TIDMREOP
RNS Number : 2184V
REO Securities Limited
29 October 2010
REO SECURITIES LIMITED
INTERIM RESULTS
FOR THE SIX MONTHS ENDED 31 August 2010
REO Securities Limited ("the Company") is a wholly owned subsidiary of Real
Estate Opportunities plc ("REO" or "the Group"). Shareholders' attention is
drawn to the Group's interim results which are also published today (29 October
2010).
Contacts
+------------------------------+------------------------------+
| Martin Daly | |
| REO Investor Relations | |
| Tel: + 353(1) 6189455 | |
+------------------------------+------------------------------+
| | |
| Goodbody Stockbrokers | Matrix Corporate Capital LLP |
| Linda Hickey | |
| Tel: + 353(1) 6416017 | Paul Fincham |
| | Tel: + 44 (0) 20 3206 7175 |
| | |
+------------------------------+------------------------------+
| Finsbury Group | Murray Consultants |
| | Ed Micheau |
| EdwardSimpkins/GordonSimpson | Tel: + 353 (1) 498 0300 |
| Tel: +44 (0) 20 7251 3801 | |
| | |
| | |
| | |
+------------------------------+------------------------------+
CHAIRMAN'S STATEMENT
Real Estate Opportunities plc ("REO"or "the Group"), the parent company of REO
Securities Limited, and its advisers have made significant progress towards
agreeing a balance sheet restructuring of the Group, including a restructuring
of the Zero Dividend Preference Shares (ZDPs), which will provide the Group with
a firm platform for the future.
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 REO dated 18
December 2007). The Scheme involved the Zero Dividend Preference Shares
("ZDPs"), part of the share capital of REO being cancelled and, in exchange, new
ZDPs were issued on a one for one basis by the Company, a newly incorporated
subsidiary of REO. Implementation of the Scheme will allow the new ZDPs to be
settled by way of winding up of the Company on 31 May 2011 rather than the
winding up or reconstruction of REO itself.
Admission of the 57,755,782 new ZDPs of the Company 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 only asset consists of a receivable from its parent, REO, a
company incorporated in Jersey. Therefore, the Company's ability to continue in
business and satisfy its future obligations to the holders of the ZDPs is
dependent on REO.
To that effect, REO and the Company previously entered into an arrangement
pursuant to an Undertaking Agreement whereby the net assets of REO will
effectively be made available to meet the repayment entitlement of the ZDPs on
the Repayment Date, 31 May 2011.
The Group has recently reached outline agreement with the holder of the Series A
and Series B loan notes ("OLNs") and an adhoc informal committee of holders of
both the Group's 7.5% Convertible Unsecured Loan Notes ("CULS"), and the ZDPs
(together the "Committee") on the terms of a financial restructuring of REO
which includes the deferral of all principal and interest payments due on the
OLNs until 31 May 2011 which will also enable the demerger of the Battersea
Power Station. The terms of the financial restructuring are subject to the Group
meeting key milestones. The proposals with the Committee involve an equitisation
of the CULS and ZDPs into equity of the demerged Battersea Power Station
subsidiary and REO. The key milestones include the receipt of approvals to the
restructuring from Lloyds Banking Group ("LBG") and the National Asset
Management Agency ("NAMA"); the passing of resolutions approving the proposals
at meetings of the ordinary shareholders, CULS and ZDPs no later than 31 January
2011; and the granting of planning permission in respect of Battersea Power
Station by 31 May 2011.The outline agreement reached with the Committee means
that, together with the support of Treasury Holdings and the Directors, the
Group has reached outline agreement with 59.5% of the CULS and 59.8% of the
ZDPs.
At 31 August 2010, the Group's borrowings totalled GBP1.66 billion. At that
date, the Group had an investment and development portfolio which it valued at
GBP1.05 billion, together with cash and cash equivalents of GBP20 million, and
restricted cash of GBP19 million. The deficit on shareholders' funds was GBP755
million.
The Group's future operating performance will be affected by general economic,
financial and business conditions, many of which remain beyond the Group's
control.
At 31 August 2010, the Group had aggregate bank loans of GBP975 million
classified as current liabilities.
In addition, the Group had obligations of GBP375 million due to the holders of
its CULS, its ZDPs and the OLNs, all of which mature in May 2011. Based on its
current financial position, and as previously announced, the Group is unable to
repay those instruments on their maturity.
The liabilities due to holders of the CULS and ZDPs at 31 August 2010 amounted
to GBP101 million and GBP128 million respectively, with a principal amount of
GBP146 million due to the holder of the OLNs at this date.
Interest payments of GBP3.8 million and GBP5.0 million due at 31 August 2010 to
the holders of the CULS and OLNs respectively were not made at this date.
The Group has also renegotiated the loan facilities relating to Battersea Power
Station with LBG (previously Bank of Scotland) and NAMA (previously Bank of
Ireland), extending the existing facility to 31 August 2011 and waiving all
outstanding breaches. The extension and waiver agreement is conditional upon the
Group effecting a compromise by 29 October 2010 with the holders of the CULS.
