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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Itacare Capital | LSE:ITA | London | Ordinary Share | VGG497051091 | COM SHS USD0.01 (DI) |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 0.27 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
TIDMITA
RNS Number : 4466B
Itacare Capital Investments Ltd
17 April 2012
Hot Features
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Date: 17 April 2012
On behalf of: Itacare Capital Investments Ltd ("Itacare")
or "the Group")
Embargoed until: 0700hrs
Itacare Capital Investments Ltd
Audited Results for the year ended 31 December 2011
Itacare Capital Investments Limited, a real estate investment company focused on high-end residential resorts in Brazil, today announces its final audited results for the year ended 31 December 2011.
Despite the valuation of investment properties held for development collectively appreciating in local R$ currency, the results are negatively impacted by the 11.5% movement in the exchange rate over the period.
Highlights
-- Total asset value* of $92.3 million (2010: $103.7 million)
-- Basic Net Asset Value* per share of $1.01 (2010: $1.11) - including cash and cash equivalents of $4.8 million.
-- Valuation of investment properties held for development collectively showing value gains in local R$ currency.
-- Year end balance sheet reflects zero debt at a Company and asset level but advantageous development debt terms currently in negotiation on schemes likely to commence build in the next 12 months
-- The Company intends to place some or all of its 11 million treasury shares in order to increase cash headroom
-- Economic fundamentals in Brazil remain strong, underpinning sustained demand for the Company's assets.
-- Build permits issued for Trancoso project, planning permission achieved on Duas Barras and Tres Praias, with off-plan sales due to commence in Q2 2012 for Trancoso and on the other 2 projects within the next 12 months.
*The strength of the Dollar from Dec 10 (1.6704) to Dec 11 (1.863) reflects movement of 11.5% in the year, negatively impacting the Company's Dollar valuation of investment properties valued in local currency.
Commenting, Michael St Aldwyn, Chairman of Itacare Capital, said:
"The demand for second homes in Brazil continues unabated as the economy has continued to expand, albeit at a somewhat slower pace. This is reflected in the valuation of our investment properties held for development which shows gains in local R$ currency and is independent confirmation that we are in the right market, at the right time with three development opportunities with great potential. The fundamental position of the Company is solid and prospects look positive but the year ended 31 December 2011 has been challenging."
For further information:
Itacare Capital Investments Tel: +44 (0)20 7245 4632 Chairman, Michael St. Aldwyn Itacare Capital Partners Tel: +55 11 2678 0800 Investment Manager, Pedro de Miranda Duet Private Equity Tel: +44 (0)20 8959 8534 Investment Advisor, David Mattey Cenkos Securities Tel: +44 (0)20 7397 8962 Stephen Keys, Adrian Hargrave (Nominated adviser) Russell Kerr, Alex Aylen (Sales) Redleaf Polhill Tel: +44 (0)20 7566 6720 Emma Kane, Henry Columbine E: itacare@redleafpolhill.com
Notes to Editors:
-- Itacare Capital Investments Limited is a real estate investment company focused on tourism-real estate developments in Brazil. The Company acquires large parcels of land at strategic locations that can be developed and sold to end users with the intention of achieving a minimum IRR of 25 per cent.
-- The Company invests in projects at an early development stage or in strategic land sites that can be acquired at a discount to open market value at current usage.
-- Itacare Capital focuses on beachfront parcels with particular geographic characteristics that maximize sea views and reduce the need for expensive landscaping thus translating into higher margin.
-- Itacare Capital aims to create a development that is better than the best quality development in the local area in order to achieve maximum pricing power.
-- Itacare Capital focuses on high quality residential developments that typically include a number of holiday or second home units, luxury hotels and leisure components. Approximately 70% of our portfolio is targeted to domestic buyers.
-- Further information is available at www.itacarecapital.com
CHAIRMAN'S REPORT
The fundamental position of the Company is solid and prospects look positive but the year ended 31 December 2011 has been challenging.
The demand for second homes in Brazil continues unabated as the economy has continued to expand (albeit at a somewhat slower pace). This is reflected in the valuation of our investment properties held for development which collectively show value gains in local R$ currency and is independent confirmation that we are in the right market, at the right time with three development opportunities with good potential.
Delays experienced with the planning authorities are very much a part of doing business in Brazil and these have been the source of considerable frustration to the Investment Manager. Significant progress was made on the planning of our developments and our pre-sales activity has given positive indications of demand. However, we did not succeed in launching any projects during the year due to delays in securing the requisite planning consents, contrary to our expectations; at the time of writing we are looking to initiate sales of the Bahia Beach project in the second quarter of this year and of the Tres Praias project in the first quarter of 2013.
Financial Results
The results for the year ended 31 December 2011 reflect a basic net asset value per share of $1.01. This is lower than the $1.11 value at the end of 2010 when the Real/Dollar exchange rate stood at 1.6704. Due to the relative strength of the Dollar, which ended 2011 with an exchange rate of 1.863, our investment assets, which are all valued in Brazilian Reais, were impacted by the 11.5% fluctuation.
Total asset value was $92.3 million (2010: $103.7 million), Basic Net Asset Value per share is $1.01 (2010: $1.11) including cash and cash equivalents of $4.8 million.
The Company incurred a loss of $10.8 million for the year compared to a profit of $2.7 million for 2010 which reflects the unrealised valuation loss on the investment properties as well as the annual administration costs of the Company, which were in line with Board expectations.
The Company has no debt and at year-end 2011 held $4.8 million of cash reserves (2010: $7.2 million). The Board has decided that, given the delays experienced in launching the Company's projects, it is prudent to increase its cash reserves. In prior years the Company has opportunistically purchased its own shares back into Treasury when the Company has had surplus working capital. It has therefore determined to place some or all of its 11 million treasury shares through the Company's newly appointed Nomad/Broker, Cenkos Securities. This is in addition to the sale of other investment properties held by the Company which will be sold as and when market opportunities arise.
The Company's share price has remained at a stubborn discount to NAV but the combination of activity by our newly appointed advisers has resulted in some more regular trading starting to occur.
Independent Valuer
Cushman & Wakefield ("C&W") was appointed as the Company's independent valuer in June 2011. In the course of their preparation for the current valuations they identified an error in their initial computation for the June 2011 valuation; the consequence is that they overstated the Company's share of the total valuation by $6.2 million, and as a consequence the NAV which had been declared as $1.18 should have been $1.12 per share; the June 2011 numbers will be restated in the forthcoming June 2012 report.
Other Investment Properties
During the year the owner of the Warapuru project went into bankruptcy and the Board resolved to curtail any further costs other than monitoring that process and protecting the Company's interests. Bankruptcy in Brazil is a long process and it is unlikely that a clear resolution of this situation will emerge for at least three years. The adjoining site of Havaizinho is not part of the bankruptcy process and remains as a potential development site in its own right either for the Company or a third party.
People
I would like to once again express my appreciation of the efforts of my fellow Board members, the Investment Manager and the Investment Adviser, all of whom have made extremely valuable contributions during the year.
Outlook
Whilst it is frustrating that we have been unable to achieve sales in the year under review, this process will commence in the year ahead and initial response from our pre-marketing is positive. The Brazilian economy is the world's sixth largest and we remain confident that our target audience of high net worth individuals in the Brazilian domestic market will be highly attracted to our high-end product. The Company has a focused strategy on delivering the best possible value from its Active Projects and disposing of the other investment properties, and we look forward to the year ahead with confidence.
Michael St Aldwyn
Chairman
16 April 2012
INVESTMENT MANAGER'S REPORT
Despite some setbacks that are commonplace for real estate development companies in Brazil, the team's focus is to now to drive the portfolio to its next phase - sales.
