RNS Number:8372J
European Convergence Property CoPLC
03 October 2006
3 October 2006
European Convergence Property Company PLC
Results for the thirteen months ended 30 June 2006
European Convergence Property Company PLC ("ECPC", the "Company" or the
"Group"), the property investment company specialising in countries that are
seeking accession to the European Union, today announces results for the
thirteen months ended 30 June 2006.
Highlights
Successful launch raising EUR62m of inward investment into the Company
Purchase of PGV Tower in central Bucharest for EUR24m
Investments or contractual commitments made on properties to the value of c.
EUR112m during the period
Anticipated successful completion of investment programme over the coming
financial year
Enquiries:
Charlemagne Capital (IOM) Limited Tel. + 44 (0)1624 640200
Anderson Whamond
Panmure Gordon Tel. + 44 (0)20 7614 8388
Hugh Morgan
Stuart Gledhill
Chairman's Statement
This announcement reflects European Convergence Property Company plc's (the
"Company" or the "Group") first thirteen months of investment activity since the
incorporation and successful listing of the Company on the London Stock
Exchange's Alternative Investment Market (AIM) in June 2005.
The launch raised EUR62m of inward investment into the Company and during the
past year we have been very active in the commercial property markets of South
East Europe.
The anticipated accession of Bulgaria and Romania into the European Union has
attracted a lot of investment interest into the area and capital appreciation
has been strong, with a corresponding compression of rental yields, so making
the investment process more challenging.
As at the date of this report we are pleased to confirm that the Company has
substantially achieved its original investment strategy with investments or
contractual commitments being made on properties to the value of EUR112m. This
reflects the Company's stated strategy of increasing returns on equity through
long term borrowing to leverage its investment portfolio.
In addition to those investments already committed to, the Company has a number
of high quality property targets which should see the successful completion of
its investment programme over the coming financial year.
The Company made a loss in the reporting period of EUR0.326m, reflecting its
initial investment phase and associated set up costs, and consequently the Board
will not be declaring a dividend at this stage. The objective of the Company
remains, however, to provide enhanced returns to its shareholders both through
sustained growth of its net assets per share and through profit distribution.
Erwin Brunner
Chairman 28 September 2006
Report of the Manager
Since launch the Manager has been actively pursuing grade A / B+ investment
properties throughout South East Europe. As a result we have successfully
extended our network of contacts in the region allowing us to target both
established properties and also participate in the launch of larger commercial
properties.
Although the market yields in the region have been somewhat compressed due to
the capital appreciation caused by a steady flow of foreign investment in the
property market, interest still remains strong and the property market remains
buoyant.
Property Portfolio
Completed Acquisitions
PGV Tower, an office building in central Bucharest, was purchased in February
2006 at a price of EUR24.0 million. It is currently the head office of Bancpost
SA, a Romanian subsidiary of the EFG banking group. It has a net lettable area
of 9,989 sqm, 93% of which is let to members of the EFG Group.
Committed Acquisitions
Mall Veliko Turnovo (MVT), is a new shopping centre located in Veliko Turnovo,
one of the largest cities in Bulgaria, situated in the central northern region
of the country. Full completion is expected during October 2006. The completion
price will be c. EUR29m. The site comprises a gross area of 33,000 sqm, which
includes 16,000 sqm of retail floor area. It is the first major modern shopping
centre in the city and has pre-let 90% of its lettable area to a mixture of
local business and large well known brands. The mall was officially opened on
the 15 September 2006.
Construdava, a newly constructed office building in Bucharest with a gross
lettable area of 9,200 sqm has been developed by one of Romania's leading
property developers, Impact SA. It is situated in Pipera, a predominantly
upmarket residential area of northern Bucharest. Completion is expected during
October at a price of c. EUR19.0 million.
Millennium Business Centre, an office building in its final stages of
construction. The building is in central Bucharest and its 19 floors make it a
new landmark for the city. It has a gross lettable area of 14,310 sqm and the
final consideration will be dependent on full leasing, however the estimated
purchase price is c. EUR40 million. Completion is expected in November 2006.
Investment Market Overview
Office Market:
The yield compression experienced in the South Eastern European property
investment market during 2005 has continued into 2006 although at a slower rate.
Through 2005 this was most notable in Bucharest where yields were estimated to
have compressed by 200 bhp through the year from just over 10% to just over 8%.
By mid 2006 prime Grade A office yields are being benchmarked at c.7.5% and are
expected to approach 7% by the end of 2006 beginning 2007.
