Final Results

30th Dec 2009 11:00



SOUTH AFRICAN PROPERTY OPPORTUNITIES PLC

('SAPRO' or the 'Group')

Final results for the year ended 30 June 2009

South African Property Opportunities plc (AIM: SAPO), an investment company established to invest in real estate opportunities in South Africa, announces its final results for the year ended 30 June 2009.

Matrix Paul Fincham +44 (0)20 3206 7175

Hogarth Partnership Tim McCall (office) +44 (0)20 7357 9477

(mobile) +44 (0)77753 561862

A copy of the results announcement will be available on the Company's website at www.saprofund.com

Notes:

Note to Editors:

- South African Property Opportunities plc (SAPRO) is a company investing in the South African property market. Its shares were admitted to AIM in October 2006 raising an initial £30 million (before placing expenses). In May 2007 a further £34.2 million (before placing expenses) was raised from new and existing investors.

  Chairman's Statement

Introduction

I am pleased to report the South African Property Opportunities plc's ("SAPRO's" or the "Company's") final results for the year ended 30 June 2009.

There have been considerable developments in the Company since the interim results, and this has led to a period of significant upheaval for the Company. I was appointed Chairman on 30 September 2009 as part of the changes in the Board composition as detailed on page 13. At an extraordinary general meeting of the Company on 8 October 2009, the new Board received the overwhelming support of the shareholders. We will now seek to implement the proposals resulting from the strategic review approved by shareholders.

Underlying asset performance has continued to be satisfactory and I believe that SAPRO's portfolio is well positioned. Our task is now to identify those assets where we can deliver ongoing superior growth and those where we can perhaps exit if the market permits and future growth looks out of line with our shareholders' aims. 

Ongoing strategy

As has already been announced, the strategic review conducted during July of this year identified six objectives.

The first three objectives related to the management of the business; the Company decided to: 

(i) serve a termination notice on SAPRO's investment manager on 20 October 2009, the earliest date that notice could be served under the management agreement; 

 

(ii) commence negotiations for a revised company management structure and cost base to more adequately align  managers with shareholders, which will also reflect SAPRO's lower cost requirements; and

 

(iii) terminate the engagement of certain service providers and enter into more economical fee structures with other service providers. 

Our progress on these objectives will allow us to focus on delivering value for all of our shareholders. With regard to this, the Company's strategy is to:

 

(iv) make no new investments unless they are directly beneficial to unlocking value on existing sites; 

 

(v) bring certain projects to early fruition over the next twenty-four months to allow greater focus on and development of fewer large sites; and 

 

(vi) return the realisation proceeds to shareholders or reinvest a portion thereof in favourable opportunities in existing projects in accordance with shareholder wishes.

Within this strategy, your Board will aim to maximize the returns to shareholders over the medium term.

Management structure

As part of implementing the strategic review, we served notice on the current investment manager on 20 October 2009. This notice period lasts 12 months. We will shortly be entering into discussion about the handover arrangements. We have also terminated the engagement of certain service providers and entered into more economical fee structures with other service providers. This process is now largely complete.

We have put in place a number of measures for the ongoing management and I am glad to say that John Chapman and Craig McMurray have agreed to take on broader roles as executive directors and work with me in leading the implementation of our strategy. Most of the Company's investments are jointly held with development partners and we are looking to put in place arrangements to minimise disruption whilst ensuring the cost base more adequately aligns managers with shareholders. We look forward to completing this in the short term.

Investments and valuations

The split of investments remains broadly similar to last year with the current mix being commercial 47%, residential 21%, industrial 19% and retail 13% based on gross square metres to be developed. The focus of the Group since the interim results to 31 December 2008 has been on developing its current land holdings, in particular progressing planning applications. On 11 August 2009, we announced the closure of a significant strategic transaction - Starleith in Sandton, Johannesburg. This was the only transaction concluded since the 31 December 2008 interim results were announced.

The Report of the Investment Manager, included in these results, reflects accurately the factual position on each of the projects. Building on this, and related to (iv), (v) and (vi) above, we are working with the Investment Manager to develop an updated clear business plan for each asset. This will involve a calculated assessment of the anticipated return from each project, relative to its current worth, in the short, medium and long term. We anticipate having this information by April 2010 and will then be in a position to make fully informed decisions on a risk adjusted basis on whether assets should be sold, held or be the subject of further investment. Where relevant we will look to return the realisation proceeds to shareholders (subject to shareholder approval) or reinvest a portion thereof in favourable opportunities in existing projects in accordance with shareholder wishes. We will not be embarking on a "fire sale" and, indeed, the Group is strongly capitalised, with significant cash on our balance sheet so we will only enter into realisations for sound economic reasons.

A revaluation of the portfolio has been conducted and I am glad to report that a number have shown a significant uplift during the course of the year. 

Financial results

At the end of the year, the net asset value of the Group calculated in accordance with International Financial Reporting Standards (IFRS) stood at £70.2m, or 112.7 pence per ordinary share at the year end (up 20.1% from £58.4m (93.8 pence per ordinary share) at 30 June 2008). The primary reason for the gain is the strength of the Rand which contributed to a foreign exchange gain in the income statement of £9.5m. 

As you will be aware, IFRS does not permit the recognition of increases in land values of certain types of property that are held for development and accordingly the properties on the Group's balance sheet are only valued on a cost basis in the net asset value calculation. As in previous years, the Board is publishing an adjusted net asset value (NAV) in accordance with guidelines produced by the European Public Real Estate Association (EPRA). The EPRA NAV, reflecting the increase in value net of tax, at the year end was £83.3m (133.7 pence per ordinary share), up 27.1% from £65.5m (105.1 pence per ordinary share) as at 30 June 2008. This reflects in part the value increases coming through as we achieve a larger number of planning permissions and the projects start to make progress.

At the year end, the Group held £15.0m in cash and cash equivalents. This is a significantly lower than the £27.3m held as at 30 June 2008 but reflects, as previously discussed, some significant investments carried out in the latter half of 2008.

The consolidated income statement shows a profit of £7.5m reflecting the foreign exchange gain of £9.5m with net finance income of £1.4m net of fees and expenses.

Under the terms of the Investment Manager's agreement with the Company, the Investment Manager has the potential to earn a performance fee for the period from Admission to 30 June 2009. Under the terms of the agreement, if the adjusted net assets before accruing for the performance fee but valuing the Group's property assets on an open market basis, exceed 12% per annum growth since Admission, then the manager is entitled to 20% of the amount of the total increase in value since Admission (not only the increase over the hurdle amount). The calculated amount applying the hurdle rate of 12% requires a minimum NAV, as adjusted of £84.2m. As noted above, the adjusted NAV is £83.3m and therefore the required hurdle amount has not been met. It should be noted that the Investment Manager has submitted a calculation which claims that the hurdle amount has been exceeded and that a fee of £5m is payable. The Board disagrees with the Manager's calculation of the adjusted NAV and has taken independent advice to support the Company's calculation of the adjusted NAV amount of £83.3m and has therefore concluded that no performance fee is payable to the Manager. 

Outlook

The South African property market has inevitably been affected by global and national economic events. In particular a lack of available debt has greatly reduced liquidity, both at developer level and from end users and buyers. The South African market has fared less badly than some others during this cycle, and, although the second half of 2009 saw continued illiquidity, with possible consequent adverse effect on the Company's valuations, there are grounds for expecting a degree of recovery in 2010 which it is hoped will allow more active implementation of business plans, both in terms of disposal of certain assets and in profitable progress in others.

David Hunter

Chairman

30 December 2009 

 

 

 

Report of the Investment Manager

SAPRO's investment policy remains the achievement of capital growth from a portfolio of real estate assets across the commercial, industrial and residential sectors in South Africa. The Group's strategy has been to take sizeable real estate development positions in Gauteng and KwaZulu Natal currently under active management, and seek to extract the maximum possible benefit for shareholders.

Portfolio overview

On 11 August 2009, SAPRO announced the closure of a significant strategic transaction - Starleith in Sandton, Johannesburg. The acquisition will add value to the Group's existing Sandton investment in an adjacent property to Starleith, and cements its position in the centre of the premier business node in Johannesburg. This was the only transaction concluded since the 31 December 2008 interim results were announced.  Over the past six months the Group has focused on developing its current land holdings, in particular, progressing planning applications. At 30 November 2009, the Group had expected investments of £87.0 million in 16 projects. These projects have budgeted aggregate development costs of £844.0 million. 

The current portfolio development mix comprises commercial (47%), residential (21%), industrial (19%) and retail (13%).  This spread across the various asset classes provides diversification and exposure to the main constituents of the real estate market in South Africa.  We have taken a conservative approach in developing these assets in the current environment, so that SAPRO currently benefits from pursuing planning gains with relatively small exposure to top structure development. This leaves the Company well positioned to launch developments selectively and as and when market conditions improve. 

The bulk of the investments have been made in Gauteng, South Africa's main economic and political centre.  There are four developments in KwaZulu Natal.  The following table sets out the constituents of the portfolio as at 30 November 2009:

Project Name and Sector	SAPRO Expected Interest	SAPRO Expected  Investment  (£ million)	Total Project Expected Development Cost (£ million)	Projected Exit Year
Residential
African Renaissance	65%	6.8	237.2	2020
Driefontein Residential	100%	2.3	34.8	2016
Kindlewood Nature Estate	89%	3.3	14.8	2012
Kyalami Residential Estate	90%	2.2	19.6	2014
Mixed Use
Brakpan	50%	2.2	22.8	2019
Emberton	80%	5.2	36.8	2013
Lenasia	100%	5.1	48.1	2018
Longmeadow	49%	6.4	203.4	2020
Sandton	79%	29.6	87.7	2014
Starleith	50%	7.1	35.7	2014
Industrial
Clayville Industrial Park	100%	1.2	10.8	2014
Gosforth Business Estate	75%	7.0	53.7	2017
Hughes Industrial Park	30%	0.8	6.6	2014
Imbonini Services Park (Phase 1)	50%	1.6	3.6	2011
Acacia Park *	50%	0.3	3.2	2011
Imbonini Services Park (Phase 2)	50%	5.2	15.8	2013
Waltloo Industrial Park	50%	0.7	9.4	2013
Total		87.0	844.0
£1 =ZAR12.7179 (30 June 2009 rate) * Acacia Park is a mini-unit industrial park that is being developed on the Imbonini Park Phase 1 land.

All of the titles, save for the Starleith transaction, have been transferred and are reflected in the balance sheet. 

