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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
---|---|---|---|---|---|
Bulgarian Land | LSE:BLD | London | Ordinary Share | GB00B11PLD04 | ORD 1P |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 19.25 | 0.00 | 01:00:00 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
0 | 0 | N/A | 0 |
TIDMBLD RNS Number : 5845O Bulgarian Land Development PLC 10 March 2009 BULGARIAN LAND DEVELOPMENT PLC Preliminary Audited Results statement for the year to 31 December 2008 Business Review Bulgarian Land Development plc ("BLD" or "the Company"), the AIM listed Bulgarian residential and commercial property development company, today announces its Preliminary results for the year ending 31 December 2008. Financial and Operational highlights * BLD generated GBP6.6m of revenue in 2008 (2007: GBP0.1m) * First income from sales of completed units * Excellent diverse portfolio ranging from holiday homes on the Black Sea coast to ski lodges in leading ski resorts and apartments and commercial property in Sofia, coupled with land banking outside Sofia * Net asset value of 98.6 pence per share (31 December 2007: 79.6p per share) - share price 26.0p at close of business on 9 March 2009 at a74% discount to net asset value at 31 December 2008 * At the year end, the Company and its subsidiaries ("the Group") had a portfolio of developments with an estimated completed development value of EUR237m * Measures being taken to reduce risk and costs * Building of 180 holiday apartments and 22 villas completed at Harmony Hills, Rogachevo completed in October 2008 * First commercial development at Printing House funded and commenced * Parcels of land outside Sofia acquired and consolidated for future re-zoning * Application for building permit at BLD Sofia Tower underway Christo Iliev, Chief Executive of BLD, commented: "Although 2008 was a year of challenging conditions for the real estate market the Board has and will continue to prioritise the protection of asset value for shareholders through reduced risk and costs. 2009 looks set to remain challenging however the Board intends to keep a strong balance sheet and remain alert to any opportunities that may arise and respond to them positively." - ENDS - For further information, please contact: +------------------------------------------------------+-----------------------+ | Bulgarian Land Development | 0207 067 0700 | +------------------------------------------------------+-----------------------+ | Christo Iliev, Chief Executive | | +------------------------------------------------------+-----------------------+ | Andrew Daw, Finance Director | | +------------------------------------------------------+-----------------------+ | | | +------------------------------------------------------+-----------------------+ | Weber Shandwick Financial | 0207 067 0700 | +------------------------------------------------------+-----------------------+ | Terry Garrett / Nick Dibden / James White / Katie | | | Matthews | | +------------------------------------------------------+-----------------------+ Chairman's Statement Introduction The Group took prompt action to reassess its strategy as a result of the widespread turmoil affecting real estate markets worldwide since the latter half of 2007. In August we announced that we would reduce risks and costs and also committed to return some cash to shareholders. In October we announced the settlement of the deferred land payable at Borovets by transferring to the vendor unsold units at Harmony Hills. By taking this action Bulgarian Land Development plc ("BLD" or "the Company") is in a strong position to take advantage of opportunities that may arise in 2009 - 2010. The Company will prepare an application to the Court to eliminate the Company's share premium, which is the initial action to enable the Company to return some cash to investors. The Directors will continue to review market opportunities and will return some cash to shareholders if they believe it to be the best use of shareholders' funds at the time. One of the distinguishing features of the Group, that sets it apart from other Eastern European AIM traded property companies, is the high calibre, local, senior management team that has been assembled and is based in Sofia. The Group also has access to the wide network of real estate agency outlets of A G Capital through its Chief Executive Officer, Christo Iliev. This gives the Group a substantial advantage in obtaining up to date market intelligence. Overview of progress to date Since the end of 2007 BLD has added selectively to the four development sites owned at that time. As indicated in the 30 June 2008 interim statement the Group has acquired two parcels of agricultural land near Sofia. In 2009 it will apply to change the zoning to allow residential development to increase the value ahead of either selling the land or developing part of it. The Group also entered into a joint venture (to reduce risk) with Northridge Capital to acquire the 29,000 square metres Printing House office block in a prestigious part of Sofia with the intention of converting it into modern class A commercial space. Construction is due to commence in the first half of 2009 now that the previous owner has relocated. Completion is currently expected to be in September 2010. The building of 180 holiday apartments and 22 houses was completed at Harmony Hills, Rogachevo in September 2008 and electricity has recently been connected to the site. Legal completion of 78 units took place in 2008 and the Group has recognised a profit of GBP3.6m, GBP3.3m of which relates to the gain recognised on settlement of the deferred liability at Borovets. Legal completion of the remaining 124 units has been delayed until 2009 and the remaining profit, estimated at GBP0.4m, will be taken this coming year and reported in the Company's results for the year ending 31 December 2009. Net asset value Net asset value per share as at 31 December 2008 was 98.6 pence (31 December 2007: 79.6p). It should be noted that exchange movements in 2008 accounted for a gain of 23.2 pence, had rates remained at 31 December 2007 levels the net asset value per share would have been 75.4 pence. Savills (L&P) Ltd ("Savills") have carried out an independent desk-top valuation of BLD's sites as at 31 December 2008, which shows a valuation of EUR47.8m (GBP46.7m). This valuation has not been incorporated within the results. Had this been done, the net assets would have increased in value to 122.2 pence per share, an uplift of 24% on the book value. Risk and cost awareness The Board has already announced that it is to reduce risk and costs going forward. All decisions are made with those criteria in mind in order to protect value for shareholders. Risk reduction has included cautiously adding value to developments by re-zoning or obtaining building permits and reducing development costs by settling deferred payments or postponing developments. Further possibilities are to construct developments in smaller phases, funded in great part by pre-sales deposits. All costs have been reviewed in the light of the lower level of current and proposed development activity and, as always, with respect to the value provided to shareholders. No bonuses have been awarded to directors for 2008 and the level of director remuneration will also be reviewed in 2009. Board changes In September 2008, Andrew Daw (Financial Director) and James Green (Non Executive Director) joined the Board. I welcome them to the Board and look forward to their assistance as we address the issues that confront us. I also take this opportunity to thank John Dodwell and Ita McArdle for their work from flotation in March 2006 until September 2008 and Vassil Vassilev for his contribution from March 2007 until August 2008. Outlook The Board has had to react to the changing real estate market conditions and prepare for further difficult conditions going forward. The Board's priority is to manage BLD in a way that protects asset value for shareholders by reducing both risks and costs. The Board will consider the sale of assets if financially justified. Against this the Board will balance opportunities to acquire investments at discounted prices and the Board is mindful of the need to maintain a strong balance sheet to be able to take advantage of such opportunities. I should like to thank Christo Iliev, our CEO, Dimitar Savov, our Executive Officer and the team in Bulgaria for their achievements and hard work in 2008. The team is well placed to address the new challenges and opportunities of market conditions in 2009. Per Sjöberg Chairman 10 March 2009 Chief Executive Officer's Review Financial Review BLD generated GBP6.6m of revenue in 2008 (2007: GBP0.1m), GBP6.2m of which related to sales of 78 Harmony Hills units, 44 of which were transferred to the vendor of the Borovets property. The Group's pre-tax result was a loss of GBP1.8m (2007:GBP1.6m loss). We had hoped to be able to show all the income from our first residential development at Harmony Hills, near the Black Sea coast, during 2008 but a delay in the supply of electricity until February 2009 has meant that some of the income will be recorded in the first half of 2009, once meters are installed and testing has been completed. The current economic climate means that we are taking a cautious approach to developing new sites and we would not, therefore, expect to complete any further developments in 2009. Further financial information is given in the Finance Director's Review and in the Directors' Report. Bulgaria - the economy and property markets No economy has been immune from the worldwide economic downturn of 2008 and the prospects of continuing problems in 2009. Insofar as Bulgaria is concerned the rate of growth is forecast to slow sharply. The economy expanded by 6.3% in 2008 and is anticipated to grow by only 2% in 2009 (source: IMF). Salary and building cost inflation is expected to decelerate from 24% in 2008 to 4.25% in 2009 (source: IMF) with unemployment increasing from 5.9% at the end of 2008 to 7.9% by the end of 2009. BLD's portfolio of developments means that it operates in a number of different markets, each with its own characteristics: * Commercial property (Printing House) The total office stock in Sofia increased by 15% to slightly over 900,000 square metres during 2008. More than half of this space is located in the suburban areas. The vacancy rates varied between 4% in the suburbs to as low as 1% for the Central Business District, where the Printing House is located (source: Colliers International Bulgaria ("Colliers")). During the second half of 2008, as a result of the increased supply of new office space (predominantly in suburban areas) and the onset of the financial crisis in Bulgaria, monthly rental rates have stabilised. In the midterm, Colliers forecasts consolidation of rents for CBD office space and increasingly competitive levels for the suburban office space as new projects are completed. The suburban areas will continue to dominate the Sofia office market, due to the lack of available land in the more central areas of the city. * City centre, premium residential property (Sofia Tower) Most of the buildings in the city centre of Sofia are very old and poorly-maintained. There are several apartment complexes that fit in the luxury segment, but their location is not central. Currently, the price level in the area around Kempinski Hotel (one of the most prestigious quarters of Sofia) varies between EUR2,500 and EUR3,500 per square metre for high quality new premises. Despite the financial turmoil, due to the scarce supply the forecast for this niche is a gradual and sustainable annual growth of between 3% and 5%. * Suburban residential property (land to the south and west of Sofia) The capital is the most densely populated and built-up area in the country, whereas suburban villages in the Sofia region are among the country's most sparsely inhabited areas. During 2007 and the first nine months of 2008, the lack of available plots in Sofia, the subsequent high prices and the desire to escape urban congestion and noise, encouraged many investors to set their sights on areas around Sofia, according to Kapital, the Bulgarian weekly business paper. According to the provisions of Sofia's new master plan, in 15 years' time about one third of Sofians will live in the city's suburban areas and villages. Land prices rose by up to 30% around Sofia in 2008 but most developments in the suburbs have been temporarily suspended as a result of the reduction of available credit. * Ski resort second/holiday home property (Borovets) The postponement of the Super Borovets master plan has resulted in a stagnation in prices and many completed apartments in the area remained unsold for several months, according to Index Imoti magazine. * Coastal second/holiday home property (Harmony Hills and July Morning) Following the withdrawal of British buyers from the Black Sea complexes, Russian buyers currently represent more than 40% of the clients. According to Katia Tzenova, CEO of Address Real Estate Agency, there is a growing number of middle class buyers aged 28 - 35, who purchase the property for their own use during the holiday season. In addition, many Russian clients view Bulgaria as one of the most financially stable countries in Eastern Europe and buy holiday properties in Bulgaria in order to preserve their savings. Prices on the northern Black Sea coast reduced during the last quarter of 2008 and, according to Index Imoti magazine, only the prices of finished apartments at excellent locations are expected to hold firm. As buyers become more cautious and selective, new projects will have to offer higher-quality construction and finish. Operational Review During 2008 BLD continued to acquire agricultural land for re-zoning to residential use and it also entered into a joint venture, with Northridge Capital Limited to acquire and redevelop the Printing House in Sofia. The Group now has a total of seven of its own developments covering commercial property and both prime and mainstream residential property in the capital, Sofia, as well as holiday or second homes in ski and coastal resorts. In addition, the Group has continued working with other local developers at the five sites where it had bought units off plan. The Board has reviewed its strategy in 2008 in the light of the worsening of the economic climate during the year. Banking facilities are already in place to continue and complete the development of Printing House, which remains on target for completion in late 2010. However, where facilities are not secured, the Board has decided for the time being to scale back developments. Value will be added and marketability improved where it can be done at relatively low cost and with low risk - such as re-zoning. The Board will also consider whether proposed developments can be reduced in size and funded by deposits on pre-sales as a means of generating low risk income for the Group. Where pre-sales interest has been low, sales activity has been stopped until the market starts to improve. As has always been the case, building will not be commenced on a speculative basis. At the year end, the Group had a portfolio of developments with an estimated completed development value of EUR237m (GBP226m) (2007: EUR241m (GBP179m)). The projects are described below. Commercial property - Printing House In April 2008 BLD announced its participation in a joint venture which has bought the 29,000 square metres Dimitar Blagoev Printing House. Built in the 1950s, it is a historical landmark building, ten minutes from the Parliament and close to Eagles' Bridge; it is on the main highway to the airport. The site purchased forms five buildings out of eight on an island site; the key owner - occupier of the other three buildings is the largest media and press company in Bulgaria, owned by German WAZ. The five buildings will be converted into modern class A commercial space comprising 23,500 square metres of office accommodation and 3,500 square metres of retail space, together with 182 underground and 58 above ground parking spaces. Total project costs, including the purchase price, are estimated at EUR50m (GBP43m) while the gross development value is estimated at EUR70m (GBP61m). The joint venturers each made an initial investment of EUR6.5m (GBP6.3m) as their 50/50 share in the joint venture and bank financing covering the remaining 75% of the project costs was secured in March 2008. The completed project is expected to attract first class tenants, on account of the unique location and high end specification. Construction is expected to be completed in September 2010. The joint venture is operated through BLD Printing House EAD, owned by BLD and BLD's financial partner in this transaction, Northridge Capital Ltd., London. ("Northridge"). Northridge manages private client funds and has invested in a number of property transactions worldwide. BLD will be the development manager. Joining forces with Northridge on this project enables BLD to share the development risk with a reputable and experienced partner and to earn project management fees. BLD has earned initial fees of EUR0.6m (GBP0.5m) for finding the site and providing funding, which have been included in the consolidated results in 2008. In addition, BLD will receive a project management fee, expected to total EUR0.6m (GBP0.5m) over the development period. BLD's joint venture profit share will be calculated on