RNS Number : 9081J
European Convergence Property CoPLC
11 December 2008
11 December 2008
European Convergence Property Company plc
Final Results for the year ended 30 June 2008
European Convergence Property Company PLC ("ECPC", the "Company" or the "Group"), a property company established to invest 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 2008.
The Annual General Meeting of the Company will be held at Third Floor, Britannia House, St George's Street Douglas, Isle of Man IM1 1JE,
British Isles, Douglas, Isle of Man, IM1 2SH on 31 December 2008 at 10 a.m.
Highlights
During the reporting year the Company completed the sale of the subsidiary companies holding its Romanian investment properties to DEGI
Deutsche Gesellschaft fur Immobilienfonds m.b.H.
The net consideration for the disposed companies was approximately EUR17.2m. The properties were acquired for a combined cost of
EUR89.1m, and had been re-valued in early 2007 at EUR97.5m. The value attributable to the properties in arriving at the sale proceeds was
approximately EUR110.5m after transaction costs and adjustments of EUR5.5m for the net current assets of the companies being sold. As at 31
December 2007 this increased the unaudited NAV per share to EUR1.21.
Due to considerable yield compression in the market the Company decided not to pursue further acquisitions and instead to return the
proceeds of the sale along with any un-invested cash to Shareholders. As a result Shareholder approval was sought to facilitate an efficient
mechanism for returning these monies to Shareholders and at the end of January 2008 an initial return of capital of EUR58.9 million (EUR0.94
per share) was made to Shareholders.
The Company now has one remaining investment asset, Mall Veliko Turnovo, in Bulgaria. This has been subject to several offers which
were subsequently withdrawn for various reasons. There remains interest from other potential buyers and the Company is still actively
pursuing several sales strategies.
A valuation of Mall Veliko Turnovo was recently carried out by SHM Smith Hodgkinson, an independent firm of chartered surveyors. The
property has now been valued at EUR31.56 m, compared with its valuation of EUR32.55m in January 2007.
The consolidated net assets of the Company as at 30 June 2008 were EUR15.832m, giving a net asset value per share of EUR0.25.
Erwin Brunner
Chairman
Enquiries:
Charlemagne Capital (UK) Limited +44 (0)20 7518 2100
Christopher Fitzwilliam Lay/Varda Lotan
Galileo Fund Services Limited
Ian Dungate, Company Secretary +44 (0)1624 692600
Panmure Gordon (UK) Limited +44 (0)20 7459 3600
Hugh Morgan/Stuart Gledhill
Smithfield Consultants +44 (0)20 7360 4900
John Kiely/Gemma Froggatt
www.europeanconvergence.com
Report of the Manager
During the year, a number of offers were received and considered for the Company's one remaining asset, Mall Veliko Turnovo ("MVT") in
Bulgaria. However for various reasons, including the economic environment, these were all subsequently withdrawn. The Manager is still
actively seeking a buyer for the property with several sales options being considered.
Operation of Mall Veliko Turnovo
September 2008 marks the second anniversary of the opening of MVT. During the year the Manager focussed on consolidation of the tenant
mix and continued marketing of MVT through various promotional activities. In general this has resulted in an increase in the quality of
tenants and the level of rents received.
Through careful management of expenses, operational costs for 2008 were slightly lower than in 2007, although the effects of current
energy prices and Bulgarian inflation mean that this is not expected to continue.
By June 2008, occupancy was near 100%, and although two key tenants were lost in August, one of these has already been replaced, and
negotiations with a replacement for the restaurant area, which is the remaining vacancy (approx 5% of the mall), are close to finalisation
with catering businesses more suited to a shopping mall than the previous tenant. These two changes in tenants will result in a slight
increase in monthly rental income.
The area where MVT is located is becoming the main retail destination for the city. This year a number of new operators have opened in
the vicinity; however these new operators increase competition for customer attention and retail spend. There are possible plans for two
further malls for Veliko Turnovo, both within the MVT retail destination area which if realised will further increase competition.
