TIDMLCSS
29th June 2009 AIM: LCSS
Lewis Charles Sofia Property Fund
('Lewis Charles' or 'the Company')
Preliminary results for the year
ended 31st December 2008
Overview of 2008
· Value of the Lewis Charles Sofia Property Fund portfolio at 31st December
2008 is EUR 51.6 million compared to an acquisition cost of EUR 49.3 million.
· NAV of 92 pence (2007 NAV: 116 pence)
· Crystal Vale, Govedarci: first phase of the project has reached the rough
construction stage, work currently suspended due to economic conditions - sales
operations anticipated to re-launch by end of Q2 2010
· Crystal Glade, Govedarci: full residential permitting secured from
Bulgarian Ministry, prospect will remain in land bank until Crystal Vale has
been largely completed
· Panorama Villas, Razlog: first phase of the project has reached the rough
construction stage, work currently suspended due to economic conditions
· Veliko Tarnovo: full residential permitting secured from Bulgarian Ministry
· Kambanite Bistritsa, Sofia: sale of land for EUR 1.826 million so as to
raise working capital, the terms of the deal allows the fund to exercise and
exclusive option to repurchase the land by the 15 December 2009 for EUR 4
million
· Vitoshavets Simeonovo (BUYSELL), Sofia: completion of legal proceedings to
rescind the sales contracts with BUYSELL, steps being taken to recuperate the
sums paid under contract with BUYSELL - court action could be taken if BUYSELL
do not pay all amounts due
For further enquires -
Dominic Morley, Stuart Gledhill - Panmure Gordon
+44 (0) 20 7459 3600
Ed Portman, Leesa Peters - Conduit PR
+44 (0) 207 429 6607/+44 (0) 7733 363 501
Charles Burton
+44 (0)207 803 1400
Chairman's Report
The Company had to deal with exceptionally challenging market conditions in
Bulgaria during 2008, and the Directors were obliged to make difficult decisions
in order to safeguard the long term interests of the shareholders. A detailed
review of the Company's projects and the Bulgarian property market can be found
in the Investment Managers' Report.
Although the economic situation will remain difficult and uncertain over the
short term, the longer term fundamentals for the Bulgarian economy continue to
look promising. Over the next few years, convergence on European Union Gross
Domestic Product per head with commensurate living standards will sustain above
average growth rates and lead to strong demand for quality housing. Bulgaria is
also becoming an important tourist destination, with competitive pricing, good
access and emerging facilities. The latest King Sturge global property report
published in June has Bulgarian property prices rising by 3.3% during the first
quarter of 2009. The Fund's holdings and potential developments have been
crafted to benefit from this.
In January 2009, in order to raise cash, the Fund (through its wholly owned
subsidiary Splendid Investments S.A) announced the sale of its 100,713 square
metres of land in Kambanite Bistritsa for EUR 1.826 million to Enderton Company
Assets Inc. The terms of the deal allow the Fund to buy back the land at an
aggregate exercise price of EUR 4 million (the option expires on the 15th
December 2009).
While in March 2009, the Company took the decision to rescind all of the option
agreements as well as preliminary sales contracts in place with BuySell due to
non performance by expiry date of the options. The Company has received legal
advise that it may pursue its entitlement to repayment from BuySell of all
payments made under each option agreement and is also entitled to penalty
payments. The effect of this is that the Company no longer has a contingent
liability that was previously disclosed in prior year financial statements.
At the end of March, the Company terminated the Management Agreement with Lewis
Charles Securities. This will take effect from the 1st October 2009. The Board
should be in a position to make an announcement regarding the future management
of the Fund within the next few weeks.
Finally, the published valuation NAV is currently 92p (EUR 96 cents), having
fallen from 116p (EUR 1.59) in 2007, in comparison to the accounting NAV of 87p
(EUR 91 cents) having fallen from 101p (EUR 1.37) per share at the year end
exchange rate of EUR/GBP 1.045.
Charles Burton
Chairman
26th June 2009
Investment Manager's Report
THE BULGARIAN ECONOMY
Data published for 2009 indicate a major correction is underway. By the end of
the first quarter of 2009, unemployment had risen to 6.9% and industrial
production had fallen by 17.1% (annualised). Consumer confidence is down
although business confidence now seems to have stabilised. Export volumes have
fallen more than imports implying that net trade will be a significant drag on
growth. In 2009, the government is expected to record a budget deficit of 1.25%
of GDP versus a surplus of 3% of GDP in 2008. Against this backdrop, GDP for
2009 is expected to contract by around 3% before recovering to +2.1% in 2010 and
+4.2% in 2011 (Oxford Economics). On a positive side, the current account
deficit is expected to narrow from 24% of GDP (2008) to around 11% of GDP in
2009. In addition, the largely foreign owned banking system seems well placed
to withstand the downturn with capital adequacy standing at a comfortable level
of 14% (Sept 2008).
BULGARIAN PROPERTY MARKET UPDATE
The price increases of up to 20% in the residential market seen during the first
nine months of 2008 were effectively wiped out during the last quarter of the
year as a result of the international financial crisis. In addition credit
restrictions resulting from the crisis led to a significant drop in the volume
of residential property transactions. The low volume of transactions meant that
asking sales prices were the best reflection of the market's overall price
level. Prices continued to fall during the first quarter of 2009. The upper -
mid residential sector in Sofia was priced at around ?2,000 per sq m in mid 2008
and has now dropped to circa ?1,700 per sq m. Compared to the average prices in
H2 2008 those in south Sofia fell by between 7-9% in Vitosha to 2% in Krustova
Vada. Average asking prices in these areas are, however, still above ?1,100 per
sq m. Moving to the provinces, the Daily Telegraph Sunday supplement recently
reported that Bulgarian winter resorts continue to offer good value for money to
property buyers and `A Place in the Sun' cited Bulgaria as a recommended country
in `Where to Buy 2009'.
The commercial property market has also suffered from a steep decline in
transaction volume. The investment market, as a result, almost completely dried
up. The new office pipeline in Sofia showed year-on-year growth of 51%; this
strong number is attributable to a few very large projects. It is anticipated
that approx. 150,000 sq m of new office space will be delivered during the first
six months of 2009. Office vacancy rates in Sofia grew by more than 5% to 9.1%.
Difficult financing conditions have also caused the delay or suspension of most
shopping mall projects, although demand for high street retail space remains
high due to the shortage of available locations. Bulgaria's first retail park,
Retail Park Plovdiv which was developed by Landmark, opened in the second half
of 2008 with a GLA of 26,000 sq m. The opening, in the first half of 2009, of
the first shopping mall in Bourgas will also mark the official entry of
Carrefour hypermarkets to Bulgaria.
PROPERTIES
Land Build At Cost Valuation
Area Area (EUR) (EUR)
M2 M2 31/12/2008 31/12/2008
(note 2)
1. Goverdartsi (Crystal Vale/Crystal Glade) 36,581 34,604 5,252,916 4,990,000
2. Beli Iskar (Crystal Heights) 19,432 19,432 1,321,836 1,400,000
3. Razlog/Bansko 18,354 26,119 9,083,502 7,629,000
4. Plovdiv 12,151 12,712 3,888,803 2,950,000
5. Veliko 13,443 26,886 2,493,942 2,790,000
6. Dolna Banya 48,548 57,621 1,661,101 1,880,000
7. Sofia Kambanite Bistritsa 100,713 100,713 9,251,412 23,100,000
8. Banya 117,774 182,130 3,606,772 4,790,000
9. BuySell - Vetz Simenovo (Note 1) 48,218 89,967 10,379,426 -
Vetz Simenovo - Project 55 1,298 3,198 2,322,223 2,120,000
___________________________________________
Total 416,512 553,382 49,261,933 51,649,000
___________________________________________
___________________________________________
PROPERTIES
Note 1: The Group has terminated these contracts with BuySell and accordingly
they have been valued at Nil on the balance sheet (as outlined in note 26.)
Note 2: Some build areas are estimated subject to planning approval.
1. GOVEDARCI
CRYSTAL VALE
The first phase of Crystal Vale has reached the stage of rough construction;
further work has been temporarily suspended due to weak domestic and
international market conditions. Sales operations will re-launch when market
recovery begins, possibly in Q2 2010. The Crystal Vale site has full Ministry
approval for residential use.
CRYSTAL GLADE
Crystal Glade is intended to be the sister resort to Crystal Vale. The two sites
are only 1 km apart and are located in the foothills of the Rila Mountains only
a few hundred metres from a ski lift. The site is also close to the ski resort
of Borovets and approx one hour's drive from Sofia airport. Crystal Glade has
now received full Ministry approval for residential use and will remain in the
land bank until Crystal Vale has been substantially completed.
2. BELI ISKAR - CRYSTAL HEIGHTS
This land is located on the edge of the picturesque village of Beli Iskar within
500 meters of the proposed site of the new ski gondola to the Borovets resort.
The land is still designated for agricultural use and will remain in the land
bank until market conditions encourage development of the site.
3. RAZLOG
PANORAMA VILLAS
Phase 1 of the Panorama Villas has reached the stage of rough construction;
further work has been temporarily suspended due to weak domestic and
international market conditions. The planned sales campaign would have coincided
with the worst phase of the international financial crisis and was therefore
halted pending a recovery in markets. Until Phase 1 of the project has been
substantially completed the remaining three phases will remain in the land bank.
NIRVANA
This undeveloped land plot will remain in the land bank.
4. PLOVDIV
ROMAN VIEW
It was decided not to proceed with the development of this excellent site in
central Plovdiv until economic conditions improve.
PLOVDIV REACH
This land plot is located beside the national rowing centre on the edge of
Plovdiv. It will remain in the land bank.
5. VELIKO TARNOVO
This land plot is located close to the city centre and has full residential
planning permission.
6. DOLNA BANYA
The Fund owns four separate plots of land in good locations and residential
planning permission in and around the town of Dolna Banya. It is intended that
they should remain in the land bank.
7. SOFIA - KAMBANITE BISTRITSA
The Fund was obliged to sell this land for ?1.826 million in order to raise cash
for essential management purposes in January 2009, with an exclusive option to
repurchase the plot by 15th December 2009 for ?4.0 million. (as outlined in note
26)
8. BANYA
This site has now been consolidated into three contiguous plots which have all
been removed from agricultural status. One of the plots has now received full
Ministry approval for residential use and planning applications will be made for
the other two.
9. SOFIA - VETS SIMENOVO (BUYSELL)
The Fund had exercised seven options to purchase properties in Sofia situated in
the Vitoshavets Simeonovo, Krustovat and Dragalevtsi areas of Sofia. These
properties comprised residential villas and apartment developments, together
with shops, some small offices and parking to be developed by BuySell Real
Estate Agent Limited ('BuySell'), a Bulgarian incorporated property development
company.
One of the projects, "Project 55", was finished in February 2008, and the Fund
concluded the purchase of this property. The Fund took delivery of one building
from BuySell in September 2008 (Project 55 - see Table). Sales of apartments in
this building have progressed well despite difficult market conditions, and
sales have been concluded for well over half of the apartments.
The Group received legal advice that BuySell is in default under the six
remaining option agreements in place and served notices giving BuySell until 17
April 2009 to perform its obligations under each of these option agreements.
BuySell has failed to perform its obligations by the due date, and the Group has
therefore rescinded all of the remaining option agreements and preliminary sales
contracts due to non-performance.
If BuySell do not pay the Fund all amounts due, it may be necessary for the Fund
to recover this money in the Bulgarian courts. The ?10,379,426 and a further
?9,000,494 in penalties from BuySell may therefore be contingent on the outcome
of the legal proceedings (as disclosed in note 26).
INVESTING POLICY
· The Fund is restricted to investments in Bulgaria and these investments
must be largely (but not exclusively) residential in nature.
· The Fund may invest in early stage residential developments mainly, but not
exclusively, in and around Sofia and its adjacent ski resorts.
· The Fund may buy land and seek to develop its land through partnerships
with Developers.
· The Fund may borrow in order to develop its assets.
· The Fund should be liquidated and proceeds distributed to shareholders by
27 September 2012 (7 years from launch) unless shareholders vote to extend the
life of the Fund.
· The Fund does not intend to pay a dividend (although the Fund is not
restricted from doing so).