Brazilian Economy
Brazil experienced a smooth transition of power last year with the inauguration of the new President, Dilma Rouseff. However, she has faced some challenges in reducing the Government budget and filling senior government roles based on merit. Her reaction to corruption scandals has been well received by Brazilians and her government currently enjoys a 70% approval rating. Even with a relatively uninspired year, in March 2012, Brazil's economy overtook the UK to become the world's sixth largest with a GDP of $2.48 trillion.
The economy lost steam in the second half of 2011, lagging behind other fast-growing emerging nations after a series of interest-rate hikes to curb inflation, which had hit a seven-year high. The Government has reacted forcibly to stimulate economic growth and stave off spillover effects from the euro zone debt crisis - Brazil's Central Bank cut rates from 12.5% in August 2011 to 9.75% in March 2012 with guidance to further cut rates; it also cut taxes and took protectionist measures to increase intervention in the foreign-exchange market to prevent its overvalued currency, the Real, from hurting local manufacturers; the Government also reduced taxes on manufactured products such as ovens and refrigerators to stoke demand for appliances.
The recovery is expected to gain momentum in 2012 and extend into 2013 based on a low unemployment rate, solid credit market and a slowdown in consumer price increases. Brazil targets inflation at 4.5%, with a leeway of plus or minus 2 percentage points. Consumer prices slowed down to 5.61% in the 12-months through March 2012 after reaching 6.5% in 2011.
Brazil's government promised aggressive new stimulus measures after data showed the economy grew just 2.7 per cent in 2011.
Unemployment remains near record lows and many Brazilians, especially those among the estimated 25 million who have joined the middle class over the past decade, continue to acquire houses, cars and household goods at an unprecedented pace.
The real estate sector continued to be very strong in all areas during the year with robust price increases observed in office and residential properties. In particular, two other new Fasano residential developments were launched, one in Punta del Este, Uruguay and the other in the Sao Paulo countryside, and both have been selling very well to wealthy Brazilians.
Portfolio Update
Starting in this reporting period, we begin segmenting our portfolio into Active Projects and Other Investment Properties with a view to give better visibility to investors on the main drivers of value within our portfolio.
The Active Projects comprise close to 90% of the reported NAV as at 31 December 2011.
Active Projects 89% Other Investment Properties 11% Tres Praias 43% Havaizinho 7% BB Trancoso 25% Warapuru 2 4% Duas Barras 21%
The tables below illustrate the value progression in the Company's five projects both in local currency and US Dollar equivalent. The Real depreciated by 11.5% during 2011, negatively impacting on our US Dollar reported numbers. Our Active Projects have collectively increased in local currency terms to R$143.8 million ($77.2 million), but that increase was not enough to offset the loss in the foreign exchange rate.
We continue to see growing consumer confidence and wealth creation in the country, which is reflected in the demand for residential properties. Our portfolio is currently mainly positioned for local buyers who are looking to purchase both primary and secondary homes in attractive locations.
Project Valuation Summary ($ m)
OTHER INVESTMENT
ACTIVE PROJECTS PROPERTIES
Warapuru
Tres Praias BB Trancoso Duas Barras Havaizinho 2
Entry Price 16.7 16.0 8.2 10.4 11.1
Valuation Dec-2008 22.6 17.1 15.5 12.2 10.4
Valuation Dec-2009 32.3 21.0 17.1 8.7 5.3
Valuation Dec-2010 38.9 24.5 20.0 6.6 5.0
Valuation Dec-2011 37.2 22.1 17.9 5.9 4.0
Project Valuation Summary (R$ m)
ACTIVE PROJECTS OTHER INVESTMENT PROPERTIES
Warapuru
Tres Praias BB Trancoso Duas Barras Havaizinho 2
Entry Price 29.7 27.4 15.5 17.9 19.8
Valuation Dec-2008 52.9 40.0 36.3 28.5 24.3
Valuation Dec-2009 56.0 36.5 29.8 15.1 9.2
Valuation Dec-2010 64.8 40.9 33.4 11.0 8.4
Valuation Dec-2011 69.3 41.2 33.3 11.0 7.4
The valuation of Tres Praias up to and including 31 December 2008 represents 100% ownership of the property. The 31 December 2009 and subsequent valuations represent the value after the sale of a portion of the site, 10% of the total area, for $3.2 million (R$6.5 million plus some development responsibilities for the entire site).
At Havaizinho, the 31 December 2009 and subsequent valuations account for 100% of the project and reflect the fact that the project may not be developed as a part of Warapuru.
ACTIVE PROJECTS
Tres Praias
The Company has invested $16.7 million in the Tres Praias residential project, situated in the state of Espirito Santo. The state is the leading producer of iron ore and steel slabs in the country; being home to the world's largest steel plant, ArcelorMittal Brasil. Vitoria, the capital city, is the largest steel-producing city in the world. The city has an important port for exporting iron ore and steel. In addition, Espirito Santo is an important oil and gas driller; a major granite producer, exporting the product worldwide, and the second largest producer of coffee and cellulose in the country.
Like many other states in Brazil, the tourism industry is also a prominent industry of Espirito Santo. The wonderful beaches and the picturesque mountain retreats attract a large number of tourists to the state.
Tres Praias is expected to benefit from a significant increase in the level of investment into the state, as more foreigners and locals move there to work in the oil and steel industries. Petrobras (NYSE: PBR), the government-owned oil company, is investing $6 billion over the next years in Espirito Santo, to expand production, and Vale (NYSE: VALE) is expected to invest up to $5 billion in a new steel facility. Of the 14 billion barrels confirmed of new oil reserves in 2008, 3.5 billion barrels of the light crude type are located off the coast of Espirito Santo. The expansion of the oil and steel business in the region is expected to contribute to further infrastructure developments, as well as the growth of the middle and upper classes and a resultant increase in demand for residential properties, including our own.
As announced in July 2009, the Company and its project partner, Brookfield Incorporacoes SA (BOVESPA: BISA3), one of Brazil's largest real estate developers ("Brookfield"), agreed new terms to the original investment agreement signed in December 2007. Brookfield acquired approximately nine hectares, or 10% of the entire site, for a cash consideration of R$6.5 million ($3.2 million) payable in three tranches. The final balance amounting to R$2.25million ($1.4 million) was received in July 2011. Under the amended agreement with Brookfield, in addition to the sale of 10% of the site, Brookfield is responsible for the master planning and preliminary licensing of the entire site and all related costs.
During the period, detailed engineering drawings for infrastructure and residential units have been completed. MEP, BMS, foundations, internal traffic and telecom studies have been completed for Phase 1. The Environmental Impact Study along with other required documentation for Phase 1 permits was submitted during the period. Despite efforts by Brookfield and the Company, the launch date for the Project was delayed by 6 months due to the complexity in the preparation of the environmental report and its analysis by the local authorities in addition to local strikes by certain government agencies.
The Tres Praias project targets only local buyers and C&W's residual valuation in local currency has increased from R$64.8 million to R$69.3 million. In US dollar terms the increase was offset by the currency devaluation, changing from $38.9 million to $37.2 million.
Trancoso - Bahia Beach
The Trancoso-Bahia Beach project is situated on a 293-hectare site with approximately 600 metres of beachfront. It is three kilometres from the village of Trancoso, Bahia and 47 km south of Porto Seguro International Airport, which is served by domestic and international charter flights. There is also a 1,500-metre paved landing strip located within a 15-minute drive from the project. The project will see the phased development of 177 residential units, a small 40-bungalow luxury hotel, a beach club, a spa and other amenities on the site.
In December 2010, Itacare Capital signed a Hotel Operating Agreement with Hotel Marco Internacional S.A., the operator of Fasano Hotels, a premium luxury brand in Brazil, and JHSF Participacoes S.A., the controlling shareholder of Fasano Hotels, for the development of Fasano Trancoso. The project team also comprises Hart Howerton, a London-based firm of master-planners, and Isay Weinfeld, the award-winning Brazilian architect.
