TIDMECDC
RNS Number : 1380P
European Convergence Develop. CoPLC
29 September 2011
29 September 2011
EuroPean convergence development company plc
("ECDC" OR "THE COMPANY")
Interim Results for the Six Months ended 30 June 2011
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
2011.
In accordance with the AIM Rules for Companies, the interim
report & consolidated financial statements of the Company for
the period ended 30 June 2011 has today been posted to shareholders
and can be downloaded from the Company's website at
www.europeanconvergencedevelopment.com.
For further information please contact:
Charlemagne Capital (UK)
Limited +44 (0)207 518 2100
Varda Lotan / Christopher marketing@charlemagnecapital.com
Fitzwilliam Lay www.charlemagnecapital.com
Galileo Fund Services Limited +44 (0)1624 692600
Ian Dungate, Company Secretary
Panmure Gordon 44 (0)20 7459 3600
Hugh Morgan
Abhishek Majumdar
Smithfield Consultants +44 (0)20 7360 4900
John Kiely
Gemma Froggatt
Chairman's Statement
Market conditions have remained difficult in the region and
continue to affect the Company's property developments. The Group
remains reliant on the banking relationships within each project,
however as a number of the projects have a substantial exposure, on
a non-recourse basis, to Greek banks there remains a possibility
that a banking crisis in Greece could have a significant impact on
the region and on the Company's projects specifically.
In the 2010 annual report and accounts the Company, in
conjunction with its auditors, carried out a full review of its
assets which led to additional impairments being raised against
those assets. In line with the accounting policy of the Group, all
developments have been valued at the lower of cost and recoverable
amount. In arriving at its view regarding the value of each
investment on the balance sheet, the Board has made a number of
estimates and assumptions concerning future events which may or may
not prove correct, and should the economic climate worsen or these
assumptions prove incorrect, there is a risk that the Group's
investments could suffer further impairment. Due to the continued
uncertainty surrounding property markets and economic conditions in
this region the Company will have further independent valuations of
its assets undertaken for the 2011 annual report and accounts which
may lead to additional impairments.
Mega Mall Rousse continues to attract retailer interest and its
occupancy levels have increased to 41% however further leasings are
unlikely in the short term until the current bank loan, which is in
default, has been restructured with the bank.
Cascade is now 92% let and there is considerable interest in the
remaining office space although office rental prices remain under
pressure. The arbitration award to the steel sub-contractor has
introduced an additional liability which has resulted in the Bank
taking the precipitous action of putting the loan into technical
default. Discussions are ongoing between the Bank and the
sub-contractor to find an acceptable solution.
Although Galleria Plovdiv has recently leased out additional
space, the shopping centre lost some retailers earlier in the year
and the occupancy level remains at 61%.
Towards the end of 2010 the Company made medium term investments
in established developments in Oradea and Iasi. The group holding
these developments has announced a merger with a sister company
which will make the group one of the largest retail property groups
in Romania, creating synergies with their existing assets and also
providing ECDC with a stronger counterparty guarantee
The Asmita development was fully provided for at the previous
year end, however the Manager remains in negotiations with the bank
and joint venture partner to try to take the project forward.
A more detailed account of the status of the property
development projects above and the remaining property developments
is given in the Report of the Manager.
During the period under review, the Group made a loss before tax
of EUR0.65 million. The resulting unaudited NAV per share at 30
June 2011 was EUR0.3607 per share representing a decrease of
EUR0.0072 per share from the year end 31 December 2010 of
EUR0.3679.
The Board will not declare a dividend for the year.
Anderson Whamond
Chairman
27 September 2011
Report of the Manager
Region Overview
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. The Group is reliant on
maintaining its existing constructive banking relationships but as
the majority of these relationships are with Greek banks, the
possibility that a potential banking crisis in Greece may have an
impact on the sentiment of all banks towards the region and to the
Company's projects specifically cannot be ignored. Although there
has been no indication as yet that the banks might take
precipitative action, their attitude to any short term trading
difficulties may well harden which in turn may lead to increased
pressure on the financial resources of the asset owners.
Bulgaria
Economic Update
The economy has seen some positive trends during the period,
however these trends have slowed considerably towards the end of
the period and the economy remains fragile with external factors in
the region and Europe as a whole being of concern.
