Audioboom Grp. Regulatory News (BOOM)

21 Mar 2007 07:01

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 UKhousebuilders, is pleased to announce its preliminary results for the period 1October 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 sentto shareholders shortly. They may also be obtained free of charge fromDevelopment Capital Management Limited, 84 Grosvenor Street, London, W1K 3JZ. List of ContactsDevelopment Capital ManagementRoger HornettAndy Gardiner020 7355 7600 Numis SecuritiesAdam ShaptonCharles Farquhar020 7776 1500 Buchanan CommunicationsCharles RylandIsabel Podda020 7466 5000 Chairman's Statement I would like to welcome shareholders to my first annual report and financialstatements since becoming Chairman of The Off-plan Fund. The year under reviewhas seen a number of significant changes to the Fund, renewed interest in theproperty 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 £6.8mcapital and admission to the Alternative Investment Market (AIM) a number ofamendments to the Fund were approved at the EGM held on 14 November 2005. Thesechanges have now put the Fund on a more viable footing and whilst still small insize compared to many property funds, the gearing that occurs as a factor of thedeal structure, increases the Fund's exposure in UK residential propertyconsiderably. 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 thenagain in July, to its current price of 84p. These two individual sharp fallshighlight the current lack of liquidity in the Fund's stock. The Board and theManager are currently looking at a number of ways in which to increase theshareholder base and address this issue. In addition to this a specialresolution is being proposed at the Fund's AGM in order to maintain the Board'sability to buy back shares in the Fund. The net assets of the Fund havedecreased 9.2% from 90.76p in September 2005 to 83.4p at the year end. It isimportant to note that a significant portion of this change is due to the issueexpenses from the listing and fund raising and from the issue of bonus shares tothe original investors in the Fund. At the interim stage the un-audited NAVstood at 85.1p. The nature of the Fund's investments mean that, under currentaccounting standards, the discounts to market value achieved by the Fund, cannotbe recognised in the reported balance sheet. The Fund therefore obtains anindependent 'Red Book' valuation of the assets within the property portfolio inorder that shareholders can identify this additional value. Valuing the propertycontracts on this basis produces a Red Book NAV of £8.2m (88.1p per share) as at30 September. Activity The progress in the past financial year has been somewhat frustrating. By theirvery nature property investments can take a long time to finalise and theManager has sourced a large number of potential investments, with a significantproportion reaching advanced negotiations. However it is disappointing to reportthat subsequent to the investment in Oldham Place, Liverpool in April, nofurther investments were agreed in the period. It is unfortunate in some waysthat the renewed vigour in the residential market has played against the Fund'sstrengths, with developers more reluctant to offer terms or stock acceptable tothe Fund. We have however reacted to the market by adapting our investmentapproach and focus, underwriting build cost on entire schemes, entering intoprofit share arrangements and focussing on smaller to mid-sized developments intargeted secondary locations where demand is likely to remain strong.Consequently the Manager is currently in detailed negotiations on potentialinvestments, representing over £50m of property and we look forward toannouncing some or all of these in the coming year. The first two of these wereannounced on 5 March. The sites at Tring and at Hayes will add a further £13.5mof property exposure to the portfolio. Other activity during the year included completing in August, the purchase ofthe six apartments at Wimbledon House in Leicester. The Manager is currentlylooking to let all six apartments while the area undergoes continuedregeneration 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 thatthere were issues at the site in Nottingham that were preventing a successfulsale of the units. A number of discussions were held with the developer's agentsbut these proved to be unproductive. Due to these problems, compounded by alacklustre local market, the Board, following legal advice, took the decision torescind all 30 contracts rather than complete and incur stamp duty. Agreementwas reached whereby £200,000 of the £217,906 deposit was returned. The Managerbelieves that, given the outlook for the development the resources are betterallocated to future investments. Outlook It is pleasing to report that sales at Oldham Place have been progressing welland that the Fund has already generated a profit on its investment. In the threemonths following the year end, 25 of the 51 units had exchanged and another 9are under offer. A further marketing push is expected to commence in the comingmonths to sell the remaining 17. Going forward the progress at Oldham Place is confirmation that