Further information on the individual projects within the portfolio is set out below:

Residential

African Renaissance Development.  Located in a rapidly growing area east of Pretoria, the site is predominantly undeveloped land upon which a 146.6 hectare residential development with a retail component has been planned. It is estimated that, on completion, the development will provide 252,920 square metres of developed area, including approximately 3,350 residential dwellings and a commercial/retail node. The development is a partnership with a local real estate project manager, a building contractor and a quantity surveyor, who, between all three, secured the opportunity and conceptualised the development plan over the last three years. SAPRO has a 65% interest in the development vehicle.  The professional team continues to add value to the site by progressing the planning of the development.  A targeted sales campaign was undertaken in the first quarter of 2009 and although good interest was generated, the results indicate that the market needs to strengthen further to justify the launch of a first phase of the residential component. We are currently investigating the potential sale of the commercial element of the site.

Driefontein Residential Development.  This development comprises a vacant 13.2 hectare site located 4 miles south of Johannesburg's main international airport. The Group had originally planned to retain a 92.5% stake in the development company but has subsequently reached an agreement to retain the remaining 7.5%. As a 100% development, the expected return is forecasted to improve. The Group plans to develop a high density residential estate targeting the region's fast growing middle income market. As a result of active management, the initial permission to develop to a density of 500 residential units has been improved. The local planning authority has now provided in-principle approval to develop a higher density of 1,000 units. The development company has obtained the necessary electrical power supply required for the development and final conditions of township establishment have been issued by the local authority. However, the necessary environmental approvals have not yet been granted.  The development has the full support of the local authorities and the Group has received expert opinions on a potentially successful challenge of the environmental authority's findings. With good prospects of a successful challenge we believe that the delay will be largely procedural and believe that the required approvals will ultimately be obtained in due course.  Under present market conditions, the Group has delayed the proposed launch of the scheme until 2011.

Kindlewood Nature Estate. This residential development comprises two adjoining pieces of land with a combined area of 5.3 hectares. They are located in the Kindlewood Estate, adjacent to the prestigious Mount Edgecombe Golf Estate, in Umhlanga, north of Durban, KwaZulu Natal.  The construction phase of the first 41 residential homes has recently been completed and 6 of them have been sold and a further 8 are the subject of presales agreements. Demand for the remaining homes has slowed as we understand that buyers may have found difficulties in obtaining mortgages.  Consequently, to achieve cash flow, the Group has made plans to let a portion of the unsold completed units until sales demand recovers.  The Group is not planning to launch the second and final phase of Kindlewood until owner/occupier demand improves substantially.

Kyalami Residential Estate.  This is undeveloped agricultural land comprising an 8.9 hectare site situated in Kyalami, north of Johannesburg, Gauteng.  The site is located within a growing node close to the well known Kyalami Racetrack and the planned development is a residential complex aimed at middle market buyers. The development company is a partnership that includes an experienced local residential property developer in which the Group originally expected to retain 55% of the equity.  Following negotiations with the prospective partner, the Group has increased its expected equity retention to 90% which should enhance the Group's returns on the development.  A successful planning application has resulted in the development company receiving preliminary township approval and draft conditions of establishment. The Group is proceeding with the steps necessary to proclaim the township. Subject to market conditions, the development may be launched in 2011.

Mixed use

Brakpan.  This landholding comprises 6.65 hectares of undeveloped vacant land. It is located opposite a newly developed regional shopping mall and close to a major commuting route into Johannesburg from the east, providing excellent access. It is anticipated that the grant of planning rights will permit approximately 20,000 square metres of net lettable area (NLA). The Group has a 50% interest in the development company with a local property developer holding the balance. Architects have compiled a draft site development plan. A Traffic Impact Assessment has been lodged with the local authority and engineers are in the process of designing the internal services plan.  The planning process was commenced in 2008 and following procedural delays, planning approval is now anticipated in the second quarter of 2010.

Emberton Development.  This 16.5 hectare site is currently zoned for agricultural use and is prominently located in Hillcrest, an area approximately 15 km west of Durban. The property is directly adjacent to the main M13 highway and commuter route into Durban from the west, providing excellent visibility and exposure.  The Group has agreed in principle that an experienced local contractor will acquire a 20% stake in the development.  The development will comprise a high quality mixed-use secure residential estate, with commercial and retail components.  The township planning process has commenced, and it is anticipated that planning rights will be received by late 2010.  Once planning approval is received, the market conditions and owner/occupier demand will be re-assessed with a view to launching a first phase of the development. As there is a strong interest from retailers, the Group envisages that the retail phase will be launched first. 

Lenasia Development.  This development comprises 12.95 hectares of undeveloped vacant land in a prominent location in Lenasia, Johannesburg. It is situated immediately south of Soweto, south west of Johannesburg.  The site is opposite a regional shopping mall and directly alongside a major commuting route into Johannesburg from Lenasia providing excellent visibility.  The development company is currently applying for rights to build a mixed use retail and commercial development, and the town planning process is well advanced.  It is anticipated that the grant of planning rights will permit approximately 51,600 square metres of net lettable area (NLA).  Architects have compiled a draft site development plan and have completed the first phase conceptual design, and engineers are engaged on the internal services design.  Preliminary pre-construction marketing with potential anchor tenants has produced encouraging interest. However, the provision of bulk power to the site is proving to be problematic, in the entire Lenasia area, due to recent capacity constraints at Eskom. Preliminary indications are that there could be significant delay and the Group is currently ascertaining whether sufficient power can be obtained in order to commence a first phase of the development. 

Longmeadow Development.  This development is a significant strategic investment which comprises a 15.6 hectare, highly prominent, mixed use site (commercial, residential and retail) in Fourways, Johannesburg.  The site, the larger part of which is presently undeveloped vacant land, together with a number of small commercial structures, is situated approximately 5 miles to the north of Johannesburg's Sandton Central Business District in the Fourways node.  The Group acquired a 49.2% interest in the development company in 2007 and the remainder of the equity is held by three partners including a Johannesburg listed property company, a local contractor (both of whom the Group has partnered with in previous transactions) and a Trust representing the vendor of the land. The Trust has retained a 27.5% stake. The partners are currently applying for rights to build high density residential apartments, commercial office space, hotels, and a niche retail component on the site. They anticipate that planning consent will permit approximately 132,000 square metres of net lettable area (NLA).  Good progress has been made with developing the first phase of the site where planning rights were received at the end of October 2008.  City Lodge Hotels, a major national hotel operator, have taken a long term ground lease to develop a hotel on the north eastern corner of the property.  In addition, good progress has been made with construction of the Group's 5,400 square metre commercial development adjacent to the hotel. Both buildings are expected to be complete by the end of the year, and operational in the first quarter of 2010.  The planning application on the remaining extent of the site is progressing well. 

Sandton and Starleith.  Sandton was a strategic acquisition comprising a 0.777 hectare residential estate in the heart of the Sandton Central Business District. It has good access to a main arterial road and within easy reach of Sandton City shopping centre and the new Sandton Gautrain station. The site is 79% owned by the Group and the balance of equity is held equally by Group 5 and Barrow Construction, well known property developers and contractors.  Planning permission is being sought for a 14 storey building comprising up to 12,500 square metres of hotel space and a commercial office development of up to 37,500 square metres. The planning application has been submitted, and although planning consent was expected in early 2010, it now appears that there may be a year's delay due to a moratorium on approving planning applications in the node until after the 2010 FIFA World Cup is completed. This is an attempt to prevent any major building works impeding on the city's preparations for the tournament.

In August 2009 contracts were exchanged to acquire an adjacent property known as Starleith.  The Group expects to retain a 50% interest in this 0.452 hectare strategic development and the remaining equity is expected to be held equally by Group 5 and Barrow Construction who will fund their shares pro-rata.  We believe that this is an important strategic investment for the Group as there will be synergies in developing two adjacent sites in parallel.  The prospective development company is in the process of taking transfer of the 10 individual residential units that comprise the current site. Following this, a planning application will be submitted to build a 12 storey, 20,000 square metre sectional title office or residential development dependent on forecast demand.

Industrial

Clayville Industrial Park.  This development comprises a 49.3 hectare site located north west of Johannesburg's international airport. The Company intends to provide basic services on site comprising drainage, water, electricity supply, estate roads and lighting, and sell stands for industrial use to owner/occupiers.  However, the provision of the bulk power supply could be subject to a significant delay due the requirement for Eskom to upgrade the local substation. Nevertheless, due to the very low acquisition cost of this property, the Group remains confident that good returns will ultimately be achieved in the medium term when the site is developed. 

Gosforth Business Estate.  This is an important strategic land acquisition for the Group comprising a 42 hectare industrial site. It is situated to the south east of Johannesburg's central business district adjacent to the main N3 highway running between Johannesburg and the port at Durban. The Group has a 75% interest in the development company with a local contractor (Abbeydale Construction) and a South African listed property fund (Sable Holdings) holding 15% and 10% respectively.  The industrial township has now been fully proclaimed, with planning consent to develop between 130,000 and 150,000 square metres of gross developable area.  The installation of bulk services comprising electricity supply, mains drainage, mains water supply, estate roads and lighting is substantially complete, and the installation of internal services is well under way.  Construction of the gatehouse is also well advanced, and secure perimeter fencing has been installed.  Two industrial mini and maxi park schemes have been planned, and the Group is also planning to sell two serviced industrial stands. 

Hughes Industrial Park.  This landholding is situated in the East Rand industrial node of Jetpark and Isando close to Johannesburg International Airport.  The holding comprises a light industrial development totalling 18,372 square metres of net lettable area to be developed as sectional title mini units.  The development is being undertaken with a local contractor (Abbeydale Construction) and a South African listed property fund (Sable Holdings).  The Group owns a 30% interest in the development company.  The first phase of construction has been completed, and two units have been sold (subject to the fulfillment of certain suspensive conditions).  Because of the drop in demand due to the economic slowdown, sales have been slower than expected.  However, letting inquiries are increasing and the Group has completed 4 lettings. The Group expects this development to be substantially let or sold by the first quarter of 2010. 

Imbonini Services Park (Phase 1).  This development comprises 36 hectares of former agricultural land which has been developed for light industrial use.  It is located close to the fast growing residential and leisure node of Ballito, north of Durban.  The development is a partnership with local developers in which the Group has a 50% interest. The township register was opened in mid 2008, and the industrial park is approximately 65% sold, with further land sales currently being negotiated.  The 10,400 square metre sectional title mini-unit development on one of the park's serviced stands is now complete.  Marketing commenced in January, and to date three sales and two lettings have been concluded, while a further sale is being negotiated.  Although sales have been slower than expected because of the economic downturn, a marked increase in sales and leasing enquiries has been experienced in the last three months.

