TIDMECDC
RNS Number : 4703N
European Convergence Develop. CoPLC
28 September 2012
28 September 2012
EuroPean convergence development company plc
("ECDC" OR "THE COMPANY")
Interim Results for the Six Months ended 30 June 2012
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 six months ended 30 June
2012.
The interim report & consolidated financial statements of
the Company for the period ended 30 June 2012 will not be posted to
shareholders but in accordance with the AIM Rules for Companies can
be downloaded from the Company's website at
www.europeanconvergencedevelopment.com.
For further information please contact:
European Convergence Development Company
plc +44 (0)1624 640200
Anderson Whamond
+44 (0)207 518
Charlemagne Capital 2100
Varda Lotan
Galileo Fund Services Limited +44 (0)1624 692600
Ian Dungate, Company Secretary
44 (0)20 7459
Panmure Gordon 3600
Hugh Morgan
Grishma Patel
+44 (0)20 7360
Smithfield Consultants 4900
John Kiely
Ged Brumby
Chairman's Statement
It has been another very difficult six months for both Romania
and Bulgaria from an economic and a property point of view. The
early shoots of economic recovery seen at the end of the last
financial year have not developed further and in fact in some areas
have actually declined. Property transactions are at extremely low
levels, banks are not granting credit facilities and there is the
continued risk that the banks will foreclose on non-performing
loans. At the same time the Board have tried to maintain the cash
position of the business to ensure that should good opportunities
materialise in the future there is the ability to participate in
order to enhance shareholder value.
Romania continued to meet most of the targets set by the EU/IMF
with both giving a positive assessment of the country and it is
therefore expected that further funds will be released. The country
saw its inflation rate fall slightly over the first half of the
year though increases in food and fuel prices pushed the rate up at
the end of the period. Unemployment remained static but it is GDP
growth and Foreign Direct Investment that are the major concerns.
With over 70% of exports going to the European Union the likelihood
is that GDP growth will remain sluggish at best and a full year out
turn of 0.5% growth is currently being forecast. Foreign Direct
Investment has collapsed to EUR0.6 billion in the first six months.
At the beginning of the year the Central Bank reduced interest
rates by 0.25% three times from 6% to 5.25% to assist economic
recovery.
The Bulgarian economy grew 0.5% year on year at the end of June
2012. At the end of the half year both exports and imports declined
and industrial growth declined. Inflation declined steadily until
June but subsequently the Government increased the cost of petrol
and household fuel which resulted in the inflation rate surging to
3.1% from 1.6% in June. The issue in Bulgaria appears to be the
continued high level of savings which are impacting on
consumption.
The property markets in both countries have continued to be
extremely difficult though there is little evidence that capital
values have declined further. Overall there has been stabilisation
of rental levels in both the office and retail markets but retail
occupancy levels continue to be below satisfactory levels,
especially in Bulgaria where over 30% vacancy rates are being
recorded in secondary cities as good quality tenants are hard to
find on reasonable terms. It continues to be a tenant's market in
retail.
The capital markets remain illiquid with no transactions taking
place in Bulgaria during the first six months of 2012 and only a
handful in Romania with the majority of those transactions
undertaken by one fund.
In respect of the Company's developments we continue to work
with our partners and banks to ensure that the projects remain
intact, the banks do not foreclose and we improve the income
generation to enhance shareholder value.
In Bucharest our development at Cascade required additional
funding from the Company as its contribution to the restructuring
package negotiated with the Bank which enabled settlement of all
sub contractor claims. This has enabled ECDC to continue to
participate in the value enhancement that should happen with this
Grade A office building. The Board are pleased to announce that the
building is now 97% let and consequently fully expects it to meet
its banking obligations.
The two developments in Oradea and Iasi appear to be proceeding
well though each are at a different stage of their respective
developments. The Board were very pleased to be told that the
Proton Loan agreement for Argo Real Estate Opportunities Fund was
concluded successfully.