quality dealscan be executed speedily and profitably. The relationships built up by theManager over the year are now providing interesting opportunities, and we expectto 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 May2007 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 residentialmarket, in defiance of most expectations, has shown strong growth in 2006,marking 2005 as the end of the market slowdown. Rising debt levels anddecreasing affordability have yet to have an impact, with most commentatorsforecasting good positive growth for the coming year. This has led to aresurgence of confidence by developers and in turn impacted on the terms theFund can achieve, particularly in the areas of discounted purchase price and thestage at which financing is required. However, as our Liverpool investment hasdemonstrated, good quality investments, at the right price are the key to asuccessful and profitable investment. The additional capital raised at the end of 2005, coupled with the high gearingof twenty times (inherent with the typical 5% deposit), has given the Fundsignificant investment capability. We intend to build a diversified portfolio ofsignificantly geared property contracts purchased at substantially discountedprices. As outlined in the AIM issue document the Manager seeks to invest onlyone half of the Fund's assets in property contracts, with the remainder in shortterm bonds, reducing the gearing and ensuring a sufficiently high covenant for adeveloper's principal lender. Thus whilst the Fund size may be small, £1m ofproperty assets will for example convert into exposure of £20m. It is thisdynamic that makes it highly important to select the best developments, but alsoensures exceptional returns on success as demonstrated in Liverpool. During and subsequent to the last financial year, the Manager has been busyinvestigating potential investments throughout the country and whilst asignificant number of these leads have not been fruitful, it has allowed us tobuild a wide pool of potential partners. The financing structure developed bythe Manager, has been well received by both developers and lenders and both arenow actively looking to integrate the Fund's financing with future developments.It is this growing pipeline that we expect to exploit in the future. Propertyinvestment is not a swift business yet we are disappointed with the progress sofar. However we strongly believe that the foundations laid this year will reaprewards in 2007 and at present we are exploring seven high quality opportunitiesworth over £50m gross development value. The net assets of the Fund at the year end stand at £7.75m (83.4p per share) adecrease of 9.2% from 90.76p in September 2005. A significant proportion of thischange resulted from the costs of raising a further £6.8m from the issue of newshares and the 555,002 bonus shares issued to existing investors. At the interimstage the unaudited NAV stood at 85.1p. Post the year end we announced that thesales already achieved at Oldham Place would add a further 2p to the NAV with afurther increase of 2p expected once the Fund has fully exited the scheme. Under current accounting standards any discounts to market value achieved by theFund cannot be recognised in the reported balance sheet, with only the book costof obtaining the contracts shown. In order that shareholders can identify thisadditional value, the Fund therefore obtains an independent 'Red Book' valuationof the assets within the property portfolio and adjusting for liabilities oncompletion, a proforma net asset value is calculated. Valuing the propertycontracts on this basis equates to an NAV of £8.2m (88.1p per share) as at 30September. The effect of the post balance sheet investments announced in Marchare 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 inLiverpool and Nottingham and six completed apartments in Leicester. Post theperiod end the Fund rescinded the 30 contracts in Nottingham and sold 25 of theapartments in Liverpool. The details behind the rescission are laid out underthe Waterfront Plaza heading and the year end accounts reflect the loss. Asmentioned above, independent Red Book valuations have been undertaken on theproperty 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 Augustand 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 thePerforming Arts Centre due for completion at the spring of 2008, only a minute'swalk from the property. Wimbledon House also falls on the fringe of the New Business Quarter beingmaster-planned by the Leicester Regeneration Company, which aims to provideapproximately 50,000 square metres of high quality office space. With thisadditional development in the local area continuing, the Manager is looking tolet all six apartments and wait for a more opportune time to exit the site. Thepurchase 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 interestshown 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 didnot progress. As the year continued and sales of apartments at the site remainedsubdued, it became increasingly clear that these problems were preventing asuccessful sale of our units. The Manager entered into a number of