Imbonini Services Park (Phase 2).  This is the second phase of the Imbonini development and will comprise a 77 hectare industrial park adjacent to and north east of the Group's current Imbonini Phase 1 development.  The development is a partnership with the same two partners who invested in Phase 1.  The Group has a 50% interest in the development company.  Verbal planning consent was granted in December 2008 following a hearing to determine the development company's planning application, subject to environmental approvals being achieved.  We are happy to report that the environmental approvals have since been received, and final written planning consent is now expected in the next few weeks.  In the interim, planning for the bulk services installation and related civil engineering work is at an advanced stage. We are also considering either bulk sales of development sites to other developers in order to fund the installation of internal services, or alternatively, the sale of the entire site once planning permission has been obtained.

Waltloo Industrial Park.  This development comprises a 4.4 hectare site located east of the Pretoria Central Business District and is a 50:50 partnership with a local contractor.  It is envisaged that sectional title industrial premises will be developed on the site for which there are planning rights for 21,948 square metres of net lettable area.  These will provide freehold units for small manufacturing businesses and warehouse premises.  Bulk services have been installed and the township has been proclaimed.  The site development plan has been approved by the local authorities, and construction is expected to commence once sufficient demand has been registered in the scheme.  The development company is adopting a flexible approach to the development of this property and will also consider offers to purchase the entire site at a price that produces an acceptable level of profit.

Munitoria.  The Group is a member of a consortium that is bidding for the right to build, operate and transfer the City of Tswhane (Pretoria) Municipality's new offices in Pretoria.  The outcome of the bid is expected to be made public in the first quarter of 2010 and should the consortium be successful, the Group will be required to contribute ZAR12.3 million (£1.0m) corresponding to 10 per cent. of the consortium's development site acquisition costs.

Current strategy

As previously stated we continuously examine strategic opportunities to realise value in certain assets where the majority of the planning uplift has already been achieved, or where competitive returns can be achieved without incurring the cost of further development of these assets.  In all instances, we will adopt an entrepreneurial approach to realising value from the portfolio of investments.

Economic outlook

The South African economy has started to grow again after emerging from the recession after that began in the fourth quarter of last year. A gradual recovery is expected from early 2010. Real GDP is forecast to contract by around 1.5% in 2009, after increasing by 3.1% in 2008, and is forecast to grow at 3% for 2010 and 3.2% for 20111. For the last six months, monetary policy has been to reduce interest rates.  The present rate appears to be as low as forecast although a further 50 basis point cut is possible depending on economic conditions over the next six months. However, the full effect of the cumulative 500 basis points rate cuts that commenced in December 2008, could still take time to filter through the economy.  As a result of South Africa's recent high real interest rates, inflation has been on a declining trajectory and is currently at 6.0% and is expected to be 5.6% in 2010 and 5.9% in 2011.  While South Africa has escaped the worst of the global credit crunch, the economy has been negatively affected by the slowdown in the developed world; although the worst of the slowdown appears to be over.

Real estate market overview

Notwithstanding the current economic contraction, the fundamental drivers of the South African real estate market are still likely to support land values and rental growth in the medium and long term. Low vacancy rates, the difficulty in obtaining planning permission and the limited availability of external services will continue to restrict the supply of suitable development land.  Developers with the ability to secure planning permission / service delivery and development funding are well positioned to take advantage of a real estate market likely to improve from 2010.

Residential market2

The residential market has continued to decline over the past 6 months, with house prices projected to decline by around 3.5% in nominal terms and 10% in real terms in 2009.  This is an effect of a fall in effective demand despite an improvement in housing affordability.  Interest rates were cut by a cumulative 500 basis points since late 2008, reducing the cost of servicing household debt.  However the ratio of debt to disposable income remains at a high level.  The lagged effect of lower interest rates and a recovery in the economy late this year should lead to a gradual improvement in residential property market conditions from early 2010.  Many of the Group's residential projects are still in the planning and design phase and will only be brought to the market over the next 18 to 24 months when market conditions are forecast to be more favourable. The Group has been able to secure its development land at competitive prices.  Consequently, the value uplift it has gained by progressing planning applications has resulted in the Group being well positioned to service the mid level of the market over the next few years.  This will be at a time when demand is forecast to recover. 

Industrial market3

Over the past few years, robust demand for industrial space and high replacement costs has resulted in accelerating rental growth in all the major industrial areas. However, in recent quarters, growth has slowed as a result of a weaker economy. In the first quarter of 2009 (the most recent for which data is available), rental growth was 8% in Johannesburg, 6% in Durban, 4% in the Cape Peninsula, and 1% in Port Elizabeth.  These are all higher than the negative 0.7% growth in building costs.  The result has been positive net rental growth. However, sharp falls in retail sales and manufacturing output suggest the likelihood of weaker demand for industrial space, and moderating industrial rental growth for the remainder of 2009.  Industrial vacancies in the larger industrial areas have started to increase, but are still relatively low at between 3.5% and 6.2%, implying that good industrial space is still in short supply.

Commercial market4

Weak economic activity has not yet impacted much on the demand for office space and market rentals.  Strong real rental growth was achieved in all the major decentralised office areas in the first half of 2009.  However, weaker economic activity could lead to a reduction of office rentals in the short term.  Office vacancies have started to rise slightly, but are still relatively low, with decentralised prime office vacancies in Durban, Pretoria and Johannesburg averaging 1.5%, 3% and 5% respectively. 

Financing market

South African banks are generally well-capitalised and conservatively leveraged, focusing more on traditional retail banking.  As a result of the local regulatory environment, exchange controls in particular,  they appear to have had very limited exposure to the global banking credit crisis.  The downturn in the real economy is expected to lead to an increase in bad debts during the coming months, but the overall position of the South African banking sector is sound.  The banks are understandably cautious and the lending environment is currently very restricted, with end user mortgage finance difficult to obtain for first time buyers and those not able to provide sufficient equity deposits (although this has recently eased).  This is curtailing the ability of some willing residential buyers to purchase residential housing stock, despite an increase in housing affordability.  Development finance is also more difficult to obtain, but good quality developments with sufficient security and equity in place are able to raise bank debt.  The Company has not experienced any difficulty in financing any of its top structure developments or bulk service infrastructure, and expects to be able to raise bank debt as and when it is required on a deal by deal basis.

Proteus Property Partners Limited

Investment Manager

17 December 2009

___________________________________________________

1 Standard Bank; South Africa: Macroeconomic Perspectives; 4 August 2009

2 ABSA Housing Review, 20 July 2009

3 Rode's Report; 2009:2

4 Rode's Report; 2009:2

Report of the Directors

The Directors hereby submit their annual report together with the audited consolidated and company financial statements of South African Property Opportunities plc (the "Company") and its subsidiaries (the "Group") for the year ended 30 June 2009.

The Company

The Company is incorporated in the Isle of Man and has been established to enable investors to take advantage of opportunities that exist in the South African property market.

Divestment Strategy

The Company intends to dispose of a portion of the Group's portfolio where acceptable returns can be generated and return capital to shareholders.

Investment Policy

The Company's investment policy is to achieve capital growth from an opportunistic portfolio of real estate assets which may include commercial, industrial and residential properties in the Republic of South Africa.

Its strategy is to generate acceptable returns by targeting opportunities in the South African property market with a view to benefiting both from active portfolio management and from underlying economic growth. Having made investments, its strategy is to adopt an entrepreneurial approach to unlocking value on sites with profitable trading potential and in so doing allow greater focus on development projects within the portfolio.

The Company intends to invest primarily in the following manner:

"greenfield" developments including large mixed-use sites targeted to meet the demands of increased urbanisation;

"brownfield" redevelopments targeted mainly at providing housing and amenities for the emerging black middle class;

provision of mezzanine finance to existing investors and developers. This should provide access to opportunities at attractive yields; and

commercial investment property with attractive income yields.

The Company may also invest in special situation corporate opportunities (whether listed or not) where potential is perceived to generate returns from underlying properties. Investments will be made throughout South Africa but concentrated in and around South Africa's economic hub, Gauteng. Investment elsewhere in Southern Africa may also be considered.

The proportions to be made up of these different elements are likely to fluctuate according to market conditions and the availability of investment opportunities.

There is no fixed period in which the Company is required to make an investment before being obliged to return funds to investors. Pending investment, any cash held by the Company may be held on deposit or invested in money market funds or other near-cash investments.

The Company intends to make use of debt facilities in local currency as and when required, both in funding directly held properties and new developments. The borrowings of the Group secured against portfolio assets will be in Rand.

In effecting local Rand borrowings and using South African assets as security for external borrowings, the South African Exchange Control regulations must be complied with and, in certain circumstances, Exchange Control approval will be required.

The overall level of borrowings on the Company's portfolio, at the date on which any borrowing is incurred, is not expected to exceed 70 per cent. (loan to value) although this may be higher on individual investments (and is not subject to any cap). It is the intention of the Directors that, as far as practicable, all borrowings will be secured against individual projects without recourse to the Company.

Results and dividends

The results and position of the Group and the Company at the year end are set out on pages 19 to 21 of the financial statements.

The Directors intend to manage the Group's affairs to achieve shareholder returns through capital growth rather than income, and accordingly there can be no certainty that any dividend will be paid. However the Directors reserve the right to make dividend distributions to holders of Ordinary Shares if and when it is considered appropriate. The Directors do not intend to declare a dividend at this time (2008: £Nil) It is expected that with effect from 2010 the Company will conduct a thorough review of all of the projects with a view to identifying those properties where land sales demonstrate favourable returns relative to full development risk. The Directors will then look to dispose of those projects.

Directors

The Directors during the year and up to the date of this Report were as follows:

	Date Appointed	Date resigned
Quentin Spicer (Chairman)   Peter Bester   David Humbles   Brian Myerson   Richard Tice *		01/04/09   01/04/09   01/04/09   23/02/09   30/09/09
John Chapman	05/03/09
Craig McMurray	05/03/09
David Hunter **	30/09/09
David Saville	30/09/09
Simon Godwin	30/09/09

* Chairman from 1 April 2009 to 30 September 2009

** Chairman from 30 September 2009 

Directors and Other Interests

Brian Myerson is a director of the Investment Manager and is also believed to be a director or manager of Principle Capital Investments, Principle Capital L.P. and Pointer Investments Limited, entities which are believed to control 22.55% of the Company's issued share capital. None of the other directors have a direct or indirect interest in the shares in the Company.

Mr Myerson is also the Executive Chairman of Principle Capital Holdings S.A., a company in which his family has a 30% shareholding and which wholly owns a wealth management, fund and trust administration business known as Silex. In the year ended 30 June 2009, Silex invoiced the Company £394,000 for services.