The picture is similar for Sofia and the rest of Bulgaria as the weight of money
initially attracted to the Romanian market has sought out alternative
opportunities amongst its neighbours. Benchmarking the Sofia market is less
transparent due to the comparative scarcity of institutional grade investment
properties however, grade A developments are now being valued at around 8%.
Retail Market:
The retail shopping centre market has mostly been characterised by transactions
which have completed in the Romanian provinces, the opening of Bulgaria's first
two modern shopping facilities and the number of retail projects which seem to
be entering the development pipeline in Bulgaria's secondary cities with
expected yields in the 7.5-8% range.
The overall property market will be increasingly developer led. The shortage of
available sites in both Sofia and Bucharest's central city districts is driving
new development further to the north in Bucharest and further to the east in
Sofia. Not surprisingly, given the acceleration of yield compression for the
provinces in both markets, developer's attention is orientating more towards the
principle secondary cities of both markets. There is currently a notable
increase in the number of new mall development projects being discussed for
Bulgaria which will have a considerable impact on the availability of investment
properties of the next two to three years.
Turkey:
The office market is dominated by high vendor price expectations against a
background of often fragmented property ownership and lower than desired
building specifications in addition to dollar based cashflows and
correspondingly higher than Euro based borrowing rates. The retail market has
seen a scarcity of available transactions of a size which would fit with the
Company's target portfolio. As a consequence the Manager has been unable to
source any suitable investment opportunities.
Debt Market Overview
In both the Romanian and Bulgarian property investment markets certain key banks
provide competitive rates for investment product debt funding for the Class A to
B+ segments. The differential in rates is greater in Sofia, perhaps pointing to
the higher sophistication that characterises the Bucharest property market
Despite the above, concerns remain over the general prognosis for Euro rates
over the coming year and the impact they may have on the Company's running yield
forecasts, although it is expected that any increases in Euro based rates will
be partly offset by compression of lending spreads.
Outlook
The economic outlook for the region remains buoyant, with growth rates in excess
of European Union averages, and while this is encouraging more investment and
further compressing yields we are activity seeking to complete our investment
programme in the coming financial year.
The current pipeline, although not extensive, is robust in the quality of the
assets and would satisfy the requirements for full roll out of the investment
programme.
Charlemagne Capital (IOM) Limited
Manager 28 September 2006
Consolidated Income Statement
Note For the period
from 1 June
2005 (date of
incorporation)
to 30 June 2006
EUR'000
________________________________________________________________________________
Net rent and related income 5 913
Manager's fees 8.3 (865)
Audit and professional fees 9.6 (345)
Other expenses 9 (899)
________________________________________________________________________________
Administrative expenses (2,109)
________________________________________________________________________________
________________________________________________________________________________
Net operating loss before net financing income (1,196)
________________________________________________________________________________
Financial income 6 1,286
Financial expenses 6 (388)
________________________________________________________________________________
Net financing income 898
________________________________________________________________________________
Loss before tax (298)
Income tax expense 19 (28)
________________________________________________________________________________
Retained loss for the period (326)
________________________________________________________________________________
________________________________________________________________________________
Basic and diluted loss per share (EUR) 14 (0.0052)
________________________________________________________________________________
Consolidated Balance Sheet
Note At 30 June 2006
EUR'000
________________________________________________________________________________
Investment property 10 24,522
________________________________________________________________________________
Total non-current assets 24,522
________________________________________________________________________________
Trade and other receivables 11 6,181
Cash and cash equivalents 12 43,572
________________________________________________________________________________
Total current assets 49,753
________________________________________________________________________________
Total assets 74,275
________________________________________________________________________________
Issued share capital 13 62,696
Retained losses (3,213)
Foreign currency translation reserve (122)
________________________________________________________________________________
Total equity 59,361
________________________________________________________________________________
Interest-bearing loans and borrowings 15 13,750
________________________________________________________________________________
Total non-current liabilities 13,750
________________________________________________________________________________
Trade and other payables 16 1,164
________________________________________________________________________________
Total current liabilities 1,164
________________________________________________________________________________
Total liabilities 14,914
________________________________________________________________________________
Total equity & liabilities 74,275
________________________________________________________________________________
Company Balance Sheet
Note At 30 June 2006
EUR'000
________________________________________________________________________________
Investment in subsidiaries 2 -
________________________________________________________________________________
Total non-current assets -
________________________________________________________________________________
Intragroup balances 21,190
Trade and other receivables 41
Cash and cash equivalents 12 39,577
________________________________________________________________________________
Total current assets 60,808
________________________________________________________________________________
Total assets 60,808
________________________________________________________________________________
Issued share capital 13 62,696
Retained losses (1,969)
________________________________________________________________________________
Total equity 60,727
________________________________________________________________________________
Interest-bearing loans and borrowings -
________________________________________________________________________________
Total non-current liabilities -
________________________________________________________________________________
Trade and other payables 16 81
________________________________________________________________________________
Total current liabilities 81
________________________________________________________________________________
Total liabilities 81
________________________________________________________________________________
Total equity & liabilities 60,808
________________________________________________________________________________
The profit earned by the Company for the period ended 30 June 2006 was
EUR917,698.
