19th Nov 2007 15:25
Ottoman Fund Limited (The)19 November 2007 For Immediate Release 19 November 2007 THE OTTOMAN FUND LIMITED Preliminary Results for the year ended 31 August 2007 The Ottoman Fund Limited (the "Fund"), established to provide early stagewholesale financing to the developers of new-build residential developments inTurkey, is pleased to announce preliminary results for the year ended 31 August2007. The Fund seeks to provide its shareholders with a high level of long-termcapital appreciation through investment in the Turkish residential propertymarket. Period highlights €931,739m2 of land purchased in Riva for $119m €50% investment in 264,524 m2 of land at Kazikli •Initial marketing of Gulturkbuku, Bodrum commenced •Strong progression of planning and design stages Sir Timothy Daunt, Chairman of the Fund, commented: "The real estate market looks set for continued growth with the new mortgage lawset to replace housing loans in January 2008, strong local demand arising fromthe deficit of quality housing stock and a rapidly expanding population, andincreasing overseas interest for second homes in the region. There is everyprospect of orderly realisation of the Fund's assets, so as to maximise valuefor shareholders over the coming 18-24 months." 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. Contacts: Development Capital Management 020 7355 7600Tom PridmoreAndrew MitchellRoger Hornett Buchanan Communications 020 7466 5000Charles RylandIsabel Podda Numis Securities Ltd 020 7260 1000Bruce GarrowNick Westlake THE OTTOMAN FUND LIMITEDANNUAL REPORT AND FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 AUGUST 2007 Chairman's Statement Since I last reported to shareholders in May of this year, the Fund has beenfocusing heavily on development of land which it invested in during 2006. Thisprocess has included managing zoning and planning permission approvals acrossall the sites, selecting and engaging high quality master planners, architectsand designers and commencing the initial marketing phase of Golturkbuku, Bodrum.This activity has further enhanced the reputation of the Fund locally as asignificant property investor in Turkey, notably through its leading role in thedevelopment of the Riva area. With the share price trading circa 5% below NAV per share, despite thesepositive developments and good prospects for Turkey, a strategic review wascommissioned. Orderly realisation of the portfolio over 18-24 months has nowbeen put in hand, with proceeds being returned to shareholders. Investment portfolio As reported in May, the Fund acquired two further sites in Riva and Kazikli, for$110m and $10m respectively. Although there was some strategic aggregation ofsmall land parcels at Riva and Bodrum to improve the capital value of theexisting land investment, the fund focused on the development of its existingsites. The Fund has invested a total of US$163 million in land at Riva, Kazikli andGolturkbuku, Bodrum. These investments were revalued at the year end at US$202million, an increase of 24% in US dollar terms. The Fund's NAV based on the fairvalue of underlying assets at 31 August 2007, as disclosed in the Manager'sreport, was 98.4p per share taking into account the devaluation of the US dollaragainst the pound. Disregarding exchange rate fluctuations, the NAV per sharewould stand at 104.2p. Turkey The recent Parliamentary election resulted in the return of the right wingJustice and Development Party (AKP) with 46.3% of the vote. Recep Tayyip Erdoganwas reappointed Prime Minister and Abdullah Gul subsequently elected President.The AKP currently has a popularity rating in excess of 50%. The politicaluncertainties of mid 2007 have therefore been largely removed. The economy is performing well with unemployment and inflation hitting recordlows during the year and is on course to break into the top 10 global economiesin the next 20 years. With corporation tax falling from 30 per cent to 20 percent, EU membership discussions ongoing and a continuing privatisationprogramme, foreign direct investment is steadily increasing. During the first half of 2007 the number of tourist visitors rose by 16.5%.Further investment in airports and hotels, notably in the Izmir region, areadding to the attraction of Turkey as a holiday destination. Corporate On 30 August 2007 the Board announced a strategic review, appointing NumisSecurities and Fenchurch Advisory Partners jointly to advise the Fund. At itsconclusion, the Board announced on 1 November 2007 that the portfolio was to beprogressively realised in a managed way over the next 18-24 months so as tomaximise its value potential, with all sales proceeds returned to shareholders.A share buy back scheme to return US$30 million to shareholders was announced