RNS Number:0227I
Ottoman Fund Limited (The)
19 November 2007
For Immediate Release 19 November 2007
THE OTTOMAN FUND LIMITED
Preliminary Results for the year ended 31 August 2007
The Ottoman Fund Limited (the "Fund"), established to provide early stage
wholesale financing to the developers of new-build residential developments in
Turkey, is pleased to announce preliminary results for the year ended 31 August
2007. The Fund seeks to provide its shareholders with a high level of long-term
capital appreciation through investment in the Turkish residential property
market.
Period highlights
*931,739m2 of land purchased in Riva for $119m
*50% investment in 264,524 m2 of land at Kazikli
*Initial marketing of Gulturkbuku, Bodrum commenced
*Strong progression of planning and design stages
Sir Timothy Daunt, Chairman of the Fund, commented:
"The real estate market looks set for continued growth with the new mortgage law
set to replace housing loans in January 2008, strong local demand arising from
the deficit of quality housing stock and a rapidly expanding population, and
increasing overseas interest for second homes in the region. There is every
prospect of orderly realisation of the Fund's assets, so as to maximise value
for shareholders over the coming 18-24 months."
Copies of the Financial Statements are currently being sent to shareholders and
may be obtained free of charge from Development Capital Management Limited, 84
Grosvenor Street, London, W1K 3JZ.
Contacts:
Development Capital Management 020 7355 7600
Tom Pridmore
Andrew Mitchell
Roger Hornett
Buchanan Communications 020 7466 5000
Charles Ryland
Isabel Podda
Numis Securities Ltd 020 7260 1000
Bruce Garrow
Nick Westlake
THE OTTOMAN FUND LIMITED
ANNUAL REPORT AND FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2007
Chairman's Statement
Since I last reported to shareholders in May of this year, the Fund has been
focusing heavily on development of land which it invested in during 2006. This
process has included managing zoning and planning permission approvals across
all the sites, selecting and engaging high quality master planners, architects
and designers and commencing the initial marketing phase of Golturkbuku, Bodrum.
This activity has further enhanced the reputation of the Fund locally as a
significant property investor in Turkey, notably through its leading role in the
development of the Riva area.
With the share price trading circa 5% below NAV per share, despite these
positive developments and good prospects for Turkey, a strategic review was
commissioned. Orderly realisation of the portfolio over 18-24 months has now
been put in hand, with proceeds being returned to shareholders.
Investment portfolio
As reported in May, the Fund acquired two further sites in Riva and Kazikli, for
$110m and $10m respectively. Although there was some strategic aggregation of
small land parcels at Riva and Bodrum to improve the capital value of the
existing land investment, the fund focused on the development of its existing
sites.
The Fund has invested a total of US$163 million in land at Riva, Kazikli and
Golturkbuku, Bodrum. These investments were revalued at the year end at US$202
million, an increase of 24% in US dollar terms. The Fund's NAV based on the fair
value of underlying assets at 31 August 2007, as disclosed in the Manager's
report, was 98.4p per share taking into account the devaluation of the US dollar
against the pound. Disregarding exchange rate fluctuations, the NAV per share
would stand at 104.2p.
Turkey
The recent Parliamentary election resulted in the return of the right wing
Justice and Development Party (AKP) with 46.3% of the vote. Recep Tayyip Erdogan
was reappointed Prime Minister and Abdullah Gul subsequently elected President.
The AKP currently has a popularity rating in excess of 50%. The political
uncertainties of mid 2007 have therefore been largely removed.
The economy is performing well with unemployment and inflation hitting record
lows during the year and is on course to break into the top 10 global economies
in the next 20 years. With corporation tax falling from 30 per cent to 20 per
cent, EU membership discussions ongoing and a continuing privatisation
programme, foreign direct investment is steadily increasing.
During the first half of 2007 the number of tourist visitors rose by 16.5%.
Further investment in airports and hotels, notably in the Izmir region, are
adding to the attraction of Turkey as a holiday destination.
Corporate
On 30 August 2007 the Board announced a strategic review, appointing Numis
Securities and Fenchurch Advisory Partners jointly to advise the Fund. At its
conclusion, the Board announced on 1 November 2007 that the portfolio was to be
progressively realised in a managed way over the next 18-24 months so as to
maximise its value potential, with all sales proceeds returned to shareholders.
A share buy back scheme to return US$30 million to shareholders was announced at
the same time.
Also recently announced was the appointment of John Chapman to the Board. John
has extensive experience working in the investment fund sector and I look
forward to him making a substantial contribution to the Fund.
Prospects
The real estate market looks set for continued growth with the new mortgage law
set to replace housing loans in January 2008, strong local demand arising from
the deficit of quality housing stock and a rapidly expanding population, and
increasing overseas interest for second homes in the region. There is every
prospect of orderly realisation of the Fund's assets, so as to maximise value
for shareholders over the coming 18-24 months.