In Plovdiv the Board are working hard with the manager to
achieve some key letting targets and to assist in this process the
development company has appointed an experienced asset manager to
assist in the process. The Manager is hopeful that at the end of
this year, if certain leasing targets are met, the asset should be
able to meet all its operational costs without further assistance
from the shareholders. The Manager is continuing to negotiate with
the lending bank to ensure that it is fully informed of
developments and the Board is hopeful that a restructuring package
can be negotiated.
In Rousse the Manager and local partner are working hard to
secure additional lettings and it is encouraging that there has
been some success in what is an extremely difficult local market.
To date the development is 59% let. The partner has worked very
hard to minimise costs of operations so that the rent and service
charge income should cover the operational costs from the beginning
of next year. The Manager is also talking with the lending bank on
how best to restructure the debt.
The Board continue to watch closely the insolvency proceedings
for Asmita and also the development markets for Sliven and Bourgas.
The Board is awaiting an improvement in both the debt funding and
leasing markets before it can consider investing further funds to
develop these two assets.
Valuation and NAV
The individual assets are not independently valued at the half
year but the Board review each asset to assess whether there should
be any further impairment or enhancement in the carrying value of
the investments. The movement in NAV from EUR30.59 cents at 31
December 2011 to EUR30.17 cents at 30 June 2012 reflects ongoing
operating expenses of the Company incurred during the period offset
by a small gain on investments held.
It is the intention of the Board to undertake full independent
valuations of the assets as at 31(st) December 2012.
It is not the intention of the Board to announce any
distributions.
Anderson Whamond
Chairman
20 September 2012
Report of the Manager
Economic and Political Overview
Romania
Romania reported GDP growth of 2.5% during 2011 but has
struggled to maintain growth during 2012. In the first half of the
year GDP grew by 0.8% when compared to the same period in 2011. The
full year forecast is for further expansion but at levels closer to
1.0%. The Government has reduced its official 2012 target, which
had previously been agreed with the IMF from 1.5% to 1.2% whilst
the IMF has agreed to an economic growth figure above 1% even with
poor agricultural production and the economic slowdown in the euro
zone.
At the end of June, inflation stood at 2.04% reversing the trend
of the last eight months where rates fell consistently to a record
low of 1.79% in May. Inflation has rebounded and in August stood at
3.88% and getting very close to the Central Bank's target for 2012
of 3% plus or minus 1.0%. Part of the reasons behind the increase
in inflation is the political turmoil which has prevented policy
makers from cutting borrowing costs below the 5.25% it was in April
to assist the recession hit economy. Citigroup predict year-end
inflation reaching 3.5% versus the Central Bank's most recent
forecast of 3.2%.
The unemployment rate declined 0.1% in the first quarter of the
year to 7.7% when compared to the previous quarter but is still at
recent historical highs.
Romania maintained its Investment Grade rating but at the end of
June Moody's changed the outlook from "stable" to "negative", based
on the current vulnerability to adverse developments in other
European countries.
The Government continues to meet the targets set by the IMF and
the European Commission. Technical missions from both the IMF and
the EU visited Bucharest at the beginning of the year and gave a
favourable assessment at the end of their visit.
Local elections on 10 June resulted in a clear victory for the
current ruling alliance (Social Liberal Union - USL) between the
Social Democratic Party (PSD) and the National Liberal Party (PNL),
which received around 50% of the votes. The outcome suggests an
important advantage for the USL alliance in the parliamentary
elections due at the end of the year.
Following the election victory a conflict arose between the new
ruling coalition and President Basescu which resulted in Parliament
voting for the impeachment of the President on the 6th July 2012.
These, together with other measures taken by the ruling coalition
have given rise to major concerns over the continuation of
functioning democracy in Romania. As a direct result the EU is
sending a delegation to Romania and statements have been made by
Angela Merkel and other EU politicians expressing concerns over the
rule of law and ongoing democracy in the country.
