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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Madara | LSE:MBF | London | Ordinary Share | JE00B1VN4914 | ORD NPV |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 0.125 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
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Madara Bulgarian Property Fund
26 June 2008
26 June 2008
Madara Bulgarian Property Fund Limited
Audited results for the period from 1 July 2007 to 31 December 2007
Madara Bulgarian Property Fund Limited (the 'Fund') announces its audited results for the period from 1 July 2007 to 31 December 2007.
Key Highlights
Corporate highlights
* Detailed master plan for the Black Sea Gardens project in Byala completed by Foster + Partners
* The Black Sea Gardens project publicly launched in December 2007
* Competitive tender process for a joint development partner underway and due to be completed in mid-July 2008
* Unsolicited approaches received for the Black Sea Gardens project at a price at or around the adjusted NAV, but significantly
higher than the Book Value within these accounts or the value implied by the Fund's recent share price
* Progress made towards completing acquisition of 50,000 sq m of land in Borovets
* Appointment of Michael Chase to the Fund's Board.
Financial highlights
* Loss per Ordinary Share of EUR0.02
* Book Value of EUR0.92 per Ordinary Share
* Adjusted NAV of EUR1.30 per Ordinary Share following an independent valuation.
Commenting on the results, Timothy Chadwick, Non-Executive Chairman of the Fund said:
"Despite a difficult trading environment, both globally and locally, we are pleased to present a positive report for Madara Bulgarian
Property Fund. The positioning of the assets has sheltered the Fund from local turbulence, and the progress in the development of the Black
Sea Gardens project has led to an exciting level of interest from international investors".
Further Information:
Timothy Chadwick, Chairman +44 (0) 20 7534 3338
Milena Harrison, Corporate Communications +44 (0) 20 7534 3338
Madara Bulgarian Property Fund Limited
Scott Perkins, Chief Executive +44 (0) 20 7534 3338
Madara Capital LLP
Tom Griffiths / Paul Vanstone +44 (0) 20 7012 2000
Arbuthnot Securities Limited
Notes to Editors:
Madara Bulgarian Property Fund Ltd
Madara Bulgarian Property Fund is an AIM listed property investment fund specialising in the Bulgarian market. The fund has a portfolio
of land in prime coastal and mountain locations, which is in the process of being developed into mixed-use residential and commercial sites.
The fund is managed and advised by a team with unique local knowledge, development expertise and experience of the international financial
markets.
www.madarafund.com
Madara Capital LLP
Madara Capital LLP, the Investment Advisor to the Madara Bulgarian Property Fund, is a privately owned LLP registered in the UK. Madara
Capital is owned by its founding directors, by RAB Special Situations (Master) Fund Limited and by Eddie Jordan. Madara Capital's four
executive principals comprise both UK and Bulgarian resident nationals who collectively have over 35 years' real estate related experience
in Bulgaria. There are three non-executive principals, all of whom are Bulgarian nationals and residents and who act in an advisory capacity
to Madara Capital.
www.madaracapital.com
Chairman's statement
Introduction
I am pleased to present Madara Bulgarian Property Fund's audited results for the period from 1 July 2007 to 31 December 2007. Despite a
difficult trading environment, this has been a period during which the Fund's investments have made significant advances culminating in the
public launch of the Black Sea Gardens project in December 2007, attended by senior Bulgarian dignitaries, following the completion of the
project's master plan by Foster + Partners. The Black Sea Gardens project has subsequently attracted unsolicited approaches from interested
parties at a price at or around the adjusted NAV, but significantly higher than the Book Value within these accounts or the value implied by
the Fund's recent share price.
Portfolio
The Fund currently owns land totalling 408,341 sq m located near Byala on the central Black Sea coast, south of Varna. Foster + Partners
have completed the detailed master plan for 200,000 sq m of buildable space in Byala as part of a 1.2m sq m total project in conjunction
with our development partner, BBT Projects. The project comprises luxury residential apartments, townhouses, and villas along with a hotel,
retail space and leisure facilities.
The Fund has appointed Colliers International EOOD to seek investors for the project and this process is due for completion in mid-July
2008. Prior to the completion of this process, the Fund's Investment Advisor has received unsolicited approaches and indicative terms have
been discussed with international developers for the Black Sea Gardens project. The indicative terms proposed are at a price at or around
the adjusted NAV, but significantly higher than the Book Value within these accounts or the value implied by the Fund's recent share price.
Should any of these approaches result in a formal offer being made for the Black Sea Gardens project, the Board will give full consideration
to shareholders' best interests before making any decision or accepting any offer.
The Fund has entered into a conditional agreement to acquire land totalling 124,000 sq m close to the centre of the established ski
resort of Borovets. The land in Borovets has taken longer than anticipated to complete, however progress is being made and we expect to
complete on around 40% of the land shortly. We remain confident that this land will attract significant interest on the open market.
It is the intention of the Board to seek either joint venture partners for the Fund's existing investments or to negotiate the sale of
certain assets at an acceptable price to provide for any additional investment activity or for working capital purposes. Furthermore, the
Board is assessing the capital structure of the Fund which is currently debt-free, as a potential further source of financing. The Fund does
not intend to seek any further financing through the equity markets until present market conditions improve.
Valuation of the Fund's real estate investments
The Fund has reappointed Colliers International EOOD as independent valuer to provide a valuation of its property portfolio on a
semi-annual basis, which they provided on 11 June 2008. Based on this Gross Development Value, the adjusted Net Asset Value per Ordinary
Share at 31 December 2007 was EUR1.30. This is a reduction of 6.5% from EUR1.39 which has largely been due to the higher discount rate used
by Colliers in the cash flow projections of Borovets. Savills Limited had provided the Fund's previous independent valuations, however
Colliers were reappointed once they had received certain necessary accreditations in Bulgaria. Colliers International EOOD is the leading
real estate advisory company in Bulgaria and brings considerable knowledge and experience to our team.