protracteddiscussions with the developer and its agents intended to solve thesedifficulties. However these proved to be unsuccessful. The Board and Managerthen sought legal advice and under the terms of the contracts the decision wastaken to rescind all 30 contracts. Initially disputed by the developer,agreement was however reached to return £200,000 of the £217,906 deposit. Takingthis 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 atthe site. The Manager believes that this was the best decision for the Fund. Completion onthese units would have incurred 4% stamp duty on the purchase price of £4.35mand we believe that sales would have remained difficult until the site wascomplete. By recovering most of the deposit the Fund is free to seek moreprofitable investments elsewhere. Oldham Place, Liverpool In April the Fund exchanged contracts covering all 51 apartments and parking atthe site in Oldham Place, Liverpool. These are a mixture of one and two bedroomunits, some with parking spaces, in a good city centre position. Located justeast of the city centre the development is a 5 - 10 minute walk from Lime Streetstation and 15 minutes walk to the Albert dock area. A number of otherdevelopment projects are being planned nearby, adding to the overallregeneration of the area. The purchase price for the apartments totalled £6.6m, a 20% discount to thecurrent Red Book valuation of £8.25m, with a deposit of 5% (£332,489) havingbeen paid for the exposure. This significant discount has been achieved byworking with the developer and using a more sophisticated financing structurethan simple off-plan purchases. Adapting the Fund's financial offering webelieve will improve the quality of the investments eventually purchased by theFund. Following the successful acquisition, a local estate agent undertookinstructions and a small amount of marketing was performed, resulting in 34reservations at the period end. 25 of these have now been exchanged upon, with 9remaining under offer. A further marketing campaign is planned in Spring, inorder to secure sales of the 17 units still available. Construction at the siteis due to commence in the second quarter of this year, with final completion duein December 2008. Liverpool remains a strong candidate for further investment and the Manager isseeking further opportunities in the area. The successful sales underline ourbelief 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 newholdings and increases to some existing positions. Following the completion onthe apartments at Wimbledon House, £1.5m was realised from the sale of fourholdings. 76% of the Fund's assets are currently held in this portfolio, which will bedrawn upon as property investments are made. The portfolio remains invested ininvestment grade, foreign issued, sterling denominated debt, across a spread ofbank issuers and corporates. The maturity profile has reduced to 1.4 years downfrom 2 years at the end of the last financial year and in line with rising shortterm interest rates, the portfolio yield has increased to 5.1% from 4.9%. TheManager intends to hold approximately half the Fund's assets in bonds as acompletion reserve, but in line with the new investment restrictions may reducethis to 30% should it be felt necessary. Market At the end of September 2005, we reported on the end of the bull run in propertyprices and that homeowners where taking more of a 'wait and see' approach. Theinevitable media speculation around price crashes was then in full swing. Thesoft landing that some commentators had hoped for and others dismissed occurredand whilst transaction volumes were down, prices remained firm. 2006 startedwell, albeit there remained scepticism that the momentum would be maintained.Whilst there was a slight dip in the second quarter, 2006 ended with pricegrowth up at 10% and sales volumes up 14%. Underlying this, the fundamentaldrivers for property prices remained; low supply relative to demand, the risingnumber of households, the historical low cost of borrowing and a robust economicperformance. Going forward, many of these key market drivers remain positive. The Bank ofEngland forecasts economic growth close to 3% over the next two years, withinflation falling back to 2% towards the end of 2007. With a stable economicbackground and supply / demand imbalances still in place, house prices overallare likely to continue to grow although local market conditions will varyconsiderably. However, as prices continue to rise affordability issues willincreasingly dampen the volume of transactions. The buy-to-let sector shouldcontinue to supplant the first time buyer market as we have seen in previousyears. However as the gap between house prices widens for those trading-up,existing owners will find it more difficult to move. In line with manycommentators we believe steady price growth will continue which bodes well forfuture unit sales. In the lending markets many of these themes are being played out with totallending 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 onlong term arrears, the CML do not expect a further sharp rise during 2007. It isworth remembering that both possessions and arrears are a long