TIDMECDC
RNS Number : 2101J
European Convergence Develop. CoPLC
28 June 2011
28 June 2011
EuroPean convergence development company plc
("ECDC" OR "THE COMPANY")
Final Results for the Year ended 31 December 2010
European Convergence Development Company plc ("ECDC", the
"Company" or the "Group"), a property company focused on investing
in commercial, retail and industrial property in South-East Europe,
announces its final results for the year ended 31 December
2010.
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
The year under review has proved to be a challenging one for the
Group and for the market as a whole. Whilst the market is now
beginning to show some signs of recovery, the Global economic
crisis experienced in 2008/9 continues to resonate and, although
property markets are starting to show improving tenant interest,
rental levels and investment yields, the greatest remaining threat
to us turning the corner is the continued availability of financial
support. ECDC 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 our 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.
As indicated in the interim report and accounts the Company has,
in conjunction with its auditors, reviewed the carrying value of
its assets and has decided to make further impairments against four
of them.
The Asmita development has been subject to various delays and
legal issues and although some of these have been resolved now and
the Manager is in negotiations with the bank and JV partner to take
the project forward, it was felt prudent to impair the investment
down to nil, leading to an impairment charge of EUR8.0m for the
year.
Galleria Plovdiv and Mega Mall Rouse have each been impaired as
a result of the Company's assessment of the discounted future
values of their potential rental and occupancy levels. After
allowing for the Company's share of equity accounted losses,
Galleria Plovdiv was impaired by EUR10.1m for the year and Mega
Mall Rousse by EUR1.0m.
The land at Turgovski Park Kraimorie was reviewed by an
independent valuer and the assessment has led to an impairment of
EUR2.5m.
Cascade was also subject to an independent valuation however it
indicates that the fair value of the property exceeds the carrying
value so this was not impaired.
Towards the end of 2010 the Company made medium term investments
in established developments in Oradea and Iasi, as well as a
co-investment in Cascade.
A more detailed account of the status of each property
development project is given in the Manager's Report and the
previous Shareholder Updates.
After the impairments noted above, the Group made a loss of
EUR25.0m before tax, bringing its NAV as at 31 December 2010 to
EUR0.37 per share, representing a decrease of EUR0.27 per share
from the previous year end (31 December 2009, EUR0. 64).
The Board has been and continues to be mindful of the fact that
the Group's success is dependent to varying degrees on the
financial strength of its partners in each joint venture. In line
with the accounting policy of the Group, all developments have been
valued at the lower of cost and recoverable amount. In arriving at
its view regarding the value of each investment on the balance
sheet, the Board has made a number of estimates and assumptions
concerning future events which may or may not prove correct, and
should the economic climate worsen or these assumptions prove
incorrect, there is a risk that the Group's investments could
suffer further impairment.
During 2011, the Group expects to turn its attention to
operating and seeking an exit from its completed assets, to
identifying further investment opportunities and to progressing the
remaining three assets.
The Board will not declare a dividend for the year. The
objective of the Company remains to provide enhanced returns to its
shareholders both through sustained growth of its net assets per
share, and through profit distribution.
Anderson Whamond
Chairman
27 June 2011
Report of the Manager
The Manager's report should be read in conjunction with previous
financial statements, and previous shareholder's updates issued by
the Company.
Economic Overview
Romania
Economic activity stabilised during the first quarter of 2011
and there were some small signs of recovery. GDP growth for the
first quarter is estimated to be between 0.0% and 0.5% against 0.2%
for the last quarter of 2010. The full year out turn GDP for 2010
was -1.3% and for 2011 is being at 1.5%.
Although the economy appears to have absorbed the majority of
the austerity measures introduced during 2010, there has not been a
significant pick up in consumption. The various measures taken by
the Government in 2010 appear to have had the desired effect on the
Budget Deficit with a -1.0% deficit registered in Quarter 1 2011
compared to an outturn deficit for 2010 of -7.3%. The full year
forecast for 2011 is for a deficit of -5.4%.
Similar to many countries in the world, inflation remained high,
at approximately 8% in March 2011 mainly due to increased food and
fuel prices. Inflation is expected to rise by a further 0.5% during
the year before starting to decrease to a year end figure closer to
5.5%.
The International Monetary Fund approved a new EUR3.5 billion
Stand-By Arrangement for Romania as part of the EUR20 billion
financing package initiated in early 2009. Romanian authorities
intend to retain this additional facility along with previous
undrawn amounts of EUR2.4 billion in reserve with the intention of
holding these funds for the next two years to meet any unforeseen
problems.
At the last monetary policy meeting in May the benchmark
interest rate remained unchanged at 6.25%. As part of the Central
Bank's actions to curb inflation it allowed the RON to appreciate
against the EUR which has improved over 3% since February. To
improve liquidity in the market the Government reduced the minimum
reserve requirements for foreign exchange denominated financing
from 25% to 20%. It is estimated that this action improved market
liquidity by approximately EUR1.0 billion.
Bulgaria
First quarter statistics indicate a continuation of the
improvements in previous quarters. The key indicators such as GDP
growth and export volumes improved while unemployment decreased.
Overall the economy improved, though it is probably too early to
talk about a sustained recovery.
In December exports were EUR15.6 billion, an increase of EUR3.8
billion year-on-year. There has been a continual improvement in GDP
performance since Quarter 1 2010 and a full year outturn for 2010
of +0.2%, the comparative figure for 2009 was -5.0%. The
performance for 2010 included growth of 3.2% in the last quarter.
The major concern for the economy is the continued decline in FDI
which was 4.5% of GDP for 2010, a decline of 5% over the previous
year.
Unemployment peaked in February 2010 at 10.3% but declined month
on month to end the year at 9.2%. Some seasonal factors resulted in
unemployment increasing to 9.8% in January and remaining at this
level in February.
The Government's finances continue to compare favourably to most
European countries. At the end of 2010 Bulgaria generated a budget
deficit of 3.9% of GDP, Government debt stood at approximately
15.5% of GDP and foreign currency reserves were over 44% of
GDP.
Real Estate Market
Romania
Residential Property
The residential market showed no sign of improvement throughout
the whole of 2010. The existing stock is difficult to sell due to
both high price expectations per sqm and larger apartments. The
combination of these factors render the apartments too expensive
for the local buyer.
Prices are estimated to have declined by a further 10% during
2010. This decline was accelerated by the increase in VAT rates
from 19% to 24% introduced as part of the Government's austerity
measures, Most of the VAT increase has had to be absorbed by
developers.
Developers are still reluctant to start new projects due to the
low numbers of transactions being achieved and a continued
reluctance of commercial banks to start financing residential
schemes. As a result, virtually no new development projects have
been started.
The old communist apartments remained the most active sector
with most apartments falling under the Government backed lending
programme "First Home". This programme has entered its third year
with a changed structure intended to increase the number of
individuals who would qualify for the product.
Prices are still under pressure from the limited mortgage
funding available, other than for the product guaranteed by the
State. Customers also remain reluctant to apply for mortgages until
there is a change in the economic environment which will lead to a
change in sentiment.
Office Market
For Quarter 4 2010 prime office headline rents remained in the
range of EUR19 sqm per month, although significant tenant
incentives such as free rent periods or fit out contributions
continued to be offered by landlords. In 2010 prime rents decreased
by an average of 10.5% compared to the same period in 2009. The
overall vacancy rate in Bucharest stands at 17.5% but it should be
noted that there are considerable differences in availability
within different submarkets for example, central prime property
vacancy was closer to 10%.
Modern office supply in Bucharest reached 1.8 million sqm, with
over 280,000 sqm delivered in 2010; out of which 85,000 sqm
represent owner occupied developments. In 2010 the new office
take-up reached 203,000 sqm.
Investor interest remains on a positive trend but failed to
convert into a significant increases in transactions. During
Quarter 1 2011 deal volumes amounted to approximately EUR200
million the largest part of which was represented by the takeover
of the regional Romanian portfolio of Europolis by CA Immo. The
main interest is still shown by opportunity funds and value added
investors, both have a high return target which prevents very
aggressive purchase bids. It is expected that continuing economic
recovery, decreasing product availability and improving pricing in
more mature CEE markets, will move core investors towards Romania
and Bulgaria in the later part of 2011 and the beginning of 2012.
Prime yields are estimated to have contracted by 25 bps over the
period with prime offices currently valued between 8% to 8.25% and
retail at 8.25% to 8.50%.
Retail Property
Demand for retail space continues to be fuelled by international
operators. Some of the largest European retailers such as H&M,
Inditex and Decathlon are aggressively trying to secure new
locations for new stores mainly in cities with over 150,000
inhabitants. Fashion discounters such as Takko and Deichman are
also expanding their networks, but mostly in smaller cities where
there is limited competition. One notable change in Quarter 4 2010
was the renewed interest from certain electronics retailers which
were severely hit by the crisis.
No additional retail stock was delivered in Bucharest during the
second part of 2010. Country wide the modern retail supply reached
1.4 million sqm, with the only notable delivery of Gold Plaza in
Baia Mare. In total, 2010 completions reached 150,000 sqm with the
most important opening being Sun Plaza with more than 80,000 sqm in
Quarter 1 2010.
Rental levels in prime centres stabilised or slightly increased
due to growing retail sales. The level of prime rents in Bucharest
is in the region of EUR65-80 sqm per month. Rent free periods and
fit-out contributions are still a key driver in the leasing process
of less dominant shopping centres. Pipeline for 2011 consists of
around 250,000 sqm GLA spread over a number of shopping centres
across the country.
