Financial Statements For Year End August 2009

RNS Number : 9729G

Ottoman Fund Limited (The)

10 February 2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

THE OTTOMAN FUND LIMITED

 

Annual Report and Financial Statements

 

For the year ended 31 August 2009

 

Chairman's Statement

I report upon the audited financial statements for the year ended 31 August 2009.

 

Dear Shareholders:

 

As at 31 August 2009, our portfolio value, on a fair value basis, was $163.4 million as compared to $222.4 million a year earlier. The appraised value of our portfolio, as measured in US Dollars, fell by approximately 25% year on year and according to the valuers is now worth about 10% less than cost. Each of our assets is independently appraised by two valuation companies, one local (TKSB) the other international (Savills). We use the Savills valuations for our disclosure in the financial statements and use the TKSB valuation as a check on the Savills one. Notwithstanding that the two valuations are done independently, both the local and international appraisers tend to reach similar conclusions as to the value of our portfolio as at 31 August 2009:

 

 

	Savills ($)	TKSB ($)	Average ($)
Riva	104,000,000	112,197,000	108,098,500
Bodrum	37,600,000	39,863,000	38,731,500
Kazikli	9,450,000	10,073,000	9,761,500
Alanya	12,300,000	13,133,257	12,716,629
TOTAL	163,350,000	175,266,257	169,308,129

 

 

Property prices in Turkey have been relatively stable compared with prices in some other countries, though transactions in assets like ours have been limited so it is difficult to determine a market clearing price for the Company's assets. Given the state of global property markets, our focus has been to reduce costs primarily by restructuring the Company and replacing the external manager with an internal management structure under the aegis of a board of directors representing shareholder interests. The culmination of this process is the EGM now scheduled for 22 February, where the shareholders will be asked to approve a proposed restructuring, including the termination of the third party manager. This final step is required under Jersey law and should result in immediate and substantial savings to shareholders.

 

The Proposed Restructuring

 

This restructuring process commenced in 2008, when the external manager was given notice and the Board began interviewing candidates to manage or advise the Board on these assets. In March 2009 most of the Board resigned, two new Jersey-based directors joined the Board, and I was elected Executive Chairman. Following regulatory approval obtained in July and November, two additional directors joined the Board. These two directors are portfolio managers for shareholders owning in excess of 50% of the Company's share capital.

 

In November 2009, the Board determined that the most efficient way of managing the Company's assets would be through internalising management at the Board level with an external advisor in Turkey.

 

Chairman's Statement (continued)

 

For our external advisor, we appointed Civitas Property Partners. Civitas was founded by Ali Pamir, Firuz Soyuer and Kerem Saltoglu. Their experience includes providing property related services to many leading Turkish and international firms. Their experience runs the gamut of the property universe and includes land and asset appraisals, investment advisory services, transactional work, land development, architectural design, construction management, working with local and national governmental bodies regarding zoning and permits, property management, marketing, and asset disposals. Ali and Firuz set up and managed Colliers Turkey in 1991 and subsequently set up and currently run DTZ's Turkish affiliate. Kerem has over twenty years of experience in investment banking in Turkey and elsewhere with several leading international financial institutions.

 

We have entered into a contract with Civitas for advisory services primarily in relation to property disposals. The fee structure is heavily incentive based with an annual €425,000 fixed component and an incentive component based on a percentage of realisation value. (By way of reference, the original management contract called for an annual fixed management fee that amounted to 2% of the £150 million raised in the offering plus incentives). The Civitas contract may be terminated on short notice should things not work out (which we of course hope will not be the case).

 

The Company's Assets

 

Our assets comprise two direct investments in undeveloped land, Riva and Bodrum, an investment in undeveloped land held through a 50:50 joint venture with a Turkish partner, Kazikli, and an investment in a completed holiday property structured as a loan, Alanya.

 

The Company's interest in Riva comprises nearly a million square metres of undeveloped and unserviced land on the Asian side of the Bosporus. Several other substantial local investors also own land in Riva. Riva is the largest undeveloped site within commuting distance to Istanbul. According to Savills' August 2009 valuation, Riva had a market value of $104 million as compared with a purchase price of $114 million. Following the valuation date, progress has been made on zoning, which may positively affect Riva's value. The Company's current strategy for Riva is to continue to increase its value by continuing to pursue the requisite governmental approvals and most likely selling the land at the appropriate time.

 

The Company's interest in Bodrum comprises approximately 150,000 square metres of undeveloped, though serviced and zoned, land designated for luxury holiday homes on the Bodrum peninsula. According to Savills' August 2009 valuation, Bodrum had a market value of $37.6 million as compared with a purchase price of $38.6 million. The Company's current strategy for Bodrum is to obtain construction permits, which we expect will increase its value either in connection with an outright sale or development.

 

The Company's interest in Kazikli comprises a 50% interest in a joint venture owning approximately 210,000 square metres of undeveloped and unserviced land in Kazikli. The idea behind Kazikli was to use the land for luxury holiday homes on the Mediterranean. Given the lack of infrastructure in the area, the vision was that homeowners would approach their property by sea and that the development would include a marina. Savills' August 2009 appraisal values the Company's portion of the land at $9.45 million as compared with the $10 million purchase price. The Company's current strategy for Kazikli is to sell the property in conjunction with our joint venture partner.

 

 

Chairman's Statement (continued)

 

Alanya is a completed development comprising four apartment blocks, adjoining land, and recreational facilities such as a swimming pool and gym, in central Alanya, a popular holiday

 

destination in coastal Antalya. The four apartment blocks contain 215 units, 108 of which were retained by the developer and 107 sold to the Company with the Company's interest structured as a loan to the developer repayable upon the sale of each unit. The developer sold its units several years ago while the Company's units largely remain unsold. The reasons for this disparity have been attributed to initial errors in pricing and marketing and subsequent changes in market conditions. When I visited the development this past April, the onsite agent informed me that only a small percentage of the Company's units were saleable due to defects and poor upkeep. In addition, local brokers were of the view that we had used overly aggressive pricing assumptions given market conditions.

