EUROPEAN CONVERGENCE DEVELOPMENT COMPANY PLC … · 6/30/2015 · Cascade Park Plaza SRL 33...

EUROPEAN CONVERGENCE DEVELOPMENT

COMPANY PLC

Consolidated Interim Report

Six months ended 30 June 2015

ISIN No. GB00B1BJRB27

European Convergence Development Company plc Interim Report 30 June 2015

CONTENTS

Page

Management and Administration 1 – 4

Chairman’s Statement 5

Report of the Manager 6 – 9

Condensed Consolidated Financial Statements:

- Consolidated Income Statement 10

- Consolidated Statement of Comprehensive Income 11

- Consolidated Statement of Financial Position 12

- Consolidated Statement of Changes in Equity 13

- Consolidated Cash Flow Statement 14

- Notes to the Condensed Consolidated Financial Statements 15 - 22


Management and Administration

1

Directors Anderson Whammond (Non-executive Director)

* independent David Humbles (Non-executive Director)*

all of the registered office below:

Registered Office Millennium House

46 Athol Street

Douglas

Isle of Man IM1 1JB

British Isles

Manager Charlemagne Capital (IOM) Limited

St Mary’s Court, 20 Hill Street

Douglas

Isle of Man IM1 1EU

British Isles

Administrator and Registrar Galileo Fund Services Limited

Millennium House

46 Athol Street

Douglas

Isle of Man IM1 1JB

British Isles

Placing Agent Charlemagne Capital (UK) Limited

39 St James's Street

London SW1A 1JD

United Kingdom

Registered Agent Galileo Fund Services Limited

Millennium House

46 Athol Street

Douglas

Isle of Man IM1 1JB

British Isles


Management and Administration continued

2

Auditors Greystone LLC

Talbot Chambers, 18 Athol Street

Douglas

Isle of Man IM1 1AJ

British Isles

Legal Advisers As to Isle of Man Law

Cains Advocates Limited

Fort Anne

Douglas

Isle of Man IM1 5PD

British Isles

As to English Law

Stephenson Harwood

1 Finsbury Circus

London EC2M 7SH

United Kingdom

Subsidiaries European Convergence Development Company

(Cayman) Limited

PO Box 309, Ugland House

Grand Cayman

Cayman Islands

British West Indies

European Convergence Development (Malta) Limited

4 V. Dimech Street

Floriana

Malta

Convergence Development (Cyprus) Limited

12 Esperidon Street, 4th Floor

PC1087 Nicosia

Cyprus

European Real Estate Development Invest SRL

Calea Serban Voda, No. 133

Building A, Ground Floor, Room No. 9

Sector 4

Bucharest

Romania

European Property Acquisitions EOOD

Office 11, Floor 5

103 Gotze Detchev Blvd

Strelbishte Neighbourhood

Triaditza Region

Sofia 1404

Bulgaria



3

Subsidiaries continued Asmita Holdings Limited

12 Esperidon Street, 4th Floor

PC1087 Nicosia

Cyprus

European Property Development Corporation SRL

69-71 Soseaua Bucuresti-Ploiesti

2nd Floor, Room No. 24

Sector 1

Bucharest

Romania

ECD Management (Cayman) Limited

PO Box 309, Ugland House

Grand Cayman

Cayman Islands

British West Indies

Joint Ventures Asmita Gardens SRL

App 2003, 20th Floor, Block T6

42 Gladitei Street

4th District

Bucharest

Romania

Cascade Park Plaza SRL

33 Emanoil Porumbaru Street

Bl A, App 3, Room No. 2

Sector 1

Bucharest

Romania

Galleria Plovdiv AD

1 Assenovgradsko Shosse Street

Plovdiv

Bulgaria

Turgovski Park Kraimorie AD

1 Assenovgradsko Shosse Street

Plovdiv

Bulgaria

Mega Mall Rousse AD

123 Lipnik Boulevarde

Rousse

Bulgaria



4

Joint Ventures continued Convergence Development Invest SRL

69-71 Soseaua Bucuresti-Ploiesti

2nd Floor, Room No. 23

Sector 1

Bucharest

Romania

NEF3 (IOM) 1 Limited

St Mary’s Court

Douglas

Isle of Man Im1 1EU

British Isles


St Mary’s Court

20 Hill Street

Douglas

Isle of Man IM1 1EU

British Isles


St Mary’s Court

20 Hill Street

Douglas

Isle of Man IM1 1EU

British Isles


Chairman’s Statement

5

Financial Performance

The Report and Accounts of European Convergence Development Company PLC (ECDC) set out the financial performance for

the half-year ending 30th June, 2015, along with the ongoing development and management of its commercial assets.

The unaudited NAV per share at the 30th June, 2015 was was €0.2263 (31 December 2014:€0.2293) a reduction of € 0.003 per

share.

