Last checked at 23 Mar 2009 15:57
| For Immediate Release | 23 March 2009 |
THE OFF-PLAN FUND LIMITED
Preliminary Results for the year ended 30 September 2008
The Off-plan Fund Limited, which specialises in providing forward finance to UK housebuilders, is pleased to announce its preliminary results for the year ended 30 September 2008.
The Fund is managed by Development Capital Management (Jersey) Limited.
Copies of the Financial Statements are currently being printed and will be sent to shareholders shortly. They may also be obtained free of charge from Development Capital Management Limited, 36 Dover Street, London, W1S 4NH.
List of Contacts
Development Capital Management
Roger Hornett
Andy Gardiner
020 7355 7600
John East & Partners Limited
Nominated Adviser
Bidhi Bhoma/Simon Clements
020 7628 2200
Corporate Broking
Graeme Cull
020 7628 2200
Buchanan Communications
Charles Ryland
Isabel Podda
020 7466 5000 THE OFF-PLAN FUND LIMITED
ANNUAL REPORT AND CONSOLIDATED FINANCIALSTATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 2008
Chairman's Statement
The period under review proved to be another challenging year for the Fund. The turmoil in global financial markets throughout the period and subsequent to the year-end, and its impact on the UK residential property market in terms of new build starts, sales volume and prices, has been well documented. However, the Board and the Manager have reacted to these developments, taking prudent action to exit faltering projects with minimal downside risk to the Fund and altering the Fund's focus within the parameters of its stated investment strategy by the acquisition and renting out of completed units until sales and prices improve.
Performance
The audited net asset value ("NAV") of the Fund at 30 September 2008 was £9.1 million (2007:£9.5 million). The NAV per ordinary share has reduced to 81.2p at year-end from 85.1p at 30 September 2007, largely due to the Fund exiting the Liverpool development and the write-off of attributablerecognised profit.
Whilst this asset value performance is reasonable against the extremely difficult economic backdrop, the Fund's share price performance has been poor. It fell 27 per cent. from 74.3p to 54.5p during the financial year (implying a widening discount of 33 per cent. to NAV per share) and since the year-end has fallen further sharply, touching a low of 8.5p before recovering and settling recently around 12.5p. Much of this recent fall appears to be as a result of one of the Fund's largest shareholders apparently willing to sell at any level to dispose of its entire holding. Given the historic low levels of liquidity in the Fund's shares, the low share price is not surprising but the discount to NAV is now stark. Shares in residential property funds are unlikely to be rated favourably in the prevailing climate and the Fund is arguably too small to generate much analysis in the market, but the Board and Manager are surprised at the size of the discount to NAV and that the introduction of an annual continuation vote at last year's annual general meeting ("AGM") has not had a more positive impact on the discount.
Portfolio Review
Change in focus
Although the main focus of the Fund has been to provide forward finance to UK house builders, there is currently a lack of quality new developments coming to the market as developers are either not starting or are mothballing projects until the market improves. The Manager has found it increasingly difficult to source quality deals on its typical financing model without committing far greater deposits, due to lending banks' aversion to risk. Even where it appears that deals can be secured on that model, prevailing market conditions add to the risks inherent in any early stage development financing.
Prior to the year-end the Board and the Manager were of the view that these market conditions offered the Fund excellent opportunities to buy nearly or recently completed units which developers are willing to dispose of at deep discounts to list prices and attractive discounts to independent Red Book valuations, in order that they can fully exit a development, satisfy financing arrangements and avoid further marketing costs.
When the Fund was established, the current stage (although not the particular circumstances and extent) of the property cycle was anticipated and the Fund's investment strategy as set out in its AIM admission document authorised the Board and the Manager to take advantage of situations where they believe the realisable value of potential acquisition properties is such that their on-sale would generate a profit for the Fund. The Board has therefore authorised the Manager to source deals with a view to completing on the units and renting them out until the market for sales, and their prices, improve. Rental prospects and yields in the Fund's current target markets (Home Counties, inner M25, no over-supply, with good transport links) and target units (typically 1 bedroom with parking) remain strong, assisted by demand from young professionals who are currently unable to purchase.
The Fund has available cash resources that allow it to move quickly to secure these deals during what may only be a limited window of opportunity. In purchasing high quality stock at this stage in the cycle, the Fund should be well positioned to sell the units when the mortgage market improves and capitalise on the anticipated undersupply of quality units.
The current property portfolio comprises three investments, which are summarised below:
The Heart, Walton-on-Thames: Subsequent to the year-end the Fund completed its first investment under this new focus. The development is a major regeneration project located in Walton-on-Thames and was completed in January 2008. Having identified the properties as potential units to be acquired at a significant discount, the Fund reserved nine one-bedroom apartments with parking in September 2008 at a price of £1.65 million, equating to a 24 per cent. discount to the prevailing Red Book value. The acquisition completed in October 2008 with a view to the units being offered to the rental market. At the time of writing, the Fund has sold one apartment for £190,000 (a 10 per cent. profit after all transaction costs) and the remaining ten units have been let at an average yield of 6.2 per cent.
The Board is pleased with this performance, which clearly supports the Fund's change in focus. The Manager has identified other attractive propositions but the Board has held off from making further investments in the past few months following certain shareholder feedback and in anticipation of the forthcoming continuation vote. If shareholders vote to continue the Fund for another year this investment approach will be followed for so long as market conditions dictate.
Canon House, Wallington: In December 2007, the Fund contracted to purchase 118 off-plan units in a new development in Wallington for £25.0 million. The Red Book valuation of £27.4 million at30 September 2008 has fallen from £30.7 million in December 2007, reducing the purchase price discount to approximately 10 per cent.
The commencement of construction was delayed as the developer, Henry Homes, has been unable to progress discussions with a number of housing associations concerning the disposal of the affordable housing element. The completion of this element of the transaction is a pre-requisite of the terms of the development finance being provided by HBOS.
These delays have impacted on the marketing campaign being commenced and therefore unfortunately there is no positive onward sales progress to report. However it is possible that these delays will prove beneficial to the Fund as the construction programme is likely to take at least 12 months from commencement and it is to be hoped that the residential sales market may be returning to a healthier state by such time, enabling greater volume and price on the Fund's onward sales.
Whilst there is clearly some uncertainty over the commencement of the development, there is a long-stop date of January 2012 by which time the Fund will require completed units of satisfactory standard to be delivered by the developer or else be entitled to a return of its deposits. In the meantime the Fund has been advised that its current committed funds are secure as the deposit of £1.25 million is covered by a Zurich insurance policy and the £3 million guarantee is still retained by the Fund in its AIB ring-fenced bank account.
The Manager continues to maintain vigilance over this project's progress and we will report any material developments to shareholders as they happen.
Wimbledon House, Leicester: The six apartments in Leicester were valued at £805,000 at30 September 2008 (2007: £911,000) reflecting the state of the housing market in the local area. All flats are currently let and the Fund intends to maintain them as investment properties until the local market for sales improves.
