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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
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Lewis Charles (See LSE:SPFL) | LSE:LCSS | London | Ordinary Share | GB00B0BV8078 | ORD NPV |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 6.75 | 0.00 | 01:00:00 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
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0 | 0 | N/A | 0 |
TIDMLCSS 29th June 2009 AIM: LCSS Lewis Charles Sofia Property Fund ('Lewis Charles' or 'the Company') Preliminary results for the year ended 31st December 2008 Overview of 2008 · Value of the Lewis Charles Sofia Property Fund portfolio at 31st December 2008 is EUR 51.6 million compared to an acquisition cost of EUR 49.3 million. · NAV of 92 pence (2007 NAV: 116 pence) · Crystal Vale, Govedarci: first phase of the project has reached the rough construction stage, work currently suspended due to economic conditions - sales operations anticipated to re-launch by end of Q2 2010 · Crystal Glade, Govedarci: full residential permitting secured from Bulgarian Ministry, prospect will remain in land bank until Crystal Vale has been largely completed · Panorama Villas, Razlog: first phase of the project has reached the rough construction stage, work currently suspended due to economic conditions · Veliko Tarnovo: full residential permitting secured from Bulgarian Ministry · Kambanite Bistritsa, Sofia: sale of land for EUR 1.826 million so as to raise working capital, the terms of the deal allows the fund to exercise and exclusive option to repurchase the land by the 15 December 2009 for EUR 4 million · Vitoshavets Simeonovo (BUYSELL), Sofia: completion of legal proceedings to rescind the sales contracts with BUYSELL, steps being taken to recuperate the sums paid under contract with BUYSELL - court action could be taken if BUYSELL do not pay all amounts due For further enquires - Dominic Morley, Stuart Gledhill - Panmure Gordon +44 (0) 20 7459 3600 Ed Portman, Leesa Peters - Conduit PR +44 (0) 207 429 6607/+44 (0) 7733 363 501 Charles Burton +44 (0)207 803 1400 Chairman's Report The Company had to deal with exceptionally challenging market conditions in Bulgaria during 2008, and the Directors were obliged to make difficult decisions in order to safeguard the long term interests of the shareholders. A detailed review of the Company's projects and the Bulgarian property market can be found in the Investment Managers' Report. Although the economic situation will remain difficult and uncertain over the short term, the longer term fundamentals for the Bulgarian economy continue to look promising. Over the next few years, convergence on European Union Gross Domestic Product per head with commensurate living standards will sustain above average growth rates and lead to strong demand for quality housing. Bulgaria is also becoming an important tourist destination, with competitive pricing, good access and emerging facilities. The latest King Sturge global property report published in June has Bulgarian property prices rising by 3.3% during the first quarter of 2009. The Fund's holdings and potential developments have been crafted to benefit from this. In January 2009, in order to raise cash, the Fund (through its wholly owned subsidiary Splendid Investments S.A) announced the sale of its 100,713 square metres of land in Kambanite Bistritsa for EUR 1.826 million to Enderton Company Assets Inc. The terms of the deal allow the Fund to buy back the land at an aggregate exercise price of EUR 4 million (the option expires on the 15th December 2009). While in March 2009, the Company took the decision to rescind all of the option agreements as well as preliminary sales contracts in place with BuySell due to non performance by expiry date of the options. The Company has received legal advise that it may pursue its entitlement to repayment from BuySell of all payments made under each option agreement and is also entitled to penalty payments. The effect of this is that the Company no longer has a contingent liability that was previously disclosed in prior year financial statements. At the end of March, the Company terminated the Management Agreement with Lewis Charles Securities. This will take effect from the 1st October 2009. The Board should be in a position to make an announcement regarding the future management of the Fund within the next few weeks. Finally, the published valuation NAV is currently 92p (EUR 96 cents), having fallen from 116p (EUR 1.59) in 2007, in comparison to the accounting NAV of 87p (EUR 91 cents) having fallen from 101p (EUR 1.37) per share at the year end exchange rate of EUR/GBP 1.045. Charles Burton Chairman 26th June 2009 Investment Manager's Report THE BULGARIAN ECONOMY Data published for 2009 indicate a major correction is underway. By the end of the first quarter of 2009, unemployment had risen to 6.9% and industrial production had fallen by 17.1% (annualised). Consumer confidence is down although business confidence now seems to have stabilised. Export volumes have fallen more than imports implying that net trade will be a significant drag on growth. In 2009, the government is expected to record a budget deficit of 1.25% of GDP versus a surplus of 3% of GDP in 2008. Against this backdrop, GDP for 2009 is expected to contract by around 3% before recovering to +2.1% in 2010 and +4.2% in 2011 (Oxford Economics). On a positive side, the current account deficit is expected to narrow from 24% of GDP (2008) to around 11% of GDP in 2009. In addition, the largely foreign owned banking system seems well placed to withstand the downturn with capital adequacy standing at a comfortable level of 14% (Sept 2008). BULGARIAN PROPERTY MARKET UPDATE The price increases of up to 20% in the residential market seen during the first nine months of 2008 were effectively wiped out during the last quarter of the year as a result of the international financial crisis. In addition credit restrictions resulting from the crisis led to a significant drop in the volume of residential property transactions. The low volume of transactions meant that asking sales prices were the best reflection of the market's overall price level. Prices continued to fall during the first quarter of 2009. The upper - mid residential sector in Sofia was priced at around ?2,000 per sq m in mid 2008 and has now dropped to circa ?1,700 per sq m. Compared to the average prices in H2 2008 those in south Sofia fell by between 7-9% in Vitosha to 2% in Krustova Vada. Average asking prices in these areas are, however, still above ?1,100 per sq m. Moving to the provinces, the Daily Telegraph Sunday supplement recently reported that Bulgarian winter resorts continue to offer good value for money to property buyers and `A Place in the Sun' cited Bulgaria as a recommended country in `Where to Buy 2009'. The commercial property market has also suffered from a steep decline in transaction volume. The investment market, as a result, almost completely dried up. The new office pipeline in Sofia showed year-on-year growth of 51%; this strong number is attributable to a few very large projects. It is anticipated that approx. 150,000 sq m of new office space will be delivered during the first six months of 2009. Office vacancy rates in Sofia grew by more than 5% to 9.1%. Difficult financing conditions have also caused the delay or suspension of most shopping mall projects, although demand for high street retail space remains high due to the shortage of available locations. Bulgaria's first retail park, Retail Park Plovdiv which was developed by Landmark, opened in the second half of 2008 with a GLA of 26,000 sq m. The opening, in the first half of 2009, of the first shopping mall in Bourgas will also mark the official entry of Carrefour hypermarkets to Bulgaria. PROPERTIES Land Build At Cost Valuation Area Area (EUR) (EUR) M2 M2 31/12/2008 31/12/2008 (note 2) 1. Goverdartsi (Crystal Vale/Crystal Glade) 36,581 34,604 5,252,916 4,990,000 2. Beli Iskar (Crystal Heights) 19,432 19,432 1,321,836 1,400,000 3. Razlog/Bansko 18,354 26,119 9,083,502 7,629,000 4. Plovdiv 12,151 12,712 3,888,803 2,950,000 5. Veliko 13,443 26,886 2,493,942 2,790,000 6. Dolna Banya 48,548 57,621 1,661,101 1,880,000 7. Sofia Kambanite Bistritsa 100,713 100,713 9,251,412 23,100,000 8. Banya 117,774 182,130 3,606,772 4,790,000 9. BuySell - Vetz Simenovo (Note 1) 48,218 89,967 10,379,426 - Vetz Simenovo - Project 55 1,298 3,198 2,322,223 2,120,000 ___________________________________________ Total 416,512 553,382 49,261,933 51,649,000 ___________________________________________ ___________________________________________ PROPERTIES Note 1: The Group has terminated these contracts with BuySell and accordingly they have been valued at Nil on the balance sheet (as outlined in note 26.) Note 2: Some build areas are estimated subject to planning approval. 