Final Results

26th Nov 2008 07:00



SOUTH AFRICAN PROPERTY OPPORTUNITIES PLC

('SAPRO' or the 'Group')

Final results for the year ended 30 June 2008

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 2008.

 

 

Commenting on the results, Quentin Spicer, Chairman, stated:

"I am pleased to report strong growth in the value of the property portfolio over its original capital cost and expenditure to date. This growth far outstrips general returns in the local and global property sectors in real terms and highlights the quality of the site selection and the impact that achieving planning permissions has in the Group's development strategy.  Progress has been good on the projects, with planning being granted on 7 of the 15 projects to date. Given the consequent increases in value, we are continuously assessing whether to realise value pre-development on our sites.

Whilst South Africa is suffering at least for the moment from extreme volatility in its currency, the economy benefits from continued availability of capital from the local banking system and is still expected to grow GDP at 3.7% in 2008. The Group has a strong balance sheet, with minimal gearing at present. This, combined with the shortage of real estate development over the last thirty years means that the Group is well placed despite a weaker global economy."

Principle Capital on behalf of SAPRO  Anne Dalen +44 20 7240 3222

Teathers Tom Hulme +44 20 7426 9000

Bell Pottinger Dan de Belder +44 20 7861 3232

Appointment of Joint BrokerThe Board is currently assessing the position of its Nomad and Broker. It has today appointed Matrix as joint broker and Matrix will attend its forthcoming investor presentations on behalf of the Company. However, the Company intends to make a permanent decision on both its Nomad and Broker appointments in the coming weeks. 

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

 

Notes:

1 IFRS Net Asset Value adjusted for the increases in valuation attributed by CB Richard Ellis, in accordance with guidelines produced by the European Public Real Estate Association (EPRA) 2 Excludes the open market CB Richard Ellis revaluations

3 Planning rights have been achieved on the north eastern corner of the Longmeadow site, where the hotel will be located. The balance of the site is still subject to a planning application.

Note to Editors:

  

Chairman's Statement

Introduction

I am pleased to report South African Property Opportunities plc's ("SAPRO's" or "the Company's") final results for the year ended 30 June 2008, which show considerable progress in the development portfolio.

The focus of the Group (SAPRO and its subsidiaries) has been securing investments in a broad range of new projects as well as advancing existing projects. Including the two transactions that have completed since the year end, the 15 projects within the Group are expected to lead to commitments totalling £68.9 million, which have in aggregate an expected development cost over time of £711.1 million. This will commit the Group fully and has been achieved ahead of the Board's expected timeframe. The key highlight since inception has been the significant uplift in value of the Group's committed projects. Offset against this excellent effort on the ground has been a weakening of the Rand against Sterling in the year, leaving the net asset value of the Group as calculated in accordance with International Financial Reporting Standards ("IFRS") lower than at 30 June 2007. However, given the significant falls in the underlying nature of property companies investing in more mature markets, I believe this to be a creditable performance.

The Group is now one of the largest development companies by size in the Johannesburg region of South Africa and it is developing a strong franchise, which has enabled it to join forces with some significant partners in many of its developments. The Group has a healthy balance sheet and minimal gearing which places it in a good position.

Investments and Valuations

The portfolio is currently split as to commercial (40%), residential (25%), industrial (20%) and retail (15%) based on bulk square meters to be developed. CB Richard Ellis conducted a land valuation of the portfolio as at 30 June 2008, for which the Group's share of the projects equated to £43.3 million, a £9.8 million (29%) uplift in value over management's £33.5 million estimate of the base cost and post acquisition capitalised expenditure. The most significant valuations were obtained on the African Renaissance residential development east of Pretoria which showed a £2.3 million (110%) uplift, Gosforth Business Estate, £2.2m (42%) and Longmeadow, £1.5m (36%). These valuations highlight the value created by good site selection followed by the obtaining of planning permissions and installation of basic services at certain projects. As at 30 June 2008, the Group had been granted planning rights over 6 projects with planning over part of the Longmeadow Development also subsequently granted.

Financial Results

At the end of the year under review, the net asset value of the Group calculated in accordance with International Financial Reporting Standards (IFRS) stood at £58.4 million, or 93.8 pence per ordinary share at the year end (down 6.8% from £62.6 million (100.6 pence per ordinary share) at 30 June 2007). The primary reason for the fall in IFRS valuation has been the decline in the Rand against Sterling, which fell 12.1% from 14.1798 (ZAR/£) at 30 June 2007 to 15.8925. The cumulative net asset value impact of the weakness in the Rand was approximately £(4.9) million ((7.9) pence per ordinary share).

However, the Board wishes to emphasise that 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. 

In order to demonstrate the underlying property values in the net asset value arising from these valuations, the Board, in accordance with its normal practice, is publishing an adjusted net asset value (NAV) in accordance with guidelines produced by the European Public Real Estate Association (EPRA). The EPRA NAV at the year end was £68.2 million (109.5 pence per ordinary share), up 0.7% from £67.7 million (108.7 pence per ordinary share) as at 30 June 2007 and the EPRA Triple Net NAV (which includes a simple assumption with respect to taxation) was £65.5 million (105.1 pence per ordinary share), down 1.2% from £66.3 million (106.4 pence per ordinary share) as at 30 June 2007.

At the year end, the Group held £27.3 million in cash and cash equivalents, split approximately evenly between Rands and Sterling and by the date of this report, the balance had reduced to £13.3 million (of which approximately 90% had been converted into Rand at the low rates that presented themselves in October) following the completion of the Sandton and Brakpan property acquisitions and a contractual payment due to the founding partners in African Renaissance that followed the receipt of favourable planning rights in July. To finance the investment portfolio, a total of ZAR872.7 million has been purchased at an average Rand/GBP exchange rate of 14.8925, equating to £58.6 million. Deposit interest earned averaged approximately 5.3% per annum on Sterling balances and 10.1% per annum on Rand balances, generating £3.2 million of finance income. After management, administration fees, other expenses and revising the Rand down from the 30 June 2007 rate, the loss after tax for the year was £2,630,000.

At the year end, to finance the installation of basic services, the Imbonini Services Park (Phase 1) project had outstanding borrowings of ZAR9.4 million (£592,659) and the Gosforth Business Estate project had taken out a facility of ZAR63.6 million (£4.0 million) which had not yet been utilised. Since the year end, in August a facility of ZAR85.4 million (£5.4 million) was approved for the Kindlewood development, subject to a pre-sales threshold being achieved. The Group will continue to gear up on its other projects as necessary once required planning permissions are obtained. However, it is conscious of the current global economic environment and will always review its strategy and potential debt exposure across the portfolio before undertaking gearing. In line with the Group's focus on achieving capital returns and with its dividend policy, the Board is not proposing a dividend.

Strategy

SAPRO's strategy is to take major real estate development positions that will benefit from active management. The Board is also cognisant of the current state of the market and expectations and requirements of its shareholders. The Group will continue to identify properties in its portfolio where opportunistic capital gains can be realised and where proven uplift has already occurred. The aim of the Group remains to provide capital returns to investors over the medium term.

Outlook

The report of the Investment Manager goes into greater detail on the macro economic environment in South Africa. However, given the financial crises affecting the global economy, it is appropriate for me also to comment. South Africa has been largely immune as a country to the global banking crisis and has enjoyed significant growth over the last few years, benefiting from the constraints of the local regulatory environment, exchange controls in particular, which has provided protection from the turmoil of the wholesale credit markets. In addition, the banks will, with hindsight, have benefited from the government's foresight in introducing the National Credit Act 2007, the purpose of which was to prevent the reckless lending to residential buyers and borrowers that has been the cause of so many problems in more mature markets.

South African GDP is still expected to have grown at 3.7% in 2008. However, the major negative factor in the economy has been the extreme volatility in the Rand against the major currencies. The Rand traded in a very wide range between 13.2427 and 16.3479 Rand/GBP in the year to 30 June 2008, ending the year at 15.8925. The Rand weakness has been blamed both on the poor performance of the mining sector and the unravelling of carry trades where financial investors have borrowed in stronger currencies and then invested into much higher yielding Rand deposits.

