TIDMECDC
RNS Number : 2279T
European Convergence Develop. CoPLC
24 September 2010
24 September 2010
EuroPean convergence development company plc
("ECDC" OR "THE COMPANY")
Interim Results for the Six Months ended 30 June 2010
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 interim results for the
6 months ended 30 June 2010.
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 Company's key developments continue to move towards completion, the
period under review and the subsequent period to the date of this report have
remained very challenging for the Group and the market as a whole.
I am pleased to announce that the Company's largest Bulgarian shopping mall
development, Galleria Plovdiv (53,000 sqm), had a "soft" opening during the
period along with its key anchor tenant Carrefour. A hard opening for Galleria
Plovdiv is scheduled for the second half of the year with the opening of the
Company's other Bulgarian shopping mall development, Mega Mall in Rouse also
planned to open around the same time.
In Romania, sales of the apartments at Asmita Gardens are continuing but at a
slower pace than originally anticipated. Completion of the second phase of the
development is subject to a dispute with the main contractor, Strabag which may
result in the Company initiating an arbitration claim. Major building works
have been completed on the Cascade Eurotower office development enabling tenants
to commence fitting out their respective leased space.
The impact of the global economic crisis, however, continues to be felt in the
Eastern European region with preliminary data indicating that Bulgarian GDP fell
by 3.6% in the first quarter of 2010 with Romanian GDP also predicted to
contract significantly during 2010 especially as the Government has introduced
an austerity plan (increasing VAT and reducing salaries of public officials) to
meet the requirements of the loans received from the IMF, European Union, World
Bank and European Bank.
For the remainder of 2010 and for 2011 the Group will continue to focus on
seeking to complete and let up / sell the assets and look to progress plans for
those remaining assets currently on hold.
The Board is also continuing to identifying further investment opportunities and
subsequent to the period end the Company announced two further investments in
Romania; the retail developments in Iasi and Oradea.
A detailed account of the status of each property development project is given
in the Manager's Report and the accompanying Shareholder Update Report announced
on 12 August 2010.
In the previous annual report for the year ended 31 December 2009 (published 28
June 2010) the Company reported that it had taken a prudent view of the value of
its investments in the light of the economic environments prevalent in Bulgaria
and Romania and made provisions totalling EUR9.9 million against the carrying
value of its investments. The Company will, in conjunction with its external
auditors, further review the carrying value of its assets for the upcoming 31
December 2010 annual report which may or may not lead to a further impairment of
its investments.
During the period under review, the Group made a loss before tax of EUR0.9
million. As in previous periods, this is to be expected given the stage in
development of its business. The Group should realise income from its
investments only after each has been completed and sold.
The resulting unaudited NAV per share at 30 June 2010 was EUR0.63 per share
representing a decrease of EUR0.01 per share from the previous year end (31
December 2009, EUR0.64)
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
23 September 2010
Report of the Manager
Company Overview
The total amount now invested/committed by the Company (including the two
investments announced after the period end) is EUR68m representing 76% of its net
capital raised (after allowing for share buybacks). The Company has bought back
a total of 10.71m shares since March 2008, and had unallocated cash resources of
EUR10.3m as at the balance sheet date, although EUR1.6m was subsequently committed
after the balance sheet date.
In both the Romanian and Bulgarian markets, the banks have been supportive to
developers but at the same time are reflecting market conditions in the pricing
of their debt. With only one exception the Company's financing banks have
increased the margins charged on current facilities.
The unaudited Report and Accounts at 30 June 2010 indicate a NAV per share of
EUR0.63 representing a decrease of EUR0.01 per share compared to the previous year
end.
Following the impairment review of its investments in the 31 December 2009
annual report, the Company will undertake a further review of the carrying value
of its investments for the 31 December 2010 annual report.
Bulgaria
Economic Update
The economy remained in a difficult state with mixed macroeconomic signals. On
the negative side preliminary data indicate that the Gross Domestic Product
("GDP") has contracted 3.6% in the first Quarter of 2010 and Foreign Direct
Investment ("FDI") continued to decline during the first four months of the year
representing only 0.7% of GDP (3.9% of GDP 2009). On the positive side,
unemployment continued its downward trend and registered a third consecutive
month of decline falling from a peak of 10.3% in February to 9.5% in May.
Exports have gradually increased recording EUR 4.18 billion in April 2010 against
EUR 3.5 billion for the same period in 2009.
The government's finances compare favourably to other European countries. In the
first five months of the year Bulgaria generated a budget deficit of 2% of GDP.
Government debt stood at approximately 16% of GDP in May and foreign currency
reserves were over 38% of GDP.
Meanwhile, preliminary figures from the Bulgarian National Statistical Institute
("NSI") indicated that retail sales continue to slow. For the first five months
of the year wholesale and retail sales were 12.4% down year on year. Whilst food
sales were basically static, sales of consumer electronics, furniture and cars
were considerably lower.
Bulgaria - Retail Property
Against ? backdrop of difficult market conditions, four large mall schemes with
total Gross Lettable Area ("GLA") of over 200,000 sqm have opened during the
first half of the year: Serdika Centre (50,000 sqm) and The Mall (66,000 sqm)
both in Sofia, Galleria Plovdiv (50,000 sqm) in Plovdiv, and Grand Mall Varna
(50,000 sqm) in Varna. A further 6 to 7 shopping centres are expected to open
by the end of the year. Consequently, 2010 is set to be a record year in terms
of shopping centre development.
Large and established international brands like P&C from Germany and the Inditex
brands from Spain have entered the market by opening their first stores in the
new developments in Sofia. However, these brands tend to be extremely cautious
preferring to wait and see how they perform before choosing their next expansion
move.