 

Since then we have commissioned an engineer and architect to assess the development and most effective way of improving it. We have been in negotiations with the builder, which have resulted in some improvements. We have adjusted pricing to take into account market conditions. These steps have resulted in increased sales, and twenty-five units have now either been sold or are under contract. Civitas has developed a comprehensive marketing plan aimed at northern European buyers and commencing this month will be participating in a number of sales exhibitions in major European cities. We are hopeful that these efforts will bear fruit.

 

 

* * * *

 

The Ottoman Fund is financially strong. We own several first rate properties. We have no debt, no significant contingent liabilities, and even after the recent capital distribution have a large positive cash balance. Our focus now is on our cost base, which will be further reduced through the proposed restructuring, and increasing the value of our investments. We will continue to pursue approvals in connection with Riva and Bodrum. We will see how our new marketing strategy works with the unsold units at Alanya. Most importantly, we will continue to endeavour to realise shareholder value through asset sales - but only at prices that reflect the full and fair value of our assets.

 

Respectfully yours,

John D. Chapman

Chairman

9 February 2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Directors' Report

The Directors submit their Report and audited Financial Statements for the year ending 31 August 2009.

 

Principal Activity

The Company is a closed-ended, Jersey registered, investment company formed to access the Turkish property market and in particular new build residential developments in major cities and coastal destinations.

 

Listing

The Company is quoted on the AIM market of the London Stock Exchange.

 

Investment Policy

Upon Admission, the Company's strategy was to develop new-build residential developments in major cities and coastal locations in Turkey, aimed at both the local and tourist markets with an emphasis on off-plan sales. The Company now intends to make no new investments, to make additional investments in existing assets only if those investments are accretive to shareholder value, and to opportunistically dispose of assets at appropriate times as and when market conditions permit.

 

Results and Dividends

It is not intended in normal circumstances that the Company will pay dividends on the shares.

The income statement is set out on page 9 of this Annual Report and Financial Statements. The Directors do not recommend the payment of a dividend.

 

On 20 January 2010 the Board announced the return of £8 million of capital, approximately 5.9p per share, to shareholders via a capital distribution.

 

Life

The Company has a life of 10 years from the date of its admission to trading on the AIM market plus up to 2 further years for the planned realisation of the portfolio. The life may be extended by special resolution of shareholders (requiring a two-thirds majority of those voting).

 

Custodian

BNP Paribas (Jersey branch) currently provides custody services in relation to cash held by the Company, but such arrangements are expected to be terminated.

 

Board of Directors

The Directors of the Company are listed on page 27. John D Chapman served as Director throughout the year, being appointed Executive Chairman on 13 March 2009. On the same date Antony Gardner-Hillman and Andrew Wignall were appointed to the Board and Sir Timothy Daunt, Roger King, Roger Maddock and Sencar Toker resigned. Angelo Moskov joined the Board on 17 July 2009 and Eitan Milgram on 5 November 2009.

 

Shareholders' Interests (as at 31 August 2009)

Size of shareholding (in shares)	No. of shareholders
1 - 9,999	34
10,000 - 99,999	12
100,000 - 999,999	7
1,000,000 - 9,999,999	6
10m+	4

 

Directors' Report (continued)

 

At 31 August 2009 the Company was aware of the following interests of 3% or more in the ordinary share capital of the Company:

 

	Number	% held
Weiss Asset Management LLC	40,132,000	29.78%
Toscafund Asset Management LLP	35,000,000	25.97%
QVT Financial LP	25,000,000	18.55%
Deutsche Bank AG	18,335,000	13.61%

 

Otherwise, the Directors are not aware of interests of 3% or more in the Company's issued share capital.

 

Directors' Interests

The maximum aggregate amount of ordinary remuneration payable to the Directors permitted under the Articles is £150,000 per annum. The Directors received in aggregate £127,486 for the year ended 31 August 2009 (2008: £117,179). Commencing 13 March 2009 John D. Chapman has been employed under an executive service contract that provides for an annual fee of £75,000 and a discretionary bonus.

 

None of the directors have any interests in the Company's share capital. Angelo Moskov is a partner with QVT Financial LP which owns a shareholding of 18.55% in the Company. Eitan Milgram who joined the Board after the Year End is an Executive Vice President of Weiss Asset Management LLC, which owned a shareholding of 29.78% in the Company at the end of this financial period.

 

 

 

 

 

 

 

 

By Order of the Board

Herald Fund Services Limited

Secretary

9 February 2010

 

Statement of Directors' Responsibilities

The Directors are responsible for preparing the financial statements in accordance with applicable law and International Financial Reporting Standards.

 

Company law requires the Directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing those financial statements, the Directors are required to:

 

·; select suitable accounting policies and apply them consistently;

·; make judgments and estimates that are reasonable and prudent;

·; prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Company will continue in business; and

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

 

The Directors are responsible for keeping accounting records that disclose with reasonable accuracy, at any time, the financial position of the Company and enable them to ensure that the financial statements comply with the Companies (Jersey) Law 1991. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps to prevent and detect fraud and other irregularities.

 

INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF THE OTTOMAN FUND LIMITED

 

We have audited the financial statements (the ''financial statements'') of The Ottoman Fund Limited which comprise the Group and Company Balance Sheets as at 31 August 2009 and the Consolidated Income Statement, the Group and Company Statements of Changes in Equity and the Group and Company Statements of Cash Flows for the year then ended and a summary of the 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 International Financial Reporting Standards and with the requirements of Jersey law. 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. 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' judgement, 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.

 

 

INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF THE OTTOMAN FUND LIMITED (CONTINUED)

 

Opinion

In our opinion, the financial statements give a true and fair view of the financial position of the Group and Company as at 31 August 2009, the financial performance of the Group for the year ended 31 August 2009 and the cash flows of the Group and Company for the year ended 31 August 2009 in accordance with International Financial Reporting Standards and have been properly prepared in accordance with the requirements of the Companies (Jersey) Law 1991.

