Preliminary Results
Off-Plan Fund Limited (The)
21 March 2007
For Immediate Release 21 March 2007
The Off-plan Fund Limited
Preliminary announcement of results
for the period 1 October 2005 to 31 September 2006
The Off-plan Fund Limited, which specialises in providing forward finance to UK
housebuilders, is pleased to announce its preliminary results for the period 1
October 2005 to 31 September 2006.
The Fund is managed by Development Capital Management (Jersey) Limited.
Copies of the Financial Statements are currently being printed and will be sent
to shareholders shortly. They may also be obtained free of charge from
Development Capital Management Limited, 84 Grosvenor Street, London, W1K 3JZ.
List of Contacts
Development Capital Management
Roger Hornett
Andy Gardiner
020 7355 7600
Numis Securities
Adam Shapton
Charles Farquhar
020 7776 1500
Buchanan Communications
Charles Ryland
Isabel Podda
020 7466 5000
Chairman's Statement
I would like to welcome shareholders to my first annual report and financial
statements since becoming Chairman of The Off-plan Fund. The year under review
has seen a number of significant changes to the Fund, renewed interest in the
property sector and an unexpectedly strong growth in the UK residential market.
AIM listing
As I mentioned in the interim report, as part of raising the additional £6.8m
capital and admission to the Alternative Investment Market (AIM) a number of
amendments to the Fund were approved at the EGM held on 14 November 2005. These
changes have now put the Fund on a more viable footing and whilst still small in
size compared to many property funds, the gearing that occurs as a factor of the
deal structure, increases the Fund's exposure in UK residential property
considerably.
Performance
Following the first day of trading on AIM the Fund's shares closed at 101.5p.
Subsequently however, the price has slipped; once in May 2006 to 94p and then
again in July, to its current price of 84p. These two individual sharp falls
highlight the current lack of liquidity in the Fund's stock. The Board and the
Manager are currently looking at a number of ways in which to increase the
shareholder base and address this issue. In addition to this a special
resolution is being proposed at the Fund's AGM in order to maintain the Board's
ability to buy back shares in the Fund. The net assets of the Fund have
decreased 9.2% from 90.76p in September 2005 to 83.4p at the year end. It is
important to note that a significant portion of this change is due to the issue
expenses from the listing and fund raising and from the issue of bonus shares to
the original investors in the Fund. At the interim stage the un-audited NAV
stood at 85.1p. The nature of the Fund's investments mean that, under current
accounting standards, the discounts to market value achieved by the Fund, cannot
be recognised in the reported balance sheet. The Fund therefore obtains an
independent 'Red Book' valuation of the assets within the property portfolio in
order that shareholders can identify this additional value. Valuing the property
contracts on this basis produces a Red Book NAV of £8.2m (88.1p per share) as at
30 September.
Activity
The progress in the past financial year has been somewhat frustrating. By their
very nature property investments can take a long time to finalise and the
Manager has sourced a large number of potential investments, with a significant
proportion reaching advanced negotiations. However it is disappointing to report
that subsequent to the investment in Oldham Place, Liverpool in April, no
further investments were agreed in the period. It is unfortunate in some ways
that the renewed vigour in the residential market has played against the Fund's
strengths, with developers more reluctant to offer terms or stock acceptable to
the Fund. We have however reacted to the market by adapting our investment
approach and focus, underwriting build cost on entire schemes, entering into
profit share arrangements and focussing on smaller to mid-sized developments in
targeted secondary locations where demand is likely to remain strong.
Consequently the Manager is currently in detailed negotiations on potential
investments, representing over £50m of property and we look forward to
announcing some or all of these in the coming year. The first two of these were
announced on 5 March. The sites at Tring and at Hayes will add a further £13.5m
of property exposure to the portfolio.
Other activity during the year included completing in August, the purchase of
the six apartments at Wimbledon House in Leicester. The Manager is currently
looking to let all six apartments while the area undergoes continued
regeneration and a suitable sales price can be achieved. At the time of writing,
two units have been let, with interest shown in two more.
Over the course of the year it became increasingly clear to the Manager that
there were issues at the site in Nottingham that were preventing a successful
sale of the units. A number of discussions were held with the developer's agents
but these proved to be unproductive. Due to these problems, compounded by a
lacklustre local market, the Board, following legal advice, took the decision to
rescind all 30 contracts rather than complete and incur stamp duty. Agreement
was reached whereby £200,000 of the £217,906 deposit was returned. The Manager
believes that, given the outlook for the development the resources are better
allocated to future investments.
Outlook
It is pleasing to report that sales at Oldham Place have been progressing well
and that the Fund has already generated a profit on its investment. In the three
months following the year end, 25 of the 51 units had exchanged and another 9
are under offer. A further marketing push is expected to commence in the coming
months to sell the remaining 17.
Going forward the progress at Oldham Place is confirmation that quality deals
can be executed speedily and profitably. The relationships built up by the
Manager over the year are now providing interesting opportunities, and we expect
to convert these into investments in the near future.
Annual General Meeting
The next Annual General Meeting of the Fund will be held at 9:30am on 16 May
2007 at BNP House Anley Street, St. Helier, Jersey.
Graham Berry
Chairman
February 2007
Managers Report
The year under review has proven to be of mixed blessings; the UK residential
market, in defiance of most expectations, has shown strong growth in 2006,
marking 2005 as the end of the market slowdown. Rising debt levels and
decreasing affordability have yet to have an impact, with most commentators
forecasting good positive growth for the coming year. This has led to a
resurgence of confidence by developers and in turn impacted on the terms the
Fund can achieve, particularly in the areas of discounted purchase price and the
stage at which financing is required. However, as our Liverpool investment has
demonstrated, good quality investments, at the right price are the key to a
successful and profitable investment.