In addition, prior to the 28 February 2011, the Group will need either to
conclude agreements with the OLNs, CULS and ZDPs or extend their maturities to
no earlier than 30 September 2011.
NAMA's advisers have completed their review of the Group's comprehensive
business plan submitted to NAMA in early May 2010. The Group continues to seek
broad approval from the board of NAMA for the business plan.
The key assumptions made in preparing the Group's business plan for the period
to 31 October 2011 include:
· Broad approval by NAMA of the Group's business plan.
· The renewal by NAMA of bank facilities in the amount of GBP780 million on
broadly similar terms.
· The agreement of NAMA to defer interest payments.
· The provision by NAMA of working capital facilities.
· The agreement of the holders of the CULS and Series A and Series B loan
notes to a standstill on the payment of interest in the period to 31 October
2011.
· Agreement with each of the holders of the CULS, ZDPs and OLNs whereby the
capital amounts due on maturity in May 2011 will not represent a cash outflow
for REO.
· Certain of the Group's fee arrangements with Treasury Holdings will be
restructured to cap the fees paid in the period to 31 October 2011.
· Planning permission for the proposed development of Battersea Power
Station will be granted in the near future.
· It is anticipated that the Group's interest in Battersea Power Station
will be restructured and that an equity partner will be introduced on the
Battersea development providing all project financing in 2011.
· The ability of the Group to raise further capital after its debt
facilities have been renegotiated and its interest in Battersea Power Station
has been restructured.
Based on the Group's current business plan and the key assumptions noted above,
the Board believes that the Group will have sufficient cash and cash equivalents
to meet its liquidity requirements for at least twelve months from the date of
approval of this report.
The Directors of the Company have concluded that the above factors represent
material uncertainties. Failure to achieve the above assumptions and objectives
could cast significant doubt on the Group's ability to continue as a going
concern and it may therefore be unable to realise its assets and discharge its
liabilities in the normal course of business.
However, having discussed the assumptions and basis of preparation supporting
the Group's cash flow projections, together with the advanced status of
negotiations with the Group's key lenders, 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.
On this basis, the Directors consider it appropriate to prepare the financial
statements on a going concern basis. No adjustment which would result from a
change in the going concern basis of preparation has been included in the
financial statements.
Valuation of investment properties and investment properties under development
The Group's principal assets comprise investment properties and investment
properties under development, located in Ireland and the UK, which are being
carried in the financial statements at fair value.
As previously indicated in the Group's June 2009 Interim Management Report, the
Group has commissioned Treasury Holdings, in its capacity as Group Investment
Adviser, to undertake these valuations for the interim period only. The primary
source of evidence for property valuations should be recent, comparable market
transactions on arm's length terms. However, the valuation of the Group's
property portfolio is inherently subjective in the present market environment
due to the continuing low volume of comparable transactions. Shareholder
attention is drawn to the Investment Adviser's Report in REO plc's interim
results for further details.
Ray Horney
Chairman
27 October 2010
Principal Risks and Uncertainties
The most significant risks to the Company relates to its arrangements with REO.
In order for the Company to have sufficient assets to repay the ZDPs, REO and
the Company previously entered into an arrangement pursuant to an Undertaking
Agreement whereby the net assets of REO will effectively be made available to
meet the repayment entitlement of the ZDPs on the Repayment Date, 31 May 2011,
after payment of all other creditors of the Company.
Pursuant to the Undertaking Agreement, REO agrees to contribute to the Company
(by way of gift, capital contribution or otherwise) such an amount as will
result in the Company having sufficient assets to satisfy the then current or,
as the case may be, final capital entitlement of the ZDPs on the Repayment Date
or any earlier winding up of the Company.
As noted in the Chairman's Statement, the Group has reached outline agreement
with the holders of the OLNs and the Committee on the terms of a financial
restructuring of REO which will also enable the demerger of the Battersea Power
Station. The terms of the financial restructuring includes the deferral of all
principal and interest payments due on the OLNs until 31 May 2011 and are
subject to the Group meeting the key milestones outlined in the Chairman's
Statement.The proposals with the Committee involve an equitisation of the CULS
and ZDPs into equity of the demerged Battersea Power Station subsidiary and REO.
The outline agreement reached with the Committee means that, together with the
support of Treasury Holdings and the Directors, the Group has reached outline
agreement with 59.5% of the CULS and 59.8% of the ZDPs.
Responsibility Statement
Each of the directors confirms that, to the best of each person's knowledge and
belief:
(a) the condensed consolidated interim financial statements comprising the
condensed consolidated statement of comprehensive income, the condensed
consolidated statement of financial position, the condensed consolidated
statement of changes in equity, the condensed consolidated statement of cash
flows and related notes 1 to 11 have been prepared in accordance with IAS 34
Interim Financial Reporting as adopted by the EU.