The structure and objectives of the Fund
The Fund is a Jersey incorporated company established in April 2006 with registered number 93301. The Fund's purpose is to make
investments in Bulgaria's property market, primarily in acquiring land suitable for development in prime coastal, mountain resort or city
locations. The strategy is subsequently to develop such acquired land in accordance with its consented (regulated) use or to profitably
trade the acquired land with the benefit of such consent.
The Fund aims to provide shareholders with a total return, which is expected to comprise primarily capital growth with the potential for
dividends over the medium to long term. The level of any dividend which might become payable will depend on, amongst others, the rental and
other income (including realised capital gains) generated by the investments made by the Fund. The timing and amount of any rental or any
other income cannot be predicted, therefore there can be no guarantee as to the amount or timing of any dividend payable by the Fund.
The Fund will be dissolved and its affairs wound up no later than 30 June 2016 unless its life is extended by the passing of a special
resolution by its shareholders. Following the end of the tenth year of the Fund, or such later date as its life may be extended by special
resolution of shareholders, the proceeds of the sale of the property portfolio will be returned to shareholders in such manner as is
determined by the Directors.
Dividend policy
The Fund does not currently intend to pay dividends for the first five years of its life, during which period profits will be reinvested
into further property investments. However, thereafter the Directors will consider the payment of dividends subject to the prevailing market
conditions at the time and dependent upon the availability of distributable reserves of the Fund and on the availability of sufficient cash
resources.
The Investment Advisor
Madara Capital LLP is the Investment Advisor to the Fund. It is a limited liability partnership registered in England and Wales with its
head office located in London. The Investment Advisor comprises seven principals (four executives and three non-executives), five of whom
are Bulgarian nationals and residents. The four executives of the Investment Advisor possess wide-ranging local knowledge and contacts and
have over 35 years' collective real estate related experience in Bulgaria.
Appointment of Michael Chase
I was delighted to announce the appointment of Michael Chase as a new Director of the Fund effective 23 April 2008. Michael brings many
years of successful real estate experience and we look forward to his valuable input in growing the Fund's assets.
Conclusion
I am delighted with the progress the Fund has made despite a difficult trading environment. Furthermore, I am confident that we have
very strong management teams in place at both the Fund and the Investment Advisor. We have the right blend of skills and experience required
to take advantage of identified opportunities to expand the Fund's assets and to generate returns which match or exceed the 20% minimum IRR
target.
Timothy J M Chadwick
Chairman
26 June 2008
Investment Advisor's Report
The period under review has seen significant progress in the assets of the Fund. The Fund publicly launched its Black Sea Gardens
project at an official ceremony and exhibition in Sofia, Bulgaria which was attended by, amongst others, Lord Foster and the Prime Minister
of Bulgaria. The reaction to the project has been overwhelmingly positive and it has received an enthusiastic response from investors, the
media and the public. Progress has been made in the pipeline of investments, however we intend to conclude ongoing discussions regarding the
Fund's current investments before progressing any further investments.
Existing assets
The focus of the Investment Advisor's activities during this period has been on the Byala asset. Foster + Partners had been appointed as
architect for the site with the remit to develop a carbon neutral resort. Foster + Partners in turn appointed BDSP to carry out an
environmental assessment which would lead to an infrastructure design capable of providing power, heat, cooling and sewerage that would have
no environmental impact.
The Fund also appointed Savills Limited to carry out a feasibility study of the Foster + Partners design to ensure the optimal
commercial outcome. Several iterations of design were produced, resulting in a detailed master plan for the site, under the working title of
Black Sea Gardens.
Black Sea Gardens is designed around five village clusters which, first, are sympathetic to the surrounding landscape and, second, allow
for a flexible development programme in order to meet market demand. The entire project entails 7,000 units, full leisure amenities, and a
marina, and can be seen on www.blackseagardens.com.
With regard to financing the Black Sea Gardens project, the Fund, along with its development partner BBT Projects, appointed Colliers
International EOOD to produce an Information Memorandum and to use its comprehensive experience and global client base to carry out a
competitive tender process for a joint development partner. This process is due for completion in mid-July 2008.
In the meantime unsolicited approaches have been received and indicative terms discussed with international developers for the Black Sea
Gardens project. The indicative terms proposed are at a price at or around the adjusted NAV, but significantly higher than the Book Value
within these accounts or the value implied by the Fund's recent share price.
Discussions with banks have been initiated relating to financing. However, these discussions are on hold pending the outcome of the
tender process referred to above.
Progress on the completion of the acquisition of the Borovets site continues, albeit at a slow pace, with some 50,000 sq m expected to
be completed shortly, with the completion of the remainder of the land possible before the end of 2008.
Investment opportunities
We currently have a well developed pipeline of investments under appraisal which match the Fund's investment criteria, and will serve to
diversify the Fund's portfolio as and when the Fund feels it prudent to do so. However, as referred to above, we intend to conclude ongoing
discussions regarding the Fund's current investments before we progress any further investments.
Bulgarian economy
Economic data continues to support the long-term investment thesis for Bulgaria. GDP growth in 2007 was 6.2%, from 6.3% in 2006, and
6.2% in 2005. However, the IMF is predicting a deceleration with a forecast growth of 5.5% in 2008 and 4.8% in 2009 due to global market
conditions.
Inflation is a concern for the Bulgarian economy, despite tight wage policies from the Bulgarian government. Inflation for 2007 was
7.6%, and the IMF recently increased its 2008 inflation forecast to 9.6%. However, this is primarily due to unusual weather patterns which
have seen floods and a drought in the last 12 months leading to a significant impact on crops, and a subsequent effect on food prices. The
IMF therefore forecasts that inflation will recede to a more comfortable 5% in 2009, and 4.3% in 2010 once food prices return to normal.
As a consequence of high inflation in 2007, Bulgaria is unlikely to meet its inflation requirement target of 3.1% for joining the ERM II
Euro "waiting room" in the next few years. The country currently aims to join the Euro in 2010-2011.
Unemployment remains on a downward trend with the Q1 2008 rate being 6.6%, down from 6.9% for 2007 and 9.0% for 2006.
Tourism
Official statistics for 2007 show a flat growth rate in tourist numbers to Bulgaria of around 5.2 million, compared to growth of 6.6% in
2006.
