25th Sep 2006 07:01
Black Sea Property Fund Limited25 September 2006 For Immediate Release 25 September 2006 The Black Sea Property Fund Limited Interim results for the six months ended 30 June 2006 The Black Sea Property Fund Limited, which specialises in the financing and sale"off-plan" of luxury holiday apartments in Bulgaria, is pleased to announce itsinterim results for the six months ended 30 June 2006. 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 HornettTom Pridmore020 7399 4270 Buchanan CommunicationsCharles RylandIsabel Podda020 7466 5000 Numis SecuritiesCharles Farquhar020 7776 1500 The Black Sea Property Fund Limited Condensed Interim Financial Statements For The six months ended 30 June 2006 Chairman's Statement Introduction It is my pleasure to present your Fund's interim results for 2006. The periodunder review has witnessed considerable strategic activity, including timedevoted to maximising the potential from existing contracts and the salescampaigns for the more advanced projects. Valuation Colliers International has valued the Fund's property assets as at 30 June 2006.Using the methodology laid down by the Royal Institute of Chartered Surveyors(RICS), each development financed or under option has been valued on an "as ifbuilt" open market comparative basis. The valuation on this basis of theproperties held and under option within the portfolio as at that date was £187m. The net present value (NPV) of the developments, discounted back using a riskpremium of 11.0% over their anticipated life, together with the Fund's currentcash reserves amounts to £71.6m excluding the land (28.6p per share). Developingthe land at Byala and Borovetz equates to a further £10.2m (4.1p per share)discounted back at 15%. This compares to a NPV for the Fund of £73.1m (29.2p pershare) at 31 December 2005. The change in the NPV of the existing optionsreflects a more conservative view taken by the Manager of the sales profile forthese investments. Based upon experience gained over the period and the views ofsales agents, the Manager has extended the length of time expected to sell someof the units. Investment progress The Board has announced three additional projects since my last report. Thefirst is at Tsarevo on the southern Black Sea coast, where the Fund is financing86 of 140 apartments under construction. The second is at the Nikea Park Rivieraresort on the northern Black Sea coast (an extension to the Golden Sands resort)where the Fund is financing 118 out of 154 apartments being built by the highlyregarded Bulmix Group. Although relatively small and a late stage entry by theFund's normal criteria, these projects are intended to accelerate cash flow. Thethird is an investment in 143,314m2 of land in the Byala region, which willconvert into a 30% deposit on units to be built within the next two years,securing a future pipeline for the Fund. Progress at the Borovetz developmentmentioned in my last report continues, with the Manger selecting suitablecontractors to develop the site. These latest investments take the Fund to approximately 76% invested andcommitted for investment. The initial marketing campaign for the Magnolia apartments complex at Pamporovoin the Rhodopi mountains went well, with the first phase reserved within fiveweeks. At the time of the announcement, we expected further sales by Autumn thisyear. Since then, however, the marketing campaign has been delayed due toon-going negotiations with the developer. These are now resolved, and sales willrecommence in the Autumn for the 2006/7 ski season. The Fund was launched with options over developments in Obzor and Kavarna on theBlack Sea coast. Design work on these two projects is near to completion and thedeveloper expects to commence construction work in the fourth quarter of thisyear. The Board expects to be able to announce the exercise of these options inthe near future and for properties in the two developments to be on sale towardsthe end of the year. Tourism Tourism remains extremely strong. In the first half of the year visitor numbersentering Bulgaria via Sofia rose by 16.4% to 1.04m, whilst traffic using Varnaincreased by 12% and passenger numbers by 25%. The ski season brought 35% morevisitors to Bansko and it is estimated that 70% of all skiers in Borovets wereBritish. The World Travel and Tourism Council claims that Bulgarian inwardtourism will grow by 6.3% this year and is forecasting a growth rate averaging4.3% through to and including 2015. Thomas Cook has reported that Bulgaria remains the lowest cost holidaydestination in Europe. A number of travel agents already place Bulgaria firstfor up-and-coming holiday destinations in 2007, helped by 11 airlines which haveeither commenced flights to one of the country's three main airports or extendedtheir current schedules. British