Price.
According to the above, the property and financial advisors of BAUGUR derived the value of the portfolio, from which they deducted the following elements, in order to determine the value for the entirety of the share capital: - financial debt as at 31 December 2006; - the negative elements of working capital as at 31 December 2006, the positive elements have been added; - the amount of the dividend paid in May 2007.
The Price was then derived by taking into account the following factors: - the unique opportunity of acquiring in Luxembourg a portfolio of the size and the quality of the one offered by IMMO CROISSANCE; - the estimate of the future dividends the SICAV is expected to distribute to its shareholder.
2.6.2. Justification of the Price
2.6.2.1. General comments
As this is a voluntary Offer, the setting of the Price depends on a market valuation to be done by the Bidder. It is emphasised that as the articles of incorporation of IMMO CROISSANCE do not stipulate any restrictions on the transfer of securities, nor any extraordinary right of the shareholders concerning the
22 appointment or dismissal of members of the administrative or management body, Article 12 (4) of the Takeover Law concerning the indemnification in relation to the suppression of such rights does not apply.
The Price offered is EUR 926.16 per Capitalisation Share and EUR 329.15 per Distribution Share (coupon No. 20 and following attached).
The Offer for the entirety of the Shares approaches an amount of EUR 145 million. This amount is reached by applying the two Prices, respectively of EUR 926.16 per Capitalisation Share and EUR 329.15 per Distribution Share, to all the Capitalisation and Distribution Shares. In order to justify the Price, 3 different means of comparison have been illustrated:
(i) Premium compared to the Net Asset Value, (ii) Premium compared to comparable transactions (iii) Premium compared to stock prices
In order to enable proper comparison, the Bidder took into account the fact that on 8 May 2007, a EUR 18 dividend was paid by IMMO CROISSANCE. Consequently, the Net Asset Value of EUR 110.3m as of 31 December 2006 was adjusted by EUR 5.5m, leading to an adjusted Net Asset Value of EUR 104.7m.
2.6.2.2. Results of the different justification methods
(i) Premium compared to the Net Asset Value
The Net Asset Value (« NAV ») is equal to the value of the assets of IMMO CROISSANCE (real estate properties, securities portfolio, cash, net working capital,…) less the financial debt as of 31 December 2006.
The NAV as of 31 December 2006 is the last available to BAUGUR at the date of the Offer.
The IMMO CROISSANCE NAV as of 31 December 2006 amounted to EUR 110.3m, which corresponds to a NAV per Distribution share of EUR 255.59 and a NAV per Capitalisation share of EUR 668.52.
23 Capitalisation share
NAV per share as of 31 Offered Price Premium December 2006 (in euros) (in euros)
668.52 926.16 38.54%
Distribution share
NAV per share as of 31 Adjusted NAV * (in Offered Price Premium December 2006 (in euros) (in euros) euros)
255.59 237.59 329.15 38.54%
* the NAV per share as of 31 December 2006 was adjusted in order to reflect the payment of the EUR18 dividend per share
(ii) Premium compared to comparable transactions
This method consists in analysing the premium paid during similar public takeover bids that previously took place in Luxembourg. However, the sample of recent comparable public takeover bids in Luxembourg is very limited, as the only transaction that can be used for comparison purposes is the acquisition of Dexia Immo Lux by Leasinvest Real Estate in 2006.
The said offer of Leasinvest Real Estate disclosed at 3.7% premium compared to Dexia Immo Lux NAV, and a 22.1% (capitalization share) respectively 10.8% (distribution share) as compared to the stock price as of 21 March 2006.
This has to be viewed in the light of the 38.54% premium compared to the IMMO CROISSANCE NAV (see Chapter 4 below), and the 19.35% (capitalisation share) respectively 16.72% (distribution share) compared to the closing stock price of the IMMO CROISSANCE shares as of 26 June 2007.
(iii) Premium compared to stock prices
The tables below disclose the average stock prices over different reference time period. The valuation date is 26 June 2007, and the adjustment to take into account the EUR 18 dividend was made when necessary.
24 Distribution share
Distribution Share
Share Price Premium (LU0006275720) in EUR after linear dividend adjustment of EUR 18 1 month average 277.4 18.6%
2 month average 279.5 17.7%
3 month average 275.1 19.6%
6 month average 269.4 22.2%
12 month average 272.5 20.8%
Capitalisation share
Capitalisation Share
Share Price Premium IMMO-CROISS. (CAP) (LU0006275696) in EUR 1 month average 760.7 21.8%
2 month average 748.3 23.8%
3 month average 739.4 25.3%
6 month average 728.6 27.1%
12 month average 726.4 27.5%
25 2.6.2.3 Conclusion of Price justification It is BAUGUR’s view that the quality of IMMO CROISSANCE’s portfolio and the favourable outlook on Luxembourg’s real estate markets justify the Price and the offered premium as illustrated through the different methods. In addition, the Price also reflects the opportunity to acquire a unique portfolio in the highly attractive Luxembourg market that can be further developed in the future through additional strategic acquisitions.
The graphs below illustrate the share price development of the Distribution Shares and Capitalisation Shares of IMMO CROISSANCE at Euronext in Brussels for the period from the beginning of 2001 until the 26 June 2007.
Distribution Share
350 340 330 320 310 300 EUR 290 280 270 260 250
7 7 7 7 7 7 7 007 00 00 007 00 00 007 00 00 007 00 /2 /2 /2 /2 /2 /2 /2 /2 /2 /2 /2 1 1 2 2 3 4 5 /0 /0 /0 /0 /0 /0 /0 0/01 3/03 4/04 5/06 02 16 3 13 27 1 27 10 2 08/05/200722 0 19/06/2007
IMMO-CROISS.(DIST) - closing ex-dividend -
26 Capitalisation Share
950
900
850
800
EUR 750
700
650
600
7 7 7 7 7 7 0 0 0 0 07 0 0 07 007 2007 2007 2/2 4/ 6/ 6/20 /0 0 4 8/02/20 5/04/20 9/05/20 0/ 03/01/20 17/01/20 31/01/20071 2 14/03/20 28/03/200711/0 2 0 23/05/20 06/0 2
IMMO-CROISS. (CAP) - closing -
2.7 TAX REGIME FOR THE OFFER
The paragraphs below relative to the tax treatment of the Offer summarise in a very general manner the tax legislation applicable in Belgium and Luxembourg regarding the consequences of the Offer for Shareholders and especially the tax regime for capital gains and losses for shares.
These paragraphs are based on the law, the treaties, case law and other sources of law in force on the date of the Offer, without prejudice to any amendment introduced later, whether retroactive or not.
This description is not intended to be an exhaustive account of all the tax issues which might interest shareholders wishing to take part in the Offer. In addition, this summary does not allow to draw conclusions on issues which are not dealt with specifically, particularly in terms of wealth tax, donation duties or inheritance tax. The above reservations apply to all sections of the Offer touching upon aspects of Luxembourg and/or Belgian tax law.
This Prospectus does not give further guidance on tax regulations which might apply to particular classes of holders of financial instruments and cannot be considered as extending to aspects which are not specifically covered in it. It does not consider nor does it discuss the tax law of states other than Belgium and Luxembourg, and is subject to any amendments to Belgian and/or Luxembourg law, including those with retroactive force.
As regard the individual consequences, the holders of Shares wishing to take part in the Offer are invited to consult their personal tax advisor over the tax implications of the Offer as it concerns them.
27 2.7.1 Tax regime applicable in Belgium a) Tax on sale of the Shares
- Belgian resident individuals
Capital gains realised at the time of the sale of the Shares by Belgian resident individuals holding the Shares as a private investment are not in principle subject to Belgian income tax. The capital losses are not in principle tax deductible. Individual Belgian residents can however be subject to a tax of 33% (plus additional municipal taxes) if the capital gain is considered as “speculative” or is the result of a transaction which exceeds the normal management of their private assets. The speculative capital losses can only be deducted from other speculative revenues and can be carried forward for 5 years.
Capital gains realised at the time of sale of the Shares by individual Belgian residents holding the Shares for business purposes are taxable at the ordinary progressive tax rate for individuals. If the Shares are held for more than 5 years, the gain will be taxed at a rate of 16.5% (plus additional municipal taxes). Capital losses are in principle tax deductible and can be carried forward.
- Belgian resident companies
Capital gains realised at the time of the sale of the Shares by Belgian resident companies are in principle fully taxable if the selling company does not benefit from the definitively taxed income regime as regard the Shares because of one of the exclusions set out in Article 203 of the 1992 Income Tax Code. Capital losses realised at the time of the sale of the Shares are not tax deductible.
- Entities subject to Belgian tax on legal entities
Capital gains realised when the Shares are sold by entities subject to Belgian tax on legal entities are in principle tax free and capital losses are not tax deductible.
- Non-resident individuals or companies
Non-resident individuals or companies are not in principle subject to Belgian income tax for capital gains realised at the time the Shares are sold, except if a non-resident holds the Shares for business purposes through a Belgian fixed base or permanent establishment. In this case, the same principles as those described concerning Belgian resident individuals (holding the Shares for business purposes) or Belgian resident companies apply (see above).
Non-resident individuals without a fixed base or permanent establishment in Belgium who have their tax residence in a country with which Belgium has not signed a tax treaty or with which Belgium has signed a tax treaty by virtue of which capital gains on the Shares are taxable in the source State, could be subject to a tax of 33% under the same conditions as those mentioned above concerning Belgian resident individuals.
28 b) Taxes on stock exchange transactions
The purchase, the sale and any other acquisition or sale for consideration in Belgium, through a professional intermediary, of existing shares (secondary market) is subject to the tax on stock exchange transactions, in principle at a rate of 0.07% of the sale price without deduction of the intermediary’s brokerage charge. The rate is 0.5% for Capitalisation Shares. The amount of the tax on stock exchange transactions is capped at a maximum of EUR 500 per transaction and per lot except with regard to Capitalisation Shares for which the ceiling is raised to EUR 750.
In all cases, the tax on stock exchange transactions will not be due by (i) professional intermediaries covered by Article 2, 9th and 10th of the Law of 2 August 2002 relating to the supervision of the financial sector and financial services, acting on their own behalf, (ii) insurance companies covered by Article 2 § 1 of the Law of 9 July 1975 relating to the control of insurance companies acting on their own behalf, (iii) pension funds covered by Article 2, §3, 6th of the Law of 9 July 1975 relating to the control of insurance firms, acting on their own behalf, (iv) collective investment schemes acting on their own behalf or (v) non-residents acting on their own behalf.
The tax on stock exchange transactions due at the time of the sale of the Shares in the framework of the Offer will be borne by BAUGUR (see section 1.12. "Expenses and Taxes"). c) Taxes on delivery of bearer securities
If on the occasion of the Offer, bearer shares are sold and are subject to physical delivery to the Bidder and this physical delivery has taken place via the intervention, in Belgium, of a professional intermediary pursuant to Article 2, 9th and 10th of the Law of 2 August 2002 relating to the supervision of the financial sector and financial services, who trades or deals on behalf of one of the parties and delivers the shares purchased to the Bidder, the tax on the delivery of the bearer securities will be due.
The rate of the tax is 0.6% and it is settled on the sums to be paid by the buyer, not including the intermediary’s brokerage charge and the tax on stock exchange transactions. There is no ceiling on this tax.
The tax on the delivery of bearer securities will not be due if no professional intermediary pursuant to Article 2, 9th and 10th of the Law of 2 August 2002 relating to the supervision of the financial sector and financial services trades or deals on behalf of one of the parties.
Where necessary, the tax on the delivery of bearer securities due at the time of the sale of the Shares in the framework of the Offer will be borne by BAUGUR (see section 1.12. "Expenses and Taxes").
2.7.2 Tax regime applicable in Luxembourg a) Tax on sales of the Shares
- Luxembourg resident individuals
29 Capital gains realised on the sale of the Shares by Luxembourg resident individuals who hold the Shares in their personal portfolios (and not as business assets) are generally not subject to Luxembourg income tax except if (i) the Shares that are sold were owned for a period not exceeding 6 months, or (ii) if the Shares held in the private portfolio constitute a significant ownership stake (see below). Similarly, losses and capital losses on sales are not deductible or subject to tax offset because the capital gains are themselves not taxable.
Capital gains realised by Luxembourg resident individuals, who hold the Shares in their private portfolios and who sell these Shares in connection with the Offer within 6 months following their acquisition, represent speculative income that is taxable in Luxembourg at the progressive income tax rate (the marginal tax rate in 2007 was 38.95%, including the employment fund contribution). Speculative income is however not taxable if, during the fiscal year, it totals less than EUR 500. The losses or capital losses from speculation are themselves not deductible from the taxpayer’s total income, but may be offset against possible other speculative income, and, sometimes against certain other income on sales.
Capital gains realised on the sale of Shares in connection with the Offer by Luxembourg resident individuals who hold a significant ownership stake2 in IMMO CROISSANCE (i.e., over 10% of the share capital of IMMO CROISSANCE) represent extraordinary income taxable at half the total rate applied to adjusted taxable income. This extraordinary income will be reduced by the EUR 50,000 rebate allowance, which is increased to EUR 100,000 for couples filing jointly, unless that would result in a loss. These rebates are reduced based on the rebates granted over the ten prior years. The losses or capital losses on sales are not deductible from the taxpayer’s total income but may be offset against other possible capital gains on sales and, if applicable, speculative income.
- Luxembourg resident collective entities
Capital gains realised on the sale of the Shares in connection with the Offer by Luxembourg resident collective entities and subject to the income tax on collective entities and the municipal trade tax (for example, a Luxembourg resident capital company (société de capitaux) are fully taxable in the category of such entities, as part of the income realised in the course of the fiscal year during which the sale occurred, at the rate applicable to such collective entities (for example, the total tax rate applicable in Luxembourg to capital companies (sociétés de capitaux) is 29.63% in 2007 for capital companies (sociétés de capitaux) established in the city of Luxembourg).
Similarly, the losses and capital losses on sales realised from the sale of Shares in connection with the Offer are generally deductible for the purposes of income taxes on collective entities and the communal business tax.
Capital gains realised on sales by authorised Luxembourg group investment organisations are exempt from Luxembourg income taxes since these group investment organisations are by their nature entirely exempt from income taxes on collective entities and the municipal trade tax.
2 An ownership stake in a company is considered significant when the seller, alone or with his/her spouse and minor children, has participated either directly or indirectly at any time in the five years preceding the date of the property transfer in the ownership of more than 10% of the capital or assets of the company. The 10% threshold is set at 25% until 2007 inclusive for investments acquired before 1 January 2002, if these investments have not been increased subsequent to that date.
30 - Non-resident individuals or collective entities that do not have a fixed address, a permanent representative or an established base of operations in Luxembourg
If there is an international tax treaty, the right to tax capital gains on sales of the Shares is generally given to the Government of the place of residence of the non-resident individual or collective entity (for example, a foreign capital company) realising these capital values. In the event that a tax treaty signed by Luxembourg gives the taxing rights to the Government of the source (Luxembourg), the principles set forth below will be applied (without prejudice, however, to potential special stipulations contained in any specific tax treaties).
In the absence of a tax treaty, the capital gains realised on the sale of Shares in connection with the Offer by non-resident individuals or foreign capital companies (sociétés de capitaux) are taxable in Luxembourg if (i) the seller holds or has held a significant investment stake and the sale occurs within a 6 month interval after the acquisition or (ii) if the seller has held a significant investment stake for over 6 months on the double condition that the seller has resided in Luxembourg for at least fifteen years and has left Luxembourg less than five years before the sale of the Shares. Taxation for individuals will be applied on the same basis as for capital gains on sales of shares that are applicable to resident individuals. Non-resident foreign capital companies (sociétés de capitaux) will be subject to income tax according to the rate schedule applicable to resident capital companies (sociétés de capitaux) (i.e., at a rate of 22.88% if the income exceeds EUR15,000, including the contribution to the employment fund.)
- Non-resident individuals or collective entities that do not have a fixed address, a permanent representative or an established base of operations in Luxembourg.
Capital gains realised on the sale of Shares in connection with the Offer may be subject to Luxembourg income tax (as well as other Luxembourg taxes depending on the nature of the investor) to the extent that the Shares or the capital gains are allocated or assignable to a fixed address, a permanent representative or an established base of operations in Luxembourg, belonging to or dependent on a non-resident individual or group entity (for example, a non-resident capital company (société de capitaux)). This tax section does not however address the details on the tax situation of such special cases. Such holders of Shares should consult their own tax advisors. b) Other taxes
Under the Luxembourg tax regime does not cover taxes on stock exchange transactions. It also does not include registration taxes, stamp taxes or other similar taxes on the sale of the Shares in connection with the Offer.
31 Chapter 3. INFORMATION PERTAINING TO BAUGUR
3.1 GENERAL INFORMATION
BAUGUR hf (“BAUGUR”) is a privately owned company. Appendix 3 contains the Contracted Consolidated Financial Statements of BAUGUR for the fiscal year ending 2006. Appendix 4 contains a YTD 2007 Presentation dated 28 June 2007. In these documents, Shareholders will find (i) a number of key figures, (ii) a detailed description of the real estate portfolio, and (iii) the Bidder’s financial results for the year 2006 and the YTD financial key figures until end of. BAUGUR’s annual consolidated statements and the auditor’s report for the fiscal year ending 31 December 2006 are also included in the Contracted Consolidated Financial Statements The corporate brochure and the annual reviews from the years 2003 to 2006 may in addition be viewed at its website at the address www.BAUGURGROUP.com under the heading "INFO MATERIAL". The purpose of this chapter is to summarise the information contained in the above mentioned documents and, when necessary, update it.
Company name BAUGUR Group hf, "public limited company under Icelandic law"
Legal organisation Public Limited company Internet Address www.BAUGURGROUP.com Registered and administrative office Túngötu 6 101 Reykjavik Iceland
Formation and duration BAUGUR was formed for an unlimited duration on 2 July 1998 duly filed with the Register of Companies of Fyrirtaekjaskrá Ríkisskattstjóra on 8 July 1998.
Registration of legal entities BAUGUR is recorded in the Registery of Companies of Fyrirtaekjaskrá Ríkisskattstjóra under company number 480798-2289.
Corporate purpose Under the terms of Article 1.3. of the coordinated bylaws of 8 June 2007: “The object of the Company is wholesale and retail operations, asset management, operation of real estate, investment in stocks and securities as well as in companies engaged in related activities, lending, financial services including banking services and insurance operations, buying and selling assets and other related operations.
32 Financial year The financial year begins on 1st January of each year and ends on 31 December of the same year.
Share Capital Pursuant to article 2.1. Of the articles of incorporation: “The authorised Share Capital of the Company amounts to ISK 1,304,476,080 (one billion three hundred and four million four hundred seventy six thousand and eighty Icelandic krónur (EUR 15,481,870). The paid in capital amounts to ISK 1.231 billion (EUR 14.61bn) . The share capital of the Company may be increased by a shareholders’ meeting in which case the same force of vote is required as for amendment of these Articles of Association. Shareholders shall have pre-emptive rights to all new shares in proportion to their registered holdings in the Company. Only a shareholders’ meeting can decide on a reduction in share capital. The Company’s share certificates shall be numbered and issued in the name of the holder. The Board of Directors shall maintain a register of shares pursuant to law. The Board of Directors may issue share certificates in electronic form in a securities depository pursuant to Act No. 131/1997 on the electronic registration of securities. In the event that the Board of Directors exercises its authorisation for the issue of electronic certificates, the physical certificates shall be destroyed, after which a transcript from the securities depository concerning the title to shares in the Company shall be considered adequate proof of ownership. For the Company, the Register of shares shall be regarded as the full proof of title to any shares in the Company and transfers of title to the shares shall not take effect for the Company until the Board of Directors has been notified in writing of such transfer. No restrictions are imposed regarding the sale of shares in the Company. Shareholders shall not be liable for the
33 commitments of the Company beyond their share in the Company. No privileges are attached to shares in the Company. Shareholders shall not be obliged to suffer redemption of their shares except as prescribed by law. The Board of Directors of the Company is authorised to increase the share capital of the Company by up to ISK 100,000,000 – one hundred million Icelandic krónur (EUR 148m) – in nominal value. Shareholders shall not have pre-emptive subscription rights of these new shares. The new shares belong to the same class and carry the same rights as other shares in the Company. They shall carry rights in the Company from the date of listing of the increase in share capital. The Board of Directors of the Company may use the increase in share capital as payment for shares in companies engaged in related operations. The above authorisation to the Board of Directors shall lapse on 31 May 2008, to the extent that it has not then been exercised.”
