TIDMREOP
RNS Number : 5043P
REO Securities Limited
26 March 2009
REO SECURITIES LIMITED
FINAL RESULTS FOR THE YEAR TO 31 DECEMBER 2008
Chairman's statement
Company Background
On 14 February 2008 the Royal Court of Jersey granted approval for a Scheme of
Arrangement (described in a circular to the shareholders of Real Estate
Opportunities Limited ('REO' or 'the Group') dated 18 December 2007). The Scheme
involved the Zero Dividend Preference Shares ("ZDP Shares"), part of the share
capital of REO being cancelled and, in exchange, New ZDP Shares were issued on a
one for one basis by REO Securities Limited ('the Company'), a newly
incorporated subsidiary of REO. Implementation of the Scheme will allow the new
ZDP Shares to be repaid by way of winding up of REO Securities Limited on 31 May
2011 rather than the winding up or reconstruction of REO itself.
Admission of the 57,755,782 New ZDP Shares of REO Securities Limited to the
Official List of the UK Listing Authority took place on 18 February 2008, with
dealings therein on the London Stock Exchange commencing on the same day.
Going Concern
The Company's major asset is a receivable from its parent, Real Estate
Opportunities Limited, a company incorporated in Jersey. REO Securities' ability
to continue in business and satisfy its future obligations to the holders of the
ZDP's is dependent on Real Estate Opportunities Limited. To that end, Real
Estate Opportunities Limited and REO Securities Limited have entered into an
arrangement pursuant to an Undertaking Agreement whereby the net assets of Real
Estate Opportunities Limited will effectively be made available to meet the
repayment entitlement of the ZDP Shares on the Repayment Date, 31 May 2011.
At 31 December 2008 REO had total borrowings of GBP1.711 billion. At that date,
REO also had cash, cash equivalents and restricted cash of GBP94 million and
consolidated shareholders equity of GBP150 million. REO has an investment and
development property portfolio valued at GBP1.9 billion at 31 December 2008.
REO's future operating performance will be affected by general economic,
financial and business conditions, many of which are beyond REO's control. REO's
bank borrowings are mainly provided by financial institutions operating in
Ireland and the United Kingdom. These financial institutions currently face
financial difficulty and in many cases are being supported by the Government.
Significant deterioration in the economic environment in Ireland and the United
Kingdom could have a material adverse impact on the value of REO's property
portfolio, REO's shareholders equity and as a consequence on REO's ability to
obtain longer term debt or equity financing required to meet REO's longer term
financing and liquidity requirements beyond 2010.
REO has prepared a financial plan for the period to 31 December 2010. The key
assumptions made in preparing these forecasts include:
- Bank loans falling due for repayment in 2009 and 2010 of GBP441 million and
GBP197 million respectively will be rolled over and renewed on broadly similar
terms by REO's bankers.
- In the event that there is further decline in property values which would
reduce the REO's Net Asset Value and results in breaches of REO's banking
covenants, it is assumed that the existing bank facilitates will remain in place
and be renewed in such an environment, consistent with REO's recent experience.
- REO will realise GBP15 - GBP20 million in cash from the completion of one of a
number of transactions that are currently being explored.
- No property acquisitions or disposals are assumed to occur during the period.
Based on these forecasts and the key assumptions noted above the Directors of
REO believe that REO has sufficient cash, cash equivalents and investments to
meet REO's liquidity requirements for at least the next twelve months.
The Directors of the Company have concluded that the above factors represent
material uncertainties. Failure to deliver on the forecast assumptions may cast
significant doubt on the ability of the Company to continue as a going concern
and it may therefore be unable to realise its asset and discharge its future
obligations to the holders of the ZDP's in the normal course of business.
Nevertheless, having discussed the basis of preparation and the assumptions
underlying REO's cashflow projections together with assessing the current status
of negotiations with REO's current lenders, and assuming the rollover and
renewal of expiring facilities and required further waivers are put in place
within the required timescales, the Directors of the Company have a reasonable
expectation that the Company will be able to meet its liabilities as they fall
due for the foreseeable future. It is on this basis that the Directors consider
it appropriate to prepare the financial statements on a going concern basis.
