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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 : 7284E
Itacare Capital Investments Ltd
14 April 2014
Hot Features
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Date: 14 April 2014
On behalf Itacaré Capital Investments
of: Ltd ("Itacaré") or "the Group")
Embargoed 0700hrs
until:
Itacaré Capital Investments Ltd
Audited Results for the year ended 31 December 2013
Itacaré 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 2013 and that the Company is seeking Shareholder approval for the cancellation of admission of its Shares to trading on AIM.
A circular will be posted later today to the Shareholders convening an extraordinary general meeting of the Company to take place at EFG Fund Services, No 1 Seaton Place, St Helier, Jersey JE4 8YJ on 6 May 2014 at 12 p.m., to seek such approval and explaining the background to the proposed Delisting and the reasons why the Directors unanimously consider the proposed Delisting to be in the best interests of the Company and its Shareholders as a whole, and why they are recommending that Shareholders should vote in favour of the proposed Delisting at the Extraordinary General Meeting.
Highlights
-- Basic loss per share of $0.14 (2012: basic earnings per share of $0.12)
-- Basic Net Asset Value per share of $0.96 (2012: $1.11)
-- Loss of $12.8 million (2012: $11.0 million profit), driven by the material 15% exchange movement in the Brazilian Real (R$) against the US Dollar ($), which gave rise to unrealised valuation losses of $10.3 million for the period
-- Valuation of investment properties held for development appreciated by 6% in local currency
-- Successful sale of Warapuru project for a total consideration of $1.5 million
-- Following continued delays, off-plan sales expected to commence for Trancoso and Três Praias this year
Post balance-sheet events
-- In March 2014, the Company was awarded the final building consent required to commence building out the Trancoso project. Despite having previously agreed to accept equity funding from a pension fund in support of the pre-marketing phase of this project, the Manager, working with our joint venture partners, has decided to embark upon a fresh fundraise for a larger sum, $15 million, using a simpler structure for the entirety of funds required.
-- On 12 April 2014 the Company entered into a $2.5 million working capital loan facility with BGO Fund plc, the Company's largest shareholder, which allows the Company more time to make further asset disposals and/or place shares to fund any future existing project requirements.
-- An extraordinary general meeting will be called to present the Board and Management's vision for the future of the Company and its ongoing activities, and to propose the cancellation of the admission of the Company's Shares from trading on AIM.
Reasons for, and Benefits of, the Proposed Delisting
The Company listed on AIM in May 2007 with several investments under option agreements that it intended to pursue. Having raised $87 million in total, the Company limited its investment plans to five initial projects, with an expectation to raise further capital in due course to fund other projects.
The real estate market in Brazil has grown stronger throughout these past five years, which reflected positively in the appreciation of land prices and urban real estate.The market for second homes and beachfront land has failed to mirror the price dynamics and liquidity of urban markets in Rio and Sao Paulo given that the mainplayers in the Brazilian second home market were Portuguese and Spanish developers who are still recovering from the 2008 crisis. In addition, the Company has experienced material delays in getting its investment projects permitted for build which has cost the Company, both in terms of time and money.
The proposed Delisting will remove certain costs and the administrative and regulatory burden associated with the Company's AIM quotation. Accordingly, the Board anticipates that the Delisting will help the Company to make further cost savings whilst continuing to progress the Company's investment objective to realise a greater return from its remaining assets. Furthermore, the Delisting will enable the Company to maintain the confidentiality of sensitive information as the obligation to disclose such information to the public, to which the Company is currently subject under the AIM Rules for Companies, will be removed.
Delisting will enable the Company to dispose of non-core assets and focus its resource on building and realising value from Trancoso and Três Praias. The Duas Barras project requires further investment from both joint venture partners, and of the Company's three current projects, is expected to have the longest timeframe to realisation. The Company was recently approached by its joint-venture partner in Duas Barras, with a proposal to purchase the 50% of the Duas Barras project owned by Itacaré in exchange for shares in the Company,, and to that extent has entered into an exclusivity letter with the Company's joint venture partner and others in relation to a potential sale of the Company's interest in Duas Barras. The exclusivity period expires on 24 May 2014 or such later date as the parties may agree. The Board believes that strategic negotiations will be required in order to obtain optimal value for Shareholders on this disposal and on other matters in the future and the Board believes that regulatory and reporting requirements to which the Company is currently subject may significantly hinder the objective of maximising the realisation value of the Company's investments.
The Company has no plans to raise further capital for new projects but considers it will have more flexibility to raise capital for its remaining projects if the Delisting occurs. The Company's objective is to realise from each asset the maximum risk-adjusted potential returns for Shareholders within a timeframe that does not diminish the value of those assets by virtue of the Company's cost of capital and its annual operating cost budget.
In summary, after careful consideration, the Board has concluded that the commercial disadvantages and costs of remaining admitted to trading on AIM outweigh the potential benefits and it is no longer in the best interests of the Company or its Shareholders to maintain the Company's admission to trading on AIM.
Delisting process
Rule 41 of the AIM Rules for Companies requires an AIM company that wishes to cancel admission of its securities to trading on AIM to notify such intended cancellation to the public and separately to inform the London Stock Exchange of its preferred cancellation date. That rule also requires that, unless the London Stock Exchange otherwise agrees, the Delisting must be conditional upon the consent of not less than 75 per cent. of votes cast by the Shareholders, given in a general meeting.
Subject to Shareholder approval at the EGM, it is expected that the admission of the Shares to trading on AIM will be cancelled with effect from 7.00 a.m. on 16 May 2014. Accordingly, the latest date for trading in Shares through the market on normal market timings will be 15 May 2014.
Risks associated with the Delisting
There are certain risks associated with the Delisting. The Board considers the principal risks that Shareholders should consider to be as follows:
(a) Lack of an ongoing trading platform
Once the Delisting has taken place, there will no longer be a formal market mechanism for Shareholders to trade in the Shares and no price will be publicly quoted for the Shares. Shareholders will be able to buy and sell their Shares "off market" although this will be more difficult than trading "on market". The only other opportunity for Shareholders to sell their Shares would arise upon a sale of all of the issued share capital of the Company to a third party. It may therefore be more difficult for Shareholders to realise their Shares than when the Company had an AIM quotation and, where a buyer is identified, it will be difficult to place a fair value on any such sale.
(b) Corporate governance and regulation
After the Delisting, the AIM Rules for Companies will no longer apply to the Company and levels of corporate governance and transparency will no longer be dictated by those rules.
However, the Company intends to maintain an independent Board and, in matters of corporate governance, to the extent practicable, to comply with the Corporate Governance Code for Small and Medium sized quoted companies 2013 (the "QCA Code").
In addition, the provisions of the Takeover Code contained in the Company's Articles will continue to apply to the extent that in managing and conducting the business of the Company, in the event that circumstances arise where the Company would be an offeree company for the purposes of the Takeover Code, the Board will ensure that the Shareholders will continue to be afforded the same protections so that, amongst other things, all Shareholders will be treated fairly, will be able to decide on the merits of a takeover offer and Shareholders of the same class are afforded equivalent treatment by an offeror.
Arrangements following the Delisting
The Board intends that, following the cancellation of the Shares to admission to trading on AIM, the Company will, to the extent practicable, continue to comply with the relevant accounting requirements expected of an AIM quoted company, other than Rule 18 of the AIM Rules for Companies, as if the Company were still AIM quoted. As set out above, in matters of corporate governance, to the extent practicable, the Company will comply with the QCA Code.