The Consolidated Income Statement for the year to 30th June, 2015 indicates a loss attributable to equity shareholders of €

0.003 per share (31 December 2014: €0.039).

Operating Activities

As part of the ongoing plan to realise the assets in the most valuable way including some value from all remaining projects, the

Manager had been engaged in negotiations in respect of the Plovdiv and Bourgas assets. This had required a small financial

outlay but gives the Company the best opportunity going forward to achieve results. The full details of the deal are set out in

more detail in the Manager’s Report.

As anticipated the Cascade office building had recently seen a reduction in tenancy levels which will require the Company and

the Partner to work closely together to improve the current occupancy rate. The company has also received a notice to

terminate from the Bank and there is the possibility of further tenants vacating their space. It is highly likely that to re-let the

building and to continue to meet the bank funding obligations the Company will need to lend further financial support to the

operating company. Negotiations are underway with our Partner as to how best to structure this additional funding and how to

realign the interests of the shareholders.

Outlook

The Directors and the Manager remain committed to the realisation of the remaining assets.

The Manager will continue to seek approval of negotiations with our Partners as and when necessary and will continue to keep

you updated via the quarterly Shareholder reports.

Anderson Whamond

Chairman

23 September 2015


Report of the Manager

6

Property Market Overview

Bulgaria

Retail

The retail market remained unchanged in terms of new supply in the first half of 2015 and no new project openings are expected

until the end of the year.

Retail space per 1,000 residents in Bulgaria as a whole remained unchanged at 105 sqm, compared to 250 sqm for Europe as a

whole and 200 sqm for CEE. Retail space in the capital Sofia has reached almost 345 sqm per 1,000 people, well in excess of

the European average.

At the end of June shopping centre vacancy in Sofia had decreased 0.8 per cent to 11.0 per cent whilst in secondary cities, with

the exception of Bourgas, all recorded a drop in vacancy rates to around 13.8 per cent. Among the largest cities, Rousse still

accounted for the higest vacancy rate at around 32 per cent.

Prime rents in shopping centres have remained stable. The lack of new projects and recent closures have allowed landlords in

secondary cities to keep the monthly rents in quarter 1 at around €12-16 per sqm per month, depending on the project’s

location and the size of the respective market.

The reorganization of Sofia’s main commercial area, Vitosha Blvd. had a positive effect and demand for high-street retail space

remained stable. Rental levels for high street retail with an area of about 100 sqm are about €41 per sqm per month.

Investment demand in the first half of 2015 has been mainly driven by opportunistic local investors and the concerns over the

debt crisis in Greece are likely to have a dampening affect in the second half of the year.

Romania

Investment Market

The investment market in Romania slowed significantly in the first half of the year, especially when compared to the same

period last year with a total transaction volume in the region of EUR 190 million, with over 80% of transaction volume in the

logistics sector. It is expected that volumes will increase in the second half of the year as a number of transactions that are at

very advanced stages of negotiation start to close.

There has been some compression on investment yields with office yields sitting around 7.5%, retail at 7.75% and logistics at

9.25%, though the offcie yields need to be fully tested. Little to no additional yield compression is expected in the near future.

The gap to the other CEE hubs, like Prague and Warsaw, stands at between 150-250 bps, making Romania an attractive option

for investors.

Office

In quarter 1 only one new office building was completed, Globalworth’s 27,000 sqm City Offices project in the south of

Bucharest. Total modern stock in Bucharest is estimated at approximately 2.25 million sqm. New projects are forecast to deliver

a further 70,000 sqm during 2015.

Recent activity has been concentrated in the Floreasca – Barbu Vacarescu and Center-West sub-markets with the later

becoming one of the most important locations in Bucharest because of the good infrastructure, densley populated residential

areas and the proximity to the Polytechnic university and its students.


Report of the Manager continued

7

Office continued

The overall vacancy rate in Bucharest has remained fairly stable at around 13.4 per cent but as mentioned previously it is

important to appreciate that there are some considerable differences in vacancy between one district and another. The forecast

for 2015 is that the vacancy rate will remain at current levels as a large portion of the new space coming onto the market during

2015 and 2016 has been pre leased.

Prime headline rent remained unchanged over the last 12 months at €18.50 per sqm per month. Over the last quarter incentive

packages remained stable with landlords offering both rent free periods and fit out contributions.

Retail

Mega Mall, a 72,000 sqm Gross Lettable Area (GLA) shopping mall developed by NEPI was the only new product delivered to

the market in the first half of 2015. The mall was almost 100% leased on opening. The current retail stock in Romania stands

at 2.7 million sqm, with 30%, or 1.01 million sqm concentrated in Bucharest and 1.69 million sqm in the rest of the country.