The following are previous projects, which the Fund has now exited:
Oldham Place, Liverpool: As announced on 8 January 2009, the Fund rescinded the contracts for the purchase of 51 apartments to be built at a development in Oldham Place, Liverpool, which it had entered into in April 2006 with the developer, Bentley Properties (Preston) Limited.
Due to delays related to the receivership of the appointed construction company in December 2007 and an issue relating to the boundary with an adjoining plot of land which required an amended planning permission, the developer was unable to complete the units by 31 December 2008 as required in the purchase contracts.
Given prevailing market conditions and short-term prospects for UK residential property (and inner-city apartments in particular), and having taken legal advice as to the options available to it, the Board decided to exercise the Fund's contractual right to rescind all contracts and recover the deposits which were held by the developer's solicitors in respect of the development, together with interest thereon. A total of £371,000 was received by the Fund in February 2009.
The onward purchasers of 29 of the units have been informed of the Fund's intentions in this regard and all such purchasers have indicated their acceptance of the position on the basis that they were repaid their deposits and accrued interest.
As a result of this rescission, the Fund has written back the profit of £241,000 that was reported in 2007, together with associated costs of £30,000.
Tring, Herts and Hayes, Middlesex: Despite the continued best efforts of the Manager, there had been very little progress for some months on either of these developments and therefore in July 2008 the Fund announced the rescission of contracts which it had entered into in March 2007 with the developer, FirstMove Developments Limited, for the purchase of 38 apartments to be built in Tring and 31 apartments to be built in Hayes. Outstanding issues relating to the s.106 (affordable housing) elements on Tring and the purchase of the balance of the site on Hayes continued to frustrate the Fund's objectives. Neither construction nor marketing had commenced on either site.
The Board and the Manager believed that these transactions had very little likelihood of going forward in accordance with the anticipated timetable. Having taken legal advice as to the options available to it, the Board decided to exercise the Fund's contractual right to rescind all contracts and recover the deposits which it had paid in respect of Tring. No deposit had been paid in respect of Hayes.
Market
Although the financial year finished prior to the first of five successive base rate cuts which started in October 2008, the difficulties in the housing market were readily apparent. Average UK house price growth, according to Land Registry figures, had reversed from plus 8.7 per cent. in September 2007 to minus 8.0 per cent. in September 2008. Both of the leading UK mortgage lenders (HBOS and Nationwide) were recording annual price declines of 12.4 per cent. against growth of 10.7 per cent. and 9.0 per cent. respectively a year earlier, whilst at the more positive end of the spectrum Rightmove, which had been roughly in line with the major lenders a year ago, was only reporting a year on year decline of 3.3 per cent. Prices in London resisted the general trend for the majority of the year, with certain districts within the M25 area, the Fund's preferred investment region, continuing to record monthly and annual growth.
The greatest casualty however has been volume, which has suffered not so much from the price of credit but its availability since the virtual closure of the wholesale markets to lenders following the global crisis in the banking industry. The unwillingness of the banks to lend to each other has driven up the premium cost of short term funding to levels not seen in previous economic cycles.
Transaction volume has suffered accordingly. At the September year end monthly mortgage approvals had fallen to 33,000 units from 74,000 at the start of the year, 102,000 in September 2007 and 119,000 at the height of the boom in January that year.
Since the year-end interest rates have been slashed by 450 basis points to an all time low of 0.5 per cent. Three month Sterling LIBOR has fallen from a high of 6.8 per cent. mid year to an all time low of 1.80 per cent., where the premium for such credit remains at 130 basis points over base rate as opposed to the15 basis points norm prior to the banking crisis. However this has failed to fuel demand, further evidence that it is not price but availability of credit which is restricting the market.
Outlook
GDP growth is slowing simultaneously across all continents, a phenomenon not witnessed in modern economic history. It results from a combination of the global banking crisis on the one hand and a commodity price boom without precedent on the other.
The UK treasury reports that the average expectation for house price falls in 2009 is 9.8 per cent. with a peak to trough decline of between 20 per cent. and 35 per cent., and most agencies forecasting, along with RICS, a fall of 25 per cent. Transaction volumes, having fallen from 1.6 million in 2007 to 0.9 million in 2008 are forecast by the CML to decline further in 2009 to around 0.7 million units, whilst few see any improvement in housing starts from 2008 levels.
The Land Registry reported average house prices falling by 13.5 per cent. for 2008 as a whole, whilst the major lenders were less generous with their calculations - HBOS recording a 12 month fall in prices of 16.2 per cent. and the Nationwide 15.9 per cent. This would indicate, if the consensus is to be believed, that the majority of the decline is behind us.
That said, with volume remaining low and developers finding it difficult to acquire finance, opportunities for the purchase of cheap properties in key geographical areas at deep discounts to market prices are likely to continue to emerge. In this respect the Manager believes that the best opportunities exist in this arena.
AGM and continuation vote
The AGM of the Fund will be held in Jersey on 29 April 2009. As you will be aware, a continuation vote will be tabled at the AGM as an ordinary resolution. This is to the effect that the Fund continues to pursue its existing investment strategy until the conclusion of the next AGM.
Having considered the outlook for the UK residential property market, both in the short and long-term, and, importantly, the commitments of the Fund to the Wallington development potentially until January 2012, and having spoken to several of the Fund's largest shareholders over the past six months, the Board recommends that shareholders vote in favour of this resolution to continue with the investment strategy (as per the above discussion on revised focus) for a further year. During this period, the Fund will seek to identify forced and distressed sellers with a view to acquiring completed units at significant discounts to prevailing market value, which also meet the Fund's geographical and rental requirements. It will also continue to monitor and report on progress on the Wallington development.
Shareholders should note that if the continuation vote is not passed (on a simple majority vote of those voting) the Board would be obliged to take all steps necessary or desirable to effect the orderly realisation of the Company's property portfolio. The Board does not consider this to be in the best interests of shareholders at this time for two main reasons. First, the Fund would be selling its completed units in Leicester and Walton into a very difficult market. Secondly, even if those units were successfully sold, the proceeds of sale (together with other cash reserves) could not be distributed to shareholders while the Fund's liability to complete on the Wallington units remains.
Board and advisers
Subsequent to the year end Joni Cline resigned as a director in order to make herself available to pursue other opportunities. Ms Cline had acted as the Board representative nominated by Concensus Business Group ("CBG") since December 2007. CBG had been offered the opportunity to nominate a director to the Fund's board in April 2007 in connection with its role as investment adviser to Elsina Limited ("Elsina"). Elsina is ultimately owned by Investec Trust (Guernsey) Limited, as trustees for the Tchenguiz Family Trust, and had been interested in 20.3 per cent. of the Fund's share capital. In January this year the Fund announced that CBG's interest had been reduced to 3.6 per cent. after the bulk of its shareholding was transferred to Kaupthing Singer & Friedlander ("KS&F") just prior to KS&F entering into administration in October 2008.