Bulgaria
Retail Property
The general drop in consumer spending which continued into 2011
has led to reduced retail sales and retailers continue to be
extremely cautious on expanding. The larger international brands
are still delaying expansion plans whilst the local and smaller
operators are more focused on optimising costs. Tenants continue to
be more aggressive in lease negotiations, insisting on rent
reductions and/or moving to turnover rent only.
However some brokers are starting to see some positive signs and
report expectations of an upswing in almost all real estate
segments during the second half of the year. There is also greater
expectation of increased investment activity in 2011.
Investment in the retail sector remains subdued though there has
been some limited interest in prime assets, mainly in Sofia with
one transaction about to be completed at a reported yield below 9%.
Retail Park Plovdiv was also purchased in February 2011 by Europa
Capital at a price which reflected a yield of just over 10%.
Development Projects
Romanian Assets
Asmita Gardens
At the end of March 2011, 314 apartment sales were completed and
42 units were pre-sold out of a total of 758 apartments. Phase 1 is
complete and 92% occupied.
Although Asmita was successful in its appeal against Strabag's
executory title over outstanding invoices and all existing blocks
on the company's accounts and assets have been removed, Strabag is
still refusing to undertake its contractual obligations to provide
the necessary testing and commissioning of utilities for Phase 2.
The legal dispute with the general contractor is ongoing and until
that is resolved it is unlikely the outstanding works will be
completed. As of 31st March 2011 site operations were suspended
pending agreement with the lending bank on how best to restructure
the facility, which is in default. Until such agreement is reached,
it will not be possible to continue the development. As a result,
while negotiations with the Bank are ongoing, the Board has decided
that it is prudent to impair in full the carrying value of the
asset.
Cascade
Following the agreement reached with BROM and the signing of
their amended lease agreement the building is currently 81%
let.
The renegotiation of the loan facility with the banking
syndicate was agreed and signed at the beginning of March with the
injection of EUR2.0 million of mezzanine finance. The existing
signed rent roll ensures that the company can meet the current
obligations under the financing agreements.
All existing tenants are either operating or fitting out their
leased areas. The rental level and conditions are within the
parameters of the estimated budget.
On the 16 May 2011 the Court of Arbitration in the case between
Cascade and Martifer made an EUR3.0m award in favour of Martifer.
This amount represented EUR0.8m of disputed invoices, the repayment
of the performance bond of EUR1.1m which had been called by the
company and EUR1.1m of penalties, interest and other minor claims.
The company and its lawyers were very surprised by this decision
and the company is currently in discussion with its lawyers and
bankers to identify the best way forward. Prior to this decision
the building had been independently valued by Colliers which would
have enabled the Company to reflect an increase in the value of its
investment in Cascade. Following this award the Company feel that a
more conservative approach should be adopted until the full
position has been resolved. Therefore the carrying value remains at
EUR8.4m.
Baneasa
There have been no significant developments in this project
since the last shareholders report.
Iasi and Oradea Shopping Centres
In both centres trade was in line with the Company's estimates,
after the December holiday season. Footfall has increased compared
with the similar period in 2010 which is reflected in increased
turnover of the retailers. Both loan facilities are currently under
re-negotiation, with the Iasi facility approved by the lenders and
awaiting formalisation.
Bulgarian Assets
Galleria Plovdiv
As stated in the last report, the leasing process continues to
take longer than previously thought. At the end of Quarter1 2011
approximately 61% of the GLA was let and open. Some retailers,
having signed leases are still delaying opening of their units. As
a result the forecast for unit openings has been slowed down. It
remains extremely difficult to attract and secure new tenants for
the un-let space because of the general economic and market
sentiment. Lease renegotiations with Carrefour were completed
satisfactorily.
The company is seeking to appoint a professional property
management company to take over the day to day operations of the
Mall. The company has commenced a tender process and has invited a
number of highly reputable, international firms to participate.
In January the shareholders jointly injected EUR300,000 of
additional equity to meet the ongoing operational expenses of the
business unable to be met by the rent and service charges. This
additional equity also gave time to enable negotiations on
restructuring of the main banking facility to continue.
Mega Mall Rousse
Following the soft opening in December 2010, high public
interest, positive local PR and high footfall have boosted retailer
interest in the development and resulted in an increase in
enquiries and negotiations with potential retailers. At the end of
March the ground and first floors were 46% let (31% of the GLA) and
include brands such as supermarket operator Piccadilly, drugstore
chain DM, fashion stores Miss Sixty, Seven hill, Silvian Heach and
a number of other popular national brands.
The Manager has entered into negotiations with the lending bank,
which continues to be supportive of the project, to restructure the
loan facility. To facilitate those negotiations the Board of ECDC
agreed, as part of its contractual obligations to the Partner to
invest a further EUR300,000 to meet short term operational costs of
the Mall.
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.
Charlemagne Capital (IOM) Limited
27 June 2011
Report of the Directors
The Directors hereby submit their annual report together with
the audited consolidated financial statements of European
Convergence Development Company plc (the "Company") and its
subsidiaries and joint venture associates (together, the "Group")
for the year ended 31 December 2010.
The Company
The Company is incorporated in the Isle of Man and was
established to enable investors to take advantage of opportunities
that exist in the property markets of South-East Europe.
Results and Dividends
The results and position of the Group and the Company at the
year end are set out on pages 15 to 40 of the financial
statements.
The Directors will decide in respect of any 12 month accounting
period as to what percentage of the Company's realised net profits
available for distribution (if any) they will recommend as the sum
for payment as a dividend. This decision will take into account the
opportunities available to the Company for further investment. The
Directors may pay half-yearly interim dividends if they believe
that the financial position of the Company justifies it. If the
Company's funds are fully invested, the Directors may re-invest
some of the Company's profits into the maintenance of the Company's
property portfolio or on further investments.
The Directors do not intend to declare a dividend at this
time.
Directors
The Directors during the year and up to the date of this Report
were:
Erwin Brunner (resigned with effect from 30 September 2010)
James Rosapepe
Donald McCrickard
Anderson Whamond
Directors' and Other Interests
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.
None of the Directors have a direct or indirect interest of the
shares in the Company.
Charlemagne Capital (Investments) Limited (a subsidiary of
Charlemagne Capital Limited), holds 125,000 shares of the Company.
The following companies managed by the Manager hold shares of the
Company.
Company Number of Shares
Charlemagne CIS Fund
Limited, 7,626,320
Templeton World Charity
Foundation 1,981,359
Magna UAF Fund 165,000
Save as disclosed above, none of the Directors had any interest
during the year in any material contract for the provision of
services which was significant to the business of the Company.
Independent Auditors
Our auditors, KPMG Audit LLC, being eligible, have expressed a
willingness to continue in office.
Corporate Governance
The Company is not required to follow the provisions of the
Combined Code as set out in the UK Financial Services Authority
Listing Rules, however, the Board is committed to high standards of
corporate governance and a summary of the main elements of
corporate governance are described below:
Board of Directors
The composition of the Board is set out above. The Board
currently comprises a non-executive chairman and two other
non-executive directors.
The Board meets regularly and is provided with relevant
information on financial, business and corporate matters prior to
meetings.
Audit Committee
The Audit Committee consists of the Board members. To be
quorate, at least two offshore Directors must be present, with the
majority of the committee also being independent of the management
of the Company. The committee overviews the adequacy of the
Company's internal controls, accounting policies and financial
reporting and provides a forum through which the Company's external
auditors report to the Company.
Internal Control
The Directors are responsible for establishing and maintaining
the Company's system of internal control. This system of internal
control is designed to safeguard the Company's assets and to ensure
that proper accounting records are maintained and that financial
information produced by the Company is reliable. There are inherent
limitations in any system of internal control and such a system can
provide only reasonable, but not absolute, assurances against
material misstatement or loss. The Directors, through the Audit
Committee, have reviewed the effectiveness of the Company's system
of internal controls.
Corporate Action
At the extraordinary general meeting of the Company held on 3
March 2008, the special resolution proposed to re-register the
Company under the Isle of Man Companies Act 2006 and adopt new
memorandum and articles of association, was duly passed.
Accordingly, the Company with effect from 3 March 2008,
re-registered as a company governed by the Isle of Man Companies
Act 2006 and adopted new memorandum and articles of
association.
The Directors proposed this re-registration because under the
Isle of Man Companies Acts 1931-2004 the Company was restricted
from returning capital to shareholders or from using its
non-distributable reserves to buy back its shares except pursuant
to a court-sanctioned reduction of capital. The re-registration of
the Company under the Companies Act 2006 effectively removes these
restrictions and thereby allows the Company to return capital to
shareholders and buy back its shares in appropriate circumstances,
in a more efficient manner.
On behalf of the Board
Anderson Whamond
Chairman
27 June 2011
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Directors'
Report and the Financial Statements in accordance with applicable
law and regulations. In addition, the Directors have elected to
prepare the Group and Parent Company financial statements in
accordance with International Financial Reporting Standards.
The Group and Parent Company's financial statements are required
to give a true and fair view of the state of affairs of the Group
and the Parent Company and of the profit or loss of the Group for
that period.
In preparing these financial statements, the Directors are
required to:
-- select suitable accounting policies and then apply them
consistently;
-- make judgements and estimates that are reasonable and
prudent;
-- state whether applicable International Financial Reporting
Standards have been followed; and
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group and Parent
Company will continue in business.