South Africa is an emerging market, but one which is already very sophisticated and there is an inaccurate perception that its economy is driven almost solely by mining. Only 8% of GDP is generated directly from mining (16% if indirect sectors are included). In fact, the largest generators of GDP are finance, insurance, real estate and business services (22%). One of the major factors affecting South Africa has been the slowdown in consumer spending primarily due to high interest rates. The recent falls in commodities prices should lead to at least moderate falls in interest rates. This should also have a further positive impact on the Group given, for instance, the significant falls in steel and aluminium costs in the last few months.

There has been a massive underinvestment in the past in South Africa's infrastructure and, on the back of the strong growth in its own economy over the last five years, this has created a significant requirement for new development. The Group is seeking to take advantage of these conditions and has succeeded to date in doing so. We will need patience with the currency and the Board and the management team are determined to deliver value for shareholders.

 

Quentin Spicer

Chairman

25 November 2008

Report of the Investment Manager

SAPRO's investment policy remains the achievement of primarily capital growth from an opportunistic portfolio of real estate assets across the commercial, industrial and residential sectors in South Africa. The Group's strategy is to take sizeable real estate development positions that will benefit from active management and from the drivers behind South Africa's continued economic growth.

Portfolio overview

Including the two transactions that have completed since the year end, the 15 projects within the Group are expected to lead to commitments of £68.9 million, which have, in aggregate, an expected development cost over time of £711.1 million. This will commit the Group (excluding realisations and cash returns) fully ahead of our expected timeframe. £43.5 million of this £68.9 million relates to the acquisition of the Group's share of physical properties in the portfolio, with the balance of £25.4 million invested or to be invested by way of mezzanine finance. The current portfolio is spread across commercial (40%), residential (25%), industrial (20%) and retail (15%) developments. We believe that this provides the Group with diversification benefits across the various real estate asset classes, and we have focused the investments on the areas of the market where we see appropriate levels of demand arising in line with the development timetable. However, we are also actively reviewing opportunities to realise profits earlier than originally planned by selling off selected assets as and when such opportunities present themselves.

The bulk of the investments have been made in Gauteng, South Africa's main economic and political centre, with four developments in KwaZulu Natal. The following table sets out the constituents of the prospective portfolio:

Project Name and Sector	Interest	SAPRO Expected Investment Commitment (£ million)	Total Project Expected Development Cost (£ million)	Projected Exit Year
Residential
African Renaissance	65%	5.8	211.6	2019
Driefontein Residential	92.5%	1.9	25.2	2013
Kindlewood Nature Estate	89%	3.7	12.6	2011
Kyalami Residential Estate	55%	1.9	20.7	2013
Mixed Use
Brakpan	50%	1.9	19.6	2018
Emberton	80%	4.4	32.3	2017
Lenasia	100%	4.4	42.0	2018
Longmeadow	49%	5.5	175.5	2016
Sandton	79%	25.2	74.8	2013
Industrial
Clayville Industrial Park	100%	0.4	7.7	2013
Gosforth Business Estate	75%	5.6	55.6	2017
Hughes Industrial Park	30%	0.5	5.7	2010
Imbonini Services Park (Phase 1)	50%	1.3	3.4	2009
Acacia Park *	50%	1.3	3.3	2009
Imbonini Services Park (Phase 2)	50%	4.5	13.3	2013
Waltloo Industrial Park	50%	0.6	7.8	2011
Total		68.9	711.1

£1 =ZAR14.8925 (SAPRO's average Rand/GBP exchange rate from inception to 31 October 2008)

* Acacia Park is a mini-unit industrial park that is being developed on the Imbonini Park Phase 1 land.

Of the above list of 15 projects, actual title had transferred in 13 cases at the year end and the remaining 2 completed in the first quarter of the 2008/2009 year. Therefore, these 2: Brakpan and 17 sectional title units (out of a total of 20) in the Sandton Development are not reflected in the Group's balance sheet within inventories. 

We are pleased to report the encouraging results of the valuation of the 15 portfolio projects as performed by the Group's independent valuers, CB Richard Ellis. The following table covers the prospective portfolio as at 30 June 2008 and demonstrates a 29% increase over management's estimate of the cost and capital expenditure ("capex") spent. It is worth noting that this cost estimate, includes the Group's prospective share of the two projects that completed after the balance sheet date and an adjustment in respect of the amounts that will be transferred to third parties upon completion of shareholders agreements on a number of projects.

Project Name	SAPRO Interest	SAPRO Share of Land Cost/ Capex  as at 30.06.08  (£ million)	SAPRO Share  of Land Value as at 30.06.08   (£ million)	SAPRO Share  of Uplift as at 30.06.08 (£ million)	SAPRO Share of Uplift over Cost/Capex as at 30.06.08
Residential
African Renaissance	65%	2.1	4.4	2.3	110%
Driefontein Residential	92.5%	1.1	1.7	0.6	55%
Kindlewood Nature Estate	89%	1.7	1.9	0.2	12%
Kyalami Residential Estate	55%	1.0	1.0	0.0	0%
Mixed Use
Brakpan	50%	0.9	0.9	0.0	0%
Emberton	80%	2.6	2.6	0.0	0%
Lenasia	100%	3.8	4.1	0.3	8%
Longmeadow	49%	4.2	5.7	1.5	36%
Sandton	79%	5.5	5.5	0.0	0%
Industrial
Clayville Industrial Park	100%	0.6	1.2	0.6	100%
Gosforth Business Estate	75%	5.2	7.4	2.2	42%
Hughes Industrial Park	30%	0.3	0.5	0.2	67%
Imbonini Services Park (Phase 1)	50%	2.0	3.0	1.0	50%
Acacia Park	50%	0.4	0.6	0.2	50%
Imbonini Services Park (Phase 2)	50%	1.6	2.0	0.4	25%
Waltloo Industrial Park	50%	0.5	0.8	0.3	60%
Total		33.5	43.3	9.8	29%
£1 = ZAR15.8925 (30 June 2008 rate)

It is important to note that International Financial Reporting Standards do not permit the recognition of increases in land values on property that is held for development and sale and that the 13 projects which are reflected in the Group's balance sheet are held at their book cost including any post acquisition expenditure that has been capitalised.

However we set out below the adjusted net asset values of the Group in accordance with the Best Practice Policy Recommendations of the European Public Real Estate Association (EPRA) including a comparison with the status as at 30 June 2007. This valuation is not intended to replace the IFRS net asset value stated in the Group's balance sheet, but to provide complementary information to assist shareholders in better understanding the Group's performance.

Net Asset Value (NAV) Summary	30 June 2008	30 June 2007
IFRS NAV (£ million)	58.4	62.6
IFRS NAV (pence per share)	93.8	100.6
Fair value adjustment (£ million)	9.8	5.1
EPRA NAV (£ million)	68.2	67.7
EPRA NAV (pence per share)	109.5	108.7
Deferred tax adjustment (£ million)*	2.7	1.4
EPRA Triple Net NAV (£ million)	65.5	66.3
Triple Net NAV (pence per share)	105.1	106.4
Shares in issue: 62,292,810
* Assumed corporation tax rate of 28%

Further information on all 15 projects in the portfolio is set out below.

Residential

a) African Renaissance Development. This development comprises a 146.6 hectare residential development, with a retail component, in a rapidly growing area east of Pretoria. Upon completion, the site, of which the majority is undeveloped vacant land, is expected to yield an estimated 252,920 sqm of bulk. The development is a partnership with three individuals, one of whom is a local real estate project manager, one a building contractor and the other a quantity surveyor, who secured the opportunity and conceptualised the development plan over the last two years. SAPRO has a 65% interest in the development vehicle. The development company has made excellent progress with its planning applications. Planning rights for the commercial and retail component were granted earlier in the year and it has recently received final planning rights to build 3,355 residential units on site, more than the 3,200 residential units initially applied for. We shall be making a decision later in the year as to when to launch the first phase of the residential development. It was announced on 9 April 2008 that the development company had received and accepted an offer for the retail component of the site, which was subject to a three month due diligence exercise. The due diligence period for this offer was extended at the request of the offeror and has now expired. However, discussions are continuing.