3.2 GENERAL INFORMATION ON THE SHARE CAPITAL
For an overview of the share capital of BAUGUR, see the BAUGUR YTD Presentation of 2007 in Appendix 4 of the Prospectus.
3.3 INFORMATION ON THE SHARE OWNERSHIP STRUCTURE OF BAUGUR
To the best knowledge of the Board of Directors of BAUGUR, share ownership on the date of this Prospectus is as follows.
Fjárfestingafélagið Gaumur ehf. 499,658,043.00 40.55% Gaumur Holding S.A. 361,836,084.00 29.36% Kevin Stanford 102,608,396.00 8.33% Eignarhaldsfélagið ISP ehf. 92,835,258.00 7.53% Bague S.A. 92,541,372.00 7.51%
Others shareholders hold less important participations.
34 3.4 MANAGEMENT, ADMINISTRATION AND CONTROL
3.4.1 Board of Directors
The role of the Board of Directors is pursuant to article 4.1. of the articles of incorporation to “manage all the affairs of the Company between the shareholders’ meetings and protect the interests of the Company against all third parties.”
The current Executive Chairman of the Board of Directors is Jón Ásgeir Jóhannesson
The Chief Executive Officer of BAUGUR is Gunnar S. Sigurdsson.
The other directors of BAUGUR are:
Don McCarthy, Hreinn Loftsson Kristín Jóhannesdóttir Ingibjörg Stefanía Pálmadóttir Jóhannes Jónsson Hans Kristian Hustad Guðrún Sylvía Pétursdóttir, Alternate Einar Þór Sverrisson, Alternate
The executive director is:
Gunnar S. Sigurðsson
The directors representing the shareholders are:
The same as the directors.
3.4.2 Day-to-day management
The day-to-day management is in the hands of the executive manager and the following Directors:
- Deputy CEO and Chief Financial Officer: Stefán Hilmarsson - Managing Director: in charge of retail: Jeff Blue - Managing Director in charge of property: Eirikur S. Jóhannsson - Managing Director in charge of Media and New Ventures: Bórdis Sigurdardóttir - Managing Director in charge of Corporate Communications: Sara Lind - Director of Finance: Rúnar Sigurpálsson - Operations Director: Andrew Lobb - Investment Director: Andras Szirtes
35 - Investment Director: Amit Aggarwal
3.4.3 Audit
The annual accounts of BAUGUR are supervised by a chartered accountant or accounting firm appointed by the annual general meeting of BAUGUR for a term of one year. The chartered accounting firm is KPMG hf, a private limited company with registered office at Borgatùni 27, 105 Reykjavik.
3.4.4 Portfolio overview
BAUGUR’s portfolio is well diversified both in terms of number of holdings and the variety of different industries (including food and non-food retail, real-estate and also, although to a lesser extent, telecommunications and media), as well as the geographical spread of the business across the UK and the Nordic region. No single investment holding represents more than 19.0% of the portfolio value.
The Group has successfully built a robust portfolio of investments which: include a significant proportion of liquid assets are diversified geographically and by sector have significant developmental potential have a strong management track record
BAUGUR aims to be the largest shareholder holding significant minority stakes in its investments, giving it a high degree of influence whilst maintaining flexibility.
BAUGUR’s portfolio is currently carried at a book value of £1,374.83 million (EUR 2,039m). Almost half of the portfolio (46.7%) consists of publicly listed assets, with four of the top seven largest holdings in listed stakes.
Among the principal UK holdings are the supermarket chain Iceland, the wholesaler Booker, the toy retailer Hamleys, Woodward Foodservice, the jewellery stores Goldsmiths and Mappin & Webb, the fashion chains MK One, Jane Norman and Mosaic Fashions (the parent of the Karen Millen, Whistles, Oasis, Coast, Principles, Warehouse and the various Shoe Studio brands), the health products chain Julian Graves as well as the well known UK chain of department stores, House of Fraser.
BAUGUR’s principal Nordic assets include Hagar, Iceland’s largest retailer focused on general merchandise retailing in food and speciality categories in Iceland and Sweden, real estate company Stooir, the investment group FL Group and the hardware retailer Húsasmiojan. In Denmark, BAUGUR is a shareholder in Magasin du Nord the well-known department store chain, Keops property group, Illum department store and Merlin, an electronics retailer.
3 For the purpose of the calculation assets under forward contracts are calculated on a gross basis
36 As part of BAUGUR’s “buy and build strategy” it has established a venture business unit focused on providing growth capital and expertise for up-and-coming retail brands. Currently, there are several brands under the venture business unit, including: Criminal Clothing – street apparel for men and women PPQ – upmarket fashion apparel for men and women Steinunn – upmarket fashion apparel for women Gumball 3000 – racing/street apparel for men and women Femin – interest based feminine products Waage Jewellery – jewellery Matthew Williamson – designer fashion apparel for women Leonard – jewellery (Iceland)
BAUGUR’s total investment in the venture business unit represents a small proportion of the total portfolio value – approximately £12 million (EUR 18m) as of 31 December 2006.
3.4.5 Corporate Governance Charter
BAUGUR has not yet set its own Corporate Governance charter but aims to follow the guidelines of the Corporate Governance model set by the Icelandic Chamber of Commerce.
3.4.6 Amendments to the articles
The articles of incorporation may be amended at a lawful shareholders’ meeting with the support of 2/3 of the votes cast and also with the approval of 2/3 of the share capital in the company which is represented at the meeting.
The annual general meeting of shareholders dated 8 June 2007 has approved the following amendments to the articles of incorporation of BAUGUR:
- increase of the share capital form ISK 1,232,250,080 to ISK 1,304,476,080 (EUR 14,624,673 to EUR 15,481,870) - provision for an authorised share capital of up to ISK 100,000,000 (EUR 1,186,827) - increase of the Board members from 5 to 7
37 3.5 GENERAL INFORMATION ON BAUGUR’S BUSINESS ACTIVITIES
3.5.1 Company profile
BAUGUR is an investment company with international investments focused on the food, health and fashion distribution sectors, real estate and media in Iceland, the United Kingdom and Scandinavia. BAUGUR’s principal real-estate assets include the Icelandic real estate companies Stodir and Thyrping and the Danish real-estate groups Keops A/S and Noridcom.
Since it was founded in 1989, BAUGUR has focused primarily on food and fashion investments in which the management team can leverage its experience to achieve sustainable growth. Beginning in 1999 with the formation of Stodir, BAUGUR started to invest in the Nordic commercial and residential real estate markets as a way to diversify its holdings and extract cost synergies through owning interests in commercial spaces and the stores that occupy them.
BAUGUR has added value to brands acquired in the UK and Nordic countries through its “buy and build” strategy -buying strong brands with significant growth potential and experienced management teams, before developing the investments through organic expansion and selected add-on acquisitions.
BAUGUR’s future investments will extend this philosophy, maximising the diversity of holding across regions and industries, as well as maintaining strong portfolio liquidity through a high proposition of stakes in listed companies.
The Group’s “buy and build” investment philosophy places its business model between a retail conglomerate and private equity investor: BAUGUR holds significant minority stakes in companies (with the intention of being the lead investor) and enters into shareholder agreements with co-investors. BAUGUR aims at increasing shareholder value by attempting to maximise profits and cash flows. BAUGUR uses extensive group-wide experience, as well as the expertise of co-investors and management of individual companies, when choosing and operating investments, but allows each investee company to maintain operational independence. BAUGUR aims to possess a long-term portfolio of core assets, but also takes advantage of opportunities where management believe value can be extracted in a limited time frame.
BAUGUR’s stated goal is to hold significant minority stakes in assets controlled by the Group and its investment partners (governed by shareholder agreements), and in which BAUGUR has relevant operational and/or market experience: each investment is held as a discreet asset, maintaining operational independence within a framework of oversight from BAUGUR BAUGUR’s in-house sector expertise supports management teams and facilitates domestic and international growth organically and through acquisitions BAUGUR helps bring management teams together to leverage sector expertise and synergies across the Group
38 BAUGUR’s investments benefit from the Group’s extensive experience
Product mix benefit As a result of its acquisition of Rubicon Retail, Mosaic Fashions has access to Rubicon’s shoe knowledge and distribution and can exploit Rubicon’s e-commerce success Significant synergies The acquisition of Mappin & Webb by Goldsmiths has strengthened potential the store portfolio by bringing complementary stores and closure opportunities Growth opportunities Rubicon is able to leverage Mosaic Fashions’ international experience and partners Geographic The 246 year-old brand Hamleys is well known in the Middle East and expansion India, especially among shoppers who travel to London regularly, and will open the first Middle Eastern store in Dubai next year, followed by Kuwait and Saudi Arabia Strengthen group In the case of Booker, the traffic light system helped identify problems and improve performance Performance benefit Despite a difficult operating environment and low consumer confidence, Mosaic Fashions performed above expectations due to its solid business
BAUGUR mainly pursues selected investments that it intends to hold with a long-term horizon, taking advantage of growth opportunities for brands and geographies. The Group’s financial objectives are: minimum 50% equity ratio maintain an exchange rate balance 30% return on equity each year.
These targets have been met to a significant extent every year historically.
Decision making process:
The Group’s decision-making process is streamlined and robust, ensuring that every new investment is thoroughly considered and fits with its investment and returns criteria. BAUGUR’s key investment criteria when evaluating potential investment options include: strong brand quality, with growth opportunities established management teams in place, with potential to take the brand further strong business profile, with proven cash generation ability growth potential - “buy and build” in domestic markets - Franchising in established markets - Increasing international presence through joint ventures with local partners in China and/or other emerging markets sectors: retail, real estate and media geography: direct investments in the UK, Denmark and Iceland liquidity: 50% of BAUGUR’s portfolio should be listed enterprise value of individual investments: usually £50-100m (EUR 74-148m) capital owned: 30-50%, with the aim of being the largest shareholder
39 financing strategy: own balance sheet used when investing; structuring decisions are taken centrally but funding takes place at asset level
Decision making process schematic
Investment idea Management Committee Board meeting Investments can be solicited Formal meeting takes place Meeting takes place monthly or unsolicited every other week
BAUGUR focuses on three Chairman is present The purpose is to review the areas: Food, Fashion and current portfolio and Retail property potential purchase or sale Smaller listed or unlisted Informal approval for the investments may be due diligence process is approved by two executives given through regular updates Committee must seek the All final decisions on buying approval of the Board for and selling companies investments of more than larger than minimum £3.7 million (unlisted)(EUR amounts agreed are subject 5m) £15 million (listed) to Board approval. (EUR 22m)
Due diligence – throughout the process
Due diligence begins once the transaction has been agreed between the parties. BAUGUR appoints financial advisors as well as legal advisors. Due diligence continues until deal closing.
On becoming part of BAUGUR’s investment portfolio, companies benefit from the Group’s extensive experience and also have significant synergy potential, shared expertise and a strengthened management group.
BAUGUR operates a “traffic light” system, under which investments are classified based on their performance and management and BAUGUR accordingly adjust their approach to the business based on it.
On Plan
Weekly sales, margin and cash report Monthly management accounts Monthly board meetings Informal communications with management
Monitor more closely
Weekly sales, margin and cash report Monthly management accounts
40 Monthly board meetings More regular discussions with management Closer in-house monitoring In-house evaluation regarding impairment
Requires action
Daily sales, margin and cash report Monthly management accounts Monthly board meetings Weekly meetings with CEO Impairment taken
For a full presentation of BAUGUR, see the BAUGUR YTD 2007 update in Appendix 4 of the Prospectus.
According to the results released as at 28 June 2007, the fair value of the portfolio amounted to ISK 218 billion (EUR 2.59bn) and the investment represented 24% thereof.
BAUGUR’s roots stem from 1989, when Jóhannes Jónsson and his son, Jón Ásgeir Jóhannesson, founded the Icelandic retailer Bónus. They initially opened a Bónus store in Reykjavík, and within three years had expanded to four stores. With new methods in retail operations, Bónus revolutionised the Icelandic food sector and was repeatedly voted Iceland’s most popular business enterprise in surveys conducted by the Icelandic business magazine Frjáls verslun. BAUGUR quickly grew to become the largest player in the Icelandic retail sector.
In 1999, BAUGUR signed franchise agreements for Scandinavia with the Arcadia Group and Debenhams and ran a number of Topshop, Miss Selfridge and Debenhams stores in Iceland and Sweden.
As at year end 2006, companies controlled by BAUGUR and its investment partners employed approximately 67,000 people worldwide in over 3,700 stores and generated annual turnover of over £8,8004 million (EUR 13,054m)
3.5.2 Consolidated portfolio as at 31 December 2006 as updated on 28 June 2007
Divisional split of Portfolio ISK 218 bn (EUR 2.59bn) % Financial Investments 24 Media & New Ventures 6 Retail 47 Property 23
For a full overview of the consolidated portfolio as at May 2007, see the BAUGUR YTD Presentation of 2007 in Appendix 4 of the Prospectus.
4 Assuming a 2006 average exchange rate of 1 ISK = £0.007771
41 3.6 FINANCIAL INFORMATION RELATING TO BAUGUR – The contracted consolidated financial statements as at 31 December 2006 are included in Appendix 3 of the Prospectus.
3.6.1 Key figures
As presented in Appendix 3 of this Prospectus the historic performance for the years 2003 to 2006 was as follows:
I. Amounts in ISK millions
31/12/2006 2005 2004 2003 Realised income: Financial income 7,322 24,343 7,023 (826) Financial expenses (7,414) (2,744) (1,927) (832) Exchange rate differences (14,078) 2,953 919 (782) Commission income 931 878 Operating expenses (4,415) (2,531) (1,283) (1,563) Profit (loss) before (17,654) 22,899 4,732 (4,003) income taxes Income tax 4,844 (2,056) 178 357 Realised profit (loss) (12,810) 20,843 4,910 (3,646) Unrealised income: Unrealised gains and 24,415 7,308 951 13,157 losses Profits allocated to equity 11,605 28,151 5,861 9,511
42 II. Amounts in EUR millions (at constant FX-rate of 84.2583 ISK/EUR as per 29 June 2007):
31/12/2006 2005 2004 2003 Realised income: Financial income 87 289 83 (10) Financial expenses (88) (33) (23) (10) Exchange rate differences (167) 35 11 (9) Commission income 11 10 0 0 Operating expenses (52) (30) (15) (19) Profit (loss) before income taxes (210) 272 56 (48) Income tax 57 (24) 2 4 Realised profit (loss) (152) 247 58 (43) Unrealised income: 0 0 0 0 Unrealised gains and losses 290 87 11 156 Profits allocated to equity 138 334 70 113
43 3.6.2 Consolidated balance sheet as at 31 December 2006 I. Amounts in ISK millions
Assets: 2006 2005 Investment in Shares: Shares in listed companies 44,942 27,935 Shares in unlisted companies 91,362 34,180 Share related loans 17,601 10,285 Equity based derivatives 4,239 11,982 158,144 84,382
Other Assets: Intangible assets 0 1,386 Operating assets 2,114 1,136 Prepayments 795 0 Loans and receivables 3,128 3,649 Bank deposits 6,299 2,093 Cash and cash equivalents 8,164 9,310 20,500 17,574 Total assets: 178,644 101,956
Equity and Liabilities: Equity: Share capital 1,232 1,232 Share premium 11,03 1 11,031 Retained earnings 24,96 4 39,274 Currency translation difference arising from subsidiaries 6,932 ( 4,582) Unrealised gain on shares in other companies 28,99 1 16,090 Total equity: 73,15 0 63,045 Subordinated loan from Fasteignafélagio Stooir hf. 3,138 0 Total equity and subordinated loan: 63,045 76,28 8 Deferred income-tax liability 6,254 6,512
Liabilities:
44 Equity based derivatives 1,256 255 Borrowings 91,248 30,417 Other creditors 3,598 1,727 96,102 32,399
Total liabilities: 38,911 102,356 Total equity and liabilities: 178,644 101,956 II. Amounts in EUR millions (at constant FX-rate of 84.2583 ISK/EUR as per 29 June 2007):
Assets: 2006 2005 Investment in Shares: Shares in listed companies 533 332 Shares in unlisted companies 1,084 406 Share related loans 209 122 Equity based derivatives 50 142 1,877 1,001
Other Assets: Intangible assets 0 16 Operating assets 25 13 Prepayments 9 0 Loans and receivables 37 43 Bank deposits 75 25 Cash and cash equivalents 97 110 243 209 Total assets: 2,120 1,210
Equity and Liabilities: Equity: Share capital 15 15 Share premium 131 131 Retained earnings 296 466 Currency translation difference arising from subsidiaries 82 ( 54) Unrealised gain on shares in other companies 344 191 Total equity: 868 748 Subordinated loan from Fasteignafélagio Stooir hf. 37 0 Total equity and subordinated loan: 905 748 Deferred income-tax liability 74 77
Liabilities:
45 Equity based derivatives 15 3 Borrowings 1,083 361 Other creditors 43 20 1,141 385 Total liabilities: 1,215 462 Total equity and liabilities: 2,120 1,210
3.6.3 Consolidated income statement as at for the year 2006 I. Amounts in ISK millions
Operating Loss: 2006 2005
Operating loss before depreciation and financial expenses ( 2,001) ( 1,580) Depreciation ( 1,483) ( 73,000) Operating loss before financial expenses ( 3,484) ( 1,653)
Financial income and financial expenses ( 14,170) 29,821
Net (loss) profit before income tax ( 17,654) 28,168
Income tax 4,844 ( 4,008)
Realised (loss) profit ( 12,810) 24,160
Unrealised income and expenses 24,415 3,991
Total income posted to equity 11,605 28,151
II. Amounts in EUR millions (at constant FX-rate of 84.2583 ISK/EUR as per 29 June 2007):
Operating Loss: 2006 2005
Operating loss before depreciation and financial expenses ( 24) ( 19) Depreciation ( 18) ( 866) Operating loss before financial expenses ( 41) ( 20)
Financial income and financial expenses ( 168) 354
46 Net (loss) profit before income tax ( 210) 334
Income tax 57 ( 48)
Realised (loss) profit ( 152) 287
Unrealised income and expenses 290 47
Total income posted to equity 138 334
Financial Update 2007 until 31 May 2007:
The first five months of 2007 show a successful continuation of the business of BAUGUR. For more details we refer to the YTD 2007 Update comprising the period 01.01.2007 to 31.05.2007 as included in Appendix 3 of this Prospectus.
Highlights of the performance are (in brackets EUR million at constant FX-rate of 84.2583 ISK/EUR as per 29 June 2007):
Net profit posted to equity of ISK 16.4bn (EUR 195m) vs ISK 11.6bn (EUR 138m) for the full year 2006 Iceland ISK 5.9bn (EUR 70m) Jane Noreman ISK 4.0bn (EUR 47m) FL Group ISK 8.5bn (EUR 101m) HoF ISK 1.0bn (EUR 12m) Properties ISK 2.8bn (EUR 33m)
Total assets of ISK 218bn (EUR 2.587m) up by ISK 40bn (EUR 475m) since beginning of the year
Equity ratio was 42.3% against 42.7% at the beginning of the year
Return on equity for YTD is 43.9% on annual basis
BAUGUR has recently completed a restructuring re-focusing on retail
Cash proceeds of £135m (EUR 200m) received from Iceland and Jane Norman
47 Chapter 4. INFORMATION PERTAINING TO IMMO CROISSANCE
4.1 GENERAL INFORMATION
Company name IMMO CROISSANCE.
Legal organisation Société d’investissement à capital variable (SICAV) incorporated under Luxembourg law as a société anonyme.
IMMO CROISSANCE is recorded on:
í the official list of collective investment undertakings subject to supervision by the CSSF, and í the CBFA’s official list of public collective investment undertakings under foreign law.
Internet address www.immocroissance.com
Registered office 69 Route d’Esch, L -1470 Luxembourg.
Trade register Luxembourg Trade Register number B 28 872.
Founding date 22 September 1988. Applicable law under which IMMO CROISSANCE is a Luxembourg company IMMO CROISSANCE operates subject to the laws of the Grand Duchy of Luxembourg.
Corporate purpose According to Article 2 of the company’s articles of incorporation, the purpose of IMMO CROISSANCE is:
"to invest directly or indirectly in real estate in Luxembourg and abroad, with the goal of spreading investment risk and generating profits for Shareholders as a result of asset management.
To this end, the Company may acquire holdings,
48 make cash investments in real estate and conduct all transactions that it shall deem fit to accomplish and develop its corporate purpose, while respecting the limitations outlined by the Law of 20 December 2002 relating to collective investment undertakings".