Consolidated Statement of Changes in Equity
Share capital Retained Foreign Total
earnings currency
translation
reserve
EUR'000 EUR'000 EUR'000 EUR'000
________________________________________________________________________________
Balance at beginning of period - - - -
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 end of period 62,696 (3,213) (122) 59,361
________________________________________________________________________________
Consolidated Cash Flow Statement
Note For the period
from 1 June 2005
(date of
incorporation)
to 30 June 2006
EUR'000
________________________________________________________________________________
Operating activities
Group loss for the period (326)
Adjustments for:
Investment income (1,286)
Investment expense 388
Income tax expense 28
________________________________________________________________________________
Operating loss before changes in working capital (1,196)
(Increase)/Decrease in trade and other receivables (140)
Increase/(Decrease) in trade and other payables 302
________________________________________________________________________________
Cash used in operations (1,034)
Interest paid (388)
Income and corporation tax paid (104)
Interest received 1,286
________________________________________________________________________________
Cash flows used in operating activities (240)
________________________________________________________________________________
Investing activities
Acquisition of subsidiaries net of cash acquired 21 (7,874)
Repayment of loan acquired on acquisition (2,173)
Staged payments relating to property acquisitions (5,900)
________________________________________________________________________________
Cash flows used in investing activities (15,947)
________________________________________________________________________________
Financing activities
Proceeds from the issue of ordinary share capital 62,696
Repayment of long term loans (50)
Share issue expenses (2,887)
________________________________________________________________________________
Cash flows generated from financing activities 59,759
________________________________________________________________________________
Net increase in cash and cash equivalents 43,572
Cash and cash equivalents at 1 June 2005 -
________________________________________________________________________________
Cash and cash equivalents at 30 June 2006 12 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 are in the process of appointing an internationally recognised
firm of surveyors as property valuers for properties in Romania. 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 financial
period ending 30 June 2006 the Company will present financial statements
covering a 13 month period since incorporation.
2 The Subsidiaries
During the period and for efficient portfolio management purposes, the Company
established the following subsidiary companies:-
________________________________________________________________________________
Country of Percentage of
incorporation shares held
________________________________________________________________________________
European Convergence Property Company Bulgaria
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 Com. SRL Romania 100%
European Property Development Invest S.R.L. Romania 100%
Orange Convergence Finance BV The Netherlands 100%
European Property Millenium SRL Romania 100%
European Convergence Property Real Estate
Trading and Management Limited Turkey 100%
S.C. Paris Developments SRL Romania 100%
________________________________________________________________________________
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 period ended 30 June 2006 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 28 September 2006.
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 Company is denominated in Euros ("EUR") and therefore the amounts shown in
these financial statements are presented in EUR.
3.2 Foreign currency translation
Monetary assets and liabilities denominated in foreign currencies as at the date
of these financial statements are translated to EUR at exchange rates prevailing
on that date. Realised and unrealised gains and losses on foreign currency
transactions are charged or credited to the income statement as foreign currency
gains and losses. Expenses are translated into EUR based on exchange rates on
the date of the transaction.
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 Deposit interest
Deposit interest is accounted for on an accruals basis.
3.5 Cash and cash equivalents
Cash and cash equivalents comprise cash deposited with banks and bank overdrafts
repayable on demand.
3.6 Revenue and expense recognition
Interest income is recognised in the financial statements on an accruals basis.
Dividend income is recorded when declared.
Rental income from investment property leased out under operating lease is
recognised in the income statement on a straight-line basis over the term of the
lease.
Expenses are accounted for on an accrual basis. Expenses are charged to the
income statement except for expenses incurred on the acquisition of an
investment property which are included within the cost of that investment.
Expenses arising on the disposal of an investment property are deducted from the
disposal proceeds.
3.7 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 EUR at the foreign
currency exchange rates ruling at the balance sheet date. Foreign exchange
differences arising on translation are recognised directly in equity.
3.8 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 2006.
3.9 Other receivables
Trade and other receivables are stated at their cost.
3.10 Trade and other payables
Trade and other payables are stated at their cost.