Sir Timothy Daunt
Chairman
November 2007
Manager's Report
The Manager's focus is now firmly on maximising value from the existing
portfolio in terms of planning, design, construction and marketing. With the
previously established local trading relationships progressing well, the Fund is
in an excellent position to fully capitalise on the opportunity presented by
Turkey's deficit of quality housing stock and rising demand prompted by its
rapidly expanding population and newly emerging mortgage market.
Investment activity
Golturkbuku, Bodrum
Acquired in April 2006 for $34.3m and increased to $39.6m during the year,
through the acquisition of two land parcels totaling 18,350 square metres, the
site at Golturkbuku is progressing well and is being developed into 247 units of
villas, apartments and hotel villas with a built area of approximately 50,000
square metres.
A hotel and residence management and interior design services agreement has been
signed with Banyan Tree Hotels and Resorts, the renowned premium hotel resort,
residence and spa operator, who have selected the development for their first
offering in Turkey. This partnership illustrates, and will only enhance further,
the Fund's reputation locally. Banyan Tree's involvement is a validation of the
Fund's decision to invest in the project and is expected to significantly
increase the sales prices that can be achieved for the development. The first
phase of 16 units was officially released in September and all these units were
reserved within one month. Construction of road infrastructure and the on-site
sales suite commenced in November on schedule.
Riva
There have been further additions to the original acquisition of 917,900 square
metres of land in Riva, which is part of the Beykoz-Riva-Kavacik sub-region, in
the north eastern part of the Asian side of Istanbul, adjoining the Black Sea
coast. The additional parcels of land have been aggregated to 931,739 square
metres.
There are unquestionable factors arising from the Istanbul housing market that
support the attractiveness of this development, from the increase in demand
being generated by the increase in new households (on average 120,000 per
annum), the requirement to replace existing properties due to age and earthquake
non-compliance (circa 30,000 units per annum) and the government's commitment to
urban regeneration (circa 60,000 units per annum). The second bridge over the
Bosphorous has improved access to the central business districts of the European
side of Istanbul since the early 1990's and this has been enhanced further
recently by a major highway connecting Riva with eastern Istanbul. Recent land
prices in Riva, showing a 25% increase, are reflective of the growing interest
in the area and the limited availability of developable land in Istanbul. Master
planning for the Riva region by the Istanbul municipality is continuing.
Local architects have been engaged by the Fund and have commenced technical
designs for the coastal parcel's of the Fund's site. Construction permits have
now been granted in respect of four coastal single villa sites.
Kazikli
This $10m investment in a prime coastal development, 25 miles from Bodrum-Milas
International airport, is planned for development into approximately 330 units,
comprising villas, apartments and a hotel complex with yachting facilities. It
is jointly owned by the Fund and the Ado Group, one of Turkey's largest
suppliers of building materials. The required zoning plans have been obtained
from the local authorities and there has been a subsequent increase in permitted
building density from 49,000 square metres to 74,000 square metres, resulting in
a 51% increase in buildable area.
The master plan and concept design process is now underway and is being
performed by Atelier Xavier Bohl, who has a strong reputation from his work on
Port Alacati, Marina Limassol and Larnaca. Construction is planned to commence
in Q1 2008, with completion by Q1 2010.
Alanya
The 16,400 square metre site consists of 215 apartments of which the Fund has
financed 107. Sales opportunities remain subdued due to a combination of
increased supply, competition from other units sales in the same development and
lower pricing from lower quality developments in the immediate area. The Manager
is very conscious of this situation and is attending the leading real estate
exhibitions in Germany, Norway and Sweden to strengthen connections with sales
agents in these key markets.
The recent announcement of construction of a new airport at Gazipasa, in close
proximity (only 30km) to Alanya, is expected to have a beneficial impact upon
sales. Currently those visiting or holidaying in Alanya have to fly to Antalya
international airport - a 90-minute car journey away. The new airport will cut
the post flight travel time to only 20 to 30 minutes and is expected to be
operational by mid 2008.
Valuation
Set out below is the recently completed independent revaluation of the Fund's
assets that cannot be reflected on the balance sheet under IFRS, but is
disclosed in note 8 to the financial statements.
Net assets as at 31 August 2007 #137,386,660
Increase in valuation of inventory properties
Golturkbuku, Bodrum #3,583,496
Riva #14,264,777
Kazikli #1,110,604
Total increase in valuation of inventory properties at #18,958,577
acquisition exchange rate
NAV (fair value basis) before foreign exchange loss #156,345,237
NAV per share (fair value basis) before foreign exchange loss 104.2p
Foreign exchange loss #(8,742,360)
Net asset value (fair value basis) #147,602,877
Number of ordinary shares in issue 150,000,000
Net asset value per share at 31 August 2007 (fair value basis) 98.4p
Net asset value per share at 31 August 2006 (fair value basis) 92.7p
The political climate
The Manager is positive regarding the outcome of the recent Parliamentary and
Presidential elections. The threat of military intervention has receded and
there is a greater feeling of freedom and liberalism.