Occupier demand is mainly driven by these international brands which are seeking
significant discounts on rents. Coupled with the increased supply of retail
space and the existence of further space in progress has lead to further
downward pressure on rents, shortening of lease contract length, rent
concessions like step rents, longer rent-free periods, and turnover rents, as
well as landlord fit-out contributions. In the first quarter of 2010 prime
shopping centre rents were down around 12.5% on the quarter and regional centres
declines were greater.
The retail investment market has come to a virtual standstill with no
significant retail transactions recorded in the first six months of the year.
Distressed vendors continue to lower their prices but there is a general
reluctance to buy. Shopping Centre yields saw a 100 basis point reduction in
the first quarter 2010 to stand at 9.5%.
Rents and capital values are not expected to recover in the near term and little
real recovery expected until the second half of 2011.
Bulgarian Assets
Galleria Plovdiv
Following the Carrefour led soft opening in April 2010, 26 retailers
representing c. 4,000 sqm (8.4% of total retail GLA) opened shops by the end of
June, increasing total commercialisation at the end of June to 37%. This figure
is below the Managers' previous expectations and reflects the general difficult
retail trading environment existing in Bulgaria. At the end of June a further
32 tenants representing c. 11,500 sqm (c. 25% of total retail GLA) have signed
contracts and are expected to fit out and open their units by the end of
September. Advance negotiations continue with several other prospective tenants
which the Manager expects will result in the Mall being over 70% let by the end
of September. It is likely that the successful conclusion of these negotiations
will entail the provision of fit-out contributions, for which additional funding
may be necessary.
The low levels of occupancy and the temporary rental concessions provided to
retailers because the Mall has not let up as quickly as originally envisaged has
created short term liquidity issues which may necessitate restructuring of some
of the terms with the financing bank and key service providers. The increase in
occupancy shall contribute positively to the income stream and aid in overcoming
any temporary difficulties.
As a result of the delay in tenants taking over their space and fitting out
their units it has been decided to move the official opening back to the end of
September.
The Manager is also talking to a local subsidiary of an unrelated UK company to
develop and execute secondary income streams which will ultimately benefit the
shareholders. It is intended that this opportunity will be outsourced and the
costs of operating this business stream will be allocated over the Company's two
Bulgarian shopping malls and another Bulgarian Mall also managed by the Manager.
This will ensure that the maximum benefit is obtained for shareholders.
Mega Mall Rousse
Opening of the Mall is presently scheduled for early November this year. This
delay is partially down to problems in getting the road network completed for
the opening and the difficult market conditions that exist in secondary cities
in Bulgaria.
It is now apparent that the other retail developments in Rousse have either been
put on hold or their opening has being delayed to 2011. This is creating an
opportunity for the operator and recent interest shown by retailers in this
project has resulted in advance lease negotiations with several key fashion
retailers and entertainment anchors.
The Manager's expectation is that on opening the Mall will be around 75% leased.
Bourgas Retail Park & Trade Centre Sliven
There has been no further progress made on these developments since there has
been no marked improvement in either the Banking or Retail market conditions.
Romania
Political & Economic Update
In order to comply with the terms of the EUR20 billion financial support package
from the IMF, European Union, World Bank and European Bank to reduce the budget
deficit, the government has had to take certain robust measures. An austerity
program was introduced at the start of July. The key measures of this austerity
program are:
a) a cut of 25% in wages within the public sector,
b) an increase in value added tax (VAT) from 19% to 24%,
c) a cut in social transfers (excluding pensions) by 15%,
d) a tax of 16% on interest on deposits and luncheon tickets,
e) a cut in current expenses with goods and services in the public
sector,
f) redundancies in the public sector.
Initially, the government planned to reduce pensions by 15% but the measure was
rejected by the Constitutional Court and it was replaced by the increase in VAT.
Given these measures inflation is forecast to increase from an estimated 4% to
around 8%-8.5%. The monetary policy is expected to tighten up by potential
increases in the RON reference inter-bank rates, and by a strict liquidity
control of the central bank.
The short term indicators suggest that economic activity has most likely
improved in the second quarter as compared with the first quarter. The potential
quarterly GDP growth rate could be close to 0%-0.5% quarter on quarter over the
first half of 2010. However, the austerity measures are forecast to have a
negative impact on real disposable income and consumption in the second half of
2010. Given these circumstances, the expected GDP growth projection for 2010
varies depending on sources, at anywhere between 1.5% to 3% contraction.
Romanian Real Estate Market
Residential Property
In line with the slight pickup in economic activity during the second quarter of
2010, there has been an increase in buyer interest levels for the purchase of
residential property. The basic parameters remain the same with low bank
financing available, low appetite for contracting loans from the buyer side and
developers holding out at what seem to be bottom of the market prices.
The Government-launched mortgage support program has been in place since 2009,
whereby there was a EUR 600 million take-up of the EUR 1 billion allocated. For
2010 the Government allocated a EUR 700 million package, and this is producing
liquidity but at the lower pricing levels of the residential market.
During the reporting period there have been a number of insolvencies and
foreclosure procedures on a small number of large scale projects and developers.
This will have a limited impact, in the short term, as very few of these
projects were completed and ready for delivery. The concern will be if the
Banks decide to dispose of these assets at low levels which will give the new
owners a pricing advantage.
Office Market
Investors continue to be cautious due to the lack of activity within the local
market. There have only been three deals signed in the year so far; GTC
increased its share in the City Gate and City Gate Bucharest projects by 15%,
estimated to have cost EUR9.8 million. NEPI exercised its resale option on a small
office property and Cinema City bought a small office building for approximately
EUR1.4 million. This lack of activity is due to well performing buildings being
held by stable, non-distressed owners. The lack of transactional evidence makes
it difficult to forecast prime yields but these are estimated to be around 8.5%
to 8.75.