Share capital According to the articles of incorporation of IMMO CROISSANCE:
"The company’s share capital must be at least EUR 1,250,000 .00"
"The company’s share capital is at all times equal to the net asset value of the Company calculated according to Article 12 of the articles of incorporation."
As at 31 December 2006, the net asset value was EUR 110,268,495. Total shares outstanding amounted to 354,380, including 47,688 capitalisation shares and 306,692 distribution shares. As at 17 July 2007, the total number of shares amounted to 356,937, including 46,084 capitalisation shares and 310,853 distribution shares.
In principle, distribution shares give Shareholders the right to receive a cash dividend allocated by the general meeting of Shareholders in accordance with Luxembourg law and the Company’s articles of incorporation. After each distribution of dividends attached to distribution shares, total net assets to be allocated to such shares shall undergo a reduction equal to the dividend distribution. Capitalisation shares do not entitle to dividend payments; rather, the portion of profits attributable to capitalisation shares remains invested and increases the net value of the share.
Each distribution share and each capitalisation share give a right to one vote at general meetings of Shareholders.
49 Company’s purchase of its own shares The Company’s Shares may not be purchased at the unilateral request of its Shareholders. However, IMMO CROISSANCE is authorised to purchase its own shares on the stock exchanges of Euronext Brussels and the Bourse de Luxembourg or on any other organised market in which IMMO CROISSANCE shares might be traded during the periods and up to the amount established by the general meeting of Shareholders at the request of the Board of Directors.
Once the periods and the amount have been established, the Board of Directors shall proceed to buy back a fixed number of its Shares on the market within the limits set by Luxembourg law, in the interest of IMMO CROISSANCE and in accordance with the principle of Shareholder equality, unless the price of such share redemption is less than the most recent net asset value. The Board of Directors shall moreover establish the maximum number of shares to be purchased per day.
In a decision taken by the general Shareholders’ meeting of 11 April 2007, the general Shareholders’ meeting authorized IMMO CROISSANCE to carry out a redemption of its own shares during an 18- month period beginning on the date of the meeting.
4.2 GENERAL INFORMATION ON THE SHARE CAPITAL
4.2.1 Share capital
According to the articles of incorporation of IMMO CROISSANCE, the Company’s minimum share capital is EUR 1,250,000 and this capital must at all times equal the net asset value of the Company calculated in accordance with Article 12 of the articles of incorporation.
IMMO CROISSANCE was established on 22 September 1988 with share capital of EUR 2,478,935.25 (the euro equivalent of 100,000,000 Luxembourg francs). By law the share capital of IMMO-CROISSACE must be at least EUR 1,250,000.
The amount of share capital of IMMO CROISSANCE is at all times equal to the net asset value of the Company.
50 4.2.2 Shares
IMMO CROISSANCE is listed on the Bourse de Luxembourg and on Euronext Brussels. It issues two types of shares:
1. distributions shares (LU0006275720), and 2. capitalisation shares (LU0006275696).
The Distribution shares, called IMMO CROISSANCE Distribution, are paid for by dividends allocated from earnings approved by the general meeting of Shareholders. The Capitalisation Shares, called IMMO CROISSANCE Capitalisation, do not give right to the distribution of a dividend; rather, the portion of profits attributable to them is capitalised.
IMMO CROISSANCE offers two investment options. Distribution Shares may be converted into Capitalisation Shares (and vice-versa) twice annually on the basis of the net asset values established the last working day of the month of March and September, the first such opportunity having arisen on 31 March 2004. The fractional shares likely to result from such a conversion shall not be allocated; instead, IMMO CROISSANCE will purchase the fractional shares and compensate the Shareholder on the basis of the above-mentioned net asset values. Any request for conversion must be received by the transfer agent of IMMO CROISSANCE in writing no later than the last working day of the months of March and September, respectively. The conversion request must be accompanied by the relevant Share certificates if any were issued. The net asset value of one share of each category is established the last working day of each month as described in Chapter 8 of the IMMO CROISSANCE Prospectus (the “IMMO CROISSANCE Prospectus”).
Each Distribution Share and each Capitalisation Share gives its holder one vote at any general meeting of Shareholders. A Shareholder may vote in person or through the intermediary of a representative and participate in deliberations with the number of votes held by such Shareholder, without limitation.
Shares in each category are either bearer shares or registered shares, as the investor chooses. The Company’s current Shareholders have a preferential subscription right to new shares when subsequent issues take place. This right shall be evidenced by a subscription right tradable on the stock market.
Registered shares may be changed into bearer shares or vice-versa, with IMMO CROISSANCE having the right to demand payment from the Shareholder of associated costs incurred.
Transfer agent functions are provided by RBC Dexia Investor Services Bank S.A. Bearer shares represent one, five, twenty-five or one hundred shares.
Registered Shares are recorded in a Shareholders’ register kept at the registered office of IMMO CROISSANCE.
51 4.2.3 Subscription of Shares
The Board of Directors of IMMO CROISSANCE may issue Shares at any time in accordance with the provisions described in Chapter 4 of the IMMO CROISSANCE Prospectus. The Board may authorise any financial body to do this. A commission of maximum 3% may be added to the issue price. The Board of Directors may conduct successive issues giving current Shareholders a preferential subscription right and these issues shall be announced in a press release in two Luxembourg newspapers and two Belgian newspapers and possibly in other newspapers selected by the Board of Directors. These subscriptions shall be made according to the most recent net asset value calculated and on the basis of a preferential right represented by a Share coupon tradable during a subscription period set by the Board of Directors and which shall be at least fifteen days from the opening of the subscription period. The subscription price and the attached issue commission shall be payable no later than the fifth working day after the close of the subscription period. The subscription rights that are not exercised during the established subscription period shall be publicly sold on the Bourse de Luxembourg and Euronext Brussels in accordance with the rules of these exchanges. The proceeds from the sale in question (less incurred fees, expenses and charges of any kind) shall be made available to the holders of the non-exercised rights. The net asset value is calculated on the last working day of each month. The net asset value calculation is suspended while subscriptions are in progress.
The Board of Directors of IMMO CROISSANCE shall decide on the schedule of issues according to the real estate investment opportunities of IMMO CROISSANCE and the state of the financial markets.
IMMO CROISSANCE reserves the right to reject any purchase request, as well as the right to cause the sale at any time of the Shares held by Shareholders in a breach of regulations and consequently not allowed to purchase or own IMMO CROISSANCE Shares.
4.2.4 Repurchase
According to the provisions of its statutes, IMMO CROISSANCE has the right to purchase its own Shares. The Board of Directors shall be allowed to conduct the repurchase of a set number of Shares for a given period, subject to the prior authorisation of the general meeting of Shareholders deliberating with a simple majority of Shareholders present and voting. Such authorisation may not exceed 18 months and shall be published by the Board of Directors in "d’Wort" and in another Luxembourg newspaper in Luxembourg, in "L’Echo" and "De Tijd" in Belgium and possibly in other newspapers to be selected by the Board. The directors of IMMO CROISSANCE have expressed their intention to exercise this right in the event where the Shares would be sold on the stock market at a price below their net asset value and when the surplus cash of IMMO CROISSANCE could not be otherwise profitably invested.
The repurchase must be conducted on the Luxembourg stock exchange or on any other organised market where Shares are traded. The Board of Directors shall have full latitude to conduct such repurchase in the general interest of the Company and its Shareholders. The Board of Directors shall not be required to repurchase all the Shares authorised for repurchase.
The price of the repurchase shall not exceed the most recently calculated net asset value.
52 The Shares bought back by IMMO CROISSANCE shall be held in its portfolio and put back on the Luxembourg stock exchange or on any other organised market where Shares are traded.
The Company’s Shares may not be purchased upon the unilateral request of its Shareholders.
4.2.5 Net asset value
The net asset value of all the IMMO CROISSANCE Shares is determined based on the calculations described below, performed at least once a month, and currently on the last working day of each month.
The net asset value of the IMMO CROISSANCE Shares is equal to the difference between its gross assets and its current liabilities.
Its assets and commitments will be valued as follows:
• Real estate assets will be appraised by one or more property appraisers at least once a year and at the end of each financial year. The Board of Directors may require additional valuations of all or specific properties as they deem necessary.
• Rental payments due for an elapsed period will be added to the assets and the income of IMMO CROISSANCE at their discounted value calculated at market rate unless the Board of Directors has reason to believe that such rental payments will not be made.
• Other assets will be valued at their fair value, or, if unavailable, at their probable sale value, as estimated by the Board of Directors, acting with prudence and in good faith.
• The commitments of IMMO CROISSANCE will be valued at their nominal amount, adjusted to take into account on a pro rata basis the expenses not yet paid for the period elapsed.
• Assets and commitments that may be denominated in a currency other than the euro will be translated to euros at the most recent recorded average rate.
• At any point in time, the net value of a Share will be determined by dividing the value of the total of IMMO CROISSANCE’s net assets by the total number of Shares outstanding.
• The percentage of the total net assets to be attributed to each Share is initially equal to the percentage represented by the total number of Shares. It will be adjusted as follows: following each distribution of dividends to the Distribution Shares (other than a free distribution of shares), the total net assets to be attributed to the Distribution Shares will be subject to a reduction that is equal to the dividend distribution (thus also resulting in a reduction in the percentage of the total net assets attributable to these shares), although the total net assets to be attributed to the Capitalisation Shares will remain the
53 same (thus resulting in an increase in the percentage of total net assets attributable to these shares). When there is a subscription offer for new distribution or capitalisation shares, the net assets to be attributed to each of these shares will be increased by an amount equal to the total amount received by IMMO CROISSANCE as a result of the same offer or same sale. When there is a purchase by IMMO CROISSANCE, the net assets will be subject to a reduction equal to IMMO CROISSANCE’s total cost for the purchased shares.
4.3. BOARD OF DIRECTORS, MANAGEMENT AND CONTROL
4.3.1 Board of Directors
The Board of Directors of IMMO CROISSANCE defines the strategy to be followed by the company. The members were appointed for a term of one year by the General Shareholders’ Meeting of 11 April 2007.
Mr Frank Wagener is the Chairman of the Board of IMMO CROISSANCE.
The other members of the Board are:
• Mr René Arnoldy • Mr Benoît Dourte • Mr Pierre Malevez • Mr Richard Schneider • Mr Henri Servais
4.3.2 Day to day management
Mr Karl Heinz Dick is responsible for the day to day management of IMMO CROISSANCE.
4.3.3 Financial Services in Luxembourg and Belgium
The Board of Directors of IMMO CROISSANCE has given the responsibility for providing financial services to IMMO CROISSANCE in Luxembourg to RBC Dexia Investor Services Bank S.A., Porte de France 14, L- 4360 Esch-sur-Alzette, and in Belgium to Fortis Banque SA, Montagne du Parc 3, 1000 Brussels, and Puilaetco Dewaay Private Bankers SA, avenue Hermann Debroux 44-46, 1160 Brussels.
54 4.3.4 Investment advisory services
IMMO CROISSANCE receives investment advice from IMMO CROISSANCE CONSEIL S.A. under an agreement signed on 14 April 2004. This company is wholly owned by Dexia Banque Internationale in Luxembourg, the insurance group Foyer S.A., and Puilaetco Dewaay Private Bankers SA.
IMMO CROISSANCE CONSEIL S.A. receives advisory fees, payable at the end of each six-month period, equivalent to 0.25% of IMMO CROISSANCE’s gross assets, as appraised by independent appraisers. IMMO CROISSANCE CONSEIL S.A. also receives a 5% commission on net capital gains realised when buildings are sold. IMMO CROISSANCE may terminate this agreement of 14 April 2004 at any time by paying a penalty of 3% of the value of the gross assets of IMMO CROISSANCE.
4.3.5 Audit of the annual financial statements - Auditor
The accounting firm PriceWaterhouseCoopers S.à r.l. was appointed by the General Shareholders’ Meeting to audit the annual financial statements.
PriceWaterhouseCoopers S.à r.l., a chartered accounting firm and member of the Institute of Chartered Accountants, whose offices are located at 400 Route d'Esch in L-1471 Luxembourg, was appointed as the auditor of IMMO CROISSANCE by the General Shareholders’ Meeting of 11 April 2007 for a term of one year.
The annual financial statements of IMMO CROISSANCE for the fiscal years ended on 31 December 2004, 31 December 2005, and 31 December 2006 were audited by and received an unqualified opinion from the firm Ernst & Young S.A.
4.3.6 Valuation of the real estate portfolio - Property appraiser
Annual valuations of the real estate portfolio are carried out by an independent property appraiser. The property appraiser Cushman & Wakefield, International Real Estate Consultants, with offices at 1000 Brussels, avenue des Arts 58, Box 7, has been selected to provide this service. The valuation of the real estate portfolio by the property appraiser Cushman & Wakefield concluded that the total value was EUR 160.5 million as at 31 December 2006.
4.3.7 Depositary bank
The custody of the assets of IMMO CROISSANCE is handled by the depositary bank RBC Dexia Investor Services Bank S.A., Porte de France 14, L-4360 Esch-sur-Alzette, which performs the obligations and duties prescribed by law. In accordance with banking practice, the depositary bank may, under its own responsibility, transfer to other banking establishments or financial institutions all or part of the assets under its custody.
55 In addition, the depositary bank must: a) ensure that the sale, issue, purchase and cancellation of shares performed by IMMO CROISSANCE or on its behalf are handled in compliance with the law and the articles of incorporation of IMMO CROISSANCE; b) ensure that in transactions involving the assets of IMMO CROISSANCE, the compensation is paid within the customary period of time; and c) ensure that the profits of IMMO CROISSANCE are allocated in accordance with the articles of incorporation.
4.3.8 Listing
The Shares are listed on the regulated market of the Luxembourg Stock Exchange and the Euronext Brussels market. The ISIN code for the Capitalisation Shares is LU 0006275696, and for the Distribution Shares, the code is LU 0006275720.
4.3.9 Changes in the share price
Changes in the price of an IMMO CROISSANCE Distribution Share in Brussels (top chart) and in Luxembourg (bottom chart).
Distribution Share in Brussels Distribution Share in Luxembourg
Month High Low Average Month High Low Average Jan. 07 283.9 270.3 277.9 Jan. 07 279.0 276.0 277.0 Feb. 07 279.6 270.5 275.6 Feb. 07 279.0 274.0 276.6 Mar. 07 280.0 275.0 277.9 Mar. 07 284.5 270.0 277.2 April 07 289.9 277.1 283.9 April 07 290.0 274.0 282.2 May 07 300.0 277.0 285.8 May 07 310.0 270.1 287.0 June 07 282.0 270.0 275.4 June 07 284.8 272.0 275.6 2007 300,0 270,0 279,5 2007 310 270,0 280,0
Changes in the price of an IMMO CROISSANCE Capitalisation Share in Brussels (top chart) and in Luxembourg (bottom chart).
56 Capitalisation Share in Brussels Capitalisation Share in Luxembourg
Month High Low Average Month High Low Average Jan. 07 720.0 714.0 715.3 Jan. 07 715.0 714.0 714.5 Feb. 07 714.0 702.0 709.9 Feb. 07 735.0 715.0 720.7 Mar. 07 712.0 710.0 711.0 Mar. 07 735.0 710.0 728.8 April 07 740.0 707.5 716.7 April 07 760.0 710.0 728.8 May 07 770.0 710.0 744.4 May 07 746.0 678.5 729.6 June 07 795.0 746.0 758.1 June 07 776.0 746.0 761.0 2007 795.0 702.0 727.6 2007 776.0 678.5 728.4
57 4.3.10 Sponsors
Three sponsors were instrumental in establishing IMMO CROISSANCE.
1. Dexia Banque Internationale in Luxembourg
Founded in 1856, Dexia Banque Internationale in Luxembourg (Dexia BIL) was among the pioneers in Luxembourg’s financial market and is the oldest bank in the Grand Duchy of Luxembourg. Since its establishment, it has played an active role in the major phases of the development of Luxembourg’s economy. In 1991, Crédit Communal de Belgique purchased 51% of the capital of Dexia BIL. In 1996, the Dexia Group was created with the alliance between Crédit Communal de Belgique and Crédit local de France. Today the Dexia Group is almost the sole shareholder of Dexia BIL, with 99.85% of its capital. Dexia BIL’s modernised management structure, combined with the quality of its assets and its excellent solvency ratio, led Moody's and Standard and Poor's to give Dexia BIL the rating of AA3/AA- in 1995, and then AA2 and AA in 1998 and 1999. At the end of 2000, Fitch IBCA gave a long term rating of AA to AA+ to Dexia BIL. This announcement was confirmation of the successful integration of Dexia BIL within the Dexia Group and its favourable outlook for stability over the long term.
Head office: Dexia Banque Internationale in Luxembourg Route d'Esch, 69 L-2953 Luxembourg Grand Duchy of Luxembourg Tel.: + 352 4590 1
2. Puilaetco Dewaay Private Bankers SA
The Dewaay Group performs all the traditional functions of financial intermediaries, particularly providing advisory services and asset management to private and institutional clients, acting as a market intermediary, arranging financial transactions, and managing unit trusts. In order to continue its growth while maintaining its distinctive character, the Dewaay Group became part of Crédit Commercial de France in 1998, and in 2000 was integrated into the international banking group HSBC. On 11 October 2005, Banque Dewaay joined KBL Group European Private Bankers. It thus combined with Banque Puilaetco to form a new entity in the Belgian market, now operating under the name of Puilaetco Dewaay Private Bankers SA.
Head office: Puilaetco Dewaay Private Bankers SA Avenue Herman Debroux, 44-46 B-1160 Brussels Belgium Tel.: + 32 (0)2 227 88 11
58 3. Groupe Foyer S.A.
The Le Foyer Group, a leader in the insurance sector in the Grand Duchy of Luxembourg, holds a predominant market share in non-life and life insurance. Established in 1922, Le Foyer now employs a staff of 408 and has a marketing network of approximately 1,155 brokers. Its distribution network offers a broad range of life and non-life insurance products adapted to the specific needs of its clientele (individuals and businesses). The major companies within the Group are Le Foyer Finance, Le Foyer Assurances, Le Foyer Vie and Le Foyer International. Le Foyer Vie, a wholly owned subsidiary of Le Foyer Finance, is responsible for developing the life insurance sector in the local market. Its growth has accelerated over the last several years through the implementation of cooperation agreements with top tier business partners. Le Foyer Vie International, created at the beginning of 1996 as a wholly owned subsidiary of Le Foyer Finance, was one of the earliest participants in the now rapidly expanding area of full service life insurance outside Luxembourg’s borders
Head office: Foyer S.A. Rue Léon Laval, 12 L-3372 Leudelange Grand Duchy of Luxembourg Tel.: + 352 4374 37
59 4.4 GENERAL INFORMATION ON THE BUSINESS ACTIVITIES OF IMMO CROISSANCE
4.4.1 Business profile
The objective of IMMO CROISSANCE is to offer private and institutional investors the opportunity to invest in a diversified portfolio specialised in high quality real estate within the European Union. These real estate investments may be of any type, but they are primarily in business or office properties. IMMO CROISSANCE generally has a long term investment policy and repeated purchases and sales are not part of its strategy. The Board of Directors may however sell real estate properties belonging to IMMO CROISSANCE based on forecasts for the properties or markets, as well as for other reasons.