These financial statements do not include any adjustment that would result from
the going concern basis of preparation being inappropriate.
Real Estate Opportunities Limited
Shareholders' attention is drawn to the publication of the preliminary results
for Real Estate Opportunities Limited issued on the 26th of March 2009 for
reference.
Approval of Preliminary Announcement
The financial information contained in this preliminary announcement are not the
statutory financial statements of the Company, drawn up in accordance with the
Companies (Jersey) Law 1991 (as amended). The directors approved the preliminary
announcement in respect of the financial year ended 31 December 2008 on 25 March
2009.
We understand that our auditors, KPMG, will be drawing attention as an emphasis
of matter, without qualifying their report with regards to the disclosures in
note 2 (a).
Balance Sheet
As at 31 December
+------------------------------------------+------+----------+----------+
| In thousands of pounds sterling | Note | 2008 | 2007 |
+------------------------------------------+------+----------+----------+
| | | | |
+------------------------------------------+------+----------+----------+
| Assets | | | |
+------------------------------------------+------+----------+----------+
| Trade and other receivables | 7 | 110,495 | - |
+------------------------------------------+------+----------+----------+
| Total non current assets | | 110,495 | |
+------------------------------------------+------+----------+----------+
| Total assets | | 110,495 | |
+------------------------------------------+------+----------+----------+
| | | | |
+------------------------------------------+------+----------+----------+
| Equity | | | |
+------------------------------------------+------+----------+----------+
| Issued capital | 8 | - | - |
+------------------------------------------+------+----------+----------+
| Retained earnings | 9 | - | - |
+------------------------------------------+------+----------+----------+
| Total shareholders' equity | | - | - |
+------------------------------------------+------+----------+----------+
| | | | |
+------------------------------------------+------+----------+----------+
| Liabilities | | | |
+------------------------------------------+------+----------+----------+
| Zero Dividend Preference Shares | 10 | 110,495 | - |
+------------------------------------------+------+----------+----------+
| Total non-current liabilities | | 110,495 | - |
+------------------------------------------+------+----------+----------+
| Total liabilities | | 110,495 | - |
+------------------------------------------+------+----------+----------+
| | | | |
+------------------------------------------+------+----------+----------+
| Total shareholders' equity and | | 110,495 | - |
| liabilities | | | |
+------------------------------------------+------+----------+----------+
| | | | |
+------------------------------------------+------+----------+----------+
Income Statement
For the year/ period ended 31 December
+-----------------------------------------+------+----------+----------+
| | | | |
+-----------------------------------------+------+----------+----------+
| In thousands of pounds sterling | Note | 2008 | 2007 |
| | | | |
+-----------------------------------------+------+----------+----------+
| | | | |
+-----------------------------------------+------+----------+----------+
| Finance income | 4 | 8,058 | |
+-----------------------------------------+------+----------+----------+
| Financial expense | 4 | (8,058) | - |
+-----------------------------------------+------+----------+----------+
| Net financing expense | | - | - |
+-----------------------------------------+------+----------+----------+
| | | | |
+-----------------------------------------+------+----------+----------+
| Loss before tax | | - | - |
+-----------------------------------------+------+----------+----------+
| | | | |
+-----------------------------------------+------+----------+----------+
| Income tax expense | 6 | - | - |
+-----------------------------------------+------+----------+----------+
| Loss for the year/ period | | - | - |
| | | | |
+-----------------------------------------+------+----------+----------+
| | | | |
+-----------------------------------------+------+----------+----------+
| Earnings per Share | | | |
+-----------------------------------------+------+----------+----------+
| Basic loss per Ordinary Share | 5 | - | - |
+-----------------------------------------+------+----------+----------+
| | | | |
+-----------------------------------------+------+----------+----------+
Statement of recognised income and expense
For the year/ period ended 31 December
+-------------------------------------------+-----+----------+--------+
| In thousands of pounds sterling | | 2008 | 2007 |
+-------------------------------------------+-----+----------+--------+
| | | | |
+-------------------------------------------+-----+----------+--------+
| | | | |