The additional capital raised at the end of 2005, coupled with the high gearing
of twenty times (inherent with the typical 5% deposit), has given the Fund
significant investment capability. We intend to build a diversified portfolio of
significantly geared property contracts purchased at substantially discounted
prices. As outlined in the AIM issue document the Manager seeks to invest only
one half of the Fund's assets in property contracts, with the remainder in short
term bonds, reducing the gearing and ensuring a sufficiently high covenant for a
developer's principal lender. Thus whilst the Fund size may be small, £1m of
property assets will for example convert into exposure of £20m. It is this
dynamic that makes it highly important to select the best developments, but also
ensures exceptional returns on success as demonstrated in Liverpool.
During and subsequent to the last financial year, the Manager has been busy
investigating potential investments throughout the country and whilst a
significant number of these leads have not been fruitful, it has allowed us to
build a wide pool of potential partners. The financing structure developed by
the Manager, has been well received by both developers and lenders and both are
now actively looking to integrate the Fund's financing with future developments.
It is this growing pipeline that we expect to exploit in the future. Property
investment is not a swift business yet we are disappointed with the progress so
far. However we strongly believe that the foundations laid this year will reap
rewards in 2007 and at present we are exploring seven high quality opportunities
worth over £50m gross development value.
The net assets of the Fund at the year end stand at £7.75m (83.4p per share) a
decrease of 9.2% from 90.76p in September 2005. A significant proportion of this
change resulted from the costs of raising a further £6.8m from the issue of new
shares and the 555,002 bonus shares issued to existing investors. At the interim
stage the unaudited NAV stood at 85.1p. Post the year end we announced that the
sales already achieved at Oldham Place would add a further 2p to the NAV with a
further increase of 2p expected once the Fund has fully exited the scheme.
Under current accounting standards any discounts to market value achieved by the
Fund cannot be recognised in the reported balance sheet, with only the book cost
of obtaining the contracts shown. In order that shareholders can identify this
additional value, the Fund therefore obtains an independent 'Red Book' valuation
of the assets within the property portfolio and adjusting for liabilities on
completion, a proforma net asset value is calculated. Valuing the property
contracts on this basis equates to an NAV of £8.2m (88.1p per share) as at 30
September. The effect of the post balance sheet investments announced in March
are expected to add a further 12p to this valuation.
Portfolio and Activity
At the period end the Fund held contracts in respect of 81 apartments in
Liverpool and Nottingham and six completed apartments in Leicester. Post the
period end the Fund rescinded the 30 contracts in Nottingham and sold 25 of the
apartments in Liverpool. The details behind the rescission are laid out under
the Waterfront Plaza heading and the year end accounts reflect the loss. As
mentioned above, independent Red Book valuations have been undertaken on the
property portfolio, as at 30 September 2006, which, excluding Waterfront Plaza,
values it at £9,275,000.
Wimbledon House, Leicester
As reported in the interim statement, the site reached completion during August
and the Fund purchased all six of the apartments at Wimbledon House. The St.
Georges area continues to see further redevelopment with the main focus on the
Performing Arts Centre due for completion at the spring of 2008, only a minute's
walk from the property.
Wimbledon House also falls on the fringe of the New Business Quarter being
master-planned by the Leicester Regeneration Company, which aims to provide
approximately 50,000 square metres of high quality office space. With this
additional development in the local area continuing, the Manager is looking to
let all six apartments and wait for a more opportune time to exit the site. The
purchase price of £935,000 compares to a current Red Book Valuation of
£1,025,000. At the time of writing two of the flats had been let with interest
shown in two others.
Waterfront Plaza, Nottingham
During the year under review, overall progress at the site was disappointing.
Whilst internal work on some units moved ahead, other elements at the site did
not progress. As the year continued and sales of apartments at the site remained
subdued, it became increasingly clear that these problems were preventing a
successful sale of our units. The Manager entered into a number of protracted
discussions with the developer and its agents intended to solve these
difficulties. However these proved to be unsuccessful. The Board and Manager
then sought legal advice and under the terms of the contracts the decision was
taken to rescind all 30 contracts. Initially disputed by the developer,
agreement was however reached to return £200,000 of the £217,906 deposit. Taking
this into account and the costs incurred a loss of £109,308 has been recorded.
At the time of writing approximately 60 of the 109 apartments remain unsold at
the site.
The Manager believes that this was the best decision for the Fund. Completion on
these units would have incurred 4% stamp duty on the purchase price of £4.35m
and we believe that sales would have remained difficult until the site was
complete. By recovering most of the deposit the Fund is free to seek more
profitable investments elsewhere.
Oldham Place, Liverpool
In April the Fund exchanged contracts covering all 51 apartments and parking at
the site in Oldham Place, Liverpool. These are a mixture of one and two bedroom
units, some with parking spaces, in a good city centre position. Located just
east of the city centre the development is a 5 - 10 minute walk from Lime Street
station and 15 minutes walk to the Albert dock area. A number of other
development projects are being planned nearby, adding to the overall
regeneration of the area.
The purchase price for the apartments totalled £6.6m, a 20% discount to the
current Red Book valuation of £8.25m, with a deposit of 5% (£332,489) having
been paid for the exposure. This significant discount has been achieved by
working with the developer and using a more sophisticated financing structure
than simple off-plan purchases. Adapting the Fund's financial offering we
believe will improve the quality of the investments eventually purchased by the
Fund. Following the successful acquisition, a local estate agent undertook
instructions and a small amount of marketing was performed, resulting in 34
reservations at the period end. 25 of these have now been exchanged upon, with 9
remaining under offer. A further marketing campaign is planned in Spring, in
order to secure sales of the 17 units still available. Construction at the site
is due to commence in the second quarter of this year, with final completion due
in December 2008.