atthe same time. Also recently announced was the appointment of John Chapman to the Board. Johnhas extensive experience working in the investment fund sector and I lookforward to him making a substantial contribution to the Fund. Prospects The real estate market looks set for continued growth with the new mortgage lawset to replace housing loans in January 2008, strong local demand arising fromthe deficit of quality housing stock and a rapidly expanding population, andincreasing overseas interest for second homes in the region. There is everyprospect of orderly realisation of the Fund's assets, so as to maximise valuefor shareholders over the coming 18-24 months. Sir Timothy DauntChairmanNovember 2007 Manager's Report The Manager's focus is now firmly on maximising value from the existingportfolio in terms of planning, design, construction and marketing. With thepreviously established local trading relationships progressing well, the Fund isin an excellent position to fully capitalise on the opportunity presented byTurkey's deficit of quality housing stock and rising demand prompted by itsrapidly expanding population and newly emerging mortgage market. Investment activity Golturkbuku, Bodrum Acquired in April 2006 for $34.3m and increased to $39.6m during the year,through the acquisition of two land parcels totaling 18,350 square metres, thesite at Golturkbuku is progressing well and is being developed into 247 units ofvillas, apartments and hotel villas with a built area of approximately 50,000square metres. A hotel and residence management and interior design services agreement has beensigned with Banyan Tree Hotels and Resorts, the renowned premium hotel resort,residence and spa operator, who have selected the development for their firstoffering in Turkey. This partnership illustrates, and will only enhance further,the Fund's reputation locally. Banyan Tree's involvement is a validation of theFund's decision to invest in the project and is expected to significantlyincrease the sales prices that can be achieved for the development. The firstphase of 16 units was officially released in September and all these units werereserved within one month. Construction of road infrastructure and the on-sitesales suite commenced in November on schedule. Riva There have been further additions to the original acquisition of 917,900 squaremetres of land in Riva, which is part of the Beykoz-Riva-Kavacik sub-region, inthe north eastern part of the Asian side of Istanbul, adjoining the Black Seacoast. The additional parcels of land have been aggregated to 931,739 squaremetres. There are unquestionable factors arising from the Istanbul housing market thatsupport the attractiveness of this development, from the increase in demandbeing generated by the increase in new households (on average 120,000 perannum), the requirement to replace existing properties due to age and earthquakenon-compliance (circa 30,000 units per annum) and the government's commitment tourban regeneration (circa 60,000 units per annum). The second bridge over theBosphorous has improved access to the central business districts of the Europeanside of Istanbul since the early 1990's and this has been enhanced furtherrecently by a major highway connecting Riva with eastern Istanbul. Recent landprices in Riva, showing a 25% increase, are reflective of the growing interestin the area and the limited availability of developable land in Istanbul. Masterplanning for the Riva region by the Istanbul municipality is continuing. Local architects have been engaged by the Fund and have commenced technicaldesigns for the coastal parcel's of the Fund's site. Construction permits havenow been granted in respect of four coastal single villa sites. Kazikli This $10m investment in a prime coastal development, 25 miles from Bodrum-MilasInternational airport, is planned for development into approximately 330 units,comprising villas, apartments and a hotel complex with yachting facilities. Itis jointly owned by the Fund and the Ado Group, one of Turkey's largestsuppliers of building materials. The required zoning plans have been obtainedfrom the local authorities and there has been a subsequent increase in permittedbuilding density from 49,000 square metres to 74,000 square metres, resulting ina 51% increase in buildable area. The master plan and concept design process is now underway and is beingperformed by Atelier Xavier Bohl, who has a strong reputation from his work onPort Alacati, Marina Limassol and Larnaca. Construction is planned to commencein Q1 2008, with completion by Q1 2010. Alanya The 16,400 square metre site consists of 215 apartments of which the Fund hasfinanced 107. Sales opportunities remain subdued due to a combination ofincreased supply, competition from