Turkey had been entwined in a pre-electoral phase for more than a year, with the
press and business leaders convinced of anticipated elections, a situation which
held back private sector investment but encouraged unsustainable public sector
front-end loading.
In the event, unsuccessful and controversial presidential elections were held on
May 1st forcing PM Erdogan to go to the country on 22 July. Abdullah Gul, a long
time ally of the Prime Minister and at the time the Foreign Minister, had been
the only candidate for the presidency. The result was a stand-off over the
mechanics of the electoral process as laid down by the constitution and an
objection, upheld by the Supreme Court, to Gul's candidacy. PM Erdogan had no
alternative but to call a General Election.
The election result indicated that there is no longer any significant appetite
in Turkey for military intervention in politics, with the AKP, right wing
Justice and Development Party swept back to unitary power with 46.3% of the vote
gaining 341 of the 550 Meclis seats from an 84% turnout. Since then the AKP's
popularity has increased to around 54%.
The new government lost no time in calling new presidential elections with
Abdullah Gul standing again against two other candidates, one from the MHP and
the other from the DSP. The main opposition CHP refused both to put forward a
candidate and to vote. Abdullah Gul was successful in the third round on August
28th gaining a simple majority and was duly sworn in promising to be the
President of all the people, adding that the Constitution would ensure secular
control.
EU negotiations
EU negotiations were put on hold by the Turkish government prior to the
elections and so there has been little progress in the period. However the new
government has confirmed its commitment to membership.
The economy
The six months under review has been a relatively successful one in economic
terms, with unemployment dropping to a post WWII low of 8.9% from February's
high of 11.4%, considered by many to be the main election issue. In July,
inflation, as measured by the CPI fell to an all time recorded low of 6.9%, an
achievement which should not be underestimated.
The economy grew by a real 3.9% in the second quarter, following 6.8% in the
first and in comparison with 6.1% for the whole of 2006, when nominal GDP was
exactly US$400bn. Private consumption fell by 0.3% but government consumption
surged 26%, primarily as a result of a 47% acceleration in public works,
boosting overall construction by 15.7% and GDFCF by exactly 10.0%. Without the
government's pre-electoral surge total investment might well have been negative.
Despite such spending the first half year budget deficit improved to $13.3bn
(2.7% of GDP) from $14.1bn in the comparable 2006 period.
Both the trade and current accounts remain a problem but are not insurmountable
and the decision in late September by the Central Bank to lower interest rates
by 25 basis points reflects the Governor's confidence in the ability of the
government to control inflation. It should also help an overvalued Lira, which
at Ytl/$1.22 is harming exports. Two further recent interest rate cuts of 50
basis points each should further boost economical output and strengthen the
housing market.
Tourism
It is always difficult to gauge just how tourism plays a part in any second
homes market but there is undoubtedly a strong link in Turkey as the improvement
in coastal apartment prices over the last two years indicates. Looking over the
15 years to end 2005, according to the OECD, tourism rose by 241%.
In the first half of 2007 tourism rose by 16.5% as measured by tourist arrivals,
although heavy discounts would suggest that in revenue terms there will be
little change from the previous year. The new Izmir terminal and the opening of
5 new hotels in the vicinity led to a pick up of 15% in that region alone. Such
a pace of growth has continued into July and August, unaffected by bomb attacks
in both May and June in Ankara where 6 were killed and 56 injured.
The property market
The Turkish residential property market tends to be volatile with average prices
not always an indication of underlying trends in the high end sector where
demand exceeds supply. This is particularly true of regional pockets in Istanbul
and its environs.
The election process and the accompanying atmosphere of uncertainty led to some
sharp falls in average prices in May and June. However given the overall surplus
housing demand in excess of 350,000 units arising from the high population
growth, the Manager expects this trend to be short lived. Istanbul saw average
residential property prices fall by 1.3% in May and 6.6% in June, whereas Izmir
recorded declines of 6.3% and 18.1% respectively. In June only Ankara managed to
constrain the decline to below 6.0%, the 4.5% drop following on from a 2.5% fall
the previous month. Antalya fell 2.1% in May followed by 14.5% in June. However
in central Istanbul apartment prices bear out our earlier point. A high end 3
bed unit overlooking the water can command upwards of $3,250 per square metre
against prices as low as $2,200 in other parts. Indeed such high end apartments
regularly sell for $500,000 to $600,000.
