TIDMECDC
RNS Number : 2982O
European Convergence Develop. CoPLC
28 June 2010
28 June 2010
EuroPean convergence development company plc
("ECDC" OR "THE COMPANY")
Final Results for the Year ended 31 December 2009
European Convergence Development Company plc ("ECDC", the "Company" or the
"Group"), a property company focused on investing in commercial, retail and
industrial property in South-East Europe, announces its final results for the
year ended 31 December 2009.
In accordance with the AIM Rules for Companies, the annual report & consolidated
financial statements of the Company for the year ended 31 December 2009 has
today been posted to shareholders and can be downloaded from the Company's
website at www.europeanconvergencedevelopment.com.
For further information please contact:
+--------------------------+----------------------------------+
| Charlemagne Capital (UK) | +44 (0)207 518 2100 |
| Limited | |
+--------------------------+----------------------------------+
| Varda Lotan / | marketing@charlemagnecapital.com |
| Christopher Fitzwilliam | www.charlemagnecapital.com |
| Lay | |
+--------------------------+----------------------------------+
| | |
+--------------------------+----------------------------------+
| Galileo Fund Services | +44 (0)1624 692600 |
| Limited | |
+--------------------------+----------------------------------+
| Ian Dungate, Company | |
| Secretary | |
+--------------------------+----------------------------------+
| | |
+--------------------------+----------------------------------+
| Panmure Gordon | 44 (0)20 7459 3600 |
+--------------------------+----------------------------------+
| Hugh Morgan | |
+--------------------------+----------------------------------+
| Stuart Gledhill | |
+--------------------------+----------------------------------+
| | |
+--------------------------+----------------------------------+
| Smithfield Consultants | +44 (0)20 7360 4900 |
+--------------------------+----------------------------------+
| John Kiely | |
+--------------------------+----------------------------------+
| Gemma Froggatt | |
+--------------------------+----------------------------------+
Chairman's Statement
Whilst the Group is pleased to report that two of its key developments have
reached successful completion, the year under review and the subsequent period
to the date of this report have proved to be a challenging period for the Group
and the market as a whole.
For a variety of reasons, not least being the impact of the global economic
crisis on the Eastern European region, three of the Group's four
construction-stage assets required refinancing and additional capital
contributions from the Group and its investment partners. The Group committed
EUR15.1m in additional capital contributions during 2009 to these projects. Post
year end, the Board was delighted to announce the securing of Carrefour as a
tenant in and the subsequent successful soft opening on 15 April 2010 of the
Galleria Plovdiv shopping and entertainment complex in Plovdiv, Bulgaria. The
Board was also pleased by the successful completion in March 2010 of the iconic
Cascade Euro Tower building in Bucharest, Romania. Both these assets should soon
be generating positive net cash inflows after providing for their loan
financing, although it should be noted that in arriving at this view the Board
has made a number of assumptions and estimates concerning future events which
may or may not prove correct.
When taking a prudent view in assessing the recoverability of the Group's
investment in Asmita Gardens Srl, and despite the successful completion of Phase
1 during 2009 and Phase 2 on 11 March 2010, the Group unfortunately considered
it necessary to make a partial provision of EUR4.9m against the value of its
investment. The Group's current forecast, incorporating a number of estimates
and assumptions, is that the remaining EUR8.0m of its capital in the investment
will be recovered through successful completion of the sales process and
subsequent exit from the project.
The Group also took the view that it was necessary and prudent to make a partial
provision of EUR4.6m for its investment in Turgovski Park Kraimorie Srl, the
developer of the temporarily dormant Bourgas Retail Park project. The Group
still expects to develop this project and expects that successful development
will lead to the recovery of the remaining capital and more.
Similarly, under IFRS a further provision of EUR425k was made in respect of the
Group's investment in the dormant Trade Center Sliven project. This was in
addition to the provision made in the prior year and reflects further decreases
in land values in Bulgaria.
A more detailed account of the status of each property development project is
given in the Manager's Report and the Shareholder Updates announced on 11
February 2010 and 13 May 2010. The Group expects that in some cases, further
capital contributions may be required.
After the impairments noted above, the Group made a loss of EUR13.0m before tax,
bringing its NAV as at 31 December 2009 to EUR0.64 per share, representing a
decrease of EUR0.14 per share from the previous year end (31 December 2008 -
EUR0.78)
The Board has been and continues to be mindful of the fact that the Group's
success is dependent to varying degrees on the financial strength of its
partners in each joint venture. In line with the accounting policy of the Group,
all developments have been valued at the lower of cost and recoverable amount.
In arriving at its view regarding the value of each investment on the balance
sheet, the Board has made a number of estimates and assumptions concerning
future events which may or may not prove correct, and should the economic
climate worsen or these assumptions prove incorrect, there is a risk that the
Group's investments could suffer further impairment.
During the remainder of 2010, the Group expects to turn its attention to
operating and seeking an exit from its completed assets, to completing and
opening the remaining asset under construction, to identifying further
investment opportunities and to progressing the remaining three assets.
The Board will not declare a dividend for the year. The objective of the Company
remains to provide enhanced returns to its shareholders both through sustained
growth of its net assets per share, and through profit distribution.
Erwin Brunner
Chairman
25 June 2010
Manager's Report
Romania
Political and Economic Update
Following the elections at the end of 2009, the IMF and the European Commission
released the previously blocked EUR3.4bn tranche from the EUR20bn agreement signed
by Romania last year. The amount drawn to date is now EUR11.8bn. The next tranche
of EUR950 million is under review, pending approval. The approval is contingent on
budget cut measures being implemented by the government. The most notable of
these measures are: the decrease by 25% of all state employees' salaries and the
decrease by 15% of all pensions.
The 2009 year-on-year GDP decline reached 6.5% which indicates a better than
expected second half after the first half decline of 8.7%. All major
year-on-year economic indicators were negative; household consumption was down
10.8%; export volumes were down 13.9%; fixed investment was 25.3% down and
unemployment increased to 7.8% for 2009. The consensus view is that there will
be little or no pick-up in economic activity and growth until 2011, although
marginal signs of positive growth are expected to be reported for Q2 and Q3
2010.
Real Estate Market
Residential Property
Conditions stabilised between Q4 2009 and Q1 2010 as developers halted
development activity, resulting in a decline in the expected amount of available
housing stock. However, the continued pressure being exerted by purchasers on
prices has not resulted in a significant pick-up in transaction volumes.
The Government-launched stimulus packages have had the beneficial affect of
injecting liquidity back into the market but, because the levels of support are
set to encourage first time buyers, the majority of this liquidity has flowed
towards older style apartments rather than the wider market. The stimulus takes
the form of government guarantees to banks in exchange for cheaper financing for
first time buyers.
The first part of the program in 2009 was a relative success with over EUR600m in
guarantees, out of an initial EUR1bn, issued to the banks. The allocation for this
year is currently at EUR700 million. These guarantees effectively underpin the
market and generate liquidity which should start to be seen in the upper and
newer segment of the market.
In comparison with other Central and Eastern European ("CEE") capital cities the
overall level of housing construction remains very low though sales are being
held up by weak demand and the lack of availability of competitive mortgages.
Developers have reduced the price per square metre in an attempt to find the
bottom of the market and it is currently estimated that prices have decreased to
an average of EUR1,260 psqm. In the meantime potential buyers remain very
cautious, many fearing a double dip recession.
Significant improvement in housing demand is not expected to be seen until the
first half of 2011.
Office Market
The first quarter of 2010 continued to build on the trend started at the end of
2009. The take-up of offices in Q1 2010 was 70,000 sqm, 3 times greater than
the same period in 2009 and 70% of the total 2009 take up.
At the end of Q1 2010 the total modern office supply in Bucharest had reached
1.255 million sqm, of which 18,000 sqm was delivered in Q1. This compares with
over 125,000 sqm delivered in Q4 2009.
The other major change in the market was the amount of space pre-let. In Q1
2010, 25% of the total take up was pre-leased, whereas in 2009 there were no
pre-leases signed.
Prime rents have stabilised at around EUR21 sqm/month for the Central Business
District though tenants are requiring additional incentives in the form of
rent-free periods and fit-out contributions which reduce the effective rent to
EUR17-EUR18 sqm/month
Bucharest's vacancy stands at approximately 16.3%, with approximately 5% of
grade A office space available in the CBD areas. Vacancy rates as high as 22%
can be seen in the decentralized sub-markets of the city i.e. Pipera North and
Floreasca.
There have been two major transactions in Q1 2010, the letting of 15,000 sqm to
UniCredit Tirac Bank in Expozitiei and 11,753 sqm to Sanador at Castrum.
However, apart from the above transactions, the average leased area has
decreased by 50%.
Romanian Assets
Asmita Gardens
Asmita Gardens is a residential development of 758 apartments, being delivered
in seven tower blocks in two phases. As at 30th April 2010 the following
position was reported:-
· Phase 1: 324 apartments. Certified: 'TOC'-'Take-over Certificate' - right
to occupy - issued on 7 October 2009, and;
· Phase 2: 434 apartments. Certified: TOC issued on 11 March 2010
During the period under review the focus of the development team has been to
convert pre-sales into completed sales and encourage buyers to move into their
apartments. At the end of April the following had been achieved:
· Of the 247 sales (76%) agreed in Phase 1, 201 have legally completed, and
in Phase 2, 1 unit has completed of the 114 agreed sales (26%)
The Manager has worked with the sales team of the Asmita Gardens Srl ("the
Developer") to introduce a number of initiatives which appear to have been well
received by the market. By the end of May a total of 11 units had been sold in
the year of which 10 were sold in the last 2 months. Prices have been at levels
above the market average reported above.
The building contractor, Strabag Srl, has achieved substantial completion of
both Phases although the Take Over Certificate for Phase II was issued without
tests and commissioning having taken place.
There is currently a dispute ongoing between Strabag and the Developer
concerning the resolution of Strabag's final account and the Developer's
counterclaims. Such disputes are not unusual in this kind of development and the
Developer is attempting to resolve the situation by all means possible,
including through the Courts.
The Manager and the Developer are in negotiations with the lending bank over the
provision of working capital facilities within the existing facility to enable
the sales process to continue to the end of the calendar year even if Strabag
decides not to return to site to complete the works.
The Directors consider it prudent to make a partial provision for impairment
against the value of the Company's investment in Asmita Gardens Srl in the
Company's audited financial statements for the year ended 31 December 2009.
Cascade
On 1st March 2010 the Fire Brigade certified the building fit for occupancy
enabling tenants to commence fitting out of their respective leased space.
During the first four months of the year, Cascade has signed new leases for
1,735 square metres of office space, which amounts to approximately 11% of the
building's lettable area, at rental levels of approximately EUR18 per square metre
per month. The larger of the two leases, amounting to 1,100 square metres, is
with a major international cosmetics company.
The previously agreed leases to Banca Romaneasca and its two subsidiaries are
currently being renegotiated which, if concluded, should result in the Cascade
building being 65% let.
Baneasea
There have been no significant developments in this project since the last
shareholders report. The Manager and the Partner are continuing discussions with
the Bank to identify potential ways of taking the project forward on a
profitable basis. As stated in the last report the improvements to the local
road infrastructure and plans for the subway system to run adjacent to the
siteare both positive developments.
Bulgaria
Political and Economic Update
There are some early signs that the steep decline in the economy may be coming
to an end. It is too early to say that a recovery is underway, but some
macroeconomic indicators have marginally improved in Q1 2010.
After unemployment steadily increased from 6.27% to 10.30% (December 2008 to
February 2010), initial data indicates that there was a decrease in unemployment
in March 2010, followed by a further marginal decrease in April, to 10.00%. Low
levels of inflation returned to the market, being 1.9% for the first 5 months of
2010, whereas 2009 was close to 0%.
Bank lending rates declined slightly in Q1 and the government's finances, though
experiencing budget deficits which were not typical in past years, are in
reasonable shape especially when compared to many other European countries.
Government debt stood at 16.1% of GDP both at the year end and at the end of
April and foreign currency reserves were over 44% of GDP.
Real Estate Market
Retail Property
Market conditions in Bulgaria have remained very challenging throughout the
first quarter of 2010, and in line with many CEE markets, have suffered from
poor investor sentiment, and a very restricted availability of bank debt
finance. Rents and capital values are not expected to recover in the near
term with little real recovery expected until Q4 2011.
Bulgarian Assets
Galleria Plovdiv
The Mall opened to the public on 15 April 2010. Despite the fact that it was a
soft opening with Carrefour and some 15 other tenants, the first days proved to
be a considerable success with an average of over 35,000 people visiting the
Mall during the first five trading days. The high public interest and footfall
after the soft opening boosted retailer interest in the development. In the two
months since opening, a further 30 tenants have opened, bringing the total
tenants to 45, representing 41% of the lettable area. At present the total
signed leases amount to approximately 60%, with most of the balance of signed
tenants expected to be opening shops during the next three months which will
lead to an intended Grand Opening of the Mall on 6 September 2010 to coincide
with an important local holiday.
Advance negotiations continue with numerous tenants such that the Manager
believes that by the Grand Opening in September over 75% of the Mall will be
let.
Mega Mall Rousse
As stated in the last report the opening of the Mall has been deferred to
September 2010 and as such the finalisation of the construction process has been
deliberately slowed down in to coincide with this date. The design of the road
building scheme in the area adjacent to the Mall has been approved, and the
Manager's requirements for access to the Mall have been secured.
