TIDMECDC
RNS Number : 4295S
European Convergence Develop. CoPLC
24 September 2014
24 September 2014
EUROPEAN CONVERGENCE DEVELOPMENT COMPANY PLC
("ECDC" OR "THE COMPANY")
Interim Results for the Six Months ended 30 June 2014
European Convergence Development Company plc ("ECDC", the
"Company" or the "Group"), announces its interim results for the
six months ended 30 June 2014.
The interim report & consolidated financial statements of
the Company for the period ended 30 June 2014 will not be posted to
shareholders but in accordance with the AIM Rules for Companies can
be downloaded from the Company's website at
www.europeanconvergencedevelopment.com.
For further information please contact:
European Convergence Development +44 (0)1624
Company plc 640200
Anderson Whamond
+44 (0)207
Charlemagne Capital 518 2100
Varda Lotan
+44 (0)1624
Galileo Fund Services Limited 692600
Ian Dungate, Company Secretary
+44 (0)20
Panmure Gordon (UK) Limited 7886 2500
Hugh Morgan
+44 (0)20
Smithfield Consultants 7360 4900
Ged Brumby
Henry Wallers
Chairman's Statement
Financial Performance
The Report and Accounts of European Convergence Development
Company PLC (ECDC) set out the financial performance for the
half-year ending 30 June, 2014, along with the ongoing development
and management of its commercial assets.
The unaudited NAV per share at the 30 June, 2014 was EUR0.2833
(31 December 2013:EUR0.2883) a reduction of EUR 0.0050 per
share.
The Consolidated Income Statement for the year to 30 June, 2014
indicates a loss attributable to equity shareholders of EUR 0.005
per share (31 December 2013: EUR0.0131).
Dividend
The Board of Directors resolved not to pay a dividend but retain
the funds within the company to protect its current
investments.
Shareholder Circular
Further to the Company's 2014 annual general meeting held on 6
August 2014 and the subsequent adjournment of that meeting, the
Directors decided that it was in the best interests of the Company
and its Shareholders to call an Extraordinary General Meeting for
the purpose of (i) considering the cancellation of the Company's
Ordinary Shares to admission to trading on AIM; and (ii) the
adoption of a proposed New Investing Policy so that no investments
in new real estate projects or assets are made and to seek to exit
all existing Properties as soon as practicable, market permitting.
Full details were laid out in the Shareholder circular dated 10
September 2014, including proposed revised terms for the Investment
Manager to align its interests with that of the Shareholders.
Should the shareholders vote to delist the Company's shares from
AIM, the Directors and the Manager are committed to issuing regular
updates to keep shareholders fully informed in respect of the new
Policy
Following the half year accounting date, the Company was
successful in selling its equity holding in the project Trade
Centre Sliven to the local partner in the project for a cash
settlement which equates to the carrying value in the Annual Report
and Accounts for the year ended 31 December 2013.
Anderson Whamond
Chairman
23 September 2014
REPORT OF THE MANAGER
Economic Overview
Romania
At June 2014 GDP growth in the first half of the year was 2.4%
in unadjusted terms in comparison to the same period in 2013 and
2.6% seasonally adjusted. GDP growth in Q2 suffered with a
quarter-on-quarter (qoq) decline of 1.0% (1.2% year-on-year), well
below the market consensus and maybe a reflection of wider issues
within the European Union. The full year forecasts are still
expected to show one of the best growth rates within the EU but
growth forecasts are being revised downwards from 3.5% to closer to
3.0%, although this is reliant upon a strong performance from the
agricultural sector. The only sectors to indicate growth in Q2 were
agriculture (+2.6% qoq) and government consumption (1.5% qoq) most
others indicated strong declines.
Annual headline inflation fell from 0.9% in May to 0.7% in June,
which marked the lowest rate on record. Inflation continues below
the Central Bank's tolerance margin of plus/minus 1.0% around its
target of 2.5%. Annual average inflation fell from 2.2% in May to a
record low of 1.8% in June driven by a 0.27% decline in consumer
prices over the previous month, which was below the virtually flat
reading observed in May reflecting lower prices for food and
services. However, inflation is expected to pick up through to the
end of the year with the Central bank's forecast of out turn
inflation at the end of 2014 of 3.0%.
At the Monetary Policy Committee meeting on 1 July, the Central
Bank maintained the policy rate at the record low of 3.5% for the
third consecutive meeting, but lowered the reserve requirements for
foreign currency deposits from 18% to 16% . Expectations that the
Central Bank will restart the key rate cutting cycle in the autumn
are building but the impact of a cut in interest rates on money
market interest rates and RON yields for T-securities should be
limited, as current levels are already consistent with a level of
the monetary policy rate of around 2.75-3.00%.
Search for yields fuelled by the new monetary policy easing
measures announced by the European Central Bank and by dovish
comments of the Federal Reserve officials had a positive impact on
prices of RON assets. Prices for RON T-securities increased further
in June, extending gains from April-May, while the RON outperformed
its regional peers.
Romanian authorities and the IMF team have yet to reach an
agreement on a new Letter of Intent following the review from June
and talks will continue until the next review due in November.
Meanwhile, the Parliament passed a law enabling the government to
reduce social security contributions paid by employers by 5%,
starting October.
Bulgaria
Against a backdrop of up and coming preliminary elections, a
lower credit rating and the worst run on banks since the
introduction of the currency board, Bulgaria successfully issued a
package of ten year government securities in the amount of EUR 1.5
billion with an average yield of 3.05%.
Political parties in Bulgaria agreed to hold early parliamentary
elections in early October 2014.
International rating agency Standard & Poor cut the credit
rating of Bulgaria by one notch to BBB- as the political situation
in the country poses risks to the achievement of many urgent
reforms.