(b) the interim management report includes a fair review of the information
required by:
(i) Regulation 8(2) of the Transparency (Directive 2004/109/EC)
Regulations 2007, being an indication of important events that have occurred
during the first six months of the financial year and their impact on the
condensed set of financial statements; and a description of the principal risks
and uncertainties for the remaining six months of the year; and
(ii) Regulation 8(3) of the Transparency (Directive 2004/109/EC)
Regulations 2007, being related party transactions that have taken place in the
first six months of the current financial year and that have materially affected
the financial position or performance of the entity during that period; and any
changes in the related party transactions described in the last annual report
that could do so.
By order of the Board
Ray Horney
Chairman
27 October 2010
REO SECURITIES LIMITED
Condensed statement of financial position
As at 31 August 2010
+------------------------------------------+-------+-----------+-----------+
| | |31 August | 28 |
| | | | February |
+------------------------------------------+-------+-----------+-----------+
| | Note | 2010 | 2010 |
| | |Unaudited | Audited |
+------------------------------------------+-------+-----------+-----------+
| In thousands of pounds sterling | | | |
+------------------------------------------+-------+-----------+-----------+
| Assets | | | |
+------------------------------------------+-------+-----------+-----------+
| Trade and other receivables | 2 | - | 122,119 |
+------------------------------------------+-------+-----------+-----------+
| Total non current assets | | - | 122,119 |
+------------------------------------------+-------+-----------+-----------+
| | | | |
+------------------------------------------+-------+-----------+-----------+
| Trade and other receivables | 2a | 127,537 | - |
+------------------------------------------+-------+-----------+-----------+
| Total current assets | | 127,537 | - |
+------------------------------------------+-------+-----------+-----------+
| | | | |
+------------------------------------------+-------+-----------+-----------+
| Total assets | | 127,537 | 122,119 |
+------------------------------------------+-------+-----------+-----------+
| | | | |
+------------------------------------------+-------+-----------+-----------+
| Equity | | | |
+------------------------------------------+-------+-----------+-----------+
| Issued capital | 3 | - | - |
+------------------------------------------+-------+-----------+-----------+
| Retained earnings | 4 | - | - |
+------------------------------------------+-------+-----------+-----------+
| Total shareholders' equity | | - | - |
+------------------------------------------+-------+-----------+-----------+
| | | | |
+------------------------------------------+-------+-----------+-----------+
| Liabilities | | | |
+------------------------------------------+-------+-----------+-----------+
| Zero Dividend Preference Shares | 5 | - | 122,119 |
+------------------------------------------+-------+-----------+-----------+
| Total non-current liabilities | | - | 122,119 |
+------------------------------------------+-------+-----------+-----------+
| | | | |
+------------------------------------------+-------+-----------+-----------+
| Zero Dividend Preference Shares | 5a | 127,537 | - |
+------------------------------------------+-------+-----------+-----------+
| Total current liabilities | | 127,537 | - |
+------------------------------------------+-------+-----------+-----------+
| | | | |
+------------------------------------------+-------+-----------+-----------+
| Total Liabilities | | 127,537 | 122,119 |
+------------------------------------------+-------+-----------+-----------+
| | | | |
+------------------------------------------+-------+-----------+-----------+
| Total shareholders' equity and | | 127,537 | 122,119 |
| liabilities | | | |
+------------------------------------------+-------+-----------+-----------+
| | | | |
+------------------------------------------+-------+-----------+-----------+
The accompanying notes form an integral part of these interim financial
statements.
REO SECURITIES LIMITED
Condensed interim income statement
For the six months ended 31 August 2010
+----------------------------------------------+------+------------------+---------------------------+
| |Note | 31 | 30 June |
| | | August | 2009 |
| | | 2010 | Unaudited |
| | | Unaudited | |
+----------------------------------------------+------+------------------+---------------------------+
| | | | |
+----------------------------------------------+------+------------------+---------------------------+
| In thousands of pounds sterling | | | |
+----------------------------------------------+------+------------------+---------------------------+
| | | | |
+----------------------------------------------+------+------------------+---------------------------+
| Finance income | 6 | 5,418 | 4,820 |
+----------------------------------------------+------+------------------+---------------------------+
| Finance expense | 6 | (5,418) | (4,820) |
+----------------------------------------------+------+------------------+---------------------------+
| Net finance expense | | - | - |
+----------------------------------------------+------+------------------+---------------------------+
| | | | |
+----------------------------------------------+------+------------------+---------------------------+
| Loss before tax | | - | - |
+----------------------------------------------+------+------------------+---------------------------+
| | | | |
+----------------------------------------------+------+------------------+---------------------------+
| Income tax expense | 7 | - | - |
+----------------------------------------------+------+------------------+---------------------------+
| Loss for the period | | - | - |
+----------------------------------------------+------+------------------+---------------------------+
| | | | |
+----------------------------------------------+------+------------------+---------------------------+
| Earnings per Share | | | |
+----------------------------------------------+------+------------------+---------------------------+
| Basic loss per Ordinary Share | 8 | - | - |
+----------------------------------------------+------+------------------+---------------------------+
The accompanying notes form an integral part of these interim financial
statements.