other units sales in the same development andlower pricing from lower quality developments in the immediate area. The Manageris very conscious of this situation and is attending the leading real estateexhibitions in Germany, Norway and Sweden to strengthen connections with salesagents in these key markets. The recent announcement of construction of a new airport at Gazipasa, in closeproximity (only 30km) to Alanya, is expected to have a beneficial impact uponsales. Currently those visiting or holidaying in Alanya have to fly to Antalyainternational airport - a 90-minute car journey away. The new airport will cutthe post flight travel time to only 20 to 30 minutes and is expected to beoperational by mid 2008. Valuation Set out below is the recently completed independent revaluation of the Fund'sassets that cannot be reflected on the balance sheet under IFRS, but isdisclosed in note 8 to the financial statements. Net assets as at 31 August 2007 £137,386,660 Increase in valuation of inventory propertiesGolturkbuku, Bodrum £3,583,496Riva £14,264,777Kazikli £1,110,604Total increase in valuation of inventory properties at £18,958,577acquisition exchange rate NAV (fair value basis) before foreign exchange loss £156,345,237NAV per share (fair value basis) before foreign exchange loss 104.2p Foreign exchange loss £(8,742,360) Net asset value (fair value basis) £147,602,877 Number of ordinary shares in issue 150,000,000 Net asset value per share at 31 August 2007 (fair value basis) 98.4pNet asset value per share at 31 August 2006 (fair value basis) 92.7p The political climate The Manager is positive regarding the outcome of the recent Parliamentary andPresidential elections. The threat of military intervention has receded andthere is a greater feeling of freedom and liberalism. Turkey had been entwined in a pre-electoral phase for more than a year, with thepress and business leaders convinced of anticipated elections, a situation whichheld back private sector investment but encouraged unsustainable public sectorfront-end loading. In the event, unsuccessful and controversial presidential elections were held onMay 1st forcing PM Erdogan to go to the country on 22 July. Abdullah Gul, a longtime ally of the Prime Minister and at the time the Foreign Minister, had beenthe only candidate for the presidency. The result was a stand-off over themechanics of the electoral process as laid down by the constitution and anobjection, upheld by the Supreme Court, to Gul's candidacy. PM Erdogan had noalternative but to call a General Election. The election result indicated that there is no longer any significant appetitein Turkey for military intervention in politics, with the AKP, right wingJustice and Development Party swept back to unitary power with 46.3% of the votegaining 341 of the 550 Meclis seats from an 84% turnout. Since then the AKP'spopularity has increased to around 54%. The new government lost no time in calling new presidential elections withAbdullah Gul standing again against two other candidates, one from the MHP andthe other from the DSP. The main opposition CHP refused both to put forward acandidate and to vote. Abdullah Gul was successful in the third round on August28th gaining a simple majority and was duly sworn in promising to be thePresident of all the people, adding that the Constitution would ensure secularcontrol. EU negotiations EU negotiations were put on hold by the Turkish government prior to theelections and so there has been little progress in the period. However the newgovernment has confirmed its commitment to membership. The economy The six months under review has been a relatively successful one in economicterms, with unemployment dropping to a post WWII low of 8.9% from February'shigh of 11.4%, considered by many to be the main election issue. In July,inflation, as measured by the CPI fell to an all time recorded low of 6.9%, anachievement which should not be underestimated. The economy grew by a real 3.9% in the second quarter, following 6.8% in thefirst and in comparison with 6.1% for the whole of 2006, when nominal GDP wasexactly US$400bn. Private consumption fell by 0.3% but government consumptionsurged 26%, primarily as a result of a 47% acceleration in public works,boosting overall construction by 15.7% and GDFCF by exactly 10.0%. Without thegovernment's pre-electoral surge total investment might well have been negative.Despite such spending the first half year budget deficit improved to $13.3bn(2.7% of GDP) from $14.1bn in the comparable 2006 period. Both the trade and current accounts remain a problem but are not insurmountableand the decision in late September by the Central Bank to lower interest ratesby 25 basis points reflects the Governor's confidence in the ability of