The Directors are responsible for keeping proper accounting
records that disclose with reasonable accuracy at any time the
financial position of the Parent Company. They have general
responsibility for taking such steps as are reasonably open to them
to safeguard the assets of the Group and to prevent and detect
fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation governing the preparation and
dissemination of financial statements may differ from one
jurisdiction to another.
On behalf of the Board
Anderson Whamond
Chairman
27 June 2011
Report of the Independent Auditors, KPMG Audit LLC, to the
members of European Convergence Development Company plc
We have audited the financial statements of European Convergence
Development Company plc for the year ended 31 December 2010 which
comprise the Consolidated Income Statement, Consolidated Statement
of Comprehensive Income, the Consolidated and Company Balance
Sheets, the Consolidated Statement of Cash Flows and the
Consolidated Statement of Changes in Equity and the related notes.
The financial reporting framework that has been applied in their
preparation is applicable law and International Financial Reporting
Standards (IFRSs).
This report is made solely to the Company's members, as a body.
Our audit work has been undertaken so that we might state to the
Company's members those matters we are required to state to them in
an auditor's report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to
anyone other than the Company and the Company's members as a body,
for our audit work, for this report, or for the opinions we have
formed.
Respective responsibilities of Directors and Auditor
As explained more fully in the Directors' Responsibilities
Statement set out on page 12, the Directors are responsible for the
preparation of financial statements that give a true and fair view.
Our responsibility is to audit, and express an opinion on, the
financial statements in accordance with applicable law and
International Standards on Auditing (UK and Ireland). Those
standards require us to comply with the Auditing Practices Board's
(APB's) Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free from
material misstatement, whether caused by fraud or error. This
includes an assessment of: whether the accounting policies are
appropriate to the Group's circumstances and have been consistently
applied and adequately disclosed; the reasonableness of significant
accounting estimates made by the Directors; and the overall
presentation of the financial statements.
Opinion on the financial statements
In our opinion the financial statements:
-- give a true and fair view of the state of the Group's and
Parent Company's affairs as at 31 December 2010 and of the Group's
loss for the year then ended; and
-- have been properly prepared in accordance with IFRSs.
Emphasis of matter
Without qualifying our audit opinion we draw to your attention
the following matters:
As disclosed in note 4.1 to these financial statements, the
global financial crisis and the deteriorating economic environment
in the jurisdictions within which the Group operates have increased
the intensity of the risk factors to which the Group is exposed. In
particular, there is now increased uncertainty as to the valuation
of property assets held by equity accounted investees, along with
the recoverability of loans made by the Group to third parties.
Further, a significant reduction in the availability of loan
finance has resulted in equity accounted investees needing to
re-negotiate terms with banks and to seek additional capital
contributions from the Group in order that ongoing projects can be
completed. The Board have made a number of estimates and
assumptions in respect of future events, the outcome of which
remains uncertain in light of the challenging economic climate and
further impairments may be necessary. In particular, assumptions
regarding occupancy levels, rental yields, discount factors and
exit yields for the property assets held, together with the ability
of the equity accounted investees to secure continued funding, are
significant factors influencing the estimates derived.
KPMG Audit LLC
Chartered Accountants, Heritage Court, 41 Athol Street, Douglas,
Isle of Man IM99 1HN
27 June 2011
Consolidated Income Statement
Year ended Year ended
Note 31 December 2010 31 December 2009
EUR'000 EUR'000
------------------------------- ----- ------------------ ------------------
Net rent and related income - 172
Net changes in fair value on
financial assets at fair
value through profit or loss 10 - 85
Annual management fees 7.3 (962) (1,346)
Audit fees 8.5 (76) (73)
Legal and professional fees (125) (126)
Directors' fees 16 (104) (90)
Administration fees 8.3 (57) (65)
Other operating expenses 8.4 (430) (638)
Administrative expenses (1,754) (2,338)
------------------------------- ----- ------------------ ------------------
Net operating loss before net
financing income (1,754) (2,081)
------------------------------- ----- ------------------ ------------------
Financial income 28 748
Financial expenses - (2)
------------------------------- ----- ------------------ ------------------
Net financing income 5 28 746
------------------------------- ----- ------------------ ------------------
Share of loss of equity
accounted investees 9 (1,712) (1,555)
Impairment in value of equity
accounted investees 9 (21,591) (9,921)
Impairment in value of third
party loans - (47)
------------------------------- ----- ------------------ ------------------
Loss before tax (25,029) (12,858)
------------------------------- ----- ------------------ ------------------
Income tax expense 17 (1) (146)
Retained loss for the year (25,030) (13,004)
------------------------------- ----- ------------------ ------------------
Basic and diluted loss per
share (EUR) 13 (0.2765) (0.1433)
------------------------------- ----- ------------------ ------------------
The Directors consider that all results derive from continuing
activities.
Consolidated Statement of Comprehensive Income
Year ended Year ended
Note 31 December 2010 31 December 2009
EUR'000 EUR'000
------------------------------------- ------------------ ------------------
Loss for the year (25,030) (13,004)
Other comprehensive income
Currency translation differences (4) (4)
-------------------------------------- ------------------ ------------------
Total comprehensive loss for
the year (25,034) (13,008)
-------------------------------------- ------------------ ------------------
Consolidated Balance Sheet
Note At 31 December 2010 At 31 December 2009
EUR'000 EUR'000
--------------------------- ----- -------------------- --------------------
Investment in equity
accounted investees 9 26,370 45,149
Property, plant and
equipment 2 2
Total non-current assets 26,372 45,151
Loans to third parties 11 324 359
Financial assets at fair
value through profit or
loss 10 - -
Trade and other
receivables 53 123
Cash and cash equivalents 4.4 7,025 13,511
--------------------------- ----- -------------------- --------------------
Total current assets 7,402 13,993
--------------------------- ----- -------------------- --------------------
Total assets 33,774 59,144
--------------------------- ----- -------------------- --------------------
Issued share capital 12 72,412 72,412
Share premium 9,841 9,841
Foreign currency
translation reserve 4 8
Retained losses (48,953) (23,923)
--------------------------- ----- -------------------- --------------------
Total equity 33,304 58,338
--------------------------- ----- -------------------- --------------------
Trade and other payables 14 470 806
Total current liabilities 470 806
--------------------------- ----- -------------------- --------------------
Total liabilities 470 806
--------------------------- ----- -------------------- --------------------
Total equity & liabilities 33,774 59,144
--------------------------- ----- -------------------- --------------------
Approved by the Board of Directors on 27 June 2011
Director Director
Company Balance Sheet
Note At 31 December 2010 At 31 December 2009
EUR'000 EUR'000
--------------------------- ----- -------------------- --------------------
Investment in equity
accounted investees 9 1,920 -
--------------------------- ----- -------------------- --------------------
Total non-current assets 1,920 -
--------------------------- ----- -------------------- --------------------
Intragroup balances 7.5 31,287 45,751
Financial assets at fair
value through profit or
loss 10 - -
Trade and other
receivables 13 13
Cash and cash equivalents 4.4 153 12,668
--------------------------- ----- -------------------- --------------------
Total current assets 31,453 58,432
--------------------------- ----- -------------------- --------------------
Total assets 33,373 58,432
--------------------------- ----- -------------------- --------------------
Issued share capital 12 72,412 72,412
Share premium 9,841 9,841
Retained earnings (48,949) (23,915)
--------------------------- ----- -------------------- --------------------
Total equity 33,304 58,338
--------------------------- ----- -------------------- --------------------
Trade and other payables 14 69 94
--------------------------- ----- -------------------- --------------------
Total current liabilities 69 94
--------------------------- ----- -------------------- --------------------
Total liabilities 69 94
--------------------------- ----- -------------------- --------------------
Total equity & liabilities 33,373 58,432
--------------------------- ----- -------------------- --------------------
The loss made by the Company for the year ended 31 December 2010
was EUR25.0 million after an impairment charge against intragroup
balances amounting to EUR27.9million (primarily a result of the
provisions made against the investments held by the Company's
subsidiaries) (2009: EUR13.0million loss with an impairment charge
of EUR15.5million).