There is evidence of a general improvement in market sentiment towards the
project though current levels of signed leases have not increased during the
period. However, in addition to the signed leases of approximately 20%, the
lease negotiations underway on area totalling approximately 5,075 sqm (29%) have
intensified and the Manager believes that in the coming weeks approximately 5
lease agreements for a total area of approximately 1,500 sq m should be closed
successfully. Interest from potential tenants has increased, and in the last
month 10 potential tenants have visited the site. Offers are under discussion
for a further 15% of the GLA. The Manager's expectation is that on opening the
Mall will be over 75% leased.
Bourgas Retail Park
There has been no further progress made on this development since there has been
no marked improvement in either the banking or retail market conditions. As
described in the Chairman's statement, a provision of EUR4.6m was made against the
Group's investment in Bourgas during the year.
Trade Centre Sliven
There has been no further progress made on this development since there has been
no marked improvement in either the banking or retail market conditions. As
described in the Chairman's statement, a further provision of EUR0.425m was made
against the Group's investment in Trade Center Sliven during the year, in
addition to the provision made in the previous year.
Charlemagne Capital (IOM) Limited
June 2010
Report of the Directors
The Directors hereby submit their annual report together with the audited
consolidated financial statements of European Convergence Development Company
plc (the "Company") and its subsidiaries and joint venture associates (together,
the "Group") for the year ended 31 December 2009.
The Company
The Company is incorporated in the Isle of Man and was established to enable
investors to take advantage of opportunities that exist in the property markets
of South-East Europe.
Results and Dividends
The results and position of the Group and the Company at the year end are set
out on pages 14 to 39 of the financial statements.
The Directors will decide in respect of any 12 month accounting period as to
what percentage of the Company's realised net profits available for distribution
(if any) they will recommend as the sum for payment as a dividend. This decision
will take into account the opportunities available to the Company for further
investment. The Directors may pay half-yearly interim dividends if they believe
that the financial position of the Company justifies it. If the Company's funds
are fully invested, the Directors may re-invest some of the Company's profits
into the maintenance of the Company's property portfolio or on further
investments.
The Directors do not intend to declare a dividend at this time.
Directors
The Directors during the year and up to the date of this Report were:
Erwin Brunner (Chairman)
James Rosapepe
Donald McCrickard
Anderson Whamond
In accordance with the Company's Articles of Association the Directors of the
Company retire and offer themselves for re-appointment at the forthcoming Annual
General Meeting.
Directors' and Other Interests
During the year, Anderson Whamond was managing director of the Manager and a
shareholder of Charlemagne Capital Limited, the parent of the Manager and
Placing Agent. Mr Whamond's role with the Investment Manager changed with effect
from 1 April 2009 from executive to non-executive. He continues to act as a
Director of the Company. Mr Whamond was also, until 31 March 2009, a Director
of Charlemagne Capital Limited ("CCL"), the parent of the Investment Manager and
Placing Agent. Mr Whamond remains a shareholder of CCL and additionally has an
indirect family interest in shares of CCL. There are no service agreements
between Mr Whamond and CCL that are not determinable within one year.
None of the Directors have a direct or indirect interest of the shares in the
Company.
Charlemagne Capital (Investments) Limited (a subsidiary of Charlemagne Capital
Limited), holds 125,000 shares of the Company. Charlemagne CIS Fund Limited, a
company managed by the Manager and having a common director, Anderson Whamond,
on its board until 2 February 2009, holds 7,626,320 shares of the Company.
Save as disclosed above, none of the Directors had any interest during the year
in any material contract for the provision of services which was significant to
the business of the Company.
Independent Auditors
Our auditors, KPMG Audit LLC, being eligible, have expressed a willingness to
continue in office.
Corporate Governance
The Company is not required to follow the provisions of the Combined Code as set
out in the UK Financial Services Authority Listing Rules, however, the Board is
committed to high standards of corporate governance and a summary of the main
elements of corporate governance are described below:
Board of Directors
The composition of the Board is set out above. The Board currently comprises a
non-executive chairman and three other non-executive directors.
The Board meets regularly and is provided with relevant information on
financial, business and corporate matters prior to meetings.
Audit Committee
The Audit Committee consists of the Board members. To be quorate, at least two
offshore Directors must be present, with the majority of the committee also
being independent of the management of the Company. The committee overviews the
adequacy of the Company's internal controls, accounting policies and financial
reporting and provides a forum through which the Company's external auditors
report to the Company.
Internal Control
The Directors are responsible for establishing and maintaining the Company's
system of internal control. This system of internal control is designed to
safeguard the Company's assets and to ensure that proper accounting records are
maintained and that financial information produced by the Company is reliable.
There are inherent limitations in any system of internal control and such a
system can provide only reasonable, but not absolute, assurances against
material misstatement or loss. The Directors, through the Audit Committee, have
reviewed the effectiveness of the Company's system of internal controls.
Corporate Action
At the extraordinary general meeting of the Company held on 3 March 2008, the
special resolution proposed to re-register the Company under the Isle of Man
Companies Act 2006 and adopt new memorandum and articles of association, was
duly passed.
Accordingly, the Company with effect from 3 March 2008, re-registered as a
company governed by the Isle of Man Companies Act 2006 and adopted new
memorandum and articles of association.
The Directors proposed this re-registration because under the Isle of Man
Companies Acts 1931-2004 the Company was restricted from returning capital to
shareholders or from using its non-distributable reserves to buy back its shares
except pursuant to a court-sanctioned reduction of capital. The re-registration
of the Company under the Companies Act 2006 effectively removes these
restrictions and thereby allows the Company to return capital to shareholders
and buy back its shares in appropriate circumstances, in a more efficient
manner.
On behalf of the Board
Erwin Brunner
Chairman
25 June 2010
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Directors' Report and the
Financial Statements in accordance with applicable law and regulations. In
addition, the Directors have elected to prepare the Group and Parent Company
financial statements in accordance with International Financial Reporting
Standards.
The Group and Parent Company's financial statements are required to give a true
and fair view of the state of affairs of the Group and the Parent Company and of
the profit or loss of the Group for that period.
In preparing these financial statements, the Directors are required to:
· select suitable accounting policies and then apply them consistently;
· make judgements and estimates that are reasonable and prudent;
· state whether applicable International Financial Reporting Standards
have been followed; and
· prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Group and Parent Company will continue in
business.
The Directors are responsible for keeping proper accounting records that
disclose with reasonable accuracy at any time the financial position of the
Parent Company. They have general responsibility for taking such steps as are
reasonably open to them to safeguard the assets of the Group and to prevent and
detect fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate
and financial information included on the Company's website. Legislation
governing the preparation and dissemination of financial statements may differ
from one jurisdiction to another.
On behalf of the Board
Erwin Brunner
Chairman
25 June 2010
Report of the Independent Auditors, KPMG Audit LLC, to the members of European
Convergence Development Company plc
We have audited the Group and Parent Company financial statements (the
"financial statements") of European Convergence Development Company plc for the
year ended 31 December 2009 which comprise the Consolidated Income Statement,
the Consolidated Statement of Comprehensive Income, the Consolidated and Company
Balance Sheets, the Consolidated Cash Flow Statement and the Consolidated
Statement of Changes in Equity and the related notes. These financial statements
have been prepared under the accounting policies set out therein.
This report is made solely to the Company's members, as a body. Our audit work
has been undertaken so that we might state to the Company's members those
matters we are required to state to them in an auditor's report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company's members as a
body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of Directors and Auditors
The Directors' responsibilities for preparing the financial statements in
accordance with applicable law and International Financial Reporting Standards
are set out in the Statement of Directors' responsibilities on page 8.
Our responsibility is to audit the financial statements in accordance with
relevant legal and regulatory requirements and International Standards on
Auditing (UK and Ireland).
We report to you our opinion as to whether the financial statements give a true
and fair view. We also report to you whether in our opinion the Company has not
kept proper accounting records, or if we have not received all the information
and explanations we require for our audit.
We read the Directors' Report and any other information accompanying the
financial statements and consider the implications for our report if we become
aware of any apparent misstatements or inconsistencies within it. Our
responsibilities do not extend to any other information.
Basis of opinion
We conducted our audit in accordance with International Standards on Auditing
(UK and Ireland) issued by the UK Auditing Practices Board. An audit includes
examination, on a test basis, of evidence relevant to the amounts and
disclosures in the financial statements. It also includes an assessment of the
significant estimates and judgements made by the Directors in the preparation of
the financial statements, and of whether the accounting policies are appropriate
to the Group's and Company's circumstances, consistently applied and adequately
disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
In our opinion the financial statements give a true and fair view, in accordance
with International Financial Reporting Standards, of the state of the Group's
and Parent Company's affairs as at 31 December 2009 and of the Group's loss for
the year then ended.
Emphasis of matter
Without qualifying our audit opinion we draw to your attention the following
matters;
As disclosed in note 4.1 to these financial statements, the global financial
crisis and the deteriorating economic environment in the jurisdictions within
which the Group operates have increased the intensity of the risk factors to
which the Group is exposed. In particular, there is now increased uncertainty as
to the valuation of property assets held by equity accounted investees, along
with the recoverability of loans made by the Group to third parties. Further, a
significant reduction in the availability of loan finance has resulted in equity
accounted investees needing to re-negotiate terms with banks and to seek
additional capital contributions from the Group in order that ongoing projects
can be completed.
KPMG Audit LLC, Isle of Man
Chartered Accountants, Heritage Court, 41 Athol Street, Douglas, Isle of Man
IM99 1HN
25 June 2010
Consolidated Income Statement
+----------------+--------+----------+----------+
| | Note | Year | Year |
| | | ended | ended |
| | | 31 | 31 |
| | | December | December |
| | | 2009 | 2008 |
+----------------+--------+----------+----------+
| | | EUR'000 | EUR'000 |
+----------------+--------+----------+----------+
| | | | |
+----------------+--------+----------+----------+
| Net | | 172 | - |
| rent | | | |
| and | | | |
| related | | | |
| income | | | |
+----------------+--------+----------+----------+
| | | | |
+----------------+--------+----------+----------+
| Net | 10 | 85 | 67 |
| changes | | | |
| in fair | | | |
| value | | | |
| on | | | |
| financial | | | |
| assets at | | | |
| fair | | | |
| value | | | |
| through | | | |
| profit or | | | |
| loss | | | |
+----------------+--------+----------+----------+
| | | | |
+----------------+--------+----------+----------+
| Annual | 7.3 | (1,346) | (1,678) |
| management | | | |
| fees | | | |
+----------------+--------+----------+----------+
| Audit | 8.5 | (73) | (63) |
| fees | | | |
+----------------+--------+----------+----------+
| Legal | | (126) | (713) |
| and | | | |
| professional | | | |
| fees | | | |
+----------------+--------+----------+----------+
| Directors' | 16 | (90) | (90) |
| fees | | | |
+----------------+--------+----------+----------+
| Administration | 8.3 | (65) | (70) |
| fees | | | |
+----------------+--------+----------+----------+
| Other | 8.4 | (638) | (366) |
| operating | | | |
| expenses | | | |
+----------------+--------+----------+----------+
| Administrative | | (2,338) | (2,980) |
| expenses | | | |
+----------------+--------+----------+----------+
| | | | |
+----------------+--------+----------+----------+
| Net | | (2,081) | (2,913) |
| operating | | | |
| loss | | | |
| before | | | |
| net | | | |
| financing | | | |
| income | | | |
+----------------+--------+----------+----------+
| | | | |
+----------------+--------+----------+----------+
| Financial | | 748 | 2,810 |
| income | | | |
+----------------+--------+----------+----------+
| Financial | | (2) | - |
| expenses | | | |
+----------------+--------+----------+----------+
| Net | 5 | 746 | 2,810 |
| financing | | | |
| income | | | |
+----------------+--------+----------+----------+
| | | | |
+----------------+--------+----------+----------+
| Share | 9 | (1,555) | (581) |
| of | | | |
| loss | | | |
| of | | | |
| equity | | | |
| accounted | | | |
| investees | | | |
+----------------+--------+----------+----------+
| | | | |
+----------------+--------+----------+----------+
| Impairment | 9 | (9,921) | (4,526) |
| in value | | | |
| of equity | | | |
| accounted | | | |
| investees | | | |
+----------------+--------+----------+----------+
| Impairment | | (47) | (3,901) |
| in value | | | |
| of third | | | |
| party | | | |
| loans | | | |
+----------------+--------+----------+----------+
| | | | |
+----------------+--------+----------+----------+
| Loss | | (12,858) | (9,111) |
| before | | | |
| tax | | | |
+----------------+--------+----------+----------+
| | | | |
+----------------+--------+----------+----------+
| Income | 17 | (146) | (69) |
| tax | | | |
| expense | | | |
+----------------+--------+----------+----------+
| | | | |
+----------------+--------+----------+----------+
| Retained | | (13,004) | (9,180) |
| loss for | | | |
| the year | | | |
+----------------+--------+----------+----------+
| | | | |
+----------------+--------+----------+----------+
| Basic | 13 | (0.1433) | (0.0934) |
| and | | | |
| diluted | | | |
| loss | | | |
| per | | | |
| share | | | |
| (EUR) | | | |
+----------------+--------+----------+----------+
The Directors consider that all results derive from continuing activities.