+-------------------------------------------+-----+----------+--------+
| Loss for the year/ period | | - | - |
+-------------------------------------------+-----+----------+--------+
| | | | |
+-------------------------------------------+-----+----------+--------+
| Total recognised income and expense for | | - | - |
| the year/ period | | | |
+-------------------------------------------+-----+----------+--------+
| | | | |
+-------------------------------------------+-----+----------+--------+
Statement of Cashflows
For the year/ period ended 31 December
+------------------------------------------------+------+-----------+----------+
| In thousands of pounds sterling | | 2008 | 2007 |
+------------------------------------------------+------+-----------+----------+
| | | | |
+------------------------------------------------+------+-----------+----------+
| | | | |
+------------------------------------------------+------+-----------+----------+
| Cash flows from operating activities | | | |
+------------------------------------------------+------+-----------+----------+
| | | | |
+------------------------------------------------+------+-----------+----------+
| Loss for the year | | - | - |
+------------------------------------------------+------+-----------+----------+
| Adjustments for: | | | |
+------------------------------------------------+------+-----------+----------+
| Net financial expense | | - | - |
+------------------------------------------------+------+-----------+----------+
| Increase in non current liabilities | | 110,495 | |
+------------------------------------------------+------+-----------+----------+
| Increase in trade and other receivables | | (110,495) | - |
+------------------------------------------------+------+-----------+----------+
| Net cash from operating activities | | - | - |
+------------------------------------------------+------+-----------+----------+
| | | | |
+------------------------------------------------+------+-----------+----------+
| | | | |
+------------------------------------------------+------+-----------+----------+
| Net movement in cash and cash equivalents | | - | - |
+------------------------------------------------+------+-----------+----------+
| Cash and cash equivalents at 1 January 2008 | | - | - |
+------------------------------------------------+------+-----------+----------+
| Cash and cash equivalents at 31 December 2008 | | - | - |
+------------------------------------------------+------+-----------+----------+
Notes
1. Reporting Entity
REO Securities Limited ("the Company") is a company incorporated in Jersey.
2. Basis of Preparation
(a) Going concern
The Company's major asset is a receivable from its parent, Real Estate
Opportunities Limited ('REO' or 'the Group'), a company incorporated in Jersey.
REO Securities' ability to continue in business and satisfy its future
obligations to the holders of the ZDP's is dependent on Real Estate
Opportunities Limited. To that end, Real Estate Opportunities Limited and REO
Securities Limited have entered into an arrangement pursuant to an Undertaking
Agreement whereby, conditional upon the scheme becoming effective, the net
assets of Real Estate Opportunities Limited will effectively be made available
to meet the repayment entitlement of the ZDP Shares on the Repayment Date, 31
May 2011.
At 31 December 2008 REO had total borrowings of GBP1.711 billion. At that date,
REO also had cash, cash equivalents and restricted cash of GBP94 million and
consolidated shareholders equity of GBP150 million. REO has an investment and
development property portfolio valued at GBP1.9 billion at 31 December 2008.
REO's future operating performance will be affected by general economic,
financial and business conditions, many of which are beyond REO's control. REO's
bank borrowings are mainly provided by financial institutions operating in
Ireland and the United Kingdom. These financial institutions currently face
financial difficulty and in many cases are being supported by the Government.
Significant deterioration in the economic environment in Ireland and the United
Kingdom could have a material adverse impact on the value of the property
portfolio, shareholders equity and as a consequence on REO's ability to obtain
longer term debt or equity financing required to meet REO's longer term
financing and liquidity requirements beyond 2010.
REO has prepared a financial plan for the period to 31 December 2010. The key
assumptions made in preparing these forecasts include:
- Bank loans falling due for repayment in 2009 and 2010 of GBP441 million and
GBP197 million respectively will be rolled over and renewed on broadly similar
terms by REO's bankers.
- In the event that there is further decline in property values which would
reduce REO's Net Asset Value and results in breaches of REO's banking covenants,
it is assumed that the existing bank facilitates will remain in place and be
renewed in such an environment, consistent with REO's recent experience.
