30th Sep 2005 12:03
Black Sea Property Fund Limited30 September 2005 For Immediate Release 30 September 2005 The Black Sea Property Fund Limited Condensed Interim Financial Statements For The Period 27 January to 30 June 2005 The Black Sea Property Fund, which specialises in the financing and sale of"off-plan" holiday apartments in Bulgaria, is pleased to announce condensedinterim financial statements for the period ended 30 June 2005. The closed-end fund is managed by Development Capital Management (Jersey)Limited. For more information, please contact: Development Capital Management 020 7399 4270Roger Hornett, Tom Pridmore Buchanan Communications 020 7466 5000Charles Ryland, Isabel Podda Chairman's Statement It is my pleasure to welcome shareholders to the first financial report of TheBlack Sea Property Fund Limited. The first five months The Fund, which raised some £50 million at launch in March 2005, was establishedprimarily to acquire second home residential property in Bulgaria for theoverseas tourist market. The business model is to purchase properties fromdevelopers in bulk at substantial discounts to the open market values and sellthem "off-plan", that is to say before they have been constructed or are partbuilt. At the time of launch, the Fund acquired three options over some 1,300apartments, and a further option over 1,200 apartments in the new resort area ofByala was signed in May 2005. The Fund is currently committed, under theseoptions, to paying deposits of €22 million on a total completion price for theFund of €82.4 million. These deposits represent around one-third of the netassets of your company. Valuation Colliers International, the Fund's strategic adviser, undertook a valuation ofthe four options at the end of June. This valuation was prepared in accordancewith the methodology laid down by the Royal Institute of Chartered Surveyors, onan "as built condition, open market comparative" basis assuming no increase incurrent "average" price levels in the specific locations in which the Fund hasinvested. Using these valuations in a standard discounted cash flow model, and discountingthe four development projects back at 11% pa over their expected lifetime,produces a net present value of £24.5 million before tax (9.8p per share). Thisamount, together with the net assets of the Fund (cash and money marketinvestments), produces a net present value of £68.5 million (27.3p per share) asat 30 June 2005. Investments The Fund's initial investments are situated front-line on the Black Sea coastall within an hour's drive of the main coastal airport at Varna. The managementteam are also in negotiations relating to potential investments in the skiregions, around golf course developments and in the capital, Sofia. They haveexperienced an excellent flow of opportunities both in quantum and quality andare well advanced in negotiations for a number of exciting deals. Theindications are that the Fund could be fully invested ahead of the expected 18month investment period from launch. Exchange rates Although Bulgaria is not due to join the EU until January 2007, the country'sbusiness currency is the Euro. In light of this, and as indicated in the Fund'sprospectus, the Board for the main part maintains the Fund's cash in Euros so asto match the liabilities arising out of investment commitments. This means thatthe Manager is not constrained by currency exchange rate movements in itsinvestment planning, but will inevitably produce exchange rate gains and lossesin the Fund's income statement which are denominated in Sterling. Outlook I am pleased with the progress of the Fund to date; the continuing growth intourism, the positive outlook on the Bulgarian economy and its accession to theEU, and most importantly the strong flow of projects being sourced by theManager provide a positive background to the future prosperity of your company. Melville TrimbleChairman, 29 September 2005 Manager's Report Introduction The first three months of the Fund's life have been active. Since launch, theManager has met over 16 developers and seen over 40 sites on the Black Seacoast, in the ski regions and in and around Sofia. From this, the Manager iscurrently in well advanced discussions on a number of promising projects. The potential in the region remains remarkable. Being involved at such an earlystage has allowed the Fund not only the opportunity to invest at substantialdiscounts, it has also given the Manager the ability to control the type andquality of the developments and where necessary, to bring in outside expertise.This will give the Fund a competitive advantage when, properties go on sale. The Manager has continued to use options and conditional contracts overdevelopments allowing the Fund the additional flexibility needed in such earlystage investments, particularly in an area developing as rapidly as Bulgaria. Major New Contract Signed The Fund concluded a major new contract in May with Byala Beach Tour (BBT),securing an option to acquire 1,200 luxury holiday