In January 2009 the Board appointed John East & Partners Limited as its nominated adviser and broker.
Finally I would like to take this opportunity to announce that I shall be resigning as Chairman and a director of the Fund for personal reasons with immediate effect from the publication of these financial statements. I have very much enjoyed chairing the Board and serving as a director of your Fund over the past three years albeit that much of this period represented a particularly challenging and unprecedented environment in which to operate. Roger King will take on the Chairmanship of the Fund on a temporary basis while my fellow directors consider new candidates for the Board. I would like to wish the shareholders, my fellow directors and the investment manager the best of fortune for the remainder of the life of the Fund.
Graham Berry
Chairman 23 March 2009
Consolidated Income Statement
For the year ended 30 September 2008
| Year ended | Year ended | ||||||||||||
| 30 September 2008 | 30 September 2007 | ||||||||||||
| Revenue | Capital | Total | Revenue | Capital | Total | ||||||||
| Notes | £ | £ | £ | £ | £ | £ | |||||||
| Unrealised losses on investment property | 7 | - | (106,500 | ) | (106,500 | ) | - | (78,183 | ) | (78,183 | ) | ||
| Profit on off-plan sales or write back on rescinded sales | 9 | (240,870 | ) | - | (240,870 | ) | 262,662 | - | 262,662 | ||||
| Realised losses on property contracts yet to complete | 9 | (4,113 | ) | - | (4,113 | ) | - | - | - | ||||
| Realised gains/(losses) on investments held at fair value through profit or loss | 8 | - | 11,668 | 11,668 | - | (1,841 | ) | (1,841 | ) | ||||
| Unrealised gains/(losses) on investments held at fair value through profit or loss | 8 | - | 20,769 | 20,769 | - | (1,601 | ) | (1,601 | ) | ||||
| Interest income | 2 | 339,315 | - | 339,315 | 333,711 | - | 333,711 | ||||||
| Rental income | 2 | 36,411 | - | 36,411 | 17,770 | - | 17,770 | ||||||
| Investment management fee | 3 | (182,477 | ) | - | (182,477 | ) | (156,210 | ) | - | (156,210 | ) | ||
| Rental expenses | 4 | (11,537 | ) | - | (11,537 | ) | (14,994 | ) | - | (14,994 | ) | ||
| Other expenses | 4 | (295,060 | ) | - | (295,060 | ) | (268,514 | ) | - | (268,514 | ) | ||
| Net (loss)/gain on ordinary activities before taxation | (358,331 | ) | (74,063 | ) | (432,394 | ) | 174,425 | (81,625 | ) | 92,800 | |||
| Taxation | 5 | (6,514 | ) | - | (6,514 | ) | (3,094 | ) | - | (3,094 | ) | ||
| Net (loss)/gain for the year after taxation | (364,845 | ) | (74,063 | ) | (438,908 | ) | 171,331 | (81,625 | ) | 89,706 | |||
| (Loss)/gain per share (pence) | 6 | (3.3 | ) | (0.7 | ) | (3.9 | ) | 0.9 | 0.9 | 0.9 | |||
Notes
(a) The total column of this statement represents the profit and loss of the Company and the Group.
(b) All items in the above statement derive from continuing operations.
(c) The Group has no recognised gains or losses other than those disclosed in the Consolidated income statement.Consolidated Balance Sheet
As at 30 September 2008
| 2008 | 2007 | ||||
| Notes | £ | £ | |||
| Non-current assets | |||||
| Investment property | 7 | 804,500 | 911,000 | ||
| Investments held at fair value through profit or loss | 8 | 3,012,365 | 5,985,007 | ||
| Property contracts yet to complete | 9 | 1,508,823 | 446,078 | ||
| Debtors | 11 | - | 253,532 | ||
| 5,325,688 | 7,595,617 | ||||
| Current assets | |||||
| Debtors | 11 | 533,450 | 437,022 | ||
| Cash in escrow | 13 | 3,000,000 | - | ||
| Cash and cash equivalents | 274,200 | 1,828,171 | |||
| 3,807,650 | 2,265,193 | ||||
| Total assets | 9,133,338 | 9,860,810 | |||
| Current liabilities | |||||
| Other payables | 12 | (78,242 | ) | (366,806 | ) |
| Net assets | 9,055,096 | 9,494,004 | |||
| Equity | |||||
| Stated capital | 14 | 10,505,154 | 10,505,154 | ||
| Capital reserve | 17 | (315,755 | ) | (241,692 | ) |
| Issue costs reserve | (679,868 | ) | (679,868 | ) | |
| Revenue reserve | (454,435 | ) | (89,590 | ) | |
| Total shareholders' funds (all equity) | 9,055,096 | 9,494,004 | |||
| Net asset value per share (pence) | 15 | 81.2 | 85.1 |
Consolidated Statement of Cash Flows
For the year ended 30 September 2008
| 2008 | 2007 | ||||
| Notes | £ | £ | |||
| Cash flow from operating activities | |||||
| Deposits and acquisition costs relating to property contracts | (1,502,948 | ) | 138,830 | ||
| Cash deposited in escrow | (3,000,000 | ) | - | ||
| Expenses from sale of property contracts | (2,290 | ) | - | ||
| Rental income received | 34,854 | 17,772 | |||
| Deposit interest received | 67,958 | 63,044 | |||
| Investment management fees paid | (182,477 | ) | (156,210 | ) | |
| Secretarial fees paid | (4,614 | ) | (5,160 | ) | |
| Rental expenses | (13,072 | ) | (14,994 | ) | |
| Other expenses | (232,864 | ) | (251,967 | ) | |
| Net cash outflow from operating activities after interest and before taxation | 18 | (4,835,453 | ) | (208,685 | ) |
| Taxation paid | (6,226 | ) | (3,094 | ) | |
| Cash flow from investing activites | |||||
| Interest income received | 247,087 | 271,833 | |||
| Purchase of investments | (1,529,299 | ) | (2,086,995 | ) | |
| Sale of investments | 4,569,920 | 2,023,640 | |||
| Net cash inflow from investing activities | 3,287,708 | 208,478 | |||
| Net cash outflow before financing | (1,553,971 | ) | (3,301 | ) | |
| Cash flow from financing activities | |||||
| Issue of shares | - | 1,765,908 | |||
| Expenses of share issue | - | (70,636 | ) | ||
| Net cash inflow from financing activities | - | 1,695,272 | |||
| Net (decrease)/increase in cash and cash equivalents | (1,553,971 | ) | 1,691,971 | ||
| Cash and cash equivalents at the start of the year | 1,828,171 | 136,200 | |||
| Cash and cash equivalent at the end of the year | 274,200 | 1,828,171 |
Consolidated Statement of Changes in Equity
For the year ended 30 September 2008
| Issue | ||||||||||
| Stated | Capital | costs | Revenue | |||||||
| capital | reserves | reserve | reserve | Total | ||||||
| £ | £ | £ | £ | £ | ||||||
| For the year ended 30 September 2008 | ||||||||||
| At 1 October 2007 | 10,505,154 | (241,692 | ) | (679,868 | ) | (89,590 | ) | 9,494,004 | ||
| Revaluation of investment property | - | (106,500 | ) | - | - | (106,500 | ) | |||
| Gain/(loss) for the year | - | 32,437 | - | (364,845 | ) | (332,408 | ) | |||
| At 30 September 2008 | 10,505,154 | (315,755 | ) | (679,868 | ) | (454,435 | ) | 9,055,096 | ||
| For the year ended 30 September 2007 | ||||||||||
| At 1 October 2006 | 8,739,246 | (117,960 | ) | (609,232 | ) | (260,921 | ) | 7,751,133 | ||
| Issue of shares | 1,765,908 | - | - | - | 1,765,908 | |||||
| Expenses of share issue | - | - | (70,636 | ) | - | (70,636 | ) | |||
| Revaluation of investment property | - | (120,290 | ) | - | - | (120,290 | ) | |||
| (Loss)/gain for the year | - | (3,442 | ) | - | 171,331 | 167,889 | ||||
| At 30 September 2007 | 10,505,154 | (241,692 | ) | (679,868 | ) | (89,590 | ) | 9,494,004 |
1. Accounting policies
(a) Basis of preparation
The consolidated annual financial statements have been prepared under the historical cost convention, as modified to include the revaluation of quoted investments and investment properties and in accordance with applicable Accounting Standards and the Statement of Recommended Practice for "Financial Statements of Investment Trust Companies" issued in January 2003 and amended in December 2005. For the accounting period beginning on 1 October 2007 the Company has prepared its financial statements in accordance with International Financial Reporting Standards ("IFRS"), as adopted by the International Accounting Standards Board ("IASB"). Prior to the period beginning 1 October 2007, the Board had elected to continue to adopt UK Generally Accepted Accounting Principles ("UK GAAP") and therefore with the new Financial Reporting Standards issued as part of the programme to converge UK GAAP with IFRS. The principal differences arising from this change to IFRS is that fair value movements are now recognised through the income statement whereas these were previously accounted for through reserve movements under UK GAAP. All other differences have resulted in presentational changes only and have not required the restatement of any prior period numbers.
