Final Results
China Real Estate Opportunities SA
22 January 2007
News Release
22 January 2007
China Real Estate Opportunities S.A.
Final Results for the year ended 31 December 2006
CHAIRMAN'S STATEMENT
I am pleased to announce the maiden period end results of your company, China
Real Estate Opportunities S.A. (CREO or "the Company"). The results cover the
period from its incorporation on 6 December 2005 to 31 December 2006.
For this period the Company made an operating loss of €5,091,782 and had net
cash of €16,071,203, at the end of the period.
As reported in the interim statement, CREO, through its associate Treasury
Holdings, has committed significant resources to China, with three Treasury
Directors working full time in China for the majority of the period along with
approximately 20 full time staff. With the assistance of Treasury Holdings the
Board of CREO has evaluated a number of potential transactions over the period.
These efforts culminated in the Company's announcement of 14 December regarding
the conditional exchange of contracts for the acquisition of a prime development
property in Beijing known as Xidan Centrepoint Shopping Centre, Office Complex
and Hotel. As under AIM rules the proposed acquisition was classified as a
reverse takeover the shares of the Company were suspended from trading with
effect from 8 December at the Company's request.
Following the announcement the Board reviewed the existing structure of the
Company and taking various factors into account including tax advice, the Board
concluded that it would serve Shareholders interests better over the long term
if the Company were to relocate from Luxembourg to Jersey. It is therefore
proposed to liquidate the Company and to transfer its assets to a new holding
company in Jersey. In order to achieve this, the Board is proposing with
Shareholders' approval that the Company is liquidated and its assets transferred
to a Jersey company in consideration for the Jersey company issuing new shares
to the existing shareholders of CREO Luxembourg. A circular detailing this
proposal and convening an EGM for 12 February 2007 is with this document.
2007 promises to be a year of major change. The programme to redomicile to
Jersey, to gain admission of the new holding company to AIM, to gain Shareholder
approval for the purchase of the Xidan acquisition and complete the acquisition,
and to execute a fund raising exercise is an ambitious and challenging one. It
is a programme however that the Board believes will give the Company the
platform to achieve major success during 2007 and onwards.
Ray Horney
Chairman
Enquiries to:
CREO
Guy Leech, Non-Executive Director
Tel: +353 1 6189300
Teather & Greenwood
Paul Fincham
Tel: +44 (0) 20 7426 7736
Bankside Consultants
Simon Rothschild
Oliver Winters
Tel: +44 (0) 20 7367 8871
Independent auditor's report to the Directors' of China Real Estate
Opportunities S.A.
We have audited the accompanying consolidated financial statements of China Real
Estate Opportunities S.A. ("the Company"), which comprise the consolidated
balance sheet as at 31 December 2006, and the consolidated income statement, and
consolidated cash flow statement for the period then ended, and a summary of
significant accounting policies and other explanatory notes.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these
consolidated financial statements in accordance with International Financial
Reporting Standards. This responsibility includes: designing, implementing and
maintaining internal control relevant to the preparation and fair presentation
of financial statements that are free from material misstatements, whether due
to fraud or error; selecting and applying appropriate accounting policies; and
making accounting estimates that are reasonable in the circumstances.
Auditors' Responsibility
Our responsibility is to express an opinion on these consolidated financial
statements based on our audit. We conducted our audit in accordance with
International Standards on Auditing. Those standards require that we comply with
relevant ethical requirements and plan and perform the audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement.
An audit involves performing procedures to obtain audit evidence about the
amounts and disclosures in the financial statements. The procedures selected
depend on our judgement, including the assessment of the risks of material
misstatement of the financial statements, whether due to fraud or error. In
making those risk assessments, we consider internal control relevant to the
entity's preparation and fair presentation of the financial statements in order
to design audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the entity's
internal control. An audit also includes evaluating the appropriateness of
accounting principles used and the reasonableness of accounting estimates made
by management, as well as evaluating the overall presentation of the financial
statements.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Opinion
In our opinion, the consolidated financial statements give a true and fair view
of the consolidated financial position of the Company as at 31 December 2006,
and of its consolidated financial performance and its consolidated cash flows
for the period then ended in accordance with International Financial Reporting
Standards.