The news that the new mortgage law, extending loan periods and encouraging
inter-bank competition, was coming into force in January 2008 was well received
by the market with 71.0% of all loans outstanding converted to the more
attractive mortgage formula by the 6 June deadline. The level of mortgage debt
was 4.5% of GDP at the end of 2006, compared to 55% in the UK, illustrating the
potential for more structured housing growth. Arguably the decision not to allow
tax relief on mortgage interest paid is a sensible one and may well have
prevented the market from overheating very rapidly. It is interesting that
despite high interest rates by western economy standards, default levels on
housing loans are only 0.2% against 0.8% in the UK and 1.7% in the US.
Given the benign level of inflation and the overvalued currency it is likely
that the Central Bank will continue to lower interest rates between now and the
end of the year. Many economists are penciling in a level of 16.0% and this
seems a reasonable and possibly conservative target. There is no compelling
reason why further declines cannot take place in 2008, which combined with the
mortgage law, should produce a pick up in both demand and prices.
Prospects
The economy, and specifically the property sector, continue to provide positive
results, which, together with its strong strategic relationships locally, should
enable the Fund to progress its developments in line with expectations.
The Manager will continue to focus on progressing the existing portfolio in line
with the proposed realisation strategy.
Development Capital Management (Jersey) Limited
November 2007
Financial summary and investment portfolio
The portfolio currently consists of land, cash, money market funds and financing
agreements over property in Turkey. Under IFRS development property must be
shown at book cost, therefore in order to show an indicative value for these
investments, the projects have been externally valued using a study on
comparable market prices.
Development Category Area No. of Invested Current Market
units Funds Valuation
Golturkbuku Land 185,175 250 #23m #23m
Riva Land 931,739 1,000** #62m #71m
Kazikli Land 123,832 330** #5m #6m*
Alanya Loan 14,024 107 #7m #7m
Development Totals #97m #107m
* This represents the Fund's 50%
share.
** Estimates
CONSOLIDATED BALANCE SHEET
As at 31 August 2007
Group Company Group Company
2007 2007 2006 2006
notes # # # #
Non-current assets
Intangible assets 7 3,099 - - -
Investment in 11 - 5 - 5
subsidiaries
Inventories 8 89,927,782 - 19,377,286 -
Loans and receivables 9 7,211,525 96,468,242 4,381,865 81,928,195
97,142,406 96,468,247 23,759,151 81,928,200
Current assets
Other receivables 13 597,017 24,345 612,736 265,720
Cash and cash 18 44,898,891 35,221,363 114,862,336 56,053,485
equivalents
45,495,908 35,245,708 115,475,072 56,319,205
Total assets 142,638,314 131,713,955 139,234,223 138,247,405
Current liabilities
Other payables 14 (5,251,654) (149,288) (197,125) (196,542)
Net assets 137,386,660 131,564,667 139,037,098 138,050,863
Equity
Share capital 15 150,000,000 150,000,000 150,000,000 150,000,000
Retained earnings 16 (12,613,335) (18,435,333) (10,962,860) (11,949,137)
Equity attributable to 137,386,665 131,564,667 139,037,140 138,050,863
owners of the parent
Minority interest (5) (42) -
equity
Total Equity 137,386,660 131,564,667 139,037,098 138,050,863
Net asset value per 17 91.6 87.7 92.7 92.0
Ordinary share (pence)
These financial statements were approved by the Board of Directors on 14
November 2007.