Romanian Assets
Asmita Gardens
Asmita Gardens is a residential development of 758 apartments, being delivered
in seven tower blocks in two phases. As at 30 April 2010 the following position
was reported:
? Phase 1: 324 apartments. Certified: "Take-over Certificate" ("TOC") (right
to occupy) issued on 7 October 2009, and;
? Phase 2: 434 apartments. Certified: TOC issued on 11 March 2010
The number of completed sales to June 30th 2010 were as follows:
? Of the 269 sales (83%) agreed in Phase 1, 245 have legally completed, and in
Phase 2, 19 units have completed of the 96 agreed sales (22%). A number of
clients have chosen to relocate between the 2 phases, bringing the Company
closer to achieving the target of having a fully sold and occupied Phase 1.
? The project's profile has been improved by the signing of a SPA & Gym
operator for 1,500 sqm, as part of the available commercial space on the ground
floor levels.
The Manager has worked with the sales team of the Developer to introduce a
number of initiatives which appear to have been well received by the market.
Since the initiative a total of 16 units were sold up to June 2010 at prices in
line with market levels for a quality residential development.
As mentioned in the shareholder updates Strabag Srl had issued a notice of
suspension of work which was effective from 21 March 2010. The contractor has
since also filed for a fast track Civil Court procedure for enforcing the
outstanding payments which was heard on 10 August 2010.
In recognition of the significant counterclaims that the Developer has against
Strabag, the Developer took legal advice and called the performance bond of
Strabag. Strabag obtained an injunction against this action in the Austrian
Courts. An appeal has been filed and an oral hearing was held in Vienna on 28
July. The Austrian Court backed its initial decision and kept the injunction in
place. Following this decision the Company is currently evaluating its
position.
The Developer has also commenced proceedings for a damages claim in the Romanian
Court of Arbitration, which was submitted at the end of July 2010; at the time
of the publication of this report the Court has not submitted any rulings in
relation to this action.
The financing bank is currently supportive of the Developer's action, and has
approved an additional working capital budget meant to cover the projects short
term running costs.
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.
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. The Company is also renegotiating its bank facility in
the direction of obtaining an effective 12 month grace period on the repayment
of capital which will significantly support the cash flow of the Company.
Due to the late take up of space by the current tenants the project is currently
requiring additional short term financing. Negotiations are currently underway
with the lead bank to find a resolution to this short term funding gap.
Interest in the building is high with a significant number of good quality
tenant enquiries which should lead to a satisfactory lease up of the project by
year end.
Baneasa
There have been no significant developments in this project and the Manager and
the Partner are continuing discussions with the Bank to identify potential ways
of taking the project forward on a profitable basis.
New Investments
The Company is pleased to announce that subsequent to the year end it invested
EUR900,000 into the Era Shopping Park & Iasi Galleria in Iasi, Romania (the "Iasi
Project") and EUR720,000 into the Era Shopping Park & Oradea Galleria in Oradea,
Romania (the "Oradea Project").
The Company's investments form part of total investments of EUR4.50 million (Iasi
Project) and EUR3.5 million (Oradea Project). The balance of the investments will
be contributed by the current owner of the project and by another entity managed
by the Manager.
The joint venture partner is Argo Capital Partners Fund Limited ("Argo"), a
Cayman Islands fund investing in high yield investment opportunities in
specified Emerging Market economies. The development manager, Omilos Group, is
an established operator in the Romanian market having developed Phase I of the
Iasi Project and a similar development in Oradea
Iasi
Iasi is based in North-Eastern Romania and is a principal secondary city of
Romania with a core population of circa 400,000 and a wider catchment area in
excess of 1.1 million. It has a GDP per capita at 133% of the Romanian national
average.
The Company will be investing in the second phase of an existing established
retail scheme and benefiting from the strong cash flows already being generated
from the first phase.
Phase I of the development opened in September 2007 with a Gross Build Area of
52,000 sqm and Gross Lettable Area of 45,950 sqm. It is 97% let and generates
substantial rental income. The project is anchored by Carrefour, Praktiker,
Altex MG, Mobexpert and Decathlon (to be built).
Phase II of the retail scheme consists of 40,000 sqm Gross Build Area and 28,500
sqm of Gross Lettable Area with an estimated build completion in the latter half
of 2011.
Oradea
Oradea is in north-western Romania, close to the Hungarian border. It is
traditionally a prosperous city with GDP per Capita at 150% of the Romanian
average.
The Company will be investing in the second phase of an existing established
retail scheme and benefiting from the existing cash flows already being
generated from the first phase.
Phase I has a Gross Build Area of 39,000 sqm, with a Gross Lettable Area of
23,100 sqm which opened in 2008 and generates substantial rental income. The
project is anchored by Carrefour, Bricostore and Mobexpert (to be built).Phase
II consists of
39,000 sqm Gross Build Area and 23,100 sqm of Gross Lettable Area with an
estimated build completion in Quarter 4 2010, and a planned opening date of the
first Quarter of 2011.