The political tensions had a direct impact on the exchange rate
with the EUR/RON rate climbing to 4.54 RON for the EURO, from 4.45
a week earlier. Also bond yields, especially given the context of
high uncertainty on the external markets, are expected to
significantly rise over the short term.
Bulgaria
The Bulgarian economy expanded 0.3% quarter on quarter and 0.5%
year on year during quarter 2 which represented an increase over
the zero percent quarter on quarter growth recorded in quarter 1.
Quarter 2 represented the tenth consecutive quarter when negative
quarter on quarter growth has not been recorded.
Final consumption went up by 2.2% on a year earlier and had a
positive contribution to GDP growth. Exports in June, posted their
first year on year contraction since the start of the recovery,
down by 1.9% but they were still higher than the four year monthly
average. Exports recovered in July growing 0.8% against June and
for the seven month to the end of July were up 1.7% on the similar
period in 2011. Exports to the EU in the seven months to July
represented 71.6% of total exports, down slightly on the first six
monthly performance.
The total value of all goods imported in the period January -
July 2012 were 12.5% more than the corresponding period of the
previous year and in July 2012, total imports increased by 5.7%
compared to July 2011.
Monthly inflation fell steadily during the first six months of
the year from 2.8% at the end of December 2011 to a recent low of
1.6% in June. Subsequent to big price hikes in electricity and fuel
prices in July, the monthly rate has increased to 3.9% in
August.
Unemployment at the end of quarter 2 2012 declined 0.3% from
quarter 1, to 12.6%. Unemployment peaked in quarter 1 at 12.9% -
the highest rate over the last eight years.
Foreign Direct Investments (FDI) for the first six months of the
year represented 6% of GDP and a substantial increase over the same
period in 2011 of 0.2% of GDP. FDI improved further in July with
total investment of EUR625 million which was double the July 2011
figure.
Bulgaria issued EUR950 million 4.25% 5 year bonds in July which
were oversubscribed by investors with the final order book standing
at over EUR6bn. The strong investor response and robust
participation in this deal demonstrated Bulgaria's credit
strengths, relatively solid macroeconomic performance, fiscal and
financial stability.
Property Market Overview
Romania
Office Market
Modern office supply in Bucharest at the end of 2011 was 1.87m
sqm and the 90,000 sqm delivered during the year represented the
lowest level of completions in any year since 2004. In the first
half of 2012 only c24,600 sqm was delivered and 68,000 sqm are
expected to be completed by the year end. Take up has increased in
Quarter 2 with new take up at 58,700 sqm with the remainder being
renewals. For the first half of 2012 the new take up was
approximately 108,000 sqm with pre leases covering approximately
44%.
Vacancy rates have increased to around 15% with the 25,000 sqm
TCI tower in the CBD accounting for the majority of the increase.
The lowest level of vacancy was recorded in the Floreasca Barbu
Vacarescu (FBV) area, closely followed by the CBD. There is a
significant risk that should all announced projects in the FBV
corridor materialise then there will be an oversupply which may
lead to a subsequent reduction in rental levels.
Rental levels have remained static during the period though,
because of the shortage of modern office supply in the CBD, mild
rental growth may be seen in the second half of the year.
For 2012 the delivery pipeline is estimated below 100,000 sqm in
already announced projects of which 37% is pre-let or owner
occupied. Looking forward to 2013, supply is estimated at 130,000
sqm of which 34% is pre let.
Retail
The total shopping centre stock in Romania stands at 2.3 million
sqm, with only 2 completions recorded in the first half of the
year. During 2012 it is estimated that between 5 and 7 projects
will be completed adding around 180,000 sqm to the current supply.
Approximately 330,000 sqm of retail space is under completion and
is expected to be delivered by the end of 2013.