Subject to changes in legislation, there is no requirement to alter or amend the Company's Articles in order to achieve the Delisting.
Expected Timetable
Publication of this document 14 April 2014
Latest time and date for 12 p.m. on 30 April
receipt of Forms of 2014
Instruction and CREST voting
Latest time and date for 12 p.m. on 1 May
receipt of Forms of Proxy 2014
for the EGM
Time and date of the EGM 12 p.m. on 6 May
2014
Latest date for trading in 15 May 2014
Shares through the market
on normal market timings
Cancellation of admission 7.00 a.m. on 16 May
of the Company's shares to 2014
trading on AIM
Notes:
1. Each of the times and dates referred to in this announcement is based on the Company's current expectation and is subject to change. All times are London times.
2. Any changes to the expected timetable will be announced via a Regulatory Information
Service.
3. The Company proposes to offer a video link facility at the time of the EGM to offer Shareholders the opportunity to hear the meeting and ask any questions. The video link facility will be available at the offices of Redleaf Polhill at First Floor, 4 London Wall Buildings, Blomfield Street, London EC2M 5NT. If any Shareholder wishes to use this facility please contact Henry Columbine at itacare@redleafpr.com or by telephone on +44 (0)20 7382 4732 prior to the EGM.
Commenting, Michael St Aldwyn, Chairman of Itacaré Capital, said:
"Slower than anticipated progress on our active projects, coupled with an unfavourable exchange rate, has made this a period of continued frustration for us and our shareholders. Nevertheless, the value of our projects has increased in local currency terms and we have successfully sold one of our non-core assets. There is a considerable amount of work to be done and we are committed to taking the necessary steps to ensure that the true value of the assets we hold will be realised and returned to shareholders.
The proposed delisting of the Company's shares from AIM follows careful consideration of options by the board and will, we believe, save costs and enable the Company to negotiate future disposals without the regulatory and reporting requirements to which the Company is currently subject, thereby enhancing the prospect of maximising the realisation value of the Company's investments".
Definitions
The following definitions apply throughout this Announcement unless the context otherwise requires:
"AIM" the AIM market operated by the
London Stock Exchange
"AIM Rules for the rules for AIM companies
Companies" published by the London Stock
Exchange, as amended or re-issued
from time to time
"Delisting" the proposed cancellation of
the admission of the Shares
to trading on AIM as described
in this announcement
"Depositary" Capita IRG Trustees Limited,
a company incorporated in England
and Wales with registered number
2729260 and whose registered
office is at The Registry, 34
Beckenham Road, Kent BR3 4TU
"Depositary Interests" independent securities representing
Shares issued by the Depositary
and settled in CREST
"Company" Itacare Capital Investments
Limited, a company incorporated
on 27 April 2006 in the British
Overseas Territory of the British
Virgin Islands under the BVI
Business Companies Act 2004
as a business company with registered
number 1024063
"Directors" or the directors of the Company
"Board"
"EGM" or "Extraordinary the extraordinary general meeting
General Meeting" of the Company to be held at
EFG Fund Services, No 1 Seaton
Place, St Helier, Jersey JE4
8YJ on 6 May 2014 at 12 p.m.
"London Stock London Stock Exchange plc
Exchange"
"Shareholder" a holder of Shares
"Shares" common shares of $0.01 par value
each in the capital of the Company
or Depositary Interests representing
them, as the context requires
For further information:
Itacaré Capital Investments Tel: +44 (0)7770
Chairman, Michael St. Aldwyn 362863
Itacaré Capital Partners Tel: +55 11 2678
Investment Manager, Pedro 0800
de Miranda
Cenkos Securities Tel: +44 (0)20 7397
Stephen Keys, Adrian Hargrave 8962
(Nominated adviser) Russell
Kerr, Alex Aylen (Sales)
Redleaf Polhill Tel: +44 (0)20 7382
Emma Kane, Henry Columbine 4720
E: itacare@redleafpr.com
Notes to Editors:
Itacaré Capital Investments Limited is a real estate investment company focused on tourism-real estate developments in Brazil.
Further information is available at www.itacarecapital.com
CHAIRMAN'S STATEMENT
While 2013 was a challenging year for Brazil, both politically and economically, it also proved to be one of the most difficult years in the history of Itacaré Capital Investments Ltd. A combination of external events and continued bureaucratic delays meant that the Company came to the end of the year with none of its projects in either the sales phase or under construction, with the NAV per share down 14% and the share price sitting at 32 cents against a closing year end NAV of 96 cents.
The principal negative effect was the devaluation of R$ vs US$ but the decline in the share price also reflected the frustration experienced by our shareholders.
Despite this gloom some positive elements are worth highlighting:
-- At the end of the period the troublesome Warapuru site was sold for a total consideration of $1.5 million, including cash and some shares in the Company.
-- The R$ valuation of the remainder of the portfolio appreciated by 6%, reflecting the continued growth in the underlying value of the properties.
The results for the year ended 31 December 2013 show a loss of $12.8 million driven by the material 15% exchange movement in the Brazilian Real (R$) against the US Dollar ($), which gave rise to unrealised valuation losses of $10.3 million for the period. This compares to a profit of $11.00 million for the period to 31 December 2012. Gains were still made in local currency for each of the three main investments which reflect capital appreciation and progress made; however, the material movement in exchange from 2.047 to 2.348 during the 12 months to 31 December 2013 has negatively impacted their respective dollar valuations. The Company reported a Basic Loss per share of $0.14 compared to a Basic Earnings per share of $0.12 for the full year to 31 December 2012.
When the Company was established a 10-year life was envisaged and in the early stages it looked as if this would be a realistic time frame. We have reported a number of times that we believe that sales and construction in Trancoso and Três Praias will be initiated imminently but on each occasion in the past we have been disappointed. As a consequence, the delays that we have experienced now make the realisation of multiple returns on capital invested unlikely.
We do however believe that it is possible for the Company to realise its NAV potential during the next three to five years and would ask of shareholders to look to this as a realistic outcome from the current position where shares are trading at a 65% discount to current NAV. Because of this, we recognise the need to extend the Manager's contract, whilst at the same time, reducing our annual cost commitment and modifying their bonus incentive plan. It is intended that an amended Management Agreement will be formalised after the Extraordinary General Meeting to be convened per below, whereby the Management Agreement will be extended and the Manager's incentive will be more closely aligned to our asset strategy and shareholders' interests.
Post Balance-Sheet Events
The Company was recently approached by its joint-venture partner in Duas Barras, with a proposal to purchase the 50% of the Duas Barras project owned by Itacaré in exchange for shares in the Company, and to that extent has entered into an exclusivity letter with the Company's joint venture partner and others in relation to a potential sale of the Company's interest in Duas Barras. The exclusivity period expires on 24 May 2014 or such later date as the parties may agree.In selling Duas Barras, which has the longest time horizon of our three investments in terms of realisation, the Company would be able to shorten its future time horizon as well as simplify its business model.
On 12 April 2014 the Company entered into a $2.5 million working capital loan facility with BGO Fund plc, the Company's largest shareholder (the "Facility"), which allows the Company more time to make further asset disposals and/or place shares to fund any future existing project requirements, as we have successfully managed to do in the past. This combined with the Company's ability to lower its cost base and renegotiate existing contracts, will ensure the Company continues as a going concern.