[The Manager will continue to evaluate investment opportunities which meet the
Company's objectives and demonstrate solid fundamentals and strong returns for
shareholders]
Charlemagne Capital (IOM) Limited
23 September 2010
Consolidated Income Statement
+---------------------+--------+-------------+-------------+
| | Note | (Unaudited) | (Unaudited) |
| | | For the | For the |
| | | period from | period from |
| | | 1 January | 1 January |
| | | 2010 to | 2009 to |
| | | 30 June | 30 June |
| | | 2010 | 2009 |
+---------------------+--------+-------------+-------------+
| | | EUR'000 | EUR'000 |
+---------------------+--------+-------------+-------------+
| | | | |
+---------------------+--------+-------------+-------------+
| Net | | - | 48 |
| rent | | | |
| and | | | |
| related | | | |
| income | | | |
+---------------------+--------+-------------+-------------+
| | | | |
+---------------------+--------+-------------+-------------+
| Net | 10 | - | 85 |
| changes | | | |
| in fair | | | |
| value | | | |
| of | | | |
| financial | | | |
| assets at | | | |
| fair | | | |
| value | | | |
| through | | | |
| profit or | | | |
| loss | | | |
+---------------------+--------+-------------+-------------+
| | | | |
+---------------------+--------+-------------+-------------+
| Annual | 6.3 | (574) | (657) |
| management | | | |
| fees | | | |
+---------------------+--------+-------------+-------------+
| Audit | 7 | (32) | (44) |
| fees | | | |
+---------------------+--------+-------------+-------------+
| Legal | | (30) | (92) |
| and | | | |
| professional | | | |
| fees | | | |
+---------------------+--------+-------------+-------------+
| Directors' | 13 | (51) | (45) |
| fees | | | |
+---------------------+--------+-------------+-------------+
| Administration | | (29) | (35) |
| fees | | | |
+---------------------+--------+-------------+-------------+
| Other | | (234) | (231) |
| operating | | | |
| expenses | | | |
+---------------------+--------+-------------+-------------+
| Administrative | | (950) | (1,104) |
| expenses | | | |
+---------------------+--------+-------------+-------------+
| | | | |
+---------------------+--------+-------------+-------------+
| Net | | (950) | (971) |
| operating | | | |
| loss | | | |
| before | | | |
| net | | | |
| financing | | | |
| income | | | |
+---------------------+--------+-------------+-------------+
| | | | |
+---------------------+--------+-------------+-------------+
| Financial | | 10 | 629 |
| income | | | |
+---------------------+--------+-------------+-------------+
| Financial | | - | (2) |
| expenses | | | |
+---------------------+--------+-------------+-------------+
| Net | | 10 | 627 |
| financing | | | |
| income | | | |
+---------------------+--------+-------------+-------------+
| | | | |
+---------------------+--------+-------------+-------------+
| Share | 8 | (73) | (963) |
| of | | | |
| loss | | | |
| of | | | |
| equity | | | |
| accounted | | | |
| investees | | | |
+---------------------+--------+-------------+-------------+
| Uplift/(impairment) | 8 | 109 | (47) |
| in value of equity | | | |
| accounted investees | | | |
+---------------------+--------+-------------+-------------+
| Impairment | 6.4 | - | (267) |
| in value | | | |
| of third | | | |
| party | | | |
| loans | | | |
+---------------------+--------+-------------+-------------+
| Loss | | (904) | (1,621) |
| before | | | |
| tax | | | |
+---------------------+--------+-------------+-------------+
| | | | |
+---------------------+--------+-------------+-------------+
| Income | | (1) | - |
| tax | | | |
| expense | | | |
+---------------------+--------+-------------+-------------+
| | | | |
+---------------------+--------+-------------+-------------+
| Retained | | (905) | (1,621) |
| loss for | | | |
| the year | | | |
+---------------------+--------+-------------+-------------+
| | | | |
+---------------------+--------+-------------+-------------+
| Basic | 11 | (0.0100) | (0.0168) |
| and | | | |
| diluted | | | |
| loss | | | |
| per | | | |
| share | | | |
| (EUR) | | | |
+---------------------+--------+-------------+-------------+
The Directors consider that all results derive from continuing activities.
Consolidated Statement of Comprehensive Income
+---------------+--------+-------------+-------------+
| | Note | (Unaudited) | (Unaudited) |
| | | Period 1 | Period 1 |
| | | January | January |
| | | 2010 to 30 | 2009 to 30 |
| | | June 2010 | June 2009 |
+---------------+--------+-------------+-------------+
| | | US$'000 | US$'000 |
+---------------+--------+-------------+-------------+
| Loss | | (905) | (1,621) |
| for | | | |
| the | | | |
| period | | | |
+---------------+--------+-------------+-------------+
| Other | | | |
| comprehensive | | | |
| income | | | |
+---------------+--------+-------------+-------------+
| Currency | | 8 | (5) |
| translation | | | |
| differences | | | |
+---------------+--------+-------------+-------------+
| Total | | (897) | (1,626) |
| comprehensive | | | |
| loss for the | | | |
| period | | | |
+---------------+--------+-------------+-------------+
Consolidated Balance Sheet
+-------------+--------+-------------+-----------+
| | Note | (Unaudited) | (Audited) |
| | | At 30 June | At 31 |
| | | 2010 | December |
| | | | 2009 |
+-------------+--------+-------------+-----------+
| | | EUR'000 | EUR'000 |
+-------------+--------+-------------+-----------+
| | | | |
+-------------+--------+-------------+-----------+
| Investment | 8 | 47,582 | 45,149 |
| in equity | | | |
| accounted | | | |
| investees | | | |
+-------------+--------+-------------+-----------+
| Loans | 6.4 | - | - |
| to | | | |
| third | | | |
| parties | | | |
+-------------+--------+-------------+-----------+
| Property, | | 1 | 2 |
| plant and | | | |
| equipment | | | |
+-------------+--------+-------------+-----------+
| | | | |
+-------------+--------+-------------+-----------+
| Total | | 47,583 | 45,151 |
| non-current | | | |
| assets | | | |
+-------------+--------+-------------+-----------+
| | | | |