4.4.2 Consolidated portfolio at 31 December 2006
A. Building portfolio Office and residential buildings at 31 December 2006
Grand Duchy of Luxembourg
Building Acquisition Year Office Residential Storage Parking Tenants date const space and space spaces ructe (in m2) commercia (in m2) d l space (in m2) ARSENAL 22/11/88 1973 5,177 - 1,240 87 Government Av. E.Reuter, 6 administration L-2420 Luxembourg ROYAL 23/05/89 1992 3,048 - 205 81 Government ARSENAL administration Av. E.Reuter 12- 14 L-2420 Luxembourg CENTRE 22/11/88 1965 1,668 - 252 21 Fiduciary MONTEREY Av. Monterey, 23 L-2163 Luxembourg RESIDENCE 22 29/06/89 1993 - 913 112 3 Business, MONTEREY residential Av. Monterey, 22 L-2163
60 Luxembourg AUF DER 27/10/88 1990 2,950 - - 95 Multinational HART Ceinture Um Schlass, 1 L-5580 Hesperange EDISON 10/02/99 2000 6,579 - - 379 Bank Rue Thomas Edison, 7 L-1445 Strassen NEWTON 01/10/99 2001 6,150- - 192 313 Bank Rue Thomas Edison, 5 L-1445 Strassen GUTENBERG 13/09/99 2002 5,952 - 443 219 Government Rue des administration Primeurs, 3 L-2361 Luxembourg
Other countries
MORSENBROICH 10/01/90 1990 4,044 - 350 51 Large and Munsterstrasse, 35 medium sized D-4000 Düsseldorf businesses WATERLOO 17/12/93 1993 2,331 - 60 67 Large OFFICE PARK businesses Drève Richelle, 161 B-1410 Waterloo KEYBERG 2 31/03/95 1993 7,123 - 1,085 174 Marketing in Kouterveldstraat progress 2 B-1831 Diegem LES COLLINS 27/11/95 1995 1,372 - 150 34 Multinational DE WAVRE CENTRE D’AFFAIRES Chaussée des Collines, 50 B-1300 Wavre
MARCEL 26/06/98 1990 4,664 - - 122 Large THIRY COURT businesses
61 Avenue Marcel Thiry, 200 B-1200 Woluwe Saint Lambert
VALUATION Acquisition value Appraised value % Net assets (in EUR) (in EUR) Grand Duchy of Luxembourg 143,322,063 134,150,000 121.66 Other countries 44,419,329 26,370,000 23.91 Total Building portfolio 187,741,392 160,520,000 145.7
B. Real estate certificate portfolio at 31 December 2006
Name Quantity Acquisition price Appraised value % Net assets EUR Marie- 565 185,900 68,930 0.06 Thérèse
62 4.4.3 Key developments in 2006 and early 2007
At the General Shareholders’ Meeting of 12 April 2006, IMMO CROISSANCE announced its intention to sharpen its focus on the Luxembourg market. IMMO CROISSANCE began to disengage from its investments located outside of the Grand Duchy of Luxembourg. In connection with this policy, IMMO CROISSANCE sold "Le César", a building it owned in Lyon, France.
This transaction resulted in a net capital gain of EUR 2.6 million over the purchase price. At the beginning of 2007, IMMO CROISSANCE signed a long term lease for the rental of a significant portion of the K2 building located in Diegem (Keyberg), where renovation work was completed during December 2006. IMMO CROISSANCE is also about to sign a lease for the rental of an additional 8% of the space in this same building. The Bidder believes that the incentives offered by IMMO CROISSANCE in connection with this rental to General Electric could be valued at EUR 1.5 million.
During 2006, IMMO CROISSANCE also sold its "Central Parc" office space in Luxembourg’s central business district. The sale resulted in a EUR 0.3 capital gain over the purchase price.
The leases on the "Newton" and "Edison" buildings located in Strassen expired, and during the first quarter of 2007, IMMO CROISSANCE signed two leases for the rental of 2,000 m² of the "Edison" building’s total area of 6,700 m², or 29.8%. This represents 4 out of the building’s 10 stories. IMMO CROISSANCE is also about to sign a lease for renting 20% (2 out of 10 floors) of additional space in the "Edison" building located in Strasssen (Luxembourg).
IMMO CROISSANCE signed an agreement to sell the building in Düsseldorf (Germany); this transaction should be finalised at the end of July 2007.
The value of assets at 31 December 2006 totalled EUR 176.4 million, against liabilities of EUR 66.1 million, i.e., a total net share value of EUR 110.3 million compared with EUR 117.5 million in 2005.
IMMO CROISSANCE purchased the part of the "Arsenal" building that it did not already own.
IMMO CROISSANCE announced on 13 July, 2007 the sale of the “Newton” in Strassen with completion of such sale to take place by the end of July 2007. This sale, which results from a long-time commitment of IMMO CROISSANCE to the purchaser is welcomed by the management and board of IMMO CROISSANCE as part of an effort to rebalance the portfolio of IMMO CROISSANCE to which properties in other strategic areas of the Luxembourg real estate market.
63 4.5 FINANCIAL INFORMATION ON IMMO CROISSANCE
4.5.1 Consolidated statement of changes in net assets
At 31 December 2006 At 31 December in EUR 2005 in EUR Revenues 16,543,202 16,857,670 Rental income 15,212,382 15,329,244 Bank interest and other 610,466 725,163 Dividends on real estate securities 588 4,204 Other income 719,766 799,059
Expenses 6,187,839 5,606,377 Advisory fees and creditors 482,327 431,438 Depositary bank fees 120,506 112,747 Banking expenses, interest due 2,981,585 2,938,755 Operating expenses 2,252,612 1,746,926 Other expenses 350,809 376,511
Consolidated net investment revenue 10,355,363 5,606,377
(Capital losses)/capital gains realised on securities sales 175,023 - (Capital losses)/capital gains realised on building sales 1,427,267 -
Consolidated realised income 11,957,653 11,251,293 Unrealised (capital losses)/capital gains on building (13,382,276)* (1,816,184) investments Unrealised (capital losses)/capital gains on financial assets 1,424 6,015 (13,380,852) (1,810,169) Income before taxes (1,423,199) 9,441,124 Current taxes (740,041)** (27,764) Deferred tax liabilities (298,457) 176,367 Deferred tax assets (76,707)
Consolidated operating income (2,461,697) 9,513,020
* This unrealised capital loss on building investments results from the appraisal of their fair value, excluding legal fees, as explained in detail in Note 2d, pages 20-21, of IMMO CROISSANCE’s 2006 Annual Report (Appendix 2 to the Prospectus).
64 ** The EUR 740,041 income tax payable at 31 December 2006 is explained in Note 15, page 34, of IMMO CROISSANCE’s 2006 Annual Report (Appendix 2 to the Prospectus).
65 4.5.2 Consolidated statement of net assets At 31 December 2006 At 31 December 2005 in EUR in EUR ASSETS 176,377,431 192,156,111 Long term assets 173,802,982 189,118,283 Investment buildings 160,520,000 172,790,000 Tangible assets 1,854,406 3,528,624 Financial assets held for sale 68,930 1,033,387 Long term deposits 11,359,646 11,359,646 Deferred tax assets - 406,626
Current assets 2,574,449 3,037,828 Trade and other accounts receivable 175,154 119,274 Prepaid expenses - 72,518 Other current assets 826,197 811,284 Cash and cash equivalents 1,573,098 2,034,752
LIABILITIES 66,108,936 74,641,767 Long term liabilities 58,050,306 28,170,470 Interest bearing bank loans 58,050,306 28,059,780 Provisions - 2,521 Deferred tax liabilities - 108,169
Current liabilities 8,058,630 46,471,297 Suppliers and other payables 3,523,211 3,414,510 Current portion of long term interest bearing loans 4,372,453 42,662,430 Other current liabilities 162,966 394,357
Total net value of shares 110,268,495 117,514,344 Value per share of Capitalisation Shares 668.52 678.71 Number of Capitalisation Shares outstanding 47,688 50,492 Value per share of Distribution shares 255.59 277.81 Number of Distribution Shares outstanding 306,692 299,645
IMMO CROISSANCE reported consolidated income slightly ahead of forecasts in 2006. The year’s net income totalled EUR 18 million compared to EUR 16.8 million in 2005. This 7.6% increase was largely attributable to the continuing strength of rental income as well as to building sales.
Expenses totalled EUR 6.1 million, compared with EUR 5.6 million in 2005, an increase of 10.3%, due to fees for consultants, measurements, and various studies including testing for asbestos, as well as marketing expenses.
66 Consolidated operating income for 2006 totalled EUR 11.9 million compared to EUR 11.3 million in 2005, a 6.3% increase. At 31 December 2006, asset value, excluding legal expenses, totalled EUR 160.5 million compared to EUR 172.7 million at 31 December 2005, a decline of 7.1%. After taking unrealised capital losses into account and before taxes, there was a loss of EUR 1.4 million
67 APPENDIX 1 ACCEPTANCE FORM FOR IMMO CROISSANCE SHARES Copy intended for Bidder or Bidder’s legal representative To be drawn up in two copies
I, the undersigned (first and last name) ……………………, residing at (full address) ……………………, declare that I have had the opportunity to examine the Prospectus such as it is attached to this bulletin, including the terms and conditions of the Offer, and in relation to the aforementioned Offer, I irrevocably agree, barring a competitive bid pursuant to Article 13 e) of the Takeover Law, to unconditionally sell:
- ……….…………….... Distribution Shares (coupon number 20 and following attached), and - ……….…………….... Capitalisation Shares.
Furthermore, I authorize the Financial Intermediaries to transfer these Shares either (a) in my name and for my account, or (b) in the event of a proxy, in the name of and on behalf of my representative, to BAUGUR under the terms and conditions described in the Prospectus.
For the bearer Shares, I attach to this bulletin the Shares concerned according to the statement herein below, and for the bearer Shares held on account, I attach the order to release these Shares to BAUGUR.
For the registered Shares, I request that a transfer statement be attached in due conformity to the IMMO CROISSANCE share register and I give power of attorney to any IMMO CROISSANCE director (with the right to substitute) to make such a statement in my name.
I hereby declare and guarantee that:
í I am acting either (a) in my own name and for my own account or (b) in the capacity of legal representative for a third-party, in which case I declare and guarantee that I have power of attorney or a valid authorization to make discretionary investments from this third party;
í I understand that the transaction will take place free of costs for shareholders contributing their Shares to the Financial Intermediaries, namely Dexia Banque Internationale in the Grand Duchy of Luxembourg and Banque Degroof in Belgium. The fees that could be assessed by other financial institutions or intermediaries shall be payable by the shareholder-seller. The stock exchange tax shall be paid by BAUGUR.
Barring any stipulation to the contrary in this form, the terms defined in the Prospectus shall have the same meaning in this form as given in the Prospectus.
68 Regarding the Price of the Offer for the aforementioned Shares, I would like for the payment in cash to be credited to my account number.……………………opened with ……………………………..on the payment date referred to in the Prospectus.
The transfer of ownership of the Shares takes place when the price is paid and the shares are delivered. In order to be able to validly offer my Shares, this Acceptance Form, completed in its entirety and duly signed in two copies, must be filed with (i) the Shares or proof of the registration and holding in escrow of these Shares in my securities account and the order to release these Shares for BAUGUR (in the case of bearer shares) or the Proof of Registration (in the case of registered shares) and (ii) all the powers of attorney or other required documents, no later than 31 August 2007, before 16h00, as stipulated in the Prospectus.
If two or more owners jointly own the Shares, then each of then must sign the same Acceptance Form. If the Shares are subject to usufruct, both the bare owner(s) and the usufructuary must sign the same Acceptance Form.
If the Shares are pledged, both the pledgor and the pledgee(s) must sign the Acceptance Form, it being understood that the pledgee(s) must irrevocably and unconditionally waive their pledge of the Shares concerned.
If the Shares are encumbered in any other manner or subject to any other right to follow, security interest, or any other right, claim or interest benefiting a third party, then all beneficiaries of these rights, titles, claims or interests in the Shares must sign the Acceptance Form and irrevocably and unconditionally waive all rights, titles, claims, securities, receivables or interests in these Shares.
Executed in two copies in ……………………………, on ------2007
69 ACCEPTANCE FORM FOR IMMO CROISSANCE SHARES
Copy intended for Seller or Seller’s legal representative
I, the undersigned (first and last name) ……………………, residing at (full address) ……………………, declare that I have had the opportunity to examine the Prospectus such as it is attached to this bulletin, including the terms and conditions of the Offer, and in relation to the aforementioned Offer, I irrevocably agree, barring a competitive bid pursuant to Article 13 e) of the Takeover Law, to unconditionally sell:
- ……….…………….... Distribution Shares (coupon number 20 and following attached), and - ……….…………….... Capitalisation Shares.
Furthermore, I authorize the Financial Intermediaries to transfer these Shares either (a) in my name and for my account, or (b) in the event of a proxy, in the name of and on behalf of my representative, to BAUGUR under the terms and conditions described in the Prospectus.
For the bearer Shares, I attach to this bulletin the Shares concerned according to the statement herein below, and for the bearer Shares held on account, I attach the order to release these Shares to BAUGUR.
For the registered Shares, I request that a transfer statement be attached in due conformity to the IMMO CROISSANCE share register and I give power of attorney to any IMMO CROISSANCE director (with the right to substitute) to make such a statement in my name.
I hereby declare and guarantee that:
í I am acting either (a) in my own name and for my own account or (b) in the capacity of legal representative for a third-party, in which case I declare and guarantee that I have power of attorney or a valid authorization to make discretionary investments from this third party; í I understand that the transaction will take place free of costs for shareholders contributing their Shares to the Financial Intermediaries, namely Dexia Banque Internationale in the Grand Duchy of Luxembourg and Banque Degroof in Belgium. The fees that could be assessed by other financial institutions or intermediaries shall be payable by the shareholder-seller. The stock exchange tax shall be paid by BAUGUR.
Barring any stipulation to the contrary in this form, the terms defined in the Prospectus shall have the same meaning in this form as given in the Prospectus.
Regarding the Price of the Offer for the aforementioned Shares, I would like payment in cash to be credited to my account, number …………………….opened with ……………………………..on the payment date referred to in the Prospectus.
70 The transfer of ownership of the Shares takes place when the price is paid and the shares are delivered.
In order to be able to validly offer my Shares, this Acceptance Form, completed in its entirety and duly signed in two copies, must be filed with (i) the Shares or proof of the registration and holding in escrow of these Shares in my securities account and the order to release these Shares for BAUGUR (in the case of bearer shares) or the Proof of Registration (in the case of registered shares) and (ii) all the powers of attorney or other required documents, no later than 31 August 2007, before 16h00, as stipulated in the Prospectus.
If two or more owners jointly own the Shares, then each of then must sign the same Acceptance Form. If the Shares are subject to usufruct, both the bare owner(s) and the usufructuary must sign the same Acceptance Form.
If the Shares are pledged, both the pledgor and the pledgee(s) must sign the Acceptance Form, it being understood that the pledgee(s) must irrevocably and unconditionally waive their pledge of the Shares concerned.
If the Shares are encumbered in any other manner or subject to any other right to follow, security interest, or any other right, claim or interest benefiting a third party, then all beneficiaries of these rights, titles, claims or interests in the Shares must sign the Acceptance Form and irrevocably and unconditionally waive all rights, titles, claims, securities, receivables or interests in these Shares.
Executed in two copies in ……………………………, on ------2007
71 Copy intended for Seller or Seller’s legal representative
To be drawn up in two copies
Electronic deposit slip
Distribution Shares coupon number 20 and following attached
(Entries must be in numerical order)
Numbers Number Numbers Number to to to to To transfer Total
Electronic deposit slip
Accumulation Shares
(Entries must be in numerical order)
Numbers Number Numbers Number to to to to To transfer Total
72 Copy intended for Bidder or Bidder’s legal representative
To be drawn up in two copies
Electronic deposit slip
Distribution Shares coupon number 20 and following attached
(Entries must be in numerical order)
Numbers Number Numbers Number to to to to To transfer Total
Electronic deposit slip
Accumulation Shares
(Entries must be in numerical order)
Numbers Number Numbers Number to to to to To transfer Total
73 APPENDIX 2 IMMO CROISSANCE 2006 ANNUAL REPORT
74 ANNUAL REPORT 2006
Mutual fund (SICAV) governed by Luxembourg law
ANNUAL REPORT 2006
For the year ended 31 December 2006
DEXIA BANQUE INTERNATIONALE À LUXEMBOURG 69 Route d’Esch L-1470 Luxembourg
PUILAETCO DEWAAY PRIVATE BANKERS S.A. 44-46 Avenue Herrmann Debroux B-1160 Brussels
FOYER S.A. 12 Rue Léon Laval L-3372 Leudelange
Mutual fund (SICAV) governed by Luxembourg law ANNUAL REPORT 2006
CONTENTS
Page
Board of Directors 3
Administration 4
Board of Directors’ activity report 5
Auditors’ report 8
Statement of consolidated net assets 10
Statement of changes in consolidated net assets 11
Consolidated cash flow statement 12
Changes in investment property 13
Changes in number of shares in issue 13
Statistics For the period from 1 January 2006 to 31 December 2006 14
Changes in consolidated net assets 14
Changes in the listed share price in Luxembourg and in net asset value per share 15
Changes in consolidated portfolio holdings 16
Statistics for the last three years 16
Consolidated portfolio holdings 17
Notes to the consolidated financial statements 19
Shareholder information 37
No subscriptions can be accepted on the basis of the financial reports alone. Sub- scriptions are valid only if made on the basis of the prospectus and a copy of the latest annual report, plus the latest half-yearly report if this is more recent than the annual report. Subscriptions are accepted only as part of an issue duly announced by the Board of Directors. Redemptions of shares cannot be made at the unilateral request of share- holders.
2 IMMO CROISSANCE ANNUAL REPORT 2006
BOARD OF DIRECTORS
Registered office Immo-Croissance SICAV 69 Route d’Esch L-1470 Luxembourg www.immocroissance.com
Chairman of the Mr Frank WAGENER Board of directors Chairman of the Management Committee Dexia Banque Internationale à Luxembourg 69 Route d’Esch L-1470 Luxembourg
Members of the Mr Marcel DELL Board of directors Director Foyer S.A. 12 Rue Léon Laval L-3372 Leudelange
Mr Benoît DOURTE Director Foyer S.A. 12 Rue Léon Laval L-3372 Leudelange
Mr Pierre MALEVEZ Member of the Management Committee Dexia Banque Internationale à Luxembourg 69 Route d’Esch L-1470 Luxembourg
Mr Richard SCHNEIDER Member of the Board of Directors Puilaetco Dewaay Luxembourg S.A. 2 Boulevard Emmanuel Servais L-2535 Luxembourg
Mr Henri SERVAIS Member of the Board of Directors Puilaetco Dewaay Private Bankers S.A. 44-46 Avenue Herrmann Debroux B-1160 Brussels
IMMO CROISSANCE 3 ANNUAL REPORT 2006
ADMINISTRATION
Department head Mr Karl Heinz DICK IMMO-CROISSANCE SICAV 69 Route d’Esch L-1470 Luxembourg Tel.: +352 4590 4205 Fax: +352 4590 3425 e-mail: [email protected] Website: www.immocroissance.com Consultant Immo Croissance Conseil S.A. 69 Route d’Esch L-1470 Luxembourg Custodian bank RBC Dexia Investor Services Bank S.A. 14 Porte de France L-4360 Esch-sur-Alzette Financial services – Luxembourg RBC Dexia Investor Services Bank S.A. 14 Porte de France L-4360 Esch-sur-Alzette – Belgium Fortis Banque S.A. 3 Montagne du Parc B-1000 Brussels Puilaetco Dewaay Private Bankers S.A. 44-46 Avenue Herrmann Debroux B-1160 Brussels Auditors Ernst & Young S.A. Réviseurs d’Entreprises 7 Parc d’Activité Syrdall L-5365 Munsbach Property appraiser Cushman & Wakefield Consultants Immobiliers Internationaux 58 Avenue des Arts, Box 7 B-1000 Brussels
4 IMMO CROISSANCE ANNUAL REPORT 2006
BOARD OF DIRECTORS’ ACTIVITY REPORT
To the shareholders, Your Board of Directors is pleased to present its activity report for the year ended 31 December 2006.
At the General Meeting of 12 April 2006 we confirmed our intention to refocus our activities on the Luxembourg market.
Activity in the banking and financial sectors, the massive increase in invest- ment and other private equity funds, and all their related activities confirm Luxembourg’s importance as a financial market. The continuous growth of these sectors explains why the rental yields on offer in the Grand Duchy are higher than the European average.
Convinced that in-depth knowledge of the markets in which we operate is a strategic advantage that is key to the success of our business, and aware of the need for scale when investing in a given market, we have conse- quently made the decision to dispose of our investments located outside the Grand Duchy of Luxembourg. We believe that this is the right time to do this because of the amount of cash available for investment in the proper- ty sector.
It is with this in mind that we sold Le César in Lyon, our only building in France. We posted a net gain of €2.6m on the purchase price as a result of this transaction. We are also in contact with potential investors for our properties in Belgium and Germany.
During 2006 we noted increased interest in developments located outside the Brussels region, especially Waterloo and Wavre. We also signed at the start of 2007 a long-term lease on a substantial part of our K2 building in Diegem, renovation work having been completed by mid-December. As a result of these events we foresee a positive conclusion to our policy of with- drawal from Belgium.
During the period we also sold our Central Parc office development locat- ed in the Luxembourg Central Business District. Following the departure of the tenant who had been occupying the entire property, this building, part of a major co-ownership, turned out to be too small to be marketed inde- pendently. A sale proved to be the best option as we made a profit of €0.3m on the purchase price.