- REO will realise GBP15 - GBP20 million in cash from the completion of one of a
number of transactions that are currently being explored.
- No property acquisitions or disposals are assumed to occur during the period.
Based on these forecasts and the key assumptions noted above the Directors
believe that REO has sufficient cash, cash equivalents and investments to meet
REO's liquidity requirements for at least the next twelve months.
The Directors of the Company have concluded that the above factors represent
material uncertainties. Failure by REO to deliver on the forecast assumptions
may cast significant doubt on the ability of the Company to continue as a going
concern and it may therefore be unable to realise its asset and discharge its
future obligations to the holders of the ZDP's in the normal course of business.
Nevertheless, having discussed the basis of preparation and the assumptions
underlying REO's cashflow projections together with assessing the current status
of negotiations with REO's current lenders, and assuming the rollover and
renewal of expiring facilities and required further waivers are put in place
within the required timescales, the Directors of REO Securities have a
reasonable expectation that the Company will be able to meet its liabilities as
they fall due for the foreseeable future. It is on this basis that the Directors
consider it appropriate to prepare the financial statements on a going concern
basis. These financial statements do not include any adjustment that would
result from the going concern basis of preparation being inappropriate.
(b) Statement of Compliance
The financial statements have been prepared in accordance with International
Financial Reporting Standards as adopted by the EU and effective for the year
ended 31 December 2008. These are the Company's first IFRS financial statements
and IFRS 1 'First-time adoption of International Financial Reporting Standards
has been applied.
An explanation of how the transition to IFRSs has affected the reported
financial position, financial performance and cash flows of the Company is
provided in note 12. There are no differences between the financial position and
the financial performance reported under IFRS to that which would have been
reported under UK GAAP.
The accounting policies below have been applied consistently to all periods
presented in the financial statements. They have also been applied in preparing
an opening IFRS Balance Sheet at 27 April 2007 for the purposes of transition to
IFRSs as required by IFRS 1.
(c) Basis of measurement
The financial statements are prepared on the historical cost basis.
(d) Functional currency
The Company's functional currency is pounds sterling. All financial information
is presented in pounds sterling, rounded to the nearest thousand, unless
otherwise indicated.
(e) Use of estimates and judgements
The preparation of financial statements in conformity with IFRSs requires
management to make judgements, estimates and assumptions that affect the
application of policies and reported amounts of assets and liabilities, income
and expenses. The estimates and associated assumptions are based on experience
and various other factors that are believed to be reasonable under the
circumstances. Actual results may differ from these estimates. The estimates and
underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognised in the year in which the estimate is revised if the
revision affects only that period or in the period of the revision and future
periods if the revision affects both current and future years.
3. Significant Accounting Policies
(a) Trade and other receivables
Trade and other receivables are measured initially at fair value and are
subsequently stated at amortised cost less impairment losses.
(b) Share capital
(i) Ordinary share capital
Ordinary shares are classified as equity
(ii) Preference share capital
Preference share capital is classified as a liability if it is redeemable on a
specific date or at the option of the shareholders or if dividend payments are
not discretionary.
(c) Finance expense
All borrowing costs are recognised in the income statement using the effective
rate method.
(d) Earnings per share
The Company presents basic earnings per share (EPS) for its ordinary shares. EPS
is calculated by dividing the entitlement attributable to shareholders by the
weighted average of the number of shares outstanding during the period.
(e) Classification of financial instruments
Financial assets and liabilities are recognised on the balance sheet when the
Company becomes a party to the contractual provisions of the instrument.
Financial instruments issued by the Company are treated as equity (i.e. forming
part of Shareholders' funds) only to the extent that they meet the following two
conditions:
(i) they include no contractual obligations on the Company to deliver cash or
other financial assets or to exchange financial assets or financial liabilities
with another party under conditions that are potentially unfavourable to the
Company; and
(ii) where the instrument will or may be settled in the Company's own equity
instruments, it is either a non-derivative that includes no obligation to
deliver a variable number of the Company's own equity instruments or is a
derivative that will be settled by the Company exchanging a fixed amount of cash
or other financial assets for a fixed number of its own equity instruments.