On November 2011, the project received approval by the Municipality of Porto Seguro for the issuance of the Installation License and the Construction License for Phase 1 of the Project. Phase 1 comprises a 40-room Fasano hotel, restaurant, spa and 23 Fasano residential villas for sale, all located in the beachfront part of the site. The Installation License is a key value creating step in the development process. This license authorises (i) the master plan blueprints to be used in the Project, and (ii) the technical drawings for construction.
The Company is at the final stages of preparation of the condominium rules and incorporation documents and their registration with the Real Estate Registry, after which it will begin pre-sales of the Fasano residential villas.
C & W conducted a residual valuation analysis of the project recognising that it is likely to attract a good mix of wealthy Brazilians and foreign buyers. C&W also took into account the full impact of hotel construction, which on a standalone basis is slightly value dilutive, but positively impacted by a premium sales price anticipated in their valuation model for the Fasano-branded real estate. During the reporting period, the US dollar valuation of the Company's 50% share of the project decreased by 10% from $24.5 million to $22.1 million, which is largely a result of the depreciation of the local currency. The Real valuation rose from R$40.9m to R$41.2m. In the course of their preparation for the current valuation C&W identified an error in their initial computation for the June 2011 valuation; the consequence is that they overstated the Company's share of the total valuation by $6.2 million which will be restated in the forthcoming June 2012 report.
In the second half of 2011, the Project received pre-approval from Banco do Nordeste for a R$43mm loan for the construction of the hotel and related hospitality facilities of Phase 1. We have completed the additional studies required by pre-approval process and are waiting for the final loan term sheet.
Duas Barras
Duas Barras, in the state of Alagoas, is situated on a 200-hectare beachfront plot, which is divided into two main parts where villas will be located. The first is a relatively flat plateau that sits approximately 30 metres above sea level and offers panoramic ocean views. The second is a beach-level coconut plantation with access to close to 2.6 kilometres of white sandy beach.
Oscar Niemeyer, the famous Brazilian architect, designed a 40-room hotel and New York-based Field Operations prepared the master plan for the site. The project plan is split into two main phases. Phase 1 real estate will be clustered around the hotel complex, in order to facilitate the construction and the use of shared infrastructure. Phase 1 will include sea view villas and polo villas on the plateau, while the beachfront villas will be developed as part of Phase 2. The residential portion will consist of 54 villas for sale.
In February 2010, the project was approved by the State of Alagoas for the issuance of the preliminary license (Stage 1 permits). At the end of 2010, we received approval of the Implementation License, which is the next stage of permits (Stage 2A permits) for the construction of infrastructure that supports the project. During 2011 the Manager has been working to develop the detailed plans for the houses, buildings and common areas, as well as fulfilling the required environmental recuperation works that were a condition of the Stage 1 permits. In addition, we completed the registration process with Banco Do Nordeste (an arm of Brazilian Development Bank - BNDES) required for the bank loan and are now working on obtaining the financing pre-approval.
C & W valued the investment on a "Residual Valuation" basis. During the reporting period, our 50% share of the valuation decreased by 10.8% to $17.9 million as a result of the currency depreciation whilst the Real valuation remained almost the same (R$33.4 in 2010 to R$33.3 in 2011.)
OTHER INVESTMENT PROPERTIES
Our interests under 'Other Investment Properties' represent just 11% of the Company's investment portfolio and it is the Company's intention to dispose of them in an orderly manner.
Warapuru 2
The Company owns four parcels of land and a mortgage interest on 25% of the hotel facilities as a result of its investment in the project made in 2007. In May 2011, the Portuguese developer of this project was declared bankrupt and the project is half built. The Company is working with the other main creditor, a Brazilian Bank, in order to achieve a sale of the assets.
Given the potential decay of the partially built structures and the associated uncertainties with the timing of the solution of the bankruptcy and the completion of the project, C&W has valued the investment on an orderly liquidation basis being the amount for which the properties could be exchanged between knowledgeable, willing parties in an arm's length transaction basis with a resultant valuation of $3.97 million.
Havaizinho
The site comprises a 33-hectare land parcel adjacent to Warapuru, which has 860 metres of sea frontage and a small cove beach. It has lower levels of dense vegetation and it is zoned for tourism development.
The Company originally acquired this site in a 50:50 partnership with the developer of Warapuru. Once the developer ran into financial troubles, the Company assumed the remaining land payments and, in 2010, excluded the developer from the partnership. As a result the Company owns 100% of this site without being exposed to any potential claims from the developer's creditors.
C & W has valued Havaizinho at $5.9 million on a standalone basis, which is below our cost basis of $10.4 million. The Company is currently looking to sell this parcel of land or enter into a JV agreement with a developer.
Looking ahead
We expect to start taking villa reservations, and taking deposits for Trancoso/Bahia Beach during Q2 2012 when Real Estate registration will be complete, with a view to initiating construction in the second half of the year. Along with Tres Praias, which Brookfield expects to starting selling in the first quarter of 2013, we are pleased that our two largest projects by value start selling in the next twelve months. We are also actively looking at the sale of our other investment properties to further generate realisations for the Company.
Pedro P. de Miranda
Managing Director
Itacare Capital Partners Ltd
16 April 2012
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF ITACARE
CAPITAL INVESTMENTS LTD
We have audited the Group (consolidated) financial statements of Itacare Capital Investments Ltd. for the year ended 31 December 2011, which comprise the consolidated statement of comprehensive income, the consolidated statement of financial position, the consolidated statement of changes in equity, the consolidated cash flow statement, and related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.
This report is made solely to the Company's members, as a body, in accordance with BVI law. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditors
As explained more fully in the Directors' Responsibilities Statement , the directors are responsible for the preparation of the group financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the group financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors.
Scope of the audit of the financial statements
A description of the scope of an audit of financial statements is provided on the APB's website at www.frc.org.uk/apb/scope/private.cfm.
Opinion on financial statements
In our opinion the group financial statements:
-- give a true and fair view of the state of the group's affairs as at 31 December 2011 and of its loss for the year then ended; and
-- have been properly prepared in accordance with IFRSs as adopted by the European Union.
Opinion on other matter
In our opinion the information given in the Directors' Report for the financial year for which the group financial statements are prepared is consistent with the group financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
We are required to report to you if, in our opinion:
-- we have not received all the information and explanations we require for our audit.