In the last two weeks of June Bulgarians witnessed unsuccessful
attempts at destabilizing the Bulgarian banking system. The Central
Bank stepped in to support one of the largest local banks, KTB,
after more than 20% of its deposits were withdrawn in one week.
This led to other banks facing large withdrawals including First
Investment Bank which faced the withdrawal of US$550 million within
hours. The bank stayed open after assurances from the Government of
support. The Central Bank took over the management of KTB on 20th
June and was intending to recapitalize and nationalize part of the
bank so that it could reopen in mid-July. However, Parliament
rejected the US$1.7 billion bailout and approaches have been made
to some of the shareholders, including the Oman sovereign wealth
fund to help save KTB. The fund holds a 30% stake in the bank. The
Bulgarian authorities also announced in July that they would seek a
review by the European Banking Authority. The country has also
asked to join the European Union's Single Supervisory Mechanism,
which was set up in response to the Continent's debt crisis and
would make Bulgaria the first country outside the 18-country euro
zone to join the mechanism under which its banks would be overseen
by the European Central Bank.
The Bulgarian economy registered GDP growth of 1.6% in Q2
following 1.2% growth in Q1 when compared to the same quarters in
2013. On a quarterly basis growth was 0.3% in Q1 and 0.5% in Q2
driven by increasing exports, relatively strong growth in
manufacturing and consumption which increased 2.5% in Q2.
The unemployment rate at June 2014 returned to its December 2013
closing position of 11.4% following the creation of almost 100,000
jobs during Q2 however, the economy registered an eleventh
consecutive month of deflation in June 2014 which has continued
though to August. Prices declined 1.9% compared to the same month
in 2013 whilst on a month on month basis prices declined 0.4%
driven down by lower prices across most sectors.
Government debt accounted for 18.7% of GDP, including domestic
debt at 9% of GDP and external debt at 9.7% of GDP, which still
compares favorably to most European Union countries and contributed
to the recent successful placement of government securities.
Property Market Overview
Romania
Office
In the first half of 2014 office supply in Bucharest grew by
approximately 80,000 sqm which took the overall stock to 2.2
million sqm. In Q2 only two new office buildings were delivered
totalling 41,500 sqm with a further 70,000 sqm to be delivered in
the second half of the year. This additional growth is represented,
in the main by two major buildings, City Offices and Green
Court.
Recent activity has been concentrated in the Floreasca - Barbu
Vacarescu corridor but new areas in the central western and
southern regions of Bucharest are emerging as new business areas
located within densly populated residential areas.The overall
vacancy rate in Bucharest is estimated to between 14.7% and 15.0%.
It is important to highlight the considerable differences that can
exist between one district and another from as low as 10% in the
Centre-North and Westwest to 35% in Pipera North and Baneasa. It is
also important to differentiate between the propoerty class with
Class A buildings registering less than 9% vacancy whereas Class B
is over 18%.
The first six months of 2014 represented a period of steadily
increasing tenant interest especially in new buildings. The total
take up in the period was almost 130,000 sqm of which net take up
was in the region of 55,000 sqm. Relocations from competitive stock
represented 32% of overall market activity whilst renegotiations
represented 25%. The biggest transactions in the period were
represented by Vodaphone, 16,000 sqm in Bucharest One, the letting
of 13,700 sqm to Orange in Green Court and the renegotiaion of
8,000 sqm let to Volksbank in Nusco Tower. The majority of the
major transactions were in the North area, in particular the Barbu
Vaconescu corridor followeded by the West and then CBD. ITC and
Telecom companies were the most active with financial and
professional services just behind.
Prime headline rents remained unchanged over the last 12 months
at EUR18.00 to EUR18.50 per sqm per month. Incentive packages have
remained stable, with landlords offering both rent free periods and
fit out contributions, though there is some evidence that the
packages are tightening. As always it depends on the letting market
in a particular district that will drive the incentive packages
offered. Lease incentive packages are more attractive for lease
requirements exceeding 2,000-3,000 sqm for existing buildings.
Transaction levels recorded in the first six months of the year
are estimated at EUR430 million,EUR337 million in Q1, a record for
this part of the year and EUR95 million in Q2, 53% higher than the
same period in 2013. Almost half of this activity was represented
by transactions undertaken by Globalworth with the acquisitions of
Tower Centere International, BOC and BOB and the upmarket
residential project Upground. Office transactions accounted for
around 70% of total transactions.
The market has been dominated by Globalworth and NEPI ther are a
larger number of investors looking to enter the market with Secure
Property, Development and Investments entering the market with its
first acquisition, the industrial prioperty Industrial Park and
Vitantis Shopping Centre in Bucharest purchased by Revetas Capital
from Equest. Yields in the office market remain in the 8% region
though the interest shown in the market may result in some yield
compression over the remainder of 2014.
Retail
There were no notable new developments coming onto the market in
the first half of the year and only two new shopping centres are
planned to be delivered by the end of 2014 and both by NEPI: Vulcan
Centre (35,000sqm) in Bucharest and Shopping City Targu Jiu
(27,000sqm) in Targu Jiu. Total modern retail in Bucharest is
estimated at 0.9 million sqm and 1.7 million sqm in the rest of the
country.
In Q2 the most noteable transaction in the sector for many years
was the purchase by Auchan of a portfolio of 12 hypermarkets and
the associated shopping galeries, which Auchan were occupying as a
tenant for an estimated EUR 280m.
Rent for both prime shopping centers increased to 60-70 EUR/sqm
per month showing the first signs of recovery. Rental levels for
high street retail remained at EUR55-65/sqm/month. The highest
rents are currently being achieved in Baneasa Shopping City and AFI
Palace Cotroceni which are considered the two most dominant retail
schemes in Bucharest and Romania.