Save as disclosed above, none of the Directors had any interest during the year in any material contract for the provision of services which was significant to the business of the Company.

Independent auditors

PricewaterhouseCoopers have indicated their willingness to continue in office in accordance with Section 12(2) of the Companies Act 1982.

Corporate governance

The Directors recognise the importance of sound corporate governance and so far as is reasonably practicable endeavour to comply with the Quoted Companies Alliance's Corporate Governance Guidelines for AIM Companies. In particular, the Directors are responsible for overseeing the effectiveness of the internal controls of the Company designed to ensure that proper accounting records are maintained, that the financial information on which business decisions are made and which is issued for publication is reliable and that the assets of the Group are safeguarded.

The Board has established an audit committee with formally delegated duties and responsibilities, comprising Simon Godwin (Chairman) and David Saville, who is an independent non-executive director. The audit committee meets at least twice a year and is responsible for ensuring that the financial performance of the Group is properly reported on and monitored, including reviews of the annual and interim financial statements, results announcements, internal control systems and procedures and accounting policies. 

The Board has also established a remuneration committee with formally delegated duties and responsibilities, comprising all of the non-executive directors of the Company. The committee meets at least once a year and is responsible for determining and agreeing the remuneration for all members of the Board and authorising claims for expenses by the Board from the Company.

On behalf of the Board

David Hunter

Chairman

30 December 2009

  

Directors' Biographies

The Company has a board of five Directors, all of whom are independent of the Company's investment manager and other service providers. Details of the Directors are as follows:

David Hunter - Chairman

David Hunter is a UK-based property fund consultant. For twenty years up to 2005 he was a leading property fund manager ultimately responsible for €10bn of property assets across Europe for Arlington Property Investors. David is a fellow of the Royal Institution of Chartered Surveyors, a former President of the British Property Federation, and a member of the Bank of England Property Forum.

John Chapman 

John Chapman is a member of the New York State Bar and the Chartered Financial Analyst Institute. He is currently a director of a number of investment funds, including ACP Capital Limited, ACP Mezzanine Limited, Central Asia Regional Growth Fund Plc, The Black Sea Property Fund Limited and The Ottoman Fund Limited.

Craig McMurray 

Craig McMurray is the managing director of Bridgehead Capital Management (Pty) Limited, a real estate company managing commercial property in South Africa including Bridgehead Real Estate Fund Limited. Previously Craig was head of Credit Projects at Standard Bank of South Africa Limited.

David Saville

David Saville is an Isle of Man based property fund manager currently managing a number of property sector investment vehicles with investments predominantly in the UK and Australia. From 1992 to 2001 David was the Managing Director of Saville Gordon Estates Plc, which he was instrumental in repositioning as a FTSE 250 property company specialising in industrial property. David is a member of the Royal Institution of Chartered Surveyors. 

Simon Godwin

Simon Godwin is a UK-based entrepreneur, who from 1992 through 2007 was an investment banker with Schroders and BNP Paribas. Simon has a law degree from Cambridge and qualified as a Chartered Accountant while at Deloitte Haskins and Sells, where he began his career as an auditor. Simon chairs the Company's audit committee.

 

Statement of Directors' responsibilities in respect of the Annual Report and the Financial Statements

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable Isle of Man law. 

Company law requires the Directors to prepare financial statements for each financial year. The Directors have elected to prepare the financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial statements are required by law to give a true and fair view of the state of affairs of the Company and the Group and of the profit or loss of the Group for that period. In preparing those 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; and

prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business.

The Directors confirm that they have complied with the above requirements in preparing the financial statements.

The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and the Group and to enable them to ensure that the financial statements comply with the Isle of Man Companies Acts 1931 to 2004. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the Company's website. Legislation in the Isle of Man governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. 

On behalf of the Board

David Hunter

Chairman

30 December 2009

 

Independent Auditors' Report to the members of South African Property Opportunities plc

Report on the Consolidated and Parent Company Financial Statements

We have audited the accompanying consolidated and parent company financial statements (the 'financial statements') of South African Property Opportunities plc and its subsidiaries (the 'Group') which comprise the consolidated and parent company balance sheets as of 30 June 2009, the consolidated income statement, consolidated and parent company statements of changes in equity and consolidated and parent company cash flow statements for the year then ended and a summary of significant accounting policies and other explanatory notes.

Directors' Responsibility for the Financial Statements

The Directors are responsible for the preparation and fair presentation of these financial statements in accordance with applicable Isle of Man law and International Financial Reporting Standards as adopted by the European Union. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. 

Auditors' Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. This report, including the opinion, has been prepared for and only for the company's members as a body in accordance with Section 15 of the Isle of Man Companies Act 1982 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Directors, as well as evaluating the overall presentation of the financial statements. 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 

Opinion

In our opinion:

the accompanying consolidated financial statements give a true and fair view of the financial position of the Group as of 30 June 2009, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union;

the parent company financial statements give a true and fair view of the financial position of the parent company as of 30 June 2009, and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union as applied in accordance with the provisions of the Isle of Man Companies Act 1982;

the financial statements have been properly prepared in accordance with the Isle of Man Companies Acts 1931 to 2004.

PricewaterhouseCoopers

Isle of Man

Chartered Accountants

30 December 2009

  Consolidated Income Statement

		Year ended 30 June 2009	Year ended 30 June 2008
	Note	£'000	£'000
Revenue		412	-
Investment Manager's fees	5	(1,619)	(1,274)
Other administration fees and expenses	6	(1,772)	(1,395)
Administrative expenses		(3,391)	(2,669)
Operating loss		(2,979)	(2,669)
Foreign exchange gain/(loss)		9,452	(3,315)
Other income/(loss)		9,452	(3,315)
Finance income		1,538	3,227
Finance costs		(176)	(4)
Net finance income		1,362	3,223
Loss on partial disposal of subsidiary	9	(11)	-
Share of (loss)/profit of associates	9	(322)	118
Profit/(loss) before income tax		7,502	(2,643)
Income tax expense	7	(19)	13
Profit/(loss) for the year		7,483	(2,630)
Attributable to:
Equity holders of the Company		7,482	(2,630)
Minority interest		1	-
		7,483	(2,630)
Basic and diluted earnings/(loss) per share (pence) for profit/(loss) attributable to the equity holders of the Company during the year	8	12.01	(4.22)

 

The accompanying notes form an integral part of these financial statements

Consolidated Balance Sheet

	Note	As at 30 June 2009	As at 30 June 2008
		£'000	£'000
Assets
Non-current assets
Intangible assets	10	1,376	31
Inventories	11	48,489	24,531
Investments in associates	9	6,707	5,469
Loans due from associates	9	8,465	-
		65,037	30,031
Current assets
Loans due from associates	9	-	1,249
Trade and other receivables	12	1,689	2,804
Cash at bank and attorneys	13	14,972	27,269
		16,661	31,322
Total assets		81,698	61,353
Equity
Capital and reserves attributable to equity holders of the Company:
Issued share capital	14	623	623
Share premium	15	61,943	61,943
Foreign currency translation reserve		2,643	(1,622)
Retained earnings/(deficit)		4,972	(2,510)
		70,181	58,434
Minority interest		14	-
Total equity		70,195	58,434
Liabilities
Current liabilities
Loans from third parties	17	4,520	2,521
Trade and other payables	18	676	362
Current tax liabilities		65	36
Borrowings	19	6,242	-
		11,503	2,919
Total liabilities		11,503	2,919
Total equity and liabilities		81,698	61,353

The financial statements were approved and authorised for issue by the Board of Directors on 30 December 2009 and signed on its behalf by:

David Hunter David Saville

Director Director

The accompanying notes form an integral part of these financial statements

 

Company Balance Sheet

	Note	As at 30 June 2009	As at 30 June 2008
		£'000	£'000
Assets
Non-current assets
Loans and receivables due from subsidiary	12	42,142	28,595
Investment in subsidiary	9	21,741	21,741
		63,883	50,336
Current assets
Trade and other receivables	12	43	45
Cash and cash equivalents	13	11,944	12,974
		11,987	13,019
Total assets		75,870	63,355
Equity
Capital and reserves attributable to equity holders of the Company:
Issued share capital	14	623	623
Share premium	15	61,943	61,943
Retained earnings		12,962	523
Total equity		75,528	63,089
Current liabilities
Trade and other payables	18	342	266
Total liabilities		342	266
Total equity and liabilities		75,870	63,355

The financial statements were approved and authorised for issue by the Board of Directors on 30 December 2009 and signed on its behalf by:

David Hunter David Saville

Director Director

 

The accompanying notes form an integral part of these financial statements

 

 

Consolidated Statement of Changes in Equity

	Attributable to equity holders of the Company
	Share capital	Share premium	Foreign currency translation reserve	Retained earnings/(deficit)	Total	Minority interest	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 July 2007	623	61,943	(44)	120	62,642	-	62,642
Foreign exchange translation differences	-	-	(1,578)	-	(1,578)	-	(1,578)
Loss for the year	-	-	-	(2,630)	(2,630)	-	(2,630)
Total recognised expense for the year	-	-	(1,578)	(2,630)	(4,208)	-	(4,208)
Balance at 30 June 2008	623	61,943	(1,622)	(2,510)	58,434	-	58,434

Balance at 1 July 2008	623	61,943	(1,622)	(2,510)	58,434	-	58,434
Disposal of shares in subsidiary to minority interest (note 9)	-	-	-	-	-	11	11
Foreign exchange translation differences	-	-	4,265	-	4,265	2	4,267
Profit for the year	-	-	-	7,482	7,482	1	7,483
Total recognised income for the year	-	-	4,265	7,482	11,747	14	11,761
Balance at 30 June 2009	623	61,943	2,643	4,972	70,181	14	70,195

 

The accompanying notes form an integral part of these financial statements

 

 

Company Statement of Changes in Equity

	Share capital	Share premium	Retained earnings	Total
	£'000	£'000	£'000	£'000
Balance at 1 July 2007	623	61,943	399	62,965
Profit for the year	-	-	124	124
Balance at 30 June 2008	623	61,943	523	63,089

Balance at 1 July 2008	623	61,943	523	63,089
Profit for the year	-	-	12,439	12,439
Balance at 30 June 2009	623	61,943	12,962	75,528

 

The accompanying notes form an integral part of these financial statements

 

 

