19th Sep 2007 17:06
Black Sea Property Fund Limited19 September 2007 For Immediate Release 19 September 2007 The Black Sea Property Fund Limited Interim results for the six months ended 30 June 2007 The Black Sea Property Fund Limited, which specialises in the financing and saleof residential property in Bulgaria, is pleased to announce its interim resultsfor the six months ended 30 June 2007. The Fund is managed by Development Capital Management (Jersey) Limited. Copies of the Financial Statements are currently being sent to shareholders and may be obtained free of charge from Development Capital Management Limited, 84 Grosvenor Street, London, W1K 3JZ. List of ContactsDevelopment Capital ManagementRoger HornettAndrew Mitchell020 7355 7600 Buchanan CommunicationsCharles RylandIsabel Podda020 7466 5000 Numis SecuritiesBruce GarrowJames Keane020 7260 1000 Chairman's statement Since I last reported to shareholders in May of this year a number of investmentpurchases have been completed and the Fund now holds a diversified portfolioboth in terms of location and types of investment. Approximately 45% of theFund's invested assets are on the coast, 45% in the mountains and 10% in Sofia,split roughly 60/40 between direct and indirect ownership. Market As expected, the successful EU accession in January has provided a boost to theBulgarian economy, with the already high GDP growth increasing further. None ofthe safeguard clauses mooted at the end of 2006 have been enacted and progresscontinues to be made on EU integration. Accession also appears to have played animportant part in the 14.7% price rise seen in residential property in the firsthalf of this year. Fears regarding oversupply, particularly in the beach resortsremain, however, this is still predominately at the lower end of the market,with shortages of high quality stock driving demand, particularly in the skiresorts and urban areas. Progress Progress in the first six months of 2007 has seen the Fund move away from theoriginal financing model and more heavily into land purchases and directdevelopment of sites. In April the Fund purchased 24,599 square metres ofdevelopment land in the Malinova Dolina district of the capital, Sofia, for €4million. This was followed by the conditional agreement to purchase 124,000square metres of land in the Borovets region for €10.5 million. I'm pleased toreport this has, as at 1 August, now been completed. Sales and marketing at the Obzor site remain steady; at the period endreservations for 73 units were taken and 13 units had formally exchangedcontracts. At the time of writing this has risen to 103 sales and reservations,of which 62 have exchanged, 40% of the total 257 units currently on the market.Under the financing agreement this should produce income of €2.9 million, agross return of 55% on the €5.25 million invested. Progress at the Magnolia site has not been so positive. The discussions betweenthe developer and a potential bulk purchaser have broken down. It is frustratingfor both the Board and the Manager to continue reporting disappointing sales asa result of the developer's unrealistic view of the value of these units. We dobelieve this is a quality development, however early stage sales should not bejeopardised by over optimistic pricing. The delay resolving the bulk sale hasultimately postponed the marketing campaign for the site which has now restartedwith the appointment of two new sales agents for the 2007/08 ski season. Valuations As recently announced, the Fund's investment portfolio has undergone itsbi-annual valuation. Colliers International have valued the financed apartmentsat an average of €1321 per square metre, a small decrease from the Decembervaluation of €1340 per square metre and a total gross market value of the Fund'sunits of €111 million once completed. The investment in land at Byala and therecent sites purchased at Sofia and Borovets currently stand at an average valueof €90 per square metre, a premium of 15% above the average purchase price. Asat the period end the balance sheet NAV at cost stands at 16.4p, should profitfrom the current 103 sales at Obzor be included on the balance sheet it wouldtranslate into a further 0.8p per share, increasing the NAV to 17.2p. Cash distribution In the finals for 2006, the Board indicated an intention to make a distributionof excess capital. The resolution authorising a return to shareholders ofsurplus capital has now been put to investors and was passed at the EGM in June.Subject to Royal Court of Jersey approval, this leaves the way clear for theFund to make a payment to shareholders of 1p per share, expected to be inOctober. Prospects and strategic review The Fund is now focussed on the development and realisation of its investments.Whilst it has taken longer than expected to reach this stage, I believe the Fundhas a strong portfolio and the direct involvement of the Fund on developmentswill enable it to avoid many of the issues that have dogged some of thefinancial investments made earlier in its life. As announced on 24 August theBoard is exploring strategic options for enhancing shareholder value. The Boardhas appointed Intelli Corporate Finance to advise it in connection with thisreview and will announce the outcome as soon as practicable. In the mean timethe Fund has served "protective" notice of termination of its managementagreement with Development Capital Management (Jersey) Limited ("DCM"), theeffect of which will be to reduce any termination costs payable by the Fund inthe event that the strategic review is concluded in such a way that DCM'sservices are no longer required. EGM requisition On 29 August 2007, the Board received notice from a nominee of QVT Fund LP, asubstantial investor in the Fund, requisitioning an extraordinary generalmeeting of the Fund to consider ordinary resolutions for the removal of RogerMaddock and myself from the Board and for the appointment of John Chapman,Angelo Moskov, Andrey Kruglykhin and Anthony Gardner-Hillman as directors of theFund. The Board will be convening this EGM in accordance with Jersey Law andshareholders will receive a circular from the Fund in this regard shortly. Melville TrimbleSeptember 2007 Manager's report The Fund The period under review has