a rising scale, dependent on the level of profits. BLD Sofia Tower In September 2006, the Group acquired, off-market, the right to develop this prime site on a small hill in the Lozenets area of central Sofia, adjacent to the five star Kempinski Hotel. The site, which is 20 minutes from the international airport, is zoned for residential use. BLD has been in discussions with the local municipality about obtaining a building permit for a 13 storey block. This would create a mixed development of 32,000 square metres of high class luxury apartments with retail/office space on the lower levels and underground car parking, with an estimated sale value of over EUR87m (GBP75m). The Group finally received permission to apply for an initial building visa in December 2008 for a 13,899 square metres development and is now applying for a building permit. This will add value to the site at relatively low cost, should the Board decide to sell the site, while allowing the Board to continue in its plans to work towards obtaining permission to develop the site to the full 32,000 square metres. The Board has reviewed its assumptions for both the build area and the timing of the building work following delays in obtaining the permit, along with market and credit conditions. The Board has therefore taken a conservative approach and has assumed that the Group may only be able to develop 13,899 square metres and that building work will commence in early 2010 for completion by the end of 2011. Under the terms of the acquisition agreement the consideration payable to the owners is a share of the sale proceeds. These changes have been reflected in the calculation of the liability for deferred payments on the development, resulting in a net credit to the 2008 profit and loss account of GBP2.0m. The financial impact of these changes is described in more detail in the Finance Director's Review below. Land acquisition, West and South of Sofia In March 2008, BLD announced that it had made initial purchases of agricultural land at two locations in the Sofia region. In the first case 38,146 square metres were initially acquired at a cost of approximately EUR1.7m (GBP1.3m), EUR45 per square metre. Since then further parcels of land have been acquired, at a similar cost per square metre, creating a total of 60,159 square metres. BLD will seek to change the planning zoning to residential use. BLD expects this area to be attractive to Bulgarians as there is a trend for relocating from the city centre to the suburbs with its better standard of living, mountain views and good access to main roads. In the second case, BLD initially acquired 46,673 square metres of agricultural land in an area with good development potential outside Sofia. The purchase price was approximately EUR500,000, giving a price of approximately EUR10 per square metre. Since then further plots have been purchased, at a similar price per square metre, giving a total site area of 284,000 square metres. BLD will seek to change the planning zoning to residential use. BLD expects this area to be attractive to Sofia citizens and holiday home buyers as it is within a 45 minute drive of Sofia. This location will combine the benefits of city residential housing with easy access to golf courses, spa facilities and ski runs. Riverland, Borovets In December 2006, BLD paid an initial sum of EUR5.0m (GBP3.7m) for a 56,000 square metre former meat processing factory with planning permission for residential development. Further payments were also due on the ultimate sale of the development. In October 2008 agreement was reached with the vendors to settle the additional payment by making a cash payment of EUR0.6m (GBP0.4m) and transferring to them the title of 44 unsold units at Harmony Hills. The accounting for this transaction is described in the Finance Director's Review, below. The site is approximately 45 minutes from Sofia, near Borovets, Bulgaria's oldest and most famous ski resort. It is also attractive in summertime. The location provides easy access to the existing Borovets ski runs and other facilities. Shortly after BLD bought the site, it was announced that the Super Borovets ski based resort was to move ahead, developing 33 new ski runs, although recently progress has been halted. The Directors consider that Super Borovets would enhance the value of the Riverlands project. The site master plan has been completed, a design contract was awarded in 2007 and a building permit for construction of Phase 1 and the local road servicing the complex was received in May 2008. The Directors have decided not to add further costs to the development and to cease marketing it until the delays to Super Borovets have been overcome. See www.riverland-bg.com Harmony Hills, Rogachevo Building work at this small development of 180 apartments and 22 villas was completed in September 2008. During 2008 sales of 78 units were completed. Deposits have been received on all 124 of the remaining units but, due to unforeseen delays with the electricity connection, legal completion of these units has been delayed until the first half of 2009. Sales of GBP6.2m and profit of GBP3.6m were taken in 2008 (GBP4.8m of these sales and GBP3.3m of the profit resulted from the elimination of the Borovets liability), sales of a further GBP5.3m and profit of GBP0.4m are estimated for 2009, assuming all purchasers who have paid deposits progress to completion. See www.harmony-hills.com July Morning Seaside Resort, Kavarna BLD assembled part of this site in September 2006 through several off-market purchases; it had seaside access but no road access. The Group then purchased the intervening land to gain road access and so benefited from the "marriage value". The whole site of 95,000 square metres had permission for agricultural use and cost EUR4.3m (GBP3.2m). It is right beside the Black Sea, in the Balchik-Kavarna area, one of the most exclusive areas along the coast. Three internationally designed golf courses and a yacht marina are being built nearby. After the development of a master plan, at a cost of EUR0.3m (GBP0.2m), a change to residential zoning was granted in January 2008 that would enable BLD to create an 80,000 square metre holiday complex, producing a development (to be carried out in three phases of approximately equal size) with an ultimate sales value of some EUR75m. Limited marketing began in September 2007, the building permit was received in July 2008 and 53 units have been reserved. The original intention was to commence building Phase 1, comprising 432 units, in late 2008. However, as a result of limited pre-sales demand the Board is re-evaluating options for the site, consistent with the aims of reducing risk and costs, including a smaller Phase 1 predominantly funded by deposits from acquirers. Further information about expected sales values and development costs will be given as soon as they have been determined. See www.July-morning.com Underwriting off-plan apartments In order to provide a wider spread of risk in BLD's portfolio and to produce profits more quickly than from its own developments, BLD partnered with a local Bulgarian developer in relation to projects which were in areas where BLD had no involvement. This was done by underwriting the price at which units would sell, in relation to some of the units in a development. The developer continued to market all of the apartments in return for a share of the profit that would be made. This was important for two reasons:it avoided buyer confusion as to who was marketing the apartments and it gave the developer an incentive to sell those apartments which BLD had underwritten. This strategy has enabled BLD to generate profits without committing considerable resources within BLD. The arrangements have worked well. In October 2006, BLD underwrote the sale of 146 units spread across three sites at Sozopol, Bansko (Phase 1) and Pamporovo. The estimated completed value of the units was EUR9.7m (GBP7.2m). In two cases, all of the units have been sold to third parties and in the other case 10 units are still available. Bansko (Phase 1) obtained its usage permit in December 2008, building work on the site in Sozopol is due to be completed by the end of 2009. In June 2007, BLD underwrote an additional 200 units spread across two sites at Sozopol and Bansko (Phase 2). The estimated completed value of the units is EUR13m (GBP9.6m). Of the 100 units at the coastal resort of Sozopol, 95 have been sold to third parties and building work is due to be completed by the end of 2009. Of the 100 units at Bansko, 26 have been sold to third parties and building work is due to be completed by the end of April 2009. The underwriting takes the form of BLD agreeing to pay 70% of the retail price if the units are not sold by the time the building works are completed. If the units are sold during construction, then the uplift from 70% to 100% is shared between BLD and the developer. The total uplift to be shared is 43% of the 70% underwritten price. BLD made an initial payment of 20% of the underwritten price when the contracts were signed; it was due to make another 20% payment as building works progressed. When the units are sold to a third party, BLD receives back the payments it had made to date. The uplift split with the developer depends on how quickly third party buyers are found. If this is before BLD has paid the second 20% instalment, then 30% of the total uplift in value comes to BLD. If BLD has made that second payment, then 50% of the uplift comes to BLD. As a result of sales being made more quickly than expected, BLD's investment was less than anticipated. Although this meant a lower share of profits, it enabled BLD's investment to be returned sooner. While at Evridika Hills, Pamporovo (Phase 1), a return of 44% on the equity invested was made in 2007, at the Sozopol site within Phase 1, a return on equity of 100% is expected. Although the actual profits are relatively small, they serve to demonstrate that BLD can be flexible in implementing its investment strategy and can successfully seek out profit streams. Outlook The impact of difficult markets in the US and Europe affected Bulgaria towards the end of 2008. The Board has undertaken measures to reduce risk and costs and will continue to husband its resources cautiously. Christo Iliev Chief Executive Officer 10 March 2009 Finance Director's Review Consolidated income statement Pre-tax Group loss was GBP1.454m (2007: pre-tax loss GBP1.606m) on turnover of GBP6.618m (2007: GBP0.115m). Of the total turnover, the major items were GBP6.225m arising from sales of 78 units at the Harmony Hills development (2007: nil) and GBP0.375m from management fees at the Printing House development (2007: nil). The Group recorded no underwriting income on apartments bought off plan in 2008 (2007:GBP0.115m) as some units remain, which are expected to be sold in 2009. Gross profit on the sales of the Harmony Hills units amounted to GBP3.334m, 53.6%, benefiting from the agreement to eliminate the deferred liability at Borovets. The remaining 124 units are expected to generate GBP5.3m in sales and a profit of GBP0.4m in 2009. The Borovets deferred liability increased from GBP3.603m at 31 December 2007 to GBP5.203m at 31 October 2008 as a result of increases to the expected sales proceeds from the development in the Savills June 2008 valuation (GBP0.982m), unwinding of the amortisation of the liability (GBP0.383m) and an increase due to exchange movements (GBP0.235m). In accordance with International Financial Reporting Standards ("IFRS") the non-cash element of the settlement was credited to the profit and loss account as revenue. Since the liability was satisfied by the payment of EUR0.565m (GBP0.445m) in cash and the transfer of 44 units in the Harmony Hills development the balance of GBP4.758m has been recognised as revenue in the financial information in respect of these units. GBP1.467m of turnover was recognised from the sale of the 34 other units sold on the development. Within the cost of sales of GBP22.342m, a charge of GBP19.715m for the write-down of inventory at the Sofia Tower and Borovets developments and the land holdings outside Sofia has been recognised. In accordance with international accounting standards IFRS, the Group had accounted for the deferred land payable liability on the Sofia Tower development by adding to inventories the discounted value, EUR51,490m, (GBP23,760m at the exchange rate then ruling) and simultaneously creating a similar liability for the payment in non-current liabilities. The change of the assumptions regarding the size and timing of the development resulted in a credit to the profit and loss account of GBP18.983m. Because the carrying value of work in progress is not altered by the reduction in the liability, effectively inflating it, when compared with the independent, desk-top valuation carried out by Savills an impairment charge of GBP16.941m was required. The net impact of the changed assumptions was, therefore a credit to the profit and loss account of GBP2.042m. In accordance with IFRS, the Group had accounted for the deferred land payable liability on the Borovets development by adding to inventoriesthe discounted value, EUR4.388m, (GBP2.972m at the exchange rate then ruling) and simultaneously creating a similar liability for the payment in non-current liabilities. Because the carrying value of work in progress is not altered by the elimination of the liability, EUR4.388 (GBP3.453m at the exchange rate ruling on settlement) remains in work in progress, effectively inflating it. In comparison with the independent, desk-top valuation carried out by Savills the aggregate of the carrying value exceeded valuation and the value of work in progress has been impaired by GBP2.379m in accordance with the Group's accounting policy. In summary the impact on the consolidated income statement of the elimination of the deferred liability at Borovets was as follows: +------------+----------+----------+----------+----------+ | | | GBP'000 | | | +------------+----------+----------+----------+----------+ | | | | | | +------------+----------+----------+----------+----------+ | Revenue | | 4,758 | | | +------------+----------+----------+----------+----------+ | Cost of | | (1,424) | | | | sales | | | | | +------------+----------+----------+----------+----------+ | Net gain | | 3,334 | | | | to | | | | | | income | | | | | | statement | | | | | +------------+----------+----------+----------+----------+ | Write-down | | (2,379) | | | | of | | | | | | inventory | | | | | +------------+----------+----------+----------+----------+ | Overall | | 955 | | | | gain to | | | | | | income | | | | | | statement | | | | | +------------+----------+----------+----------+----------+ | | | | | | +------------+----------+----------+----------+----------+ In the announcement made on 10 October 2008 the Directors anticipated an increase in net assets after the transaction of GBP2.3m including profit on the entire Harmony Hills development. As noted above 124 units remain to be sold and profit on those units is expected to amount to GBP0.4m. The overall gain of approximately GBP1.4m will be lower than expected due to higher than anticipated costs for connecting electricity to complete the development and a higher write-down of inventory than expected. Group overheads in the year amounted to GBP2.103m (2007: GBP2.231m). Average employee numbers rose to 33 in 2008 from 18 in 2007, although numbers were reduced to 28 towards the end of 2008 and are expected to fall further. Despite the increase in numbers overall employment costs rose by only GBP0.032m as no performance-related bonuses were paid to the Directors. Other costs reduced marginally during the year despite the number of developments increasing. The Directors have reviewed all costs and actions have been taken to reduce the overheads in 2009 as activity reduces. Interest income of GBP0.853m (2007: GBP0.967m) was earned on the Group's bank and other deposits. This amount was lower than in 2007 due to both lower cash balances on hand and the impact, towards the end of the year, of lower interest rates. Gains on exchange amounted GBP0.397m (2007: GBP0.962m). Following the Directors' agreement in principle to reduce development activity and the announcement of the Group's commitment to return cash to shareholders deposits were transferred into sterling, reducing exchange risk for shareholders. Net imputed interest on land payables was GBP15.123m credit (2007: GBP1.419m charge) comprising four elements: +--------------------------------------------------------+----------+-----------+ | | GBP'000 | GBP'000 | +--------------------------------------------------------+----------+-----------+ | Change | | | | in | | | | carrying | | | | value of | | | | financial | | | | liability | | | +--------------------------------------------------------+----------+-----------+ | Sofia Tower | 18,983 | | +--------------------------------------------------------+----------+-----------+ | Borovets | (982) | | +--------------------------------------------------------+----------+-----------+ | | | 18,001 | +--------------------------------------------------------+----------+-----------+ | Imputed | | | | interest | | | | (unwinding | | | | of | | | | discount) | | | +--------------------------------------------------------+----------+-----------+ | Sofia | ( | | | Tower | 2,495) | | +--------------------------------------------------------+----------+-----------+ | Borovets | (383) | | | (until | | | | October) | | | +--------------------------------------------------------+----------+-----------+ | | | (2,878) | +--------------------------------------------------------+----------+-----------+ | Credit | | 15,123 | | to | | | | income | | | | statement | | | +--------------------------------------------------------+----------+-----------+ Group loss per share was 4.39 pence (2007: 4.65 pence loss per share). The Board is unable to recommend a dividend. Consolidated balance sheet Included within current assets is GBP3.290m (2007: nil) as due from the commercial property - Printing House - joint venture. As each of the shareholders has loaned funds to the joint venture, the accounting treatment on consolidation results in 50% of the Group's loan being shown in non-current assets and 50% of Northridge's loan being shown in non-current liabilities (GBP3.265m, 2007: nil). The balance sheet shows cash balances of GBP10.252m (2007: GBP24.137m) with the only loan, GBP5.961m, (2007: GBP2.130m relating to Borovets) remaining being the Group's share of the development loan to the Printing House joint venture. Facilities are in place to complete the development. The Directors' policy is to add value where possible, at low cost, such as re-zoning land for development and building work will only be carried out if it can be funded by pre-sales deposits and without bank debt where possible. Although payments on account from apartment buyers amount to GBP4.396m (2007: GBP1.876m) some GBP1.4m further cash remains due on the completion of the Harmony Hills development. At the end of 2008 the unamortised cost of deferred land payables shown as a liability in the Group balance sheet is GBP11.830m (2007: GBP24.663m), all relating to BLD Sofia Tower (2007: GBP3.603m related to Borovets and GBP21.060m related to BLD Sofia Tower). The Directors estimate the deferred land payable by applying certain assumptions to the ultimate sales proceeds from a development, thereby calculating what deferred payment would be due to a vendor. The payment is then discounted by applying assumptions as to the completion date of the development and a discount rate appropriate to the cost of funds of the Group. The net decrease of GBP9,230m in the BLD Sofia Tower liability from GBP21.060m to GBP11,830m is a result of a reduction of GBP18.983m due to the reduction in size of the development and the expected delay of six months in completion of the development, an increase of GBP2.495m due to the unwinding of the amortisation of the liability and an increase of GBP7.258m as a result of exchange movements. The exchange movements on the retranslation of overseas operations are shown in the foreign exchange reserve, other movements are charged to the profit and loss account. The precise assumptions for the calculation are commercially confidential and cannot therefore be disclosed. The size of the development is based on the Directors' calculations of the development potential of the site. The sale value per square metre of the development is an estimate made by the Directors based on their knowledge of the local market and supported by the desk-top valuation undertaken by Savills at the balance sheet date. The split of sales revenue is subject to an agreement between the Group and the vendors of the site. The Directors estimate that building will commence in early 2010 for completion at by the end of 2011 - these timings have been delayed by six months due to delays in the city master plan and consequential delays in obtaining outline planning permission. The discount rate used is 11%. The rate of corporation tax in the Isle of Man is nil and therefore the Company has no liability for tax payable there. The Group made a taxable profit of GBP0.471m in Bulgaria, after allowance for brought forward losses and timing differences, and a provision of GBP0.147m has been made for the payment of Bulgarian tax (which is 10%). The timing differences noted above give rise to a deferred tax asset of GBP0.251m but the Group has not recognised this asset due to the uncertainty of future profits from the same source. Bulgarian withholding tax is due on interest payable on loans and management charges from the Company and a net charge of GBP0.131m (2007: GBP0.092m) has been suffered in the year. Net asset value and valuation Audited net asset value per share as at 31 December 2008 ("NAV") was 98.6 pence, a 19.0 pence increase from 2007's 79.6 pence, reflecting the net loss for the year (4.4p reduction), the benefit from converting Euro assets and liabilities held in Bulgaria into Sterling (23.2p gain) and the movement on share premium account (0.2p gain). Having instructed Savills to carry out a full valuation at 30 June 2008, the Directors decided to instruct them to undertake a desk-top valuation of the Group's property interests as at 31 December 2008. The Directors believe that given the limited number of changes to developments in the intervening period that the cost saving was of more value to shareholders than would be gained from a full valuation. The Group intends to continue to commission site valuations every six months with a full valuation occurring annually at most while development activity remains low. The 31 December valuation of the Group's incomplete investments amounted to EUR47.88m (GBP46.72m) compared with EUR38.83m (GBP28.76m) as at 31 December 2007. As the valuation relates to properties held in inventories - BLD is not a property investment concern and so does not hold its properties in property, plant and equipment - the revaluation surplus has not been incorporated in the financial information. Unaudited net asset value per share, after including the professional desk-top valuation at as 31 December 2008 ("Adjusted NAV") was 122.2p, 3.2p above that calculated at 31 December 2007. As indicated above, the net asset value per share is very sensitive to the movement in the exchange rate between sterling and the Euro. The rate moved from GBP1/EUR1.35 as at 31 December 2007 to GBP1/EUR1.025 as at 31 December 2008. GBP30.4m of the Group's net assets of GBP39.4m are in Euro or Euro pegged assets. It is estimated that each 0.01 movement in the GBP/EUR exchange rate of 1.025 will mean an adjustment to the sterling net assets of 0.74 pence per share. No allowance has been made in the calculation of Adjusted NAV for any dilutive effect which might arise from the award of shares through the Company's management incentive arrangements ("the Plan"). The Plan applies only if total shareholder return (being the increase in share price (above the 100p Placing price) during the year plus dividends paid in the year) exceeds a hurdle rate of 10% of the share price at the beginning of the year; in such an event, 20% of the surplus is payable as a performance fee (up to 50% (such percentage being determined by the Directors) can be paid in cash with the rest being in shares). Andrew Daw Finance Director 10 March 2009 * In this report an exchange rate of GBP1/EUR 1.025 has been used to convert Euro denominated assets and liabilities held at 31 December 2008 to Sterling. Income and expenses have been converted in accordance with the Group's accounting policy, based on exchange rates on the date of the transaction. An exchange rate of GBP1/EUR1.15 has been used to convert estimates of future revenues and costs. Revaluation Methodology and Assumptions Net Asset Value per share Savills revalued all of the property interests held by the Company as at 31 December 2008 in accordance with the Practice Statements contained in the RICS Appraisal and Valuation Standards published by the Royal Institute of Chartered Surveyors ("the Red Book") in May 2003. The basis of the valuation is market value (at 31 December 2007, Sofia Tower had been valued on a fair value basis) as defined in the Red Book. The figures from the Savills' valuation report should be read in conjunction with the assumptions and limitations of their report. The adjusted unaudited net asset value per share has been arrived at by adding the surplus of Savills' valuations over cost to the audited net assets of the Company calculated in accordance with the Company's accounting policies as at 31 December 2008 and after making provision for Bulgarian tax (which is 10%) and withholding tax on the surplus. The resultant sum has then been divided by the 40m shares currently in issue. Consolidated Income Statement For the year ended 31 December 2008 +----------------------------------+----------+-------------+------------+ | | | Year ended | Year ended | +----------------------------------+----------+-------------+------------+ | | | 31 December | 31 | | | | | December | +----------------------------------+----------+-------------+------------+ | | | 2008 | 2007 | +----------------------------------+----------+-------------+------------+ | | Notes | GBP'000 | GBP'000 | +----------------------------------+----------+-------------+------------+ | | | | | +----------------------------------+----------+-------------+------------+ | | | | | +----------------------------------+----------+-------------+------------+ | Revenue | | 6,618 | 115 | +----------------------------------+----------+-------------+------------+ | | | | | +----------------------------------+----------+-------------+------------+ | Cost of sales | | | | +----------------------------------+----------+-------------+------------+ | Before impairment of inventory | | (2,627) | - | +----------------------------------+----------+-------------+------------+ | Impairment of inventory | | (19,715) | - | +----------------------------------+----------+-------------+------------+ | | | | | +----------------------------------+----------+-------------+------------+ | | | (22,342) | - | +----------------------------------+----------+-------------+------------+ | | | | | +----------------------------------+----------+-------------+------------+ | Gross (loss)/profit | | (15,724) | 115 | +----------------------------------+----------+-------------+------------+ | | | | | +----------------------------------+----------+-------------+------------+ | Administrative expenses | | (2,103) | (2,231) | +----------------------------------+----------+-------------+------------+ | | | | | +----------------------------------+----------+-------------+------------+ | Operating loss | | (17,827) | (2,116) | +----------------------------------+----------+-------------+------------+ | | | | | +----------------------------------+----------+-------------+------------+ | Finance income, being: | | | | +----------------------------------+----------+-------------+------------+ | Bank and other interest | | 853 | 967 | +----------------------------------+----------+-------------+------------+ | Gain on exchange | | 397 | 962 | +----------------------------------+----------+-------------+------------+ | Imputed interest on deferred | | (2,878) | (2,557) | | land payables | | | | +----------------------------------+----------+-------------+------------+ | Change in carrying value of | | 18,001 | 1,138 | | financial liability in respect | | | | | of deferred land payables | | | | +----------------------------------+----------+-------------+------------+ | Finance income | 4 | 16,373 | 510 | +----------------------------------+----------+-------------+------------+ | | | | | +----------------------------------+----------+-------------+------------+ | Loss before tax | | (1,454) | (1,606) | +----------------------------------+----------+-------------+------------+ | Income tax expense | 18 | (300) | (113) | +----------------------------------+----------+-------------+------------+ | Retained loss for the period | | (1,754) | (1,719) | +----------------------------------+----------+-------------+------------+ | | | | | +----------------------------------+----------+-------------+------------+ | Basic and diluted loss per share | | | | | attributable | | | | +----------------------------------+----------+-------------+------------+ | to the equity holders during the | | | | | period | | | | +----------------------------------+----------+-------------+------------+ | (expressed as pence per share) | 13 | | | +----------------------------------+----------+-------------+------------+ | Basic loss per share | | (4.39) | (4.65) | +----------------------------------+----------+-------------+------------+ | Diluted loss per share | | (4.39) | (4.65) | +----------------------------------+----------+-------------+------------+ | | | | | +----------------------------------+----------+-------------+------------+ Consolidated Balance Sheet As at 31 December 2008 +----------------------------------+----------+--------------+------------+ | | | 2008 | 2007 | +----------------------------------+----------+--------------+------------+ | | Notes | GBP'000 | GBP'000 | +----------------------------------+----------+--------------+------------+ | | | | | +----------------------------------+----------+--------------+------------+ | Assets | | | | +----------------------------------+----------+--------------+------------+ | Property, plant and equipment | 9 | 150 | 129 | +----------------------------------+----------+--------------+------------+ | Amount due from joint venture | | 3,290 | - | +----------------------------------+----------+--------------+------------+ | | | | | +----------------------------------+----------+--------------+------------+ | Total non-current assets | | 3,440 | 129 | +----------------------------------+----------+--------------+------------+ | | | | | +----------------------------------+----------+--------------+------------+ | Inventories | 10 | 50,576 | 34,906 | +----------------------------------+----------+--------------+------------+ | Trade and other receivables | 11 | 2,109 | 1,832 | +----------------------------------+----------+--------------+------------+ | Cash and cash equivalents | 12 | 10,252 | 24,137 | +----------------------------------+----------+--------------+------------+ | Total current assets | | 62,937 | 60,875 | +----------------------------------+----------+--------------+------------+ | Total assets | | 66,377 | 61,004 | +----------------------------------+----------+--------------+------------+ | | | | | +----------------------------------+----------+--------------+------------+ | Equity | | | | +----------------------------------+----------+--------------+------------+ | Issued share capital | 13 | 400 | 400 | +----------------------------------+----------+--------------+------------+ | Share premium reserve | | 35,359 | 35,280 | +----------------------------------+----------+--------------+------------+ | Foreign currency translation | | 8,463 | (825) | | reserve | | | | +----------------------------------+----------+--------------+------------+ | Retained earnings | | (4,773) | (3,019) | +----------------------------------+----------+--------------+------------+ | Total equity | | 39,449 | 31,836 | +----------------------------------+----------+--------------+------------+ | | | | | +----------------------------------+----------+--------------+------------+ | Non-current liabilities | | | | +----------------------------------+----------+--------------+------------+ | Deferred tax liabilities | | - | 21 | +----------------------------------+----------+--------------+------------+ | Deferred land payables | 15 | 11,830 | 24,663 | +----------------------------------+----------+--------------+------------+ | Amount due to joint venture | | 3,265 | - | +----------------------------------+----------+--------------+------------+ | Bank loans | 15 | 5,961 | - | +----------------------------------+----------+--------------+------------+ | Total non-current liabilities | | 21,056 | 24,684 | +----------------------------------+----------+--------------+------------+ | | | | | +----------------------------------+----------+--------------+------------+ | Current liabilities | | | | +----------------------------------+----------+--------------+------------+ | Trade and other payables | 16 | 5,562 | 2,263 | +----------------------------------+----------+--------------+------------+ | Bank loans | | - | 2,130 | +----------------------------------+----------+--------------+------------+ | Taxation | | 310 | 91 | +----------------------------------+----------+--------------+------------+ | Total current liabilities | | 5,872 | 4,484 | +----------------------------------+----------+--------------+------------+ | Total liabilities | | 26,928 | 29,168 | +----------------------------------+----------+--------------+------------+ | Total equity & liabilities | | 66,377 | 61,004 | +----------------------------------+----------+--------------+------------+ The financial information was approved and authorised for issue by the Board of Directors on 10 March 2009 Christo Iliev Andrew Daw Director Director Company Balance Sheet As at 31 December 2008 +----------------------------------+----------+--------------+------------+ | | | 2008 | 2007 | +----------------------------------+----------+--------------+------------+ | | Notes | GBP'000 | GBP'000 | +----------------------------------+----------+--------------+------------+ | Assets | | | | +----------------------------------+----------+--------------+------------+ | Investment in subsidiaries | | 175 | 175 | +----------------------------------+----------+--------------+------------+ | Total non-current assets | | 175 | 175 | +----------------------------------+----------+--------------+------------+ | | | | | +----------------------------------+----------+--------------+------------+ | Intragroup receivables | | 37,619 | 16,615 | +----------------------------------+----------+--------------+------------+ | Trade and other receivables | 11 | 89 | 13 | +----------------------------------+----------+--------------+------------+ | Cash and cash equivalents | 12 | 9,057 | 20,885 | +----------------------------------+----------+--------------+------------+ | Total current assets | | 46,765 | 37,513 | +----------------------------------+----------+--------------+------------+ | Total assets | | 46,940 | 37,688 | +----------------------------------+----------+--------------+------------+ | | | | | +----------------------------------+----------+--------------+------------+ | Equity | | | | +----------------------------------+----------+--------------+------------+ | Issued share capital | 13 | 400 | 400 | +----------------------------------+----------+--------------+------------+ | Share premium reserve | | 35,359 | 35,280 | +----------------------------------+----------+--------------+------------+ | Retained earnings | | 11,094 | 1,611 | +----------------------------------+----------+--------------+------------+ | Total equity | | 46,853 | 37,291 | +----------------------------------+----------+--------------+------------+ | | | | | +----------------------------------+----------+--------------+------------+ | Liabilities - current | | | | | liabilities | | | | +----------------------------------+----------+--------------+------------+ | Trade and other payables | 16 | 87 | 306 | +----------------------------------+----------+--------------+------------+ | Taxation | | - | 91 | +----------------------------------+----------+--------------+------------+ | Total current liabilities | | 87 | 397 | +----------------------------------+----------+--------------+------------+ | Total liabilities | | 87 | 397 | +----------------------------------+----------+--------------+------------+ | Total equity & liabilities | | 46,940 | 37,688 | +----------------------------------+----------+--------------+------------+ The financial information was approved and authorised for issue by the Board of Directors on 10 March 2009 Christo Iliev Andrew Daw Director Director Statements of Changes in Equity For the year ended 31 December 2008 +----------------------------------+----------+---------+----------+-------------+---------+ | | | | | | | | | | | | Foreign | | +----------------------------------+----------+---------+----------+-------------+---------+ | | | | | currency | | | | | | | | | +----------------------------------+----------+---------+----------+-------------+---------+ | | Share | Share | Retained | translation | | | | | | | | | +----------------------------------+----------+---------+----------+-------------+---------+ | | capital | premium | earnings | reserve | Total | +----------------------------------+----------+---------+----------+-------------+---------+ | | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 | +----------------------------------+----------+---------+----------+-------------+---------+ | GROUP | | | | | | +----------------------------------+----------+---------+----------+-------------+---------+ | Balance at 1 January 2008 | 400 | 35,280 | (3,019) | (825) | 31,836 | +----------------------------------+----------+---------+----------+-------------+---------+ | Retained loss for the period | - | - | (1,754) | - | (1,754) | +----------------------------------+----------+---------+----------+-------------+---------+ | | | | | | | +----------------------------------+----------+---------+----------+-------------+---------+ | Translation into presentation | | | | | | | currency | | | | | | +----------------------------------+----------+---------+----------+-------------+---------+ | Translation of other net assets | - | - | - | 16,779 | 16,779 | +----------------------------------+----------+---------+----------+-------------+---------+ | | | | | | | +----------------------------------+----------+---------+----------+-------------+---------+ | Variation arising from | | | | | | | restatement of | | | | | | +----------------------------------+----------+---------+----------+-------------+---------+ | brought forward deferred land | | | | | | | payables | | | | | | +----------------------------------+----------+---------+----------+-------------+---------+ | at the exchange rate ruling at | | | | | | | the end | | | | | | +----------------------------------+----------+---------+----------+-------------+---------+ | of the financial period | - | - | - | (7,491) | (7,491) | +----------------------------------+----------+---------+----------+-------------+---------+ | | | | | | | +----------------------------------+----------+---------+----------+-------------+---------+ | Total recognised income and | | | | | | | expense | | | | | | +----------------------------------+----------+---------+----------+-------------+---------+ | for the period | - | - | (1,754) | 9,288 | 7,534 | +----------------------------------+----------+---------+----------+-------------+---------+ | | | | | | | +----------------------------------+----------+---------+----------+-------------+---------+ | Share issue expenses recovered | - | 79 | - | - | 79 | +----------------------------------+----------+---------+----------+-------------+---------+ | | | | | | | +----------------------------------+----------+---------+----------+-------------+---------+ | Balance as at 31 December 2008 | 400 | 35,359 | (4,773) | 8,463 | 39,449 | +----------------------------------+----------+---------+----------+-------------+---------+ | | | | | | | +----------------------------------+----------+---------+----------+-------------+---------+ | | | | | | | +----------------------------------+----------+---------+----------+-------------+---------+ | For the year ended 31 December | | | | | | | 2007 | | | | | | +----------------------------------+----------+---------+----------+-------------+---------+ | | | | | | | +----------------------------------+----------+---------+----------+-------------+---------+ | Balance at 1 January 2007 | 250 | 20,939 | (1,300) | 110 | 19,999 | +----------------------------------+----------+---------+----------+-------------+---------+ | Retained loss for the period | - | - | (1,719) | - | (1,719) | +----------------------------------+----------+---------+----------+-------------+---------+ | | | | | | | +----------------------------------+----------+---------+----------+-------------+---------+ | Translation into presentation | | | | | | | currency | | | | | | +----------------------------------+----------+---------+----------+-------------+---------+ | Translation of other net assets | - | - | - | 1,031 | 1,031 | +----------------------------------+----------+---------+----------+-------------+---------+ | | | | | | | +----------------------------------+----------+---------+----------+-------------+---------+ | Variation arising from | | | | | | | restatement of | | | | | | +----------------------------------+----------+---------+----------+-------------+---------+ | brought forward deferred land | | | | | | | payables | | | | | | +----------------------------------+----------+---------+----------+-------------+---------+ | at the exchange rate ruling at | | | | | | | the end | | | | | | +----------------------------------+----------+---------+----------+-------------+---------+ | of the financial period | - | - | - | (1,966) | (1,966) | +----------------------------------+----------+---------+----------+-------------+---------+ | | | | | | | +----------------------------------+----------+---------+----------+-------------+---------+ | Total recognised income and | | | | | | | expense | | | | | | +----------------------------------+----------+---------+----------+-------------+---------+ | for the period | - | - | (1,719) | (935) | (2,654) | +----------------------------------+----------+---------+----------+-------------+---------+ | | | | | | | +----------------------------------+----------+---------+----------+-------------+---------+ | Shares issued in the period | 150 | 14,850 | - | - | 15,000 | +----------------------------------+----------+---------+----------+-------------+---------+ | Share issue expenses | - | (509) | - | - | (509) | +----------------------------------+----------+---------+----------+-------------+---------+ | | | | | | | +----------------------------------+----------+---------+----------+-------------+---------+ | Balance as at 31 December 2007 | 400 | 35,280 | (3,019) | (825) | 31,836 | +----------------------------------+----------+---------+----------+-------------+---------+ | | | | | | | +----------------------------------+----------+---------+----------+-------------+---------+ | | | | | | | +----------------------------------+----------+---------+----------+-------------+---------+ | | | | | Foreign | | +----------------------------------+----------+---------+----------+-------------+---------+ | | | | | currency | | | | | | | | | +----------------------------------+----------+---------+----------+-------------+---------+ | | Share | Share | Retained | translation | | | | | | | | | +----------------------------------+----------+---------+----------+-------------+---------+ | | capital | premium | earnings | reserve | Total | +----------------------------------+----------+---------+----------+-------------+---------+ | | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 | +----------------------------------+----------+---------+----------+-------------+---------+ | COMPANY | | | | | | +----------------------------------+----------+---------+----------+-------------+---------+ | Balance at 1 January 2008 | 400 | 35,280 | 1,611 | - | 37,291 | +----------------------------------+----------+---------+----------+-------------+---------+ | Retained profit for the period | - | - | 9,483 | - | 9,483 | +----------------------------------+----------+---------+----------+-------------+---------+ | Total recognised income and | - | - | 9,483 | - | 9,483 | | expense | | | | | | +----------------------------------+----------+---------+----------+-------------+---------+ | for the period | | | | | | +----------------------------------+----------+---------+----------+-------------+---------+ | Share issue expenses recovered | - | 79 | - | - | 79 | +----------------------------------+----------+---------+----------+-------------+---------+ | | | | | | | +----------------------------------+----------+---------+----------+-------------+---------+ | Balance as at 31 December 2008 | 400 | 35,359 | 11,094 | - | 46,853 | +----------------------------------+----------+---------+----------+-------------+---------+ | | | | | | | +----------------------------------+----------+---------+----------+-------------+---------+ | | | | | | | +----------------------------------+----------+---------+----------+-------------+---------+ | For the year ended 31 December | | | | | | | 2007 | | | | | | +----------------------------------+----------+---------+----------+-------------+---------+ | | | | | | | +----------------------------------+----------+---------+----------+-------------+---------+ | Balance at 1 January 2007 | 250 | 20,939 | 63 | - | 21,252 | +----------------------------------+----------+---------+----------+-------------+---------+ | Retained profit for the period | - | - | 1,548 | - | 1,548 | +----------------------------------+----------+---------+----------+-------------+---------+ | Total recognised income and | - | - | 1,548 | - | 1,548 | | expense | | | | | | +----------------------------------+----------+---------+----------+-------------+---------+ | for the period | | | | | | +----------------------------------+----------+---------+----------+-------------+---------+ | | | | | | | +----------------------------------+----------+---------+----------+-------------+---------+ | Shares issued in the period | 150 | 14,850 | - | - | 15,000 | +----------------------------------+----------+---------+----------+-------------+---------+ | Share issue expenses | - | (509) | - | - | (509) | +----------------------------------+----------+---------+----------+-------------+---------+ | Balance as at 31 December 2007 | 400 | 35,280 | 1,611 | - | 37,291 | +----------------------------------+----------+---------+----------+-------------+---------+ | | | | | | | +----------------------------------+----------+---------+----------+-------------+---------+ Share capital - Amount subscribed for share capital at nominal value. Share premium- Amount subscribed for share capital in excess of nominal value. Retained earnings- Cumulative net gains and losses recognised in the consolidated income statement. Foreign currency translation reserve - Gains/losses arising on retranslating the net assets of overseas operations into sterling. Cash Flow Statements For the year ended 31 December 2008 +--------------------------------------------+---------+----------+----------+---------+----------+ | | | | Restated: see | | | | | note 2.12 | +--------------------------------------------+---------+---------------------+--------------------+ | | | Year ended | Year ended | +--------------------------------------------+---------+---------------------+--------------------+ | | | 31 December 2008 | 31 December | | | | | 2007 | +--------------------------------------------+---------+---------------------+--------------------+ | | | Group | Company | Group | Company | +--------------------------------------------+---------+----------+----------+---------+----------+ | | Notes | GBP'000 | GBP'000 | GBP'000 | GBP'000 | +--------------------------------------------+---------+----------+----------+---------+----------+ | Cash flow from operating activities | | | | | | +--------------------------------------------+---------+----------+----------+---------+----------+ | Profit/(loss) for the year | | (1,754) | 9,483 | (1,719) | 1,543 | +--------------------------------------------+---------+----------+----------+---------+----------+ | Adjustments for: | | | | | | +--------------------------------------------+---------+----------+----------+---------+----------+ | Net financing (income)/expense | | (16,373) | (2,518) | (510) | (1,787) | +--------------------------------------------+---------+----------+----------+---------+----------+ | Taxation | | 300 | 131 | 113 | 91 | +--------------------------------------------+---------+----------+----------+---------+----------+ | Depreciation | 9 | 53 | - | 40 | - | +--------------------------------------------+---------+----------+----------+---------+----------+ | Impairment loss in respect of inventories | | 19,715 | - | - | - | +--------------------------------------------+---------+----------+----------+---------+----------+ | Operating profit/(loss) before changes | | | | | | +--------------------------------------------+---------+----------+----------+---------+----------+ | in working capital | | 1,941 | 7,096 | (2,076) | (153) | +--------------------------------------------+---------+----------+----------+---------+----------+ | | | | | | | +--------------------------------------------+---------+----------+----------+---------+----------+ | Increase in intragroup balances | | - | (19,691) | - | (1,970) | +--------------------------------------------+---------+----------+----------+---------+----------+ | (Increase)/decrease in trade and other | | (2,436) | (76) | (640) | 444 | | receivables | | | | | | +--------------------------------------------+---------+----------+----------+---------+----------+ | Increase/(decrease) in trade and other | | 4,483 | (219) | (93) | 93 | | payables | | | | | | +--------------------------------------------+---------+----------+----------+---------+----------+ | (Increase)/ decrease in inventories | | (22,058) | - | (1,634) | - | +--------------------------------------------+---------+----------+----------+---------+----------+ | Settlement of deferred land payable | | (445) | - | - | - | +--------------------------------------------+---------+----------+----------+---------+----------+ | Cash (used in) operations | | (18,515) | (12,890) | (4,443) | (1,586) | +--------------------------------------------+---------+----------+----------+---------+----------+ | | | | | | | +--------------------------------------------+---------+----------+----------+---------+----------+ | Tax (paid)/recovered | | (102) | - | (36) | 56 | +--------------------------------------------+---------+----------+----------+---------+----------+ | | | | | | | +--------------------------------------------+---------+----------+----------+---------+----------+ | Net cash flows from operating activities | | (18,617) | (12,890) | (4,479) | (1,530) | +--------------------------------------------+---------+----------+----------+---------+----------+ | | | | | | | +--------------------------------------------+---------+----------+----------+---------+----------+ | Cash flows from investing activities | | | | | | +--------------------------------------------+---------+----------+----------+---------+----------+ | Acquisition of plant and equipment | 9 | (101) | - | (69) | - | +--------------------------------------------+---------+----------+----------+---------+----------+ | Proceeds from sale of plant and equipment | | 27 | - | - | - | +--------------------------------------------+---------+----------+----------+---------+----------+ | Interest received | | 853 | 586 | 967 | 1,786 | +--------------------------------------------+---------+----------+----------+---------+----------+ | Interest paid | | (354) | - | (39) | - | +--------------------------------------------+---------+----------+----------+---------+----------+ | Cash flows from investing activities | | 425 | 586 | 859 | 1,786 | +--------------------------------------------+---------+----------+----------+---------+----------+ | | | | | | | +--------------------------------------------+---------+----------+----------+---------+----------+ | Financing activities | | | | | | +--------------------------------------------+---------+----------+----------+---------+----------+ | Proceeds from the issue of ordinary share | | - | - | 15,000 | 15,000 | | capital | | | | | | +--------------------------------------------+---------+----------+----------+---------+----------+ | Share issue expenses | | 79 | 79 | (509) | (509) | +--------------------------------------------+---------+----------+----------+---------+----------+ | Receipt from new bank loans | | 5,961 | - | 2,130 | - | +--------------------------------------------+---------+----------+----------+---------+----------+ | Repayment of bank loans | | (2,130) | - | - | - | +--------------------------------------------+---------+----------+----------+---------+----------+ | Cash flows generated from financing | | 3,910 | 79 | 16,621 | 14,491 | | activities | | | | | | +--------------------------------------------+---------+----------+----------+---------+----------+ | | | | | | | +--------------------------------------------+---------+----------+----------+---------+----------+ | Net (decrease)/increase in cash and cash | | (14,282) | (12,225) | 13,001 | 14,747 | | equivalents | | | | | | +--------------------------------------------+---------+----------+----------+---------+----------+ | Effect of exchange fluctuations on cash | | 397 | 397 | 962 | (85) | | held | | | | | | +--------------------------------------------+---------+----------+----------+---------+----------+ | Cash and cash equivalents at 1 January | | 24,137 | 20,885 | 10,174 | 6,223 | +--------------------------------------------+---------+----------+----------+---------+----------+ | Cash and cash equivalents at 31 December | | 10,252 | 9,057 | 24,137 | 20,885 | +--------------------------------------------+---------+----------+----------+---------+----------+ | | | | | | | +--------------------------------------------+---------+----------+----------+---------+----------+ Notes to the Consolidated Financial Information For the year ended 31December 2008 1. GENERAL INFORMATION Bulgarian Land Development plc ("the Company") and its subsidiaries (together "the Group") is a property development group operating in Bulgaria, principally involved in the development of residential and commercial property. The Group's head office is in the Isle of Man and the main operating office is in Sofia, Bulgaria. The Company is registered in the Isle of Man, registration number 115921C and its registered office is Top Floor, 14 Athol Street, Douglas, Isle of Man, IM1 1JA. The Company's shares are traded on the Alternative Investment Market of the London Stock Exchange. The financial information is extracted from the audited financial statements of the Group for the year ended 31 December 2008 which were approved by the board of directors on 10 March 2009. The Company's auditors, BDO Stoy Hayward LLP, have reported on the accounts for the year ended 31 December 2008 under section 15 of the Isle of Man Companies Acts 1982 ("Act"). Their report was not qualified within the meaning of the Act and did not contain a statement made under sections 15(4) or section 15(6) of the Act. Copies of the full financial statements for the year ended 31 December 2008 will be posted to shareholders as soon as possible and will be available on the Company's website www.bld.bg. 2. SIGNIFICANT ACCOUNTING POLICIES This consolidated financial information has been prepared in accordance with International Financial Reporting Standards ('IFRS') as adopted for use in the European Union in accordance with Article 3 of the IAS Regulations (EC) no 1606/2000. The principal accounting policies adopted in the preparation of the consolidated financial information are set out below. New standards and interpretations No IFRS have been issued that were effective for accounting periods beginning on or after 1 January 2008. In the current year, the Group has adopted IFRS 8 'Operating Segments' which is effective for annual reporting periods beginning on or after 1 January 2009. The impact of the adoption of IFRS 8 is to give an insight into information used by management in taking past decisions and also help users to predict management's actions and reactions to future events. The principal changes resulting from the issue of IFRS 8 which replaces IAS 14 Segment Reporting is that the requirements of the IFRS are based on the information about the components of the Group that management uses to make decisions about operating matters. The IFRS requires identification of operating segments on the basis of internal reports that are regularly reviewed by management and also measurement of amounts reported for each operating segment item to be the measure reported to management. At the date of authorisation of this financial information, the following Standards and Interpretations which have not been applied in this financial information were in issue but not yet effective: - Revision to IFRS 3 'Business Combinations' - IAS 23 (Revised 2007) 'Borrowing Costs' - Amendment to IFRS 2 'Share-based Payment' Vesting Conditions and Cancellations - Amendments to IFRS 7 'Financial Instruments: Disclosures' - Amendment to IAS 1 'Presentation of Financial Statements' A Revised Presentation - Amendments to IAS 39 and IFRS 7 'Reclassification of Financial Instruments' - Amendments to IFRS 1 and IAS 27 Cost of an Investment in a subsidiary, jointly-controlled entity or associate - IFRIC 15 'IAS 11 - Agreements for the Construction of Real Estate' The directors are of the opinion that the adoption in future periods of the other Standards and Interpretations noted above will have no material impact on the financial information of the Group. 2.1 (a) Basis of presentation The Group financial information has been prepared on the historical cost basis and in accordance with the requirements set out in the Isle of Man Companies Acts 1931 to 2004. The accounting policies have been consistently applied to the results, gains and losses, assets, liabilities and cash flows of entities included in the financial information. The preparation of financial information in conformity with IFRS requires the Directors to make judgments, estimates and assumptions that affect the application of policies and the reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The 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 if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. (b) Basis of consolidation The consolidated financial information incorporates the financial information of the Company and the entities controlled by the Company (its subsidiaries) made up to 31 December each year. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. Where necessary, adjustments are made to the financial information of subsidiaries to bring the accounting policies used into line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation. (c) Business combinations The consolidated financial information includes the acquisition of the Company's subsidiary in 2006. The Directors do not believe that the 2006 business combination met the definitions of IFRS3 (as the Company did not constitute a business, as defined in IFRS3). The directors have considered the guidance included in paragraphs 10 to 12 of International Accounting Standard ('IAS') 8 Accounting Policies, Changes in Accounting Estimates and Errors. This requires, inter alia, that where IFRS do not include guidance for a particular issue, the Directors should consider the economic substance of the transaction in developing the accounting policy. The Directors have therefore incorporated the assets and liabilities of the subsidiary at the amounts originally recorded in its books from the date that the Company gained control. As economically there was no change in the business or its prospects as a result of the combination, the Directors do not believe that it was appropriate to recognise the significant amount of goodwill that would have arisen. 2.2 Foreign currency translation The functional currency of the Company is Pound Sterling. The functional currency of the subsidiaries is Bulgarian Lev as this is the primary currency in which the subsidiaries operate. For the purpose of this consolidated financial information, the results and financial position are expressed in Sterling. Monetary assets and liabilities denominated in foreign currencies as at the date of this financial information are translated to Sterling at exchange rates prevailing on that date. Realised and unrealised gains and losses on foreign currency transactions are charged or credited to the income statement as foreign currency gains and losses. Expenses are translated into Sterling based on exchange rates on the date of the transaction. Exchange differences arising on the settlement of monetary items, and on retranslation of monetary items, are included in profit or loss for the period. Balance sheet items are translated at the rate prevailing at the period end. Income statement balances are translated using the average rate over the period. Where balances in the subsidiary companies (including the carrying value of deferred land payables) are brought forward at the beginning of a financial period having been converted from Bulgarian Lev to Sterling at the exchange rate ruling at the previous balance sheet date, they are reconverted at the exchange rate ruling at the end of the current financial period and the difference is taken to foreign currency translation reserve. 2.3 Cash and cash equivalents Cash and cash equivalents comprise cash deposited with banks for periods of up to one month. 2.4 Revenue recognition (a) Revenue Revenue comprises the fair value of the consideration received or receivable, net of value added tax, rebates and discounts. Revenue from property development and off-plan trading sales is recognised in the income statement when the significant risks and rewards of ownership have been transferred to the purchaser. Revenue in respect of the sale of residential properties is recognised at the fair value of the consideration received or receivable on legal completion. Provision is made for costs to be incurred post completion in accordance with IAS 37 'Provisions, contingent liabilities and contingent assets'. (b) Customer deposits Customer deposits are recorded as a liability within "payments on account by apartment buyers" on receipt and are released to the income statement as revenue upon legal completion. 2.5 Property, plant and equipment Motor vehicles, plant and equipment are stated at cost less subsequent depreciation. Depreciation is calculated using the straight-line method as follows: +---------------------+-------------+ | Motor vehicles: | 4 years | +---------------------+-------------+ | Office equipment: | 4 years | +---------------------+-------------+ | Computers: | 4 years | +---------------------+-------------+ | Other: | 4 years | +---------------------+-------------+ The estimated useful economic lives are reassessed at each balance sheet date as are changes in current residual values. The effects of these changes in estimates are accounted for prospectively. 2.6 Inventories Land and properties held for development are carried at the lower of cost and net realisable value. Cost includes all costs of purchase and development (including interest) incurred in bringing the inventories to their condition at the balance sheet date. Net realisable value is the estimated selling price in the ordinary course of business less cost to complete the development and selling costs. Where the Group acquires land and buildings subject to deferred payments due after more than one year, it is initially recognised at cost, being the fair value of the future estimate contractual obligation. Where, through these deferred purchase terms, the cost differs from the nominal amount that will actually be paid in settling the liability, no adjustment is made to the cost of the land, the difference being charged as a finance cost. 2.7 Trade payables Trade payables on normal terms do not bear interest and are carried at their nominal value. Trade payables in respect of deferred land payables contractual payments are recorded at their fair value at the date of acquisition of the asset to which they relate. The discount to the nominal value which will be paid in settling the deferred payment terms is amortised over the credit term and charged to finance costs using the effective interest method. Where changes in estimates relating to either the future amount to be paid or the timing of payments arise, the difference in re-measuring the opening carrying value at the original effective interest rate is recognised in profit or loss during the year. The Group classifies these amounts as a component of finance income or expense. 2.8 Taxation The charge for current taxation is based on the results for the period as adjusted for those items which are non-taxable or disallowed, using the rates relevant for the period. Deferred taxation is the tax expected to be payable or receivable on differences between the carrying amounts of assets and liabilities in the financial information and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit. Deferred tax is not provided on the initial recognition of assets or liabilities that affect neither taxable nor accounting profit, other than in business combinations and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. Deferred taxation is measured based upon tax rates that are expected to apply in the period to which the temporary differences are expected to reverse using tax rates that have been substantively enacted by the balance sheet date. 2.9 Share-based payments Where share options are awarded to employees, the fair value of the options at the date of grant is charged to the income statement over the vesting period. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each balance sheet date so that, ultimately, the cumulative amount recognised over the vesting period is based upon the number of options that eventually vest. Market vesting conditions are factored into fair value of the options granted, as long as all other vesting conditions are satisfied. The cumulative expense is not adjusted for failure to achieve a market vesting condition. Where equity instruments are granted to persons other than employees, the income statement is charged. 2.10 Joint ventures Joint ventures are entities in which the Group holds an interest on a long-term basis and which are jointly controlled by the Group and other venturers under a contractual agreement. Jointly controlled entities are included in the financial information using proportionate consolidation. The share of each of the jointly controlled entity's assets, liabilities, income and expenses are combined on a line-by-line basis with those of the group. Profits and losses arising on transactions arising between the Group and the jointly controlled entities are recognised only to the extent of unrelated investors' interests in the entity. The Group's share in the jointly controlled entity's profits and losses resulting from these transactions is eliminated against the asset or liability of the jointly controlled entity arising on the transaction. 2.11 Operating segments Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker, identified as Dimitar B Savov, who is responsible for allocating resources and assessing performance of the operating segments. 2.12 Restatement of cash flow statements The 2007 cash flow statements have been restated to adjust for the impact of foreign exchange on working capital movements and deferred land payables and for the interest capitalised in inventories. The effect of these changes on the 2007 comparatives is as follows: previously reported increase in deferred land payable of GBP1,419,000 has been reduced to nil, interest paid has been increased from nil to GBP39,000 and working capital increases of GBP3,363,000 in aggregate have been reduced to an increase of GBP2,367,000 in aggregate. 3. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY In the process of applying the Group's accounting policies, which are described in note 2, the Directors have made the following judgments that have the most significant effect on the amounts recognised in the financial information. Basis of consolidation Following a detailed review of the documentation and facts surrounding the Group reorganisation and purchase of the entire share capital of the Company's subsidiary immediately before the IPO in March 2006, the Directors believe that the purchase method of accounting (without fair valuing the assets and liabilities of the subsidiary on acquisition) most fairly reflects the substance of the transaction. Recoverability of amounts included in inventories The Directors have carried out a detailed review of all the properties held by the Group. In addition, the Directors have commissioned Savills to carry out a desk-top valuation of each of the projects. Based on this work, the directors have made significant judgments concerning the success, cash flows, timing and resulting profitability of these projects and have recognised impairment provisions against certain of the developments accordingly. Deferred land payables Where the Group has acquired sites with deferred payments due to the vendors based on a percentage of the final sales value the discounted value of those deferred payables are subject to estimate by the Directors. The variables considered by the Directors in making the estimate are the ultimate sales value achievable, the completion date for the development concerned and the discount rate to be used. Following a detailed review of the Sofia Tower development, the only remaining project where a deferred payable will become due, the Directors believe that the assumptions that they have made in assessing the timing and amount of the financial liability are appropriate. 