b) Driefontein Residential Development. This development comprises a 13.2 hectare site, 4 miles south of Johannesburg's main international airport. The Group will retain a 92.5% stake in the development company and a local property developer will hold the remaining 7.5%. The Group intends to develop a high density residential estate targeting the region's fast growing middle income market. It was initially envisaged that the development company would develop 500 residential units, but the local authorities have now approved in principle a higher density of 850 units. Good progress has been made on the architectural design, anticipated project costing, bulk services design and town planning. Following discussions with the local authorities, the development company has obtained a commitment for the provision of the bulk of the electrical power required for the development. Final conditions of establishment have been issued by the local authorities and it is expected that once environmental approvals have been obtained the township will be proclaimed in 2009. 

c) Kindlewood Nature Estate. This development comprises two adjoining pieces of land with a combined area of 5.3 hectares in the Kindlewood Estate, Umhlanga, north of Durban, KwaZulu Natal. The proclaimed and serviced site is situated adjacent to the prestigious Mount Edgecombe Golf Estate, and will be developed into a residential conservation estate featuring natural wetlands aimed at the upper end of the market. The development is a partnership with an experienced local residential developer in which the Group planned to retain a 65% stake. However, the Group has subsequently increased its planned retention to 89% which is expected to enhance its projected returns. Transfer of the site has been taken and the development company is currently marketing the residential units. The development company experienced some cancelled sales in the first quarter as a result of the current state of the residential market, but commenced construction with the first phase of the project once 25% of pre-sales were achieved. Completion is expected by late 2009. A senior debt facility of ZAR85 million (sufficient to complete the first phase of the development) is currently in place, the development portion of which can be drawn down once pre-sales of 38.5% have been achieved. The Group will inject a further ZAR20 million of mezzanine finance into the development if necessary in order to access this facility, until such time as the pre-sales threshold is met, and expects to achieve its targeted return. Launch of the second phase is now scheduled for 2009, depending on the progress of the first phase.

 

d) Kyalami Residential Estate. This development comprises an 8.9 hectare site in Kyalami, north of Johannesburg, Gauteng. The site, which is currently undeveloped land, is located within a growing node close to the well known Kyalami Racetrack, and it is intended that it will be developed into a residential complex aimed at middle market buyers. The development is a partnership that includes an experienced local residential property developer. The Group will retain up to 75% of the equity pending the results of the planning application which will determine the maximum density that can be achieved on the site. The site, title on which was taken in March 2008, is currently zoned as an agricultural holding, but our planning application has already been submitted and we expect that it will receive approval by the fourth quarter of 2008. The development company anticipates beginning construction in 2011 and completing the project within two years.

Mixed Use

 

a) Brakpan. The development comprises 6.65 hectares of currently undeveloped vacant land opposite a newly developed regional shopping mall, and is close to a major commuting route into Johannesburg from the east, providing excellent access. It is expected to yield an estimated 25,500 sqm of net lettable area (NLA) after rights have been granted. The Group has a 50% interest in the development vehicle, and is partnering with a local property developer. The planning process has commenced and planning approval is anticipated in the third quarter of 2009. 

 

b) Emberton Development. This development comprises a 16.5 hectare prominent mixed use site in Hillcrest, approximately 15 km west of Durban. The site, an existing golf driving range, is currently zoned for agricultural use. It is situated 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 an upmarket mixed-use secure estate, with commercial and retail components. The township planning process has been commenced, and it is expected that planning rights will be received within two years. Thereafter the development company expects to commence construction in 2010.

 

c) Lenasia Development. This development comprises a 12.95 hectare prominent mixed use site (commercial and retail) in Lenasia, Johannesburg. The site, the majority of which is undeveloped vacant land, together with a commercial structure on part of it, should yield an estimated 51,600 sqm of NLA after rights have been granted. It is situated immediately south of Soweto, which is south west of Johannesburg. The site is opposite a newly developed regional shopping mall, and is 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 underway. Architects have been retained to compile a site development plan, and engineers are currently busy with the internal services design. Agreement has been reached in principle with a strategic partner to purchase a 15% interest in the development. It is expected that building will commence in 2010 and that the build-out period will be three years.

d) 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 majority of which is undeveloped vacant land, together with a number of small commercial structures, should yield an estimated 132,000 sqm of NLA after rights have been granted. It is situated approximately 5 miles to the north of Johannesburg's Sandton Central Business District in the Fourways node. The Group acquired its 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 (which will retain a 27.5% stake). The development company is currently applying for rights to build high density residential apartments, commercial office space, hotels and a niche retail component on the site. Good progress has been made with developing the first phase of the site, where planning rights were received at the end of October 2008. A long term ground lease was also signed with a major hotel operator for 7,232 sqm of land on the north eastern corner of the development where the planning rights have been received. In addition, a commercial development of approximately 5,400 sqm of NLA is at an advanced planning stage. Bulk earthworks on the first phase of the development will commence shortly. The planning application on the balance of the site is progressing well.

e) Sandton. This development is a significant strategic investment situated on a main arterial road in the heart of the Sandton Central Business District. It comprises a 0.777 hectare residential estate on which planning permission will be sought for a 14 storey building comprising up to 12,500 sqm of hotel space and a sectional title office development of up to 37,500 sqm. The planned Group holding in the development is 79%, with the balance held equally by Group 5 and Barrow Construction, two well known property developers / contractors. Three of the existing 20 sectional title units had transferred to the development company as at year end, and the remaining 17 have since transferred, paving the way for the commencement of the planning permission process. The 20 units will be held as residential letting stock until such time as bulk earthworks commence. The planning application has commenced and planning approval is expected in the fourth quarter of 2009.

Industrial

a) Clayville Industrial Park. This development comprises a 49.3 hectare site located north west of the Johannesburg international airport. It is intended to service the site for industrial use and sell stands to owner occupiers. This project was initially delayed due to the unavailability of power. However, discussions with the local authorities have resulted in the granting in principle of sufficient power for the first phase of the development. As a result of updated geotechnical investigation findings the site layout is being amended prior to township proclamation in order to optimise the layout of the individual stands on site. The proclamation of the industrial township is expected in 2009, whereupon internal services will be installed. Whilst a small investment, the CB Richard Ellis revaluation attributed an increase in value of 100% over the cost of this investment.

 

b) Gosforth Business Estate. This is an important strategic property investment for the Group comprising a 42 hectare prominent industrial site where an estimated 150,000 sqm of bulk can be developed. 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 planned interest of 75% in the development company and the remainder of the equity is held by a local contractor and a South African listed property fund. The development company has commenced servicing the site, and the installation of bulk services should be completed in November 2008. The township register has been opened, which is a significant town planning milestone, allowing the development company to proclaim the site as an industrial township.

 

c) Hughes Industrial Park. This development is a project with a local contractor and a South African listed property fund in which the Group owns a 30% interest. The development comprises a sectional title mini-unit development totalling 18,372 sqm. The development company has commenced with construction of the first phase of industrial mini-units on the park. Construction is expected to be completed by the end of July 2009.

 

d) Imbonini Services Park (Phase 1). This development is a partnership with local developers in which the Group has a 50% interest. It comprises a 36 hectare site located close to the fast growing residential and leisure node of Ballito, just north of Durban, which has been developed for light industrial use. Good progress has been made resulting in the completion of the installation of all internal services and the opening of the township register. The first batch of completed sales has been lodged in the Deeds Office, with sales proceeds used to reduce the outstanding senior debt. The development company started the construction of a 10,400 sqm sectional title mini-unit development on one of the serviced stands in the second quarter of 2008 that is expected to be completed in December 2008. Marketing of the scheme is currently underway. The lack of serviced industrial land in Durban and the relocation of the Durban international airport to a site south of Imbonini have resulted in a significant uplift (50%) in the Imbonini investment's value since the investment was made.

 

e) Imbonini Services Park (Phase 2). This is the second phase of the Imbonini development and will comprise a 77 hectare industrial park directly north east of and adjoining the Group's current Imbonini Phase I development. The development is a joint venture with the same two partners who invested in Phase I. The Group has a 50% interest in the development vehicle. The joint venture partners are currently applying for planning rights for approximately 430,000 sqm of developable land in order to develop an industrial park and c. 600 residential units on the site. It is expected that servicing of the site will commence in 2009 and that the total length of the project will be four years. As disclosed on 27 May 2008, the development company took early transfer of the site in return for a ZAR10 million reduction in the purchase price.