Airways has just extended its recentlyannounced four times a week Varna-Gatwick route to an all year round service,such is the level of demand. Infrastructure is improving, with the concession for the redevelopment of thetwo main coastal airports now finally awarded. The spend on infrastructure isexpected to further accelerate following EU accession which can only be positivefor the tourist and second home markets, key areas for the Fund's profitability. Sadly Bulgaria failed to reach the short-list for the 2014 winter Olympics butthis has not stopped plans for a new ski village at Blagoevgrad with 30kms ofslopes. Plans to develop the infrastructure in the other major winter resortsalso appear to be on track. The Economy, Politics and EU Accession Overall the economy appears reasonably sound with 5.6% GDP growth for the firstquarter of 2006, despite some concerns, particularly relating to the currentaccount. The link to the Euro, political stability and imminent EU accessionshould ensure it remains that way. The political scene has been relatively benign, with the three party coalitionabsorbed with matters concerning EU accession. The Presidential election hasbeen set for 22 October and Georgi Parvanov, the incumbent, seems favourite atthis stage to retain the position. The 16 May EU paper delaying the decision on EU entry until "early October atthe latest", caused little concern, but a lot of work. The Brussels commissionhighlighted five red flags to be addressed, principally covering law and order.A joint to-do list was drawn up between Brussels and Sofia which gave theimpression that the EU wanted timely accession for Bulgaria (and Romania) if atall possible. At the time of writing some 82% of the work had been completed tothe satisfaction of the integration minister, and legislators were workingthroughout the summer vacation period on the balance. We await the decision withinterest. While not wishing to pre-empt the result, indications are that afurther 12 months delay looks unlikely. Outlook I started by saying that much time had been devoted to strategy and improvingthe quality of our offering. That is certainly true of our approach tomarketing. The main marketing to-date has been in the UK, but a network of local agents(numbering approximately 50) has been established in key jurisdictions outsidethe UK to handle the current projects on sale. Certain projects will be passedover exclusively to international real estate marketing agencies. The marketing campaign for both Nikea Park and Tsarevo began in July with apress campaign. To date over 1,200 telephone enquiries have been received, amultiple of the number expected. Marketing literature is being dispatched, to befollowed by a nationwide road show. On a final note, I would like to take this opportunity to welcome Bill Drysdaleto the Board. His extensive experience of the Bulgarian market will I am suremake him a valuable addition. Melville TrimbleChairmanAugust 2006 Manager's Report Introduction During the first six month of 2006 the Fund has maintained the momentum gainedlast year, with a further four investments having been added to the portfolio.At the period end the Fund is now 76% invested, excluding the capital requiredto develop the land at Borovetz. On the sales side, the first phase of theMagnolia ski development went well and we expect to recommence marketing inearly Autumn. Following the period end, a joint marketing campaign for NikeaPark and South Beach was launched and reservations are progressingsatisfactorily. Discussions are currently in progress to appoint a projectmanager to oversee the development of the land near Borovetz, which we expect tobe one of the most exciting elements of the portfolio. We have also added to our'land bank' with a further investment in land at Byala which will help towards securing the future portfolio when it comes on stream in two years time. Investment Activity As mentioned in the Annual Statements, in January the Fund purchased 53,047square metres of development land in the Borovetz ski region, one of Bulgaria'smost popular ski resorts. The total purchase price is €4.7m, of which a depositof €0.35m has been paid with a further €3.8m due shortly and €0.5m due oncompletion of the development. The Fund intends to develop this land into aresidential/holiday apartment complex of around 900 units. The Manager iscurrently in negotiations with suitable firms to oversee the project. This is aparticularly promising project for the Fund, as well as capturing more of thepotential profit, the Fund has complete control over the entire process fromdesign to end sales and marketing. In March the Fund invested €8.6m in 143,314 square metres of land in Byala, 50km south of Varna on the Black Sea Coast. The sum invested represents a 25%discount to the Colliers valuation