The pipeline for 2015 is set to increase to 150,000 sqm in areas
that are currently lacking major shopping centres.
Bulgaria Retail
During Q2 2014, Mall Panorama Pleven with a GLA of 17,000 sqm
opened to the public which increased the GLA of operational
shopping malls to slightly over 750,000 sqm. As previously reported
three projects in Sofia are currently under construction and will
provide an additional 120,000 sqm later this year. These openings
will increase modern retail space per 1,000 inhabitants to
approximately 120 sqm compared to 250 sqm for Europe as a whole and
200 sqm for CEE.
Occupancy in shopping centers in Bulgaria is still below
satisfactory levels. Vacancy in Sofia decreased to 10% from 12%
registered at the beginning of the year. The average rental levels
for modern retail space in the country did not improve during the
first half of the year - average rents in Sofia stabilized at EUR21
per sqm per month in Q1 2014, while brokers reported prime rents in
secondary cities to have remained in the region of EUR12-16 per sqm
per month.
The first half of 2014 registered some activity on the
investment market in the retail sector. Two large international
retail chains were bought by local investors: Belgian Delhaize
Group sold its Piccadilly stores to AP Mart and the German company
Praktiker sold its Bulgarian division to Videolux Holding. City
Center Sofia was acquired by Revetas Capital Recovery Fund for an
undisclosed amount which was the first major retail transaction
since 2011.
Development Projects Romania
Cascade
Currently the building is fully leased generating positive cash
flow after meeting all its financial obligations from an
operational and banking point of view. All financial obligations
are up to date with no collection delays on the revenues side.
The additional short term loan contracted two years ago for
covering the settlement agreement with one of the subcontractors
was fully repaid by the end of April further improving the profile
of the asset.
Oradea and Iasi Shopping Centres
Following the notice for repayment issued by the Company with
respect to the investments in Oradea and Iasi, the Manager is
currently in negotiations over a possible restructuring of the
repayment.
Argo Real Estate Opportunities Fund (AREOF)
AREOF announced that it was delisting its shares from AIM with
effect from March 3rd 2014. The main reason given was the
complexity of the loan restructuring and bank negotiations were not
conducive and made it very difficult to meet the public reporting
requirements and that this was not to the benefit of the
shareholders and may hinder the current bank renegotiations that
AREOF is undertaking.
The Ukrainian situation is proving to be stressful on the
performance of the Odessa asset. The local currency has seen a
continuous and abrupt devaluation, putting pressure on both general
consumption and the asset's cash flow going forward.
The Group Company and Manager to the Group have initiated a
restructuring process, whereby it has downsized a significant
portion of the staff in an attempt to contain operating costs. A
full restructuring process has been started also at the level of
the management structure of the Odessa asset.
Oradea Shopping Centre
Following the entering into insolvency of the local SPV, the
Lenders agreed to enter into judicial administration in the best
interest of Omilos Oradea, its creditors and its stakeholders. The
Consortium of judicial administrators, formed by V.F. Insolventa
and TZA were appointed to observe the activity of the company.
The increase in traffic registered in 2013 continued at a
similar pace in Q2. The improvement reported by Carrefour
continued, but still the main anchor tenants are refusing to accept
any rent indexation. The gallery, which is in front of Carrefour,
recorded additional traffic due to the sustained marketing
activities performed by the SPV.
Current Leasing rate of the asset stands at close to 91%
overall, with the gallery and food court being 75% leased. No
additional leasing activity has been recorded in Q2 2014.
The bank loan had already been accelerated prior to Omilos
Oradea entering into judicial administration. The first creditors
meeting has been held and an independent valuation of the shopping
centre asset has recently been obtained and will form the basis of
a reorganization plan to be drawn up for presentation to and voting
on by the creditors.
The company is now exempt from paying loan interest and other
finance costs.
Iasi Shopping Centre
Visitor numbers and the average sales have continued to improve
year on year throughout Q2, if somewhat lower than anticipated.
Mobexpert's store is performing well with consistent increases in
sales, currently ranked number 3 in their national network.
Praktiker continues to struggle despite the recent change of
ownership, because of fluctuations in stock and changes in
personnel. The new owners have requested a rent reduction from all
landlords for the next two years in order to assist in the
recapitalization of the business. After an attempted litigation
process with the tenant, a negotiation process has been started
with the target to allow the rents to be temporarily set at more
sustainable levels.
At the end of June the Centre was 95% let whilst the gallery and
food court are trading at 70% occupancy. Leasing is proving to be
challenging especially in the new extension and at the same time
competition from retailers closer to the centre of the town are
having a detrimental effect on discussions with potential tenants.
Unit availability within 3 town centre schemes represents
significant competition to Iasi and this is unlikely to change in
the immediate future. The situation would improve if ongoing
negotiations with some additional anchor tenants could be
finalized.
All terms negotiated with the syndicate of lending banks for
further development finance have been put on hold for the last few
months due to the issues affecting Bank of Cyprus in Romania and
the future of the Oradea scheme which is funded by the same
syndicate of banks. As the Bank of Cyprus was due to provide the
majority of the debt facility for Iasi, there is a continuing risk
that construction debt finance.
Galleria Plovdiv
The occupancy at the end of Q2 dropped by 1 % down to 57.65 %
compared to the end of Q1. Replacing tenants continues to be
challenging as it requires a reputable property manager, a credible
strategy and, in line with market requirements, an injection of new
funds to pay for fitting out contributions. None of these
conditions have been in place which, as previously noted has
resulted in initial negotiations with several prospective
international tenants stalling and an inability to sign a formal
agreement with the key supermarket anchor.
