RNS Number:5366I
European Convergence Property CoPLC
27 November 2007
27 November 2007
European Convergence Property Company plc
Final Results for the year ended 30 June 2007
European Convergence Property Company PLC ("ECPC", the "Company" or the
"Group"), a property company focused on investing in commercial, retail and
industrial property in South-East Europe with a view to taking advantage of high
yields and the potential for capital appreciation, announces its final results
for the year ended 30 June 2007.
The Annual General Meeting of the Company will be held at Jubilee Buildings,
Victoria Street, Douglas, Isle of Man, IM1 2SH on 21 December 2007 at 10.00 a.m.
Highlights
During the year under review the Company succeeded in completing on its four
investments located in Bulgaria and Romania, acquiring assets in a shopping mall
and offices. The Company also, with your approval, accepted an offer for its
Romania assets.
The Company's stated investment objective and strategy was to invest in
commercial, retail and industrial property, with a view to taking advantage of
high yields and the potential for capital appreciation.
With the accession of Bulgaria and Romania to the European Union in 2007, there
has been strong investment interest in the region and continuing capital
appreciation in the property sector however, and because of this strong and some
say unprecedented investment interest, these markets have seen substantial yield
compression.
Your Board believes that because of this substantial yield compression the
Company may find it increasingly difficult to fulfil its investment objective
and strategy and it was on this basis that your Board agreed to recommend to
Shareholders that the Company not pursue any further acquisitions upon receipt
of the proceeds from the assets disposal.
Asset Disposal
The sale of the Romania assets to DEGI Deutsche Gesellschaft fur Immobilienfonds
m.b.H. was completed at the end of October.
The three investment properties sold were Millennium Business Centre (purchase
price, Euro52.6m), PGV Tower (Euro27.4m), and Construdava (Euro26.5m). These are all
prime office locations based in Bucharest and their yields at point of sale were
approximately 6.40%, 6.55%, and 7.20% respectively.
The net consideration for the disposals is approximately Euro110.5m (after
transaction costs and adjustments of Euro5.5m for the net current assets of the
trading companies being sold). Final price determination will be dependent on
the post closing audit. These properties were acquired for a combined cost of
Euro89.1m and were re-valued earlier this year at Euro97.5m.
After repaying the external financing of the projects the Company will be left
with net proceeds of approximately Euro49.9m (prior to any adjustments for items
such as deferred tax and management fees), which includes a gain of
approximately Euro15.9m on the initial equity investment.
The Company has taken advice on the most suitable and efficient mechanism for
returning these monies, along with any un-invested cash, to shareholders and an
extraordinary general meeting has been called for 21 December 2007 to propose
that the Company:
(i) re-register as a company governed by the Isle of Man Companies Act 2006
(the "2006 Act") (it is currently incorporated under the Isle of Man
Companies Acts 1931-2004);
(ii) adopt a new memorandum and new articles of association; and
(iii) conditional upon the reregistration and the adoption of the new memorandum
and the new articles, adopt a return of capital scheme.
If the proposed return of capital scheme is approved, it is intended that an
initial return of capital of Euro 0.94 per share will be made to shareholders on or
around 31 January 2008.
In regard to the Company's sale of its asset in Bulgaria, Mall Veliko Turnover,
a sales memorandum has been sent to interested parties and offers are currently
being considered. The Company is hopeful that any sale arising from the auction
will complete early in the new year.
Erwin Brunner
Chairman 26 November 2007
Enquiries:
European Convergence Property Company plc +44 (0)1624 640200
Anderson Whamond
Charlemagne Capital +44 (0)20 7518 2100
Christopher Fitzwilliam Lay/Varda Lotan
Panmure Gordon +44 (0)20 7459 3600
Hugh Morgan/Jonathan Lack/Stuart Gledhill
Smithfield Consultants +44 (0)20 7360 4900
George Hudson
www.europeanconvergence.com
Report of the Manager
During the year we have focussed our attention on ensuring that the acquisitions
effected in Romania and Bulgaria were completed on schedule (all conditions
precedent having been met). An essential part of this process was to ensure that
any identified defects were satisfactorily rectified by the relevant developer.
This became especially important in light of the offer received and ultimately
accepted from DEGI Deutsche Gesellschaft fur Immobilienfonds m.b.H. for the
Company's Romanian assets (see Chairman's Statement).
Romania
PGV Tower, Bucharest
PGV Tower is the Company's only investment that was fully operational in that
construction had been completed in 2003, prior to acquisition. Part let upon
acquisition, with the continued marketing efforts by Colliers and certain lease
renegotiation, the towers are now 100% let.
A new management company was appointed during the year for the building's
cleaning, security, technical maintenance, reactive and preventative
maintenance, monitoring of rent collection and administration of payment of
monthly bills (utility bills, external service provider monthly payments e.g.
security, lift maintenance). Working closely with the company, we are confident
that all services provided are optimised to ensure that tenant satisfaction
remains high.