 

f) Waltloo Industrial Park. This development comprises a 4.4 hectare site located east of the Pretoria CBD, and the Group has a planned interest of 50% in the development company along with a local contractor. It is envisaged that sectional title industrial premises catering to small businesses and freehold warehouse premises will be developed on the site, which comprises 21,948 sqm of NLA. The development company took transfer of the site in the second quarter of 2008. Bulk services have been installed and the township has been proclaimed. The site development plan has been approved by the local authorities, and final building plan approval is expected shortly. Top structure development will commence in 2009.

Economic Outlook 

The South African economy has performed relatively well given the backdrop of increased market volatility, global risk aversion, electricity supply issues and successive interest rate hikes. GDP growth is expected to slow to around 3.7% in 2008 from 5.1% last year, and is expected to average 2.8% over the next two years. The government is attempting to increase the growth potential of the economy through large scale infrastructure investment and microeconomic reform. Progress has already been made in stepping up the pace of investment in the public and private sectors of the economy. The massive investment drive that will be undertaken in the run-up to the 2010 World Cup and beyond should provide strong underlying support for GDP growth. 

Interest rates have risen by 500 basis points since June 2006 as a result of rising inflationary pressures. Inflation has remained over the SA Reserve Bank's target range of 3%-6% since April 2007 primarily as a result of higher oil and food prices. In August and October this year the SA Reserve Bank decided to leave interest rates on hold, but it is believed that interest rates have peaked and should begin declining in 2009 given the fall in the price of oil. In addition the falls in other commodity prices, such as steel, will benefit our development programmes. Lower interest rates should result in a recovery in consumer expenditure and improve the real estate outlook, particularly the residential sector.

Currency 

Given global economic uncertainty underscored by fluctuations in currency markets, the Rand has been extremely volatile in recent months and lost substantial ground in the year. South Africa's commodity exports will probably come under pressure over the next year, and to the extent that global risk aversion remains high and while a degree of political uncertainty exists, it is likely that the Rand's performance will remain volatile. However, high South African real interest rates should encourage capital inflows over the medium term which will support the currency. 

Residential Market

The outlook for the residential market has worsened over the last two quarters. Median house prices have fallen by 10.0% year on year in real terms, although the introduction of the National Credit Act in June 2007 resulted in a high house price base that might have distorted this fall. The broad trend within the South African residential property market is more cautious given high prevailing interest rates combined with an environment of high consumer household indebtedness. Although the SA Reserve Bank left interest rates unchanged in August and October 2008, interest rates are still up a cumulative 500 basis points since June 2006. The rise in inflation, driven primarily by food and oil price increases, has also eroded consumer disposable income. The net result has been a slowdown in consumer spending and a moderation and decline in the demand for residential property. However, there is still demand in the sub £40,000 / unit market, and the majority of the Group's exposure to the residential market is focused on the middle to lower income sector of the market where good long term demand from the growing black middle class still exists. Many of the Group's residential projects are still in the planning and conceptualisation phase and will only be brought to the market over the next 18 to 24 months when market conditions are likely to be more favourable, particularly with recent falls in oil and commodity prices giving rise to hopes of interest rate cuts. The competitive prices at which the Group was able to secure its development land and the value uplift it has gained by progressing its planning rights mean that the Group is well positioned to service this sector of the market over the next few years.

Industrial Market

Industrial rentals in the larger conurbations sustained their robust growth momentum well into the year only moderating more recently. As at the end of quarter 2 2008, nominal rentals for prime industrial space in Durban were up by an impressive 27% year on year, followed by Guateng and the Cape Peninsular (+18%), Port Elizabeth (+11%). With average building cost inflation at 10%, this translates into real rental growth in all of the areas. Over the past few years robust industrial rental growth has not only been supported by high replacement costs but also the robust demand for industrial space, on the back of strong economic growth. More recently, however, economic prospects have started to weaken, with key economic indicators signaling the possibility of an economic slowdown. A slower growing economy could lead to a waning in demand for industrial space. However, on the supply side, industrial land values in the major centers continued to grow strongly. Constraints on bringing serviced industrial land to market should continue to provide impetus to the industrial land market.

Commercial / Retail Market

Vacant office space remains a rare commodity with virtually all of the current prime office stock in the decentralised office nodes being fully occupied. More than 95% of the total rentable area in the decentralised office nodes is taken. Should the economy not weaken substantially, then the office market upturn is expected to continue. And notwithstanding impressive rental growth in most of the top decentralized office nodes, high replacement costs are likely to increase upward pressure on rentals. 

Power shortages

South Africa has generally not experienced widespread electricity supply interruptions since the first quarter of 2008. The current situation has stabilised, although reserve capacity is lower than internationally accepted normal levels. Eskom has lifted a six month moratorium on the granting of power to new large developments, which are now being assessed on a project by project basis. However, further interruptions and uncertainty as to the provision of bulk electricity supply to new developments is likely to be a feature in South Africa over the medium term. It is possible that these factors will impact on the Group's developments, with some projects taking longer to develop than initially anticipated, but the situation has improved from when the Group reported its half year results.

Financing market

South African banks are generally well-capitalised and conservatively leveraged, given their focus on more traditional banking: loans, deposits, and transacting capacity. While they do use complex financial instruments, their freedom to do so is constrained by the local regulatory environment - exchange controls in particular. As a result, they appear to have had very limited exposure to the US banking crisis. We have met with all the main lenders in South Africa in order to ascertain their current ability and appetite to finance the Group's investments. The feedback has been positive, with all major institutions expressing a willingness to examine senior funding opportunities on a deal by deal basis. The current global credit crisis has not materially curtailed the ability of local lending institutions to fund viable real estate developments, although they may not be growing their lending books as aggressively as previously. They are also understandably cautious given the current global credit crisis, and will generally look for sufficient levels of pre-sales or pre-lets and sufficient security in order to mitigate their exposure. This caution is being reflected in more expensive debt pricing, but not materially on the quantum of debt funding available. 

Proteus Property Partners Limited

Investment Manager

25 November 2008

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 2008.

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.

Results and Dividends

The results and position of the Group and the Company at the year end are set out on pages 20 to 22 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. It is not expected that the Company will pay any significant dividends in the early years of its operations. 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 (2007: £Nil).

Directors

The Directors during the year and up to the date of this Report were as follows. There has been no change to the constitution of the Board during the year:

Quentin Spicer (Chairman)

Peter Milton Bester

David John Humbles

Brian Alan Myerson

Richard James Sunley Tice

Directors and Other Interests

Brian Myerson is a director of the Investment Manager. None of the directors have a direct or indirect interest in the shares in the Company.

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

Independent Auditors

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 intend 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 not less than two independent non-executive Directors of the Board. 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 established a nomination committee with formally delegated duties and responsibilities, comprising members of the Board. The committee's responsibility is to ensure that the Board consists of members with the range of skills and qualities to meet its principal responsibilities in a way which ensures that the interests of stakeholders are protected and promoted and the requirements of the AIM Rules are complied with.

The Board has also established a management engagement committee with formally delegated duties and responsibilities, comprising the other non-executive (main board) Directors and the company secretary. The committee meets at least once a year and is responsible to assist the Chairman in the performance of its duties, including: the development and implementation of strategy, operational plans, policies, procedures and budgets; the monitoring of operating and financial performance; the assessment and control of risk; the prioritisation and allocation of resources; and monitoring competitive forces in each area of operation.

The Board is in the process of establishing a remuneration committee. 

Audit Committee Richard James Sunley Tice - Chairman Quentin Spicer - Member David John Humbles - Member

Nomination Committee Richard James Sunley Tice - Chairman Quentin Spicer - Member Peter Milton Bester - Member David John Humbles - MemberManagement Engagement Committee Richard James Sunley Tice - Chairman Quentin Spicer - Member Peter Milton Bester - Member David John Humbles - Member

On behalf of the Board

Quentin Spicer

Chairman

25 November 2008

Directors' Biographies

The Company has a board of five Directors, all of whom are non-executive and all of whom, with the exception of Brian Myerson, are independent of the Company's investment manager and other service providers. A majority of the Directors including the Chairman are resident outside the United Kingdom. Details of the Directors are as follows:

Quentin Spicer (1944) - Chairman Quentin Spicer qualified as a solicitor with Wedlake Bell in 1968 and became a partner in 1970. He moved to Guernsey in 1996 as senior partner in Wedlake Bell Guernsey specialising in United Kingdom property transactions for non-United Kingdom resident entities. 