Sir Timothy Daunt Roger King
CONSOLIDATED INCOME STATEMENT
For year ended 31 August 2007
Year ended Period ended
31 August
2007 9 December to
31 August 2006
notes # #
Income
Bank interest 2,607,646 3,709,237
Total income 2,607,646 3,709,237
Operating expenses
Management fee 4 (2,999,985) (2,030,136)
Other operating expenses 5 (1,026,652) (663,645)
Foreign exchange losses 10 (4,646) (210,870)
Total operating expenses (4,031,283) (2,904,651)
(Loss) / profit for the period (1,423,637) 804,586
Attributable to:
Equity shareholders of the company (1,423,656) 804,585
Minority interest 19 1
(1,423,637) 804,586
Basic and diluted earnings per share 6 (0.95) 0.54
(pence)
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For year ended 31 August 2007
Share Retained Minority
capital earnings interest Total
Group
For the period 9 December 2005 # # # #
to 31 August 2006
Profit for the period - 804,587 (1) 804,586
Issue of shares 150,000,000 - - 150,000,000
Expenses of share issue - (11,250,000) - (11,250,000)
Foreign exchange on subsidiary - (517,447) (41) (517,488)
translation
At 31 August 2006 150,000,000 (10,962,860) (42) 139,037,098
Group
For the year ended 31 August # # # #
2007
Balance at 1 September 2006 150,000,000 (10,962,860) (42) 139,037,098
Loss for the year - (1,423,656) 19 (1,423,637)
Foreign exchange on subsidiary - (226,819) 18 (226,801)
translation
At 31 August 2007 150,000,000 (12,613,335) (5) 137,386,660
Share Retained Minority
capital earnings Interest Total
Company
For the period 9 December 2005 # # # #
to 31 August 2006
Loss for the period - (699,137) - (699,137)
Issue of shares 150,000,000 - 150,000,000
Expenses of share issue - (11,250,000) - (11,250,000)
At 31 August 2006 150,000,000 (11,949,137) - 138,050,863
Company
For the year ended 31 August # # # #
2007
Balance at 1 September 2006 150,000,000 (11,949,137) - 138,050,863
Loss for the year - (6,486,196) - (6,486,196)
At 31 August 2007 150,000,000 (18,435,333) - 131,564,667
CONSOLIDATED STATEMENT OF CASH FLOWS
For year ended 31 August 2007
Group Company Group Company
Period ended Period ended
Year ended Year ended 9 December 9 December
2005 to 2005 to
31 August 31 August 31 August 31 August
2007 2007 2006
2006
# # # #
Bank Interest received 2,607,646 2,169,409 3,709,237 3,708,374
Total operating expenses (4,031,283) (8,655,605) (2,904,651) (4,407,511)
(Loss)/ profit for the (1,423,637) (6,486,196) 804,586 (699,137)
period
Net foreign exchange 4,646 4,860,223 210,870 1,722,927
losses
Decrease / (increase) in 15,719 241,375 (612,736) (265,720)
other receivables
Increase / (decrease) in 89,039 (47,254) 197,125 196,537
other payables
Net cash (outflow) / (1,314,233) (1,431,852) 599,845 954,607
inflow from operating
activities
Cash flow from investing
activities
Loans to subsidiaries - (19,407,111) - (83,530,638)
Purchase of inventories (65,585,006) - (19,768,599) -
Loan to developer (2,750,760) - (4,472,247) -
Net cash outflow from (68,335,766) (19,407,111) (24,240,846) (83,530,638)
investing activities
Cash flow from financing
activities
Issue of shares - - 150,000,000 150,000,000
Share issue expenses - - (11,250,000) (11,250,000)
Net cash inflow from - - 138,750,000 138,750,000
financing activities
Net (decrease) / increase (69,649,999) (20,838,963) 115,108,999 56,173,969
in cash and cash
equivalents
Cash and cash equivalents 114,862,336 56,053,485 - -
at start of the period
Effect of foreign exchange (313,446) 6,841 (246,663) (120,484)
rates
Cash and cash equivalents 44,898,891 35,221,363 114,862,336 56,053,485
at end of the period
Notes to the Financial Statements
1 General information
The Ottoman Fund Limited invests in Turkish new build residential property in
major cities and coastal destinations aimed at both the domestic and tourist
markets.
The Company is a limited liability company domiciled in Jersey, Channel Islands.
The Company has its primary listing on the Alternative Investment Market (AIM).
These consolidated financial statements have been approved by the Board of
Directors on 14 November 2007.
2 Accounting policies
The consolidated financial statements of the Fund for the period ended 31 August
2007 comprise the Fund and its subsidiaries (together, the 'Group') and have
been prepared in accordance with International Financial Reporting Standards
(IFRS) issued by the International Accounting Standards Board (IASB) and
interpretations issued by the International Financial Reporting Committee of the
IASB (IFRIC).
(a) Basis of preparation
The financial statements have been prepared on a historical cost basis, except
for certain financial instruments detailed below.
(b) Basis of consolidation
Subsidiaries
The consolidated financial statements incorporate the financial statements of
the Fund and entities controlled by the Fund (its subsidiaries) made up to 31
August each year. Control exists when the Fund 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.
Joint ventures
A joint venture is a contractual agreement whereby two or more entities
undertake an activity that is the subject of joint control. The results and
assets and liabilities of joint ventures held by subsidiaries are incorporated
in these financial statements using the proportionate consolidation method.
(c) Revenue recognition
Interest receivable on fixed interest securities is recognised on an effective
yield basis. Interest on short term deposits, expenses and interest payable are
treated on an accruals basis.
(d) Expenses
All expenses are charged through the income statement in the period in which the
services or goods are provided to the fund except for expenses which are
incidental to the disposal of an investment which are deducted from the disposal
proceeds of the investment.
(e) Non-current assets
Intangible assets
Intangible assets are stated at cost less any provisions for amortisation and
impairments. They are amortised over their useful life. At each balance sheet
date, the Group reviews the carrying amount of its intangible assets to
determine whether there is any indication that those assets have suffered an
impairment loss.