PHILIP WESTERMAN
SENIOR STATUTORY AUDITOR
FOR AND ON BEHALF OF GRANT THORNTON UK LLP
STATUTORY AUDITOR, CHARTERED ACCOUNTANTS
16 APRIL 2012
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Notes 2011 2010
$ $
Gain on sale of part of
Tres Praias 8 - 95,056
Valuation gain on investment
properties 8 - 10,360,575
Valuation loss on investment
properties 8 (9,108,810) (3,830,000)
Management fees 2.11 (1,740,000) (1,740,000)
Other administration fees
and expenses 4 (2,000,749) (1,776,957)
Performance fee 2.11 (16,535) (21,647)
-------------
Total operating (loss)/profit (12,866,094) 3,087,027
Interest received 2.7 644,930 591,626
(Loss)/profit for the
year before tax (12,221,164) 3,678,653
Deferred tax 5 1,366,322 (979,586)
------------- ------------
(Loss)/profit for the year
attributable to owners of
the parent (10,854,842) 2,699,067
Other comprehensive income
Exchange differences on
translating foreign operations 2,275,254 709,217
Total comprehensive (loss)/income
attributable to owners of
the parent (8,579,588) 3,408,284
============= ============
Basic and diluted (loss)/earnings
per share 6 (0.13) 0.03
The accompanying notes are an
integral part of the statements
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
2011 2010
ASSETS Notes $ $
Non-current assets
Investment properties 8 87,103,500 95,000,000
Current Assets
Trade and other receivables 12 440,215 1,592,204
Cash and cash equivalents 14 4,766,450 7,155,281
------------
Total current assets 5,206,665 8,747,485
Total assets 92,310,165 103,747,485
============ ============
EQUITY
Capital and reserves attributable
to equity holders
Ordinary Shares 9 850,965 850,965
Share premium account 9 86,177,272 86,177,272
Retained earnings (3,805,994) 7,048,848
Foreign exchange reserve 2,831,247 555,992
------------ ------------
Total equity 86,053,490 94,633,077
------------ ------------
LIABILITIES
Non Current Liabilities
Deferred tax liability 5 3,176,175 4,542,497
Trade and other payables 13 1,152,500 2,701,461
------------
4,328,675 7,243,958
------------ ------------
Current Liabilities
Trade and other payables 13 1,928,000 1,870,450
------------
1,928,000 1,870,450
------------ ------------
Total liabilities 6,256,675 9,114,408
Total equity and liabilities 92,310,165 103,747,485
============ ============
Basic NAV per Share 10 $1.01 $1.11
These financial statements were approved by the Board on 16 April 2012 and signed on their behalf by: Michael St Aldwyn
The accompanying notes are an
integral part of the statements
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share Share Retained Foreign
Capital Premium Earnings Exchange Total
$ $ $ $ $
Balance at 1
January 2010 850,965 86,177,272 4,349,781 (153,225) 91,224,793
Profit for the
year - - 2,699,067 - 2,699,067
Other comprehensive
income
Foreign exchange
movement on investments
in foreign operations - - - 709,217 709,217
Balance at 31
December 2010 850,965 86,177,272 7,048,848 555,992 94,633,077
======== =========== ============= ========== =============
Balance at 1
January 2011 850,965 86,177,272 7,048,848 555,992 94,633,077
Loss for the
year - - (10,854,842) - (10,854,842)
Other comprehensive
income
Foreign exchange
movement on investments
in foreign operations - - - 2,275,255 2,275,255
Balance at 31
December 2011 850,965 86,177,272 (3,805,994) 2,831,247 86,053,490
======== =========== ============= ========== =============
The accompanying notes are an
integral part of the statements
CONSOLIDATED CASH FLOW STATEMENT
Note 2011 2010
$ $
Net (loss)/profit for the year (10,854,842) 2,699,067
Revaluation of investment properties 8 9,108,810 (6,530,575)
Decrease in receivables 1,151,989 977,985
(Decrease) in payables (1,491,411) (2,098,113)
Deferred taxation 5 (1,366,322) 979,586
Exchange differences on translating
foreign operations 2,275,254 709,217
------------- ------------
Net cash used in operating activities (1,176,521) (3,262,833)
Cashflows from investing activities
Purchase of investment properties (1,212,310) (4,119,425)
Disposal of investment properties - -
Net cash outflow from investing
activities (1,212,310) (4,119,425)
------------- ------------
Net decrease in cash and cash equivalents (2,388,831) (7,382,258)
Cash and cash equivalents at the
start of the period 7,155,281 14,537,539
Cash and cash equivalents at the
end of the period 14 4,766,450 7,155,281
============= ============
The accompanying notes are an
integral part of the statements
NOTES TO THE FINANCIAL STATEMENTS
1. General information
The Company is a limited liability closed-end real estate investment company, incorporated on 27 April 2006 in the British Virgin Islands (BVI). The Company is focused on master planned residential resorts in Brazil and managed by Itacare Capital Partners Ltd. ("ICP" or the "Investment Manager").
The shares of the Company were admitted to the Alternative Investment Market ("AIM") of the London Stock Exchange on 30 May 2007. The consolidated financial statements for the year to 31 December 2011 comprise the Company and its subsidiaries (together referred to as the "Group").
2. Accounting policies
2.1 Basis of preparation
The financial statements of the Group have been prepared in accordance with International Financial Reporting Standards as adopted by the EU ("IFRS"), and the BVI Business Companies Act 2004. The financial statements have been prepared under the cost convention as modified by the revaluation of investment properties held at fair value.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates and exercise of judgment by the Directors while applying the Group's accounting policies. These estimates are based on the Directors' best knowledge of the events that existed at the balance sheet date; however, the actual results may differ from these estimates. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in subsequent notes.
2.2 Basis of measurement
The consolidated financial statements have been prepared using the measurement bases specified by IFRS for each type of asset, liability, income and expense. The measurement bases are more fully described in the accounting policies below.
2.3 Standards and amendments to existing standards effective 1 January 2010
The Group has adopted the following new and amended IFRSs as of 1 January 2010:
-- IFRS 3 (revised), 'Business combinations', and consequential amendments to IAS 27, 'Consolidated and separate financial statements', IAS 28, 'Investments in associates', and IAS 31, 'Interests in joint ventures', are effective prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009. The revised standard continues to apply the acquisition method to business combinations but with some significant changes compared with IFRS 3. For example, all payments to purchase a business are recorded at fair value at the acquisition date, with contingent payments classified as debt subsequently re-measured through the statement of comprehensive income. There is a choice on an acquisition-by-acquisition basis to measure the non-controlling interest in the acquiree either at fair value or at the non-controlling interest's proportionate share of the acquiree's net assets. All acquisition-related costs are expensed. The Group has not made any acquisitions during the year requiring the application of the revised standard.
2.4 Standards, amendments and interpretations to existing standards that are not yet effective and have not been adopted early by the Group
The following standards and amendments to existing standards have been published and are mandatory for the Group's accounting periods beginning on or after 1(st) January 2011 or later periods, but the Group has chosen not to early adopt them:
Applicable for financial
Standard/ interpretation Content years beginning on/after
IFRS 9 (1) Financial instruments: 1 January 2013
Classification and
measurement
IAS 24 (2) Related party disclosures 1 January 2011
IFRIC 19 (2) Extinguishing Financial 1 July 2010
Liabilities with Equity
Instruments
IFRIC 14 (2) Prepayments of a Minimum 1 January 2011
Funding Requirement
Applicable for financial
Standard/ interpretation Content years beginning on/after
Improvements to IFRS some 1 July 2010,
others effective 1
January 2011
IFRS 7 (2) Disclosures - Transfers 1 July 2011
of Financial Assets
IAS 12 (2) Deferred Tax: Recovery 1 January 2012
of Underlying Assets
(1) IFRS 9, 'Financial instruments: Classification and Measurement: in November 2009, the Accountancy Board issued the first part of IFRS 9 relating to the classification and measurement of financial assets. IFRS 9 will ultimately replace IAS 39. The standard requires an entity to classify its financial assets on the basis of the entity's business model for managing the financial assets and the contractual cash flow characteristics of the financial asset, and subsequently measures the financial assets as either at amortised cost or fair value. The new standard is mandatory for annual periods beginning on or after 1 January 2013.
(2) The directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the financial statements of the Group. The Group does not intend to apply any of these pronouncements early.
2.5 Basis of Consolidation
(a) Consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Group (its subsidiaries and subsidiary undertakings). Control is achieved where the Group has the power to govern the financial and operating policies of a Group company so as to obtain benefits from its activities.
The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements 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.
(b) Business combinations
The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the portfolio Group, plus any costs directly attributable to the business combination. The portfolio Group's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognised at their fair value at the acquisition date, except for non-current assets (or disposal groups) that are classified as held for resale in accordance with IFRS 5 Non Current Assets Held for Sale and Discontinued Operations, which are recognised and measured at fair value less costs to sell.
2.6 Segment reporting
All of the group's assets and liabilities arise in relation to the Group's investment property portfolio on the Coast of Brazil.
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker is the person or group that allocates resources to and assesses the performance of the operating segments of an entity. The Group has determined that its chief operating decision maker is the board of Directors of the Group.
The board considers the business based on the performance of the Investment Properties and considers these to be the Group's operating segments. The segmental information provided to the Board can be found in Note 8 Investment Properties.