Interestingly, however, the mix continues to change with a stagnation in the growth of UK visitors being substituted by those from other
Western European countries. Furthermore, the growth in the number of Romanian visitors is accelerating, underlining the value proposition
represented by holidays in Bulgaria.
New low-cost flight routes are due to be opened later this year which will continue to improve accessibility and, we believe, to support
the growth in tourism in Bulgaria.
Property market
The global market conditions for property have clearly had a negative impact in Bulgaria, however the effects have largely been
localised thus far. The oversupply of cheap new build apartments particularly in Sunny Beach and Bansko, combined with the fall in demand
from the UK and Irish buyers, at whom these developments were principally aimed, has led to the market in these locations being
fundamentally weak. This is a scenario that we had anticipated some time ago and had positioned our assets accordingly. We expect these
localised weak fundamentals to continue for some time to come.
There is strong evidence however to suggest that demand for high-end properties is particularly strong. Demand is increasing from the
Russian market in particular, but also from domestic and regional buyers, pushing the prices up to EUR3,000 per sq m in some cases. The
depth of this demand is yet to be tested as the supply of high-end properties is limited; however, we believe that the market conditions are
positive for the existing assets of the Fund which are aimed at the high-end market.
The National Statistical Institute in Bulgaria has recently produced data on the Average Market Prices for Dwellings. Although this data
includes certain rural areas where prices have risen from an extremely low level, the statistics provide a useful benchmark for the market.
The latest figures reveal that the Average Market Prices for Dwellings increased by 28.9% in 2007 (with Varna being 33.9% and Burgas being
only 17.5%, an indicator of the oversupply in Sunny Beach which began to take effect in H2 2007), compared to an increase of 14.7% in 2006.
The preliminary data for Q1 2008 shows an increase of 6.8% on the quarter, the equivalent of an annualised rate of 30%. We expect the annual
growth to decelerate from this high level to a more moderate growth rate over 2008.
Conclusion
Despite some negative press, the socio-economic climate in Bulgaria continues to provide a sound platform for investment in the region.
The combination of increasing regional demand for high-end developments and the steady growth of tourism in the country continues to support
the Fund's investment strategy. It is also encouraging that Bulgaria's popularity as a holiday destination is growing among a diverse group
of European nationalities.
The next 12 months will be crucial for the development of the Fund. We believe that Madara Bulgarian Property Fund is well positioned to
take advantage of the growing attractions of Bulgaria, and the foundations are in place to move on to the next stage in its development.
Scott Perkins
Chief Executive
Madara Capital LLP
26 June 2008
Madara Bulgarian Property Fund Limited
Group Income Statement for the period 1 July 2007 to 31 December 2007
1 July 2007 to 28 April 2006
31 December 2007 to 30 June 2007
Note EUR EUR
Continuing operations
Expenses
Administrative costs 11 778,914 960,555
Admission to AIM - 1,261,531
Total operating expenses 778,914 2,222,086
Loss from operating activities (778,914) (2,222,086)
Finance income 12 37,367 56,116
Finance expense - -
Net finance income 37,367 56,116
Loss before tax (741,547) (2,165,970)
Taxation 13 - -
Loss for the period (741,547) (2,165,970)
Loss per Ordinary share (EUR) 16 (0.02) (0.16)
Group Statement of Changes in Equity for the period 1 July 2007 to 31 December 2007
Stated
Capital Retained
Account Earnings Total Equity
EUR EUR EUR
Balances at 1 July 2007 37,373,105 (2,165,970) 35,207,135
Loss for the period - (741,547) (741,547)
Balances at 31 December 2007 37,373,105 (2,907,517) 34,465,588
Period 28 April 2006 to 30
June 2007
Balances at 28 April 2006 - - -
Issue of Share Capital 40,414,105 - 40,414,105
Expenses of share issues (241,000) - (241,000)
Repurchase of shares for (2,800,000) - (2,800,000)
cancellation
Loss for the period - (2,165,970) (2,165,970)
Balances at 30 June 2007 37,373,105 (2,165,970) 35,207,135
Balance Sheets as at 31 December 2007
Group Company Group Company
As at As at As at As at
31 December 2007 31 December 2007 30 June 2007 30 June 2007
Notes EUR EUR EUR EUR
ASSETS
Non-current assets
Land acquired for development 3 27,095,763 - 27,345,632 -
Land acquisitions yet to 4 8,061,771 - 8,061,771 -
complete
Development costs 5 869,812 - 210,332 -
Loans receivable 6 - 34,352,817 - 33,950,339
Investments in subsidiary 7 - 1,250 - 1,250
companies
Total non-current assets 36,027,346 34,354,067 35,617,735 33,951,589
Current assets
Cash and cash equivalents 356,174 306,993 2,898,835 2,849,225
Other receivables 8 579,692 640,722 60,610 60,377
Total current assets 935,866 947,715 2,959,445 2,909,602
Total assets 36,963,212 35,301,782 38,577,180 36,861,191
SHAREHOLDERS' EQUITY AND
LIABILITIES
Equity
Stated capital account 9 37,373,105 37,373,105 37,373,105 37,373,105
Retained earnings 10 (2,907,517) (2,817,603) (2,165,970) (2,131,326)
Total equity 34,465,588 34,555,502 35,207,135 35,241,779
Current liabilities
Other liabilities and payables 14 2,497,624 746,280 3,370,045 1,619,412
Total current liabilities 2,497,624 746,280 3,370,045 1,619,412
Total equity and liabilities 36,963,212 35,301,782 38,577,180 36,861,191
Net asset value per Ordinary 16 0.92 0.94
share (EUR)
Group Cash Flow Statement for the period 1 July 2007 to 31 December 2007
1 July 2007 to 28 April 2006
31 December 2007 to 30 June 2007
EUR EUR
Loss from operating activities (778,914) (2,222,086)
Changes in working capital:
Other payables (621,831) 1,394,489
Other receivables (142,089) (48,210)
Net cash outflow from operating activities (1,542,834) (875,807)
Investing activities
Land acquisition and development (797,480) (9,370,974)
expenditure
Interest received 35,253 56,116
Net cash outflow from investing activities (762,227) (9,314,858)
Financing activities
Proceeds of issues of share capital 12,400 15,880,500
Repurchases of share capital (84,000) (2,716,000)
Expenses of share issues (166,000) (75,000)
Net cash inflow from financing activities (237,600) 13,089,500
Net (decrease) / increase in cash and cash (2,542,661) 2,898,835
equivalents
Cash and cash equivalents at start of 2,898,835 -
period
Cash and cash equivalents at end of period 356,174 2,898,835
Notes to the Group Financial Statements
1. Principal accounting policies
The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs and IFRIC
interpretations) issued by the International Accounting Standards Board (IASB).