Construdava, Bucharest
Upon completion of the acquisition in December 2006 Construdava was
approximately 75% let. As of August it was 100% let. Total annual rental income
(excluding service charge) is above that forecast.
There has been little remedial works required and what defects were identified
prior to completion of the acquisition were rectified.
Millennium Business Centre, Bucharest
The Millennium Business Centre was fully let prior to completion in the summer.
Bulgaria
Mall Veliko Turnovo, Veliko Turnovo
The retail space of the Mall is fully let with some small vacancies remaining in
the office units. As expected we have seen some tenant turnover but this has
been lower than originally anticipated.
Certain construction defects remain and these are being addressed by the
Developer in accordance with the terms of the sale and purchase agreement.
Property Disposal
On 1 August 2007 the Company announced that it had approved a sale of its three
investment properties in Romania for a net sale price of Euro110.5m to DEGI
Deutsche Gesellschaft fur Immobilienfonds m.b.H ("DEGI"). The sale of these
properties was completed in October 2007.
The Company is also seeking to dispose of its Bulgarian property, Mall Veliko
Turnovo, and offers are currently being considered from a number of interested
parties.
Charlemagne Capital (IOM) Limited 26 November 2007
Report of the Directors
The Directors hereby submit their annual report together with the audited
consolidated financial statements of European Convergence Property Company plc
(the "Company") for the financial year ended 30 June 2007.
The Company
The Company is incorporated in the Isle of Man and has been 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 is set out
on pages 10 to 12 of the financial statements.
The Directors anticipate that in respect of any 12 month accounting period they
will recommend the payment as a dividend of substantially all of the Company's
net profits (excluding profits arising from unrealised gains). 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
James C. Rosapepe
Donald C. McCrickard
Anderson A. Whamond
Directors' and Other Interests
Anderson Whamond is managing director of the Manager and a director and
shareholder of Charlemagne Capital Limited, the parent of the Manager and
Placing Agent. Charlemagne Capital (Investments) Limited (a subsidiary of
Charlemagne Capital Limited), holds 97,478 shares in the Company. None of the
other directors have a direct or indirect interest of the shares in the Company.
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
KPMG Audit LLC Isle of Man have expressed a willingness to continue in office in
accordance with Section 12 (2) of the Isle of Man Companies Act, 1982.
Corporate Governance
As an AIM listed company, 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 three 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.
Statement of Directors' Responsibilities in respect of the Directors' Report and
the Financial Statements
The Directors are responsible for preparing the Directors' Report and the
Financial Statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year, which meet the requirements of Isle of Man company law. 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 by law 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 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, subject to any material departures disclosed and
explained in the financial statements; 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 and to enable them to ensure that the financial statements comply
with the Isle of Man Companies Acts 1931 to 2004. 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.
By Order of the Board 26 November 2007
Erwin Brunner
Chairman
Report of the Independent Auditors, KPMG Audit LLC, to the members of
European Convergence Property Company plc
We have audited the group and parent company financial statements (the
"financial statements") of European Convergence Property Company plc for the
year ended 30 June 2007 which comprise the Consolidated Income Statement, the
Consolidated and Company Balance Sheets, the Consolidated Statement of Changes
in Equity, the Consolidated Cash Flow Statement and the related notes. These
financial statements have been prepared under the accounting policies set out
therein.
This report is made solely to the Company's members, as a body, in accordance
with section 15 of the Companies Act 1982. 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 Auditors
The Directors' responsibilities for preparing the financial statements in
accordance with applicable Isle of Man company law and International Financial
Reporting Standards are set out in the Statement of Directors' Responsibilities
on page 8.
Our responsibility is to audit the financial statements in accordance with
relevant legal and regulatory requirements and International Standards on
Auditing (UK and Ireland).
We report to you our opinion as to whether the financial statements give a true
and fair view and are properly prepared in accordance with Isle of Man Companies
Acts 1931 to 2004. We also report to you whether in our opinion the information
given in the Directors' Report is consistent with the financial statements.
In addition we report to you if, in our opinion, the Company has not kept proper
accounting records, if we have not received all the information and explanations
we require for our audit, or if information specified by law regarding
directors' transactions with the Company is not disclosed.
We read the Directors' Report and any other information accompanying the
financial statements and consider the implications for our report if we become
aware of any apparent misstatements or inconsistencies within it.
Basis of opinion
We conducted our audit in accordance with International Standards on Auditing
(UK and Ireland) issued by the UK Auditing Practices Board. An audit includes
examination, on a test basis, of evidence relevant to the amounts and
disclosures in the financial statements. It also includes an assessment of the
significant estimates and judgments made by the Directors in the preparation of
the financial statements, and of whether the accounting policies are appropriate
to the Group's and Company's circumstances, consistently applied and adequately
disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
Opinion
In our opinion:
* the financial statements give a true and fair view, in accordance with
applicable Isle of Man company law and International Financial Reporting
Standards, of the state of the Group's and Parent Company's affairs as at
30 June 2007 and of the Group's profit for the year then ended;
* the financial statements have been properly prepared in accordance with
the Isle of Man Companies Acts 1931 to 2004; and
* the information given in the Directors' Report is consistent with the
financial statements.