Liverpool remains a strong candidate for further investment and the Manager is
seeking further opportunities in the area. The successful sales underline our
belief that a quality portfolio is essential to the development of the Fund,
particularly with the significant gearing connected with these contracts.
Fixed Income Portfolio
During the year under review the additional funds raised were invested in 11 new
holdings and increases to some existing positions. Following the completion on
the apartments at Wimbledon House, £1.5m was realised from the sale of four
holdings.
76% of the Fund's assets are currently held in this portfolio, which will be
drawn upon as property investments are made. The portfolio remains invested in
investment grade, foreign issued, sterling denominated debt, across a spread of
bank issuers and corporates. The maturity profile has reduced to 1.4 years down
from 2 years at the end of the last financial year and in line with rising short
term interest rates, the portfolio yield has increased to 5.1% from 4.9%. The
Manager intends to hold approximately half the Fund's assets in bonds as a
completion reserve, but in line with the new investment restrictions may reduce
this to 30% should it be felt necessary.
Market
At the end of September 2005, we reported on the end of the bull run in property
prices and that homeowners where taking more of a 'wait and see' approach. The
inevitable media speculation around price crashes was then in full swing. The
soft landing that some commentators had hoped for and others dismissed occurred
and whilst transaction volumes were down, prices remained firm. 2006 started
well, albeit there remained scepticism that the momentum would be maintained.
Whilst there was a slight dip in the second quarter, 2006 ended with price
growth up at 10% and sales volumes up 14%. Underlying this, the fundamental
drivers for property prices remained; low supply relative to demand, the rising
number of households, the historical low cost of borrowing and a robust economic
performance.
Going forward, many of these key market drivers remain positive. The Bank of
England forecasts economic growth close to 3% over the next two years, with
inflation falling back to 2% towards the end of 2007. With a stable economic
background and supply / demand imbalances still in place, house prices overall
are likely to continue to grow although local market conditions will vary
considerably. However, as prices continue to rise affordability issues will
increasingly dampen the volume of transactions. The buy-to-let sector should
continue to supplant the first time buyer market as we have seen in previous
years. However as the gap between house prices widens for those trading-up,
existing owners will find it more difficult to move. In line with many
commentators we believe steady price growth will continue which bodes well for
future unit sales.
In the lending markets many of these themes are being played out with total
lending in 2006 increasing by 20% to £346bn. The Council of Mortgage Lenders
(CML) is currently forecasting gross advances to rise by 4% to £360bn in 2007.
Whilst possessions have risen sharply over the year as lenders tighten up on
long term arrears, the CML do not expect a further sharp rise during 2007. It is
worth remembering that both possessions and arrears are a long way off the long
term highs seen in the early 90s and are unlikely to have a major impact on the
market, despite what the media may believe.
Outlook
Whilst undertaking the ongoing reviews and due diligence of local property
markets, the Manager has developed strong relationships with developers, agents
and lenders. In addition to the Manager's own search for investments, a sizable
number of these contacts are now approaching the Fund with suitable investment
opportunities. It is at the point where developers are purchasing new sites and
seeking to put together the financing stack that the Fund's model is most
suited. From these closer relationships and this early stage investment, the
Fund is able to select quality sites whilst decreasing its risk profile by
negotiating larger discounts. For the developer this allows them to better
utilise capital across their portfolio.
At the time of writing the Manager has a small pool of well advanced deals,
which we hope to convert into investments in the near future.
Development Capital Management
(Jersey) Limited
February 2007
Directors Report
The Directors submit their Report and audited Financial Statements for the year
ended September 2006.
The Off-plan Fund Limited (the 'Fund') was incorporated on 22 April 2003 in
Jersey and was launched as an unclassified Fund on 1 December 2003 within the
provisions of the Collective Investment Funds (Jersey) Law 1988.
Principal Activity
The Fund is a closed-ended, Jersey registered, investment company formed to
invest in UK residential development property via the off-plan market.
Listing
The Fund is listed on the Alternative Investment Market.
Investment Objective
The Fund seeks to maximise long-term capital gains through direct investment in
UK residential development property via the off-plan market.
Results and Dividends
It is not intended in normal circumstances that the Fund will pay dividends on
the shares, but capital gains may be distributed at any time during the life of
the Fund, at the Board's discretion. If the Fund completes the purchase of
investment properties and thereafter generates rental yield through letting,
such rental income (net of expenses) may be distributed by way of an annual
dividend (or more frequently at the Directors' discretion if the amount
available is significant) on the shares. It is intended that the Fixed Income
Portfolio will generate sufficient income to meet the Fund's operational
expenses.
In the two years preceding the Fund's wind-up date, the Fund will, at the
Directors' discretion, return to shareholders by way of dividend or a redemption
of shares, the proceeds of any sales of investment properties and any sums held
in cash or in the Fixed Income Portfolio. Shareholders will not have an
automatic right to have their shares redeemed.
The income statement is set out in this Report and Financial Statements. The
Directors do not recommend the payment of a dividend.
Board of Directors
The Directors of the Fund were appointed from the formation of the Fund, except
Graham Berry who was appointed on the 28 February 2006, and as such stands for
election at the AGM.
Shareholders' Interests
Extent of holdings No. of shareholders
10,000 - 99,999 13
100,000 - 999,999 16
1,000,000 - 9,999,999 3
At 5 March 2007 the Fund was aware of the following interests of 3% or more in
the Ordinary share capital of the Fund:
Number % held
Citygate Nominees Ltd 1,225,154 13.18%
Euroclear Nominees Ltd 1,100,000 11.84%
HSBC Global Custody Nominee (UK) Ltd 1,000,000 10.76%
LUTEA Trustees Ltd 769,038 8.27%
UBS Private Banking Nominees Ltd 679,316 7.31%
SG Option Europe S.A. 676,246 7.28%
Grange Nominees Ltd 500,000 5.38%
Credit Suisse Client Nominees (UK) Ltd 450,000 4.84%
Man Financial Limited 400,000 4.30%
W B Nominees Limited 374,112 4.03%
The Directors are not otherwise aware of interests of 3% or more in the Fund's
issued share capital.