+-------------+--------+-------------+-----------+
| Loans | 6.4 | 345 | 359 |
| to | | | |
| third | | | |
| parties | | | |
+-------------+--------+-------------+-----------+
| Financial | 10 | - | - |
| assets at | | | |
| fair | | | |
| value | | | |
| through | | | |
| profit or | | | |
| loss | | | |
+-------------+--------+-------------+-----------+
| Trade | | 98 | 123 |
| and | | | |
| other | | | |
| receivables | | | |
+-------------+--------+-------------+-----------+
| Cash | | 10,345 | 13,511 |
| and | | | |
| cash | | | |
| equivalents | | | |
+-------------+--------+-------------+-----------+
| Total | | 10,788 | 13,993 |
| current | | | |
| assets | | | |
+-------------+--------+-------------+-----------+
| Total | | 58,371 | 59,144 |
| assets | | | |
+-------------+--------+-------------+-----------+
| | | | |
+-------------+--------+-------------+-----------+
| Issued | 9 | 72,412 | 72,412 |
| share | | | |
| capital | | | |
+-------------+--------+-------------+-----------+
| Share | | 9,841 | 9,841 |
| premium | | | |
+-------------+--------+-------------+-----------+
| Foreign | | 16 | 8 |
| currency | | | |
| translation | | | |
| reserve | | | |
+-------------+--------+-------------+-----------+
| Retained | | (24,828) | (23,923) |
| losses | | | |
+-------------+--------+-------------+-----------+
| Total | | 57,441 | 58,338 |
| equity | | | |
+-------------+--------+-------------+-----------+
| | | | |
+-------------+--------+-------------+-----------+
| Trade | 12 | 930 | 806 |
| and | | | |
| other | | | |
| payables | | | |
+-------------+--------+-------------+-----------+
| Total | | 930 | 806 |
| current | | | |
| liabilities | | | |
+-------------+--------+-------------+-----------+
| Total | | 930 | 806 |
| liabilities | | | |
+-------------+--------+-------------+-----------+
| Total | | 58,371 | 59,144 |
| equity | | | |
| & | | | |
| liabilities | | | |
+-------------+--------+-------------+-----------+
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 | 73,308 | 9,146 | 12 | (10,919) | 71,547 |
| at 1 | | | | | |
| January | | | | | |
| 2009 | | | | | |
+---------------+---------+---------+-------------+----------+---------+
| Loss | - | - | - | (1,621) | (1,621) |
| for | | | | | |
| the | | | | | |
| period | | | | | |
+---------------+---------+---------+-------------+----------+---------+
| Other | | | | | |
| comprehensive | | | | | |
| loss | | | | | |
+---------------+---------+---------+-------------+----------+---------+
| Foreign | - | - | (5) | - | (5) |
| exchange | | | | | |
| translation | | | | | |
| differences | | | | | |
+---------------+---------+---------+-------------+----------+---------+
| Total | - | - | (5) | (1,621) | (1,626) |
| comprehensive | | | | | |
| loss | | | | | |
+---------------+---------+---------+-------------+----------+---------+
| Shares | (896) | 695 | - | - | (201) |
| cancelled | | | | | |
| following | | | | | |
| market | | | | | |
| purchases | | | | | |
+---------------+---------+---------+-------------+----------+---------+
| Total | (896) | 695 | - | - | (201) |
| transactions | | | | | |
| with owners | | | | | |
| in the | | | | | |
| period | | | | | |
+---------------+---------+---------+-------------+----------+---------+
| Balance | 72,412 | 9,841 | 7 | (12,540) | 69,720 |
| at 30 | | | | | |
| June | | | | | |
| 2009 | | | | | |
+---------------+---------+---------+-------------+----------+---------+
+---------------+--------+--------+--------+----------+----------+
| | | | | | |
+---------------+--------+--------+--------+----------+----------+
| Balance | 73,308 | 9,146 | 12 | (10,919) | 71,547 |
| at 1 | | | | | |
| January | | | | | |
| 2009 | | | | | |
+---------------+--------+--------+--------+----------+----------+
| Loss | - | - | - | (13,004) | (13,004) |
| for | | | | | |
| the | | | | | |
| year | | | | | |
+---------------+--------+--------+--------+----------+----------+
| Other | | | | | |
| comprehensive | | | | | |
| loss | | | | | |
+---------------+--------+--------+--------+----------+----------+
| 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 | | | | | |
+---------------+--------+--------+--------+----------+----------+
+---------------+--------+--------+--------+----------+--------+
| Balance | 72,412 | 9,841 | 8 | (23,923) | 58,338 |
| at 1 | | | | | |
| January | | | | | |
| 2010 | | | | | |
+---------------+--------+--------+--------+----------+--------+
| Loss | - | - | - | (905) | (905) |
| for | | | | | |
| the | | | | | |
| period | | | | | |
+---------------+--------+--------+--------+----------+--------+
| Other | | | | | |
| comprehensive | | | | | |
| loss | | | | | |
+---------------+--------+--------+--------+----------+--------+
| Foreign | - | - | 8 | - | 8 |
| exchange | | | | | |
| translation | | | | | |
| differences | | | | | |
+---------------+--------+--------+--------+----------+--------+
| Total | - | - | 8 | (905) | (897) |
| comprehensive | | | | | |
| loss | | | | | |
+---------------+--------+--------+--------+----------+--------+
| Balance | 72,412 | 9,841 | 16 | (24,828) | 57,441 |
| at 30 | | | | | |
| June | | | | | |
| 2010 | | | | | |
+---------------+--------+--------+--------+----------+--------+
Consolidated Cash Flow Statement
+---------------------+--------+-------------+-------------+
| | Note | (Unaudited) | (Unaudited) |
| | | For the | For the |
| | | period from | period from |
| | | 1 January | 1 January |
| | | 2010 to | 2009 to |
| | | 30 June | 30 June |
| | | 2010 | 2009 |
+---------------------+--------+-------------+-------------+
| | | EUR'000 | EUR'000 |
+---------------------+--------+-------------+-------------+
| | | | |
+---------------------+--------+-------------+-------------+
| Operating | | | |
| activities | | | |
+---------------------+--------+-------------+-------------+
| Group | | (905) | (1,621) |
| loss | | | |
| for | | | |
| the | | | |
| year | | | |
+---------------------+--------+-------------+-------------+
| Adjustments | | | |
| for: | | | |
+---------------------+--------+-------------+-------------+