As previously reported, the Bank nominated a property investment
company which undertook a full scope due diligence on the scheme
and reported to the Bank's management at the end of May. The
shareholders were verbally informed by the Bank that the key
findings confirmed that the turnaround of the business would
necessitate the further investment of new funds to redesign certain
parts of the Mall, to facilitate tenant mix redevelopment and to
finance fitting out contributions to attract quality brands. The
report was basically in line with the report presented by the
Manager to the bank in April 2013. Following the due diligence
report, the Bank held several meetings with representatives of the
shareholders and discussions are ongoing.
As previously reported, the former technical manager continued
to carry out rudimentary and oversee day to day activities. With
the current occupancy, tenant mix and the rent and service charge
collection rate, the Mall covered its core operating costs but was
unable to meet tax obligations in full. A lack of cash flow means
that there can be little or no marketing support, no investment in
proper building maintenance and certainly no fitting-out
contributions to attract new tenants. Both footfall and turnover of
shops continued to decline during the period. It is highly likely
that the mall will suffer during Q3 as this is traditionally a
difficult time for retailers in Plovdiv.
The Manager is of the opinion that the market value of the asset
is considerably less than the current Bank debt and without the
ongoing support of the Bank the Mall would be unable to continue
its business.
Mega Mall Rousse
The building was closed in April 2014 as the operating company
could not meet essential operating costs from the rent and service
charge. At the time the bank was not willing to support the
building and shareholders were not prepared to support the project
without support from the bank.
Further to the Bank's application for insolvency against Mega
Mall Rousse at the beginning of the year and in addition to the
appointment of a temporary receiver, the Court imposed some
additional security measures: the appointment of a security company
to guard the closed building and the sealing of all entrances. The
first court hearing of the insolvency case was originally scheduled
for the end of May but was later postponed to the beginning of July
2014 and then postponed again until the end of September 2014.
Trade Centre Sliven
After the period end the Company sold its entire holding in
Trade Centre Sliven, representing 42.5% of Trade Centre Sliven for
a cash consideration of EUR1,699,298 to Property Capital Group AD.
This represented a profit on the carrying value as at 31 December
2013 of EUR22,298. In addition the loan to Property Capital Group
AD of EUR91,426 was also repaid in full.
Bourgas Retail Park
There has been no further progress made with this site as it is
very much linked to the developments in Plovdiv.
Charlemagne Capital (IOM) Limited
23 September 2014
Consolidated Income Statement
Note (Unaudited) (Unaudited)
Period from 1 January 2014 to 30 Period from 1 January 2013 to 30
June 2014 June 2013
EUR'000 EUR'000
------------------------------------ ----- ----------------------------------- ------------------------------------
Net rent and related income -
Annual management fees 6.3 (256) (242)
Audit fees 7 (32) (37)
Legal and professional fees (20) (32)
Directors' fees 13 (36) (36)
Administration fees (29) (29)
Other operating expenses (103) (138)
Administrative expenses (476) (514)
------------------------------------ ----- ----------------------------------- ------------------------------------
Net operating loss before net
financing income (476) (514)
------------------------------------ ----- ----------------------------------- ------------------------------------
Financial income 8 5
Financial expenses - -
------------------------------------ ----- ----------------------------------- ------------------------------------
Net financing income 8 5
------------------------------------ ----- ----------------------------------- ------------------------------------
Share of gain of equity accounted
investees 8 288
Impairment in value of equity
accounted investees 8 - (265)
Uplift in value of equity accounted
investees 8 22 710
Profit before tax (446) 224
------------------------------------ ----- ----------------------------------- ------------------------------------
Income tax expense (1) (1)
Retained Profit for the period (447) 223
------------------------------------ ----- ----------------------------------- ------------------------------------
Basic and diluted gain per share
(EUR) 11 (0.0050) 0.0025
------------------------------------ ----- ----------------------------------- ------------------------------------
The Directors consider that all results derive from continuing
activities.
Consolidated Statement of Comprehensive Income
Note (Unaudited) (Unaudited)
Period 1 January 2013 to 30 June Period 1 January 2012 to 30 June
2013 2012
EUR'000 EUR'000
------------------------------------------- ----------------------------------- -----------------------------------
Profit for the period (447) 223
Other comprehensive income
Currency translation differences (4) 10
-------------------------------------------- ----------------------------------- -----------------------------------
Total comprehensive profit for the period (451) 233
-------------------------------------------- ----------------------------------- -----------------------------------
Consolidated Statement of Financial Position
Note (Unaudited) (Audited)
At 30 June 2014 At 31 December 2013
EUR'000 EUR'000
------------------------------------------ ----- ----------------- ---------------------
Investment in equity accounted investees 8 22,858 22,836
Property, plant and equipment - -
Total non-current assets 22,858 22,836
Loans to third parties 6.4 92 90
Trade and other receivables 55 50
Cash and cash equivalents 2,586 3,065
------------------------------------------ ----- ----------------- ---------------------
Total current assets 2,733 3,205
------------------------------------------ ----- ----------------- ---------------------
Total assets 25,591 26,041
------------------------------------------ ----- ----------------- ---------------------
Issued share capital 10 71,564 71,564
Share premium 10,654 10,654
Foreign currency translation reserve 13 17
Retained losses (56,891) (56,444)
------------------------------------------ ----- ----------------- ---------------------
Total equity 25,340 25,791
------------------------------------------ ----- ----------------- ---------------------
Trade and other payables 12 251 250
Total current liabilities 251 250
------------------------------------------ ----- ----------------- ---------------------
Total liabilities 251 250
------------------------------------------ ----- ----------------- ---------------------
Total equity & liabilities 25,591 26,041