 

Report on other legal and regulatory requirements

We read the other information contained in the Annual Report and consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. The other information comprises only the Chairman's Statement, the Directors' Report, the Statement of Directors Responsibilities and the Corporate Information.

 

In our opinion the information given in the Directors' report is consistent with the financial statements.

 

The maintenance and integrity of The Ottoman Fund Limited website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

 

Legislation in Jersey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

This report, including the opinion, has been prepared for and only for the Company's members as a body in accordance with Article 110 of the Companies (Jersey) Law 1991 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.

 

 

 

PricewaterhouseCoopers CI LLP February 2010

Chartered Accountants

Jersey, Channel Islands

 

 

 

 

 

 

Consolidated Income Statement For the year ended 31 August 2009
		Year ended		Year ended
		31 August		31 August
		2009		2008
	notes	£		£
Income
Bank interest		421,225		1,307,327
Total income		421,225		1,307,327
Operating expenses
Management fee	4	(1,522,740	)	(3,008,219	)
Other operating expenses	5	(1,121,090	)	(1,349,199	)
Foreign exchange gains	12	786,720		1,485,810
Total operating expenses		(1,857,110	)	(2,871,608	)
Loss before tax		(1,435,885	)	(1,564,281	)
Tax	6	(24,126	)	(16,478	)
Loss for the year		(1,460,011	)	(1,580,759	)
Attributable to:
Equity shareholders of the Company		(1,460,005	)	(1,580,746	)
Minority interests		(6	)	(13)
		(1,460,011	)	(1,580,759	)
Basic and diluted earnings per share (pence)	7	(1.08	)	(1.13	)

 

The accompanying notes on pages 13 to 26 are an integral part of the financial statements.

Group and Company Balance Sheet As at 31 August 2009
		Group		Company		Group		Company
		2009		2009		2008		2008
	notes	£		£		£		£
Non-current assets
Intangible assets	8	3,226		-		4,976		-
Plant and equipment	9	20,021		-		37,700		-
Investment in subsidiaries	13	-		5		-		5
Inventories	10	92,494,972		-		91,503,254		-
Loans and receivables	11	9,014,112		121,053,367		8,573,984		108,402,176
		101,532,331		121,053,372		100,119,914		108,402,181
Current assets
Other receivables	15	986,075		26,853		1,015,427		85,367
Cash and cash equivalents	20	18,366,304		14,793,101		20,900,040		16,893,761
		19,352,379		14,819,954		21,915,467		16,979,128
Total assets		120,884,710		135,873,326		122,035,381		125,381,309
Current liabilities
Other payables	16	(353,340	)	(132,904)		(314,522	)	(233,181	)
Net assets		120,531,370		135,740,422		121,720,859		125,148,128
Equity
Share capital	17	135,483,052		135,483,052		135,483,052		135,483,052
Retained earnings	18	(14,951,715	)	257,370		(13,762,210	)	(10,334,924	)
Equity attributable to owners of the parent		120,531,337		135,740,422		121,720,842		125,148,128
Minority interests' equity		33		-		17		-
Total equity		120,531,370		135,740,422		121,720,859		125,148,128
Net asset value per ordinary share (pence)	19	89.4		100.7		90.3		92.9

 

The accompanying notes on pages 13 to 26 are an integral part of the financial statements.

 

These financial statements were approved by the Board on 9 February 2010.

 

 

 

 

 

 

Antony Gardner-Hillman Andrew Wignall

 

 

 

 

Group and Company Statement of Changes in Equity
Group	Share		Retained		Minority
	capital		earnings		interest		Total
	£		£		£		£
For the year ended 31 August 2008
As at 1 September 2007	150,000,000		(12,613,335	)	(5	)	137,386,660
Reduction of ordinary share capital	(14,516,948	)	-		-		(14,516,948	)
Loss for the year	-		(1,580,746	)	(13	)	(1,580,7597	)
Foreign exchange on subsidiary translation	-		431,871		35		431,906
At 31 August 2008	135,483,052		(13,762,210	)	17		121,720,859
For the year ended 31 August 2009
As at 1 September 2008	135,483,052		(13,762,210	)	17		121,720,859
Loss for the year	-		(1,460,005	)	(6	)	(1,460,011	)
Foreign exchange on subsidiary translation	-		270,500		22		270,522
At 31 August 2009	135,483,052		(14,951,715	)	33		120,531,370
Company
For the year ended 31 August 2008
As at 1 September 2007	150,000,000		(18,435,333	)	-		131,564,667
Reduction of ordinary share capital	(14,516,948	)	-		-		(14,516,948	)
Loss for the year	-		8,100,409		-		(8,100,409	)
At 31 August 2008	135,483,052		(10,334,924	)	-		125,148,128
For the year ended 31 August 2009
As at 1 September 2008	135,483,052		(10,334,924	)	-		125,148,128
Profit for the year	-		10,592,294		-		10,592,294
At 31 August 2009	135,483,052		257,370		-		135,740,422

 

The accompanying notes on pages 13 to 26 are an integral part of the financial statements.