1. GOVEDARCI CRYSTAL VALE The first phase of Crystal Vale has reached the stage of rough construction; further work has been temporarily suspended due to weak domestic and international market conditions. Sales operations will re-launch when market recovery begins, possibly in Q2 2010. The Crystal Vale site has full Ministry approval for residential use. CRYSTAL GLADE Crystal Glade is intended to be the sister resort to Crystal Vale. The two sites are only 1 km apart and are located in the foothills of the Rila Mountains only a few hundred metres from a ski lift. The site is also close to the ski resort of Borovets and approx one hour's drive from Sofia airport. Crystal Glade has now received full Ministry approval for residential use and will remain in the land bank until Crystal Vale has been substantially completed. 2. BELI ISKAR - CRYSTAL HEIGHTS This land is located on the edge of the picturesque village of Beli Iskar within 500 meters of the proposed site of the new ski gondola to the Borovets resort. The land is still designated for agricultural use and will remain in the land bank until market conditions encourage development of the site. 3. RAZLOG PANORAMA VILLAS Phase 1 of the Panorama Villas has reached the stage of rough construction; further work has been temporarily suspended due to weak domestic and international market conditions. The planned sales campaign would have coincided with the worst phase of the international financial crisis and was therefore halted pending a recovery in markets. Until Phase 1 of the project has been substantially completed the remaining three phases will remain in the land bank. NIRVANA This undeveloped land plot will remain in the land bank. 4. PLOVDIV ROMAN VIEW It was decided not to proceed with the development of this excellent site in central Plovdiv until economic conditions improve. PLOVDIV REACH This land plot is located beside the national rowing centre on the edge of Plovdiv. It will remain in the land bank. 5. VELIKO TARNOVO This land plot is located close to the city centre and has full residential planning permission. 6. DOLNA BANYA The Fund owns four separate plots of land in good locations and residential planning permission in and around the town of Dolna Banya. It is intended that they should remain in the land bank. 7. SOFIA - KAMBANITE BISTRITSA The Fund was obliged to sell this land for ?1.826 million in order to raise cash for essential management purposes in January 2009, with an exclusive option to repurchase the plot by 15th December 2009 for ?4.0 million. (as outlined in note 26) 8. BANYA This site has now been consolidated into three contiguous plots which have all been removed from agricultural status. One of the plots has now received full Ministry approval for residential use and planning applications will be made for the other two. 9. SOFIA - VETS SIMENOVO (BUYSELL) The Fund had exercised seven options to purchase properties in Sofia situated in the Vitoshavets Simeonovo, Krustovat and Dragalevtsi areas of Sofia. These properties comprised residential villas and apartment developments, together with shops, some small offices and parking to be developed by BuySell Real Estate Agent Limited ('BuySell'), a Bulgarian incorporated property development company. One of the projects, "Project 55", was finished in February 2008, and the Fund concluded the purchase of this property. The Fund took delivery of one building from BuySell in September 2008 (Project 55 - see Table). Sales of apartments in this building have progressed well despite difficult market conditions, and sales have been concluded for well over half of the apartments. The Group received legal advice that BuySell is in default under the six remaining option agreements in place and served notices giving BuySell until 17 April 2009 to perform its obligations under each of these option agreements. BuySell has failed to perform its obligations by the due date, and the Group has therefore rescinded all of the remaining option agreements and preliminary sales contracts due to non-performance. If BuySell do not pay the Fund all amounts due, it may be necessary for the Fund to recover this money in the Bulgarian courts. The ?10,379,426 and a further ?9,000,494 in penalties from BuySell may therefore be contingent on the outcome of the legal proceedings (as disclosed in note 26). INVESTING POLICY · The Fund is restricted to investments in Bulgaria and these investments must be largely (but not exclusively) residential in nature. · The Fund may invest in early stage residential developments mainly, but not exclusively, in and around Sofia and its adjacent ski resorts. · The Fund may buy land and seek to develop its land through partnerships with Developers. · The Fund may borrow in order to develop its assets. · The Fund should be liquidated and proceeds distributed to shareholders by 27 September 2012 (7 years from launch) unless shareholders vote to extend the life of the Fund. · The Fund does not intend to pay a dividend (although the Fund is not restricted from doing so). Lewis Charles Securities Limited 26th June 2009 Board of directors Charles Burton (Chairman) Charles, a UK resident, has an excellent track record of senior executive responsibility, most recently at Experian Group where he was Global Managing Director of the Business Strategies Division from 2002 until 2008. This role encompassed widespread exposure to the property investment sector, for which the division supplied data, forecasts and due diligence on portfolios and individual sites throughout Europe. Charles is a member of the Scottish Executive's Economic Consultants' group and a Fellow and council member of the Society of Business Economists. He is also a director of Oxford Economics Ltd. Daniela Bobeva Daniela is a Bulgarian resident and has a Master's degree from the Sofia Institute of Economics and a PhD in Economics. She started her career as an economic analyst and adviser to the Prime Minister of Bulgaria and then in 1995- 1996 became the President of the Bulgarian Foreign Investment Agency. In 1997, she became Minister of Trade and Foreign Economic Co-operation. From 1998 to 2001, she was elected as the first vice-president of Banking in the newly established multilateral development bank. She is currently Director of European Integration and International Relations at the Bulgarian National Bank. She has more than 30 international publications in the area of macro-economics. Desmond Swayne Desmond is a UK resident and is the sitting Conservative Member of Parliament for New Forest West. He holds a Master's degree from St Andrew's University. Prior to entering Parliament in 1987 he spent eight years working for the Royal Bank of Scotland including four years as manager for Royal Bank of Scotland Risk Management Systems. Mr Swayne has held a number of front bench positions including Shadow Health Minister, Shadow Defence Minister, Shadow Northern Ireland Minister and senior whip. He is currently Parliamentary Private Secretary to the Leader of the Opposition, David Cameron. Gerald Williams Gerald Williams, a Guernsey resident, is Chief Executive of The Bachmann Group Limited, a Director of Bachmann Fund Administration Limited, and was previously a director of Coutts Fund Managers and head of private banking for Coutts offshore private bank. Mr Williams has worked in most major offshore jurisdictions including the Bahamas, Cayman Islands, Isle of Man and Jersey. Mr Williams has a wealth of experience in the trust field and is an associate of the Chartered Institute of Bankers. Clive Simon Clive Simon is a Guernsey resident, the Chairman of Bachmann Fund Administration Limited and a director of The Bachmann Group Limited. Before joining the Bachmann Group of Companies in 1998, he was a senior partner with Coopers and Lybrand (now PricewaterhouseCoopers), working in London, Africa and the Channel Islands. His business background is predominantly in the financial services sector. Directors' report The directors present their report and the financial statements of Lewis Charles Sofia Property Fund Limited which is incorporated in Guernsey, Channel Islands, and its group, for the year ended 31 December 2008. Company status The Company is a closed-ended, Guernsey registered investment fund. Its shares are listed and traded on AIM. Principal activity The Company offers an opportunity to invest in the Bulgarian residential property market and, particularly, apartments and villas to be built in and around Sofia. Its objective is to provide Shareholders with a high level of long- term capital appreciation. Results and dividends The results for the year are set out in the Consolidated income statement on page 18. The directors did not declare a dividend for the year. Listing requirements Throughout the accounting period the Company complied with the conditions set out in the AIM Rules for Companies. Directors The directors during the year and to date were as follows: Charles Burton (Chairman) - appointed 29 April 2008 Lord Howard of Penrith (Chairman) - resigned 29 April 2008 Daniela Bobeva Desmond Swayne Gerald Williams Clive Simon Paul Duquemin (As alternate