As well as increasing competition the impacts of the global credit conditions together with the effects of commodity and food price
increases may lead to a softening in the leasing/tenant market.
Valuation of Mall Veliko Turnovo
SHM Smith Hodgkinson, an independent firm of chartered surveyors has recently carried out a valuation of the property, and it has been
valued at EUR31.56m, giving an exit yield of 7.5%. There have been recent sales of at least two larger malls in Bulgaria. City Centre Sofia
is believed to have been sold by Equest to Heitman at an initial yield in the region of 7 - 7.25%. In addition, during 2008 the Uzanov Mall
in Varna was sold for an exit yield of approximately 7.65%. The manager is confident that the current valuation is reasonable.
Charlemagne Capital (IOM) Limited 5 December 2008
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 2008.
The Company
The Company is incorporated in the Isle of Man and was established to enable investors to take advantage of opportunities that exist in
the property markets of South-East Europe. It subsequently acquired 4 property assets in Romania and Bulgaria, of which 3 were sold during
the year leaving a single property asset, Mall Veliko Turnovo, in Bulgaria.
As previously reported, the Directors determined not to invest surplus cash or re-invest the proceeds from the properties sold earlier
in the year. To facilitate an efficient mechanism for returning monies to shareholders, the Company was re-registered during the year as a
company governed by the Isle of Man Companies Act 2006. Following this re-registration, a capital return of EUR58.9m (EUR0.94 per share) was
returned to shareholders on 31 January 2008.
Results and Dividends
The results and position of the Group and the position of the Company at the year end is set out on pages 9 to 13 of the financial
statements.
Following the return of capital earlier in the year, the Directors do not intend to declare a dividend.
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
Save as disclosed in Note 8.1, 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. None of the other directors have a direct or indirect interest of the shares
in the Company.
Charlemagne Capital (Investments) Limited (a subsidiary of Charlemagne Capital Limited, the parent of the Investment Manager) holds
97,478 shares in the Company.
Independent Auditors
KPMG Audit LLC Isle of Man have expressed a willingness to continue in office in accordance with Isle of Man company law.
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 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 Group's 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 Act 2006.
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.
On behalf of the Board
Erwin Brunner
Chairman 5 December 2008
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 2008 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. 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.
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. 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 International Financial Reporting Standards, of the state
of the Group's and Parent Company's affairs as at 30 June 2008 and of the Group's profit and cash flows for the year then ended; and
* the information given in the Directors' Report is consistent with the financial statements.
KPMG Audit LLC, Isle of Man
Chartered Accountants, Heritage Court, 41 Athol Street 9 December 2008
Douglas, Isle of Man IM99 1HN
Consolidated Income Statement
Note Year ended Year ended
30 June 2008 30 June 2007
EUR'000 EUR'000
Realised gain on sale of subsidiaries 2 6,825 -
Net (loss)/gain from fair value adjustment on 10 (940) 13,124
investment property
Net rent and related income 5 4,374 5,766
Manager's fees 8.3 (2,504) (2,343)
Audit and professional fees 9.5 (1,857) (258)
Other expenses 9 (876) (1,771)
Administrative expenses (5,237) (4,372)
Net operating profit before net 5,022 14,518
financing expense
Financial income 6 889 743
Financial expenses 6 (2,352) (2,923)
Net financing expense (1,463) (2,180)
Profit before tax 3,559 12,338
Income tax expense 20 5,276 (5,890)
Retained profit for the year 8,835 6,448
Basic and diluted earnings per share (EUR) 14 0.1409 0.1028
Consolidated Balance Sheet
Note At 30 June 2008 At 30 June 2007
EUR'000 EUR'000
Investment property 10 31,560 131,971
Property, plant and equipment 11 - 62
Total non-current assets 31,560 132,033
Trade and other receivables 16 4,510 3,977
Cash and cash equivalents 12 2,552 23,107
Total current assets 7,062 27,084
Total assets 38,622 159,117
Issued share capital 13 3,762 62,696
Retained earnings 12,070 3,235
Foreign currency translation reserve - 1,758
Total equity 15,832 67,689
Interest-bearing loans and borrowings 15 19,232 80,108
Deferred tax liability 20 187 5,045
Total non-current liabilities 19,419 85,153
Trade and other payables 17 3,371 6,275
Total current liabilities 3,371 6,275
Total liabilities 22,790 91,428
Total equity & liabilities 38,622 159,117
Approved by the Board of Directors on 5 December 2008.