Approved by the Board of Directors on 27 June 2010
Director Director
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 2009 73,308 9,146 12 (10,919) 71,547
Loss for the
year - - - (13,004) (13,004)
Other
comprehensive
income
Foreign
exchange
translation
differences - - (4) - (4)
--------------- ----------- ----------- ------------ ---------- ---------
Total
comprehensive
loss - - (4) (13,004) (13,008)
--------------- ----------- ----------- ------------ ---------- ---------
Shares
cancelled
following
market
purchases (896) 695 - - (201)
Total
transactions
with owners
in the year (896) 695 - - (201)
--------------- ----------- ----------- ------------ ---------- ---------
Balance at 31
December
2009 72,412 9,841 8 (23,923) 58,338
--------------- ----------- ----------- ------------ ---------- ---------
Balance at 1 January 2010 72,412 9,841 8 (23,923) 58,338
Loss for the year - - - (25,030) (25,030)
Other comprehensive income
Foreign exchange translation
differences - - (4) - (4)
--------------------------------- ------- ------ ---- --------- ---------
Total comprehensive loss - - (4) (25,030) (25,034)
--------------------------------- ------- ------ ---- --------- ---------
Shares cancelled following
market purchases - - - - -
Total transactions with owners
in the year - - - - -
--------------------------------- ------- ------ ---- --------- ---------
Balance at 31 December 2010 72,412 9,841 4 (48,953) 33,304
--------------------------------- ------- ------ ---- --------- ---------
Consolidated Cash Flow Statement
Year ended Year ended
Note 31 December 2010 31 December 2009
EUR'000 EUR'000
------------------------------- ----- ------------------ ------------------
Operating activities
Group loss for the year (25,030) (13,004)
Adjustments for:
Net changes in fair value on
financial assets at fair
value through profit or
loss - (85)
Net financial income (28) (746)
Net rent and related income - (172)
Income tax 1 146
Share of loss of equity
accounted investees 9 1,712 1,555
Impairment in value of equity
accounted investees 9 21,591 9,921
Impairment in value of third
party loans - 47
------------------------------- ----- ------------------ ------------------
Operating loss before changes
in working capital (1,754) (2,338)
Decrease/(increase) in trade
and other receivables 69 (57)
(Decrease)/increase in trade
and other payables (341) 71
Cash used in operations (2,026) (2,324)
Financial income received 28 918
Tax paid - (69)
------------------------------- ----- ------------------ ------------------
Cash flows used in operating
activities (1,998) (1,475)
------------------------------- ----- ------------------ ------------------
Investing activities
Purchase of treasury bills - (24,956)
Maturity of treasury bills - 35,000
Acquisition of equity
accounted investees (12,126) -
Increase in loans to equity
accounted investees 7,602 (15,085)
Decrease in loans to third
parties 36 96
(Disposal)/purchase of
property, plant & equipment - 1
------------------------------- ----- ------------------ ------------------
Cash flows used in investing
activities (4,488) (4,944)
------------------------------- ----- ------------------ ------------------
Financing activities
Proceeds from the issue of
ordinary share capital - -
Purchase of own shares 12 - (201)
Share issue expenses - -
------------------------------- ----- ------------------ ------------------
Cash flows used in financing
activities - (201)
------------------------------- ----- ------------------ ------------------
Net decrease in cash and cash
equivalents (6,486) (6,620)
Cash and cash equivalents at
beginning of year 13,511 20,131
------------------------------- ----- ------------------ ------------------
Cash and cash equivalents at
end of year 7,025 13,511
------------------------------- ----- ------------------ ------------------
Notes to the Consolidated Financial Statements
1 The Company
European Convergence Development Company plc (the "Company") was
incorporated and registered in the Isle of Man under the Isle of
Man Companies Acts 1931 to 2004 on 26 July 2006 as a public company
with registered number 117309C. On 3 March 2008 the Company was
de-registered as an Isle of Man 1931-2004 company and re-registered
as a company governed by the Isle of Man Companies Act 2006 with
registered number 002391v.
Following the close of Company's first placing of Ordinary
Shares on 12 September 2006 38,071,000 shares were issued. On 21
September 2007, a further 63,157,894 Ordinary Shares were issued
and placed, bringing the Company's total issued share capital to
101,228,894 Ordinary Shares.
During the year to 31 December 2008 the Company purchased
9,593,424 of its own shares for cancellation at an average price of
0.52. On 6 March 2009 the Company purchased a further 1,120,000 of
its own shares for cancellation at an average price of EUR0.18. At
the year end the Company had 90,515,470 shares in issue.
The Company's agents and the Manager perform all significant
functions. Accordingly, the Company itself has no employees.
Duration
In accordance with the Company's Articles of Association,
Shareholders will be given the opportunity to vote on the life of
the Company after approximately 10 years.
Dividend Policy
The Directors will decide in respect of any 12 month accounting
period as to what percentage of the Company's realised net profits
available for distribution (if any) they will recommend as the sum
for payment as a dividend. This decision will take into account the
opportunities available to the Company for further investment. The
Directors may pay half-yearly interim dividends if they believe
that the financial position of the Company justifies it. If the
Company's funds are fully invested, the Directors may re-invest
some of the Company's profits into the maintenance of the Company's
property portfolio or on further investments.
Financial Year End
The financial year end of the Company is 31 December in each
year.
2 The Subsidiaries
For efficient portfolio management purposes, the Company
established the following subsidiary companies:
Percentage of shares
Country of Incorporation held
------------------------- ------------------------- ------------------------
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 50%
Mega Mall Rousse AD Bulgaria 50%
Trade Centre Sliven EAD Bulgaria 42.5%
Turgovski Park Kraimorie
AD Bulgaria 70%
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 principal accounting policies adopted in the preparation of
the consolidated financial statements are set out below.
The annual report of the Company for the year ended 31 December
2010 comprises the Company, its subsidiaries and joint ventures
(together referred to as the "Group").
The annual report was authorised for issue by the Directors on
27 June 2011.
4.1 Basis of presentation
These financial statements have been prepared in accordance with
International Financial Reporting Standards ("IFRS") promulgated by
the International Accounting Standards Board. Management has
concluded that the report fairly represents the Group's financial
position, financial performance and cash flows.
The preparation of the financial statements in conformity with
IFRS requires the use of certain critical accounting estimates. It
also requires the Board of Directors to exercise its judgement in
the process of applying the Company's accounting policies. The
Directors consider that the valuation of the Company's investments
in equity accounted associates is an area where critical accounting
estimates are required. Further detail on the valuation of the
investments may be found in notes 9 and 18.
The activities of the Group are subject to a number of risk
factors. The global financial crisis and the deteriorating economic
environment in the jurisdictions within which the Group operates
have increased the intensity of these risk factors. The future
economic outlook presents specific challenges in terms of the
significant reduction in the volume of property transactions in the
jurisdictions within which the Group operates, the significant
reduction in the availability of loan finance for property
transactions in those jurisdictions and the consequent impact on
the valuations of property held by equity accounted investees.
In the prevailing market conditions, there is a greater degree
of uncertainty as to the valuation of property assets than that
which exists in a more active and stronger market. These factors
have adversely impacted the compliance of equity accounted
investees with their borrowing covenants and a number of these
facilities have been renegotiated, whilst the Group has made
additional capital available to certain entities in order that
ongoing projects can be completed. Collectively, these factors
contribute to a greater degree of uncertainty as to the valuation
of holdings in equity accounted investees.
These factors have also impacted on the ability of joint venture
partners to repay loans made by the Group and as a result have
caused repayment terms for these facilities to be
re-negotiated.
The valuations of property held by the equity accounted
investees are based on a number of assumptions, including those in
respect of projected occupancy levels and rental yields achievable,
along with the ability of the Group to renegotiate funding to allow
the equity accounted investees to continue in operation. In light
of the challenging economic climate, the ultimate outcomes of these
estimates remains uncertain and therefore further impairments
against the Group's holding in equity accounted investees may be
necessary.
The financial statements have been prepared on a going concern
basis, taking into account the level of cash and cash equivalents
held by the Group and the level of capital commitments to joint
venture entities.
The Company is denominated in Euros ("EUR") and therefore the
amounts shown in these financial statements are presented in
EUR.
4.2 Foreign currency translation
Euro is the currency of the primary economic environment in
which the entity operates (the "functional currency"). This is also
the functional currency of the subsidiaries.
Euro is also the currency in which the annual financial
statements are presented (the "presentation currency").
Monetary assets and liabilities denominated in foreign
currencies as at the date of these financial statements are
translated to EUR
at exchange rates prevailing on that date. Realised and
unrealised gains and losses on foreign currency transactions are
charged or credited to the income statement as foreign currency
gains and losses. Expenses are translated into EUR based on
exchange rates on the date of the transaction.
The accounts are presented in Euros by translating the assets
and liabilities at the exchange rate prevailing at the balance
sheet date. Items of revenue and expense are translated at exchange
rates on the date of the relevant transactions. Components of
equity are translated at the date of the relevant transaction and
not retranslated. All resulting exchange differences are recognised
in equity.
4.3 Deposit interest
Deposit interest is accounted for on an accruals basis.
4.4 Cash and cash equivalents
Cash and cash equivalents comprise cash deposited with banks and
bank overdrafts repayable on demand.
4.5 Revenue and expense recognition
Interest income is recognised in the financial statements on an
accruals basis. Dividend income is recorded when declared.
Rental income from investment property leased out under
operating lease is recognised in the income statement on a
straight-line basis over the term of the lease.
Expenses are accounted for on an accrual basis. Expenses are
charged to the income statement except for expenses incurred on the
acquisition of an investment property which are included within the
cost of that investment. Expenses arising on the disposal of an
investment property are deducted from the disposal proceeds.
4.6 Basis of consolidation
Subsidiaries
Subsidiaries are those enterprises controlled by the Company.
Control exists where the Company has the power, directly or
indirectly, to govern the financial and operating policies of an
enterprise so as to obtain benefits from its activities. The
financial statements of subsidiaries are included in the
consolidated financial statements from the date that control
effectively commences until the date that control effectively
ceases.
Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised gains
arising from intra-group transactions, are eliminated in preparing
the consolidated financial statements.
Joint ventures (equity accounted investees)
Investments in joint ventures are carried at cost (adjusted for
the Group's share of the income and expenses of the equity
accounted investees according to the equity method of accounting
for joint ventures). Joint ventures are those entities over whose
activities the Group has joint control, established by contractual
agreement and requiring unanimous consent for strategic financial
and operating decisions. Joint ventures are accounted for using the
equity method (equity accounted investees). The consolidated
financial statements include the Group's share of the income and
expenses of the equity accounted investees, after adjustments to
align the accounting policies with those of the Group, from the
date that joint control commences until the date that joint control
ceases. When the Group's share of losses exceeds its interest in an
equity accounted investee, the carrying amount of that interest
(including any long-term investment) is reduced to nil and the
recognition of further losses is discontinued except to the extent
that the Group has an obligation or has made payments on behalf of
the investee.