seen the acquisition of three promising sites (twoin Borovets and one in Sofia) and the commencement of development planning attwo of these locations. Sales have been progressing steadily at Obzor. The Fundalso took the decision to exit its investment at Tsarevo and received theinvested amount back. Investment activity In April the Fund purchased 24,599 square metres of development land in theMalinova Dolina district of Sofia, one of the capital's suburbs in the foothillsof the Vitosha mountain. The total purchase price was €4 million. The Fund isdeveloping the site into an upmarket residential complex, including a mixture offamily houses and apartments, with a gross development value currently estimatedat €19m. Architects and project managers have been appointed and are workingwith the Manager's local team to bring the project to the stage where sales canbegin before the end of the year. In May the Fund announced the signing of preliminary contracts to acquire twoparcels of land close to Borovets. The larger of the two sites comprisesc.124,000 square metres of land close to the main road between Borovets andSamokov, the nearest major town. There are major plans, known as the SuperBorovets project, to expand the resort including the siting of a new gondolalift a short distance from the Fund's site. These plans were recently given aboost when Equest Investments announced that it had invested €25.9 million in33.5% of the company behind the project. The purchase price of the land was €10.5 million, equivalent to €85 per squaremetre. The Fund intends to develop the land in planned phases into a residentialresort complex with associated commercial spaces and a hotel, for which theManager will seek to procure a well respected operator. WATG, the internationalresort architects, have been retained to advise on the master planning of thesite and have started work. Following the period end, the purchase of this sitewas completed in early August. Also in May the Fund resolved the difficulties relating to its originalinvestment at Borovets, which was affected by a third party restitution claim.Agreement was reached to exchange the original plot for another site in the samearea.The purchase price is also €85 per square metre and the deposit originallypaid by the Fund for the original site will be credited against the purchaseprice. The Manager expects that the purchase of this site will be completed inthe coming months. Throughout the period under review the YooBulgaria development at Obzor has beenon sale. Progress has been steady and, as at 30 June, 73 units had beenreserved, of which 13 had exchanged contracts. This has now increased to 62exchanges from 103 reservations. Sales at the Magnolia development stalled dueto the approach of a bulk investor, which later fell through. Sales at NikeaPark have been slow, however 8 reservations have been secured. A renewedmarketing campaign is currently in place for the 2007/08 ski season. In April, the Fund announced that it had terminated its financing agreementrelating to a development at Tsarevo, on the Black Sea coast. The agreement wasterminated due to a breakdown in the Fund's relationship with the developer,largely caused by the developer's insistence upon high pricing and the poorpresentation of the site. Valuations Following the bi-annual valuation of the property portfolio the Fund now hasinterests in land worth €27.8m against an acquisition price of €24.5m, anincrease of 13.5%. The average value of the units underlying the financialinvestments has slipped slightly since last December to €1321 per square metre,a fall of 1.4%, although the average acquisition price on completion remains€730 per square metre. The 103 sales achieved so far at the Obzor site (at anaverage of €1429 per square metre), are expected to produce under the financingagreement income of €2.9m, equivalent to 0.8p per share. If both the landrevaluations and the sales income are included, the current NAV rises to 18.2pper share. Property market Residential property prices appear to have been a major beneficiary of EUaccession since last October when Bulgaria's application was accepted. Averageprices for the whole of 2006 rose by 15%, with 5.7% of this increase in thefinal quarter. In the first half of the current year average prices have risenby 14.7%, with the strongest gains in Varna (+16%) and Sofia (+14%). We believethe Fund's proposed development on the outskirts of Sofia will have benefitedfrom this. Prices elsewhere on the coast and in the ski regions, have beenstable or recorded modest, single digit increases. The CEO of the UK group International Property Professionals described Bulgariaas a market which had gone from emerging to established in 3 years. According tostatistics collected by the group, Bulgaria was the third most popular countryfor UK residents buying property abroad after Spain and France, accounting for7.8% of the UK overseas property buying market. Official figures show that, after record property Foreign Direct Investments(FDI) in 2006 totalling €1.1bn, some €310m of money flowed into the country inthe first quarter of the year, a 63% increase over the same period last year.Colliers International reported a significant increase in supply during 2006;8,000 apartments were on offer in the ski regions, up 53% over 6 months, and onthe coast a total of 35,000 units were available, an increase of 54% over thesame period. This points to a degree of oversupply with an additional 26,000 unsold units inthe market compared to 2005.The number of building permits issued during thefirst quarter of 2007 is unlikely to improve the situation, having risen 40%year on year. They were however down 14% over the final 3 months of 2006. Withinthe total, residential permits across the country increased by 57% over thecomparable 2006 period. Politics Following EU accession on 1 January, the period under review was dominated bythe MEP elections and a political scandal, which came close to removing thethree party coalition. The election for MEPs in May produced a very low turnout, with Boyko Borissov,mayor of Sofia's newly formed GERB party gaining 22% of the vote, just ahead ofthe Socialists' 21%. The former King and Prime Minster Simeon II was forced