thegovernment to control inflation. It should also help an overvalued Lira, whichat Ytl/$1.22 is harming exports. Two further recent interest rate cuts of 50basis points each should further boost economical output and strengthen thehousing market. Tourism It is always difficult to gauge just how tourism plays a part in any secondhomes market but there is undoubtedly a strong link in Turkey as the improvementin coastal apartment prices over the last two years indicates. Looking over the15 years to end 2005, according to the OECD, tourism rose by 241%. In the first half of 2007 tourism rose by 16.5% as measured by tourist arrivals,although heavy discounts would suggest that in revenue terms there will belittle change from the previous year. The new Izmir terminal and the opening of5 new hotels in the vicinity led to a pick up of 15% in that region alone. Sucha pace of growth has continued into July and August, unaffected by bomb attacksin both May and June in Ankara where 6 were killed and 56 injured. The property market The Turkish residential property market tends to be volatile with average pricesnot always an indication of underlying trends in the high end sector wheredemand exceeds supply. This is particularly true of regional pockets in Istanbuland its environs. The election process and the accompanying atmosphere of uncertainty led to somesharp falls in average prices in May and June. However given the overall surplushousing demand in excess of 350,000 units arising from the high populationgrowth, the Manager expects this trend to be short lived. Istanbul saw averageresidential property prices fall by 1.3% in May and 6.6% in June, whereas Izmirrecorded declines of 6.3% and 18.1% respectively. In June only Ankara managed toconstrain the decline to below 6.0%, the 4.5% drop following on from a 2.5% fallthe previous month. Antalya fell 2.1% in May followed by 14.5% in June. Howeverin central Istanbul apartment prices bear out our earlier point. A high end 3bed unit overlooking the water can command upwards of $3,250 per square metreagainst prices as low as $2,200 in other parts. Indeed such high end apartmentsregularly sell for $500,000 to $600,000. The news that the new mortgage law, extending loan periods and encouraginginter-bank competition, was coming into force in January 2008 was well receivedby the market with 71.0% of all loans outstanding converted to the moreattractive mortgage formula by the 6 June deadline. The level of mortgage debtwas 4.5% of GDP at the end of 2006, compared to 55% in the UK, illustrating thepotential for more structured housing growth. Arguably the decision not to allowtax relief on mortgage interest paid is a sensible one and may well haveprevented the market from overheating very rapidly. It is interesting thatdespite high interest rates by western economy standards, default levels onhousing loans are only 0.2% against 0.8% in the UK and 1.7% in the US. Given the benign level of inflation and the overvalued currency it is likelythat the Central Bank will continue to lower interest rates between now and theend of the year. Many economists are penciling in a level of 16.0% and thisseems a reasonable and possibly conservative target. There is no compellingreason why further declines cannot take place in 2008, which combined with themortgage law, should produce a pick up in both demand and prices. Prospects The economy, and specifically the property sector, continue to provide positiveresults, which, together with its strong strategic relationships locally, shouldenable the Fund to progress its developments in line with expectations. The Manager will continue to focus on progressing the existing portfolio in linewith the proposed realisation strategy. Development Capital Management (Jersey) Limited November 2007 Financial summary and investment portfolio The portfolio currently consists of land, cash, money market funds and financingagreements over property in Turkey. Under IFRS development property must beshown at book cost, therefore in order to show an indicative value for theseinvestments, the projects have been externally valued using a study oncomparable market prices. Development Category Area No. of Invested Current Market units Funds ValuationGolturkbuku Land 185,175 250 £23m £23mRiva Land 931,739 1,000** £62m £71mKazikli Land 123,832 330** £5m £6m*Alanya Loan 14,024 107 £7m £7mDevelopment Totals £97m £107m * This represents the Fund's 50%share.