------------------------------------------ ----- ----------------- ---------------------
Consolidated Statement of Changes in Equity
Share capital Share premium Foreign currency Retained earnings Total
translation reserve
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
--------------------------- -------------- -------------- --------------------------- ------------------ --------
Balance at 1 January 2013 71,644 10,577 4 (55,272) 26,953
Gain for the period - - - 223 223
Other comprehensive gain
Foreign exchange
translation differences - - 10 - 10
--------------------------- -------------- -------------- --------------------------- ------------------ --------
Total comprehensive gain - - 10 223 233
--------------------------- -------------- -------------- --------------------------- ------------------ --------
Shares cancelled following
market purchases (80) 77 - - (3)
--------------------------- -------------- -------------- --------------------------- ------------------ --------
Total transactions with
owners in the year (80) 77 - - (3)
--------------------------- -------------- -------------- --------------------------- ------------------ --------
Balance at 30 June 2013 71,564 10,654 14 (55,049) 27,183
--------------------------- -------------- -------------- --------------------------- ------------------ --------
Balance at 1 January 2013 71,644 10,577 4 (55,272) 26,953
Loss for the year - - - (1,172) (1,172)
Other comprehensive loss
Foreign exchange translation differences - - 13 - 13
--------------------------------------------- ------- ------- --- --------- --------
Total comprehensive loss - - 13 (1,172) (1,159)
--------------------------------------------- ------- ------- --- --------- --------
Shares cancelled following market purchases (80) 77 - - (3)
--------------------------------------------- ------- ------- --- --------- --------
Total transactions with owners in the year (80) 77 - - (3)
--------------------------------------------- ------- ------- --- --------- --------
Balance at 31 December 2013 71,564 10,654 17 (56,444) 25,791
--------------------------------------------- ------- ------- --- --------- --------
Balance at 1 January 2014 71,564 10,654 17 (56,444) 25,791
Loss for the period - - - (447) (447)
Other comprehensive gain
Foreign exchange translation differences - - (4) - (4)
--------------------------------------------- ------- ------- ---- --------- -------
Total comprehensive gain - - (4) (447) (447)
--------------------------------------------- ------- ------- ---- --------- -------
Shares cancelled following market purchases - - - - -
--------------------------------------------- ------- ------- ---- --------- -------
Total transactions with owners in the year - - - - -
--------------------------------------------- ------- ------- ---- --------- -------
Balance at 30 June 2014 71,564 10,654 13 (56,891) 25,340
--------------------------------------------- ------- ------- ---- --------- -------
Consolidated Cash Flow Statement
Note (Unaudited) (Unaudited)
For the period from For the period from
1 January 2014 to 1 January 2013 to
30 June 2014 30 June 2013
EUR'000 EUR'000
---------------------------------------------------------- ----- --------------------- ---------------------
Operating activities
Group loss for the period (447) 223
Adjustments for:
Financial income (8) (5)
Income tax expense 1 1
Uplift in value of third party loans
Share of profit of equity accounted investees - (288)
Net uplift in value of equity accounted investees (22) (445)
Operating loss before changes in
working capital (476) (514)
(Increase)/decrease in trade and other receivables (5) 5
Decrease in trade and other payables - (39)
Cash used in operations (481) (548)
Financial income received 8 5
Tax paid (1) (1)
---------------------------------------------------------- ----- --------------------- ---------------------
Cash flows used from operating activities (474) (544)
---------------------------------------------------------- ----- --------------------- ---------------------
Investing activities
Increase in loans to equity accounted investees - (23)
Acquisition of equity accounted investees - -
(Increase)/decrease in loans to third parties (2) 243
Currency Translation Difference (3) 10
---------------------------------------------------------- ----- --------------------- ---------------------
Cash flows (used in)/generated from investing activities (5) 230
---------------------------------------------------------- ----- --------------------- ---------------------
Financing activities
Purchase of own shares 10 - (3)
Dividend received - 200
Cash flows used in financing activities - 197
---------------------------------------------------------- ----- --------------------- ---------------------
Net decrease in cash and cash equivalents (479) (117)
Cash and cash equivalents at beginning of period 3,065 3,677
---------------------------------------------------------- ----- --------------------- ---------------------
Cash and cash equivalents at end of period 2,586 3,560
---------------------------------------------------------- ----- --------------------- ---------------------
Notes to the Consolidated Financial Statements
1 The Company
European Convergence Development Company plc (the "Company") was
incorporated and registered in the Isle of Man under the Isle of
Man Companies Acts 1931 to 2004 on 26 July 2006 as a public company
with registered number 117309C. On 3 March 2008 the Company was
de-registered as an Isle of Man 1931-2004 company and re-registered
as a company governed by the Isle of Man Companies Act 2006 with
registered number 002391v.
The Company's agents and the Manager perform all significant
functions. Accordingly, the Company itself has no employees.
2 The Subsidiaries
For efficient portfolio management purposes, the Company
established the following subsidiary companies:
Country of Incorporation Percentage of shares held
--------------------------------------------------- -------------------------- --------------------------
European Property Development Corporation SRL Romania 100%
European Convergence Development (Cayman) Limited Cayman 100%
Convergence Development (Cyprus) Limited Cyprus 100%
European Convergence Development (Malta) Limited Malta 100%
European Real Estate Development Invest SRL Romania 100%
European Property Acquisitions EOOD Bulgaria 100%
Asmita Holdings Limited Cyprus 100%
ECD Management (Cayman) Limited Cayman 100%
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:
Country of Incorporation Percentage of shares held
------------------------------------ -------------------------- --------------------------
Asmita Gardens SRL Romania 50%
Cascade Park Plaza SRL Romania 39%
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 accounting policies applied by the Group in these condensed
consolidated financial statements are the same as those applied by
the group in its consolidated financial statements for the year
ended 31 December 2013.