Lewis Charles Securities Limited
26th June 2009
Board of directors
Charles Burton (Chairman)
Charles, a UK resident, has an excellent track record of senior executive
responsibility, most recently at Experian Group where he was Global Managing
Director of the Business Strategies Division from 2002 until 2008. This role
encompassed widespread exposure to the property investment sector, for which the
division supplied data, forecasts and due diligence on portfolios and individual
sites throughout Europe. Charles is a member of the Scottish Executive's
Economic Consultants' group and a Fellow and council member of the Society of
Business Economists. He is also a director of Oxford Economics Ltd.
Daniela Bobeva
Daniela is a Bulgarian resident and has a Master's degree from the Sofia
Institute of Economics and a PhD in Economics. She started her career as an
economic analyst and adviser to the Prime Minister of Bulgaria and then in 1995-
1996 became the President of the Bulgarian Foreign Investment Agency. In 1997,
she became Minister of Trade and Foreign Economic Co-operation. From 1998 to
2001, she was elected as the first vice-president of Banking in the newly
established multilateral development bank. She is currently Director of European
Integration and International Relations at the Bulgarian National Bank. She has
more than 30 international publications in the area of macro-economics.
Desmond Swayne
Desmond is a UK resident and is the sitting Conservative Member of Parliament
for New Forest West. He holds a Master's degree from St Andrew's University.
Prior to entering Parliament in 1987 he spent eight years working for the Royal
Bank of Scotland including four years as manager for Royal Bank of Scotland Risk
Management Systems. Mr Swayne has held a number of front bench positions
including Shadow Health Minister, Shadow Defence Minister, Shadow Northern
Ireland Minister and senior whip. He is currently Parliamentary Private
Secretary to the Leader of the Opposition, David Cameron.
Gerald Williams
Gerald Williams, a Guernsey resident, is Chief Executive of The Bachmann Group
Limited, a Director of Bachmann Fund Administration Limited, and was previously
a director of Coutts Fund Managers and head of private banking for Coutts
offshore private bank. Mr Williams has worked in most major offshore
jurisdictions including the Bahamas, Cayman Islands, Isle of Man and Jersey. Mr
Williams has a wealth of experience in the trust field and is an associate of
the Chartered Institute of Bankers.
Clive Simon
Clive Simon is a Guernsey resident, the Chairman of Bachmann Fund Administration
Limited and a director of The Bachmann Group Limited. Before joining the
Bachmann Group of Companies in 1998, he was a senior partner with Coopers and
Lybrand (now PricewaterhouseCoopers), working in London, Africa and the Channel
Islands. His business background is predominantly in the financial services
sector.
Directors' report
The directors present their report and the financial statements of Lewis Charles
Sofia Property Fund Limited which is incorporated in Guernsey, Channel Islands,
and its group, for the year ended 31 December 2008.
Company status
The Company is a closed-ended, Guernsey registered investment fund. Its shares
are listed and traded on AIM.
Principal activity
The Company offers an opportunity to invest in the Bulgarian residential
property market and, particularly, apartments and villas to be built in and
around Sofia. Its objective is to provide Shareholders with a high level of long-
term capital appreciation.
Results and dividends
The results for the year are set out in the Consolidated income statement on
page 18.
The directors did not declare a dividend for the year.
Listing requirements
Throughout the accounting period the Company complied with the conditions set
out in the AIM Rules for Companies.
Directors
The directors during the year and to date were as follows:
Charles Burton (Chairman) - appointed 29 April 2008
Lord Howard of Penrith (Chairman) - resigned 29 April 2008
Daniela Bobeva
Desmond Swayne
Gerald Williams
Clive Simon
Paul Duquemin (As alternate to Clive Simon)
Steve Desmond (As alternate to Gerald Williams)
The biographies of directors are on page 9.
Directors shall be subject to retirement by rotation at least every three years.
No person shall be or become incapable of being appointed as a director by
reason of having attained the age of 70 or any other age and no director will be
required to vacate his office at any time by reason of the fact that he has
attained the age of 70 or any other age. A retiring director shall be eligible
for reappointment, however there is no director who is due for retirement by
rotation.
The Board considers that there is balance of skills within the Board and that
each of the Directors contributes effectively.
Directors' fees
During the year the Directors received the following remuneration in the form of
fees:
2008 2009
Euro Euro
Charles Burton (Chairman) 11,138 -
Lord Howard of Penrith (Ex Chairman)(retired) 9,760 22,050
Daniela Bobeva 15,493 17,641
Desmond Swayne 14,711 17,656
Gerald Williams 9,193 11,022
Clive Simon 9,193 11,022
There are no service contracts in existence between the Company and any of the
Directors. The Company has put in place relevant cover for Directors in the form
of Directors and officers insurance.
The Companys' Articles of Association limit the aggregate fees to the Directors
at GBP75,000 per annum.
Directors' interests
Gerald Williams and Clive Simon are directors of the Company and the
Administrator. The fee paid to Bachmann Fund Administration is disclosed on the
face of the Company income statement and in note 3.
As at the date of the approval of these financial statements the directors have
the following beneficial interests in the ordinary share capital of the Company;
Number of Number of % of % of
Ordinary Ordinary issued issued
shares shares share share
capital capital
2008 2007 2008 2007
Daniela Bobeva - - - -
Desmond Swayne - - - -
Gerald Williams 50,000 50,000 0.10% 0.10%
Clive Simon 50,000 50,000 0.10% 0.10%
Charles Burton 50,000 - 0.10% -
Substantial interests in Company shares
At 31 December 2008 the following holdings representing more than 3 per cent of
the Company's issued shares had been notified to the Company.
Ordinary Interest in
shares voting
capital
Vidacos Nominees Limited DMG 7 8,700,000 18.00%
Goldman Sachs Securities (Nominees) 7,826,900 16.19%
Limited ILSEG
The Bank of New York (Nominees) Limited 4,271,500 8.84%
DBV303
Nortrust Nominees Limited ADT01 4,055,000 8.39%
Euroclear Nominees Limited EOC01 3,352,838 6.94%
Credit Suisse Client Nominees (UK) Limited 3,275,000 6.77%
D6M5PB
BNY (OCS) Nominees Ltd 1,640,000 3.39%
Chase Nominees Limited LEND 1,600,000 3.31%
Roy Nominees Limited 101604 1,476,169 3.05%
Management
The investment manager provides investment advisory services to the Company and
property advisory, property management and monitoring services to those members
of the Group which acquire property, in each case in accordance with the
investment objectives and investment policies of the Group. On 31 March 2009,
the Group has served notice on Lewis Charles Securities Limited to terminate the
management agreement. The termination will take effect on 1 October 2009.
Corporate governance
As a Guernsey registered company, the Company is not required to comply with the
Combined Code on Corporate Governance. However, it is the Company's policy to
comply with best practice on good corporate governance that is applicable to
investment companies.
Corporate governance
Arrangements in respect of corporate governance have therefore been made by the
Board, which it believes are appropriate for the Company. The Board consists
solely of non-executive Directors of which Lord Howard of Penrith was Chairman
until 29 April 2008, whereupon he resigned and Charles Burton was appointed as
his replacement. Since all the Directors are considered by the Board to be
independent non-executive directors, the provisions of the Code in respect of
Directors' remuneration are not relevant to the Company except in so far as they
relate to non-executive Directors.
In view of its non-executive nature and the requirement of the Articles of
Association that all Directors retire in rotation at least every three years,
the Board considers that it is not appropriate for the Directors to be appointed
for a specified term as recommended by the Code.
A Management Agreement between the Company and its Managers, Lewis Charles
Securities Limited, sets out the matters over which the Managers have authority
and the limits above which Board approval must be sought. All other matters,
including strategy, investment and dividend policies, gearing and corporate
governance procedures, are reserved for the approval of the Board of Directors.
The Board currently meets at least quarterly and receives full information on
the Company's investment performance, assets, liabilities and other relevant
information in advance of Board meetings.
The table below sets out the number of Board meetings held during the year ended
31 December 2008 and the number of meetings attended by each Director.
Board Meetings
______________
Quarterly Adhoc
Total attended attended
held
Charles Burton (Chairman) 16 3 5
Lord Howard of Penrith (Ex Chairman) 16 1 -
(retired)
Daniela Bobeva 16 3 1
Desmond Swayne 16 4 3
Gerald Williams 16 4 12
Clive Simon 16 4 12
Individual Directors may, at the expense of the Company, seek independent
professional advice on any matters that concern them in the furtherance of their
duties.
Going concern
After making enquiries, and bearing in mind the nature of the Company's business
and assets, and for the reasons disclosed in note 2(n) of the financial
statements, the Directors consider that the Company has adequate resources to
continue in operational existence for the foreseeable future. For this reason,
they continue to adopt the going concern basis in preparing the financial
statements.
Internal controls
The Board is responsible for the Company's system of internal control and for
reviewing its effectiveness. The Board has documented an ongoing process by
which the needs of the Company in managing the risks to which it is exposed can
be met.
The procedures, as documented, have been in place throughout both the financial
year and to the date of approval of the Annual Report and the Financial
Statements. The Board is satisfied with the effectiveness of the procedures. By
their nature these procedures are able to provide reasonable, but not absolute,
assurance against material misstatement or loss. During each Board meeting the
Board monitors the investment performance of the Company in comparison to its
objectives. The Board also reviews the Company's activities since the last Board
meeting and ensures that the Managers have followed the agreed investment
policy. Also, at each meeting, the Board receives reports from the Administrator
in respect of compliance matters and duties performed on behalf of the Company.
The Board has decided that the systems and procedures employed by the Managers
and the Secretary, provide assurance that a sound system of internal control,
which safeguards shareholders' investments and the Company's assets, is
maintained. An internal audit function specific to the Company is therefore
considered unnecessary.
Relations with Shareholders
The Company welcomes the views of shareholders and places great importance on
communications with them. The Chairman and the other Directors are available to
meet shareholders if required. The Annual General Meeting of the Company
provides a forum, both formal and informal, for shareholders to meet and discuss
issues with the Directors and Managers of the Company.
Annual General Meeting
The notice for the Annual General Meeting of the Company, which is to be held on
14 August 2009 at Frances House, Sir William Place, St Peter Port, Guernsey, is
set out at the end of this document. Included in the document is a form of proxy
for use at the meeting. Details and reasons for the items of business to be
proposed at the Annual General Meeting are set out below:
ORDINARY RESOLUTIONS
1. To receive and consider the Financial Statements and Chairman's report for
the year ended 31 December 2008.
2. To re-appoint the following persons as Directors of the Company for the
ensuing year:
Desmond Swayne
Gerald Williams
3. To re-appoint BDO Novus Limited as Auditors of the Company
4. To authorise the Directors to fix the remuneration of the Company's
Auditors
By order of the board
Gerald Williams Clive Simon
Director Director
26th June 2009
Statement of directors' responsibilities in respect of the financial statements
Guernsey company law requires the directors to prepare financial statements for
each financial period which give a true and fair view of the state of affairs of
the Company and Group and of the profit or loss of the Company and the Group for
that year. In preparing those financial statements, the directors are required
to:
- select suitable accounting policies and then apply them consistently;
- make judgements and estimates that are reasonable and prudent;
- state whether applicable accounting standards have been followed, subject
to any material departures disclosed and explained in the financial statements;
and
- prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
Company and of the Group and to enable them to ensure that the financial
statements have been properly prepared in accordance with the Companies
(Guernsey) Law, 1994. They are also responsible for safeguarding the assets of
the Company and the Group and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
Independent auditors' report
to the members of Lewis Charles Sofia Property Fund Limited
We have audited the group and parent company financial statements ("the
Financial Statements") of Lewis Charles Sofia Property Fund Limited for the year
ended 31 December 2008, which comprise the Consolidated and Company Income
Statements, Consolidated and Company Balance Sheets, Consolidated and Company
Cash Flow Statements, Consolidated and Company Statements of Changes in Equity
and the related notes 1 to 26.
These financial statements have been prepared in accordance with the accounting
policies as set out in note 2.
This report is made solely to the Company's members, as a body, in accordance
with Section 64 of the Companies (Guernsey) Law, 1994. Our audit work is
undertaken so that we might state to the Company's members those matters we are
required to state to them in an auditors' report and for no other purpose. To
the fullest extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company and the Company's members as a body, for our
audit work, for this report, or for the opinions we have formed.