KPMG Audit LLC, Isle of Man 26 November 2007
Chartered Accountants
Consolidated Income Statement
Note Year ended For the period from
30 June 2007 1 June 2005 (date of
incorporation)
to 30 June 2006
Euro'000 Euro'000
--------------------------------------------------------------------------------
Net gain from
fair value
adjustment on
investment
property 10 13,124 -
Net rent and
related income 5 5,766 913
Manager's fees 8.3 (2,343) (865)
Audit and
professional
fees 9.6 (258) (345)
Other expenses 9 (1,771) (899)
--------------------------------------------------------------------------------
Administrative
expenses (4,372) (2,109)
--------------------------------------------------------------------------------
Net operating
profit/(loss)
before net
financing
income 14,518 (1,196)
--------------------------------------------------------------------------------
Financial
income 6 743 1,286
Financial
expenses 6 (2,923) (388)
--------------------------------------------------------------------------------
Net financing
(expense)/income (2,180) 898
--------------------------------------------------------------------------------
Profit/(Loss)
before tax 12,338 (298)
Income tax
expense 19 (5,890) (28)
--------------------------------------------------------------------------------
Retained
profit/(loss)
for the period 6,448 (326)
--------------------------------------------------------------------------------
Basic and
diluted
earnings/(loss)
per share (Euro) 14 0.1028 (0.0052)
--------------------------------------------------------------------------------
Consolidated Balance Sheet
Note At 30 June 2007 At 30 June 2006
Euro'000 Euro'000
--------------------------------------------------------------------------------
Investment property 10 131,971 24,522
Property, plant and equipment 11 62 -
Total non-current assets 132,033 24,522
--------------------------------------------------------------------------------
Trade and other receivables 3,977 6,181
Cash and cash equivalents 12 23,107 43,572
--------------------------------------------------------------------------------
Total current assets 27,084 49,753
--------------------------------------------------------------------------------
Total assets 159,117 74,275
--------------------------------------------------------------------------------
Issued share capital 13 62,696 62,696
Retained earnings 3,235 (3,213)
Foreign currency translation
reserve 1,758 (122)
--------------------------------------------------------------------------------
Total equity 67,689 59,361
--------------------------------------------------------------------------------
Interest-bearing loans and
borrowings 15 80,108 13,750
Deferred tax liability 19 5,045 -
--------------------------------------------------------------------------------
Total non-current liabilities 85,153 13,750
--------------------------------------------------------------------------------
Trade and other payables 16 6,275 1,164
--------------------------------------------------------------------------------
Total current liabilities 6,275 1,164
--------------------------------------------------------------------------------
Total liabilities 91,428 14,914
--------------------------------------------------------------------------------
Total equity & liabilities 159,117 74,275
--------------------------------------------------------------------------------
Approved by the Board of Directors on 26 November 2007.
Director Director
Company Balance Sheet
Note At 30 June At 30 June
2007 2006
Euro'000 Euro'000
--------------------------------------------------------------------------------
Investment in subsidiaries 2 - -
--------------------------------------------------------------------------------
Total non-current assets - -
--------------------------------------------------------------------------------
Intragroup balances 44,061 21,190
Trade and other receivables 36 41
Cash and cash equivalents 12 17,145 39,577
--------------------------------------------------------------------------------
Total current assets 61,242 60,808
--------------------------------------------------------------------------------
Total assets 61,242 60,808
--------------------------------------------------------------------------------
Issued share capital 13 62,696 62,696
Retained losses (1,517) (1,969)
--------------------------------------------------------------------------------
Total equity 61,179 60,727
--------------------------------------------------------------------------------
Interest-bearing loans and - -
borrowings
Total non-current liabilities - -
Trade and other payables 16 63 81
--------------------------------------------------------------------------------
Total current liabilities 63 81
--------------------------------------------------------------------------------
Total liabilities 63 81
--------------------------------------------------------------------------------
Total equity & liabilities 61,242 60,808
--------------------------------------------------------------------------------
The profit earned by the Company for the year ended 30 June 2007 was Euro452,207
(2006: Euro917,698).
Approved by the Board of Directors on 26 November 2007.