| Net | | - | |
| changes | | | (85) |
| in fair | | | |
| value | | | |
| on | | | |
| financial | | | |
| assets at | | | |
| fair | | | |
| value | | | |
| through | | | |
| profit or | | | |
| loss | | | |
+---------------------+--------+-------------+-------------+
| | | (9) | (675) |
| Financial | | | |
| income | | | |
+---------------------+--------+-------------+-------------+
| | | (109) | 314 |
| (Uplift)/impairment | | | |
| in value of third | | | |
| party loans | | | |
+---------------------+--------+-------------+-------------+
| | | 73 | 963 |
| Share | | | |
| of | | | |
| loss | | | |
| of | | | |
| equity | | | |
| accounted | | | |
| investees | | | |
+---------------------+--------+-------------+-------------+
| Operating | | (950) | (1,104) |
| loss | | | |
| before | | | |
| changes | | | |
| in | | | |
| working | | | |
| capital | | | |
+---------------------+--------+-------------+-------------+
| | | | |
+---------------------+--------+-------------+-------------+
| Decrease | | 25 | 25 |
| in trade | | | |
| and | | | |
| other | | | |
| receivables | | | |
+---------------------+--------+-------------+-------------+
| Decrease/(increase) | | 133 | (96) |
| in trade and other | | | |
| payables | | | |
+---------------------+--------+-------------+-------------+
| | | | |
+---------------------+--------+-------------+-------------+
| Cash | | (792) | (1,175) |
| used | | | |
| in | | | |
| operations | | | |
+---------------------+--------+-------------+-------------+
| Financial | | 10 | 675 |
| income | | | |
| received | | | |
+---------------------+--------+-------------+-------------+
| Cash | | (782) | (500) |
| flows | | | |
| used | | | |
| from | | | |
| operating | | | |
| activities | | | |
+---------------------+--------+-------------+-------------+
| | | | |
+---------------------+--------+-------------+-------------+
| Investing | | | |
| activities | | | |
+---------------------+--------+-------------+-------------+
| Purchase | | - | (24,956) |
| of | | | |
| treasury | | | |
| bills | | | |
+---------------------+--------+-------------+-------------+
| Maturity | | - | 35,000 |
| of | | | |
| treasury | | | |
| bills | | | |
+---------------------+--------+-------------+-------------+
| Increase | | (2,397) | (8,493) |
| in loans | | | |
| to | | | |
| equity | | | |
| accounted | | | |
| investees | | | |
+---------------------+--------+-------------+-------------+
| Decrease/(increase) | | 12 | (321) |
| in loans to third | | | |
| parties | | | |
+---------------------+--------+-------------+-------------+
| Sale | | 1 | 1 |
| of | | | |
| property, | | | |
| plant & | | | |
| equipment | | | |
+---------------------+--------+-------------+-------------+
| Cash | | (2,384) | 1,231 |
| flows | | | |
| (used | | | |
| in)/generated | | | |
| from | | | |
| investing | | | |
| activities | | | |
+---------------------+--------+-------------+-------------+
| | | | |
+---------------------+--------+-------------+-------------+
| Financing | | | |
| activities | | | |
+---------------------+--------+-------------+-------------+
| Purchase | 9 | - | (201) |
| of own | | | |
| shares | | | |
+---------------------+--------+-------------+-------------+
| Cash | | | (201) |
| flows | | | |
| used | | | |
| in | | | |
| financing | | | |
| activities | | | |
+---------------------+--------+-------------+-------------+
| | | | |
+---------------------+--------+-------------+-------------+
| Net | | (3,166) | 530 |
| (decrease)/increase | | | |
| in cash and cash | | | |
| equivalents | | | |
+---------------------+--------+-------------+-------------+
| Cash | | 13,511 | 20,131 |
| and | | | |
| cash | | | |
| equivalents | | | |
| at | | | |
| beginning | | | |
| of period | | | |
+---------------------+--------+-------------+-------------+
| Cash | | 10,345 | 20,661 |
| and | | | |
| cash | | | |
| equivalents | | | |
| at end of | | | |
| period | | | |
+---------------------+--------+-------------+-------------+
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.
The Company's agents and the Manager perform all significant functions.
Accordingly, the Company itself has no employees.
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 | | |
+--------------+---------------+------------+
| ECD | Cayman | 100% |
| Management | | |
| (Cayman) | | |
| 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 | | |
+-------------+---------------+------------+
| NEF3 | Isle | 55% |
| (IOM) | of Man | |
| 1 | | |
| Limited | | |
| * | | |
+-------------+---------------+------------+
| NEF3 | Isle | 55% |
| (IOM) | of Man | |
| 3 | | |
| Limited | | |
| * | | |
+-------------+---------------+------------+
* These holdings were acquired in September 2010 as part of the Iasi and Oradea
developments referred to in the Report of the Manager.
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 accounting policies applied by the Group in these condensed consolidated
financial statements are the same as those applied by the group in its
consolidated financial statements for the year ended 31 December 2009.
The Interim report of the Company for the period ending 30 June 2010 comprises
the Company and its subsidiaries (together referred to as the "Group"). The
interim consolidated financial statements are unaudited.
4.1 Basis of presentation
European Convergence Development Company plc (the "Company") is a company
domiciled in the Isle of Man. These condensed consolidated interim financial
statements of the Company as at and for the six months ended 30 June 2010
comprise the Company and its subsidiaries (together referred to as the "Group")
and the Group's interests in associates and jointly controlled entities, and
have been prepared in accordance with IAS34 Interim Financial Reporting.
These consolidated interim financial statements do not include all the
information required for full annual financial statements and so should be read
in conjunction with the consolidated financial statements of the Group as at and
for the year ended 31 December 2009.