IFRS applied
The following IFRS standards have been applied in the current financial year: IFRS 7 "Financial Instruments: Disclosures" and the amendment to IAS 1 "Presentation of Financial Statements"
There is no material financial impact arising from the application of these standards and interpretations. The financial statements have been updated to include new disclosures arising from these standards where appropriate.
Going Concern
As more fully described in the Portfolio Review of the Chairman's Statement and in note 9, the Company contracted to purchase 118 off-plan units in a new development in Wallington for £25.0m for which the Red Book valuation at the end of September 2008 was £27.4m. Due to the delay in the commencement of the construction, which impacted the marketing strategy, none of the units has been sold. Whilst there is clearly some uncertainty over the commencement of the development, there is a long-stop date of January 2012 by which time the Company will require completed units of satisfactory standard to be delivered by the developer or else be entitled to a return of its deposits. The Company intends to commence its sales strategy for the Wallington development once construction has started. Current market conditions, falling house prices and a significant reduction in new mortgage approvals give rise to uncertainties concerning the ability of the Company to sell the properties, and the sales price. If properties prices fall by a further 10% or more by the date of completion of the units (which is expected to be at least 18 months from now) from the independent valuation undertaken by CB Richard Ellis as of 30 September 2008, the Company would only be able to on-sell any remaining unsold units at a loss. In this case the Company may choose to acquire and retain some or all units with a view to achieving better long term returns through rental, but would need to seek financing to do so. Although there can be no certainty that such financing would be available, particularly if property values fall even further, the Directors anticipate a successful outcome to the project or a return of its deposits.
At the Company's forthcoming AGM, an ordinary resolution for the continuation of the Company is being tabled. If this resolution is passed a further resolution will be put to the following year's AGM and annually thereafter. If the resolution is not passed, in this or future years, the Directors will commence an orderly realisation of the Company's assets. The Directors have recommended, and expect that, shareholders will vote in favour of continuation of the Company this year.
These factors, some of which arise in 18 months time or more, indicate the existence of material uncertainties which cast significant doubt about the ability of the Company to continue as a going concern. Having considered these uncertainties, and the options available to the Company, the Directors have a reasonable expectation that the Company has adequate resources to continue in operation for the foreseeable future. The financial statements do not include the adjustments that would result if the company was unable to continue as a going concern.
(b) Use of estimates and judgments
The preparation of financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting polices and the reporting amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.
The most significant estimates and judgements relate to the determination of fair value of investment property and the disclosed "Red Book" value of properties that are the subject of propery contracts yet to complete. The fair values of both kinds of properties are determined by independent valuers and are based upon a market approach methodology, using assumptions on local market prices, comparable units and transaction levels.
(c) Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 30 September each year. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from activities. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences up to the date that control ceases.
The Company has only one subsidiary, OPF Investment Properties Limited, which it acquired during the year ended 30 September 2007. As this subsidiary has not yet commenced trading and remained dormant throughout the year, the Company's financial statements are materially similar in all respects to the Group's financial statements, therefore the Company has presented only consolidated financial statements for the year ended 30 September 2008 and 30 September 2007.
(d) Revenue recognition
(i) Interest income
Interest receivable on fixed interest securities is recognised in 'Interest income' using the effective interest method. The effective interest method is a way of calculating the amortised cost of a financial asset or a financial liability (or groups of financial assets or financial liabilities) and of allocating the interest income or interest expense over the relevant period.
The effective interest rate is the rate that exactly discounts estimated future cash receipts or payments through the expected life of the financial instrument or, where appropriate, a shorter period, to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Group estimates cash flows considering all contractual terms of the financial instrument but not future credit losses. The calculation includes all amounts paid or received by the Group that are an integral part of the effective interest rate, including transaction costs and all other premiums or discounts.
(ii) Profit on off-plan sales
Profit on off-plan sales is recognised once contracts with onward buyers have become unconditional. The profit or loss is calculated in line with the profit-share arrangement with each developer based on the difference between the amount agreed with the buyer and the Company's purchase price.
(iii) Rental income
Rental income from investment properties is based on short term tenancy agreements and is recognised in the period earned. Property operating costs are expensed as incurred including any element of expenditure not recovered from tenants.
(e) Expenses
Expenses are charged through the income statement, except for expenses which are attributable to the disposal of an investment, which are deducted from the disposal proceeds of the investment. In addition, certain expenses associated with the acquisition of an investment have been capitalised.
(f) Investments
General
Assets are recognised at the trade date of acquisition, and are recognised initially at fair value plus any directly attributable transaction costs.
The Group does not hold, or intend to hold, any financial instruments for the purpose of trading.
Investments at fair value through profit or loss
An instrument is classified as fair value through profit or loss if it is held as at fair value through profit or loss. Financial instruments are designated at fair value through the profit r loss if the Group manages such investments and makes purchase and sale decisions based on their fair value. Fair value is the amount at which an investment could be exchanged between knowledgeable willing parties in an arms length transaction.