** Estimates CONSOLIDATED BALANCE SHEET As at 31 August 2007 Group Company Group Company 2007 2007 2006 2006 notes £ £ £ £ Non-current assetsIntangible assets 7 3,099 - - -Investment in 11 - 5 - 5subsidiariesInventories 8 89,927,782 - 19,377,286 -Loans and receivables 9 7,211,525 96,468,242 4,381,865 81,928,195 97,142,406 96,468,247 23,759,151 81,928,200Current assetsOther receivables 13 597,017 24,345 612,736 265,720Cash and cash 18 44,898,891 35,221,363 114,862,336 56,053,485equivalents 45,495,908 35,245,708 115,475,072 56,319,205 Total assets 142,638,314 131,713,955 139,234,223 138,247,405 Current liabilitiesOther payables 14 (5,251,654) (149,288) (197,125) (196,542) Net assets 137,386,660 131,564,667 139,037,098 138,050,863 Equity Share capital 15 150,000,000 150,000,000 150,000,000 150,000,000Retained earnings 16 (12,613,335) (18,435,333) (10,962,860) (11,949,137)Equity attributable to 137,386,665 131,564,667 139,037,140 138,050,863owners of the parentMinority interest (5) (42) -equityTotal Equity 137,386,660 131,564,667 139,037,098 138,050,863 Net asset value per 17 91.6 87.7 92.7 92.0Ordinary share (pence) These financial statements were approved by the Board of Directors on 14November 2007. Sir Timothy Daunt Roger King CONSOLIDATED INCOME STATEMENT For year ended 31 August 2007 Year ended Period ended 31 August 2007 9 December to 31 August 2006 notes £ £ Income Bank interest 2,607,646 3,709,237 Total income 2,607,646 3,709,237 Operating expenses Management fee 4 (2,999,985) (2,030,136)Other operating expenses 5 (1,026,652) (663,645)Foreign exchange losses 10 (4,646) (210,870)Total operating expenses (4,031,283) (2,904,651) (Loss) / profit for the period (1,423,637) 804,586 Attributable to:Equity shareholders of the company (1,423,656) 804,585Minority interest 19 1 (1,423,637) 804,586 Basic and diluted earnings per share 6 (0.95) 0.54(pence) CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For year ended 31 August 2007 Share Retained Minority capital earnings interest TotalGroupFor the period 9 December 2005 £ £ £ £to 31 August 2006 Profit for the period - 804,587 (1) 804,586Issue of shares 150,000,000 - - 150,000,000Expenses of share issue - (11,250,000) - (11,250,000)Foreign exchange on subsidiary - (517,447) (41) (517,488)translationAt 31 August 2006 150,000,000 (10,962,860) (42) 139,037,098 GroupFor the year ended 31 August £ £ £ £2007 Balance at 1 September 2006 150,000,000 (10,962,860) (42) 139,037,098Loss for the year - (1,423,656) 19 (1,423,637)Foreign exchange on subsidiary - (226,819) 18 (226,801)translationAt 31 August 2007 150,000,000 (12,613,335) (5) 137,386,660 Share Retained Minority capital earnings Interest TotalCompanyFor the period 9 December 2005 £ £ £ £to 31 August 2006 Loss for the period - (699,137) - (699,137)Issue of shares 150,000,000 - 150,000,000Expenses of share issue - (11,250,000) - (11,250,000)At 31 August 2006 150,000,000 (11,949,137) - 138,050,863 CompanyFor the year ended 31 August £ £ £ £2007 Balance at 1 September 2006 150,000,000 (11,949,137) - 138,050,863Loss for the year - (6,486,196) - (6,486,196)At 31 August 2007 150,000,000 (18,435,333) - 131,564,667 CONSOLIDATED STATEMENT OF CASH FLOWS For year ended 31 August 2007 Group Company Group Company Period ended Period ended Year ended Year ended 9 December 9 December 2005 to 2005 to 31 August 31 August 31 August 31 August 2007 2007 2006 2006 £ £ £ £ Bank Interest received 2,607,646 2,169,409 3,709,237 3,708,374Total operating expenses (4,031,283) (8,655,605) (2,904,651) (4,407,511)(Loss)/ profit for the (1,423,637) (6,486,196) 804,586 (699,137)period Net foreign exchange 4,646 4,860,223 210,870 1,722,927lossesDecrease / (increase) in 15,719 241,375 (612,736) (265,720)other receivablesIncrease / (decrease) in 89,039 (47,254) 197,125 196,537other payablesNet cash (outflow) / (1,314,233) (1,431,852) 599,845 954,607inflow from operatingactivities Cash flow from investingactivitiesLoans to subsidiaries - (19,407,111) - (83,530,638)Purchase of inventories (65,585,006) - (19,768,599) -Loan to developer (2,750,760) - (4,472,247) - Net cash outflow from (68,335,766) (19,407,111) (24,240,846) (83,530,638)investing activities Cash flow from financingactivitiesIssue of shares - - 150,000,000 150,000,000Share issue expenses - - (11,250,000) (11,250,000) Net cash inflow from - - 138,750,000 138,750,000financing activities Net (decrease) / increase (69,649,999) (20,838,963) 115,108,999 56,173,969in cash and cashequivalents Cash and cash equivalents 114,862,336 56,053,485 - -at start of the periodEffect of foreign exchange (313,446) 6,841 (246,663) (120,484)ratesCash and cash equivalents 44,898,891 35,221,363 114,862,336 56,053,485at end of the period Notes to the Financial Statements 1 General information The Ottoman Fund Limited invests in Turkish new build residential property inmajor cities and coastal destinations aimed at both the domestic and touristmarkets. The Company is a limited liability company domiciled in Jersey, Channel Islands. The Company has its primary listing on the Alternative Investment Market (AIM). These consolidated financial statements have been approved by the Board ofDirectors on 14 November 2007. 