Directors' Interests
The maximum amount of remuneration payable to the Directors permitted under the
Articles is £75,000 per annum.
The Directors received in aggregate £28,733 for the year ended 30 September
2006.
The interest of the Directors in the share capital of the Fund as at 30
September are:-
Non Executive Directors Beneficial
Roger Charles Maddock 12187
William Roger King 12187
Roger Maddock is both a Director of the Fund and non-executive Chairman of the
Manager.
By Order of the Board
BNP Paribas Fund Services Jersey Limited
Secretary
Statement of Directors' Responsibilities
The Directors are responsible for preparing the financial statements in
accordance with applicable law and UK accounting standards.
Company law requires the Directors to prepare financial statements for each
financial year which give a true and fair view of the state of affairs of the
Fund and of the profit and loss of the Fund for that period. In preparing those
financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
• prepare the financial statements on a going concern basis unless it is
inappropriate to presume that the Fund will continue in business; and
• state whether applicable accounting standards have been followed, subject to
any material departures disclosed and explained in the financial statements.
The Directors are responsible for keeping accounting records that disclose with
reasonable accuracy, at any time, the financial position of the Fund and enable
them to ensure that the financial statements comply with the Companies (Jersey)
Law 1991. They are also responsible for safeguarding the assets of the Fund and
hence for taking reasonable steps for the prevention and detection of fraud and
other irregularities.
Independent Auditors' Report to the Members of the Off-plan Fund Limited
We have audited the consolidated financial statements of the Off-Plan Fund
Limited and its subsidiary ('the Group') for the year ended 30 September 2006
which comprise the Consolidated Balance Sheet, Consolidated Income Statement,
Consolidated Cashflow Statement, Consolidated Reconciliation of Movements in
Shareholders Funds, Consolidated Statement of Total Recognised Gains and Losses,
and the related notes 1 to 21. These financial statements have been prepared on
the basis of the accounting policies set out therein.
This report is made solely to the Company's members, as a body, in accordance
with the Companies (Jersey) Law 1991. Our audit work has been undertaken so that
we might state to the Company's members those matters that we are required to
state to them in an auditors' report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility to anyone
other than the Company and the Company's members, as a body, for our audit work,
for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditors
The directors are responsible for the preparation of the consolidated financial
statements in accordance with applicable Jersey law as set out in the Statement
of Directors' Responsibilities.
Our responsibility is to audit the consolidated financial statements in
accordance with relevant legal and regulatory requirements and International
Standards on Auditing (UK and Ireland). We report to you our opinion as to
whether the consolidated financial statements give a true and fair view and are
properly prepared in accordance with the Companies (Jersey) Law 1991. We also
report to you if, in our opinion, the Company has not kept proper accounting
records or if we have not received all the information and explanations we
require for our audit.
We read other information contained in the Annual Report, and consider whether
it is consistent with the audited financial statements. This other information
comprises the Chairman's Statement, Manager's Report, Director's Report and
Portfolio of Listed Investments. We consider the implications for our report if
we become aware of any apparent misstatements or material inconsistencies with
the financial statements. Our responsibilities do not extend to any other
information.
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing
(UK and Ireland) issued by the Auditing Practices Board. An audit includes
examination, on a test basis, of evidence relevant to the amounts and
disclosures in the consolidated financial statements. It also includes an
assessment of the significant estimates and judgments made by the directors in
the preparation of the financial statements, and of whether the accounting
policies are appropriate to the Group's circumstances, consistently applied and
adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
Opinion
In our opinion the consolidated financial statements give a true and fair view,
in accordance with United Kingdom Accounting Standards, of the state of the
Group's affairs as at 30 September 2006 and of its loss for the year then ended
and have been properly prepared in accordance with the Companies (Jersey) Law
1991.
Ernst & Young LLP
Jersey, Channel Islands
19 March 2007
Consolidated Balance Sheet
As at 30 September 2006
As at As at
30 September 30
2006 September
2005
Notes (Restated)
Non-current assets £ £
Quoted investments 7 5,941,738 1,280,973
Property contracts yet to complete 7 336,602 362,905
Investment property 7 1,025,000 -
_____________________
7,303,340 1,643,878
Current assets
Debtors 8 366,419 45,280
Cash and cash equivalents 136,200 148,995
_____________________
502,619 194,275
Creditors - amounts falling due within one year
Other payables 9 (54,826) (50,167)
Net current assets 447,793 144,108
_____________________
Total net assets 7,751,133 1,787,986
_____________________
Equity
Stated capital 10 8,739,246 1,970,000
Realised capital reserve 12 (108,348) 1,570
Unrealised capital reserve 12 (51,719) 13,116
Investment property revaluation reserve 12 42,107 -
Issue cost reserve 12 (609,232) -
Revenue reserve 12 (260,921) (196,700)
_____________________
Total shareholders' funds (all equity) 7,751,133 1,787,986
_____________________
Net asset value per Share (pence) 13 83.40 90.76
The financial statements were approved by the Board of Directors on 19 March
2007 and were signed on its behalf by:
Graham Berry
William Roger King
The accompanying notes are an integral part of the financial statements.