For 2006 the Fund posted an effective consolidated profit slightly ahead of projections. Net profit for the year was €18m compared to €16.8m in 2005. This increase of 7.6% resulted principally from strong rental income and property sales.
Costs were €6.1m against €5.6m in 2005, an increase of 10.3% arising from consulting and surveying fees, various studies such as asbestos detection tests, and marketing expenses. This relates to initiatives under- taken following the departure of numerous tenants.
Consolidated operating profits for 2006 were therefore €11.9m compared to €11.3m in 2005, an increase of 6.3%.
IMMO CROISSANCE 5 ANNUAL REPORT 2006
As at 31 December 2006 the gross value of our property holdings was €160.5m compared to €172.7m on 31 December 2005, a fall of 7.1%. Apart from property sales, this fall resulted from the expiry of leases on our Newton and Edison buildings in Strassen. In order to accelerate the mar- keting of these empty buildings, we have strengthened our links with the leading Luxembourg property agents. We remain confident that these buildings will find new tenants very quickly due to the combination of healthy demand for medium-sized developments and the exodus from city- centres by businesses with far greater needs for office space. We have already agreed two leases during the first quarter of 2007 for 2,000 sq.m. of the 6,700 sq.m. Edison building.
Consequently the result, after allowing for unrealised losses and before tax, is a loss of €1.4m.
For the same reasons the value of our assets as at 31 December 2006 was €176.4m with liabilities of €66.1m, giving a net asset value of €110.3m compared to €117.5m in 2005.
As part of our strategy of refocusing on Luxembourg, and subsequent to the divestments effected during 2006, we are actively prospecting the Luxembourg market and studying new investment projects on a regular basis. We have therefore acquired the part of the Arsenal building that we did not own.
Again with a view to improving the quality of our property holdings, after various consultations and analysis of a number of scenarios we decided to completely demolish and rebuild the Arsenal building. This building, which dates from the 1970s, is located on Boulevard Royal, a highly sought-after
6 IMMO CROISSANCE ANNUAL REPORT 2006
address in Luxembourg, but no longer meets the standards of quality expected by prime tenants. This project will thus enable us to re-let a larger development at a significantly higher price per square metre than it currently obtains, thereby generating a better return over the long term. Work is expected to commence during the second half of 2007.
Particular attention will be paid to sustainable development and energy conservation issues both in this construction project and for mainte- nance of leased buildings. The Fund will aim to have an energy certificate for each building attesting to its compliance with current European leg- islation, so that it can claim to be a property fund that is committed to sustainable development.
The outlook for developments in the office sector of the Luxembourg property market is generally favourable. In fact, record levels of new leases were recorded in both of the last two quarters of 2006. This trend is set to continue during 2007. Moreover, the stability and attractiveness of the Luxembourg market has been confirmed by the Statec’s announcement of 5.5% growth in GDP during 2006, compared to 4% in 2005. This strong growth should support demand for office space, since more than 11,000 jobs were created by businesses based in the Grand Duchy during 2006. Naturally the Fund hopes to benefit from these favourable market conditions.
As a result, given the 2006 results and the favourable outlook for 2007, your Board proposes to pay a dividend of €18.00 per share, slightly lower than that of the previous year (€19).
The Board of Directors
IMMO CROISSANCE 7 ANNUAL REPORT 2006
AUDITORS’ REPORT
To the shareholders of Immo-Croissance (a Luxembourg SICAV) Report on the consolidated financial statements We have audited the consolidated financial statements comprising the statement of consolidated net assets, the statement of changes in the con- solidated net assets (including the consolidated income statement), the consolidated cash flow statement, the statement of consolidated portfolio holdings and other net assets and the appendix containing a summary of principal accounting methods and other explanatory notes.
Responsibility of the Board of Directors in the drawing up and presentation of the consolidated financial statements The Board of Directors is responsible for the drawing up and faithful pres- entation of the consolidated financial statements in conformity with the International Financial Reporting Standards adopted in the European Union. This responsibility includes the design, implementation and moni- toring of an internal control mechanism for the drawing up and faithful presentation of consolidated financial statements that do not include material misstatements, whether as a result of fraud or errors, and the determination of accounting estimates that are reasonable in the current circumstances.
Responsibility of the auditor Our responsibility is to express an opinion on the consolidated financial statements on the basis of our audit. We have carried out our audit in accordance with the International Audit Standards as adopted by the Institut des Réviseurs d’Entreprises (Luxembourg Institute of Auditors). These standards require us to comply with the code of ethics and to plan and perform our work so as to obtain reasonable assurance that the finan- cial statements are free from any material misstatement.
An audit consists of an examination, on a sample basis, of evidence sup- porting the amounts and information contained in the consolidated finan- cial statements. The choice of procedures is at the discretion of the audi- tor, as is the assessment of the risk that the consolidated financial state- ments contain material misstatements, whether as a result of fraud or errors. In assessing these risks the auditor considers the internal controls in place within the entity for the drawing up and faithful presentation of the consolidated financial statements in order to define appropriate audit pro- cedures in the circumstances, and not for the purpose of expressing an opinion on the effectiveness of these controls. An audit also includes an assessment of the appropriateness of the accounting methods used and the accuracy of the accounting estimates made by the Board of Directors, as well as the overall adequacy of presentation of the consolidated finan- cial statements.
We believe that the information gathered in the course of our audit provides a reasonable basis for our opinion.
8 IMMO CROISSANCE ANNUAL REPORT 2006
Opinion
In our opinion, the consolidated financial statements give a true and fair view of the financial position of Immo-Croissance SICAV as at 31 December 2006, its consolidated results, cash flows and changes in net assets for the year then ended, in accordance with the framework of International Financial Reporting Standards as adopted by the European Union.
We have reviewed the additional information contained in the Annual Report as part of our assignment, but we have not applied any specific audit procedures under the above-mentioned standards. As a result, we are not expressing an opinion on this information. Nevertheless, this infor- mation does not call for any observations on our part in the context of the financial statements taken as a whole. Report on other legal or regulatory obligations The management report, which is the responsibility of the Board of Directors, is consistent with the consolidated financial statements.
ERNST & YOUNG Limited liability company (Société Anonyme)
Auditors
Olivier LEMAIRE
Luxembourg, 7 March 2007
IMMO CROISSANCE 9 ANNUAL REPORT 2006
STATEMENT OF CONSOLIDATED NET ASSETS
ASSETS Notes 31 December 2006, 31 December 2005, in euros in euros
Non-current assets Investment property 2d 160,520,000 172,790,000 Other property, plant and equipment 16 1,854,406 3,528,624 Available-for-sale financial assets 68,930 1,033,387 Long-term deposits 4 11,359,646 11,359,646 Deferred tax assets 15 – 406,626 173,802,982 189,118,283
Current assets Trade receivables and other debtors 2e 175,154 119,274 Prepayments – 72,518 Other current assets 826,197 811,284 Cash and cash equivalents 2f, 5 1,573,098 2,034,752 2,574,449 3,037,828 Total assets 176,377,431 192,156,111
LIABILITIES
Non-current liabilities Interest-bearing bank borrowings 6 58,050,306 28,059,780 Provisions – 2,521 Deferred tax liabilities 15 – 108,169 58,050,306 28,170,470
Current liabilities Trade payables and other creditors 9 3,523,211 3,414,510 Short-term portion of interest-bearing bank borrowings 6 4,372,453 42,662,430 Other current liabilities 162,966 394,357 8,058,630 46,471,297 Total liabilities 66,108,936 74,641,767
Net asset value 110,268,495 117,514,344
Net asset value per accumulation share 668.52 678.71 Number of accumulation shares in issue 47,688 50,492
Net asset value per distribution share 255.59 277.81 Number of distribution shares in issue 306,692 299,645
The attached notes form part of the financial statements.
10 IMMO CROISSANCE ANNUAL REPORT 2006
STATEMENT OF CHANGES IN CONSOLIDATED NET ASSETS
Notes Year ended Year ended 31 December 2006, 31 December 2005, in euros in euros
Income Rental income 15,212,382 15,329,244 Interest income 610,466 725,163 Dividends on transferable securities 588 4,204 Other income 719,766 799,059
Total income 16,543,202 16,857,670
Charges Consulting fees and related parties 8 482,327 431,438 Custodian fees 11 120,506 112,747 Bank charges, debit interest 6 2,981,585 2,938,755 Operating charges 12 2,252,612 1,746,926 Other charges 13 350,809 376,511
Total charges 6,187,839 5,606,377
Net income on investments 10,355,363 11,251,293
Realised gain (loss) on sales of securities 175,023 – Realised gain (loss) on property disposals 1,427,267 –
Total net income 11,957,653 11,251,293
Unrealised gain (loss) on investment property 2d (13,382,276) (1,816,184) Unrealised gain (loss) on financial assets 1,424 6,015 (13,380,852) (1,810,169)
Profit before tax (1,423,199) 9,441,124
Current taxation 15 (740,041) (27,764) Deferred tax liabilities 15 (298,457) 176,367 Deferred tax assets – (76,707)
Net profit on operations (2,461,697) 9,513,020
IMMO CROISSANCE 11 ANNUAL REPORT 2006
CONSOLIDATED CASH FLOW STATEMENT
Year ended Year ended 31 December 2006, 31 December 2005, in euros in euros
Net cash flow from operating activities Profit before tax (1,423,199) 9,441,124 Adjusted for: Decrease (increase) in unrealised gains and losses on investment property and other financial assets 13,382,276 1,810,169 Depreciation and provisions on property, plant and equipment 319,930 312,406 Tax paid (75,050) (27,764) Decrease (increase) in current assets 1,724 (396,766) (Decrease) increase in current and non-current liabilities excluding bank borrowings and taxes (122,689) (1,224,606) Net cash flow from operating activities 12,082,992 9,914,563
Net cash flow from investing activities Acquisition of property, plant and equipment (6,628) (1,125,136) Increase in the cost of investment property (2,619,221) (1,496,184) Sales of REITs 976,131 – Sale of subsidiary net of cash (956,135) – Net cash flow from investing activities (2,605,853) (2,621,320)
Net cash flow from financing activities Repayment/Increase of bank borrowings - – Interest paid Share subscriptions (redemptions) (12,910) (15,163) Sale of own shares (878,565) - Distributions to shareholders (5,757,342) (5,929,805) Net cash flow from financing activities (6,648,817) (5,944,968)
Net decrease (increase) in cash and cash equivalents 2,828,322 1,348,275
Cash at bank 2,034,752 2,729,287 Bank overdrafts (7,662,429) (9,705,239)
Cash and cash equivalents at the start of the year (5,627,677) (6,975,952)
Cash at bank 1,573,098 2,034,752 Bank overdrafts (4,372,453) (7,662,429)
Cash and cash equivalents at the end of the year (2,799,355) (5,627,677)
12 IMMO CROISSANCE ANNUAL REPORT 2006
CHANGES IN INVESTMENT PROPERTY For the period from 1 January 2006 to 31 December 2006
Description Acquisition cost Unrealised gain Carrying value (in euros) (loss) (in euros) (in euros)
Opening balance 185,122,171 (12,332,171) 172,790,000
Change in value 2,619,221* (13,382,276) (10,763,055) (1,506,945)** (1,506,945) Closing balance 187,741,392 (27,221,392) 160,520,000
* Net increase in sales ** This amount corresponds to the unrealised gain recorded until 2005 concerning the sale of the Central Parc and Le César buildings that took place during the 2006 financial year.
For the period from 1 January 2005 to 31 December 2005
Description Acquisition cost Unrealised gain Carrying value (in euros) (loss) (in euros) (in euros)
Opening balance 183,625,987 (10,515,987) 173,110,000
Change in value 1,496,184 (1,816,184) (320,000) Closing balance 185,122,171 (12,332,171) 172,790,000
CHANGES IN NUMBER OF SHARES IN ISSUE For the period from 1 January 2006 to 31 December 2006
Accumulation Distribution shares shares
Number of shares in issue at the start of the period 50,492 299,645
Number of shares subscribed 1,543 10,990
Number of shares redeemed 4,347 3,943 Number of shares in issue at the period end 47,688 306,692
IMMO CROISSANCE 13 ANNUAL REPORT 2006
STATISTICS For the period from 1 January 2006 to 31 December 2006
Accumulation shares Distribution shares Net assets per share: – high € 704.09 (May 2006) € 286.11 (April 2006) –low € 667.96 (June 2006) € 255.38 (June 2006) Price on Luxembourg stock exchange: – high € 760.00 (05.09.2006) € 320.00 (07.04.2006) –low € 651.00 (06.01.2006) € 268.00 (01.12.2006) Price on Brussels stock exchange: – high € 750.00 (30.08.2006) € 310.00 (07.04.2006) –low € 618.50 (22.05.2006) € 270.10 (16.06.2006)
CHANGES IN CONSOLIDATED NET ASSET VALUE
Year ended Year ended 31 December 2006 31 December 2005
Net asset value at 1 January 117,514,344 113,614,394 Redemptions (4,069,179) (8,594,052) Subscriptions 4,056,269 8,578,889 Dividends paid (5,697,188) (5,869,651) Net profit on operations (2,461,697) 9,513,020 (Un)realised gain (loss) on available-for-sale assets 80,218 271,744 Change in scope - disposals of subsidiaries (32,837) – Sale of own shares 878,565* – Net asset value at 31 December 110,268,495 117,514,344
* During the 2006 financial year Immo Croissance sold its own shares. From an accounting point of view, in the event of a share buy- back the value of these shares would be deducted from the net asset value. No profit or loss would be recorded on the statement of consolidated changes in net assets.
14 IMMO CROISSANCE ANNUAL REPORT 2006
CHANGES IN THE LISTED SHARE PRICE IN LUXEMBOURG AND IN NET ASSET VALUE PER SHARE
780.00
730.00
680.00
630.00
580.00
530.00
480.00
430.00
380.00
330.00
280.00 June Dec. June Dec. June Dec. June Dec. June Dec. June Dec. June Dec. 00 00 01 01 02 02 03 03 04 04 05 05 06 06
Market value of accumulation shares Net asset value of accumulation shares
340
320
300
280
260
240
220
200 June Dec. June Dec. June Dec. June Dec. June Dec. June Dec. June Dec. 00 00 01 01 02 02 03 03 04 04 05 05 06 06 Market value of distribution shares Net asset value of distribution shares
With effect from 31 December 2004, the net asset value has been calculat- ed in accordance with the new accounting standards (IAS/IFRS). The decline in the net asset value is due to the transition to this new calculation method.
IMMO CROISSANCE 15 ANNUAL REPORT 2006
CHANGES IN CONSOLIDATED PORTFOLIO HOLDINGS For the period from 1 January 2006 to 31 December 2006
During the financial year ended 31 December 2006 the Central Parc and Le César buildings were sold, generating profit on the sales of EUR 2,934,212 in total. An amount of EUR 1,427,267 is recorded as a gain realised during 2006.
STATISTICS for the last three years
2006 2005 2004 in euros in euros in euros
Total net asset value 110,268,495 117,514,344 113,614,394
Net asset value per share accumulation shares 668.52 678.71 622.89 distribution shares 255.59 277.81 273.39 Dividend paid during the year in respect of distribution shares 19.00 19.00 19.00
16 IMMO CROISSANCE ANNUAL REPORT 2006
CONSOLIDATED PORTFOLIO HOLDINGS ASAT31 DECEMBER 2006
A. PORTFOLIO –PROPERTY OFFICE AND RESIDENTIAL BUILDINGS
Acquisition Year of Office Residential/ Archives Car park Tenants date construction space Commercial space space (sq. m.) (sq. m.) (sq. m.) (sq. m.) GRAND DUCHY OF LUXEMBOURG Arsenal 6 Av. E. Reuter • L-2420 Luxembourg 22.11.88 1973 5,177 – 1,240 87 Government dept. Royal Arsenal 12-14 Av. E. Reuter • L-2420 Luxembourg 23.05.89 1992 3,048 – 205 81 Government dept. Centre Monterey 23 Av. Monterey • L-2163 Luxembourg 22.11.88 1965 1,668 – 252 21 Trustee Résidence 22 Monterey 22 Av. Monterey • L-2163 Luxembourg 29.06.89 1993 – 913 112 3 Commercial, residential Auf der Hart 1 Ceinture Um Schlass • L-5880 Hesperange 27.10.88 1990 2,950 – – 95 Multinational Edison 7 Rue Thomas Edison • L-1445 Strassen 10.02.99 2000 6,579 – – 379 Bank Newton 5 Rue Thomas Edison • L-1445 Strassen 01.10.99 2001 6,150 – 192 313 Bank Gutenberg 3 Rue des Primeurs • L-2361 Luxembourg 13.09.99 2002 5,952 – 443 219 Government dept. OTHER COUNTRIES Mörsenbroich Large companies 359 Münsterstraße • D-4000 Düsseldorf 10.01.90 1990 4,044 – 350 51 and SMEs Waterloo Office Park 161 Drève Richelle • B-1410 Waterloo 17.12.93 1993 2,331 – 60 67 Large companies Keyberg 2 2 Kouterveldstraat Currently being B-1831 Diegem-Zaventem 31.03.95 1993 7,123 – 1,085 174 marketed Les Collines de Wavre - Centre d’affaires 50 Chaussée des Collines • B-1300 Wavre 27.11.95 1995 1,372 – 150 34 Multinational Marcel Thiry Court 200 Avenue Marcel Thiry B-1200 Woluwe Saint Lambert 26.06.98 1990 4,664 – – 122 Large companies
Valuation Value on Estimated % of acquisition value net assets (in euros) (in euros)
GRAND DUCHY OF LUXEMBOURG 143,322,063 134,150,000 121.66 OTHER COUNTRIES 44,419,329 26,370,000 23.91
TOTAL PROPERTY PORTFOLIO 187,741,392 160,520,000 145.57
IMMO CROISSANCE 17 ANNUAL REPORT 2006
B. PORTFOLIO –REITS to 31 December 2006
Name Quantity Purchase price Estimated value % of net assets
EUR Marie-Thérèse 565 185,900 68,930 0.06
TOTAL REITS PORTFOLIO 565 185,900 68,930 0.06
to 31 December 2005
Name Quantity Purchase price Estimated value % of net assets
EUR Marie-Thérèse 565 185,900 65,258 0.06 EUR Metropolitan Buildings 5,615 1,561,207 945,566 0.80
TOTAL REITS PORTFOLIO 6,180 1,747,107 1,010,824 0.86
18 IMMO CROISSANCE ANNUAL REPORT 2006
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2006 Note 1 – General information
Immo-Croissance is a property investment company that was formed on 22 September 1988 in the form of a mutual fund (Luxembourg SICAV) in accordance with the Luxembourg law of 10 August 1915 (as modified) relat- ing to commercial companies, and that of 30 March 1988 relating to collec- tive investment undertakings. With effect from 13 February 2004, the Fund has been governed for legal purposes by the law of 20 December 2002.
Immo-Croissance’s registered office is located at 69 route d’Esch, L-1470 Luxembourg. Immo-Croissance is registered in the Luxembourg trade and companies registry under number RCS B 28872.
The Fund’s objective is to offer private and institutional investors the chance to invest in a diversified portfolio that is specialised in high-quality property assets located within the European Union. While the Fund’s prop- erty investments take a variety of forms, they primarily concern commer- cial and office premises.
Immo-Croissance’s investment policy is directed towards the long term and frequent purchases and sales of assets are not envisaged. The Board of Directors may, however, sell the Fund’s property assets at any time in view of the future prospects for the assets or markets concerned, or for any other reason that they deem appropriate.
The consolidated financial statements are prepared in euros, which is the functional and reporting currency of the entity and its subsidiaries.
The Fund’s financial statements were approved by the Board of Directors on 7 March 2007. They will be submitted for approval by the shareholders’ General meeting of 11 April 2007.
Note 2 – Main accounting methods
The consolidated financial statements of the Fund and all its subsidiaries were prepared in accordance with the International Financial Reporting Standards (“IFRS”) as adopted by the European Union.
2a Principles applied to the preparation of consolidated financial statements The Fund’s consolidated financial statements were prepared based on the historical cost principle, except in the case of investment property and available-for-sale financial assets, which are measured at fair value.
IMMO CROISSANCE 19 ANNUAL REPORT 2006
2b Consolidation principles Subsidiaries A subsidiary is a company in which the Fund holds a direct or indirect con- trolling interest. Control is the power to direct the financial and operating policies of the company in order to benefit from the results of its activities. A list of subsidiaries is included in Note 3.