General
Assets are recognised at the trade date on acquisition and disposal. Proceeds
will be measured at fair value which will be regarded as the proceeds of sale
less any transaction costs.
Inventories
Inventories are stated at the lower of cost and net realisable value. Land
inventory is recognised at the time a liability is recognised - generally after
the exchange of unconditional contracts.
Loans and receivables
Loans and receivables are recognised on an amortised cost basis. Where they are
denominated in a foreign currency they are translated at the prevailing balance
sheet exchange rate.
(f) Cash and cash equivalents
Cash and cash equivalents comprise current deposits with banks.
(g) Taxation
The Fund is an Exempt Company for Jersey taxation purposes. The Fund pays an
exempt company fee for each company within the Group, which is currently #600
per annum. However, withholding tax may be payable on repatriation of assets and
income to the Fund.
The subsidiaries will be liable for Turkish corporation tax at a rate of 20%.
Additionally, a land sale and purchase fee may arise when land is purchased.
Deferred tax is recognised in respect of all temporary differences that have
originated but not reversed at the balance sheet date, where transactions or
events that result in an obligation to pay more tax in the future or right to
pay less tax in the future have occurred at the balance sheet date. This is
subject to deferred tax assets only being recognised if it is considered more
likely than not that there will be suitable profits from which the future
reversal of the temporary differences can be deducted.
(h) Foreign currency
The results and financial position of the Fund are expressed in pounds sterling,
which is the functional currency of the Fund.
Transactions in currencies other than sterling are recorded at the rates of
exchange prevailing on the dates of the transactions. At each balance sheet
date, monetary items and non monetary assets and liabilities that are fair
valued and that are denominated in foreign currencies are retranslated at the
rates prevailing on the balance sheet date. Exchange differences on translation
of the Fund's net investment in foreign operations are recognised directly in
equity.
(i) Share capital
Ordinary shares are classified as equity. External costs directly attributable
to the issue of new shares are shown as a deduction to reserves.
(j) New standards and interpretations not applied
During the year, the IASB and IRIC have issued the following standards and
interpretations to be applied to financial periods commencing on or after the
following dates:
International Accounting Standards (IAS/IFRS)
IFRS 7 Financial Instruments: Disclosures - effective on or after 1 January 2007
IFRS 8 Operating Segments - effective on or after 1 January 2009
International Financial Reporting Interpretations Committee (IFRIC)
IFRIC 11 Group and Treasury Share Transactions - effective on or after 1 March
2007
IFRIC 12 Service Concession Agreements - effective on or after 1 January 2008
The directors do not anticipate that the adoption of these standards and
interpretations will have a material impact on the financial statements in the
period of initial application. Upon adoption of IFRS 7, the Group will have to
disclose additional information about its financial instruments, their
significance and the nature and extent of risks that they give rise to. There
will be no effect on reported income or net assets.
3 Segment reporting
The Group's activities are based in Turkey and Jersey. The Group invests in
Turkish new build residential property through its Turkish subsidiary companies.
Accordingly, the net revenue and assets of the Group are substantially derived
from its Turkey based activities. The Group also holds assets and generates
revenue in Jersey. Such activities are undertaken by the Company and by Ottoman
Finance Company 1 Limited which has issued the loan to the third party described
in note 9. In the opinion of the Directors, sufficient information of the
Group's operating segments has been provided above.
4 Management fee
2007 2006
# #
Management fee 2,999,985 2,030,136
The Manager receives a management fee quarterly in advance of 2% per annum of
the amount subscribed at the placing plus any capital gains retained for
investment. The fees of the Investment Adviser will be met by the Manager.
The management agreement between the Fund and the Manager is terminable by the
Manager on six month's notice and the Fund on twelve month's notice, subject to
an interim term of twenty-four months.
5 Other operating expenses
2007 2006
# #
Advisory and consultancy fees 191,711 30,183
Directors remuneration 103,063 76,521
Administration fees 97,289 63,707
Legal and professional fees 94,034 69,072
Travel and subsistence 90,000 56,839
Marketing 63,196 136,841
Audit services- for audit work 40,000 40,000
Other operating expenses 347,359 90,482
1,026,652 663,645
The company has no employees.
6 Earnings per share
The basic and diluted earnings per Ordinary share is based on the net loss for
the period of #1,423,637 (2006: profit #804,586) and on 150,000,000 shares
(2006: 150,000,000 shares).
7 Intangible assets
Group Company Group Company
2007 2007 2006 2006
# # # #
Opening book cost 3,984 - - -
Amortisation and impairment (885) - - -
charge
Closing net book cost 3,099 - - -
The intangible asset relates to a CRM programme, with a useful life of 6 years.
There has been no impairment during the period.