To the extent that this definition is not met, the proceeds of issue are
classified as a financial liability. Finance payments associated with financial
liabilities are dealt with as part of financial expenses.
(f) New standards and interpretations not yet adopted
A number of new standards, amendments to standards and interpretations are not
yet effective for the year ended 31 December 2008, and have not been applied in
preparing these financial statements.
* IFRIC 13, Customer loyalty programmes (effective date: financial year beginning
1 July 2008)
* IFRIC 16, Hedges of a net investment in a foreign operation (effective date:
financial year beginning 1 October 2008)
* IFRS 8, Operating segments (effective date: financial year beginning 1 January
2009)
* Revised IAS 1, Presentation of financial statements (effective date: financial
year beginning 1 January 2009)
*
* Amendment to IFRS 2, Share-based payment - Vesting conditions and cancellations
(effective date: financial year beginning 1 January 2009)
* Amendment to IAS 32, Financial instruments: Presentation and IAS 1, Presentation
of financial statements - Puttable financial instruments and obligations arising
on liquidation (effective date: financial year beginning 1 January 2009)
* Amendment to IFRS 1, First-time adoption of International Financial Reporting
Standards, and IAS 27, Consolidation and separate financial statements - Cost of
an investment in a subsidiary, jointly - controlled entity or associate
(effective date: financial year beginning 1 January 2009)
* Improvements to IFRSs (effective date: financial year beginning 1 January 2009
or 1 July 2009)
* IFRIC 15, Agreements for the construction of real estate (effective date:
financial year beginning 1 January 2009)
* Revised IFRS 1, First-time adoption of International Financial Reporting
Standards (effective date: financial year beginning 1 July 2009)
* Basis for conclusions on revised IFRS 1, First-time adoption of International
Financial Reporting Standards
* Implementation guidance on revised IFRS 1, First-time adoption of International
Financial Reporting Standards
* Revised IFRS 3, Business combinations (applies to business combinations for
which the acquisition date is on or after the beginning of first annual
reporting period beginning on or after 1 July 2009)
* Amendment to IAS 27, Consolidated and separate financial statements (effective
date: financial year beginning 1 July 2009)
* Amendment to IAS 39, Financial instruments: Recognition and measurement -
Eligible hedged items (effective date: financial year beginning 1 July 2009)
* IFRS 17, Distribution of non-cash assets to owners (effective date: financial
year beginning 1 July 2009)
* IFRIC 18, Transfer of assets from customers (effective date: applies to
transfers of assets from customers received on or after 1 July 2009)
The standards and interpretations addressed above will be applied for the
purposes of the financial statements with effect from the dates listed.
Upon the adoption of the above new standards it is not expected that there will
be an effect on reported income or net assets.
4. Financial Income/(expense)
+-----------------------------------------------+------------+------------+
| In thousands of pounds sterling | | |
| | | |
+-----------------------------------------------+------------+------------+
| | Year ended | Period |
| | 31 | ended 31 |
| | December | December |
| | 2008 | 2007 |
+-----------------------------------------------+------------+------------+
| | | |
+-----------------------------------------------+------------+------------+
| Income on REO intercompany advance | 8,058 | |
+-----------------------------------------------+------------+------------+
| Interest in respect of zero dividend | (8,058) | - |
| preference shares | | |
+-----------------------------------------------+------------+------------+
| Net finance expense recognised in income | - | - |
| statement | | |
+-----------------------------------------------+------------+------------+
| | | |
+-----------------------------------------------+------------+------------+
5. Earnings per share
+-----------------------------------------------+------------+------------+
| In thousands of pounds sterling, except | | |
| shares | | |
+-----------------------------------------------+------------+------------+
| | Year ended | Period |
| | 31 | ended 31 |
| | December | December |
| | 2008 | 2007 |
+-----------------------------------------------+------------+------------+
| | | |
+-----------------------------------------------+------------+------------+
| Basic Earnings per Share | | |
+-----------------------------------------------+------------+------------+
| Loss attributable to equity holders | - | - |
+-----------------------------------------------+------------+------------+
| | - | - |
+-----------------------------------------------+------------+------------+
| | | |
+-----------------------------------------------+------------+------------+
| Weighted average number of Ordinary Shares | 2 | - |
+-----------------------------------------------+------------+------------+
| | | |
+-----------------------------------------------+------------+------------+
| Basic loss per Ordinary Share (GBP'000) | - | - |
+-----------------------------------------------+------------+------------+
6. Taxation
The Company is entitled to exempt company status in Jersey under the provisions
of article 123(A) of the Income Tax (Jersey) Law 1961 on payment of an annual
fee which is currently GBP600 per company. The Company has obtained exempt
company status for the year ended 31 December 2008 and accordingly, income and
capital gains of the Company, other than Jersey source income (excluding bank
deposit interest), are exempt from taxation in Jersey for the financial year
2008.