Director Director
Consolidated Statement of Changes in Equity
Share Retained Foreign currency Total
capital earnings translation
reserve
Euro'000 Euro'000 Euro'000 Euro'000
--------------------------------------------------------------------------------
Balance at 1 June 2005 - - - -
Shares issued
in the period 62,696 - - 62,696
Foreign exchange
translation
differences - - (122) (122)
Share issue
expenses - (2,887) - (2,887)
Retained loss
for the period - (326) - (326)
--------------------------------------------------------------------------------
Balance at 30
June 2006 62,696 (3,213) (122) 59,361
--------------------------------------------------------------------------------
Balance at 1 July 2006 62,696 (3,213) (122) 59,361
Foreign exchange translation
differences - - 1,880 1,880
Retained profit for the year - 6,448 - 6,448
--------------------------------------------------------------------------------
Balance at 30 June 2007 62,696 3,235 1,758 67,689
--------------------------------------------------------------------------------
Consolidated Cash Flow Statement
Note Year ended For the period from 1June 2005
30 June (date of incorporation)
2007 to 30 June 2006
Euro'000 Euro'000
--------------------------------------------------------------------------------
Operating activities Group
profit/(loss) for the period 8,338 (326)
Adjustments for:
Net gain from fair value
adjustment on investment
property (13,124) -
financial income (743) (1,286)
financial expense 2,923 388
Income tax expense 5,890 28
--------------------------------------------------------------------------------
Operating profit/(loss)
before changes in working
capital 3,284 (1,196)
Increase in trade and
other receivables (3,696) (140)
Increase in trade and
other payables 5,108 302
--------------------------------------------------------------------------------
Cash generated from/(used in)
operations 4,696 (1,034)
Interest paid (2,923) (388)
Income and corporation
tax paid (852) (104)
Interest received 743 1,286
--------------------------------------------------------------------------------
Cash flows generated
from/(used in) operating
activities 1,664 (240)
--------------------------------------------------------------------------------
Investing activities
Acquisition of
subsidiaries
net of cash acquired - (7,874)
Repayment of loan
acquired on acquisition - (2,173)
Staged payments relating to
property acquisitions (88,425) (5,900)
Purchase of property,
plant and equipment (62) -
--------------------------------------------------------------------------------
Cash flows used in
investing activities (88,487) (15,947)
--------------------------------------------------------------------------------
Financing activities
Proceeds from the issue of
ordinary share capital - 62,696
Proceeds from long term
loans 67,108 -
Repayment of long term
loans (750) (50)
Share issue expenses - (2,887)
--------------------------------------------------------------------------------
Cash flows
generated from
financing
activities 66,358 59,759
--------------------------------------------------------------------------------
Net (decrease)/inc
rease in cash and cash
equivalents (20,465) 43,572
Cash and cash
equivalents at
beginning of
period 43,572 -
--------------------------------------------------------------------------------
Cash and cash
equivalents at
end of period 12 23,107 43,572
--------------------------------------------------------------------------------
Notes to the Consolidated Financial Statements
1 The Company
European Convergence Property Company plc (the "Company") was incorporated and
registered in the Isle of Man under the Isle of Man Companies Acts 1931 to 2004
on 1 June 2005 as a public company with registered number 113616C.
Pursuant to a prospectus dated 15 June 2005 there was an original placing of up
to 100,000,000 Ordinary Shares. Following the close of the placing on 24 June
2005 62,696,333 Shares were issued.
The Shares of the Company were admitted to trading on the Alternative Investment
Market of the London Stock Exchange ("AIM") on 28 June 2005 when dealings also
commenced.
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 7
years.
At the annual general meeting of the Company to be held in 2012, the Directors
are obligated to propose an ordinary resolution that the Company ceases to
continue in existence. If the resolution is not passed then it shall be proposed
at every fifth annual general meeting thereafter. If the resolution is passed
then the Directors shall, within 3 months after the date of the resolution, put
forward proposals to shareholders to the effect that the Company be wound up,
liquidated, reorganised or unitised.
Dividend Policy
The Directors anticipate that in respect of any 12 month accounting period they
will recommend the payment as a dividend of substantially all of the Company's
net profits (excluding profits arising from unrealised gains). 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 be required to re-invest some of the Company's profits into the
maintenance of the Company's property portfolio. Debt amortisation payments may
cause actual dividends to be less than net profits.
Property Valuation Policy
The Directors have appointed an internationally recognised firm of surveyors as
property valuers for properties in Romania and Bulgaria. It is the Directors'
intention that approximately half of the Company's property portfolio will
receive a valuation from the Company's appointed property valuer in each annual
financial period.
Financial Year End
The financial year end of the Company is 30 June in each year. For the period
ended 30 June 2006 the Company presented financial statements covering a 13
month period from incorporation.
2 The Subsidiaries
For efficient portfolio management purposes, the Company has established the
following subsidiary companies:-
Country of Percentage of
incorporation shares held
--------------------------------------------------------------------------------
European Convergence
Property Company Bulgaria
EOOD Bulgaria 100%
European Property
Acquisitions EOOD Bulgaria 100%
European Convergence
Property Company (Cayman)
Limited Cayman Islands 100%
ECPC (Cyprus) Limited Cyprus 100%
European Convergence
Property Company (Malta)
Limited Malta 100%
European Convergence
Property Company SRL(1) Romania 100%
Paris Development SRL(1) Romania 100%
European Property
Development Invest SRL Romania 100%
European Property
Millenium SRL (2) Romania 100%
Millennium Estates SRL (2) Romania 100%
European Property
Imobiliar Invest SRL Romania 100%
European Property
Development Corporation
SRL Romania 100%
Convergence Property
Invest SRL Romania 100%
Orange Convergence
Finance BV The Netherlands 100%
European Convergence
Property Company Real
Estate Trading and
Management Limited Turkey 100%
--------------------------------------------------------------------------------
(1) During the year European Convergence Property Company SRL was merged with
Paris Developments SRL subsequent to which, European Convergence Property
Company SRL was deregistered on 7 November 2006.