REO SECURITIES LIMITED
Condensed interim statement of comprehensive income
For the six months ended 31 August 2010
+-------------------------------------+------------+-----------+-----------+
| | |31 August | 30 |
| | | 2010 |June 2009 |
| | |Unaudited |Unaudited |
+-------------------------------------+------------+-----------+-----------+
| | | | |
+-------------------------------------+------------+-----------+-----------+
| In thousands of pounds sterling | | | |
+-------------------------------------+------------+-----------+-----------+
| | | | |
+-------------------------------------+------------+-----------+-----------+
| Loss for the period | | - | - |
+-------------------------------------+------------+-----------+-----------+
| | | | |
+-------------------------------------+------------+-----------+-----------+
| Total recognised income and expense | | - | - |
| for the period | | | |
+-------------------------------------+------------+-----------+-----------+
| | | | |
+-------------------------------------+------------+-----------+-----------+
The accompanying notes form an integral part of these interim financial
statements.
Condensed statement of changes in equity
For the six months ended 31 August 2010
No condensed Statement of Change in Equity is presented as there were no changes
in equity in the current or prior period.
REO SECURITIES LIMITED
Condensed interim statement of cashflows
For the six months ended 31 August 2010
+------------------------------------------+----------+-------------------------+------------------------+
| | | 31 | 28 |
| | | August | February |
| | | 2010 | 2010 |
| | | Unaudited | Audited |
+------------------------------------------+----------+-------------------------+------------------------+
| | | | |
+------------------------------------------+----------+-------------------------+------------------------+
| In thousands of pounds sterling | | | |
+------------------------------------------+----------+-------------------------+------------------------+
| Cash flows from operating activities | | | |
+------------------------------------------+----------+-------------------------+------------------------+
| | | | |
+------------------------------------------+----------+-------------------------+------------------------+
| Loss for the period | | - | - |
+------------------------------------------+----------+-------------------------+------------------------+
| Adjustments for: | | | |
+------------------------------------------+----------+-------------------------+------------------------+
| Net financial expense | | - | - |
+------------------------------------------+----------+-------------------------+------------------------+
| Increase in non current liabilities | | 5,418 | 11,624 |
+------------------------------------------+----------+-------------------------+------------------------+
| Increase in trade and other receivables | | (5,418) | (11,624) |
+------------------------------------------+----------+-------------------------+------------------------+
| Net cash from operating activities | | - | - |
+------------------------------------------+----------+-------------------------+------------------------+
| | | | |
+------------------------------------------+----------+-------------------------+------------------------+
| | | | |
+------------------------------------------+----------+-------------------------+------------------------+
| Net movement in cash and cash | | - | - |
| equivalents | | | |
+------------------------------------------+----------+-------------------------+------------------------+
| Cash and cash equivalents at beginning | | - | - |
| of period | | | |
+------------------------------------------+----------+-------------------------+------------------------+
| Cash and cash equivalents at end of the | | - | - |
| period | | | |
+------------------------------------------+----------+-------------------------+------------------------+
The accompanying notes form an integral part of these interim financial
statements.
REO SECURITIES LIMITED
Notes to the INTERIM financial statements
1a. Basis of preparation
REO Securities Limited (the "Company") is a wholly owned subsidiary of REO and
forms part of Real Estate Opportunities plc ("the Group").
The unaudited condensed interim financial statements of the Company are for the
six months ended 31 August 2010 and the comparative period is the 6 months ended
30 June 2009. The change in period end is a result of the Company changing its
financial year end to February in 2010. The statement of financial position has
been prepared as at 31 August 2010 and the comparative is the 14 month audited
financial statements as at 28 February 2010.
The financial statements are in pounds sterling, rounded to the nearest
thousand.
The preparation of interim financial statements requires management to make
judgements, estimates and assumptions that affect the application of policies
and reported amounts of assets and liabilities, income and expenses. Actual
results could differ materially from these estimates. In preparing these interim
financial statements, the significant judgements made by management in applying
the Company's accounting policies and the key sources of estimation uncertainty
were the same as those that applied to the Financial Statements as at and for
the period ended 28 February 2010.
The financial information included in the interim financial statements is
unaudited and does not constitute statutory accounts as defined in Companies
(Jersey) Law 1991, (as amended).
1b. Statement of Compliance
These condensed interim financial statements have been prepared in accordance
with IAS 34 Interim Financial Reporting. They do not include all of the
information required for full annual financial statements, and should be read in
conjunction with the financial statements of the Company as at and for the
period ended 28 February 2010.
The condensed interim financial statements were approved by the Board of
Directors on 27 October 2010.
The accounting policies applied by the Company in these condensed interim
financial statements are the same as those applied by the Company in its audited
financial statements as at and for the period ended 28 February 2010.
1c. Going concern
The Company's only asset consists of a receivable from its parent, REO, a
company incorporated in Jersey. Therefore, the Company's ability to continue in
business and satisfy its future obligations to the holders of the ZDPs is
dependent on REO.