Donald McCrickard Anderson Whamond
Director Director
Company Balance Sheet
Note At 30 June 2008 At 30 June 2007
EUR'000 EUR'000
Investment in subsidiaries 2 - -
Total non-current assets - -
Intragroup balances 16,375 44,061
Trade and other receivables 16 12 36
Cash and cash equivalents 12 1,175 17,145
Total current assets 17,562 61,242
Total assets 17,562 61,242
Issued share capital 13 3,762 62,696
Retained losses 13,735 (1,517)
Total equity 17,497 61,179
Trade and other payables 17 65 63
Total current liabilities 65 63
Total liabilities 65 63
Total equity & liabilities 17,562 61,242
The profit earned by the Company for the year ended 30 June 2008 was EUR15,251,402 (2007: EUR452,207).
Approved by the Board of Directors on 5 December 2008.
Donald McCrickard Anderson Whamond
Director Director
Consolidated Statement of Changes in Equity
Share capital Retained earnings Foreign currency Total
translation reserve
EUR'000 EUR'000 EUR'000 EUR'000
Balance at 1 July 2006 62,696 (3,213) (122) 59,361
Foreign exchange translation - - 1,880 1,880
differences
Retained profit for the year - 6,448 - 6,448
Balance at 30 June 2007 62,696 3,235 1,758 67,689
Balance at 1 July 2007 62,696 3,235 1,758 67,689
Capital distribution (58,934) - - (58,934)
Foreign exchange translation - - (1,758) (1,758)
differences
Retained profit for the year - 8,835 - 8,835
Balance at 30 June 2008 3,762 12,070 - 15,832
Consolidated Cash Flow Statement
Note Year ended Year ended
30 June 2008 30 June 2007
EUR'000 EUR'000
Operating activities
Group profit for the year 8,835 6,448
Adjustments for:
Gain from sale of subsidiaries (6,825) -
Net loss/(gain) from fair value adjustment 940 (13,124)
on investment property
Financial income (889) (743)
Foreign currency translation differences (1,758) 1,880
Financial expense 2,352 2,923
Depreciation 62 -
Income tax (credit)/expense (5,276) 5,890
Operating (loss)/profit before changes in (2,559) 3,274
working capital
Decrease/(increase) in trade and other 2,614 (3,696)
receivables
(Decrease)/increase in trade and other (1,173) 5,118
payables
Cash (used in)/generated from operations (1,118) 4,696
Interest paid (2,352) (2,923)
Income and corporation tax received/(paid) 418 (852)
Interest received 889 743
Cash flows (used in)/generated from operating (2,163) 1,664
activities
Investing activities
Staged payments relating to property - (88,425)
acquisitions
Sale of subsidiary companies 12,929 -
Cash sold with subsidiary companies (6,728)
Repayment of loans by former subsidiaries 34,341 -
Purchase of property, plant and equipment - (62)
Cash flows generated from/(used in) investing 40,542 (88,487)
activities
Financing activities
Proceeds from long term loans - 67,108
Repayment of long term loans - (750)
Capital distribution (58,934) -
Cash flows (used in)/generated from financing (58,934) 66,358
activities
Net decrease in cash and cash equivalents (20,555) (20,465)
Cash and cash equivalents at beginning of 23,107 43,572
year
Cash and cash equivalents at end of year 12 2,552 23,107
Notes to the Consolidated Financial Statements
1 The Company
European Convergence Property Company plc (the "Company") was originally 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. On 21 December 2007 with the approval
of Shareholders in general meeting, the Company was re-registered as a company under the Isle of Man Companies Act 2006 with registered
number 002085v.