Unrealised gains on transactions between the Company and its
equity accounted investees are eliminated to the extent of the
Company's interest in the equity accounted investees. Unrealised
losses are also eliminated unless the transaction provides evidence
of an impairment of the asset transferred. Accounting policies have
been changed where necessary to ensure consistency with the
policies adopted by the Company. In particular, borrowing costs
related directly to the acquisition or construction of qualifying
assets are capitalised.
Investments in joint ventures are kept under review for
impairment. Where, in the opinion of the directors, the recoverable
value of an investment falls below cost, a provision is made
against the investment and charged to the income statement.
Financial statements of foreign operations
The assets and liabilities of foreign operations, including
goodwill and fair value adjustments arising on consolidation, are
translated to EUR at the foreign currency exchange rates ruling at
the balance sheet date. Foreign exchange differences arising on
translation are recognised directly in equity.
4.7 Dividends
Dividends are recognised as a liability in the year in which
they are declared and approved. Any interim dividends declared do
not need to be approved by the members. There was no dividend
declared as at 31 December 2010 (2009: Nil).
4.8 Financial assets
The Group classifies its financial assets in the following
categories: at fair value through profit or loss, loans and
receivables, cash and cash equivalents and available for sale. The
classification depends on the purpose for which the financial
assets were acquired. Management determines the classification of
its financial assets at initial recognition.
During the year the Group held treasury bills which are
classified as financial assets at fair value through profit or
loss. These financial assets were classified as held for trading as
they were acquired principally for the purpose of selling in the
short-term. Financial assets at fair value through profit or loss
are recognised on trade date - the date on which the Company
commits to purchase or sell the investment. Investments are
initially recognised at fair value and transaction costs for all
financial assets at fair value through profit or loss are expensed
as incurred in the income statement. Subsequent to initial
recognition, all financial assets at fair value through profit or
loss are measured at fair value based on quoted prices. All related
realised and unrealised gains and losses arising from changes in
fair value of the financial asset are included in the income
statement in the period in which they arise, net of transaction
costs. The computation of realised gains and losses on sale of
investments is made on the average cost basis. Loans and
receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. They
are included in current assets, except for maturities greater than
12 months after the balance sheet date. These are classified as
non-current assets. The Group's loans and receivables comprise
'loans to third parties' and 'trade and other receivables' in the
balance sheet.
4.9 Other receivables
Trade and other receivables and loans to third parties are
stated at their cost, less any impairment losses.
4.10 Trade and other payables
Trade and other payables are stated at their cost.
4.11 Interest-bearing borrowings
Interest-bearing borrowings are recognised initially at fair
value, less attributable transaction costs. Subsequent to initial
recognition, interest-bearing borrowings are stated at amortised
cost with any difference between cost and redemption value being
recognised in the income statement over the period of the
borrowings on an effective interest basis.
Borrowing costs directly attributable to assets in the course of
construction are capitalised.
4.12 Share capital
Ordinary shares are classified as equity. Incremental costs
directly attributable to the issue of ordinary shares are
recognised as a deduction from equity, net of any tax effect.
In the previous and current year, the Company repurchased some
of its own shares. These shares were cancelled upon repurchase and
accordingly the issued share capital of the Company was reduced by
their nominal value. The discount to nominal value on the
repurchased shares was credited to the share premium account.
4.13 Segmental reporting
The Company has one segment focusing on maximising total returns
through investing in the property markets of South East Europe.
Further analysis of the Group's exposure in this region is provided
in notes 9 and 11. No additional disclosure is required in relation
to segment reporting, as the Company's activities are limited to
one business and geographic segment.
4.14 Adoption of new and revised International Financial
Reporting Standards (IFRSs)
Standards affecting amounts reported in the current year (and/or
prior years)
The following new standards and amendments to standards are
mandatory for the first time for the financial year beginning 1
January 2010.
IFRS 3 (revised), 'Business combinations', and consequential
amendments to IAS 27, 'Consolidated and separate financial
statements', IAS 28, 'Investments in associates', and IAS 31,
'Interests in joint ventures', are effective prospectively to
business combinations for which the acquisition date is on or after
the beginning of the first annual reporting period beginning on or
after 1 July 2009. The revised standard continues to apply the
acquisition method to business combinations but with some
significant changes compared with IFRS 3. For example, all payments
to purchase a business are recorded at fair value at the
acquisition date, with contingent payments classified as debt
subsequently re-measured through the statement of comprehensive
income.
There is a choice on an acquisition-by-acquisition basis to
measure the non-controlling interest in the acquiree either at fair
value or at the non-controlling interest's proportionate share of
the acquiree's net assets. All acquisition-related costs are
expensed.
IAS 27 (revised) requires the effects of all transactions with
non-controlling interests to be recorded in equity if there is no
change in control and these transactions will no longer result in
goodwill or gains and losses. The standard also specifies the
accounting when control is lost. Any remaining interest in the
entity is re-measured to fair value, and a gain or loss is
recognised in profit or loss. IAS 27 (revised) has had no impact on
the current period, as none of the non-controlling interests have a
deficit balance; there have been no transactions whereby an
interest in an entity is retained after the loss of control of that
entity, and there have been no transactions with non-controlling
interests.
b) Standards, amendments and interpretations to existing
standards relevant to the Group, that are not yet effective and
have not been early adopted by the Group.
IFRS 9, 'Financial instruments', issued in November 2009. This
standard is the first step in the process to replace IAS 39,
'Financial instruments: recognition and measurement'. IFRS 9
introduces new requirements for classifying and measuring financial
assets and is likely to affect the group's accounting for its
financial assets. The standard is not applicable until 1 January
2013 but is available for early adoption. However, the standard has
not yet been endorsed by the EU. The Group is yet to assess IFRS
9's full impact.
Revised IAS 24 (revised), 'Related party disclosures', issued in
November 2009. It supersedes IAS 24, 'Related party disclosures',
issued in 2003. IAS 24 (revised) is mandatory for periods beginning
on or after 1 January 2011. Earlier application, in whole or in
part, is permitted. However, the standard has not yet been endorsed
by the EU. The revised standard clarifies and simplifies the
definition of a related party and removes the requirement for
government-related entities to disclose details of all transactions
with the government and other government-related entities. The
Group will apply the revised standard from 1 January 2011. When the
revised standard is applied, the group and the parent will need to
disclose any transactions between its subsidiaries and its
associates. The Group is currently putting systems in place to
capture the necessary information. It is, therefore, not possible
at this stage to disclose the impact, if any, of the revised
standard on the related party disclosures.
'Classification of rights issues' (amendment to IAS 32), issued
in October 2009. The amendment applies to annual periods beginning
on or after 1 February 2010. Earlier application is permitted. The
amendment addresses the accounting for rights issues that are
denominated in a currency other than the functional currency of the
issuer. Provided certain conditions are met, such rights issues are
now classified as equity regardless of the currency in which the
exercise price is denominated. Previously, these issues had to be
accounted for as derivative liabilities. The amendment applies
retrospectively in accordance with IAS 8 'Accounting policies,
changes in accounting estimates and errors'. The Group will apply
the amended standard from 1 January 2011.
IFRIC 19, 'Extinguishing financial liabilities with equity
instruments', effective 1 July 2010. The interpretation clarifies
the accounting by an entity when the terms of a financial liability
are renegotiated and result in the entity issuing equity
instruments to a creditor of the entity to extinguish all or part
of the financial liability (debt for equity swap). It requires a
gain or loss to be recognised in profit or loss, which is measured
as the difference between the carrying amount of the financial
liability and the fair value of the equity instruments issued. If
the fair value of the equity instruments issued cannot be reliably
measured, the equity instruments should be measured to reflect the
fair value of the financial liability extinguished. The Group will
apply the interpretation from 1 January 2011, subject to
endorsement by the EU. It is not expected to have any impact on the
Group or the parent entity's financial statements.
IFRS 7, 'Financial instruments', effective 1 January 2011.
Emphasises the interaction between quantitative and qualitative
disclosures about the nature and extent of risks associated with
financial instruments.
IAS 1, 'Presentation of financial statements', effective 1
January 2011. Clarifies that an entity will present an analysis of
other comprehensive income for each component of equity, either in
the statement of changes in equity or in the notes to the financial
statements.
IAS 27, 'Consolidated and separate financial statements',
applicable to annual periods beginning on or after 1 July 2010.
Clarifies that the consequential amendments from IAS 27 made to IAS
21, 'The effect of changes in foreign exchange rates',
IAS 28, 'Investments in associates', and IAS 31, 'Interests in
joint ventures', apply prospectively for annual periods beginning
on or after 1 July 2010, or earlier when IAS 27 is applied
earlier.
5 Net Financing Income
Net financing income consists of bank interest earned of
EUR28,412 (2008: EUR748,288) and loan arrangement fees of EURnil
(2008: EUR1,500).
6 Net Asset Value per Share
The net asset value per share as at 31 December 2010 is
EUR0.3679 (2009: EUR0.6445) based on 90,515,470 (2009: 90,515,470)
ordinary shares in issue as at that date.
7 Related Party Transactions
7.1 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 CIS Fund 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 31 December 2010.
CCL, a company incorporated in the Cayman Islands is listed on
the Alternative Investment Market of the London Stock Exchange.
Save as disclosed above, none of the Directors had any interest
during the year in any material contract for the provision of
services which was significant to the business of the Company.