The Facility, which is for a term of 18 months and carries an interest rate of 11 per cent per annum, is classified as a related party transaction in accordance with the AIM Rules. Accordingly, the independent directors, having consulted with the Company's nominated adviser, consider the terms of the Loan Agreement to be fair and reasonable insofar as the Company's shareholders are concerned.
In March 2014 the Company was awarded the final building consent required to commence building out its Trancoso joint venture project with Fasano, a leading Brazilian hotel group. Despite having previously agreed to accept equity funding from a pension fund in support of the pre-marketing phase of this project, the Manager, working with our joint venture partners, has decided to embark upon a fresh fundraise for a larger sum, $15 million, using a simpler structure for the entirety of funds required.
General Meeting
A General Meeting will be called to present the Board and Management's vision for the future of the Company and its ongoing activities, and to propose the cancellation of the admission of the Company's ordinary shares from trading on the AIM market operated by the London Stock Exchange ("Delisting").
Taking into consideration the impact of any potential sale of Duas Barras and the need to preserve cash for working capital and project-related costs, your Board has concluded that it would be in the best interests of shareholders and management to hold an Extraordinary General Meeting to present the Board and Management's vision for the future of the Company and its ongoing activities.
Looking forward, the Company intends to sell its Duas Barras and Havaizinho assets in an orderly manner, leaving itself with two remaining investment projects only. Its objective will then be to realise from each the maximum risk-adjusted potential returns for shareholders. This needs to be achieved within a timeframe that does not diminish their value by virtue of the Company's cost of capital and its annual operating cost budget.
The Board believes that strategic negotiations will be required in order to obtain optimal value for Shareholders on these disposals and on other matters in the future and the Board believes that the regulatory and reporting requirements to which the Company is currently subject may significantly hinder the objective of maximising the realisation value of the Company's investments.
Consequently, your Board considers Delisting to be in the best interests of the shareholders for the following reasons:
-- Cost savings.
-- Greater ease for raising capital for less dilution in the absence of a quoted price.
-- Greater flexibility in concluding the sale or realisation of assets.
In support of our decision, and to provide protection for all shareholders, the Company will undertake the following commitments:
-- The Board of Directors will continue to contain a majority of independent non-executive directors.
-- The Company will continue to engage an independent professional administrator to maintain the Company's books and records, adopting the same controls and procedure used by the Company whilst public to safeguard the Company's cash and other assets.
-- The Company will continue to prepare accounts to be circulated every six months.
-- The Company will continue to engage an independent professional valuer for its remaining investments for 31 December of each year.
The existing contract with the Investment Manager expires in August 2016. The Board considers it important that the Manager's contract is aligned to the Company's asset strategy and shareholders' interests. As it seems unlikely that the Company will be able to realise the potential from Três Praias and Trancoso by August 2016, the Board recognises the need to extend and redefine the Manager's contract following Delisting.
The prospects for the Company remain as positive as they were six months ago when we last reported and we are committed to taking the necessary steps to realise the true value of the assets we hold and deliver the maximum return to our shareholders.
Michael St Aldwyn
Chairman
13 April 2013
INVESTMENT MANAGER'S REPORT
The Brazilian economy and the political scenario in particular, are in the midst of challenging times. The Company has made solid progress towards initiating sales in two of its three main projects, albeit this progress has been prolonged by delays that impacted our licensing process, which is an unfortunately common fact on real estate developments of this nature in Brazil. Notably, in the Trancoso Project, all litigations have now been solved and, provided there are no further unexpected events, sales are expected to begin in the first semester of 2014.
The Company also successfully concluded the disposal of one of its non-core assets, Warapuru, in December 2013.
Brazilian Economy
In 2013, the Brazilian government faced unprecedented spontaneous popular manifestations in the whole country, with millions of people marching against neglected infrastructure, poor public services, a high cost of living, extravagant spending on public events and corruption. Although the movement created initial unrest on the political front, at first damaging the popularity of the President, it also triggered a healthy discussion about the country's long term potential and needs, showing Brazil's institutional strength and commitment.
Accordingly, although it was a tough year for the country's economy, the government seems to be committed to reform and privatisation, albeit at more reasonable targets for 2014. After reaching a primary GDP surplus of 1.9% in 2013, compared to the already adjusted 2.3% target announced in the middle of the year, the finance minister announced a target of 1.9% for 2014 primary balance, along with reduction of government expenses of R$44 billion and cuts to subsidised credit lines. After a 10-year unemployment rate low of 4.6% in 2012, it ended 2013 at a stable 5.4% rate, still one of the lowest in the developed world.
Infrastructure works beyond those related to the 2014 FIFA World Cup and the 2016 Olympic Games continue to progress and should positively impact the economy and bring significant benefits in terms of development and new investments, particularly in infrastructure. In 2012/2013, the country's three most important airports were privatised, while the expansion of São Paulo Cumbica Airport, the largest one in Brazil, is going to be concluded by May 2014, alongside with many ongoing transportation solutions in the main capitals. A new port reform was also approved and some federal roads were privatised.
Although, the Brazilian economy had been impacted by the strong appreciation of the Dollar, which led the Real exchange rate to suffer a 15% hike in 2013, it also created expectations that this trend can revamp Brazil's export competitiveness as well as the local tourism industry and second home sales in the long run. The country still keeps one of the highest foreign reserves among emerging market peers which also helps to weather speculative or sharp movements. However, as a short-term counter effect, the Consumer Price Index in 2013 reached 5.9%, below its 6.5% target ceiling but above the 4.5% target set by the government. As a consequence, the Brazilian Central Bank started a rising cycle in the benchmark borrowing rate (Selic) which moved from 7.25% to 10% in 2013, with expectations that this will continue, reaching 11.25% in 2014 and 12% in 2015.
Although growing at a slower pace than expected, the Brazilian economy remains stable, supported by low unemployment, industrial production slowly regaining momentum and a growing middle class. The Brazilian government is investing in infrastructure and increasing financing to hospitality and other related industries. The recent popular manifestations are expected to direct the government to increase infrastructure expenditure and general investment to ensure social development and growth, while recent imbalance of public debt might force the government to take these measures in a more effective, economical and productive way. 2013 was a difficult year and 2014 will be no different but Brazil is still in good shape when compared with its peers and 2014's elections are likely to be an inflection point, regardless of the winner.
Investment Portfolio Update
The table below shows the breakdown of our portfolio into Active Projects and Property Held for Sale, to give better visibility to investors on the focus of efforts and value within our investment portfolio.
The Active Projects comprise close to 97% of the reported NAV as at 31 December 2013 versus 93% in the previous year.
Property Held
Active Projects 96.8% for Sale 3.2%
Tres Praias 39.8% Havaizinho 3.2%
Trancoso 34.8%
Duas Barras 20.2%
The tables below illustrate the value progression in the Company's three investment projects both in local currency and US Dollar equivalent. The investment properties held for development saw an appreciation of 6% in local currency terms, from R$199.3 million in December 2012 to R$211.1 million in December 2013, which reflects the progress made in our Active Investment Projects. Nonetheless, it suffered a small decrease in US Dollar terms due to the harsh Real depreciation of 15% in 2013.
Despite the political and economic scenarios, we continue to see growth in consumer confidence and wealth creation in the country, which is reflected in the demand for residential properties. Our portfolio is currently mainly positioned for local buyers, who are looking to purchase both primary and secondary homes in attractive locations.