The consolidated financial statements include the financial statements of the mutual fund Immo-Croissance and those of its subsidiaries, prepared to 31 December of each year. The subsidiaries are consolidated from the date on which the Fund assumes control through to the date on which the Fund ceases to have control. The subsidiaries are incorporated into the consolidated financial statements using the acquisition method. As such, the acquisition cost is allocated to the assets and liabilities based on their fair value on the acquisition date.
To prepare the consolidated financial statements, the individual financial statements of the Fund and of its subsidiaries are combined on a line- by-line basis by adding together similar assets, liabilities, income and charges. To ensure that the consolidated financial statements present the group’s financial information as if it related to a single company, the following steps are then taken:
(a) the carrying value of the Fund’s holding in each subsidiary and the Fund’s share of the shareholders’ equity of each subsidiary are elimi- nated;
(b) minority interests in the net results of the consolidated subsidiaries for the year are identified and deducted from the group’s results to obtain the net earnings attributable to the Fund’s shareholders.
Intra-group eliminations Intra-group balances and transactions, including sales, charges and divi- dends, are eliminated in full.
2c Foreign currency translation Foreign currency transactions, i.e. those performed in a currency other than the euro, are recorded at the exchange rate prevailing on the transac- tion date. Monetary assets and liabilities denominated in foreign currency are translated at the exchange rate prevailing on the balance sheet date. All translation differences are recorded in the consolidated income state- ment.
20 IMMO CROISSANCE ANNUAL REPORT 2006
2d Investment property Investment property includes property assets (land and buildings) held by the Fund under a lease agreement with a view to earning rental income from these assets or enhancing their capital value, or both.
Investment property assets are initially measured at acquisition cost. Transaction costs are included in this initial valuation. The cost of a pur- chased investment property includes its purchase price plus all directly attributable expenditure, including, for example, legal fees, transfer duties and other transaction costs.
Subsequent to initial recognition, investment property assets are measured at their fair value, which is defined as the best price that could reasonably be expected to be obtained by the seller and the most attractive price that could reasonably be expected to be obtained by the buyer in an over-the- counter transaction in which the parties act with full knowledge of the facts, while exercising caution and without constraint. Since the adoption of IFRS, this fair value excludes all legal fees.
Subsequent expenditure relating to an investment property that has already been recognised must be added to the carrying value of the invest- ment property when it is probable that future economic benefits, over and above the level of performance defined at the outset for the investment property concerned, will accrue to the company.
The fair value of investment property is determined based on a valuation prepared by an independent property appraiser possessing an appropriate and recognised professional qualification, as in the case of Cushman & Wakefield, who has proven experience in the valuation of investment prop- erty. The appraiser’s appointment is renewed annually by the General Meeting of shareholders.
The fair value of investment property is established based on discounted future cash flow projections. These projections are based on the lease terms and conditions, other existing agreements and external evidence such as current rental values offered on the market for similar properties in the same location. The discount rates applied on the balance sheet date are calculated by Cushman & Wakefield. Fair value estimates of investment property are subjective and actual values can be established only during a sale transaction.
Unrealised gains and losses arising from changes in the valuation of investment property are recognised in the consolidated income state- ment for the current year.
Profits and losses arising from investment property being taken out of service or sold, which are defined as the difference between the net pro- ceeds of the disposal and the carrying value of the asset concerned, are
IMMO CROISSANCE 21 ANNUAL REPORT 2006
recognised in income or charges in the consolidated income statement for the current year.
A detailed breakdown of invest- ment property is provided in the table of changes in investment property.
2e Trade receivables and other debtors Trade receivables and other debtors, which are generally due between 15 and 90 days, are recognised and recorded at the initial amount of the invoice, less any provisions for the write-down of non-recoverable amounts. An estimate of the amount of impaired receivables is made when it is no longer likely that a receivable will be collected in full. Irrecoverable receivables are recognised as a loss immediately upon being identified as such.
2f Cash and cash equivalents Cash and cash equivalents include cash at bank and short-term deposits with an initial maturity of less than three months.
For the purposes of the consolidated cash flow statement, cash and cash equivalents are stated net of bank overdrafts.
2g Interest-bearing borrowings All borrowings are initially recorded at historical cost, which corresponds to the fair value of the amount received, net of any borrowing costs.
Subsequent to initial recognition, interest-bearing borrowings are measured at amortised cost, which is calculated by taking into account all issuance costs and any redemption premiums or discounts.
Profits and losses are recorded in the income statement when the liabili- ties are reversed or are subject to a loss in value, or via an amortisation process.
2h Provisions Provisions are recognised when the Fund has a present obligation (legal or constructive) arising from a past event and it is deemed likely that a pay- ment will be required in order to extinguish this obligation and the amount of this payment can be reliably estimated.
22 IMMO CROISSANCE ANNUAL REPORT 2006
2i Rental income Leases are agreements under which the lessor transfers to the lessee the right to use all or part of the investment property for a given period in exchange for payment of a rent. A non-cancellable lease is a lease that can be cancelled only: (a) if an unlikely event occurs; (b) with the authorisation of the lessor; (c) if the lessee enters into a new lease with the same lessor for the same investment property or an equivalent asset; or (d) on payment by the lessee of an additional amount (any form of compen- sation), agreed on the signing of the lease. The term of the lease indicates the non-cancellable period for which the lessee undertakes to rent the property asset, and any subsequent periods for which the lessee has the option to extend his lease in exchange for the payment of an additional amount if applicable provided that, from the inception of the lease, there is reasonable certainty that the lessee will exercise his option.
Rental income on investment property is recognised on a straight-line basis over the duration of the leases in force.
2j Financial risk management policy and objectives The Fund’s instruments mainly comprise bank borrowings. The objective of these financial instruments is to facilitate the financing of the Fund’s oper- ations. The Fund also holds other financial instruments such as property certificates and equities.
The main risks attached to the Fund’s financial instruments are interest rate risk, liquidity risk, market risk and credit risk. However, the Fund is not exposed to a significant concentration of credit risk. The Fund’s Board of Directors checks and evaluates these risks periodically.
2k Interestrate risk The group’s exposure to the risk from changes in interest rates concerns the Fund’s long-term borrowings. The Fund’s policy involves managing its interest expense through a combination of fixed-rate and variable-rate borrowings.
2l Liquidity risk Liquidity risk arises when the lessees are unable to pay their rent within an acceptable timeframe.
IMMO CROISSANCE 23 ANNUAL REPORT 2006
2m Market risk Market risk is analysed at both macro- and micro-economic level. An analysis is undertaken for the European markets, and, more specifically, for the individual markets in which our buildings are located. This risk also encompasses the exposure to political risk, i.e. a property market’s sensi- tivity to supranational political decisions.
2n Credit risk The Fund has commercial relationships only with third parties that are proven to be financially sound. The Fund’s policy is to check the financial health of all lessees. In addition, trade receivables are monitored on an ongoing basis, thereby ensuring that the group’s exposure to irrecoverable receivables is immaterial. The credit risk is not concentrated on any one third party.
2o Investment restrictions In accordance with the Luxembourg law of 10 August 1915 (as modified) relating to commercial companies, to that of 20 December 2002 relating to collective investment undertakings and to the prospectus, the Fund is sub- ject to certain investment restrictions, the main ones being:
– The Fund can invest no more than 20% of its net assets in a single prop- erty. This limit is applicable at the time of acquisition of the asset con- cerned. Property assets whose economic viability is interconnected are not considered as separate properties. - The Fund can invest up to a maximum of 20% of its net assets in prop- erty certificates or in securities of open- or closed-ended collective investment undertakings investing in property. They must be admitted for official listing on a stock exchange in a European State, or traded on another market of a European country, and the investment in collective investment undertakings cannot exceed 15% of the Fund’s assets. - The Fund can temporarily invest its assets that are pending investment in property in term deposit accounts and other short-term or medium- term money market investments such as certificates of deposit and short-term notes. 2p Financial instruments and de-recognition of financial assets and liabilities Available-for-sale assets Available-for-sale financial assets are non-derivative financial assets that are designated as being available for sale or which are not classified in any other category of financial assets. Subsequent to initial recognition, the available-for-sale financial assets are measured at fair value and any gains and losses on such assets are recognised directly in net assets, until such time as the investment is derecognised or is identified as necessitating a write-down, in which case the cumulative profit or loss previously recog- nised in net assets is then transferred to the statement of changes in net
24 IMMO CROISSANCE ANNUAL REPORT 2006
assets. The fair value of investments that are actively traded on organised financial markets is determined by reference to the published market price on the balance sheet date.
The methods used to measure the fair value of financial instruments are as follows:
Current assets and liabilities: The fair value of assets and liabilities is approximately equal to the carry- ing value used in the financial statements. This is due to the fact that these assets and liabilities are realisable in the short term. Current assets for which a value adjustment is necessary are presented in the financial state- ments net of the value adjustment, thereby reflecting their estimated recoverable amount.
Short-term debt:
The carrying value of short-term debt used in the financial statements is approximately equal to its fair value due to the short-term maturity of this debt.
Long-term debt: The fair value of long-term debt is based on the market value of listed debt with similar characteristics. At 31 December 2006 and 31 December 2005, the fair value of long-term debt was approximately equal to its carrying value.
Financial Assets A financial asset (or, if applicable, part of a financial asset or part of a group of similar financial assets) is derecognised if:
• The rights to cash income relating to the financial asset expire,
• The Fund has transferred its rights to receive cash income relating to the financial asset and has either transferred the bulk of the risks and benefits inherent in ownership of the financial asset, or has neither transferred nor retained the bulk of the risks and benefits inherent in ownership of the financial asset but has ceded control of the financial asset.
Financial liabilities A Financial liability is derecognised if the obligation relating to the liability is extinguished or cancelled, or expires. An exchange between the Fund and an existing lender of loan instruments with significantly different terms and conditions is recognised as an expiry of the initial financial liability, and a new financial liability is recognised. The same applies in the event of a significant modification of the terms and conditions of an existing financial liability. The difference between the respective accounting values of the ini- tial financial liability and the new financial liability is recognised in the prof- it and loss account.
IMMO CROISSANCE 25 ANNUAL REPORT 2006
2q Post-balance sheet events Post-balance sheet events are events, both favourable and adverse, that occur between the balance sheet date and the date on which the financial statements are published. 2r Sector information All operating activities are carried out exclusively in the sector of office and commercial investment property located within the European Union.
2s Shares The Immo-Croissance shares comprise distribution shares and accumula- tion shares. The distribution shares, known as Immo-Croissance Distribution, are remunerated by dividends allocated out of earnings approved by the General Meeting of Shareholders. The accumulation shares, known as Immo-Croissance Accumulation (Immo-Croissance Capitalisation) are not entitled to any dividend payments, as their respective portion of earnings is capitalised. 2t Related parties Related parties are defined as parties that are directly or indirectly con- trolled by the Fund or by the management company. When control exists, information on relations between the related parties is provided, whether or not any transactions have actually taken place between the parties.
2u Taxation Current tax assets and liabilities for the year and prior years are measured at the amount that is expected to be collected from or paid to the tax authorities. The tax rates and regulations used in determining these amounts are those that were adopted, or about to be adopted, at the bal- ance sheet date.
Deferred tax is recognised on all temporary differences existing at the bal- ance sheet date between the carrying value of the assets and liabilities and their value for tax purposes.
The carrying value of deferred tax assets is reviewed at each balance sheet date and is reduced when it is no longer probable that a sufficient taxable profit will be available to permit utilisation of the benefit of all or part of these deferred tax assets. Unrecognised deferred tax assets are re- assessed at each balance sheet date and are recognised when it becomes probable that a future taxable profit will permit their collection.
26 IMMO CROISSANCE ANNUAL REPORT 2006
Deferred tax assets and liabilities are offset if a legal enforceable right of set-off of current tax assets and liabilities exists, and provided that these deferred taxes concern the same taxable entity and the same tax authori- ty.
2v Adoption of International Financial Reporting Standards (IFRS) during the year Early adoption The Fund adopted the following revised standards during 2006:
Amendment IAS 39 and IFRS 4 concerning financial guarantee contracts
The IASB amended the scope of application of IAS 39 to include financial guarantee contracts. However, if an issuer of financial guarantee contracts has clearly stated in advance that it treats these contracts as insurance policies and that it has applied the accounting rules appropriate for insur- ance policies, it can choose to apply either IAS 39 (in its current form) or IFRS 4 to the financial guarantee contracts in question.
According to these new amendments to the IAS 39 standard, financial guarantee contracts are initially valued at fair value, and subsequently at the higher amount of either (a) that recognised under IAS 37 ‘Provisions, contingent liabilities and contingent assets’ or (b) the amount initially recognised less, when appropriate, cumulative amortisation recognised in accordance with IAS 18 ‘Income from ordinary activities’.
The issuer may choose IAS 39 or IFRS 4 on a contract-by-contract basis, but the choice for each contract will be final.
IFRIC 4: determine whether a contract contains a rental contract.
The adoption of these standards has had no impact on the consolidated financial statements.
IFRS and IFRIC interpretations not yet in force The Fund has not applied the following standards and interpretations that have been published but which are not yet in force:
* IFRS 7 Financial Instruments: Disclosures.
IFRS 7 cancels and replaces the current IAS 30 ‘Information to be disclosed in the financial statements of banks and similar financial institutions’, as well as the part concerning obligations of disclosure (and not presentation) required by IAS 32 ‘Financial instruments: disclosure and presentation’.
IMMO CROISSANCE 27 ANNUAL REPORT 2006
Amendment IAS 1 – Capital disclosures
The IAS 1 amendment ‘Presentation of financial statements’ adds provisions concerning capital disclosures by an entity, that enable users of these financial statements to evaluate its objectives, policies and procedures for management of its capital.
IFRIC 9 concerning revaluation of embedded derivatives
IFRIC 10 concerning depreciation of assets, and intermediaries’ accounts
These standards and interpretations must be applied to accounting years commencing on or after 1 January 2007. The Fund anticipates that adop- tion of the official positions listed above will have no impact on the Fund’s financial statements for their first period of application.
Note 3 – Subsidiaries
The consolidated financial statements combine the financial statements of the Fund with those of its subsidiaries listed below:
Name Country of % holding and control registration 2006 2005 Immo Wavre Office Parc S.A. • Mail 3, boîte 15 • B-1083 Brussels Belgium 100 100 Immo Diegem S.A. • 180 rue des Aubépines • L-1145 Luxembourg Luxembourg 100 100 Estaks Properties N.V. • Mail 3 boîte 15 • B-1083 Brussels Belgium 100 100 Immo Thiry Avenue S.A. • Mail 3, boîte 15 • B-1083 Brussels Belgium 100 100 Immo Waterloo S.A. • Mail 3, boîte 15 • B-1083 Brussels Belgium 100 100 Immo Orléans S.A. • 180 rue des Aubépines • L-1145 Luxembourg Luxembourg - 100 Immo Neuilly S.A. • 40 boulevard Henri Sellier • F-92156 Suresnes France - 100
Note 4 – Long-term deposits Effective interest rate Maturity date 2006 2005
Estaks Properties N.V 4.50% 31.Mar.10 9,053,071 9,053,071 Immo Wavre S.A 8.50% 30.Nov.10 2,306,575 2,306,575 Summe 11,359,646 11,359,646
Long-term deposits are not liquid assets and are held as guarantees for bank borrowings (Note 6).
28 IMMO CROISSANCE ANNUAL REPORT 2006
Note 5 – Cash and cash equivalents
31 Dec. 2006 31 Dec. 2005 Cash at bank and in hand 1.573.098 2.034.752
Cash at bank is remunerated at variable interest rates indexed to the rates paid on demand deposits. Short-term deposits cover various periods rang- ing from one day to one month depending on the group’s immediate cash needs.
Note 6 – Interest-bearing bank borrowings
At 31 December 2006, the Fund had bank borrowings and overdrafts totalling EUR 62,422,759 (2005: EUR 70,722,210). These borrowings were secured by mortgages on the buildings located in Luxembourg and Diegem. Furthermore, certain rental income was pledged as a guarantee.
Interest payments for the financial year came to EUR 2,981,585 (2005: EUR 2,938,755).
Effective Maturity 31 Dec. 31 Dec. interest rate date 2006 2005
Current Bank overdrafts 1,460 2,279,420 Credit line of €15m 3.82% 19-Jan-06 – 15,000,000 Credit line of €10m 2.89% 19-Jan-06 – 10,000,000 Credit line of €10m 3.37% 19-Jan-06 – 10,000,000 Overdraft of €25m 3.23% * 4,370,993 5,383,010 4,372,453 42,662,430
Effective Maturity 31 Dec. 31 Dec. interest rate date 2006 2005
Non-current Credit line of €15m 3.82% 19-Jan-11 15,000,000 – Credit line of €10m 2.89% 19-Jan-11 10,000,000 – Credit line of €10m 3.37% 19-Jan-11 10,000,000 – Immo Neuilly S.A. 3.53% 3-Apr-07 – 3,885,387 Immo Neuilly S.A. 3.71% 3-Apr-07 – 1,124,087 Immo Thiry S.A. 5.42% 26-Jun-08 11,690,659 11,690,659 Immo Wavre S.A. 8.50% 30-Nov-10 2,306,575 2,306,575 Estaks Properties N.V. 4.50% 31-Mar-10 9,053,072 9,053,072 Other borrowings 58,050,306 28,059,780 62,422,759 70,722,210
(*) Variable rate bank loan: this rate corresponds to the 1 month Euribor effective during 2006.
IMMO CROISSANCE 29 ANNUAL REPORT 2006
A maturity analysis of the carrying value of the borrowings is provided in the table below:
Bank borrowings 2006 2005
<1 year 4,372,453 42,662,430 1-5 years 58,050,306 28,059,780 > 5 years – – Total 62,422,759 70,722,210
Dexia Banque Internationale à Luxembourg and Dexia Banque Bruxelles are the counterparties for the majority of the borrowings made by the group.
Note 7 – Sale of holdings in subsidiaries
On 16 November 2006 the Fund sold its subsidiaries Immo Orléans and Immo Neuilly for a total of EUR 1,801,640. The following assets and liabili- ties were sold.
Assets
Current Assets 3,024,477 Other debts (724,694) Tax liabilities (664,191) Net assets sold 1,635,592 Profit on sale 166,048
Boulevard Royal Luxembourg Foto: Carlo Hommel – © Photothèque V.d.L.
30 IMMO CROISSANCE ANNUAL REPORT 2006
Note 8 – Consulting fees and related parties
Immo-Croissance takes investment advice from Immo-Croissance Conseil S.A. (the “Consultant”), a company owned equally by Dexia Banque Internationale à Luxembourg, Foyer S.A. (an insurance group) and Puilaetco Dewaay Private Bankers S.A., and formed specifically for this purpose on 22 September 1988 for an unspecified period. On 14 April 2004, a new agreement was signed between the above-mentioned parties.
Immo-Croissance Conseil S.A. receives consulting fees, payable at each quarter end, at a maximum rate of 0.25% per annum of the Fund’s gross assets as valued by the independent appraisers.
The Consultant also receives 5% of the net gain realised when buildings are sold.
Immo-Croissance may terminate the agreement at any time, on payment of an amount equivalent to 3% of the value of the Fund’s gross assets.
Immo-Croissance Conseil S.A. is the only related party with which Immo- Croissance enters into transactions. Charges relating to the consulting fees are as follows:
Related party Year to Year to (in euros) 31 December 2006 31 December 2005 Immo-Croissance Conseil S.A. 482,327 431,438
IMMO CROISSANCE 31 ANNUAL REPORT 2006
Note 9 – Trade payables and other creditors 31 Dec. 2006 31 Dec. 2005 Consulting fees (note 8) 210,300 431,437 Trade payables 305,268 190,977 Interest payable 1,817,186 1,624,456 Other creditors 1,190,457 1,167,640 3,523,211 3,414,510
Note 10 – Lease commitments Minimum future lease payments receivable in respect of non-cancellable operating leases were as follows as at 31 December 2006 and 31 December 2005:
31 Dec. 2006 31 Dec. 2005 Due in less than 1 year 1,544,849 14,782,151 Due in 1 to 5 years 3,952,805 14,938,986 Due in more than 5 years 3,422,489 5,819,135 8,920,143 35,540,272
Minimum future lease payments were lower during 2006 due to the early departure of a large tenant. New leases were signed during the first quar- ter of 2007.