7.2 Directors of the Subsidiaries
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.
7.3 Manager fees
Annual fees
The Manager is entitled to an annual management fee of 2% of the
net asset value of the Company, payable quarterly in arrears.
The Manager shall also be entitled to recharge to the Company
all and any costs and disbursements reasonably incurred by it in
the performance of its duties including costs of travel save to the
extent that such costs are staff costs or other internal costs of
the Manager. Accordingly, the Company shall be responsible for
paying all the fees and expenses of all valuers, surveyors, legal
advisers and other external advisers to the Company in connection
with any investments made on its behalf. All amounts payable to the
Manager by the Company shall be paid together with any value added
tax, if applicable.
Annual management fees payable during the year ended 31 December
2010 amounted to EUR961,545 (2009: EUR1,345,833).
Performance fees
The Manager is entitled to a performance fee payable at the end
of each financial year following the first listing of the Ordinary
Shares on AIM or any other stock exchange of an amount equal to 15%
of any excess of the net asset value per Ordinary Share (with any
dividends added back) over the Benchmark Net Asset Value per
Ordinary Share multiplied by the time weighted average number of
shares in issue during that that financial year. For these purposes
the Benchmark Net Asset Value shall be equal to the higher of (i)
the subscription price per Ordinary Share on the first listing of
the Ordinary Shares; (ii) 0.80 Euros increased by 20% per annum
compound from the closing of the Placing until a Listing; and (iii)
the highest net asset value per Ordinary Share following a Listing
and giving rise to the payment of a performance fee.
Payment of the Manager's annual fees and any performance fees
shall be paid by a subsidiary of the Company.
Performance fees payable during the year ended 31 December 2010
amounted to EUR nil (2009: EUR nil).
7.4 Transactions and balances with Joint Venture companies and
partners
The Company has made loans to Joint Venture Companies totalling
EUR40,915,000 (2009: EUR48,518,000) and to Joint Venture Partners
totalling EUR4,700,000 (2009: EUR4,525,000). Details of the terms
and applicable interest rates for these loans are more fully shown
in note 9 and note 11.
7.5 Intragroup balances
Intragroup balances are repayable on demand and bear interest at
commercial rates. Loans to subsidiaries outstanding at the year end
have been impaired to fair value.
8 Charges and Fees
8.1 Nominated Adviser and Broker fees
As Nominated Adviser and Broker to the Company for the purposes
of the AIM Rules, the nominated advisor and broker is entitled to
receive an annual fee of GBP25,000, payable twice yearly in
advance.
Advisory fees payable to the Nominated Adviser and Broker for
the year ended 31 December 2010 amounted to EUR34,873 (31 December
2009: EUR32,104).
8.2 Custodian fees
The Custodian was entitled to receive fees calculated as 2 basis
point per annum of the gross value of the non-real estate assets
held on behalf of the Company, subject to a minimum monthly fee of
EUR500, payable quarterly in arrears.
The Company terminated the custodian agreement between the
Company and the custodian with effect from 31 December 2010.
Custodian fees payable for the year ended 31 December 2010
amounted to EUR7,050 (2009: EUR8,173).
8.3 Administrator and Registrar fees
The Administrator is entitled to receive a fee of 8 basis points
of the net assets of the Company, subject to a minimum monthly fee
of EUR4,000, payable quarterly in arrears.
The Administrator shall assist in the preparation of the
financial statements of the Company for which it shall receive a
fee of EUR2,875 per set.
The Administrator shall provide general secretarial services to
the Company for which it shall receive a minimum annual fee of
EUR3,750. Additional fees based on time and charges, will apply
where the number of Board meetings exceeds four p.a. For attendance
at meetings not held in the Isle of Man, an attendance fee of
EUR750 per day or part thereof will be charged.
The Administrator may utilise the services of a CREST accredited
registrar for the purposes of settling share transactions through
CREST. The cost of this service will be borne by the Company. It is
anticipated that the cost will be in the region of GBP5,500 per
annum subject to the number of CREST settled transactions
undertaken.
The Administrator expects to review and, subject to written
agreement between the Company and the Administrator, may amend the
foregoing fees six months after closure of the initial offering
period and annually thereafter.
Administration fees payable for the year ended 31 December 2010
amounted to EUR56,813 (2009: EUR64,912).
8.4 Other operating expenses
The costs associated with maintaining the Company's
subsidiaries, including the costs of incorporation and third party
service providers, shall be chargeable to each subsidiary and
payable by the Company.
8.5 Audit fees
Audit fees payable for the year ended 31 December 2010 amounted
to EUR76,411 (2009: EUR73,487).
9 Investment in Equity Accounted Investments
Group 31 December 2010 31 December 2009
EUR'000 EUR'000
---------------------------------------- ----------------- -----------------
At beginning of year 45,149 41,540
Acquisition of equity accounted
investment 12,126 -
Movement in loans treated as equity
accounted investments (7,602) 15,085
Share of loss of equity accounted
investment (1,712) (1,555)
Write down of value of equity accounted
investments (21,591) (9,921)
Balance at end of year 26,370 45,149
---------------------------------------- ----------------- -----------------
The loans to equity accounted investees, before deduction of
provisions, are as follows:
31 December
Name Term Term Interest Rate 2010
EUR'000
------------------------------------------ -------------- ----------------
Asmita Gardens
SRL * 31 December 2012 6% 14,370
Galleria Plovdiv
AD * * 0%** 10,000
Convergence Development Invest SRL 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.
At the previous year end, the loans to equity accounted
investees were as follows:
31 December
Name Term Term Interest Rate 2009
EUR'000
------------------------------------------ -------------- ----------------
Asmita Gardens
SRL * 31 December 2012 6% 14,370
Galleria Plovdiv
AD * * 0%** 17,603
Convergence Development Invest SRL 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:-
Value at 31 December Value at 31 December
Name 2010 2009
EUR'000 EUR'000
------------------------- ------------------------ -------------------------
Asmita Gardens SRL - 8,000
Cascade Park Plaza SRL 8,356 8,612
Galleria Plovdiv AD 8,720 17,711
Mega Mall Rousse 2,974 4,018
Trade Centre Sliven EAD 2,300 2,234
Turgovski Park Kraimorie
AD 2,100 4,574
NEF3 (IOM) 1 Limited* 720 -
NEF3 (IOM) 2 Limited* 300 -
NEF3 (IOM) 3 Limited* 900 -
------------------------- ------------------------ -------------------------
26,370 45,149
------------------------- ------------------------ -------------------------
* held directly by the Company.
Asmita Gardens Srl
During the 2010, a provision of EUR8.0m was made against the
Group's investment in Asmita Gardens Srl bringing the value down to
nil. In prior years provisions of EUR4.9m had been raised. The
company is in discussion with the prime lender and the JV to find a
way to take the project forward again. Early in 2011 site
operations were suspended whilst negotiations with the lending bank
and the JV partner took place on how best to restructure the
facility, which is in default, and enable a timely and efficient
continuation of the development. Until these negotiations are
resolved, the project cannot be taken forward and the Directors
have decided to fully provide against the asset at this time.
Galleria Plovdiv
The Company carried out an internal valuation exercise on the
development as at the end of 2010 using the Direct Capitalisation
Method. The key assumptions used in the valuation exercise are in
respect of occupancy levels, rental yields, and the exit yield. A
discount factor was then applied to calculate the present value.
Following this revaluation and after adjusting for the share of
equity accounted losses during 2010, a provision of EUR10.1m was
raised during 2010 against the Group's investment in Galleria
Plovdiv. No previous provisions had been raised.
Mega Mall Rousse
The Company also carried out a similar internal revaluation
exercise using the Direct Capitalisation Model on its Mega Mall
Rousse property, using key assumptions on occupancy levels, rental
yields and exit yields specific to this property and again a
discount factor was applied to calculate the present value. This
led to a provision of EUR1.0m being raised during 2010 against the
Group's investment in Mega Mall Rousse. No previous provisions had
been raised.
Trade Center Sliven EAD
In prior years a total provision of EUR1,749k had been raised
against the Group's investment in Trade Center Sliven,. During the
current period, no additional provision was made. The Trade Center
Sliven development project is currently on hold. .
Turgovski Park Kraimorie Srl
Following an independent valuation of the land at Turgovski Park
Kraimorie AD a further provision of EUR2.5m was made against the
Group's investment in this project. In prior years provisions of
EUR4.6m have been raised. The Turgovski Park Kraimorie AD
development project is currently on hold.
Cascade Park Plaza Srl
An independent valuation was carried out on Cascade Park Plaza
by international property surveyors Colliers. Their report
indicated an increase in the value of the Company's investment in
Cascade. However following the arbitration award to Martifer (see
22 Post balance sheet events) the Company feel that a more
conservative approach should be adopted until the full position has
been resolved.
NEF 3 (IOM)
Towards the end of 2010 the Company co-invested with another
fund managed by the Manager into three new investment vehicles. Two
of the vehicles invested in two projects, in Iasi & Oradea,
with the JV partner Argo Capital Partners Fund Limited. The
projects are up and running and are expected to return a
significant IRR to the Company. The other investment vehicle (NEF3
(IOM) 2 Limited) raised funds for further investment into Cascade
Park Plaza Srl.