Demand is slowly picking up as official statistics show that
retail sales have started to increase. Food retailers continue to
be very active on all fronts with Auchan and Cora (among
hypermarkets), Mega Image and Carrefour Express (among
supermarkets) and Lidl (among discounters) aggressively expanding
their networks in Bucharest and in top regional cities. Fashion
retailers are the next in line assessing expansion opportunities
but because of the limited pipeline, they are currently focusing on
existing schemes that have succeeded over the past couple of years
to improve their tenants' mix and to increase footfall.
Prime shopping centre and high street rents have remained stable
during the first half of the year but because of the high level of
availability of high street units, a decline in rental levels in
this sector of the market over the next 6-12 months would not be a
surprise.
Capital market transactions continue to struggle with only a
handful of transactions taking place during the first half of the
year. Total volume was around EUR100 million and represented the
lowest level since 2005. The major contributory factor appears to
be the severely constrained debt markets and the fact that a
significant portion of outstanding loans are set to re-gear by the
end of the year. Prime yields have remained stable though with a
general lack of transactions it is difficult to verify rates
against open market transactions.
Bulgaria
Retail market
The most notable event in the first half of the year was the
opening of 90% let, Galleria Burgas, a 35,000 GLA shopping mall
which increased the modern shopping space in Bulgaria to 594,400
sqm. The GLA per 1,000 residents is 81 sqm, one of the lowest
retail provisions in the EU.
Total shopping centre malls under construction represented
239,500 sqm, and four malls are expected to open during 2013, three
of which are in Sofia. Occupancy in Sofia shopping centres is
approximately 85%, down slightly from the end of 2011; occupancy in
secondary cities is around 70%.
Rental levels have remained stable though there is some concern
in the market that the additional supply will lead to further
pressure on rental levels.
No commercial property transactions took place in Bulgaria in
the first half of 2012.
Project Reviews
Cascade, Bucharest, Romania
The asset is currently 97% let and generating sufficient income
to meet all of the requirements of its restructured bank debt. In
restructuring the main loan to meet the final outstanding claim for
a major sub-contractor the Company invested a further amount of
loan funding along with the partner.
ERA Investments, Romania
Iasi
The existing shopping gallery is 97% let and the continuation of
marketing activities have increased visitor numbers resulting in
improved turnover by the tenants.
Construction of the new 28,000 sqm extension will be undertaken
in two phases with phase one, 15,000 sqm is planned to be completed
in the summer of 2013 with the second phase, 13,000 sqm in Spring
2014.
There is significant interest in the new, to be constructed,
shopping centre with around 5,000 sqm under negotiation. The
opening of the town centre Palas Shopping Centre has increased
competition although the impact on Iasi, which is an out of town
retail park, is limited.
Oradea
The construction of the new mall has been completed with the
second phase fitting out of 16,000 sqm also completed. The
remaining 4,000 sqm of fitting out in the third phase will be
dependent upon tenants' requirements.
The letting to Mobexpert was delayed from the end of 2011 but
has now been completed and the tenant is trading. The partner
believes that this delay materially impacted upon the letting of
the third phase. With the opening of the Mobexpert unit the
strategically import furniture anchor to the Mall has been
completed.
Mega Mall, Rousse, Bulgaria
Occupancy at the end of June 2012 was 59% of the GLA and
subsequently a further 1,500 sqm has been let with an opening
expected in October. This will take the total let space to almost
60% and should enable the operating expenses of the Mall to be met.
The partner has undertaken a detailed review of operating costs
which have resulted in a near 20% reduction in costs over a full
trading year.
The supermarket operator has been replaced with the new tenant
expected to open in mid October. The new tenant will operate on
similar terms as the previous occupier.
Discussions are ongoing with the bank to restructure the loan to
reflect the difficult trading conditions .
Galleria Plovdiv, Bulgaria
Total occupancy at the end of June remained stable at 62% of GLA
but the poor trading conditions evident during the summer months
resulted in a number of tenants seeking financial assistance by way
of temporary rental concessions.