2 Accounting policies The consolidated financial statements of the Fund for the period ended 31 August2007 comprise the Fund and its subsidiaries (together, the 'Group') and havebeen prepared in accordance with International Financial Reporting Standards(IFRS) issued by the International Accounting Standards Board (IASB) andinterpretations issued by the International Financial Reporting Committee of theIASB (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 Subsidiaries The consolidated financial statements incorporate the financial statements ofthe Fund and entities controlled by the Fund (its subsidiaries) made up to 31August each year. Control exists when the Fund has the power, directly orindirectly, to govern the financial and operating policies of an entity so as to obtain benefits from itsactivities. The financial statements of subsidiaries are included in theconsolidated financial statements from the date that control commences up to thedate that control ceases. Joint ventures A joint venture is a contractual agreement whereby two or more entitiesundertake an activity that is the subject of joint control. The results andassets and liabilities of joint ventures held by subsidiaries are incorporatedin these financial statements using the proportionate consolidation method. (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 All expenses are charged through the income statement in the period in which theservices or goods are provided to the fund except for expenses which areincidental to the disposal of an investment which are deducted from the disposalproceeds of the investment. (e) Non-current assets Intangible assets Intangible assets are stated at cost less any provisions for amortisation andimpairments. They are amortised over their useful life. At each balance sheetdate, the Group reviews the carrying amount of its intangible assets todetermine whether there is any indication that those assets have suffered animpairment loss. 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 unconditional 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) Cash and cash equivalents Cash and cash equivalents comprise current deposits with banks. (g) 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. However, withholding tax may be payable on repatriation of assets andincome to the Fund. The subsidiaries will be liable for Turkish corporation tax at a rate of 20%.Additionally, a land sale and purchase fee may arise when land is 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. (h) 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. Exchange differences on translationof the Fund's net investment in foreign operations are recognised directly inequity. (i) Share capital Ordinary shares are classified as equity. External costs directly attributableto the issue of new shares are shown as a deduction to reserves. (j) New standards and interpretations not applied During the year, the IASB and IRIC have issued the following standards andinterpretations to be applied to financial periods commencing on or after thefollowing dates: International Accounting Standards (IAS/IFRS) IFRS 7 Financial Instruments: Disclosures - effective on or after 1 January 2007 IFRS 8 Operating Segments - effective on or after 1 January 2009 International Financial Reporting Interpretations Committee (IFRIC) IFRIC 11 Group and Treasury Share Transactions - effective on or after 1 March2007 IFRIC 12 Service Concession Agreements - effective on or after 1 January 2008 The directors do not anticipate that the adoption of these standards andinterpretations will have a material impact on the financial statements in theperiod of initial application. Upon adoption of IFRS 7, the Group will have todisclose additional information about its financial instruments, theirsignificance and the nature and extent of risks that they give rise to. Therewill be no effect on reported income or net assets. 3 Segment reporting The Group's activities are based in Turkey and Jersey. The Group invests inTurkish new build residential property through its Turkish subsidiary companies.Accordingly, the net revenue and assets of the Group are substantially derivedfrom its Turkey based activities. The Group also holds assets and generatesrevenue in Jersey. Such activities are undertaken by the Company and by OttomanFinance Company 1 Limited which has issued the loan to the third party describedin note 9. In the opinion of the Directors, sufficient information of theGroup's operating segments has been provided above. 