Consolidated Cash Flow Statement

	Note	Year ended 30 June 2009	Year ended 30 June 2008
		£'000	£'000
Cash flows from operating activities
Profit/(loss) for the year before tax		7,502	(2,643)
Adjustments for:
Interest income		(1,538)	(3,227)
Interest expense		176	4
Loss on partial disposal of subsidiary		11	-
Share of loss/(profit) of associates		322	(118)
Foreign exchange (gain)/loss		(9,452)	3,315
Operating loss before changes in working capital		(2,979)	(2,669)
Purchase of inventory		(15,420)	(22,434)
Decrease/(increase) in trade and other receivables		1,433	(2,133)
Increase in trade and other payables		265	126
Cash used in operations		(16,701)	(27,110)
Interest paid		(9)	(4)
Interest received		613	3,279
Net cash used in operating activities		(16,097)	(23,835)
Cash flows from investing activities
Investment in indirect subsidiary	10	(1,177)	-
Acquisition of associates		(211)	(219)
Loans to associates		(4,998)	(34)
Movement in cash restricted by bank guarantees		5,969	(6,866)
Net cash used in investing activities		(417)	(7,119)
Cash flows from financing activities
Loans from third parties		1,039	1,420
Proceeds from bank loans		5,211	-
Net cash generated from financing activities		6,250	1,420
Net decrease in cash and cash equivalents		(10,264)	(29,534)
Cash and cash equivalents at beginning of the year		20,403	51,797
Foreign exchange gains/(losses) on cash and cash equivalents		3,033	(1,860)
Cash and cash equivalents at end of the year	13	13,172	20,403

The accompanying notes form an integral part of these financial statements

 

 

Company Cash Flow Statement

	Note	Year ended 30 June 2009	Year ended 30 June 2008
		£'000	£'000
Cash flows from operating activities
Profit for the year		12,439	124
Adjustments for:
Interest income		(5,224)	(6,002)
Interest expense		4	4
Foreign exchange (gain)/loss		(10,024)	3,697
Operating loss before changes in working capital		(2,805)	(2,177)
(Increase)/decrease in trade and other receivables		(3)	2
Increase in trade and other payables		75	133
Cash used in operations		(2,733)	(2,042)
Interest paid		(4)	(4)
Interest received		372	2,336
Net cash (used in)/generated from operating activities		(2,365)	290
Cash flows from investing activities
Loans advanced to subsidiary		(805)	(9,667)
Acquisition of subsidiary, net of cash received		-	(19,934)
Net cash used in investing activities		(805)	(29,601)
Net decrease in cash and cash equivalents		(3,170)	(29,311)
Cash and cash equivalents at beginning of the year		12,974	42,810
Foreign exchange gains/(losses) on cash and cash equivalents		2,140	(525)
Cash and cash equivalents at end of the year	13	11,944	12,974

 

The accompanying notes form an integral part of these financial statements

 

 

Notes to the Financial Statements

1 General information

South African Property Opportunities plc (the "Company") was incorporated and registered in the Isle of Man under the Isle of Man Companies Acts 1931 to 2004 on 27 June 2006 as a public limited company with registered number 117001C. South African Property Opportunities plc and its subsidiaries (the "Group") investment objective is to achieve capital growth from an opportunistic portfolio of real estate assets in South Africa. 

The Company's investment activities are managed by Proteus Property Partners Limited (the "Investment Manager"). The Company's administration is delegated to Galileo Fund Services Limited (the "Administrator"). The registered office of the Company is Third Floor Britannia House, St George's Street, Douglas, Isle of Man, IM1 1JE. 

Pursuant to a prospectus dated 20 October 2006 there was an original placing of up to 50,000,000 Ordinary Shares. Following the close of the placing on 26 October 2006 30,000,000 Shares were issued. 

The Ordinary Shares of the Company were admitted to trading on the AIM Market of the London Stock Exchange ("AIM") on 26 October 2006 when dealings also commenced. On the same date the Shares of the Company were admitted to the Official List of the Channel Islands Stock Exchange (the "CISX").

As a result of a further fund raising in May 2007 32,292,810 Ordinary Shares were issued, which were admitted to trading on AIM on 22 May 2007. 

The Company's agents and the Investment Manager perform all significant functions, other than those carried out by the Board. The Company itself has two employees. 

Financial Year End

The financial year end of the Company is 30 June in each year.

Company Profit

In accordance with the provisions of Section 3 of the Isle of Man Companies Act 1982, no separate income statement has been presented for the Company. The amount of the Company's profit for the year recognised in the Consolidated Income Statement is £12,439,150 (30 June 2008: £123,707).

2 Summary of significant accounting policies

The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all years presented unless otherwise stated. 

2.1 Basis of preparation

The financial statements of South African Property Opportunities plc have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union. The financial statements have been prepared under the historical cost convention and the requirements of the Isle of Man Companies Acts 1931 to 2004. The preparation of financial statements in conformity with IFRS requires the use of accounting estimates. It also requires management 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 the inventory and the resulting calculation of the performance fee liability (see note 5).

Standards, amendments and interpretations to existing standards, which are relevant to the Group, but are not yet effective and have not been early adopted

The following standards, amendments and interpretations to existing standards have been published and are mandatory for the company's accounting periods beginning on or after 1 January 2009 or later periods, but the Group has not early adopted them:

IAS 23 (Amendment), 'Borrowing costs' (effective from 1 January 2009). The amendment requires an entity to capitalise borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset (one that takes a substantial period of time to get ready for use or sale) as part of the cost of that asset. The option of immediately expensing those borrowing costs will be removed. This will not affect the Group significantly as the Group already capitalises its borrowing costs. The Group will apply IAS 23 (Amendment) from 1 July 2009.

IFRS 8, 'Operating Segments' (effective from 1 January 2009). IFRS 8 replaces IAS 14 and aligns segment reporting with the requirements of the US standard SFAS 131, 'Disclosures about segments of an enterprise and related information'. The new standard requires a 'management approach', under which segment information is presented on the same basis as that used for internal reporting purposes. The Group will apply IFRS 8 from 1 July 2009, resulting in segment reporting by project/sector.

IAS 1 (Revised), 'Presentation of financial statements' (effective from 1 January 2009). The revised standard will prohibit the presentation of items of income and expense (that is, 'non-owner changes in equity') in the statement of changes in equity, requiring 'non-owner changes in equity' to be presented separately from owner changes in equity. All non-owner changes in equity will be required to be shown in a performance statement, but entities can choose whether to present one performance statement (the statement of comprehensive income) or two statements (the income statement and statement of comprehensive income). Where entities restate or reclassify comparative information, they will be required to present a restated balance sheet as at the beginning of the comparative period in addition to the current requirement to present balance sheets at the end of the current period and comparative period. The Group will apply IAS 1 (Revised) from 1 July 2009 and will present two statements.

IFRS 3 (Revised), 'Business combinations' (effective from 1 July 2009). The revised standard continues to apply the acquisition method to business combinations, with some significant changes. For example, all payments to purchase a business are to be recorded at fair value at the acquisition date, with contingent payments classified as debt subsequently re-measured through the income statement. There is a choice on an acquisition-by-acquisition basis to measure the non-controlling interest in the acquiree either at fair value or at the non-controlling interest's proportionate share of the acquiree's net assets. All acquisition-related costs should be expensed. The Group will apply IFRS 3 (Revised) prospectively to all business combinations from 1 July 2009.

IAS 23 (Amendment), 'Borrowing costs' (effective from 1 January 2009). The amendment is part of the International Accounting Standards Board's annual improvements project published in May 2008. The definition of borrowing costs has been amended so that interest expense is calculated using the effective interest method defined in IAS 39 'Financial Instruments: Recognition and Measurement'. This eliminates the inconsistency of terms between IAS 39 and IAS 23. The Group will apply the IAS 23 (Amendment) prospectively to the capitalisation of borrowing costs on qualifying assets from 1 July 2009. The Group will also ensure that transactional costs are accounted for using the effective interest method from 1 July 2009.

IAS 27 (Revised), 'Consolidated and separate financial statements', (effective from 1 July 2009). The revised standard requires the effects of all transactions with non-controlling interests to be recorded in equity if there is no change in control and these transactions will no longer result in goodwill or gains and losses. The standard also specifies the accounting treatment when control is lost. Any remaining interest in the equity is re-measured to fair value, and a gain or loss is recognised in profit or loss. The Group will apply IAS 27 (Revised) prospectively to transactions with non-controlling interests from 1 July 2009.

IAS 28 (Amendment), 'Investments in associates' (and consequential amendments to IAS 32, 'Financial Instruments: Presentation', and IFRS 7, 'Financial instruments: Disclosures') (effective from 1 January 2009). The amendment is part of the IASB's annual improvements project published in May 2008. An investment in associate is treated as a single asset for the purposes of impairment testing. Any impairment loss is not allocated to specific assets included within the investment, for example, goodwill. Reversals of impairment are recorded as an adjustment to the investment balance to the extent that the recoverable amount of the associate increases. The Group will apply the IAS 28 (Amendment) to impairment tests related to investments in associates and any related impairment losses from 1 July 2009.

2.2 Foreign currency translation

(a) Functional and presentation currency

Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates ('the functional currency'). The consolidated financial statements are presented in Pound Sterling, which is the Company's functional and the Group's presentational currency.

(b) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.

(c)  Group companies

The results and financial position of all the group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

 

(i) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;

(ii) income and expenses for each income statement are translated at average exchange rates; and

(iii) all resulting exchange differences are recognised as a separate component of equity.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. 

2.3 Revenue and expense recognition

Rental income is accounted for on an accruals basis in accordance with the substance of the relevant agreements.

Interest income is recognised in the financial statements on a time-proportionate basis using the effective interest method. 

Interest expense for borrowings is recognised in the financial statements using the effective interest method.

The effective interest method is a method of calculating the amortised cost of a financial asset or financial liability and of allocating the interest income or interest expense over the period. 

Expenses are accounted for on an accruals basis. 

2.4 Operating leases

Leases in which a significant portion of the risks and rewards of ownership are retained by the Group, as lessor, are classified as operating leases. Operating lease income is recognised in the income statement on a straight-line basis over the period of the lease.

2.5 Basis of consolidation

Subsidiaries

Subsidiaries are those entities controlled by the Group. Control exists where the Group has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The financial statements of the subsidiaries are included in the consolidated financial statements from the date that control effectively commences until the date that control effectively ceases. 

Transactions and minority interest

The Group applies a policy of treating transactions with minority interest as transactions with parties external to the Group. Losses applicable to the minority in a consolidated subsidiary may exceed the minority interest in the subsidiary's equity. The excess, and any further losses applicable to the minority, are allocated against the majority interest except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses. If the subsidiary subsequently reports profits, such profits are allocated to the majority interest until the minority's share of losses previously absorbed by the majority has been recovered. 

Transactions eliminated on consolidation

Intra-group balances and transactions, and any unrealised gains/losses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. 