(2) During the year European Property Millenium SRL was merged with Millennium
Estate SRL and consequently, European Property Millenium SRL is currently in the
process of being deregistered.
3 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 30 June 2007 comprises the
Company and its subsidiaries (together referred to as the "Group").
The annual report was compiled by the Administrator and Registrar and authorised
for issue by the Directors on 26 November 2007.
3.1 Basis of presentation
These financial statements have been prepared in accordance with International
Financial Reporting Standards promulgated by the International Accounting
Standards Board ("IFRS"). Management has concluded that the report fairly
represents the entity's financial position, financial performance and cash
flows.
The preparation of financial statements requires management to make judgements,
estimates and assumptions that affect the application of accounting policies and
the reported amounts of assets, liabilities, income and expenses. Actual results
may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions
to accounting estimates are recognised in the period in which the estimate is
revised and in any future periods affected.
The most significant area requiring estimation and judgement by the Directors is
the valuation of investment property, see note 10.
The Company is denominated in Euros ("Euro") and therefore the amounts shown in
these financial statements are presented in Euro.
3.2 Foreign currency translation
Monetary assets and liabilities denominated in foreign currencies as at the date
of these financial statements are translated to Euro 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 Euro based on exchange rates on the
date of the transaction.
3.3 Investment property
Investment properties are those which are held either to earn rental income or
for capital appreciation or both. Investment properties are stated at fair
value. Any gain or loss arising from a change in fair value is recognised in the
income statement.
3.4 Property, plant and equipment
All property, plant and equipment (other than investment properties) is stated
at historical cost less depreciation. Historical cost includes expenditure that
is directly attributable to the acquisition of the items.
Depreciation, based on a component approach, is calculated using the
straight-line method to allocate the cost over the asset's estimated useful
lives. For the majority of the assets this is estimated at 5 years, with the
following exceptions;
- computers in Paris Developments, 3 years
- floor carpet in Millennium, 10 years
- security access system in Millennium, 12 years
3.5 Deposit interest
Deposit interest is accounted for on an accruals basis.
3.6 Cash and cash equivalents
Cash and cash equivalents comprise cash deposited with banks and bank overdrafts
repayable on demand.
3.7 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 accruals 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.
3.8 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.
Financial statements of foreign operations
The assets and liabilities of foreign operations, including goodwill and fair
value adjustments arising on consolidation, are translated to Euro at the foreign
currency exchange rates ruling at the balance sheet date. Foreign exchange
differences arising on translation are recognised directly in equity.
3.9 Dividends
Dividends are recognised as a liability in the year in which they are declared
and approved. There was no dividend declared as at 30 June 2007 (2006: Nil).
3.10 Other receivables
Trade and other receivables are stated at their cost.
3.11 Trade and other payables
Trade and other payables are stated at their cost.
3.12 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 year of the borrowings on an effective interest basis.
4 Segment Reporting
Segment information is presented in respect of the Group's business and
geographical segments. The segments are managed on a worldwide basis, but
operate in three principal geographical areas, Bulgaria, Romania and Turkey. The
location of the customers is the same as the location of the assets.
Year ended 30 June 2007 Bulgaria Romania Turkey Unallocated Total
Euro'000 Euro'000 Euro'000 Euro'000 Euro'000
--------------------------------------------------------------------------------
Net rent and associated
income 1,660 4,106 - - 5,766
Segment results 2,223 6,119 (6) (1,888) 6.448
Segment assets 33,846 107,380 - 17,891 159,117
Segment liabilities (19,973) (70,040) - (1,415) (91,428)
--------------------------------------------------------------------------------
13 months ended 30 June 2006 Bulgaria Romania Unallocated Total
Euro'000 Euro'000 Euro'000 Euro'000
--------------------------------------------------------------------------------
Net rent and associated income - 913 - 913
Segment results (80) 232 (478) (326)
Segment assets 3,155 28,424 42,696 74,275
Segment liabilities (5) (14,517) (392) (14,914)
--------------------------------------------------------------------------------
5 Net Rent and Related Income
2007 2006
Euro'000 Euro'000
--------------------------------------------------------------------------------
Gross lease payments collected/accrued 6,474 913
Property operating expenses (708) -
--------------------------------------------------------------------------------
5,766 913
--------------------------------------------------------------------------------
The group leases out its investment property under operating leases. The future
minimum lease payments under non-cancellable leases are as follows:
Euro'000 Euro'000
--------------------------------------------------------------------------------
Less than one year 56 -
Between one and five years 7,361 2,138
More than five years 3,204 133
--------------------------------------------------------------------------------
10,621 2,271
--------------------------------------------------------------------------------
The Group has raised no specific provisions for doubtful debts (2006: Euro70,884).