To that effect, REO and the Company previously entered into an arrangement
pursuant to an Undertaking Agreement whereby the net assets of REO will
effectively be made available to meet the repayment entitlement of the ZDPs on
the Repayment Date, 31 May 2011.
The Group has recently reached outline agreement with the holder of the Series A
and Series B loan notes ("OLNs") and an adhoc informal committee of holders of
both the Group's 7.5% Convertible Unsecured Loan Notes ("CULS"), and the ZDPs
(together the "Committee") on the terms of a financial restructuring of REO
which includes the deferral of all principal and interest payments due on the
OLNs until 31 May 2011 and which will also enable the demerger of the Battersea
Power Station. The terms of the financial restructuring are subject to the Group
meeting key milestones. The proposals with the Committee involve an equitisation
of the CULS and ZDPs into equity of the demerged Battersea Power Station
subsidiary and REO. The key milestones include the receipt of approvals to the
restructuring from Lloyds Banking Group ("LBG") and the National Asset
Management Agency ("NAMA"); the passing of resolutions approving the proposals
at meetings of the
REO SECURITIES LIMITED
Notes to the INTERIM financial statements continued
1c. Going Concern (continued)
ordinary shareholders, CULS and ZDPs no later than 31 January 2011; and the
granting of planning permission in respect of Battersea Power Station by 31 May
2011.The outline agreement reached with the Committee means that, together with
the
support of Treasury Holdings and the Directors, the Group has reached outline
agreement with 59.5% of the CULS and 59.8% of the ZDPs.
At 31 August 2010, the Group's borrowings totalled GBP1.66 billion. At that
date, the Group had an investment and development portfolio which it valued at
GBP1.05 billion, together with cash and cash equivalents of GBP20 million, and
restricted cash of GBP19 million. The deficit on shareholders' funds was GBP755
million.
The Group's future operating performance will be affected by general economic,
financial and business conditions, many of which remain beyond the Group's
control.
At 31 August 2010, the Group had aggregate bank loans of GBP975 million
classified as current liabilities.
In addition, the Group had obligations of GBP375 million due to the holders of
its CULS, its ZDPs and the OLNs, all of which mature in May 2011. Based on its
current financial position, and as previously announced, the Group is unable to
repay those instruments on their maturity.
The liabilities due to holders of the CULS and ZDPs at 31 August 2010 amounted
to GBP101 million and GBP128 million respectively, with a principal amount of
GBP146 million due to the holder of the OLNs at this date.
Interest payments of GBP3.8 million and GBP5.0 million due at 31 August 2010 to
the holders of the CULS and OLNs respectively were not made at this date.
The Group has also renegotiated the loan facilities relating to Battersea Power
Station with LBG (previously Bank of Scotland) and NAMA (previously Bank of
Ireland), extending the existing facility to 31 August 2011 and waiving all
outstanding breaches. The extension and waiver agreement is conditional upon the
Group effecting a compromise by 29 October 2010 with the holders of the CULS.
In addition, prior to the 28 February 2011, the Group will need either to
conclude agreements with the OLNs, CULS and ZDPs or extend their maturities to
no earlier than 30 September 2011.
NAMA's advisers have completed their review of the Group's comprehensive
business plan submitted to NAMA in early May 2010. The Group continues to seek
broad approval from the board of NAMA for the business plan.
The key assumptions made in preparing the Group's business plan for the period
to 31 October 2011 include:
· Broad approval by NAMA of the Group's business plan.
· The renewal by NAMA of bank facilities in the amount of GBP780 million on
broadly similar terms.
· The agreement of NAMA to defer interest payments.
· The provision by NAMA of working capital facilities.
· The agreement of the holders of the CULS and Series A and Series B loan
notes to a standstill on the payment of interest in the period to 31 October
2011.
· Agreement with each of the holders of the CULS, ZDPs and OLNs whereby the
capital amounts due on maturity in May 2011 will not represent a cash outflow
for REO.
· Certain of the Group's fee arrangements with Treasury Holdings will be
restructured to cap the fees paid in the period to 31 October 2011.
· Planning permission for the proposed development of Battersea Power
Station will be granted in the near future.
· It is anticipated that the Group's interest in Battersea Power Station
will be restructured and that an equity partner will be introduced on the
Battersea development providing all project financing in 2011.
· The ability of the Group to raise further capital after its debt
facilities have been renegotiated and its interest in Battersea Power Station
has been restructured.
Based on the Group's current business plan and the key assumptions noted above,
the Board believes that the Group will have sufficient cash and cash equivalents
to meet its liquidity requirements for at least twelve months from the date of
approval of this report.
REO SECURITIES LIMITED
Notes to the INTERIM financial statements continued
1c. Going Concern (continued)
The Directors of the Company have concluded that the above factors represent
material uncertainties. Failure to achieve the above assumptions and objectives
could cast significant doubt on the Group's ability to continue as a going
concern and it may therefore be unable to realise its assets and discharge its
liabilities in the normal course of business.