carried out as at 30 June. The land owner islooking to develop the site within the next two years, and once constructionbegins, the investment will be converted into a deposit on 30% of the units tobe built there. The investment will be based on a fixed reference price of €650per square metre (excluding VAT). This increases our exposure to the Byalaregion, which is an area of exceptional beauty and one we believe will offerstrong returns over the long term. The investment also allows us to secure afuture development opportunity at today's prices and helps to ensure thedevelopment pipeline as the Fund matures. Balancing the two longer term deals outlined above, the Fund has also made twoshorter term investments. The first, in March, was to finance 86 of the 147apartments currently under construction in the South Beach Holiday Village, nearTsarevo on the southern Black Sea coast. The Fund's reference price is €540 persquare metre, equivalent to a total financing of approximately €3.7 million anda significant discount to the recent Colliers valuation of €1250 per squaremetre when built. The second investment, which was made in May, is a contract to finance 118 outof 154 apartments being built by the highly regarded developer, the BulmixGroup. The Nikea Park Riviera Resort, 18 km from Varna on the Black Sea coast isset in the popular Golden Sands resort. The Fund's reference price is €500 persquare metre, giving a total investment of €4.23 million against the Colliers asbuilt valuation of €1200 per square metre. Both investments are within a veryshort walk from the beach and are located close to popular tourist areas.Marketing of both resorts commenced after the period end with targetedadvertising in newspapers and investor related internet advertising. Both siteswere formally launched in August with reservations progressing well. The Economy Bulgaria's economy remains on track, with GDP growth still strong at 5.6% in thefirst quarter of 2006, after 5.5% in 2005 and 5.7% in 2004. The growth in 2005was led by capital investment, which grew 21.4%, and private consumption, whichexpanded at 5.4%. Exports increased by 12.9% but this was more than offset by a20% growth in imports. During the first half of 2006 there were a number of significant economicevents. In March the Bulgarian government made an early repayment of IMF loansreducing the debt to GDP ratio to 27.9%. There was a small scare on the inflation front in May upon the publication ofPPI figures, which produced a monthly gain of 3.1% to lift the year on year rateto 11.6%. The fear was that this would feed through to June's CPI, producing are-run of the Turkish situation. In the event a 4.4% seasonal drop in foodprices saw the CPI drop 1.6% during June, allowing the annual rate to ease backto 8.2% from 8.5%. June also saw the cabinet put forward a draft budget for 2007, drawn up intandem with Brussels. The paper forecasts GDP growth of 5.8%, based on inflationaveraging 4.4% and ending the year at 3.1%. The cabinet forecasts a deficit onthe current account equivalent to a high but manageable 11.8% of GDP, offset byFDIs of €2.7bn (10.6% of GDP), which would leave the overall payments balance ina small deficit. In July the government announced a number of first halffigures, the most important of which was the Current Account deficit, whichexpanded 61.8% to €1,808m, still not large in real terms, the trade deficitperhaps a better guide, was up 18.9% to €2,346m. On the consumer front, salesremained very strong, with first half car and motorbike sales ahead 22.7%, whiteand brown goods, up 17%, beer sales up 11.0% and retail sales as a whole runningat an annual rate of 12.6%. Backed by unemployment at a 16 year low, thisdemonstrates that consumer wealth is increasing sharply. However this is alsothe main problem as far as the trade account is concerned. Politics and EU Accession The main news during the period was the European Commission's announcement on 16May regarding Bulgarian and Romanian accession. The Commission has decided thata further review will be carried out during early October at the latest.Provided Bulgaria meets the Commission's requirements on money laundering,organised crime, corruption and fraud, together with setting up an agency toreceive EU funding and separating the courts from government, accession willtake place on schedule on 1 January 2007. Since then a number of statements fromBrussels have given the impression that the EC wants Bulgarian accession tooccur on schedule, provided that Bulgaria ticks all the right boxes, even iflegislation, (which has now been tabled) has not completed its parliamentarycourse. In order to ensure compliance with the EU to-do list for accession on schedule,the Bulgarian government decided to work through the summer vacation andreported that 82% of the points