2.7 Revenue recognition
The revenue generating source and the recognition policy is that interest receivable on cash held in deposit accounts is recognised on an accruals basis.
2.8 Foreign currency transactions
(a) Functional and presentation currency
Items included in the Group's financial statements are measured using the currency of the primary economic environment in which it operates (the "functional currency"). This is the US Dollar, which is most reflective of the Group's cash flows.
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency of the parent company using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the consolidated income statement. Non-monetary assets and liabilities denominated in foreign currencies that are measuered at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Foreign currency differences arising on retranslation are recognised in other comprehensive income.
(c) Group companies
The results and financial position of all the Group entities (none of which has the Currency of a hyperinflationary economy) that have a functional Currency different from the presentation Currency are translated into the presentation Currency as follows:
(i) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;
(ii) income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions); and
(iii) all resulting exchange differences are recognised as a separate component of equity.
2.9 Investment properties
Investment properties are those which are held either to earn rental income or for capital appreciation or both. Investment properties are stated at fair value. An external, independent valuation company, having an appropriate recognised professional qualification and recent experience in the location and category of property being valued, values the portfolio every six months. The fair values are based on market values, being the estimated amount for which a property could be exchanged on the date of valuation between a willing buyer and a willing seller in an arm's length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. As no properties have been completed as yet no rental income has been recognised as yet.
The analysis of market value of the properties is based on all the pertinent factors that relate both to the real estate market and, more specifically, to the subject properties. The valuation analysis of the properties used three approaches: the comparison approach, the residual value approach and an orderly liquidation approach. The comparison approach is based on the premise that persons in the marketplace buy by comparison. It involves acquiring market sales/offerings data on properties similar to the subject property. The prices of the comparables are then adjusted for any dissimilar characteristics as compared to the subject's characteristics. Once the sales prices are adjusted, they can be reconciled to estimate the market value of the subject property. The residual value approach is an assessment of the value of a scheme as completed and deduction of the costs of development (including developers profit) to arrive at the underlying land value. The orderly liquidation approach is used where the investment has not performed as expected. Under this approach, special assumptions are made whereby the liquidated value is determined in a similar manner to the direct sales or residual approach but with a discount factor to reflect the fact that the interest that is being valued is subject to special circumstances and cannot be offered freely and openly in the market.
Each of the above-mentioned techniques results in a separate valuation indication for the subject property. Unless the orderly liquidation approach has been used, a reconciliation process is performed to weigh the merits and limiting conditions of the first two approaches. Once this is accomplished, a value conclusion is reached by placing primary weight on the technique, or techniques, that are considered to be the most reliable, given all factors.
Any gain or loss arising from a change in fair value is recognised in profit or loss.
Any gain or loss resulting from the sale of an investment property is immediately recognised in profit or loss.
2.10 Financial Liabilities
Financial liabilities are obligations to pay cash or other financial assets and are recognised when the group becomes a party to the contractual provisions of the instrument. Financial liabilities categorised as at fair value through profit or loss are recorded initially at fair value, all transaction costs are recognised immediately in the income statement. All other financial liabilities are recorded initially at fair value, net of direct issue costs, where applicable.
Financial liabilities categorised as at fair value through profit or loss are re measured at each reporting date at fair value, with changes in fair value being recognised in the income statement. All other financial liabilities are recorded at amortised cost using the effective interest method, with interest-related charges recognised as an expense in the finance cost in the income statement. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are charged to the income statement on an accruals basis using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.
Financial liabilities are categorised as at fair value through profit or loss where they are classified as held-for-trading or designated as at fair value through profit or loss on initial recognition. Financial liabilities are designated as at fair value through profit or loss where they are managed and their performance evaluated on a fair value basis in accordance with the Group's risk management and investment strategy.
A financial liability is derecognised only when the obligation is extinguished, that is, when the obligation is discharged or cancelled or expires.
2.11 Investment Manager and Performance Fee
The Investment Manager receives an annual management fee payable quarterly in advance equivalent to 2% per annum of "equity funds" being the combination of (i) $87 million plus (ii) the gross proceeds of any further subsequent equity Group raisings, plus (iii) realised net profits from investments, less (iv) distributions to Shareholders.
In addition, in relation to any investment made by the Group the Investment Manager is potentially entitled to a performance fee based on the net realised cash profits made by the Group subject to the Group receiving the "Relevant Investment Amount", which is an amount equal to the aggregate of all cost instalments for an investment: each instalment being multiplied by a compounded annualized percentage return of 13% from the quarter date when such cost instalment is paid less the sum of all accumulated cash distributions received by the Group in relation to that investment (the "Hurdle").
In the event that the Group has received distributions from an investment equal to the Relevant Investment Amount, then provided that at that time the Group has received a return equal to or in excess of the hurdle for all realised investments (including as "realised" for this purpose any investments which have been written down or written off) and such payment would not result in the Investment Manager receiving more than 20% of the cumulative net realised cash profits from the Group's investments, upon receipt by the Group or any subsequent net realised cash profits in respect of that investment, the following performance fee shall be paid to the Investment Manager:
(i) first, a payment equivalent to 70% of such further profits as are paid to the Group until the Investment Manager shall have received an amount equal to 20% of the investment's net realised cash profits; and
(ii) thereafter, a payment equivalent to 20% of any future cash distributions the Group receives in excess of the Relevant Investment Amount.
2.12 Cash and cash equivalents
Cash and cash equivalents comprise of cash deposited with banks and bank overdrafts repayable on demand. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of the cash and which are subject to an insignificant risk of changes in value. Bank overdrafts that are repayable on demand and form an integral part of the Group's cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.
2.13 Share capital and premium
Share capital represents the issued amount of shares outstanding at their par value. Any excess amount of capital raised is included in share premium. External costs directly attributable to the issue of new shares are shown as a deduction, net of tax, in share premium from the proceeds.
2.14 Income tax
Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in the consolidated income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.
The taxation charge included in the current year income statement comprises deferred tax only. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
2.15 Joint Ventures
The Group's interests in jointly controlled entities are accounted for by proportionate consolidation. The Group combines its share of the joint ventures' individual income and expenses, assets and liabilities and cash flows on a line-by-line basis with similar items in the Group's financial statements. The Group recognises the portion of gains or losses on the sale of assets by the Group to the joint venture that it is attributable to the other venturers. The Group does not recognise its share of profits or losses from the joint venture that result from the Group's purchase of assets from the joint venture until it resells the assets to an independent party. However, a loss on the transaction is recognised immediately if the loss provides evidence of a reduction in the net realisable value of current asset, or an impairment loss.
Interest in joint ventures
The Group has a 50% interest in a joint venture Duas Barras Ltd., who own Itacap Um Empreendimentos e Participacoes Ltda through Itacap One, LLC.
The Group has a 50% interest in a joint venture BB Trancoso Ltd who own Bahia Beach Empreendimentos Imobiliarios Ltda through Trancoso Investment One LLC.
The Group previously held a 50% interest in a joint venture W Villa Holdings Ltd, who own Villas do Havaizinho Hotelaria e Empreendimentos Imobiliarios Ltda (Warapuru 3) through Goveport International Ltd and Goveport International LLC. On 23 December 2009 the Group acquired the remaining 50% of the SPV company for R$3,104,994 and now owns 100%.
The following amounts represent the Group's 50% share of the assets and liabilities, and results of the joint ventures. They are included in the consolidated statement of financial position and consolidated statement of comprehensive income.