The operating company has appointed an independent retail
leasing advisor to assist with leasing the mall and set a strategy
for the forthcoming years. A short list of prospective tenants to
take the occupied space closer to 75% by the year end has been
identified.
The company is in detailed negotiations with the bank over
restructuring the loan facility to enable all parties to realise
the full capital value potential of the asset.
Bourgas Retail Park, Bulgaria
The project is currently on hold waiting for an improvement in
both the retail and banking markets.
Sliven Mall, Bulgaria
The project is currently on hold waiting for an improvement in
the retail and banking markets. The cash deposits have been
diversified into three different banks to give greater
protection
Asmita Gardens, Romania
An administrator has been appointed by the courts and the
Manager is following the insolvency process carefully but it is not
anticipated that there will be any repayment of shareholder
loans.
DN1, Romania
The Manager and the bank are discussing the best way in which
the land can be sold. It is unlikely that the shareholders will
receive any repayment of its shareholder loans.
Charlemagne Capital (IOM) Limited
20 September 2012
Consolidated Income Statement
Note (Unaudited) (Unaudited)
Period from 1 January 2012 to 30 Period from 1 January 2011 to 30
June 2012 June 2011
EUR'000 EUR'000
------------------------------------ ----- ----------------------------------- ------------------------------------
Net rent and related income - -
Annual management fees 6.3 (221) (293)
Audit fees 7 (50) (20)
Legal and professional fees (36) (42)
Directors' fees 12 (36) (38)
Administration fees (28) (29)
Other operating expenses (175) (139)
Administrative expenses (546) (561)
------------------------------------ ----- ----------------------------------- ------------------------------------
Net operating loss before net
financing income (546) (561)
------------------------------------ ----- ----------------------------------- ------------------------------------
Financial income 11 12
Financial expenses - -
------------------------------------ ----- ----------------------------------- ------------------------------------
Net financing income 11 12
------------------------------------ ----- ----------------------------------- ------------------------------------
Share of gain/(loss) of equity
accounted investees 8 161 (104)
Loss before tax (374) (653)
------------------------------------ ----- ----------------------------------- ------------------------------------
Income tax expense (3) -
Retained loss for the year (377) (653)
------------------------------------ ----- ----------------------------------- ------------------------------------
Basic and diluted loss per share
(EUR) 10 (0.0041) (0.0072)
------------------------------------ ----- ----------------------------------- ------------------------------------
Consolidated Statement of Comprehensive Income
The Directors consider that all results derive from continuing
activities.
Note (Unaudited) (Unaudited)
Period 1 January 2012 to 30 June Period 1 January 2011 to 30 June
2012 2011
US$'000 US$'000
------------------------------------ ------ ----------------------------------- -----------------------------------
Loss for the period (377) (653)
Other comprehensive income
Currency translation differences 10 -
------------------------------------ ------ ----------------------------------- -----------------------------------
Total comprehensive loss for the period (367) (653)
-------------------------------------------- ----------------------------------- -----------------------------------
Consolidated Statement of Financial Position
Note (Unaudited) (Audited)
At 30 June 2012 At 31 December 2011
EUR'000 EUR'000
------------------------------------------ ----- ----------------- ---------------------
Investment in equity accounted investees 8 22,782 22,083
Property, plant and equipment 1 1
Total non-current assets 22,783 22,084
Loans to third parties 6.4 322 313
Trade and other receivables 49 67
Cash and cash equivalents 4,376 5,461
------------------------------------------ ----- ----------------- ---------------------
Total current assets 4,747 5,841
------------------------------------------ ----- ----------------- ---------------------
Total assets 27,530 27,925