However, having discussed the assumptions and basis of preparation supporting
the Group's cash flow projections, together with the advanced status of
negotiations with the Group's key lenders, 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.
On this basis, the Directors consider it appropriate to prepare the financial
statements on a going concern basis. No adjustment which would result from a
change in the going concern basis of preparation has been included in the
financial statements.
1d. Valuation of investment properties and investment properties under
development
REO's principal assets comprise investment properties and investment properties
under development, located in Ireland and the UK, which are being carried in the
financial statements at fair value.
As previously indicated in the Group's June 2009 Interim Management Report, the
Group has commissioned Treasury Holdings, in its capacity as Group Investment
Adviser, to undertake these valuations for the interim period only using
assumptions, and exercising certain judgements, based on market conditions as at
31 August 2010. Shareholder attention is drawn to the Investment Adviser's
Report in REO plc's interim results for further details.
2. Trade and other receivables - non current
+----------------------------------------------------+----+------+----+------+----+
| In thousands of pounds sterling | | | |
+----------------------------------------------------+-----------+-----------+----+
| |31 August | 28 |
| | 2010 | February |
| |unaudited | 2010 |
| | | audited |
+---------------------------------------------------------+-----------+-----------+
| | | |
+---------------------------------------------------------+-----------+-----------+
| Amounts due by parent undertaking | - | 122,119 |
+---------------------------------------------------------+-----------+-----------+
| | - | 122,119 |
+---------------------------------------------------------+-----------+-----------+
| | | | | | |
+----------------------------------------------------+----+------+----+------+----+
2a. Trade and other receivables - current
+----------------------------------------------------+-----------+----------+
| In thousands of pounds sterling | | |
+----------------------------------------------------+-----------+----------+
| | 31 | 28 |
| | August |February |
| | 2010 | 2010 |
| |unaudited | audited |
+----------------------------------------------------+-----------+----------+
| | | |
+----------------------------------------------------+-----------+----------+
| Amounts due by parent undertaking | 127,537 | - |
+----------------------------------------------------+-----------+----------+
| | 127,537 | - |
+----------------------------------------------------+-----------+----------+
The amount due from parent undertaking is due for repayment in May 2011.
REO SECURITIES LIMITED
Notes to the INTERIM financial statements continued
3. Called -Up Share Capital
+----------------------------------------------------+-----------+----------+
| | 31 | 28 |
| | August |February |
| | 2010 | 2010 |
| |unaudited | audited |
+----------------------------------------------------+-----------+----------+
| | GBP | GBP |
+----------------------------------------------------+-----------+----------+
| Authorised | | |
+----------------------------------------------------+-----------+----------+
| 1,000 ordinary shares of GBP1 | 1,000 | 1,000 |
+----------------------------------------------------+-----------+----------+
| 60,000,000 Zero Dividend Preference (ZDP) Shares | 600 | 600 |
| 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) Shares | 578 | 578 |
| of GBP0.00001 | | |
+----------------------------------------------------+-----------+----------+
| | 580 | 580 |
+----------------------------------------------------+-----------+----------+
| Presented as debt | | |
+----------------------------------------------------+-----------+----------+
| 57,755,782 Zero Dividend Preference (ZDP) Shares | 578 | 578 |
| of GBP0.00001 | | |
+----------------------------------------------------+-----------+----------+
| Presented as Equity | | |
+----------------------------------------------------+-----------+----------+
| 2 ordinary shares of GBP1 | 2 | 2 |
+----------------------------------------------------+-----------+----------+
| | 580 | 580 |
+----------------------------------------------------+-----------+----------+
On 18 February 2008 the Company was listed on the London Stock Exchange and
57,755,782 new ZDPs were issued at 0.001p per new ZDPs. These new ZDPs were
issued on a one for one basis in exchange for the cancelled ZDPs in REO, the
holding company of REO Securities Limited.
Rights attaching to the ZDPs 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 ZDPs 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 ZDPs are entitled to an amount equal to 100p per ZDPs
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
ZDPs, 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.