Consolidated Statement of Comprehensive Income
+-------------------------------+------+---------------+----------------+
| |Note | Year ended | Year ended |
| | | 31 December | 31 December |
| | | 2009 | 2008 |
+-------------------------------+------+---------------+----------------+
| | | EUR'000 | EUR'000 |
+-------------------------------+------+---------------+----------------+
| Loss for the year | | (13,004) | (9,180) |
+-------------------------------+------+---------------+----------------+
| Other comprehensive income | | | |
+-------------------------------+------+---------------+----------------+
| Currency translation | | (4) | 12 |
| differences | | | |
+-------------------------------+------+---------------+----------------+
| Total comprehensive loss for | | (13,008) | (9,168) |
| the year | | | |
+-------------------------------+------+---------------+----------------+
Consolidated Balance Sheet
+-------------+--------+----------+----------+
| | Note | At 31 | At 31 |
| | | December | December |
| | | 2009 | 2008 |
+-------------+--------+----------+----------+
| | | EUR'000 | EUR'000 |
+-------------+--------+----------+----------+
| | | | |
+-------------+--------+----------+----------+
| Investment | 9 | 45,149 | 41,540 |
| in equity | | | |
| accounted | | | |
| investees | | | |
+-------------+--------+----------+----------+
| Property, | | 2 | 3 |
| plant and | | | |
| equipment | | | |
+-------------+--------+----------+----------+
| | | | |
+-------------+--------+----------+----------+
| Total | | 45,151 | 41,543 |
| non-current | | | |
| assets | | | |
+-------------+--------+----------+----------+
| | | | |
+-------------+--------+----------+----------+
| Loans | 11 | 359 | 500 |
| to | | | |
| third | | | |
| parties | | | |
+-------------+--------+----------+----------+
| Financial | 10 | - | 9,959 |
| assets at | | | |
| fair | | | |
| value | | | |
| through | | | |
| profit or | | | |
| loss | | | |
+-------------+--------+----------+----------+
| Trade | | 123 | 66 |
| and | | | |
| other | | | |
| receivables | | | |
+-------------+--------+----------+----------+
| Cash | 4.4 | 13,511 | 20,131 |
| and | | | |
| cash | | | |
| equivalents | | | |
+-------------+--------+----------+----------+
| Total | | 13,993 | 30,656 |
| current | | | |
| assets | | | |
+-------------+--------+----------+----------+
| Total | | 59,144 | 72,199 |
| assets | | | |
+-------------+--------+----------+----------+
| | | | |
+-------------+--------+----------+----------+
| Issued | 12 | 72,412 | 73,308 |
| share | | | |
| capital | | | |
+-------------+--------+----------+----------+
| Share | | 9,841 | 9,146 |
| premium | | | |
+-------------+--------+----------+----------+
| Foreign | | 8 | 12 |
| currency | | | |
| translation | | | |
| reserve | | | |
+-------------+--------+----------+----------+
| Retained | | (23,923) | (10,919) |
| losses | | | |
+-------------+--------+----------+----------+
| Total | | 58,338 | 71,547 |
| equity | | | |
+-------------+--------+----------+----------+
| | | | |
+-------------+--------+----------+----------+
| Trade | 14 | 806 | 652 |
| and | | | |
| other | | | |
| payables | | | |
+-------------+--------+----------+----------+
| Total | | 806 | 652 |
| current | | | |
| liabilities | | | |
+-------------+--------+----------+----------+
| Total | | 806 | 652 |
| liabilities | | | |
+-------------+--------+----------+----------+
| Total | | 59,144 | 72,199 |
| equity | | | |
| & | | | |
| liabilities | | | |
+-------------+--------+----------+----------+
Approved by the Board of Directors on 25 June 2010
Company Balance Sheet
+-------------+--------+----------+----------+
| | Note | At 31 | At 31 |
| | | December | December |
| | | 2009 | 2008 |
+-------------+--------+----------+----------+
| | | EUR'000 | EUR'000 |
+-------------+--------+----------+----------+
| | | | |
+-------------+--------+----------+----------+
| Intragroup | 7.5 | 45,751 | 41,922 |
| balances | | | |
+-------------+--------+----------+----------+
| Financial | 10 | - | 9,959 |
| assets at | | | |
| fair | | | |
| value | | | |
| through | | | |
| profit or | | | |
| loss | | | |
+-------------+--------+----------+----------+
| Trade | | 13 | 14 |
| and | | | |
| other | | | |
| receivables | | | |
+-------------+--------+----------+----------+
| Cash | 4.4 | 12,668 | 19,737 |
| and | | | |
| cash | | | |
| equivalents | | | |
+-------------+--------+----------+----------+
| Total | | 58,432 | 71,632 |
| current | | | |
| assets | | | |
+-------------+--------+----------+----------+
| Total | | 58,432 | 71,632 |
| assets | | | |
+-------------+--------+----------+----------+
| | | | |
+-------------+--------+----------+----------+
| Issued | 12 | 72,412 | 73,308 |
| share | | | |
| capital | | | |
+-------------+--------+----------+----------+
| Share | | 9,841 | 9,146 |
| premium | | | |
+-------------+--------+----------+----------+
| Retained | | (23,915) | (10,907) |
| earnings | | | |
+-------------+--------+----------+----------+
| Total | | 58,338 | 71,547 |
| equity | | | |
+-------------+--------+----------+----------+
| | | | |
+-------------+--------+----------+----------+
| Trade | 14 | 94 | 85 |
| and | | | |
| other | | | |
| payables | | | |
+-------------+--------+----------+----------+
| Total | | 94 | 85 |
| current | | | |
| liabilities | | | |
+-------------+--------+----------+----------+
| Total | | 94 | 85 |
| liabilities | | | |
+-------------+--------+----------+----------+
| Total | | 58,432 | 71,632 |
| equity | | | |
| & | | | |
| liabilities | | | |
+-------------+--------+----------+----------+
The loss made by the Company for the year ended 31 December 2009 was EUR13.0
million after an impairment charge against intragroup balances amounting to
EUR15.5million (primarily a result of the provisions made against the investments
held by the Company's subsidiaries) (2008: EUR13.3million loss with an impairment
charge of EUR16.4million).
Approved by the Board of Directors on 25 June 2010
Director Director
Consolidated Statement of Changes in Equity
+---------------+---------+---------+-------------+----------+---------+
| | Share | Share | Foreign | Retained | Total |
| | capital | premium | currency | earnings | |
| | | | translation | | |
| | | | reserve | | |
+---------------+---------+---------+-------------+----------+---------+
| | EUR'000 | EUR'000 | EUR'000 | EUR'000 | EUR'000 |
+---------------+---------+---------+-------------+----------+---------+
| Balance | 80,983 | 6,431 | - | (1,739) | 85,675 |
| at 1 | | | | | |
| January | | | | | |
| 2008 | | | | | |
+---------------+---------+---------+-------------+----------+---------+
| Loss | - | - | - | (9,180) | (9,180) |
| for | | | | | |
| the | | | | | |
| year | | | | | |
+---------------+---------+---------+-------------+----------+---------+
| Other | | | | | |
| comprehensive | | | | | |
| income | | | | | |
+---------------+---------+---------+-------------+----------+---------+
| Foreign | - | - | 12 | - | 12 |
| exchange | | | | | |
| translation | | | | | |
| differences | | | | | |
+---------------+---------+---------+-------------+----------+---------+
| Total | - | - | 12 | (9,180) | (9,168) |
| comprehensive | | | | | |
| loss | | | | | |
+---------------+---------+---------+-------------+----------+---------+
| Shares | (7,675) | 2,715 | - | - | (4,960) |
| cancelled | | | | | |
| following | | | | | |
| market | | | | | |
| purchases | | | | | |
+---------------+---------+---------+-------------+----------+---------+
| Total | (7,675) | 2,715 | - | - | (4,960) |
| transactions | | | | | |
| with owners | | | | | |
| in the year | | | | | |
+---------------+---------+---------+-------------+----------+---------+
| Balance | 73,308 | 9,146 | 12 | (10,919) | 71,547 |
| at 31 | | | | | |
| December | | | | | |
| 2008 | | | | | |
+---------------+---------+---------+-------------+----------+---------+
+---------------+--------+--------+--------+----------+----------+
| | | | | | |
+---------------+--------+--------+--------+----------+----------+
| Balance | 73,308 | 9,146 | 12 | (10,919) | 71,547 |
| at 1 | | | | | |
| January | | | | | |
| 2009 | | | | | |
+---------------+--------+--------+--------+----------+----------+
| Loss | - | - | - | (13,004) | (13,004) |
| for | | | | | |
| the | | | | | |
| year | | | | | |
+---------------+--------+--------+--------+----------+----------+
| Other | | | | | |
| comprehensive | | | | | |
| income | | | | | |
+---------------+--------+--------+--------+----------+----------+
| Foreign | - | - | (4) | - | (4) |
| exchange | | | | | |
| translation | | | | | |
| differences | | | | | |
+---------------+--------+--------+--------+----------+----------+
| Total | - | - | (4) | (13,004) | (13,008) |
| comprehensive | | | | | |
| loss | | | | | |
+---------------+--------+--------+--------+----------+----------+
| Shares | (896) | 695 | - | - | (201) |
| cancelled | | | | | |
| following | | | | | |
| market | | | | | |
| purchases | | | | | |
+---------------+--------+--------+--------+----------+----------+
| Total | (896) | 695 | - | - | (201) |
| transactions | | | | | |
| with owners | | | | | |
| in the year | | | | | |
+---------------+--------+--------+--------+----------+----------+
| Balance | 72,412 | 9,841 | 8 | (23,923) | 58,338 |
| at 31 | | | | | |
| December | | | | | |
| 2009 | | | | | |
+---------------+--------+--------+--------+----------+----------+
Consolidated Cashflow Statement
+---------------------+--------+----------+----------+
| | Note | Year | Year |
| | | ended | ended |
| | | 31 | 31 |
| | | December | December |
| | | 2009 | 2008 |
+---------------------+--------+----------+----------+
| | | EUR'000 | EUR'000 |
+---------------------+--------+----------+----------+
| | | | |
+---------------------+--------+----------+----------+
| Operating | | | |
| activities | | | |
+---------------------+--------+----------+----------+
| Group | | (13,004) | (9,180) |
| loss | | | |
| for | | | |
| the | | | |
| year | | | |
+---------------------+--------+----------+----------+
| Adjustments | | | |
| for: | | | |
+---------------------+--------+----------+----------+
| Net | | (85) | (67) |
| changes | | | |
| in fair | | | |
| value | | | |
| on | | | |
| financial | | | |
| assets at | | | |
| fair | | | |
| value | | | |
| through | | | |
| profit or | | | |
| loss | | | |
+---------------------+--------+----------+----------+
| Net | | (746) | (2,810) |
| financial | | | |
| income | | | |
+---------------------+--------+----------+----------+
| Net | | (172) | - |
| rent | | | |
| and | | | |
| related | | | |
| income | | | |
+---------------------+--------+----------+----------+
| | | 146 | 69 |
| Income | | | |
| tax | | | |
+---------------------+--------+----------+----------+
| | | 1,555 | 581 |
| Share | | | |
| of | | | |
| loss | | | |
| of | | | |
| equity | | | |
| accounted | | | |
| investees | | | |
+---------------------+--------+----------+----------+
| | 9 | 9,921 | 4,526 |
| Impairment | | | |
| in value | | | |
| of equity | | | |
| accounted | | | |
| investees | | | |
+---------------------+--------+----------+----------+
| | | 47 | 3,901 |
| Impairment | | | |
| in value | | | |
| of third | | | |
| party | | | |
| loans | | | |
+---------------------+--------+----------+----------+
| Operating | | (2,338) | (2,980) |
| loss | | | |
| before | | | |
| changes | | | |
| in | | | |
| working | | | |
| capital | | | |
+---------------------+--------+----------+----------+
| | | | |
+---------------------+--------+----------+----------+
| (Increase)/decrease | | (57) | 52 |
| in trade and other | | | |
| receivables | | | |
+---------------------+--------+----------+----------+
| Increase | | 71 | 55 |
| in trade | | | |
| and | | | |
| other | | | |
| payables | | | |
+---------------------+--------+----------+----------+
| | | | |
+---------------------+--------+----------+----------+
| Cash | | (2,324) | (2,873) |
| used | | | |
| in | | | |
| operations | | | |
+---------------------+--------+----------+----------+
| Financial | | 918 | 2,810 |
| income | | | |
| received | | | |
+---------------------+--------+----------+----------+
| Tax | | (69) | - |
| paid | | | |
+---------------------+--------+----------+----------+
| Cash | | (1,475) | (63) |
| flows | | | |
| used | | | |
| in | | | |
| operating | | | |
| activities | | | |
+---------------------+--------+----------+----------+
| | | | |
+---------------------+--------+----------+----------+
| Investing | | | |
| activities | | | |
+---------------------+--------+----------+----------+
| Purchase | | (24,956) | (34,895) |
| of | | | |
| treasury | | | |
| bills | | | |
+---------------------+--------+----------+----------+
| Maturity | | 35,000 | 25,003 |
| of | | | |
| treasury | | | |
| bills | | | |
+---------------------+--------+----------+----------+
| Acquisition | | - | (4,165) |
| of equity | | | |
| accounted | | | |
| investees | | | |
+---------------------+--------+----------+----------+
| Increase | | (15,085) | (3,408) |
| in loans | | | |
| to | | | |
| equity | | | |
| accounted | | | |
| investees | | | |
+---------------------+--------+----------+----------+
| Decrease | | 96 | 1,563 |
| in loans | | | |
| to third | | | |
| parties | | | |
+---------------------+--------+----------+----------+
| (Disposal)/purchase | | 1 | (2) |
| of property, plant | | | |
| & equipment | | | |
+---------------------+--------+----------+----------+
| Cash | | (4,944) | (15,904) |
| flows | | | |
| used | | | |
| in | | | |
| investing | | | |
| activities | | | |
+---------------------+--------+----------+----------+
| | | | |
+---------------------+--------+----------+----------+
| Financing | | | |
| activities | | | |
+---------------------+--------+----------+----------+
| Proceeds | | - | - |
| from the | | | |
| issue of | | | |
| ordinary | | | |
| share | | | |
| capital | | | |
+---------------------+--------+----------+----------+
| Purchase | 12 | (201) | (4,960) |
| of own | | | |
| shares | | | |
+---------------------+--------+----------+----------+
| Share | | - | - |
| issue | | | |
| expenses | | | |
+---------------------+--------+----------+----------+
| Cash | | (201) | (4,960) |
| flows | | | |
| used | | | |
| in | | | |
| financing | | | |
| activities | | | |
+---------------------+--------+----------+----------+
| | | | |
+---------------------+--------+----------+----------+
| Net | | (6,620) | (20,927) |
| decrease | | | |
| in cash | | | |
| and cash | | | |
| equivalents | | | |
+---------------------+--------+----------+----------+
| Cash | | 20,131 | 41,058 |
| and | | | |
| cash | | | |
| equivalents | | | |
| at | | | |
| beginning | | | |
| of year | | | |
+---------------------+--------+----------+----------+
| Cash | | 13,511 | 20,131 |
| and | | | |
| cash | | | |
| equivalents | | | |
| at end of | | | |
| year | | | |
+---------------------+--------+----------+----------+
Notes to the Consolidated Financial Statements
1 The Company
European Convergence Development Company plc (the "Company") was incorporated
and registered in the Isle of Man under the Isle of Man Companies Acts 1931 to
2004 on 26 July 2006 as a public company with registered number 117309C. On 3
March 2008 the Company was de-registered as an Isle of Man 1931-2004 company and
re-registered as a company governed by the Isle of Man Companies Act 2006 with
registered number 002391v.