Retail Sales in Romania increased 4.20 percent in May of 2015 over the same month in the previous year but declined 0.8 per

cent on a month on month basis.

Rent in prime shopping centers remained stable over the quarter at €60-€70/sqm per month showing the first signs of recovery.

Rental levels for high street retail remained at €55-€65/sqm per month. The highest rents are achieved in Baneasa Shopping

City and AFI Palace Cotroceni which are considered the two most dominant retail schemes in Bucharest and Romania.

Significant competition is starting to build up from the on-line retailers or dedicated channels with both Inditex and H&M opening

their online operations with satisfactory results.

Development Projects

Galleria Plovdiv, Bulgaria

Subsequent to the Bank selling the debt in quarter 4 and the new investor taking over the management and operations of

Galleria Plodiv Mall, the Manager has been in advanced discussions with the new investor and the partner and has agreed the

principle terms of the transfer of its equity and debt position in Galleria Plovdiv against receiving title on the mortgaged property

and against agreeing an acceptable restructuring of the loan extended to the partner for the acquisition of the Kraimorie site in

Bourgas.

The Manager has secured an in-principle agreement with the partner that ECDC receives full unencumbered title over the two

plots and an 84 per cent interest over the newly formed road. As a result, ECDC will take combined ownership over area with a

similar size to the originally mortgaged land.

The Manager also agreed the restructuring terms of the loan extended to the same partner in relation to Kraimorie which is

described below. The two deals were submitted and approved by the Board of ECDC.

Mega Mall Rousse, Bulgaria

Following the court decision to start bankruptcy proceedings, the list of creditors was announced in March 2015 with ECDC’s

shareholder loan of €225K included. ECDC also started the foreclosure procedure against the pledge on that loan. The Bank

and the receiver separately challenged the validity of the security in the courts and ECDC managed to win the case against the

Bank at the Tarnovo Court of Appeal. However, in the claim of the receiver, the court allowed the execution of a protective

measure against ECDC, namely the cessation of the enforcement over the pledged property. The Manager has appealed the

decision of the court and a decision is awaited.



8

Bourgas Retail Park, Bulgaria

As mentioned above, as part of the overall negotiations on Plovidv the Manager has secured an agreement with the partner on

Bourgas which effectively fixes the amount outstanding and incentivises him to aquire both the amount outstanding and the

equity held by ECDC in the development company. At the last year end both the remaining loan and the interest accrued had

been fully impaired. The carrying value of the investment in Bourgas had been written down to EUR 1.4 million.

Cascade, Bucharest, Romania

At the end of June Cascade was operating at 68% occupancy following the departure of Arcelor Mittal, Schneider Electric and

Phi Partners. The current rental level, at over 19 EUR per sqm per month is insufficient to meet both the interest and debt

service requirements of the Banks. Funds currently held in the Collection Account should ensure that there is sufficient to cover

any shortfall for a period of up to 18 months, assuming no additional terminations. All financial obligations are up to date with

no collection delays on the revenue side.

No additional leases have been signed during the first half of the year.

Banca Romaneasca has given notice to terminate its lease at the first break option on May 25th, 2016. No further formal

termination notices have been received.

Given the leasing situation the Manager has held a number of meetings with the development partner seeking a full review of

the business plan for the next eighteen months whilst expressing full support for both the asset and the partner in the letting and

operation of the building. The development partner has produed an eighteen month business plan which indicates a need for an

additional equity contribution from the shareholders amounting to an estimated EUR 2 million, the Company’s share of this

contribution will be EUR 800,000. The amount will cover the letting costs, operating shortfalls, agents and management fees

ensuring that a total of 10,000 sqm will be relet at market rates. The Partner has approached the Bank who has refused to allow

any funds held to be used to meet any of these costs.

No proposal has been put forward from the Joint Venture partner regarding the structure or returns on this potential new

funding.

The current interest burden carried by both ECDC and NEFF investments is actually acting as a disincentive to the partner and

the Manager has opened negotiations with the Partner to find an equitable path which will ultimately result in ECDC and NEFF

having to forego part of their return for a quicker and easier sale of the asset. The negotiations with the partner are ongoing.

With a current valuation in the region of EUR 41.5 million and a debt of EUR 16.8 million the return to each investor would be in

the region of: ECDC EUR 20.4 million, NEFF (ex ECDC) EUR 4.1 million and the Partner EUR 0.2 million.