Consolidated Income Statement
For the year ended 30 September 2006
(Audited) Year ended
Year ended 30 September 2005
30 September 2006 (Restated note19)
Revenue Capital Total Revenue Capital Total
Notes £ £ £ £ £ £
Realised (losses)
on property
contracts
yet to complete - (109,308) (109,308) - - -
Unrealised - (65,445) (65,445) - 11,607 11,607
(losses)/gains on
investments
Income 2 269,039 - 269,039 77,291 - 77,291
Investment (119,196) - (119,196) (22,010) - (22,010)
management fee 3
Other expenses 4 (214,064) - (214,064) (103,507) - (103,507)
Net (loss)/gain on
ordinary
activities
before finance (64,221) (174,753) (238,974) (48,226) 11,607 (36,619)
costs and taxation
Net (loss)/gain (64,221) (174,753) (238,974) (48,226) 11,607 (36,619)
for the year
(Loss)/gain per
share (pence) 5 (0.82) (2.23) (3.05) (2.45) 0.59 (1.86)
Notes
(a) The total column of this statement represents the profit and loss of the
Company and the Group.
(b) All items in the above statement derive from continuing operations.
(c) The Company has no recognised gains or losses other than those disclosed in
the Income Statement and Reconciliation of Movement in Shareholders' Funds.
(d) The financial statements have been restated to reflect the changes to
accounting practices as set out in the accompanying notes. See note 19 for a
summary of these changes.
Consolidated Cash Flow Statement
For the year ended 30 September 2006
For the year For the year
ended ended
30 September 30 September
2006 2005
£ £
Notes
Cash flows from operating
activities
Investment income received 96,408 28,114
Deposit interest received 46,185 12,793
Investment management fees paid (119,196) (35,315)
Secretarial fees paid (3,651) (3,406)
Other cash payments (190,818) (91,165)
Net cash outflow from operating 14 (171,072) (88,979)
activities
Capital expenditure and investment
activities
Deposits and acquisition costs (1,258,442) (329,182)
relating to property
Purchase of investments (6,253,664) (648,121)
Sale of investments 1,510,369 201,304
Net cash outflow from investment (6,001,737) (775,999)
activities
Net cash outflow before financing (6,172,809) (864,978)
Financing
Issue of shares 6,769,246 -
Expenses of share issue (609,232) -
Net cash inflow from financing 15 6,160,014 -
Decrease in cash (12,795) (864,978)
Consolidated Reconciliation of Movements in Shareholders Funds
For the year ended 30 September 2006
Investment
Share Capital Property Issue Revenue
capital reserves revaluation costs reserve Total
(Restated) reserve reserve (Restated)
For the year ended 30 £ £ £ £ £ £
September 2006
Group
At 1 October 2005 1,970,000 14,686 - - (196,700) 1,787,986
Issue of shares 6,769,246 - - - - 6,769,246
Expenses of share issue - - - (609,232) - (609,232)
(Loss)/gain for the year - (174,753) 42,107 - (64,221) (196,867)
_________________________________________________________________
At 30 September 2006 8,739,246 (160,067) 42,107 (609,232) (260,921) 7,751,133
_________________________________________________________________
For the year ended 30
September 2005
Company
At 1 October 2004 1,970,000 3,079 - (148,474) 1,824,605
Loss for the year - 11,607 - (48,226) (36,619)
_________________________________________________________________
At 30 September 2005 1,970,000 14,686 - (196,700) 1,787,986
Consolidated Statement of Total Recognised Gains and Losses
As at 30 September 2006
2006 2005
£ £
Loss for the financial year (238,974) (36,619)
Gain on revaluation of investment properties 42,107 -
_______________________________________________________________________________
Total gains and losses recognised since last annual report (196,867) (36,619)
___________________
The Group has no other recognised gains or losses that are not shown in the
income statement.
Notes to the Consolidated Financial Statements
1 Accounting Policies
The consolidated financial statements have been prepared under the historical
cost convention, as modified to include the revaluation of quoted investments
and investment properties and in accordance with applicable Accounting Standards
and the Statement of Recommended Practice for 'Financial Statements of
Investment Trust Companies' issued in January 2003 and amended in December 2005.
For the accounting period beginning on 1 October 2004 the Company had the option
to prepare its financial statements in accordance with International Financial
Reporting Standards ('IFRS'), as adopted by the International Accounting
Standards Board ('IASB'). The Board has elected to continue to adopt UK
Generally Accepted Accounting Principles ('UK GAAP') and therefore with the new
Financial Reporting Standards issued as part of the programme to converge UK
GAAP with IFRS. Figures for the year ended 30 September 2005 have been restated
accordingly in note 19.
(a) Basis of consolidation
The financial statements incorporate the financial statements of the Company and
entities controlled by the Company (its subsidiaries) made up to 30 September.
Control exists when the Company has the power, directly or indirectly, to govern
the financial and operating policies of an entity so as to obtain benefits from
its activities. The financial statements of subsidiaries are included in the
consolidated financial statements from the date that control commences up to the
date that control ceases.
The Company has only one subsidiary which it acquired during the year ended 30
September 2006. As the subsidiary has not yet commenced trading, the Company's
financial statements are materially similar in all respects to the Group
financial statements, therefore the Company has presented only Group financial
statements for the year ended 30 September 2006. Details of this subsidiary are
contained in note 6.
(b) Income
Interest income is accrued on a time basis, by reference to the principal
outstanding and at the effective interest rate applicable, which is the rate
that exactly discounts estimated future cash receipts through the expected life
of the financial asset to that asset's net carrying amount. Interest receivable
on cash and short-term deposits is accrued to the end of the financial year.
(c) Quoted investments
Purchases of investments are recognised on a trade date basis and included in
the balance sheet at fair value. Sales of investments are also recognised on a
trade date basis. Proceeds are measured at fair value, which is regarded as the
proceeds of any sale less any transaction costs. The fair value of the financial
instruments is based on their quoted bid prices at the balance sheet date,
without any deduction for any estimated future selling costs.