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.
Capital Distribution
Following approval of the Company's Shareholders in general meeting and as a consequence of the Directors having determined not to
invest surplus cash or reinvest monies received from the sale of certain property assets an amount of approximately EUR58.9m or EUR0.94 per
share was returned to shareholders pro rata by way of a capital distribution on 31 January 2008.
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.
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.
In the current year, no dividend was declared due to the return of capital made on 31 January 2008.
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.
2 The Subsidiaries
For efficient portfolio management purposes, the Company established the following subsidiary companies:-
Country of Percentage of
incorporation shares held
European Convergence Property Company Bulgaria Bulgaria 100%
EOOD
European Property Acquisitions EOOD 1 Bulgaria 100%
European Convergence Property Company (Cayman) Cayman Islands 100%
Limited
ECPC (Cyprus) Limited Cyprus 100%
European Convergence Property Company (Malta) Malta 100%
Limited
European Property Millenium Company 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 Turkey 100%
Estate Trading and Management Limited
Paris Development SRL 3 Romania 100%
Millennium Estates SRL 3 Romania 100%
European Property Development Invest SRL 3 Romania 100%
1 Subsequent to the year end, European Property Acquisitions EOOD, a dormant company, was sold for nominal value.
2 During the year ended 30 June 2007 European Property Millenium Company SRL was merged with Millennium Estate SRL and consequently,
European Property Millenium Company SRL was deregistered on 17 September 2007.
3 Pursuant to a share sale and purchase agreement dated 31 July 2007 Millennium Estate SRL, Paris Developments SRL and Convergence
Property Invest SRL were sold to a third party.
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 2008 comprises the Company and its subsidiaries (together referred to as the
"Group").
The annual report was authorised for issue by the Directors on 5 December 2008.
3.1 Basis of presentation
These financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") promulgated by
the International Accounting Standards Board. Management has concluded that the report fairly represents the entity's financial position,
financial performance and cash flows. In preparing these consolidated financial statements, the Group has adopted IFRS 7 Financial
Instruments: Disclosures and IAS 1 Presentation of Financial Statements - Capital Disclosures. The adoption of IFRS 7 and the amendment to
IAS 1 impacted the type and amount of disclosures made in these financial statements, but had no impact on the reported profits or financial
position of the Group. In accordance with the transitional requirements of the standards, the Group has provided full comparative
information.
The preparation of the financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also
requires the Board of Directors to exercise its judgement in the process of applying the Company's accounting policies. The 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 ("EUR") and therefore the amounts shown in these financial statements are presented in EUR.
3.2 Foreign currency translation
Euro is the currency of the primary economic environment in which the entity operates ("The functional currency"). The functional
currency of the Romanian subsidiaries was the Romanian Lei, and the functional currency of the Bulgarian subsidiary is the Bulgarian Lev.
Otherwise the euro is the functional currency of the subsidiaries.
Euro is also the currency in which the annual financial statements are presented ("The presentation currency").
Monetary assets and liabilities denominated in foreign currencies as at the date of these financial statements are translated to EUR at
exchange rates prevailing on that date. Realised and unrealised gains and losses on foreign currency transactions are charged or credited to
the income statement as foreign currency gains and losses. Expenses are translated into EUR based on exchange rates on the date of the
transaction.
The accounts are presented in Euros by translating the assets and liabilities at the exchange rate prevailing at the balance sheet date.
Items of revenue and expense are translated at exchange rates on the date of the relevant transactions. Components of equity are translated
at the date of the relevant transaction and not retranslated. All resulting exchange differences are recognised in equity.
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.