The current loan is provided by both Banca Romaneasca, a subsidiary of National Bank of Greece and Piraeus Bank. On 30th

June the total outstanding loan was €16.8 m with a monthly payment of €170.4k paid on the first of each month. The current

debt position is as follows:

Credit facilities situation:

Credit facility Current

outstanding

Monthly

Installment

Outstanding as of

20.06..2015

Maturity Balloon

Investment loan 16,787,137.14 € 170,361.26 € 16,787,137.14 € 3-Jul-2019 8,609,796.62 €



9

Cascade, Bucharest, Romania continued

Situation of the accounts:

Account Balance as of

30.06.2015

(EUR equiv)

Collection account 1,150,227.47 €

Service charge

accounts

188,324.47 €

DSRA 160,293.51 €

C. DSCR testing as of 31.12.2014:

Historical DSCR (for July-December 2014): 1.50

Projected DSCR (for January-June 2015): 1.59

Iasi Shopping Centre, Romania

The average number of visitors to Iasi in June was around 9,667 people per day, a 12% increase on May and a 33% increase

compared to the same month last year. In the quarter to June 2015 two new leases were signed, Kenvelo Outlet for 315 sqm

and Kare for 212 sqm. A number of new leases are under negotiation including Steilman Outlet. These potential new tenants

reflect the management efforts to re-position the centre as an out of town outlet destination.

The trading performance of the centre has slighlty improved with retailers reporting increasing sales. Argo is estimating that the

centre will close 2015 with a rent roll of €3.5m which should result in an improved Net Operating Income (NOI) of €1.45m for

the year. The improvement compared to the previous report is driven mainly by the new leasing activity that has added around

€0.2m to the Rent Roll.

Oradea Shopping Centre, Romania

The insolvency in Oradea is running its course with the local Argo team actively involved in the management of the asset along

with the Banks. Nevertheless, the banks are highly reluctant to accept any impairments against the EUR 60 million loan

especially with a current valuation of EUR 30 million.

At Oradea the average number of visitors in June was approximately 6,610 people per day, a 4% increase compared to May but

a 10% decrease to the same month last year. No new leases were signed during the period though there are a number of new

leases under negotiation including Sportissimo which, if successful would improve the profile of the centre. The estimated NOI

for 2015 is approximately €1.0m, with contracted rents of €4.1m but, the management team have had to give rental discounts of

€1.6m to retain tenants and had to cover additional service charge for the unlet space of €1.5m.

The carrying values of both assets have been fully impaired reflecting the uncertainty surrounding the assets and the delisting of

AREOF. As a result the Manager is not charging any management fees for the work being undertaken on these assets. The

Manager will continue to work with the Partner to protect the interests of the investor and only when there is a positive NAV will

the Manager charge its Management Fee.

Charlemagne Capital (IOM) Limited

23 September 2015


Consolidated Income Statement

The accompanying Notes form an integral part of these consolidated financial statements

10

Note (Unaudited) Period from 1 January 2015 to 30 June 2015

(Unaudited) Period from 1 January 2014 to 30 June 2014

€'000 €'000

Annual management fees 6.3 (122) (256)

Audit fees 7 (24) (32)

Legal and professional fees (3) (20)

Directors’ fees 13 (26) (36)

Administration fees (29) (29)

Other operating expenses (68) (103)

Administrative expenses (272) (476)

Net operating loss before net financing income (272) (476)

Financial income - 8

Financial expenses (1) -

Net financing income (1) 8

Share of gain of equity accounted investees 8 - -

Impairment in value of equity accounted investees 8 - -

Uplift in value of equity accounted investees 8 - 22

Loss before tax (273) (446)

Income tax expense (1) (1)

Retained Loss for the period (274) (447)

Basic and diluted loss per share (€) 11 (0.0031) (0.0050)

The Directors consider that all results derive from continuing activities.


Consolidated Statement of Comprehensive Income


11

Note (Unaudited)

Period 1 January 2015 to 30 June 2015

(Unaudited)

Period 1 January 2014 to 30 June 2014

€'000 €'000

Profit for the period (274) (447)

Other comprehensive income

Currency translation differences 4 (4)

Total comprehensive loss for the period (270) (451)


Consolidated Statement of Financial Position


12

Note (Unaudited)

At 30 June 2015

(Audited)

At 31 December 2014

€'000 €'000

Investment in equity accounted investees 8 18,610 18,585

Property, plant and equipment - -

Total non-current assets 18,610 18,585

Loans to third parties 6.4 - -

Trade and other receivables 46 62

Cash and cash equivalents 1,800 2,081

Total current assets 1,846 2,143

Total assets 20,456 20,728

Issued share capital 10 71,564 71,564

Share premium 8,865 8,865

Foreign currency translation reserve 21 17

Retained losses (60,205) (59,931)

Total equity 20,245 20,515

Trade and other payables 12 211 213

Total current liabilities 211 213

Total liabilities 211 213

Total equity & liabilities 20,456 20,728


Consolidated Statement of Changes in Equity


13

Share capital Share premium Foreign currency

translation reserve

Retained earnings

Total

€’000 €’000 €’000 €’000 €’000

Balance at 1 January 2014 71,564 10,654 17 (56,444) 25,791

Loss for the period - - - (447) (447)