4 Management fee 2007 2006 £ £Management fee 2,999,985 2,030,136 The Manager receives a management fee quarterly in advance of 2% per annum ofthe amount subscribed at the placing plus any capital gains retained forinvestment. The fees of the Investment Adviser will be met by the Manager. The management agreement between the Fund and the Manager is terminable by theManager on six month's notice and the Fund on twelve month's notice, subject toan interim term of twenty-four months. 5 Other operating expenses 2007 2006 £ £Advisory and consultancy fees 191,711 30,183Directors remuneration 103,063 76,521Administration fees 97,289 63,707Legal and professional fees 94,034 69,072Travel and subsistence 90,000 56,839Marketing 63,196 136,841Audit services- for audit work 40,000 40,000Other operating expenses 347,359 90,482 1,026,652 663,645 The company has no employees. 6 Earnings per share The basic and diluted earnings per Ordinary share is based on the net loss forthe period of £1,423,637 (2006: profit £804,586) and on 150,000,000 shares(2006: 150,000,000 shares). 7 Intangible assets Group Company Group Company 2007 2007 2006 2006 £ £ £ £Opening book cost 3,984 - - -Amortisation and impairment (885) - - -chargeClosing net book cost 3,099 - - - The intangible asset relates to a CRM programme, with a useful life of 6 years.There has been no impairment during the period. 8 Inventories Group Company Group Company 2007 2007 2006 2006 £ £ £ £Opening book cost 19,377,286 - - -Purchases at cost 70,550,496 - 19,377,286 -Closing book cost 89,927,782 - 19,377,286 - This represents the purchase of 185,175 square metres of development land on theBodrum penisula, 931,739 square metres on the Riva coastline and 247,664 squaremetres, of which the Fund has a 50% share, in the Kazikli village, in thedistrict of Milas. In accordance with the accounting policy in note 2, inventories are stated atthe lower of cost and net realisable value. Inventories were valued at the yearend by Elit Gayrimenkul Degerleme A.S. and Kuzey Bati Real Estate on the basisof open market value. On this basis, a total fair value of £100.1 million hasbeen determined for inventories held by the Company at the balance sheet date.In accordance with the Company's accounting policy, unrealised gains/losses as aresult of this valuation have not been recognised in the consolidated incomestatement. Reconciliation of book cost to Open Market Value 2007 £Closing book cost 89,927,782Increase in valuation of inventory properties at acquisitionexchange rateGolturkbuku, Bodrum 3,583,496Riva 14,264,477Kazikli 1,110,604Total increase in valuation of inventory properties at 18,958,577acquisition exchange rate Foreign exchange loss (8,742,360) Open market value 100,143,999 9 Loans and receivables Group Company Group Company 2007 2007 2006 2006 £ £ £ £Loan to third party 7,223,011 - 4,472,251 -Loans to subsidiaries - 102,937,749 - 83,530,638Exchange loss on revaluation (11,486) (6,469,507) (90,386) (1,602,443)of loan 7,211,525 96,468,242 4,381,865 81,928,195 The third party loan is €10,377,760 in respect of the investment in theRiverside Resort in Alanya secured by a mortgage. No interest is accruing andrepayments are based upon sales of the development. The intercompany loans haveno interest accruing, nor repayment date and principally relate to the purchaseand development of land. 10 Foreign currency losses Group Company Group Company 2007 2007 2006 2006 £ £ £ £Translation of cash balances (38,410) (38,410) (167,574) (167,574)Foreign exchange on 45,250 45,250 47,090 47,090settlementLoss on loans (11,486) (4,867,063) (90,386) (1,602,443)Net currency losses (4,646) (4,860,223) (210,870) (1,722,927) 11 Investment in subsidiary undertakings Country of Authorised Issued OwnershipName incorporation share capital share capital % Ottoman Finance Jersey £10,000 £1 100Company 1 LimitedOttoman Finance Jersey £10,000 £1 100Company 2 LimitedOttoman Finance Jersey £10,000 £1 100Company 3 LimitedOttoman Finance Jersey £10,000 £1 100Company 4 LimitedOttoman Finance Jersey £10,000 £1 100Company 5 LimitedOsmanli Yapi 1 Turkey YTL 46,146,312 YTL 46,146,312 99.99Osmanli Yapi 2 Turkey YTL 188,284,941 YTL 188,284,941 99.99Osmanli Yapi 3 Turkey YTL 5,249,584 YTL 5,249,584 99.99Osmanli Yapi 4 Turkey YTL 11,249,104 YTL 11,249,104 99.99 All of the above companies have been incorporated into the group accounts. 12 Interests in joint ventures The Group has the following interest in a joint venture, Mobella, a projectmanagement company. Country of Ownership Domicile %Mobella Turkey 50 Summarised financial information of joint venture is as follows: Assets Liabilities Equity Revenue LossMobella 990,310 (32,267) 958,043 947 (47,415) 13 Debtors Group Company Group Company 2007 2007 2006 2006 £ £ £ £Prepayments 167,204 24,345 265,720 265,720Recoverable land tax 375,080 - 347,016 -Other debtors 54,733 - - - 597,017 24,345 612,736 265,720 The directors consider that the carrying amount of the debtors approximates totheir fair value. Prepayments include advances to suppliers. 