Following the close of Company's first placing of Ordinary Shares on 12
September 2006 38,071,000 shares were issued. On 21 September 2007, a further
63,157,894 Ordinary Shares were issued and placed, bringing the Company's total
issued share capital to 101,228,894 Ordinary Shares.
During the year to 31 December 2008 the Company purchased 9,593,424 of its own
shares for cancellation at an average price of 0.52. On 6 March 2009 the Company
purchased a further 1,120,000 of its own shares for cancellation at an average
price of EUR0.18. At the year end the Company had 90,515,470 shares in issue.
The Company's agents and the Manager perform all significant functions.
Accordingly, the Company itself has no employees.
Duration
In accordance with the Company's Articles of Association, Shareholders will be
given the opportunity to vote on the life of the Company after approximately 10
years.
Dividend Policy
The Directors will decide in respect of any 12 month accounting period as to
what percentage of the Company's realised net profits available for distribution
(if any) they will recommend as the sum for payment as a dividend. This
decision will take into account the opportunities available to the Company for
further investment. The Directors may pay half-yearly interim dividends if they
believe that the financial position of the Company justifies it. If the
Company's funds are fully invested, the Directors may re-invest some of the
Company's profits into the maintenance of the Company's property portfolio or on
further investments.
Financial Year End
The financial year end of the Company is 31 December in each year.
2 The Subsidiaries
For efficient portfolio management purposes, the Company established the
following subsidiary companies:
+--------------+---------------+------------+
| | Country | Percentage |
| | of | of shares |
| | Incorporation | held |
+--------------+---------------+------------+
| European | Cayman | 100% |
| Convergence | | |
| Development | | |
| (Cayman) | | |
| Limited | | |
+--------------+---------------+------------+
| Convergence | Cyprus | 100% |
| Development | | |
| (Cyprus) | | |
| Limited | | |
+--------------+---------------+------------+
| European | Malta | 100% |
| Convergence | | |
| Development | | |
| (Malta) | | |
| Limited | | |
+--------------+---------------+------------+
| European | Romania | 100% |
| Real | | |
| Estate | | |
| Development | | |
| Invest SRL | | |
+--------------+---------------+------------+
| European | Bulgaria | 100% |
| Property | | |
| Acquisitions | | |
| EOOD | | |
+--------------+---------------+------------+
| Asmita | Cyprus | 100% |
| Holdings | | |
| Limited | | |
+--------------+---------------+------------+
3 Joint Ventures ("JV")
The Group as at the date of this document has acquired an interest in the
following companies:
+-------------+---------------+------------+
| | Country | Percentage |
| | of | of shares |
| | Incorporation | held |
+-------------+---------------+------------+
| Asmita | Romania | 50% |
| Gardens | | |
| SRL | | |
+-------------+---------------+------------+
| Cascade | Romania | 40% |
| Park | | |
| Plaza | | |
| SRL | | |
+-------------+---------------+------------+
| Convergence | Romania | 50% |
| Development | | |
| Invest SRL | | |
+-------------+---------------+------------+
| Galleria | Bulgaria | 50% |
| Plovdiv | | |
| AD | | |
+-------------+---------------+------------+
| Mega | Bulgaria | 50% |
| Mall | | |
| Rousse | | |
| AD | | |
+-------------+---------------+------------+
| Trade | Bulgaria | 42.5% |
| Centre | | |
| Sliven | | |
| EAD | | |
+-------------+---------------+------------+
| Turgovski | Bulgaria | 70% |
| Park | | |
| Kraimorie | | |
| AD | | |
+-------------+---------------+------------+
Notwithstanding the Group's percentage holdings, the above companies have not
been consolidated as the Group's control is restricted by Joint Venture
Agreements.
4 Significant Accounting Policies
The principal accounting policies adopted in the preparation of the consolidated
financial statements are set out below.
The annual report of the Company for the year ended 31 December 2009 comprises
the Company, its subsidiaries and joint ventures (together referred to as the
"Group").
The annual report was authorised for issue by the Directors on 25 June 2010.
4.1 Basis of presentation
These financial statements have been prepared in accordance with International
Financial Reporting Standards ("IFRS") promulgated by the International
Accounting Standards Board. Management has concluded that the report fairly
represents the Group's financial position, financial performance and cash flows.
The preparation of the financial statements in conformity with IFRS requires the
use of certain critical accounting estimates. It also requires the Board of
Directors to exercise its judgement in the process of applying the Company's
accounting policies. The Directors consider that the valuation of the Company's
investments in equity accounted associates is an area where critical accounting
estimates are required. Further detail on the valuation of the investments may
be found in notes 9 and 18.
The activities of the Group are subject to a number of risk factors. The global
financial crisis and the deteriorating economic environment in the jurisdictions
within which the Group operates have increased the intensity of these risk
factors. The future economic outlook presents specific challenges in terms of
the significant reduction in the volume of property transactions in the
jurisdictions within which the Group operates, the significant reduction in the
availability of loan finance for property transactions in those jurisdictions
and the consequent impact on the valuations of property held by equity accounted
investees.
In the prevailing market conditions, there is a greater degree of uncertainty as
to the valuation of property assets than that which exists in a more active and
stronger market. These factors have adversely impacted the compliance of equity
accounted investees with their borrowing covenants and a number of these
facilities have been renegotiated, whilst the Group has made additional capital
available to certain entities in order that ongoing projects can be completed.
Collectively, these factors contribute to a greater degree of uncertainty as to
the valuation of holdings in equity accounted investees.
These factors have also impacted on the ability of joint venture partners to
repay loans made by the Group and as a result have caused repayment terms for
these facilities to be re-negotiated. Further, the joint venture entities may
encounter legal disputes with construction contractors during the course of the
projects entered into. Whilst the Board are of the opinion that joint venture
entities have made appropriate provisions in respect of any such cases, the
ultimate outcome cannot be determined with certainty at this time.
The financial statements have been prepared on a going concern basis, taking
into account the level of cash and cash equivalents held by the Group and the
level of capital commitments to joint venture entities.
The Company is denominated in Euros ("EUR") and therefore the amounts shown in
these financial statements are presented in EUR.
4.2Foreign currency translation
Euro is the currency of the primary economic environment in which the entity
operates (the "functional currency"). This is also the functional currency of
the subsidiaries.
Euro is also the currency in which the annual financial statements are presented
(the "presentation currency").
Monetary assets and liabilities denominated in foreign currencies as at the date
of these financial statements are translated to EUR
at exchange rates prevailing on that date. Realised and unrealised gains and
losses on foreign currency transactions are charged or credited to the income
statement as foreign currency gains and losses. Expenses are translated into EUR
based on exchange rates on the date of the transaction.
The accounts are presented in Euros by translating the assets and liabilities at
the exchange rate prevailing at the balance sheet date. Items of revenue and
expense are translated at exchange rates on the date of the relevant
transactions. Components of equity are translated at the date of the relevant
transaction and not retranslated. All resulting exchange differences are
recognised in equity.
4.3Deposit interest
Deposit interest is accounted for on an accruals basis.
4.4 Cash and cash equivalents
Cash and cash equivalents comprise cash deposited with banks and bank overdrafts
repayable on demand.
4.5Revenue and expense recognition
Interest income is recognised in the financial statements on an accruals basis.
Dividend income is recorded when declared.
Rental income from investment property leased out under operating lease is
recognised in the income statement on a straight-line basis over the term of the
lease.
Expenses are accounted for on an accrual basis. Expenses are charged to the
income statement except for expenses incurred on the acquisition of an
investment property which are included within the cost of that investment.
Expenses arising on the disposal of an investment property are deducted from the
disposal proceeds.
4.6 Basis of consolidation
Subsidiaries
Subsidiaries are those enterprises controlled by the Company. Control exists
where the Company has the power, directly or indirectly, to govern the financial
and operating policies of an enterprise 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 effectively
commences until the date that control effectively ceases.
Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised gains arising from
intra-group transactions, are eliminated in preparing the consolidated financial
statements.
Joint ventures (equity accounted investees)
Investments in joint ventures are carried at cost (adjusted for the Group's
share of the income and expenses of the equity accounted investees according to
the equity method of accounting for joint ventures). Joint ventures are those
entities over whose activities the Group has joint control, established by
contractual agreement and requiring unanimous consent for strategic financial
and operating decisions. Joint ventures are accounted for using the equity
method (equity accounted investees). The consolidated financial statements
include the Group's share of the income and expenses of the equity accounted
investees, after adjustments to align the accounting policies with those of the
Group, from the date that joint control commences until the date that joint
control ceases. When the Group's share of losses exceeds its interest in an
equity accounted investee, the carrying amount of that interest (including any
long-term investment) is reduced to nil and the recognition of further losses is
discontinued except to the extent that the Group has an obligation or has made
payments on behalf of the investee.
Unrealised gains on transactions between the Company and its equity accounted
investees are eliminated to the extent of the Company's interest in the equity
accounted investees. Unrealised losses are also eliminated unless the
transaction provides evidence of an impairment of the asset transferred.
Accounting policies have been changed where necessary to ensure consistency with
the policies adopted by the Company. In particular, borrowing costs related
directly to the acquisition or construction of qualifying assets are
capitalised.
Investments in joint ventures are kept under review for impairment. Where, in
the opinion of the directors, the recoverable value of an investment falls below
cost, a provision is made against the investment and charged to the income
statement.
Financial statements of foreign operations
The assets and liabilities of foreign operations, including goodwill and fair
value adjustments arising on consolidation, are translated to EUR at the foreign
currency exchange rates ruling at the balance sheet date. Foreign exchange
differences arising on translation are recognised directly in equity.
4.7 Dividends
Dividends are recognised as a liability in the year in which they are declared
and approved. Any interim dividends declared do not need to be approved by the
members. There was no dividend declared as at 31 December 2009 (2008: Nil).
4.8 Financial assets
The Group classifies its financial assets in the following categories: at fair
value through profit or loss, loans and receivables, cash and cash equivalents
and available for sale. The classification depends on the purpose for which the
financial assets were acquired. Management determines the classification of its
financial assets at initial recognition.
During the year the Group held treasury bills which are classified as financial
assets at fair value through profit or loss. These financial assets were
classified as held for trading as they were acquired principally for the purpose
of selling in the short-term. Financial assets at fair value through profit or
loss are recognised on trade date - the date on which the Company commits to
purchase or sell the investment. Investments are initially recognised at fair
value and transaction costs for all financial assets at fair value through
profit or loss are expensed as incurred in the income statement. Subsequent to
initial recognition, all financial assets at fair value through profit or loss
are measured at fair value based on quoted prices. All related realised and
unrealised gains and losses arising from changes in fair value of the financial
asset are included in the income statement in the period in which they arise,
net of transaction costs. The computation of realised gains and losses on sale
of investments is made on the average cost basis. Loans and receivables are
non-derivative financial assets with fixed or determinable payments that are not
quoted in an active market. They are included in current assets, except for
maturities greater than 12 months after the balance sheet date. These are
classified as non-current assets. The Group's loans and receivables comprise
'loans to third parties' and 'trade and other receivables' in the balance sheet.
4.9 Other receivables
Trade and other receivables and loans to third parties are stated at their cost,
less any impairment losses.
4.10 Trade and other payables
Trade and other payables are stated at their cost.
4.11 Interest-bearing borrowings
Interest-bearing borrowings are recognised initially at fair value, less
attributable transaction costs. Subsequent to initial recognition,
interest-bearing borrowings are stated at amortised cost with any difference
between cost and redemption value being recognised in the income statement over
the period of the borrowings on an effective interest basis.
Borrowing costs directly attributable to assets in the course of construction
are capitalised.