Project Valuation Summary ($ m)
Entry price December December
2012 2013
------------- ------------ --------- ---------
Duas Barras 8.2 21.5 18.8
------------- ------------ --------- ---------
Três
Praias 16.7 41.5 38.7
------------- ------------ --------- ---------
Trancoso 16.0 34.4 32.4
------------- ------------ --------- ---------
Project Valuation Summary (R$ m)
Entry price December December
2012 2013
------------- ------------ --------- ---------
Duas Barras 15.5 43.9 44.1
------------- ------------ --------- ---------
Três
Praias 29.7 85.0 91.0
------------- ------------ --------- ---------
Trancoso 27.4 70.4 76.0
------------- ------------ --------- ---------
ACTIVE INVESTMENT PROJECTS
Três Praias
The Company invested $16.7 million in the Três Praias residential project, situated in the State of Espírito 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, Arcelor Mittal 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, Espírito 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, tourism is also a prominent industry of Espírito Santo. The wonderful beaches and the picturesque mountain retreats attract a large number of tourists to the State.
Três 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.
The State is now the second largest oil and gas producer in Brazil. 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 Incorporações 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). Under the amended agreement with Brookfield, in addition to the sale of 10% of the site, Brookfield is also responsible for the master planning and preliminary licensing of the entire site and all related costs, including legal fees, environmental compensation and architecture projects.
Detailed engineering drawings for infrastructure and residential units and MEP, BMS, foundations, internal traffic and telecom studies have been completed for Phase 1. The Company submitted the Environmental Impact Study along with other required documentation for Phase 1 permits at the end of 2011 and is awaiting final approval. A public hearing to discuss the Environmental Impact Study successfully occurred in August 2013 and no major issue was raised. Another step in this process, the site zoning definition, was also progressed.
In April 2013, IPHAN approved the archaeological report, which is a condition for the issuance of the first environmental license (Preliminary License). In parallel to the environmental licensing, Brookfield is approving the implementation drawings with the Municipality, and finalizing the product and sales strategies. Brookfield Social Institute has been engaged and will be responsible for preparing the social and environmental compensation programs for Phase 1.
In September 2013 a Public Hearing was held to discuss the site zoning, where no major issue was raised. The Public Hearing was followed by a series of discussions to determine an optimal zoning definition for both the Company and the community. Since the year end, in January 2014 a City Council defined the beach side of the site as a type of zone (ZUT 2), where buildings with a maximum of 5 floors can be constructed, while the portion on the left side of the road was defined as a zone (ZUT 3), where buildings with up to 12 floors can be constructed.
Recently, in March, 2014, a favourable approval on the duplication and adaptation of the road access to the site was approved by the DER, a public entity responsible for the regulation of highway and roads projects.
Despite Brookfield and the Company's efforts, the launch date for the Project was delayed from Q1 2014 to H2 2014 due to the complexity of environmental licensing, which was also delayed due to the local strikes by the State Environmental Agency and public manifestations in the first semester of 2013.
Following the delays and progress achieved in the year, for 2014 Brookfield is now able to finalise the incorporation documents and the sales and marketing campaigns after which pre-sales will start. The project will see the phased development of 1,778 residential units representing total expected sales in the region of R$741 million ($335 million) for our remaining share, and 200 hotel units representing total expected sales in the amount of R$66 million ($30 million).
The Três Praias Project targets local buyers, mainly from the Espirito Santo and Minas Gerais states, and C&W's residual valuation in local currency has increased from R$85.0 million ($41.5 million) in December 2012 to R$91.0 million ($38.7 million) in December 2013.
Trancoso - Bahia Beach
The Trancoso project is situated on a 293-hectare site with approximately 600 metres of beachfront. It is three kilometres away 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. Total sales value is projected at R$1 billion resulting in R$500 million ($225 million) attributable to the Company based on its 50% shareholding.
In December 2010, Itacaré 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 Participações 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.
In 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 and Construction Licenses are key value creating steps in the development process. They authorize (i) the master plan blueprints to be used in the Project, and (ii) the technical drawings for construction.
Following the granting of these licenses at the end of 2011, the Federal Environmental Agency (IBAMA) suspended the Installation License to verify the existence of protected vegetation/ecosystem in the beachfront area. IBAMA issued a favourable technical report lifting the suspension in December 2012, and the ratification by the President of IBAMA was granted in March 2014. The Company now has all necessary approvals to start marketing and sales of the villas.
In addition, the local neighbours' association filed a lawsuit questioning some environmental issues and a preliminary injunction was granted before the Company presented its defence on the case. The preliminary injunction was reversed in December 2012 and the licenses are again effective. The Company and the neighbours' association reached an agreement, mediated by the Public Prosecutor, pursuant to which the Company will provide the neighbours with access to some Project facilities and the association has withdrawn all existing claims and will refrain from filing any future claims.
On 31 December 2012, the Company signed with Banco do Nordeste do Brasil (BNB) a 13-year R$40.1 million construction loan facility, with an annual interest rate of 2.5%, to cover the hotel and its infrastructure related cost. The Company is now finalising the process with Banco do Nordeste to secure the loan with land as collateral.
In March 2013, the Condominium rules and incorporation documents were approved by the Real Estate Registry. The Company now expects to start off-plan sales in the second quarter of 2014 and construction is expected to start in the six months following.
On July 2013, the Company announced that the Manager had secured R$15 million funding from a Pension Fund (equivalent then to $6.3 million), which at the time was expected to fund the pre-marketing expenses and costs during the initial build phase that would not otherwise be covered by the development loan from Banco do Nordeste. On 18 March 2014 the site received its final planning approvals to enable building out the project. The Manager and our joint venture partners are now seeking to raise $15 million of equity with sufficient buffer to complement the Banco do Nordeste development loan facility to complete the project build. It was determined that to draw down on the Pension fund's facility could complicate the joint venture structure and frustrate efforts to raise capital elsewhere. Only with complete funding in place will the Company commence the build program.
Cushman & Wakefield ("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 and by the hotel loan signed with BNB.
During the reporting period, the US Dollar had a strong appreciation of 15% and consequently the valuation of the Company's 50% share of the project suffered a moderate decrease of 5.9% from $34.4 million (December 2012) to $32.4 million (December 2013). The Real valuation rose from R$70.4 million (December 2012) to R$76.0 million (December 2013) in the period.
Duas Barras
Duas Barras Project, 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 renowned 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. Total sales value is projected at R$655 million resulting in R$327 million ($148 million) attributable to the Company based on its 50% shareholding.
In February 2010, the project was approved by the State of Alagoas for the issuance of the first environmental license (Preliminary License). At the end of 2010, the Company received approval of the second environmental license (Infrastructure Implementation), which is the next stage of permits for the construction of infrastructure that supports the project.
During 2012 and first semester of 2013, the Manager worked to fulfil the required environmental recuperation works that were a condition of the Preliminary License. In addition, we completed the registration process required for the bank loan (on favourable terms similar to those obtained for Trancoso above) and are now working on obtaining the financing pre-approval. Also, the Company finalised and filed with IPHAN the archaeological study that we expect should be approved before the end of Q2 2014.
The Company was recently approached by its joint venture partner with a proposal to purchase the 50% of the Duas Barras project owned by Itacaré, in exchange for shares in the Company. Given that this project has a longer time horizon to realisation, and will inevitably require further funding for operating costs and preliminary build cost, the Board intends to sell its interest in the project following Delisting, any sale of which is likely to be to the joint venture partner, and which will simplify the Company's forward strategy, and to that extent has entered into an exclusivity letter with the Company's joint venture partner and others in relation to a potential sale of the Company's interest in Duas Barras. The exclusivity period expires on 24 May 2014 or such later date as the parties may agree. Such clarity will allow the Manager to focus on realising the two remaining projects which we hope will both commence their build programs this year, and have expected timelines to their potential realisation of 3-5 years.