Other comprehensive gain

Foreign exchange translation differences

- - (4) - (4)

Total comprehensive loss - - (4) (447) (447)

Total transactions with owners in the year

Shares cancelled following market purchases

- - - - -


- - - - -

Balance at 30 June 2014 71,564 10,654 13 (56,891) 25,340


Loss for the year - - - (3,487) (3,487)

Other comprehensive loss


- - - - -

Total comprehensive loss - - - (3,487) (3,487)


Capital distribution - (1,789) - - (1,789)


- (1,789) - - (1,789)

Balance at 31 December 2014

71,564 8,865 17 (59,931) 20,515


Loss for the period - -

Other comprehensive loss - (274) (274)


- - 4 - 4

Total comprehensive loss - - 4 (274) (270)


Capital distribution - - - - -


- - 4 (274) (270)

Balance at 30 June 2015 71,564 8,865 21 (60,205) 20,245


Consolidated Cash Flow Statement


14

Note (Unaudited) For the period from 1 January 2015 to

30 June 2015

(Unaudited) For the period from 1 January 2014 to

30 June 2014

€'000 €'000

Operating activities

Group loss for the period (274) (447)

Adjustments for:

Financial income - (8)

Financial expense 1 -

Income tax expense 1 1

Uplift in value of third party loans -

Share of profit of equity accounted investees - -

Net uplift in value of equity accounted investees - (22)

Operating loss before changes in working capital

(272) (476)

Decrease/(increase) in trade and other receivables 16 (5)

Decrease in trade and other payables (2) -

Cash used in operations (258) (481)

Financial income received - 8

Financial expense paid (1) -

Tax paid (1) (1)

Cash flows used from operating activities (260) (474)

Investing activities

Increase in loans to equity accounted investees (25) -

Acquisition of equity accounted investees - -

Increase in loans to third parties - (2)

Currency Translation Difference 4 (3)

Cash flows used in from investing activities (21) (5)

Financing activities

Purchase of own shares 10 - -

Eliminate cost of subsidiaries - -

Dividend received - -

Cash flows used in financing activities - -

Net decrease in cash and cash equivalents (281) (479)

Cash and cash equivalents at beginning of period 2,081 3,065

Cash and cash equivalents at end of period 1,800 2,586


Notes to the Consolidated Financial Statements

15

1 The Company

European Convergence Development Company plc (the "Company") was incorporated and registered in the Isle of Man under

the Isle of Man Companies Acts 1931 to 2004 on 26 July 2006 as a public company with registered number 117309C. On 3

March 2008 the Company was de-registered as an Isle of Man 1931-2004 company and re-registered as a company governed

by the Isle of Man Companies Act 2006 with registered number 002391v.

The Company’s agents and the Manager perform all significant functions. Accordingly, the Company itself has no employees.

2 The Subsidiaries

For efficient portfolio management purposes, the Company established the following subsidiary companies:

Country of Incorporation Percentage of shares held

European Property Development Corporation SRL Romania 100%

European Convergence Development (Cayman) Limited Cayman 100%

Convergence Development (Cyprus) Limited Cyprus 100%

European Convergence Development (Malta) Limited Malta 100%

European Real Estate Development Invest SRL Romania 100%

European Property Acquisitions EOOD Bulgaria 100%

Asmita Holdings Limited Cyprus 100%

ECD Management (Cayman) Limited Cayman 100%

3 Joint Ventures ("JV")

The Group as at the date of this document has acquired an interest in the following companies:

Country of Incorporation Percentage of shares held

Asmita Gardens SRL Romania 50%

Cascade Park Plaza SRL Romania 39%

Convergence Development Invest SRL Romania 50%

Galleria Plovdiv AD Bulgaria 50%

Mega Mall Rousse AD Bulgaria 50%

Turgovski Park Kraimorie AD Bulgaria 70%

NEF3 (IOM) 1 Limited Isle of Man 55%



Notwithstanding the Group’s percentage holdings, the above companies have not been consolidated as the Group’s control is

restricted by Joint Venture Agreements.

4 Significant Accounting Policies

The accounting policies applied by the Group in these condensed consolidated financial statements are the same as those

applied by the group in its consolidated financial statements for the year ended 31 December 2014.

The Interim report of the Company for the period ending 30 June 2015 comprises the Company and its subsidiaries (together

referred to as the "Group"). The interim consolidated financial statements are unaudited.

4.1 Basis of presentation

European Convergence Development Company plc (the “Company”) is a company domiciled in the Isle of Man. These

condensed consolidated interim financial statements of the Company as at and for the six months ended 30 June 2015

comprise the Company and its subsidiaries (together referred to as the “Group”) and the Group’s interests in associates and

jointly controlled entities, and have been prepared in accordance with IAS34 Interim Financial Reporting.