------------------------------------------ ----- ----------------- ---------------------
Issued share capital 9 72,412 72,412
Share premium 9,841 9,841
Foreign currency translation reserve 14 4
Retained losses (54,948) (54,571)
------------------------------------------ ----- ----------------- ---------------------
Total equity 27,319 27,686
------------------------------------------ ----- ----------------- ---------------------
Trade and other payables 11 211 239
Total current liabilities 211 239
------------------------------------------ ----- ----------------- ---------------------
Total liabilities 211 239
------------------------------------------ ----- ----------------- ---------------------
Total equity & liabilities (27,530) 27,925
------------------------------------------ ----- ----------------- ---------------------
Consolidated Statement of Changes in Equity
Share capital Share premium Foreign currency Retained earnings Total
translation reserve
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
--------------------------- -------------- -------------- --------------------------- ------------------ --------
Balance at 1 January 2011 72,412 9,841 4 (48,953) 33,304
Loss for the period - - - (653) (653)
Other comprehensive loss
Foreign exchange - - - - -
translation differences
--------------------------- -------------- -------------- --------------------------- ------------------ --------
Total comprehensive loss - - - (653) (653)
--------------------------- -------------- -------------- --------------------------- ------------------ --------
Balance at 30 June 2011 72,412 9,841 4 (49,606) 32,651
--------------------------- -------------- -------------- --------------------------- ------------------ --------
Balance at 1 January 2011 72,412 9,841 4 (48,953) 33,304
Loss for the year - - - (5,618) (5,618)
Other comprehensive loss
Foreign exchange translation differences - - - - -
------------------------------------------ ------- ------ --------- --------
Total comprehensive loss - - - (5,618) (5,618)
------------------------------------------ ------- ------ --------- --------
Balance at 31 December 2011 72,412 9,841 4 (54,571) 27,686
------------------------------------------ ------- ------ --------- --------
Balance at 1 January 2012 72,412 9,841 4 (54,571) 27,686
Loss for the period - - - (377) (377)
Other comprehensive loss
------------------------------------------ ------- ------ --- --------- --------
Foreign exchange translation differences - - 10 - 10
------------------------------------------ ------- ------ --- --------- --------
Total comprehensive gain/(loss) - - 10 (377) (367)
------------------------------------------ ------- ------ --- --------- --------
Balance at 30 June 2012 72,412 9,841 14 (54,948) 27,319
------------------------------------------ ------- ------ --- --------- --------
Consolidated Cash Flow Statement
Note (Unaudited) (Unaudited)
For the period from For the period from
1 January 2012 to 1 January 2011 to
30 June 2012 30 June 2011
EUR'000 EUR'000
-------------------------------------------------------------- --------------------- ---------------------
Operating activities
Group loss for the year (377) (653)
Adjustments for:
Financial income (11) (12)
Income tax expense 3 -
Uplift in value of third party loans -
Share of (profit)/loss of equity accounted investees (161) 104
Operating loss before changes in
working capital (546) (561)
Decrease in trade and other receivables 18 6
(Decrease)/Increase in trade and other payables (28) 1
Cash used in operations (556) (554)
Financial income received 11 12
Tax paid (3) -
------------------------------------------------------- ------ --------------------- ---------------------
Cash flows used from operating activities (548) (542)
--------------------------------------------------------------- --------------------- ---------------------
Investing activities
Increase in loans to equity accounted investees (538) (117)
Acquisition of equity accounted investees - (151)
Increase in loans to third parties (9) -
Currency Translation Difference 10 -
------------------------------------------------------- ------ --------------------- ---------------------
Cash flows used in investing activities (537) (268)
--------------------------------------------------------------- --------------------- ---------------------