An external, independent valuation company, SHM Smith Hodgkinson (Romania) Srl, having an appropriate recognised professional
qualification and recent experience in the location and category of property being valued, values 50% of the investment property portfolio
every year on the basis of the Income approach. The fair values are based on market values, being the estimated amount for which property
could be exchanged on the date of valuation between a willing buyer and a willing seller in an arm's length transaction after property
marketing wherein parties had each acted knowledgeably, prudently and without compulsion.
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 EUR at the foreign currency exchange rates ruling at the balance sheet date. Foreign exchange differences arising on translation are
recognised directly in equity.
3.9 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 2008 (2007: Nil).
3.10 Financial assets
The Group classifies its financial assets in the following categories: at fair value through profit or loss, loans and receivables, and
available for sale. The classification depends on the purpose for which the financial assets were acquired. Management determines the
classification of its financial assets at initial recognition. At 30 June 2008 and 2007 the Group did not have any financial assets at fair
value through profit or loss or available for sale. Loans and receivables are non-derivative financial assets with fixed or determinable
payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after
the balance sheet date. These are classified as non-current assets. The Group's loans and receivables comprise 'trade and other
receivables' and cash and cash equivalents in the balance sheet.
3.11 Other receivables
Trade and other receivables are stated at their cost which approximates their market value less provision for any bad and doubtful
debts.
3.12 Trade and other payables
Trade and other payables are stated at their cost which approximates their market value.
3.13 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.
3.14 Share Capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are
recognised as a deduction from equity, net of any tax effect.
3.15 Future changes in accounting policies
IFRS and IFRIC Interpretations not applied.
IASB (International Accounting Standards Board) and IFRIC (International Financial Reporting Interpretations Committee) have issued the
following standards and interpretations with an effective date after the date of these financial statements:
International Accounting Standards Board Effective date (accounting periods
(IAS/IFRS) commencing after)
IFRS 8 Operating segments 1 January 2009
IFRS 8 introduces the "management approach" to segment reporting, with information based on internal reports. Management are currently
assessing the impact of this on the disclosures to be presented regarding segmental reporting. The Directors do not expect the adoption of
the other standards and interpretations to have a material impact on the Group's financial statements in the period of initial application.
* Comparative figures
Where necessary, comparative figures have been adjusted to conform to changes in presentation for the current year.
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 2008 Bulgaria Romania Turkey Unallocated Total
EUR'000 EUR'000 EUR000 EUR'000 EUR'000
Net rent and associated income 2,777 1,597 - - 4,374
Segment results 3,147 9,654 (5) (3,961) 8,835
Segment assets 33,064 - - 5,558 38,622
Segment liabilities (19,497) - - (3,293) (22,790)
Year ended 30 June 2007 Bulgaria Romania Turkey Unallocated Total
EUR'000 EUR'000 EUR'000 EUR'000 EUR'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)
5 Net Rent and Related Income
2008 2007
EUR'000 EUR'000
Gross lease payments collected/accrued 4,374 5,766
5 Net Rent and Related Income continued
The group leases out its investment property under operating leases. The future minimum lease payments under non-cancellable leases are
as follows:
2008 2007
EUR'000 EUR'000
Less than one year 428 56
Between one and five years - 7,361
More than five years - 3,204
428 10,621
The Group has raised specific provisions for doubtful debts of EUR125,685 (2007: EURnil) against rental income.
6 Net Financing Expense
2008 2007
EUR'000 EUR'000
Interest income 889 743
Financial income 889 743
Gross interest expense (1,880) (2,300)
Bank facility fee - (217)
Bank charges (472) (406)
Financial expenses (2,352) (2,923)
Net financing expense (1,463) (2,180)
7 Net Asset Value per Share
The net asset value per share as at 30 June 2008 is EUR0.2525 based on net assets of EUR15,831,839 and 62,696,333 ordinary shares in
issue (30 June 2007: EUR1.0796).
8 Related Party Transactions
8.1 Directors of the Company
Anderson Whamond is a director of the Manager, Charlemagne Capital (IOM) Limited. Mr Whamond is a director and shareholder of
Charlemagne Capital Limited ("CCL") the parent of the Manager and the Placing Agent.