GDP grew in the first half as did exports, however the rate of
growth slowed significantly in the second quarter, primarily led by
a fall in exports.
Although Bulgaria is currently running with a budget deficit it
is less than 1% of GDP and compares favourably to other European
countries. Government borrowing stood at around 15% at the end of
June 2011.
Unemployment which was falling in the first quarter started
rising again, against expectations, towards the end of the
period.
Foreign Direct Investment has fallen away almost completely with
net outflows at the end of the period.
Consumer spending is also slowing down, possibly on the back of
the reported rise in unemployment.
Bulgaria - Retail Property
The slow down in consumer spending has caused retailers to
remain cautious on expansion. Tenants continue to be aggressive in
lease negotiations, insisting on rent reductions and/or moving to
turnover rent only. On a yearly basis, shopping centre headline
rents have recorded a decrease of almost 23% against the levels of
the first quarter of 2010 although in real terms the difference is
even greater when allowing for rental concessions and rent free
periods.
There are some positive signs in the market with development
activity in Sofia starting on the construction of two schemes with
a Gross Lettable Area ("GLA") of 33,000 sqm and 24,000 sqm and
there is the expectation of a third project of 72,000 sqm located
on the ring road about to commence construction works.
Bulgaria has risen above both Greece and Ukraine in Cushman
& Wakefield's "Shopping Center GLA per capita" ranking with
approximately 73.4 sqm of shopping centre floor space per 1,000
people but is still well below the EU-27 average of 235.4 sqm.
Bulgarian Assets
Galleria Plovdiv
Leasing in the current market is proving difficult, and whilst
there has been some new space let, the overall occupancy levels
remain at around 61% due to existing retailers vacating space.
Attracting new tenants is difficult in the current environment and
the scope for offering tenants financial incentives is limited.
The low occupancy levels and the temporary rental concessions to
tenants in compensation for the delay in reaching higher occupancy
have led to additional liquidity issues which add a further level
of difficulty to running the Mall.
The company is in negotiations with its bankers to renegotiate
its banking facilities to more reflect the difficult market
situation being experienced at present. To date the bank has been
supportive of the developers and there is currently no indication
of a change in that approach.
Mega Mall Rousse
During the second quarter an additional 3,000 sqm was added to
the GLA of the Mall as part of the underground car park was set
aside for a go-karting ring. This has been successfully let and
first trading impressions are very promising. The GLA has therefore
been increased to 20,900 sqm. At the end of June 2011, total
occupied space had increased to 8,670 sqm representing 41% of the
increased GLA.
Due to delays in the negotiations of the Bank debt
restructuring, the opening of the entertainment section has been
postponed until the Autumn. At present the facility is in default
though the Manager is hopeful that a satisfactory solution will be
found in the near future.
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
Economic Update
Economic activity improved in the first half of 2011, so much so
that at the end of the period the Fitch rating industry, taking in
account a number of positive developments in the economy, upgraded
Romania's long term foreign currency sovereign rating to "BBB-"
(investment grade) from "BB+" (non-investment grade).
GDP grew in the first half, but the growth was slow at less than
1% quarter on quarter, and slowed significantly in the latter part
of the half.
Although FDI has remained low, the net inflows appear to be one
of the driving forces behind the slow pick up in consumption.
Technical missions from both the IMF and the European Commission
were positive in their assessment of the policies introduced by
Romania. The Government had succeeded in keeping the budget deficit
below the agreed target and it had made progress in reducing public
sector arrears.
Romanian Real Estate Market
Residential Property
The economic decline since 2008 combined with the recent
austerity measures in the public sector and a VAT increase have all
combined to further reduce the Romanian property market. At the end
of April 2011 average prices in Bucharest showed a 12.7% year on
year decline and are now approximately 50% below their 2008
peak.
There is still limited new residential construction activity
taking place by developers in Bucharest, although the official
figures suggest the trend in construction orders is still
decreasing.
The residential market remains a buyer's market with purchasers
requesting deeper discounts. In the first quarter of 2011 prices
are estimated to have declined 4% against the last quarter of 2010.
The Government's first time buyers' scheme appears to have been the
main driver of a slight increase in mortgage demand at the end of
2010, however the Government has reined in the scheme considerably
this year.
The latest version, the fourth iteration of the programme, has
the effect of increasing the number of mortgage applicants however
they remain focused on the smaller, lower end of the market and not
the mid- to upper segment.
