22nd May 2007 07:01
Ottoman Fund Limited (The)22 May 2007 For Immediate Release 22 May 2007 THE OTTOMAN FUND LIMITED Interim Results for the six months ending 28 February 2007 The Ottoman Fund Limited (the "Fund"), which invests in the development of localhousing and holiday homes in the major cities and coastal resorts of Turkey, ispleased to announce its interim financial statements for the period ending 28February 2007. Period highlights • Property portfolio independently valued at 20% above cost • Increase in adjusted NAV by 8.5% to 102p since November 2006 • Further Investments: - 917,900m2 of land at Riva, Istanbul, plus additional land aggregation in the same area - 50% investment in 274,524m2 of land at Kazikli • 50/50 JV with Ado Group in respect of Kazikli land • Phase 1 Golturkbuku, Bodrum ready for launch 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. ContactsDevelopment Capital Management 020 7355 7600Roger HornettErtan SevincTom Pridmore Buchanan Communications 020 7466 5000Charles RylandIsabel Podda Numis Securities 020 7260 1000Iain McDonaldBruce Garrow THE OTTOMAN FUND LIMITED CONDENSED INTERIM FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 28 FEBRUARY 2007 Chairman's Statement The six months since the year end in August 2006 have seen some significantdevelopments for the Ottoman Fund. Further investment has continued, jointventures and partnerships have been put in place and the development of existingsites has made good progress. The Fund is viewed as a significant propertyinvestor in Turkey and is regularly approached by developers and land ownersalike, a testament to the hard work of the Manager's Turkish office. New Investments As I mentioned in the annual report, the Fund purchased in September just underone million square metres of land in Riva. This is a significant investment forthe Fund in terms of value, physical size and strategic importance. The area,just outside Istanbul on the Black Sea coast, is expected to become a majorsuburb of the city, particularly with travel time down to 35 minutes followingrecent infrastructure improvements. These prospects can already be seen in therising valuations, with the site having increased 20% in value over the sixmonths since its purchase. In addition to the original site, the Fund hascontinued to aggregate further small plots of adjacent land as suitableopportunities have arisen. As announced in January, the Fund purchased a 50% share of a 274,524m2 plot atKazikli, on the Aegean coast. In conjunction with this we entered into a 50/50joint venture with the co-owner, Ado Group, to develop the site. One of thelargest suppliers of building materials to Turkey and neighbouring countries,they bring significant local expertise to the project. Planning approval isprogressing well and we are currently tendering for concept designers. Just after the period end, the Fund bid in partnership with the Akfen Group fora highly prestigious plot in the central business district of Istanbul. We wereunsuccessful but both parties considered that our final bid was at the rightlevel and a good relationship has been established with Akfen. The Managercontinues to look at other suitable sites that become available as part of theprivatisation process. Existing Portfolio Progress on the existing investments continues apace. At the Bodrum site conceptdesigns are complete, local architects have been selected and the marketing ofphase 1 is due to commence shortly. The final payment at Alanya has been madeand the sales strategy is being reviewed with the developer. Turkey The election of a new president led to a political crisis at the end of April assecularist opposition to the nominated candidate, Abdullah Gul, lead to largescale public demonstrations and a statement by the Army which was widely takenas a threat to intervene. In the event the vote was annulled by theConstitutional Court; a parliamentary general election has been called for 22July. Negotiations on EU accession are virtually at a standstill. Lack of progress andthe negative stance of some EU members have continued to swing opinion away fromsupport for accession. Losses by the Turkish lira and on the Istanbul stock market at the height of thecrisis reversed in early May. Political uncertainty will continue to affectmarkets, at least until after the parliamentary elections. Prospects The Fund is now 65% invested, whilst the remainder is currently allocated forthe sales and development of the invested sites. A number of new investments areunder review and the Manager is keen to explore further joint ventures withpotential partners in Turkey. Political uncertainty overshadows the period ahead but the Fund iswell-positioned to move forward in any of the likely outcomes. Sir Timothy DauntChairmanMay 2007 Manager's Report During the period a number of further land purchases were made, partnershipshave been established with significant companies and the development of ourexisting sites has progressed well. The focus of investment remains on earlystage land purchase and development whether in joint ventures or directly. Thiscontinues to be, in the Manager's experience, the best long term strategy. Investment activity Riva As previously mentioned following the year end the Fund purchased 