Duas Barras BB Trancoso
Ltd Ltd
2011 2010 2011 2010
$ $ $ $
Assets
Long-term assets 17,861,500 20,000,000 22,140,000 24,511,008
Current assets 384,218 341,405 304,638 288,435
18,245,718 20,341,405 22,444,638 24,799,443
----------- ------------ ----------- ------------
Liabilities
Long-term liabilities - - 1,152,500 1,317,543
Current liabilities 1,098,250 2,305,050 7,250 29,411
1,098,250 2,305,050 1,159,750 1,346,954
----------- ------------ ----------- ------------
Net assets 17,147,468 18,036,355 21,284,888 23,452,489
----------- ------------ ----------- ------------
Income 7,500 2,331 14,500 27,899
Expenses (209,139) (85,596) (172,720) (209,105)
(Loss)/profit
after tax (201,639) (83,265) (158,220) (181,206)
----------- ------------ ----------- ------------
There are no contingent liabilities relating to the Group's interest in the joint ventures (Dec 2010:nil), and no contingent liabilities of the ventures themselves (Dec 2010:nil).
2.16 Treasury Shares
Where any Group company purchases the Group's equity share capital (treasury shares), the consideration paid, including any directly attributable incremental costs, is deducted from equity attributable to the Group's equity holders until the shares are cancelled, reissued or disposed of. Where such shares are subsequently sold or reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the Group's shareholders.
2.17 Financial Assets
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Trade receivables, sundry receivables and interest receivable are classified as loans and receivables. Loans and receivables are measured subsequent to initial recognition at amortised cost using the effective interest method, less provision for impairment. Any change in their value through impairment or reversal of impairment is recognised in the consolidated statement of comprehensive income.
2.18 Going concern
The Directors believe that the Company is well placed to manage its business risk successfully despite the current uncertain economic outlook. We expect to start taking villa reservations for Trancoso this quarter with a view to start construction in the second half of the year. Along with Tres Praias, which Brookfield expects to start selling in Q1 2013, we are pleased that our two largest projects by value start selling this year.
The Company has no debt and at year end 2011 held $4.77 million of cash reserves (2010: $7.16 million). The Board has decided that, given the delays experienced in launching its projects, it is prudent to increase its cash reserves. It has therefore determined to place some or all of its 11 million treasury shares through the Company's newly appointed Nomad/Broker, Cenkos Securities. This is in addition to the sale of non-core investment assets held by the Company which will be sold as and when market opportunities arise.
After making reasonable enquiries and preparing detailed cash flow forecasts and budgets, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future, there being sufficient cash balances anticipated, and incurring expenses predominantly in accordance with budget. Thus they continue to adopt the going concern basis of accounting in preparing the annual financial statements.
3. Critical accounting estimates and assumptions
Estimates and judgments are continually evaluated and are based on historical experience as adjusted for current market conditions and other factors.
The Directors make estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are outlined below.
(a) Estimate of fair value of investment properties
The Group holds full or partial ownership interests in a number of investment properties. Cushman & Wakefield conducted an independent valuation of the investment properties owned by these companies as at 31 December 2011.
(b) Estimated performance fee (carried interest) on investments
No provision has yet been established for performance fees on the revaluation of investments, however a provision has been made for the performance fee attributable to the part disposal of land at Tres Praias. This is based on the fair value gains recognised to date and a current estimate of the ultimate Internal Rate of Return of each investment. The performance fee has been discounted back to present value at a rate of 8.75%. The performance fee is only deemed to become a financial liability on the disposal of investment properties.
(c) Classification of Investment Properties
The Group has classified property in development as investment property, as defined by IAS40, as these are being held by the Group for the purposes of either earning capital appreciation or rental income or both.
4. Other administration fees and expenses
2011 2010
$ $
NOMAD fee 150,000 150,000
Secretarial and administration
fee 190,232 194,440
Directors' fees 212,500 212,500
Legal and Professional fees -
corporate 825,391 761,887
Travelling expenses 290,224 212,131
Taxation (1) 149,987 82,707
Insurance 45,258 53,755
Regulatory fees 4,042 4,848
Audit fees (2) 43,412 38,518
General administration and sundry
expenses 89,703 66,171
2,000,749 1,776,957
========== ==========
(1) Taxation represents amounts paid by the Brazilian subsidiaries.
(2) Audit fees represent auditor's remuneration for work undertaken in connection with the statutory audit of the Group, these fees were payable to the Company's auditor for the audit of the Group accounts.
5. Deferred Taxation
As a Company incorporated under the BVI International Business Companies Act (Cap. 291), the Company is exempt from taxes on profit, income or dividends. Each Company incorporated in BVI is required to pay an annual government fee, which is determined by reference to the amount of the Company's authorised share capital.
The deferred tax provision for the Brazilian subsidiaries is based on the capital gains tax rate, which is 15%. Such tax liability is likely to be avoided if on realising the investments the Company sells the BVI special purpose holding companies established specifically to hold its interests in Brazilian investment companies.
In accordance with IAS 12 Income Taxes, full provision has been made for the 15% liability that would arise if the Company were to sell its interest in the Brazilian property directly instead. Details of the Company's net asset value and earnings per share that reflect the impact of avoiding such deferred tax have been included in notes 6 and 10 respectively.
Deferred
tax
liability
$
Balance at 1 January 2010 3,562,911
Charge in the income statement 979,586
Balance as at 31 December 2010 4,542,497
============
Balance at 1 January 2011 4,542,497
(Credit) in the income statement (1,366,322)
Balance as at 31 December 2011 3,176,175
============
Deferred tax liability is attributable
to the following:
Revaluation of investment property 3,176,175
Total 3,176,175
============
6. Consolidated (loss)/earnings per share
2011 Basic and Basic and
Diluted Diluted
EPS EPS
(excluding
deferred
tax)
$ $
Net loss (10,854,842) (10,854,842)
Deferred tax - (1,366,322)
-------------
Adjusted net
loss (10,854,842) (12,221,163)
Weighted average number
of
shares in issue (see
below) 85,096,500 85,096,500
Loss per share (0.13) (0.14)
============= =============
2010 Basic and Basic and
Diluted Diluted
EPS EPS
(excluding
deferred
tax)
$ $
Net profit 2,699,067 2,699,067
Deferred tax - 979,586
-------------
Adjusted net
profit 2,699,067 3,678,653
Weighted average number
of
shares in issue (see
below) 85,096,500 85,096,500
Earnings per
share 0.03 0.04
============= =============
Weighted average shares in issue calculation
Basic and diluted- Number of shares
2011
Days in
Ongoing Cumulative Issue Weighted
Shares in issue at
1 January 2011 85,096,500 85,096,500 365 85,096,500
85,096,500 85,096,500
=========== ===========
Basic and diluted- Number of shares
2010
Days in
Ongoing Cumulative Issue Weighted
Shares in issue at
1 January 2010 85,096,500 85,096,500 365 85,096,500
85,096,500 85,096,500
=========== ===========
7. Investments in subsidiaries and joint ventures
The subsidiaries of the Company are recorded at cost in the accounts of the Company and are all included in the consolidated financial statements. Joint Ventures are accounted for by proportionate consolidation.
Subsidiaries Country Proportion
of of
Incorporation Ownership
interest
Itacap One Ltd. (1) BVI 100%
Delaware
Itacare Capital Investments, LLC (2) USA 100%
Delaware
Itacap Three, LLC (3) USA 100%
Itacap Tres Incorporacoes e Participacoes
Ltda(3) Brazil 100%
Delaware
Itacap MP, LLC (4) USA 100%
Delaware
Itacap Two, LLC(5) USA 100%
Delaware
Itacap Four, LLC(6) USA 100%
Itacap Dois Incorporacoes e Participacoes
Ltda. (6) Brazil 100%
Itacap Quatro Incorporacoes e Participacoes
Ltda. (6) Brazil 100%
Itacap Seven Ltd. (7) BVI 100%
W Villa Holding Ltd. (8) BVI 100%
Goveport International Ltd. (8) BVI 100%
Delaware
Goveport International, LLC (8) USA 100%
W Villa 12 Ltd. (9) BVI 100%
W Villa 13 Ltd. (9) BVI 100%
W Villa 15 Ltd. (9) BVI 100%
W Villa 16 Ltd. (9) BVI 100%
Villas do Havaizinho Hotelaria e Empreendimentos
Imobiliarios Ltda. (8) Brazil 100%
Joint Ventures Country Proportion
of of
Incorporation Ownership
interest
Duas Barras Ltd. (1) BVI 50%
Delaware
Itacap One, LLC(1) USA 50%
Itacap Um Empreendimentos e Participacoes
Ltda(1) Brazil 50%
BB Trancoso Ltd. (7) BVI 50%
Delaware
Trancoso One Investment, LLC(7) USA 50%
Bahia Beach Empreendimentos Imobiliarios
e Hotelaria Ltda. (7) Brazil 50%
(1) Itacap One Ltd. owns 50% of Duas Barras Ltd., which in turn owns 100% of Itacap One, LLC, which in turn owns 99.99% of Itacap Um Empreendimentos e Participacoes Ltda., which has been established to facilitate the Company's purchase of the Duas Barras property. The Company's overall ownership of the Duas Barras project is 50%.