KPMG
Chartered Accountants
Dublin, Ireland
19 January 2007
Statement of accounting policies
for the 13 month period ended 31 December 2006
The following accounting policies have been applied consistently in dealing with
items which are considered material in relation to the financial statements.
Statement of Compliance
The financial statements have been prepared in accordance with International
Financial Reporting Standards (IFRS) and their interpretations adopted by the
International Accounting Standards Board (IASB). The financial statements also
comply with IFRS as endorsed by the European Commission.
Basis of preparation
These financial statements are not the statutory financial statements of the
Company which Luxembourg law requires to be prepared in accordance with
Luxembourg GAAP and company law.
The Company has the ability and financial resources to continue on a going
concern basis however managements' intention, subject to shareholder approval,
is to liquidate the Company. Consequently these financial statements are
prepared on a going concern basis as the liquidation is subject to shareholder
approval. The results and financial position of the Company and Group on a wind
up basis would be the same except that liquidation costs of approximately
€150,000 and wealth tax due on 1 January 2007 of €99,245 have not been accounted
for.
The preparation of these financial statements in conformity with IFRS requires
management to make judgements, estimates and assumptions that affect the
application of policies and reported amounts of assets, liabilities, income and
expenses. The estimates and associated assumptions are based on management's
best judgement as to what is reasonable under the circumstances, the results of
which form the basis of making the judgements about carrying values of assets
and liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates.
Consolidation
The consolidated financial statements comprise the audited financial statements
of the Company and its subsidiary undertakings (subsidiaries) prepared to 31
December 2006.
Foreign currencies
Transactions in foreign currencies are translated to euro at the spot foreign
exchange rate ruling at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies at the balance sheet date are
translated to euro at the foreign exchange rate ruling at that date. Foreign
exchange differences arising on translation are recognised in the income
statement.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits. Cash
equivalents are short-term, highly liquid investments that are readily
convertible to known amounts of cash which are subject to an insignificant risk
of changes in value.
Statement of accounting policies (continued)
for the 13 month period ended 31 December 2006
Income Tax
Income tax on the profit or loss for the period comprises current and deferred
tax. Income tax is recognised in the Income Statement except to the extent that
it relates to items recognised directly in equity, in which case it is
recognised in equity.
Current tax is the expected tax payable on the taxable income for the period,
using tax rates enacted or substantially enacted at the balance sheet date.
Share-based payments
The Company issued equity-settled share-based payments to certain employees.
Equity-settled share-based payments are measured at fair value (excluding the
effect of non market-based vesting conditions) at the date of grant. The fair
value determined at the grant date of the equity-settled share-based payments is
expensed on a straight line basis over the vesting period, based on the
Company's estimate of the shares that will eventually vest and adjusted for the
effect of non market-based vesting conditions.
Fair value is measured using the Black Scholes pricing method. The expected life
used has been adjusted, based on management's best estimate, for effects of
behavioural considerations.
Earnings per share
Basic earnings per share is calculated by dividing the profit or loss
attributable to ordinary equity shareholders by the weighted average number of
ordinary shares outstanding during the period.
Diluted earnings per share is calculated by adjusting profit or loss
attributable to ordinary equity shareholders, and the weighted average number of
shares outstanding, for the effects of all potentially dilutive ordinary shares.