Changes in the value of investments and gains and losses on disposal are
recognised in the consolidated income statement as 'gains/losses on investments'
and are allocated to realised/unrealised capital reserves as appropriate.
(d) Property contracts yet to complete
The Company has contractual obligations to purchase property that is currently
being constructed, i.e. it has entered into contracts to purchase the property
'off-plan'. Under these contracts the Company is obliged to purchase these
properties at a contracted price, but has the right to sell or transfer the
contract to a third party. The 'Property contracts yet to complete' are included
in the balance sheet at the lower of cost and net realisable value. Cost
includes legal and other expenses incurred to acquire the contracts. The
Directors are of the opinion that it is inappropriate to account for these
contracts using fair value accounting methods because their fair value cannot be
estimated with sufficient reliability.
Realised gains and losses arising on the disposal of these contracts are taken
to the realised capital reserve.
(e) Investment property
Investment properties are measured initially at cost, and subsequently
remeasured to market value, reflecting market conditions at the balance sheet
date. Gains or losses arising from the changes in fair values of investment
properties are included in the consolidated 'statement of recognised gains and
losses', as movements on the investment property revaluation reserve.
2 Income
Year ended Year ended
30 September 2006 30 September
2005
£ £
Income from investments
Income from fixed interest securities 222,854 64,498
Other income:
Deposit Interest 46,185 12793
______________________
269,039 77,291
3 Management fee
Year ended Year ended
30 September 2006 30 September 2005
£ £
Management fee 119,196 22,010
The management fee paid to Development Capital Management (Jersey) Limited (DCM)
was, until 18 January 2006, 1.25% per annum of the net asset value of the fixed
income portfolio held by the Company, plus any cash amount of deposits paid and
outstanding in respect of investment properties or property yet to complete.
This was increased to 2% per annum from 19 January 2006.
The management agreement between the Company and DCM is terminable by either
party on 12 months notice.
4 other expenses
Year ended Year ended
30 September 2006 30 September 2005
£ £
Administration and secretarial services 37,301 36,906
Directors' remuneration 28,733 35,000
Auditors' fees - for audit services 28,200 8,042
Auditors' fees - other services 6,600 -
Legal fees 55,506 9,725
Miscellaneous expenses 57,724 13,834
_________________________
214,064 103,507
5 Returns per share
The revenue loss per share is based on the net loss for the year of £64,221
(2005: loss of £48,226) and on 7,829,398 shares (2005:1,970,000 shares), being
the weighted average number of shares in issue.
The capital loss per share is based on the net loss for the year of £174,753
(2005: gain of £11,607) and on 7,829,398 shares (2005:1,970,000 shares), being
the weighted average number of shares in issue.
6 Subsidiary companies
During the year, the Company acquired the whole of the share capital of OPF
Investment Properties Limited, a Company registered in Jersey. This is the
Company's only subsidiary and it has not yet commenced trading.
7 Fixed interest investments
30 September 2006 30 September
2005
£ £
Opening valuation 1,280,973 819,029
Opening unrealised appreciation (13,116) (3,079)
Opening book cost 1,267,857 815,950
Movements during the year:
Purchases 6,253,664 648,121
Sales - proceeds (1,510,369) (201,304)
Amortisation of fixed income book costs (17,085) 3,520
Sales - realised (losses)/gains (610) 1,570
Closing book cost 5,993,457 1,267,857
Closing unrealised appreciation (51,719) 13,116
________________________
Closing valuation 5,941,738 1,280,973
Property contracts yet to complete
30 September 2006 30 September
2005
£ £
Opening book cost 362,905 18,274
Movements during the year:
Purchases 336,602 344,631
Reclassification to Investment Properties (58,689) -
Sales - proceeds (194,908) -
Sales - realised losses (109,308) -
______________________
Closing book cost 336,602 362,905
The book costs above refer to the acquisition of Oldham Place, Liverpool (51
apartments) and the disposal of Waterfront Plaza, Nottingham (30 residential
apartments). The table below summarises the cost associated with these contracts
and applies the 'Red Book' valuation, prepared by Savills at 30 September 2006,
of the underlying properties as a basis of valuation for these contracts. The
'Red Book' value may not represent the 'fair value' of the contracts as
explained in the 'market price risk' section of note 16.
Waterfront Oldham
Plaza Place Total
£ £ £
Deposits paid 217,906 336,602 554,508
Legal and acquisition costs 86,310 - 86,310
Proceeds on disposal (194,908) - (194,908)
(Loss) on disposal (109,308) - (109,308)
Book cost as at 30 September 2006 - 336,602 336,602
Outstanding completion payments - 6,270,000 6,270,000
______________________________________
Total historic cost - 6,606,602 6,606,602
______________________________________
'Red Book' valuation N/A 8,250,000 8,250,000
Approximate completion date N/A December 2008 N/A
Investment property
30 September 2006 30 September
2005
£ £
Opening book cost - -
Movements during the year:
Reclassification from Properties Yet to 58,689 -
Complete
Completion payment 924,204 -
Closing book cost 982,893 -
Closing unrealised appreciation 42,107 -
Closing valuation 1,025,000 -
8 Debtors
Debtors
30 September 2006 30 September
2005
£ £
Refund due of Nottingham deposit 173,116 -
Interest receivable 183,221 39,690
Prepaid expenses 10,082 3,226
Deposit paid - 2,364
______________________
366,419 45,280
9 Creditors: Amounts falling due within one year
Creditors: Amounts falling due within one year
30 September 2006 30 September
2005
£ £
Amounts due in relation to commitment to - 21,792
investment in property
Accrued expenses 54,826 28,375
_____________________
54,826 50,167
Accrued expenses includes secretarial and administration fees of £9,275 (2005:
£9,125) due to BNP Paribas Fund Services Jersey Limited.