8 Inventories
Group Company Group Company
2007 2007 2006 2006
# # # #
Opening book cost 19,377,286 - - -
Purchases at cost 70,550,496 - 19,377,286 -
Closing book cost 89,927,782 - 19,377,286 -
This represents the purchase of 185,175 square metres of development land on the
Bodrum penisula, 931,739 square metres on the Riva coastline and 247,664 square
metres, of which the Fund has a 50% share, in the Kazikli village, in the
district of Milas.
In accordance with the accounting policy in note 2, inventories are stated at
the lower of cost and net realisable value. Inventories were valued at the year
end by Elit Gayrimenkul Degerleme A.S. and Kuzey Bati Real Estate on the basis
of open market value. On this basis, a total fair value of #100.1 million has
been determined for inventories held by the Company at the balance sheet date.
In accordance with the Company's accounting policy, unrealised gains/losses as a
result of this valuation have not been recognised in the consolidated income
statement.
Reconciliation of book cost to Open Market Value 2007
#
Closing book cost 89,927,782
Increase in valuation of inventory properties at acquisition
exchange rate
Golturkbuku, Bodrum 3,583,496
Riva 14,264,477
Kazikli 1,110,604
Total increase in valuation of inventory properties at 18,958,577
acquisition exchange rate
Foreign exchange loss (8,742,360)
Open market value 100,143,999
9 Loans and receivables
Group Company Group Company
2007 2007 2006 2006
# # # #
Loan to third party 7,223,011 - 4,472,251 -
Loans to subsidiaries - 102,937,749 - 83,530,638
Exchange loss on revaluation (11,486) (6,469,507) (90,386) (1,602,443)
of loan
7,211,525 96,468,242 4,381,865 81,928,195
The third party loan is Euro10,377,760 in respect of the investment in the
Riverside Resort in Alanya secured by a mortgage. No interest is accruing and
repayments are based upon sales of the development. The intercompany loans have
no interest accruing, nor repayment date and principally relate to the purchase
and development of land.
10 Foreign currency losses
Group Company Group Company
2007 2007 2006 2006
# # # #
Translation of cash balances (38,410) (38,410) (167,574) (167,574)
Foreign exchange on 45,250 45,250 47,090 47,090
settlement
Loss on loans (11,486) (4,867,063) (90,386) (1,602,443)
Net currency losses (4,646) (4,860,223) (210,870) (1,722,927)
11 Investment in subsidiary undertakings
Country of Authorised Issued Ownership
Name incorporation share capital share capital %
Ottoman Finance Jersey #10,000 #1 100
Company 1 Limited
Ottoman Finance Jersey #10,000 #1 100
Company 2 Limited
Ottoman Finance Jersey #10,000 #1 100
Company 3 Limited
Ottoman Finance Jersey #10,000 #1 100
Company 4 Limited
Ottoman Finance Jersey #10,000 #1 100
Company 5 Limited
Osmanli Yapi 1 Turkey YTL 46,146,312 YTL 46,146,312 99.99
Osmanli Yapi 2 Turkey YTL 188,284,941 YTL 188,284,941 99.99
Osmanli Yapi 3 Turkey YTL 5,249,584 YTL 5,249,584 99.99
Osmanli Yapi 4 Turkey YTL 11,249,104 YTL 11,249,104 99.99
All of the above companies have been incorporated into the group accounts.
12 Interests in joint ventures
The Group has the following interest in a joint venture, Mobella, a project
management company.
Country of Ownership
Domicile %
Mobella Turkey 50
Summarised financial information of joint venture is as follows:
Assets Liabilities Equity Revenue Loss
Mobella 990,310 (32,267) 958,043 947 (47,415)
13 Debtors
Group Company Group Company
2007 2007 2006 2006
# # # #
Prepayments 167,204 24,345 265,720 265,720
Recoverable land tax 375,080 - 347,016 -
Other debtors 54,733 - - -
597,017 24,345 612,736 265,720
The directors consider that the carrying amount of the debtors approximates to
their fair value. Prepayments include advances to suppliers.
14 Creditors - amounts falling due within one year
Group Company Group Company
2007 2007 2006 2006
# # # #
Accruals 187,767 149,283 197,125 196,537
Amounts due to subsidiaries - 5 - 5
Accrued tax 23,107 - - -
Other payables 5,040,780 - - -
5,251,654 149,288 197,125 196,542
Other payables include #4,965,490 in respect of the balance payment, described
in note 20, of the acquisition of the land in Riva.
15 Called up share capital
Authorised:
Founder shares of no par value 10
Ordinary shares of no par value Unlimited
Issued and fully paid: #
2 Founder shares of no par value -
150,000,000 Ordinary Shares of no par value 150,000,000
On incorporation of the Fund, 2 Founder shares of no par value were issued to
the Manager. These shares are not eligible for participation in the Fund
investments and carry no voting rights at general meetings of the Fund.