to Clive Simon) Steve Desmond (As alternate to Gerald Williams) The biographies of directors are on page 9. Directors shall be subject to retirement by rotation at least every three years. No person shall be or become incapable of being appointed as a director by reason of having attained the age of 70 or any other age and no director will be required to vacate his office at any time by reason of the fact that he has attained the age of 70 or any other age. A retiring director shall be eligible for reappointment, however there is no director who is due for retirement by rotation. The Board considers that there is balance of skills within the Board and that each of the Directors contributes effectively. Directors' fees During the year the Directors received the following remuneration in the form of fees: 2008 2009 Euro Euro Charles Burton (Chairman) 11,138 - Lord Howard of Penrith (Ex Chairman)(retired) 9,760 22,050 Daniela Bobeva 15,493 17,641 Desmond Swayne 14,711 17,656 Gerald Williams 9,193 11,022 Clive Simon 9,193 11,022 There are no service contracts in existence between the Company and any of the Directors. The Company has put in place relevant cover for Directors in the form of Directors and officers insurance. The Companys' Articles of Association limit the aggregate fees to the Directors at GBP75,000 per annum. Directors' interests Gerald Williams and Clive Simon are directors of the Company and the Administrator. The fee paid to Bachmann Fund Administration is disclosed on the face of the Company income statement and in note 3. As at the date of the approval of these financial statements the directors have the following beneficial interests in the ordinary share capital of the Company; Number of Number of % of % of Ordinary Ordinary issued issued shares shares share share capital capital 2008 2007 2008 2007 Daniela Bobeva - - - - Desmond Swayne - - - - Gerald Williams 50,000 50,000 0.10% 0.10% Clive Simon 50,000 50,000 0.10% 0.10% Charles Burton 50,000 - 0.10% - Substantial interests in Company shares At 31 December 2008 the following holdings representing more than 3 per cent of the Company's issued shares had been notified to the Company. Ordinary Interest in shares voting capital Vidacos Nominees Limited DMG 7 8,700,000 18.00% Goldman Sachs Securities (Nominees) 7,826,900 16.19% Limited ILSEG The Bank of New York (Nominees) Limited 4,271,500 8.84% DBV303 Nortrust Nominees Limited ADT01 4,055,000 8.39% Euroclear Nominees Limited EOC01 3,352,838 6.94% Credit Suisse Client Nominees (UK) Limited 3,275,000 6.77% D6M5PB BNY (OCS) Nominees Ltd 1,640,000 3.39% Chase Nominees Limited LEND 1,600,000 3.31% Roy Nominees Limited 101604 1,476,169 3.05% Management The investment manager provides investment advisory services to the Company and property advisory, property management and monitoring services to those members of the Group which acquire property, in each case in accordance with the investment objectives and investment policies of the Group. On 31 March 2009, the Group has served notice on Lewis Charles Securities Limited to terminate the management agreement. The termination will take effect on 1 October 2009. Corporate governance As a Guernsey registered company, the Company is not required to comply with the Combined Code on Corporate Governance. However, it is the Company's policy to comply with best practice on good corporate governance that is applicable to investment companies. Corporate governance Arrangements in respect of corporate governance have therefore been made by the Board, which it believes are appropriate for the Company. The Board consists solely of non-executive Directors of which Lord Howard of Penrith was Chairman until 29 April 2008, whereupon he resigned and Charles Burton was appointed as his replacement. Since all the Directors are considered by the Board to be independent non-executive directors, the provisions of the Code in respect of Directors' remuneration are not relevant to the Company except in so far as they relate to non-executive Directors. In view of its non-executive nature and the requirement of the Articles of Association that all Directors retire in rotation at least every three years, the Board considers that it is not appropriate for the Directors to be appointed for a specified term as recommended by the Code. A Management Agreement between the Company and its Managers, Lewis Charles Securities Limited, sets out the matters over which the Managers have authority and the limits above which Board approval must be sought. All other matters, including strategy, investment and dividend policies, gearing and corporate governance procedures, are reserved for the approval of the Board of Directors. The Board currently meets at least quarterly and receives full information on the Company's investment performance, assets, liabilities and other relevant information in advance of Board meetings. The table below sets out the number of Board meetings held during the year ended 31 December 2008 and the number of meetings attended by each Director. Board Meetings ______________ Quarterly Adhoc Total attended attended held Charles Burton (Chairman) 16 3 5 Lord Howard of Penrith (Ex Chairman) 16 1 - (retired) Daniela Bobeva 16 3 1 Desmond Swayne 16 4 3 Gerald Williams 16 4 12 Clive Simon 16 4 12 Individual Directors may, at the expense of the Company, seek independent professional advice on any matters that concern them in the furtherance of their duties. Going concern After making enquiries, and bearing in mind the nature of the Company's business and assets, and for the reasons disclosed in note 2(n) of the financial statements, the Directors consider that the Company has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements. Internal controls The Board is responsible for the Company's system of internal control and for reviewing its effectiveness. The Board has documented an ongoing process by which the needs of the Company in managing the risks to which it is exposed can be met. The procedures, as documented, have been in place throughout both the financial year and to the date of approval of the Annual Report and the Financial Statements. The Board is satisfied with the effectiveness of the procedures. By their nature these procedures are able to provide reasonable, but not absolute, assurance against material misstatement or loss. During each Board meeting the Board monitors the investment performance of the Company in comparison to its objectives. The Board also reviews the Company's activities since the last Board meeting and ensures that the Managers have followed the agreed investment policy. Also, at each meeting, the Board receives reports from the Administrator in respect of compliance matters and duties performed on behalf of the Company. The Board has decided that the systems and procedures employed by the Managers and the Secretary, provide assurance that a sound system of internal control, which safeguards shareholders' investments and the Company's assets, is maintained. An internal audit function specific to the Company is therefore considered unnecessary. Relations with Shareholders The Company welcomes the views of shareholders and places great importance on communications with them. The Chairman and the other Directors are available to meet shareholders if required. The Annual General Meeting of the Company provides a forum, both formal and informal, for shareholders to meet and discuss issues with the Directors and Managers of the Company. Annual General Meeting The notice for the Annual General Meeting of the Company, which is to be held on 14 August 2009 at Frances House, Sir William Place, St Peter Port, Guernsey, is set out at the end of this document. Included in the document is a form of proxy for use at the meeting. Details and reasons for the items of business to be proposed at the Annual General Meeting are set out below: ORDINARY RESOLUTIONS 1. To receive and consider the Financial Statements and Chairman's report for the year ended 31 December 2008. 2. To re-appoint the following persons as Directors of the Company for the ensuing year: Desmond Swayne Gerald Williams 3. To re-appoint BDO Novus Limited as Auditors of the Company 4. To authorise the Directors to fix the remuneration of the Company's Auditors By order of the board Gerald Williams Clive Simon Director Director 26th June 2009 Statement of directors' responsibilities in respect of the financial statements Guernsey company law requires the directors to prepare financial statements for each financial period which give a true and fair view of the state of affairs of the Company and Group and of the profit or loss of the Company and the Group for that year. In preparing those financial statements, the directors are required to: - select suitable accounting policies and then apply them consistently; - make judgements and estimates that are reasonable and prudent; - state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and - prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and of the Group and to enable them to ensure that the financial statements have been properly prepared in accordance with the Companies (Guernsey) Law, 1994. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Independent auditors' report to the members of Lewis Charles Sofia Property Fund Limited We have audited the group and parent company financial statements ("the Financial Statements") of Lewis Charles Sofia Property Fund Limited for the year ended 31 December 2008, which comprise the Consolidated and Company Income Statements, Consolidated and Company Balance Sheets, Consolidated and Company Cash Flow Statements, Consolidated and Company Statements of Changes in Equity and the related notes 1 to 26. These financial statements have been prepared in accordance with the accounting policies as set out in note 2. This report is made solely to the Company's members, as a body, in accordance with Section 64 of the Companies (Guernsey) Law, 1994. Our audit work is undertaken so that we might state to the Company's members those matters we are required to state to them in an auditors' 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 the directors and auditors As described in the Statement of Directors' Responsibilities the Company's directors are responsible for the preparation of the financial statements in accordance with applicable law and International Financial Reporting Standards (IFRS). Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you as to whether the financial statements give a true and fair view and are properly prepared in accordance with the Companies (Guernsey) Law, 1994. We also report to you if, in our opinion, the Directors' Report is not consistent with the financial statements, if the Company has not kept proper accounting records, if we have not received all the information and explanations that we require for our audit, or if information specified by law is not disclosed. We read the other information included in the Annual Report and consider whether it is consistent with the audited financial statements. This other information comprises only the Officers and Professional Advisers, Company Summary, Chairman's Statement, Investment Manager's Report, Board of directors and Directors' Report. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information. Basis of opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Company's circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. Independent auditors' report to the members of Lewis Charles Sofia Property Fund Limited Opinion In our opinion: · the Group Financial Statements give a true and fair view, in accordance with IFRS, of the state of the Group's affairs at 31 December 2008 and of its loss for the year then ended. · the Parent Companys' financial statements give a true and fair view, in accordance with IFRS, of the state of the Companys' affairs at 31 December 2008 and of its loss for the year then ended; and · The Financial Statements have been properly prepared in accordance with the Companies (Guernsey) Law, 1994. Emphasis of Matter In forming our opinion on the financial statements, which is not qualified, we considered the adequacy of disclosure made in note 2(n) to the financial statements concerning the company's and group's ability to continue as a going concern. As disclosed in note 2(n) to the financial statements, the group will require additional funding in next 12 months. The directors are reviewing the various options available to the group. However, as at the date of this report, no plans have been finalised. This indicates the existence of a material uncertainty which may cast significant doubt about the company's and group's ability to continue as a going concern. The financial statements do not include the adjustments that would result if the company or group was unable to continue as a going concern. BDO Novus Limited CHARTERED ACCOUNTANTS Place du Pre Rue du Pre St Peter Port Guernsey. GY1 3LL 26th June 2009 Company income statement for the year ended 31 December 2008 Revenue Capital Total 31 Dec Notes ? ? ? 2007 ? _____ _________________________________ __________ Revenue - - - - Expenses Administration fees 3 122,140 - 122,140 142,128 Management fees 4 901,712 - 901,712 1,035,092 Performance fees 5 - (2,551,587) (2,551,587) 2,376,955 Directors' fees 6 69,488 - 69,488 79,391 and expenses Foreign exchange loss 11,188 - 11,188 19,270 Other expenses 7 692,497 - 692,497 1,056,837 Impairment on loan 14 to subsidiary companies - 12,050,000 12,050,000 18,851,000 _________________________________ __________ 1,797,025 9,498,413 11,295,438 4,709,673 _________________________________ __________ Operating loss 2(e) (1,797,025) (9,498,413)(11,295,438) (4,709,673) Finance income 9 53,692 - 53,692 408,577 _________________________________ __________ Loss before taxation (1,743,333) (9,498,413)(11,241,746) (4,301,096) Tax on profit on ordinary activities 10 - - - - _________________________________ __________ Loss for the year (1,743,333) (9,498,413)(11,241,746) (4,301,096) _________________________________ __________ _________________________________ __________ The total column of this statement represents the Company's Income Statement, prepared in accordance with IFRS. The revenue and capital columns are supplied as supplementary information permitted under IFRS. All items in the above statement derive from continuing operations. The accompanying notes 1 to 26 form an integral part of these financial statements Consolidated income statement for the year ended 31 December 2008 Revenue Capital Total 31 Dec Notes ? ? ? 2007 ? _____ _________________________________ __________ Revenue Property sales 144,374 - 144,374 - Cost of sales (109,806) - (109,806) - Other revenue 13 853,005 - 853,005 - _________________________________ __________ Gross profit 887,573 - 887,573 - _________________________________ __________ Expenses Administration fees 3 192,211 - 192,211 218,811 Management fees 4 901,712 - 901,712 1,035,092 Performance fees 5 -(2,551,587) (2,551,587) 2,376,955 Directors' fees and 6 69,488 - 69,488 79,391 expenses Foreign exchange loss 32,602 - 32,602 21,220 Other expenses 7 1,206,711 - 1,206,711 1,310,024 Impairment of inventory 13 - 13,846,603 13,846,603 - Revaluation of investment properties 12 - 10,640,268 10,640,268(12,387,151) _________________________________ __________ 2,402,724 21,935,284 24,338,008 (7,345,658) _________________________________ __________ Operating (loss)/ profit 2(e)(1,515,151)(21,935,284)(23,450,435) 7,345,658 Finance income 9 63,492 - 63,492 423,929 _________________________________ __________ (Loss)/profit before taxation (1,451,659)(21,935,284)(23,386,943) 7,769,587 Taxation 10 - 1,273,422 1,273,422 (1,238,715) _________________________________ __________ (Loss)/Profit for (1,451,659) (20,661,862)(22,113,521) 6,530,872 the year _________________________________ __________ Earnings per share - basic and diluted (cents 11 (45.74) 13.51 per share) The total column of this statement represents the Group's Income Statement, prepared in accordance with IFRS. The revenue and capital columns are supplied as supplementary information permitted under IFRS. All income is attributable to the equity holders of the parent company. There are no minority interests. All items in the above statement derive from continuing operations. The accompanying notes 1 to 26 form an integral part of these financial statements Company balance sheet as at 31 December 2008 Notes Company 2008 Company 2007 ? ? ? ? Non-current assets Investment in subsidiary undertakings 14 10,521,309 10,521,309 Amount receivable from subsidiary undertakings 14 23,421,072 31,254,053 ___________ ___________ 33,942,381 41,775,362 Current assets Trade and other receivables 15 16,214 18,564 Cash and cash equivalents 16 371,976 6,229,149 ___________ ___________ 388,190 6,247,713 ___________ ___________ Total assets 34,330,571 48,023,075 ___________ ___________ Current liabilities Trade and other payables 17 (3,049,698) (107,246) ___________ ___________ (3,049,698) (107,246) Non-current liabilities Trade and other payables 17 - (5,393,210) ___________ ___________ - (5,393,210) ___________ ___________ Total liabilities (3,049,698) (5,500,456) ___________ ___________ Net assets 31,280,873 42,522,619 ___________ ___________ ___________ ___________ Equity Share capital 18 - - Special reserve 19 56,956,985 56,956,985 Capital reserve 20 (15,550,424) (6,052,011) Revenue reserve 20 (10,125,688) (8,382,355) ___________ ___________ Total Equity 31,280,873 42,522,619 ___________ ___________ ___________ ___________ The accompanying notes 1 to 26 form an integral part of these financial statements. Consolidated balance sheet as at 31 December 2008 Notes Company 2008 Company 2007 ? ? ? ? Non-current assets Investment properties 12 44,848,000 55,127,208 Current assets Inventory 13 6,801,000 15,625,171 Property options 5 5 Trade and other receivables 15 548,827 512,900 Cash and cash equivalents 16 767,920 7,209,621 ___________ ___________ 8,117,752 23,347,697 ___________ ___________ Total assets 52,965,752 78,474,905 ___________ ___________ Current liabilities Trade and other payables 17 (3,072,785) (764,630) ___________ ___________ (3,072,785) (764,630) Non-current liabilities Trade and other payables 17 (4,386,477) (8,816,842) Deferred taxation 10 (1,414,464) (2,687,886) ___________ ___________ (5,800,941) (11,504,728) ___________ ___________ Total liabilities (8,873,726) (12,269,358) ___________ ___________ Net assets 44,092,026 66,205,547 ___________ ___________ ___________ ___________ Equity Share capital 18 - - Special reserve 19 56,956,985 56,956,985 Capital reserve 20 (2,522,902) 18,138,960 Revenue reserve 20 (10,342,057) (8,890,398) ___________ ___________ Total Equity 44,092,026 66,205,547 ___________ ___________ ___________ ___________ NAV per share (Euro per share) 21 0.9120 1.3694 NAV per share at launch (Euro per share) 1.1781 1.1781 The financial statements were approved by the Board of Directors and authorised for issue on 26th June 2009 They were signed on its behalf by G. Williams and C. Simon G. Williams C. Simon Director Director The accompanying notes 1 to 26 form an integral part of these financial statements Statements of changes in equity for the year to 31 December 2008 Consolidated 2008 Share Special Capital Revenue Total Capital Reserve Reserve Reserve Equity ? ? ? ? ? As at 31 December 2007 - 56,956,985 18,138,960 (8,890,398) 66,205,547 Loss for the year - - (20,661,862) (1,451,659) (22,113,521) __________________________________________________________________ Total recognised income and expenses for the year - - (20,661,862) (1,451,659) (22,113,521) __________________________________________________________________ As at 31 December 2008 - 56,956,985 (2,522,902) (10,342,057) 44,092,026 __________________________________________________________________ __________________________________________________________________ Consolidated 2007 Share Special Capital Revenue Total Capital Reserve Reserve Reserve Equity ? ? ? ? ? As at 31 December 2006 - 56,956,985 9,367,479 (6,649,789) 59,674,675 Loss for the year - - 8,771,481 (2,240,609) 6,530,872 __________________________________________________________________ Total recognised income and expenses for the year - - 8,771,481 (2,240,609) 6,530,872 __________________________________________________________________ As at 31 December 2007 - 56,956,985 18,138,960 (8,890,398) 66,205,547 __________________________________________________________________ __________________________________________________________________ Company 2008 Share Special Capital Revenue Total Capital Reserve Reserve Reserve Equity ? ? ? ? ? As at 31 December 2007 - 56,956,985 (6,052,011) (8,382,355) 42,522,619 Loss for the year - - (9,498,413) (1,743,333) (11,241,746) __________________________________________________________________ Total recognised income and expenses for the year - - (9,498,413) (1,743,333) (11,241,746) __________________________________________________________________ As at 31 December 2008 - 56,956,985 (15,550,424) (10,125,688) 31,280,873 __________________________________________________________________ __________________________________________________________________ Company 2008 Share Special Capital Revenue Total Capital Reserve Reserve Reserve Equity ? ? ? ? ? As at 31 December 2006 - 56,956,985 (3,675,056) (6,458,214) 46,823,715 Loss for the year - - (2,376,955) (1,924,141) (4,301,096) __________________________________________________________________ Total recognised income and expenses for the year - - (2,376,955) (1,924,141) (4,301,096) __________________________________________________________________ As at 31 December 2007 - 56,956,985 (6,052,011) (8,382,355) 42,522,619 __________________________________________________________________ __________________________________________________________________ The accompanying notes 1 to 26 form an integral part of these financial statements Company cash flow statement for the year ended 31 December 2008 Notes 2008 2007 ? ? Loss for the year (11,241,746) (4,301,096) Adjustment for: Finance income (53,692) (4,965) Impairment on loan to subsidiary companies 12,050,000 - ______________ ______________ Operating cash flows before movements in working capital 754,562 (4,306,061) Decrease in operating trade and other receivables 2,350 40,110 (Decrease) / increase in operating trade and other payables (2,450,758) 2,383,623 ______________ ______________ (1,693,846) (1,882,328) Interest received 53,692 4,965 Taxation - - ______________ ______________ Net cash outflow from operating activities (1,640,154) (1,877,363) Investing activities Loan advanced to subsidiary undertakings (4,217,019) (13,143,877) ______________ ______________ Investment in subsidiary undertakings - (1,264,252) Net cash outflow from investing activities (4,217,019) (14,408,129) Net decrease in cash and cash equivalents (5,857,173) (16,285,492) Cash and cash equivalents at start of year 16 6,229,149 22,514,641 ______________ ______________ Cash and cash equivalents at end of year 16 371,976 6,229,149 ______________ ______________ ______________ ______________ The accompanying notes 1 to 26 form an integral part of these financial statements. Consolidated cash flow statement for the year ended 31 December 2008 Notes 2008 2007 ? ? (Loss) /profit for the year (22,113,521) 6,530,872 Adjustment for: Finance income (63,492) (20,317) Revaluation of investment properties 10,640,268 (12,387,151) Impairment of inventory 13,846,603 - Taxation (1,273,422) 1,238,715 ______________ ______________ Operating cash flows before movements in working capital 1,036,436 (4,637,881) (Increase) / decrease in operating (35,927) 91,070 and other receivables (Decrease) / increase in operating (2,122,210) 6,327,253 and other payables Increase in inventory (5,022,432) (4,243,165) ______________ ______________ (6,144,133) (2,462,723) Interest received 63,492 20,317 Taxation - - ______________ ______________ Net cash outflow from operating activities (6,080,641) (2,442,406) ______________ ______________ Investing activities Repayment of loan to property developer - 1,363,694 Purchases of investment properties (361,060) (14,758,074) ______________ ______________ Net cash outflow from investing activities (361,060) (13,394,380) ______________ ______________ Net decrease in cash and cash equivalents (6,441,701) (15,836,786) Cash and cash equivalents at start of year 16 7,209,621 23,046,407 ______________ ______________ Cash and cash equivalents at end of year 16 767,920 7,209,621 ______________ ______________ ______________ ______________ The accompanying notes 1 to 26 form an integral part of these financial statements 1. CORPORATE INFORMATION Lewis Charles Sofia Property Fund Limited (the "Company") and its subsidiaries (together the "Group") is an investment fund with a major investment portfolio in Bulgaria. The aim of the Fund is to generate capital gains through investing in residential property primarily in Sofia and the adjacent ski resorts. The investment strategy of the Company is to work with developers at the earliest possible stage. The company is a closed-ended limited company incorporated in Guernsey. The address of the registered office is shown on page 2. The Company's shares are listed on the London Stock Exchange, Alternative Investment Market (AIM). These financial statements were approved and authorised by the Board for issue on 26th June 2009 and signed by G. Williams and C. Simon on behalf of the board. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. (2.1) Basis of preparation The financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") which comprise standards and interpretations issued by the International Accounting Standards Board ("IASB"), and International Accounting Standards and Standing Interpretations approved by the International Accounting Standards Committee that remain in effect, and to the extent they have been adopted by the European Union. The financial statements have been prepared on the historical cost basis, except for the revaluation of investment properties. Financial assets and financial liabilities (including derivative financial instruments) are held at fair value through profit and loss. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires the Board of Directors to exercise its judgement in the process of applying the Company's accounting policies. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about the carrying value of assets and liabilities that are not readily apparent from other sources. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision only affects that period, or in the period of the revision and future periods if the revision affects both current and future periods. The areas involving high degree of judgement or complexity, or areas where the assumptions and estimates are significant to the financial statements are disclosed in part (2.2). Adoption of new and revised Standards Two interpretations issued by the International Financial Reporting Interpretations Committee are effective for the current year. These were: IFRIC 11: IFRS 2: Group and treasury Share Transactions: IFRIC 12 : Service Concession Arrangements and IFRIC 14 : IAS 19 - The limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction. The adoption of these interpretations has not led to any changes in the Groups accounting policies. Standards and Interpretations in issue and not yet effective At the date of authorisation of these financial statements, the following standards and interpretations, which have not been applied in these financial statements, were in issue but not yet effective:- New standards IFRS 8: Operating segments - for accounting periods commencing on or after 1 January 2009. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (2.1) Basis of preparation Revised and amended Standards The IASB and IFRIC have issued the following standards and interpretations that will be relevant to the Group with an effective date after the date of these financial statements: International Accounting Standards/International Financial Reporting Standard (IAS/IFRS) IAS 1: Presentation of Financial Statements (Revised 2007,2008 and April 2009) - for accounting periods commencing on or after 1 January 2009 and 1 January 2010. IAS 7: Statement of Cashflows (Revised April 2009) - for accounting periods commencing on or after 1 January 2010. IAS 16: Property, Plant and Machinery (Revised May 2008) - for accounting periods commencing on or after 1 January 2010. IAS 17: Leases (Revised April 2009) - for accounting periods commencing on or after 1 January 2010. IAS 23: Borrowing Costs (Revised 2007 and May 2008) - for accounting periods commencing on or after 1 January 2009. IAS 27: Consolidated and Separate Financial Statements (Revised 2008) - for accounting periods commencing on or after 1 January 2009 and 1 July 2009. IAS 32: Financial Instruments: Presentation (Revised 2008) - for accounting periods on or after 1 January 2009. IAS 36: Impairment of Assets (Revised May 2008 and April 2009) - for periods on or after 1 January 2009 and 1 January 2010. IAS 39: Financial Instruments: Recognition and Measurement (Revised 2008, March 2009, and April 2009) - for accounting periods on or after 1 January 2009 and 30 June 2009. IAS 40: Investment Property (Revised May 2008) - for accounting periods on or after 1 January 2009. IFRS 3: Business Combinations (Revised 2008) - for accounting periods on or after 1 July 2009. IFRS 5: Non current Assets Held for Sale and Discontinued Operations (Revised May 2008 and April 2009) - for accounting periods on or after 1 July 2009 and 1 January 2010. IFRS 7: Financial Instruments: Disclosures (Revised March 2009) - for the accounting periods on or after 1 January 2009. IFRS 8: Operating Segments (original issuance and revised April 2009) - for accounting periods on or after 1 January 2009 and 1 January 2010. Interpretations International Financial Interpretations Committee (IFRIC) IFRIC 15: Agreements for the Construction of Real Estate - for the accounting periods on or after 1 January 2009. IFRIC 16: Hedges of a Net Investment in a Foreign Operation - for the accounting periods on or after 1 October 2008. The Directors anticipate that with the exception of IAS 1 as discussed below the adoption of these standards and interpretations in future periods will not have material impact on the financial statements of the Group. IAS 1 (revised), Presentation of financial statements (effective from 1 January 2009). The revised standard will prohibit the presentation of item of income and expenses (that is, non-owner changes in equity) in the statement of changes in equity, requiring non-owner changes in equity to be presented separately from owner changes in equity. All non-owner changes in equity will be required to be shown in a performance statement, but entities can choose whether to present on performance statement (the statement of comprehensive income or two statements (the income statement and statement of comprehensive income). The Group will apply IAS 1 (revised) from 1 January 2009. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies adopted are set out below: (2.2) Significant accounting estimates and judgements The Group makes estimates and assumptions concerning the future. The resulting accounting estimate 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 discussed below. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In applying the Group's accounting policies, the Directors make judgements in the following areas: (a) Investment property and inventory Investment properties are carried at fair value which is calculated using the residual method undertaken by a professional valuer. Inventory is tested for impairment at each balance sheet date. Impairment reviews are undertaken using a valuation under the residual method, also undertaken by a professional valuer. The theoretical basis of the residual method is based on the expected sales proceeds used to arrive at the total capital value for the specific project. From this figure the budgeted total development costs are deducted, the resultant figure represents the residual value/profit. Valuations using this method require numerous estimates and assumptions to be used such as estimated built area, current design and plans, future sales revenue, costs to complete and an applicable discount rate. In addition given the current market situation, resulting in a limited number of transaction and the general uncertainty in the market, valuers have relied on their professional judgement to a greater extent than normal in deriving their opinion of value. Accordingly, fair value is not intended to represent the liquidation value of the property which would be dependent upon the price negotiated at the time of sale. The fair value of investment property at 31 December 2008 was ?44,848,000 (2007: ?55,127,208). The inventory was valued at ?6,801,000 (2007: ?15,625,171). Refer to note 12 and 13 for further details. (b) Deferred tax The Group is subject to income and capital gains taxes in Bulgaria. Significant judgement is required in determining the provision for income and deferred taxes. There are many transactions and calculations for which the ultimate tax determination and timing of payment are uncertain during ordinary course of business. The Group recognises liabilities for anticipated tax issues based on estimates of whether additional tax will be due. Where the final tax outcome of these matters is different from the amount that was initially recorded such differences will impact the income and deferred tax provisions in the period on which there determination is made. The deferred tax liability as at 31 December 2008 was ?1,414,464 (2007: ?2,687,886). Refer to note 10 for further details. (c) Performance fee The Group has to pay a performance fee to investment manager based on the gains generated on the properties. Provisions for the performance fee are calculated at each balance sheet date based on the property valuations, carried out by the valuers, at that date. The provision for performance fee is an estimate based on the year end valuation, which will not necessarily be the actual performance fee paid on disposal of property or at the end of the termination period. Further details are included in note 5 to these financial statements. Performance fee payable as at 31 December 2008 was ?2,841,623 (2007: ?5,393,210). Refer to note 5 and 17 for further details. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (2.3) Accounting policies The principal accounting policies are set out below. (a) Consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 31 December each year. Control is achieved where the Company has the power to govern the financial and operating activities of an investee entity so as to obtain benefits from its activities. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or disposal. Where necessary, adjustments are made to the financial statements of the subsidiaries to bring the accounting policies used into line with those used by the parent company. All intra-group transactions, balances, income and expenses are eliminated on consolidation. (b) Presentation of income statement In order to better reflect the activities of an investment trust company and in accordance with guidance issued by the Association of Investment Trust Companies, supplementary information which analyses the income statement between items of a revenue and capital nature has been presented alongside the income statement. (c) Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the group and the amount of revenue can be reliably measured. Interest income is recognised on a time apportioned basis using the effective interest method. (d) Expenses Expenses are measured at the fair value of the consideration paid or payable and are recognised in the Income Statement on an accruals basis. (e) Operating profit or loss Group Operating profit or loss includes gross profit, net gains or losses on revaluation of investment properties less administrative expenses including impairment losses. Company Operating profit or loss includes revenue and administration costs and excludes finance income and finance cost. (f) Options over property Options over property are treated as current assets and included in the balance sheet at cost. Cost is deemed to be the fair value of consideration given. No depreciation is provided on these assets, however the directors review each option for impairment annually. (g) Investment property Investment property, which is property held to earn rentals and/or for capital appreciation, is initially recognised at cost being the fair value of consideration given including related transaction costs. After initial recognition at cost, investment properties are carried at their fair values based on half-yearly professional valuations made by King Sturge Kft. The valuations are in accordance with standards complying with the Royal Institution of Chartered Surveyors Approval and Valuation manual and the International Valuation Standards Committee. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (g) Investment property Gains or losses arising from changes in fair value of investment property are included in the income statement for the period in which they arise. Properties are treated as acquired when the Group assumes the significant risks and returns of ownership and as disposed of when these are transferred to the buyer. When the Group redevelops an existing investment property for continued future use as an investment property, the property remains an investment property and is not reclassified. All costs directly associated with the purchase and construction of a property, and all subsequent capital expenditures are capitalised. Transfers are made to investment property when there is a change in use, evidenced by the end of owner occupation, commencement of an operating lease to another party or completion of construction or development. Transfers are made from investment property when, and only when, there is a change in use, evidenced by commencement of owner occupation or commencement of development with a view to sale. (h) Inventory Inventory which comprises buildings under construction includes capitalised interest where applicable and is carried at cost or, if lower, net realisable value. Cost includes all directly attributable third party expenditure incurred. (i) Segmental reporting The Directors are of the opinion that the Company is engaged in a single segment of business, being property investment business, and in one geographical area, Bulgaria. (j) Taxation The Company is exempt from Guernsey taxation. As such, the Company is only liable to pay a fixed annual fee, currently GBP600. The subsidiaries, LCSPF Bulgaria EOOD, Black Sea Properties EOOD and VT Developments EOOD will be liable for Bulgarian Corporation Tax at 10% of the income. The subsidiaries are not liable for any further local taxes, however withholding taxes may be payable on repatriation of assets and income to the Company, as currently there is no double tax treaty between Guernsey and Bulgaria. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the financial statements and corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (k) Foreign currency translation (a) Functional and reporting currency The functional currency of the Company is Euros as substantially all expenses relating to the investments are made in Euros. The reporting currency of the Company for accounting purposes is also the Euro. The financial statements are converted into Sterling on pages 44 to 51, for information purposes only. Income statement accounts are being converted using the average exchange rate for the year while balance sheet accounts are converted using the balance sheet date rate. Exchange gains/losses on translation are taken to statement of changes in equity. (b) Transactions and balances Foreign currency balances are translated into Euro at the rate of exchange ruling on the last day of company's financial period. Foreign currency transactions are translated at the rate of exchange ruling on the date of transaction. Gains and losses arising on currency translation are included in the Consolidated Income Statement. (c) Group companies The results and financial position of all the group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: (i) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; (ii) income and expenses for each income statement are translated at average exchange rates (unless the 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 dates of the transactions); and (iii) all resulting exchange differences are recognised as a separate component of equity. (l) Financial instruments Financial assets and financial liabilities are recognised on the Group's balance sheet when the Group becomes a party to the contractual provisions of the instrument. The Group shall offset financial assets and financial liabilities if the Group has a legally enforceable right to set off the recognised amounts and interests and intends to settle on a net basis. (a) Financial assets The Group's financial assets fall into the category of only loans and receivables. The Group has not classified any of its financial assets as held at fair value through profit or loss, held to maturity or as available for sale. Unless otherwise indicated, carrying amount of the Group's financial assets is a reasonable approximation of their fair value. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (l) Financial instruments (a)(i) Loans and receivables These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through trade receivables and cash and cash equivalents, but also incorporate other types of contractual monetary assets. They are initially recognised at fair value plus transaction costs that are directly attributable to the acquisition or issue and subsequently carried at amortised cost using the effective interest rate method, less provision for impairment. The effect of discounting on these financial instruments is not considered to be material. Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on the part of the counterparty or default or significant delay in payment) that the Group will be unable to collect all of the amounts due under the terms receivable, the amount of such a provision being the difference between the net carrying amount and the present value of the future expected cash flows associated with the impaired receivable. Cash and cash equivalents are defined as cash on hand, short term deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. (a) (ii) De-recognition of financial assets A financial asset (in whole or in part) is derecognised either: - when the group has transferred substantially all the risks and rewards of ownership; or - when it has transferred nor retained substantially all the risks and rewards and when it no longer has control over the asset or a portion of the asset; or - when the contractual right to receive cash flow has expired. (b) Financial liabilities The Group classifies its financial liabilities as other financial liabilities at amortised cost. Unless otherwise indicated, the carrying amounts of the Group's financial liabilities are a reasonable approximation of their fair values. (b)(i) Financial liabilities measured at amortised cost Other financial liabilities include trade payables and other short-term monetary liabilities, which are initially recognised at fair value and subsequently carried at amortised cost using the effective interest method. (b) (ii) De-recognition of financial liabilities A financial liability (in whole or in part) is derecognised when the Company or Group has extinguished its contractual obligations, it expires or is cancelled. Any gain or loss on de-recognition is taken to the income statement. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (l) Financial instruments (c) Share Capital Financial instruments issued by the Group are treated as equity only to the extent that they do not meet the definition of a financial liability. The Company's ordinary shares are classified as equity instruments. For the purposes of the disclosures given in Note 22 the Group considers all its share capital, share premium and all other reserves as equity. The Company is not subject to any externally imposed capital requirements. (d) Effective interest method The effective interest method is a method of calculating the amortised cost of a financial asset or liability and of allocating interest income or expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts or payments (including all fees on points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset or liability, or, where appropriate, a shorter period. (m) Investment in subsidiary undertakings Investment in subsidiary undertakings are initially recognised and subsequently measured at cost less, where appropriate, provisions for impairment in the Group's financial statements. (n) Going concern The directors have reviewed the current budgets and cashflow projections for a period no less than 12 months from the date of this report. These forecasts indicate the need for additional funding, both for working capital and to exercise the property options (see note 26). Various sources of financing have been considered by the directors including raising of fresh equity and potential disposal of properties. A final decision regarding the source of financing has not been made, however, the directors are confident that sufficient cash will be raised by the Group to pay its liabilities. Accordingly the directors have prepared the financial statements on the going concern basis. 