Group and Company Statement of Cash Flows
	Group		Company		Group		Company
	Year ended		Year ended		Year ended		Year ended
	31 August		31 August		31 August		31 August
	2009		2009		2008		2008
	£		£		£		£
Cash flow from operating activities
Net (loss)/profit before tax	(1,435,885	)	10,592,287		(1,564,281	)	8,100,409
Net foreign exchange (gains)	(786,720	)	(12,574,954	)	(1,485,810	)	(10,818,189	)
(Increase)/decrease in
other receivables	29,352		58,521		(401,932	)	(61,022	)
Increase/(decrease) in
other payables	38,818		(100,277	)	28,358		83,893
Net cash outflow from operating activities before interest and tax	(2,154,435	)	(2,024,423	)	(3,423,665	)	(2,694,909	)
Tax	(24,126	)	-		(16,478	)	-
Net cash outflow from operating activities	(2,178,561	)	(2,024,423	)	(3,440,143	)	(2,694,909	)
Cash flow from investing activities
Loans to subsidiaries	-		(145,630	)	-		(1,239,099	)
Purchase of inventories	(991,718	)	-		(6,540,962	)	-
Purchase of plant and equipment	(3,171	)	-		(66,802	)	-
Purchase of intangible assets	-		-		(5,232	)	-
Loan to developer	277,199		-		-		-
Net cash outflow from investing activities	(717,690	)	(145,630	)	(6,612,996	)	(1,239,099	)
Cash flow from financing activities
Share buy-back	-		-		(14,516,948	)	(14,516,948	)
Net cash outflow from financing activities	-		-		(14,516,948	)	(14,516,948	)
Net decrease in cash and cash equivalents	(2,896,251	)	(2,170,053	)	(24,570,087	)	(18,450,956	)
Cash and cash equivalents at start of the year	20,900,040		16,893,761		44,898,891		35,221,363
Effect of foreign exchange rates	362,515		69,393		571,236		123,354
Cash and cash equivalents at end of the year	18,366,304		14,793,101		20,900,040		16,893,761

 

The accompanying notes on pages 13 to 26 are an integral part of the financial statements.

Notes to the financial statements

 

1. General information

The Ottoman Fund Limited has invested in Turkish land and new build residential property in major cities and coastal destinations aimed at both the domestic and tourist markets.

 

The Company is a limited liability company domiciled in Jersey, Channel Islands.

 

The Company is quoted on the AIM market of the London Stock Exchange plc.

 

These consolidated financial statements have been approved by the Board on 9 February 2010.

 

2. Accounting policies

The consolidated financial statements of the Group for the year ended 31 August 2009 comprise the Company and its subsidiaries, listed in note 13, (together, the "Group") and have been prepared in accordance with International Financial Reporting Standards ("IFRS") issued by the International Accounting Standards Board (IASB) and interpretations issued by the International Financial Reporting Committee of the IASB (IFRIC).

 

No new IFRS standards that affect the Group have been applied during the current financial year.

 

(a) Basis of preparation

The consolidated financial statements have been prepared on a historical cost basis, except for certain financial instruments detailed below.

 

(b) Basis of consolidation

 

Subsidiaries

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 31 August each year. Control exists when the Company 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 commences up to the date that control ceases.

 

Joint ventures

A joint venture is a contractual agreement whereby two or more entities undertake an activity that is the subject of joint control. The results and assets and liabilities of joint ventures held by subsidiaries are incorporated in these financial statements using the proportionate consolidation method.

 

(c) Revenue recognition

Interest receivable on fixed interest securities is recognised using the effective interest method. Interest on short term deposits, expenses and interest payable are treated on an accruals basis.

 

(d) Expenses

All expenses are charged through the income statement in the period in which the services or goods are provided to the Group except for expenses which are incidental to the disposal of an investment which are deducted from the disposal proceeds of the investment.

 

Notes to the financial statements (continued)

 

(e) Non current assets

 

Intangible assets

Intangible assets are stated at cost less any provisions for amortisation and impairments. They are amortised over their useful life of 6 years. The amortisation is based on the straight-line basis. At each balance sheet date, the Group reviews the carrying amount of its intangible assets to determine whether there is any indication that those assets have suffered an impairment loss.

 

General

Assets are recognised at the trade date on acquisition and disposal. Proceeds will be measured at fair value which will be regarded as the proceeds of sale less any transaction costs.

 

Plant and equipment is stated at cost less accumulated depreciation and any recognised impairment loss. Depreciation is charged so as to write off the cost of assets, other than land or properties under construction, over their estimated useful lives, using the straight line method on the following basis:

 

Leasehold improvements	3 years
Furniture and fittings	5 years
Computer hardware	4 years
Computer software	3 years

 

The gain or loss on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the income statement.

 

Inventories

Inventories are stated at the lower of cost and net realisable value. Land inventory is recognised at the time a liability is recognised - generally after the exchange of unconditional contracts.

 

Loans and receivables

Loans and receivables are recognised on an amortised cost basis. Where they are denominated in a foreign currency they are translated at the prevailing balance sheet exchange rate.

 

(f) Cash and cash equivalents

Cash and cash equivalents comprise current deposits with banks.

 

(g) Taxation

On 1 January 2009 under the new Jersey "Zero/Ten" regime the Company became zero rated for Jersey taxation purposes. Profits arising in the Company for the 2009 year of assessment and future periods will be subject to tax at the rate of 0%. However, withholding tax may be payable on repatriation of assets and income to the Company in Jersey. The Company pays an International Services Entity fee and neither charges or pays Goods and Services Tax, this fee is currently £100 per annum for each Jersey registered company within the Group.

 

The subsidiaries will be liable for Turkish corporation tax at a rate of 20%. Additionally, a land sale and purchase fee may arise when land is sold or purchased.

 

 

 

 

Notes to the financial statements (continued)

 

(g) Taxation (continued)

Deferred tax is recognised in respect of all temporary differences that have originated but not reversed at the balance sheet date, where transactions or events that result in an obligation to pay more tax in the future or right to pay less tax in the future have occurred at the balance sheet date. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the temporary differences can be deducted.

 

(h) Foreign currency

In these financial statements, the results and financial position of the Company are expressed in Pounds Sterling, which is the Company's presentation currency.

 

The results and financial position of the entities based in Jersey are recorded in Pounds Sterling, which is the functional currency of these entities. In these entities, transactions in currencies other than sterling are recorded at the rates of exchange prevailing on the dates of the transactions. Monetary balances (including loans) that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date.

 

The results and financial position of the entities based in Turkey are recorded in Turkish Lira, which is the functional currency of these entities. In order to translate the results and financial position of these entities into the presentation currency (Pounds Sterling):

 

- non-monetary assets (including inventory) are translated at the rates of exchange prevailing on the dates of the transactions

- monetary balances (including loans) are translated at the rates prevailing on the balance sheet date and

- items to be included in the income statement are translated at the average exchange rates for the year

 

Foreign exchange gains or losses are recorded in either the income statement or in equity depending on their nature.