way off the longterm highs seen in the early 90s and are unlikely to have a major impact on themarket, despite what the media may believe. Outlook Whilst undertaking the ongoing reviews and due diligence of local propertymarkets, the Manager has developed strong relationships with developers, agentsand lenders. In addition to the Manager's own search for investments, a sizablenumber of these contacts are now approaching the Fund with suitable investmentopportunities. It is at the point where developers are purchasing new sites andseeking to put together the financing stack that the Fund's model is mostsuited. From these closer relationships and this early stage investment, theFund is able to select quality sites whilst decreasing its risk profile bynegotiating larger discounts. For the developer this allows them to betterutilise 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 yearended September 2006. The Off-plan Fund Limited (the 'Fund') was incorporated on 22 April 2003 inJersey and was launched as an unclassified Fund on 1 December 2003 within theprovisions of the Collective Investment Funds (Jersey) Law 1988. Principal Activity The Fund is a closed-ended, Jersey registered, investment company formed toinvest 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 inUK residential development property via the off-plan market. Results and Dividends It is not intended in normal circumstances that the Fund will pay dividends onthe shares, but capital gains may be distributed at any time during the life ofthe Fund, at the Board's discretion. If the Fund completes the purchase ofinvestment properties and thereafter generates rental yield through letting,such rental income (net of expenses) may be distributed by way of an annualdividend (or more frequently at the Directors' discretion if the amountavailable is significant) on the shares. It is intended that the Fixed IncomePortfolio will generate sufficient income to meet the Fund's operationalexpenses. In the two years preceding the Fund's wind-up date, the Fund will, at theDirectors' discretion, return to shareholders by way of dividend or a redemptionof shares, the proceeds of any sales of investment properties and any sums heldin cash or in the Fixed Income Portfolio. Shareholders will not have anautomatic right to have their shares redeemed. The income statement is set out in this Report and Financial Statements. TheDirectors do not recommend the payment of a dividend. Board of Directors The Directors of the Fund were appointed from the formation of the Fund, exceptGraham Berry who was appointed on the 28 February 2006, and as such stands forelection at the AGM. Shareholders' Interests Extent of holdings No. of shareholders 10,000 - 99,999 13100,000 - 999,999 161,000,000 - 9,999,999 3 At 5 March 2007 the Fund was aware of the following interests of 3% or more inthe Ordinary share capital of the Fund: Number % heldCitygate 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'sissued share capital. Directors' Interests The maximum amount of remuneration payable to the Directors permitted under theArticles is £75,000 per annum. The Directors received in aggregate £28,733 for the year ended 30 September2006. The interest of the Directors in the share capital of the Fund as at 30September 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 theManager. 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 inaccordance with applicable law and UK accounting standards. Company law requires the Directors to prepare financial statements for eachfinancial year which give a true and fair view of the state of affairs of theFund and of the profit and loss of the Fund for that period. In preparing thosefinancial 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 isinappropriate to presume that the Fund will continue in business; and • state whether applicable accounting standards have been followed, subject toany material departures disclosed and explained in the financial statements. The Directors are responsible for keeping accounting records that disclose withreasonable accuracy, at any time, the financial position of the Fund and enablethem to ensure that the financial statements comply with the Companies (Jersey)Law 1991. They are also responsible for safeguarding the assets of the Fund andhence for taking reasonable steps for the prevention and detection of fraud andother irregularities. Independent Auditors' Report to the Members of the Off-plan Fund Limited We have audited the consolidated financial statements of the Off-Plan FundLimited and its subsidiary ("the Group") for the year ended 30 September 2006which comprise the Consolidated Balance Sheet, Consolidated Income Statement,Consolidated Cashflow Statement, Consolidated Reconciliation of Movements inShareholders Funds, Consolidated Statement of Total Recognised Gains and Losses,and the related notes 1 to 21. These financial statements have been prepared onthe basis of the accounting policies set out therein. This report is made solely to the Company's members, as a body, in accordancewith the Companies (Jersey) Law 1991. Our audit work has been undertaken so thatwe might state to the