917,900 squaremetres of development land in Riva. The site is part of the Beykoz-Riva-Kavaciksubregion, the north east part of Istanbul on the Asian side, adjoining theBlack Sea coast. The region is expected to become a major new housing area to supply demand from commuters into Istanbul. Significantinfrastructure is now in place reducing commuting time down to 35 minutes. Anumber of key developers are working in the region and prices have been rising as the prospects for the area increase. TheFund purchased the site for $110m in September 2006. Following this the Fundaggregated two further plots for $0.3m in February and continued this processadding a further eleven plots costing $2.3m in April and May. As at the periodend the current independent valuation for the holding is $132.4m, an increase of20% over the six months under review. Overall proposals for the entire site havebeen submitted to the regional planners and we await the response. Conceptdesigns for phase one, which already has 1:1000 scale permission, are beingfinalised and local architects are being appointed to produce the technicaldesigns for these 70 units. Once complete the Manager expects constructionpermits to be granted swiftly. Kazikli In January the Fund purchased a 50% share in 11 contiguous parcels of primecoastal land in Kazikli village, approximately 25 miles from Bodrum-Milasinternational airport. The total area of the land is 274,524m2 and cost $10m forthe 50% stake. In conjunction with this the Fund also entered into a 50/50 jointventure with Ado Group, one of Turkey's largest suppliers of building materials.The JV company into which each party has invested $3m of equity, will beresponsible for the development of the site. At the period end the company hadreceived approval from the local authorities for a new zoning plan for the site. As a result of this and general market movements, the land held by theFund had increased in value by 24% to $12.4m as at the end of February. Golturkbuku, Bodrum The site at Bodrum is moving forward well, the concept designs from WATG havebeen converted to technical specifications and the construction permit has beenapplied for. Initial pre-marketing of the first phase consisting of 26 three andfour bedroom villas has commenced with a full launch expected in June.Discussions are ongoing with several international hotel and spa operators.Prices in the local area have continued to rise and this has been reflected inthe land valuation for the site which stood at $38.4m on 28 February against thepurchase price of $33.4m. Since the period end the Manager has been able tosecure two further plots adjacent to the site along the coast for $5.3m. Alanya Sales at the site remain subdued, which the Manager believes stems from acombination of increased supply and lower pricing of developments in theimmediate area. Although the site remains one of the best in the vicinity it isincreasingly clear a more aggressive stance on pricing will be required. Theremaining payment of €4.1m was made in December 2006 bringing the totalinvestment to $12.7m against an independent valuation of $18.5m at the periodend. Tender for land in Besiktas, Istanbul Following the period end the Fund formed a joint partnership with the Akfen RealEstate Investment Company to bid for 96,505m2 of state owned land in the centralbusiness area of Besiktas in the European side of Istanbul. Akfen is one of thelargest conglomerates in Turkey and is a leading property developer both inTurkey and the surrounding region. Together a meaningful bid was tendered.Ultimately however, the site, in a highly sought after area of the capital, waswon by the Zorlu Group for a record $800m. Valuation In order that shareholders may identify the value created by the Fund frominvesting in locations and markets with strong growth potential, independentvaluations of the property portfolio are obtained on a regular basis.Below is set out the revaluation of the Fund's assets that cannot be reflectedon the balance sheet under IFRS. Net assets as at 28 February 2007 £137,958,806Increase in valuation of inventory properties above costGolturkbuku, Bodrum £2,534,034Riva £11,290,427Kazikli £1,198,185Adjusted net asset value £152,981,452 Number of ordinary shares in issue 150,000,000 Adjusted net asset value per share as at 28 February 2007 101.99p Adjusted net asset value per share as at 30 November 2006 93.87p The political climate Turkey has been in an electoral phase for the best part of the last year, withmost expecting Prime Minister Erdogan to put his name forward for thePresidency. However it was decided such a move would be too contentious andForeign Minister Abdullah Gul was nominated by the ruling AKP. This was still a step too far for the secularists who, fearing creepingIslamism, demonstrated on the streets in large numbers, triggering a politicalcrisis. An announcement from the General Staff followed, which was taken by mostas a threat by the Army to become involved. The CHP opposition party thensuccessfully challenged the presidential result in the Constitutional Court,resulting in the Parliament calling an early general election for 22 July andproposing several amendments to the Constitution, including the direct electionsof the President by the people. The