apartments as part of a new2,400 apartment holiday complex to be constructed at Byala, some 30 minutesdrive from Varna International airport. Byala beach is an undeveloped coastalregion which is expected to develop into a major new tourist destination. Under the terms of the deal, upon exercise of its option, the Fund will pay afixed price of €450/m2 (excl. VAT) against a current market value, estimated byColliers International, of €1000/m2 (excl. VAT), a discount of approximately55%. A 35% deposit will be paid on exercising the option at a cost to the Fundof €12.6m (excl. VAT). On the sale of the properties, the Fund will take thefirst slice of profit equivalent to the size of its initial deposit and shareany balance with BBT 60%/40% in BBT's favour. To date the Fund has committed, under options, a total of €22m (excl. VAT) ofthe €64m raised on flotation, net of launch costs. The total 2,500 apartmentsunder these options, based on Colliers International valuations, would have an"as built" open market value of approximately €206m. Tourism The success of the Fund will inevitably be linked to the attractiveness ofBulgaria as a tourist destination. Tourism has developed well in the first sevenmonths of 2005, with total visitor numbers up 9.2% from what was a strong periodin 2004. Tourism from the UK, Spain and Scandinavia were considerably ahead, recordinggrowth rates of 46%, 38% and 30% respectively, although German visitors havedeclined. Overall the Manager sees this as positive for holiday property salesin the medium term. The concession for extending and modernising the Varna and Bourgas airports wasawarded to the Copenhagen Airports Authority and both Bulgarian Air andWhizz-Air announced the commencement of regular low cost flights from the UK,the former direct into Varna, the Black Sea coast capital. Parliamentary Elections and EU Accession The failure of the June 25th parliamentary elections to produce an outrightwinner caused consternation in international political circles with some degreeof uncertainty expressed over the ability of Bulgaria to meet EU accessionrequirements in the time available. By the end of August however an agreement had been reached between the socialistBSP (82 seats), Simeon II's centre right party (53 seats) and the MRF Turkishminority group (34 seats) to form a coalition led by Sergey Stanishev, theleader of the socialists. This gives the government a total of 169 seats in the240 seat assembly and a commanding majority. Since the formation of the coalition government a new Bill on penal code reformhas passed its first reading and a visit by EU accession ministers haveconfirmed that, in their view, Bulgaria was on schedule for accession to theUnion in January 2007 as planned. The Manager believes that, provided thejudicial reforms required by the EU are enacted, there is no reason why thisshould not be the case. The Economy 2004 GDP growth amounted to 5.8% pa, higher than expectations and a figure whichbrings the average to 4.9% pa over the last 5 years, a fine record by bothEastern Bloc and international standards. 2005 has got off to a good start withfirst quarter growth year-on-year of 6.0% pa. Importantly there has been afurther shift in growth away from the public sector towards the consumer, whilstboth domestic and foreign capital investment remains strong. This increasing prosperity has been reflected in rising retail sales, which overthe first seven months of this year have averaged year on year growth of 13.5%and industrial production, which, although both seasonal and volatile, has risenby 10.2% on the same basis. The greatest improvement however has been seen inunemployment, which in July stood at just under 11%, a nine year low and a farcry from the 19% recorded in 2000. Inflation as measured by the CPI fell back from April's 5.1% year on year peakto 3.9% in July. Looking at monthly increases since the beginning of the yearreveals that so far this year the increase has been just 1.3%, most of whichstems from higher oil prices coupled with the stronger dollar. There are somewho forecast year on year inflation rising to 7.0% by the year end, which theManager doubts. If this turns out to be the case, however, it should be shortlived and unlikely to have a major impact on prices in the constructionindustry. The budget recorded a first half surplus of 1.0% after 1.7% in 2004, comfortablywithin the 0.5% full year surplus that the IMF is insisting should continue tobe the new government's target. This is likely to be respected, despite extracash allocated to some flood damaged regions. Finally, with the economy on course the government can continue to pay downdebt. The target of 30% of GDP for the year-end, down from 34.5% at end 2004,seems achievable. Looking Ahead The Manager is dealing with a number of firm investment proposals, which it ishoped will lead to commitments in the near future, and staffing levels at theManager's Sofia office have been increased to cater for the healthy level ofdeal flow. Designs on the