Office Market
Investor interest remains on a positive trend, but still no
significant transactions have been registered in the market. Total
investment volume was around EUR200 million however the largest
part of this figure was the closing of the CA Imo acquisition
started in 2010. The active buyers remain the Value Added and
Opportunistic buyers who cannot find what they are looking for in
other CEE countries. It is forecast that by the end of 2011 the
more traditional core buyer may be attracted to Bucharest because
of frustrations over pricing and product availability in Warsaw and
Prague. Prime yields are estimated to have remained constant in
quarter 1 with prime offices currently valued at around 8.00% to
8.25%.
For the first half of 2011, prime office headline rents remain
in the range of EUR19 sqm per month and are expected to remain
stable for the remainder of 2011. As there are few new developments
coming on line so it is possible that there may even be a moderate
increase in rental values for 2012.
New rentals for the first quarter of 2011 were 5.5% up on the
same period last year and 66.5% up on the last quarter of 2010.
Rental increases are likely to be witnessed only at the prime end
of the spectrum but a weakening of the tenant position may only
materialise in less generous packages of rent free periods and
contributions to tenants fitting out works being offered.
The overall vacancy rate dropped to 16.1% but is already
starting to edge further downwards and will continue to do so
bearing in mind the increase in take up and the slow development
pipeline.
Retail Property
Demand remains steady and continues to be focused primarily on
the existing shopping centres and on the large projects under
construction which have a relatively clear opening date. The retail
market gained momentum by the opening of the first three H&M
stores in Romania with a target to open a further five during the
year. Luxury brands are also assessing the market, with Burberry
announcing the opening in 2011 of their flagship store on Calea
Victoriei.
Although no significant new projects were delivered onto the
market in the early part of the year it is estimated is that nine
new retail projects will open in 2011. The largest and most notable
projects to be delivered in 2011 include: Maritimo Shopping Centre
in Constanta, Palas in Iasi, Colosseum Retail Park and Baneasa
Shopping City's extension in Bucharest.
Rental levels are now stabilising and consolidating. Prime
shopping centre rents range between EUR65 and EUR75 sqm per month.
Fit-out contributions, stepped rents or even initial turnover-only
rent periods are still a key driver in the leasing process of less
dominant shopping centres. The toughest deals are achieved by
international retailers which act as anchor tenants for both
existing and under construction retail schemes.
Romanian Assets
Asmita Gardens
Legal proceedings against the contractor are continuing both in
local and international courts. At the current stage of these
proceedings it is very difficult to assess the outcome.
Site operations remain suspended while negotiations continue
between the joint venture partner and the senior lender to unlock
short term funding and also resolving the position with the main
contractor.
Negotiation with both the senior lender and the joint venture
partner are continuing as to how best to restructure the facility
which is technically in default, with a view to securing and
implementing a medium term financing package which will facilitate
a work out of the development.
In the 2010 Annual Report and Accounts the Directors of the
Company decided to fully impair its investment in Asmita and any
improvement in the position is only likely to take place if the
restructuring package is successful.
Cascade
The building is currently 92% let with the latest tenants
fitting out their occupied space with a view to starting operations
in the building later this year.
All existing tenants are under final lease contracts and with
the exception of the new tenants are all currently operating in the
building. The rent level and conditions are within the parameters
of the estimated budget.
There is significant additional interest for the remaining
office space although the pressure on rental level is
maintained.
The company lost its arbitration case with the steel
sub-contractor and this has introduced an additional liability to
the development. Negotiations are currently ongoing on both the
value and the timing of the payment, however the arbitration award
has resulted in the Bank taking precipitous action and putting the
loan into technical default. Discussions are ongoing between the
Bank and the sub-contractor to find an acceptable solution.
Negotiations on nearly all of the remaining construction
contracts have been closed, with favourable results compared with
the budgeted settlement amounts.
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.
ERA Shopping Centre - Oradea
Phase 1a, atrium space between the Carrefour Mall and the new
extension, has been completed and the major tenant (1,800 sqm) has
opened for trade. There have been three other smaller units let
during the period, two of whom are fitting out.
Negotiations continue with prospective tenants for the Mall
extension and early indications are that a major tenant will be in
the lower level and will open in time for the Christmas trade,
dependent upon the resolution of the restructuring of the banking
facility. Construction is ongoing but minimal at present.