Respective responsibilities of the directors and auditors
As described in the Statement of Directors' Responsibilities the Company's
directors are responsible for the preparation of the financial statements in
accordance with applicable law and International Financial Reporting Standards
(IFRS).
Our responsibility is to audit the financial statements in accordance with
relevant legal and regulatory requirements and International Standards on
Auditing (UK and Ireland).
We report to you as to whether the financial statements give a true and fair
view and are properly prepared in accordance with the Companies (Guernsey) Law,
1994. We also report to you if, in our opinion, the Directors' Report is not
consistent with the financial statements, if the Company has not kept proper
accounting records, if we have not received all the information and explanations
that we require for our audit, or if information specified by law is not
disclosed.
We read the other information included in the Annual Report and consider whether
it is consistent with the audited financial statements. This other information
comprises only the Officers and Professional Advisers, Company Summary,
Chairman's Statement, Investment Manager's Report, Board of directors and
Directors' Report. We consider the implications for our report if we become
aware of any apparent misstatements or material inconsistencies with the
financial statements. Our responsibilities do not extend to any other
information.
Basis of opinion
We conducted our audit in accordance with International Standards on Auditing
(UK and Ireland) issued by the Auditing Practices Board. An audit includes
examination, on a test basis, of evidence relevant to the amounts and
disclosures in the financial statements. It also includes an assessment of the
significant estimates and judgements made by the directors in the preparation of
the financial statements, and of whether the accounting policies are appropriate
to the Company's circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or error. In
forming our opinion we also evaluated the overall adequacy of the presentation
of information in the financial statements.
Independent auditors' report
to the members of Lewis Charles Sofia Property Fund Limited
Opinion
In our opinion:
· the Group Financial Statements give a true and fair view, in accordance
with IFRS, of the state of the Group's affairs at 31 December 2008 and of its
loss for the year then ended.
· the Parent Companys' financial statements give a true and fair view, in
accordance with IFRS, of the state of the Companys' affairs at 31 December 2008
and of its loss for the year then ended; and
· The Financial Statements have been properly prepared in accordance with the
Companies (Guernsey) Law, 1994.
Emphasis of Matter
In forming our opinion on the financial statements, which is not qualified, we
considered the adequacy of disclosure made in note 2(n) to the financial
statements concerning the company's and group's ability to continue as a going
concern. As disclosed in note 2(n) to the financial statements, the group will
require additional funding in next 12 months. The directors are reviewing the
various options available to the group. However, as at the date of this report,
no plans have been finalised. This indicates the existence of a material
uncertainty which may cast significant doubt about the company's and group's
ability to continue as a going concern. The financial statements do not include
the adjustments that would result if the company or group was unable to continue
as a going concern.
BDO Novus Limited
CHARTERED ACCOUNTANTS
Place du Pre
Rue du Pre
St Peter Port
Guernsey.
GY1 3LL
26th June 2009
Company income statement
for the year ended 31 December 2008
Revenue Capital Total 31 Dec
Notes ? ? ? 2007
?
_____ _________________________________ __________
Revenue - - - -
Expenses
Administration fees 3 122,140 - 122,140 142,128
Management fees 4 901,712 - 901,712 1,035,092
Performance fees 5 - (2,551,587) (2,551,587) 2,376,955
Directors' fees 6 69,488 - 69,488 79,391
and expenses
Foreign exchange loss 11,188 - 11,188 19,270
Other expenses 7 692,497 - 692,497 1,056,837
Impairment on loan 14
to subsidiary
companies - 12,050,000 12,050,000 18,851,000
_________________________________ __________
1,797,025 9,498,413 11,295,438 4,709,673
_________________________________ __________
Operating loss 2(e) (1,797,025) (9,498,413)(11,295,438) (4,709,673)
Finance income 9 53,692 - 53,692 408,577
_________________________________ __________
Loss before taxation (1,743,333) (9,498,413)(11,241,746) (4,301,096)
Tax on profit on
ordinary activities 10 - - - -
_________________________________ __________
Loss for the year (1,743,333) (9,498,413)(11,241,746) (4,301,096)
_________________________________ __________
_________________________________ __________
The total column of this statement represents the Company's Income Statement,
prepared in accordance with IFRS. The revenue and capital columns are supplied
as supplementary information permitted under IFRS. All items in the above
statement derive from continuing operations.
The accompanying notes 1 to 26 form an integral part of these financial
statements
Consolidated income statement
for the year ended 31 December 2008
Revenue Capital Total 31 Dec
Notes ? ? ? 2007
?
_____ _________________________________ __________
Revenue
Property sales 144,374 - 144,374 -
Cost of sales (109,806) - (109,806) -
Other revenue 13 853,005 - 853,005 -
_________________________________ __________
Gross profit 887,573 - 887,573 -
_________________________________ __________
Expenses
Administration fees 3 192,211 - 192,211 218,811
Management fees 4 901,712 - 901,712 1,035,092
Performance fees 5 -(2,551,587) (2,551,587) 2,376,955
Directors' fees and 6 69,488 - 69,488 79,391
expenses
Foreign exchange loss 32,602 - 32,602 21,220
Other expenses 7 1,206,711 - 1,206,711 1,310,024
Impairment of inventory 13 - 13,846,603 13,846,603 -
Revaluation of investment
properties 12 - 10,640,268 10,640,268(12,387,151)
_________________________________ __________
2,402,724 21,935,284 24,338,008 (7,345,658)
_________________________________ __________
Operating (loss)/
profit 2(e)(1,515,151)(21,935,284)(23,450,435) 7,345,658
Finance income 9 63,492 - 63,492 423,929
_________________________________ __________
(Loss)/profit
before taxation (1,451,659)(21,935,284)(23,386,943) 7,769,587
Taxation 10 - 1,273,422 1,273,422 (1,238,715)
_________________________________ __________
(Loss)/Profit for (1,451,659) (20,661,862)(22,113,521) 6,530,872
the year _________________________________ __________
Earnings per share - basic
and diluted (cents 11 (45.74) 13.51
per share)
The total column of this statement represents the Group's Income Statement,
prepared in accordance with IFRS. The revenue and capital columns are supplied
as supplementary information permitted under IFRS. All income is attributable to
the equity holders of the parent company. There are no minority interests. All
items in the above statement derive from continuing operations.
The accompanying notes 1 to 26 form an integral part of these financial
statements
Company balance sheet
as at 31 December 2008
Notes Company 2008 Company 2007
? ? ? ?
Non-current assets
Investment in subsidiary
undertakings 14 10,521,309 10,521,309
Amount receivable from subsidiary
undertakings 14 23,421,072 31,254,053
___________ ___________
33,942,381 41,775,362
Current assets
Trade and other receivables 15 16,214 18,564
Cash and cash equivalents 16 371,976 6,229,149
___________ ___________
388,190 6,247,713
___________ ___________
Total assets 34,330,571 48,023,075
___________ ___________
Current liabilities
Trade and other payables 17 (3,049,698) (107,246)
___________ ___________
(3,049,698) (107,246)
Non-current liabilities
Trade and other payables 17 - (5,393,210)
___________ ___________
- (5,393,210)
___________ ___________
Total liabilities (3,049,698) (5,500,456)
___________ ___________
Net assets 31,280,873 42,522,619
___________ ___________
___________ ___________
Equity
Share capital 18 - -
Special reserve 19 56,956,985 56,956,985
Capital reserve 20 (15,550,424) (6,052,011)
Revenue reserve 20 (10,125,688) (8,382,355)
___________ ___________
Total Equity 31,280,873 42,522,619
___________ ___________
___________ ___________
The accompanying notes 1 to 26 form an integral part of these financial
statements.
Consolidated balance sheet
as at 31 December 2008
Notes Company 2008 Company 2007
? ? ? ?
Non-current assets
Investment properties 12 44,848,000 55,127,208
Current assets
Inventory 13 6,801,000 15,625,171
Property options 5 5
Trade and other receivables 15 548,827 512,900
Cash and cash equivalents 16 767,920 7,209,621
___________ ___________
8,117,752 23,347,697
___________ ___________
Total assets 52,965,752 78,474,905
___________ ___________
Current liabilities
Trade and other payables 17 (3,072,785) (764,630)
___________ ___________
(3,072,785) (764,630)
Non-current liabilities
Trade and other payables 17 (4,386,477) (8,816,842)
Deferred taxation 10 (1,414,464) (2,687,886)
___________ ___________
(5,800,941) (11,504,728)
___________ ___________
Total liabilities (8,873,726) (12,269,358)
___________ ___________
Net assets 44,092,026 66,205,547
___________ ___________
___________ ___________
Equity
Share capital 18 - -
Special reserve 19 56,956,985 56,956,985
Capital reserve 20 (2,522,902) 18,138,960
Revenue reserve 20 (10,342,057) (8,890,398)
___________ ___________
Total Equity 44,092,026 66,205,547
___________ ___________
___________ ___________
NAV per share (Euro per share) 21 0.9120 1.3694
NAV per share at launch (Euro
per share) 1.1781 1.1781
The financial statements were approved by the Board of Directors and authorised
for issue on 26th June 2009
They were signed on its behalf by G. Williams and C. Simon
G. Williams C. Simon
Director Director
The accompanying notes 1 to 26 form an integral part of these financial
statements
Statements of changes in equity
for the year to 31 December 2008
Consolidated 2008 Share Special Capital Revenue Total
Capital Reserve Reserve Reserve Equity
? ? ? ? ?
As at 31 December 2007 - 56,956,985 18,138,960 (8,890,398) 66,205,547
Loss for the year - - (20,661,862) (1,451,659) (22,113,521)
__________________________________________________________________
Total recognised income
and expenses for the year - - (20,661,862) (1,451,659) (22,113,521)
__________________________________________________________________
As at 31 December 2008 - 56,956,985 (2,522,902) (10,342,057) 44,092,026
__________________________________________________________________
__________________________________________________________________
Consolidated 2007 Share Special Capital Revenue Total
Capital Reserve Reserve Reserve Equity
? ? ? ? ?
As at 31 December 2006 - 56,956,985 9,367,479 (6,649,789) 59,674,675
Loss for the year - - 8,771,481 (2,240,609) 6,530,872
__________________________________________________________________
Total recognised income
and expenses for the year - - 8,771,481 (2,240,609) 6,530,872
__________________________________________________________________
As at 31 December 2007 - 56,956,985 18,138,960 (8,890,398) 66,205,547
__________________________________________________________________
__________________________________________________________________
Company 2008 Share Special Capital Revenue Total
Capital Reserve Reserve Reserve Equity
? ? ? ? ?
As at 31 December 2007 - 56,956,985 (6,052,011) (8,382,355) 42,522,619
Loss for the year - - (9,498,413) (1,743,333) (11,241,746)
__________________________________________________________________
Total recognised income
and expenses for the year - - (9,498,413) (1,743,333) (11,241,746)
__________________________________________________________________
As at 31 December 2008 - 56,956,985 (15,550,424) (10,125,688) 31,280,873
__________________________________________________________________
__________________________________________________________________
Company 2008 Share Special Capital Revenue Total
Capital Reserve Reserve Reserve Equity
? ? ? ? ?
As at 31 December 2006 - 56,956,985 (3,675,056) (6,458,214) 46,823,715
Loss for the year - - (2,376,955) (1,924,141) (4,301,096)
__________________________________________________________________
Total recognised income
and expenses for the year - - (2,376,955) (1,924,141) (4,301,096)
__________________________________________________________________
As at 31 December 2007 - 56,956,985 (6,052,011) (8,382,355) 42,522,619
__________________________________________________________________
__________________________________________________________________
The accompanying notes 1 to 26 form an integral part of these financial
statements
Company cash flow statement
for the year ended 31 December 2008
Notes 2008 2007
? ?