C&W valued the investment on a "Residual Valuation" basis. During the reporting period, our 50% share of the valuation decreased by 12.5% from $21.5 million (December 2012) to $18.8 million (December 2013) as a result of the Dollar appreciation whilst the Real valuation remained stable, from $43.9 million (December 2012) to $44.1 million (December 2013).
PROPERTY HELD FOR SALE
Our interests under 'Property held for sale' represent just 3.2% of the Company's investment portfolio and it is the Company's intention to dispose of the Havaizinho asset in an orderly manner.
Warapuru
On 30 December 2013, the Company sold to Dominic Redfern ("the Buyer") its Warapuru assets for a total consideration of $1.5 million. The Warapuru assets had a book value of $2 million and represented 2.0 % of the value of the property portfolio of the Company, as at 30 June 2013. The purchase price was composed of: (i) $150,000 in cash, payable immediately; (ii) the transfer to a subsidiary of the Company of $900,000 in shares of the Company at a price of $0.35 per share; and (iii) $450,000 in cash totally paid by 31 January 2014.
Havaizinho
The site comprises a 33-hectare land parcel and 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 problems, the Company assumed the remaining land payments and as the land is adjacent to the Warapuru Project, in 2010, excluded the defaulted partner 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.
In connection with the Warapuru sale above, Dominic Redfern has been granted a 36-month option over the Havaizinho property with a strike price of $3 million (the "Strike Price"). The Havaizinho property had a book value of S$4.8 million and represented 4.8 % of the value of the property portfolio of the Company, as at 30 June 2013.
During the option period, the Group may elect to sell the Havaizinho property subject to a right of first refusal from the Buyer. In the event that the Group receives an offer for the property at a price higher than the Strike Price and the Buyer does not exercise its right of first refusal, the Buyer will be entitled to a break fee equivalent to 40% of the excess (net of any transfer costs or expenses) between the purchase price and the Strike Price.
The Board has chosen not to adopt C&W's historic higher valuation but has included $3 million for the valuation as at December 2013.
Looking ahead
We expect to start sales of Phase 1 of the Trancoso Project in Q2 2014, with a view to starting construction shortly thereafter, along with Três Praias, which Brookfield expects to start selling in Q4 2014. The Company was recently approached by its joint-venture partner in Duas Barras, with a proposal to purchase the 50% of the Duas Barras project owned by Itacaré in exchange for shares in the Company, and to that extent has entered into an exclusivity letter with the Company's joint venture partner and others in relation to a potential sale of the Company's interest in Duas Barras. The exclusivity period expires on 24 May 2014 or such later date as the parties may agree. Such a disposal will allow us to focus on getting our two largest projects to sales status whilst continuing to work on divesting of Havaizinho to generate further cashflow for the Company.
Pedro P. de Miranda
Managing Director
Itacaré Capital Partners Ltd
13 April 2014
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF ITACARE CAPITAL INVESTMENTS LTD
We have audited the group financial statements of Itacaré Capital Investments Ltd. for the year ended 31 December 2013, 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 the terms of our engagement letter. 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 Statement of directors' responsibilities, the directors are responsible for the preparation of the group financial statements which 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 Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the group financial statements sufficient to give reasonable assurance that the group financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the group financial statements.
In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited group financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.
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 2013 and of its loss for the year then ended in accordance with IFRS's as adopted by the European Union
GRANT THORNTON UK LLP
STATUTORY AUDITOR
2014
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Notes 2013 2012
$ $
Valuation (loss)/gain
on investment properties 8 (8,137,454) 16,502,866
Valuation loss on sale
of assets held for resale 9 (2,233,300) -
Management fees 2.11 (1,740,000) (1,740,000)
Other administration
fees and expenses 4 (1,844,410) (1,689,718)
Realised loss
on sale of asset 9 (500,000) -
Total operating (Loss)/profit (14,455,164) 13,073,148
Interest
received 2.6 42,323 301,079
Other income 30,000 -
(Loss)/profit for
the year before tax (14,382,841) 13,374,227
Deferred
tax 5 1,555,613 (2,475,430)
------------- ------------
(Loss)/profit for the
year attributable to owners
of the parent (12,857,228) 10,898,797
Other comprehensive
income
Items that will be reclassified
subsequently to profit
or loss
Exchange differences on
translating foreign operations 1,542,777 109,619
Total comprehensive (loss)/income
attributable to owners
of the parent (11,284,451) 11,008,416
============= ============
Basic and diluted (loss)/earnings
per share 6 (0.14) 0.12
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
2013 2012
ASSETS Notes $ $
Non-current
assets
Investment properties 8 89,867,000 104,507,500
89,867,000 104,507,500
Current
Assets
Trade and other receivables 13 1,744,659 460,318
Cash and cash
equivalents 15 525,869 1,649,230
Total current
assets 2,270,528 2,109,548
Assets held
for sale 9 3,000,000 -
Total assets 95,137,528 106,617,048
============ ============
EQUITY
Capital and reserves attributable
to
equity holders
Ordinary
Shares 10 935,251 891,415
Share premium
account 10 89,997,406 88,159,322
Retained
earnings (5,734,425) 7,092,803
Foreign exchange
reserve 4,483,643 2,940,866
------------ ------------
Total equity 89,681,875 99,084,406
------------ ------------
LIABILITIES
Non Current
Liabilities
Deferred tax
liability 5 4,095,992 5,651,605
4,095,992 5,651,605
------------ ------------
Current
Liabilities
Trade and other
payables 14 1,359,661 1,881,037
------------
1,359,661 1,881,037
------------ ------------
Total liabilities 5,455,652 7,532,642
Total equity
and liabilities 95,137,528 106,617,048
============ ============
Basic NAV per
Share 11 $0.96 $1.11
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share Share Retained Foreign
Capital Premium Earnings Exchange Total
$ $ $ $ $
Balance at 1
January 2012 850,965 86,177,272 (3,805,994) 2,831,247 86,053,490
Treasury shares
issued 40,450 1,982,050 - - 2,022,500
--------- ----------- ------------- ---------- -------------
Transaction with
owners 40,550 1,982,050 - - 2,022,500
Profit for the
year - - 10,898,797 - 10,898,797
Other comprehensive
income
Foreign exchange
movement on investments
in foreign operations - - - 109,619 109,619
Balance at 31
December 2012 891,415 88,159,322 7,092,803 2,940,866 99,084,406
========= =========== ============= ========== =============
Balance at 1
January 2013 891,415 88,159,322 7,092,803 2,940,866 99,084,406
Treasury shares
issued 69,550 2,712,370 - - 2,781,920
Treasury shares
returned (25,714) (874,286) - - (900,000)
Issuance costs - (103,200) - - (103,200)
--------- ----------- ------------- ---------- -------------
Transaction with
owners 43,836 1,838,084 - - 1,881,920
Loss for the
year - 103,200 (12,827,228) - (12,724,028)
Other comprehensive
income -
Foreign exchange
movement on investments
in foreign operations - - - 1,542,777 1,542,777
Balance at 31
December 2013 935,251 89,997,406 (5,734,425) 4,483,643 89,681,875
========= =========== ============= ========== =============
CONSOLIDATED CASH FLOW STATEMENT
Note 2013 2012
$ $
Net (loss)/profit
for the year (12,827,228) 10,898,797
Revaluation of investment
properties 8 8,137,454 (16,502,866)
Revaluation of assets
held for resale 9 2,233,300 -
Realised loss on 500,000 -
sale of assets
(Increase)/decrease
in receivables (1,284,341) (20,103)
(Decrease) in
payables (521,376) (1,199,463)
Deferred
taxation 5 (1,555,613) 2,475,430
Net cash used in
operating activities (5,317,804) (4,348,205)
Cashflows from investing
activities
Purchase of investment
properties (730,254) (901,134)
Sale of investment 150,000 -
properties
Net cash outflow from investing
activities (580,254) (901,134)
------------- -------------
Cash flows from financing
activities
Issue of treasury
shares 2,781,920 2,022,500
Net cash inflow from financing
activities 2,781,920 2,022,500
------------- -------------
Net decrease in cash and
cash equivalents (3,116,138) (3,226,839)
Cash and cash equivalents
at the start of the period 1,649,230 4,766,450
Exchange differences on translating
foreign operations 1,992,777 109,619
-------------
Cash and cash equivalents
at the end of the period 15 525,869 1,649,230
============= =============
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 Itacaré 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 2013 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 historical 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 2013
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 January 2013 or later periods, but the Group has chosen not to early adopt them. Certain other new standards and interpretations have been issued but are not expected to have a material impact on the Group's financial statements:
-- IFRS 9 Financial Instruments (effective 1 January 2015)
-- IFRS 10 Consolidated Financial Statements (effective 1 January 2014)
-- IFRS 11 Joint Arrangements (effective 1 January 2014)
-- IFRS 13 Fair Value Measurement (effective 1 January 2013)
IFRS 9, 'Financial instruments: Classification and measurement'
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 2015. The Group's management has yet to assess the impact of this new standard on the Group's consolidated financial statements.