Company's members those matters that we are required tostate to them in an auditors' report and for no other purpose. To the fullestextent permitted by law, we do not accept or assume responsibility to anyoneother 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 financialstatements in accordance with applicable Jersey law as set out in the Statementof Directors' Responsibilities. Our responsibility is to audit the consolidated financial statements inaccordance with relevant legal and regulatory requirements and InternationalStandards on Auditing (UK and Ireland). We report to you our opinion as towhether the consolidated financial statements give a true and fair view and areproperly prepared in accordance with the Companies (Jersey) Law 1991. We alsoreport to you if, in our opinion, the Company has not kept proper accountingrecords or if we have not received all the information and explanations werequire for our audit. We read other information contained in the Annual Report, and consider whetherit is consistent with the audited financial statements. This other informationcomprises the Chairman's Statement, Manager's Report, Director's Report andPortfolio of Listed Investments. We consider the implications for our report ifwe become aware of any apparent misstatements or material inconsistencies withthe financial statements. Our responsibilities do not extend to any otherinformation. 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 includesexamination, on a test basis, of evidence relevant to the amounts anddisclosures in the consolidated financial statements. It also includes anassessment of the significant estimates and judgments made by the directors inthe preparation of the financial statements, and of whether the accountingpolicies are appropriate to the Group's circumstances, consistently applied andadequately disclosed. We planned and performed our audit so as to obtain all the information andexplanations which we considered necessary in order to provide us withsufficient evidence to give reasonable assurance that the financial statementsare free from material misstatement, whether caused by fraud or otherirregularity or error. In forming our opinion we also evaluated the overalladequacy 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 theGroup's affairs as at 30 September 2006 and of its loss for the year then endedand have been properly prepared in accordance with the Companies (Jersey) Law1991. 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 1,280,973Property contracts yet to complete 7 336,602 362,905Investment property 7 1,025,000 - _____________________ 7,303,340 1,643,878 Current assetsDebtors 8 366,419 45,280Cash and cash equivalents 136,200 148,995 _____________________ 502,619 194,275Creditors - amounts falling due within one yearOther payables 9 (54,826) (50,167)Net current assets 447,793 144,108 _____________________Total net assets 7,751,133 1,787,986 _____________________EquityStated capital 10 8,739,246 1,970,000Realised capital reserve 12 (108,348) 1,570Unrealised capital reserve 12 (51,719) 13,116Investment 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 March2007 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 TotalNotes £ £ £ £ £ £Realised (losses)on propertycontractsyet to complete - (109,308) (109,308) - - - Unrealised - (65,445) (65,445) - 11,607 11,607(losses)/gains oninvestmentsIncome 2 269,039 - 269,039 77,291 - 77,291Investment (119,196) - (119,196) (22,010) - (22,010)management fee 3Other expenses 4 (214,064) - (214,064) (103,507) - (103,507) Net (loss)/gain onordinaryactivitiesbefore finance (64,221) (174,753) (238,974) (48,226) 11,607 (36,619)costs and taxationNet (loss)/gain (64,221) (174,753) (238,974) (48,226) 11,607 (36,619)for the year(Loss)/gain pershare (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 theCompany 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 inthe Income Statement and Reconciliation of Movement in Shareholders' Funds. (d) The financial statements have been restated to reflect the changes toaccounting practices as set out in the accompanying notes. See note 19 for asummary 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 £ £ NotesCash flows from operatingactivitiesInvestment income received 96,408 28,114Deposit interest received 46,185 12,793Investment 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)activitiesCapital expenditure and investmentactivitiesDeposits and acquisition costs (1,258,442) (329,182)relating to propertyPurchase of investments (6,253,664) (648,121)Sale of investments 1,510,369 201,304Net cash outflow from investment (6,001,737) (775,999)activitiesNet cash outflow before financing (6,172,809) (864,978)FinancingIssue 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 2006GroupAt 1 October 2005 1,970,000 14,686 - - (196,700) 1,787,986Issue of shares 6,769,246 - - - - 6,769,246Expenses 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 30September 2005CompanyAt 1 October 2004 1,970,000 3,079 - (148,474) 1,824,605Loss 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 theincome statement. Notes to the Consolidated Financial Statements 1 Accounting Policies