Notes to the Consolidated Financial Statements continued

16

4.1 Basis of presentation continued

These consolidated interim financial statements do not include all the information required for full annual financial statements

and so should be read in conjunction with the consolidated financial statements of the Group as at and for the year ended 31

December 2014.

The consolidated financial statements of the Group as at and for the year ended 31 December 2014 are available upon request

from the Company’s registered office at Millennium House, 46 Athol Street, Douglas, Isle of Man IM1 1JB, or on website at

address www.europeanconvergencedevelopment.com.

The preparation of the financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It

also requires the Board of Directors to exercise its judgement in the process of applying the Company’s accounting policies. The

Directors consider that the valuation of the Company’s investments in equity accounted associates is an area where critical

accounting estimates are required. Further detail on the valuation of the investments may be found in note 8.

The activities of the Group are subject to a number of risk factors. The global financial crisis and the deteriorating economic

environment in the jurisdictions within which the Group operates have increased the intensity of these risk factors. The future

economic outlook presents specific challenges in terms of the significant reduction in the volume of property transactions in the

jurisdictions within which the Group operates the significant reduction in the availability of loan finance for property transactions

in those jurisdictions and the consequent impact on the valuations of property held by equity accounted investees.

In the prevailing market conditions, there is a greater degree of uncertainty as to the valuation of assets under construction than

that which exists in a more active and stronger market. These factors have adversely impacted the compliance of equity

accounted investees with their borrowing covenants and a number of these facilities have been renegotiated, whilst the Group

has made additional capital available to certain entities in order that ongoing projects can be completed. Collectively, these

factors contribute to a greater degree of uncertainty as to the valuation of holdings in equity accounted investees.

These factors have also impacted on the ability of joint venture partners to repay loans made by the Group and as a result

repayment terms for these facilities have been re-negotiated.

The financial statements have been prepared on a going concern basis, taking into account the level of cash and cash

equivalents held by the Group and the level of capital commitments to JV entities.

The Company is denominated in Euros ("€") and therefore the amounts shown in these financial statements are presented in €.

4.2 Basis of consolidation

Subsidiaries

Subsidiaries are those enterprises controlled by the Company. Control exists where the Company has the power, directly or

indirectly, to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. The financial

statements of subsidiaries are included in the consolidated financial statements from the date that control effectively

commences until the date that control effectively ceases.

Transactions eliminated on consolidation

Intra-group balances and transactions, and any unrealised gains arising from intra-group transactions, are eliminated in

preparing the consolidated financial statements.

Joint ventures (equity accounted investees)

Investments in associates and joint ventures are carried at the lower of cost and net realisable value. Associates are those

entities in which the Group has a significant influence, but no control, over the financial and operating polices. Joint ventures are

those entities over whose activities the Group has joint control, established by contractual agreement and requiring unanimous

consent for strategic financial and operating decisions. Associates and joint ventures are accounted for using the equity method

(equity accounted investees). The consolidated financial statements include the Group’s share of the income and expenses of

the equity accounted investees, after adjustments to align the accounting policies with those of the Group, from the date that



17

4.2 Basis of consolidation continued

Joint ventures (equity accounted investees) continued

significant influence or joint control commences until the date that significant influence or joint control ceases. When the Group’s

share of losses exceeds its interest in an equity accounted investee, the carrying amount of that interest (including any long-

term investment) is reduced to nil and the recognition of further losses is discontinued except to the extent that the Group has

an obligation or has made payments on behalf of the investee.

Unrealised gains on transactions between the Company and its equity accounted investees are eliminated to the extent of the

Company’s interest in the equity accounted investees. Unrealised losses are also eliminated unless the transaction provides

evidence of an impairment of the asset transferred. Accounting policies have been changed where necessary to ensure

consistency with the policies adopted by the Company. In particular, borrowing costs related directly to the acquisition or

construction of qualifying assets are capitalised.

Investments in joint ventures and associates are kept under review for impairment. Where, in the opinion of the directors, the

net realisable value of an investment falls below cost, a provision is made against the investment and charged to the profit and

loss account.

Financial statements of foreign operations

The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are

translated to € at the foreign currency exchange rates ruling at the balance sheet date. Foreign exchange differences arising on

translation are recognised directly in equity.

4.3 Dividends

Dividends are recognised as a liability in the period in which they are declared and approved. There was no dividend declared

as at 30 June 2015 (2014: Nil).

4.4 Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognised as

a deduction from equity, net of any tax effect.

4.5 Segmental reporting

The Company has one segment focusing on maximising total returns through investing in the property markets of South East

Europe. Further analysis of the Group’s exposure in this region is provided in note 8. No additional disclosure is required in

relation to segment reporting, as the Company’s activities are limited to one business and geographic segment.