current portfolio of 2,500 apartments are alsodeveloping well. Steps are now being taken to prepare for the marketing and saleof the Fund's properties over the coming months. Development Capital Management(Jersey) Limited29 September 2005 Financial Summary and Investment PortfolioAs at 30 June 2005 The portfolio currently consists of cash combined with investments inaccumulation Money Market Funds and four option agreements over apartmentsalong the Black Sea. In order to show an indicative value for theseoptions, the projects have been externally valued on an "as if builtbasis" and the cash flows over the life of each project have beendiscounted back by 11% per annum in order to arrive at a current netpresent value (NPV) as shown below. Within the accounts they have beenaccounted for as interests in the sale of property goods and as a resultthe accounts do not reflect either the liability or benefit should theoptions be exercised. NPV (before pence per Book Value pence per tax) share (£) share (£)Cash and moneymarket funds 43,962,263 17.5 43,962,263 17.5 Options over property*Byala 12,058,212 4.8 1 -Obzor 1,900,293 0.8 138,313 -Kavarna 1,304,437 0.5 0 -Shabla 9,254,222 3.7 0 - 68,479,427 27.3 44,100,577 17.5 Upon exercise the deposits required for each development are as follows: • £Byala 12,600,000 8,501,648Obzor 1,120,000 755,702Kavarna 966,496 652,128Shabla 7,200,000 4,858,085 21,886,496 14,767,563 * OptionsThe cost of the Obzor option reflects the value of shares issued inconsideration for the option. The options for the Kavarna and Shabla properties have been assigned tothe Fund. Consideration of 1,037,344 shares will be issued contingent uponfinal construction permits being granted. At the period end finalconstruction permits had not been issued on either site and therefore novalue has been ascribed. The option over the Byala site has been valued at the nominal €1 paid inconsideration for it. Condensed Interim Balance Sheet (Unaudited) As at 30 June 2005 notes £ £ Non-Current Assets Options over property 138,313 Investment in subsidiary 1 5 138,314Current assets Trade and other receivables 18,436 Other investments 5 38,803,958 Cash and cash equivalents 5,158,305 43,980,699 Total assets 44,119,013 Current liabilities Accounts payable and (146,902) accruals Net assets 43,972,111 Equity Share capital 6 50,138,313 Retained earnings 7 (6,166,202) Total equity shareholders'funds 43,972,111 Net asset value per Ordinaryshare (pence) 17.5 These accounts were approved by the Board of Directors on 29 September2005 Melville Trimble Roger Maddock Condensed Interim Statement of Cash Flows(Unaudited) For the period 27 January to 30 June 2005 £ £Cash flow from operating activities Interest received 73,587Investment management fees paid (298,630)Other operating expenses paid (66,675)Net cash outflow from operating activities (291,718) Cash flow from investing activitiesPurchase of accumulation money market funds (59,668,115) Sales of accumulation money market funds 19,668,138Net cash outflow from investing activities (39,999,977) Cash flow from financing activitiesIssue of ordinary shares 50,000,000Sales commission and formation costs paid (4,550,000)Net cash inflow from financing activities 45,450,000 Net increase in cash and cash equivalents 5,158,305 Cash and cash equivalents at start of the -period Cash and cash equivalents at 30 June 2005 5,158,305 Condensed Interim Statement of Changes in Equity (Unaudited) For the period 27 January to 30June 2005 Share Retained Capital Earnings Total £ £ £ Issue of Ordinary share capital 50,138,313 - 50,138,313Sales commission and formationexpenses (4,550,000) (4,550,000)Foreign exchange loss in period - (1,434,849) (1,434,849)Movement in the value ofheld-at-fair-value investments - 223,081 223,081Gain on disposal of money marketfund - 15,749 15,749Net operating loss for the period - (420,183) (420,183)Balance at 30 June 2005 carriedforward 50,138,313 (6,166,202) 43,972,111 Condensed Interim Income Statement (Unaudited) For the period 27 January to 30 June 2005 Notes £ Income - Bank interest 78,790 Net (losses) on investments (1,196,019) (1,117,229) Operating expenses Management fees 3 (298,630) Other operating expenses (200,343) Total operating expenses (498,973) Net (loss) for the period (1,616,202) Basic earnings per share (pence) 2 (0.6) Diluted earnings per share (pence) 2 (0.6) Notes to the condensed interim financial statements (Unaudited) 1 Summary of significant accounting policies The condensed interim financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) adopted by the International Accounting Standards Board (IASB), and interpretations issued by the International Financial Reporting Interpretations Committee of the IASB (IFRIC). (a) Statement of compliance The condensed interim financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) for interim financial statements. These are the Fund's first IFRS condensed interim financial statements for part of the period covered by the first IFRS annual financial