Charlemagne Capital (Investments) Limited, an entity associated with the Manager, holds 97,478 ordinary 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.
8.2 Directors of the Subsidiaries
James Houghton and Jane Bates are directors of the Manager and have been appointed director(s) to a number of the Group subsidiaries. In
compliance with local regulations, certain subsidiaries have appointed directors who are employees of or are associated with, the relevant
registered office service provider.
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 2008 amounted to EUR1,108,733 (2007: EUR1,460,350).
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 2008 amounted to EUR1,395,673 (2007: EUR882,749).
9 Charges and Fees
9.1 Nominated Adviser and Broker fees
As Nominated Adviser and Broker to the Company for the purposes of the AIM Rules, the nominated advisor and broker is entitled to
receive an annual fee of �30,000.
The Nominated Adviser also received a one-off fee of �25,000 for work carried out in relation to the fundamental business change.
Advisory fees payable to the Nominated Adviser and Broker for the year ended 30 June 2008 amounted to EUR89,446 (2007: EUR52,864).
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 year ended 30 June 2008 amounted to EUR7,050 (2007: EUR7,050).
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 per annum. 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 on an annual basis.
Administration fees payable for the year ended 30 June 2008 amounted to EUR70,500 (2007: EUR70,500).
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 Audit fees
Audit fees payable for the year ended 30 June 2008 amounted to EUR81,502 (2007: EUR100,512).
10 Investment Property
30 June 2008 30 June 2007
Group Group
EUR000 EUR'000
At beginning of year 131,971 24,522
Additions through:
direct acquisitions of property - 94,325
Disposals through sale of subsidiaries (99,471) -
Net (loss)/gain from fair value adjustments on (940) 13,124
investment property
Balance at end of year 31,560 131,971
The Group's investment properties were revalued at 30 September 2008 by an independent valuation agent, SHM Smith Hodgkinson.
Security
At 30 June 2008, there was a first rank mortgage on the above property securing the bank loans of EUR19.2 million (see Note 15).
11 Property, Plant & Equipment
Group
Fixtures & Fittings
EUR'000
Net book amount at 1 July 2007 62
Additions -
Depreciation charge (62)
Net book amount at 30 June 2008 -
Net book amount at 30 June 2007 62
There were no impairment charges in 2008.
12 Cash and Cash Equivalents
Group Group Company Company
30 June 2008 30 June 2007 30 June 2008 30 June 2007
EUR'000 EUR'000 EUR'000 EUR'000
Bank balances 2,552 23,107 1,175 17,145
Bank overdrafts - - - -
Cash and cash equivalents 2,552 23,107 1,175 17,145
13 Capital and Reserves
Share capital
2008 2008
Ordinary Shares of EUR1.00 each Number EUR'000
In issue at the start of the year 62,696,333 62,696
Return of capital - (58,934)
In issue at 30 June 2008 62,696,333 3,762
2007 2007
Ordinary Shares of EUR1.00 each Number EUR'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
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.
An initial return of capital of EUR58.9 million (EUR0.94 per share) was made to Shareholders on 31 January 2008.
The Group does not have any externally imposed capital requirements.