Loss for the year (11,241,746) (4,301,096)
Adjustment for:
Finance income (53,692) (4,965)
Impairment on loan to subsidiary companies 12,050,000 -
______________ ______________
Operating cash flows before movements
in working capital 754,562 (4,306,061)
Decrease in operating trade and other receivables 2,350 40,110
(Decrease) / increase in operating trade and
other payables (2,450,758) 2,383,623
______________ ______________
(1,693,846) (1,882,328)
Interest received 53,692 4,965
Taxation - -
______________ ______________
Net cash outflow from operating activities (1,640,154) (1,877,363)
Investing activities
Loan advanced to subsidiary undertakings (4,217,019) (13,143,877)
______________ ______________
Investment in subsidiary undertakings - (1,264,252)
Net cash outflow from investing activities (4,217,019) (14,408,129)
Net decrease in cash and cash equivalents (5,857,173) (16,285,492)
Cash and cash equivalents at start of year 16 6,229,149 22,514,641
______________ ______________
Cash and cash equivalents at end of year 16 371,976 6,229,149
______________ ______________
______________ ______________
The accompanying notes 1 to 26 form an integral part of these financial
statements.
Consolidated cash flow statement
for the year ended 31 December 2008
Notes 2008 2007
? ?
(Loss) /profit for the year (22,113,521) 6,530,872
Adjustment for:
Finance income (63,492) (20,317)
Revaluation of investment properties 10,640,268 (12,387,151)
Impairment of inventory 13,846,603 -
Taxation (1,273,422) 1,238,715
______________ ______________
Operating cash flows before movements
in working capital 1,036,436 (4,637,881)
(Increase) / decrease in operating (35,927) 91,070
and other receivables
(Decrease) / increase in operating (2,122,210) 6,327,253
and other payables
Increase in inventory (5,022,432) (4,243,165)
______________ ______________
(6,144,133) (2,462,723)
Interest received 63,492 20,317
Taxation - -
______________ ______________
Net cash outflow from operating activities (6,080,641) (2,442,406)
______________ ______________
Investing activities
Repayment of loan to property developer - 1,363,694
Purchases of investment properties (361,060) (14,758,074)
______________ ______________
Net cash outflow from investing activities (361,060) (13,394,380)
______________ ______________
Net decrease in cash and cash equivalents (6,441,701) (15,836,786)
Cash and cash equivalents at start of year 16 7,209,621 23,046,407
______________ ______________
Cash and cash equivalents at end of year 16 767,920 7,209,621
______________ ______________
______________ ______________
The accompanying notes 1 to 26 form an integral part of these financial
statements
1. CORPORATE INFORMATION
Lewis Charles Sofia Property Fund Limited (the "Company") and its
subsidiaries (together the "Group") is an investment fund with a major
investment portfolio in Bulgaria. The aim of the Fund is to generate capital
gains through investing in residential property primarily in Sofia and the
adjacent ski resorts. The investment strategy of the Company is to work with
developers at the earliest possible stage.
The company is a closed-ended limited company incorporated in Guernsey. The
address of the registered office is shown on page 2.
The Company's shares are listed on the London Stock Exchange, Alternative
Investment Market (AIM).
These financial statements were approved and authorised by the Board for
issue on 26th June 2009 and signed by G. Williams and C. Simon on behalf of
the board.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of these
consolidated financial statements are set out below. These policies have
been consistently applied to all the years presented, unless otherwise
stated.
(2.1) Basis of preparation
The financial statements have been prepared in accordance with International
Financial Reporting Standards ("IFRS") which comprise standards and
interpretations issued by the International Accounting Standards Board
("IASB"), and International Accounting Standards and Standing
Interpretations approved by the International Accounting Standards Committee
that remain in effect, and to the extent they have been adopted by the
European Union. The financial statements have been prepared on the
historical cost basis, except for the revaluation of investment properties.
Financial assets and financial liabilities (including derivative financial
instruments) are held at fair value through profit and loss.
The preparation of financial statements in conformity with IFRS requires the
use of certain critical accounting estimates. It also requires the Board of
Directors to exercise its judgement in the process of applying the Company's
accounting policies.
The estimates and associated assumptions are based on historical experience
and various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis of making judgements
about the carrying value of assets and liabilities that are not readily
apparent from other sources.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision only affects that period, or in the
period of the revision and future periods if the revision affects both
current and future periods. The areas involving high degree of judgement or
complexity, or areas where the assumptions and estimates are significant to
the financial statements are disclosed in part (2.2).
Adoption of new and revised Standards
Two interpretations issued by the International Financial Reporting
Interpretations Committee are effective for the current year. These were:
IFRIC 11: IFRS 2: Group and treasury Share Transactions: IFRIC 12 : Service
Concession Arrangements and IFRIC 14 : IAS 19 - The limit on a Defined
Benefit Asset, Minimum Funding Requirements and their Interaction.
The adoption of these interpretations has not led to any changes in the
Groups accounting policies.
Standards and Interpretations in issue and not yet effective
At the date of authorisation of these financial statements, the following
standards and interpretations, which have not been applied in these
financial statements, were in issue but not yet effective:-
New standards
IFRS 8: Operating segments - for accounting periods commencing on or after 1
January 2009.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(2.1) Basis of preparation
Revised and amended Standards
The IASB and IFRIC have issued the following standards and interpretations that
will be relevant to the Group with an effective date after the date of these
financial statements:
International Accounting Standards/International Financial Reporting Standard
(IAS/IFRS)
IAS 1: Presentation of Financial Statements (Revised 2007,2008 and April 2009) -
for accounting periods commencing on or after 1 January 2009 and 1 January 2010.
IAS 7: Statement of Cashflows (Revised April 2009) - for accounting periods
commencing on or after 1 January 2010.
IAS 16: Property, Plant and Machinery (Revised May 2008) - for accounting
periods commencing on or after 1 January 2010.
IAS 17: Leases (Revised April 2009) - for accounting periods commencing on or
after 1 January 2010.
IAS 23: Borrowing Costs (Revised 2007 and May 2008) - for accounting periods
commencing on or after 1 January 2009.
IAS 27: Consolidated and Separate Financial Statements (Revised 2008) - for
accounting periods commencing on or after 1 January 2009 and 1 July 2009.
IAS 32: Financial Instruments: Presentation (Revised 2008) - for accounting
periods on or after 1 January 2009.
IAS 36: Impairment of Assets (Revised May 2008 and April 2009) - for periods on
or after 1 January 2009 and 1 January 2010.
IAS 39: Financial Instruments: Recognition and Measurement (Revised 2008, March
2009, and April 2009) - for accounting periods on or after 1 January 2009 and 30
June 2009.
IAS 40: Investment Property (Revised May 2008) - for accounting periods on or
after 1 January 2009.
IFRS 3: Business Combinations (Revised 2008) - for accounting periods on or
after 1 July 2009.
IFRS 5: Non current Assets Held for Sale and Discontinued Operations (Revised
May 2008 and April 2009) - for accounting periods on or after 1 July 2009 and 1
January 2010.
IFRS 7: Financial Instruments: Disclosures (Revised March 2009) - for the
accounting periods on or after 1 January 2009.
IFRS 8: Operating Segments (original issuance and revised April 2009) - for
accounting periods on or after 1 January 2009 and 1 January 2010.
Interpretations
International Financial Interpretations Committee (IFRIC) IFRIC 15:
Agreements for the Construction of Real Estate - for the accounting periods on
or after 1 January 2009.
IFRIC 16: Hedges of a Net Investment in a Foreign Operation - for the accounting
periods on or after 1 October 2008.
The Directors anticipate that with the exception of IAS 1 as discussed below the
adoption of these standards and interpretations in future periods will not have
material impact on the financial statements of the Group.
IAS 1 (revised), Presentation of financial statements (effective from 1 January
2009). The revised standard will prohibit the presentation of item of income and
expenses (that is, non-owner changes in equity) in the statement of changes in
equity, requiring non-owner changes in equity to be presented separately from
owner changes in equity. All non-owner changes in equity will be required to be
shown in a performance statement, but entities can choose whether to present on
performance statement (the statement of comprehensive income or two statements
(the income statement and statement of comprehensive income). The Group will
apply IAS 1 (revised) from 1 January 2009.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies adopted are set out below:
(2.2) Significant accounting estimates and judgements
The Group makes estimates and assumptions concerning the future. The
resulting accounting estimate will, by definition, seldom equal the related
actual results. The estimates and assumptions that have a significant risk
of causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year are discussed below.
Estimates and judgements are continually evaluated and are based on
historical experience and other factors, including expectations of future
events that are believed to be reasonable under the circumstances.
In applying the Group's accounting policies, the Directors make judgements
in the following areas:
(a) Investment property and inventory
Investment properties are carried at fair value which is calculated using
the residual method undertaken by a professional valuer.
Inventory is tested for impairment at each balance sheet date. Impairment
reviews are undertaken using a valuation under the residual method, also
undertaken by a professional valuer.
The theoretical basis of the residual method is based on the expected sales
proceeds used to arrive at the total capital value for the specific project.
From this figure the budgeted total development costs are deducted, the
resultant figure represents the residual value/profit. Valuations using this
method require numerous estimates and assumptions to be used such as
estimated built area, current design and plans, future sales revenue, costs
to complete and an applicable discount rate.
In addition given the current market situation, resulting in a limited
number of transaction and the general uncertainty in the market, valuers
have relied on their professional judgement to a greater extent than normal
in deriving their opinion of value. Accordingly, fair value is not intended
to represent the liquidation value of the property which would be dependent
upon the price negotiated at the time of sale.
The fair value of investment property at 31 December 2008 was ?44,848,000
(2007: ?55,127,208). The inventory was valued at ?6,801,000 (2007:
?15,625,171). Refer to note 12 and 13 for further details.
(b) Deferred tax
The Group is subject to income and capital gains taxes in Bulgaria.
Significant judgement is required in determining the provision for income
and deferred taxes. There are many transactions and calculations for which
the ultimate tax determination and timing of payment are uncertain during
ordinary course of business. The Group recognises liabilities for
anticipated tax issues based on estimates of whether additional tax will be
due. Where the final tax outcome of these matters is different from the
amount that was initially recorded such differences will impact the income
and deferred tax provisions in the period on which there determination is
made. The deferred tax liability as at 31 December 2008 was ?1,414,464
(2007: ?2,687,886). Refer to note 10 for further details.
(c) Performance fee
The Group has to pay a performance fee to investment manager based on the
gains generated on the properties. Provisions for the performance fee are
calculated at each balance sheet date based on the property valuations,
carried out by the valuers, at that date. The provision for performance fee
is an estimate based on the year end valuation, which will not necessarily
be the actual performance fee paid on disposal of property or at the end of
the termination period. Further details are included in note 5 to these
financial statements. Performance fee payable as at 31 December 2008 was
?2,841,623 (2007: ?5,393,210). Refer to note 5 and 17 for further details.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(2.3) Accounting policies
The principal accounting policies are set out below.
(a) Consolidation
The consolidated financial statements incorporate the financial statements
of the Company and entities controlled by the Company (its subsidiaries)
made up to 31 December each year. Control is achieved where the Company has
the power to govern the financial and operating activities of an investee
entity so as to obtain benefits from its activities. The results of
subsidiaries acquired or disposed of during the year are included in the
consolidated income statement from the effective date of acquisition or
disposal.
Where necessary, adjustments are made to the financial statements of the
subsidiaries to bring the accounting policies used into line with those used
by the parent company.
All intra-group transactions, balances, income and expenses are eliminated
on consolidation.
(b) Presentation of income statement
In order to better reflect the activities of an investment trust company and
in accordance with guidance issued by the Association of Investment Trust
Companies, supplementary information which analyses the income statement
between items of a revenue and capital nature has been presented alongside
the income statement.
(c) Revenue recognition
Revenue is recognised to the extent that it is probable that the economic
benefits will flow to the group and the amount of revenue can be reliably
measured.
Interest income is recognised on a time apportioned basis using the
effective interest method.
(d) Expenses
Expenses are measured at the fair value of the consideration paid or payable
and are recognised in the Income Statement on an accruals basis.
(e) Operating profit or loss
Group
Operating profit or loss includes gross profit, net gains or losses on
revaluation of investment properties less administrative expenses including
impairment losses.
Company
Operating profit or loss includes revenue and administration costs and
excludes finance income and finance cost.
(f) Options over property
Options over property are treated as current assets and included in the
balance sheet at cost. Cost is deemed to be the fair value of consideration
given. No depreciation is provided on these assets, however the directors
review each option for impairment annually.
(g) Investment property
Investment property, which is property held to earn rentals and/or for
capital appreciation, is initially recognised at cost being the fair value
of consideration given including related transaction costs. After initial
recognition at cost, investment properties are carried at their fair values
based on half-yearly professional valuations made by King Sturge Kft. The
valuations are in accordance with standards complying with the Royal
Institution of Chartered Surveyors Approval and Valuation manual and the
International Valuation Standards Committee.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(g) Investment property
Gains or losses arising from changes in fair value of investment property
are included in the income statement for the period in which they arise.