Associates (equity accounted investees)

Associates are those entities in which the Group has a significant influence, but no control, over the financial and operating policies generally, accompanying a shareholding of between 20% and 50% of the voting rights. Associates are accounted for using the equity method (equity accounted investees) and are initially recognised at cost. The Group's investment in associates includes goodwill identified on acquisition, net of any accumulated impairment loss. The consolidated financial statements include the Group's share of the income and expenses of the equity accounted investees, after adjustments to align the accounting policies with those of the Group, from the date that significant influence or joint control commences until the date that significant influence or joint control ceases. When the Group's share of losses exceeds its interest in an equity accounted investee, the carrying amount of that interest (including any long-term investment) is reduced to nil and the recognition of further losses is discontinued except to the extent that the Group has an obligation to or has made payments on behalf of the investee. 

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

2.6 Segmental reporting

The Group has one segment focusing on achieving capital growth through investing in the property market in South Africa. No additional disclosure is included in relation to segment reporting, as the Group's activities are limited to one business and geographical segment. 

2.7 Intangible assets

Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group's share of the identifiable net assets (including intangible assets) of the acquired subsidiary. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses.

2.8 Financial assets and financial liabilities

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 2009 and 2008 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 which are classified as non-current assets. The Group's loans and receivables comprise 'trade and other receivables' and cash at bank and attorneys in the balance sheet (notes 2.10 and 2.11).

The Group classifies its financial liabilities in the following categories: at fair value through profit or loss and other liabilities. At 30 June 2009 and 2008 the Group did not have any financial liabilities at fair value through profit or loss. Other liabilities are loans and trade payables which are included in "trade and other payables" and borrowings in the balance sheet (notes 2.13 and 2.16).

2.9 Inventories

Land that is being developed for future sale is classified as inventory at its deemed cost, which is the carrying amount at the date of classification. Land for development is subsequently carried at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business less selling expenses. 

2.10 Loans and receivables

Loans and receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. 

2.11 Trade and other receivables

Trade and other receivables are initially stated at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. 

2.12 Cash and cash equivalents

Cash and cash equivalents comprise cash deposited with banks, cash deposits with attorneys and other short-term highly liquid investments with original maturities of three months or less.

2.13 Trade and other payables

Trade and other payables are recognised initially at fair value and subsequently at amortised cost using the effective interest method. 

2.14 Taxation

The Company is resident for taxation purposes in the Isle of Man and is subject to income tax at a rate of zero %. The Group is liable to tax in South Africa on the activities of its subsidiaries and associates.

The tax expense represents the sum of the tax currently payable, which is based on taxable profits for the year. The Group's liability is calculated using tax rates applicable at the balance sheet date.

2.15 Deferred tax

Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit, and differences relating to investments in subsidiaries and jointly controlled entities to the extent that they probably will not reverse in the foreseeable future. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.

A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which temporary differences can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

2.16 Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a pre-payment for liquidity services and amortised over the period of the facility to which it relates.

Borrowing costs directly attributable to assets in the course of construction are capitalised.

2.17 Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds. 

3 Risk management

The Group's activities expose it to a variety of financial risks: market risk (including foreign exchange risk and interest rate risk), credit risk and liquidity risk. The financial risks relate to the following financial instruments: loans and receivables, cash and cash equivalents and trade and other payables. The accounting policies with respect to these financial instruments are described in Note 2.

Risk management is carried out by the Investment Manager under the direction of the Board of Directors. 

Foreign exchange risk

Foreign exchange risk is the risk that the value of financial instruments will fluctuate due to changes in foreign exchange rates. The Group's operations are conducted in jurisdictions which generate revenue, expenses, assets and liabilities in currencies other than Pound Sterling ("the functional currency of the Company"). 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 the South African Rand.

The Group's policy is not to enter into any currency hedging transactions.

The table below summarises the Group's exposure to foreign currency risk in respect of financial instruments:

30 June 2009	Monetary Assets	Monetary Liabilities	Total
	£'000	£'000	£'000
South African Rand	13,181	(11,161)	2,020
	13,181	(11,161)	2,020

30 June 2008	Monetary Assets	Monetary Liabilities	Total
	£'000	£'000	£'000
South African Rand	18,349	(2,617)	15,732
	18,349	(2,617)	15,732

The Investment Manager and the Board of Directors monitors and reviews the Group's currency position on a continuous basis and acts accordingly.

At 30 June 2009, had the Pound strengthened/weakened by 5% against the South African Rand, with all other variables held constant, the above financial instruments would have increased/decreased by £96,153 and £1,987 (30 June 2008: 10%, £1,430,065 and £4,065) lower/higher respectively. The direct and indirect subsidiaries have the South African Rand as their functional currency and on consolidation any effects of changes in foreign exchange rates will be included in the translation reserve.

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.

At the reporting date, the Group's financial assets exposed to credit risk amounted to the following:

	30 June 2009	30 June 2008
	£'000	£'000
Loans due from associates	8,465	1,249
Trade and other receivables	1,689	2,804
Cash and cash equivalents	14,972	27,269
	25,126	31,322

The Group manages its credit risk by monitoring the creditworthiness of counterparties regularly. Cash transactions and balances are limited to high-credit-quality financial institutions (at least an Aa2 credit rating). Loans due from associates and trade and other receivables relate mostly to project investments in land and the Investment Manager and the Board of Directors do not expect any losses from non-performance by these counterparties. All investment opportunities are analysed objectively prior to Board approval, including a financial and business due diligence investigation of each potential project. 

Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its obligations as they fall due. The Group currently manages its liquidity risk by maintaining sufficient cash (maturing on a weekly and monthly basis). The Group's liquidity position is monitored by the Investment Manager and the Board of Directors. 

The residual undiscounted contractual maturities of financial liabilities are as follows:

30 June 2009	Less than 1 month	1-3 months	3 months to 1 year	1-5 years	Over 5 years	No stated maturity
	£'000	£'000	£'000	£'000	£'000	£'000
Financial liabilities
Loans from third parties	-	-	-	-	-	4,520
Trade and other payables	676	-	-	-	-	-
Borrowings	-	-	6,242	-	-	-
	676	-	6,242	-	-	4,520

30 June 2008	Less than 1 month	1-3 months	3 months to 1 year	1-5 years	Over 5 years	No stated maturity
	£'000	£'000	£'000	£'000	£'000	£'000
Financial liabilities
Trade and other payables	362	-	-	-	-	2,521
	362	-	-	-	-	2,521

Interest rate risk

Interest rate risk is the risk that the value of financial instruments will fluctuate due to changes in market interest rates. The Group is exposed to interest rate risk from the cash held in interest bearing accounts at floating rates or short term deposits of one month or less, on loans from associates and on borrowings. The Company's Investment Manager and Board of Directors monitor and review the interest rate fluctuations on a continuous basis and act accordingly.

At 30 June 2009 should interest rates have increased/decreased by 10 basis points (0.10%), with all other variables held constant, the shareholders' equity and profit for the year would have been £21,000 (2008: 100 basis points, £395,000) higher/lower.

Capital risk management

The Group's primary objective when managing its capital base is to safeguard the Company's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders. 

Gearing may be employed by the Group with the aim of enhancing shareholder returns. This would be in the form of bank borrowings secured on the investment portfolio. The overall level of borrowings on the Group's portfolio, at the date on which any borrowing is incurred, is not expected to exceed 70% (loan to value). Gearing levels are kept constantly under review to take into account market factors. 

Group capital comprises share capital, share premium and reserves.

No changes were made in respect of the objectives, policies or processes in respect of capital management during the years ended 30 June 2008 and 2009.

4 Operating leases

The group leases its property under operating leases. The future minimum lease payments under non-cancellable leases are as follows:

	Year ended 30 June 2009 £'000	Year ended 30 June 2008 £'000
Less than one year	81	-
Between one and five years	-	-
More than five years	-	-
	81	-

5 Investment Manager's fees

Annual fees

The Investment Manager receives a management fee of 2% per annum of the net asset value of the Group from Admission, payable quarterly in advance.

The Company has adopted the net asset value of the Group as calculated in accordance with customary accountancy or industry practices relating to the Company but valuing the Group's property assets on an open market basis for the purposes of calculating the Investment Manager's fee.

The Investment Manager is also entitled to recharge to the Group 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 Investment Manager. Accordingly, the Company is 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 Investment Manager by the Company are paid together with any value added tax, if applicable.

Annual management fees payable for the year ended 30 June 2009 amounted to £1,618,673 (30 June 2008: £1,273,516).

Performance fees

The Investment Manager is entitled to a performance fee which is payable by reference to the increase in net asset value per Ordinary Share. The net asset value used is the net asset value of the Group as calculated in accordance with customary accountancy or industry practices relating to the Company but valuing the Group's property assets on an open market basis. The Investment Manager is entitled to a performance fee in respect of the period from Admission to 30 June 2009 and any subsequent financial period at the end of which the net asset value per Ordinary Share is above the performance fee hurdle. The performance fee test for the period ending 30 June 2009 is based on the issue price per Ordinary Share increased at a rate of 12% per annum, on an annual compounding basis up to the end of the period but adjusted so as to exclude any dividends paid during the period.

If the performance hurdle is met the performance fee payable will be an amount equal to 20% of the amount of the increase in the net asset value per Ordinary Share, since inception or (if later) the end of the last financial period by reference to which a performance fee was earned, multiplied by the time weighted average of the number of Ordinary Shares in issue during the relevant period.

 

Any performance fee will be payable as follows:

 

a) 75% of the performance fee will be paid to the Investment Manager in cash within ten business days of the publication of the audited financial statements for the relevant period end; and

 

b)  25% of the performance fee shall be satisfied within ten business days of the publication of the audited financial statements for the relevant performance period end by the allotment and issue to the Investment Manager of such number of Ordinary Shares which, when multiplied by the Net Asset Value per Ordinary Share on the date of issue, results in a value equal to that of 25% of the performance fee.

Performance fees payable for the year ended 30 June 2009 amounted to £nil (30 June 2008: £nil).

6 Other administration fees and expenses

Group	Year ended 30 June 2009 £'000	Year ended 30 June 2008 £'000
Audit - current year	127	110
Audit - prior years	80	90
Directors' remuneration	210	95
Directors' insurance cover	10	64
Nominated Adviser and broker fees	33	30
Administrator and Registrar fees	71	72
Custodian fees	6	7
Sponsor fees	2	2
Strategic Adviser fees	(65)	40
Professional fees	290	117
Property expenses	254	45
Broker commission	35	86
Silex management fees (note 21)	394	387
Other expenses	325	250
Administration fees and expenses	1,772	1,395

Included within other administration fees and expenses are the following:

Nominated Adviser and Broker fees

As Nominated Adviser and Broker to the Company for the purposes of the AIM Rules, the Nominated Adviser and Broker receives a Nominated Adviser fee of £17,500 per annum and a Broker fee of £17,500 per annum, both fees payable half-yearly in advance. Matrix Corporate Capital was appointed on these terms as Broker from 26 November 2008 and as Nominated Adviser from 30 January 2009. Prior to those dates Teathers Limited was the Nominated Adviser and Broker and received a Nominated Adviser fee of £15,000 per annum and a Broker fee of £15,000 per annum, both fees payable half-yearly in advance.