Purchases of investments are recognised on the trade date, being the date that amounts are due for payment. Investments are derecognised when the rights to receive cash flows from the investments have expired or the Group has transferred substantially all risks and rewards of ownership. Investments are initially recognised at fair value being the transaction price. Transaction costs for all financial assets carried at fair value through profit and loss are expensed as incurred.
Subsequent to initial recognition, all financial assets at fair value through the profit and loss are measured at fair value. Gains and losses arising from changes in fair value are presented in the income statement in the year in which they arise. On disposal, realised gains and losses are also recognised in the income statement.
Fair values of financial instruments traded in active markets are based on quoted market prices as at the balance sheet date. The quoted market price used for financial assets held by the Group is the current bid price.
Property contracts yet to complete
The Group has contractual obligations to purchase property that is currently being constructed, i.e. it has entered into contracts to purchase the property "off-plan". Under these contracts the Group is obliged to purchase these properties at a contracted price, but has the right to sell or transfer the contract to a third party. The "Property contracts yet to complete" are included in the balance sheet at the lower of cost and net realisable value. Cost includes legal and other expenses incurred to acquire the contracts.
Realised gains and losses arising on the disposal of these contracts are taken to the realised capital reserve.
Investment property
Property that is held for capital appreciation, and that is not occupied by the companies in the Group, is classified as investment property.
Investment property is measured initially at its cost, including related transaction costs. After initial recognition, investment property is carried at fair value. Changes in fair values are recorded in the income statement.
Fair value is based on active market prices, adjusted if necessary for any difference in the nature, location or condition of the specific asset. If this information is not available, the Group uses alternative valuation methods. The valuations are prepared annually by Savills (L&P) Limited.
Realised gains and losses on the disposal of investment property are recognised once sale contracts have been exchanged and the purchaser's deposit has been received.
(g) Cash and cash equivalents
Cash and cash equivalents comprise current deposits with banks. Cash equivalents comprises of current deposits with banks.
(h) Taxation
The taxation charge arises from income tax deducted at source on the net rental income. UK tax has been deducted at source on all properties at the current rate of tax (2008/09 - 20 per cent.; 2007/08 - 22 per cent.).
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.
(i) Share capital
Founder shares
Founder shares are classified as equity. Founder shares are not eligible for participation in Company investments and carry no voting rights at general meetings of the Company.
(j) Currency
The results and financial position of the Group are expressed in Pounds Sterling, which is the Group's functional currency.
(k) New standards and interpretations not applied
At the date of authorisation of these financial statements, the following standards and Interpretations were in issue but not yet effective
Amendments to IAS 1 - Presentation of Financial Statements: A Revised Presentation (effective for annual periods beginning on or after 1 January 2009)
Amendments to IAS 16 - Property, Plant and Equipment (effective for annual periods beginning on or after 1 January 2009)
Amendments to IAS 19 - Employee Benefits (effective for annual periods beginning on or after 1 January 2009)
Amendments to IAS 23 - Borrowing Costs (effective for annual periods beginning on or after 1 January 2009)
Amendments to IAS 27 - Consolidated and Separate Financial Statements (effective for annual periods beginning on or after 1 January 2009)
Amendments to IAS 28 - Investments in Associates (effective for annual periods beginning on or after 1 January 2009)
Amendments to IAS 29 - Financial Reporting in Hyperinflationary Economies (effective for annual periods beginning on or after 1 January 2009)
Amendments to IAS 31 - Interests in Joint Ventures (effective for annual periods beginning on or after 1 January 2009)
Amendments to IAS 36 - Impairment of Assets (effective for annual periods beginning on or after 1 January 2009)
Amendments to IAS 38 - Intangible Assets (effective for annual periods beginning on or after 1 January 2009)
Amendments to IAS 39 - Financial Instruments: Recognition and Measurement (effective for annual periods beginning on or after 1 January 2009)
Amendments to IAS 40 - Investment Property (effective for annual periods beginning on or after 1 January 2009)
Revised IFRS 1 - First-time Adoption of International Financial Reporting Standards (effective for annual periods on or after 1 January 2009)
Revised IFRS 2 - Share-based Payment (effective for annual periods on or after 1 January 2009)
Revised IFRS 3 - Business Combinations (effective for annual periods beginning on or after 1 July 2009)
Revised IFRS 5 - Non-current Assets Held for Sale and Discontinued Operations (effective for annual periods beginning on or after 1 July 2009)
IFRS 8 - Operating Segments (effective for annual periods beginning on or after 1 January 2009)
The Directors anticipate that the adoption of these standards and interpretations in future periods will have no material impact on the financial statements for the Group.
2. Income
| 2008 | 2007 | ||
| £ | £ | ||
| Income from fixed interest securities | 195,349 | 270,667 | |
| Deposit interest | 143,966 | 63,044 | |
| Interest income | 339,315 | 333,711 | |
| Rental income | 36,411 | 17,770 | |
| 375,726 | 351,481 |
3. Management fee
| 2008 | 2007 | |||
| £ | £ | |||
| Management fee | 182,477 | 156,210 |
The management fees paid to Development Capital Management (Jersey) Limited are 2 per cent.per annum of the net asset value of the fixed income portfolio held by the Company, plus any cash amount of deposits paid and outstanding in respect of property contracts yet to complete. The management agreement between the Company and the Manager is terminable by either party on 12 months notice.
4. Other operating expenses
| 2008 | 2007 | |||
| £ | £ | |||
| Administration and secretarial services | 38,114 | 38,810 | ||
| Directors' remuneration | 43,048 | 35,000 | ||
| Auditors' fees - for audit services | 30,236 | 19,847 | ||
| Auditors' fees - other services | - | 3,494 | ||
| Legal fees | 90,194 | 98,939 | ||
| Rental expenses | 11,537 | 14,994 | ||
| Miscellaneous expenses | 93,468 | 72,424 | ||
| 306,597 | 283,508 |
5. Tax
Under Article 123A of the Income Tax (Jersey) Law 1961, as amended, the Company has obtained Jersey exempt company status and is therefore exempt for Jersey income tax on non Jersey source income and bank interest (by concession). A £600 (2007 - £600) annual exempt company fee is payable by the Company. From January 2009 the exempt company regime will no longer apply. The general rate of corporation tax for companies resident in Jersey will be 0 per cent. from that date.