The consolidated financial statements of the Group as at and for the year ended
31 December 2009 are available upon request from the Company's registered office
at Third Floor, Britannia House, St Georges House, Douglas, Isle of Man IM1 1JE.
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 note 8.
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 assets under construction 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 repayment terms for these
facilities have been re-negotiated.
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 JV entities.
The Company is denominated in Euros ("EUR") and therefore the amounts shown in
these financial statements are presented in EUR.
4.2 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.
Associates and joint ventures (equity accounted investees)
Investments in associates and joint ventures are carried at the lower of cost
and net realisable value. Associates are those entities in which the Group has a
significant influence, but no control, over the financial and operating polices.
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. Associates and 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
significant influence or joint control commences until the date that significant
influence or 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 and associates are kept under review for
impairment. Where, in the opinion of the directors, the net realisable value of
an investment falls below cost, a provision is made against the investment and
charged to the profit and loss account.
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.
4.3 Dividends
Dividends are recognised as a liability in the period in which they are declared
and approved. There was no dividend declared as at 30 June 2010 (2009: Nil).
4.4 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 current period, 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 premium on the
repurchased shares was credited to the share premium account.
4.5 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 note 8. No additional disclosure
is required in relation to segment reporting, as the Company's activities are
limited to one business and geographic segment.
4.6 Presentation of Financial Statements
The Group applies revised IAS1 Presentation of Financial Statement (2007) which
became effective as of 1 January 2009. As a result, the Group presents in a
consolidated statement of equity all owner changes in equity, whereas all
non-owner changes in equity are presented in the consolidated statement of
comprehensive income. This presentation has been applied in these condensed
interim financial statements as of and for the six months period ended 30 June
2010.
5 Unaudited Net Asset Value per Share
The unaudited net asset value per share as at 30 June 2010 is EUR0.6346 (31
December 2009: EUR0.6445) based on 90,515,470 (31 December 2009: 90,515,470)
ordinary shares in issue as at that date.
6 Related Party Transactions
6.1Directors 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 has 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 determinable within one year.
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.
A subsidiary company of the Manager 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 30 June 2010.
CCL, a company incorporated in the Cayman Islands is listed on the Alternative
Investment Market of the London Stock Exchange.
6.2 Directors of the Subsidiaries
James Houghton is a director 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.
6.3 Manager fees
Annual management fees payable during the period ended 30 June 2010 amounted to
EUR574,046 (2009: EUR656,662).
Performance fees payable during the period ended 30 June 2010 amounted to EUR nil
(2009: EUR nil).
6.4 Transactions and balances with Joint Venture companies and
partners
The Company has loans to Joint Venture Companies totalling EUR50,914,584 (31
December 2009: EUR48,518,000) and to Joint Venture Partners totalling EUR4,510,403
(31 December 2009: EUR4,525,000). Details of the terms and applicable interest
rates for these loans are more fully shown in note 8.
6.5 Intragroup balances
Intragroup balances are repayable on demand and bear interest at commercial
rates. Loans to subsidiaries outstanding at the period end have been impaired to
fair value.
7 Audit fees
Audit fees payable for the period ended 30 June 2010 amounted to EUR31,542 (2009:
EUR43,950).
8 Investment in Equity Accounted Investments
+---------------+--------+----------+
| Group | 30 | 31 |
| | June | December |
| | 2010 | 2009 |
+---------------+--------+----------+
| | EUR'000 | EUR'000 |
+---------------+--------+----------+
| At | 45,149 | 41,540 |
| beginning | | |
| of | | |
| period/year | | |
+---------------+--------+----------+
| Acquisition | - | - |
| of equity | | |
| accounted | | |
| investment | | |
+---------------+--------+----------+
| Movement | 2,397 | 15,085 |
| in loans | | |
| treated | | |
| as | | |
| equity | | |
| accounted | | |
| investment | | |
+---------------+--------+----------+
| Share | (73) | (1,555) |
| of | | |
| loss | | |
| of | | |
| equity | | |
| accounted | | |
| investment | | |
+---------------+--------+----------+
| Uplift/(Write | 109 | (9,921) |
| down) of | | |
| value of | | |
| equity | | |
| accounted | | |
| investment | | |
+---------------+--------+----------+
| Balance | 47,582 | 45,149 |
| at end | | |
| of year | | |
+---------------+--------+----------+
The loans to equity accounted investees are as follows:
+-------------+--------+----------+----------+--------+
| Name | Term | Term | Interest | 30 |
| | | | Rate | June |
| | | | | 2010 |
+-------------+--------+----------+----------+--------+
| | | | | EUR'000 |
+-------------+--------+----------+----------+--------+
| Asmita | * | 31 | 6% | 14,370 |
| Gardens | | December | | |
| SRL | | 2012 | | |
+-------------+--------+----------+----------+--------+
| Galleria | * | * | 0%** | 20,000 |
| Plovdiv | | | | |
| AD | | | | |
+-------------+--------+----------+----------+--------+
| Convergence | | | | 3,444 |
| Development | | | | |
+-------------+--------+----------+----------+--------+
| 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.
The carrying values of the Group's equity accounted investments are as follows:-
+-----------+--------+----------+
| Name | Value | Value |
| | at 30 | at 31 |
| | June | December |
| | 2010 | 2009 |
+-----------+--------+----------+
| | EUR'000 | EUR'000 |
+-----------+--------+----------+
| Asmita | 8,000 | 8,000 |
| Gardens | | |
| SRL | | |
+-----------+--------+----------+
| Cascade | 8,710 | 8,612 |
| Park | | |
| Plaza | | |
| SRL | | |
+-----------+--------+----------+
| Galleria | 20,021 | 17,711 |
| Plovdiv | | |
| AD | | |
+-----------+--------+----------+
| Mega | 4,038 | 4,018 |
| Mall | | |
| Rousse | | |
+-----------+--------+----------+
| Trade | 2,239 | 2,234 |
| Centre | | |
| Sliven | | |
| EAD | | |
+-----------+--------+----------+
| Turgovski | 4,574 | 4,574 |
| Park | | |
| Kraimorie | | |
| AD | | |
+-----------+--------+----------+
| | 47,582 | 45,149 |
+-----------+--------+----------+
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.