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 30,062 (40,074) 352 (641) 40
Galleria
Plovdiv
AD Bulgaria 72,655 (63,974) 743 (6,039) 40
Mega Mall
Rousse
AD Bulgaria 25,819 (21,057) 5,192 (284) 50
Trade
Centre
Sliven
EAD Bulgaria 5,793 (24) 188 160 42.5
Turgovski
Park
Kraimorie
AD Bulgaria 13,111 (13,112) - (12) 60
NEF3 (IOM)
1 Isle of
Limited Man 1,900 - - - 55
NEF3 (IOM)
2 Isle of
Limited Man 2,100 - - - 55
NEF3 (IOM)
3 Isle of
Limited Man 2,350 - - - 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.
10 Financial assets at fair value through profit or loss
Net changes in fair value on financial assets at fair value
through profit or loss:
31 December 2010 31 December 2009
------------- ----------------- -----------------
EUR'000 EUR'000
------------- ----------------- -----------------
Realised - 78
Unrealised - 7
------------- ----------------- -----------------
Total gains - 85
------------- ----------------- -----------------
11 Loans to third parties
Loans to third parties for the Group includes loans to Joint
Venture Partners as follows
2010 Term Maturity Date Interest Rate Amount
Name EUR'000
------------------------------------------------- ----------------- --------
EURIBOR plus 5%,
plus 10% penalty
Sienit Holding AD* Overdue Overdue interest 1,851
Property Capital
Group** Overdue Overdue EURIBOR plus 5% 324
Dickau Investments
Limited*** 60 months 14 Sept 2012 10% 2,525
------------------- ----------- --------------- ----------------- --------
* Sienit Holding AD is the Group's joint venture partner in
Galleria Plovdiv AD (the Galleria Plovdiv project) and Turgovski
Park Kraimorie AD (the Bourgas Retail Park project). The loan is
overdue for repayment and in 2008 the Group deemed it prudent to
provide for the loan in full.
**Property Capital Group is the Group's joint venture partner in
the Trade Center Sliven EAD (the Sliven Project). Although the loan
from Property Capital Group is overdue for repayment, the partner
has been making regular instalment payments. The Group considers
this loan fully recoverable.
***Dickau Investments Limited ("Dickau") is the Group's joint
venture partner in Convergence Development Invest Srl. The above
loan was provided to Dickau as part of the Group's package of
investment in CDI, and, as a result of the Group's decision to
fully provide against the Group's investment in CDI in 2008 the
Group also considered it prudent to retain full provision for the
loan to Dickau.
2009 Term Maturity Date Interest Rate Amount
Name EUR'000
------------------------------------------------- ----------------- --------
EURIBOR plus 5%,
plus 10% penalty
Sienit Holding AD* Overdue Overdue interest 1,640
Property Capital
Group** Overdue Overdue EURIBOR plus 5% 359
Dickau Investments
Limited*** 60 months 14 Sept 2012 10% 2,525
------------------- ----------- --------------- ----------------- --------
12 Capital and Reserves
Share Capital
2010 2010
Number EUR'000
---------------------------------- ----------- --------
Ordinary Shares of EUR0.80 each
In issue at 1 January 2010 90,515,470 72,412
Shares cancelled during the year - -
In issue at 31 December 2010 90,515,470 72,412
---------------------------------- ----------- --------
2009 2009
Number EUR'000
---------------------------------- ------------ --------
Ordinary Shares of EUR0.80 each
In issue at 1 January 2009 91,635,470 73,308
Shares cancelled during the year (1,120,000) (896)
In issue at 31 December 2009 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.
During the year, the Company bought back no shares for a total
consideration of EURnil (2009: 1,120,000 shares for a total
consideration of EUR201,600).
The holders of ordinary shares are entitled to receive dividends
as declared from time to time and are entitled to one vote per
share at meetings of the Company. All shares rank equally with
regard to the Company's assets.
Capital Management
The Board's policy is to maintain a strong capital base so as to
maintain investor, creditor and market confidence and to sustain
future development of the business. The Board manages the Group's
affairs to achieve shareholder returns through capital growth
rather than income, and monitors the achievement of this through
growth in net asset value per share.
Gearing may be employed by the Group with the aim of enhancing
shareholder returns. This would be in the form of bank borrowings,
secured on the investment portfolio.
Group capital comprises share capital, share premium and
reserves.
Neither the Company nor any of its subsidiaries are subject to
externally imposed capital requirements.
No changes were made in respect of the objectives, policies or
processes in respect of capital management during the years ended
31 December 2009 and 2010.
13 Basic and Diluted Loss per Share
Basic and diluted loss per share are calculated by dividing the
loss attributable to equity holders of the Company by the weighted
average number of ordinary shares in issue during the year.
2010 2009
-------------------------------------------------------- --------- ---------
Loss attributable to equity holders of the Company
(EUR'000) (25,030) (13,004)
Weighted average number of ordinary shares in issue
(thousands) 90,515 90,724
-------------------------------------------------------- --------- ---------
Basic and diluted loss per share (Euro cent per share) (27.65) (14.33)
-------------------------------------------------------- --------- ---------
14 Trade and Other Payables
Group 31 December 2010 31 December 2009
EUR'000 EUR'000
----------------- ----------------- -----------------
Withholding tax 1 146
Trade creditors 18 22
Accruals 451 638
----------------- ----------------- -----------------
Total 470 806
----------------- ----------------- -----------------
Company 31 December 2010 31 December 2009
EUR'000 EUR'000
---------- ----------------- -----------------
Accruals 69 94
---------- ----------------- -----------------
Total 69 94
---------- ----------------- -----------------
15 Exchange Rates
The following exchange rates were used to translate assets and
liabilities into the reporting currency at 31 December 2010:
ROL 4.2156
BGN 1.9558
16 Directors' Remuneration
The Company
The maximum amount of remuneration payable to the Directors
permitted under the Articles of Association is EUR300,000 p.a. Each
Director currently is paid a fee of EUR22,500 p.a. The Directors
are each entitled to receive reimbursement of any expenses incurred
in relation to their appointment. Total fees and expenses paid to
the Directors for the year ended 31 December 2010 amounted to
EUR103,860 (2009: EUR90,000).
The Subsidiaries
No fees are paid to the Directors of the subsidiaries except in
circumstances where a director is appointed in compliance with
local regulations and in such cases the fees payable are
nominal.
17 Taxation
Isle of Man
The Isle of Man has introduced a general zero per cent. tax rate
for companies with effect from 6 April 2006, with the exception of
certain banking income and income from Isle of Man land and
property, which is taxed at 10 per cent.
There are no capital gains or inheritance taxes payable in the
Isle of Man.
No Isle of Man stamp duty or stamp duty reserve tax will be
payable on the issue, transfer, conversion or redemption of
Ordinary Shares.
Shareholders resident outside the Isle of Man will not suffer
any income tax in the Isle of Man on any income distributions to
them.
Shareholders resident in the Isle of Man will, depending upon
their particular circumstances, be liable to Manx income tax on
dividends received from the Company.
United Kingdom
The affairs of the Company are conducted so that the central
management and control of the Company is not exercised in the UK
and so that the Company does not carry out any trade in the UK
(whether or not through a permanent establishment situated there).
On this basis, the Company should not be liable for UK taxation on
its income and gains, other than certain income deriving from a UK
source.
Other
The subsidiaries of the Company are taxed in accordance with the
applicable tax laws in the countries in which they are
incorporated.
18 Financial Instruments
The Group's activities expose it to a variety of financial
risks: market risk (including currency risk, cashflow risk,
interest rate risk and price risk), credit risk and liquidity
risk.
Market price risk
The Company's strategy on the management of market price risk is
driven by the Company's investment objective. The Company has been
established to invest primarily in early stage property
developments in South East Europe. The main objective of the
Company is to take advantage of the potential for capital
appreciation of these investments. The Company's market risk is
monitored by the Manager on a day to day basis and by the Directors
at Board Meetings.
The Group is exposed to property price and property rental risk.
The Group's strategy is to develop property assets and then sell
them for gain: however as a result of current global economic
conditions (see note 4.1), the property market in Romania and
Bulgaria has declined. The Group therefore expects that it may hold
some assets for a substantial period post completion. This further
exposes the Group to property rental risk.
Foreign exchange risk
The Group's operations are conducted in jurisdictions which
generate revenue, expenses, assets and liabilities in currencies
other than the Euro (the functional currency). As a result, the
Group is subject to the effects of exchange rate fluctuations with
respect to these currencies. The currency giving rise to this risk
is primarily Romanian Lei, as the Bulgarian Lev is pegged to the
Euro.
The Group may invest in financial instruments and enter into
transactions denominated in currencies other than the functional
currency. Consequently, the Group is exposed to risks that the
exchange rate of its currency relative to other foreign currencies
may change in a manner that has an adverse affect on the value of
that portion of the Group's assets or liabilities denominated in
currencies other than the functional currency.
The Group's policy is not to enter into any currency hedging
transactions.
The following table sets out the Group's total exposure to
foreign currency risk and the net exposure to foreign currencies of
the assets and liabilities:
31 December 2010 Assets Liabilities Net assets
EUR'000 EUR'000 EUR'000
------------------ -------- ------------ -----------
Romanian Lei 43 (2) 41
Bulgarian Lev 11 (3) 8
Euro 33,720 (465) 33,255
33,774 (470) 33,304
------------------ -------- ------------ -----------
31 December 2009 Assets Liabilities Net assets
EUR'000 EUR'000 EUR'000
------------------ -------- ------------ -----------
Romanian Lei 52 (5) 47
Bulgarian Lev 123 (5) 118
Euro 58,969 (796) 58,173
59,144 (806) 58,338
------------------ -------- ------------ -----------
At 31 December 2010, had the Euro strengthened/weakened by 5% in
relation to the Romanian Lei, with all other variables held
constant, net assets attributable to equity holders of the Group
and the profit for the year would have decreased/increased by
EUR2,000 (2009: 5% EUR2,000).