| 2008 | 2007 | |||
| £ | £ | |||
| Income tax on rental income | 6,514 | 3,094 | ||
| Reconciliation of tax charge | ||||
| Net (loss)/gain on ordinary activities before finance costs and taxation | (432,394 | ) | 92,800 | |
| Adjustment for disallowable income and expenses | ||||
| Income | (339,315 | ) | (333,711 | ) |
| Cancellation of gain recognised in prior year | 240,870 | - | ||
| Realised losses/(gains) on investments held at fair | ||||
| value through profit or loss | 4,113 | (262,662 | ) | |
| Realised (gains)/losses on investments held at fair | ||||
| value through profit or loss | (11,668 | ) | 1,841 | |
| Unrealised (gains)/losses on investments held at fair | ||||
| value through profit or loss | (20,769 | ) | 1,601 | |
| Unrealised losses on investment property | 106,500 | 78,183 | ||
| Investment management fee | 182,477 | 156,210 | ||
| Other expenses | 295,060 | 268,514 | ||
| Rental expenses | 6,143 | 10,965 | ||
| Taxable rental income | 31,017 | 13,741 |
| 2008 | 2007 | |||
| £ | £ | |||
| Income tax @ 20% (2007 - 22%) | 6,203 | 3,023 | ||
| Effect of different rate | 311 | 71 | ||
| Total tax charge for the year | 6,514 | 3,094 |
6. Returns per share
The return per share is based on the net loss for the year of £438,908 (2007: profit of £89,706) and on 11,153,098 shares (2007: 11,153,098), being the weighted average number of shares in issue.
7. Investment property
| 2008 | 2007 | |||
| £ | £ | |||
| Opening book cost | 989,183 | 982,893 | ||
| Movement during the year: | ||||
| Completion payment | - | 6,290 | ||
| Closing book cost | 989,183 | 989,183 | ||
| Closing unrealised depreciation | (184,683 | ) | (78,183 | ) |
| Closing fair value | 804,500 | 911,000 |
The investment property was fair valued at the year-end by Savills (L&P) Limited on a market approach basis taking into account transactions and asking prices for comparable properties in the relevant location and applying a value adjustment where thought appropriate by the valuer. The rental income arising from this property in the year was £36,411 (2007 - £12,770) with direct expenses of £11,537 (2007 - £14,994).
8. Investments held at fair value through profit or loss
| 2008 | 2007 | |||
| £ | £ | |||
| Opening valuation | 5,985,007 | 5,941,738 | ||
| Opening unrealised loss | 53,320 | 51,719 | ||
| Opening book cost | 6,038,327 | 5,993,457 | ||
| Movements during the year: | ||||
| Purchases | 1,476,152 | 2,086,995 | ||
| Sales - proceeds | (4,486,169 | ) | (2,023,640 | ) |
| Amortisation of fixed income book costs | 4,938 | (16,644 | ) | |
| Sales - realised gains | 11,668 | (1,841 | ) | |
| Closing book cost | 3,044,916 | 6,038,327 | ||
| Closing unrealised loss | (32,551 | ) | (53,320 | ) |
| Closing fair value | 3,012,365 | 5,985,007 |
9. Property contracts yet to complete
| 2008 | 2007 | |||||
| £ | £ | |||||
| Opening book cost | 446,078 | 336,602 | ||||
| Movements during the year: | ||||||
| Write back of Oldham Place sales | ||||||
| proceeds recognised in prior year | 430,043 | |||||
| Write back of Oldham Place sales | ||||||
| realised gain recognised in prior year | (240,870 | ) | ||||
| 189,173 | ||||||
| Proceeds for rescission of Oldham Place | (332,489 | ) | ||||
| Write off of capitalised costs of Oldham Place | (4,113 | ) | ||||
| Oldham Place deposit refunded | (147,429 | ) | - | |||
| Rescission of Tring and Hayes contracts | (304,524 | ) | - | |||
| Purchases | 1,514,698 | 298,649 | ||||
| Sales - proceeds | - | (451,835 | ) | |||
| Sales - realised gain | - | 262,662 | ||||
| Closing book cost | 1,508,823 | 446,078 |
The deposit refunded during the year in the table above refers to the rescission of contracts on 51 units in Oldham Place, Liverpool. The rescission of the Tring and Hayes contracts resulted in a return of deposit of £292,774 and a write-off of expenses of £11,750.
The Purchases during the year in the table above refers to the deposit of £1,250,000 paid in respect of 118 units in a new development at Canon House, Wallington and associated legal expenses and £165,000 paid in respect of 10 units in a new development, the Heart, at Walton on Thames. There are no unprovided costs in respect of these developments.
The Red Book valuations of the underlying properties, on which the Group holds contracts are based primarily upon "The estimated amount for which a property should exchange on the date of the valuation, between a willing buyer and a willing seller in an arm's-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion." This valuation methodology is designed to encapsulate the fair value of the properties were they complete and held for investment purposes. The Group however holds contracts to purchase these properties once complete and therefore is exposed to additional risks such as the risk that the development fails to complete or completes in a sub-standard fashion not accounted for in the Red Book assumptions. The Group is also exposed to changes in the value of properties caused by other economic factors.
The table below summarises the costs associated with these contracts and refers to the latest 'Red Book' valuations, prepared by CB Richard Ellis for Canon House, Wallington and Edwin Evans for The Heart, Walton-on-Thames, of the underlying properties as a basis of valuation for these contracts.
| Oldham | Canon | |||||||
| Place | The Heart | House | Total | |||||
| £ | £ | £ | £ | |||||
| Deposits paid | 336,602 | 165,000 | 1,250,000 | 1,751,602 | ||||
| Legal and acquisition costs | - | - | 93,823 | 93,823 | ||||
| Proceeds for rescission of | ||||||||
| Oldham Place | (332,489 | ) | - | - | (332,489 | ) | ||
| Write off of capitalised costs | ||||||||
| of Oldham Place | (4,113 | ) | - | - | (4,113 | ) | ||
| Book cost as at 30 September 2008 | - | 165,000 | 1,343,823 | 1,508,823 | ||||
| Outstanding completion payments | - | 1,499,072 | 23,750,000 | 25,249,072 | ||||
| Total historic cost | - | 1,664,072 | 25,093,823 | 26,757,895 | ||||
| 'Red Book' valuation | - | 2,100,000 | 27,397,677 | 29,497,677 | ||||
| Approximate completion date | - | Oct-08 | Dec-10 |
On 23 October 2008 the Group completed the purchase of 10 apartments in a recently completed development in Walton on Thames at £165,000 per unit, equating to a discount of 21 per cent. to the prevailing average "Red Book" valuation of £210,000.
10. Investment in subsidiary undertakings
| 2008 | 2007 | |||
| £ | £ | |||
| OPF Investment Properties Limited | 1 | 1 |
11. Debtors
(a) Non current assets
| 2008 | 2007 | |||
| £ | £ | |||
| Amount due on property contracts yet to complete | - | 253,532 |
The amounts due in 2007 on property contracts yet to complete relate to the Group's profit share on Oldham Place payable by the developer on completion of the development. Oldham Place has since been rescinded so the debtor has been written off.