stock market's reaction to all of this was relatively muted, the initial 4%fall having now been regained and the Lira has held its own, a surprisingoutcome given the strength of both this year. FDI remains undeterred with aforeign-led consortium investing $1.2bn for the operating rights of Izmir'sport. The focus of most investors will now be on the forthcoming elections andany reaction by the General Staff. EU negotiations The period under review has been interspersed with spasmodic bouts of tensionbetween the negotiating parties. Of particular contention is Article 301 of thepenal code covering the crime of anti-Turkishness, an indictable offence inTurkey but strictly against the freedom of speech chapter enshrined in theTreaty of Rome. However it was not this that temporarily halted negotiations butthe refusal of the Turkish government to open its ports and airports to GreekCypriot traffic by early December as the EU directive had demanded. The Turkishgovernment believes this is a problem for the UN to solve and not somethingwhich should be seen as part of the EU negotiating process. Willingness for theinclusion of Turkey into the EU will be tested in the coming months particularlywith the recent elections of the conservative Nicolas Sarkozy in France andAngela Merkel in Germany. The economy The massive increase in interest rates by 425 basis points to 17.50% in June hashad a material but generally positive effect on the economy. The Lira hasrecovered some lost ground and is steady against the US Dollar at $1.40, whereit remains competitive; GDP growth has slowed but not reversed and inflationshows signs of coming under control. Tourism 2006 was a poor year for tourism, especially the final quarter, where terroristattacks in August targeting Istanbul, Marmaris, Antalya, Van and Diyarkbakir,reduced foreign arrivals leaving full year numbers down 6.2% at 12.2m visitors.Full year revenue fell back 7.2% to $16.9bn. It should not be forgotten howeverthat 2005 had been an exceptional year with arrivals 20% ahead of 2004 levels,thus the decline still leaves tourism up on 2004 levels. Since the end ofNovember the position seems to have improved with arrivals recording a 7.6% yearon year increase in December and 7.1% in January. The decision of the Turkish,US and Iraqi authorities to join forces against the terrorists creeping acrossthe Iraqi border, no doubt played a major role here. The outlawed PKK KurdistanWorkers Party, which claimed responsibility for the terrorist attacks, isincreasingly losing any popular support they may have had. The most recent numbers have shown foreign tourist arrivals increased by 25.6%in February year on year which bodes very well for the summer season. The property market The long awaited mortgage law was finally presented to and passed by parliamentat the end of February and will take effect from 1 January 2008. Fixed andvariable rate mortgages will replace typical 5 year housing loans and will betradable by the banks. They will be offered for periods of 20 years or more andsensibly there will be no tax breaks against interest paid. Those with housingloans may switch to mortgages without the usual 2.0% early repayment penalty andin addition the 5.0% banking insurance operating tax will be dropped. There is a huge shortage of appropriate housing. Industry and government agreethat demand will average 700,000 a year for the next decade. Less than half thatnumber are currently being built. Meanwhile some 55% of all residences have beenbuilt without a licence or permit, most not even approaching earthquakestandards. Approximately 60% of existing housing stock is over 20 years old and40% of all houses are in need of considerable repair. The market in thesecircumstances is likely to remain tight and prices firm. The mini economic crisis of 2006 however took its toll on the property market,with 65% of first time buyers delaying for a year. New build held up well, withbuyers encouraged by free gifts, the promise of holidays and pre-arrangedattractive financing. The situation appears to have stabilised, althoughit is difficult to predict in the current climate. Prospects Whilst the current unrest is causing some media commentators alarm, thefundamentals of the local property market remain strong. The position of theportfolio means that little of the stock due to come to the market in the nearfuture will be aimed at the international investor. Our focus on a more directdevelopment strategy also gives us the flexibility to adapt to market movements. For the remainder of the year the Manager expects the focus to be predominantlyon moving the existing sites through planning and into construction. Sales andmarketing strategies are being drawn up and we expect phased releases to havestarted for most sites by the year end.Development Capital Management (Jersey) LimitedMay 2007 Consolidated Balance Sheet (unaudited)As at 28 February 2007 (unaudited) (audited) 28 February 31 August 2007 2006 Group Group notes £ £Non-current assetsInventories 4 79,524,583 19,377,286Loans & receivables 5 7,192,613 4,381,865 86,717,196 23,759,151Current assetsOther receivables 325,219 612,736Cash and cash equivalents 51,104,890 114,862,336 51,430,109 115,475,072Total assets 138,147,305 139,234,223 Current