(2) Itacare Capital Investments, LLC owns 100% of Itacap Two, LLC, Itacap Three, LLC, Itacap Four, LLC and Itacap MP, LLC.
(3) Itacap Three, LLC owns 99.99% of Itacap Tres Incorporacoes e Participacoes Ltda, which has been established to facilitate the Company's purchase of the property Tres Praias.
(4) As Brazilian corporate law requires Brazilian companies to have at least two quotaholders (or shareholders in the case of a corporation), Itacap MP, LLC was formed to hold one quota, or share, of each of the Project Companies, when necessary. Itacap MP, LLC owns 0.01% of Itacap Um Empreendimentos e Participacoes Ltda., Itacap Dois Incorporacoes e Participacoes Ltda., Itacap Tres Incorporacoes e Participacoes Ltda., Itacap Quatro Incorporacoes e Particpacoes Ltda., and Villas do Havaizinho Hotelaria e Empreendimentos Imobiliarios Ltda. No fair value gain has been included in the consolidated financial statements in relation to Itacap MP, LLC.
(5) Itacap Two , LLC has been utilised to hold Brazilian Reals against future capital commitments of the property at Duas Barras.
(6) The Company formed a number of shelf companies to be ready to use when the need arises. These shelf companies are Itacap Four, LLC, Itacap Dois Incorporacoes e Participacoes Ltda., Itacap Quatro Incorporacoes e Participacoes Ltda.
(7) Itacap Seven Ltd. owns 50% of BB Trancoso Ltd., which in turn owns 100% of Trancoso Investment One LLC, which in turn owns 99.9% of Bahia Beach Empreendimentos Imobiliarios e Hotelaria Ltda., which owns the Bahia Beach Property.
(8) W Villa Holdings Ltd. owns 100% of Goveport International Ltd., which in turn owns 100% of Goveport International, LLC. Goveport International, LLC owns 99.99% of Villas do Havaizinho Hotelaria e Empreendimentos Imobiliarios Ltda., which owns Havaizinho.
(9) W Villa Holdings Ltd. owns 100% of W Villa 12 Ltd., W Villa 13 Ltd., W Villa 15 Ltd and W Villa 16 Ltd., which in turn were formed to hold the villas in the Warapuru 2 Project.
8. Investment Properties
Tres Bahia Duas Waraparu
Praias Beach Barras Havaizinho 2 Total
$ $ $ $ $ $
At 1 January
2010 32,300,000 21,000,000 17,050,000 8,700,000 5,300,000 84,350,000
Additions
in year - 1,363,250 1,326,175 1,430,000 - 4,119,425
32,300,000 22,363,250 18,376,175 10,130,000 5,300,000 88,469,425
Fair value
adjustment 6,600,000 2,136,750 1,623,825 (3,530,000) (300,000) 6,530,575
At 31 December
2010 38,900,000 24,500,000 20,000,000 6,600,000 5,000,000 95,000,000
============ ============ ============ ============ ============ ============
At 1 January
2011 38,900,000 24,500,000 20,000,000 6,600,000 5,000,000 95,000,000
Additions
in year - 812,490 218,775 50,000 131,045 1,212,310
38,900,000 25,312,490 20,218,775 6,650,000 5,131,045 96,212,310
Fair value
adjustment (1,695,000) (3,172,490) (2,357,275) (726,000) (1,158,045) (9,108,810)
At 31 December
2011 37,205,000 22,140,000 17,861,500 5,924,000 3,973,000 87,103,500
============ ============ ============ ============ ============ ============
The Directors appointed Cushman & Wakefield, an internationally recognised firm of surveyors to conduct a valuation of the Group's acquired sites to determine their fair asset value as at 31 December 2011. These valuations were prepared in accordance with generally accepted appraisal standards, as set out by the American Society of Appraisers (the "ASA"), and in conformity with the Uniform Standards of Professional Appraisal Practice of the Appraisal Foundation and the Principles of Appraisal Practice and Code of Ethics of the ASA and RICS (the "Royal Institute of Chartered Surveyors").
The analysis of market value of the properties is based on all the pertinent factors that relate both to the real estate market and, more specifically, to the subject properties. The valuation analysis of the properties used three approaches: the comparison approach, the residual value approach and an orderly liquidation approach. The comparison approach is based on the premise that persons in the marketplace buy by comparison. It involves acquiring market sales/offerings data on properties similar to the subject property. The prices of the comparables are then adjusted for any dissimilar characteristics as compared to the subject's characteristics. Once the sales prices are adjusted, they can be reconciled to estimate the market value of the subject property. The residual value approach is an assessment of the value of a scheme as completed and deduction of the costs of development (including developers profit) to arrive at the underlying land value. The orderly liquidation approach is used where the investment has not performed as expected. Under this approach, special assumptions are made whereby the liquidated value is determined in a similar manner to the direct sales or residual approach but with a discount factor to reflect the fact that the interest that is being valued is subject to special circumstances and cannot be offered freely and openly in the market. These valuations are deemed to be the fair value of the investment property. Cushman & Wakefield's determination of fair value was supported by market evidence, and no adjustments have been made to such valuations.
Each of the above-mentioned techniques results in a separate valuation indication for the subject property. Unless the liquidation approach has been used, a reconciliation process is performed to weigh the merits and limiting conditions of the first two approaches. Once this is accomplished, a value conclusion is reached by placing primary weight on the technique, or techniques, that are considered to be the most reliable, given all factors.
The Group has no contractual obligations to build any properties on the land currently under development.
During the year the Group had no major customers.
All investment properties are held in Brazil.
9. Share Capital
2011 2010
Authorised share capital Number of Number of
shares shares
Ordinary shares of $0.01
each 500,000,000 500,000,000
============ ============
Movement in share capital and premium
Number of Share Capital Share Premium
shares
No. $ $
Shares in issue on 1
January 2010 and 31 December
2010 85,096,500 850,965 86,177,272
=========== ============== ==============
Shares in issue on 1
January 2011 and 31 December
2011 85,096,500 850,965 86,177,272
=========== ============== ==============
Treasury shares
The Group holds 11 million of its $0.01 ordinary shares.
10. Net asset value per share
The net asset value per share and the net asset values attributable to ordinary shares at the year end are calculated in accordance with their entitlements in the Articles of Association and were:
NAV
Calculation
Number of ordinary Net asset value Net asset value attributable
shares per share attributable
2011 2010 2011 2010 2011 2010
Number Number $ $ $'000 $'000
Basic 85,096,500 85,096,500 1.01 1.11 86,053 94,633
Diluted 85,096,500 85,096,500 1.01 1.11 86,053 94,633
Diluted
excluding
deferred
tax liability 85,096,500 85,096,500 1.05 1.17 89,230 99,175
Basic net asset value per share is based on net assets at the year end, and on 85,096,500 (2010: 85,096,500) ordinary shares, being the respective number of shares in issue at the year end.
11. Directors' interests
The Directors interests in the shares of the Group at 31 December 2011 is stated below.