statements. The condensed interim financial statements do not include all of the information required for full annual financial statements. (b) Basis of preparation These condensed interim financial statements have been prepared on the basis of IFRSs in issue that are effective or available for early adoption at the Funds first IFRS annual reporting date, 31 December 2005. Based on these IFRSs, the Board of Directors have made assumptions about the accounting policies expected to be adopted when the first IFRS annual financial statements are prepared for the period ending 31 December 2005. The IFRSs that will be effective or available for voluntary early adoption in the annual financial statements for the period ending 31 December 2005 are still subject to change and to the issue of additional interpretation and therefore cannot be determined with certainty. Accordingly, the accounting policies for that annual period that are relevant to this interim financial information will determined only when the first IFRS financial statements are prepared at 31 December 2005. (c) Segmental reporting The Directors are of the opinion that the Fund is engaged in a single segment of business being investment business. (d) Revenue recognition Interest receivable on fixed interest securities, short term deposits, expenses and interest payable are treated on an accruals basis. All expenses are charged through the income statement except where they directly relate to the acquisition or disposal of an investment, in which case, they are added to the cost of the investment or deducted from the sale proceeds. (e) Investments General Assets are derecognised at the trade date of the disposal. Proceeds will be measured at fair value which will be regarded as the proceeds of sale less any transaction costs. Listed investments Listed investments are recorded initially at cost, including transaction costs and are recognised at trade date. The cost is the fair value of the consideration. Subsequent to initial recognition, all held-at-fair-value assets are measured at fair value. The fair value of the financial instruments is based on their quoted bid market price at the balance sheet date without deduction for the estimated future selling costs. Options over property Options over property held either directly or by subsidiary undertakings for investment or resale are treated as non-current assets and are included in the balance sheet at the lower of cost or market value. Cost being the fair value of the consideration and includes acquisition expenses. No depreciation is provided on these investments. (f) Movements in Fair Value Changes in the fair value of all held-at-fair-value assets are taken to the income statement. On disposal, realised gains and losses are also recognised in the income statement. (g) Cash and cash equivalents Cash and cash equivalents comprise current deposits with banks. (h) Expenses All expenses are recognised in the income statement on an accruals basis except for the transaction costs incurred on the acquisition of an investment, which are included within the cost of the investment. Transactions costs incurred on the disposal of investments are deducted from the proceeds on sale. (i) Taxation The Fund is an Exempt Company for Jersey taxation purposes. The Fund pays an exempt company fee which is currently £600 per annum. Bulgarian corporation tax is currently 15%. (i) Foreign currency The results and financial position of the Fund are expressed in pounds sterling, reflecting the denomination of the capital raised and the market the Fund is listed on. The functional currency of the Fund is the Euro being the currency in which the majority of the Fund's transactions take place. Transactions in currencies other than sterling are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary items and non monetary assets and liabilities that are fair valued and that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Gains and losses arising on retranslation are included in net profit or loss for the period where investments are classified as fair value. 2 Earnings per share The earnings per Ordinary share is based on the net loss for the period of £1,616,202 and on 250,691,563 Ordinary shares. The diluted earnings per Ordinary share is based on the net loss for the period and 251,728,907 Ordinary shares. 3 Management fee £ Management fee 298,630 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 for reinvestment. The management agreement between the Fund and the Manager is terminable by either party on twelve month's notice, subject to an initial term of 36 months from admission. 