REO SECURITIES LIMITED
Notes to the INTERIM financial statements continued
4. Retained Earnings
+----------------------------------------------------+-----------+----------+
| In thousands of pounds sterling | | |
+----------------------------------------------------+-----------+----------+
| | 31 | 28 |
| | August |February |
| | 2010 | 2010 |
| |unaudited | audited |
+----------------------------------------------------+-----------+----------+
| | | |
+----------------------------------------------------+-----------+----------+
| At 1 March 2010 | - | - |
+----------------------------------------------------+-----------+----------+
| Result for the period | - | - |
+----------------------------------------------------+-----------+----------+
| Balance at the 31 August 2010 | - | - |
+----------------------------------------------------+-----------+----------+
5. Non-Current Liabilities
+----------------------------------------------------+-----------+----------+
| In thousands of pounds sterling | | |
+----------------------------------------------------+-----------+----------+
| | 31 | 28 |
| | August |February |
| | 2010 | 2010 |
| |unaudited | audited |
+----------------------------------------------------+-----------+----------+
| | | |
+----------------------------------------------------+-----------+----------+
| Zero Dividend Preference Shares | - | 122,119 |
+----------------------------------------------------+-----------+----------+
| | - | 122,119 |
+----------------------------------------------------+-----------+----------+
5a. Current Liabilities
+----------------------------------------------------+-----------+----------+
| In thousands of pounds sterling | | |
+----------------------------------------------------+-----------+----------+
| | 31 | 28 |
| | August |February |
| | 2010 | 2010 |
| |unaudited | audited |
+----------------------------------------------------+-----------+----------+
| | | |
+----------------------------------------------------+-----------+----------+
| Zero Dividend Preference Shares | 127,537 | - |
+----------------------------------------------------+-----------+----------+
| | 127,537 | - |
+----------------------------------------------------+-----------+----------+
The Zero Dividend Preference Shares are due to be repaid on 31 May 2011 or
earlier on winding up of the Company. Based on the outcome of negotiations with
ZDP holders it is anticipated that this liability will not crystallise in a cash
outflow for the Company.
6. Financial Income/ (Expense)
+----------------------------------------------------+-----------+--------------------+
| In thousands of pounds sterling | | |
| | | |
+----------------------------------------------------+-----------+--------------------+
| | Period | Period |
| | ended | ended 30 |
| | 31 | June |
| | August | 2009 |
| | 2010 | unaudited |
| |unaudited | |
+----------------------------------------------------+-----------+--------------------+
| | | |
+----------------------------------------------------+-----------+--------------------+
| Income on REO intercompany advance | 5,418 | 4,820 |
+----------------------------------------------------+-----------+--------------------+
| Interest in respect of zero dividend preference | (5,418) | (4,820) |
| shares | | |
+----------------------------------------------------+-----------+--------------------+
| Net finance expense recognised in income statement | - | - |
+----------------------------------------------------+-----------+--------------------+
| | | |
+----------------------------------------------------+-----------+--------------------+
REO SECURITIES LIMITED
Notes to the INTERIM financial statements continued
7. Taxation
In accordance with the Income Tax (Jersey) Law 1961 the income tax rate for
companies in Jersey was reduced from 20% to 0% with effect from 3 June 2008.
Exempt company status for all new companies was abolished. The Company's 2008
exempt company status remained in place until 31 December 2008. On 1 January
2009 the Company moved to a 0% rate of income tax and accordingly income, other
than Jersey source income (excluding bank deposit interest), is taxed at 0%.
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 period ended 2010.
8. Earnings per Share
+-------------------------------------------+------------+--+--------+--+--------+
| In thousands of pounds sterling, except | | | |
| shares | | | |
+-------------------------------------------+---------------+-----------+--------+
| | Period | Period |
| | ended 31 | ended 30 |
| | August | June |
| | 2010 | 2009 |
| |unaudited |unaudited |
+--------------------------------------------------------+-----------+-----------+
| | | |
+--------------------------------------------------------+-----------+-----------+
| Basic Earnings per Share | | |
+--------------------------------------------------------+-----------+-----------+
| Loss attributable to equity holders | - | - |
+--------------------------------------------------------+-----------+-----------+
| | - | - |
+--------------------------------------------------------+-----------+-----------+
| | | |
+--------------------------------------------------------+-----------+-----------+
| Weighted average number of Ordinary Shares | 2 | 2 |
+--------------------------------------------------------+-----------+-----------+
| | | |
+--------------------------------------------------------+-----------+-----------+
| Basic loss per Ordinary Share (GBP'000) | - | - |
+--------------------------------------------------------+-----------+-----------+
| | | | | | |
+-------------------------------------------+------------+--+--------+--+--------+
9. Group Membership
The Company is a wholly owned subsidiary of Real Estate Opportunities plc., a
company incorporated in Jersey. The consolidated financial statements of Real
Estate Opportunities plc. may be obtained from Ogier Fund Administration
(Jersey) Limited, Whitley Chambers, Don Street, St. Helier, Jersey, JE4 9WG.
10. Related Party Disclosures
REO Securities Limited was incorporated for the purpose of facilitating a scheme
of arrangement to cancel the Zero Dividend Preference (ZDPs) shares in REO and
to issue the new ZDPs in REO Securities Limited on a one for one basis to the
existing shareholders of REO.
This transaction completed in February 2008. Although the new ZDPs 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 ZDPs are substantially
similar to the rights of the ZDPs in REO which were cancelled as part of the
scheme of arrangement.
In order for the Company to have sufficient assets to repay the ZDPs, REO and
the Company previously entered into an arrangement pursuant to an Undertaking
Agreement whereby the net assets of REO will effectively be made available to
meet the repayment entitlement of the ZDPs on the repayment date, 31 May 2011.