The consolidated financial statements have been prepared under the historicalcost convention, as modified to include the revaluation of quoted investmentsand investment properties and in accordance with applicable Accounting Standardsand the Statement of Recommended Practice for "Financial Statements ofInvestment Trust Companies" issued in January 2003 and amended in December 2005.For the accounting period beginning on 1 October 2004 the Company had the optionto prepare its financial statements in accordance with International FinancialReporting Standards ("IFRS"), as adopted by the International AccountingStandards Board ("IASB"). The Board has elected to continue to adopt UKGenerally Accepted Accounting Principles ("UK GAAP") and therefore with the newFinancial Reporting Standards issued as part of the programme to converge UKGAAP with IFRS. Figures for the year ended 30 September 2005 have been restatedaccordingly in note 19. (a) Basis of consolidation The financial statements incorporate the financial statements of the Company andentities controlled by the Company (its subsidiaries) made up to 30 September.Control exists when the Company has the power, directly or indirectly, to governthe financial and operating policies of an entity so as to obtain benefits fromits activities. The financial statements of subsidiaries are included in theconsolidated financial statements from the date that control commences up to thedate that control ceases. The Company has only one subsidiary which it acquired during the year ended 30September 2006. As the subsidiary has not yet commenced trading, the Company'sfinancial statements are materially similar in all respects to the Groupfinancial statements, therefore the Company has presented only Group financialstatements for the year ended 30 September 2006. Details of this subsidiary arecontained in note 6. (b) Income Interest income is accrued on a time basis, by reference to the principaloutstanding and at the effective interest rate applicable, which is the ratethat exactly discounts estimated future cash receipts through the expected lifeof the financial asset to that asset's net carrying amount. Interest receivableon 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 inthe balance sheet at fair value. Sales of investments are also recognised on atrade date basis. Proceeds are measured at fair value, which is regarded as theproceeds of any sale less any transaction costs. The fair value of the financialinstruments 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 arerecognised 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 currentlybeing constructed, i.e. it has entered into contracts to purchase the property"off-plan". Under these contracts the Company is obliged to purchase theseproperties at a contracted price, but has the right to sell or transfer thecontract to a third party. The "Property contracts yet to complete" are includedin the balance sheet at the lower of cost and net realisable value. Costincludes legal and other expenses incurred to acquire the contracts. TheDirectors are of the opinion that it is inappropriate to account for thesecontracts using fair value accounting methods because their fair value cannot beestimated with sufficient reliability. Realised gains and losses arising on the disposal of these contracts are takento the realised capital reserve. (e) Investment property Investment properties are measured initially at cost, and subsequentlyremeasured to market value, reflecting market conditions at the balance sheetdate. Gains or losses arising from the changes in fair values of investmentproperties are included in the consolidated "statement of recognised gains andlosses", as movements on the investment property revaluation reserve. 2 Income Year ended Year ended 30 September 2006 30 September 2005 £ £Income from investmentsIncome from fixed interest securities 222,854 64,498Other 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 fixedincome portfolio held by the Company, plus any cash amount of deposits paid andoutstanding 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 eitherparty on 12 months notice. 4 other expenses Year ended Year ended 30 September 2006 30 September 2005 £ £Administration and secretarial services 37,301 36,906Directors' remuneration 28,733 35,000Auditors' fees - for audit services 28,200 8,042Auditors' fees - other services 6,600 -Legal fees 55,506 9,725Miscellaneous 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), beingthe 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), beingthe weighted average number of shares in issue. 6 Subsidiary companies During the year, the Company acquired the whole of the share capital of OPFInvestment Properties Limited, a Company registered in Jersey. This is theCompany's only subsidiary and it has not yet commenced trading. 