into4th place by the right wing ATAKA, which has led to the collapse of the SimeonII party and a change of name. Perhaps more significantly, the Sofia heating scandal and the crackdown oncorruption has led to the resignation of two senior ministers, whilst fatigueand ill health has meant that the BSP led three party coalition has lost a totalof 8 key members, which at one point was thought to presage new elections. Much newsprint was given over to the first review of accession progress by theEU Commission, which decided that no safeguard clauses should be enactedalthough greater vigilance should be afforded to both the question of high levelcorruption and agricultural policy. The economy As anticipated, EU accession has boosted real GDP growth with the first quarterof 2007 posting a solid 6.2% in real terms following 5.5% a year ago. After thefirst 5 months the current account shortfall has risen year on year by 43% to€2.5bn where it represents almost exactly 10% of 2006 GDP. This is clearly not apositive sign for the balance for the year, although FDIs of €1.2bn in the first4 months should ensure that much of the shortfall is covered. Of more concern and something which the Manager is factoring into future buildcosts are the developments regarding wages. Both the minimum wage and pensionswere increased by 10% from 1 July, whilst the unions and employersrepresentatives have just agreed a 13% rise for the private non-service sector.Both moves were taken in response to a number of above average pay settlementsin order to try and ward off further inflationary deals. The cost to thegovernment of settlements so far, together with the pensions hike is some €716m,which compares with the record five month budget surplus of €946m and highlightsthe fact that such deals could wipe out the entire balance if not checked. Thisis an issue of considerable concern to the IMF. The fear is that not only willsuch settlements threaten price stability but also long held governmentambitions to enter the ERM by January 2008. EMU entry by 2010 may now not bepossible. It is worth noting however that increased salaries and a smallincrease in inflation, provided they are contained within acceptable parameters,are both likely to be positive for the development of residential propertyprices. Tourism The Bulgarian Tourist Board has estimated a figure of 6.4% for growth in touristnumbers this year, after a 5.2% rise in 2006 to a record 5.1m. The forecastseems a little low, given EU accession and price comparisons with the rest ofEurope. The national TV forecast, a high 12%, could turn out to be morerealistic. The number of carriers announcing additional or new schedules to Bulgaria wouldsupport such enthusiasm. Sterling and Air Shuttle, two low cost Scandinaviancarriers, announced first time flights to Varna and Bourgas during the holidayseason, whilst BA stated it was to add to its scheduled service from Gatwick toSofia. More recently both German Wings and WizzAir have joined the growingnumber flying to Sofia. The opening of the second terminal at Sofia in lateDecember 2006 has facilitated the process and now accepts all scheduledcarriers, with the old terminal reserved for low-cost airlines such as easyJetand charter airlines. EasyJet have now announced a thrice weekly service fromGatwick to Sofia commencing in November. June 2007 saw the opening of the third terminal at Bourgas, which added 40% tototal capacity with the benefits of faster throughput already commented upon byvisitors. Airport management at Plovdiv was finally put out to long term tenderfollowing an agreement reached between the government and the defence ministryto exchange the runway and surrounding land, for sites elsewhere. Less good newscame from the ski regions, where poor advertising and a shortage of four staraccommodation, rather than a lack of snow, led the Bansko Tourist BusinessAlliance to forecast a 10% drop in tourist numbers for the season. Although nofigures are available this is not thought to be the situation elsewhere. InBorovets, which is likely to be a good example and does not suffer theovercrowding at Bansko, the operator, Borosport has just been awarded a firstclass investment certificate and will spend around €70m on improving and addingto facilities and the surrounding infrastructure. Hoteliers in the coastal resorts are blaming overbuild in their sector for adecline in tourist numbers so far this year. They add that many areself-catering in their own apartments, with the result that some managers arecutting prices by as such as 50% for the balance of the season. Bulgarianoutward tourism may also have played a role here. Official figures show that inthe first 4 months of the year residents spent some €390m on foreign holidays,17% ahead of the year ago figure. Outlook Growth in the Bulgarian economy remains strong and can only be helped by thesuccessful accession to the EU. This in turn is leading to a more robustproperty market and whilst fears remain over wage inflation, price risesparticularly in the high end areas of the market seem sustainable. Development Capital Management (Jersey)September 2007 Consolidated balance sheet (unaudited) As at 30 June 2007 (unaudited) (unaudited) (audited) 30-Jun 30-Jun 31-Dec 2007 2006 2006 Group Group Group notes £ £ £Non-current assetsLand 4 2,989,291 744,274 247,238Exercised options over property 4 150,799 150,799 150,799Interest in property 4 312,764 - 518,561 Loans and receivables 4 16,337,820 9,898,859 14,446,857 19,790,674 10,793,932 15,363,455 Current assetsOther receivables 65,966 33,220 10,019Investments at fair value through 5 18,178,630 29,497,719 23,424,780profit or lossCash and cash equivalents 3,280,312 3,903,088 3,213,477 21,524,908 33,434,027 26,648,276 Total assets 41,315,582 44,227,959 42,011,731 Current liabilitiesOther payables (158,110) (288,225) (216,503)Net assets 41,157,472 43,939,734 41,795,228 EquityShare capital 7 50,138,313 50,138,313 50,138,313Retained earnings (8,980,841) (6,198,579) (8,343,085)Total equity 41,157,472 43,939,734 41,795,228 Net asset value per Ordinary 8 16 17.5 16.7share (pence) These accounts were approved bythe Board of Directors on 18September 2007.Melville TrimbleRoger Maddock Consolidated income statement (unaudited) For the six months ended 30 June 2007 (unaudited) (unaudited) (audited) six months six months year ending ending ending 30-Jun-07 30-Jun-06 31-Dec-06 notes £ £ £IncomeBank interest 45,672 91,347 173,143Loan interest 842,561 62,872 579,017Gain on investments 6 342,571 609,583 90,016Currency gains/(losses) 19,369 - (23,540)Total income 1,250,173 763,802 818,636 Operating expensesManagement fee 3 (495,890) (495,890) (1,000,000)Other operating expenses (1,372,996) (623,789) (2,222,441)Total operating expenses (1,868,886) (1,119,679) (3,222,441) Loss before tax (618,713) (355,877) (2,403,805)Tax (45,222) - (35,057)Loss for the period (663,935) (355,877) (2,438,862) Basic earnings per share 2 (0.3) (0.1) (1.0)(pence)Diluted earnings per share 2 (0.3) (0.1) (1.0)(pence) All losses are attributable to the equity holders of Black Sea Property FundLtd. There are no minority interests. Consolidated statement of cash flows (unaudited) +--------------------------------------+----------------+-----------+------------+|For the six months ended 30 June 2007 | | | |+--------------------------------------+----------------+-----------+------------+| | (unaudited)|(unaudited)| (audited)|+--------------------------------------+----------------+-----------+------------+| | six months| six months| year ending|| | ending| ending| |+--------------------------------------+----------------+-----------+------------+| | 30 June 2007| 30 June| 31 December|| | | 2006| 2006|+--------------------------------------+----------------+-----------+------------+| | £| £| £|+--------------------------------------+----------------+-----------+------------+|Cash flow from operating activities | | | |+--------------------------------------+----------------+-----------+------------+|Net loss for period | (618,713)| (355,877)| (2,403,805)|+--------------------------------------+----------------+-----------+------------+|Gain on investments | (342,571)| (609,583)| (90,016)|+--------------------------------------+----------------+-----------+------------+| | | | |+--------------------------------------+----------------+-----------+------------+|Currency losses | (19,369)| -| 23,540|+--------------------------------------+----------------+-----------+------------+| | | | |+--------------------------------------+----------------+-----------+------------+|Increase in loan interest receivable | (345,149)| -| (287,511)|+--------------------------------------+----------------+-----------+------------+|(Increase)/decrease in other | (55,947)| (85,790)| 281||receivables | | | |+--------------------------------------+----------------+-----------+------------+|(Decrease)/increase in other payables | (59,390)| 13,166| (93,613)|+--------------------------------------+----------------+-----------+------------+|Net cash outflow from operating | (1,416,412)|(1,038,084)| (2,851,124)||activities | | | |+--------------------------------------+----------------+-----------+------------+| | | | |+--------------------------------------+----------------+-----------+------------+|Investing activities | | | |+--------------------------------------+----------------+-----------+------------+| | | | |+--------------------------------------+----------------+-----------+------------+|Loans to developers | (1,340,020)|(8,948,426)|(14,413,890)|+--------------------------------------+----------------+-----------+------------+|Options over property payment | -| -| (12,486)|+--------------------------------------+----------------+-----------+------------+|Purchase of land | (2,742,053)| (247,238)| -|+--------------------------------------+----------------+-----------+------------+|Expenses capitalised | -| (646,260)| -|+--------------------------------------+----------------+-----------+------------+|Purchase of accumulation money market | -| -| (2,385,090)||funds | | | |+--------------------------------------+----------------+-----------+------------+| | | | |+--------------------------------------+----------------+-----------+------------+|Sales of accumulation money market | 5,656,448| 10,244,063| 18,385,014||funds | | | |+--------------------------------------+----------------+-----------+------------+| | | | |+--------------------------------------+----------------+-----------+------------+|Net cash inflow from investing | 1,574,375| 402,139| 1,573,548||activities | | | |+--------------------------------------+----------------+-----------+------------+|Cash flow from financing activities | | | |+--------------------------------------+----------------+-----------+------------+|Sales commission and formation costs | -| 25,000| 25,000||paid | | | |+--------------------------------------+----------------+-----------+------------+|Net cash inflow from financing | -| 25,000| 25,000||activities | | | |+--------------------------------------+----------------+-----------+------------+| | | | |+--------------------------------------+----------------+-----------+------------+|Net increase/(decrease) in cash and | 89,013| (610,945)| (1,252,576)||cash equivalents | | | |+--------------------------------------+----------------+-----------+------------+|Cash and cash equivalents at start of | 3,213,477| 4,467,734| 4,467,734||the period | | | |+--------------------------------------+----------------+-----------+------------+|Effect of foreign exchange rates Cash | (22,178)| 46,299| (1,681)||and cash equivalents at end of period +----------------+-----------+------------+| | 3,280,312| 3,903,088| 3,213,477|+--------------------------------------+----------------+-----------+------------+ Consolidated statement of changes in equity (unaudited) +------------------------------------+---------------+-----------+-----------+| | Share| Retained| Total|| | | Earnings| || | Capital| | || | | £| || | £| | £|+------------------------------------+---------------+-----------+-----------+|For the six months to 30 June 2007 | | | ||(unaudited) | | | |+------------------------------------+---------------+-----------+-----------+|Balance at 31 December 2006 | 50,138,313|(8,343,085)| 41,795,228|+------------------------------------+---------------+-----------+-----------+|Foreign exchange on subsidiary | -| 26,179| 26,179||translation | | | |+------------------------------------+---------------+-----------+-----------+|Net operating loss for the period | -| (663,935)| (663,935)|+------------------------------------+---------------+-----------+-----------+|Balance at 30 June 2007 | 50,138,313|(8,980,841)| 41,157,472|+------------------------------------+---------------+-----------+-----------+|For the six months to 30 June 2006 | | | ||(unaudited) | | | |+------------------------------------+---------------+-----------+-----------+|Balance at 31 December 2005 | 50,138,313|(5,910,129)| 44,228,184|+------------------------------------+---------------+-----------+-----------+| | | | |+------------------------------------+---------------+-----------+-----------+|Foreign exchange on subsidiary | -| 67,427| 67,427||translation | | | |+------------------------------------+---------------+-----------+-----------+| | | | |+------------------------------------+---------------+-----------+-----------+|Net operating loss for the period | -| (355,877)| (355,877)|+------------------------------------+---------------+-----------+-----------+|Balance at 30 June 2006 | 50,138,313|(6,198,579)| 43,939,734|+------------------------------------+---------------+-----------+-----------+|For the year ended 31 December 2006 | | | ||(audited) | | | |+------------------------------------+---------------+-----------+-----------+|Balance at 1 January 2006 | 50,138,313|(5,910,129)| 44,228,184|+------------------------------------+---------------+-----------+-----------+|Foreign exchange on subsidiary | -| 5,906| 5,906||translation | | | |+------------------------------------+---------------+-----------+-----------+|Net operating loss for the period | -|(2,438,862)|(2,438,862)||Balance at 31 December 2006 +---------------+-----------+-----------+| | 50,138,313|(8,343,085)| 41,795,228|+------------------------------------+---------------+-----------+-----------+ Notes to the financial statements 1 Accounting policies The consolidated financial statements of the Company for the period ended 30June 2007 comprise the Company and its subsidiaries (together, the 'Group') andhave been prepared in accordance with International Financial ReportingStandards ("IFRS") issued by the International Accounting Standards Board (IASB)and interpretations issued by the International Financial Reporting Committee ofthe IASB (IFRIC). (a) Basis of measurement The consolidated financial statements have been prepared on the historical costbasis except for the following: • financial instruments at fair value through profit and loss are measured at fair value.• investment property is measured at fair value. (b) Functional and presentation currency These consolidated financial statements are presented in GBP, which is theFund's functional currency. (c) Use of estimates and judgments The preparation of financial statements requires management to make judgments,estimates and assumptions that affect the application of accounting polices andthe reporting amounts of assets, liabilities, income and expenses. Actualresults may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisionsto accounting estimates are recognised in the period in which the estimate isrevised and in any future periods affected (d) Revenue recognition Interest receivable on fixed interest securities is recognised in 'interestincome' using the effective interest method. The effective interest method is away of calculating the amortised cost of a financial asset or a financialliability (or groups of financial assets or financial liabilities) and ofallocating the interest income or interest expense over the relevant period. Theeffective interest rate is the rate that exactly discounts estimated future cashreceipts or payments through the expected life of the financial instrument or,where appropriate, a shorter period, to the net carrying amount of the financialasset or financial liability. When calculating the effective interest rate, theFund estimates cash flows considering all contractual terms of the financialinstrument but not future credit losses. The calculation includes all amountspaid or received by the Fund that are an integral part of the effective interestrate, including transaction costs and all other premiums or discounts. Interest on impaired financial assets is calculated by applying the originaleffective interest rate of the financial asset to the carrying amount as reducedby any allowance for impairment. (e) Basis of consolidation The interim financial statements incorporate the financial statements of theCompany and entities controlled by the Company (its subsidiaries) made up to 30June. Control exists when the Company has the power, directly or indirectly, togovern the financial and operating policies of an entity so as to obtainbenefits from its activities. The financial statements of subsidiaries areincluded in the consolidated financial statements from the date that controlcommences up to the date that control ceases. (f) Expenses Expenses are charged through the income statement, except for expenses which areincidental to the disposal of an investment which are deducted from the disposalproceeds of the investment. In addition certain expenses associated with theacquisition of an investment have been capitalised. (g) Investments General Assets are recognised at the trade date of acquisition, and are recognisedinitially at fair value plus any directly attributable transaction costs. Investments at fair value through profit or loss An instrument is classified as at fair value through profit or loss if it isheld for trading or is designated as such upon initial recognition. Financialinstruments are designated at fair value through profit or loss if the Fundmanages such investments and makes purchase and sale decisions based on theirfair value. Upon initial recognition, attributable transaction costs arerecognised in profit or loss when incurred. Financial instruments at fair valuethrough profit or loss are measured at fair value, and changes therein arerecognised in profit or loss. Loans and receivables Loans and receivables include loans and advances originated by the Fund whichare not intended to be sold in the short term and are recognised on an amortisedcost basis. Loans and receivables are