4.6 Presentation of Financial Statements

The Group applies revised IAS1 Presentation of Financial Statement (2007) which became effective as of 1 January 2009. As a

result, the Group presents in a consolidated statement of equity all owner changes in equity, whereas all non-owner changes in

equity are presented in the consolidated statement of comprehensive income. This presentation has been applied in these

condensed interim financial statements as of and for the six months period ended 30 June 2014.

5 Unaudited Net Asset Value per Share

The unaudited net asset value per share as at 30 June 2015 is €0.2263 (31 December 2014: €0.2293) based on 89,455,470 (31

December 2014: 89,455,470) ordinary shares in issue as at that date.



18

6 Related Party Transactions

6.1 Directors of the Company

Anderson Whamond is a non-executive director of the Manager, and a shareholder of Charlemagne Capital Limited (“CCL”), the

parent of the Manager and Placing Agent. Additionally, Mr Whamond has an indirect family interest in shares of CCL. There are

no service agreements between Mr Whamond and CCL that are not determinable within one year.

A subsidiary company of the Manager, Charlemagne Capital (Investments) Limited, holds 125,000 shares of the Company.

The Templeton World Charity investment company also managed by the Manager holds 1,981,359 in the Company at 30 June

2015.

CCL, a company incorporated in the Cayman Islands is listed on the Alternative Investment Market of the London Stock

Exchange.

Save as disclosed above, none of the Directors had any interest during the year in any material contract for the provision of

services which was significant to the business of the Company.

6.2 Directors of the Subsidiaries

Certain directors of the Manager have been appointed as directors of some of the subsidiaries. In compliance with local

regulations, certain subsidiaries have appointed directors who are employees of or are associated with, the relevant registered

office service provider.

6.3 Manager fees

Annual management fees payable during the period ended 30 June 2015 amounted to €122,420 (2014: €256,157).

Performance fees payable during the period ended 30 June 2015 amounted to € nil (2014: € nil).

6.4 Transactions and balances with Joint Venture companies and partners

The Company has loans to Joint Venture Companies totalling €47,255,537 (31 December 2014: €46,735,000) and to Joint

Venture Partners totalling €6,645,426 (31 December 2014: €6,441,000). Details of the terms and applicable interest rates for

these loans are more fully shown in note 8 and 9.

6.5 Intragroup balances

Intragroup balances are repayable on demand and bear interest at commercial rates. Loans to subsidiaries outstanding at the

period end have been impaired to fair value.

7 Audit fees

Audit fees payable for the period ended 30 June 2015 amounted to €24,254 (2014: €32,206).



19

8 Investment in Equity Accounted Investments

Group 30 June 2015 31 December 2014 €'000 €'000

At beginning of period/year 18,585 22,836

Dividend received - -

Loans to investments 25 -

Share of gain of equity accounted investment - 22

Net impairment on value of equity accounted investments (2,575)

Disposal of equity accounted investment - (1,698)

Balance at end of period/year 18,610 18,585

The loans to equity accounted investees before deduction of provisions are as follows:

Name Term Term Interest Rate 30 June 2015 €'000

Asmita Gardens SRL**** * * 6% 18,602

Galleria Plovdiv AD * * 0%** 10,000

Convergence Development

Invest SRL

4,938

Cascade Park Plaza SRL * * *** 4,510

Turgovski Park Kraimorie AD * * 0%** 9,204

* Loans are due to be repaid after the project sale.

** Interest is nil until the loan is due for payment. In case of default interest will be charged at a rate of 3M EURIBOR plus 10%.

*** Interest is nil, but in return for the provision of the loan, the Group is entitled to be paid a penalty at an Internal Rate of

Return equating to 20% by the Group's partner in Cascade.

**** This company is in administration.

The carrying values of the Group's equity accounted investments are as follows:-

Name Value at 30 June 2015 Value at 31 December 2014 €'000 €'000

Cascade Park Plaza SRL 18,917 17,950

Galleria Plovdiv AD 1,500 1,500

Turgovski Park Kraimorie AD 1,514 1,489

NEF3 (IOM) 1 Limited* - -

NEF3 (IOM) 2 Limited* 708 635

NEF3 (IOM) 3 Limited* - -

Impairment provision (4,029) (2,989)

18,610 18,585

* held directly by the Company.



20

8 Investment in Equity Accounted Investees continued

The results, assets and liabilities of the equity accounted companies are as follows:

Name Country

of

Incorporation

Assets Liabilities Revenues Profit/

(Loss)

%

interest

€'000 €'000 €'000 €'000

Cascade Park Plaza SRL** Romania 43,931 (38,785) 5,178 (212) 39

Turgovski Park Kraimorie AD Bulgaria 4,161 (13,250) - (1) 70

NEF3 (IOM) 1 Limited * Isle of Man 8 (44) - (1) 55

NEF3 (IOM) 2 Limited Isle of Man 5,608 (757) 632 486 55

NEF3 (IOM) 3 Limited Isle of Man 0 (58) - (2) 55

*The results and balances for NEF(IOM) 1 Ltd shown above only include amounts in respect of those investments which ECDC

has an interest in.