7 Fixed interest investments 30 September 2006 30 September 2005 £ £ Opening valuation 1,280,973 819,029Opening unrealised appreciation (13,116) (3,079)Opening book cost 1,267,857 815,950Movements during the year:Purchases 6,253,664 648,121Sales - proceeds (1,510,369) (201,304)Amortisation of fixed income book costs (17,085) 3,520Sales - realised (losses)/gains (610) 1,570Closing book cost 5,993,457 1,267,857Closing 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 18,274Movements during the year:Purchases 336,602 344,631Reclassification 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 (51apartments) and the disposal of Waterfront Plaza, Nottingham (30 residentialapartments). The table below summarises the cost associated with these contractsand 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 asexplained in the 'market price risk' section of note 16. Waterfront Oldham Plaza Place Total £ £ £Deposits paid 217,906 336,602 554,508Legal and acquisition costs 86,310 - 86,310Proceeds on disposal (194,908) - (194,908)(Loss) on disposal (109,308) - (109,308)Book cost as at 30 September 2006 - 336,602 336,602Outstanding 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 8,250,000Approximate 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 -CompleteCompletion 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 39,690Prepaid expenses 10,082 3,226Deposit 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 - 21,792investment in propertyAccrued 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') companyFounder shares 10 1099,999,990 participating shares 99,999,990 99,999,990 _________________________ 100,000,000 100,000,000Issued:Founder shares 2 2Participating shares 9,294,248 1,970,000 On 12 December 2005, 6,769,246 participating shares were issued at 100p raisingnet proceeds of £6,160,014. 555,002 bonus participating shares were also issuedon this date. 11 Transaction costs There were no transaction costs charged to the Company during the year. Aone-off fee, including brokerage costs, is charged by the custodian to theManager, 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)investmentsLoss on disposal of property (109,308) - - - - (109,308)contractMovement in unrealised - (64,835) 42,107 - - (22,728)appreciationExpenses 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 pParticipating 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 taxationto 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)taxationLosses/(gains) on properties 109,308 -Losses on investments 65,445 -Increase/(decrease) in accruals 26,451 (4,931)(Increase)/decrease in prepayments (6,856) 562Increase 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, cashbalances, property contracts and debtors and creditors that arise directly fromits operations, for example, in respect of sales and purchases awaitingsettlement, and debtors for accrued income. The main risks the Company faces from its financial instruments are (i) marketprice risk, being the risk that the value of investment holdings will fluctuateas a result of changes in market prices caused by factors other than interestrate 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. TheManager's policies for managing these risks are summarised below and have beenapplied throughout the period. The numerical disclosures exclude short-termdebtors and creditors. Market price risk Market price risk arises mainly from uncertainty about future prices offinancial instruments used in the Company's operations. It represents thepotential loss the Company might suffer through holding market positions as aconsequence of price movements. It is the Board's policy to hold a broad spread of fixed interest investments inorder to reduce risk arising from factors specific to a particular country orsector. The Manager monitors market prices throughout the year and reports tothe Board, which meets regularly in order to review investment strategy. The Red Book valuations of the underlying properties, on which the Company holdscontracts are based primarily upon "The estimated amount for which a propertyshould exchange on the date of the valuation, between a willing buyer and awilling seller in an arm's-length transaction after proper marketing wherein theparties had each acted knowledgeably, prudently and without compulsion." Thisvaluation methodology is designed to encapsulate the fair value of theproperties were they complete and held for investment purposes. The Company,however, holds contracts to purchase these properties once complete andtherefore is exposed to additional risks such as the risk that the developmentfails to complete or completes in a sub-standard fashion not accounted for inthe Red Book assumptions. The Company is also exposed to changes in the value ofthe property caused by other economic factors. The contracts are highly leveraged such that small changes in the values of theunderlying properties can generate large changes in the unrealised values of thecontracts. 