The Interim report of the Company for the period ending 30 June
2014 comprises the Company and its subsidiaries (together referred
to as the "Group"). The interim consolidated financial statements
are unaudited.
4.1 Basis of presentation
European Convergence Development Company plc (the "Company") is
a company domiciled in the Isle of Man. These condensed
consolidated interim financial statements of the Company as at and
for the six months ended 30 June 2014 comprise the Company and its
subsidiaries (together referred to as the "Group") and the Group's
interests in associates and jointly controlled entities, and have
been prepared in accordance with IAS34 Interim Financial
Reporting.
These consolidated interim financial statements do not include
all the information required for full annual financial statements
and so should be read in conjunction with the consolidated
financial statements of the Group as at and for the year ended 31
December 2013.
The consolidated financial statements of the Group as at and for
the year ended 31 December 2013 are available upon request from the
Company's registered office at Millennium House, 46 Athol Street,
Douglas, Isle of Man IM1 1JB, or on website at address
www.europeanconvergencedevelopment.com.
The preparation of the financial statements in conformity with
IFRS requires the use of certain critical accounting estimates. It
also requires the Board of Directors to exercise its judgement in
the process of applying the Company's accounting policies. The
Directors consider that the valuation of the Company's investments
in equity accounted associates is an area where critical accounting
estimates are required. Further detail on the valuation of the
investments may be found in note 8.
The activities of the Group are subject to a number of risk
factors. The global financial crisis and the deteriorating economic
environment in the jurisdictions within which the Group operates
have increased the intensity of these risk factors. The future
economic outlook presents specific challenges in terms of the
significant reduction in the volume of property transactions in the
jurisdictions within which the Group operates, the significant
reduction in the availability of loan finance for property
transactions in those jurisdictions and the consequent impact on
the valuations of property held by equity accounted investees.
In the prevailing market conditions, there is a greater degree
of uncertainty as to the valuation of assets under construction
than that which exists in a more active and stronger market. These
factors have adversely impacted the compliance of equity accounted
investees with their borrowing covenants and a number of these
facilities have been renegotiated, whilst the Group has made
additional capital available to certain entities in order that
ongoing projects can be completed. Collectively, these factors
contribute to a greater degree of uncertainty as to the valuation
of holdings in equity accounted investees.
These factors have also impacted on the ability of joint venture
partners to repay loans made by the Group and as a result repayment
terms for these facilities have been re-negotiated.
The financial statements have been prepared on a going concern
basis, taking into account the level of cash and cash equivalents
held by the Group and the level of capital commitments to JV
entities.
The Company is denominated in Euros ("EUR") and therefore the
amounts shown in these financial statements are presented in
EUR.
4.2 Basis of consolidation
Subsidiaries
Subsidiaries are those enterprises controlled by the Company.
Control exists where the Company has the power, directly or
indirectly, to govern the financial and operating policies of an
enterprise so as to obtain benefits from its activities. The
financial statements of subsidiaries are included in the
consolidated financial statements from the date that control
effectively commences until the date that control effectively
ceases.
Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised gains
arising from intra-group transactions, are eliminated in preparing
the consolidated financial statements.
Joint ventures (equity accounted investees)
Investments in associates and joint ventures are carried at the
lower of cost and net realisable value. Associates are those
entities in which the Group has a significant influence, but no
control, over the financial and operating polices. Joint ventures
are those entities over whose activities the Group has joint
control, established by contractual agreement and requiring
unanimous consent for strategic financial and operating decisions.
Associates and joint ventures are accounted for using the equity
method (equity accounted investees). The consolidated financial
statements include the Group's share of the income and expenses of
the equity accounted investees, after adjustments to align the
accounting policies with those of the Group, from the date that
significant influence or joint control commences until the date
that significant influence or joint control ceases. When the
Group's share of losses exceeds its interest in an equity accounted
investee, the carrying amount of that interest (including any
long-term investment) is reduced to nil and the recognition of
further losses is discontinued except to the extent that the Group
has an obligation or has made payments on behalf of the
investee.
Unrealised gains on transactions between the Company and its
equity accounted investees are eliminated to the extent of the
Company's interest in the equity accounted investees. Unrealised
losses are also eliminated unless the transaction provides evidence
of an impairment of the asset transferred. Accounting policies have
been changed where necessary to ensure consistency with the
policies adopted by the Company. In particular, borrowing costs
related directly to the acquisition or construction of qualifying
assets are capitalised.
Investments in joint ventures and associates are kept under
review for impairment. Where, in the opinion of the directors, the
net realisable value of an investment falls below cost, a provision
is made against the investment and charged to the profit and loss
account.
Financial statements of foreign operations
The assets and liabilities of foreign operations, including
goodwill and fair value adjustments arising on consolidation, are
translated to EUR at the foreign currency exchange rates ruling at
the balance sheet date. Foreign exchange differences arising on
translation are recognised directly in equity.
4.3 Dividends
Dividends are recognised as a liability in the period in which
they are declared and approved. There was no dividend declared as
at 30 June 2014 (2013: Nil).
4.4 Share capital
Ordinary shares are classified as equity. Incremental costs
directly attributable to the issue of ordinary shares are
recognised as a deduction from equity, net of any tax effect.
4.5 Segmental reporting
The Company has one segment focusing on maximising total returns
through investing in the property markets of South East Europe.
Further analysis of the Group's exposure in this region is provided
in note 8. No additional disclosure is required in relation to
segment reporting, as the Company's activities are limited to one
business and geographic segment.
4.6 Presentation of Financial Statements
The Group applies revised IAS1 Presentation of Financial
Statement (2007) which became effective as of 1 January 2009. As a
result, the Group presents in a consolidated statement of equity
all owner changes in equity, whereas all non-owner changes in
equity are presented in the consolidated statement of comprehensive
income. This presentation has been applied in these condensed
interim financial statements as of and for the six months period
ended 30 June 2013.