The financial statements have been prepared under the historical cost convention and on a going concern basis.
The preparation of financial statements in accordance with IFRSs requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher
degree of judgement or complexity, or areas where assumptions and estimates are significant to the group financial statements are disclosed
in note 2.
The Group and Company have adopted the following new and amended IFRS and IFRIC interpretations during the year. Adoption of these
revised standards and interpretations did not have any effect on the financial statements of the Group or Company. They did, however, give
rise to additional disclosures, as follows:
* IFRS 7 Financial Instruments: Disclosures
This standard requires disclosures that enable users to evaluate the significance of the Group's financial instruments and the nature
and extent of risks arising from those financial instruments. The new disclosures are included throughout the financial statements.
* IAS 1 amendment - Presentation of Financial Statements
This amendment requires the Group to make new disclosures to enable users of the financial statements to evaluate the Group's
objectives, policies and processes for managing capital. The new disclosures are shown in note 18.
At the date of approval of these group financial statements, the following Standards and Interpretations were in issue but not yet
effective:
* IFRIC 11: IFRS 2: Group and Treasury Share Transactions
* IFRIC 12 Service Concession Arrangements (effective for annual periods beginning on or after 1 January 2008)
* IFRIC 13 on Arrangements (effective for annual periods beginning on or after 1 January 2008)
* IFRIC 14 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction (effective for annual periods
beginning on or after 1 January 2008)
* IFRS 3 (revised) Business Combinations
* IFRS 8 Operating Segments (effective for annual periods beginning on or after 1 January 2009)
* IAS 23 Amendment - Borrowing Costs (effective for annual periods beginning on or after 1 January 2009)
* Amendment to IAS 27 - Consolidation and Separate Financial Statements
The Directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material financial
impact on the group financial statements, though certain additional disclosures may be necessary on their application.
The principal accounting policies are set out below.
Consolidation
Where the Company has the power, either directly or indirectly, to govern the financial and operating policies of another entity or
business so as to obtain benefits from its activities, it is classified as a subsidiary. The consolidated financial statements present the
results of the Company and its subsidiaries ("the Group") as if they formed a single entity. Intercompany transactions and balances between
Group companies are therefore eliminated in full.
Business combinations
The consolidated financial statements incorporate the results of business combinations using the purchase method. In the consolidated
balance sheet, the acquiree's identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at
the acquisition date. The results of acquired operations are included in the consolidated income statement from the date on which control is
obtained.
Expenses of share issues and admission to AIM
Expenses of share issues, including placing expenses, are written off in full against the stated share capital account. Expenses of
obtaining admission to AIM have been taken to revenue account through the income statement when incurred.
Land acquisitions and development costs
Expenditure on acquiring land for development, including acquisitions yet to complete, and costs of development are shown at the lower
of cost and net realisable value.
The Directors are of the opinion that net realisable value is approximately equal to market value and have engaged the services of an
independent company of chartered surveyors, Colliers CRE, to establish market value, which is defined as the estimated amount for which an
asset should exchange on the date of valuation between a willing buyer and a willing seller in an arm's length transaction after proper
marketing wherein the parties has each acted knowledgeably, prudently and without compulsion. The valuation is also dependent on the
assumption that the development of the land goes ahead as specified in the development plans.
Having established the market value of the land acquired and in the course of acquisition, the Directors are of the opinion that the
market values are in excess of cost and associated development costs and that such land and development costs may therefore be included in
the accounts at cost in accordance with the above accounting policy.
Taxation
Tax payable is based on taxable profit for the period. Taxable profit differs from net profit as reported in the income statement
because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never
taxable or deductible.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in
the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance
sheet liability method.
Foreign exchange
(i)Functional and presentation currency
The financial information is presented in . The Euro is the functional currency of the Group, as this is the primary currency of the
economic environment in which the entity operates (see Foreign currency risk section of note 15).
(ii)Transactions and balances
Transactions undertaken in foreign currencies are translated into Euros at the rate ruling on the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies are translated into Euros at the rate ruling on the balance sheet date. Profits and
losses on exchange are taken directly to the income statement.
Financial instruments
The Group classifies its financial assets into one of the following categories, depending on the purpose for which the asset was
acquired. Financial assets are recognised when the Group becomes party to the contractual obligations of the instrument. The Group's
accounting policy for each category is as follows:
(i)Cash and cash equivalents
Cash and cash equivalents comprise cash in hand, deposits held at call with banks, other short-term highly liquid investments with
original maturities of three months or less, and bank overdrafts.
(ii)Other receivables
Other receivables are recognised at fair value on initial recognition. Appropriate allowances for estimated irrecoverable amounts are
recognised in profit or loss when there is objective evidence that the asset is impaired.
Operating income and expenditure
All operating income and expenditure is accounted for on an accruals basis.
2. Critical accounting estimates
The preparation of the financial statements requires the Directors to make estimates and assumptions that affect the reported amounts of
revenues, expenses, assets and liabilities, and disclosures of contingencies as at the balance sheet date. If in the future such estimates
and assumptions, which are based on the Directors' best judgement at the balance sheet date, deviate from the actual circumstances, the
original estimates and assumptions will be modified, as appropriate, in the period in which the circumstances change. The following policies
are considered to be of greater complexity and/or particularly subject to the exercise of judgement.