REO SECURITIES LIMITED
Notes to the INTERIM financial statements continued
10. Related Party Disclosures (continued)
Pursuant to the Undertaking Agreement, REO agrees to contribute to the Company
(by way of gift, capital contribution or otherwise) such an amount as will
result in the Company having sufficient assets to satisfy the then current or,
as the case may be, final capital entitlement of the ZDPs 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.
11. Subsequent Events
As highlighted in the Chairman's Statement, there have been a number of
significant post balance sheet events in REO and REO Securities Limited since
the period end which include;
· REO has renegotiated the loan facilities relating to Battersea Power
Station with both Lloyds Banking Group and NAMA extending the existing facility
to 31 August 2011 and waiving all outstanding breaches subject to certain
conditions.
· As noted in the Chairman's Statement, the Group has reached outline
agreement with the holder of the OLNs and an ad hoc informal committee of
holders of both the CULS and ZDPs (together the "Committee") on the terms of a
financial restructuring of REO which will also enable the demerger of the
Battersea Power Station. The terms of the financial restructuring includes the
deferral of all principal and interest payments due on the OLNs until 31 May
2011 and are subject to the Group meeting the key milestones outlined in the
Chairman's Statement. The proposals with the Committee involve an equitisation
of the CULS and ZDPs into equity of the demerged Battersea Power Station
subsidiary and REO.
Independent Review Report to REO Securities Limited
Introduction
We have been engaged by the company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 31
August 2010 which comprises the condensed statement of financial position,
condensed interim statement of comprehensive income, condensed statement of
changes in equity, condensed interim statement of cashflows and the related
explanatory notes. We have read the other information contained in the
half-yearly financial report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in the condensed
set of financial statements.
This report is made solely to the company in accordance with the terms of our
engagement to assist the company in meeting the requirements of the Transparency
(Directive 2004/109/EC) Regulations 2007 ("the TD Regulations") and the
Disclosure and Transparency Rules of the UK's Financial Services Authority ("the
FSA"). Our review has been undertaken so that we might state to the company
those matters we are required to state to it in this 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 for our review work, for this
report, or for the conclusions we have reached.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved
by, the directors. The directors are responsible for preparing the half-yearly
financial report in accordance with the TD Regulations and the Disclosure and
Transparency Rules of the UK FSA.
As disclosed in note 1, the annual financial statements of the group are
prepared in accordance with IFRSs as adopted by the EU. The directors are
responsible for ensuring that the condensed set of financial statements included
in this half-yearly financial report has been prepared in accordance with IAS 34
Interim Financial Reporting as adopted by the EU.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review.
Scope of review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410 Review of Interim Financial Information
Performed by the Independent Auditor of the Entity issued by the Auditing
Practices Board. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and accounting
matters, and applying analytical and other review procedures. A review is
substantially less in scope than an audit conducted in accordance with
International Standards on Auditing (UK and Ireland) and consequently does not
enable us to obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do not express an
audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe
that the condensed set of financial statements in the half-yearly report for the
six months ended 31 August 2010 is not prepared, in all material respects, in
accordance with IAS 34 as adopted by the EU, the TD Regulations and the
Disclosure and Transparency Rules of the UK FSA.
Emphasis of matter - going concern and valuation of investment properties and
investment properties under development
In forming our conclusion, which is not qualified, we have considered the
adequacy of the disclosures made in note 1 to the condensed financial statements
concerning:
(i) the impact of current market conditions on the Company's ability to continue
as a going concern and
(ii) the method of valuation of the REO's investment properties and investment
properties under development.
The Company and its parent previously entered into an arrangement whereby the
net assets of REO will be made available to meet the repayment entitlement of
the ZDP shares on the repayment date, 31 May 2011. As set out in note 1 there
are a number of material uncertainties which may cast doubt on the ability of
REO to continue as a going concern. These matters include the approval by the
National Asset Management Agency ('NAMA') of the REO's business plan, the
renewal of existing borrowing facilities, the deferral of interest and
restructuring of capital payments on financial instruments, the receipt of
planning permission on the REO's Battersea property, the restructuring of the
REO's investment in Battersea and the expectation that the REO will raise
capital subsequent to the renegotiation of its debts and the restructuring of
its interest in the Battersea property. While the ultimate outcome of these
matters cannot be assessed with certainty at this time, the Directors are of the
opinion that, based on the current stage of discussions with the various
involved parties, it is appropriate to prepare the condensed financial
statements on the going concern basis.
The condensed financial statements do not include the adjustments that would
result if the Company was unable to continue as a going concern.
REO's principal assets comprise investment properties and investment properties
under development, located in Ireland and the UK, which are being carried in the
financial statements at market value. Given the materiality of these amounts and
the inherent subjectivity in such valuations, we draw your attention to note 1
to the condensed financial statements, which highlights that these valuations
have been carried out solely by the Directors using assumptions, and exercising
certain judgements, based on market conditions as at 31 August 2010.
Sean O'Keefe
For and on behalf of KPMG
Chartered Accountants
Registered Auditor
Dublin, Ireland
27 October 2010
This information is provided by RNS
The company news service from the London Stock Exchange
END
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