**The results and balances for Cascade Park Plaza SRL are at 31 December 2014.

The Shareholders Cascade Park Plaza and Galleria Plovdiv have pledged their shareholding as security against the external

loans to these companies.

The figures in the tables above do not include adjustments made for the purposes of these consolidated financial statements in

order to align the accounting policies of the equity accounted investees with those of the Group.

NEF3 (IOM) 2 Limited which is controlled by European Convergence Development Plc also has a 2% holding in Cascade Park

Plaza.

9 Loans to third parties

Loans to third parties of the Group include loans to Joint Venture Partners as follows:

30 June 2015 Term Maturity Date Interest Rate Amount Name €'000

Sienit Holding AD* Overdue Overdue EURIBOR plus 5%, plus

10% penalty interest

2,732

Dickau Investments Limited** Overdue Overdue 10% 3,914

* Sienit Holding AD is the Group’s joint venture partner in Galleria Plovdiv AD and Turgovski Park Kraimor ie AD. The loan is

overdue for repayment and in 2008 the Group deemed it prudent to provide for the loan in full.

**Dickau Investments Limited (“Dickau”) is the Group’s joint venture partner in Convergence Development Invest Srl (‘CDI’). The

above loan was provided to Dickau as part of the Group’s package of investment in CDI, and, as a result of the Group’s decision

to fully provide against the Group’s investment in CDI in 2008, the Group also considered it prudent to retain full provision for the

loan to Dickau.

31 December 2014 Term Maturity Date Interest Rate Amount Name €'000

Sienit Holding AD* Overdue Overdue EURIBOR plus 5%, plus

10% penalty interest

2,632

Dickau Investments Limited** Overdue Overdue 10% 3,808



21

10 Capital and Reserves

Share Capital

2015 2015 Number €'000

Ordinary Shares of €0.80 each

In issue at 01 January 2015 89,455,470 71,564

Shares cancelled during the period - -

In issue at 30 June 2015 89,455,470 71,564

2014 2014 Number €'000

Ordinary Shares of €0.80 each

In issue at 1 January 2014 89,455,470 71,564

Shares cancelled during the year - -

In issue at 31 December 2014 89,455,470 71,564

At incorporation the authorised share capital of the Company was €240 million divided into 300 million Ordinary Shares of €0.80

each.

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per

share at meetings of the Company. All shares rank equally with regard to the Company’s assets.

Capital Management

The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sus tain

future development of the business. However there will be no further investments into new business. The Board manages the

Group’s affairs to achieve shareholder returns through capital growth rather than income, and monitors the achievement of this

through growth in net asset value per share.

Group capital comprises share capital, share premium and reserves.

Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.

No changes were made in respect of the objectives, policies or processes in respect of capital management during the periods

ended 30 June 2014 and 2015.

11 Basic and Diluted Loss per Share

Basic and diluted loss per share is calculated by dividing the loss attributable to equity holders of the Company by the weighted

average number of ordinary shares in issue during the year.

2015 2014

Loss attributable to equity holders of the Company (€’000) (274) (447)

Weighted average number of ordinary shares in issue

(thousands) 89,455 89,455

Basic and diluted loss per share (Euro cent per share) (0.31) (0.50)



22

12 Trade and Other Payables

Group 30 June 2015 31 December 2014 €'000 €'000

Withholding tax 7 7

Trade creditors 36 46

Accruals 168 160

Total 211 213

13 Directors' Remuneration

The Company

The maximum amount of remuneration payable to the Directors permitted under the Articles of Association is €300,000 p.a.

The Chairman currently is paid a fee of €22,500 p.a. and the other Director is paid €15,000 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 2015 amounted to €26,250 (2014: €36,000).

The Subsidiaries

No fees are paid to the directors of the subsidiaries except in circumstances where a director is appointed in compliance with

local regulations and in such cases the fees payable are nominal.

14 Fair Value Information

The equity accounted joint venture companies’ property developments are carried at the lower of cost and net realisable value.

The remainder of the Company’s financial assets and financial liabilities at the balance sheet date were stated at fair value.

Fair value estimates are made at a specific point in time, based on market conditions and information about the financial

instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgement (e.g.,

interest rates, volatility, estimated cash flows, etc.) and therefore cannot be determined with precision.

15 Commitments as at the Balance Sheet date

At the balance sheet date the Group had no outstanding commitments.

16 Post Balance Sheet Events

There are no post balance sheet events which would require disclosure or adjustment to these financial statements.

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