3.11 Interest-bearing borrowings
Interest-bearing borrowings are recognised initially at fair value, less
attributable transaction costs. Subsequent to initial recognition,
interest-bearing borrowings are stated at amortised cost with any difference
between cost and redemption value being recognised in the income statement over
the period of the borrowings on an effective interest basis.
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 two principal geographical areas, Bulgaria and Romania. The location
of the customers is the same as the location of the assets.
Bulgaria Romania Unallocated Total
EUR'000 EUR'000 EUR'000 EUR'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)
________________________________________________________________________________
There has been one property acquisition completed during the period for an
office building in Romania.
5 Net Rent and Related Income
2006
EUR'000
________________________________________________________________________________
Gross lease payments collected/accrued 913
________________________________________________________________________________
The group leases out its investment property under operating leases. The future
minimum lease payments under non-cancellable leases are as follows:
EUR'000
________________________________________________________________________________
Less than one year -
Between one and five years 2,138
More than five years 133
________________________________________________________________________________
2,271
________________________________________________________________________________
The Group has raised specific provisions for doubtful debts of EUR70,884 against
rental income due from two tenants.
6 Net Financing Income
2006
EUR'000
________________________________________________________________________________
Interest income 1,286
________________________________________________________________________________
Financial income 1,286
________________________________________________________________________________
Gross interest expense (287)
Bank facility fee (90)
Bank charges (11)
________________________________________________________________________________
Financial expenses (388)
________________________________________________________________________________
Net financing income 898
________________________________________________________________________________
7 Net Asset Value per Share
The net asset value per share as at 30 June 2006 is EUR0.9468 based on
62,696,333 ordinary shares in issue as at that date.
8 Related Party Transactions
8.1 Directors of the Company
Anderson Whamond is a director of the Manager. Mr Whamond is a 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
period 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. Adrian Jones is an employee of the
Placing Agent. 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 during the period ended 30 June 2006 amounted to
EUR865,120.
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 payable during the period ended 30 June 2006 amounted to EUR
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.
Placing fees payable by the Company during the period ending 30 June 2006
amounted to EUR2,507,853. This amount has been charged to equity as a share
issue expense.
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 Advisor and Broker for the period ending
30 June 2006 amounted to EUR180,575.
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 EUR500, 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 period ending 30 June 2006 amounted to EUR7,638.
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
EUR5,000, payable quarterly in arrears.
The Administrator shall assist in the preparation of the financial statements of
the Company for which it shall receive a fee of EUR2,500 per set.
The Administrator shall provide general secretarial services to the Company for
which it shall receive a minimum annual fee of EUR7,500. 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 EUR500 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 period ending 30 June 2006 amounted to
EUR76,375.
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 EUR2,886,625 representing 4.60% of the
gross amount raised.
9.6 Audit fees
Audit fees payable for the period ending 30 June 2006 amounted to EUR82,838.
10 Investment Property
Group
________________________________________________________________________________
EUR'000
________________________________________________________________________________
At beginning of period -
Additions through:
direct acquisitions of property -
acquisition of subsidiary companies (see note 21) 24,522
________________________________________________________________________________
Balance at 30 June 2006 24,522
________________________________________________________________________________
Security
At 30 June 2006, there was a first rank mortgage on the above property securing
the bank loan of EUR13.75 million (see note 15).
11 Trade and Other Receivables
Trade and other receivables includes two contractual staged payments of EUR2.9
million for Mall Veliko Turnovo and EUR3.0 million for the Construdava Office
Centre (see note 22).
12 Cash and Cash Equivalents
Group Company
30 June 2006 30 June 2006
EUR'000 EUR'000
________________________________________________________________________________
Bank balances 43,572 39,577
Bank overdrafts - -
________________________________________________________________________________
Cash and cash equivalents 43,572 39,577
________________________________________________________________________________
13 Capital and Reserves
Share capital
Ordinary Shares of EUR1.00 each Number EUR'000
________________________________________________________________________________
In issue at the start of the period - -
Issued during the period 62,696,333 62,696
________________________________________________________________________________
In issue at 30 June 2006 62,696,333 62,696
________________________________________________________________________________
At incorporation the authorised share capital of the Company was EUR300 million
divided into 300 million Ordinary Shares of EUR1.00 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 Loss per Share
Basic and diluted loss per share are calculated by dividing the loss
attributable to equity holders of the Company by the number of ordinary shares
in issue during the period.