(b) Current assets
| 2008 | 2007 | |||
| £ | £ | |||
| Proceeds from rescission of Oldham Place | 332,489 | - | ||
| Amount due on property contracts yet to complete | - | 189,174 | ||
| Interest receivable | 188,981 | 199,872 | ||
| Prepayments | 11,980 | 47,976 | ||
| 533,450 | 437,022 |
12. Other payables
| 2008 | 2007 | |||
| £ | £ | |||
| Amount due on property contracts yet to complete | - | 292,774 | ||
| Accruals | 78,242 | 74,032 | ||
| 78,242 | 366,806 |
Accrued expenses includes secretarial and administration fees of £9,391 (2007: £9,425) due to BNP Paribas Fund Services Jersey Limited.
13. Cash in escrow
The Company holds a deposit of £3,000,000 (2007: £nil) with AIB Bank (CI) Limited as a guarantee to HBOS. Under the terms of the guarantee a minimum of £3,000,000 balance needs to be maintained at all times. This guarantee will reduce in line with the sale of units at Canon House, Wallington and released on a quarterly basis.
14. Stated capital
The company is a no par value ('NPV') company.
| Authorised: | 2008 | 2007 | ||
| Number | Number | |||
| Founder shares | 10 | 10 | ||
| 99,999,990 participating shares | 99,999,990 | 99,999,990 | ||
| 100,000,000 | 100,000,000 | |||
| Issued and fully paid: | Number | Number | ||
| Founder shares | 2 | 2 | ||
| Participating shares | 11,153,098 | 11,153,098 |
All costs associated with the issue of shares have been taken to the issue costs reserve.
15. Net asset value per share
| Net asset value | ||||
| attributable per share | ||||
| 2008 | 2007 | |||
| p | p | |||
| Participating shares | 81.2 | 85.1 | ||
| Net asset value | ||||
| 2008 | 2007 | |||
| £ | £ | |||
| 9,055,096 | 9,494,004 | |||
16. Transaction costs
There were no transaction costs charged to the Company during the year. A fee, including brokerage costs, is charged by the custodian of the fixed income portfolio to the Manager, Development Capital Management (Jersey) Limited.
17. Capital reserves
| 2008 | 2007 | |||
| £ | £ | |||
| Capital reserve - realized | ||||
| Opening balance | (110,189 | ) | (108,348 | ) |
| Realised gains/(losses) on investments | 11,668 | (1,841 | ) | |
| Closing balance | (98,521 | ) | (110,189 | ) |
| Capital reserve - unrealized | ||||
| Opening balance | (131,503 | ) | (9,612 | ) |
| Movements in fair value of investment properties | (106,500 | ) | (120,290 | ) |
| Movements in fair value of investments | 20,769 | (1,601 | ) | |
| Closing balance | (217,234 | ) | (131,503 | ) |
| Total capital reserve | (315,755 | ) | (241,692 | ) |
18. Reconciliation of net (loss)/gain before taxation to net cash outflow from operating activities
| 2008 | 2007 | |||
| £ | £ | |||
| Net (loss)/gain before taxation | (432,394 | ) | 92,800 | |
| Losses/(gains) on properties | 240,870 | (262,662 | ) | |
| (Gains)/losses on investments | (32,437 | ) | 3,442 | |
| Losses on revaluation of investment property | 106,500 | 78,183 | ||
| Income from investing activities | (195,349 | ) | (270,667 | ) |
| Increase in accruals | 58,437 | 13,833 | ||
| Decrease/(increase) in prepayments | 547 | (2,446 | ) | |
| Increase in accrued income | (40,847 | ) | (47,447 | ) |
| (Increase)/decrease in accrued interest onpurchase/sale of fixed interest | (30,604 | ) | 30,805 | |
| Amortisation of fixed interest securities | (4,938 | ) | 16,644 | |
| Deposits and acquisition costs relating to property | (1,502,948 | ) | 138,830 | |
| Cash deposited in escrow | (3,000,000 | ) | - | |
| Expenses from sale of property contracts | (2,290 | ) | - | |
| Net cash outflow from operating activities | (4,835,453 | ) | (208,685 | ) |
19. Restatement of opening balance as at 1 October 2006 and 30 September 2007
The Group has adopted International Financial Reporting Standard in respect of the year ended30 September 2008. In accordance with IFRS 1 "First Time Adoption of Financial Reporting Standards'', the following is a reconciliation of figures as at 1 October 2006 and 30 September 2007, the date of the Group's transition to IFRS, which were previously reported under the applicable UK Accounting Standard and with the Statement of Recommended Practice.
(a) Consolidated Income Statement
| Restated | ||||||||
| As at | as at | |||||||
| Notes | 1 October | IFRS | 1 October | |||||
| 2006 | adjustment | 2006 | ||||||
| £ | £ | £ | ||||||
| Realised losses on property contracts yet | ||||||||
| to complete | (109,308 | ) | - | (109,308 | ) | |||
| Unrealised losses on investments | (65,445 | ) | - | (65,445 | ) | |||
| Investment income | 269,039 | - | 269,039 | |||||
| Investment management fees | (119,196 | ) | - | (119,196 | ) | |||
| Other expenses | (214,064 | ) | - | (214,064 | ) | |||
| Unrealised loss on revaluation of investment | ||||||||
| property | 1 | - | 42,107 | 42,107 | ||||
| (238,974 | ) | 42,107 | (196,867 | ) |
Consolidated Income Statement
| Previously | Restated | |||||||
| reported as | as at | |||||||
| 30 September | IFRS | 30 September | ||||||
| Notes | 2007 | adjustment | 2007 | |||||
| £ | £ | £ | ||||||
| Realised gains on property contracts yet | ||||||||
| to complete | 262,662 | - | 262,662 | |||||
| Unrealised losses on investments | (3,442 | ) | - | (3,442 | ) | |||
| Investment income | 333,711 | - | 333,711 | |||||
| Rental income | 17,770 | - | 17,770 | |||||
| Investment management fees | (156,210 | ) | - | (156,210 | ) | |||
| Rental expenses | (14,994 | ) | - | (14,994 | ) | |||
| Other expenses | (268,514 | ) | - | (268,514 | ) | |||
| Unrealised loss on revaluationof investment property | 1 | - | (78,183 | ) | (78,183 | ) | ||
| 170,983 | (78,183 | ) | 92,800 |
(b) Consolidated balance sheet
| Restated | ||||||||
| Capital and reserves | As at | as at | ||||||
| Notes | 1 October | IFRS | 1 October | |||||
| 2006 | adjustment | 2006 | ||||||
| £ | £ | £ | ||||||
| Stated capital | 8,739,246 | - | 8,739,246 | |||||
| Realised capital reserves | (108,348 | ) | 108,348 | - | ||||
| Unrealised capital reserve | (51,719 | ) | 51,719 | - | ||||
| Capital reserves | - | (160,067 | ) | (160,067 | ) | |||
| Investment property revaluation reserve | 1 | 42,107 | (42,107 | ) | - | |||
| Issue cost reserve | (609,232 | ) | - | (609,232 | ) | |||
| Revenue reserve | (260,921 | ) | 42,107 | (218,814 | ) | |||
| 7,751,133 | - | 7,751,133 |
| Consolidated balance sheet | ||||||||
| Previously | Restated | |||||||
| reported as | as at | |||||||
| 30 September | IFRS | 30 September | ||||||
| Capital and reserves | Notes | 2007 | adjustment | 2007 | ||||
| £ | £ | £ | ||||||
| Stated capital | 10,505,154 | - | 10,505,154 | |||||
| Realised capital reserves | 152,473 | (152,473 | ) | - | ||||
| Unrealised capital reserve | (53,320 | ) | 53,320 | - | ||||
| Capital reserves | - | 99,153 | 99,153 | |||||
| Investment property revaluation reserve | 1 | (78,183 | ) | 78,183 | - | |||
| Issue cost reserve | (679,868 | ) | - | (679,868 | ) | |||
| Revenue reserve | (352,252 | ) | (78,183 | ) | (430,435 | ) | ||
| 9,494,004 | - | 9,494,004 |
Notes to the reconciliation
1. Investment property is carried at fair value. Under IFRS changes in fair value are recorded as unrealised gains/losses on revaluation of investment property within the income statement. Previously these were recorded as movements in the investment property revaluation reserve.