16 Retained earnings
Retained earnings Group Company Group Company
2007 2007 2006 2006
# # # #
At start of the period (10,962,860) (11,949,137) - -
Bank and deposit interest 2,607,646 2,169,409 3,709,237 3,708,374
earned
Operating expenses (4,026,637) (3,795,382) (2,693,781) (2,684,584)
(1,418,991) (1,625,973) 1,015,456 1,023,790
Net movement on foreign (4,646) (4,860,223) (210,870) (1,722,927)
exchange
(Loss) / profit for the (1,423,637) (6,486,196) 804,586 (699,137)
period
Foreign exchange on (226,801) - (517,488) -
subsidiary translation
Sales commission and - - (11,250,000) (11,250,000)
formation expenses
Minority interest (37) - 42 -
At end of the period (12,613,335) (18,435,333) (10,962,860) (11,949,137)
17 Net asset value per share
The net asset value per Ordinary share is based on the net assets attributable
to equity shareholders of #137,386,660 (2006: #139,037,098) and on 150,000,000
Ordinary shares, being the number of Ordinary shares in issue at the period end.
18 Cash and cash equivalents
Group Company Group Company
2007 2007 2006 2006
# # # #
Bank balances 44,898,891 35,221,363 112,068,861 53,260,010
Loan guarantee - - 2,793,475 2,793,475
44,898,891 35,221,363 114,862,336 56,053,485
19 Financial instruments
The Fund's financial instruments comprise investments, loans, cash balances 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 principal risks the Group faces through the holding of financial instruments
are:
* Market risk * Credit risk * Foreign currency risk * Interest rate risk, and *
Liquidity risk
The Board reviews and agrees policies for managing each of these risks. As
required by IAS 32: Disclosure and Presentation, an analysis of financial assets
and liabilities, which identifies the risk to the Fund of holding such items is
given below.
Market price risk
Market price risk arises mainly from uncertainty about future prices of
financial instruments used in the Fund's operations. It represents the potential
loss the Fund might suffer through holding market positions as a consequence of
price movements and movements in exchange rates.
Credit risk
The Group places loans with third parties and is therefore potentially at risk
from the failure of any such third party of which it is a debtor. Recovery of
the loans at 31 August 2007 is dependent on successful completion and sale of
properties by the third party developer. Further details of loans made to
subsidiaries and developers can be found in note 9.
Foreign currency risk
The Group operates Sterling, Euro, US dollar and Turkish Lira bank accounts.
Exchange gains or losses arise as a result of the movement in the exchange rate
between the date of the transaction denominated in a currency other than
sterling and its settlement.
An analysis of the Group's currency exposure is detailed below:
Non-current Net monetary Non-current Net monetary
assets assets assets assets
at 31 August at 31 August at 31 August at 31 August
2007 2007 2006 2006
# # # #
Sterling - 34,470,508 - 52,658,419
Euro 7,211,525 625,912 4,381,865 3,395,067
US Dollar 89,927,782 4,687,988 19,377,286 56,997,128
Turkish Lira 3,099 459,846 - 1,811,722
97,142,406 40,244,254 23,759,151 114,862,336
Interest rate risk
The Group's cash balances earn interest at the prevailing market rate, dependant
on the account type.
Floating rate Non interest Floating rate Non-interest
bearing bearing
at 31 August at 31 August at 31 August at 31 August
2007 2007 2006 2006
# # # #
Sterling 34,595,451 - 52,658,419 -
Euro 625,912 7,211,525 601,592 7,175,340
US Dollar 9,653,478 89,927,782 56,997,128 19,377,286
Turkish Lira 24,050 3,099 1,811,722 -
44,898,891 97,142,406 112,068,861 26,552,626
Liquidity risk
The Group's assets mainly comprise cash balances and realisable investments,
which can be sold to meet funding commitments if necessary.
20 Commitments
The Group has an agreement to pay $10 million in September 2007 in respect of
the balance of the acquisition of the land in Riva.
21 Post balance sheet events
On 1 November 2007, the Board announced the implementation of a managed
realisation of the portfolio and a $30 million share buy back scheme.
22 Related party transactions
Information regarding subsidiaries and subsidiary loans can be found in notes 9
and 11. The Fund's broker, Numis Securities Limited, holds an option to purchase
1.25% of the issued share capital of the fund at a price of #1 per share. This
option will lapse on the
5th anniversary of admission.
23 Directors' interests
Total compensation to the Directors over the period was #103,063 (2006:
#76,521).
Sir Timothy Daunt and Sencar Toker each hold 5,000 Ordinary shares. By virtue of
being a director of the Manager Roger Maddock is treated as being interested in
the shares held by the Manager.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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