6 Net Financing Income
2007 2006
Euro'000 Euro'000
--------------------------------------------------------------------------------
Interest income 2,633 1,286
--------------------------------------------------------------------------------
Financial income 2,633 1,286
--------------------------------------------------------------------------------
Gross interest expense (2,300) (287)
Bank facility fee (217) (90)
Bank charges (406) (11)
--------------------------------------------------------------------------------
Financial expenses (2,923) (388)
--------------------------------------------------------------------------------
Net financing (expense)/income (290) 898
--------------------------------------------------------------------------------
7 Net Asset Value per Share
The net asset value per share as at 30 June 2007 is Euro1.0796 based on net assets
of Euro67,689,004 and 62,696,333 ordinary shares in issue (30 June 2006: Euro0.9468).
8 Related Party Transactions
8.1 Directors of the Company
Anderson Whamond is a director of the Manager. Mr Whamond is a director and
shareholder of Charlemagne Capital Limited ("CCL") the parent of the Manager and
the Placing Agent.
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.
8.2 Directors of the Subsidiaries
James Houghton is a director of the Manager. Malcolm Sargeant is an employee 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.
8.3 Manager fees
Annual fees
The Manager is entitled to an annual management fee of 1.25% of the net asset
value of the Company from time to time plus borrowings of the group, 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 for the year ended 30 June 2007 amounted to
Euro1,460,350 (2006: Euro865,120).
Performance fees
The Manager is entitled to a performance fee equal to 15% of the total profits
generated by the Company. In order for the performance fee to be payable, the
Company must firstly have returned to its Shareholders an amount equal to the
amount subscribed pursuant to the Placing (ignoring any initial charge paid by
Shareholders). Thereafter the Manager shall be entitled to 15% of any further
distributions of profit or capital. In determining amounts paid to Shareholders
and the amount payable to the Manager pursuant to the performance fee full
account will be taken of any dividends paid, other distributions made and
distributions made on a winding up of the Company.
Payment of the Manager's annual fees and any performance fees shall be paid by a
subsidiary of the Company.
Performance fees accrued for the year ended 30 June 2007 amounted to Euro882,749
(2006: Euro nil).
8.4 Placing agent
In accordance with the terms of the Placing, the Placing Agent was entitled to
charge investors an initial charge of up to 3% of the value of their investment.
The Placing Agent was also entitled to receive from the Company an amount equal
to 4% of the amount raised by the Placing Agent on behalf of the Company.
Euro2,507,853 was charged to equity as a share issue expense in the period ended 30
June 2006.
9 Charges and Fees
9.1 Nominated Adviser and Broker fees
Pursuant to the Placing and in its capacity as AIM Sponsor, the Nominated
Adviser and Broker was entitled to receive a fee of #75,000. The payment of this
fee was conditional upon admission of the Company's Shares to AIM taking place
on or before 28 June 2005 or such later date as may have been agreed.
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
#30,000.
Advisory fees payable to the Nominated Adviser and Broker for the year ended 30
June 2007 amounted to Euro52,864 (2006: Euro180,575).
9.2 Custodian fees
The Custodian is entitled to receive fees calculated as 1 basis point per annum
of the value of the debt securities held on behalf of the Company, subject to a
minimum monthly fee of Euro500, payable quarterly in arrears.
The Custodian expects to review and, subject to written agreement between the
Company and the Custodian, may amend the foregoing fees six months after
Admission and annually thereafter.
Custodian fees payable for the year ended 30 June 2007 amounted to Euro7,050 (2006:
Euro7,638).
9.3 Administrator and Registrar fees
The Administrator is entitled to receive a fee of 4 basis points of the net
assets of the Company plus borrowings, subject to a minimum monthly fee of
Euro5,000, 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 Euro2,500 per set.
The Administrator shall provide general secretarial services to the Company for
which it shall receive a minimum annual fee of Euro7,500. 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 Euro500 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 #6,000 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
Admission and annually thereafter.
Administration fees payable for the year ended 30 June 2006 amounted to Euro70,500
(2006: Euro76,375).
9.4 Other operating expenses
It is anticipated that the costs of managing any properties in the Company's
investment portfolio will be satisfied out of the service charges generated by
tenants. However, to the extent that this is not the case, all such costs, to
include the costs of all other third party service providers, shall be
chargeable to and payable by the Company.
The costs associated with maintaining the Company's subsidiaries, to include the
costs of incorporation and third party service providers shall be chargeable to
each subsidiary and payable by the Company.
9.5 Preliminary (formation) expenses
The estimated total costs and expenses payable by the Company in connection with
the Placing and Admission (including professional fees, the costs of printing
and the other fees payable including commission payable to the Placing Agent)
was approximated to equal 4.5% of the gross amount raised. The actual total
amount of preliminary expenses paid was Euro2,988,036.76 representing 4.73% of the
gross amount raised.