 

(i) Share capital

Ordinary shares are classified as equity. External costs directly attributable to the issue of new shares are shown as a deduction to reserves. Any redemption in shares is deducted from ordinary share capital with any transaction costs taken to the Income Statement.

 

(j) New standards and interpretations not applied

At the date of authorisation of these financial statements, the following standards and interpretations were in issue but not yet effective:

 

IFRS 8 - Operating Segments (effective for annual periods beginning on or after 1 January 2009) Amendment to IAS 1 - Presentation of Financial Statements: A Revised Presentation (effective for annual periods beginning on or after 1 January 2009)

Amendments to IAS 23 - Borrowing Costs (effective for annual periods beginning on or after 1 January 2009)

Amendments to IAS 27 - Consolidated and Separate Financial Statements (effective for annual periods beginning on or after 1 July 2009)

Amendments to IAS 32 and IAS 1 - Puttable Financial Instruments and Obligations arising on Liquidation (effective for annual periods beginning on or after 1 January 2009)

 

Notes to the financial statements (continued)

 

(j) New standards and interpretations not applied (continued)

Amendments to IFRS 7 - Financial Instruments: Disclosures (effective for annual periods beginning on or after 1 January 2009)

Revised IFRS 3 - Business Combinations (effective for annual periods beginning on or after 1 July 2009)

 

The Directors anticipate that the adoption of these standards and interpretations in future periods will have no material impact on the financial statements of the Group.

 

3. Segment reporting

The Group's activities are based in Turkey and Jersey. The Group has invested in Turkish new build residential property through its Turkish subsidiary companies. Accordingly, the net revenue and assets of the Group are substantially derived from its activities based in Turkey. The Group also holds assets and generates revenue in Jersey. Such activities are undertaken by the Company and by Ottoman Finance Company 1 Limited which has issued the loan to the third party described in note 11.

 

In the opinion of the Directors sufficient information of the Group's operating segments has been provided above.

 

4. Management fee

	2009	2008
	£	£
Management fee	1,522,740	3,008,219

 

On 30 June 2008, the Company notified DCM Capital Management (Jersey) Ltd that the management agreement would be terminated with effect from 31 December 2008. Up until 31 December 2008 the manager received a fee of 2% of committed capital.

 

On 6 January 2009 the Company extended the manager's contract for a further three months, with the fees reduced to £65,000 per month, this extension with a one month notice period remained in place to 31 December 2009. With effect from 1 January 2010 the management fee was reduced to £32,500 per month and from 1 February 2010 will be paid on a weekly basis up to the date of termination.

 

5. Other operating expenses

 

	2009	2008
	£	£
Legal and professional fees	72,911	165,038
Advisory and consultancy fees	216,173	163,137
Marketing	93,840	123,714
Travel and subsistence	52,441	117,697
Directors' remuneration	127,486	117,179
Administration fees	108,414	95,649
Audit services - for audit work	39,260	48,648
Other operating expenses	410,565	518,137
	1,121,090	1,349,199
The company has no employees.
Notes to the financial statements (continued)   6. Tax
	2009	2008
	£	£
Irrecoverable overseas tax	24,126	16,478

 

This tax represents irrecoverable withholding tax on bank interest.

 

7. Earnings per share

The basic and diluted earnings per ordinary share is based on the net loss for the year of £1,460,011 (2008: loss £1,580,759) and on 134,764,709 shares (2008: 138,178,080 shares) being the weighted average number of ordinary shares in issue during the year.

The diluted earnings per share are based on the possibility that the options disclosed in Note 17 will be exercised.

Given the low levels of profit and options in existence, both the basic and diluted earnings per share are calculated as 1.08 pence (2008: 1.13 pence).

 

8. Intangible assets

Cost		£
At 1 September 2008		9,216
Additions		-
At 31 August 2009		9,216
Amortisation
At 1 September 2008		(4,240	)
Charge for the year		(1,750	)
At 31 August 2009		(5,990	)
Net book value at 31 August 2009		3,226
Net book value at 31 August 2008		4,976

 

The intangible asset relates to a CRM program, with a useful life of 6 years. There has been no impairment during the year.

 

9. Plant and equipment

	Furniture and		Leasehold
	fittings		improvements		Total
	£		£		£
Cost
At 1 September 2008	22,845		43,957		66,802
Additions	627		2,544		3,171
At 31 August 2009	23,472		46,501		69,973
Depreciation
At 1 September 2008	(5,336	)	(23,766	)	(29,102	)
Charge for the year	(4,383	)	(16,467	)	(20,850	)
At 31 August 2009	(9,719	)	(40,233	)	(49,952	)
Net book value at 31 August 2009	13,753		6,268		20,021
Net book value at 31 August 2008	17,509		20,191		37,700

 

Notes to the financial statements (continued)

 

10. Inventories

	Group	Company	Group	Company
	2009	2009	2008	2008
	£	£	£	£
Opening book cost	91,503,254	-	89,927,782	-
Purchases at cost	991,718	-	1,575,472	-
Closing book cost	92,494,972	-	91,503,254	-

 

This represents the purchase of 149,550 square metres of development land on the Bodrum peninsula, 931,739 square metres on the Riva coastline and 209,853 square metres, of which the Group has a 50% share, in the Kazikli village, in the district of Milas.

 

In accordance with the accounting policy in note 2, inventories are stated at the lower of cost and net realisable value. Inventories were valued at the year end by Savills on the basis of open market value. On this basis, a total fair value of £91.9 million has been determined for inventories held by the Company at the balance sheet date. In accordance with the Company's accounting policy, unrealised gains or losses as a result of this valuation have not been recognised in the consolidated income statement.