2. The previous headings of 'Capital reserve - realised' and 'Capital reserve - unrealised' are now included under one combined heading.
(c) Reconciliation of Net Profit under IFRS from UK GAAP
| 2008 | 2007 | |||
| £ | £ | |||
| Net (loss)/gain after taxation for the year | (438,908 | ) | 92,800 | |
| Less loss on revaluation of investment property | 106,500 | 78,183 | ||
| Net (loss) or gain reported under UK GAAP | (332,408 | ) | 170,983 |
20. Financial instruments
The Group's financial instruments comprise fixed interest securities, 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 main risks the Group faces from its financial instruments are (i) market price risk (comprising interest rate risk and other price risk), (ii) liquidity risk, (iii) credit risk.
The Board regularly reviews and agrees on policies for managing each of these risks. The Manager's policies for managing these risks are summarised below and have been applied throughout the year. The numerical disclosures exclude short-term debtors and creditors.
(i) Market price risk
Market price risk arises mainly from uncertainty about future prices of financial instruments used in the Group's operations. It represents the potential loss the Group might suffer through holding market positions as a consequence of price movements.
It is the Board's policy to hold a broad spread of fixed interest investments in order to reduce risk arising from factors specific to a particular country or sector. The Manager monitors market prices throughout the year and reports to the Board, which meets regularly in order to review investment strategy.
Interest rate risk
Interest rate movements may affect: (i) the fair value of the investments in fixed interest rate securities, and (ii) the level of income receivable on cash deposits.
The interest rate profile of the Group excluding short term debtors and creditors, at 30 September 2008 was as follows:
| Weighted | Weighted | |||||||||
| average | average | |||||||||
| period for | interest rate | |||||||||
| which | % | Fixed | Floating | Non-interest | ||||||
| rate is fixed | interest | rate | bearing | |||||||
| 2008 | Years | £ | £ | £ | ||||||
| Assets | ||||||||||
| Fixed interest securities | 0.58 | 4.90 | 3,012,365 | - | - | |||||
| Sterling cash deposit | - | - | - | 3,274,200 | - | |||||
| Debtors | - | - | - | - | - | |||||
| Total assets | 0.58 | 4.90 | 3,012,365 | 3,274,200 | - |
| Weighted | Weighted | |||||||||
| average | average | |||||||||
| period for | interest rate | |||||||||
| which | % | Fixed | Floating | Non-interest | ||||||
| rate is fixed | interest | rate | bearing | |||||||
| 2007 | Years | £ | £ | £ | ||||||
| Assets | ||||||||||
| Fixed interest securities | 1.10 | 5.10 | 5,985,007 | - | - | |||||
| Sterling cash deposit | - | - | - | 1,828,171 | - | |||||
| Debtors | 253,352 | |||||||||
| Total assets | 1.10 | 5.10 | 5,985,007 | 1,828,171 | 253,352 |
The floating rate assets consist of cash deposits on call earning interest at prevailing market rates.
Maturity profile
The following table sets out the carrying amount, by maturity, of the Group's financial instruments that are exposed to interest rate risk:
| Within | Within | Within | More than | |||||||
| 1 year | 2-3 years | 4-5 years | 5 years | Total | ||||||
| 2008 | £ | £ | £ | £ | £ | |||||
| Fixed rate | ||||||||||
| Assets | 2,512,690 | 298,515 | 201,160 | - | 3,012,365 | |||||
| 2,512,690 | 298,515 | 201,160 | - | 3,012,365 | ||||||
| Floating rate | ||||||||||
| Cash | 246,200 | - | - | - | 246,200 | |||||
| Deposits | - | 3,028,000 | - | - | 3,028,000 | |||||
| 246,200 | 3,028,000 | - | - | 3,274,200 | ||||||
| Non-interest bearing | ||||||||||
| Other receivables | - | - | - | - | - | |||||
| - | - | - | - | - |
| Within | Within | Within | More than | |||||||
| 1 year | 2-3 years | 4-5 years | 5 years | Total | ||||||
| 2007 | £ | £ | £ | £ | £ | |||||
| Fixed rate | ||||||||||
| Assets | 1,990,394 | 3,994,613 | - | - | 5,985,007 | |||||
| 1,990,394 | 3,994,613 | - | - | 5,985,007 | ||||||
| Floating rate | ||||||||||
| Cash | 1,828,171 | - | - | - | 1,828,171 | |||||
| Deposits | - | - | - | - | - | |||||
| 1,828,171 | - | - | - | 1,828,171 | ||||||
| Non-interest bearing | ||||||||||
| Other receivables | - | 253,352 | - | - | 253,352 | |||||
| - | 253,352 | - | - | 253,352 |
Interest rate sensitivity
An increase of 100 basis points in interest rates during the year would have increased the net assets attributable to shareholders and changes in net assets attributable to shareholders by £32,742 (2007 £18,282). A decrease of 100 basis points would have had an equal but opposite effect.
(ii) Liquidity risk
The Group has a commitment to purchase 118 units in Canon House, Wallington at a purchase price of £25 million, against which the Group has paid a deposit of £4.25 million. The commitment will be reduced by selling the forward purchase contracts, in line with the Group's strategy, once construction starts with any shortfall funded by bank financing and the Group's cash balances and readily realisable securities, which can be sold to meet funding commitments if necessary. As at 30 September 2008 the Group does not have any significant liabilities due.
(iii) Credit risk
The Group places funds with third parties and is therefore potentially at risk from the failure of any such third party of which it is a creditor. The Group expects to place any such funds on a short-term basis only and spread these over a number of years.
Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis.
The Group's principal financial assets are fixed interest securities, other receivables and cash and cash equivalents. The maximum exposure of the Group to the credit risk is the carrying amount of each class of financial assets.
Other receivables are represented mainly by prepayments and other debtors where no significant credit risk is recognised.
21. Controlling party
There is no ultimate controlling party.