14 Basic and Diluted Earnings per Share
Basic and diluted earnings per share are calculated by dividing the profit attributable to equity holders of the Company by the number
of ordinary shares in issue during the year:
2008 2007
Profit attributable to equity holders of the 8,835 6,448
Company (EUR'000)
Number of ordinary shares in issue (thousands) 62,696 62,696
Basic and diluted earnings per share (EUR per share) 0.1409 0.1028
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 2008 30 June 2007
EUR'000 EUR'000
Secured bank loans 19,232 80,108
Terms and debt repayment schedule:
Loan Amount Bank Effective interest Final Maturity date
rate
30 June 2008
EUR19,232,391 Alpha Bank Sofia SA EURIBOR 1M+1.955% October 2011
16 Trade and Other Receivables
Group Group Company Company
30 June 2008 30 June 2007 30 June 2008 30 June 2007
EUR'000 EUR'000 EUR'000 EUR'000
Trade receivables 208 3,768 - -
Deferred sale proceeds 4,276 - - -
Other 26 209 12 36
Total 4,510 3,977 12 36
17 Trade and Other Payables
Group Group Company Company
30 June 2008 30 June 2007 30 June 2008 30 June 2007
EUR'000 EUR'000 EUR'000 EUR'000
Taxation 11 - - -
Trade payables 131 3,597 - -
Rental deposits - 763 - -
Accruals 3,229 1,415 65 63
Other - 500 - -
Total 3,371 6,275 65 63
Accruals include a performance fee of EUR2.278m and other accruals of EUR951k (2007 - EUR883k and EUR532k respectively).
18 Exchange Rates
The following exchange rates were used to translate assets and liabilities into the reporting currency at 30 June 2008:
Bulgarian Lev 1.9558
Turkish Lira 1.9251
19 Directors' Remuneration
The Company
The maximum amount of remuneration payable to the Directors permitted under the Articles of Association is EUR300,000 p.a. Each Director
currently is paid a fee of EUR22,500 p.a. The Directors are each entitled to receive reimbursement of any expenses
incurred in relation to their appointment. Total fees and expenses paid to the Directors for the year ended 30 June 2008 amounted to
EUR90,000 (2007: EUR90,000).
The Subsidiaries
No fees are paid to the directors of the subsidiaries except in circumstances where a director is appointed in compliance with local
regulations and in such cases the fees payable are nominal.
20 Taxation
Group income tax expense
Year to 30 June 2008 Year to 30 June 2007
EUR'000 EUR'000
Current tax (credit)/expense (418) 852
Movement in deferred tax (4,858) 5,038
liability
Income tax (credit)/expense for (5,276) 5,890
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 as at 30 June 2008 is based on the capital gains tax rate of 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.
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.
21 Financial Instruments
The Group's activities expose it to a variety of financial risks: market risk (including currency risk, cashflow risk, interest rate
risk and price risk), credit risk, and liquidity risk.
Market 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 property held. The Company's market risk is monitored by the
Manager on a day to day basis and by the Directors at Board Meetings.
Price risk
The Group is exposed to property price and market rental risks. The value of the property held at 30 June 2008 is disclosed in Note 10.
Foreign exchange risk
The Group's operations are conducted in jurisdictions which generate revenue, expenses, assets and liabilities in currencies other than
the Euro (the functional currency). As a result, the Group is subject to the effects of exchange rate fluctuations with respect to these
currencies. The currency giving rise to this risk is primarily Romanian Lei.
The Group may invest in financial instruments and enter into transactions denominated in currencies other than the functional currency.
Consequently, the Group is exposed to risks that the exchange rate of its currency relative to other foreign currencies may change in a
manner that has an adverse affect on the value of that portion of the Group's assets or liabilities denominated in currencies other than the
functional currency. The Group's policy is not to enter into any currency hedging transactions.
The following table sets out the Group's total exposure to foreign currency risk and the net exposure to foreign currencies of the
assets and liabilities:
30 June 2008 Assets Liabilities Net Assets
EUR000 EUR000 EUR000
Romanian Lei - - -
Bulgarian Lev 1,504 (85) 1,419
Euro 37,118 (22,705) 14,413
Total 38,622 (22,790) 15,832
30 June 2007 Assets Liabilities Net Assets
EUR000 EUR000 EUR000
Romanian Lei 7,967 (4,227) 3,740
Bulgarian Lev 1,296 (634) 662
Euro 149,854 (86,567) 63,287
Total 159,117 (91,428) 67,689
At 30 June 2008 there are no remaining Romanian Lei assets and the Bulgarian Lev is pegged to the Euro therefore there is no significant
foreign exchange risk as at 30 June 2008.