raised had been addressed (385 of 466) by theend of the first week in August. The first section of the report went in on 14July and the second and final section must be in by 7 September. Recently there has been some debate over the seemingly easy way in whichnon-residents are able to secure Bulgarian citizenship and passports, with aflood of applications. A number of countries believe that following membershipthere will be a rush to enter the UK and other EU states. In a change of policythe UK government is believed to be preparing to restrict the access ofBulgarian and Romanians to work, which was granted to other recent EU entrants. Tourism Traffic volumes at all the airports continued to rise significantly, visitorsthrough Sofia rose by 16% and Varna and Bourgas an impressive 25% each.Unsurprisingly this has been helped by the plethora of announcements regardinglow cost and other airlines adding Bulgaria to their route network and thedecision by Bulgaria to join the ECAA, a group of 35 European countries, signingan open skies agreement, potentially opening the country up to a 500m touristpopulation. The question of the Varna and Burgas airport concession was finallysettled with the Supreme Court dismissing Vinci's objection to the contractbeing awarded to Fraport of Germany, which should now pave the way for furtherinfrastructure improvements. The new runway at Sofia airport is now open andcapable of accepting all sizes of aircraft. In the mountains the 2005/2006 ski season was a significant success with visitornumbers up 35%. However the IOC announced that Bulgaria had not made it from theshort list of seven to the final list of three to compete for hosting the 2014Winter Olympics. It had looked as though the country, for the first time in manyyears, had a meaningful chance. However the infrastructure is now much improvedand the plans to spend over €400m, which had already been announced, may wellstill go ahead. Final tourist numbers for 2005 were announced by the National StatisticalInstitute, showing an impressive 36% jump in the number of Britishholidaymakers. They also published first half tourist numbers showing that atthe end of June the country had seen 2.7m visitors, well up on 2005, in what isnormally the quiet season. The Property Market While sales of better quality developments continue, there is evidence of acertain amount of oversupply particularly in the coastal market. A surveycommissioned by the Manager and carried out by Colliers International revealsthat in the last 18 months approximately 55,000 second home apartments haveeither been built or commenced. Of these, between 56% and 60% have been soldoff-plan. The Manager is of the view that location, build quality, price,amenities and accessibility will become increasingly significant. Larger scaledevelopments with community facilities are likely to compete better. Coastal and mountain second home apartment prices vary widely in all areas,often with a 100% range between the highest and lowest dependent upon thequality of the development. Overall apartment prices in the first quarter of2006 increased by 12.5% year on year, down from 36.5% according to the KnightFrank global property index. It is the Manager's view that in the coastal andmountain regions where the Fund is active, prices have remained stable at thehigher end of the market. Foreign interest in Bulgarian property remains keen with some 23% of all 220,000deals negotiated in 2005 contracted to foreigners to a total value of €4.0bn.This compares to 18% in 2004 when the value was €3.36bn. Sales The period under review saw the commencement of sales for the Magnolia Holidaysski resort in the Pamporovo region with reservations received for the entirefirst phase. Marketing of this development has ceased for the summer season andwill recommence in the Autumn. Following the period end, initial marketing ofthe units at Nikea Park and South Beach has commenced. To date approximately1,200 enquiries have been received, and the London launch for both developmentstook place on 12 August generating a small number of reservations. With a largenumber of enquirers residing outside of London a road show has been constructedto take the launch event to strategic points within the UK and Ireland over theremainder of 2006. The launch event marks the start of the sales campaign with literature beingavailable on the projects from this point on. Over a thousand of the enquirerswill be receiving full brochures on the developments over the latter part ofAugust and sales activity is expected to peak during September and October onceclients have been given the opportunity to review the full details and takeadvantage of the scheduled inspection trips. In tandem with the retail launch international agencies and institutionalinvestors are being