Net realisable value of land acquired for development and land acquisitions yet to complete
The Directors employ the services of professional property valuers but are still ultimately responsible for ensuring that such valuers
are adequately qualified, competent and base their results on reasonable and realistic assumptions.
The Group operates in Bulgaria where there is a developing market in the type of land and property development in which the Group is
aiming to invest. This ensures a reasonable supply of various types of evidence upon which to make judgements on fair values, having regard
to adjustments made necessary by differences in condition or location or changes in economic conditions. Such evidence includes current and
recent sale prices of similar land based on current market rates with which to calculate discounted cash flows based on reliable estimates
of future development costs and sales revenues, and discount rates that reflect current market assessments of uncertainties in the amount
and timing of cash flows.
3. Land acquired for development
Group Company Group Company
As at As at As at As at
31 December 2007 31 December 2007 30 June 2007 30 June 2007
EUR EUR EUR EUR
As at the beginning of the period 27,345,632 - - -
Additions at cost 129,410 - 27,345,632 -
VAT capitalised in prior year now recoverable (379,279) - - -
As at the end of the period 27,095,763 - 27,345,632 -
The above land has been acquired by a subsidiary of the Company from Moran Trade & Investment, Inc ("Moran"), a related party (see note
19). It is situated in Byala on the Bulgarian Black Sea coast and was valued by Colliers CRE on 11 June 2008 at EUR 42,517,470 on a Gross
Development Value basis. This valuation is regarded as being the estimated amount for which this land would 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 have each
acted knowledgeably, prudently and without compulsion. The valuation is also dependent on the assumption that the development of the land
goes ahead as specified in the development plans (see note 5). However, this valuation, which was calculated after providing for Transfer
Tax, has not been incorporated in these financial statements as it is the Group's accounting policy to value land acquired for development
at the lower of cost and net realisable value. If the land was sold at this valuation, EUR 1,455,190 of taxation, being 10% of the potential profit, may become payable.
4. Land acquisitions yet to complete
Group Company Group Company
As at As at As at As at
31 December 2007 31 December 2007 30 June 2007 30 June 2007
EUR EUR EUR EUR
As at the beginning of the period 8,061,771 - - -
Additions at cost - - 8,061,771 -
As at the end of the period 8,061,771 - 8,061,771 -
The above amount consists of the fair value of consideration already transferred in pursuance of the acquisition of land from Moran, a
related party (see note 19). A subsidiary of the Company has entered into a contractual agreement with Moran to acquire 124,000 square
metres of land at Borovets, subject to Moran first obtaining title to this land, then taking the steps necessary for it to be granted
Regulated Land status. Although the acquisition of this land is taking longer than anticipated to complete, approximately 50,000 square
metres of it is expected to complete very soon after the date of approval of these group financial statements, with the completion of the
remainder of the land possible before the end of 2008.
The land which the Group has acquired, or is seeking to acquire, from Moran was valued by Colliers CRE on 11 June 2008 at EUR 9,572,492
(assuming the land was granted regulated status). This valuation is regarded as being the estimated amount for which this land would
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 has each acted knowledgeably, prudently and without compulsion. The valuation is also dependent on the assumption that
the development of the land goes ahead as specified in the development plans. However, this valuation, which was calculated after providing
for Transfer Tax, has not been incorporated in these financial statements as it is the Group's accounting policy to value land in the course
of acquisition at the lower of cost and net realisable value. If the land was sold at this valuation, EUR 151,072 of taxation, being 10% of
the potential profit, may become payable.
5. Development expenditure
Group Company Group Company
As at As at As at As at
31 December 2007 31 December 2007 30 June 2007 30 June 2007
EUR EUR EUR EUR
As at the beginning of the period 210,332 - - -
Additions at cost 667,480 - 210,332 -
VAT capitalised in prior year now recoverable (8,000) - - -
As at the end of the period 869,812 - 210,332 -
The above expenditure relates to the site in Byala which the Group is in the process of acquiring (see note 3) and consists of (a)
professional fees incurred in the preparation of initial designs and planning permission application charges, and (b) the acquisition from a
related party (see note 19) of intellectual property rights to a Master Architecture Agreement for the general and detailed plans for the
development of this site, known as "Black Sea Gardens". This expenditure has been disbursed on goods and services which accord with the
implementation of the planned development of this land, upon which the valuation disclosed in note 3 is dependent.
6. Loans receivable
Group Company Group Company
As at As at As at As at
31 December 2007 31 December 2007 30 June 2007 30 June 2007
EUR EUR EUR EUR
Madara Holdings Limited - 34,352,817 - 33,950,339
- 34,352,817 - 33,950,339
The loan is payable on 31 December 2011 and the effective rate of interest is 0%.
7. Investments in subsidiary companies
Company Company
1 July 2007 to 28 April 2006
31 December 2007 to 30 June 2007
Madara Holdings Limited EUR EUR
As at the beginning of the period 1,250 -
Equity subscribed for - 1,250
As at the end of the period 1,250 1,250
The details of the subsidiaries are as follows: Proportion of
ownership
Country of Principal and control
Name incorporation Activities %
Madara Holdings Limited Malta Holding company 100
Madara Byala EAD* Bulgaria Property development 100
Madara Borovets EAD* Bulgaria Property development 100
*Held by Madara Holdings Limited
All of the above subsidiaries were held throughout the period and were specially incorporated in pursuance of the Group's intended
operating structure.
8. Other receivables
Group Company Group Company
As at As at As at As at
31 December 2007 31 December 2007 30 June 2007 30 June 2007
EUR EUR EUR EUR
Unpaid share capital - - 12,400 12,400
Trade debtors 27,172 25,293 47,977 47,977
Other taxation recoverable (see note below) 550,406 - - -
Other debtors - - 233 -
Interest receivable from deposits 2,114 2,114 - -
Loans to group companies (see note below) - 613,315 - -
579,692 640,722 60,610 60,377
The taxation recoverable shown above consists of Value Added Tax paid in Bulgaria, of which EUR 387,279 was previously regarded as
irrecoverable (see notes 3 and 5).