liabilitiesOther payables (188,499) (197,125)Net assets 137,958,806 139,037,098 EquityShare Capital 6 150,000,000 150,000,000Retained Earnings (12,041,133) (10,962,860)Equity attributable to 137,958,867 139,037,140owners of the parentMinority interest equity (61) (42)Total equity 137,958,806 139,037,098 Net asset value per share 7 92.0 92.7(pence) Consolidated Income Statement (unaudited)For the six months ended 28 February 2007 (unaudited) (audited) Six months 9 December ended 2005 28 February to 31 August 2007 2006 notes £ £IncomeBank interest 1,350,306 3,709,237Total income 1,350,306 3,709,237Operating expenses Management fee 2 (1,487,671) (2,030,136)Other operating expenses (583,365) (663,645)Foreign exchange gains/(losses) 12,134 (210,870) Total operating expenses (2,058,902) (2,904,651) (Loss)/profit for the period (708,596) 804,586 Attributable to:Equity shareholders of the company (708,607) 804,585Minority interest 11 1 (708,596) 804,586Basic and diluted (loss)/ earningsper share (pence) 3 (0.5) 0.5 Consolidated Statement of Cash Flows (unaudited) For the six months ended 28 February 2007 (unaudited) (audited) Six months 9 December ended 2005 28 February to 31 August 2007 2006 Group GroupCash flow from operating activities £ £(Loss)/profit for period (708,596) 804,586Net foreign exchange (gains)/losses (12,134) 210,870Decrease/(increase) in other receivables 287,517 (612,736)(Decrease)/increase in other payables (8,626) 197,125 Net cash (outflow)/inflow from operating (441,839) 599,845activitiesCash flow from investing activitiesPurchase of inventories (60,147,297) (19,768,599)Loan to developer (2,798,088) (4,472,247)Net cash outflow from investing activities (62,945,385) (24,240,846) Cash flow from financing activitiesIssue of shares - 150,000,000Share issue expenses - (11,250,000)Net cash inflow from financing activities - 138,750,000Net (decrease)/increase in cash and cash (63,387,224) 115,108,999equivalentsCash and cash equivalents at 31 August 2006 114,862,336 -Effect of foreign exchange rates (370,222) (246,663)Cash and cash equivalents at 28 February 51,104,890 114,862,3362007 Consolidated Statement of Changes in Equity (unaudited)Group Share Retained Minority capital earnings Interest Total £ £ £ £For the period 9December 2006 to31 August 2006(audited)Issue of share 150,000,000 - - 150,000,000capitalExpenses of share - (11,250,000) - (11,250,000)issueForeign exchange onsubsidiary - (517,447) (41) (517,488)translationProfit for the period - 804,587 (1) 804,586Balance at 31 August 150,000,000 (10,962,860) (42) 139,037,0982006 For the six monthsended28 February 2007(unaudited)Balance at 31 August 150,000,000 (10,962,860) (42) 139,037,0982006Foreign exchange onsubsidiary - (369,666) (30) (369,696)translationLoss for the period - (708,607) 11 (708,596)Balance at 28 150,000,000 (12,041,133) (61) 137,958,806February 2007 Notes to the Financial Statements (unaudited) For the six months ended 28 February 2007 1 Accounting Policies These condensed interim financial statements have been prepared in accordancewith International Financial Reporting Standards ("IFRS") issued by theInternational Accounting Standards Board (IASB) and interpretations issued bythe International Financial Reporting Committee of the IASB (IFRIC). (a) Basis of preparation The financial statements have been prepared on a historical cost basis, exceptfor certain financial instruments detailed below. (b) Basis of consolidation The interim financial statements incorporate the financial statements of theCompany and entities controlled by the Company (its subsidiaries) made up to 28February. Control exists when the Company has the power, directly or indirectly,to govern 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. (c) Revenue recognition Interest receivable on fixed interest securities is recognised on an effectiveyield basis. Interest on short term deposits, expenses and interest payable aretreated on an accruals basis. (d) 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. (e) Investments General Assets are recognised at the trade date on acquisition and disposal. Proceedswill be measured at fair value which will be regarded as the proceeds of saleless any transaction costs. Inventories Inventories are stated at the lower of cost and net realisable value. Landinventory is recognised at the time a liability is recognised - generally afterthe exchange of contracts. Loans and receivables Loans and receivables are recognised on an amortised cost basis. Where they aredenominated in a foreign currency they are translated at the prevailing balancesheet exchange rate. (f) 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. (g) Cash and cash equivalents Cash and cash equivalents comprise current deposits with banks. (h) Taxation The Fund is an Exempt Company for Jersey taxation purposes. The Company pays anexempt company fee, for each company within the group, which is currently £600per annum. However withholding tax may be payable on repatriation of assets andincome to the Fund. The subsidiaries will be liable for Turkish corporation taxat a rate of 20%. Additionally, a land sale and purchase fee may arise when landis purchased. 