approached, however given the size and shorter timescalebefore completion the Manager expects the majority of sales to come from theretail segment. Outlook The underlying fundamentals in Bulgaria remain in place; economic growthcontinues to be buoyant, with strong consumer growth and ever increasing foreigninvestment. Whilst the rising current account deficit continues to be a concern,the Manager expects it to remain manageable, especially in the light of thelikely EU accession at the year end. Tourism also continues to expand, particularly in the ski areas. Whilst therecent terror threat may have put a short term dent in the number of peopletravelling, European travel has in the past rebounded relatively quickly. Theextra routes being introduced by airlines, particularly the low cost, highvolume operators, should ensure growth continues. Within the portfolio the Manager is working hard on the detailed proposals forboth the Obzor and Kavarna sites, which we expect to complete in the nearfuture. As the Fund is now close to being fully invested, the emphasis has shifted to ensuring successful sales of the units currently underdevelopment. Development Capital Management (Jersey) Limited August 2006 Consolidated Balance Sheet (unaudited) ------------------ ------- -------- ----------- -----------AS AT 30 JUNE 2006 (unaudited) (unaudited) (audited) 30 June 30 June 31 December 2006 2005 2005 notes £ £ £Non-Current AssetsLand 4 744,274 - -Options over property 4 150,799 138,314 138,313Loans & receivables 4 9,898,859 - 729,696 -------- ----------- ----------- 10,793,932 138,314 868,009 Current assetsOther receivables 33,220 18,436 35,300Investments at fair valuethrough profit or loss 5 29,497,719 38,803,958 39,132,200Cash and cash equivalents 3,903,088 5,158,305 4,467,734 33,434,027 43,980,699 43,635,234 -------- ----------- -----------Total assets 44,227,959 44,119,013 44,503,243 Current liabilitiesOther payables (288,225) (146,902) (275,059)Net assets 43,939,734 43,972,111 44,228,184EquityShare capital 6 50,138,313 50,138,313 50,138,313Retained earnings (6,198,579) (6,166,202) (5,910,129) -------- ----------- -----------Total Equity 43,939,734 43,972,111 44,228,184 -------- ----------- -----------Net asset value perOrdinary 7 17.5 17.5 17.6share (pence) ------- -------- ----------- ----------------------------- These financial statements were approved by the Board of Directors on 14September 2006 Melville Trimble Roger Maddock Consolidated Income Statement (unaudited) ---------------------------- --------- ---------FOR THE SIX MONTHS ENDED 30 JUNE 2006 (unaudited) (unaudited) (audited) 01 Jan 06 27 Jan 05 27 Jan 05 to 30 June 06 to 30 June 05 to 31 Dec 05 notes £ £ £IncomeBank interest 91,347 78,790 186,246Loan interest 62,872 - 8,245Net gain/(loss) oninvestments 5 609,583 (1,196,019) (123,640) --------- --------- ---------Total income 763,802 (1,117,229) 70,851Operating expensesManagement fee 3 (495,890) (298,630) (802,740)Other operating expenses (623,789) (200,343) (669,031) --------- --------- ---------Total operating expenses (1,119,679) (498,973) (1,471,771) --------- --------- ---------Net loss for the period (355,877) (1,616,202) (1,400,920)Basic earnings per share(pence) 2 (0.1) (0.6) (0.6)Diluted earnings per share(pence) 2 (0.1) (0.6) (0.6)----------------- ------ --------- --------- --------- All income is attributable to the equity holders of The Black Sea Property FundLtd. There are no minority interests. Consolidated Statement of Changes in Equity --------------------------- -------- -------- --------For the six months to 30 June 2006(unaudited)Balance at 31 December 2005 50,138,313 (5,910,129) 44,228,184Foreign exchange on subsidiarytranslation - 67,427 67,427 -------- -------- --------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 period 27 January 2005 to 30 June 2005(unaudited)Issue of Ordinary share capital 50,138,313 - 50,138,313Sales commission and formationexpenses - (4,550,000) (4,550,000) -------- -------- --------Net operating loss for the period - - (1,616,202) (1,616,202)Balance at 30 June 2005-------------------------- -------- -------- -------- 50,138,313 (6,166,202) 43,972,111 -------- -------- -------- --------------------------------- -------- --------For the period 27 January 2005 to 31 December 2005(audited)Issue of Ordinary share capital 50,138,313 - 50,138,313Foreign exchange on subsidiarytranslation - 15,791 15,791Sales commission and formationexpenses - (4,525,000) (4,525,000) -------- -------- --------Net operating loss for the period - (1,400,920) (1,400,920)Balance at 31 December 2005-------------------------- -------- -------- -------- 50,138,313 (5,910,129) 44,228,184 -------- -------- -------- Consolidated Statement of Cash Flows (unaudited) ------------------------------ --------- --------FOR THE SIX MONTHS ENDED 30 