IFRS 10 Consolidated Financial Statements
IFRS 10 replaces the portion of IAS 27 'Consolidated and Separate Financial Statements' that addresses the accounting for consolidated financial statements. It also includes the issues raised in SIC-12 'Consolidation - Special Purpose Entities'. IFRS 10 establishes a single control model that applies to all entities including special purpose entities. The changes introduced by IFRS 10 will require management to exercise significant judgement to determine which entities are controlled, and therefore, are required to be consolidated by a parent, compared with the requirements that were in IAS 27. This standard becomes effective for annual periods beginning on or after 1 January 2014.
IFRS 11 Joint Arrangements
IFRS 11 supersedes IAS 31 Interests in Joint Ventures (IAS 31). It aligns more closely the accounting by the investors with their rights and obligations relating to the joint arrangement. In addition, IAS 31's option of using proportionate consolidation for joint ventures has been eliminated. IFRS 11 now requires the use of the equity accounting method, which is currently used for investments in associates. The Group's management have yet to assess the impact of this new standard on the Group's consolidated financial statements.
IFRS 13 'Fair Value Measurement' (IFRS 13)
IFRS 13 clarifies the definition of fair value and provides related guidance and enhanced disclosures about fair value measurements. It does not affect which items are required to be fair-valued. IFRS 13 applies prospectively for annual periods beginning on or after 1 January 2013. Management is in the process of reviewing its valuation methodologies for conformity with the new requirements and has yet to complete its assessment of their impact on the Group's consolidated financial statements.
2.4 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 Statement of Comprehensive Income 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 acquisition 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. 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.
2.5 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.
2.6 Interest Receivable
Interest receivable on cash held in deposit accounts is recognised on an accruals basis.
2.7 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. 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 profit or loss. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined.
(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 statement of financial position presented are translated at the closing rate at the date of that statement of financial position;
(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 in other comprehensive income and accumulated in a separate component of equity.
2.8 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.
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.
2.9 Assets held for resale
When the Group intends to sell a non-current asset or a group of assets (a disposal group), and if sale within 12 months is highly probable, the asset or disposal group is classified as held for sale and presented separately in the statement of financial position. Liabilities are classified as held for sale and presented as such in the statement of financial position if they are directly associated with a disposal group.
Assets classified as held for sale are measured at the lower of their carrying amounts immediately prior to their classification as held for sale and their fair value less costs to sell. However, some held for sale assets such as financial assets or deferred tax assets, continue to be measured in accordance with the Group's relevant accounting policy for those assets. Once classified as held for sale, the assets are not subject to depreciation or amortisation. Any profit or loss arising from the sale or remeasurement of discontinued operations is presented as part of a single line item, profit or loss from discontinued operations (see note 9).
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 profit or loss. 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 remeasured 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 profit or loss 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.
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 annualised 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.
(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 cash flow statement.
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 profit or loss 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 reporting 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 reporting 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 a current asset, or an impairment loss.
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 profit or loss.
2.18 Going concern
The Directors believe that the Company is well placed to manage its business risk successfully. The Company expects to start taking villa reservations for Trancoso this quarter with a view to starting construction in the second half of the year, along with Tres Praias which Brookfield expects to start selling in H2 2014.
The Company has no debt and at year end 2013 held $0.5 million of cash reserves (2012: $1.65 million).
On 12 April 2014 the Company entered into a $2.5 million working capital loan facility with BGO Fund plc, the Company's largest shareholder, which allows the Company more time to make further asset disposals and/or place shares to fund any future existing project requirements.
The Board has the intention to sell Havaizinho as well as some or all of its treasury stock in order to increase cash headroom.
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 2013 (see note 8).