4.12 Share capital
Ordinary shares are classified as equity. Incremental costs directly
attributable to the issue of ordinary shares are recognised as a deduction from
equity, net of any tax effect.
In the previous and current year, the Company repurchased some of its own
shares. These shares were cancelled upon repurchase and accordingly the issued
share capital of the Company was reduced by their nominal value. The discount to
nominal value on the repurchased shares was credited to the share premium
account.
4.13 Segmental reporting
The Company has one segment focusing on maximising total returns through
investing in the property markets of South East Europe. Further analysis of the
Group's exposure in this region is provided in notes 9 and 11. No additional
disclosure is required in relation to segment reporting, as the Company's
activities are limited to one business and geographic segment.
4.14 Adoption of new and revised International Financial Reporting
Standards (IFRSs)
Standards affecting amounts reported in the current year (and/or prior years)
The following revised Standards have been adopted in the current period and have
affected only the presentation and disclosure of the amounts reported in these
financial statements.
+-------------------------------------------------------+-------------+
| Standard | Effective |
| | date |
| | (accounting |
| | periods |
| | commencing |
| | after) |
+-------------------------------------------------------+-------------+
| | |
+-------------------------------------------------------+-------------+
| IAS 1 (as revised in 2007) Presentation of financial | 1 January |
| statements | 2009 |
+-------------------------------------------------------+-------------+
| IFRS 7 Financial instruments: disclosures (Amendment: | 1 January |
| Improving disclosures about financial instruments | 2009 |
+-------------------------------------------------------+-------------+
| IAS 23 Borrowing costs | 1 January |
| | 2009 |
+-------------------------------------------------------+-------------+
| IAS 31 Interests in joint ventures (Revised May | 1 January |
| 2008) | 2009 |
+-------------------------------------------------------+-------------+
IAS 1 Presentation of financial statements
A revised version of IAS 1 was issued in September 2007. The revised standard
prohibits the presentation of items of income and expenses (that is, 'non-owner
changes in equity') in the statement of changes in equity, requiring 'non-owner
changes in equity' to be presented separately from owner changes in equity in a
statement of comprehensive income. As a result, the Group presents all owner
changes in equity in the consolidated statement of changes in equity; all
non-owner changes in equity are presented in the consolidated statement of
comprehensive income. The adoption of this revised standard impacts only
presentation aspects; therefore, it has no impact on profit or earnings per
share.
IFRS 7 Financial instruments
The IASB published amendments to IFRS 7 in March 2009. The amendments to IFRS 7
expand the disclosures required in respect of fair value measurements and
liquidity risk. The adoption of the amendment does not have any impact on profit
or earnings per share.
Standards adopted with no effect on financial statements
The following revised Standard has also been adopted in these financial
statements. Its adoption has not had any significant impact on the amounts
reported in these financial statements but may affect the accounting for future
transactions or arrangements.
+-------------------------------------------------------+-------------+
| Standard | Effective |
| | date |
| | (accounting |
| | periods |
| | commencing |
| | after) |
+-------------------------------------------------------+-------------+
| | |
+-------------------------------------------------------+-------------+
| IFRS 8 Operating segments | 1 January |
| | 2009 |
+-------------------------------------------------------+-------------+
IFRS 8 Operating segments
IFRS 8 replaces IAS 14, 'Segment reporting', and is effective for annual periods
beginning on or after 1 January 2009. The new standard requires a 'management
approach', under which segment information is presented on a similar basis to
that used for internal reporting purposes. Management considers the Group to
comprise a single operating segment, and as such, is not affected by the
amendment.
Standards and interpretations becoming effective in 2009 but not relevant to the
Group
+-------------------------------------------------------+-------------+
| Standard | Effective |
| | date |
| | (accounting |
| | periods |
| | commencing |
| | after) |
+-------------------------------------------------------+-------------+
| | |
+-------------------------------------------------------+-------------+
| IFRS 2 Share-based payment - vesting conditions and | 1 January |
| cancellations | 2009 |
+-------------------------------------------------------+-------------+
| IAS 20 Accounting for government grants and | 1 January |
| disclosure of government assistance | 2009 |
+-------------------------------------------------------+-------------+
| IAS 28 Investments in associates | 1 January |
| | 2009 |
+-------------------------------------------------------+-------------+
| IAS 32 Financial instruments: Presentation - | 1 January |
| amendments relating to puttable instruments and | 2009 |
| obligations arising on liquidation | |
+-------------------------------------------------------+-------------+
| IAS 38 Intangible assets | 1 January |
| | 2009 |
+-------------------------------------------------------+-------------+
| IAS 39 Financial instruments: Recognition and | 1 January |
| measurement (revised May 2008) | 2009 |
+-------------------------------------------------------+-------------+
| IAS 39 Financial instruments: Recognition and | 1 July |
| measurement - amendments for embedded derivatives | 2009 |
| when reclassifying financial instruments | |
+-------------------------------------------------------+-------------+
| IAS 40 Investment property | 1 January |
| | 2009 |
+-------------------------------------------------------+-------------+
| | |
| IFRIC Interpretation | |
+-------------------------------------------------------+-------------+
| | |
+-------------------------------------------------------+-------------+
| IFRIC 13 Customer loyalty programmes | 1 July |
| | 2008 |
+-------------------------------------------------------+-------------+
| IFRIC 15 Agreement for construction of real estate | 1 January |
| | 2009 |
+-------------------------------------------------------+-------------+
| IFRIC 16 Hedges of a net investment in a foreign | 1 October |
| operation | 2008 |
+-------------------------------------------------------+-------------+
Standards and interpretations in issue not yet adopted
A number of new standards, amendments to standards and interpretations are not
yet effective for the year ended 31 December 2009, and have not been applied in
preparing these consolidated financial statements:
+-------------------------------------------------------+-------------+
| New/revised International Accounting Standards / | Effective |
| International Financial Reporting Standards | date |
| (IAS/IFRS) | (accounting |
| | periods |
| | commencing |
| | after) |
+-------------------------------------------------------+-------------+
| | |
+-------------------------------------------------------+-------------+
| IAS 1 Presentation of financial statements (Revised | 1 January |
| 2009) | 2010 |
+-------------------------------------------------------+-------------+
| IAS 7 Statement of cash flows (Revised 2009) | 1 January |
| | 2010 |
+-------------------------------------------------------+-------------+
| IAS 17 Leases (Revised 2009) | 1 January |
| | 2010 |
+-------------------------------------------------------+-------------+
| IAS 24 Related party disclosures - revised | 1 January |
| definition of related parties | 2011 |
+-------------------------------------------------------+-------------+
| IAS 27 Consolidated and separate financial statements | 1 July |
| - amendment relating to cost of an investment on | 2009 |
| first-time adoption (Revised 2008) | |
+-------------------------------------------------------+-------------+
| IAS 28 Investments in associates - consequential | 1 July |
| amendments resulting from amendments to IFRS 3 (2008) | 2009 |
+-------------------------------------------------------+-------------+
| IAS 31 Interests in joint ventures - consequential | 1 July |
| amendments resulting from amendments to IFRS 3 (2008) | 2009 |
+-------------------------------------------------------+-------------+
| IAS 32 Financial instruments: Presentation - | 1 |
| amendments relating to classification of rights | February |
| issues | 2010 |
+-------------------------------------------------------+-------------+
| IAS 36 Impairment of assets (Revised 2009) | 1 January |
| | 2010 |
+-------------------------------------------------------+-------------+
| IAS 38 Intangible assets | 1 July |
| | 2009 |
+-------------------------------------------------------+-------------+
| IAS 39 Financial instruments: Recognition and | 30 June |
| measurement - amendments for embedded derivatives | 2009 |
| when reclassifying financial instruments | |
+-------------------------------------------------------+-------------+
4.14 Adoption of new and revised International Financial Reporting
Standards (IFRSs) continued
+-------------------------------------------------------+-----------+
| IAS 39 Financial instruments: Recognition and | 1 July |
| measurement - amendments for eligible hedged items | 2009 |
+-------------------------------------------------------+-----------+
| IAS 39 Financial instruments: Recognition and | 1 January |
| measurement (Revised 2009) | 2010 |
+-------------------------------------------------------+-----------+
| IFRS 1 First-time adoption of International Financial | 1 July |
| Reporting Standards (Revised 2008) | 2009 |
+-------------------------------------------------------+-----------+
| IFRS 1 First-time adoption of International Financial | 1 January |
| Reporting Standards - additional exemptions for | 2010 |
| first-time adopters | |
+-------------------------------------------------------+-----------+
| IFRS 2 Share-based payment - amendments relating to | 1 January |
| group cash-settled share-based payment transactions | 2010 |
+-------------------------------------------------------+-----------+
| IFRS 3 Business combinations - comprehensive revision | 1 July |
| on applying the acquisition method | 2009 |
+-------------------------------------------------------+-----------+
| IFRS 5 Non-current assets held for sale and | 1 July |
| discontinued operations (revised 2008) | 2009 |
+-------------------------------------------------------+-----------+
| IFRS 5 Non-current assets held for sale and | 1 January |
| discontinued operations (revised 2009) | 2010 |
+-------------------------------------------------------+-----------+
| IFRS 7 Disclosures for first-time adopters (amendment | 1 July |
| to IFRS 1) | 2010 |
+-------------------------------------------------------+-----------+
| IFRS 8 Operating segments (revised 2009) | 1 January |
| | 2010 |
+-------------------------------------------------------+-----------+
| IFRS 9 Financial instruments | 1 January |
| | 2013 |
+-------------------------------------------------------+-----------+
| | |
+-------------------------------------------------------+-----------+
| | |
+-------------------------------------------------------+-----------+
| IFRIC Interpretation | |
+-------------------------------------------------------+-----------+
| | |
+-------------------------------------------------------+-----------+
| IFRIC 9 Reassessment of embedded derivatives | 1 July |
| | 2009 |
+-------------------------------------------------------+-----------+
| IFRIC 17 Distributions of non-cash assets to owners | 1 July |
| | 2009 |
+-------------------------------------------------------+-----------+
| IFRIC 18 Transfers of assets from customers | 1 July |
| | 2009 |
+-------------------------------------------------------+-----------+
| IFRIC 19 Extinguishing financial liabilities with | 1 July |
| equity instruments | 2010 |
+-------------------------------------------------------+-----------+
| | |
+-------------------------------------------------------+-----------+
The Directors do not expect the adoption of the other standards and
interpretations to have a material impact on the Group's financial statements in
the period of initial application.
5 Net Financing Income
Net financing income consists of bank interest earned of EUR748,288 (2008:
EUR2,809,310) and loan arrangement fees of EUR1,500 (2008: EURnil).
6 Net Asset Value per Share
The net asset value per share as at 31 December 2009 is EUR0.6445 (2008: EUR0.7808)
based on 90,515,470 (2008: 91,635,470) ordinary shares in issue as at that date.
7 Related Party Transactions
7.1Directors of the Company
During the year, Anderson Whamond was managing director of the Manager and a
shareholder of Charlemagne Capital Limited, the parent of the Manager and
Placing Agent. Mr Whamond's role with the Manager changed with effect from 1
April 2009 from executive to non-executive. He continues to act as a Director
of the Company. Mr Whamond was also, until 31 March 2009, a Director of
Charlemagne Capital Limited ("CCL"), the parent of the Manager and Placing
Agent. Mr Whamond remains a shareholder of CCL and additionally has an indirect
family interest in shares of CCL. There are no service agreements between Mr
Whamond and CCL that are not terminable within one year.
A subsidiary company of the Manager, Charlemagne Capital (Investments) Limited,
holds 125,000 shares of the Company and holds 436,028 shares in Trade Center
Sliven (coinvested with the Group and a JV partner). Charlemagne BRIC Plus
Property Company plc, an investment company also managed by the Manager, holds
218,014 shares in Trade Center Sliven.
Charlemagne CIS Fund Limited, another investment company also managed by the
Manager holds 7,626,320 shares in the Company at 31 December 2009.
CCL, a company incorporated in the Cayman Islands is listed on the Alternative
Investment Market of the London Stock Exchange.
Save as disclosed above, none of the Directors had any interest during the year
in any material contract for the provision of services which was significant to
the business of the Company.
7.2 Directors of the Subsidiaries
Directors of the subsidiaries, James Houghton and Jane Bates, are also Directors
of the Manager. In compliance with local regulations, certain subsidiaries have
appointed Directors who are employees of or are associated with, the relevant
registered office service provider.
7.3 Manager fees
Annual fees
The Manager is entitled to an annual management fee of 2% of the net asset value
of the Company, payable quarterly in arrears.
The Manager shall also be entitled to recharge to the Company all and any costs
and disbursements reasonably incurred by it in the performance of its duties
including costs of travel save to the extent that such costs are staff costs or
other internal costs of the Manager. Accordingly, the Company shall be
responsible for paying all the fees and expenses of all valuers, surveyors,
legal advisers and other external advisers to the Company in connection with any
investments made on its behalf. All amounts payable to the Manager by the
Company shall be paid together with any value added tax, if applicable.
Annual management fees payable during the year ended 31 December 2009 amounted
to EUR1,345,833 (2008: EUR1,678,188).