 

Reconciliation of book cost to open market value:

	2009		2008
	£		£
Closing book cost	92,494,972		91,503,254
Increase/(decrease) in valuation of inventory properties at acquisition exchange rate
Golturkbuku, Bodrum	(3,125,000	)	1,849,693
Riva	(7,611,283	)	14,781,376
Kazikli	(718,940	)	2,206,531
Total increase/(decrease) in valuation of inventory properties at acquisition exchange rate	(11,455,223	)	18,837,600
Foreign exchange gain/(loss)	10,896,322		2,491,873
Open market value	91,936,071		112,832,727

 

11. Loans and receivables

	Group	Company	Group		Company
	2009	2009	2008		2008
	£	£	£		£
Opening balance	8,573,984	108,402,176	7,211,525		96,468,242
New loans	-	145,630	-		1,239,096
Repayment of loan	(277,199)	-	-		-
Exchange gain on revaluation of loan	717,327	12,505,561	1,362,459		10,694,838
Closing balance	9,014,112	121,053,367	8,573,984		108,402,176

 

The third party loan is for €10,034,309 in respect of the investment in the Riverside Resort in Alanya and is secured by a mortgage. No interest is accruing and repayments are based upon sales of the development. The intercompany loans have no interest accruing and no repayment date and principally relate to the purchase and development of land.

 

Notes to the financial statements (continued)

 

12. Foreign currency gains

	Group			Company		Group		Company
	2009			2009		2008		2008
	£			£		£		£
Translation of cash balances	69,393			69,393		123,351		123,351
Gain on loans	717,327			12,505,561		1,362,459		10,694,838
Net currency gains	786,720			12,574,954		1,485,810		10,818,189

 

13. Investment in subsidiary undertakings

	Country of			Authorised		Issued		Ownership
Name	incorporation			share capital		share capital		%
Ottoman Finance Company 1 Limited	Jersey			£10,000		£1		100
Ottoman Finance Company 2 Limited	Jersey			£10,000		£1		100
Ottoman Finance Company 3 Limited	Jersey			£10,000		£1		100
Ottoman Finance Company 4 Limited	Jersey			£10,000		£1		100
Ottoman Finance Company 5 Limited	Jersey			£10,000		£1		100
Osmanli Yapi 1	Turkey			YTL 46,146,312		YTL 46,146,312		99.99
Osmanli Yapi 2	Turkey			YTL 188,284,941		YTL 188,284,941		99.99
Osmanli Yapi 3	Turkey			YTL 5,249,584		YTL 5,249,584		99.99
Osmanli Yapi 4	Turkey			YTL 11,249,104		YTL 11,249,104		99.99

 

All of the above companies have been incorporated into the Group accounts.

 

14. Interests in joint ventures

The Group has the following interest in a joint venture, Mobella, a project management company.

 

		Country of Domicile		Ownership
Mobella		Turkey		50%

 

Summarised financial information of joint venture is as follows:

	Assets	Liabilities			Equity		Revenue		Loss
Mobella	1,027,694	(489,058	)		538,636		15,748		(171,204	)

 

15. Other receivables

		Group			Company		Group		Company
		2009			2009		2008		2008
		£			£		£		£
Prepayments and accrued income		100,774			26,853		301,032		85,367
Other taxation		530,369			-		667,231		-
Other receivables		354,932			-		47,164		-
		986,075			26,853		1,015,427		85,367

 

The Directors consider that the carrying amount of the above receivables approximates to their fair value. Prepayments include advances to suppliers.

 

Notes to the financial statements (continued)

 

16. Other payables

	Group	Company	Group	Company
	2009	2009	2008	2008
	£	£	£	£
Accruals	231,821	132,899	227,232	233,176
Amounts due to subsidiaries	-	5	-	5
Accrued tax	-	-	11,147	-
Other payables	121,519	-	76,143	-
	353,340	132,904	314,522	233,181

 

17. Called up share capital

Authorised:
Founder shares of no par value	10
Ordinary shares of no par value	Unlimited
Issued and fully paid:	£
2 founder shares of no par value	-
134,764,709 ordinary shares of no par value	135,483,052

 

On incorporation of the Company, 2 founder shares of no par value were issued to the Manager. These shares are not eligible for participation in the Company's investments and carry no voting rights at general meetings of the Company. The Company's former broker, Numis Securities Limited, holds an option to purchase 1.25% of the issued share capital of the Company at a price of £1 per share. This option will lapse on the 5th anniversary of admission, being 28 December 2010.

 

Movements in ordinary share capital during the year		Number		£
Ordinary shares in issue at 1 September 2008		134,764,709		135,483,052
Movement during the year		-		-
Ordinary shares in issue at 31 August 2009		134,764,709		135,483,052

 

18. Retained earnings

	Group		Company		Group		Company
	2009		2009		2008		2008
	£		£		£		£
At start of year	(13,762,210	)	(10,334,924	)	(12,613,335	)	(18,435,333	)
Bank and deposit interest earned	421,225		234,538		1,307,327		1,118,622
Operating expenses	(2,643,830	)	(2,217,198	)	(4,357,348	)	(3,836,402	)
Tax	(24,126	)	-		(16,548)		-
	(2,246,731	)	(1,982,660	)	(3,066,569	)	(2,717,780	)
Net movement on foreign exchange	786,720		12,574,954		1,485,810		10,818,189
(Loss)/profit for the year	(1,460,011	)	10,592,294		(1,580,759	)	(8,100,409	)
Foreign exchange on subsidiary translation	270,522		-		431,906		-
Minority interests	(16	)	-		(22	)	-
At end of year	(14,951,715	)	257,370		(13,762,210	)	(10,334,924	)

 

 

Notes to the financial statements (continued)

 

19. Net asset value per share

The net asset value per ordinary share is based on the net assets attributable to equity shareholders of £120,531,370 (2008: £121,720,859) and on 134,764,709 ordinary shares (2008: 134,764,709), being the number of ordinary shares in issue at the period end.