(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
2013 2012
$ $
NOMAD fee 150,000 114,288
Secretarial and
administration
fee 190,019 191,121
Directors'
fees 212,500 212,500
Legal and Professional
fees - corporate 895,748 730,544
Travelling
expenses 211,017 195,350
Taxation
(1) 18,091 51,602
Insurance 31,100 42,100
Regulatory
fees 11,705 4,110
Audit fees
(2) 39,570 40,327
General administration
and sundry expenses 84,660 107,776
---------- ----------
1,844,410 1,689,718
========== ==========
(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
2012 3,176,175
Charge in the income
statement 2,475,430
Balance as at 31
December 2012 5,651,605
============
Balance at 1 January
2013 5,651,605
(Credit) in the
income statement (1,555,613)
Balance as at 31
December 2013 4,095,992
============
Deferred tax liability is
attributable to the following:
Revaluation of
investment property 4,095,992
Total 4,095,992
============
6. Consolidated (loss)/earnings per share
2013 Basic Basic
and and
Diluted Diluted
EPS EPS
(excluding
deferred
tax)
$ $
Net loss (12,857,228) (12,857,228)
Deferred
tax - (1,555,613)
Adjusted
net loss (12,857,228) (14,412,841)
Weighted average
number of
shares in issue
(see below) 94,066,158 94,066,158
Loss per
share (0.14) (0.15)
2012 Basic Basic
and and
Diluted Diluted
EPS EPS
(excluding
deferred
tax)
$ $
Net profit 10,898,797 10,898,797
Deferred
tax - 2,475,430
Adjusted
net profit 10,898,797 13,374,227
Weighted average
number of
shares in issue
(see below) 87,479,171 87,479,171
Weighted average shares
in issue calculation
Basic and Number of shares
diluted- 2012
Ongoing Cumulative Days Weighted
in Issue
Shares in
issue at 1
January 2012 85,096,500 85,096,500 366 85,096,500
Treasury shares
issued 1 June
2012 4,045,000 89,141,500 215 2,382,671
89,141,500 87,479,171
============ ===========
Basic and Number of shares
diluted- 2013
Ongoing Cumulative Days Weighted
in Issue
Shares in
issue at 1
January 2013 89,141,500 89,141,500 365 89,141,500
Treasury shares
issued 1 April
2013 6,955,000 96,096,500 245 4,668,425
Treasury shares
returned 30
December 2013 (2,571,429) 93,525,071 1 256,233
93,525,071 94,066,158
============ ===========
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%
Itacaré Capital Delaware
Investments, LLC (2) USA 100%
Itacap Three, Delaware
LLC (3) USA 100%
Itacap Três Incorporações
e Participações
Ltda(3) Brazil 100%
Itacap MP, Delaware
LLC (4) USA 100%
Itacap Two, Delaware
LLC(5) USA 100%
Itacap Four, Delaware
LLC(6) USA 100%
Itacap Dois Incorporações
e Participações
Ltda. (6) Brazil 100%
Itacap Quatro Incorporações
e Participações
Ltda. (6) Brazil 100%
Itacap Seven
Ltd. (7) BVI 100%
W Villa Holding
Ltd. (8) BVI 100%
Goveport International
Ltd. (8) BVI 100%
Goveport International, Delaware
LLC (8) USA 100%
Villas do
Havaizinho
Hotelaria
e Empreendimentos
Imobiliários
Ltda. (8) Brazil 100%
Joint Ventures Country Proportion
of Incorporation of Ownership
interest
Duas Barras
Ltd. (1) BVI 50%
Itacap One, Delaware
LLC(1) USA 50%
Itacap Um Incorporações,
Participações e Hotelaria
Ltda(1) Brazil 50%
BB Trancoso
Ltd. (7) BVI 50%
Trancoso Investment Delaware
One, LLC(7) USA 50%
Bahia Beach Empreendimentos
Imobiliários e Hotelaria
S.A (7) Brazil 50%
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
2013 2012 2013 2012
$ $ $ $
Assets
Long-term
assets 18,771,500 21,460,000 32,354,763 34,389,500
Current assets 229,624 341,529 169,054 254,174
19,001,124 21,801,529 32,523,817 34,643,674
----------- ----------- ----------- -----------
Liabilities
Long-term
liabilities - - 1,034,611 1,127,096
Current liabilities 19,184 19,205 13,398 6,513
19,184 19,205 1,048,009 1,133,609
----------- ----------- ----------- -----------
Net assets 19,104,440 21,782,324 31,475,808 33,510,065
----------- ----------- ----------- -----------
Income 1,784 3,450 1,810 6,067
Expenses (102,764) (110,755) (188,268) (129,409)
Loss after
tax (100,980) (107,305) (186,458) (123,342)
----------- ----------- ----------- -----------
There are no contingent liabilities relating to the Group's interest in the joint ventures (Dec 2012:nil), and no contingent liabilities of the ventures themselves (Dec 2012:nil).
Interest in joint ventures
The Group has a 50% interest in a joint venture Duas Barras Ltd., who own Itacap Um Empreendimentos e Participações Ltda through Itacap One, LLC.
The Group has a 50% interest in a joint venture BB Trancoso Ltd, who own Bahia Beach Empreendimentos Imobiliários Ltda through Trancoso Investment One LLC.
(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 Incorporações, Participações e Hotelaria 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 Três Incorporações e Participações Ltda, which has been established to facilitate the Company's purchase of the property Três 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 Incorporações, Participações e Hotelaria Ltda, Itacap Dois Incorporações e Participações Ltda., Itacap Três Incorporações e Participações Ltda., Itacap Quatro Incorporações e Participações Ltda., and Villas do Havaizinho Hotelaria e Empreendimentos Imobiliários Ltda. No fair value gain has been included in the consolidated financial statements in relation to Itacap MP, LLC.
(5) Itacap Two, LLC was utilised to hold Brazilian Reais 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 Incorporações e Participações Ltda., Itacap Quatro Incorporações e Participações 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 Participações Ltda., which in turn owns 100% of Bahia Beach Empreendimentos Imobiliários e Hotelaria S/A, 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 Imobiliários Ltda., which owns Havaizinho property.
8. Investment properties
Tres Bahia Duas
Havaizinho Warapuru Praias Beach Barras Total
$ $ $ $ $ $
At 1 January
2012 5,924,000 3,973,000 37,205,000 22,140,000 17,861,500 87,103,500
Additions
in year 155,950 4,500 - 500,769 239,915 901,134
---------------------- ------------
6,079,950 3,977,500 37,205,000 22,640,769 18,101,415 88,004,634
Fair value
adjustment (954,950) (1,977,500) 4,328,000 11,748,731 3,358,585 16,502,866
At 31 December
2012 5,125,000 2,000,000 41,533,000 34,389,500 21,460,000 104,507,500
====================== ============ ============ ============ ============ ============
At 1 January
2013 5,125,000 2,000,000 41,533,000 34,389,500 21,460,000 104,507,500
Additions
in year 108,300 - - 581,704 40,250 730,254
Transfers
in the year
to assets
held for
resale (5,233,300) (2,000,000) - - - (7,233,300)
- - 41,533,000 34,971,204 21,500,250 98,004,454
Fair value
adjustment - - (2,788,000) (2,620,704) (2,728,750) (8,137,454)
---------------------- ------------
At 31 December
2013 - - 38,745,000 32,350,500 18,771,500 89,867,000
====================== ============ ============ ============ ============ ============
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 2013. 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 two approaches: the comparison approach and the residual value 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 developer's profit) to arrive at the underlying land value. 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. 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.
Real estate valuations are complex, derived from data which is not widely publicly available and involve a degree of judgement. For these reasons, and consistent with EPRA's guidance, we have classified the valuations of our property portfolio as Level 3 as defined by IFRS 13. Inputs to the valuations, some of which are 'unobservable' as defined by IFRS 13, include the Brazilian National Index of Construction Cost (INCC) price index. All other factors remaining constant, an increase in future sales proceeds would increase valuations, whilst increases in discount rate would result in a fall in values and vice versa. However, there are interrelationships between unobservable inputs as they are determined by market conditions. The existence of an increase of more than one unobservable input would augment the impact on valuation.
All additions relate to expenditure on existing assets, in both the current and prior year.
9. Assets held for resale
Havaizinho Warapuru Total
$ $ $
At 1 January - - -
2012
Additions - - -
in year
- - -
Fair value adjustment - - -
At 31 December 2012 - - -
============ ============ ============
At 1 January - - -
2013
Transfers in the
year 5,233,300 2,000,000 7,233,300
Disposals
in year - (2,000,000) (2,000,000)
5,233,300 - 5,233,300
Fair value adjustment (2,233,300) - (2,233,300)
At 31 December 2013 3,000,000 - 3,000,000
============ ============ ============
Havaizinho
On 30 December 2013, the Board of Directors announced its decision to dispose of Havaizinho and, therefore, classified it as a disposal group held for sale. The Board considered the investment property met the criteria to be classified as held for sale at that date for the following reasons:
-- Havaizinho is available for immediate sale and can be sold to a potential buyer in its current condition
-- The Board had a plan to sell Havaizinho and has signed a 36-month option agreement with Dominic Redfern ("the Buyer" of Warapuru), with a strike price of $3 million. During the option period the Group may elect to sell the Havaizinho property subject to a right of first refusal from the Buyer. In the event that the Group receives an offer for the property at a higher price than the Strike Price and the Buyer does not exercise its right of first refusal, the Buyer will be entitled to a break fee equivalent to 40% of the excess (net of any transfer costs or expenses) between the purchase price and the Strike price.