Performance fees
The Manager is entitled to a performance fee payable at the end of each
financial year following the first listing of the Ordinary Shares on AIM or any
other stock exchange of an amount equal to 15% of any excess of the net asset
value per Ordinary Share (with any dividends added back) over the Benchmark Net
Asset Value per Ordinary Share multiplied by the time weighted average number of
shares in issue during that that financial year. For these purposes the
Benchmark Net Asset Value shall be equal to the higher of (i) the subscription
price per Ordinary Share on the first listing of the Ordinary Shares; (ii) 0.80
Euros increased by 20% per annum compound from the closing of the Placing until
a Listing; and (iii) the highest net asset value per Ordinary Share following a
Listing and giving rise to the payment of a performance fee.
Payment of the Manager's annual fees and any performance fees shall be paid by a
subsidiary of the Company.
Performance fees payable during the year ended 31 December 2009 amounted to EUR
nil (2008: EUR nil).
7.4 Transactions and balances with Joint Venture companies and
partners
The Company has made loans to Joint Venture Companies totalling EUR48,518,000
(2008: EUR33,434,000) and to Joint Venture Partners totalling EUR4,525,000 (2008:
EUR4,400,000). Details of the terms and applicable interest rates for these loans
are more fully shown in note 9 and note 11.
7.5 Intragroup balances
Intragroup balances are repayable on demand and bear interest at commercial
rates. Loans to subsidiaries outstanding at the year end have been impaired to
fair value.
8 Charges and Fees
8.1 Nominated Adviser and Broker fees
As Nominated Adviser and Broker to the Company for the purposes of the AIM
Rules, the nominated advisor and broker is entitled to receive an annual fee of
GBP25,000, payable twice yearly in advance.
Advisory fees payable to the Nominated Adviser and Broker for the year ended 31
December 2009 amounted to EUR32,104 (31 December 2008: EUR38,645).
8.2 Custodian fees
The Custodian is entitled to receive fees calculated as 2 basis point per annum
of the gross value of the non-real estate assets held on behalf of the Company,
subject to a minimum monthly fee of EUR500, payable quarterly in arrears.
The Custodian expects to review and, subject to written agreement between the
Company and the Custodian, may amend the foregoing fees six months after the
closure of the initial offering period and annually thereafter.
Custodian fees payable for the year ended 31 December 2009 amounted to EUR8,173
(2008: EUR8,380).
8.3 Administrator and Registrar fees
The Administrator is entitled to receive a fee of 8 basis points of the net
assets of the Company, subject to a minimum monthly fee of EUR4,000, payable
quarterly in arrears.
The Administrator shall assist in the preparation of the financial statements of
the Company for which it shall receive a fee of EUR2,875 per set.
The Administrator shall provide general secretarial services to the Company for
which it shall receive a minimum annual fee of EUR3,750. Additional fees based on
time and charges, will apply where the number of Board meetings exceeds four
p.a. For attendance at meetings not held in the Isle of Man, an attendance fee
of EUR750 per day or part thereof will be charged.
The Administrator may utilise the services of a CREST accredited registrar for
the purposes of settling share transactions through CREST. The cost of this
service will be borne by the Company. It is anticipated that the cost will be in
the region of GBP5,500 per annum subject to the number of CREST settled
transactions undertaken.
The Administrator expects to review and, subject to written agreement between
the Company and the Administrator, may amend the foregoing fees six months after
closure of the initial offering period and annually thereafter.
Administration fees payable for the year ended 31 December 2009 amounted to
EUR64,912 (2008: EUR70,125).
8.4 Other operating expenses
The costs associated with maintaining the Company's subsidiaries, including the
costs of incorporation and third party service providers, shall be chargeable to
each subsidiary and payable by the Company.
8.5 Audit fees
Audit fees payable for the year ended 31 December 2009 amounted to EUR73,487
(2008: EUR63,488).
9 Investment in Equity Accounted Investments
+-------------+----------+----------+
| Group | 31 | 31 |
| | December | December |
| | 2009 | 2008 |
+-------------+----------+----------+
| | EUR'000 | EUR'000 |
+-------------+----------+----------+
| At | 41,540 | 39,074 |
| beginning | | |
| of year | | |
+-------------+----------+----------+
| Acquisition | - | 4,165 |
| of equity | | |
| accounted | | |
| investment | | |
+-------------+----------+----------+
| Movement | 15,085 | 3,408 |
| in loans | | |
| treated | | |
| as | | |
| equity | | |
| accounted | | |
| investments | | |
+-------------+----------+----------+
| Share | (1,555) | (581) |
| of | | |
| loss | | |
| of | | |
| equity | | |
| accounted | | |
| investment | | |
+-------------+----------+----------+
| Write | (9,921) | (4,526) |
| down | | |
| of | | |
| value | | |
| of | | |
| equity | | |
| accounted | | |
| investments | | |
+-------------+----------+----------+
| Balance | 45,149 | 41,540 |
| at end | | |
| of year | | |
+-------------+----------+----------+
The loans to equity accounted investees, before deduction of provisions, are as
follows:
+-------------+--------+----------+----------+----------+
| Name | Term | Term | Interest | 31 |
| | | | Rate | December |
| | | | | 2009 |
+-------------+--------+----------+----------+----------+
| | | | | EUR'000 |
+-------------+--------+----------+----------+----------+
| Asmita | * | 31 | 6% | 14,370 |
| Gardens | | December | | |
| SRL | | 2012 | | |
+-------------+--------+----------+----------+----------+
| Galleria | * | * | 0%** | 17,603 |
| Plovdiv | | | | |
| AD | | | | |
+-------------+--------+----------+----------+----------+
| Convergence | | | | 3,444 |
| Development | | | | |
| Invest SRL | | | | |
+-------------+--------+----------+----------+----------+
| Cascade | * | * | *** | 4,000 |
| | | | | |
+-------------+--------+----------+----------+----------+
| Turgovski | * | * | 0%** | 9,101 |
| Park | | | | |
| Kraimorie | | | | |
| AD | | | | |
+-------------+--------+----------+----------+----------+
* Loans are due to be repaid after the project sale.
** Interest is nil until the loan is due for payment. In case of default
interest will be charged at a rate of 3M EURIBOR plus 10%.
*** Interest is nil, but in return for the provision of the loan, the Group is
entitled to be paid a penalty at an Internal Rate of Return equating to 20% by
the Group's partner in Cascade.
At the previous year end, the loans to equity accounted investees were as
follows:
+-------------+--------+---------+----------+----------+
| Name | Term | Term | Interest | 31 |
| | | | Rate | December |
| | | | | 2008 |
+-------------+--------+---------+----------+----------+
| | | | | EUR'000 |
+-------------+--------+---------+----------+----------+
| Asmita | 36 | 17 | 6% | 8,957 |
| Gardens | Months | October | | |
| SRL | | 2010 | | |
+-------------+--------+---------+----------+----------+
| Convergence | 60 | 14 | 7% | 3,376 |
| Development | Months | July | | |
| Invest SRL | | 2012 | | |
| * | | | | |
+-------------+--------+---------+----------+----------+
| Galleria | ** | ** | 0% | 12,000 |
| Plovdiv | | | | |
| AD | | | | |
+-------------+--------+---------+----------+----------+
| Turgovski | ** | ** | 0% | 9,101 |
| Park | | | | |
| Kraimorie | | | | |
| AD | | | | |
+-------------+--------+---------+----------+----------+
* The loan to Convergence Development Invest Srl is disclosed although this has
been fully provided for in the Group's accounts. See note 11.
** Loans are due to be repaid after the project sale. Interest is nil until the
loan is due for payment. In case of default interest will be charged at a rate
of 3M EURIBOR plus 10%.
The carrying values of the Group's equity accounted investments are as follows:-
+-------------+----------+----------+
| Name | Value | Value |
| | at 31 | at 31 |
| | December | December |
| | 2009 | 2008 |
+-------------+----------+----------+
| | EUR'000 | EUR'000 |
+-------------+----------+----------+
| Asmita | 8,000 | 8,710 |
| Gardens | | |
| SRL | | |
+-------------+----------+----------+
| Cascade | 8,612 | 4,982 |
| Park | | |
| Plaza | | |
| SRL | | |
+-------------+----------+----------+
| Convergence | - | - |
| Development | | |
| Invest SRL | | |
+-------------+----------+----------+
| Galleria | 17,711 | 11,995 |
| Plovdiv | | |
| AD | | |
+-------------+----------+----------+
| Mega | 4,018 | 4,141 |
| Mall | | |
| Rousse | | |
+-------------+----------+----------+
| Trade | 2,234 | 2,587 |
| Centre | | |
| Sliven | | |
| EAD | | |
+-------------+----------+----------+
| Turgovski | 4,574 | 9,125 |
| Park | | |
| Kraimorie | | |
| AD | | |
+-------------+----------+----------+
| | 45,149 | 41,540 |
+-------------+----------+----------+
Convergence Development Invest Srl
The Group's investment in Convergence Development Invest Srl ("CDI") of EUR3,202k
was fully provided at the previous year end. During the current year, additional
loans to CDI of EUR68k were made and this amount has been fully provided in the
current year. The main reason for full provision is an inability to the date of
this report to obtain development finance for the mortgaged land held by the
company. The market value of the land is estimated to be below the value of the
mortgage.
Trade Center Sliven EAD
In the previous period a partial provision of EUR1,324k was made against the
Group's investment in Trade Center Sliven, as the Group estimates that under
current market conditions the net realisable value of the investment in the
company is lower than cost. During the current period, an additional provision
of EUR425k was made, bringing the total provision to EUR1,749k The Trade Center
Sliven development project is currently on hold. It should be noted that due to
the low level of recent comparable transactions land valuations are highly
subjective. The valuation of the Group's investment represents the Director's
best estimate only.
Turgovski Park Kraimorie Srl
During the current period, a provision of EUR4.6m was made against the Group's
investment in Turgovski Park Kraimorie AD. The Turgovski Park Kraimorie AD
development project is currently on hold. It should be noted that due to the low
level of recent comparable transactions land valuations are highly subjective.
The valuation of the Group's investment represents the Director's best estimate
only.
Asmita Gardens Srl
During the current period, a provision of EUR4.9m was made against the Group's
investment in Asmita Gardens Srl.
Asmita Gardens is a residential development of 758 apartments, being delivered
in seven tower blocks in two phases. As at 30 April 2010 the 324 apartments in
Phase 1 were had been certified with the Take Over Certificate ("TOC")
(providing the right to occupy), and Phase 2, 434 apartments was TOC-certified
on 11 March 2010.
At the end of April of the 247 sales (76%) agreed in Phase 1, 201 were legally
completed, and in Phase 2, 1 unit has completed of the 114 agreed sales
(26%).The Manager has worked with the sales team of the Asmita Gardens Srl ("the
Developer") to introduce a number of initiatives which appear to have been well
received by the market. By the end of May a total of 11 units had been sold in
the year of which 10 were sold in the last 2 months. Prices have been at levels
above the market average reported above.
The building contractor, Strabag Srl, has achieved substantial completion of
both Phases although the Take Over Certificate for Phase II was issued without
tests and commissioning having taken place. There is currently a dispute ongoing
between Strabag and the Developer concerning the resolution of Strabag's final
account and the Developer's counterclaims. Such disputes are not unusual in this
kind of development and the Developer is attempting to resolve the situation by
all means possible, including through the Courts.
Asmita Gardens Srl (continued)
The Manager and the Developer are in negotiations with the lending bank over the
provision of working capital facilities within the existing facility to enable
the sales process to continue to the end of the calendar year even if Strabag
decides not to return to site to complete the works.
As stated in note 4.1, the deterioration of global economic conditions has
increased uncertainty surrounding the value of the Group's equity accounted
investees.
The results, assets and liabilities of the equity accounted companies are as
follows:
+----------------------+---------------+---------+-------------+----------+---------+----------+
| Name | Country | Assets | Liabilities | Revenues | Profit/ | % |
| | of | | | | (Loss) | interest |
| | Incorporation | | | | | |
+----------------------+---------------+---------+-------------+----------+---------+----------+
| | | EUR'000 | EUR'000 | EUR'000 | EUR'000 | |
+----------------------+---------------+---------+-------------+----------+---------+----------+
| Asmita Gardens SRL | Romania | 129,231 | 132,942 | 14,907 | (9,010) | 50 |
+----------------------+---------------+---------+-------------+----------+---------+----------+
| Cascade Park Plaza | Romania | 37,363 | 40,010 | 59 | (3,213) | 40 |
| SRL | | | | | | |
+----------------------+---------------+---------+-------------+----------+---------+----------+
| Convergence | Romania | 6,071 | - | - | - | 50 |
| Development Invest | | | | | | |
| SRL | | | | | | |
+----------------------+---------------+---------+-------------+----------+---------+----------+
| Galleria Plovdiv AD | Bulgaria | 72,082 | 76,614 | 53 | (3,101) | 50 |
+----------------------+---------------+---------+-------------+----------+---------+----------+
| Mega Mall Rousse AD | Bulgaria | 21,617 | 16,573 | 588 | (247) | 50 |
+----------------------+---------------+---------+-------------+----------+---------+----------+
| Trade Centre Sliven | Bulgaria | 5,679 | 72 | 225 | 170 | 42.5 |
| EAD | | | | | | |
+----------------------+---------------+---------+-------------+----------+---------+----------+
| Turgovski Park | Bulgaria | 13,031 | 13,021 | - | (3) | 70 |
| Kraimorie AD | | | | | | |
+----------------------+---------------+---------+-------------+----------+---------+----------+
The Shareholders of Asmita Gardens, Cascade Park Plaza, Convergence Development
Invest and Galleria Plovdiv have pledged their shareholding as security against
the external loans to these companies. The Group's investment in Convergence
Development Invest Srl was fully provided for in the Group's accounts for the
year ended 31 December 2008 and a further EUR68k loan made in 2009 was also fully
provided against for the year ending 31 December 2009.