He is chairman of the Guernsey Housing Association LBG, European Value and Income Fund Limited, ISIS Property Trust 2 Limited and RAB Special Situations Company Limited and is a non-executive director of several other property funds. Quentin holds a Personal Fiduciary Licence from the Guernsey Financial Services Commission and he is a member of the Institute of Directors.

Peter Milton Bester (1941) 

Peter Bester retired as executive chairman of Cadbury Schweppes (South Africa) Ltd in 2001, after seventeen years as chief executive of the group. During this period, he held non-executive positions on the boards of Amalgamated Beverage Industries Ltd (ABI), South Africa's largest bottler and distributor of soft drinks and served as non-executive chairman of Revertex Ltd, a subsidiary of Yule Catto Plc. 

Since 2001, he has held non-executive directorships of ABI Ltd, AVI Ltd, National Brands Ltd, Distell Ltd, Suidwes Beleggings Bpk, New Holland SA Ltd, and Agrinet Ltd. He is also a private property developer with experience in retail and residential developments in Gauteng and the Western Cape.

David Humbles (1960) 

David Humbles joined Total in 1977 and enjoyed a 25 year career in the downstream oil industry. He relocated to the Isle of Man in 1998 as Director and General Manager of Total (Isle of Man) Limited. 

In 2003, David purchased Abbey Properties Ltd and St Paul's Property Services Ltd. These companies own and manage a property complex in the north of the island incorporating 200 residential apartments and 26 retail units as well as office accommodation. Also in 2003, he formed Westminster Properties Ltd to manage a large portfolio of residential and commercial properties on the island.

David is Managing Director of Oakmayne Properties (Regeneration) Limited, a property development company specialising in the London residential market, current projects have a GDV of over £800 million. David is also a non-executive director of several property funds including Speymill Deutsche Immobilien Company plc.

Brian Alan Myerson (1958) 

Brian Myerson is chief executive officer of the Principle Capital group, which he founded in November 2004, and joint chairman of the Investment Manager. 

Brian co-founded Active Value in 1993 and through the Active Value and Principle Capital Groups has been a pioneer in activist investing in the UK, Continental Europe and South Africa. Brian is South African and retains strong links to South Africa, where he has invested personally in a number of property developments. 

Brian has been on the boards of several UK property companies, including Greycoat plc (1994 to 1996) and Marylebone Warwick Balfour Group plc ("MWB") (2002 to 2005), where he was chairman. When he joined, MWB had gross assets of £650m and owned major property and hotel interests (including the Malmaison Hotel Group) in the UK, as well as a Europe wide serviced offices business and a majority interest in Liberty plc, the UK department store. Brian oversaw two full refinancings of MWB together with a major asset disposal plan which resulted in the equity market value of MWB rising from £90m in March 2002 (when Brian's appointment was announced) to £170m as at 30 November 2005 (when he stepped down). 

Brian remains on the board of Liberty plc, of which the Principle Capital group has the right to joint board control with MWB.

Richard James Sunley Tice (1964) 

Richard Tice has 20 years' experience in international real estate development and investment across both the residential and commercial sectors. Richard has worked in the UK, USA and France. He was the joint chief executive of the Sunley Group, a significant privately owned real estate company, for 14 years until 2006. He now runs his own investment business, Tisun Capital. He has been particularly involved in the creation, structuring and negotiation of numerous real estate joint ventures, involving equity, mezzanine and senior debt financing of individual projects, with a wide variety of developers and investors. 

Richard has been a non-executive director of numerous private companies and two fully listed property companies. He was on the board of Property Fund Management PLC during and after its flotation in 2002. He was also appointed to the board of Tay Homes PLC in the late 1990s.

 

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 and regulations. 

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;

state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements;

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

Quentin Spicer

Chairman

25 November 2008

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 2008, 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 2008, 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 2008, 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

25 November 2008

Consolidated Income Statement

		Year ended 30 June 2008	Period from 27 June 2006 to 30 June 2007
	Note	£'000	£'000
Revenue		-	-
Investment Manager's fees	5	(1,274)	(480)
Other administration fees and expenses	6	(1,395)	(382)
Administrative expenses		(2,669)	(862)
Operating loss		(2,669)	(862)
Finance income		3,227	1,470
Foreign exchange loss		(3,315)	(424)
Finance costs		(4)	(4)
Net finance (cost)/income		(92)	1,042
Share of profit/(loss) of equity accounted investees	9	118	(33)
(Loss)/profit before income tax		(2,643)	147
Income tax expense	7	13	(27)
(Loss)/profit for the year/period		(2,630)	120
Basic and diluted (loss)/earnings per share (pence) for (loss)/profit attributable to the equity holders of the Company during the year/period	8	(4.22)	0.34

 

The accompanying notes form an integral part of these financial statements

 

 

Consolidated Balance Sheet

	Note	As at 30 June 2008	As at 30 June 2007
		£’000	£'000
Assets
Non-current assets
Intangible assets	17	31	-
Inventories	10	24,531	4,231
Investments in equity accounted investees	9	5,469	5,794
Loans due from joint ventures	9	-	1,365
		30,031	11,390
Current assets
Loans due from joint ventures	9	1,249	-
Trade and other receivables	11	2,804	831
Cash at bank and attorneys	12	27,269	51,797
		31,322	52,628
Total assets		61,353	64,018
Equity
Capital and reserves attributable to equity holders of the Company:
Issued share capital	13	623	623
Share premium	14	61,943	61,943
Foreign currency translation reserve		(1,622)	(44)
Retained (deficit)/earnings		(2,510)	120
Total equity		58,434	62,642
Current liabilities
Trade and other payables	16	2,883	1,349
Current tax liabilities		36	27
Total liabilities		2,919	1,376
Total equity and liabilities		61,353	64,018

The financial statements were approved and authorised for issue by the Board of Directors on 25 November 2008 and signed on its behalf by:

Quentin Spicer  David Humbles

Director Director

 

The accompanying notes form an integral part of these financial statements

 

Company Balance Sheet

	Note	As at 30 June 2008	As at 30 June 2007
		£’000	£’000
Assets
Non-current assets
Loans and receivables due from subsidiary	11	28,595	18,382
Investment in subsidiary	9	21,741	1,807
		50,336	20,189
Current assets
Trade and other receivables	11	45	99
Cash and cash equivalents	12	12,974	42,810
		13,019	42,909
Total assets		63,355	63,098
Equity
Capital and reserves attributable to equity holders of the Company:
Issued share capital	13	623	623
Share premium	14	61,943	61,943
Retained earnings		523	399
Total equity		63,089	62,965
Current liabilities
Trade and other payables	16	266	133
Total liabilities		266	133
Total equity and liabilities		63,355	63,098

The financial statements were approved and authorised for issue by the Board of Directors on 25 November 2008 and signed on its behalf by:

Quentin Spicer David Humbles

Director Director

The accompanying notes form an integral part of these financial statements

 

Consolidated Statement of Changes in Equity

	Share capital	Share premium	Foreign currency translation reserve	Retained earnings/(deficit)	Total
	£’000	£’000	£’000	£’000	£’000
Balance at 27 June 2006	-	-	-	-	-
Foreign exchange translation differences	-	-	(44)	-	(44)
Profit for the period	-	-	-	120	120
Total recognised (expense)/ income for the period	-	-	(44)	120	76
Shares issued in the period	623	63,607	-	-	64,230
Share issue expenses	-	(1,664)	-	-	(1,664)
Balance at 30 June 2007	623	61,943	(44)	120	62,642

Balance at 1 July 2007	623	61,943	(44)	120	62,642
Foreign exchange translation differences	-	-	(1,578)	-	(1,578)
Loss for the year	-	-	-	(2,630)	(2,630)
Total recognised expense for the year	-	-	(1,578)	(2,630)	(4,208)
Balance at 30 June 2008	623	61,943	(1,622)	(2,510)	58,434

 

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 27 June 2006	-	-	-	-
Profit for the period	-	-	399	399
Total recognised income for the period	-	-	399	399
Shares issued in the period	623	63,607	-	64,230
Share issue expenses	-	(1,664)	-	(1,664)
Balance at 30 June 2007	623	61,943	399	62,965

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

 

The accompanying notes form an integral part of these financial statements

 