 

20. Cash and cash equivalents

	Group	Company	Group	Company
	2009	2009	2008	2008
	£	£	£	£
Bank balances	18,366,304	14,793,101	20,900,040	16,893,761
	18,366,304	14,793,101	20,900,040	16,893,761

 

21. Financial instruments

The disclosure on the financial instruments has been limited to the consolidated financial position. This approach has been adopted as this covers all of the principal risks associated with the Company.

 

The disclosures below assume that the properties held by the Group are in US Dollars as this is the currency in which they are valued by Savills. In the opinion of the directors this is also the currency that any future disposals would occur in.

 

The Company's financial instruments comprise loans, cash balances and receivables and payables that arise directly from its operations, for example, in respect of sales and purchases awaiting settlement, and receivables for accrued income.

 

The principal risks the Company faces from its financial instruments are:

 

(i) Market risk

(ii) Credit risk

(iii) Foreign currency risk

(iv) Interest rate risk

(v) Liquidity risk

 

As part of regular Board functions, the Board reviews each of these risks. As required by IFRS: Disclosure and Presentation, an analysis of financial assets and liabilities, which identifies the risk to the Company of holding such items, is given below.

 

(i) Market price risk

Market price risk arises mainly from uncertainty about future prices of financial instruments used in the Company's operations. It represents the potential loss the Company might suffer through holding market positions as a consequence of price movements. The Company has no such exposures to market price risk.

 

(ii) Credit risk

The Group places loans with third parties and is therefore potentially at risk from the failure of any such third parties of which it is a debtor. Recovery of the loans at 31 August 2009 is dependent on successful completion and sale of properties by third party developers. Further details of loans made to subsidiaries and developers can be found in note 11. The largest counterparty risk is with the Company's bankers. Bankruptcy or insolvency of BNP Paribas may cause the Company's rights with respect to cash held to be delayed or limited.

 

Notes to the financial statements (continued)

 

(ii) Credit risk (continued)

The Group's principal financial assets are loans and receivables, other receivables and cash and cash equivalents. The maximum exposure of the Group to the credit risk is the carrying amount of each class of financial assets.

 

Loans and receivables are represented by loans to and receivables from third parties.

Other receivables are represented mainly by prepayments and other receivables where no significant credit risk is recognised.

 

Credit risk exposure

In summary, compared to the amounts in the Consolidated Balance Sheet, the maximum exposure to credit risk at 31 August 2009 was as follows:

 

	Balance	Maximum	Balance	Maximum
	sheet	exposure	sheet	exposure
	at 31 August	at 31 August	at 31 August	at 31 August
	2009	2009	2008	2008
Non-current assets	£	£	£	£
Loans and receivables	9,014,112	9,014,112	8,573,984	8,573,984
Current assets
Cash and cash equivalents	18,366,304	18,366,304	20,900,040	20,900,040
Other receivables	986,075	986,075	1,015,427	1,015,427
	28,366,491	28,366,491	30,489,451	30,489,451

 

Fair value of financial assets and liabilities

The book value of the cash at bank and loans to third parties included in these financial statements are approximate to their fair value.

 

(iii) Foreign currency risk

The Group operates Pound Sterling, Euro, US Dollar and Turkish Lira bank accounts. Exchange gains or losses arise as a result of the movement in the exchange rate between the date of the transaction denominated in a currency other than Sterling and its settlement.

 

Currency rate exposure

An analysis of the Group's currency exposure in Pounds Sterling is detailed below:

 

Currency	Non-current assets at 31 August 2009	Net monetary assets at 31 August 2009	Non-current assets at 31 August 2008	Net monetary assets at 31 August 2008
	£	£	£	£
Pounds Sterling	-	13,887,289	-	16,114,878
Euro	9,014,112	1,231,512	8,573,984	774,914
US Dollar	92,494,972	3,140,563	91,503,254	3,823,355
Turkish Lira	23,247	739,675	42,676	887,798
	101,532,331	18,999,039	100,119,914	21,600,945

 

Notes to the financial statements (continued)

 

Foreign currency sensitivity

The table below details the Group's sensitivity to a 5% increase in the value of Sterling against the relevant currency. With all other variables held constant, net assets attributable to shareholders and the change in net assets attributable to shareholders per the consolidated income statement would have decreased by the amounts shown below. The analysis is performed on the same basis for 2008.

 

Currency	Profit & Loss at 31 August 2009	Equity at 31 August 2009	Profit & Loss at 31 August 2008	Equity at 31 August 2008
	£	£	£	£
Euro	512,281	-	467,445	-
US Dollar	157,028	4,624,749	191,168	4,575,163
Turkish Lira	36,984	1,162	44,390	2,134
	706,293	4,625,911	703,003	4,577,297

 

A 5% weakening of Sterling against the relevant currency would have resulted in an equal but opposite effect on the amounts in the financial statement above to the amounts shown above, on the basis that all other variables remain constant.

 

(iv) Interest rate risk

Interest rate movements may affect: (i) the fair value of the investments in fixed interest rate securities, (ii) the level of income receivable on cash deposits, (iii) interest payable on the company's variable rate borrowings.

 

The Company holds only cash deposits.

 

The interest rate profile of the Group excluding short term receivables and payables was as follows:

 

Currency	Floating	Non interest	Floating	Non interest
	rate	bearing	rate	bearing
	at 31 August	at 31 August	at 31 August	at 31 August
	2009	2009	2008	2008
	£	£	£	£
Pounds Sterling	13,993,334	-	16,262,692	-
Euro	1,231,512	9,014,112	774,914	8,573,984
US Dollar	3,140,563	92,494,972	3,823,355	91,503,254
Turkish Lira	895	23,247	39,079	42,676
	18,366,304	101,532,331	20,900,040	100,119,914

 

 

 

Notes to the financial statements (continued)

 

Maturity profile

The following table sets out the carrying amount, by maturity, of the Group's financial instruments:

 

				2009
	Within		Within	Within	More than
	1 year		2-3 years	4-5 years	5 years	Total
	£		£	£	£	£
Floating rate
Cash	18,366,304		-	-	-	18,366,304
	18,366,304		-	-	-	18,366,304

 

Non-interest bearing

Other receivables	986,075		-	-	-	986,075
Other payables	(353,340	)	-	-	-	(353,340	)
	632,735		-	-	-	632,735

 

				2008
	Within		Within	Within	More than
	1 year		2-3 years	4-5 years	5 years	Total
	£		£	£	£	£
Floating rate
Cash	20,900,040		-	-	-	20,900,040
	20,900,040		-	-	-	20,900,040

 

Non-interest bearing

Other receivables	1,015,427		-	-	-	1,015,427
Other payables	(314,522	)	-	-	-	(314,522	)
	700,905		-	-	-	700,905

 

Repayments of the third party loan of €10,034,309, in respect of the investment in the Riverside Resort in Alanya, are based upon sales of the development and therefore have been excluded from this maturity profile.