Properties are treated as acquired when the Group assumes the significant
risks and returns of ownership and as disposed of when these are transferred
to the buyer. When the Group redevelops an existing investment property for
continued future use as an investment property, the property remains an
investment property and is not reclassified.
All costs directly associated with the purchase and construction of a
property, and all subsequent capital expenditures are capitalised.
Transfers are made to investment property when there is a change in use,
evidenced by the end of owner occupation, commencement of an operating lease
to another party or completion of construction or development.
Transfers are made from investment property when, and only when, there is a
change in use, evidenced by commencement of owner occupation or commencement
of development with a view to sale.
(h) Inventory
Inventory which comprises buildings under construction includes capitalised
interest where applicable and is carried at cost or, if lower, net
realisable value. Cost includes all directly attributable third party
expenditure incurred.
(i) Segmental reporting
The Directors are of the opinion that the Company is engaged in a single
segment of business, being property investment business, and in one
geographical area, Bulgaria.
(j) Taxation
The Company is exempt from Guernsey taxation. As such, the Company is only
liable to pay a fixed annual fee, currently GBP600.
The subsidiaries, LCSPF Bulgaria EOOD, Black Sea Properties EOOD and VT
Developments EOOD will be liable for Bulgarian Corporation Tax at 10% of
the income. The subsidiaries are not liable for any further local taxes,
however withholding taxes may be payable on repatriation of assets and
income to the Company, as currently there is no double tax treaty between
Guernsey and Bulgaria.
Deferred tax is the tax expected to be payable or recoverable on differences
between the carrying amount of assets and liabilities in the financial
statements and corresponding tax bases used in the computation of taxable
profit, and is accounted for using the balance sheet liability method.
Deferred tax liabilities are generally recognised for all taxable temporary
differences and deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which deductible
temporary differences can be utilised.
The carrying amount of deferred tax assets is reviewed at each balance sheet
date and reduced to the extent that it is no longer probable that sufficient
taxable profits will be available to allow all or part of the asset to be
recovered.
Deferred tax is calculated at the tax rates that are expected to apply in
the period when the liability is settled or the asset realised. Deferred tax
is charged or credited in the income statement, except when it relates to
items charged or credited directly to equity, in which case the deferred tax
is also dealt with in equity.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(k) Foreign currency translation
(a) Functional and reporting currency
The functional currency of the Company is Euros as substantially all
expenses relating to the investments are made in Euros.
The reporting currency of the Company for accounting purposes is also the
Euro. The financial statements are converted into Sterling on pages 44 to
51, for information purposes only. Income statement accounts are being
converted using the average exchange rate for the year while balance sheet
accounts are converted using the balance sheet date rate. Exchange
gains/losses on translation are taken to statement of changes in equity.
(b) Transactions and balances
Foreign currency balances are translated into Euro at the rate of exchange
ruling on the last day of company's financial period. Foreign currency
transactions are translated at the rate of exchange ruling on the date of
transaction. Gains and losses arising on currency translation are included
in the Consolidated Income Statement.
(c) Group companies
The results and financial position of all the group entities (none of which
has the currency of a hyperinflationary economy) that have a functional
currency different from the presentation currency are translated into the
presentation currency as follows:
(i) assets and liabilities for each balance sheet presented are translated
at the closing rate at the date of that balance sheet;
(ii) income and expenses for each income statement are translated at
average exchange rates (unless the average is not a reasonable
approximation of the cumulative effect of the rates prevailing on the
transaction dates, in which case income and expenses are translated at the
dates of the transactions); and
(iii) all resulting exchange differences are recognised as a separate
component of equity.
(l) Financial instruments
Financial assets and financial liabilities are recognised on the Group's
balance sheet when the Group becomes a party to the contractual provisions
of the instrument. The Group shall offset financial assets and financial
liabilities if the Group has a legally enforceable right to set off the
recognised amounts and interests and intends to settle on a net basis.
(a) Financial assets
The Group's financial assets fall into the category of only loans and
receivables. The Group has not classified any of its financial assets as
held at fair value through profit or loss, held to maturity or as available
for sale. Unless otherwise indicated, carrying amount of the Group's
financial assets is a reasonable approximation of their fair value.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(l) Financial instruments
(a)(i) Loans and receivables
These assets are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. They arise
principally through trade receivables and cash and cash equivalents, but
also incorporate other types of contractual monetary assets. They are
initially recognised at fair value plus transaction costs that are
directly attributable to the acquisition or issue and subsequently carried
at amortised cost using the effective interest rate method, less provision
for impairment.
The effect of discounting on these financial instruments is not considered
to be material.
Impairment provisions are recognised when there is objective evidence
(such as significant financial difficulties on the part of the
counterparty or default or significant delay in payment) that the Group
will be unable to collect all of the amounts due under the terms
receivable, the amount of such a provision being the difference between
the net carrying amount and the present value of the future expected cash
flows associated with the impaired receivable.
Cash and cash equivalents are defined as cash on hand, short term
deposits, and other short-term highly liquid investments that are readily
convertible to a known amount of cash and are subject to an insignificant
risk of changes in value.
(a) (ii) De-recognition of financial assets
A financial asset (in whole or in part) is derecognised either:
- when the group has transferred substantially all the risks and
rewards of ownership; or
- when it has transferred nor retained substantially all the risks and
rewards and when
it no longer has control over the asset or a portion of the asset;
or
- when the contractual right to receive cash flow has expired.
(b) Financial liabilities
The Group classifies its financial liabilities as other financial
liabilities at amortised cost. Unless otherwise indicated, the carrying
amounts of the Group's financial liabilities are a reasonable
approximation of their fair values.
(b)(i) Financial liabilities measured at amortised cost
Other financial liabilities include trade payables and other short-term
monetary liabilities, which are initially recognised at fair value and
subsequently carried at amortised cost using the effective interest
method.
(b) (ii) De-recognition of financial liabilities
A financial liability (in whole or in part) is derecognised when the
Company or Group has extinguished its contractual obligations, it expires
or is cancelled. Any gain or loss on de-recognition is taken to the income
statement.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(l) Financial instruments
(c) Share Capital
Financial instruments issued by the Group are treated as equity only to the
extent that they do not meet the definition of a financial liability. The
Company's ordinary shares are classified as equity instruments. For the
purposes of the disclosures given in Note 22 the Group considers all its
share capital, share premium and all other reserves as equity. The Company
is not subject to any externally imposed capital requirements.
(d) Effective interest method
The effective interest method is a method of calculating the amortised cost
of a financial asset or liability and of allocating interest income or
expense over the relevant period. The effective interest rate is the rate
that exactly discounts estimated future cash receipts or payments
(including all fees on points paid or received that form an integral part
of the effective interest rate, transaction costs and other premiums or
discounts) through the expected life of the financial asset or liability,
or, where appropriate, a shorter period.
(m) Investment in subsidiary undertakings
Investment in subsidiary undertakings are initially recognised and
subsequently measured at cost less, where appropriate, provisions for
impairment in the Group's financial statements.
(n) Going concern
The directors have reviewed the current budgets and cashflow projections for
a period no less than 12 months from the date of this report. These
forecasts indicate the need for additional funding, both for working capital
and to exercise the property options (see note 26).
Various sources of financing have been considered by the directors including
raising of fresh equity and potential disposal of properties. A final
decision regarding the source of financing has not been made, however, the
directors are confident that sufficient cash will be raised by the Group to
pay its liabilities.
Accordingly the directors have prepared the financial statements on the
going concern basis.
3. ADMINISTRATION FEES
Under the Administration Agreement the Administrator is entitled to receive
an annual administration fee at a rate as may be agreed in writing from time
to time between the Company and the Administrator. The present fee is 0.09%
per annum of the Net Asset Value of the Company up to GBP50 million and 0.07%
of the Net Asset Value of the Company above GBP50 million, subject to a
minimum fee during the year of GBP68,185 per annum (2007:GBP65,000) plus
disbursements.
4. MANAGEMENT FEES
The Company will pay the Manager a Management fee of 2% per annum of the Net
Proceeds of the Placing, calculated and payable quarterly in advance. The
Manager is also entitled to a Management fee of 2% of any realised but
undistributed capital gains on the sale of Properties, calculated and
payable quarterly in arrears. The Group has served a notice for termination
of management agreement on manager, further details are included in note 26.
5. PERFORMANCE FEE
The Manager will receive a performance fee calculated and payable in
Sterling from the Company based on 20% of the excess of the net cash
proceeds from the sale of property over the 7% Property Hurdle. The Manager
will also receive a performance fee of 5% over the 23% Property Hurdle. For
these purposes, the 7% Property Hurdle is a 7% compound per annum return on
the amount of the deposit paid on the relevant investment property and the
23% Property Hurdle is a 23% compound per annum return on the amount of the
deposit paid on the relevant property. In the event that the Company does
not sell on the property prior to completion on an off-plan basis and
instead completes on a property, the Property Hurdles shall be calculated by
reference to the aggregate of the deposit and the completion balance.
80% of the performance fees calculated will be payable to the Manager within
30 days of the receipt of the proceeds of the sale of a property. The
balance will be paid at the same time into a Reserve Account and be invested
in Sterling money market deposits, unless otherwise agreed between the
Manager and the Company. The performance fee shown within these financial
statements is a provision based on the uplift shown in the fair value
adjustment of the investment properties.
As a result of the decrease in the fair value of investment properties as at
31 December 2008 accruals made in prior years for the performance fee have
been reversed in the current year. The Group has served a notice for
termination of management agreement on Manager, further details are included
in note 26.
6. DIRECTORS' FEES AND EXPENSES
The Chairman receives GBP15,000 per annum, with other directors receiving
GBP12,000 per annum. Clive Simon and Gerry Williams receive an annual fee of
GBP7,500 each. The Chairman and Directors are also reimbursed for other
expenses properly incurred by them in attending meetings and other business
of the Company.
7. OTHER EXPENSES
Consolidated Consolidated Company Company
2008 2007 2008 2007
Total Total Total Total
___________ ___________ ___________ ___________
? ? ? ?
Registrar's fees (see note 8) 14,877 14,846 14,877 14,846
Audit fees 38,235 44,527 32,237 39,995
Legal and professional fees 553,554 905,020 553,159 905,020
Consultancy fees 118,309 169,798 - -
Insurance costs 16,411 22,610 16,411 22,610
Statutory fees 11,901 5,096 11,901 5,096
Travel expenses 43,583 43,326 45,658 43,326
Bank charges 13,621 13,050 5,765 6,695
Property and municipal taxes 333,630 - - -
Other fees and expenses 62,590 91,751 12,489 19,249
___________ ___________ ___________ ___________
1,206,711 1,310,024 692,497 1,056,837
___________ ___________ ___________ ___________
___________ ___________ ___________ ___________
The Group and Company have no employees. No amounts were paid to BDO Novus
Limited by the Company and its subsidiary undertakings in respect of non-
audit services.
8. REGISTRAR'S FEES
Under the Registrar's Agreement, the Registrar is entitled to receive an
annual fee at the rate of whichever shall be the greater of the amount of
the minimum Annual Basic Fee, currently GBP4,400 per annum, or the amount per
shareholder, currently GBP2.20, on the Register of Shareholders at the
commencement of the fee year. The Company's fee year commenced on the date
of Admission and on each anniversary of that date whilst this Agreement
shall continue.
9. FINANCE INCOME
Consolidated Consolidated Company Company
2008 2007 2008 2007
Total Total Total Total
___________ ___________ ___________ ___________
? ? ? ?
Bank interest 63,492 423,929 53,692 408,577
___________ ___________ ___________ ___________
___________ ___________ ___________ ___________
The above interest arises from financial assets classified as loans and
receivables, including cash and cash equivalents, and has been calculated
using the effective interest method.
With the exception of the impairment on loans to subsidiaries, as disclosed
in note 14, there are no other gains or losses on loans and receivable other
than those disclosed above. There is no interest payable in Group and
Company for 2008 and 2007.