JUNE 2006 (unaudited) (unaudited) (audited) 01 Jan 06 27 Jan 05 27 Jan 05 to 30 June 06 to 30 June 05 to 31 Dec 05Cash flow from operating activities £ £ £Net (loss) for period (355,877) (1,616,202) (1,400,920)Net (gain)/loss on investments (609,583) 1,196,019 123,640Decrease/(increase) in otherreceivables (85,790) (18,437) (18,545)Increase in other payables 13,166 146,902 275,059 ---------- --------- --------Net cash outflow from operatingactivities (1,038,084) (291,718) (1,020,766)Cash flow from investing activitiesLoans to developers (8,948,426) - (706,881)Purchase of land (247,238) - -Expenses capitalised (646,260) - -Purchase of accumulation moneymarket funds - (59,668,115) (59,668,115)Sales of accumulation moneymarket funds 10,244,063 19,668,138 20,412,275 ---------- --------- --------Net cash outflow from investingactivities 402,139 (39,999,977) (39,962,721)Cash flow from financing activitiesIssue of Ordinary shares - 50,000,000 50,000,000Sales commission and formationcosts paid 25,000 (4,550,000) (4,550,000)Net cash inflow from financingactivities 25,000 45,450,000 45,450,000 ---------- --------- --------Net increase in cash and cashequivalents (610,945) 5,158,305 4,466,513Cash and cash equivalents atstart of the period 4,467,734 - - ---------- --------- --------Effect of foreign exchangerates 46,299 - 1,221Cash and cash equivalents at 30June 2006 ---------- --------- ------------------------------ 3,903,088 5,158,305 4,467,734 ---------- --------- -------- Notes to the Financial Statements 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 condensed interim financial statements have been prepared on a historicalcost basis, except for certain financial instruments detailed below. (b) Basis of consolidation The condensed interim financial statements incorporate the financial statementsof the Fund and entities controlled by the Fund (its subsidiaries) made up to 30June 2006. Control exists when the Fund 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. Land Land is held at its historic cost, translated at the foreign currency exchangerate prevailing at the date of acquisition. Options over property Options over property held either directly or by subsidiary undertakings forinvestment or resale are treated as non-current assets and are included in thebalance sheet at the lower of cost or net realisable value. Cost is the fairvalue of the consideration and includes acquisition expenses. No depreciation isprovided on these assets. 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. Quoted investments Quoted investments are categorised as held at fair value through profit or loss,and are measured initially at cost, the cost being the fair value of theconsideration. Subsequent to initial recognition, all held-at-fair-value assetsare measured at fair value. The fair value of the financial instruments is basedon their quoted bid price at the balance sheet date without deduction forestimated future selling costs. (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 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 15%. The subsidiary is not liable for any further local taxes, howeverwithholding tax may be payable on repatriation of assets and income to the Fund. 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 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. (j) Share Capital Ordinary share capitalOrdinary shares are classified as equity. External costs directly attributableto the issue of new shares are shown as a deduction to reservesFounder sharesFounder shares are classified as equity.2 Earnings per shareSix months ended 30 June 2006The earnings per Ordinary share is based on the net loss for the period of£355,877 and on 250,691,653 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 2005 to 30 June 2005 The earnings per Ordinary share is based on the net loss for the period of£1,616,202 and on 250,691,653 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 2005 to 31 December 2005The earnings per Ordinary share is based on the net loss for the period of£1,400,920 and on 250,691,653 Ordinary shares. The diluted return per Ordinaryshare is based on the net loss for the period and251,728,907 Ordinary shares. 