With effect from 3 June 2008, the income tax rate for companies in Jersey was
reduced from 20% to 0% and exempt company status for all new companies was
abolished. The existing exempt company status of the Company will remain in
place until 31 December 2008 at which time they will move to a 0% rate of income
tax.
With effect from 6 May 2008, a 3% Goods and Services Tax ("GST") was introduced
under the Goods and Services Tax (Jersey) Law 2007. The Company may apply for an
exemption under the Goods and Services Tax (International Service Entities)
(Jersey) Regulations 2008 on payment of an annual fee of GBP100. The Company has
been granted international service entity status for the year 2008.
7. Trade and other receivables - non current
+-----------------------------------------------+------------+------------+
| In thousands of pounds sterling | | |
+-----------------------------------------------+------------+------------+
| | 31 | 31 |
| | December | December |
| | 2008 | 2007 |
+-----------------------------------------------+------------+------------+
| | | |
+-----------------------------------------------+------------+------------+
| Amounts due by parent undertaking | 110,495 | - |
+-----------------------------------------------+------------+------------+
| | 110,495 | - |
+-----------------------------------------------+------------+------------+
8. Called -Up Share Capital
+-----------------------------------------------+------------+------------+
| | 31 | 31 |
| | December | December |
| | 2008 | 2007 |
+-----------------------------------------------+------------+------------+
| | GBP | GBP |
+-----------------------------------------------+------------+------------+
| Authorised | | |
+-----------------------------------------------+------------+------------+
| 1,000 ordinary shares of GBP1 | 1,000 | 1,000 |
+-----------------------------------------------+------------+------------+
| 60,000, 000 Zero Dividend Preference (ZDP) | 600 | 600 |
| Shares of GBP0.00001 | | |
+-----------------------------------------------+------------+------------+
| | 1,600 | 1,600 |
+-----------------------------------------------+------------+------------+
| Allotted, called up and paid in full | | |
+-----------------------------------------------+------------+------------+
| 2 ordinary shares of GBP1 | 2 | 2 |
+-----------------------------------------------+------------+------------+
| 57,755,782 Zero Dividend Preference (ZDP) | 578 | - |
| Shares of GBP0.00001 | | |
+-----------------------------------------------+------------+------------+
| | 580 | 2 |
+-----------------------------------------------+------------+------------+
| Presented as debt | | |
+-----------------------------------------------+------------+------------+
| 57,755,782 Zero Dividend Preference (ZDP) | 578 | - |
| Shares of GBP0.00001 | | |
+-----------------------------------------------+------------+------------+
| Presented as Equity | | |
+-----------------------------------------------+------------+------------+
| 2 ordinary shares of GBP1 | 2 | 2 |
+-----------------------------------------------+------------+------------+
| | 580 | 2 |
+-----------------------------------------------+------------+------------+
On 18 February 2008 the Company was listed on the London Stock Exchange and
57,755,782 New ZDP shares were issued at 0.001p per New ZDP share. These new ZDP
shares were issued on a one for one basis in exchange for the cancelled ZDP
shares in Real Estate Opportunities Limited, the holding company of REO
Securities Limited.
Rights attaching to the ZDP Shares and the Ordinary shares:
(a) As to dividends:
* the Ordinary shares carry the right to receive the profits of the Company
(including accumulated revenue reserves) available for distribution and
determined to be distributed by way of interim and/or final dividend.