10. TAXATION
(a) Analysis of tax charge for the year
Consolidated Consolidated Company Company
2008 2007 2008 2007
Total Total Total Total
___________ ___________ ___________ ___________
The tax (recoverable) /
payable for the year
comprises:
- Current taxation - - - -
- Deferred taxation (1,273,422) 1,238,715 - -
___________ ___________ ___________ ___________
Income tax (credit) /charge (1,273,422) 1,238,715 - -
___________ ___________ ___________ ___________
___________ ___________ ___________ ___________
The credit for the year can be reconciled to the result per income statement
as follows:
2008 2007
Consolidated Consolidated
? ?
___________ ___________
(Loss) /profit before tax (23,386,943) 7,769,587
___________ ___________
___________ ___________
Tax at the domestic corporate tax rate applicable
to profits in the country concerned (2,338,694) 1,199,072
Tax effect of non deductible expenses and
effect of foreign exchange 1,065,272 39,643
___________ ___________
Tax (credit) / charge (1,273,422) 1,238,715
___________ ___________
___________ ___________
(b) Deferred taxation
Deferred taxation is calculated, in full, on all temporary timing
differences under the liability method using a principal Bulgarian tax rate
of 10% (2007: 10%). The movement on the deferred tax account is as follows:
2008 2007
Consolidated Consolidated
? ?
___________ ___________
Deferred tax liabilities
Investment properties revaluation
At start of year 2,687,886 1,449,171
(Credit) /charge to income (1,273,422) 1,238,715
___________ ___________
At end of year 1,414,464 2,687,886
___________ ___________
___________ ___________
Deferred tax assets have not been recognised on tax losses carried forward
due to lack of certainty of availability of future taxable profits against
which such losses will be utilised.
11. EARNINGS PER SHARE - BASIC AND DILUTED
The consolidated loss per Ordinary Share of 45.74 (2007 profit: 13.51) cents
are based on the net revenue loss of ?1,451,659 (2007: ?2,240,609) and the
net capital loss for the period of ?20,661,862 (2007 gain: ?8,771,481). Both
calculations are made based on 48,345,000 (2007: 48,345,000) Ordinary
Shares, being the weighted average number of shares in issue during the
year. There are no potentially dilutive shares in issue.
12. INVESTMENT PROPERTIES
Group 2008 2007
? ?
Market value of investment properties at 1 January 55,127,208 27,981,983
Acquisitions during the year at cost - 14,758,074
Subsequent expenditure 361,060 -
Fair value adjustment in the year (10,640,268) 12,387,151
_____________ _____________
Market value of investment properties at 31 December 44,848,000 55,127,208
_____________ _____________
_____________ _____________
The fair value of the Group's investment properties at 31 December 2008 and
at 31 December 2007 has been arrived at on the basis of valuations carried
out at that date by King Sturge Kft, independent valuers not connected to
the Group.
The valuation basis has been market value as defined by the Royal Institute
of Chartered Surveyors (RICS). The approved RICS definition of market value
is the "estimated amount for which a property should exchange on the date
of valuation between a willing buyer and a willing seller in an arms length
transaction after proper marketing wherein the parties had each acted
knowledgeably, prudently and without compulsion."
Included in the above is the Bistritsa project valued at ?23.1 million which
has been used post year end as part of a financing and buyback deal as
disclosed in note 26.
13. INVENTORY
Group 2008 2007
? ?
At 1 January 15,625,171 11,382,006
Additions 5,998,040 4,243,165
Disposals (109,807) -
Repayment of deposit (865,801) -
Impairment (13,846,603) -
_____________ _____________
At 31 December 6,801,000 15,625,171
_____________ _____________
_____________ _____________
At valuation 6,801,000 28,108,057
_____________ _____________
_____________ _____________
During the year an agreement was reached whereby the Group agreed with the
property developer (BuySell) to relinquish its rights to parts of the
inventory under the BuySell contract. In consideration for this the Group
received a return of its deposit totalling ?865,801 together with a
termination fee of ?853,005 which is included in income statement as other
income.
On 17 April 2009 the Group served a notice on BuySell to terminate the
development contract due to non performance. As a result of this termination
directors have decided to write down the carrying value of the BuySell
project to nil and to recognise an impairment charge of ?10,379,426 in the
income statement. Further details on BuySell are included in note 26.
Remaining properties were valued on an open market basis as at 31 December
2008 by King Sturge Kft, independent valuers not connected to the Group. As
a result of decrease in the market value of the properties, as determined by
the valuers, an impairment charge has been recognised on these properties as
well.
The carrying value has been set as the lower of cost and net realisable
value as set out under the requirements of IAS 2, Inventories. The total
carrying value of all the properties impaired is ?6,801,000.
14. INVESTMENT IN SUBSIDIARIES
Investment Loans 2008 Total
? ? ?
At 1 January 10,521,309 31,254,053 41,775,362
Loans advanced in the year - 4,217,019 4,217,019
Impairment on loans to subsidiary companies (12,050,000) (12,050,000)
____________ ____________ ____________
At 31 December 10,521,309 23,421,072 33,942,381
____________ ____________ ____________
____________ ____________ ____________
The loans are interest free and have no set repayment terms as they are
provided for the purpose of long term financing of the subsidiaries. The
Directors consider the loans to be additional capital contributions and have
therefore been accounted for as non-current assets.
As a result of decrease in the market value of properties owned by
subsidiary companies an impairment charge has been recognised on loans
advanced to the subsidiary companies.
Details of the Company's subsidiary undertaking are as follows:
Name of subsidiary undertaking % Holding and Country of Principal
voting rights incorporation activity
Lewis Charles Sofia Property
Fund Bulgaria EOOD 100% Bulgaria Property Investment
Splendid Investments S.A. 100% Luxembourg Holding company
Black Sea Properties EOOD 100% Bulgaria Property Investment
Fumero Properties S.A. 100% Luxembourg Holding company
VT Developments Bulgaria EOOD 100% Bulgaria Property Investment
15. TRADE AND OTHER RECEIVABLES
Consolidated Consolidated Company Company
2008 2007 2008 2007
? ? ? ?
Accrued income 433 680 433 680
Debtors - 4,238 - -
Prepayments 17,598 17,884 15,781 17,884
VAT receivable 453,778 490,098 - -
Other receivables 77,018 - - -
___________ ___________ ___________ ___________
548,827 512,900 16,214 18,564
___________ ___________ ___________ ___________
___________ ___________ ___________ ___________
The aging of these receivables
is as follows:
Less than 3 months 433 4,920 433 682
3 to 6 months 535,472 493,685 2,859 3,587
Over 6 months 12,922 14,295 12,922 14,295
___________ ___________ ___________ ___________
548,827 512,900 16,214 18,564
___________ ___________ ___________ ___________
___________ ___________ ___________ ___________
Trade receivables are not considered impaired and relate to receivables for
which there is no recent history of default and as such it is assessed that
all of the receivables will be recovered.
The directors consider that the carrying amount of trade and other
receivables approximates fair value. Allocation of the carrying amount of
the Group's trade and other receivables by foreign currency is presented in
Note 22.
6. CASH AND CASH EQUIVALENTS
Consolidated Consolidated Company Company
2008 2007 2008 2007
? ? ? ?
Lehman Euro Liquidity Fund 30,403 3,840,410 30,403 3,840,410
Blackrock Euro Liquidity Fund 152,443 179,229 152,443 179,229
Cash at Bank 585,074 3,189,982 189,130 2,209,510
____________ ____________ ____________ ____________
767,920 7,209,621 371,976 6,229,149
____________ ____________ ____________ ____________
____________ ____________ ____________ ____________
The cash equivalent investments are considered to be highly liquid
investments readily convertible to a known amount of cash subject to minimum
risk of change in value such that book cost is considered equivalent to book
value. The weighted average interest rate on cash balances at 31 December
2008 was 0.87% (2007: 1.13% ). The Company has no material interest bearing
liabilities.
17. TRADE AND OTHER PAYABLES
Consolidated Consolidated Company Company
2008 2007 2008 2007
? ? ? ?
Current liabilities
Audit fee payable 30,028 27,196 30,028 27,196
Legal fee payable 134,970 77,450 134,970 77,450
Performance fee accrual 2,841,623 - 2,841,623 -
Other creditors 66,164 659,984 43,077 2,600
____________ ____________ ____________ ____________
3,072,785 764,630 3,049,698 107,246
____________ ____________ ____________ ____________
____________ ____________ ____________ ____________
Non-current liabilities
Performance fee accrual - 5,393,210 - 5,393,210
Sundry creditors 4,386,477 3,423,632 - -
____________ ____________ ____________ ____________
4,386,477 8,816,842 - 5,393,210
____________ ____________ ____________ ____________
____________ ____________ ____________ ____________
The Group has financial management policies in place to ensure that all
payables are paid within the credit time frame. There is no difference
between the carrying value of trade and other payables and their fair value.
As a result of the Group giving notice to terminate the management agreement
the performance fee accrued has been included within current liabilities in
the current year. Please refer to note 26 for further details.
18. SHARE CAPITAL
Consolidated Consolidated Company Company
2008 2007 2008 2007
? ? ? ?
Authorised 62,500,000 (2007:
62,500,000)
ordinary shares of nil par value - - - -
____________ ____________ ____________ ____________
____________ ____________ ____________ ____________
Issued and fully paid
48,345,000 (2007:
48,345,000)
ordinary shares of nil par value - - - -
____________ ____________ ____________ ____________
____________ ____________ ____________ ____________
The company has one class of ordinary share which carries no right to fixed
income.
The Company will have a maximum life of seven years expiring on 2012. It is
intended to arrange the Property Portfolio so that it can be realised in an
orderly way by the end of six years. If this is achieved the Company will be
liquidated at the end of the six year period. The life of the Company may be
extended by no more than a year (to seven years in total) at the discretion
of the Directors, on the advice of the Manager, if it is necessary for an
orderly realisation of the Company's assets.
19. SHARE PREMIUM AND SPECIAL RESERVE
Consolidated Consolidated Company Company
2008 2007 2008 2007
? ? ? ?
Share premium - - - -
Special reserve 56,956,985 56,956,985 56,956,985 56,956,985
____________ ____________ ____________ ____________
56,956,985 56,956,985 56,956,985 56,956,985
____________ ____________ ____________ ____________
____________ ____________ ____________ ____________
On 8 July 2005 the Royal Court of Guernsey approved the reduction of capital
by way of a cancellation of the Company's share premium account. The amount
cancelled, being ?56,956,985, has been credited as a distributable reserve
established in the Company's books of account. This shall be available as
distributable profits to be used for all purposes permitted under Guernsey
Company Law including the buy back of shares and the payment of dividends.
20. CAPITAL AND REVENUE RESERVE
Balances in the capital reserve reflect cumulative unrealised gains on the
revaluation of properties, impairment losses on inventory, provision for
performance fees that will become payable as a result of the uplift in
property values and the notional loss on foreign currency dating back to the
conversion of the initial subscription proceeds.
The balance on the revenue reserve reflects cumulative operational
expenditure in excess of the non-property inventory related operational
income.
21. NAV PER SHARE Consolidated Consolidated
2008 2007
Net Asset Value 44,092,026 66,205,547
Average number of shares in issue 48,345,000 48,345,000
Net asset value per share 0.912 1.369
22. FINANCIAL INSTRUMENT RISK MANAGEMENT
Financial risk factors
The Company's' activities expose it to a variety of risks from its use of
financial instruments:
- market risk (including interest rate risk, price risk and currency risk)
- credit risk
- liquidity risk
The accounting policy with respect to the financial instruments are
disclosed in note 2
The Board of Directors has overall responsibility for the establishment and
oversight of the Company's' risk management framework. This note presents
information about the Company's' exposure to each of the above risks and the
Board of Directors' objectives, policies and processes for measuring and
managing these risks. There have been no changes in such policies during the
year.
Market risk
Market risk is the risk that changes in the market prices will affect the
Company's' income or the value of its holdings of financial instruments. The
objective of market risk management is to manage and control market risk
exposure within acceptable parameters.
(a) Price risk
The Group and Company have no exposure to price risk as its investments are
in property development or land baskets.
22. FINANCIAL INSTRUMENT RISK MANAGEMENT
(b) Interest rate risk
The majority of the Company's financial assets are non-interest bearing.
Interest-bearing financial assets consist only of cash and cash
equivalents. As a result, the Company is subject to limited exposure to fair
value interest rate risk due to fluctuations in the prevailing levels of
market interest rates.