Negotiations with the lead bank are progressing and a resolution
is expected in the second half of 2011.
Footfall has increased year on year when compared with the
similar period in 2010. The increase can be seen in both number of
visitors and the sales turnover of the retailers.
The retail leasing market however continues to be difficult,
with retailers taking a defensive approach in undertaking
significant fit-out costs, given the current slow pick-up in
general consumption.
Shopping Centre - Oradea
The building permit for the new Mall was obtained during the
period and negotiations continue with the various sub-contractors
ready to progress the construction once the restructuring of the
banking facility has been achieved.
The Manager understands that the renegotiation of the banking
facility is progressing smoothly and it is hoped it will be
concluded soon. Once concluded, the construction contracts can be
signed and the development progressed quickly.
Initial indications are that overall footfall to the retail park
has improved and Carrefour is stating that both sales turnover and
footfall have increased over the previous quarter. It would appear
that there has been some migration from the other store in the City
as residents realise the convenience of shopping at ERA. This
increased footfall has not fully impacted on the other tenants and
the marketing efforts are now being directed towards encouraging
shoppers to visit the other stores at the Park.
Charlemagne Capital (IOM) Limited
27 September 2011
Consolidated Income Statement
(Unaudited) Period (Unaudited) Period
from 1 January 2011 from 1 January 2010
Note to 30 June 2011 to 30 June 2010
EUR'000 EUR'000
----------------------- ----- ---------------------- ----------------------
Net rent and related
income - -
Annual management fees 6.3 (293) (574)
Audit fees 7 (20) (32)
Legal and professional
fees (42) (30)
Directors' fees 12 (38) (51)
Administration fees (29) (29)
Other operating
expenses (139) (234)
Administrative
expenses (561) (950)
----------------------- ----- ---------------------- ----------------------
Net operating loss
before net financing
income (561) (950)
----------------------- ----- ---------------------- ----------------------
Financial income 12 10
Financial expenses - -
----------------------- ----- ---------------------- ----------------------
Net financing income 12 10
----------------------- ----- ---------------------- ----------------------
Share of loss of
equity accounted
investees 8 (104) (73)
Uplift in value of
equity accounted
investees 8 - 109
Impairment in value of
third party loans 6.4 - -
----------------------- ----- ---------------------- ----------------------
Loss before tax (653) (904)
----------------------- ----- ---------------------- ----------------------
Income tax expense - (1)
Retained loss for the
year (653) (905)
----------------------- ----- ---------------------- ----------------------
Basic and diluted loss
per share (EUR) 10 (0.0072) (0.0100)
----------------------- ----- ---------------------- ----------------------
The Directors consider that all results derive from continuing
activities.
Consolidated Statement of Comprehensive Income
(Unaudited) Period 1 (Unaudited) Period 1
January 2011 to 30 January 2010 to 30
Note June 2011 June 2010
US$'000 US$'000
---------------------- ------ ---------------------- ----------------------
Loss for the period (653) (905)
Other comprehensive
income
Currency translation
differences - 8
------------------------------ ---------------------- ----------------------
Total comprehensive loss for
the period (653) (897)
------------------------------ ---------------------- ----------------------
Consolidated Balance Sheet
(Unaudited) (Audited)
Note At 30 June 2011 At 31 December 2010
EUR'000 EUR'000
----------------------------- ----- ----------------- ---------------------
Investment in equity
accounted investees 8 26,534 26,370
Property, plant and
equipment 2 2
Total non-current assets 26,536 26,372
Loans to third parties 6.4 324 324
Trade and other receivables 47 53
Cash and cash equivalents 6,215 7,025
----------------------------- ----- ----------------- ---------------------
Total current assets 6,586 7,402
----------------------------- ----- ----------------- ---------------------
Total assets 33,122 33,774
----------------------------- ----- ----------------- ---------------------
Issued share capital 9 72,412 72,412
Share premium 9,841 9,841
Foreign currency translation
reserve 4 4
Retained losses (49,606) (48,953)
----------------------------- ----- ----------------- ---------------------
Total equity 32,651 33,304
----------------------------- ----- ----------------- ---------------------
Trade and other payables 11 471 470
Total current liabilities 471 470
----------------------------- ----- ----------------- ---------------------
Total liabilities 471 470
----------------------------- ----- ----------------- ---------------------
Total equity & liabilities 33,122 33,774
----------------------------- ----- ----------------- ---------------------
Consolidated Statement of Changes in Equity
Foreign
currency