BGO Fund (1) 27,728,180 Ordinary Shares Michael St Aldwyn 80,000 Ordinary Shares Raymond Smith 10,000 Ordinary Shares Samsao Woiler 10,000 Ordinary Shares Ricardo Reisen de Pinho nil Ordinary Shares
(1) Frederick Dubignon is a board member as a representative of BGO Fund, their holding representing 32.58% of the issued share capital.
12. Trade and other receivables
2011 2010
$ $
Prepayments 11,000 22,000
Trade receivables 124,000 32,032
Sundry receivables 305,215 301,304
Funds due on sale of Tres Praias - 1,236,868
440,215 1,592,204
======= =========
13. Trade and other payables
Current liabilities 2011 2010
$ $
Commitments to developers 1,093,000 1,317,543
Trade payables 423,500 132,274
Sundry payables 111,500 137,168
Performance fee accrual 300,000 283,465
1,928,000 1,870,450
========= =========
2011 2010
Non-current liabilities $ $
Commitments to developers 1,152,500 2,701,461
14. Cash and cash equivalents
2011 2010
$ $
Cash at bank 4,766,450 3,555,281
Cash held on overnight deposit - 3,600,000
4,766,450 7,155,281
========= =========
15. Related party transactions
The Group's key management personnel are the Directors. Each Director received compensation based on an annual fee of $50,000, except the Chairman who received $62,500 and Frederick Dubignon who received nil. Total fees and expenses paid to the Directors for the year to 31 December 2011 were as follows:
2011 2,010
Directors' Directors'
Fees Fees
$ $
Michael St Aldwyn 62,500 62,500
Raymond Smith 50,000 50,000
Samsao Woiler 50,000 50,000
Ricardo Reisen de Pinho 50,000 50,000
Frederick Dubignon - -
Total 212,500 212,500
========== ==========
16. Financial Risk Management
The group's activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The group's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the group's financial performance. There will always be some risk when undertaking property investments but the control process is aimed at mitigating and minimising these risks where possible.
The key risks identified by the board are as follows:
(a) Market price risk
2011
Cost Fair Value
$ $
Investment properties designated
at fair value 65,928,989 87,103,500
========== ==========
The market price is exposed to the real estate market fluctuation that depends intrinsically to the market demand. Therefore prices may increase and or decrease following demand thus affecting positively or negatively the fair value of the assets. Recognition of such variation is in profit or loss.
(b) Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates.
The Group is exposed to risks associated with the effects of fluctuations in the prevailing levels of market interest rates on its financial position and cash.
During 2011, if interest rates on overnight deposits had been 0.2% higher/lower, given the Group has no borrowings, post tax profit for the year would have been $18,902 higher/lower, and the change on equity would be $197,086 higher/ lower.
(c) Liquidity risk
The liquidity risk is that the Group cannot meet its financial obligations when they fall due. Liquidity risk may arise from the potential inability to sell a financial instrument without undue delay at a price close to its fair value. Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding and ability to close out market positions. Of the liabilities $1,928,000 are due within one year and $1,152,500 due between one and two years.
(d) Environmental risk
A further risk factor identified by the board encompasses environmental risks. In addition to the need to act as a responsible landlord there may, in some circumstances, be occasions when the Group buys a site with pollution or deforestation. Each acquisition undertaken by the Group includes an environmental report from a specialist consultancy. These reports may indicate the need for further investigation and in some cases remediation. The Group's policy is then to either undertake such investigations or remediation or potentially reject the purchase as no longer viable.
(e) Credit risk
Credit risk is managed on a group basis. Credit risk arises from cash and cash equivalents, deposits with banks and financial institutions, including outstanding receivables and committed transactions.
The Group is not susceptible to high credit risk as their cash transactions are limited to high-credit-quality financial institutions and no credit limits were exceeded during the reporting period. Furthermore, the Group enters into investment transactions, which attract both off-balance sheet market risks and off-balance sheet credit risks
Additional contractual warranties and or financial credit instruments provided by sellers, where applicable, mitigate credit risks arising from investment property purchase deals.
The Group continuously monitors defaults of customers and other counterparties, identified either individually or by group, and incorporates this information into its credit risk controls. Where available at reasonable cost, external credit ratings and/or reports on customers and other counterparties are obtained and used. The Group's policy is to deal only with creditworthy counterparties. The Group's management considers that all the above financial assets that are not impaired or past due for each of the reporting dates under review are of good credit quality.
(f) Currency risk
Currency risks arise where instruments, investments and material costs, are denominated in a currency different from the Functional Currency. As some financial assets of the Group are denominated in currencies other than the Functional Currency, the effect is that the Balance Sheet and Income Statement can be affected by currency movements. The Group has no outstanding currency hedging transactions.
The Functional Currency of the Group's investments in Brazilian subsidiaries is the Brazilian Real and the majority of its costs and expenditures are denominated in local currency.
For Brazilian subsidiaries' projects the currency exchange rate at 31 December 2011 was Brazilian Real R$1.863 to US$ 1.00.
2011 USD amount per accounts
USD BRL GBP Total
ASSETS
Current assets
Trade and other receivables - 440,215 - 440,215
Cash and cash equivalents 688,952 4,077,498 - 4,766,450
Total Current Assets 688,952 4,517,713 - 5,206,665
=========== ========= === ===========
EQUITY
Capital and reserves
Ordinary shares 850,965 - - 850,965
Share premium 86,177,272 - - 86,177,272
Retained earnings (3,805,994) - - (3,805,994)
Foreign exchange reserve 2,831,247 - - 2,831,247
LIABILITIES
Non-current liabilities
Trade and other payables - 1,152,500 - 1,152,500
Current liabilities
Trade and other payables - 1,928,000 - 1,928,000
Total financial liabilities
and equity 86,053,490 3,080,500 - 89,133,990
=========== ========= === ===========
For Brazilian subsidiaries' projects the currency exchange rate at 31 December 2010 was Brazilian Real R$1.6704 to US$ 1.00.
2010 USD amount per accounts
USD BRL GBP Total
ASSETS
Current assets
Trade and other receivables - 1,592,204 - 1,592,204
Cash and cash equivalents 4,523,936 2,631,345 - 7,155,281
Total Current Assets 4,523,936 4,223,549 - 8,747,485
========== ========== === ==========
EQUITY
Capital and reserves
Ordinary shares 850,965 - - 850,965
Share premium 86,177,272 - - 86,177,272
Retained earnings 7,048,848 - - 7,048,848
Foreign exchange reserve 555,992 - - 555,992
LIABILITIES
Non-current liabilities
Trade and other payables - 2,701,461 - 2,701,461
Current liabilities
Trade and other payables - 1,870,450 - 1,870,450
Total financial liabilities
and equity 94,633,077 4,571,911 - 99,204,988
========== ========== === ==========
The Group's exposure varies in an average 3% increase/decrease in the US$ against Brazilian Real and may potentially impact in cash flows for investments. As of 31 December 2011, the impact of such currency exchange rate fluctuation would have led to a decrease/increase in NAV of $ 3,042,569 (2010: $2,956,290). The Group's profit would also have led to an increase/decrease of $ 25,113 (2010: $ 198,272)
(g) Capital management
The Group's capital management objectives are:
-- To ensure the Group's ability to continue as a going concern;
-- To increase the value of the assets of the business; and
-- To provide an adequate return to shareholders in the future
These objectives will be achieved by developing the Group's investment property portfolio, adding value to these projects and ultimately taking them through to sale and cash flow, either with partners or by their own means.
The Group monitors capital on the basis of the carrying amount of equity less cash and cash equivalents as presented on the face of the consolidated statement of financial position. Capital for the reporting periods under review is summarised in the consolidated statement of changes in equity.
The Group sets the amount of capital in proportion to its overall financing structure, i.e. equity and financial liabilities. The Group manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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