5 Unaudited Net Asset Value per Share
The unaudited net asset value per share as at 30 June 2014 is
EUR0.2833 (31 December 2013: EUR0.2883) based on 89,455,470 (31
December 2013: 89,555,470) ordinary shares in issue as at that
date.
6 Related Party Transactions
6.1 Directors of the Company
Anderson Whamond is a non-executive director of the Manager, and
a shareholder of Charlemagne Capital Limited ("CCL"), the parent of
the Manager and Placing Agent. Additionally, Mr Whamond has an
indirect family interest in shares of CCL. There are no service
agreements between Mr Whamond and CCL that are not determinable
within one year.
A subsidiary company of the Manager, Charlemagne Capital
(Investments) Limited, holds 125,000 shares of the Company and
holds 356,751 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. The total holdings in Trade
Center Sliven held by European Convergence Development Company
Limited and Charlemagne BRIC Property Company PLC were sold after
this period of accounts.
The Templeton World Charity investment company also managed by
the Manager, holds 1,981,359 in the Company at 30 June 2014.
CCL, a company incorporated in the Cayman Islands is listed on
the Alternative Investment Market of the London Stock Exchange.
Save as disclosed above, none of the Directors had any interest
during the year in any material contract for the provision of
services which was significant to the business of the Company.
6.2 Directors of the Subsidiaries
Certain directors of the Manager have been appointed as
directors of some of the subsidiaries. In compliance with local
regulations, certain subsidiaries have appointed directors who are
employees of or are associated with, the relevant registered office
service provider.
6.3 Manager fees
Annual management fees payable during the period ended 30 June
2014 amounted to EUR256,157 (2013: EUR242,079).
Performance fees payable during the period ended 30 June 2014
amounted to EUR nil (2013: EUR nil).
6.4 Transactions and balances with Joint Venture companies and partners
The Company has loans to Joint Venture Companies totalling
EUR46,228,543 (31 December 2013: EUR45,732,000) and to Joint
Venture Partners totalling EUR6,324,214 (31 December 2013:
EUR6,116,000). Details of the terms and applicable interest rates
for these loans are more fully shown in note 8 and 9.
6.5 Intragroup balances
Intragroup balances are repayable on demand and bear interest at
commercial rates. Loans to subsidiaries outstanding at the period
end have been impaired to fair value.
7 Audit fees
Audit fees payable for the period ended 30 June 2014 amounted to
EUR32,206 (2013: EUR37,178).
8 Investment in Equity Accounted Investments
Group 30 June 2014 31 December 2013
EUR'000 EUR'000
------------------------------------------------------------------ ------------- -----------------
At beginning of period/year 22,836 23,185
Dividend received - (199)
Recovery in loans to investments - 29
Share of gain of equity accounted investment 102
Net (impairment)/uplift on value of equity accounted investments 22 (281)
Balance at end of period/year 22,858 22,836
------------------------------------------------------------------ ------------- -----------------
The loans to equity accounted investees before deduction of
provisions are as follows:
Name Term Term Interest Rate 30 June 2014
EUR'000
-------------------------------------------------- -------------- -------------
Asmita Gardens SRL**** * * 6% 17,833
Galleria Plovdiv AD * * 0%** 10,000
Convergence Development Invest SRL 4,707
Cascade Park Plaza SRL * * *** 4,510
Turgovski Park Kraimorie AD * * 0%** 9,179
------------------------------------ ------ ------ -------------- -------------
* 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.
**** This company is in administration.
The carrying values of the Group's equity accounted investments
are as follows:-
Name Value at 30 June 2014 Value at 31 December 2013
EUR'000 EUR'000
----------------------------- ---------------------- --------------------------
Cascade Park Plaza SRL 18,137 17,285
Galleria Plovdiv AD 1,500 1,500
Trade Centre Sliven EAD 1,699 1,677
Turgovski Park Kraimorie AD 1,863 1,863
NEF3 (IOM) 1 Limited* - -
NEF3 (IOM) 2 Limited* 568 511
NEF3 (IOM) 3 Limited* - -
General Provision (909) -
22,858 22,836
----------------------------- ---------------------- --------------------------
* held directly by the Company.
8 Investment in Equity Accounted Investees continued
The results, assets and liabilities of the equity accounted
companies are as follows:
Name Country Assets Liabilities Revenues Profit/ % interest
of Incorporation (Loss)
---------------------- ------------------- -------- ------------ --------- -------- -----------
EUR'000 EUR'000 EUR'000 EUR'000
Cascade Park Plaza
SRL Romania 52,271 (39,346) 2,506 846 39
Trade Centre Sliven
EAD Bulgaria 5,486 (10) 13 7 42.5
Turgovski Park
Kraimorie AD Bulgaria 4,160 (13,264) - (4) 70
NEF3 (IOM) 1 Limited Isle
* of Man 9 (48) - (2) 55
Isle
NEF3 (IOM) 2 Limited of Man 4,405 (484) 496 381 55
Isle
NEF3 (IOM) 3 Limited of Man 4 (57) - (2) 55
---------------------- ------------------- -------- ------------ --------- -------- -----------
*The results and balances for NEF(IOM) 1 Ltd shown above only
include amounts in respect of those investments which ECDC has an
interest in.
The Shareholders Cascade Park Plaza and Galleria Plovdiv have
pledged their shareholding as security against the external loans
to these companies.
The figures in the tables above do not include adjustments made
for the purposes of these consolidated financial statements in
order to align the accounting policies of the equity accounted
investees with those of the Group.