The figures in the tables above do not include adjustments made for the purposes
of these consolidated financial statements in order to align the accounting
policies of the equity accounted investees with those of the Group.
The total amount of bank interest capitalised by the joint ventures in the
equity accounted share of joint ventures results was EUR4,090,613.
10 Financial assets at fair value through profit or loss
Held for trading
+-----------+---------+--------+
| 31 | | |
| December | | |
| 2009 | | |
+-----------+---------+--------+
| Security | Nominal | EUR'000 |
| name | | |
+-----------+---------+--------+
| | | |
+-----------+---------+--------+
| French | - | - |
| Discount | | |
| T-Bill | | |
| 0% | | |
| 19/3/2009 | | |
+-----------+---------+--------+
+-----------+------------+--------+
| 31 | | |
| December | | |
| 2008 | | |
+-----------+------------+--------+
| Security | Nominal | EUR'000 |
| name | | |
+-----------+------------+--------+
| | | |
+-----------+------------+--------+
| French | 10,000,000 | 9,959 |
| Discount | | |
| T-Bill | | |
| 0% | | |
| 19/3/2009 | | |
+-----------+------------+--------+
Net changes in fair value on financial assets at fair value through profit or
loss:
+------------+----------+----------+
| | 31 | 31 |
| | December | December |
| | 2009 | 2008 |
+------------+----------+----------+
| | EUR'000 | EUR'000 |
+------------+----------+----------+
| Realised | 78 | 74 |
+------------+----------+----------+
| Unrealised | 7 | (7) |
+------------+----------+----------+
| Total | 85 | 67 |
| gains | | |
+------------+----------+----------+
11 Loans to third parties
Loans to third parties for the Group includes loans to Joint Venture Partners as
follows
+-------------+---------+----------+----------+--------+
| 2009 | Term | Maturity | Interest | Amount |
| | | Date | Rate | |
+-------------+---------+----------+----------+--------+
| Name | | | | EUR'000 |
+-------------+---------+----------+----------+--------+
| Sienit | Overdue | Overdue | EURIBOR | 1,640 |
| Holding | | | plus | |
| AD* | | | 5%, | |
| | | | plus | |
| | | | 10% | |
| | | | penalty | |
| | | | interest | |
+-------------+---------+----------+----------+--------+
| Property | Overdue | Overdue | EURIBOR | 359 |
| Capital | | | plus 5% | |
| Group** | | | | |
+-------------+---------+----------+----------+--------+
| Dickau | 60 | 14 | 10% | 2,525 |
| Investments | months | Sept | | |
| Limited*** | | 2012 | | |
+-------------+---------+----------+----------+--------+
* Sienit Holding AD is the Group's joint venture partner in Galleria Plovdiv AD
(the Galleria Plovdiv project) and Turgovski Park Kraimorie AD (the Bourgas
Retail Park project). The loan is overdue for repayment and in 2008 the Group
deemed it prudent to provide for the loan in full.
**Property Capital Group is the Group's joint venture partner in the Trade
Center Sliven EAD (the Sliven Project). Although the loan from Property Capital
Group is overdue for repayment, the partner has been making regular instalment
payments. The Group considers this loan fully recoverable.
***Dickau Investments Limited ("Dickau") is the Group's joint venture partner in
Convergence Development Invest Srl. The above loan was provided to Dickau as
part of the Group's package of investment in CDI, and, as a result of the
Group's decision to fully provide against the Group's investment in CDI in 2008
the Group also considered it prudent to retain full provision for the loan to
Dickau.
+-------------+-----------+----------+----------+--------+
| 2008 | Term | Maturity | Interest | Amount |
| | | Date | Rate | |
+-------------+-----------+----------+----------+--------+
| Name | | | | EUR'000 |
+-------------+-----------+----------+----------+--------+
| Sienit | Repayable | n/a | EURIBOR | 1,423 |
| Holding | on demand | | plus 5% | |
| AD* | | | | |
+-------------+-----------+----------+----------+--------+
| Property | 270 | 7 | EURIBOR | 500 |
| Capital | days | April | plus 5% | |
| Group** | | 2009 | if term | |
| | | | exceeded | |
+-------------+-----------+----------+----------+--------+
| Dickau | 60 | 14 | 10% | 2,478 |
| Investments | Months | July | | |
| Limited*** | | 2021 | | |
+-------------+-----------+----------+----------+--------+
12 Capital and Reserves
Share Capital
+-----------+-------------+--------+
| | 2009 | 2009 |
+-----------+-------------+--------+
| | Number | EUR'000 |
+-----------+-------------+--------+
| Ordinary | | |
| Shares | | |
| of EUR0.80 | | |
| each | | |
+-----------+-------------+--------+
| In | 91,635,470 | 73,308 |
| issue | | |
| at 1 | | |
| January | | |
| 2009 | | |
+-----------+-------------+--------+
| Shares | (1,120,000) | (896) |
| cancelled | | |
| during | | |
| the year | | |
+-----------+-------------+--------+
| In | 90,515,470 | 72,412 |
| issue | | |
| at 31 | | |
| December | | |
| 2009 | | |
+-----------+-------------+--------+
+----------+-------------+---------+
| | 2008 | 2008 |
+----------+-------------+---------+
| | Number | EUR'000 |
+----------+-------------+---------+
| Ordinary | | |
| Shares | | |
| of EUR0.80 | | |
| each | | |
+----------+-------------+---------+
| In | 101,228,894 | 80,983 |
| issue | | |
| at 1 | | |
| January | | |
| 2008 | | |
+----------+-------------+---------+
| Issued | (9,593,424) | (7,675) |
| during | | |
| the | | |
| year | | |
+----------+-------------+---------+
| In | 91,635,470 | 73,308 |
| issue | | |
| at 31 | | |
| December | | |
| 2008 | | |
+----------+-------------+---------+
At incorporation the authorised share capital of the Company was EUR240 million
divided into 300 million Ordinary Shares of EUR0.80 each.
During the year, the Company bought back 1,120,000 shares for a total
consideration of EUR201,600 (2008: 9,593,424 shares for a total consideration of
EUR4,959,379).
The holders of ordinary shares are entitled to receive dividends as declared
from time to time and are entitled to one vote per share at meetings of the
Company. All shares rank equally with regard to the Company's assets.
Capital Management
The Board's policy is to maintain a strong capital base so as to maintain
investor, creditor and market confidence and to sustain future development of
the business. The Board manages the Group's affairs to achieve shareholder
returns through capital growth rather than income, and monitors the achievement
of this through growth in net asset value per share.
Gearing may be employed by the Group with the aim of enhancing shareholder
returns. This would be in the form of bank borrowings, secured on the investment
portfolio.
Group capital comprises share capital, share premium and reserves.
Neither the Company nor any of its subsidiaries are subject to externally
imposed capital requirements.
No changes were made in respect of the objectives, policies or processes in
respect of capital management during the years ended 31 December 2008 and 2009.
13 Basic and Diluted Loss per Share
Basic and diluted loss per share are calculated by dividing the loss
attributable to equity holders of the Company by the weighted average number of
ordinary shares in issue during the year.
+--------------+----------+---------+
| | 2009 | 2008 |
+--------------+----------+---------+
| Loss | (13,004) | (9,180) |
| attributable | | |
| to equity | | |
| holders of | | |
| the Company | | |
| (EUR'000) | | |
+--------------+----------+---------+
| Weighted | 90,724 | 98,273 |
| average | | |
| number | | |
| of | | |
| ordinary | | |
| shares | | |
| in issue | | |
| (thousands) | | |
+--------------+----------+---------+
| Basic | (14.33) | (9.34) |
| and | | |
| diluted | | |
| loss | | |
| per | | |
| share | | |
| (Euro | | |
| cent | | |
| per | | |
| share) | | |
+--------------+----------+---------+
14 Trade and Other Payables
+-------------+----------+----------+
| Group | 31 | 31 |
| | December | December |
| | 2009 | 2008 |
+-------------+----------+----------+
| | EUR'000 | EUR'000 |
+-------------+----------+----------+
| Withholding | 146 | 69 |
| tax | | |
+-------------+----------+----------+
| Trade | 22 | 22 |
| creditors | | |
+-------------+----------+----------+
| Accruals | 638 | 561 |
+-------------+----------+----------+
| Total | 806 | 652 |
+-------------+----------+----------+
+----------+----------+----------+
| Company | 31 | 31 |
| | December | December |
| | 2009 | 2008 |
+----------+----------+----------+
| | EUR'000 | EUR'000 |
+----------+----------+----------+
| Accruals | 94 | 85 |
+----------+----------+----------+
| Total | 94 | 85 |
+----------+----------+----------+
15 Exchange Rates
The following exchange rates were used to translate assets and liabilities into
the reporting currency at 31 December 2009:
+------+---------+
| ROL | 4.2282 |
+------+---------+
| BGN | 1.95883 |
+------+---------+
16 Directors' Remuneration
The Company
The maximum amount of remuneration payable to the Directors permitted under the
Articles of Association is EUR300,000 p.a. Each Director currently is paid a fee
of EUR22,500 p.a. The Directors are each entitled to receive reimbursement of any
expenses incurred in relation to their appointment. Total fees and expenses paid
to the Directors for the year ended 31 December 2009 amounted to EUR90,000 (2008:
EUR90,000).
The Subsidiaries
No fees are paid to the Directors of the subsidiaries except in circumstances
where a director is appointed in compliance with local regulations and in such
cases the fees payable are nominal.
17 Taxation
Isle of Man
The Isle of Man has introduced a general zero per cent. tax rate for companies
with effect from 6 April 2006, with the exception of certain banking income and
income from Isle of Man land and property, which is taxed at 10 per cent.
There are no capital gains or inheritance taxes payable in the Isle of Man.
No Isle of Man stamp duty or stamp duty reserve tax will be payable on the
issue, transfer, conversion or redemption of Ordinary Shares.
Shareholders resident outside the Isle of Man will not suffer any income tax in
the Isle of Man on any income distributions to them.
Shareholders resident in the Isle of Man will, depending upon their particular
circumstances, be liable to Manx income tax on dividends received from the
Company.
United Kingdom
The affairs of the Company are conducted so that the central management and
control of the Company is not exercised in the UK and so that the Company does
not carry out any trade in the UK (whether or not through a permanent
establishment situated there). On this basis, the Company should not be liable
for UK taxation on its income and gains, other than certain income deriving from
a UK source.
Other
The subsidiaries of the Company are taxed in accordance with the applicable tax
laws in the countries in which they are incorporated.
18 Financial Instruments
The Group's activities expose it to a variety of financial risks: market risk
(including currency risk, cashflow risk, interest rate risk and price risk),
credit risk and liquidity risk.
Market price risk
The Company's strategy on the management of market price risk is driven by the
Company's investment objective. The Company has been established to invest
primarily in early stage property developments in South East Europe. The main
objective of the Company is to take advantage of the potential for capital
appreciation of these investments. The Company's market risk is monitored by the
Manager on a day to day basis and by the Directors at Board Meetings.
The Group is exposed to property price and property rental risk. The Group's
strategy is to develop property assets and then sell them for gain: however as a
result of current global economic conditions (see note 4.1), the property market
in Romania and Bulgaria has declined. The Group therefore expects that it may
hold some assets for a substantial period post completion. This further exposes
the Group to property rental risk.
Foreign exchange risk
The Group's operations are conducted in jurisdictions which generate revenue,
expenses, assets and liabilities in currencies other than the Euro (the
functional currency). As a result, the Group is subject to the effects of
exchange rate fluctuations with respect to these currencies. The currency giving
rise to this risk is primarily Romanian Lei, as the Bulgarian Lev is pegged to
the Euro.
The Group may invest in financial instruments and enter into transactions
denominated in currencies other than the functional currency. Consequently, the
Group is exposed to risks that the exchange rate of its currency relative to
other foreign currencies may change in a manner that has an adverse affect on
the value of that portion of the Group's assets or liabilities denominated in
currencies other than the functional currency.
The Group's policy is not to enter into any currency hedging transactions.
The following table sets out the Group's total exposure to foreign currency risk
and the net exposure to foreign currencies of the assets and liabilities:
+-----------------------------------------+--------+-------------+--------+
| 31 December 2009 | Assets | Liabilities | Net |
| | | | assets |
+-----------------------------------------+--------+-------------+--------+
| | EUR'000 | EUR'000 | EUR'000 |
+-----------------------------------------+--------+-------------+--------+
| Romanian Lei | 52 | (5) | 47 |
+-----------------------------------------+--------+-------------+--------+
| Bulgarian Lev | 123 | (5) | 118 |
+-----------------------------------------+--------+-------------+--------+
| Euro | 58,969 | (796) | 58,173 |
+-----------------------------------------+--------+-------------+--------+
| | 59,144 | (806) | 58,338 |
+-----------------------------------------+--------+-------------+--------+
+-----------------------------------------+--------+-------------+--------+
| 31 December 2008 | Assets | Liabilities | Net |
| | | | assets |
+-----------------------------------------+--------+-------------+--------+
| | EUR'000 | EUR'000 | EUR'000 |
+-----------------------------------------+--------+-------------+--------+
| Romanian Lei | 314 | (21) | 293 |
+-----------------------------------------+--------+-------------+--------+
| Bulgarian Lev | 9 | (5) | 4 |
+-----------------------------------------+--------+-------------+--------+
| Euro | 71,876 | (626) | 71,250 |
+-----------------------------------------+--------+-------------+--------+
| | 72,199 | (652) | 71,547 |
+-----------------------------------------+--------+-------------+--------+
At 31 December 2009, had the Euro strengthened/weakened by 5% in relation to the
Romanian Lei, with all other variables held constant, net assets attributable to
equity holders of the Group and the profit for the year would have
decreased/increased by EUR2,000 (2008: 5% EUR14,000).