Consolidated Cash Flow Statement

	Note	Year ended 30 June 2008	Period from 27 June 2006 to 30 June 2007
		£’000	£'000
Cash flows from operating activities
(Loss)/profit for the year/period		(2,630)	120
Adjustments for:
Interest income		(3,227)	(1,470)
Interest expense		4	4
Income tax		(13)	27
Share of (profit)/loss of equity accounted investees		(118)	33
Foreign exchange loss		3,315	424
Operating loss before changes in working capital		(2,669)	(862)
Purchase of inventory		(22,434)	(4,154)
Increase in trade and other receivables		(2,133)	(635)
Increase in trade and other payables		126	170
Cash used in operations		(27,110)	(5,481)
Interest paid		(4)	(4)
Interest received		3,279	1,274
Net cash used in operating activities		(23,835)	(4,211)
Cash flows from investing activities
Acquisition of equity accounted investees	9	(219)	(5,825)
Loans to equity accounted investees	9	(34)	(1,389)
Loans from third parties		1,420	1,184
Cash restricted by bank guarantees	12	(6,866)	-
Net cash used in investing activities		(5,699)	(6,030)
Cash flows from financing activities
Proceeds from the issue of ordinary share capital	13	-	64,230
Share issue expenses	14	-	(1,664)
Net cash generated from financing activities		-	62,566
Net (decrease)/increase in cash and cash equivalents		(29,534)	52,325
Cash and cash equivalents at beginning of the year/period		51,797	-
Foreign exchange losses on cash and cash equivalents		(1,860)	(528)
Cash and cash equivalents at end of the year/period	12	20,403	51,797

The accompanying notes form an integral part of these financial statements

 

Company Cash Flow Statement

	Note	Year ended 30 June 2008	Period from 27 June 2006 to 30 June 2007
		£’000	£'000
Cash flows from operating activities
Profit for the year/period		124	399
Adjustments for:
Interest income		(6,002)	(1,593)
Interest expense		4	4
Foreign exchange loss		3,697	424
Operating loss before changes in working capital		(2,177)	(766)
Decrease/(increase) in trade and other receivables		2	(40)
Increase in trade and other payables		133	133
Cash used in operations		(2,042)	(673)
Interest paid		(4)	(4)
Interest received		2,336	1,535
Net cash generated from operating activities		290	858
Cash flows from investing activities
Loans advanced to subsidiary		(9,667)	(18,498)
Acquisition of subsidiary, net of cash received	9	(19,934)	(1,807)
Net cash used in investing activities		(29,601)	(20,305)
Cash flows from financing activities
Proceeds from the issue of ordinary share capital	13	-	64,230
Share issue expenses	14	-	(1,664)
Net cash generated from financing activities		-	62,566
Net (decrease)/increase in cash and cash equivalents		(29,311)	43,119
Cash and cash equivalents at beginning of the year/period		42,810	-
Foreign exchange losses on cash and cash equivalents		(525)	(309)
Cash and cash equivalents at end of the year/period	12	12,974	42,810

 

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 Shares of the Company were admitted to trading on the Alternative Investment 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. Accordingly, the Company itself has no employees. 

Duration

In accordance with the Company's Articles of Association, Shareholders will be given the opportunity to vote on the life of the Company after approximately 7 years from incorporation. 

At the annual general meeting of the Company to be held in 2013, the Directors are obligated to propose an ordinary resolution that the Company continues in existence. If the resolution is passed then it shall be proposed at every third annual general meeting thereafter. If the resolution is not passed then the Directors shall, within 3 months after the date of the resolution, put forward proposals to shareholders to the effect that the Company be wound up, liquidated, reorganised or unitised. 

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 £123,707 (Period from 27 June 2006 to 30 June 2007: £399,000).

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/periods 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. At the present time there are no critical estimates or assumptions underlying the financial statements.

In the current year the Group adopted IFRS 7 "Financial Instruments: Disclosures" and IAS 1 (Amendment) "Presentation of Financial Statements" which was relevant to its operations. IFRS 7 and the Amendment to IAS 1 introduced new disclosures relating to financial instruments and of managing capital (see Note 3). There was no impact on the classification and measurement of the Group's financial instruments from this adoption. 

Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Group

The following standards, amendments and interpretations to existing standards have been published and are mandatory for the Group'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). It 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. The Group will apply IAS 23 (Amended) from 1 July 2009 (subject to the amendment being endorsed by the EU).

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. The expected impact is being assessed by management. 

IAS 1 (Revised), 'Presentation of financial statements' (effective from 1 January 2009). The revised standard will prohibit the presentation of items of income and expenses (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. It is likely that both the income statement and statement of comprehensive income will be presented as performance statements (subject to the revision being endorsed by the EU).

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 (subject to the revision being endorsed by the EU).

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 (subject to the amendment being endorsed by the EU).

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 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 subsidiaries 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

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 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 arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. 

Associates and joint ventures (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. Joint ventures are those entities over whose activities the Group has joint control, established by contractual agreement and requiring unanimous consent for strategic financial and operating decisions. Associates and joint ventures are accounted for using the equity method (equity accounted investees) 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 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. 

2.5  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. 

2.6 Intangible assets

Goodwill on subsidiaries

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.

2.7 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 2008 and 2007 the Group did not have any financial assets at fair value through profit or loss or available for sale. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the balance sheet date and 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 2008 and 2007 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" in the balance sheet (note 2.12).

2.8 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. 

2.9 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. 

2.10 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. 

2.11 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.

2.12 Trade and other payables

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

2.13 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, associates and joint ventures.

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.

2.14 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.

2.15 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 currency risk, interest rate risk and price 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 policies approved by the Board of Directors. The Board provides written principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk and investment of excess liquidity.

Market price risk

The Group's strategy on the management of market risk is driven by the Group's investment objective. The Group has been established to invest primarily in the South African property market. The objective of the Group 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. The Group's market risk is monitored by the Investment Manager on a day to day basis and by the Directors at Board meetings. 

The Group is exposed to future property price risk. As at 30 June 2008 the Group is not exposed to market price risk as it does not hold equity securities. 

Currency risk

Currency 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:

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

30 June 2007	Monetary Assets	Monetary Liabilities	Total
	£'000	£'000	£'000
South African Rand	35,135	(1,216)	33,919
	35,135	(1,216)	33,919

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 2008, had the Pound strengthened/weakened by 10% against the South African Rand, with all other variables held constant, the shareholders' equity and profit for the year would have been £1,430,065 and £4,065 (Period from 27 June 2006 to 30 June 2007: £3,083,460 and £2,186,429) lower/higher respectively. The direct and indirect subsidiaries have the South African Rand as their functional currency and on the Group level any effects of changes in foreign exchange rates will be included in the translation reserve on consolidation.

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 2008	30 June 2007
	£'000	£'000
Loans due from joint venture	1,249	1,365
Trade and other receivables	2,804	831
Cash and cash equivalents	27,269	51,797
	31,322	53,993

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 joint ventures and trade and other receivables relate mostly to project investments in land and the Investment Manager and the Board of Directors does 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 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

30 June 2007	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	143	-	-	-	-	1,206
	143	-	-	-	-	1,206

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 and on loans from joint ventures. The Company's Investment Manager and Board of Directors monitors and reviews the interest rate fluctuations on a continuous basis and acts accordingly.

At 30 June 2008 should interest rates have increased/decreased by 100 basis points, with all other variables held constant, the shareholders' equity and profit for the year/period would have been £395,000 (2007: £473,000) 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. There are no borrowings as at 30 June 2008. 

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 period and year ended 30 June 2007 and 2008.

4 Preliminary (Formation) Expenses

The estimated total costs and expenses payable by the Company in the period ended 30 June 2007 in connection with the Placing and Admission (including professional fees, the costs of printing and the other fees payable including commission payable to the Placing Agent) was estimated as equal to 3% of the gross amount raised based on the Placing being fully subscribed. The actual total amount of preliminary expenses paid was £941,262 representing 3.14% of the gross amount raised. 

The total costs and expenses payable by the Company in the period ended 30 June 2007 in connection with the secondary Placing (including professional fees, the costs of printing and the other fees payable including commission payable to the Placing Agent) was £723,075 representing 2.11% of the gross amount raised. In accordance with the terms of the initial Placing and the secondary Placing, the Placing Agent was to receive from the Company commission equal to 2% of the aggregate value of the amount raised by the Placing. In addition, for the initial Placing the Placing Agent was to receive a corporate finance fee of 0.5% of the aggregate value of the Placing.