Consolidated Income Statement
From 6 December 2005 to 31 December 2006
Note 2006
€
Operating expenses (5,393,685)
Investment income 2 413,817
----------------
Loss before taxation (4,979,868)
Taxation 3 (111,914)
----------------
Loss for the period 8 (5,091,782)
================
Basic Loss per Ordinary Share 1 €(0.29)
================
Balance sheet
As at 31 December 2006
Group
Note 2006
€
Current assets
Cash and cash equivalents 16,071,203
Trade and other receivables 5 4,971,097
--------------
Total current assets 21,042,300
--------------
--------------
Total assets 21,042,300
==============
Equity
Issued capital 6 23,000,000
Share option reserve 7 1,828,874
Retained loss 8 (5,091,782)
--------------
Total equity attributable to equity shareholders 19,737,092
--------------
Total current liabilities
Trade and other payables 9 1,305,208
--------------
--------------
Total equity and liabilities 21,042,300
==============
Consolidated Cash flow statement
Period ended 31 December 2006
Operating activities 2006
€
Net loss (5,091,782)
Share based payments 1,828,874
Increase in trade and other payables 1,305,208
------------
Cash flows from operating activities (1,957,700)
============
Investing activities 2006
€
Refundable deposit paid (4,971,097)
------------
Cashflows from investing activities (4,971,097)
============
2006
Financing €
activities
Proceeds from issue of share capital 23,000,000
------------
Cashflows from financing activities 23,000,000
============
------------
Net increase in cash and cash equivalents 16,071,203
============
Cash and cash equivalents At 6 At 31
December 2005 Cashflow December 2006
€ € €
Cash and cash equivalents - 16,071,203 16,071,203
Bank overdrafts - - -
----------- -------- ------------
- 16,071,203 16,071,203
=========== ======== ============
The accompanying notes are an integral part of these financial statements.
Notes
Forming part of the financial statements
1. Earnings per share
The calculation of the basic earnings per share at 31 December 2006 was based on
the loss attributable to ordinary shareholders of €5,091,782 and a weighted
average number of ordinary shares outstanding during the period ended 31
December 2006 of 17,669,928 calculated as follows:
2006
Attributable loss €(5,091,782)
Weighted average number of shares 17,669,928
--------------------
Loss per €(0.29)
share ====================
Weighted average number of shares
24,800 ordinary shares issued on 6 December 2005 24,800
18,375,200 ordinary shares issued on 22
December 2005 17,645,128
--------------------
17,669,928
--------------------
Diluted earnings per share is not presented as the potential ordinary shares
are anti - dilutive.
2. Investment income
2006
€
Deposit interest receivable 413,817
==============
3. Taxation
Luxembourg wealth tax 111,914
====================
No income tax arises due to losses incurred.
A deferred tax asset has not been recognised in respect of the losses incurred
as it is not probable that future taxable profits will be available to the
Company.
4. Employees and remuneration
The Company did not employ any persons during the period, save for the directors
who received no remuneration during the financial period.
5. Trade receivables
2006
€
Refundable Deposit 4,971,097
==============
Pursuant to an Escrow agreement dated 13 November 2006 and pre-sale contract
dated 14 December 2006, the Company has deposited €4,971,097 into an escrow
account opened by the escrow agent for benefit of the Company and the vendor.
The pre-sale contract is conditional and as at the balance sheet date these
conditions have not been met.
6. Equity
2006
€
Authorised:
20,000,000 ordinary shares of €1.25 each 25,000,000
==============
2006
Allocated and called up: €
18,400,000 ordinary shares of €1.25 each 23,000,000
==============
On 6 December 2005 24,800 ordinary shares were issued fully paid as subscriber
shares at a price of €1.25 each.
On 22 December 2005 18,375,200 ordinary shares were issued at a price of €1.25
each for cash.
7. Share option reserve
Share options have been conditionally granted over 920,000 ordinary shares in
the Company, equivalent to 5 per cent. of its current issued share capital. The
options, which were granted on 1 February 2006, are not exercisable before 1
February 2008, and their exercise is conditional, inter alia, on the Company
having made an acquisition or acquisitions with a gross value of £100 million or
more.