recognised when cash is advanced toborrowers and are derecognised when the borrowers repay their obligations, theloans are sold or written off or substantially all the risks and rewards ofownership are transferred. They are initially recorded at fair value plus anydirectly attributable transaction costs and are subsequently measured atamortised cost using the effective interest method, less impairment losses.Where they are denominated in a foreign currency they are translated at theprevailing balance sheet exchange rate. Where the interest rate associated withsuch loans and receivables is below market, an adjustment is made to reflect thefair value accordingly. Investment property Investment property is stated at fair value. Any gain or loss arising from achange in fair value is recognised in the income statement. Land held forcapital appreciation or for development as an investment property is immediatelyclassified as investment property. Interest in property Interest in property represents amounts capitalised in relation tonon-derivative options to acquire property at future dates. Amounts capitalisedare amortised over the period of the corresponding options. (h) Movements in fair value Changes in the fair value of all held-at-fair-value assets are taken to theincome statement. On disposal, realised gains and losses are also recognised inthe income statement. (i) Cash and cash equivalents Cash and cash equivalents comprise current deposits with banks. (j) Taxation The Fund is an Exempt Company for Jersey taxation purposes. The Fund pays anexempt company fee, for each company within the group, which is currently £600per annum. The subsidiary BSPF Magnolia AD will be liable for Bulgaria corporation tax at arate of 10%. The subsidiary is not liable for any further local taxes, howeverwithholding tax may be liable on repatriation of assets and income to the Fund,as currently there is no double taxation treaty between UK and Bulgaria. Deferred tax is recognised in respect of all temporary differences that haveoriginated but not reversed at the balance sheet date, where transactions orevents that result in an obligation to pay more tax in the future or right topay less tax in the future have occurred at the balance sheet date. This issubject to deferred tax assets only being recognised if it is considered morelikely than not that there will be suitable profits from which the futurereversal of the temporary differences can be deducted. (k) Foreign currency The results and financial position of the Fund are expressed in pounds sterling,which is the functional currency of the Fund. Transactions in currencies other than sterling are recorded at the rates ofexchange prevailing on the dates of the transactions. At each balance sheetdate, monetary items and non monetary assets and liabilities that are fairvalued and that are denominated in foreign currencies are retranslated at therates prevailing on the balance sheet date. Gains and losses arising onretranslation are included in net profit or loss for the period whereinvestments are classified as fair value through profit or loss. Exchangedifferences on translation of the company's net investment in foreign operationsare recognised directly in equity. (l) Share Capital Ordinary share capital Ordinary shares are classified as equity. External costs directly attributableto the issue of new shares are shown as a deduction to reserves. Founder shares Founder shares are classified as equity. 2 Earnings per shareSix months ended 30 June 2007 The earnings per Ordinary share is based on the net loss for the period of£663,935 and on 250,691,563 Ordinary shares. The diluted return per Ordinaryshare is based on the net loss for the period and 251,728,907 Ordinary shares. Period 01 January 2006 to 30 June 2006 The earnings per Ordinary share is based on the net loss for the period of£355,877 and on 250,691,563 Ordinary shares. The diluted return per Ordinaryshare is based on the net loss for the period and £251,728,907 Ordinary shares. Period 27 January 2006 to 31 December 2006 The earnings per Ordinary share is based on the net loss for the period of£2,438,862 and on 250,691,563 Ordinary shares. The diluted return per Ordinaryshare is based on the net loss for the period and 251,728,907 Ordinary shares. 3 Management fee Six months ending Six months ending Year ending 30 June 2007 30 June 2006 31 December 2006 £ £ £ Management fee 495,890 495,890 1,000,000 The management fee paid to Development Capital Management (Jersey) Limited is 2%per annum of the amount subscribed plus any gains retained by the Fund forreinvestment. The management agreement between the Fund and the Manager is terminable byeither party on twelve month's notice, subject to an initial term of 36 monthsfrom admission. 4 Investing activities +-----------------------------+------------+-----------+----------+|a) Land | 30 Jun 07| 30 Jun 06 | 31 Dec 06|+-----------------------------+------------+-----------+----------+| | £| £ | £|+-----------------------------+------------+-----------+----------+|Opening book cost | 247,238| -| -|+-----------------------------+------------+-----------+----------+|Purchase at cost | 2,742,053| 247,238| 247,238|+-----------------------------+------------+-----------+----------+|Expenses capitalised | -| 497,036| -|+-----------------------------+------------+-----------+----------+|Closing book cost | (2,989,291)| 744,274| 247,238|+-----------------------------+------------+-----------+----------+| | | | |+-----------------------------+------------+-----------+----------+ The company has made a 5% deposit for land at Borovets, the balance is due to bepaid upon completion of the notary deed once final approval of the build densityis obtained and other conditions are satisfied. This has now been completed. SeeNote 11. The Fund has made payment of £2,692,605 for land at Sofia and has made a furtherpayment of £49,447 relating to VAT on land at Borovets. +-----------------------------+-------------------+----------+--------+|b) Exercised Options over | 30 Jun 07|30 Jun 06 | 31 Dec||property | | | 06|+-----------------------------+-------------------+----------+--------+| | £| £ | £|+-----------------------------+-------------------+----------+--------+|Opening