* the ZDP shares carry no right to receive dividends out of the revenue or any
other profits of the Company.
(b) As to winding-up, after the payment of the Company's liabilities in full:
* the holders of the Ordinary Shares are entitled to the surplus assets of the
company available for distribution.
* the holders of the ZDP shares are entitled to an amount equal to 100p per ZDP
share as increased each day from 22 June 2001 up to and including 31 May 2011 at
the daily compound rate, which results in a fixed entitlement of 235.51p on 31
May 2011.
(c) As to voting:
* the ordinary shareholders have the right to vote at general meetings of the
Company and each shareholder present shall have 1 vote in respect of each share
held.
* the ZDP Shareholders shall not have the right to attend or vote at any general
meeting of the Company unless the business of the meeting includes any
resolution to vary, modify or abrogate any of the special rights attached to the
ZDP shares, or any resolution to wind up the Company. At any meeting when such
business is to be conducted, such holders shall be entitled to vote in relation
to that business only. When entitled to vote, each holder present, in person or
proxy, shall have 1 vote in respect of each share held.
9. Retained Earnings
+-----------------------------------------------+------------+------------+
| In thousands of pounds sterling | | |
+-----------------------------------------------+------------+------------+
| | 31 | 31 |
| | December | December |
| | 2008 | 2007 |
+-----------------------------------------------+------------+------------+
| | | |
+-----------------------------------------------+------------+------------+
| At 1 January 2008 | - | - |
+-----------------------------------------------+------------+------------+
| Loss for the year | - | - |
+-----------------------------------------------+------------+------------+
| Balance at the 31 December 2008 | - | - |
+-----------------------------------------------+------------+------------+
10. Non current Liabilities
+-----------------------------------------------+------------+------------+
| In thousands of pounds sterling | | |
+-----------------------------------------------+------------+------------+
| | 31 | 31 |
| | December | December |
| | 2008 | 2007 |
+-----------------------------------------------+------------+------------+
| | | |
+-----------------------------------------------+------------+------------+
| Zero Dividend Preference Shares | 110,495 | - |
+-----------------------------------------------+------------+------------+
| | 110,495 | - |
+-----------------------------------------------+------------+------------+
The Zero Dividend Preference Shares are due to be repaid on the 31 May 2011 or
earlier on winding up
of the Company.
11. Financial instruments
The Company's activities are exposed to a variety of financial and market risks
which include:
* Credit risk
* Liquidity risk
* Market risk
This note presents information about the Company's exposure to each of the above
risks, the Company's objectives, policies and processes for measuring and
managing risk, and the Company's management of capital. Further quantitative
disclosures are included throughout these financial statements.
The Board of Directors has overall responsibility for the establishment and
oversight of the Company's risk management framework. The Company's risk
management policies are established to identify and analyse the risks faced by
the Company, to set appropriate risk limits and controls, and to monitor risks
and adherence to limits. Risk management policies and systems are reviewed
regularly to reflect changes in market conditions and the Company's activities.
The Company's Board of Direcotrs overseas how management monitors compliance
with the Company's risk management policies and procedures and reviews the
adequacy of the risk management framework in relation to the risks faced by the
Company.
Capital Management
The Company has a fixed life and will be wound up on the 31 May 2011. The
Company's objective it to settle the entitlement of the ZDP's on the winding up
date.
(a) Credit Risk
Credit risk is the risk of financial loss to the Company, if a counterparty to a
financial instrument, fails to meet its contractual obligations and arises
wholly from the Company's exposure to the amount due from its parent Company,
REO. The maximum exposure to credit risk as 31 December was GBP110,495,000
(2007: GBPnil).
(b) Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its
financial obligations as they fall due. The Company's objective it to settle the
entitlement of the ZDP's on the winding up date on or before the 31 May 2011.