9.6 Audit fees
Audit fees payable for the year ended 30 June 2007 amounted to Euro100,512. (2006:
Euro82,838).
10 Investment Property
30 June 2007 30 June 2006
Group Group
Euro'000 Euro'000
--------------------------------------------------------------------------------
At beginning of period 24,522 -
Additions through:
direct acquisitions of property 94,325 -
acquisition of subsidiary companies - 24,522
Net gain from fair value adjustments on
investment property 13,124 -
--------------------------------------------------------------------------------
Balance at end of period 131,971 24,522
--------------------------------------------------------------------------------
The Group's investment properties were revalued at 31 January 2007 by an
independent valuation agent, SHM Smith Hodgkinson.
Security
At 30 June 2007, there was a first rank mortgage on the above properties
securing the bank loans of Euro80 million (see note 15).
11 Property, Plant & Equipment
Group
Fixtures & Fittings
Euro'000
--------------------------------------------------------------------------------
Net book amount at 1 July 2006 -
Additions 62
Depreciation charge -
--------------------------------------------------------------------------------
Net book amount at 30 June 2007 62
--------------------------------------------------------------------------------
There were no impairment charges in 2007.
12 Cash and Cash Equivalents
Group Group Company Company
30 June 2007 30 June 2006 30 June 2007 30 June 2006
Euro'000 Euro'000 Euro'000 Euro'000
--------------------------------------------------------------------------------
Bank balances 23,107 43,572 17,145 39,577
Bank overdrafts - - - -
--------------------------------------------------------------------------------
Cash and cash
equivalents 23,107 43,572 17,145 39,577
--------------------------------------------------------------------------------
13 Capital and Reserves
Share capital
2007 2007
Ordinary Shares of Euro1.00 each Number Euro'000
--------------------------------------------------------------------------------
In issue at the start of the year 62,696,333 62,696
Issued during the year - -
--------------------------------------------------------------------------------
In issue at 30 June 2007 62,696,333 62,696
--------------------------------------------------------------------------------
2006 2006
Ordinary Shares of Euro1.00 each Number Euro'000
--------------------------------------------------------------------------------
In issue at the start of the period - -
Issued during the period 62,696,333 62,696
--------------------------------------------------------------------------------
In issue at end of the period 62,696,333 62,696
--------------------------------------------------------------------------------
At incorporation the authorised share capital of the Company was Euro300 million
divided into 300 million Ordinary Shares of Euro1.00 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.
14 Basic and Diluted Earnings/(Loss) per Share
Basic and diluted earnings/(loss) per share is calculated by dividing the profit
/(loss) attributable to equity holders of the Company by the number of ordinary
shares in issue during the period:
2007 2006
--------------------------------------------------------------------------------
Profit/(Loss) attributable to equity holders of
the
Company (Euro'000) 6,448 (326)
Number of ordinary shares in issue (thousands) 62,696 62,696
--------------------------------------------------------------------------------
Basic and diluted earnings/(loss) per share (Euro per
share) 0.1028 (0.0052)
--------------------------------------------------------------------------------
15 Interest-Bearing Loans and Borrowings
This note provides information about the contractual terms of the Group's
interest-bearing loans and borrowings. For more information about the Group's
exposure to interest rate and currency risk see note 20.
Non-current liabilities
Group Group
30 June 2007 30 June 2006
Euro'000 Euro'000
--------------------------------------------------------------------------------
Secured bank loans 80,108 13,750
--------------------------------------------------------------------------------
Terms and debt repayment schedule:
Loan Amount Bank Effective interest rate Final Maturity
30 June 2007 date
--------------------------------------------------------------------------------
Euro13,000,000 EFG Private Bank, EURIBOR 1M+0.6% p.a.+1.4% December 2011
Luxembourg p.a.
Euro17,666,800 EFG Private Bank, EURIBOR 1M+0.6% p.a.+1.5% August 2009
Luxembourg p.a.
Euro25,427,229 Alpha Bank Romania SA EURIBOR 3M+1.5% January 2011
Euro4,850,000 Alpha Bank Romania SA EURIBOR 3M+1.5% October 2007
Euro19,059,328 Alpha Bank Sofia SA EURIBOR 3M+1.95% October 2011
16 Trade and Other Payables
Group Group Company Company
30 June 2007 30 June 2006 30 June 2007 30 June 2006
Euro'000 Euro'000 Euro'000 Euro'000
--------------------------------------------------------------------------------
Taxation - 7 - -
Trade payables 3,597 26 - -
Rental deposits 763 459 - -
Accruals 1,415 645 63 81
Other 500 27 - -
--------------------------------------------------------------------------------
Total 6,275 1,164 63 81
--------------------------------------------------------------------------------
17 Exchange Rates
The following exchange rates were used to translate assets and liabilities into
the reporting currency at 30 June 2007:
Bulgarian Lev 1.9558
Romanian Lei 3.1340
Turkish Lira 1.7764
18 Directors' Remuneration
The Company
The maximum amount of remuneration payable to the Directors permitted under the
Articles of Association is Euro300,000 p.a. Each Director currently is paid a fee
of Euro22,500 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 30 June 2007 amounted to Euro90,000. (2006:
Euro97,500).