book cost and fair | 150,799| 138,313| 138,313||value | | | |+-----------------------------+-------------------+----------+--------+|Expenses capitalised | -| 12,486| 12,486|+-----------------------------+-------------------+----------+--------+|Closing book cost | 150,799| 150,799| 150,799|+-----------------------------+-------------------+----------+--------+|Closing unrealised | -| -| -||appreciation/(depreciation) | | | |+-----------------------------+-------------------+----------+--------+|Closing book cost | 150,799| 150,799| 150,799|+-----------------------------+-------------------+----------+--------+| | | | |+-----------------------------+-------------------+----------+--------+ The consideration for the options of £138,313 was in the form of shares in theCompany. +-------------------------------------+-----------+----------+--------+|c) Interest in property | | | |+-------------------------------------+-----------+----------+--------+| | £| £| £|+-------------------------------------+-----------+----------+--------+|Interest in property | 312,764| -| 518,561|+-------------------------------------+-----------+----------+--------+| | 312,764| -| 518,561|+-------------------------------------+-----------+----------+--------+| | | | |+-------------------------------------+-----------+----------+--------+ An interest free loan has been made to a third party in order to secure anoption to acquire land at Byala, at a future date, under certain conditions.This interest free loan is accounted for at amortised cost, using the effectiveinterest rate method. As the loan bears interest at a rate below a market rate,a discount arises under the effective interest rate method. This discount hasbeen separately capitalised as "interest in property" in recognition of theasset that the option represents, and is being amortised over its usefuleconomic life. +-----------------------------------+----------+----------+----------+| | 30 Jun 07| 30 Jun 06| 31 Dec 06|+-----------------------------------+----------+----------+----------+|d) Loans | £| £ | £|+-----------------------------------+----------+----------+----------+|Loans |16,106,057| 9,762,121|14,215,094|+-----------------------------------+----------+----------+----------+|Expenses capitalised | 231,763| 136,738| 231,763|+-----------------------------------+----------+----------+----------+|Closing book cost |16,337,820| 9,898,859|14,446,857|+-----------------------------------+----------+----------+----------+ +------------------------------------+---------------+------------+------------+|5 Investment held at fair value | | | ||through profit or loss | | | |+------------------------------------+---------------+------------+------------+| | 30 Jun 07| 30 Jun 06| 31 Dec 06|+------------------------------------+---------------+------------+------------+|Accumulation money market funds | Listed| Listed| Listed|+------------------------------------+---------------+------------+------------+| | £| £| £|+------------------------------------+---------------+------------+------------+|Opening book cost | 23,045,435| 38,903,523| 38,903,523|+------------------------------------+---------------+------------+------------+|Movement in year | | | |+------------------------------------+---------------+------------+------------+|Purchase at cost | -| -| 2,385,090|+------------------------------------+---------------+------------+------------+|Sales - proceeds | (5,656,448)|(10,244,063)|(18,385,014)|+------------------------------------+---------------+------------+------------+|- realised gain on sales | 266,803| 220,781| 485,798|+------------------------------------+---------------+------------+------------+|- realised exchange losses on sales | (151,325)| (197,842)| (343,962)|+------------------------------------+---------------+------------+------------+|Closing book cost | 17,504,465| 28,682,399| 23,045,435|+------------------------------------+---------------+------------+------------+|Closing unrealised appreciation on | 1,106,540| 848,742| 974,152||Money Market Funds | | | |+------------------------------------+---------------+------------+------------+|Closing unrealised exchange loss | (432,375)| (33,422)| (594,807)|+------------------------------------+---------------+------------+------------+|Closing fair value | 18,178,630| 29,497,719| 23,424,780|+------------------------------------+---------------+------------+------------+ +-----------------------------------+--------------------+----------+---------+|6 Gain/(Loss) on Investments | | | |+-----------------------------------+--------------------+----------+---------+| | 30 Jun 07| 30 Jun 06|31 Dec 06|+-----------------------------------+--------------------+----------+---------+| | £| £| £|+-----------------------------------+--------------------+----------+---------+|Foreign exchange on loans | (67,727)| -|(202,488)|+-----------------------------------+--------------------+----------+---------+|Movement in unrealised appreciation| 294,820| 586,643| 150,668|+-----------------------------------+--------------------+----------+---------+|Gain on disposal of Money Market | 115,478| 22,939| 141,836||Fund | | | |+-----------------------------------+--------------------+----------+---------+|Net gain on investments | 342,571| 609,582| 90,016|+-----------------------------------+--------------------+----------+---------+| | | | |+-----------------------------------+--------------------+----------+---------+ +----------------------------------------------+-----------------------------+|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 | -|+----------------------------------------------+-----------------------------+|250,691,563 Ordinary shares no par value | 50,138,313|+----------------------------------------------+-----------------------------+ Founder shares are not eligible for participation in Fund Investments and carryno voting rights at general meeting of the Fund. A further 518,672 shares willbe issued contingent upon final construction permits being granted for theoption over the site at Kavarna. 