10 Stated capital
Authorised:
The Company is a no par value ('NPV') company
Founder shares 10 10
99,999,990 participating shares 99,999,990 99,999,990
_________________________
100,000,000 100,000,000
Issued:
Founder shares 2 2
Participating shares 9,294,248 1,970,000
On 12 December 2005, 6,769,246 participating shares were issued at 100p raising
net proceeds of £6,160,014. 555,002 bonus participating shares were also issued
on this date.
11 Transaction costs
There were no transaction costs charged to the Company during the year. A
one-off fee, including brokerage costs, is charged by the custodian to the
Manager, Development Capital Management (Jersey) Limited.
12 Reserves
Investment
Capital Capital property Issue
reserve reserve revaluation costs Revenue
realised unrealised reserve reserve reserve Total
£ £ £ £ £ £
At 1 October 2005 1,570 13,116 - - (196,700) (182,014)
Net losses on realisation of (610) - - - - (610)
investments
Loss on disposal of property (109,308) - - - - (109,308)
contract
Movement in unrealised - (64,835) 42,107 - - (22,728)
appreciation
Expenses of share issue - - - (609,232) - (609,232)
Loss on ordinary activities - - - - (64,221) (64,221)
for the year
____________________________________________________________
As at 30 September 2006 (108,348) (51,719) 42,107 (609,232) (260,921) (988,113)
13 Net Asset Value per share
Net asset value attributable per share
2006 2005
p p
Participating shares (note 10) 83.40 90.76
Net asset value
2006 2005
£ £
7,751,133 1,787,986
14 Reconciliation of net revenue loss before finance costs and taxation
to net cash outflow from operating activities
Year ended Year ended
30 September 2006 30 September
2005
£ £
Net revenue loss before finance costs and (238,974) (36,619)
taxation
Losses/(gains) on properties 109,308 -
Losses on investments 65,445 -
Increase/(decrease) in accruals 26,451 (4,931)
(Increase)/decrease in prepayments (6,856) 562
Increase in accrued income (143,531) (32,864)
Amortisation of fixed interest securities 17,085 (3,520)
______________________
Net cash out flow from operating activities (171,072) (77,372)
______________________
15 Analysis of changes in net funds
At At
30 September 2005 Cash flows 30 September
2006
£ £ £
Cash and cash equivalents 148,995 (12,795) 136,200
At At
30 September 2004 Cash flows 30 September
2005
£ £ £
Cash and cash equivalents 1,013,973 (864,978) 148,995
16 Financial Instruments and Property Contract Yet To Complete
The Company's financial instruments comprise fixed interest securities, cash
balances, property contracts and debtors and creditors that arise directly from
its operations, for example, in respect of sales and purchases awaiting
settlement, and debtors for accrued income.
The main risks the Company faces from its financial instruments are (i) market
price risk, being the risk that the value of investment holdings will fluctuate
as a result of changes in market prices caused by factors other than interest
rate or currency movement, (ii) credit risk, (iii) interest rate risk and (iv)
liquidity risk.
The Board reviews and agrees policies for managing each of these risks. The
Manager's policies for managing these risks are summarised below and have been
applied throughout the period. The numerical disclosures exclude short-term
debtors and creditors.
Market price risk
Market price risk arises mainly from uncertainty about future prices of
financial instruments used in the Company's operations. It represents the
potential loss the Company might suffer through holding market positions as a
consequence of price movements.
It is the Board's policy to hold a broad spread of fixed interest investments in
order to reduce risk arising from factors specific to a particular country or
sector. The Manager monitors market prices throughout the year and reports to
the Board, which meets regularly in order to review investment strategy.
The Red Book valuations of the underlying properties, on which the Company holds
contracts are based primarily upon 'The estimated amount for which a property
should exchange on the date of the valuation, between a willing buyer and a
willing seller in an arm's-length transaction after proper marketing wherein the
parties had each acted knowledgeably, prudently and without compulsion.' This
valuation methodology is designed to encapsulate the fair value of the
properties were they complete and held for investment purposes. The Company,
however, holds contracts to purchase these properties once complete and
therefore is exposed to additional risks such as the risk that the development
fails to complete or completes in a sub-standard fashion not accounted for in
the Red Book assumptions. The Company is also exposed to changes in the value of
the property caused by other economic factors.
The contracts are highly leveraged such that small changes in the values of the
underlying properties can generate large changes in the unrealised values of the
contracts. By way of an example the change in value of a contract using a 5%
deposit could be affected by approximately twenty times the change in value of
the underlying asset.
It is the Board's policy to value the property contracts yet to complete at the
lower of cost and net realisable value as set out in 1(d). This eliminates to a
significant degree the effect of market movements in the underlying property on
the value of the contracts. The total purchase price including acquisition
costs, of the fifty-one contracts is £6,606,602 and the Red Book valuation of
the properties as at 30 September 2006 is £8,250,000. Should the Company
complete on all the contracts and subsequent Red Book valuations fall by more
than 20%, the Company would then be exposed to any further falls in the Market,
as the net realisable value would then be below cost.
Credit risk
As part of the fixed interest portfolio the Company places funds with third
parties and is therefore potentially at risk from the failure of any such third
party of which it is a creditor. The Fund expects to place any such funds on a
short-term basis only and spread these over a number of different providers. The
deposits in respect of the property contracts yet to complete and those in
respect of Waterfront Plaza are held in escrow with the developer's solicitors.
This money is only released to the developer on satisfactory completion of the
property. Should a developer default on the contract the deposit and any
interest earned would be returned to the Company.