The loans to group companies earn interest which is compounded every three months and added to the outstanding amounts. On each loan,
the rate of interest for each three month period is set at a rate 3% above the 6 month EURIbor rate prevailing on the first day of the
period. These loans are repayable on or before 26 November 2008.
9. Stated capital account
Company Company
Ordinary shares of no par value Period 1 July 2007 Period 28 April 2006
to 31 December 2007 to 30 June 2007
Number EUR Number EUR
Authorised, issued and fully paid
As at 31 December 2007 37,611,705 37,373,105 37,611,705 37,373,105
The Articles of Association of the Company give it the power to issue an unlimited number of Ordinary shares of no par value, as
permitted by the Law.
During the period, no shares were issued (period 28 April 2006 to 30 June 2007 - 24,521,205) as partial consideration for the
acquisitions of land for development, whether completed (note 3) or yet to be completed (note 4).
During the period, no shares were repurchased for cancellation (period 28 April 2006 to 30 June 2007 - 2,800,000 shares were repurchased
at a cost of EUR 2,800,000 for cancellation).
10. Retained earnings
Group Company Group Company
As at As at As at As at
31 December 2007 31 December 2007 30 June 2007 30 June 2007
EUR EUR EUR EUR
As at the beginning of the period (2,165,970) (2,131,326) - -
Loss for the period (741,547) (686,277) (2,165,970) (2,131,326)
As at the end of the period (2,907,517) (2,817,603) (2,165,970) (2,131,326)
11. Administrative costs
1 July 2007 to 28 April 2006
31 December 2007 to 30 June 2007
EUR EUR
Formation costs - 106,695
Administration fees 146,361 30,457
Investment management fees (see below) 398,256 288,001
Directors fees 94,423 98,270
Legal and professional fees 31,263 315,568
Audit fees 44,967 47,365
Other operating expenses 63,644 74,199
Total Administrative costs 778,914 960,555
Under the terms of the investment advisory agreement, the Investment Adviser receives a fee equivalent to 1.5 per cent per annum of the
Net Asset Value of the Fund (i.e. the Group).
The Investment Adviser will also be entitled to a Performance Fee upon either termination of the Fund or sale of an individual asset
held by the Fund. If realised return on equity on such a sale or termination exceeds 10 per cent per annum of the initial equity investment
contributed by the Shareholders, the Investment Adviser will be entitled to receive a Performance Fee equivalent to 20 per cent of such
excess. In the event that any such Performance Fee is paid to the Investment Adviser on the sale of an individual asset, 20 per cent of the
Performance Fee will be retained in an escrow account to offset any potential future losses on any subsequent sale of any individual asset.
Interest accrued on such escrow account shall be paid annually to the Investment Adviser. In the event that land acquired (excluding land
acquisitions yet to complete) at present was sold at the current market value, the Performance Fee payable to the Investment Adviser is
estimated at EUR 1,130,000 (30 June 2007 - EUR 1,900,000).
12. Finance income
1 July 2007 to 28 April 2006
31 December 2007 to 30 June 2007
EUR EUR
Interest receivable from bank deposits 37,367 56,116
37,367 56,116
13. Taxation
The Company has been granted exempt company status under Article 123A of the Income Tax (Jersey) Law 1961. This status is renewable
annually. The Company plans to maintain this status for as long as it is available, pending the introduction of a general zero rate of
corporation tax from 1 January 2009.
In order to hold exempt company status, an annual fee of £600 is payable. The fee is included as an expense in the profit and loss
account as it is not dependent on the Company's results.
Tax on profits of the Group arising in Bulgaria are computed using the tax rate of 10.0%, both for current and deferred tax.
The total tax charge for the period is detailed below:
1 July 2007 to 28 April 2006
31 December 2007 to 30 June 2007
EUR EUR
Current taxation on profits - -
Deferred tax - -
Tax charge for the period - -
Loss before taxation (741,547) (2,165,970)
Taxation credit on loss at tax rate of 10.0% 74,155 216,597
Effects of:
Losses under Jersey tax jurisdiction not taxable (68,628) (211,989)
Losses under Maltese tax jurisdiction (1,348) (1,614)
Losses under Bulgarian tax jurisdiction (4,179) (2,994)
Tax charge for the period - -
14. Other liabilities and payables
Group Company Group Company
As at As at As at As at
31 December 2007 31 December 2007 30 June 2007 30 June 2007
EUR EUR EUR EUR
Trade creditors (see note below) 1,724,966 - 1,725,556 -
Share repurchase - - 84,000 84,000
Expenses of share issue - - 166,000 166,000
Investment management fees (see note below) 579,021 579,021 213,616 213,616
Other creditors - - 80,000 80,000
Amounts due to group companies - - - 2,812
Administrative expenses 193,637 167,259 195,223 167,334
Admission to AIM - - 905,650 905,650
2,497,624 746,280 3,370,045 1,619,412
Written confirmation has been received from Moran and the Investment Adviser that they will not call upon amounts due to them of EUR
1,724,966 and EUR 579,021 respectively until the Group and Company has sufficient funds available.
15. Financial risk management
The Group is exposed to a number of risks related to its activities.
Financial risk factors
Financial instruments at the balance sheet date comprise other receivables, cash and cash equivalents and trade and other payables. The
Group is exposed to a variety of financial risks arising from the financial instruments it holds, being interest rate risk, business risk,
market risk, liquidity risk and foreign currency risk.
Interest rate risk
As at the balance sheet date, the Group held cash deposits. However, the Group may engage in borrowings in the future in pursuance of
its activities, in which case the Group may be exposed to the risk of interest rate fluctuations as borrowings may be obtained either based
on floating interest rate or fixed term interest rate terms. The Group is not obliged to hedge against interest rate risks.
The following sensitivity analysis is based on a change in an assumption while holding all other assumptions constant. In practice, this
is unlikely to occur and changes in some of the assumptions may be correlated, for example, a change in interest rates and a change in fair
values.