(i) Fair Value
The fair values together with the carrying amounts shown on the balance sheet
are as follows:
+-----------------------------------------+-----------+----------+----------+----------+
| Primary financial instrument held or | Carrying | Fair | Carrying | Fair |
| issued to finance the Company's | amount | value | amount | value |
| operation | | | | |
+-----------------------------------------+-----------+----------+----------+----------+
| In thousands of pounds sterling | | | | |
+-----------------------------------------+-----------+----------+----------+----------+
| | | | | |
+-----------------------------------------+-----------+----------+----------+----------+
| Zero Dividend Preference Shares | (110,495) | (21,947) | - | - |
+-----------------------------------------+-----------+----------+----------+----------+
| Trade and other receivables | 110,495 | 110,495 | - | - |
+-----------------------------------------+-----------+----------+----------+----------+
| | - | 88,548 | - | - |
+-----------------------------------------+-----------+----------+----------+----------+
The fair value of the Zero Dividend preference shares is based on quoted market
prices at the balance sheet date.
Trade and other receivables have fair values that approximate their carrying
value amounts
12. Explanation of transition to IFRS
As stated in note 2(b), these are the Company's first financial statements for
part of the period covered by the first annual financial statements prepared in
accordance with IFRSs.
In preparing its opening IFRS balance sheet, comparative information for the
period ended 31 December 2007, the Company was not required to adjust amounts
reported previously in accordance with previous GAAP.
An explanation of how transition from previous GAAP to IFRSs has affected the
Company's financial position and performance is set out below.
+-----------------------------------+--------------+---------------+--------------+
| | Previous | Effect of | IFRS's |
| | GAAP | transition to | |
| | | IFRS 31 | |
| | | December 2007 | |
+-----------------------------------+--------------+---------------+--------------+
| | GBP | GBP | GBP |
+-----------------------------------+--------------+---------------+--------------+
| (i) Reconciliation of Assets | | | |
+-----------------------------------+--------------+---------------+--------------+
| Current Assets | 2 | - | 2 |
+-----------------------------------+--------------+---------------+--------------+
| Net Assets | 2 | - | 2 |
+-----------------------------------+--------------+---------------+--------------+
| | | | |
+-----------------------------------+--------------+---------------+--------------+
| ((ii) Reconciliation of Equity | | | |
+-----------------------------------+--------------+---------------+--------------+
| Share Capital | 2 | - | 2 |
+-----------------------------------+--------------+---------------+--------------+
| Total Equity and Liabilities | 2 | - | 2 |
+-----------------------------------+--------------+---------------+--------------+
| | | | |
+-----------------------------------+--------------+---------------+--------------+
13. Group Membership
The Company is a wholly owned subsidiary of Real Estate Opportunities Limited, a
company incorporated in Jersey. The consolidated financial statement of Real
Estate Opportunities may be obtained from Whiteley Chambers, Don Street, St
Helier, Jersey JE49WG, Channel Islands.
14. Related party disclosures
REO Securities Limited was incorporated for the purpose of facilitating a scheme
of arrangement to cancel the Zero Dividend Preference (ZDP) shares in Real
Estate Opportunities Limited and to issue the New ZDP shares in REO Securities
Limited on a one for one basis to the existing shareholders of Real Estate
Opportunities Limited.
This transaction completed in February 2008. Although the New ZDP shares are
entitled to a pre-determined capital repayment on the ZDP Repayment Date, being
the 31 May 2011, this is not guaranteed. The rights of the New ZDP share are
substantially similar to the rights of the ZDP shares in Real Estate
Opportunities Limited which were cancelled as part of the scheme of arrangement.
In order for REO Securities Limited to have sufficient assets to repay the ZDP
Shares, Real Estate Opportunities Limited and REO Securities Limited have
entered into an arrangement pursuant to an Undertaking Agreement whereby the net
assets of Real Estate Opportunities Limited will effectively be made available
to meet the repayment entitlement of the ZDP Shares on the Repayment Date, 31
May 2011.
Pursuant to the Undertaking Agreement, Real Estate Opportunities Limited agrees
to contribute to the Company (by way of gift, capital contribution or otherwise)
such an amount as will result in REO Securities Limited having sufficient assets
to satisfy the then current or, as the case may be, final capital entitlement of
the ZDP Shares on the Repayment Date or any earlier winding up of the Company.
The related party transaction referred to above was made on an arms length
basis.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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