3 Management fee 01 Jan 06 to 27 Jan 05 to 27 Jan 05 to 30 June 06 30 June 05 31 Dec 05 £ £ £ Management fee 495,890 298,630 802,740 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 --------------------- --------- -------- --------- 01 Jan 06 to 27 Jan 05 to 27 Jan 05 to 30 June 06 30 June 05 31 Dec 05 £ £ £Opening book cost - - -Purchase at cost 247,238 - -Expenses capitalised 497,036 - - --------- -------- ---------Closing book cost 744,274 - ---------------------- --------- -------- --------- The Fund has made a 5% deposit for land at Borovetz. The balance is due to bepaid upon completion of the notary deed once final approval of the build density is obtained and other conditions are satisfied. (b) Options over property --------------------- --------- -------- --------- £ £ £Opening book cost and fair value 138,313 - -Purchase at cost - 138,313 138,313Expenses capitalised 12,486 - -Closing book cost 150,799 138,313 138,313Closing unrealised appreciation/(depreciation) - - - --------- -------- ---------Closing book cost 150,799 138,313 138,313--------------------- --------- -------- --------- The consideration for the options of £138,313 was in the form of Ordinary sharesin the Fund. (c) Loans--------------------- --------- -------- --------- £ £ £Loans and interest 9,762,121 - 729,696Expenses capitalised 136,737 - - --------- -------- ---------Closing book cost 9,898,859 -729,696--------------------- --------- -------- --------- 5 Investments held at fair value through profit or loss - All listed --------- -------- --------- 30 June 06 30 June 05 31 Dec 05 £ £ £Opening book cost 38,903,523 - -Purchase at cost - 59,668,115 59,668,115Sales - proceeds (10,244,063) (19,668,138) (20,412,275)Realised gain on sales 220,781 15,749 25,795Realised exchange losses onsales (197,842) (347,617) (378,112) --------- -------- ---------Closing book cost 28,682,399 39,668,109 38,903,523Closing unrealised appreciationon Money Market Funds 848,742 223,081 633,230Closing unrealised exchangeloss (33,422) (1,087,232) (404,553) --------- -------- ---------Closing fair value 29,497,719 38,803,958 39,132,200--------------------- --------- -------- --------- 6 Called up share capitalAuthorised:Founder shares of no par value 10Ordinary shares of no par value Unlimited Issued and fully paid: £2 Founder shares of no par value -250,691,563 Ordinary shares of no par value 50,138,313 On incorporation of the Fund, 2 Founder shares of no par value were issued tothe Manager. These shares are not eligible for participation in Fund investmentsand carry no voting rights at general meetings of the Fund. On the initial launch date, 14 March 2005, 250,000,000 Ordinary shares of no parvalue were issued at 20p each and 691,563 Ordinary shares were issued at 20peach in exchange for the Obzor option. A further 1,037,344 Ordinary shares will be issued contingent upon finalconstruction permits being granted for the options over the sites at Shabla andKavarna. 7 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 June 06 30 June 05 31 Dec 05 £ £ £ Net assets 43,939,734 43,972,111 44,228,184 8 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 reviews and agrees policies for managing each of these risks. TheManager's policies for managing these risks are summarised below and have beenapplied throughout the period. The numerical disclosures exclude short-termdebtors 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 in orderto 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 Fund is therefore exposed to movements in the exchange rate between the Euroand 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. The Fundexpects to place any such funds on a short-term basis only and spread these overa number of different providers. Recovery of the loans is dependent onsuccessful completion and sale of properties by the developer. Interest rate risk The interest rate risk profile of financial assets at the balance sheet date wasas follows: ---------- ------------ ------------ Fixed Floating Non-interest interest rate bearingAt 30 June 06 £ £ £Euro loan 796,780 2,866,637 6,098,704Euro cash deposit/investment - 71,858 29,497,719Sterling cash deposit - 3,831,230 - ---------- ------------ ------------ 796,780 6,769,725 35,596,423 ---------- ------------ ------------ Fixed Floating Non-interest interest rate bearingAt 30 June 05 £ £ £Euro loan - - -Euro cash deposit/investment - 23 38,803,959Sterling cash deposit - 5,158,282 - ---------- ------------ ------------ - 5,158,305 38,803,959 ---------- ------------ ------------ Fixed Floating Non-interest interest rate bearingAt 31 December 05 £ £ £Euro loan - - -Euro cash deposit/investment - 23 38,803,959Sterling cash deposit - 5,158,282 ------------------- ---------- ------------ ------------ - 5,158,305 38,803,959 ---------- ------------ ------------ Liquidity risk The Fund's assets mainly comprise cash balances and readily realisablesecurities, which can be sold to meet funding commitments when necessary. 9 Contingent Liabilities On 25 January 2006 the Fund paid a deposit of €367,102 on land at Borovetz. Thebalance of the payment, €4,106,080 will be due on completion of the legal duediligence and once final planning approval is obtained, currently expected to beSeptember 2006. A further payment of €561,000 will also be due upon thecompletion of the development. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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