4. FINANCE INCOME/COSTS +-----------------------------------------+---------+---------+ | | Group | Group | +-----------------------------------------+---------+---------+ | | 2008 | 2007 | +-----------------------------------------+---------+---------+ | | GBP'000 | GBP'000 | +-----------------------------------------+---------+---------+ | | | | +-----------------------------------------+---------+---------+ | Bank and other interest income | 853 | 967 | +-----------------------------------------+---------+---------+ | Gain on exchange | 397 | 962 | +-----------------------------------------+---------+---------+ | | | | +-----------------------------------------+---------+---------+ | Imputed interest on deferred land | (2,878) | (2,557) | | payables | | | +-----------------------------------------+---------+---------+ | Change in carrying value of financial | | | | liability in respect of | | | +-----------------------------------------+---------+---------+ | deferred land payables | 18,001 | 1,138 | +-----------------------------------------+---------+---------+ | Total finance income | 16,373 | 510 | +-----------------------------------------+---------+---------+ All external bank interest payable of GBP354,000 (2007: GBP39,000) has been capitalised in inventories. 5. SEGMENT INFORMATION The Group's developments are managed and reported on an individual basis. Developments have been aggregated into reportable segments where they have similar economic characteristics, products and customers. The reportable segments are: * Commercial property * City centre, premium residential * Suburban residential * Ski resort second/holiday home * Coastal resort second/holiday home There are no transactions between the segments. The unallocated segment relates to central overheads in the Isle of Man and Bulgaria, taxation, cash holdings not allocated to developments and other assets and liabilities related to central overheads. Segment assets include primarily developments in progress, trade and other receivables, cash and cash equivalents. Segment liabilities comprise borrowings, other operating liabilities and deferred land payables, where relevant. All revenues are derived in Bulgaria and all non-current assets are located in Bulgaria. The segment results for the year ended 31 December 2008 are as follows: +---------------+------------+----------+----------+----------+----------+----------+-------------+----------+ | | Commercial | City | Suburban | Ski | Coastal | Other | Unallocated | Total | | | | centre | | resort | resort | | | | +---------------+------------+----------+----------+----------+----------+----------+-------------+----------+ | | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 | +---------------+------------+----------+----------+----------+----------+----------+-------------+----------+ | | | | | | | | | | +---------------+------------+----------+----------+----------+----------+----------+-------------+----------+ | Revenue | 375 | - | - | - | 6,225 | 18 | - | 6,618 | +---------------+------------+----------+----------+----------+----------+----------+-------------+----------+ | | | | | | | | | | +---------------+------------+----------+----------+----------+----------+----------+-------------+----------+ | Operating | 261 | (16,947) | (401) | (2,380) | 3,595 | (11) | (1,944) | (17,827) | | profit/(loss) | | | | | | | | | +---------------+------------+----------+----------+----------+----------+----------+-------------+----------+ | Finance | 221 | - | - | - | - | - | 1,029 | 1,250 | | income | | | | | | | | | +---------------+------------+----------+----------+----------+----------+----------+-------------+----------+ | Net | - | 16,488 | - | (1,365) | - | - | - | 15,123 | | imputed | | | | | | | | | | interest | | | | | | | | | | on land | | | | | | | | | | payables | | | | | | | | | +---------------+------------+----------+----------+----------+----------+----------+-------------+----------+ | Profit/(loss) | 482 | (459) | (401) | (3,745) | 3,595 | (11) | (915) | (1,454) | | before | | | | | | | | | | taxation | | | | | | | | | +---------------+------------+----------+----------+----------+----------+----------+-------------+----------+ | Taxation | - | - | - | - | - | - | (300) | (300) | +---------------+------------+----------+----------+----------+----------+----------+-------------+----------+ | Retained | 482 | (459) | (401) | (3,745) | 3,595 | (11) | (1,215) | (1,754) | | profit/(loss) | | | | | | | | | +---------------+------------+----------+----------+----------+----------+----------+-------------+----------+ Other information at 31 December 2008: +-------------+------------+----------+----------+----------+----------+----------+-------------+---------+ | | Commercial | City | Suburban | Ski | Coastal | Other | Unallocated | Total | | | | centre | | resort | resort | | | | +-------------+------------+----------+----------+----------+----------+----------+-------------+---------+ | | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 | +-------------+------------+----------+----------+----------+----------+----------+-------------+---------+ | | | | | | | | | | +-------------+------------+----------+----------+----------+----------+----------+-------------+---------+ | Assets | 6,641 | 14,157 | 5,864 | 8,097 | 12,359 | 482 | 10,211 | 57,811 | +-------------+------------+----------+----------+----------+----------+----------+-------------+---------+ | Jointly | 8,566 | - | - | - | - | - | - | 8,566 | | controlled | | | | | | | | | | entity | | | | | | | | | +-------------+------------+----------+----------+----------+----------+----------+-------------+---------+ | Total | 15,207 | 14,157 | 5,864 | 8,097 | 12,359 | 482 | 10,211 | 66,377 | | assets | | | | | | | | | +-------------+------------+----------+----------+----------+----------+----------+-------------+---------+ | | | | | | | | | | +-------------+------------+----------+----------+----------+----------+----------+-------------+---------+ | Liabilities | - | 11,833 | 7 | 27 | 4,657 | - | 1,102 | 17,626 | +-------------+------------+----------+----------+----------+----------+----------+-------------+---------+ | Jointly | 9,302 | - | - | - | - | - | - | 9,302 | | controlled | | | | | | | | | | entity | | | | | | | | | +-------------+------------+----------+----------+----------+----------+----------+-------------+---------+ | Total | 9,302 | 11,833 | 7 | 27 | 4,657 | - | 1,102 | 26,928 | | liabilities | | | | | | | | | +-------------+------------+----------+----------+----------+----------+----------+-------------+---------+ The segment results for the year ended 31 December 2007 are as follows: +---------------+------------+----------+----------+----------+----------+----------+-------------+---------+ | | Commercial | City | Suburban | Ski | Coastal | Other | Unallocated | Total | | | | centre | | resort | resort | | | | +---------------+------------+----------+----------+----------+----------+----------+-------------+---------+ | | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 | +---------------+------------+----------+----------+----------+----------+----------+-------------+---------+ | | | | | | | | | | +---------------+------------+----------+----------+----------+----------+----------+-------------+---------+ | Revenue | - | - | - | - | - | 115 | - | 115 | +---------------+------------+----------+----------+----------+----------+----------+-------------+---------+ | | | | | | | | | | +---------------+------------+----------+----------+----------+----------+----------+-------------+---------+ | Operating | - | (15) | - | - | - | 115 | (2,216) | (2,116) | | profit/(loss) | | | | | | | | | +---------------+------------+----------+----------+----------+----------+----------+-------------+---------+ | Finance | - | - | - | - | - | - | 1,929 | 1,929 | | income | | | | | | | | | +---------------+------------+----------+----------+----------+----------+----------+-------------+---------+ | Net | - | (1,062) | - | (357) | - | - | - | (1,419) | | imputed | | | | | | | | | | interest | | | | | | | | | | on land | | | | | | | | | | payables | | | | | | | | | +---------------+------------+----------+----------+----------+----------+----------+-------------+---------+ | Profit/(loss) | - | (1,077) | - | (357) | - | 115 | (287) | (1,606) | | before | | | | | | | | | | taxation | | | | | | | | | +---------------+------------+----------+----------+----------+----------+----------+-------------+---------+ | Taxation | | | | | | | (113) | (113) | +---------------+------------+----------+----------+----------+----------+----------+-------------+---------+ | Retained | - | (1,077) | - | (357) | - | 115 | (400) | (1,719) | | profit/(loss) | | | | | | | | | +---------------+------------+----------+----------+----------+----------+----------+-------------+---------+ Other information at 31 December 2007: +-------------+------------+----------+----------+----------+----------+----------+-------------+---------+ | | Commercial | City | Suburban | Ski | Coastal | Other | Unallocated | Total | | | | centre | | resort | resort | | | | +-------------+------------+----------+----------+----------+----------+----------+-------------+---------+ | | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 | +-------------+------------+----------+----------+----------+----------+----------+-------------+---------+ | | | | | | | | | | +-------------+------------+----------+----------+----------+----------+----------+-------------+---------+ | Assets | - | 21,238 | - | 6,919 | 6,733 | 16 | 26,098 | 61,004 | +-------------+------------+----------+----------+----------+----------+----------+-------------+---------+ | | | | | | | | | | +-------------+------------+----------+----------+----------+----------+----------+-------------+---------+ | Liabilities | - | 21,060 | - | 3,603 | 4,015 | - | 490 | 29,168 | +-------------+------------+----------+----------+----------+----------+----------+-------------+---------+ 6. RELATED PARTY TRANSACTIONS Brokers' fees and consulting services fees of GBP501,196 (2007:GBP3,000) were paid to members of the AG Capital Group in Bulgaria of which Christo Iliev is the chairman. In the period from 1 January 2008 until 17 September 2008 Ita McArdle was also a director of Simcocks Trust Limited ("STL"). During the period, an amount of GBP51,534 (2007: GBP112,837) was charged by STL in their capacity as administrators of the Company. In the period from 1 January 2008 until 17 September 2008 Rolandon Securities Limited (a company controlled by John Dodwell) was paid a fee of GBP5,500 (2007:GBP8,000) plus VAT for accounting work relating to the 2007 Report and Accounts (2007: March 2007 Placing). As at the balance sheet date, there was an intra-group balance of GBP37,618,877 (2007: GBP15,249,788) between the Company and its subsidiary. This amount is eliminated on consolidation. These sums were lent to provide the subsidiary with working capital. The amount of fixed interest charged in the year was GBP1,534,745 (2007:GBP914,540). Remuneration of key management personnel The remuneration of the Directors, who are the key management personnel of the Group, is set out in note 8 in aggregate for each of the categories specified in IAS 24 Related Party Disclosures. 7. EXPENSES BY NATURE +-----------------------------------------+---------+---------+ | | | | +-----------------------------------------+---------+---------+ | | 2008 | 2007 | +-----------------------------------------+---------+---------+ | | Group | Group | +-----------------------------------------+---------+---------+ | | GBP'000 | GBP'000 | +-----------------------------------------+---------+---------+ | | | | +-----------------------------------------+---------+---------+ | Within cost of sales | | | +-----------------------------------------+---------+---------+ | Write-down of inventory to net | 19,715 | - | | realisable value | | | +-----------------------------------------+---------+---------+ | Cost of developments sold in the year | 2,627 | - | +-----------------------------------------+---------+---------+ | | | | +-----------------------------------------+---------+---------+ | Within administrative expenses | | | +-----------------------------------------+---------+---------+ | Auditors' fees for audit services | 75 | 70 | +-----------------------------------------+---------+---------+ | Depreciation | 53 | 40 | +-----------------------------------------+---------+---------+ | Employee costs (see note 8) | 408 | 252 | +-----------------------------------------+---------+---------+ | Directors' costs (see note 8) | 505 | 629 | +-----------------------------------------+---------+---------+ | Foreign exchange gain | 397 | 962 | +-----------------------------------------+---------+---------+ Included within audit fees above is an amount of GBP20,000 (2007: GBP4,000), relating to fees payable to BDO AKERO Ltd., an affiliate of the Group's auditors, for the audit of the subsidiaries. 8. EMPLOYEE COSTS +-----------------------------------------+---------+---------+ | | 2008 | 2007 | +-----------------------------------------+---------+---------+ | | Group | Group | +-----------------------------------------+---------+---------+ | | GBP'000 | GBP'000 | +-----------------------------------------+---------+---------+ | | | | +-----------------------------------------+---------+---------+ | Wages and salaries (excluding | 363 | 226 | | directors) | | | +-----------------------------------------+---------+---------+ | Social security costs | 45 | 26 | +-----------------------------------------+---------+---------+ The monthly average number of employees in the Group was 33 (2007: 18), including executive directors. The executive directors are considered to be the key management. Details of the directors' remuneration are as follows: +-----------+----------+--------------+-----------+--+---------+-------------+--------------+---------+ | | Year ended 31 December 2008 | Year ended 31 December 2007 | +-----------+----------------------------------------+------------------------------------------------+ | | Basic | Compensation | Total | | Basic | Performance | Compensation | Total | +-----------+----------+--------------+-----------+--+---------+-------------+--------------+---------+ | | salary | for | | | salary | bonus | for | | | | | loss | | | | | loss | | | | | of | | | | | of | | | | | office | | | | | office | | +-----------+----------+--------------+-----------+--+---------+-------------+--------------+---------+ | | GBP'000 | GBP'000 | GBP'000 | | GBP'000 | GBP'000 | GBP'000 | GBP'000 | +-----------+----------+--------------+-----------+--+---------+-------------+--------------+---------+ | | | | | | | | | | +-----------+----------+--------------+-----------+--+---------+-------------+--------------+---------+ | P | 44 | - | 44 | | 37 | - | - | 37 | | Sjöberg* | | | | | | | | | +-----------+----------+--------------+-----------+--+---------+-------------+--------------+---------+ | C Iliev | 167 | - | 167 | | 140 | 111 | - | 251 | +-----------+----------+--------------+-----------+--+---------+-------------+--------------+---------+ | D Savov | 99 | - | 99 | | 75 | 45 | - | 120 | +-----------+----------+--------------+-----------+--+---------+-------------+--------------+---------+ | A Daw* | 24 | - | 24 | | - | - | - | - | +-----------+----------+--------------+-----------+--+---------+-------------+--------------+---------+ | D Popov | 30 | - | 30 | | 30 | - | - | 30 | +-----------+----------+--------------+-----------+--+---------+-------------+--------------+---------+ | H Klotz | 20 | - | 20 | | 20 | - | - | 20 | +-----------+----------+--------------+-----------+--+---------+-------------+--------------+---------+ | J Green* | 6 | - | 6 | | - | - | - | - | +-----------+----------+--------------+-----------+--+---------+-------------+--------------+---------+ | J | 30 | 41 | 71 | | 47 | 31 | - | 78 | | Dodwell* | | | | | | | | | +-----------+----------+--------------+-----------+--+---------+-------------+--------------+---------+ | I | 22 | 8 | 30 | | 37 | - | - | 37 | | McArdle | | | | | | | | | +-----------+----------+--------------+-----------+--+---------+-------------+--------------+---------+ | V N | 14 | - | 14 | | 16 | - | - | 16 | | Vassilev | | | | | | | | | +-----------+----------+--------------+-----------+--+---------+-------------+--------------+---------+ | E | - | - | - | | 8 | - | 10 | 18 | | Olympitis | | | | | | | | | +-----------+----------+--------------+-----------+--+---------+-------------+--------------+---------+ | M | - | - | - | | 9 | - | 13 | 22 | | Cassidy | | | | | | | | | +-----------+----------+--------------+-----------+--+---------+-------------+--------------+---------+ | | | | | | | | | | +-----------+----------+--------------+-----------+--+---------+-------------+--------------+---------+ | Total | 456 | 49 | 505 | | 419 | 187 | 23 | 629 | +-----------+----------+--------------+-----------+--+---------+-------------+--------------+---------+ * Payments were made to companies connected with them 9. PROPERTY, PLANT AND EQUIPMENT +----------------------------------+----------+-----------+-----------+---------+---------+ | | Motor | Office | | | | +----------------------------------+----------+-----------+-----------+---------+---------+ | GROUP | vehicles | equipment | Computers | Other | Total | | | | | | | | +----------------------------------+----------+-----------+-----------+---------+---------+ | | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 | +----------------------------------+----------+-----------+-----------+---------+---------+ | At cost | | | | | | +----------------------------------+----------+-----------+-----------+---------+---------+ | 1 January 2008 | 111 | 30 | 22 | 20 | 183 | +----------------------------------+----------+-----------+-----------+---------+---------+ | | | | | | | +----------------------------------+----------+-----------+-----------+---------+---------+ | Acquired in year | 71 | 2 | 14 | 14 | 101 | +----------------------------------+----------+-----------+-----------+---------+---------+ | Disposed of in year | (59) | - | (2) | - | (61) | +----------------------------------+----------+-----------+-----------+---------+---------+ | Total 31 December 2008 | 123 | 32 | 34 | 34 | 223 | +----------------------------------+----------+-----------+-----------+---------+---------+ | | | | | | | +----------------------------------+----------+-----------+-----------+---------+---------+ | Depreciation | | | | | | +----------------------------------+----------+-----------+-----------+---------+---------+ | At 1 January 2008 | (37) | (5) | (10) | (2) | (54) | +----------------------------------+----------+-----------+-----------+---------+---------+ | | | | | | | +----------------------------------+----------+-----------+-----------+---------+---------+ | Charge for year | (30) | (5) | (14) | (4) | (53) | +----------------------------------+----------+-----------+-----------+---------+---------+ | Disposed of in year | 32 | 0 | 2 | 0 | 34 | +----------------------------------+----------+-----------+-----------+---------+---------+ | Total 31 December 2008 | (35) | (10) | (22) | (6) | (73) | +----------------------------------+----------+-----------+-----------+---------+---------+ | | | | | | | +----------------------------------+----------+-----------+-----------+---------+---------+ | Net book value - 31 December | 88 | 22 | 12 | 28 | 150 | | 2008 | | | | | | +----------------------------------+----------+-----------+-----------+---------+---------+ | | | | | | | +----------------------------------+----------+-----------+-----------+---------+---------+ | | | | | | | +----------------------------------+----------+-----------+-----------+---------+---------+ | For the year ended 31 December | | | | | | | 2007 | | | | | | +----------------------------------+----------+-----------+-----------+---------+---------+ | | Motor | Office | | | | +----------------------------------+----------+-----------+-----------+---------+---------+ | GROUP | vehicles | equipment | Computers | Other | Total | | | | | | | | +----------------------------------+----------+-----------+-----------+---------+---------+ | | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 | +----------------------------------+----------+-----------+-----------+---------+---------+ | At cost | | | | | | +----------------------------------+----------+-----------+-----------+---------+---------+ | 1 January 2007 | 80 | 19 | 7 | 8 | 114 | +----------------------------------+----------+-----------+-----------+---------+---------+ | | | | | | | +----------------------------------+----------+-----------+-----------+---------+---------+ | Acquired in year | 31 | 11 | 15 | 12 | 69 | +----------------------------------+----------+-----------+-----------+---------+---------+ | Total 31 December 2007 | 111 | 30 | 22 | 20 | 183 | +----------------------------------+----------+-----------+-----------+---------+---------+ | | | | | | | +----------------------------------+----------+-----------+-----------+---------+---------+ | Depreciation | | | | | | +----------------------------------+----------+-----------+-----------+---------+---------+ | At 1 January 2007 | (11) | (1) | (1) | (1) | (14) | +----------------------------------+----------+-----------+-----------+---------+---------+ | | | | | | | +----------------------------------+----------+-----------+-----------+---------+---------+ | Charge for year | (26) | (4) | (9) | (1) | (40) | +----------------------------------+----------+-----------+-----------+---------+---------+ | Total 31 December 2007 | (37) | (5) | (10) | (2) | (54) | +----------------------------------+----------+-----------+-----------+---------+---------+ | | | | | | | +----------------------------------+----------+-----------+-----------+---------+---------+ | Net book value - 31 December | 74 | 25 | 12 | 18 | 129 | | 2007 | | | | | | +----------------------------------+----------+-----------+-----------+---------+---------+ 10. INVENTORIES +-----------------------------------------+---------+---------+ | | 2008 | 2007 | +-----------------------------------------+---------+---------+ | | Group | Group | +-----------------------------------------+---------+---------+ | | GBP'000 | GBP'000 | +-----------------------------------------+---------+---------+ | | | | +-----------------------------------------+---------+---------+ | Inventories consist of: | | | +-----------------------------------------+---------+---------+ | Interests in land held for development | 47,630 | 31,868 | +-----------------------------------------+---------+---------+ | Developments in progress | 2,946 | 3,038 | +-----------------------------------------+---------+---------+ | Total inventories | 50,576 | 34,906 | +-----------------------------------------+---------+---------+ Included in inventories is GBP393,000 (2007:GBP 39,000) of bank interest. 11. TRADE AND OTHER RECEIVABLES +----------------------+--------------+--------------+--------------+--------------+ | | 2008 | 2008 | 2007 | 2007 | +----------------------+--------------+--------------+--------------+--------------+ | | Group | Company | Group | Company | +----------------------+--------------+--------------+--------------+--------------+ | | GBP'000 | GBP'000 | GBP'000 | GBP'000 | +----------------------+--------------+--------------+--------------+--------------+ | Prepayments | 61 | 18 | 480 | 13 | +----------------------+--------------+--------------+--------------+--------------+ | Trade and other | 1,328 | - | 1,352 | - | | receivables | | | | | +----------------------+--------------+--------------+--------------+--------------+ | Other taxes | 720 | 71 | - | - | | recoverable | | | | | +----------------------+--------------+--------------+--------------+--------------+ | | | | | | +----------------------+--------------+--------------+--------------+--------------+ | Total | 2,109 | 89 | 1,832 | 13 | +----------------------+--------------+--------------+--------------+--------------+ | | | | | | +----------------------+--------------+--------------+--------------+--------------+ 12. CASH AND CASH EQUIVALENTS +----------------------+--------------+--------------+--------------+--------------+ | | 2008 | 2008 | 2007 | 2007 | +----------------------+--------------+--------------+--------------+--------------+ | | Group | Company | Group | Company | +----------------------+--------------+--------------+--------------+--------------+ | | GBP'000 | GBP'000 | GBP'000 | GBP'000 | +----------------------+--------------+--------------+--------------+--------------+ | Bank balances | | | | | +----------------------+--------------+--------------+--------------+--------------+ | - in Sterling | 9,057 | 9,057 | 11,800 | 11,800 | +----------------------+--------------+--------------+--------------+--------------+ | - in Euros | 1,072 | - | 12,221 | 9,085 | +----------------------+--------------+--------------+--------------+--------------+ | - in Bulgarian Lev | 123 | - | 116 | - | +----------------------+--------------+--------------+--------------+--------------+ | Cash and cash | 10,252 | 9,057 | 24,137 | 20,885 | | equivalents | | | | | +----------------------+--------------+--------------+--------------+--------------+ 13. SHARE CAPITAL AND SHARE PREMIUM +-----------------------------------------+------------------------+------------+ | | Number of ordinary | GBP'000 | | | shares of GBP0.01p | | | | each | | +-----------------------------------------+------------------------+------------+ | Authorised at 31 December 2007 and 31 | 100,000,000 | 1,000 | | December 2008 | | | +-----------------------------------------+------------------------+------------+ | Issued at 31 December 2007 and 31 | 40,000,000 | 400 | | December 2008 | | | +-----------------------------------------+------------------------+------------+ Under a management incentive arrangement, the Company has entered into an agreement with Real Estate International Solutions LLC ('REIS') (a company controlled by Christo Iliev) whereby REIS is paid a performance fee calculated by reference to shareholder total return in each of the five years following the March 2006 flotation. The total return is calculated by reference to the increase in the share price (above the 100p placing prices) during the twelve month period ending on 27 March in each year plus any dividends paid in the period. A performance fee becomes payable only once the total return for the year exceeds 10%, with REIS being entitled to a fee equal to 20% of the excess. The performance fee would be settled up to 50% in cash (the amount to be determined by REIS, subject the Directors' approval in the light of the cash resources and needs of the Group) with the balance payable by the issue of shares (valued by reference to the average closing mid-market price over the preceding 20 business days). No performance fee arises in the year ended 31 December 2008 (2007: nil). 14. BASIC LOSS AND DILUTED LOSS PER SHARE Basic loss per share has been calculated by dividing the loss attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the period after taking into account the issue of 15 million shares on 14 March 2007. This gives a weighted average number of 40,000,000 shares (2007: 37,000,000 shares). There are no dilutive shares, share options or similar instruments in existence which might affect the calculation and therefore the diluted earnings per share are the same as basic earnings per share. +-----------------------------------------+----------------------+--------------+ | | 2008 | 2007 | +-----------------------------------------+----------------------+--------------+ | Group loss attributable to equity | (1,754) | (1,719) | | holders of the Company (GBP'000) | | | +-----------------------------------------+----------------------+--------------+ | Weighted number of ordinary shares in | 40,000 | 37,000 | | issue (thousands) | | | +-----------------------------------------+----------------------+--------------+ | Basic (loss) per share (p per share) | (4.39) | (4.65) | +-----------------------------------------+----------------------+--------------+ | Diluted (loss) per share (p per share) | (4.39) | (4.65) | +-----------------------------------------+----------------------+--------------+ 15. NON CURRENT LIABILITIES +----------------------+--------------+---------------+--------------+---------------+ | | | | | | +----------------------+--------------+---------------+--------------+---------------+ | | 2008 | 2008 | 2007 | 2007 | +----------------------+--------------+---------------+--------------+---------------+ | | Group | Company | Group | Company | +----------------------+--------------+---------------+--------------+---------------+ | | GBP'000 | GBP'000 | GBP'000 | GBP'000 | +----------------------+--------------+---------------+--------------+---------------+ | Deferred land | 11,830 | - | 24,663 | - | | payables | | | | | +----------------------+--------------+---------------+--------------+---------------+ | | | | | | +----------------------+--------------+---------------+--------------+---------------+ All of the above deferred payments are to be settled in Euros out of the proceeds of the sales of apartments to be built on the land. The Directors' estimates of the amounts payable (before discounting to fair value) are EUR15.9m (2007:EUR41.5m) (GBP15.5m at the exchange rate ruling at 31 December 2008, GBP30.7m at the exchange rate ruling at 31 December 2007). +----------------------+--------------+---------------+--------------+---------------+ | | 2008 | 2008 | 2007 | 2007 | +----------------------+--------------+---------------+--------------+---------------+ | | Group | Company | Group | Company | +----------------------+--------------+---------------+--------------+---------------+ | | GBP'000 | GBP'000 | GBP'000 | GBP'000 | +----------------------+--------------+---------------+--------------+---------------+ | Bank loan | 5,961 | - | - | - | +----------------------+--------------+---------------+--------------+---------------+ | | | | | | +----------------------+--------------+---------------+--------------+---------------+ The bank loan is secured on the buildings and land at Printing House held by BLD Office Park AD. It is repayable in instalments between 1 November 2010 and 28 March 2013, interest is charged at a rate of 3 month Euribor plus 1.9%. 16. TRADE AND OTHER PAYABLES +----------------------+--------------+---------------+--------------+---------------+ | | 2008 | 2008 | 2007 | 2007 | +----------------------+--------------+---------------+--------------+---------------+ | | Group | Company | Group | Company | +----------------------+--------------+---------------+--------------+---------------+ | | GBP'000 | GBP'000 | GBP'000 | GBP'000 | +----------------------+--------------+---------------+--------------+---------------+ | Social security and | 377 | - | - | - | | other taxes | | | | | +----------------------+--------------+---------------+--------------+---------------+ | Trade payables | 720 | 18 | 387 | 21 | +----------------------+--------------+---------------+--------------+---------------+ | Accruals | 69 | 69 | - | 285 | +----------------------+--------------+---------------+--------------+---------------+ | Payments on account | 768 | - | - | - | | by apartment buyers- | | | | | | refundable | | | | | +----------------------+--------------+---------------+--------------+---------------+ | Payments on account | 3,628 | - | 1,876 | - | | by apartment buyers- | | | | | | non-refundable | | | | | +----------------------+--------------+---------------+--------------+---------------+ | Total | 5,562 | 87 | 2,263 | 306 | +----------------------+--------------+---------------+--------------+---------------+ 17. EXCHANGE RATES The following exchange rates were used to translate assets and liabilities into the reporting currency at 31 December 2008. +------------------+--------------+ | Bulgarian Lev | 0.4989 | +------------------+--------------+ | Euro | 0.9758 | +------------------+--------------+ 18. TAXATION Isle of Man There is no taxation payable on the Company's results as it is based in the Isle of Man where, since 6 April 2006, the Corporate Income Tax rate for Isle of Man resident companies has been zero percent. Additionally, the Isle of Man does not levy tax on capital gains. Shareholders resident outside the Isle of Man will not suffer any income tax in the Isle of Man on any distributions made to them. Bulgaria Subsidiaries of the Company incorporated in Bulgaria are taxed in accordance with the applicable tax laws of Bulgaria. Bulgarian corporate tax for the year was 10% (2007: 10%) Withholding tax is levied on interest on inter-company loans and management charges payable by the Bulgarian subsidiaries to the Company. The applicable rate in the year was 10% (2007: 10%). As withholding tax cannot be utilised by the Company it has been charged to the profit and loss account. +-----------------------------------------+--------------+--------------+ | | 2008 | 2007 | +-----------------------------------------+--------------+--------------+ | | Group | Group | +-----------------------------------------+--------------+--------------+ | | GBP'000 | GBP'000 | +-----------------------------------------+--------------+--------------+ | Income tax expense | | | +-----------------------------------------+--------------+--------------+ | Recognised in the income statement | | | +-----------------------------------------+--------------+--------------+ | | | | +-----------------------------------------+--------------+--------------+ | Current tax expense: | | | +-----------------------------------------+--------------+--------------+ | - Bulgarian corporation tax on profits | 188 | - | | of the period | | | +-----------------------------------------+--------------+--------------+ | - Adjustment in respect of prior year - | (39) | - | | Bulgarian corporation tax | | | +-----------------------------------------+--------------+--------------+ | - Current year - withholding tax | 222 | 92 | +-----------------------------------------+--------------+--------------+ | - Adjustment in respect of prior year - | (91) | - | | withholding tax | | | +-----------------------------------------+--------------+--------------+ | | | | +-----------------------------------------+--------------+--------------+ | Deferred tax expense: | | | +-----------------------------------------+--------------+--------------+ | - Origination of temporary difference | 20 | 21 | +-----------------------------------------+--------------+--------------+ | Total income tax expense in the income | 300 | 113 | | statement | | | +-----------------------------------------+--------------+--------------+ | | | | +-----------------------------------------+--------------+--------------+ | Analysis of current tax expense | | | +-----------------------------------------+--------------+--------------+ | | | | +-----------------------------------------+--------------+--------------+ | (Loss) on ordinary activities before | (1,454) | (1,606) | | tax | | | +-----------------------------------------+--------------+--------------+ | | | | +-----------------------------------------+--------------+--------------+ | Tax calculated at blended rates | 47 | (13) | +-----------------------------------------+--------------+--------------+ | Income not taxable | (19) | - | +-----------------------------------------+--------------+--------------+ | Expenses not deductible for tax | 199 | 15 | | purposes | | | +-----------------------------------------+--------------+--------------+ | Accelerated capital allowances | 1 | 2 | +-----------------------------------------+--------------+--------------+ | Other timing differences | 8 | 68 | +-----------------------------------------+--------------+--------------+ | Items in income statement subjected to | (31) | - | | withholding tax | | | +-----------------------------------------+--------------+--------------+ | Prior period losses utilised | (17) | (72) | +-----------------------------------------+--------------+--------------+ | Current tax charge for the period | 188 | - | +-----------------------------------------+--------------+--------------+ | | | | +-----------------------------------------+--------------+--------------+ 19. FINANCIAL INSTRUMENTS The Group's activities expose it to a variety of financial risks: market risk (including currency risk and price risk), credit risk, liquidity risk and cash flow interest rate risk. Categories of financial assets and financial liabilities +----------------------------------+----------+---------------+------------+-----------+------------+----+ | | | Group | Company | Group | Company | | | | | 2008 | 2008 | 2007 | 2007 | | | | | GBP'000 | GBP'000 | GBP'000 | GBP'000 | | +----------------------------------+----------+---------------+------------+-----------+------------+----+ | | | | | | | | +----------------------------------+----------+---------------+------------+-----------+------------+----+ | Loans and receivables: | | | | | | | +----------------------------------+----------+---------------+------------+-----------+------------+----+ | Intra group receivables | | - | 37,619 | - | 16,615 | | +----------------------------------+----------+---------------+------------+-----------+------------+----+ | Trade and other receivables | | 1,328 | - | 1,352 | - | | +----------------------------------+----------+---------------+------------+-----------+------------+----+ | Cash and cash equivalents | | 10,252 | 9,057 | 24,137 | 20,885 | | +----------------------------------+----------+---------------+------------+-----------+------------+----+ | Total current financial assets | | 11,580 | 46,676 | 25,489 | 37,500 | | +----------------------------------+----------+---------------+------------+-----------+------------+----+ | | | | | | | | +----------------------------------+----------+---------------+------------+-----------+------------+----+ | Total financial assets | | 11,580 | 46,676 | 25,489 | 37,500 | | +----------------------------------+----------+---------------+------------+-----------+------------+----+ | | | | | | | | +----------------------------------+----------+---------------+------------+-----------+------------+----+ | Other financial liabilities | | | | | | | +----------------------------------+----------+---------------+------------+-----------+------------+----+ | | | | | | | | +----------------------------------+----------+---------------+------------+-----------+------------+----+ | Current financial liabilities: | | | | | | | +----------------------------------+----------+---------------+------------+-----------+------------+----+ | Trade and other payables | | 1,537 | 87 | 2,263 | 306 | | +----------------------------------+----------+---------------+------------+-----------+------------+----+ | Bank loans | | - | - | 2,130 | - | | +----------------------------------+----------+---------------+------------+-----------+------------+----+ | Total current financial | | 1,537 | 87 | 4,393 | 306 | | | liabilities | | | | | | | +----------------------------------+----------+---------------+------------+-----------+------------+----+ | | | | | | | | +----------------------------------+----------+---------------+------------+-----------+------------+----+ | Non-current financial | | | | | | | | liabilities: | | | | | | | +----------------------------------+----------+---------------+------------+-----------+------------+----+ | Deferred land payables | | 11,830 | - | 24,663 | - | | +----------------------------------+----------+---------------+------------+-----------+------------+----+ | Bank loans | | 5,961 | - | - | - | | +----------------------------------+----------+---------------+------------+-----------+------------+----+ | Total non-current financial | | 17,791 | - | 24,663 | - | | | liabilities | | | | | | | +----------------------------------+----------+---------------+------------+-----------+------------+----+ | | | | | | | | +----------------------------------+----------+---------------+------------+-----------+------------+----+ | Total financial liabilities | | 19,328 | 87 | 29,056 | 306 | | +----------------------------------+----------+---------------+------------+-----------+------------+----+ | | | | +----------------------------------+----------+---------------+------------+-----------+------------+----+ Market risk Property and property related assets are inherently difficult to value due to the individual nature of each property. The current property market recession could materially adversely affect the value of properties being developed by the Group and, by inference, the estimate relating to the liability for deferred land payables. Agreements which include a deferred land payable are drafted so that in the event of a fall in property values the deferred liability would also fall, albeit by a lower amount. A 5% change in the selling price of the developed property would result in approximately a 7% change in the deferred land payable. Foreign exchange risk Group The Group's operations are conducted in jurisdictions which generate revenue, expenses, assets and liabilities in currencies other than Sterling. As a result, the Group is subject to the effects of exchange rate fluctuations with respect to these currencies. The currencies giving rise to this risk are primarily Bulgarian Lev and Euros. The Bulgarian Lev has been pegged at a rate of 1.95583 to the Euro since 1997. The Group's real estate assets are valued in Euros and the Group's bank and other borrowings are also denominated in Euros, thereby providing a natural hedge. During the year ended 31 December 2008 the Group altered its policy from placing 50% of temporarily surplus cash on deposit in Euros to placing it all in Sterling to reduce risk ahead of the possibility of returning cash to shareholders. The Directors do not at present think it appropriate to adopt any currency hedging risk strategy. The Bulgarian Lev amounts relate to cash, and other debtors and creditors. The Euro amount relates to properties, deferred land payables and cash held on deposit less a bank loan. The Sterling amount relates to cash held on deposit. The Board's strategy on foreign exchange risk is as follows. The Board considers that shareholders are aware that the Group's principal activities take place in Bulgaria and thus shareholders are aware that they are investing in a group whose property assets are denominated in Euros. As the Group increases its activities, more of its assets will be in Euro denominated assets. The Board does not consider it appropriate to enter into Euro/Sterling hedging arrangements, considering that this is a matter for shareholders to undertake if they do not wish to have a currency rate exposure to the Euro. An increase or reduction in the sterling/Euro exchange rate of EUR0.01 would result in an exchange gain/loss of GBP0.297m. Company The intra group loans are all denominated in Euro to provide a natural hedge in Bulgaria against currency movements as the property market is transacted in Euros. This creates an exchange risk in the Company. An increase or reduction in the sterling/Euro exchange rate of EUR0.01 would result in an exchange gain/loss of GBP0.367m. Price risk The Group's policy on mitigating risk on property prices is explained in "market risk" above. Credit risk The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the balance sheet. Management does not expect any counterparty to fail to meet its obligations although it constantly reviews this risk in the ongoing market conditions. The Board has chosen to use UK banking groups during the year. The Group does not provide credit to apartment purchasers after legal title has passed. In the event of a forward purchaser of an apartment failing to meet its contractual commitments the Group would retain the deposit (if a loss was expected from a subsequent sale) and be able to place the apartment back on the market. If the Group does not complete a development any initial deposit made by a prospective purchaser would be refundable. The Group does not let any properties and so has no credit risk exposure to tenants. Liquidity risk The Company maintains sufficient cash balances for working capital and obtains secured bank loans to fund the development of properties. The Board regularly reviews long term cash flow projections and is thus able to consider if the Group has adequate cash resources for its proposed activities, taking into account expected outgoings and expected receipts; in doing so, the Board takes into account the need to pay overheads during development periods. At 31 December 2008, the Group's share of the joint venture's bank loan amounted to GBP5,961,0000, relating to and secured on its Printing House project (2007: GBP2,130,000 Harmony Hills, repaid in full during 2008). The loan is repayable between 1 November 2010 and 28 March 2013. Loan and deferred land payables maturity +--------------------------+------+----------+--------+----------+ | Group | | 2008 | | 2007 | +--------------------------+------+----------+--------+----------+ | | | GBP'000 | | GBP'000 | +--------------------------+------+----------+--------+----------+ | | | | | | +--------------------------+------+----------+--------+----------+ | Less than one year | | - | | 2,130 | +--------------------------+------+----------+--------+----------+ | 1-2 years | | 2,986 | | 1,595 | +--------------------------+------+----------+--------+----------+ | 2-5 years | | 18,475 | | 29,146 | +--------------------------+------+----------+--------+----------+ | Total | | 21,461 | | 32,871 | +--------------------------+------+----------+--------+----------+ Interest rate risk The Company is exposed to risks associated with the effects of fluctuations in prevailing market interest rates on its cash balances and borrowings. Cash is invested at short-term market interest rates. The Group has an interest bearing development loan repayable out of sale proceeds. The Group does not at present expect to have any long term investment loans. The Group has decided at present not to cap interest rates or otherwise seek to limit the adverse impact of an increase in interest rates. This strategy will be kept under review. If interest rates in the period under review had been 10% higher or lower, then the effect on interest receivable would have been plus or minus GBP85,000. Fair values The carrying values of all financial assets and liabilities are not considered to be materially different to their fair values. Capital management The Group manages its capital to ensure that the entities in the Group will be able to continue as a going concern whilst seeking to maximise shareholder value. The capital structure of the Group at 31 December 2008 consists of cash and cash equivalents and equity attributable to equity holders of the parent, comprising issued share capital, reserves and retained earnings. 20. SUBSIDIARIES At 31 December 2008, the Company had the following subsidiaries, all of which are incorporated in Bulgaria: +----------------------------------+-----------+-------------+----------------------------------------+ | Name of company | Holding | Proportion | Nature of business | | | | held | | +----------------------------------+-----------+-------------+----------------------------------------+ | | | | | +----------------------------------+-----------+-------------+----------------------------------------+ | Bulgarian Land Development EAD | Ordinary | 100% | Residential property development | | | Shares | | | +----------------------------------+-----------+-------------+----------------------------------------+ | BLD Sofia Tower AD | Ordinary | 99.8% | Residential property development | | | Shares | | | +----------------------------------+-----------+-------------+----------------------------------------+ | BLD Borovets EAD | Ordinary | 100% | Residential property development | | | Shares | | | +----------------------------------+-----------+-------------+----------------------------------------+ | BLD Kavarna EAD | Ordinary | 100% | Residential property development | | | Shares | | | +----------------------------------+-----------+-------------+----------------------------------------+ | BLD Vladaya EAD | Ordinary | 100% | Residential property development | | | Shares | | | +----------------------------------+-----------+-------------+----------------------------------------+ | Iamiste Eko Selena EOOD | Ordinary | 100% | Residential property development | | | Shares | | | +----------------------------------+-----------+-------------+----------------------------------------+ | Palakaria Fauna EOOD | Ordinary | 100% | Residential property development | | | shares | | | +----------------------------------+-----------+-------------+----------------------------------------+ | Kalna Bara EOOD | Ordinary | 100% | Residential property development | | | shares | | | +----------------------------------+-----------+-------------+----------------------------------------+ | Redako Agro EOOD | Ordinary | 100% | Residential property development | | | shares | | | +----------------------------------+-----------+-------------+----------------------------------------+ | Mogilite Bio EOOD | Ordinary | 100% | Residential property development | | | shares | | | +----------------------------------+-----------+-------------+----------------------------------------+ 21. JOINT VENTURE During the year the Group took a 50% interest in a jointly controlled entity, BLD Office Park AD, which has been accounted for by proportional consolidation. The following amounts have been recognised in the Group's consolidated balance sheet relating to this jointly controlled entity: +----------------------------------+----------+-------------+ | | | 2008 | +----------------------------------+----------+-------------+ | | | GBP'000 | +----------------------------------+----------+-------------+ | Revenue | | - | +----------------------------------+----------+-------------+ | Administrative expenses | | (114) | +----------------------------------+----------+-------------+ | Operating loss | | (114) | +----------------------------------+----------+-------------+ | Finance income | | 1 | +----------------------------------+----------+-------------+ | Loss before and after taxation | | (113) | +----------------------------------+----------+-------------+ | | | | +----------------------------------+----------+-------------+ | Current assets | | 12,468 | +----------------------------------+----------+-------------+ | | | | +----------------------------------+----------+-------------+ | Current liabilities | | 6,556 | +----------------------------------+----------+-------------+ | Non-current liabilities | | 6,037 | +----------------------------------+----------+-------------+ | Total liabilities | | 12,593 | +----------------------------------+----------+-------------+ | | | | +----------------------------------+----------+-------------+ | Net liabilities | | (125) | +----------------------------------+----------+-------------+ | | | | +----------------------------------+----------+-------------+ 22. INCOME STATEMENT OF THE PARENT COMPANY In accordance with Section 3(5) (b) (ii) of the Companies Act 1982, the Company is exempt from the requirement to present its own income statement. The retained profit for the parent company for the year was GBP9,483,000 (2007: GBP1,543,000). This information is provided by RNS The company news service from the London Stock Exchange END FR CKCKNNBKBANK
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