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. (i) Foreign currency The results and financial position of the Fund are expressed in pounds sterling,which is the functional currency of the Company. Transactions in currencies other thansterling are recorded at the rates of exchange prevailing on the dates of thetransactions. At each balance sheet date, monetary items and non monetary assetsand liabilities that are fair valued and that are denominated in foreigncurrencies are retranslated at the rates prevailing on the balance sheet date.Gains and losses arising on retranslation are included in net profit or loss forthe period where investments are classified as fair value through profit orloss. Exchange differences on translation of the company's net investment inforeign operations are recognised directly in equity. (j) Share Capital Shares are classified as equity. External costs directly attributable to theissue of new shares are shown as a deduction to reserves. 2 Management fee Six months ended 09 December 2005 28 February 2007 to 31 August 2006 £ £Management fee 1,487,671 2,030,136 The Manager receives a management fee quarterly in advance of 2% per annum ofthe net amount raised by the placing plus any capital gains retained forinvestment. The management agreement between the Fund and the Manager is terminable by theManager on six month's notice and the Fund on twelve months notice, subject toan initial term of twenty four months. The Manager is entitled to receive aperformance fee of 20% of any cash returns from the sale of a propertyinvestment above a hurdle rate of 10% compound per annum up to 100% and 30% ofany returns in excess of this. As at 28 February 2007 there is no contingentperformance fee. 20% of the performance fee calculated is subject to a claw backretention against the future performance of the Fund. 3 Earnings per share The basic and diluted earnings per share is based on the net loss for the periodof £708,596 (2006:profit of £804,586) and on 150,000,000 shares. 4 Inventories (a) Land held for 28 February 2007 31 August 2006development £ £Opening book cost 19,377,286 -Purchases at cost 60,147,297 19,377,286Closing book cost 79,524,583 19,377,286 5 Loans and receivables 28 February 2007 31 August 2006 £ £Loans to third party 7,270,339 4,472,251Exchange loss on (77,726) (90,386)revaluation of loan 7,192,613 4,381,865 6 Called up share capital Authorised:Founder shares of no par value 10Shares of no par value Unlimited Issued and fully paid: £2 Founder shares of no par value -150,000,000 shares of no par value 150,000,000 On incorporation of the Fund, 2 founder shares of no par value were issued tothe Manager. These shares are not eligible for participation in the fundinvestments and carry no voting rights at general meetings of the fund. On the initial launch date, 28 December 2005, 150,000,000 shares of no par valuewere issued. 7 Net asset value per share The net asset value per share is based on the net assets attributable to equityshareholders of £137,958,806 (31 August 2006: £139,037,098) and on 150,000,000shares, being the number of shares in issue at the end of each relevant period. 8 Financial instruments The Fund's financial instruments comprise investments, loans, 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 principal risks the Group faces through the holding of financialinstruments are: market risk, credit risk, foreign currency risk, interest raterisk, and liquidity risk. The Board regularly reviews and agrees policies formanaging each of these risks. As required by IAS32: Disclosure and Presentation,an analysis of financial assets and liabilities, which identifies the risk tothe Fund of holding such items is given below. 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. Credit risk The Fund places loans with third parties and is therefore potentially at riskfrom the failure of any such third party of which it is a debtor. Recovery ofthe loans is dependent on successful completion and sale of properties by thedeveloper. Foreign currency risk The Fund operates Sterling, Euro, US dollar, and Turkish Lira bank accounts.Exchange gains or losses arise as a result of the movement in the exchange ratebetween the date of the transaction denominated in a currency other thanSterling and its settlement. An analysis of the Group's currency exposure is detailed below: Net monetary Net monetary Investments assets Investments assets at 28 at 28 at 31 at 31 August February February August 2007 2007 2006 2006 £ £ £ £Euro 7,192,613 612,568 4,381,865 3,395,067US Dollar 79,524,583 14,025,880 19,377,286 56,997,128Turkish Lira - 112,736 - 1,811,722 86,717,196 14,751,184 23,759,151 62,203,917 Interest rate risk The Fund cash balances earn interest at the prevailing market rate, dependant onthe account type. Floating Non interest Floating Non interest rate bearing rate bearing at 28 at 28 at 31 at 31 February February August August 2007 2007 2006 2006 £ £ £ £Sterling 36,353,715 - 52,658,419 -Euro 612,569 7,490,701 601,592 7,175,340US Dollar - 79,524,583 56,997,128 19,377,286Turkish Lira 112,736 - 1,811,722 - 37,079,020 87,015,284 112,068,861 26,552,626 Liquidity risk The Fund's assets mainly comprise cash balances and realisable investments,which can be sold to meet funding commitments if necessary. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Ottoman Fund