14 Creditors - amounts falling due within one year Group Company Group Company 2007 2007 2006 2006 £ £ £ £Accruals 187,767 149,283 197,125 196,537Amounts due to subsidiaries - 5 - 5Accrued tax 23,107 - - -Other payables 5,040,780 - - - 5,251,654 149,288 197,125 196,542 Other payables include £4,965,490 in respect of the balance payment, describedin note 20, of the acquisition of the land in Riva. 15 Called up share capital Authorised:Founder shares of no par value 10Ordinary shares of no par value Unlimited Issued and fully paid: £2 Founder shares of no par value -150,000,000 Ordinary 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. 16 Retained earnings Retained earnings Group Company Group Company 2007 2007 2006 2006 £ £ £ £At start of the period (10,962,860) (11,949,137) - - Bank and deposit interest 2,607,646 2,169,409 3,709,237 3,708,374earnedOperating expenses (4,026,637) (3,795,382) (2,693,781) (2,684,584) (1,418,991) (1,625,973) 1,015,456 1,023,790Net movement on foreign (4,646) (4,860,223) (210,870) (1,722,927)exchange(Loss) / profit for the (1,423,637) (6,486,196) 804,586 (699,137)period Foreign exchange on (226,801) - (517,488) -subsidiary translationSales commission and - - (11,250,000) (11,250,000)formation expensesMinority interest (37) - 42 - At end of the period (12,613,335) (18,435,333) (10,962,860) (11,949,137) 17 Net asset value per share The net asset value per Ordinary share is based on the net assets attributableto equity shareholders of £137,386,660 (2006: £139,037,098) and on 150,000,000Ordinary shares, being the number of Ordinary shares in issue at the period end. 18 Cash and cash equivalents Group Company Group Company 2007 2007 2006 2006 £ £ £ £Bank balances 44,898,891 35,221,363 112,068,861 53,260,010Loan guarantee - - 2,793,475 2,793,475 44,898,891 35,221,363 114,862,336 56,053,485 19 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 financial instrumentsare: • Market risk • Credit risk • Foreign currency risk • Interest rate risk, and •Liquidity risk The Board reviews and agrees policies for managing each of these risks. Asrequired by IAS 32: Disclosure and Presentation, an analysis of financial assetsand liabilities, which identifies the risk to the Fund of holding such items isgiven 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 Group 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 at 31 August 2007 is dependent on successful completion and sale ofproperties by the third party developer. Further details of loans made tosubsidiaries and developers can be found in note 9. Foreign currency risk The Group 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: Non-current Net monetary Non-current Net monetary assets assets assets assets at 31 August at 31 August at 31 August at 31 August 2007 2007 2006 2006 £ £ £ £Sterling - 34,470,508 - 52,658,419Euro 7,211,525 625,912 4,381,865 3,395,067US Dollar 89,927,782 4,687,988 19,377,286 56,997,128Turkish Lira 3,099 459,846 - 1,811,722 97,142,406 40,244,254 23,759,151 114,862,336 Interest rate risk The Group's cash balances earn interest at the prevailing market rate, dependanton the account type. Floating rate Non interest Floating rate Non-interest bearing bearing at 31 August at 31 August at 31 August at 31 August 2007 2007 2006 2006 £ £ £ £Sterling 34,595,451 - 52,658,419 -Euro 625,912 7,211,525 601,592 7,175,340US Dollar 9,653,478 89,927,782 56,997,128 19,377,286Turkish Lira 24,050 3,099 1,811,722 - 44,898,891 97,142,406 112,068,861 26,552,626 Liquidity risk The Group's assets mainly comprise cash balances and realisable investments,which can be sold to meet funding commitments if necessary. 20 Commitments The Group has an agreement to pay $10 million in September 2007 in respect ofthe balance of the acquisition of the land in Riva. 21 Post balance sheet events On 1 November 2007, the Board announced the implementation of a managedrealisation of the portfolio and a $30 million share buy back scheme. 22 Related party transactions Information regarding subsidiaries and subsidiary loans can be found in notes 9and 11. The Fund's broker, Numis Securities Limited, holds an option to purchase1.25% of the issued share capital of the fund at a price of £1 per share. Thisoption will lapse on the 5th anniversary of admission. 23 Directors' interests Total compensation to the Directors over the period was £103,063 (2006:£76,521). Sir Timothy Daunt and Sencar Toker each hold 5,000 Ordinary shares. By virtue ofbeing a director of the Manager Roger Maddock is treated as being interested inthe shares held by the Manager. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Ottoman Fund