4 Net asset value per share The net asset value per Ordinary share is based on the net assets attributable to equity shareholders of £43,972,111 and on 250,691,563 Ordinary shares, being the number of Ordinary shares in issue at the period end. 5 Investing activities a Accumulation money market funds Listed £ Opening book cost and fair value - Purchase at cost 59,668,115 Sales - proceeds (19,668,138) - realised gain on sales 15,749 - realised exchange losses on sales (347,617) Closing book cost 39,668,109 Closing unrealised appreciation on money market funds 223,081 Closing unrealised exchange loss (1,087,232) Closing fair value 38,803,958 b Property Unlisted £ Opening book cost - Purchase at cost 138,313 Closing book cost 138,313 Closing unrealised appreciation/(depreciation) - Closing book cost 138,313 c Subsidiary investment The Fund holds 1 Ordinary share of €1 in BSPF Property Limited, which is incorporated in Jersey. This represents the entire share capital of that company. BSPF Property Limited has not commenced trading and as such no consolidated accounts have been prepared. This holding is included in the balance sheet under non-current assets at the nominal value of €1. 6 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 of 20p 50,138,313 On incorporation of the Fund, 2 Founder shares of no par value were issued to the Manager. These shares are not eligible for participation in Fund investments and carry no voting rights at general meetings of the Fund. On the initial launch date 14th March 2005, 250,000,000 ordinary shares of 20p each were issued at par and 691,563 shares were issued at par in exchange for the Obzor option. 7 Retained earnings £ At start of the period - Loss for period (1,616,202) Sales commission and formation expenses (4,550,000) At 30 June 2005 (6,166,202) 8 Financial instruments The Fund's financial instruments comprise money market funds, cash balances and debtors and creditors that arise directly from its operations, for example, in respect of sales and purchases awaiting settlement, and debtors for accrued income. The main risks the Fund faces from its financial instruments are (i) market price risk, being the risk that the value of investment holdings will fluctuate as a result of changes in market prices caused by factors other than interest rate or currency movement, (ii) currency risk (iii) credit risk, (iv) interest rate risk and (v) liquidity risk. The Board regularly reviews and agrees policies for managing each of these risks. The Manager's policies for managing these risks are summarised below and have been applied throughout the period. The numerical disclosures exclude short-term debtors and creditors. Market price risk Market price risk arises mainly from uncertainty about future prices of financial instruments used in the Fund's operations. It represents the potential loss the Fund might suffer through holding market positions as a consequence of price movements and movements in exchange rates. It is the Board's policy to hold a broad spread of fixed interest investments using collective schemes in order to reduce risk arising from factors specific to a particular country or sector. The Manager monitors the prices of money market funds throughout the year and reports to the Board, which meets regularly in order to review investment strategy. Currency risk The functional currency of the Fund is the Euro and the reporting currency pounds sterling, the Fund is therefore exposed to movements in the exchange rate between the two currencies. The Fund holds the majority of its assets in the functional currency and does not expect to exchange these back to the reporting currency in the near term. Credit risk The Fund places funds with third parties and is therefore potentially at risk from the failure of any such third party of which it is a creditor. The Fund expects to place any such funds on a short-term basis only and spread these over a number of different providers. Interest rate risk The interest rate risk profile of financial assets at the balance sheet date was as follows: Fixed Floating Non-interest interest rate bearing At 30 June £ £ £ 2005 Euro - 23 38,803,959 Sterling - 5,158,282 - - 5,158,305 38,803,959 The floating rate assets consist of cash deposits on call earning interest at the prevailing rate. The non-interest bearing assets consist of accumulation money market funds, the return on which is influenced by interest rates. Liquidity risk The Fund's assets mainly comprise cash balances and readily realisable securities, which can be sold to meet funding commitments if necessary. 9 Related party transactions The Fund purchased three options at launch from the Manager. The option over the Obzor development was purchased in exchange for 691,563 ordinary shares. The two remaining options have been assigned to the Fund. Consideration of 1,037,344 shares will be issued contingent upon final construction permits being granted. At the period end final construction permits had not been issued on either site and therefore no value has been ascribed. 10 Directors interests Total compensation to the Directors over the period was £27,603. Melville Trimble, James Ogilvy, Roger King and Roger Maddock each hold 50,000 Ordinary shares. Roger Maddock is both a director of the Fund and non executive chairman of the Manager. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
BKSA.L