Interest rate risk
Financial Assets
The interest rate risk profile of financial assets at the balance sheet date was
as follows:
Fixed Rate Floating Rate Non-interest
Bearing
2006 2005 2006 2005 2006 2005
£ £ £ £ £ £
Financial assets 5,941,738 1,280,973 136,200 148,995 - -
Property contracts - - - - 366,602 362,905
yet to complete
All short-term debtors and creditors have been excluded from this disclosure.
The fixed interest assets have a weighted average maturity of 1.4 years (30
September 2005:1.7 years) and a weighted average yield of 5.1% (30 September
2005:4.8%) per annum.
The floating rate assets consist of cash deposits on call, earning interest at
the prevailing market rates.
Changes in interest rates will impact on the value of fixed interest securities
and future cash flows from floating rate holdings. They will have no impact on
the property contracts yet to complete.
Liquidity risk
The Company's assets comprise cash balances and readily realisable securities,
which can be sold to meet funding commitments if necessary. They also comprise
of property contracts yet to complete which are illiquid.
It is the intention of the Board to sell on the property contracts yet to
complete. However should there be insufficient liquidity in the market to enable
this to happen the Company would be liable to pay the remaining commitment set
out in the contracts which is currently £6,270,000.
17 Commitments and Contingencies
During the year, the Company entered into fifty-one property contracts in
respect of Oldham Place, Liverpool. Should none of the property contracts be
sold prior to completion, the Company would be required to pay a further
£6,270,000. Should the developers fail to satisfactorily complete, the deposit
currently held in escrow will be returned together with any interest earned.
18 Subsequent events
Following the year end the Fund rescinded the 30 contracts over the apartments
at Waterfront Plaza in Nottingham. The financial statements have been prepared
to reflect this disposal, see note 7 for details.
19 Restatement of figures
As mentioned in note 1(b), interest earned on financial assets accrues at the
effective interest rate, which is the rate that exactly discounts estimated
future cash receipts through the expected life of the financial asset to that
asset's net carrying amount. Previously, only interest coupons receivable on
such assets were taken to the revenue account, accrued on a daily basis during
the period of ownership of the asset. The effect of adopting this new policy has
been that amounts previously charged or credited to capital account are now
charged or credited to revenue account. The following tables detail the effects
on shareholders' funds:
Before restatement Effects of After
change restatement
£ £ £
As at 30 September 2005
Stated capital 1,970,000 - 1,970,000
Realised capital reserve 616 954 1,570
Unrealised capital reserve 17,590 (4,474) 13,116
Revenue reserve (200,220) 3,520 (196,700)
_________________________________________
1,787,986 - 1,787,986
As at 30 September 2006
Stated capital 8,739,246 - 8,739,246
Realised capital reserve (110,710) 2,362 (108,348)
Unrealised capital reserve (66,442) 14,723 (51,719)
Issue cost reserve (609,232) - (609,232)
Investment property revaluation 42,107 - 42,107
reserve
Revenue reserve (243,836) (17,085) (260,921)
_________________________________________
7,751,133 - 7,751,133
These changes have therefore resulted in a reallocation of shareholders' funds
between retained revenue and capital reserve at the year end, but not in the
overall total shareholders' funds as at these dates.
20 Controlling party
There is no overriding controlling party.
21 Tax
Under Article 123A of the Income Tax (Jersey) law 1961, as amended, the company
has obtained Jersey exempt company status for the year and is therefore exempt
from Jersey income tax on non Jersey source income and bank interest (by
concession). A £600 annual exempt company fee is payable by the company.
Portfolio of Listed Investments
30 September 2006
Market
Nominal Value
£ £
ABN Amro Bank NV 4.875% 07/12/2008 GBP 300,000 297,600
AIG Sunamerica Inst Funding 4.375% 30/12/2008 GBP 300,000 293,907
American Express Credit 5.5% NTS 24/09/07 GBP 75,000 75,083
ANZ Banking Group 4.875% 22/12/2008 GBP 300,000 297,612
Bank Nederland Gemeenten 7.375% 06/08/2007 GBP 200,000 203,458
Bayerische Landesbank 4.875% EMTN 03/03/08 GBP 600,000 597,360
Danske Bank A/S 4.5% 07/12/2008 GBP 300,000 294,930
Deutsche Postbank 7.25% 07/08/2007 GBP 300,000 304,590
Eurohypo SA Luxembourg 5% 15/12/08 GBP EMTN 50,000 49,745
European Bank Recon & Dev 2.95% NTS 26/03/07 GBP EMTN 150,000 148,434
ING Verzekeringen NV 5% 03/03/2008 GBP 300,000 298,260
Japan Bank for International COOP 8% 05/02/2007 GBP 300,000 302,520
Landwirtschaft Rentenbank 4.875% EMTN 07/12/06 GBP 200,000 199,840
LB Hessen Thuringen Giro 5.125% 07/12/2007 GBP 300,000 299,463
Met Life Global Funding I 5.25% 19/12/2008 GBP 300,000 299,190
Morgan Stanley 5% 21/12/2007 GBP 200,000 198,804
Nordic Investment Bank 4.3% 18/12/2007 GBP 100,000 99,127
NRW Bank 4.75% 07/12/07 EMTN GBP 300,000 297,990
Soc Nat Des Chemins de Fer Belges 4.125% 30/12/2008 GBP 300,000 293,367
Total Capital SA 5% 10/09/2007 GBP 300,000 299,427
Toyota Motor Credit 4% 11/12/2008 GBP 300,000 292,821
UBS AG 4.875% EMTN 21/12/07 GBP 200,000 198,900
Westpac Banking 4.875% 28/12/2006 GBP 300,000 299,310
£5,941,738
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