2006
________________________________________________________________________________
Loss attributable to equity holders of the Company (EUR'000) 326
Number of ordinary shares in issue (thousands) 62,696
________________________________________________________________________________
Basic and diluted loss per share (EUR per share) 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
30 June 2006
EUR'000
________________________________________________________________________________
Secured bank loans 13,750
________________________________________________________________________________
Terms and debt repayment schedule
The Group has obtained a loan of EUR13.75 million from Bancpost SA in Romania
(see note 10). As at 30 June 2006 the effective interest rate was 5.156%. The
final maturity date is September 2009.
16 Trade and Other Payables
Group Company
30 June 2006 30 June 2006
EUR'000 EUR'000
________________________________________________________________________________
Taxation 7 -
Trade payables 26 -
Rental deposits 459 -
Accruals 645 81
Other 27 -
________________________________________________________________________________
Total 1,164 81
________________________________________________________________________________
17 Exchange Rates
The following exchange rates were used to translate assets and liabilities into
the reporting currency at 30 June 2006:
Bulgarian Lev 1.9710
Romanian Lei 3.6027
Turkish Lira 2.0259
18 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 2006 amounted to EUR97,500.
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
The income tax expense of EUR28,131 in the consolidated income statement relates
to a profit before tax of EUR327,828 in S.C. Paris Developments SRL in Romania.
The outstanding tax liability as at 30 June 2006 for this company was EUR6,657.
There are no other group companies with taxable profits during the period.
Isle of Man
The Company has received confirmation of tax exempt status from the Assessor of
Income Tax in the Isle of Man for the year of assessment ending 5 April 2006.
The effect of tax exempt status is that the Company will have no liability to
Manx income tax on its income or gains and that there will be no requirement to
deduct withholding tax from payments of dividends to shareholders. The current
annual fee for tax exempt status is #475. With effect from 6 April 2006 the
general tax rate for companies in the Isle of Man is zero per cent. As such the
Company does not intend to renew its tax exempt status for the 2006/07 year of
assessment.
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.
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, Bulgarian Lev and Turkish Lira.
________________________________________________________________________________
Net Assets
EUR 000s
________________________________________________________________________________
Romanian Lei 27,539
Bulgarian Lev 2,895
Euro 28,927
________________________________________________________________________________
Total 59,361
________________________________________________________________________________
Price risk
The Group is exposed to property price and market rental risks. The value of the
property held at 30 June 2006 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 2006 are considered to be stated at fair
value.
21 Business Combinations
During the period the Group acquired 100% of S.C. Paris Developments S.R.L. in
relation to its investment in PGV Tower, Bucharest. The subsidiary acquired
contributed a profit of EUR299,697 to the consolidated results for the period.
The assets and liabilities arising from this acquisition are as follows:
Fair value
EUR'000
________________________________________________________________________________
Investment property 24,522
Cash and cash equivalents 426
Interest bearing loans (13,800)
Net current liabilities (2,406)
Long term liabilities - rental deposits (442)
________________________________________________________________________________
Net assets acquired 8,300
________________________________________________________________________________
Purchase consideration, settled in cash 8,300
Cash and cash equivalents in subsidiary acquired (426)
________________________________________________________________________________
Cash outflow on acquisition 7,874
________________________________________________________________________________
22 Commitments as at the Balance Sheet Date
Prior to the balance sheet date, and in addition to the completed property
acquisition, the Group had entered into sales purchase agreements for two
further properties; Mall Veliko Turnovo in Bulgaria and Construdava in Romania.
The Group has made staged payments of EUR2.9 million and EUR3.0 million
respectively (see note 11), with remaining contractual commitments as at the
balance sheet date of c. EUR26.1 million relating to Mall Veliko Turnovo and c.
EUR16.0 million for Contrudava. These acquisitions are both expected to be
completed during October 2006.
23 Post Balance Sheet Events
Millennium Business Centre
On 27 July 2006 the Company announced its commitment to acquire the Millennium
Business Centre, in Bucharest ("Millennium"). A city centre grade A office
development, the Millennium purchase is subject to construction completion which
is expected to be in November 2006. The gross floor area of the property is
21,386 sqm accommodating 13,189 sqm of rentable area with a purchase price of
EUR40 million. The transaction is also subject to the developer achieving a
minimum 38% leasing which was very soon secured after execution - total leasing
currently stands at over 90% with the World Bank being the property's principle
anchor.
The figures set out above are derived from the audited consolidated financial
statements of the Company and its subsidiaries for the period ended 30 June
2006. The Annual report and audited consolidated financial statements of the
Company will be sent to shareholders within the next 7 business days and will be
available for at least one month from the date of publication in electronic form
at www.europeanconvergencepropertycompany.com, and in hard copy at the Company's
registered office, Jubilee Buildings, Victoria Street, Douglas, IM1 2SH, Isle Of
Man.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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