8 Net asset value per share The net asset value per Ordinary share is based on the net assets attributableto equity shareholders shown below and on 250,691,563 Ordinary shares, being thenumber of Ordinary shares in issue at the end of each relevant period. +-------------------------+-----------------------------+----------+----------+| | 30 Jun 07|30 Jun 06 | 30 Dec 06|+-------------------------+-----------------------------+----------+----------+| | £| £ | £|+-------------------------+-----------------------------+----------+----------+|Net assets | 41,157,472|43,939,734|41,795,228|+-------------------------+-----------------------------+----------+----------+ 9 Financial instruments The Fund's financial instruments comprise money market funds, cash balances anddebtors and creditors that arise directly from its operations, for example, inrespect of sales and purchases awaiting settlement, and debtors for accruedincome. The main risks the Fund faces from its financial instruments are (i) marketprice risk, being the risk that the value of investment holdings will fluctuateas a result of changes in market prices caused by factors other than interestrate or currency movement, (ii) currency risk, (iii) credit risk, (iv) interestrate risk and (v) liquidity risk. The Board regularly reviews and agrees policies for managing each of theserisks. The Manager's policies for managing these risks are summarised below andhave been applied throughout the period. The numerical disclosures excludeshort-term debtors and creditors. Market price risk Market price risk arises mainly from uncertainty about future prices offinancial instruments used in the Fund's operations. It represents the potentialloss the Fund might suffer through holding market positions as a consequence ofprice movements and movements in exchange rates. It is the Board's policy to hold a broad spread of fixed interest investmentsusing collective schemes in order to reduce risk arising from factors specificto a particular country or sector. The Manager monitors the prices of the moneymarket funds throughout the year and reports to the Board, which meets regularlyin order to review investment strategy. Currency risk The functional currency and presentational currency of the Fund is sterling.Options over property, loans and other investments are denominated in Euros andthe Company is therefore exposed to movements in the exchange rate between theEuro and sterling. The Fund does not hedge this risk. Credit risk The Fund places funds with third parties and is therefore potentially at riskfrom the failure of any such third party of which it is a creditor. As part ofthe management of its liquid assets, the Fund places cash on a short term basisin collective money market investments. The majority of the Fund's loans are ultimately to property developers andrecovery is dependent on the successful completion and sale of the property overwhich the loan relates. Interest rate risk The interest rate risk profile of financial assets at the balance sheet date wasas follows: +------------+--------+---------+------------+---------+---------+------------+| | | | | | | 30 Jun 07|+------------+--------+---------+------------+---------+---------+------------+| | | | | Fixed| Floating|Non-interest|+------------+--------+---------+------------+---------+---------+------------+| | | | | interest| rate| bearing|+------------+--------+---------+------------+---------+---------+------------+| | | | | £| £| £|+------------+--------+---------+------------+---------+---------+------------+|Euro loan | | | |4,605,555|5,484,359| 6,560,670|+------------+--------+---------+------------+---------+---------+------------+|Euro cash | | | | | | |+------------+--------+---------+------------+---------+---------+------------+|deposit/ | | | | -|2,817,063| 18,178,630||investment | | | | | | |+------------+--------+---------+------------+---------+---------+------------+|Bulgarian | | | | | | ||LEV | | | | | | |+------------+--------+---------+------------+---------+---------+------------+|cash deposit| | | | -| 87,509| -|+------------+--------+---------+------------+---------+---------+------------+|Sterling | | | 30 Jun 06| -| 375,740| -||cash deposit| | | +---------+---------+------------+| | | | |4,605,555|8,764,671| 24,739,300|| | | | +---------+---------+------------+| | | | | | | 31 Dec 06|+------------+--------+---------+------------+---------+---------+------------+| | Fixed| Floating|Non-interest| Fixed| Floating|Non-interest|+------------+--------+---------+------------+---------+---------+------------+| |interest| rate| bearing| interest| rate| bearing|+------------+--------+---------+------------+---------+---------+------------+| | £| £| £| £| £| £|+------------+--------+---------+------------+---------+---------+------------+|Euro loan | 796,780|2,866,637| 6,098,704|3,788,377|3,859,396| 7,317,645|+------------+--------+---------+------------+---------+---------+------------+|Euro cash | | | | | | |+------------+--------+---------+------------+---------+---------+------------+|deposit/ | -| 71,858| 29,497,719| -|1,401,425| 23,424,780||investment | | | | | | |+------------+--------+---------+------------+---------+---------+------------+|Bulgarian | | | | | | ||LEV | | | | | | |+------------+--------+---------+------------+---------+---------+------------+|cash deposit| -| -| -| -| 5,322| -|+------------+--------+---------+------------+---------+---------+------------+|Sterling | -|3,831,230| -| -|1,806,730| -||cash deposit+--------+---------+------------+---------+---------+------------+| | 796,780|6,769,725| 35,596,423|3,788,377|7,072,873| 30,742,425|+------------+--------+---------+------------+---------+---------+------------+ Liquidity risk The Company's assets mainly comprise cash balances and readily realisablesecurities, which can be sold to meet funding commitments if necessary. 10 Commitments The Fund has an agreement to advance €5,274,750 to the developer of the site atObzor. At the period end €2,355,000 of this loan has been advanced. The Fund hasalso signed an agreement to advance up to €4,649,625 for the site at Kavarna. Noadvances have yet been made on this loan. 11 Post balance sheet events On 3 August 2007 the Fund finalised a purchase of c.124,000 square metres ofland at Borovets for a total of €10.5 million. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
BKSA.L