The options, exercisable at €1.25 per share being the price at which ordinary
shares were issued when the Company was launched in December, 2005, were granted
to the directors of the Company and others involved in the day to day activities
of the Company in China.
The fair value of the options were calculated using the Black-Scholes option
pricing model. The inputs into the model were as follows:
Share price at date of grant €6.22
Strike price €1.25
Expected volatility 100%
Expected life 6 years
Risk free rate 3.49%
The number of options granted to directors of the Company is as follows:
No. of share options
Richard Barrett 365,000
Raymond Horney 75,000
Guy Leech 75,000
Rory Williams 75,000
The share option reserve represents the directors best estimate of the fair
value of the share options conditionally granted as at 31 December 2006.
All options previously granted by the Company under the Share Option Plan will
be cancelled following passing of the resolutions at the forthcoming EGM.
Cancellations of options are treated as an acceleration of vesting and the
Company will recognise immediately in income the amount that would otherwise
have been recognised for service over the remainder of the vesting period.
8. Reconciliation of movements in shareholders' funds
2006
€
Total recognised losses for the period (5,091,782)
Opening shareholders' funds - equity -
Share option reserve 1,828,874
Share capital issued during the period 23,000,000
--------------
Closing shareholders' funds - equity 19,737,092
==============
Loss for the financial period (5,091,782)
Profit and loss account at beginning of period -
--------------
Profit and loss account at end of period (5,091,782)
==============
9. Trade and Other payables
2006
€
Trade creditors 182,211
Accrued expenses 1,011,083
Wealth tax 111,914
--------------
1,305,208
==============
10. Related party disclosures
The interests of the Directors in the share capital of the Company are as
follows:
Number of Ordinary Percentage of issued share
Shares at 31 December 2006 capital 31 December 2006
-------------------- --------------------
Director Note
---------- ------ ------------- --------------------
Ray Horney 1 2,400,000 13.0
Richard Barrett 2 8,014,000 43.6
Guy Leech 300,000 1.6
Rory Williams 120,000 0.7
Note:
1. This includes 600,000 Ordinary Shares acquired by family trusts associated
with Mr Horney. Mr Horney also holds approximately 3.51 per cent of the issued
share capital of REO which is a substantial shareholder of the company.
2. This includes 4,800,000 Ordinary Shares acquired by REO representing
approximately 26.1 per cent. of the issued share capital of the Company.
Costs incurred by certain directors of the Company in carrying out their duties
amounting to €50,000 are included within accrued expenses. These costs were paid
to the directors by Treasury Holdings and will be reimbursed by the Company.
During the period the Company paid a deposit of $5.125m on a property in China.
Subsequently Real Estate Opportunities Limited ("REO") entered into an agreement
to acquire this property replacing CREO as the purchaser. Therefore this deposit
was refunded to the Company by REO during the period.
During the period Treasury Holdings paid an amount of €220,000 on behalf of the
company. This sum was refunded to Treasury Holdings during the period.
Treasury Holdings provided certain administration and support services during
the period at no cost to CREO.
The Company has the following subsidiaries
Name and registered Details of Proportion Principal activity
office investments held by
company
China Real Estate 2 Ordinary shares 100% Property development
Opportunities Jersey Limited of €1.25 each and investment
Whiteley Chambers, Don St,
St Helier, Jersey JE 4 9WG
CREO XIDAN (NO.1) Limited 2 ordinary shares 100% Property development
Whiteley Chambers, Don St, of no par and investment
St Helier, Jersey JE 4 value each
9WG
11. Commitments
As at 31 December 2006 the Company had not committed to any expenditure which
has not been included in these financial statements.
12. Post balance sheet events
As disclosed under principal activities in the Directors' report it is proposed
to liquidate the Company and to transfer its assets to a new holding company in
Jersey.
13. Approval of financial statements
These financial statements were approved by the directors on 19 January 2007.
14. Copies of the Company's report and accounts have been sent to Shareholders.
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