At any time that the Company is not fully invested, the Company may invest
in Euro denominated government bonds with maximum maturities of the lesser
of two years or the remaining life of the Company and/or invest in AAA rated
liquidity funds. Any change to interest rates relevant for a particular
security may result in income either increasing or decreasing. The Group has
not invested in bonds during the years ended 2008 and 2007. The Company has
chosen to invest in high liquidity, floating rate instruments to mitigate
the risk that similar returns would be unavailable on the expiry of
contracts.
A 100 basis points change in interest rate would increase/decrease the net
interest expense/income by ?7,679 for the Group and ?3,719 for the Company
(2007: Group ?72,096; 2007: Company ?62,291).
Instruments subject to interest rate movements are disclosed in note 16 and
are all at variable rates.
(c) Currency risk
Currency risk is the risk that the Income Statement and Balance Sheet can be
affected by currency translation movements. The Board consider that the
Company's exposure to currency risk is minimal as the majority of the
Company's transactions are made in Euros and the books and records are kept
in Euros.
Where there are assets and liabilities recorded in Bulgarian Lev, the risk
is considered minimal as the Lev is tied to the Euro in preparation for
adoption of the Euro in Bulgaria. The Lev is expected to be replaced by the
Euro on 1 January 2010.
The tables below summarise exposure to foreign currency risk at 31 December
2008 and 2007. Assets and liabilities at carrying amounts are included in
the table, categorised by the currency at their carrying amount.
Group
As at 31 December 2008 ? GBP Total ?
Trade and other receivables 548,827 - 548,827
Cash and cash equivalents 767,847 73 767,920
_____________ _____________ _____________
Total assets 1,316,674 73 1,316,747
_____________ _____________ _____________
Trade and other payables 7,386,157 73,105 7,459,262
_____________ _____________ _____________
Total liabilities 7,386,157 73,105 7,459,262
_____________ _____________ _____________
Net balance sheet currency position (6,069,483) (73,032) (6,142,515)
_____________ _____________ _____________
_____________ _____________ _____________
Group
As at 31 December 2007 ? GBP Total ?
Trade and other receivables 495,018 17,882 512,900
Cash and cash equivalents 7,198,021 11,600 7,209,621
_____________ _____________ _____________
Total assets 7,693,039 29,482 7,722,521
_____________ _____________ _____________
Trade and other payables 9,554,276 27,196 9,581,472
_____________ _____________ _____________
Total liabilities 9,554,276 27,196 9,581,472
_____________ _____________ _____________
Net balance sheet currency position (1,861,237) 2,286 (1,858,951)
_____________ _____________ _____________
_____________ _____________ _____________
22. FINANCIAL INSTRUMENT RISK MANAGEMENT
(c) Currency risk
Group
As at 31 December 2008 ? GBP Total ?
Amounts receivable from subsidiary
undertakings* 23,421,072 - 23,421,072
Trade and other receivables 16,214 - 16,214
Cash and cash equivalents 371,903 73 371,976
_____________ _____________ _____________
Total assets 23,809,189 73 23,809,262
_____________ _____________ _____________
Trade and other payables 2,976,593 73,105 3,049,698
_____________ _____________ _____________
Total liabilities 2,976,593 73,105 3,049,698
_____________ _____________ _____________
Net balance sheet currency position 20,832,596 (73,032) 20,759,564
_____________ _____________ _____________
_____________ _____________ _____________
* After impairment as disclosed in note 14
Group
As at 31 December 2007 ? GBP Total ?
Amounts receivable from subsidiary
undertakings 31,254,053 - 31,254,053
Trade and other receivables 682 17,882 18,564
Cash and cash equivalents 6,217,549 11,600 6,229,149
_____________ _____________ _____________
Total assets 37,472,284 29,482 37,501,766
_____________ _____________ _____________
Trade and other payables 5,473,260 27,196 5,500,456
_____________ _____________ _____________
Total liabilities 5,473,260 27,196 5,500,456
_____________ _____________ _____________
Net balance sheet currency position 31,999,024 2,286 32,001,310
_____________ _____________ _____________
_____________ _____________ _____________
The following significant exchange rates applied during the year:
Average rate Reporting date spot rate
2008 2007 2008 2007
? ? ? ?
Euro
1 GBP 0.802 0.691 0.957 0.735
1 BGN * 1.956 1.956 1.957 1.956
* The Bulgarian Lev (BGN) was fixed to the Euro at 1.95583 BGN to 1 Euro on 5 July 1999.
The sensitivity analysis below is based on a change in an assumption while
holding all other assumptions constant. In practice this is unlikely to
occur.
The tables above present financial assets and liabilities denominated in
foreign currencies held by the Group and the Company in 2008 and 2007 used
to monitor foreign currency risk at the reporting dates. If the Euro had
strengthened/weakened by 10% against the UK pound as at 31 December, with
all other variables held constant, post-tax Group and Company profit for the
year would have been ?7,303 (2007:?229) higher/lower.
As the Lev is fixed against the Euro this results in no additional exposure
to any Euro movements.
22. FINANCIAL INSTRUMENT RISK MANAGEMENT
Liquidity risk
Liquidity risk is the risk that arises when the maturity of assets and
liabilities does not match. An unmatched position potentially enhances
profitability, but can also increase the risk of losses. The Group has
procedures with the object of minimising such losses such as maintaining
sufficient cash and other highly liquid current assets and will negotiate
additional credit facilities as and when required. Cash and cash equivalents
are placed with financial institutions on a short term basis reflecting the
Group's desire to maintain a high level of liquidity to enable timely
completion of investment transactions. An analysis of other financial assets
is provided in notes 15 and 16.
A summary table with maturity of financial liabilities is presented below:
Group Total Less than 6 to 12 Greater
2008 6 months months than
Financial 12 months
liabilities
? ? ? ?
Trade and other 7,459,262 231,162 2,841,623 4,386,477
payables __________ __________ __________ ___________
__________ __________ __________ ___________
Financial Total Less than 6 to 12 Greater
liabilities 2007 6 months months than
12 months
? ? ? ?
Trade and other 9,581,472 278,605 486,025 8,816,842
payables __________ __________ __________ ___________
__________ __________ __________ ___________
Company Total Less than 6 to 12 Greater
2008 6 months months than
Financial 12 months
liabilities
? ? ? ?
Trade and other 3,049,698 208,075 2,841,623 -
payables __________ __________ __________ ___________
__________ __________ __________ ___________
Financial Total Less than 6 to 12 Greater
liabilities 2007 6 months months than
12 months
? ? ? ?
Trade and other 5,500,456 104,646 2,600 5,393,210
payables __________ __________ __________ ___________
__________ __________ __________ ___________
Credit risk
Credit risk is the risk that a counterparty will be unwilling or unable to
meet a commitment that it has entered into with the Company.
The Company has exposure to credit risk relating to its cash and cash
equivalents. The Company has tried to mitigate this risk by investing in
high liquidity, AAA rated instruments.
22. FINANCIAL INSTRUMENT RISK MANAGEMENT
The Group and Company's maximum exposure to credit risk by class of
financial instruments is shown below.
Group Group Company Company
2008 2008 2008 2008
? ? ? ?
Carrying Maximum Carrying Maximum
value exposure value exposure
Amounts receivable - - 23,421,072 23,421,072
from subsidiary
undertakings*
__________ __________ __________ __________
Trade and other 548,827 548,827 16,214 16,214
receivables
Cash and cash 767,920 767,920 371,976 371,976
equivalents
__________ __________ __________ __________
Total 1,316,747 1,316,747 23,809,262 23,809,262
__________ __________ __________ __________
__________ __________ __________ __________
* After impairment as disclosed in note 14
Group Group Company Company
2007 2007 2007 2007
? ? ? ?
Carrying Maximum Carrying Maximum
value exposure value exposure
Amounts receivable - - 31,254,053 31,254,053
from subsidiary
undertakings
Trade and other 512,900 512,900 18,564 18,564
receivables
Cash and cash 7,209,621 7,209,621 6,229,149 6,229,149
equivalents
__________ __________ __________ __________
Total 7,722,521 7,722,521 37,501,766 37,501,766
__________ __________ __________ __________
__________ __________ __________ __________
Capital risk management
The Group's objectives when managing capital are to safeguard the Group's
ability to continue as a going concern in order to provide returns for
shareholders and benefits for other stakeholders and to maintain an optimal
structure to reduce the cost of capital. In order to maintain or adjust the
capital structure, the Group may return the capital to shareholders, issue
new shares or sell assets to reduce debt.
23. RELATED PARTY DISCLOSURES
The Company has taken advantage of the exemption within IAS 24 Related Party
Disclosures and elected not to disclose details of intra-group transactions.
Transactions with directors are as disclosed in Director's report, the
Consolidated Income Statement and note 6 to the financial statements. The
balances outstanding as at the year end are as disclosed in note 17.Bachmann
Fund Administration Limited is a related party by virtue of its appointment
as Administrator and Secretary to the Group. Fees paid to this entity are
declared on the face of the income statement and also in note 3. The
balances outstanding as at the year end are as disclosed in note 17.
Lewis Charles Securities Limited is a related parties by virtue of its
appointments as Investment Manager, Co-distributor and Promoter. Fees paid
to this entity are declared on the face of the income statement and also in
note 4. The balances outstanding as at the year end are as disclosed in note
17.
24. CONTROLLING PARTY
In the opinion of the Directors there is no controlling party as no one
party has the ability to direct the financial and operating policies of the
Company with a view to gaining economic benefits from their direction.
25. RECONCILIATION OF NAV PER THE FINANCIAL STATEMENTS TO PUBLISHED NAV
2008 2008 2007 2007
? Per share ? Per share
Net Asset Value per financial statements 44,092,026 0.91 66,205,547 1.37
Add back:
Adjustment to value of properties - - 8,319,285 0.17
Adjustment to performance fee - - (2,069,050) (0.04)
Preliminary expenses 736,896 0.02 1,311,188 0.03
Adjustment to calculated deferred tax 1,414,464 0.03 2,687,886 0.06
____________ ____________ ____________ ____________
Published Net Asset Value 46,243,389 0.96 76,454,856 1.59
____________ ____________ ____________ ____________
____________ ____________ ____________ ____________
An adjustment is required within the financial statements to record the
value of inventory from fair value, as used for the published Net Asset
Value, to cost as required to ensure compliance with International
Accounting Standard 16 "Property, Plant and Equipment".
The Company's principal documents require the dealing valuation of the
Company's net assets to include preliminary expenses incurred in the
establishment of the Company, such expenses to be amortised over the
expected life of the Company. However, this accounting treatment is not
permitted for financial reporting purposes and has been adjusted accordingly
within these financial statements.
26. POST BALANCE SHEET EVENTS
Sale of Bristitsa
On 20 January 2009 Splendid Investments S.A. (a 100% owned subsidiary of the
Fund) whose subsidiary Blacksea Properties EOOD owns the Bristitsa project,
entered into a financing arrangement with Enderton Company Assets Inc.
("Enderton"), whose registered office is in British Virgin Islands. Shares
of Blacksea Properties EOOD were sold and loan receivable from Blacksea EOOD
was transferred to Enderton with an option to transfer back both the shares
and the loan by the 15 December 2009 at an agreed price of ?4million.
Proceeds raised from this financing transaction were ?1.826 million.
The Group intends that it will raise cash to exercise the option under the
above financial arrangement. Various sources of financing have been
considered by the board including raising of fresh equity and the disposal
of properties at a discount. A final decision regarding the source of
financing has not been made.
As at 31 December 2008 the carrying value of Bistrista Project was ?23.1
million and is included in investment properties in note 12 to these
financial statement. It is the intention of directors to exercise this
option to ensure the project stays on the balance sheet of the Group.
BuySell
On 21 November 2005 the Company announced that it had exercised seven
options to purchase properties in Sofia situated in the Vitoshavets
Simeonovo, Krustovat and Dragalevtsi areas of Sofia. These properties
comprised residential villas and apartment developments, together with
shops, some small offices and parking to be developed by BuySell Real Estate
Agent Limited ('BuySell'), a Bulgarian incorporated property development
company.