NEF3 (IOM) 2 Limited which is controlled by European Convergence
Development Plc also has a 2% holding in Cascade Park Plaza.
9 Loans to third parties
Loans to third parties of the Group include loans to Joint
Venture Partners as follows:
30 June 2014 Term Maturity Date Interest Rate Amount
Name EUR'000
----------------------------------------------------------- ------------------------------------------- --------
Sienit Holding AD* Overdue Overdue EURIBOR plus 5%, plus 10% penalty interest 2,531
Property Capital Group** Overdue Overdue EURIBOR plus 5% 92
Dickau Investments Limited*** Overdue Overdue 10% 3,701
------------------------------- --------- --------------- ------------------------------------------- --------
* Sienit Holding AD is the Group's joint venture partner in
Galleria Plovdiv AD and Turgovski Park Kraimorie AD. 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
Trade Center Sliven EAD. This loan has been fully recovered after
the period end
***Dickau Investments Limited ("Dickau") is the Group's joint
venture partner in Convergence Development Invest Srl ('CDI'). 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.
31 December 2013 Term Maturity Date Interest Rate Amount
Name EUR'000
----------------------------------------------------------- ------------------------------------------- --------
Sienit Holding AD* Overdue Overdue EURIBOR plus 5%, plus 10% penalty interest 2,430
Property Capital Group** Overdue Overdue EURIBOR plus 5% 90
Dickau Investments Limited*** Overdue Overdue 10% 3,596
------------------------------- --------- --------------- ------------------------------------------- --------
10 Capital and Reserves
Share Capital
2014 2014
Number EUR'000
------------------------------------ ----------- --------
Ordinary Shares of EUR0.80 each
In issue at 01 January 2014 89,455,470 71,564
Shares cancelled during the period - -
In issue at 30 June 2014 89,455,470 71,564
------------------------------------ ----------- --------
2013 2013
Number EUR'000
---------------------------------- ----------- --------
Ordinary Shares of EUR0.80 each
In issue at 1 January 2013 89,555,470 71,644
Shares cancelled during the year (100,000) (80)
In issue at 31 December 2013 89,455,470 71,564
---------------------------------- ----------- --------
At incorporation the authorised share capital of the Company was
EUR240 million divided into 300 million Ordinary Shares of EUR0.80
each.
The holders of ordinary shares are entitled to receive dividends
as declared from time to time and are entitled to one vote per
share at meetings of the Company. All shares rank equally with
regard to the Company's assets.
Capital Management
The Board's policy is to maintain a strong capital base so as to
maintain investor, creditor and market confidence and to sustain
future development of the business. The Board manages the Group's
affairs to achieve shareholder returns through capital growth
rather than income, and monitors the achievement of this through
growth in net asset value per share.
As stated in Note 15 an Extraordinary General Meeting has been
called on 2 October 2014 to consider changes to the investment
policy of the group.
Group capital comprises share capital, share premium and
reserves.
Neither the Company nor any of its subsidiaries are subject to
externally imposed capital requirements.
No changes were made in respect of the objectives, policies or
processes in respect of capital management during the periods ended
30 June 2013 and 2014.
11 Basic and Diluted Loss per Share
Basic and diluted loss per share are calculated by dividing the
loss attributable to equity holders of the Company by the weighted
average number of ordinary shares in issue during the year.
2014 2013
----------------------------------------------------------------------- ------- -------
(Loss)/profit attributable to equity holders of the Company (EUR'000) (447) 223
Weighted average number of ordinary shares in issue (thousands) 89,455 89,457
----------------------------------------------------------------------- ------- -------
Basic and diluted (loss)/profit per share (Euro cent per share) (0.50) 0.25
----------------------------------------------------------------------- ------- -------
12 Trade and Other Payables
Group 30 June 2014 31 December 2013
EUR'000 EUR'000
----------------- ------------- -----------------
Withholding tax 6 6
Trade creditors 34 44
Accruals 211 200
----------------- ------------- -----------------
Total 251 250
----------------- ------------- -----------------
13 Directors' Remuneration
The Company
The maximum amount of remuneration payable to the Directors
permitted under the Articles of Association is EUR300,000 p.a. Each
Director currently is paid a fee of EUR22,500 p.a. The Directors
are each entitled to receive reimbursement of any expenses incurred
in relation to their appointment. Total fees and expenses paid to
the Directors for the period ended 30 June 2014 amounted to
EUR36,000 (2013: EUR36,000).
The Subsidiaries
No fees are paid to the directors of the subsidiaries except in
circumstances where a director is appointed in compliance with
local regulations and in such cases the fees payable are
nominal.
14 Fair Value Information
The equity accounted joint venture companies' property
developments are carried at the lower of cost and net realisable
value. The remainder of the Company's financial assets and
financial liabilities at the balance sheet date were stated at fair
value.
Fair value estimates are made at a specific point in time, based
on market conditions and information about the financial
instrument. These estimates are subjective in nature and involve
uncertainties and matters of significant judgement (e.g., interest
rates, volatility, estimated cash flows, etc.) and therefore cannot
be determined with precision.
15 Commitments as at the Balance Sheet date
At the balance sheet date the Group had no outstanding
commitments.
16 Post Balance Sheet Events
After the period end the Company sold its entire holding in
Trade Centre Sliven, representing 42.5% of Trade Centre Sliven for
a cash consideration of EUR1,699,298 to Property Capital Group AD.
This represented an profit on the carrying value as at 31 December
2013 of EUR22,298. In addition the loan to Property Capital Group
AD of EUR91,426 was also repaid in full.
Notice has been given of an Extraordinary General Meeting on 2
October 2014 to consider changing the accounting policy of the
group and vote on the cancellation of the Groups admission to
trading on AIM.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR PGUPABUPCGQW
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