Based on recent market conditions, the Director's believe that it is reasonable to assume that interest rates could vary by up to 100
basis points (i.e. 1%) over a twelve month period. This would have an effect on interest yields. An increase of 100 basis points (i.e. 1%)
in interest yields would result in a decrease in the loss after tax of EUR 7,292 (period 28 April 2006 to 30 June 2007 - the loss for the
period after tax would have been EUR 19,419 lower). A decrease of 100 basis points (i.e. 1%) in interest yields would result in an increase
in the loss after tax of EUR 7,292 (period 28 April 2006 to 30 June 2007 - the loss for the period after tax would have been EUR19,419
higher).
Business risk
There can be no assurance that the Group will achieve its investment objectives. There is little operating history by which to evaluate
the Group's likely future performance. The investment results of the Group will be reliant upon the success of the investment manager. The
investment manager is a recently established entity and there is likewise little operating history by which to evaluate its likely
performance.
Market risk
The Group will invest all of its assets (to the extent not retained in cash) in underlying entities and thus into various Bulgarian
properties and will accordingly not be diversified. The nature of the Group's investments involves certain risks. Property investments can
perform in a cyclical nature and values can increase or decrease. Economic, political and legal issues can affect values as they can with
any other investments. Any future downturn in the Bulgarian property market could materially adversely affect the value of properties.
Rental income and the market value for properties are generally affected by overall conditions in the local economy, such as growth in gross
domestic product, employment trends, inflation and changes in interest rates.
Liquidity risk
As property investments are relatively illiquid, there can be no assurance that the Group will encounter little or no difficulty in
realising assets or otherwise raising funds to meet financial commitments. It is therefore the Group's intention to mitigate such risk by
investing in desirable properties in prime locations.
Foreign currency risk
The assets, liabilities, income and expenditure of the Group are denominated in the Euro, a strong and stable currency within the global
economy.
The only currencies other than the Euro in which the Group transacts are Sterling, in which a large amount of the parent company's
administrative expenses is billed, and the Bulgarian Lev (BGN). Under Bulgarian law, the Lev is pegged to the Euro at a fixed rate of BGN
1.95583 per EUR, therefore the Directors are of the opinion that the Group is not exposed to any currency risk by transacting in the Lev.
All Lev transactions and assets and liabilities of the group denominated in the Lev have been converted into Euros at the fixed exchange
rate in these financial statements, and are not shown separately.
The following table summarises the Group's exposure to foreign currency risk by categorising all assets and liabilities of the Group by
currency at their carrying amounts in Euros:
As at 31 December 2007 As at 30 June 2007
* Euro Sterling Total * Euro Sterling Total
EUR EUR EUR EUR EUR EUR
Non-current 36,027,346 - 36,027,346 35,617,735 - 35,617,735
assets
Cash and cash 350,688 5,486 356,174 2,893,172 5,663 2,898,835
equivalents
Other 558,745 20,947 579,692 25,965 34,645 60,610
receivables
Total assets 36,936,779 26,433 36,963,212 38,536,872 40,308 38,577,180
Trade and other 2,367,014 130,610 2,497,624 2,309,184 1,060,861 3,370,045
payables
Total
liabilities 2,367,014 130,610 2,497,624 2,309,184 1,060,861 3,370,045
Net assets/
(liabilities) 34,569,765 (104,177) 34,465,588 36,227,688 (1,020,553) 35,207,135
*Includes assets and liabilities denominated in BGN, translated at the fixed exchange rate of BGN 1.95583 per EUR.
Based on recent market conditions, the Directors believe that it is reasonable to assume that currency exchange rates could vary by up
to 10% over a 12 month period. This would have an effect on income and expenditure transacted in currencies other than the Euro. The
following sensitivity analysis is based on a change in an assumption while holding all other assumptions constant. In practice, this is
unlikely to occur and changes in some of the assumptions may be correlated, for example, a change in interest rates and a change in foreign
currency rates.
If the Euro strengthened/weakened by 10% against Sterling with all other variables held constant, the loss for the period after tax
would have been EUR 30,187 lower or EUR 30,187 higher (period 28 April 2006 to 30 June 2007 - the loss for the period after tax would have
been EUR 87,935 lower or EUR 87,935 higher).
Financial assets and liabilities - Numerical information
Maturity of financial assets
The carrying value of financial assets of the Company and the Group are realisable as follows:
Company Book value Fair value Book value Fair value
As at As at As at As at
31 December 2007 31 December 2007 30 June 2007 30 June 2007
EUR EUR EUR EUR
In one year or less 947,715 947,715 2,909,602 2,909,602
In more than three years but no more than four years 34,352,817 34,352,817 - -
In more than four years but no more than five years - - 33,950,339 33,950,339
35,300,532 35,300,532 36,859,941 36,859,941
Group Book value Fair value Book value Fair value
As at As at As at As at
31 December 2007 31 December 2007 30 June 2007 30 June 2007
EUR EUR EUR EUR
In one year or less 935,866 935,866 2,959,445 2,959,445
935,866 935,866 2,959,445 2,959,445
Maturity of financial liabilities
The carrying amounts of financial liabilities of the Company and the Group are repayable as follows:
Company Book value Fair value Book value Fair value
As at As at As at As at
31 December 2007 31 December 2007 30 June 2007 30 June 2007
EUR EUR EUR EUR
In one year or less 746,280 746,280 1,619,412 1,619,412
746,280 746,280 1,619,412 1,619,412
Group Book value Fair value Book value Fair value
As at As at As at As at
31 December 2007 31 December 2007 30 June 2007 30 June 2007
EUR EUR EUR EUR
In one year or less 2,497,624 2,497,624 3,370,045 3,370,045
2,497,624 2,497,624 3,370,045 3,370,045
Interest rate profile
The interest rate profiles of the financial assets and liabilities of the Company and the Group are set out below:
Non-interest
Floating Rate Fixed Rate bearing Total
Company assets: As at 31 December 2007 EUR EUR EUR EUR
Loan to Group company (term of loan: 4.0 years) - - 34,352,817 34,352,817
Loans to Group companies (term of loans: 0.9 years) 613,315 - - 613,315
Cash 306,993 - - 306,993
Other receivables - - 27,407 27,407
920,308 - 34,380,224 35,300,532
Company assets: As at 30 June 2007
Loan to Group company (term of loan: 4.5 years) - - 33,950,339 33,950,339
Cash 2,849,225 - - 2,849,225
Other receivables - - 60,377 60,377
2,849,225 - 34,010,716 36,859,941
Group assets: As at 31 December 2007
Cash 356,174 - - 356,174
Other receivables - - 579,692 579,692
356,174 - 579,692 935,866
Non-interest
Floating Rate Fixed Rate Bearing Total
Group assets: As at 30 June 2007 EUR EUR EUR EUR
Cash 2,898,835 - - 2,898,835
Other receivables - - 60,610 60,610
2,898,835 - 60,610 2,959,445
All of the above floating rate cash assets are deposits on call earning interest at prevailing market rates. The floating rate group
loans earn interest which is compounded every three months and added to the outstanding amounts. On each loan, the rate of interest for each
three month period is set at a rate 3% above the 6 month EURIbor rate prevailing on the first day of the period. These loans are repayable
on or before 26 November 2008.