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a
financial instrument will fluctuate because of changes in market interest rates.
Cash held by the Group is invested at short-term market interest rates. The
Group has interest-bearing loans, with interest at fixed rates (note 11). As a
result, the Company is exposed to fair value interest rate risk due to
fluctuations in the prevailing levels of market interest rates. It is also
exposed to interest rate cash flow risk.
The table below summarises the Group's exposure to interest rate risks. It
includes the Group's financial assets and liabilities at the earlier of
contractual re-pricing or maturity date, measured by the carrying values of
assets and liabilities:
+-------------+--------+---------+--------+--------+--------+--------+--------------+--------------+----------+
| 31 | Average | Less | 1-3 | 3 | 1-5 | Over 5 | Non-interest | Total |
| December | interest rates | than 1 | months | months | years | years | bearing | |
| 2009 | | month | | to 1 | | | | |
| | | | | year | | | | |
+ +------------------+ + + + + + + +
| | Fixed | | | | | | | | Variable |
+-------------+--------+---------+--------+--------+--------+--------+--------------+--------------+----------+
| | % | % | EUR'000 | EUR'000 | EUR'000 | EUR'000 | EUR'000 | EUR'000 | EUR'000 |
+-------------+--------+---------+--------+--------+--------+--------+--------------+--------------+----------+
| Financial | | | | | | | | | |
| assets | | | | | | | | | |
+-------------+--------+---------+--------+--------+--------+--------+--------------+--------------+----------+
| Loans | - | Euribor | 359 | - | - | - | - | - | 359 |
| to | | +5% | | | | | | | |
| third | | | | | | | | | |
| parties | | | | | | | | | |
+-------------+--------+---------+--------+--------+--------+--------+--------------+--------------+----------+
| Financial | - | - | - | - | - | - | - | - | - |
| assets at | | | | | | | | | |
| fair | | | | | | | | | |
| value | | | | | | | | | |
| through | | | | | | | | | |
| profit or | | | | | | | | | |
| loss | | | | | | | | | |
+-------------+--------+---------+--------+--------+--------+--------+--------------+--------------+----------+
| Trade | n/a | n/a | - | - | - | - | - | 123 | 123 |
| and | | | | | | | | | |
| other | | | | | | | | | |
| receivables | | | | | | | | | |
+-------------+--------+---------+--------+--------+--------+--------+--------------+--------------+----------+
| Cash | - | 0.1% | 13,511 | - | - | - | - | - | 13,511 |
| and | | | | | | | | | |
| cash | | | | | | | | | |
| equivalents | | | | | | | | | |
+-------------+--------+---------+--------+--------+--------+--------+--------------+--------------+----------+
| Total | | | 13,870 | | | | | 123 | 13,993 |
| financial | | | | | | | | | |
| assets | | | | | | | | | |
+-------------+--------+---------+--------+--------+--------+--------+--------------+--------------+----------+
| Financial | | | | | | | | | |
| liabilities | | | | | | | | | |
+-------------+--------+---------+--------+--------+--------+--------+--------------+--------------+----------+
| Trade | | | - | - | - | - | - | (806) | (806) |
| and | | | | | | | | | |
| other | | | | | | | | | |
| payables | | | | | | | | | |
+-------------+--------+---------+--------+--------+--------+--------+--------------+--------------+----------+
| Total | | | - | - | - | - | - | (806) | (806) |
| financial | | | | | | | | | |
| liabilities | | | | | | | | | |
+-------------+--------+---------+--------+--------+--------+--------+--------------+--------------+----------+
| Total | | | 13,870 | - | - | - | - | - | - |
| interest | | | | | | | | | |
| rate | | | | | | | | | |
| sensitivity | | | | | | | | | |
| gap | | | | | | | | | |
+-------------+--------+---------+--------+--------+--------+--------+--------------+--------------+----------+
+-------------+--------+---------+--------+--------+--------+--------+--------------+--------------+----------+
| 31 | Average | Less | 1-3 | 3 | 1-5 | Over 5 | Non-interest | Total |
| December | interest rates | than 1 | months | months | years | years | bearing | |
| 2008 | | month | | to 1 | | | | |
| | | | | year | | | | |
+ +------------------+ + + + + + + +
| | Fixed | | | | | | | | Variable |
+-------------+--------+---------+--------+--------+--------+--------+--------------+--------------+----------+
| | % | % | EUR'000 | EUR'000 | EUR'000 | EUR'000 | EUR'000 | EUR'000 | EUR'000 |
+-------------+--------+---------+--------+--------+--------+--------+--------------+--------------+----------+
| Financial | | | | | | | | | |
| assets | | | | | | | | | |
+-------------+--------+---------+--------+--------+--------+--------+--------------+--------------+----------+
| Loans | - | Euribor | - | - | - | - | - | 500 | 500 |
| to | | + 5% | | | | | | | |
| third | | | | | | | | | |
| parties | | | | | | | | | |
+-------------+--------+---------+--------+--------+--------+--------+--------------+--------------+----------+
| Financial | - | - | - | - | - | - | - | 9,959 | 9,959 |
| assets at | | | | | | | | | |
| fair | | | | | | | | | |
| value | | | | | | | | | |
| through | | | | | | | | | |
| profit or | | | | | | | | | |
| loss | | | | | | | | | |
+-------------+--------+---------+--------+--------+--------+--------+--------------+--------------+----------+
| Trade | - | - | - | - | - | - | - | 66 | 66 |
| and | | | | | | | | | |
| other | | | | | | | | | |
| receivables | | | | | | | | | |
+-------------+--------+---------+--------+--------+--------+--------+--------------+--------------+----------+
| Cash | - | 0.35 | 20,131 | - | - | - | - | - | 20,131 |
| and | | | | | | | | | |
| cash | | | | | | | | | |
| equivalents | | | | | | | | | |
+-------------+--------+---------+--------+--------+--------+--------+--------------+--------------+----------+
| Total | | | 20,131 | - | - | - | - | 10,525 | 30,656 |
| financial | | | | | | | | | |
| assets | | | | | | | | | |
+-------------+--------+---------+--------+--------+--------+--------+--------------+--------------+----------+
| Financial | | | | | | | | | |
| liabilities | | | | | | | | | |
+-------------+--------+---------+--------+--------+--------+--------+--------------+--------------+----------+
| Trade | | | - | - | - | - | - | (652) | (652) |
| and | | | | | | | | | |
| other | | | | | | | | | |
| payables | | | | | | | | | |
+-------------+--------+---------+--------+--------+--------+--------+--------------+--------------+----------+
| Total | | | - | - | - | - | - | (652) | (652) |
| financial | | | | | | | | | |
| liabilities | | | | | | | | | |
+-------------+--------+---------+--------+--------+--------+--------+--------------+--------------+----------+
| Total | | | 20,131 | - | - | - | - | - | - |
| interest | | | | | | | | | |
| rate | | | | | | | | | |
| sensitivity | | | | | | | | | |
| gap | | | | | | | | | |
+-------------+--------+---------+--------+--------+--------+--------+--------------+--------------+----------+
* subject to fixed rate
At 31 December 2009, should the interest rates have increased/decreased by 100
basis points with all other variables remaining constant, the decrease/increase
in net assets attributable to shareholders for the period would amount to
approximately EUR138,700 (2008: 100 basis points EUR330,300).
Credit risk
Credit risk is the risk that a counterparty to a financial instrument will fail
to discharge an obligation or commitment that it has entered into with the
Group.
The carrying amounts of financial assets best represent the maximum credit risk
exposure at the balance sheet date, net of provisions already made. This relates
also to financial assets carried at amortised cost.
At the reporting date, the Group's financial assets exposed to credit risk, net
of provisions and excluding loans which are included within the balance of
equity accounted investments, amounted to the following:
+-------------+----------+----------+
| | 31 | 31 |
| | December | December |
| | 2009 | 2008 |
+-------------+----------+----------+
| | EUR'000 | EUR'000 |
+-------------+----------+----------+
| Loans | 359 | 500 |
| to | | |
| third | | |
| parties | | |
| (note | | |
| 11) | | |
+-------------+----------+----------+
| Financial | - | 9,959 |
| assets at | | |
| fair | | |
| value | | |
| through | | |
| profit or | | |
| loss | | |
+-------------+----------+----------+
| Trade | 123 | 66 |
| and | | |
| other | | |
| receivables | | |
+-------------+----------+----------+
| Cash | 13,511 | 20,131 |
| at | | |
| bank | | |
+-------------+----------+----------+
| | 13,993 | 30,656 |
+-------------+----------+----------+
The Group manages its credit risk by monitoring the creditworthiness of
counterparties regularly. It does not expect any counterparty other than those
debtors against which specific provisions have been made to fail to meet its
obligations (see notes 9 and 11).
Liquidity risk
Liquidity risk is the risk that the group will not be able to meet its
obligations as they fall due. The Group manages its liquidity risk by
maintaining sufficient cash balances for working capital and its joint venture
associates obtain secured bank loans to fund purchases of investment property.
During the year and since the year end, a number of the Group's JV's have been
in technical breach of their bank loan financing agreements. The Group completed
renegotiation of some of these financing arrangements during the year and since
the year end. The Group expects that further capital injections may be required
to support financing arrangements for the joint venture companies. The Group has
not guaranteed loan financing for any of its subsidiaries. The Group's liquidity
position is monitored by the Manager and the Board of Directors.
Residual undiscounted contractual maturities of financial liabilities:
Trade and other payables at 31 December 2009 and 31 December 2008 represent
trade creditors due within one month.
Fair values
The carrying amounts of all the Company's financial assets and financial
liabilities at the balance sheet date approximated to their fair values.
Fair value estimates are made at a specific point in time, based on market
conditions and information about the financial instrument. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgement (e.g., interest rates, volatility, estimated cash flows, etc.) and
therefore cannot be determined with precision.
19 Investment Policy
European Convergence Development Company plc is an Isle of Man company
established to take advantage of opportunities that exist in the property
markets of South-East Europe. The principal target countries are Bulgaria,
Romania and Turkey, with the ability to invest in Croatia and Slovakia.
The Company may invest in commercial, retail, residential and industrial
property, with a view to taking advantage of the potential for capital
appreciation. The Company primarily seeks to invest in early stage
developments; however it may also invest in partially completed assets and may
also continue to hold and operate completed developments for a substantial
period post-completion at the sole discretion of the Board. The Board must
believe that it is in the long term benefit of the investors to hold completed
developments.
A proportion of the Group's portfolio may be held in cash or cash-equivalent
investments from time to time.
The Company will establish a subsidiary structure which will primarily invest
equity and debt financing of development projects with the use of local special
purpose vehicles ("SPVs"). The Company intends that its SPV investments will be
in the form of partnerships with local or international property developers.
Pending investment, cash held will be invested in bank deposits or fixed income
securities issued by governments or banks but not corporate bonds.
It may be advantageous for the Company to borrow at the level of its SPV
subsidiaries. The Company may negotiate suitable borrowing facilities with one
or more lenders. The Directors do not intend the Company or its SPVs to borrow
in respect of any property more than 75 per cent of its value on completion.
The Company expects to invest in early stage projects with a construction period
of 2 to 4 years. Whilst the Company intends to exit from such assets
post-completion, depending on prevailing market conditions, it may be in the
best interests of the Company to hold the operating asset post completion until
market conditions are such that the Company can obtain a suitable price for the
asset.
The Company may reinvest the proceeds of sale of any properties or return the
capital or profits to Shareholders depending on market conditions prevailing at
the relevant time. Shareholders will be given the opportunity to vote on the
continued life of the Company at the Company's annual general meeting to be held
in 2016. If the resolution to curtail the life of the Company is not passed, a
similar resolution will be proposed at every fifth annual general meeting
thereafter.
It is anticipated that the Group's investment portfolio will be between 6 to 12
investments. Upon completion of the investment programme, it is anticipated
that, at that time, no single investment will represent more than 50 per cent of
the Company's total capital. In exceptional circumstances the Company may make
an investment which represents in excess of 50 per cent of the Company's total
capital. In such circumstances the anticipated investment portfolio may be
correspondingly reduced below the number of investments described above.
20 Fair Value Information
The equity accounted joint venture companies' property developments are carried
at cost adjusted thereafter for the Company's share of changes in the joint
venture's net assets. The remainder of the Company's financial assets and
financial liabilities at the balance sheet date were stated at fair value.
Fair value estimates are made at a specific point in time, based on market
conditions and information about the financial instrument. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgement (e.g., interest rates, volatility, estimated cash flows, etc.) and
therefore cannot be determined with precision.
21 Commitments at the Balance Sheet Date
At the balance sheet date the Group had a commitment to invest a further EUR2.1m
into its joint venture company Galleria Plovdiv AD. This commitment was
fulfilled on 18 February 2010.
22 Post Balance Sheet Events
On 15 April 2010, the Galleria Plovdiv shopping and entertainment centre was
successfully opened to the public.
On 1 March 2010, the Cascade Euro Tower building owned by the Group's joint
venture company, Cascade Park Plaza Srl, received Romanian Fire Brigade
certification that the building was fit for occupancy, allowing tenants to
commence their fitting out.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SEIFMIFSSEEM
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