Share Share translation Retained
capital premium reserve earnings Total
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
--------------- ----------- ----------- ------------ ----------- --------
Balance at 1
January 2010 72,412 9,841 8 (23,923) 58,338
Loss for the
period - - - (905) (905)
Other
comprehensive
loss
Foreign
exchange
translation
differences - - 8 - 8
--------------- ----------- ----------- ------------ ----------- --------
Total
comprehensive
loss - - 8 (905) (897)
--------------- ----------- ----------- ------------ ----------- --------
Balance at 30
June 2010 72,412 9,841 16 (24,828) 57,441
--------------- ----------- ----------- ------------ ----------- --------
Balance at 1 January 2010 72,412 9,841 8 (23,923) 58,338
Loss for the year - - - (25,030) (25,030)
Other comprehensive loss
Foreign exchange translation
differences - - (4) - (4)
--------------------------------- ------- ------ ---- --------- ---------
Total comprehensive loss - - (4) (25,030) (25,034)
--------------------------------- ------- ------ ---- --------- ---------
Balance at 31 December 2010 72,412 9,841 4 (48,953) 33,304
--------------------------------- ------- ------ ---- --------- ---------
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
------------------------------------- ------- ------ --------- -------
Consolidated Cash Flow Statement
(Unaudited) (Unaudited)
For the period from For the period from
1 January 2011 to 1 January 2010 to
Note 30 June 2011 30 June 2010
EUR'000 EUR'000
------------------------------- --------------------- ---------------------
Operating activities
Group loss for the year (653) (905)
Adjustments for:
Financial income (12) (9)
Uplift in value of third party
loans - (109)
Share of loss of equity
accounted investees 104 73
Operating loss before changes
in working capital (561) (950)
Decrease in trade and other
receivables 6 25
Increase in trade and other
payables 1 133
Cash used in operations (554) (792)
Financial income received 12 10
-------------------------------- --------------------- ---------------------
Cash flows used from operating
activities (542) (782)
-------------------------------- --------------------- ---------------------
Investing activities
Increase in loans to equity
accounted investees (117) (2,397)
Acquisition of equity
accounted investees (151) -
Decrease/(increase) in loans to
third parties - 12
Sale of property, plant &
equipment - 1
-------------------------------- --------------------- ---------------------
Cash flows (used in)/generated
from investing activities (268) (2,384)
-------------------------------- --------------------- ---------------------
Financing activities
Purchase of own shares 9 - -
Cash flows used in
financing activities - -
------------------------ ------ --------------------- ---------------------
Net decrease in cash and cash
equivalents (810) (3,166)
Cash and cash equivalents at
beginning of period 7,025 13,511
-------------------------------- --------------------- ---------------------
Cash and cash equivalents at
end of period 6,215 10,345
-------------------------------- --------------------- ---------------------
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:
Percentage of shares
Country of Incorporation 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%
RD 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:
Percentage of shares
Country of Incorporation 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 2010.
The Interim report of the Company for the period ending 30 June
2011 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 2011 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 2010.
The consolidated financial statements of the Group as at and for
the year ended 31 December 2010 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.
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 2011 (2010: 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 2011.
5 Unaudited Net Asset Value per Share
The unaudited net asset value per share as at 30 June 2011 is
EUR0.3607 (31 December 2010: EUR0.3679) based on 90,515,470 (31
December 2010: 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.
Erwin Brunner resigned as a director with effect from 30
September 2010.
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 2011.
6.2 Directors of the Subsidiaries
James Houghton and Jane Bates are directors of the Manager. In
compliance with local regulations, certain subsidiaries have
appointed directors who are employees of or are associated with,
the relevant registered office service provider.
6.3 Manager fees
Annual management fees payable during the period ended 30 June
2011 amounted to EUR292,557 (2010: EUR574,046).
Performance fees payable during the period ended 30 June 2011
amounted to EUR nil (2010: EUR nil).
6.4 Transactions and balances with Joint Venture companies and
partners
The Company has loans to Joint Venture Companies totalling
EUR40,915,000 (31 December 2010: EUR40,915,000) and to Joint
Venture Partners totalling EUR4,700,000 (31 December 2010:
EUR4,700,000). 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 2011 amounted to
EUR19,875 (2010: EUR31,542).