The total placing admission costs payable by the Company during the year ended 30 June 2008 amounted to £nil (Period from 27 June 2006 to 30 June 2007: £1,664,337), which has been charged to equity as a share issue expense.

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 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 2008 amounted to £1,273,516 (Period from 27 June 2006 to 30 June 2007: £479,568).

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 Investment Manager will become 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 100p 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, multiplied by the time weighted average of the number of Ordinary Shares in issue since inception or (if later) the end of the last financial period by reference to which a performance fee was earned.

 

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 2008 amounted to £nil (Period from 27 June 2006 to 30 June 2007: £nil).

6 Other Administration Fees and Expenses by Nature

	Group Year ended 30 June 2008	Group Period from 27 June 2006 to 30 June 2007
	£'000	£'000
Audit	200	140
Directors' Remuneration (see below)	159	89

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 £15,000 per annum and a Broker fee of £15,000 per annum, both fees payable half-yearly in advance.

Custodian fees

The Custodian receives a fee of 3 basis points 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.

Administrator and Registrar fees

The Administrator receives a fee of 10 basis points of the net assets of the Company between £0 and £50 million; 8.5 basis points per annum of the net assets of the Company between £50 and £100 million and 7 basis points per annum of the net assets of the Company 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 may utilise the services of a CREST accredited registrar for the purposes of settling share transactions through CREST. The cost of this service will be borne by the Group. It is anticipated that the cost will be in the region of £6,000 per annum subject to the number of CREST settled transactions undertaken.

Administration fees payable for the year ended 30 June 2008 amounted to £72,282 (Period from 27 June 2006 to 30 June 2007: £39,002).

Offshore Registrar fees

The Offshore Registrar receives an annual registration fee from the Company of £2 per shareholder account, subject to an annual minimum charge of £5,500.

Sponsor fees

The Sponsor receives a fee for the listing of the shares on the Channel Islands Stock Exchange. The Sponsor is paid a fee of £6,000 for the initial listing, charged to equity as a share issue expense, and an annual fee of £1,750 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. 

 

Strategic Adviser fees

The Strategic Adviser receives a fee for its services of £40,000 per annum, payable quarterly in advance.

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 chairman is entitled to receive an annual fee of £25,000 and the non-executive directors (excluding Brian Myerson who has waived his fee) receive £20,000 each per annum. The Directors are each entitled to receive reimbursement of any expenses incurred in relation to their appointment. Total fees and expenses paid to the Directors for the year ended 30 June 2008 amounted to £95,033 and directors insurance cover amounted to £64,111. 

7 Income Tax Expense

	Group Year ended 30 June 2008	Group Period from 27 June 2006 to 30 June 2007
	£'000	£'000
Current tax	(13)	27
	(13)	27

The tax on the Group's (loss)/profit before tax differs from the theoretical amount that would arise using the weighted average tax rate of the applicable (losses)/profits of the consolidated companies as follows:

	Group Year ended 30 June 2008	Group Period from 27 June 2006 to 30 June 2007
	£'000	£'000
(Loss)/profit before tax	(2,643)	147
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%)	(13)	27
Tax (credit)/expense	(13)	27

No losses will be carried forward.

8 Basic and Diluted Earnings per Share

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

	Year ended 30 June 2008	Period from 27 June 2006 to 30 June 2007
(Loss)/profit attributable to equity holders of the Company (£'000)	(2,630)	120
Weighted average number of Ordinary Shares in issue (thousands)	62,293	35,729
Basic and diluted (loss)/profit per share (pence per share)	(4.22)	0.34

9 Subsidiaries, Associates and Joint Ventures

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, the Company has increased its investment in the direct subsidiary, see table below for details:

	Year ended 30 June 2008 £'000
As at beginning of year	1,807
Increase in investment	19,934
As at end of year	21,741

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 1268 (Pty) Limited	South Africa	100%
Business Venture Investments No 1269 (Pty) Limited	South Africa	100%
Business Venture Investments No 1270 (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	100%
Madison Park Properties 40 (Pty) Limited **	South Africa	50%
Royal Albatross Properties 313 (Pty) Limited	South Africa	100%
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 - 2008

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

9.2 Associates and joint ventures

	2008	2007
	£'000	£'000
Start of the year/period	5,794	-
Acquisition of equity accounted investees	219	5,825
Foreign exchange (loss)/gain	(662)	2
Share of profit/(loss) of equity accounted investees	118	(33)
End of the year/period	5,469	5,794

In September 2007 the Group acquired 50% of the ordinary share capital of Imbonini Park (Phase 2) (Pty) Limited, a property holding company incorporated in South Africa, for £219,124 (ZAR 3,000,000). There was goodwill of £219,087 (ZAR 2,999,500) as a result of this transaction. 

In November 2006 the Group acquired 50% of the ordinary share capital of Imbonini Park (Pty) Limited, a property holding company incorporated in South Africa, for £72,005 (ZAR 1,000,000). There was goodwill of £71,969 (ZAR 999,500) as a result of this transaction.

In June 2007 the Group acquired 49.22% of the ordinary share capital of Longland Investments (Pty) Limited, a property holdings company incorporated in South Africa, for £5,753,040 (ZAR 81,633,346). There was goodwill of £1,655,153 (ZAR 23,485,952) as a result of this transaction. Longland Investments owns 100% of Tangmere Investments Corporation (Pty) Limited and 50% of Rivcroft (Pty) Limited, both of which are property holding companies incorporated in South Africa.

The Group's share of the results of its principal associates and joint ventures, 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
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
2007
Imbonini Park (Pty) Limited	797	(760)	-	(34)
Longland Investments (Pty) Limited	6,146	(389)	80	1
	6,943	(1,149)	80	(33)

Loans due from Joint Ventures

The Group lent a total of £1,217,555 (ZAR 19,350,000) to its joint venture, Imbonini Park (Pty) Limited (30 June 2007: £1,365,000 (ZAR 19,350,000)). Of this, £1,195,532 (ZAR 19,000,000) (30 June 2007: £1,339,934 (ZAR 19,000,000)) is interest bearing at 15% per annum and the remaining £22,023 (ZAR 350,000) (30 June 2007: £25,066 (ZAR 350,000)) is non-interest bearing. The loans are repayable in full by 13 March 2009. 

The Group also lent a total of £31,466 (ZAR 500,000) to its joint venture, Imbonini Park Phase 2 (Pty) Limited. The loan is 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.

The fair value of these loans approximate their carrying value at 30 June 2008. 

10 Inventories

Group

	2008	2007
	£'000	£'000
At start of year/period	4,231	-
Cost of land acquired	22,524	4,154
Foreign exchange (loss)/gain	(2,224)	77
At end of year/period	24,531	4,231

During the year, the Group acquired land for £22,524,249 (ZAR 329,859,975) (2007: £4,154,000 (ZAR 60,000,000)), which was acquired in order to develop it for future re-sale, and accordingly it was classified as inventory. 

11 Trade and Other Receivables

Group

	2008	2007
	£'000	£'000
Loan to third party	137	-
Interest on loan to associate/joint venture (see note 9.2)	241	63
Prepayments	34	25
VAT receivable	2,111	594
Other receivables	281	149
Trade and other receivables	2,804	831

Loan to third party consists of a loan of £137,224 (ZAR 2,180,839) to Blue Waves Properties 2 (Pty) Ltd which relates to the intended future purchase of 30% of Blue Waves Properties 2 (Pty) Ltd. The total consideration is currently expected to be ZAR 7,391,479. This loan is unsecured and interest free.

Company

	2008	2007
	£'000	£'000
Loan due from SAPSPV Holdings RSA (Pty) Limited	28,595	18,382
Prepayments	34	25
Other receivables	11	74
Trade and other receivables	45	99

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 2008.

12  Cash at Bank and Attorneys

Group

	2008	2007
	£'000	£'000
Bank balances	918	12,105
Bank deposit balances	20,046	36,975
Deposits with attorneys	6,305	2,717
Cash at bank and attorneys	27,269	51,797

Included within the £20,046,000 bank deposit balances figure is an amount of £6,866,000 (ZAR 109,100,000) represented by bank guarantees retained by the bank under fixed deposit. These are further described within the Contingent Liabilities note (see note 18). This is the only figure excluded from the above balances for analysing the movements of cash and cash equivalents in the cash flow statement. There were no bank guarantees as at 30 June 2007.