Note 11 – Custodian fees Based on the agreement signed on 23 September 1988 between Immo- Croissance and Dexia Banque Internationale à Luxembourg (the “custodi- an bank”), the Fund entrusts the custodian bank to act as custodian for cash, marketable securities, other assets and ownership deeds that the Fund owns or may acquire.
The custodian bank has the right to levy a custodian fee on the Fund’s assets, which is payable at each quarter end and is calculated as follows:
(a) 0.10% per annum of the gross value at the quarter end of marketable securities, cash and other assets excluding any direct investment in property assets;
(b) 0.01% of property assets up to a maximum of €1,239.47 per building.
In addition, the custodian bank will be reimbursed by the Fund for all charges and fees levied by correspondents (clearing systems or banks) for the Fund’s assets and marketable securities.
32 IMMO CROISSANCE ANNUAL REPORT 2006
Note 12 – Operating charges
The main charges in respect of rental properties concern individual and collective services (maintenance, lighting, etc.), property charges (cleaning, sewerage and household waste), land taxes, caretaking charges, manage- ment charges and insurance.
Other rental property charges such as individual services (e.g. hot water, meter rental and heating) are recoverable from the lessees. The Fund makes available to lessees, prior to the expiry of their leases, supporting evidence for all expenses incurred by the group as well as the calculations of the split by lessee.
Year to Year to 31 Dec. 2006 31 Dec. 2005 Maintenance 415,730 324,247 Depreciation of renovation and fitting-out work 319,930 312,406 Insurance 24,723 105,321 Independent property appraiser’s fees 62,328 58,906 Operating charges 1,429,901 946,046 2,252,612 1,746,926
The Fund bears all property brokerage charges and operating charges (including any emoluments and certain expenses of directors, administra- tive management, paying agent, auditors and property appraisers, legal advisors, transfer duties, and the cost of printing and distributing annual and half-yearly reports and the prospectus), all fees and brokerage charges, contributions and charges on companies payable by the Fund, and fees for registration of the Fund and maintenance of this registration payable to any government bodies and stock exchanges.
Note 13 – Other charges
Year to Year to 31 Dec. 2006 31 Dec. 2005 Levy 59,205 57,133 Other 291,604 319,378 350,809 376,511
Pursuant to current legislation and regulations, the Fund is liable in Luxembourg to an annual levy of 0.05% payable quarterly and calculated on the basis of the Fund’s net assets at each quarter end.
Pursuant to current legislation in Luxembourg, the Fund is not liable for any company levies or taxes on capital gains, or any property taxes on buildings that it owns in the Grand Duchy of Luxembourg, apart from land taxes.
IMMO CROISSANCE 33 ANNUAL REPORT 2006
Note 14 – Issue, redemption and conversion of shares
The Board of Directors may issue shares at any time in accordance with the provisions set out in the prospectus of May 2004. It may authorise any financial body to undertake this procedure. The issue price may be increased by an issuance fee of up to 3%.
The net asset value is calculated on the last business day of each month. The net asset value is not calculated when subscriptions are in progress.
Immo-Croissance has the right to purchase its own shares. Such purchas- es must be made on the Luxembourg stock market or on any other organ- ised market on which the shares are traded. The Board of Directors has full discretion to make such purchases in the general interest of the Fund and its shareholders. However, the Board of Directors is not obliged to pur- chase the total number of shares authorised for purchase. The purchase price cannot exceed the most recently calculated net asset value.
Shares purchased by Immo-Croissance may be held in the Fund’s portfolio and put back on the Luxembourg stock market or any other organised market on which the shares are traded.
Distribution shares may be converted into accumulation shares and vice versa, twice each year, based on the net asset values determined on the last business day of March or September as appropriate.
Note 15 – Taxation
The breakdown of the total tax charge for the periods to 31 December 2005 and to 31 December 2006 was as follows:
Year to Year to 31 Dec. 2006 31 Dec. 2005 Current tax Current tax charge (740,041) (27,764) Adjustment for current tax of prior years – – Deferred tax On the origination and reversal of temporary differences (298,457) 99,660 Tax (charge) income recognised in the consolidated income statement (1,038,498) 71,896
34 IMMO CROISSANCE ANNUAL REPORT 2006
A reconciliation of the tax charge and the accounting profit multiplied by the tax rate prevailing in Luxembourg is provided below for the periods to 31 December 2005 and to 31 December 2006: Year to Year to 31 Dec. 2006 31 Dec. 2005
Profit before tax (1,423,199) 9,441,124 Tax charge at the tax rate prevailing in Luxembourg for the Fund – – Adjustment for current tax of prior years – (76,707) Impact of tax rates applicable in other jurisdictions (1,038,498) 148,603 Tax charge at the effective tax rate (1,038,498) 71,896
The sources of deferred tax for the period to 31 December 2006 are shown in the table below:
(in euros) Statement of consolidated Consolidated income net assets statement At 31 Dec. 2006 At 31 Dec. 2005 At 31 Dec. 2006 At 31 Dec. 2005 Deferred tax liabilities Revaluation of land and buildings at fair value – 108,169 108,169 176,367
Deferred tax assets Losses available for carry forward against future taxable profits – 406,626 (406,626) (76,707)
Tax assets deferred in connection with tax deficits generated in Belgium (EUR 1,215,690) have not been recognised as their use is uncertain.
In accordance with tax laws applicable to group companies, distributions of carried-forward earnings by the subsidiaries to the Fund are not taxable. Therefore, no deferred tax liabilities were recognised (2005: 0) for taxes that would be payable on the undistributed earnings of subsidiaries.
IMMO CROISSANCE 35 ANNUAL REPORT 2006
Note 16 – Other property, plant and equipment
Plant, equipment Other property, Total and tooling plant and equipment in progress
At 31 December 2004 Gross carrying value 3,106,373 309,619 3,415,992 Accumulated depreciation (700,098) – (700,098) Net carrying value 2,406,275 309,619 2,715,894 Movements during 2005 Acquisitions 64,617 1,370,138 1,434,755 Transfers – (309,619) (309,619) Depreciation (312,406) – (312,406) At 31 December 2005 Gross carrying value 3,170,990 1,370,138 4,541,128 Accumulated depreciation (1,012,504) – (1,012,504) Net carrying value 2,158,486 1,370,138 3,528,624 Movements during 2006 Acquisitions 6,628 – 6,628 Transfers 9,222 (1,370,138) (1,360,916) Depreciation (319,930) – (319,930) At 31 December 2006 Gross carrying value 3,186,840 – 3,186,840 Accumulated depreciation (1,332,434) – (1,332,434) Net carrying value 1,854,406 – 1,854,406
Boulevard Royal Luxembourg Foto: Carlo Hommel – © Photothèque V.d.L.
36 IMMO CROISSANCE ANNUAL REPORT 2006
SHAREHOLDER INFORMATION
The value of the net assets of Immo-Croissance and the net asset value of its shares are available at the registered office of Immo-Croissance, from Banque Puilaetco Dewaay Private Bankers S.A. and from Fortis Banque S.A. in Brussels. In the event of a major change in the net asset value or when this value cannot be established, Immo-Croissance will request that its list- ings be suspended and will issue an explanatory communication.
The Fund publishes a detailed annual report on its activity and the manage- ment of its assets. In addition, at each half year, it produces an interim report. These documents may be obtained by any interested party free of charge from the Fund’s registered office, Dexia Banque Internationale à Luxembourg, Puilaetco Dewaay Luxembourg S.A., Puilaetco Dewaay Private Bankers S.A. and Fortis Banque S.A. in Brussels.
The Fund’s financial year runs to 31 December of each year.
The Annual General Meeting of shareholders is held each year at Immo- Croissance’s registered office or at any other location in Luxembourg spec- ified in the document convening the meeting. This Annual General Meeting takes place on the second Wednesday of April at 11am. The date and time of all other General Meetings of shareholders are specified in the docu- ments convening the meetings. These meeting notices are published in the Mémorial in Luxembourg, the Moniteur in Belgium, the Luxemburger Wort, in one other Luxembourg newspaper, the Echo and De Financieel- Ekonomische Tijd and in any other foreign publications that may be deter- mined by the Board of Directors. Invitations to participate in General Meetings are sent by mail to registered shareholders at least two weeks prior to the date of the meeting.
The invitations will set out the agenda for the meeting and the terms of admission and the quorum and majorities required, in conformity with the provisions of the law of 10 August 1915 governing commercial companies established in the Grand Duchy of Luxembourg.
The Fund’s shares are listed on the Luxembourg and Brussels stock exchanges. Distribution shares entitle the holder to a portion of the divi- dend, the amount of which is proposed by the Board of Directors to the General Meeting of shareholders for approval. The portion of earnings due to the holders of accumulation shares is automatically reinvested in full. The Board may decide to pay an interim dividend for the last or current financial year in compliance with the relevant legal provisions.
All shareholder notices are published in the Luxemburger Wort, in another Luxembourg newspaper, in the Echo and in De Financieel-Ekonomische Tijd, and in any other foreign publications as agreed.
IMMO CROISSANCE 37
APPENDIX 3 BAUGUR CONTRACTED CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 2006
75 Baugur Group hf.
Contracted Consolidated Financial Statements for the year 2006 ISK
Baugur Group hf. Túngata 6 101 Reykjavík Iceland
Reg. no. 480798-2289 Contents
Endorsement and Signatures of the Board of Directors and the CEO ...... 3 Balance Sheet ...... 6
Independent Auditors' Report ...... 4 Statement of Cash Flows ...... 7
Statement of Total Income ...... 5 Notes to the Financial Statements ...... 8
Baugur Group hf. Contracted Financial Statements 2006 ______2 ______Endorsement and Signatures of the Board of Directors and the CEO
Baugur Group hf. is an international investment company focusing on investments in the service, retail and real estate sectors, in Iceland and Northern Europe. During the year, the Company's primary investment was in the UK company House of Fraser Plc.
The Financial Statements include Contracted Consolidated Financial Statements of the Company and its subsidiaries. They are in all main respects based on the same accounting principles as in the previous year. The presentation of the Statement of Total Income and Balance Sheet has been changed. The change in presentation has no effects on the Company's total income or equity. The change is explained in note 12.
According to the Statement of Total Income, net realised loss for the year amounted to ISK 12,810 million. When unrealised income, in the amount of ISK 24,415 million, is accounted for, the Group's total income posted to equity amounted to ISK 11,605 million. According to the Balance Sheet, the Group's assets amounted to ISK 178,644 million. Equity at year-end amounted to ISK 73,150 million, whereof share capital amounted to ISK 1,232 million. The Group's equity ratio at the end of the year was 41%. Equity and subordinated loan amounted to a total of ISK 76,288 million at end of the year, or 43%.
Shareholders were 42 at the end of the year but were 30 at the beginning of the year. One shareholder held over 10% of outstanding shares. That shareholder is Fjárfestingarfélagið Gaumur ehf., which, along with related parties held a total of 69.3% of issued shares.
The Board of Directors proposes a dividend payment amounting to ISK 3,000 million in 2007, reference is made to the Financial Statements regarding deployment of profits and other changes in equity during the year 2006.
The Board of Directors and the CEO of Baugur Group hf. hereby confirm the Company's Contracted Financial Statements for the year 2006 by means of their signatures.
Reykjavík, 9 February 2007.
The Board of Directors:
Hreinn Loftsson Hans Kristian Hustad Ingibjörg S. Pálmadóttir Kristín Jóhannesdóttir Jóhannes Jónsson
CEO: Jón Ásgeir Jóhannesson
Baugur Group hf. Contracted Financial Statements 2006 ______3 ______Independent Auditors' Report
To the Board of Directors and Shareholders of Baugur Group hf.
Report on the Financial Statements
We have audited the accompanying contracted financial statements of Baugur Group hf., which comprise the balance sheet as at 31 December 2006, and the statement of total income and cash flow statement for the year then ended, and a summary of significant accounting policies and contracted other explanatory notes.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with generally accepted accounting standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Auditors' Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements give a true and fair view of the financial position of Baugur Group hf. as of 31 December 2006, and of its financial performance and its cash flows for the year then ended in accordance with the law and generally accepted accountingprinciples in Iceland.
Reykjavík, 9 February 2007.
KPMG hf. Anna Þórðardóttir Sæmundur Valdimarsson
Baugur Group hf. Contracted Financial Statements 2006 ______4 ______Statement of Total Income for the Year 2006
Note 2006 2005 Financial Income and Financial Expenses:
Realised gain on the sale of shares ...... 5 2.774 292 (Loss) gain on equity derivatives ...... 6,13( 9.610) 25.325 Dividend received ...... 734 3.204 Interest income ...... 2.480 550 Interest expenses ...... ( 4.686) ( 1.084) Net foreign exchange rate (loss) gain ...... 2 ( 5.862) 1.534 ( 14.170) 29.821
Operating Income and Expenses:
Fees ...... 931 878 Salaries and salary-related expenses ...... 14( 695) ( 472) Other operating expenses ...... ( 2.237) ( 1.986) Depreciation and amortisation ...... 15( 1.483) ( 73) ( 3.484) ( 1.653)
Net (loss) profit before income tax ...... ( 17.654) 28.168 Income tax ...... 16,30 4.844 ( 4.008)
Realised (loss) profit ...... 27( 12.810) 24.160
Unrealised Income and (Loss):
Unrealised (loss) gain on shares in listed companies ...... 5( 5.053) 10.147 Unrealised gain (loss) on shares in unlisted companies ...... 5 21.853 ( 2.087) Income tax ...... 16,3 ( 3.899) ( 1.494) Currency translation difference of subsidiaries ...... 11.514 ( 2.575) 24.415 3.991
Total income posted to equity ...... 27 11.605 28.151
Baugur Group hf. Contracted Financial Statements 2006 Amounts are in ISK million ______5 ______Balance Sheet as at 31 December 2006
Note 2006 2005 Assets:
Investment in Shares: Shares in listed companies ...... 5,18 44.942 27.935 Shares in unlisted companies ...... 5,19 91.362 34.180 Share related loans ...... 37 17.601 10.285 Equity based derivatives ...... 20 4.239 11.982 158.144 84.382 Other Assets: Intangible assets ...... 7,22 0 1.386 Operating assets ...... 8,23 2.114 1.136 Prepayments ...... 24 795 0 Loans and receivables ...... 9,25 3.128 3.649 Bank deposits ...... 6.299 2.093 Cash and cash equivalents ...... 10 8.164 9.310 20.500 17.574
Total assets 178.644 101.956 Equity and Liabilities: Equity: Share capital ...... 26 1.232 1.232 Share premium ...... 11.031 11.031 Retained earnings ...... 24.964 39.274 Currency translation difference arising from subsidiaries ...... 6.932 ( 4.582) Unrealised gain on shares in other companies ...... 28 28.991 16.090 Total equity 73.150 63.045
Subordinated loan from Fasteignafélagið Stoðir hf...... 29 3.138 0
Total equity and subordinated loan 76.288 63.045
Deferred income-tax liability ...... 30 6.254 6.512
Liabilities: Equity based derivatives ...... 20 1.256 255 Borrowings ...... 31,32 91.248 30.417 Other creditors ...... 3.598 1.727 96.102 32.399
Total liabilities 102.356 38.911
Total equity and liabilities 178.644 101.956
Mortgages and other obligations ...... 33-36
Baugur Group hf. Contracted Financial Statements 2006 Amounts are in ISK million ______6 ______Statement of Cash Flows for the year 2006
Note 2006 2005 Cash Flows from Operating Activities:
Realised (loss) profit ...... 27( 12.810) 24.161 Adjustments for: Realised gain on the sale of shares in companies ...... ( 2.774) ( 292) Net foreign exchange rate difference and indexation ...... 4.890 897 Depreciation and amortisation ...... 15 1.483 73 Income tax ...... 16 ( 4.844) 4.008 Working capital (used in) from operations ( 14.055) 28.847
Net change in operating assets and liabilities ...... 1.888 235
Net cash (used in) provided by operating activities( 12.167) 29.082
Cash Flows from Investing Activities:
Investment in shares in companies ...... ( 56.650) ( 16.936) Share related loans, change ...... ( 7.966) ( 10.612) Proceeds from the sale of shares in companies ...... 21.669 5.813 Derivatives, change ...... 8.743 ( 4.909) Short-term securities, change ...... ( 4.225) 89 Operating assets and prepayments, change ...... ( 1.751) ( 441) Net cash used in investing activities( 40.180) ( 26.996)
Cash Flows from Financing Activities:
Dividends paid ...... 27( 1.500) ( 950) Borrowing, change ...... 52.457 6.237 Net cash provided by financing activities 50.957 5.287
Net (decrease) increase in cash and cash equivalents ...... ( 1.390) 7.373
Effect of exchange rate fluctuations on cash held ...... 244 ( 24)
Cash and cash equivalents at 1 January ...... 9.310 1.961
Cash and cash equivalents at 31 December ...... 8.164 9.310
Baugur Group hf. Contracted Financial Statements 2006 Amounts are in ISK million ______7 ______Contracted notes to the Financial Statements
Summary of Accounting Policies
Basis of Preparation 1. The Financial Statements of Baugur Group hf. include the Consolidated Financial Statements of the Company and its subsidiaries. The Financial Statements have been prepared in accordance with the Icelandic Financial Statements Act and the Regulation on the Presentation and Content of Financial Statements and Consolidated Financial Statements. The Financial Statements have in all main respects been prepared according to the same accounting principles as in the previous year. The Financial Statements are prepared using the historical cost method with the exception that investments in shares in other companies and derivative financial instruments are stated at fair value. The Financial Statements are presented in Icelandic kronas and rounded to the nearest million. The changes in the presentation of the Statement of Total Income and Balance Sheet are explained in note 12.
Subsidiaries are entities in which the Company holds a controlling interest and are classified as long-term investments. 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 subsidiaries are included in the Consolidated Financial Statements from the date that control commences until the date that control ceases. Intra-group balances and any unrealised gains arising from intra-group transactions are eliminated from the Consolidated Financial Statements.
Foreign Currencies 2. Assets and liabilities denominated in foreign currencies at the Balance Sheet date are translated to Icelandic kronas at the foreign exchange rate ruling at year-end. Transactions in foreign currencies are translated to Icelandic kronas at the foreign exchange rate ruling at the date of the transaction. Foreign exchange rate differences arising on translation are recognised in the Statement of Total Income.
Financial Statements of Subsidiaries 3. The Company’s foreign operations, and its five domestic subsidiaries whose Financial Statements are presented in foreign currencies, are separated from the operation of the parent company. Accordingly, the assets and liabilities of the subsidiaries are translated to Icelandic kronas at the appropriate rate of exchange prevailing at the Balance Sheet date. The revenues and expenses of the subsidiaries are translated to Icelandic kronas at the average exchange rate for the year. Foreign exchange differences arising on translation are recognised as a specific item, translation difference, in Equity and the changes within the period are recognised in the unrealised income section of the Statement of Total Income.
Hedging of Monetary Assets and Liabilities 4. The Company holds derivative financial instruments to hedge its foreign exchange rate risk exposure. The gain or loss from remeasuring the hedging instrument at fair value is recognised in the Statement of Total Income.
Investment in Shares 5. The Company’s investment in shares is categorised as either strategic investments or portfolio investments. Neither category is considered as a long-term investment. Investment in companies is stated at fair value. If the fair value of the investment cannot be estimated, it is stated at cost or amortised cost. The fair value of listed companies is based on their quoted market bid prices at the balance sheet date. For unlisted companies, the fair values are determined by the last available market price or with recognised valuation methods. The Company has hired an independent specialist to assist with valuation of the Company's largest holdings in unlisted companies.
Baugur Group hf. Contracted Financial Statements 2006 Amounts are in ISK million ______8 ______Notes, continued:
5. Contd.: The fair value of the Company's total portfolio of shares is higher than its cost and the resulting difference is recorded as unrealised gain on shares in Equity. The changes in the portfolio's fair value within the year are recognised in the unrealised income section of the Statement of Total Income. Realised gain or loss on the sale of shares in other companies is recorded as realised profit or loss in the Statement of Total Income.
Equity Based Derivatives 6. The Company has entered into equity based derivative contracts. These derivatives are stated at fair value. The net change in fair value is recognised as a specific item in the Statement of Total Income. The derivative contracts are stated at their net fair value in the Balance Sheet. Derivatives with a positive net fair value are stated as assets but derivatives with a negative net fair value are stated as liabilities.
Intangible Assets 7. Goodwill arising from a merger or the acquisition of companies represents the difference between the cost of the acquisition on the one hand and the share in the company’s equity at the date of acquisition on the other. Premium on companies, excluding subsidiaries, is included in their carrying value. The Company's goodwill was amortised in full during the year.