8 Investment in Equity Accounted Investments
Group 30 June 2011 31 December 2010
EUR'000 EUR'000
-------------------------------------------- ------------- -----------------
At beginning of period/year 26,370 45,149
Acquisition of equity accounted investment 151 12,126
Movement in loans treated as equity
accounted investment 117 (7,602)
Share of loss of equity accounted
investment (104) (1,712)
Uplift/(Write down) of value of equity
accounted investment - (21,591)
Balance at end of year 26,534 26,370
-------------------------------------------- ------------- -----------------
The loans to equity accounted investees are as follows:
Name Term Term Interest Rate 30 June 2011
EUR'000
--------------------------------------------- -------------- -------------
Asmita Gardens SRL * 31 December 2012 6% 14,370
Galleria Plovdiv
AD * * 0%** 10,000
Convergence Development 3,444
Cascade * * *** 4,000
Turgovski Park
Kraimorie AD * * 0%** 9,101
------------------- ------ ------------------ -------------- -------------
* 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 2011 Value at 31 December 2010
EUR'000 EUR'000
-------------------------- ---------------------- --------------------------
Asmita Gardens SRL - -
Cascade Park Plaza SRL 8,345 8,356
Galleria Plovdiv AD 8,720 8,720
Mega Mall Rousse 2,975 2,974
Trade Centre Sliven EAD 2,323 2,300
Turgovski Park Kraimorie
AD 2,100 2,100
NEF3 (IOM) 1 Limited* 787 720
NEF3 (IOM) 2 Limited* 317 300
NEF3 (IOM) 3 Limited* 967 900
-------------------------- ----------------------
26,534 26,370
-------------------------- ---------------------- --------------------------
* held directly by the Company.
The results, assets and liabilities of the equity accounted
companies are as follows:
Country of Profit/
Name Incorporation Assets Liabilities Revenues (Loss) % interest
----------- --------------- -------- ------------ --------- -------- -----------
EUR'000 EUR'000 EUR'000 EUR'000
Cascade
Park
Plaza
SRL Romania 39,995 (41,007) 325 (26) 40
Galleria
Plovdiv
AD Bulgaria 70,000 (67,622) 917 (1,884) 40
Mega Mall
Rousse
AD Bulgaria 25,259 (21,323) 1,154 (247) 50
Trade
Centre
Sliven
EAD Bulgaria 5,793 (24) 61 170 42.5
Turgovski
Park
Kraimorie
AD Bulgaria 13,160 (13,164) 3 37 60
NEF3 (IOM)
1 Isle of
Limited Man 1,967 - - - 55
NEF3 (IOM)
2 Isle of
Limited Man 2,117 - - - 55
NEF3 (IOM)
3 Isle of
Limited Man 2,417 - - - 55
----------- --------------- -------- ------------ --------- -------- -----------
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
2011 2011
Number EUR'000
---------------------------------- ----------- --------
Ordinary Shares of EUR0.80 each
In issue at 01 January 2011 90,515,470 72,412
Shares cancelled during the year - -
In issue at 30 June 2011 90,515,470 72,412
---------------------------------- ----------- --------
2010 2010
Number EUR'000
---------------------------------- ----------- --------
Ordinary Shares of EUR0.80 each
In issue at 1 January 2010 90,515,470 72,412
Issued/cancelled during the year - -
In issue at 31 December 2010 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 2010 and 2011.
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.
2011 2010
------------------------------------------------------ ------- -------
Loss attributable to equity holders of the Company
(EUR'000) (653) (905)
Weighted average number of ordinary shares in issue
(thousands) 90,515 90,515
------------------------------------------------------ ------- -------
Basic and diluted (loss)/profit per share (Euro cent
per share) (0.72) (1.00)
------------------------------------------------------ ------- -------
11 Trade and Other Payables
Group 30 June 2011 31 December 2010
EUR'000 EUR'000
----------------- ------------- -----------------
Withholding tax - 1
Trade creditors 18 18
Accruals 453 451
----------------- ------------- -----------------
Total 471 470
----------------- ------------- -----------------
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 2011 amounted to
EUR38,415 (2010: EUR50,814).
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
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