Non-interest
Floating Rate Fixed Rate Bearing Total
Company liabilities: As at 31 December 2007 EUR EUR EUR EUR
Other payables - - 746,280 746,280
- - 746,280 746,280
Company liabilities: As at 30 June 2007
Other payables - - 1,619,412 1,619,412
- - 1,619,412 1,619,412
Group liabilities: As at 31 December 2007
Other payables - - 2,497,624 2,497,624
- - 2,497,624 2,497,624
Group liabilities: As at 30 June 2007
Other payables - - 3,370,045 3,370,045
- - 3,370,045 3,370,045
Fair value of financial assets and financial liabilities
The Directors consider that the carrying amount of short-term payables and receivables are a reasonable approximation of fair value.
16. Loss per Ordinary share and net asset value per Ordinary share
The calculation of loss per Ordinary share for the period to 31 December 2007 was based on the loss attributable to shareholders of EUR
741,547 (period ended 30 June 2007 - loss of EUR 2,165,970) and a weighted average number of Ordinary shares in issue of 37,611,705 (period
ended 30 June 2007 - 13,724,292).
The calculation of net asset value per Ordinary share as at 31 December 2007 was based on the net consolidated assets attributable to
shareholders of EUR 34,465,588 (period ended 30 June 2007 - EUR 35,207,135) and the 37,611,705 Ordinary shares in issue as at 31 December
2007 (30 June 2007 - 37,611,705).
17. Commitments and contingencies
As at 31 December 2007, the Group had no capital commitments other than those provided for in these financial statements (30 June 2007 -
nil, other than as provided in financial statements).
18. Capital management policies and procedures
The Group's capital management objectives are:
(i) to ensure that the Group and Company are able to continue as going concerns, and
(ii) to maintain an optimal capital structure which maximises returns for shareholders whilst minimising the costs of capital.
The capital of the Group and Company as at 31 December 2007 and 30 June 2007 comprise:
Group Company Group Company
As at As at As at As at
31 December 2007 31 December 2007 30 June 2007 30 June 2007
EUR EUR EUR EUR
Equity
Stated capital account 37,373,105 37,373,105 37,373,105 37,373,105
Retained earnings (2,907,517) (2,817,603) (2,165,970) (2,131,326)
34,465,588 34,555,502 35,207,135 35,241,779
The investment advisor and administrator of the Company work together to supply the Board with adequate management accounts on a
quarterly basis which includes key financial performance indicators designed to assist the Board in monitoring the effect of the Company's
funding structure and the effects of alternative funding strategies.
For each project which the Group enters into, the parent Company commits sufficient capital to purchase land and/or to finance a
project's initial infrastructure.
Thereafter, each project is funded at an asset-specific level, without recourse to the Group's resources. However, this may not always
be possible, in which case the Group is prepared to sign guarantees or take on a portion of the debt. The Group will have a maximum gearing
level of an aggregate 80 per cent of the construction costs of each project. The remaining proportion of the construction or development
costs of each such project would be provided by the Group through the raising of additional equity or other funding as the Board consider
appropriate.
19. Related party transactions
In notes 3 and 4, reference was made to the fact that subsidiaries of the Company are in the process of acquiring land for development
from Moran Trade and Investment Inc ("Moran"). Also, as referred to in note 5, a subsidiary of the Company has entered into an agreement
with BBT Projects Plc, a Bulgarian subsidiary of Moran, to acquire part of the intellectual property rights to a Master Architecture
Agreement for "Black Sea Gardens" at the Group's development site in Byala. Throughout the period ended 31 December 2007, and subsequently,
Moran has held 18,721,205 of the 37,611,705 shares in issue of the Company, which represents a holding of 49.77% of the issued share
capital. As such, Moran is the ultimate controlling party of the Company (period ended 30 June 2007 - the Company purchased land from Moran
by issuing to them 24,521,205 Ordinary shares and paying to them EUR 2,100,000 in cash).
Scott Perkins and Mark Smith, who are Directors of the Company, are also partners of Madara Capital LLP, the investment advisor to the
Company. Madara Capital LLP also holds 1,300,000 of the issued shares of the Company. During the period, Madara Capital LLP charged asset
and property advisory fees of EUR 398,256 (period ended 30 June 2007 - EUR 288,001) to the Company, of which EUR 579,201 was outstanding at
31 December 2007 (30 June 2007 - EUR 213,616). Madara Capital LLP also advanced interest-free loans to the Company during the period, of
which EUR nil was outstanding as at 31 December 2007 (30 June 2007 - EUR 80,000).
Nigel Le Quesne, Philip Burgin and Stephen Burnett, who are Directors of the Company, are all shareholders and directors of JTC Group
Limited of which JTC Management Limited is a wholly-owned subsidiary. JTC Management Limited, which is Company Secretary and a provider of
administration services to the Company, charged fees totalling EUR 149,001 (period ended 30 June 2007 - EUR 302,873) during the period, of
which EUR 79,060 was outstanding at 31 December 2007 (30 June 2007 - EUR nil).
This information is provided by RNS
The company news service from the London Stock Exchange
END
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