Company

	2008	2007
	£'000	£'000
Bank balances	67	5,835
Bank deposit balances	12,907	36,975
Cash and cash equivalents	12,974	42,810

 

13 Share Capital

Ordinary Shares of 1p each	As at 30 June 2007 & 2008 Number	As at 30 June 2007 & 2008 £'000
Authorised	150,000,000	1,500
Issued	62,292,810	623

At incorporation the authorised share capital of the Company was £2,000 divided into 200,000 ordinary shares of 1p each.

Pursuant to an ordinary resolution on 19 October 2006 the authorised share capital was increased from £2,000 to £500,000 giving in total 50,000,000 ordinary shares of 1p each.

Pursuant to an ordinary resolution on 18 May 2007 the authorised share capital was increased from £500,000 to £1,500,000 giving in total 150,000,000 ordinary shares of 1p each.

The holders of Ordinary Shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company.

On 26 October 2006, the Company raised a gross amount of £30,000,000 following the admission of the Company's Ordinary Shares to the Alternative Investment Market ("AIM") and to the Official List of the Channel Islands Stock Exchange (the "CISX"). The Company placed 30,000,000 Ordinary Shares of £0.01 par value, at an issue price of £1.00 per share.

On 1 May 2007, the Company placed an additional 50,000,000 ordinary shares of £0.01 par value at a price of £1.06 per share, of which 32,292,810 Ordinary Shares have been issued at a price of £1.06 per share. 

Related transaction costs have been deducted from the proceeds.

14 Share Premium

Company and the Group	2008 £'000	2007 £'000
As at beginning of year/period	61,943	-
Share premium arising on issue of ordinary shares	-	63,607
Transaction costs on issue of ordinary shares	-	(1,664)
As at end of year/period	61,943	61,943

The Company's share premium has arisen on the issue of the Company's ordinary shares and represents the difference between the issue prices of £1.00 and £1.06 and the par value of £0.01 per share. 

15 Net Asset Value per Share

Group

	2008	2007
Net assets attributable to equity holders of the Company (£'000)	58,434	62,642
Shares in issue (in thousands)	62,293	62,293
NAV per share	£0.94	£1.01

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. 

16 Trade and Other Payables

Group

	2008	2007
	£'000	£'000
Loans from third parties	2,521	1,206
Management fees	-	77
Other payables	362	66
	2,883	1,349

Company

	2008	2007
	£'000	£'000
Management fees	-	77
Other payables	266	56
	266	133

Loans from third parties consist of £1,069,000 (ZAR 16,950,000) (2007:£724,000 (ZAR 10,260,000)) from Abbeydale Investment Holdings (Pty) Ltd and £711,027 (ZAR 11,300,000) (2007: £482,000 (ZAR 6,840,000)) from Sable Holdings Limited in relation to their combined ownership of 25% of Crimson King Properties 378 (Pty) Limited and the Gosforth Business Estate development. 

A further £552,000 (ZAR 8,774,354) from Abbeydale Investment Holdings (Pty) Ltd in relation to its 50% prospective interest in Madison Park Properties 36 (Pty) Ltd and the Waltloo Industrial Park development and £189,000 (ZAR 3,000,000) from Justin Nash in relation to his prospective interest in Madison Park Properties 34 (Pty) Ltd and the Kyalami Residential Estate development. All the above loans are unsecured, interest free and carry no fixed terms of repayment.

 

17 Business Combinations

On 10 July 2007, the Group acquired 65% of the share capital of Living 4 U Development (Pty) Ltd and obtained the control of Living 4 U Development (Pty) Ltd, a property development company in South Africa. The acquired business contributed revenues of £2,150 (ZAR 31,486) and net loss of £36,180 (ZAR 529,838) to the Group for the period from 10 July 2007 to 30 June 2008. If the acquisition had occurred on 1 July 2007, Group revenue and loss before allocations would have been the same. These amounts have been calculated using the Group's accounting policies and have not required any adjustments to the results of the subsidiary.

Details of net assets acquired and goodwill are as follows:

	Fair value and acquiree's carrying amount
	£'000
Trade and other receivables	2
Inventories	83
Borrowings	(97)
Trade and other payables	(19)
Fair value of net assets	(31)
Goodwill	31
Total purchase consideration	-

18  Contingent Liabilities and Commitments

The indirect-subsidiary Wonderwall Investments 18 (Pty) Ltd had a contingent liability to pay up to £1.1 million (ZAR 17 million) in additional consideration for the shares that it acquired in Living 4 U Developments (Pty) Ltd in June 2007 and £0.9 million (ZAR 15 million) of this amount was held under a bank guarantee issued by SAPSPV Holdings RSA (Pty) Ltd. A further contingent liability to advance up to £1.4 million (ZAR 23 million) being the balance under a Mezzanine Loan Agreement with Living 4 U Developments (Pty) Ltd to finance the African Renaissance development also existed.

A total of £1.9 million (ZAR 30 million) was held under two bank guarantees in favour of the sellers of two properties that were the subject of an acquisition by the indirect-subsidiary Madison Park Properties 40 (Pty) Ltd.

A number of bank guarantees totalling £3.9 million (ZAR 61,850,000 million) and deposits placed with attornies £2.2 million (ZAR 34,500,000 million) existed in connection with the acquisition by indirect-subsidiary Business Venture Investments No 1269 (Pty) Ltd of the remaining 17 units (out of a total of 20) in a residential building in Sandton, Johannesburg.

The indirect-subsidiary Crimson King Properties 378 (Pty) Ltd ("Crimson") had a contingent liability to contribute up to £142,000 (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.

19  Related Party Transactions

Brian Myerson is a director of the Group and the Investment Manager. At the balance sheet date he was Chief Executive Officer of Principle Capital Holdings S.A. (PCH), the ultimate parent company of the majority shareholder in the Investment Manager and through Concerto, he has a potential beneficial interest in the shares of PCH. With effect from the 1st October 2008, he assumed the role of Group Executive Chairman of PCH. A total of £1,273,516 has been invoiced by the Investment Manager in respect of the financial year ending June 2008 (Period from 27 June 2006 to 30 June 2007: £479,568). Further details are provided in note 5 above.

Brian Padgett is a director of Group's subsidiaries in South Africa, the Investment Manager, of PCH and of Silex Management Ltd (Silex), a company that was acquired by PCH in October 2007 that has been retained by the Group to administer its South African subsidiaries.  He is also a shareholder in PCH.  A total of £386,591 has been invoiced during the year by Silex in respect of the financial year ending June 2008 (Period from 27 June 2006 to 30 June 2007: £110,964).

James Peggie is a director of Group's subsidiaries in South Africa for which he received no direct remuneration. He is part of the PCH management team and a shareholder in PCH. 

20  Post Balance Sheet Events

Receipt of planning permission on the site owned by indirect-subsidiary Living 4 U Developments (Pty) Ltd in July 2008 triggered a payment of £1.1 million (ZAR 17 million) (including the release of £0.9 million (ZAR 15.0 million) held under guarantee). A total of £0.5 million (ZAR 8 million) was advanced by indirect-subsidiary Wonderwall Investments 18 (Pty) Ltd to Living 4 U Developments (Pty) Ltd to finance the continuing development of the African Renaissance project.

The two properties that were the subject of an acquisition by indirect-subsidiary Madison Park Properties 40 (Pty) Ltd competed in July 2008 triggering the release of bank guarantees totalling £1.9 million (ZAR 30 million) in favour of the sellers.

The remaining 17 residential units in the Sandton property that was the subject of an acquisition by indirect-subsidiary Business Venture Investments No 1269 (Pty) Ltd completed in July and August 2008 triggering various payments totalling £6.1 million (ZAR 96 million) in favour of the (various) sellers.

A £0.3 million (ZAR 5 million) bank guarantee was issued in favour of Investec Bank Limited in September 2008 in connection with the senior debt obligations of the indirect-associate Imbonini Park (Pty) Ltd.

ENDFR FKPKKCBDDDDB

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Related Shares:

South African Property Opportunities