Nominated adviser fees paid for the year ended 30 June 2009 amounted to £33,283 (30 June 2008: £30,412).

Custodian fees

The Custodian receives a fee of 3 basis points (0.03%) of the value of the non real-estate assets held by the Company subject to a minimum annual fee of £5,000, payable quarterly in arrears.

Custodian fees payable for the year ended 30 June 2009 amounted to £5,781 (30 June 2008: £7,305).

Administrator and Registrar fees

The Administrator receives a fee of 10 basis points of the net assets of the Company (0.1%) between £0 and £50 million; 8.5 basis points per annum of the net assets of the Company (0.085%) between £50 and £100 million and 7 basis points per annum of the net assets of the Company (0.07%) in excess of £100 million, subject to a minimum monthly fee of £3,750 and a maximum monthly fee of £10,000 payable quarterly in arrears. 

The Administrator assists in the preparation of the financial statements of the Group for which it receives a fee of £1,750 per set. 

The Administrator provides general secretarial services to the Group for which it receives a minimum annual fee of £5,000. 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 £350 per day or part thereof will be charged.

The Administrator utilises 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 Group. Crest service provider fees payable for the year ended 30 June 2009 amounted to £12,375 (30 June 2008: £10,803).

Administration fees payable for the year ended 30 June 2009 amounted to £71,223 (30 June 2008: £72,282).

Sponsor fees

The Sponsor receives a fee for the listing of the shares on the Channel Islands Stock Exchange. The Sponsor is paid an annual fee of £2,000 and a fee determined by reference to the number of hours spent on the work undertaken by the Sponsor by reference to its standard hourly charging rate. 

 

Sponsor fees payable for the year ended 30 June 2009 were £2,058 (30 June 2008: £1,968).

Strategic Adviser fees

The Strategic Adviser received a fee for its services of £40,000 per annum, payable quarterly in advance. This agreement was terminated during the year. Strategic Adviser fees refunded during the year ended 30 June 2009 were £65,492 (30 June 2008: expense £40,000).

Directors' remuneration

The maximum amount of remuneration payable to the Directors permitted under the Articles of Association is £200,000 per annum. The Directors are each entitled to receive reimbursement of any expenses incurred in relation to their appointment. The non-executive Directors are entitled to receive an annual fee of £20,000 each per annum and the Chairman £25,000 per annum. These fees were increased from 1 April 2009 to £40,000 per annum and £50,000 per annum respectively. 

Total fees and expenses paid to the Directors for the year ended 30 June 2009 amounted to £210,171 (30 June 2008: £95,033) and Directors' insurance cover amounted to £10,183 (30 June 2008: £64,111). The fees for the current year include £71,500 as one-off fees in relation to the strategic review.

7 Income tax expense

Group	Group Year ended 30 June 2009	Group Year ended 30 June 2008
	£'000	£'000
Current tax	19	(13)
	19	(13)

The tax on the Group's profit/(loss) before tax is higher than the standard rate of income tax in the Isle of Man of zero%. The differences are explained below:

Group	Group Year ended 30 June 2009	Group Year ended 30 June 2008
	£'000	£'000
Profit/(loss) before tax	7,502	(2,643)
Tax calculated at domestic tax rates applicable in the Isle of Man (0%)	-	-
Tax effect of expenses that are not deductible for tax purposes	-	-
Effect of higher tax rates in South Africa (28%)	19	(13)
Tax expense/(credit)	19	(13)

There are no losses carried forward.

8 Basic and diluted earnings per share

Basic and diluted earnings per share are calculated by dividing the profit/(loss) attributable to equity holders of the Group by the weighted average number of Ordinary Shares in issue during the year.

	Year ended 30 June 2009	Year ended 30 June 2008
Profit/(loss) attributable to equity holders of the Company (£'000)	7,482	(2,630)
Weighted average number of Ordinary Shares in issue (thousands)	62,293	62,293
Basic and diluted profit/(loss) per share (pence per share)	12.01	(4.22)

9 Subsidiaries and associates

9.1 Subsidiaries

Since inception and for efficient portfolio management purposes, the Company established the following subsidiary company:- 

	Country ofincorporation	Percentage ofshares held
SAPSPV Holdings RSA (Pty) Limited	South Africa	100%

SAPSPV Holdings RSA (Pty) Limited is a direct subsidiary of South African Property Opportunities plc. SAPSPV Holdings RSA (Pty) Limited was incorporated on 20 October 2006 with a share capital of ZAR 101 and share premium of ZAR 24,999,899. 

During the year there has been no change in the Company's investment in the direct subsidiary.

The direct and indirect subsidiaries held by SAPSPV Holdings RSA (Pty) Limited are as follows:-

	Country of incorporation	Percentage of shares held *
8 Mile Investments 504 (Pty) Limited	South Africa	100%
Breeze Court Investments 31 (Pty) Limited	South Africa	100%
Breeze Court Investments 34 (Pty) Limited	South Africa	100%
Breeze Court Investments 35 (Pty) Limited	South Africa	100%
Business Venture Investments No 1152 (Pty) Limited	South Africa	100%
Business Venture Investments No 1172 (Pty) Limited	South Africa	100%
Business Venture Investments No 1180 (Pty) Limited	South Africa	100%
Business Venture Investments No 1187 (Pty) Limited	South Africa	100%
Business Venture Investments No 1189 (Pty) Limited	South Africa	100%
Business Venture Investments No 1191 (Pty) Limited	South Africa	100%
Business Venture Investments No 1205 (Pty) Limited	South Africa	100%
Business Venture Investments No 1237 (Pty) Limited	South Africa	100%
Business Venture Investments No 1238 (Pty) Limited	South Africa	100%
Business Venture Investments No 1239 (Pty) Limited	South Africa	100%
Business Venture Investments No 1256 (Pty) Limited	South Africa	100%
Business Venture Investments No 1262 (Pty) Limited	South Africa	100%
Business Venture Investments No 1268 (Pty) Limited	South Africa	100%
Business Venture Investments No 1269 (Pty) Limited	South Africa	79%
Business Venture Investments No 1270 (Pty) Limited	South Africa	100%
Business Venture Investments No 1300 (Pty) Limited	South Africa	100%
Business Venture Investments No 1306 (Pty) Limited	South Africa	100%
Crane's Crest Investments 28 (Pty) Limited	South Africa	100%
Crimson King Properties 378 (Pty) Limited	South Africa	75%
Dream World Investments 551 (Pty) Limited	South Africa	100%
Living 4 U Developments (Pty) Limited	South Africa	65%
Madison Park Properties 33 (Pty) Limited	South Africa	100%
Madison Park Properties 34 (Pty) Limited	South Africa	100%
Madison Park Properties 36 (Pty) Limited **	South Africa	50%
Madison Park Properties 40 (Pty) Limited **	South Africa	50%
Royal Albatross Properties 313 (Pty) Limited	South Africa	89%
SAPSPV Clayville Property Investments (Pty) Limited	South Africa	100%
SAPSPV Imbonini Property Investments (Pty) Limited	South Africa	100%
Wonderwall Investments 18 (Pty) Limited	South Africa	100%

* this also represents the percentage of ordinary share capital and voting rights held - 2009

** the Group controls the company by means of direct control of the board

On 10 June 2009 the Company disposed of 21% of the ordinary share capital of Business Venture Investments No 1269 (Pty) Limited, a property holding company incorporated in South Africa, for £16 (ZAR 210). There was a loss on disposal of £11,549 (ZAR 166,792).

9.2 Associates

	2009	2008
	£'000	£'000
Start of the year	5,469	5,794
Acquisition of associates	211	219
Foreign exchange gain/(loss)	1,349	(662)
Share of (loss)/profit of associates	(322)	118
End of the year	6,707	5,469

During the year a second payment, £207,732 (ZAR 3,000,000), was made in relation to the initial purchase price of Imbonini Park (Phase 2) (Pty) Limited. This transaction increased the goodwill on the investment in associate to £426,819 (ZAR 5,999,500).

In July 2008 the Group acquired 30% of the ordinary share capital of Blue Waves Properties 2 (Pty) Limited, a property holding company incorporated in South Africa, for £3,029 (ZAR 43,752). There was goodwill of £3,025 (ZAR 43,692) as a result of this transaction.

The Group's share of the results of its principal associates, all of which are unlisted, and its aggregate assets (including goodwill) and liabilities, is as follows:

Name	Assets	Liabilities	Revenues	Profit/(Loss)
	£'000	£'000	£'000	£'000
2009
Imbonini Park (Pty) Limited	2,545	(2,545)	1,859	(68)
Longland Investments (Pty) Limited	6,659	(77)	75	54
Imbonini Park (Phase 2) (Pty) Limited	2,870	(2,745)	6	(305)
Blue Waves Properties 2 (Pty) Limited	1,141	(1,141)	-	(3)
	13,215	(6,508)	1,940	(322)
2008
Imbonini Park (Pty) Limited	2,516	(2,454)	7	31
Longland Investments (Pty) Limited	5,434	(216)	85	87
Imbonini Park (Phase 2) (Pty) Limited	221	(32)	-	-
	8,171	(2,702)	92	118

Loans due from associates

	2009	2008
	£'000	£'000
Loans due from associates	8,465	1,249

The loans due from associates are as follows:

Name	Term	Interest Rate	30 June 2009
			£'000
Imbonini Park (Pty) Limited	*	15%	2,065
Imbonini Park (Pty) Limited	*	0%	28
Imbonini Park Phase 2 (Pty) Limited	**	South African Prime +2.5% (capped at 16%)	5,411
Imbonini Park Phase 2 (Pty) Limited	***	0%	39
Blue Waves Properties 2 (Pty) Ltd	****	South African Prime	922
			8,465

* repayable after the senior debt funding provided by Investec Bank Limited has been repaid in full (note 19)

** repayment date is 4 years + 1 day following the receipt of the Recordal from the Development Facilitation Act, 1995 (DFA) Tribunal approving the planning application

*** repayable as and when the directors of Imbonini Park Phase 2 (Pty) Limited resolve that repayment shall be effected, provided there are sufficient cash reserves available to do so and proportionately to each shareholder

**** repayable at the discretion of the directors of Blue Waves

The fair value of these loans approximate their carrying value at 30 June 2009. 