18 Directors' Remuneration (continued)
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.
19 Taxation
Income tax expense
Group
Euro'000
--------------------------------------------------------------------------------
Current tax 845
Deferred tax 5,045
--------------------------------------------------------------------------------
Secured bank loans 5,890
--------------------------------------------------------------------------------
The income tax expense of Euro845,156 in the consolidated income statement consists
of a charge of Euro78,241 incurred in European Convergence Property Company
Bulgaria EOOD, a charge of Euro280,334 incurred in European Property Millenium SRL
and a charge Euro486,581 incurred in Paris Developments SRL. The results of the
companies were a loss before tax of Euro587,309, a profit before tax of Euro888,927
and a profit before tax of Euro2,975,505 respectively. There are no other group
companies with taxable profits during the year.
Deferred income tax is based on temporary differences between revalued amounts
of investment property in the books of the subsidiaries and their respective tax
bases. The deferred tax position is based on the capital gains tax rate of 16%
in Romania and 10% in Bulgaria.
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. An
annual corporate charge is payable. The exemption fee charge for 2006/2007 tax
year is #250.
There are no corporation, 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 were incorporated.
20 Financial Instruments
The Group's activities expose it to a variety of financial risks: market risk
(including currency risk and price risk), credit risk, liquidity risk and cash
flow interest rate risk.
Market risk
Property and property related assets are inherently difficult to value due to
the individual nature of each property. As a result, valuations may be subject
to substantial uncertainty. There is no assurance that the estimates resulting
from the valuation process will reflect the actual sales price even where such
sales occur shortly after the valuation date. The performance of the Company
would be adversely affected by a downturn in the property market in terms of
higher capitalisation rates/yields or a weakening of rent levels. Any future
property market recession could materially adversely affect the value of
properties.
Foreign exchange risk
The Company's operations are conducted in jurisdictions which generate revenue,
expenses, assets and liabilities in currencies other than Euros. As a result,
the Company is subject to the effects of exchange rate fluctuations with respect
to these currencies. The currencies giving rise to this risk are primarily
Romanian Lei and Bulgarian Lev.
2007 2006
Net Assets Net Assets
Euro 000s Euro 000s
--------------------------------------------------------------------------------
Romanian Lei 3,740 27,539
Bulgarian Lev 662 2,895
Euro 63,287 28,927
--------------------------------------------------------------------------------
Total 67,689 59,361
--------------------------------------------------------------------------------
Price risk
The Group is exposed to property price and market rental risks. The value of the
property held at 30 June 2007 is disclosed in note 10.
Credit risk
The maximum exposure to credit risk is represented by the carrying amount of
each financial asset in the balance sheet. Management does not expect any
counterparty to fail to meet its obligations.
Liquidity risk
The Company maintains sufficient cash balances for working capital, and obtains
secured bank loans to fund purchases of investment property.
Interest rate risk
The Company is exposed to risks associated with the effects of fluctuations in
prevailing market interest rates on its cash balances and borrowings. Cash is
invested at short-term market interest rates. The terms of the borrowings are
disclosed in note 15.
Fair values
All assets and liabilities at 30 June 2007 are considered to be stated at fair
value.
21 Post Balance Sheet Events
21.1 Sale of Paris Developments SRL
Pursuant to a share sale and purchase agreement dated 31 July 2007 between ECPC
(Cyprus) Limited (a subsidiary of the Company) and DEGI Deutsche Gesellschaft
fur Immobilienfonds m.b.H ("DEGI"), the parties agreed (subject to the
fulfilment of various conditions precedent) that DEGI would acquire 100% of the
shares of Paris Developments SRL and the related property, PGV Tower for a
purchase price of Euro27.4m plus adjustments for net current assets.
21.2 Sale of Millennium Estate SRL
Pursuant to a share sale and purchase agreement dated 31 July 2007 between ECPC
(Cyprus) Limited (a subsidiary of the Company) and DEGI Deutsche Gesellschaft
fur Immobilienfonds m.b.H ("DEGI"), the parties agreed (subject to the
fulfilment of various conditions precedent) that DEGI would acquire 100% of the
shares of Millennium Estate SRL and the related property, Millennium Business
Centre for a purchase price of Euro52.6m plus adjustments for net current assets.
21.3 Sale of European Property Development Invest SRL
Pursuant to a share sale and purchase agreement dated 31 July 2007 between ECPC
(Cyprus) Limited (a subsidiary of the Company) and DEGI Deutsche Gesellschaft
fur Immobilienfonds m.b.H ("DEGI"), the parties agreed (subject to the
fulfilment of various conditions precedent) that DEGI would acquire 100% of the
shares of European Property Development Invest SRL and the related property,
Construdava for a purchase price of Euro26.5m plus adjustments for net current
assets.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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