Financing activities
Purchase of own shares 9 - -
Cash flows used in financing activities - -
------------------------------------------------------- ------ --------------------- ---------------------
Net decrease in cash and cash equivalents (1,085) (810)
Cash and cash equivalents at beginning of period 5,461 7,025
--------------------------------------------------------------- --------------------- ---------------------
Cash and cash equivalents at end of period 4,376 6,215
--------------------------------------------------------------- --------------------- ---------------------
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 of Incorporation Percentage of shares held
--------------------------------------------------- -------------------------- --------------------------
European Property Development Corporation SRL Romania 100%
European Convergence Development (Cayman) Limited Cayman 100%
Convergence Development (Cyprus) Limited Cyprus 100%
European Convergence Development (Malta) Limited Malta 100%
European Real Estate Development Invest SRL Romania 100%
European Property Acquisitions EOOD Bulgaria 100%
Asmita Holdings Limited Cyprus 100%
ECD Management (Cayman) Limited Cayman 100%
--------------------------------------------------- -------------------------- --------------------------
3 Joint Ventures ("JV")
The Group as at the date of this document has acquired an
interest in the following companies:
Country of Incorporation Percentage of shares held
------------------------------------ -------------------------- --------------------------
Asmita Gardens SRL Romania 50%
Cascade Park Plaza SRL Romania 40%
Convergence Development Invest SRL Romania 50%
Galleria Plovdiv AD Bulgaria 40%
Mega Mall Rousse AD Bulgaria 50%
Trade Centre Sliven EAD Bulgaria 42.5%
Turgovski Park Kraimorie AD Bulgaria 60%
NEF3 (IOM) 1 Limited Isle of Man 55%
NEF3 (IOM) 2 Limited Isle of Man 55%
NEF3 (IOM) 3 Limited Isle of Man 55%
------------------------------------ -------------------------- --------------------------
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 2011.
The Interim report of the Company for the period ending 30 June
2012 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 2012 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 2011.
The consolidated financial statements of the Group as at and for
the year ended 31 December 2011 are available upon request from the
Company's registered office at Millennium House, 46 Athol Street,
Douglas, Isle of Man IM1 1JB.
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.
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 2012 (2011: 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.
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 2012.
5 Unaudited Net Asset Value per Share
The unaudited net asset value per share as at 30 June 2012 is
EUR0.3017 (31 December 2011: EUR0.3059) based on 90,515,470 (31
December 2011: 90,515,470) ordinary shares in issue as at that
date.
6 Related Party Transactions
6.1 Directors of the Company
Anderson Whamond is a non-executive director of the Manager, and
a shareholder of Charlemagne Capital Limited ("CCL"), the parent of
the Manager and Placing Agent. Additionally, Mr Whamond 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.
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, Global Opportunities, Limited, the Templeton World
Charity Foundation and Magna UAF Fund, investment companies also
managed by the Manager, hold 7,626,320, 1,981,359 and 165,000
shares respectively in the Company at 30 June 2012.
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.
6.2 Directors of the Subsidiaries
Certain directors of the Manager have been appointed as
directors of some of the subsidiaries. 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
2012 amounted to EUR220,993 (2011: EUR292,557).
Performance fees payable during the period ended 30 June 2012
amounted to EUR nil (2011: EUR nil).
6.4 Transactions and balances with Joint Venture companies and partners
The Company has loans to Joint Venture Companies totalling
EUR44,184,101 (31 December 2011: EUR43,174,000) and to Joint
Venture Partners totalling EUR5,773,120 (31 December 2011:
EUR5,553,000). 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 2012 amounted to
EUR50,481 (2011: EUR19,875).