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 ofthe underlying asset. It is the Board's policy to value the property contracts yet to complete at thelower of cost and net realisable value as set out in 1(d). This eliminates to asignificant degree the effect of market movements in the underlying property onthe value of the contracts. The total purchase price including acquisitioncosts, of the fifty-one contracts is £6,606,602 and the Red Book valuation ofthe properties as at 30 September 2006 is £8,250,000. Should the Companycomplete on all the contracts and subsequent Red Book valuations fall by morethan 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 thirdparties and is therefore potentially at risk from the failure of any such thirdparty of which it is a creditor. The Fund expects to place any such funds on ashort-term basis only and spread these over a number of different providers. Thedeposits in respect of the property contracts yet to complete and those inrespect of Waterfront Plaza are held in escrow with the developer's solicitors.This money is only released to the developer on satisfactory completion of theproperty. Should a developer default on the contract the deposit and anyinterest 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 wasas 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 - - - - 366,602 362,905yet 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 (30September 2005:1.7 years) and a weighted average yield of 5.1% (30 September2005:4.8%) per annum. The floating rate assets consist of cash deposits on call, earning interest atthe prevailing market rates. Changes in interest rates will impact on the value of fixed interest securitiesand future cash flows from floating rate holdings. They will have no impact onthe 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 compriseof property contracts yet to complete which are illiquid. It is the intention of the Board to sell on the property contracts yet tocomplete. However should there be insufficient liquidity in the market to enablethis to happen the Company would be liable to pay the remaining commitment setout in the contracts which is currently £6,270,000. 17 Commitments and Contingencies During the year, the Company entered into fifty-one property contracts inrespect of Oldham Place, Liverpool. Should none of the property contracts besold prior to completion, the Company would be required to pay a further£6,270,000. Should the developers fail to satisfactorily complete, the depositcurrently 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 apartmentsat Waterfront Plaza in Nottingham. The financial statements have been preparedto 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 theeffective interest rate, which is the rate that exactly discounts estimatedfuture cash receipts through the expected life of the financial asset to thatasset's net carrying amount. Previously, only interest coupons receivable onsuch assets were taken to the revenue account, accrued on a daily basis duringthe period of ownership of the asset. The effect of adopting this new policy hasbeen that amounts previously charged or credited to capital account are nowcharged or credited to revenue account. The following tables detail the effectson shareholders' funds: Before restatement Effects of After change restatement £ £ £As at 30 September 2005Stated capital 1,970,000 - 1,970,000Realised capital reserve 616 954 1,570Unrealised capital reserve 17,590 (4,474) 13,116Revenue reserve (200,220) 3,520 (196,700) _________________________________________ 1,787,986 - 1,787,986 As at 30 September 2006Stated capital 8,739,246 - 8,739,246Realised 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 - 42,107reserveRevenue reserve (243,836) (17,085) (260,921) _________________________________________ 7,751,133 - 7,751,133 These changes have therefore resulted in a reallocation of shareholders' fundsbetween retained revenue and capital reserve at the year end, but not in theoverall 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 companyhas obtained Jersey exempt company status for the year and is therefore exemptfrom Jersey income tax on non Jersey source income and bank interest (byconcession). 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 300,000 297,600AIG Sunamerica Inst Funding 4.375% 30/12/2008 GBP 300,000 293,907American Express Credit 5.5% NTS 24/09/07 GBP 75,000 75,083ANZ Banking Group 4.875% 22/12/2008 GBP 300,000 297,612Bank Nederland Gemeenten 7.375% 06/08/2007 GBP 200,000 203,458Bayerische Landesbank 4.875% EMTN 03/03/08 GBP 600,000 597,360Danske Bank A/S 4.5% 07/12/2008 GBP 300,000 294,930Deutsche Postbank 7.25% 07/08/2007 GBP 300,000 304,590Eurohypo SA Luxembourg 5% 15/12/08 GBP EMTN 50,000 49,745European Bank Recon & Dev 2.95% NTS 26/03/07 GBP EMTN 150,000 148,434ING Verzekeringen NV 5% 03/03/2008 GBP 300,000 298,260Japan Bank for International COOP 8% 05/02/2007 GBP 300,000 302,520Landwirtschaft Rentenbank 4.875% EMTN 07/12/06 GBP 200,000 199,840LB Hessen Thuringen Giro 5.125% 07/12/2007 GBP 300,000 299,463Met Life Global Funding I 5.25% 19/12/2008 GBP 300,000 299,190Morgan Stanley 5% 21/12/2007 GBP 200,000 198,804Nordic Investment Bank 4.3% 18/12/2007 GBP 100,000 99,127NRW Bank 4.75% 07/12/07 EMTN GBP 300,000 297,990Soc Nat Des Chemins de Fer Belges 4.125% 30/12/2008 GBP 300,000 293,367Total Capital SA 5% 10/09/2007 GBP 300,000 299,427Toyota Motor Credit 4% 11/12/2008 GBP 300,000 292,821UBS AG 4.875% EMTN 21/12/07 GBP 200,000 198,900Westpac Banking 4.875% 28/12/2006 GBP 300,000 299,310 £5,941,738 This information is provided by RNS The company news service from the London Stock Exchange