Warapuru
Warapuru was sold prior to the year end date for $ 1,500,000 realising a loss of $ 500,000. The fair value calculated above, for the purposes of IFRS 13, have been measured based on unobservable inputs, being a combination of bids from market participants and financial forecasts developed internally, and is therefore within level 3 of the fair value hierarchy.
10. Share Capital
2013 2012
Authorised share capital Number Number
of shares of shares
Ordinary shares of
$0.01 each 500,000,000 500,000,000
============== ==============
Movement in share capital and
premium
Number Share Capital Share Premium
of shares
No. $ $
Shares in issue on
1 January 2012 85,096,500 850,965 86,177,272
Treasury shares issued
1 June 2012 4,045,000 40,450 1,982,050
Shares in issue on
31 December 2012 89,141,500 891,415 88,159,322
============ ============== ==============
Number Share Capital Share Premium
of shares
No. $ $
Shares in issue on
1 January 2013 89,141,500 891,415 88,159,322
Treasury shares issued
1 April 2013 6,955,000 69,550 2,712,370
Treasury shares returned
30 December 2013 (2,571,429) (25,714) (874,286)
Shares in issue on
31 December 2013 93,525,071 935,251 89,997,406
============ ============== ==============
Treasury shares
The Group successfully placed the remaining 6,955,000 common shares of one cent each at a price of 40 cents per share.
On 30(th) December 2013 the Group received 2,571,429 common shares of one cent each as part consideration on the sale of Warapuru.
11. 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
shares per share attributable value attributable
2013 2012 2013 2012 2013 2012
Number Number $ $ $'000 $'000
Basic 93,525,071 89,141,500 0.96 1.11 89,682 99,084
Diluted 93,525,071 89,141,500 0.91 0.95 85,163 85,057
Diluted excluding
deferred
tax liability 93,525,071 89,141,500 1.00 1.17 93,778 104,736
Basic net asset value per share is based on net assets at the year end, and on 93,525,071 (2012: 89,141,500) ordinary shares, being the respective number of shares in issue at the year end.
12. Directors' interests
The Directors' interests in the shares of the Group at 31 December 2013 are stated below.
BGO Fund (1) 31,248,180 Ordinary Shares Michael St Aldwyn 895,000 Ordinary Shares Raymond Smith 20,000 Ordinary Shares Samsão 20,000 Ordinary Shares Woiler Ricardo Reisen 100,000 Ordinary Shares de Pinho
(1) Frederick Dubignon is a board member as a representative of BGO Fund, their holding representing 32.58% of the issued share capital.
13 Trade and other receivables
2013 2012
$ $
Trade receivables 871 2,178
Sundry receivables 1,743,788 458,140
1,744,659 460,318
========== ========
14 Trade and other payables
2013 2012
Current $ $
liabilities
Payables/Commitments
to developers 1,034,611 1,127,097
Trade payables 164,487 395,216
Sundry payables 160,562 58,724
Performance fee
accrual - 300,000
1,359,661 1,881,037
========== ==========
15 Cash and cash equivalents
2013 2012
$ $
Cash at
bank 525,869 1,649,230
525,869 1,649,230
======== ==========
16. Related party transactions
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 2013 were as follows:
2013 2012
Directors' Directors'
Fees Fees
$ $
Michael
St Aldwyn 62,500 62,500
Raymond
Smith 50,000 50,000
Samsão
Woiler 50,000 50,000
Ricardo Reisen
de Pinho 50,000 50,000
Frederick - -
Dubignon
Total 212,500 212,500
=========== ===========
As set out in note 9, during the year Waraparu was sold to Mr D Redfern, a related party by virtue of his shareholding in ICI. The sale was conducted at arms-length.
17. 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
2013
Cost Fair
Value
$ $
Investment properties and
assets held for resale measured
at fair value under IAS40 73,104,853 92,867,000
=========== ===========
The market price is exposed to the real estate market fluctuation that depends intrinsically on 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 included in the Statement of Income and Expenditure.
(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 2013, 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 $10,517 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 all are due within one year.
(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 its 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 2013 was Brazilian Real R$2.3484 to US$ 1.00.
2013 USD amount per accounts
USD BRL Total
ASSETS
Current assets
Trade and other
receivables - 1,744,659 1,744,659
Cash and cash equivalents 233,998 291,871 525,869
Total Current
Assets 233,998 2,036,530 2,270,528
======== ========== ==========
USD amount per accounts
USD BRL Total
EQUITY
Capital and reserves
Ordinary
shares 935,251 - 935,251
Share premium 89,997,406 - 89,997,406
Retained
earnings (5,764,425) - (5,764,425)
Foreign exchange
reserve 4,513,643 - 4,513,643
LIABILITIES
Current liabilities
Trade and other
payables - 1,359,661 1,359,661
Total financial
liabilities and
equity 89,681,875 1,359,661 91,041,536
============ ========== ============
For Brazilian subsidiaries' projects the currency exchange rate at 31 December 2012 was Brazilian Real R$2.047 to US$ 1.00.
2012 USD amount per accounts
USD BRL Total
ASSETS
Current assets
Trade and other receivables - 460,318 460,318
Cash and cash equivalents 762,187 887,043 1,649,230
Total Current Assets 762,187 1,347,361 2,109,548
============ ========== ============
EQUITY
Capital and reserves
Ordinary
shares 931,865 - 931,865
Share premium 90,141,372 - 90,141,372
Retained
earnings 17,991,600 - 17,991,600
Foreign exchange reserve 3,050,485 - 3,050,485
LIABILITIES
Current liabilities
Trade and other payables - 1,881,037 1,881,037
Total financial liabilities
and equity 112,115,322 1,881,037 113,996,359
============ ========== ============
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 2013, the impact of such currency exchange rate fluctuation would have led to a decrease/increase in NAV of $ 2,894,270 (2012: $3,198,511). The Group's profit would also have led to an increase/decrease of $331,411 (2012: $330,253).
(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.
18. Events After The Balance Sheet Date
Details of events that have occurred after the balance sheet date are as follows:
In March 2014 the Company was awarded the final building consent required to commence building out its Trancoso joint venture project with Fasano, a leading Brazilian hotel group. Despite having previously agreed to accept equity funding from a pension fund in support of the pre-marketing phase of this project, the Manager, working with our joint venture partners, has decided to embark upon a fresh fundraise for a larger sum, $15 million, using a simpler structure for the entirety of funds required.
On 12 April 2014 the Company entered into a $2.5 million working capital loan facility with BGO Fund plc, the Company's largest shareholder, which allows the Company more time to make further asset disposals and/or place shares to fund any future existing project requirements.
The Company was recently approached by its joint-venture partner in Duas Barras, with a proposal to purchase the 50% of the Duas Barras project owned by Itacaré, and to that extent has entered into an exclusivity letter with the Company's joint venture partner and others in relation to a potential sale of the Company's interest in Duas Barras. The exclusivity period expires on 24 May 2014 or such later date as the parties may agree. In selling Duas Barras, which has the longest time horizon of our three investments in terms of realisation, the Company would be able to shorten its future time horizon as well as simplify its business model.
A General Meeting will be called to present the Board and Management's vision for the future of the Company and its ongoing activities, and to propose the cancellation of the admission of the Company's ordinary shares from trading on the AIM market operated by the London Stock Exchange.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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