In the previous period a further provision of EUR425k 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. It should be noted that due to the lack of recent comparable
transactions land valuations are highly subjective. The valuation of the Group's
investment represents the Director's best estimate only.
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 | 104,683 | 114,124 | 15,912 | 44 | 50 |
+----------------------+---------------+---------+-------------+----------+---------+----------+
| Cascade Park Plaza | Romania | 34,187 | 38,946 | 1,020 | 244 | 40 |
| SRL | | | | | | |
+----------------------+---------------+---------+-------------+----------+---------+----------+
| Convergence | Romania | 6,071 | - | - | - | 50 |
| Development Invest | | | | | | |
| SRL | | | | | | |
+----------------------+---------------+---------+-------------+----------+---------+----------+
| Galleria Plovdiv AD | Bulgaria | 76,624 | 63,318 | 5,019 | (283) | 50 |
+----------------------+---------------+---------+-------------+----------+---------+----------+
| Mega Mall Rousse AD | Bulgaria | 23,010 | (17,923) | 203 | 247 | 50 |
+----------------------+---------------+---------+-------------+----------+---------+----------+
| Trade Centre Sliven | Bulgaria | 5,623 | (6) | 26 | (144) | 42.5 |
| EAD | | | | | | |
+----------------------+---------------+---------+-------------+----------+---------+----------+
| Turgovski Park | Bulgaria | 13,043 | (13,032) | - | (37) | 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.
The figures in the tables above 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.
9 Capital and Reserves
Share Capital
+-----------+------------+--------+
| | 2010 | 2010 |
+-----------+------------+--------+
| | Number | EUR'000 |
+-----------+------------+--------+
| Ordinary | | |
| Shares | | |
| of EUR0.80 | | |
| each | | |
+-----------+------------+--------+
| In | 90,515,470 | 72,412 |
| issue | | |
| at 01 | | |
| January | | |
| 2010 | | |
+-----------+------------+--------+
| Shares | - | - |
| cancelled | | |
| during | | |
| the year | | |
+-----------+------------+--------+
| In | 90,515,470 | 72,412 |
| issue | | |
| at 30 | | |
| June | | |
| 2010 | | |
+-----------+------------+--------+
+----------+-------------+--------+
| | 2009 | 2009 |
+----------+-------------+--------+
| | Number | EUR'000 |
+----------+-------------+--------+
| Ordinary | | |
| Shares | | |
| of EUR0.80 | | |
| each | | |
+----------+-------------+--------+
| In | 91,635,470 | 73,308 |
| issue | | |
| at 1 | | |
| January | | |
| 2009 | | |
+----------+-------------+--------+
| Issued | (1,120,000) | (896) |
| during | | |
| the | | |
| year | | |
+----------+-------------+--------+
| In | 90,515,470 | 72,412 |
| issue | | |
| at 31 | | |
| December | | |
| 2009 | | |
+----------+-------------+--------+
At incorporation the authorised share capital of the Company was EUR240 million
divided into 300 million Ordinary Shares of EUR0.80 each.
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 periods ended 30 June 2009 and 2010.
10 Financial assets at fair value through profit or loss
Net changes in fair value on financial assets at fair value through profit or
loss:
+------------+--------+----------+
| | 30 | 31 |
| | June | December |
| | 2010 | 2009 |
+------------+--------+----------+
| | EUR'000 | EUR'000 |
+------------+--------+----------+
| Realised | - | 78 |
+------------+--------+----------+
| Unrealised | - | 7 |
+------------+--------+----------+
| Total | - | 85 |
| gains | | |
+------------+--------+----------+
11 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.
+---------------+--------+---------+
| | 2010 | 2009 |
+---------------+--------+---------+
| Loss | (905) | (1,621) |
| attributable | | |
| to equity | | |
| holders of | | |
| the Company | | |
| (EUR'000) | | |
+---------------+--------+---------+
| Weighted | 90,515 | 96,420 |
| average | | |
| number | | |
| of | | |
| ordinary | | |
| shares | | |
| in issue | | |
| (thousands) | | |
+---------------+--------+---------+
| Basic | (1.00) | (1.68) |
| and | | |
| diluted | | |
| (loss)/profit | | |
| per share | | |
| (Euro cent | | |
| per share) | | |
+---------------+--------+---------+
12 Trade and Other Payables
+-------------+--------+----------+
| Group | 30 | 31 |
| | June | December |
| | 2010 | 2009 |
+-------------+--------+----------+
| | EUR'000 | EUR'000 |
+-------------+--------+----------+
| Withholding | - | 146 |
| tax | | |
+-------------+--------+----------+
| Trade | 23 | 22 |
| creditors | | |
+-------------+--------+----------+
| Accruals | 907 | 638 |
+-------------+--------+----------+
| Total | 930 | 806 |
+-------------+--------+----------+
13 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 period ended 30 June 2010 amounted to EUR50,814 (2009:
EUR45,000).
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.
14 Fair Value Information
The equity accounted joint venture companies' property developments are carried
at the lower of cost and net realisable value. 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.
15 Commitments as at the Balance Sheet date
At the balance sheet date the Group had no outstanding commitments.
16 Post Balance Sheet Events
Since the period end the Group has incorporated another subsidiary company:
European Convergence Development Management (Cayman) Limited.
In September the Group announced two additional investments in Romania; EUR900,000
into the Iasi development and a further EUR720,000 into the Oradea development.
Both these developments are referred to in detail in the Report of the Manager.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR PGUMCBUPUGAW
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