8 Investment in Equity Accounted Investments
Group 30 June 2012 31 December 2011
EUR'000 EUR'000
------------------------------------------------------------------ ------------- -----------------
At beginning of period/year 22,083 26,370
Acquisition of equity accounted investment - 278
loans to investments 538 34
Share of (loss)/gain of equity accounted investment 214 289
Increase in/(Write down of) value of equity accounted investment (53) (4,888)
Balance at end of year 22,782 22,083
------------------------------------------------------------------ ------------- -----------------
The loans to equity accounted investees before deduction of
provisions are as follows:
Name Term Term Interest Rate 30 June 2012
EUR'000
------------------------------------------------------- -------------- -------------
Asmita Gardens SRL * 31 December 2012 6% 16,293
Galleria Plovdiv AD * * 0%** 10,000
Convergence Development 4,245
Cascade * * *** 4,510
Turgovski Park Kraimorie AD * * 0%** 9,136
----------------------------- ------ ------------------ -------------- -------------
* 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 at 30 June 2012 Value at 31 December 2011
EUR'000 EUR'000
----------------------------- ---------------------- --------------------------
Cascade Park Plaza SRL 14,499 14,015
Galleria Plovdiv AD 1,500 1,500
Trade Centre Sliven EAD 1,876 1,876
Turgovski Park Kraimorie AD 2,135 2,135
NEF3 (IOM) 1 Limited* 1,070 983
NEF3 (IOM) 2 Limited* 382 357
NEF3 (IOM) 3 Limited* 1,320 1,217
----------------------------- ----------------------
22,782 22,083
----------------------------- ---------------------- --------------------------
* held directly by the Company.
The results, assets and liabilities of the equity accounted
companies are as follows:
Name Country Assets Liabilities Revenues Profit/ % interest
of Incorporation (Loss)
-------------------------- ------------------- -------- ------------ --------- -------- -----------
EUR'000 EUR'000 EUR'000 EUR'000
Cascade Park Plaza SRL Romania 37,725 (41,320) 2,413 (494) 40
Galleria Plovdiv AD Bulgaria 67,019 (69,843) 791 (2,667) 40
Mega Mall Rousse AD Bulgaria 27,147 (24,547) 325 (597) 50
Trade Centre Sliven
EAD Bulgaria 5,910 (6) 37 28 42.5
Turgovski Park Kraimorie
AD Bulgaria 4,100 (13,168) - - 60
NEF3 (IOM) 1 Limited Isle of
* Man 2,947 281 285 215 55
Isle of
NEF3 (IOM) 2 Limited Man 2,695 189 251 165 55
Isle of
NEF3 (IOM) 3 Limited Man 3,456 190 356 257 55
-------------------------- ------------------- -------- ------------ --------- -------- -----------
*The results and balances for NEF(IOM) 1 Ltd shown above only
include amounts in respect of those investments which ECDC has an
interest in.
The Shareholders Cascade Park Plaza and Galleria Plovdiv have
pledged their shareholding as security against the external loans
to these companies.
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.
9 Capital and Reserves
Share Capital
2012 2012
Number EUR'000
---------------------------------- ----------- --------
Ordinary Shares of EUR0.80 each
In issue at 01 January 2012 90,515,470 72,412
Shares cancelled during the year - -
In issue at 30 June 2012 90,515,470 72,412
---------------------------------- ----------- --------
2011 2011
Number EUR'000
---------------------------------- ----------- --------
Ordinary Shares of EUR0.80 each
In issue at 1 January 2011 90,515,470 72,412
Issued/cancelled during the year - -
In issue at 31 December 2011 90,515,470 72,412
---------------------------------- ----------- --------
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 2011 and 2012.
10 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.
2012 2011
----------------------------------------------------------------- ------- -------
Loss attributable to equity holders of the Company (EUR'000) (390) (653)
Weighted average number of ordinary shares in issue (thousands) 90,515 90,515
----------------------------------------------------------------- ------- -------
Basic and diluted loss per share (Euro cent per share) (0.43) (0.72)
----------------------------------------------------------------- ------- -------
11 Trade and Other Payables
Group 30 June 2012 31 December 2011
EUR'000 EUR'000
----------------- ------------- -----------------
Withholding tax 4 4
Trade creditors 78 52
Accruals 129 183
----------------- ------------- -----------------
Total 211 239
----------------- ------------- -----------------
12 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 2012 amounted to
EUR36,000 (2011: EUR38,415).
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.
13 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.
14 Commitments as at the Balance Sheet date
At the balance sheet date the Group had no outstanding
commitments.
15 Post Balance Sheet Events
There are no post balance sheet events to note.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR PGUCGBUPPGPR
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