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in
market interest rates. Cash held by the Group is invested at short-term market interest rates. The Group has interest-bearing loans (see
Note 15). As a result, the Company is exposed to fair value interest rate risk due to fluctuations in the prevailing levels of market
interest rates. It is also exposed to interest rate cash flow risk.
The table below summarises the Group's exposure to interest rate risk. It includes the Group's financial assets and liabilities at the
earlier of contractual re-pricing or maturity date, measured by the carrying values of assets and liabilities:
30 June 2008 Less than 1 month 1-3 months 3 months to 1 year 1-5 years Over 5 years Non-interest bearing Total
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
Financial assets
Trade and other receivables - - - - - 4,510 4,510
Cash and cash equivalents 2,552 - - - - - 2,552
Total financial assets 2,552 - - - - 4,510 7,062
Financial liabilities
Interest bearing loans - - - (19,232) - - (19,232)
Trade and other payables - - - - - (3,371) (3,371)
Total financial liabilities - - - (19,232) - (3,371) (22,603)
Total interest rate 2,552 - - (19,232) -
sensitivity gap
30 June 2007 Less than 1 month 1-3 months 3 months to 1 year 1-5 years Over 5 years Non-interest bearing Total
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
Financial assets
Trade and other receivables - - - - - 3,977 3,977
Cash and cash equivalents 23,107 - - - - - 23,107
Total financial assets 23,107 - - - - 3,977 27,084
Financial liabilities
Interest bearing loans - - (4,850) (75,153) - - (80,003)
Trade and other payables - - - - - (6,275) (6,275)
Total financial liabilities - - - - - (6,275) (86,278)
Total interest rate 23,107 - (4,850) (75,153) -
sensitivity gap
If the interest rates to which the Group was exposed had been lower than those actually experienced by 200 basis points for the full
year then this would have resulted in an increase in profit for the year and net assets at the period end of EUR0.47m. If interest rates had
been higher by the same amount there would have been a similar decrease in profit for the year and net assets at the period end.
Credit risk
Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has
entered into with the Group.
The carrying amounts of financial assets best represent the maximum credit risk exposure at the balance sheet date. This relates also to
financial assets carried at amortised cost.
Credit risk continued
At the reporting date, the Group's financial assets exposed to credit risk amounted to the following:
30 June 2008 30 June 2007
EUR'000 EUR'000
Trade and other receivables 4,510 3,977
Cash at bank 2,552 23,107
7,062 27,084
The Group manages its credit risk by monitoring the creditworthiness of counterparties regularly and does not expect any counterparty to
fail to meet its obligations.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its obligations as they fall due. The Group manages its liquidity
risk by maintaining sufficient cash balances for working capital, and obtains secured bank loans to fund purchases of investment property.
The Group's liquidity position is monitored by the Manager and the Board of Directors.
At the reporting date, the residual undiscounted contractual maturities of financial liabilities are the following:
Less than 1 month 1-3 months 3 months to 1 year 1-5 years Over 5 years No stated maturity Total
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
Other creditors and accrued 688 - 2,683 - - - 3,371
expenses
Interest bearing loans and - - - 19,232 - - 19,232
borrowings
Comparatives as at 30 June 2007
Less than 1 month 1-3 months 3 months to 1 year 1-5 years Over 5 years No stated maturity Total
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
Other creditors and accrued 6,275 - 5,045 - - - 11,320
expenses
Interest bearing loans and - - - 80,108 - - 80,108
borrowings
Fair values
The carrying amounts of all the Company's financial assets and financial liabilities at the balance sheet date are approximated to their
fair values.
Fair value estimates are made at a specific point in time, based on market conditions and information about the financial instrument.
These estimates are subjective in nature and involve uncertainties and matters of significant judgement (e.g., interest rates, volatility,
estimated cash flows, etc) and therefore cannot be determined with precision.
22 Post Balance Sheet Events
There are no significant post balance sheet events.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR URRNRWBRUAAA
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