10 Intangible assets

Group
	2009	2008
Goodwill	£'000	£'000
Start of the year	31	-
Additions	1,177	34
Exchange differences	168	(3)
End of the year	1,376	31

The contingent liability of £1,177,142 (ZAR 17,000,000) in relation to the purchase of shares in Living 4 U Developments (Pty) Ltd, which was included in the 2008 annual report, was settled during the year and has increased goodwill accordingly.

11 Inventories

Group

	2009	2008
	£'000	£'000
At start of year	24,531	4,231
Cost of land acquired and costs capitalised	15,706	22,524
Foreign exchange gain/(loss)	8,252	(2,224)
At end of year	48,489	24,531

During the year, the Group acquired land and capitalised costs of £15,705,562 (ZAR 226,815,012) (2008: £22,524,249 (ZAR 329,859,975)), in order to develop it for future re-sale, and accordingly it was classified as inventory. Borrowing costs of £285,478 (ZAR 4,122,792) (2008: £nil) have been included in the capitalised costs.

Security

At 30 June 2009, there are two first rank mortgages on the above inventory securing the bank loans (see note 19 for details).

12 Trade and other receivables

Group

	2009	2008
	£'000	£'000
Loan to third party *	-	137
Interest on loan to associate (see note 9.2)	-	241
Prepayments	76	34
VAT receivable	793	2,111
Other receivables	820	281
Trade and other receivables	1,689	2,804

* the third party became an associate during the year (see note 9.2)

Included in the VAT receivable balance is £429,811 (ZAR 5,466,291) (30 June 2008: £nil) which on receipt must be paid directly over to Investec Bank as part of the terms of the first rank mortgage (see note 19 for details).

Company

	2009	2008
	£'000	£'000
Loan due from SAPSPV Holdings RSA (Pty) Limited	42,142	28,595
Prepayments	34	34
Other receivables	9	11
Trade and other receivables	43	45

The loan from the Company to SAPSPV Holdings RSA (Pty) Limited bears interest at the Prime Rate (up to 30 June 2007 at the Repurchase Rate) as published by the Reserve Bank of South Africa from the date of the advance to the date of repayment, which interest shall be compounded monthly in arrears on the last working day of each month. 

This loan is repayable as and when the directors of SAPSPV Holdings RSA (Pty) Limited resolve that repayment shall be effected, provided there are sufficient cash reserves available to do so and that prior approval has been obtained from the Exchange Control Division of the South African Reserve Bank but in no case later than 30 June 2013. 

The fair value of the loan approximates its fair value at 30 June 2009.

13  Cash at bank and attorneys

Group

	2009	2008
	£'000	£'000
Bank balances	1,321	918
Bank deposit balances	13,651	20,046
Deposits with attorneys	-	6,305
Cash at bank and attorneys	14,972	27,269

Included within the £13,650,500 bank deposit balances figure is an amount of £1,800,108 (ZAR 22,893,585) (30 June 2008: £6,864,873 (ZAR 109,100,000)) represented by bank guarantees retained by the bank under fixed deposit (detailed below). This is the only figure excluded from the above balances for analysing the movements of cash and cash equivalents in the cash flow statement.

Bank guarantees

The indirect subsidiary Crimson King Properties 378 (Pty) Ltd ("Crimson") had a contingent liability (see note 22) to contribute up to £176,916 (ZAR 2,250,000) in connection with bulk services that are being installed by a consortium of the owners of three adjacent properties including that owned by Crimson. 

The indirect subsidiary Royal Albatross Properties 313 (Pty) Limited has a contingent liability of £1,230,045 (ZAR 15,643,585) in connection with its senior debt obligations.

The subsidiary SAPSPV Holdings RSA (Pty) Ltd has a contingent liability of £393,147 (ZAR 5,000,000) in connection with senior debt obligations of its associate Imbonini Park (Pty) Ltd.

Company

	2009	2008
	£'000	£'000
Bank balances	144	67
Bank deposit balances	11,800	12,907
Cash and cash equivalents	11,944	12,974

 

14 Share capital

Ordinary Shares of 1p each	As at 30 June 2008 & 2009 Number	As at 30 June 2008 & 2009 £'000
Authorised	150,000,000	1,500
Issued	62,292,810	623

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.

15 Share premium

Company and the Group	2009 £'000	2008 £'000
As at beginning and end of year	61,943	61,943

16 Net asset value per share

Group

	2009	2008
Net assets attributable to equity holders of the Company (£'000)	70,181	58,434
Shares in issue (in thousands)	62,293	62,293
NAV per share	£1.13	£0.94

The NAV per share is calculated by dividing the net assets attributable to equity holders of the Group by the number of ordinary shares in issue. 

17 Loans from third parties

Group

	2009	2008
	£'000	£'000
Loans from third parties	4,520	2,521

The loans from third parties are as follows:

Name	Interest Rate	30 June 2009
		£'000
Abbeydale Investment Holdings (Pty) Ltd *	0%	1,333
Sable Holdings Limited *	0%	889
Abbeydale Investment Holdings (Pty) Ltd **	0%	690
Homa Adama Trust ***	Prime Rate plus 3%	1,369
Justin Nash ****	0%	236
Other	0%	3
		4,520

* in relation to their combined ownership of 25% of Crimson King Properties 378 (Pty) Limited and the Gosforth Business Estate development. 

** in relation to its 50% interest in Madison Park Properties 36 (Pty) Ltd and the Waltloo Industrial Park development

*** in relation to its 50% interest in Madison Park Properties 40 (Pty) Ltd and the Brakpan development

**** in relation to his prospective interest in Madison Park Properties 34 (Pty) Ltd and the Kyalami Residential Estate development

All of the above loans are unsecured and carry no fixed terms of repayment.

The fair value of these loans approximate their carrying value at 30 June 2009. 

18 Trade and other payables

Group

	2009	2008
	£'000	£'000
Other payables	676	362
	676	362

Company

	2009	2008
	£'000	£'000
Other payables	342	266
	342	266

19  Borrowings

Current liabilities

	Group	Group
	30 June 2009	30 June 2008
	£'000	£'000
Secured bank loans	6,242	-

Terms and debt repayment schedule:

Bank	Effective interest rate	Final Maturity date	30 June 2009
	30 June 2009		£'000
Investec Bank	South African Prime Rate minus 0.85%	March 2010	5,020
Imperial Bank	South African Prime Rate minus 1.25%	* February 2009	1,222
			6,242

* from February 2009 to September 2009 new terms were being negotiated and the loan was considered to be repayable on demand. In September 2009 the loan facility was extended to September 2010 at a rate of FNB's Prime Interest Rate.

The fair value of the borrowings approximate their carrying value at 30 June 2009. 

20 Contingent liabilities and commitments

As at 30 June 2009 the Group has the following contingent liabilities and commitments:

- contingent liabilities which have corresponding bank guarantees are detailed separately in note 13.

- the indirect subsidiary Wonderwall Investments 18 (Pty) Ltd has a contingent liability to advance up to £348,401 (ZAR 4,430,932) being the balance under a Mezzanine Loan Agreement with Living 4 U Developments (Pty) Ltd to finance the African Renaissance development.

- the indirect subsidiary Business Venture Investments No 1269 (Pty) Limited ("BVI 1269") has a contingent liability to issue 100 Preference Shares to its minority shareholders. The Preference Shares entitle their owners to the first ZAR 22m of any and all dividends declared by BVI 1269. BVI 1269 shall not declare any dividends to Ordinary Shareholders until the ZAR 22m has been declared and paid in respect of the Preference Shareholders.

- The Investment Manager agreement between the Group and its Investment Manager provides for a performance fee if the Net Asset Value of the Group, as defined in the agreement, exceeds a specified hurdle. Subsequent to the balance sheet date the Group has received a claim from its Investment Manager for payment of £5.083m based on their own calculation that the hurdle has been achieved. The Directors, having engaged an independent accountant to look at the Investment Manager's calculation, are of the opinion that the specified hurdle has not in fact been achieved and have therefore not made any accrual for payment of the performance fee as at 30 June 2009.

21 Related party transactions

Parties are considered to be related if one party has the ability to control the other party or to exercise significant influence over the other party in making financial or operational decisions. 

The Investment Manager, Proteus Property Partners Limited, is a related party by virtue of its ability to make operational decisions for the Company. Fees for the year ended 30 June 2009 are disclosed in note 5. 

Brian Padgett is a director of Group's subsidiaries in South Africa, the Investment Manager and of Silex Management Limited (Silex), a company that has provided administration services to the majority of the Group's South African subsidiaries.  He is also a shareholder in Principle Capital Holdings S.A. the ultimate parent company of the majority shareholder in the Investment Manager. Fees invoiced by Silex for the year ended 30 June 2009 are £394,000 (30 June 2008: £387,000).

During the year Abbeydale Investment Holdings (Pty) Ltd invoiced Crimson King Properties 378 (Pty) Ltd £214,899 (ZAR 2,733,068) in relation to building work.

22 Post balance sheet events

The indirect subsidiary Crimson King Properties 378 (Pty) Ltd ("Crimson") had a contingent liability to contribute up to £176,916 (ZAR 2,250,000)  at the balance sheet date (see note 13). On completion of works in August 2009, the guarantee was released.

The Starleith Development was announced on 11 August 2009. Contracts were exchanged for £1.5m (ZAR 18.6m) representing a 50% stake to acquire the 0.4521 hectare Starleith development site in the heart of Sandton, Johannesburg's Central Business District. The aggregate land acquisition cost for the 0.4521 hectare site is ZAR 37.2m, of which SAPRO's share is ZAR 18.6m (£1.5m). The site is adjacent to the Company's existing Sandton Development.

The Record of Decision has been issued on Imbonini phase 2 meaning full planning rights are now in place pending township proclamation.

On 30 September 2009 the Company terminated its arrangements with Silex, which provided administration services to the majority of the subsidiary companies. GMG Trust Company (SA) (Pty) Limited were appointed to provide the administration services from 1 October 2009.

On 20 October 2009 the Investment Manager was given notice of termination of its contract which will expire on 19 October 2010. The executive directors will work closely with the Board and replacement arrangements will be put in place to manage the Company's projects going forward.

Post year end sale of 6 out of a total of 41 completed units within the first phase of the Kindlewood development, an inventory asset on the balance sheet, for a total of ZAR18.9m (£1.5m) plus VAT.

ENDFR CKKKBKBDDCBN

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