26. POST BALANCE SHEET EVENTS
BuySell
The Group received legal advice that BuySell is in default under the six
remaining option agreements in place and served notices giving BuySell until
17 April 2009 to perform its obligations under each of these option
agreements. BuySell has failed to perform its obligations by the due date,
and the Group has therefore rescinded all of the remaining option agreements
and preliminary sales contracts due to non-performance. The Group has
received legal advice that it is entitled to claim from BuySell all payments
made under each option agreement, including all deposits, and in
addition to receive a sum equivalent to the deposit by way of penalty. The
total amount paid to date is ?10,379,426 which includes deposits of
?9,000,494. The recoverability of this money may be contingent on the
outcome of any legal proceedings that may take place in the Bulgarian courts
and, should the outcome of the legal proceedings be in favour of the Group,
whether BuySell is in a financial position to make the determined payment.
In the opinion of directors, as there is uncertainity over recoverability of
the sums, the amount of ?10,379,426 has been fully impaired in the current
year as outlined in note 13.
As a result of rescission of the above mentioned contract, the Group is not
liable to any capital commitments associated with these option agreements
that were disclosed in the prior year financial statements.
Termination of management agreement
On 31 March 2009, the Group announced termination of management agreement
dated 20 September 2005 with Lewis Charles Securities Limited. Termination
will take effect on 1 October 2009. The management fee (note 4) payable to
the investment manager will cease. The performance fee (note 5) will be
recalculated on 30 September 2009 based on the property values as of that
date and will crystallise (if any due), and become payable on that date.
As at the date of publication of these financial statements the Board has
not announced the appointment of new investment manager.
THE FOLLOWING PAGES DO NOT FORM PART OF THE
AUDITED FINANCIAL STATEMENTS OF THE COMPANY
AND ARE PRESENTED FOR INFORMATION PURPOSES ONLY
Company income statement
Restated into Pounds Sterling for information purposes only
for the year ended 31 December 2008
Revenue Capital Total 31 Dec 2007
GBP GBP GBP GBP
___________________________________ __________
Revenue - - - -
Expenses
Administration fees 97,944 - 97,944 89,562
Management fees 723,083 - 723,083 715,249
Performance fees - (2,046,118) (2,046,118) 1,642,476
Directors' fees and expenses 55,722 - 55,722 63,508
Foreign exchange loss 8,972 - 8,972 13,316
Other expenses 555,313 - 555,313 730,274
Impairment on loan to
subsidiary companies - 9,662,895 9,662,895 -
___________________________________ __________
1,441,034 7,616,777 9,057,811 3,254,385
___________________________________ __________
Operating loss (1,441,034) (7,616,777) (9,057,811) (3,254,385)
Finance income 43,056 - 43,056 282,327
___________________________________ __________
Loss before taxation (1,397,978) (7,616,777) (9,014,755) (2,972,058)
Tax on profit on
ordinary activities - - - -
___________________________________ __________
Loss for the year (1,397,978) (7,616,777) (9,014,755) (2,972,058)
___________________________________ __________
___________________________________ __________
Consolidated income statement
Restated into Pounds Sterling for information purposes only
for the year ended 31 December 2008
Revenue Capital Total 31 Dec 2007
GBP GBP GBP GBP
___________________________________ __________
Revenue
Property sales 115,774 - 115,774 -
Cost of sales (88,053) (88,053) -
Other revenue 684,025 - 684,025 -
___________________________________ __________
Gross profit 711,746 - 711,746 -
___________________________________ __________
Expenses
Administration fees 154,134 - 154,134 142,550
Management fees 723,083 - 723,083 715,249
Performance fees - (2,046,118) (2,046,118) 1,642,476
Directors' fees and expenses 55,722 - 55,722 63,508
Foreign exchange loss 26,144 - 26,144 14,663
Other expenses 967,663 - 967,663 905,227
Impairment of inventory - 11,103,591 11,103,591 -
Revaluation of investment
properties - 8,532,431 8,532,431 (8,559,521)
___________________________________ __________
1,926,746 17,589,904 19,516,650 (5,075,848)
___________________________________ __________
Operating (loss) / profit (1,215,000)(17,589,904) (18,804,904) 5,075,848
Finance income 50,914 - 50,914 292,935
___________________________________ __________
(Loss)/profit before (1,164,086)(17,589,904) (18,753,990) 5,368,783
taxation
Taxation - 1,021,157 1,021,157 (855,952)
___________________________________ __________
(Loss)/Profit for the year (1,164,086)(16,568,747) (17,732,833) 4,512,831
___________________________________ __________
___________________________________ __________
Earnings per share - basic
and diluted (pence per share) (36.68) 9.33
Company balance sheet
Restated into Pounds Sterling for information purposes only
as at 31 December 2008
Company 2008 Company 2007
GBP GBP GBP GBP
Non-current assets
Investment in subsidiary
undertakings 10,069,314 10,069,314
Amount receivable from subsidiary
undertakings 22,414,903 20,635,577
____________ ____________
32,484,217 30,704,891
Current assets
Trade and other receivables 15,517 13,645
Cash and cash equivalents 355,996 4,578,425
____________ ____________
371,513 4,592,070
____________ ____________
Total assets 32,855,730 35,296,961
____________ ____________
Current liabilities
Trade and other payables (2,918,683) (78,826)
____________ ____________
(2,918,683) (78,826)
Non-current liabilities
Trade and other payables - (3,964,009)
____________ ____________
- (3,964,009)
____________ ____________
Total liabilities (2,918,683) (4,042,835)
____________ ____________
Net assets 29,937,047 31,254,126
____________ ____________
____________ ____________
Equity
Share capital - -
Special reserve 38,676,000 38,676,000
Capital reserve (11,759,027) (4,142,250)
Revenue reserve 3,020,074 (3,279,624)
____________ ____________
Total Equity 29,937,047 31,254,126
____________ ____________
____________ ____________
Consolidated balance sheet
Restated into Pounds Sterling for information purposes only
as at 31 December 2008
Company 2008 Company 2007
GBP GBP GBP GBP
Non-current assets
Investment properties 42,921,330 40,518,498
Current assets
Inventory 6,508,829 11,484,501
Property options 5 4
Trade and other receivables 525,249 376,980
Cash and cash equivalents 734,930 5,299,071
____________ ____________
7,769,013 17,160,556
____________ ____________
Total assets 50,690,343 57,679,054
____________ ____________
Current liabilities
Trade and other payables (2,940,778) (562,003)
____________ ____________
(2,940,778) (562,003)
Non-current liabilities
Trade and other payables (4,198,034) (6,480,379)
Deferred taxation (1,353,699) (1,975,596)
____________ ____________
(5,551,733) (8,455,975)
____________ ____________
Total liabilities (8,492,511) (9,017,978)
____________ ____________
Net assets 42,197,832 48,661,076
____________ ____________
____________ ____________
Equity
Share capital - -
Special reserve 38,676,000 38,676,000
Capital reserve (4,065,340) 12,503,407
Revenue reserve 7,587,172 (2,518,331)
____________ ____________
Total Equity 42,197,832 48,661,076
____________ ____________
____________ ____________
NAV per share (pence per share) 87.28 100.65
NAV per share at launch (pence
per share) 72.80 72.80
Statements of changes in equity
Restated into Pounds Sterling for information purposes only
for the year to 31 December 2008
Consolidated 2008 Share Capital Special Capital Reserve Revenue Total Equity
Reserve Reserve
GBP GBP GBP GBP GBP
As at 31 December 2007 - 38,676,000 12,503,407 (2,518,332) 48,661,075
Loss for the year - - (16,568,747) (1,164,086) (17,732,833)
Foreign exchange adjustment - - - 11,269,590 11,269,590
arising on translation to
Sterling ____________ ____________ ____________ ____________ ____________
As at 31 December 2008 - 38,676,000 (4,065,340) 7,587,172 42,197,832
____________ ____________ ____________ ____________ ____________
____________ ____________ ____________ ____________ ____________
Company 2008 Share Capital Special Capital Reserve Revenue Total Equity
Reserve Reserve
GBP GBP GBP GBP GBP
As at 31 December 2006 - 38,676,000 (4,142,250) (3,279,624) 31,254,126
Loss for the year - - (7,616,777) (1,397,978) (9,014,755)
Foreign exchange adjustment - - - 7,697,676 7,697,676
arising on translation to
Sterling ____________ ____________ ____________ ____________ ____________
As at 31 December 2007 - 38,676,000 (11,759,027) 3,020,074 29,937,047
____________ ____________ ____________ ____________ ____________
____________ ____________ ____________ ____________ ____________
Consolidated 2007 Share Capital Special Capital Reserve Revenue Total Equity
Reserve Reserve
GBP GBP GBP GBP GBP
As at 31 December 2007 - 38,676,000 6,442,314 (3,812,397) 41,305,917
Profit/(loss) for the year - - 6,061,093 (1,548,262) 4,512,831
Foreign exchange adjustment 2,842,328 2,842,328
arising on translation to
Sterling ____________ ____________ ____________ ____________ ____________
As at 31 December 2008 - 38,676,000 12,503,407 (2,518,331) 48,661,076
____________ ____________ ____________ ____________ ____________
____________ ____________ ____________ ____________ ____________
Company 2007 Share Capital Special Capital Reserve Revenue Total Equity
Reserve Reserve
GBP GBP GBP GBP GBP
As at 31 December 2006 - 38,676,000 (2,499,774) (3,937,631) 32,238,595
Loss for the year - - (1,642,476) (1,329,582) (2,972,058)
Foreign exchange adjustment - - - 1,987,589 1,987,589
arising on translation to
Sterling ____________ ____________ ____________ ____________ ____________
As at 31 December 2007 - 38,676,000 (4,142,250) (3,279,624) 31,254,126
____________ ____________ ____________ ____________ ____________
____________ ____________ ____________ ____________ ____________
Company cash flow statement
Restated into Pounds Sterling for information purposes only
for the year ended 31 December 2008
2008 2007
GBP GBP
Loss for the year (9,014,755) (2,972,058)
Adjustment for:
Impairment on loan to subsidiary companies (43,056) (3,431)
Finance income 9,662,895 -
____________ ____________
Operating cash flows before movements
in working capital 605,084 (2,975,489)
Decrease in operating trade and (1,884) 26,753
other receivables
(Decrease) / increase in (1,965,263) 1,896,863
operating trade and other payables ____________ ____________
(1,362,063) (1,051,873)
Interest received 43,056 3,431
Taxation - -
____________ ____________
Net cash outflow from operating activities (1,319,007) (1,048,442)
Investing activities
Investment in subsidiary undertakings (3,381,628) (9,956,017)
____________ ____________
Net cash outflow from investing activities (3,381,628) (9,956,017)
Net decrease in cash and cash equivalents (4,700,635) (11,004,459)
Exchange difference arising on 478,206 81,328
translation to Sterling
Cash and cash equivalents at start of year 4,578,425 15,501,556
____________ ____________
Cash and cash equivalents at end of year 355,996 4,578,425
____________ ____________
____________ ____________
Consolidated cash flow statement
Restated into Pounds Sterling for information purposes only
for the year ended 31 December 2008
2008 2007
GBP GBP
(Loss) /profit for the year (17,732,833) 4,512,831
Adjustment for:
Finance income (50,914) (14,039)
Revaluation of investment properties 8,532,431 (8,559,521)
Impairment of inventory 11,103,591 -
Taxation (1,021,157) 979,672
____________ ____________
Operating cash flows before movements
in working capital 831,118 (3,081,057)
(Increase) / decrease in operating and (28,810) 62,001
other receivables
(Decrease) / increase in operating and (1,701,800) 4,782,691
other payables
Increase in inventory (4,027,488) -
____________ ____________
(4,926,980) 1,763,635
Interest received 50,914 14,039
Taxation - -
____________ ____________
Net cash (outflow)/ inflow from (4,876,066) 1,777,674
operating activities ____________ ____________
Investing activities
Repayment of loan to property developer - 942,313
Purchases of investment properties (289,534) (13,129,856)
Net cash outflow from investing activities (289,534) (12,187,542)
Net decrease in cash and cash equivalents (5,165,600) (10,409,868)
Exchange difference arising on 601,458 (243,438)
translation to Sterling
Cash and cash equivalents at start of year 5,299,072 15,952,378
____________ ____________
Cash and cash equivalents at end of year 734,930 5,299,072
____________ ____________
____________ ____________
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