 

Interest rate sensitivity

An increase of 100 basis points in interest rates during the period would have increased the net assets attributable to shareholders and changes in net assets attributable to shareholders by £183,663 (2008: £209,000). A decrease of 100 basis points would have had an equal but opposite effect.

 

(v) Liquidity risk

The Group's assets mainly comprise cash balances, loans receivable and development property, which can be sold to meet funding commitments if necessary. As at 31 August 2009 the Group does not have any significant liabilities due.

 

The Group has sufficient cash reserves to meet any liabilities due.

 

22. Commitments

The Group has no outstanding commitments as at 31 August 2009.

 

 

Notes to the financial statements (continued)

 

23. Related party transactions

Information regarding subsidiaries and subsidiary loans can be found in notes 11 and 13.

 

24. Directors' interests

Total compensation to the Directors over the period was £127,486 (2008: £117,179).

 

Commencing 13 March 2009 John D. Chapman as Executive Chairman has been employed under an executive service contract that provides for an annual fee of £75,000 pro-rated monthly and a discretionary bonus.

 

Angelo Moskov is a partner with QVT Financial LP and Eitan Milgram is an Executive Vice President of Weiss Asset Management LLC which are substantial investors in the Company.

 

25. Post balance sheet events

 

Change of Administrator and registered office

On 9 November 2009, the Company appointed Herald Fund Services Limited as its administrator in place of BNP Paribas Securities Services Fund Administration Ltd, and relocated its registered office to Herald House, 8 Hill Street, St Helier, Jersey JE4 9XB.

 

Change of Nominated Adviser and Broker

On 5 August 2009 Singer Capital Markets Ltd replaced Numis Securities Limited as nominated adviser and broker.

 

Return of Capital

On 20 January 2009 the Directors announced a return of £8 million of capital to shareholders of record as at 29 January 2009 via a capital distribution.

 

Proposed Restructuring

It is proposed that the Company internalises its management by terminating the Management Agreement and taking over the day to day management of the Company. In order to do this the Company will need to reclassify as a "Listed Fund".

 

The internalisation is conditional upon Shareholder approval and the issue to the Company by the Jersey Financial Services Commission of a certificate in accordance with the Listed Fund Guide and the CIF law.

 

An Extraordinary General Meeting has been scheduled for 22 February 2010 for discussion of the restructuring proposals.

 

Retirement of the Manager and Investment Adviser

Notice was served to the Manager, Development Capital Management (Jersey) Ltd and DCM Danismanlik A.S., with effect from 31 December 2008. The Management Agreement has been extended since then on a month to month basis at a reduced fee.

 

It is anticipated that the Manager and Investment Adviser will retire upon the finalisation of the proposed restructuring (noted above).

 

 

 

 

Notes to the financial statements (continued)

 

25. Post balance sheet events (continued)

 

Appointment of new Investment Adviser

Civitas Property Partners S.A. were appointed Investment Adviser to the Company on 2 December 2009.

 

Change of Custodian

At the EGM on 22 February 2010, the Company will propose to the Shareholders to terminate the appointment of BNP Paribas SA (Jersey Branch) as custodian of the Company. The Company does not intend to appoint a new custodian.

 

Corporate Information

 

Directors of the Company John Chapman (Executive Chairman) Antony Gardner-Hillman (Appointed 13 March 2009) Andrew Wignall (Appointed 13 March 2009) Angelo Moskov (Appointed 17 July 2009) Eitan Milgram (Appointed 5 November 2009) Roger Maddock (Resigned 13 March 2009) Sencar Tokar (Resigned 13 March 2009) William King (Resigned 13 March 2009) Sir Timothy Daunt (Resigned 13 March 2009)

Registered Office Herald House 8 Hill Street St Helier Jersey JE4 9XB   Manager and Promoter Development Capital Management (Jersey) Ltd (See Note 25) BNP House Anley Street St Helier Jersey JE2 3QE   Custodian BNP Paribas SA (Jersey Branch) (See Note 25) BNP House Anley Street St Helier Jersey JE2 3QE   Investment Advisor Civitas Property Partners S.A. (Appointed 2 December 2009) East 53rd Street MMG Building 2nd Floor Marbella Republic of Panama   DCM Danismanlik A.S. (See Note 25) Macka C No.32 Normanli A. Zemin Kat D:4 Sisli 34367 Istanbul Turkey   Auditors to the Fund PricewaterhouseCoopers CI LLP Twenty Two Colomberie St Helier Jersey JE1 4XA

Legal Adviser (England) Travers Smith LLP 10 Snow Hill London EC1A 2AL     Legal Adviser (Jersey) Ozannes PO Box 733 29 The Esplanade St Helier Jersey JE4 OZS       Registrar Capita IRG (Offshore) Ltd Victoria Chambers Liberation Square 1/3 The Espanade St Helier Jersey JE4 OFF   Nominated Adviser and Broker Singer Capital Markets Ltd (Appointed 5 August 2009) One Hanover Street London W1S 1YZ   Administrator and Secretary Herald Fund Services Ltd (Appointed 9 November 2009) Herald House 8 Hill Street St Helier Jersey JE4 9XB