Interest rate risk
Interest rate risk is the risk that the fair value or future
cash flows of a financial instrument will fluctuate because of
changes in market interest rates. Cash held by the Group is
invested at short-term market interest rates. The Group has
interest-bearing loans, with interest at fixed rates (note 11). As
a result, the Company is exposed to fair value interest rate risk
due to fluctuations in the prevailing levels of market interest
rates. It is also exposed to interest rate cash flow risk.
The table below summarises the Group's exposure to interest rate
risks. It includes the Group's financial assets and liabilities at
the earlier of contractual re-pricing or maturity date, measured by
the carrying values of assets and liabilities:
3
Less months
31 December Average interest than 1 1-3 to 1 1-5 Over 5 Non-interest
2010 rates month months year years years bearing Total
---------------- ------------------ -------- -------- -------- -------- -------- ------------- --------
Fixed Variable
---------------- ------- --------- -------- -------- -------- -------- -------- ------------- --------
% % EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
Financial
assets
Loans to third Euribor
parties - + 5% 324 - - - - - 324
Financial
assets at fair
value through
profit or loss - - - - - - - - -
Trade and other
receivables n/a n/a - - - - - 53 53
Cash and cash
equivalents - 0.1% 7,025 - - - - - 7,025
---------------- ------- --------- -------- -------- -------- -------- -------- ------------- --------
Total financial assets 7,349 - - - - 53 7,402
------------------------- --------- -------- -------- -------- -------- -------- ------------- --------
Financial
liabilities
Trade and other payables - - - - - (895) (895)
------------------------- --------- -------- -------- -------- -------- -------- ------------- --------
Total financial
liabilities - - - - - (895) (895)
------------------------- --------- -------- -------- -------- -------- -------- ------------- --------
Total interest rate 7,349 - - - - - -
sensitivity gap
------------------------- --------- -------- -------- -------- -------- -------- ------------- --------
3
Less months
31 December Average interest than 1 1-3 to 1 1-5 Over 5 Non-interest
2009 rates month months year years years bearing Total
------------- ------------------ -------- -------- -------- -------- -------- ------------- --------
Fixed Variable
------------- ------- --------- -------- -------- -------- -------- -------- ------------- --------
% % EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
Financial
assets
Loans to
third Euribor
parties - + 5% 359 - - - - - 359
Financial
assets at
fair value
through
profit or
loss - - - - - - - - -
Trade and
other
receivables n/a n/a - - - - - 123 123
Cash and
cash
equivalents - 0.1% 13,511 - - - - - 13,511
------------- ------- --------- -------- -------- -------- -------- -------- ------------- --------
Total financial
assets 13,870 - - - - 123 13,993
---------------------- --------- -------- -------- -------- -------- -------- ------------- --------
Financial
liabilities
Trade and other
payables - - - - - (806) (806)
---------------------- --------- -------- -------- -------- -------- -------- ------------- --------
Total financial
liabilities - - - - - (806) (806)
---------------------- --------- -------- -------- -------- -------- -------- ------------- --------
Total interest rate 13,870 - - - - - -
sensitivity gap
---------------------- --------- -------- -------- -------- -------- -------- ------------- --------
At 31 December 2010, should the interest rates have
increased/decreased by 25 basis points with all other variables
remaining constant, the decrease/increase in net assets
attributable to shareholders for the period would amount to
approximately EUR18,373 (2009: 100 basis points EUR138,700).
Credit risk
Credit risk is the risk that a counterparty to a financial
instrument will fail to discharge an obligation or commitment that
it has entered into with the Group.
The carrying amounts of financial assets best represent the
maximum credit risk exposure at the balance sheet date, net of
provisions already made. This relates also to financial assets
carried at amortised cost.
At the reporting date, the Group's financial assets exposed to
credit risk, net of provisions and excluding loans which are
included within the balance of equity accounted investments,
amounted to the following:
31 December 2010 31 December 2009
EUR'000 EUR'000
---------------------------------------- ----------------- -----------------
Loans to third parties (note 11) 324 359
Financial assets at fair value through
profit or loss - -
Trade and other receivables 53 123
Cash at bank 7,025 13,511
---------------------------------------- ----------------- -----------------
7,402 13,993
---------------------------------------- ----------------- -----------------
The Group manages its credit risk by monitoring the
creditworthiness of counterparties regularly. It does not expect
any counterparty other than those debtors against which specific
provisions have been made to fail to meet its obligations (see
notes 9 and 11).
Liquidity risk
Liquidity risk is the risk that the group will not be able to
meet its obligations as they fall due. The Group manages its
liquidity risk by maintaining sufficient cash balances for working
capital and its joint venture associates obtain secured bank loans
to fund purchases of investment property. During the year and since
the year end, a number of the Group's JV's have been in technical
breach of their bank loan financing agreements. The Group completed
renegotiation of some of these financing arrangements during the
year and since the year end. The Group expects that further capital
injections may be required to support financing arrangements for
the joint venture companies. The Group has not guaranteed loan
financing for any of its subsidiaries. The Group's liquidity
position is monitored by the Manager and the Board of
Directors.
Residual undiscounted contractual maturities of financial
liabilities:
Trade and other payables at 31 December 2010 and 31 December
2009 represent trade creditors due within one month.
Fair values
The carrying amounts of all the Company's financial assets and
financial liabilities at the balance sheet date approximated to
their fair values.
Fair value estimates are made at a specific point in time, based
on market conditions and information about the financial
instrument. These estimates are subjective in nature and involve
uncertainties and matters of significant judgement (e.g., interest
rates, volatility, estimated cash flows, etc.) and therefore cannot
be determined with precision.
19 Investment Policy
European Convergence Development Company plc is an Isle of Man
company established to take advantage of opportunities that exist
in the property markets of South-East Europe. The principal target
countries are Bulgaria, Romania and Turkey, with the ability to
invest in Croatia and Slovakia.
The Company may invest in commercial, retail, residential and
industrial property, with a view to taking advantage of the
potential for capital appreciation. The Company primarily seeks to
invest in early stage developments; however it may also invest in
partially completed assets and may also continue to hold and
operate completed developments for a substantial period
post-completion at the sole discretion of the Board. The Board must
believe that it is in the long term benefit of the investors to
hold completed developments.
A proportion of the Group's portfolio may be held in cash or
cash-equivalent investments from time to time.
The Company will establish a subsidiary structure which will
primarily invest equity and debt financing of development projects
with the use of local special purpose vehicles ("SPVs"). The
Company intends that its SPV investments will be in the form of
partnerships with local or international property developers.
Pending investment, cash held will be invested in bank deposits
or fixed income securities issued by governments or banks but not
corporate bonds.
It may be advantageous for the Company to borrow at the level of
its SPV subsidiaries. The Company may negotiate suitable borrowing
facilities with one or more lenders. The Directors do not intend
the Company or its SPVs to borrow in respect of any property more
than 75 per cent of its value on completion.
The Company expects to invest in early stage projects with a
construction period of 2 to 4 years. Whilst the Company intends to
exit from such assets post-completion, depending on prevailing
market conditions, it may be in the best interests of the Company
to hold the operating asset post completion until market conditions
are such that the Company can obtain a suitable price for the
asset.
The Company may reinvest the proceeds of sale of any properties
or return the capital or profits to Shareholders depending on
market conditions prevailing at the relevant time. Shareholders
will be given the opportunity to vote on the continued life of the
Company at the Company's annual general meeting to be held in 2016.
If the resolution to curtail the life of the Company is not passed,
a similar resolution will be proposed at every fifth annual general
meeting thereafter.
It is anticipated that the Group's investment portfolio will be
between 6 to 12 investments. Upon completion of the investment
programme, it is anticipated that, at that time, no single
investment will represent more than 50 per cent of the Company's
total capital. In exceptional circumstances the Company may make an
investment which represents in excess of 50 per cent of the
Company's total capital. In such circumstances the anticipated
investment portfolio may be correspondingly reduced below the
number of investments described above.
20 Fair Value Information
The equity accounted joint venture companies' property
developments are carried at cost adjusted thereafter for the
Company's share of changes in the joint venture's net assets. The
remainder of the Company's financial assets and financial
liabilities at the balance sheet date were stated at fair
value.
Fair value estimates are made at a specific point in time, based
on market conditions and information about the financial
instrument. These estimates are subjective in nature and involve
uncertainties and matters of significant judgement (e.g., interest
rates, volatility, estimated cash flows, etc.) and therefore cannot
be determined with precision.
21 Commitments at the Balance Sheet Date
At the balance sheet date the Group had no outstanding
commitments.
22 Post Balance Sheet Events
The Company terminated the custodian agreement between the
Company and the Custodian with effect from 31 December 2010. The
Directors decided that, as the Company is fully invested, the
services of a custodian are no longer necessary and no replacement
custodian was therefore appointed.
On the 16 May 2011 the Court of Arbitration in the case between
Cascade and Martifer made an EUR3.0m award in favour of Martifer.
This amount represented EUR0.8m of disputed invoices, the repayment
of the performance bond of EUR1.1m which had been called by the
company and EUR1.1m of penalties, interest and other minor claims.
The company and its lawyers were very surprised by this decision
and the company is currently in discussion with its lawyers and
bankers to identify the best way forward.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SEIFMWFFSESM
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