Operating Assets 8. Operating assets are stated at cost, less accumulated depreciation. Depreciation is charged to the Statement of Total Income on a straight-line basis according to the estimated useful life of the asset in question, until a residual value has been reached. Estimated useful life is as follows: Buildings ...... 50 years Fixtures and equipment ...... 3-7 years Transportation equipment ...... 4-15 years
Receivables 9. A provision has been made for doubtful receivables to meet the estimated risk associated with these assets. This provision does not represent a final write-off. On the one hand, a provision has been made to account for receivables deemed to be high-risk, and on the other, there is a provision made for general default risk. This provision is deducted from the appropriate Balance Sheet items.
Cash and Cash Equivalents 10. Cash and cash equivalents consist of cash on hand and cash at bank.
Deferred Income-tax Liability 11. The Group's deferred income-tax liability has been recognised in the Financial Statements. The calculation of the deferred income-tax liability is based on the temporary difference in the Balance Sheet items as presented in the tax return on the one hand and in the Financial Statements on the other. The reason for this difference is that the tax assessment is based on premises other than those used in the Financial Statements, especially due to permissions to defer the taxation of gain on the sales of shares in other companies and unrealised gain on shares. A deferred income- tax asset due to losses carried forward is deducted from the income-tax liability on Balance Sheet items. Income tax arising from realised income is presented as a specific item, as well as income tax arising from unrealised gain on shares in other companies.
Baugur Group hf. Contracted Financial Statements 2006 Amounts are in ISK million ______9 ______Notes, continued:
Changes in Presentation 12. A change in the presentation of derivatives has been made in the Statement of Total Income and the Balance Sheet. In the Balance Sheet, derivatives with a positive net fair value are stated as derivates under assets and derivatives with a negative net fair value are stated as derivatives under liabilities. Before, the underlying asset in equity based derivatives was recognised as an asset and the total underlying liability was recognised as such. The underlying shares were therefore stated among investments in shares, and the underlying liabilities stated as borrowing in relation to share acquisitions. In the Statement of Total Income the gain or loss from derivatives is recognised as a separate item. Before, the gain or loss on the underlying asset was either recognised as realised gain or loss on the sale of shares in companies or as unrealised gain or loss on shares in companies. The expenses relating to the underlying liabilities were recognised as foreign exchange gain or loss and interest expenses. The comparative amounts have been adjusted according to these changes. The change in presentation has no effects on the Company's total income or equity. The Company's total assets and liabilities are, on the other hand, lower then they would have been under the previous method of presentation.
Depreciation and Amortisation
13. Depreciation and amortisation according to the Statement of Total Income is specified as follows: 2006 2005
Amortisation of intangible assets, see note 15 ...... 1.386 3 Depreciation of operating assets, see note 16 ...... 97 70 Total depreciation and amortisation ...... 1.483 73
Investment in Shares
Subsidiaries 14. Subsidiaries, which are all consolidated, are specified as follows: Domestic companies: Share Foreign companies: Share A Holding ehf., Reykjavík ...... 100% A Holding S.A., Luxemburg ...... 100% Á bleiku skýi ehf., Reykjavík ...... 100%Baugur AB, Sweden ...... 100% Baugur Invest ehf., Reykjavík ...... 100% Baugur DK A/S, Denmark ...... 100% BG Aviation ehf., Reykjavík ...... 100% Baugur Holding AB, Sweden ...... 100% BG Capital ehf., Reykjavík ...... 100% Baugur UK Ltd., UK ...... 100% BG Equity 1 ehf., Reykjavík ...... 100% BG Aviation Ltd., Cayman Islands ...... 100% BG fasteignir ehf., Reykjavík ...... 100%BG Danmark A/S, Denmark ...... 100% BG Holding ehf., Reykjavík ...... 100% Hjálmur ehf., Reykjavík ...... 100% Hrafnabjörg ehf., Reykjavík ...... 100% Hugverkasjóður Íslands ehf., Reykjavík ...... 100%
Kaupþing hf. has granted BG Equity 1 ehf. a loan amounting to ISK 3,094 million which can be converted to 50% share in the company in March 2008.
Baugur Group hf. Contracted Financial Statements 2006 Amounts are in ISK million ______10 ______Notes, continued:
Intangible Assets
15. Intangible assets are specified as follows: Goodwill Carrying amount 1.1.2006 ...... 1.386 Amortisation ...... ( 1.386) Carrying amount 31.12.2006 ...... 0
Operating Assets
16. Operating assets are specified as follows: Trans- Fixtures and portation Buildings equipment equipment Total
Total cost 1.1.2006 ...... 465 104 705 1.274 Accumulated depreciation ...... ( 14) ( 43) ( 81) ( 138) Carrying amount 1.1.2006 ...... 451 61 624 1.136 Additions during the year ...... 812 83 78 973 Sold during the year ...... 0 ( 1) ( 21) ( 22) Exchange rate effect on operating assets ...... 118 2 4 124 Depreciation charge for the year ...... ( 11) ( 26) ( 60) ( 97) Carrying amount 31.12.2006 ...... 1.370 119 625 2.114
Total cost 31.12.2006 ...... 1.395 188 766 2.349 Accumulated depreciation 31.12.2006 ...... ( 25) ( 69) ( 141) ( 235) Carrying amount 31.12.2006 ...... 1.370 119 625 2.114
Depreciation ratios ...... 2% 15-33% 7-25%
Receivables
17. Provision for doubtful receivables is specified as follows: 2006 2005 Balance at the beginning of the year ...... 114 43 Change in provision during the year ...... ( 7) 71 Balance at the end of the year ...... 107 114
Equity
18. The Company's total share capital at the end of the year amounted to ISK 1,232 million, according to its Articles of Association. One vote is attached to each ISK 1 of share capital. The Company holds own shares at the nominal value of ISK 0.4 million. Own shares are subtracted from share capital.
Baugur Group hf. Contracted Financial Statements 2006 Amounts are in ISK million ______11 ______Notes, continued:
19. Changes in Equity are specified as follows: Currency Unrealised Share Share Retained translation gain on capital premium earnings difference shares Total
Balance at 31 December 2005 1.232 11.031 29.919 ( 4.582) 25.445 63.045 Change in presentation ...... 9.355 ( 9.355) 0 Balance at 1 January 2006 ...... 1.232 11.031 39.274 ( 4.582) 16.090 63.045 Dividends to shareholders ...... ( 1.500) ( 1.500) Net income ...... ( 12.810) 11.514 12.901 11.605 Balance at 31 December 2006 1.232 11.031 24.964 6.932 28.991 73.150
20. Unrealised gain on shares is specified as follows: 2006 2005
Unrealised gain on shares in listed companies ...... 12.590 17.576 Unrealised gain (loss) on shares in unlisted companies ...... 16.401 ( 1.486) Total unrealised gain on shares ...... 28.991 16.090
Subordinated Loan
21. Fasteignafélagið Stoðir hf. has granted the Company a subordinated loan in the amount of ISK 3,200 million. The loan is due on 10 July 2011. The loan is interest bearing with 400 bp premium on EURIBOR.
Deferred Income-tax Liability
22. The deferred income-tax liability according to the Balance Sheet is specified as follows: 2006 2005 Deferred income-tax liability 1.1...... 6.512 1.168 Income tax on realised profit ...... ( 4.844) 4.008 Income tax on unrealised profit ...... 3.899 1.494 Exchange rate effect and other changes ...... 687 ( 158) Deferred income-tax liability 31.12...... 6.254 6.512
The deferred income-tax liability can be attributed to the following Balance Sheet items:
Investment in shares ...... 7.657 4.408 Derivatives ...... 537 2.111 Other items ...... 473 ( 7) Loss carry-forward ...... ( 2.413) 0 Deferred income-tax liability 31.12...... 6.254 6.512
Baugur Group hf. Contracted Financial Statements 2006 Amounts are in ISK million ______12 ______Notes, continued:
22. Frh.:
Deferred gain on the sale of the Parent Company's share in other companies amounting to ISK 10,149 million is offset against the taxable purchase price of shares in subsidiaries. An income tax liability, amounting to ISK 1,827 million, has not been attributed to shares in subsidiaries as it is deemed highly unlikely that the difference between carrying amount and taxable value will be reversed in the future.
Borrowings
23. Borrowing is specified as follows: 2006 2005 Borrowings in foreign currencies: Debt in GBP ...... 41.212 14.975 Debt in EUR ...... 16.433 8.398 Debt in CHF ...... 5.190 1.647 Debt in DKK ...... 5.146 1.275 Debt in USD ...... 806 1.353 Debt in JPY ...... 258 135 69.045 27.783 Borrowings in ISK ...... 22.203 2.634 Total borrowings ...... 91.248 30.417
Credit institutions ...... 74.693 30.417 Bonds ...... 16.555 0 Total borrowings ...... 91.248 30.417
24. Aggregated annual maturities of borrowings are specified as follows:
Year 2006 ...... 3.105 Year 2007 ...... 58.716 18.338 Year 2008 ...... 9.593 8.705 Year 2009 ...... 19.447 12 Year 2010 ...... 19 12 Year 2011 ...... 3.473 245 Subsequent ...... 0 0 Borrowings, including current maturities ...... 91.248 30.417
According to loan agreements the Company has the right to extend a part of its loans from credit institutions which mature in the years 2007 until 2009. The extension rights are specified as follows:
Loans maturing in 2007 extendible until 2010 ...... 16.833 Loans maturing in 2008 extendible until 2011 ...... 5.044 Loans maturing in 2009 extendible until 2012 ...... 7.726
Baugur Group hf. Contracted Financial Statements 2006 Amounts are in ISK million ______13 ______Notes, continued:
Obligations
Mortgages 25. Shares in other companies and buildings are mortgaged to secure debt in the amount of ISK 72,656.
Commitments 26. The Parent Company has guaranteed debts owed by subsidiaries and other debts amounting to ISK 32,562 million at the end of the year.
The Parent Company has issued a 12 month letter of support for seven companies it has invested in. The Company is committed to loan the maximum of ISK 30,600 million to companies it has invested in.
Uncertainty
27. The Company and its subsidiaries are members of a few lawsuits. It is the evaluation of the Company's legal representatives that these lawsuits should not have material impact on the Company's operations or financial position.
28. At the end of August 2002, the State Police searched the premises of the Company at that time as a result of a complaint made against the Company's current CEO, Jón Ásgeir Jóhannesson, and Company's former CEO Tryggvi Jónsson. In July 2005, the National Commissioner of the Icelandic Police issued charges against six individuals. In October 2005, most of the charges were dismissed by the Supreme Court of Iceland. In January 2007, the Supreme Court of Iceland ruled that all defendants were not guilty in any of the original charges. In March 2006 new charges against Jón Ásgeir Jóhannesson and Tryggvi Jónsson were issued. These proceedings have not been concluded. The Directorate of Tax Investigation in Iceland has had the Company's tax returns under investigation. The Internal Revenue Directorate in Iceland made a subsequent ruling at 30 December 2004. The Company has appealed that ruling and the case is now in the process of being argued in front of the Icelandic State Tax Appeal Board. The litigations have not been concluded but they will not have a material effect on the Company's financial position.
Baugur Group hf. Contracted Financial Statements 2006 Amounts are in ISK million ______14 ______APPENDIX 4 PRESENTATION OF BAUGUR
76
Net profits posted to equity YTD are ISK 16.4bn vs ISK 11.6bn for the full year 2006 Iceland ISK 5.9bn Jane Noreman ISK 4.0bn FL Group ISK 8.5bn (ISK 5.5bn share price and ISK 3.0bn dividend) HoF ISK 1.0bn Properties ISK 2.8bn Total assets at 31 May were ISK 218bn, up by ISK 40bn since beginning of the year
Equity ratio was 42.3% against 42.7% at the beginning of the year
Return on equity for YTD is 43.9% on annual basis
Company has recently completed a restructuring re-focusing on retail
Cash proceeds of £135m received from Iceland and Jane Norman 2
1/1 - 31/5 2007 2006 2005 2004 Actual Actual Actual Actual Financial Income and Financial Expenses Realised gain on the sale of shares in companies ...... 27,914 2,774 20,165 5,526 Dividend income ...... 3,719 2,910 3,628 1,125 Interest income ...... 1,651 2,480 550 372 Interest expenses ...... (7,414)4,243) ((1,927) 2,913) ( Net foreign exchange rate gain ...... 11,363 (2,56791914,218) Gain on interest hedge ...... 720 139 555 0 Other Income ...... 44 931 878 0 41,124( 12,398) 25,430 6,015
Salaries and salary related expenses ...... 322 695 472 322 Operating Expenses ...... 1,022 2,237 1,986 859
Net Profit before Income tax and depreciation ...... 39,823( 15,330) 22,972 4,834 Depreciation ...... (1,483)42) (73)(102)( Income tax ...... (6,491) 4,844(178 2,056)
Realised Profit ...... 33,291( 11,969) 20,843 4,910
Unrealised Income and (Loss) Unrealised gain (loss) on shares in listed companies ...... 6,935( 5,894) 15,416( 8,516) Unrealised gain (loss) on shares in unlisted companies ...... (10,464) 21,853(12,307 2,087) Income tax ...... 1,150 (3,899) (1,661) 3,446) ( Currency translation difference of subsidiaries ...... ( 14,555) 11,514(1,179) 2,575) ( (16,934) 23,574 7,308 951
Total income posted to Equity ...... 16,357 11,605 28,151 5,861 3
Assets 31/05/2007 31/12/2006 Investments in shares Shares in listed companies ...... 70,810 44,942 Shares in unlisted companies ...... 96,185 91,362 Share related loans ...... 22,456 17,601 189,451 153,905 Assets ISK 218bn vs ISK Other assets Operating assets ...... 1,933 2,114 179bn at beginning of year – Receivables ...... 7,939 3,923 up ISK 40bn Forward contracts ...... 2,937 4,239 Restricted cash ...... 10,153 6,299 Cash and cash equivalents ...... 5,946 8,164 28,908 24,739 Equity ISK 92bn vs ISK 76bn Total assets ...... 218,359 178,644 at beginning of year – up ISK Equity and Liabilities 16bn Equity Share capital ...... 1,232 1,232 Share premium account ...... 11,031 11,031 Retained profit ...... 58,255 24,964 Currency translation difference arising from subsidiaries ...... (7,623) 6,932 Equity ratio 42.3% against Unrealised gain on shares in other companies ...... 26,612 28,991 42.7% at the beginning of Subordinated loan ...... 2,750 3,138 Equity and subordinated loan ...... 92,257 76,288 the year
Liabilities Deferred income-tax liability ...... 11,595 6,254 Borrowings ...... 109,197 91,248 Borrowings in relation to share aquisitions ...... 953 1,256 Other creditors ...... 4,357 3,598 Total liabilities ...... 126,102 102,356
Total equity and liabilities ...... 218,359 178,644 4 ! "
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Assets 31/05/2007 31/12/2006 Investments in shares Shares in listed companies ...... 70,810 44,942 Shares in unlisted companies ...... 96,185 91,362 Share related loans ...... 22,456 17,601 189,451 153,905 Assets ISK 218bn vs ISK Other assets Operating assets ...... 1,933 2,114 179bn at beginning of year – Receivables ...... 7,939 3,923 up ISK 40bn Forward contracts ...... 2,937 4,239 Restricted cash ...... 10,153 6,299 Cash and cash equivalents ...... 5,946 8,164 28,908 24,739 Equity ISK 92bn vs ISK 76bn Total assets ...... 218,359 178,644 at beginning of year – up ISK Equity and Liabilities 16bn Equity Share capital ...... 1,232 1,232 Share premium account ...... 11,031 11,031 Retained profit ...... 58,255 24,964 Currency translation difference arising from subsidiaries ...... (7,623) 6,932 Equity ratio 42.3% against Unrealised gain on shares in other companies ...... 26,612 28,991 42.7% at the beginning of Subordinated loan ...... 2,750 3,138 Equity and subordinated loan ...... 92,257 76,288 the year
Liabilities Deferred income-tax liability ...... 11,595 6,254 Borrowings ...... 109,197 91,248 Borrowings in relation to share aquisitions ...... 953 1,256 Other creditors ...... 4,357 3,598 Total liabilities ...... 126,102 102,356
Total equity and liabilities ...... 218,359 178,644 7 * + !# %
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Employees ISP/Ingibjörg Pálmadóttir 3.9% Share capital in Baugur Group had a 8.0% facevalueofISK1.232bnasof31 Bague SA Dec 2006 7.5% Dividend payments in the year 2006, for 2005 operations, total ISK 1.5 bn Kevin Stanford 8.3% Gaumur, the holding company of Jón Ásgeir Jóhannesson and family, and 72.3% ISP, the holding company of Ingibjörg Pálmadóttir, own in aggregate 80.3% Gaumur Investments Ltd. total (Jón Ásgeir Jóhannesson and family) and related On May 25, 2007 the company issued parties new shares to which Don McCarthy subscribed for diluting other
Structure as of December 31, 2006 shareholders. Post the shares subscription Don owns 3% of the company
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Board of Directors Jón Ásgeir Jóhannesson Executive Chairman
Gunnar Sigurðsson CEO
Stefán Hilmarsson Deputy CEO
Þórdís Sara Lind Stefán Hilmarsson Jeff Blue Eirikur S. Jóhannsson Sigurðardóttir Managing Director CFO Managing Director Managing Director Managing Director Corporate Finance and Investments Retail Property Media and New Communications Ventures
Rúnar Andrew Lobb Andras Szirtes Amit Aggarwal Sigurpálsson Operations Director Investment Director Investment Director Director of Finance
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13 APPENDIX 5 AVIS MOTIVE ISSUED BY THE BOARD OF IMMO CROISSANCE ON 13th JULY, 2007 (unofficial English translation)
This “avis motivé” is circulated together with the Prospectus but has not been reviewed nor approved by the CSSF
Opinion of the Board of Directors on the Baugur Group hf takeover bid
The Board of Directors of Immo Croissance SICAV (the “Board of Directors”) met on 13 July 2007 with all its members present.
The Board of Directors reviewed the terms of the takeover bid by the Baugur Group hf (“Baugur”).
After consultation of the staff of Immo Croissance, who did not express a separate opinion and, in accordance with article 10(5) of the Luxembourg law of 19 May 2006 concerning takeover bids, the Board of Directors unanimously drew up the following statement on Baugur’s takeover bid.
With respect to the determination of the price:
The Board of Directors observes that Baugur determines its price on the basis of the net asset value of Immo Croissance.
In this context, Baugur takes into account the positive events which have occurred since December 31st, 2006, including the sale of the Newton building in Strassen, announced by Immo Croissance in a press release on July 16th, 2007.
The Board of Directors also notes that it has taken into account a potential improvement in several ongoing rental agreements, the development potential of the “Royal Arsenal” and “Centre Monterey” properties and the development land held by Immo Croissance on its Auf der Hart property in Hesperange.
Baugur also indicates that the following were included in its assessment:
77 • the impact, as estimated by Baugur, of the unique chance to acquire a portfolio of the size and quality of Immo Croissance in Luxembourg; • the trend in the dividends paid by Immo Croissance as estimated by Baugur.
With respect to the justification of the price:
The Board of Directors notes that the offer price represents, according to Baugur, a premium of 38.54% over the last net asset value corrected to take into account the dividend paid in May 2007 but without taking into account the results over the first quarters of 2007.
The price offered by Baugur shows a premium of 19.35% for capitalisation shares and 16.72% for distribution shares above Immo Croissance’s closing price on June 26th,2007. In comparison with the average of the last month preceding the announcement of the launch of the Baugur bid, this represents premiums of 21.8% and 18.6% respectively.
The Board of Directors notes Baugur’s intention – in the event of a successful takeover bid – to maintain Immo Croissance’s current Sicav status (variable capital investment company) but also the possibility that, subject to certain conditions, Immo Croissance’s shares may be removed from the Euronext Brussels and/or the Luxembourg Stock Exchange listings. Baugur also intends – in view of the potential synergies between Immo Croissance and the Baugur group and the legal and tax regime specific to Immo Croissance – to develop Immo Croissance as a platform for future investments by the Baugur group.
The Board of Directors also notes Baugur’s intention to keep the current staffing level and to maintain the Sicav’s current external management structure, including the custodian bank and the adviser of the Sicav.
In view of the above and in view of the fact that Immo Croissance has not, at the date of this notification, received any other sign of interest in the form of a firm purchase bid, the Board of Directors recommends that shareholders accept the Baugur bid.
July 18th, 2007
78