3. ADMINISTRATION FEES Under the Administration Agreement the Administrator is entitled to receive an annual administration fee at a rate as may be agreed in writing from time to time between the Company and the Administrator. The present fee is 0.09% per annum of the Net Asset Value of the Company up to GBP50 million and 0.07% of the Net Asset Value of the Company above GBP50 million, subject to a minimum fee during the year of GBP68,185 per annum (2007:GBP65,000) plus disbursements. 4. MANAGEMENT FEES The Company will pay the Manager a Management fee of 2% per annum of the Net Proceeds of the Placing, calculated and payable quarterly in advance. The Manager is also entitled to a Management fee of 2% of any realised but undistributed capital gains on the sale of Properties, calculated and payable quarterly in arrears. The Group has served a notice for termination of management agreement on manager, further details are included in note 26. 5. PERFORMANCE FEE The Manager will receive a performance fee calculated and payable in Sterling from the Company based on 20% of the excess of the net cash proceeds from the sale of property over the 7% Property Hurdle. The Manager will also receive a performance fee of 5% over the 23% Property Hurdle. For these purposes, the 7% Property Hurdle is a 7% compound per annum return on the amount of the deposit paid on the relevant investment property and the 23% Property Hurdle is a 23% compound per annum return on the amount of the deposit paid on the relevant property. In the event that the Company does not sell on the property prior to completion on an off-plan basis and instead completes on a property, the Property Hurdles shall be calculated by reference to the aggregate of the deposit and the completion balance. 80% of the performance fees calculated will be payable to the Manager within 30 days of the receipt of the proceeds of the sale of a property. The balance will be paid at the same time into a Reserve Account and be invested in Sterling money market deposits, unless otherwise agreed between the Manager and the Company. The performance fee shown within these financial statements is a provision based on the uplift shown in the fair value adjustment of the investment properties. As a result of the decrease in the fair value of investment properties as at 31 December 2008 accruals made in prior years for the performance fee have been reversed in the current year. The Group has served a notice for termination of management agreement on Manager, further details are included in note 26. 6. DIRECTORS' FEES AND EXPENSES The Chairman receives GBP15,000 per annum, with other directors receiving GBP12,000 per annum. Clive Simon and Gerry Williams receive an annual fee of GBP7,500 each. The Chairman and Directors are also reimbursed for other expenses properly incurred by them in attending meetings and other business of the Company. 7. OTHER EXPENSES Consolidated Consolidated Company Company 2008 2007 2008 2007 Total Total Total Total ___________ ___________ ___________ ___________ ? ? ? ? Registrar's fees (see note 8) 14,877 14,846 14,877 14,846 Audit fees 38,235 44,527 32,237 39,995 Legal and professional fees 553,554 905,020 553,159 905,020 Consultancy fees 118,309 169,798 - - Insurance costs 16,411 22,610 16,411 22,610 Statutory fees 11,901 5,096 11,901 5,096 Travel expenses 43,583 43,326 45,658 43,326 Bank charges 13,621 13,050 5,765 6,695 Property and municipal taxes 333,630 - - - Other fees and expenses 62,590 91,751 12,489 19,249 ___________ ___________ ___________ ___________ 1,206,711 1,310,024 692,497 1,056,837 ___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________ The Group and Company have no employees. No amounts were paid to BDO Novus Limited by the Company and its subsidiary undertakings in respect of non- audit services. 8. REGISTRAR'S FEES Under the Registrar's Agreement, the Registrar is entitled to receive an annual fee at the rate of whichever shall be the greater of the amount of the minimum Annual Basic Fee, currently GBP4,400 per annum, or the amount per shareholder, currently GBP2.20, on the Register of Shareholders at the commencement of the fee year. The Company's fee year commenced on the date of Admission and on each anniversary of that date whilst this Agreement shall continue. 9. FINANCE INCOME Consolidated Consolidated Company Company 2008 2007 2008 2007 Total Total Total Total ___________ ___________ ___________ ___________ ? ? ? ? Bank interest 63,492 423,929 53,692 408,577 ___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________ The above interest arises from financial assets classified as loans and receivables, including cash and cash equivalents, and has been calculated using the effective interest method. With the exception of the impairment on loans to subsidiaries, as disclosed in note 14, there are no other gains or losses on loans and receivable other than those disclosed above. There is no interest payable in Group and Company for 2008 and 2007. 10. TAXATION (a) Analysis of tax charge for the year Consolidated Consolidated Company Company 2008 2007 2008 2007 Total Total Total Total ___________ ___________ ___________ ___________ The tax (recoverable) / payable for the year comprises: - Current taxation - - - - - Deferred taxation (1,273,422) 1,238,715 - - ___________ ___________ ___________ ___________ Income tax (credit) /charge (1,273,422) 1,238,715 - - ___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________ The credit for the year can be reconciled to the result per income statement as follows: 2008 2007 Consolidated Consolidated ? ? ___________ ___________ (Loss) /profit before tax (23,386,943) 7,769,587 ___________ ___________ ___________ ___________ Tax at the domestic corporate tax rate applicable to profits in the country concerned (2,338,694) 1,199,072 Tax effect of non deductible expenses and effect of foreign exchange 1,065,272 39,643 ___________ ___________ Tax (credit) / charge (1,273,422) 1,238,715 ___________ ___________ ___________ ___________ (b) Deferred taxation Deferred taxation is calculated, in full, on all temporary timing differences under the liability method using a principal Bulgarian tax rate of 10% (2007: 10%). The movement on the deferred tax account is as follows: 2008 2007 Consolidated Consolidated ? ? ___________ ___________ Deferred tax liabilities Investment properties revaluation At start of year 2,687,886 1,449,171 (Credit) /charge to income (1,273,422) 1,238,715 ___________ ___________ At end of year 1,414,464 2,687,886 ___________ ___________ ___________ ___________ Deferred tax assets have not been recognised on tax losses carried forward due to lack of certainty of availability of future taxable profits against which such losses will be utilised. 11. EARNINGS PER SHARE - BASIC AND DILUTED The consolidated loss per Ordinary Share of 45.74 (2007 profit: 13.51) cents are based on the net revenue loss of ?1,451,659 (2007: ?2,240,609) and the net capital loss for the period of ?20,661,862 (2007 gain: ?8,771,481). Both calculations are made based on 48,345,000 (2007: 48,345,000) Ordinary Shares, being the weighted average number of shares in issue during the year. There are no potentially dilutive shares in issue. 12. INVESTMENT PROPERTIES Group 2008 2007 ? ? Market value of investment properties at 1 January 55,127,208 27,981,983 Acquisitions during the year at cost - 14,758,074 Subsequent expenditure 361,060 - Fair value adjustment in the year (10,640,268) 12,387,151 _____________ _____________ Market value of investment properties at 31 December 44,848,000 55,127,208 _____________ _____________ _____________ _____________ The fair value of the Group's investment properties at 31 December 2008 and at 31 December 2007 has been arrived at on the basis of valuations carried out at that date by King Sturge Kft, independent valuers not connected to the Group. The valuation basis has been market value as defined by the Royal Institute of Chartered Surveyors (RICS). The approved RICS definition of market value is the "estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arms length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion." Included in the above is the Bistritsa project valued at ?23.1 million which has been used post year end as part of a financing and buyback deal as disclosed in note 26. 13. INVENTORY Group 2008 2007 ? ? At 1 January 15,625,171 11,382,006 Additions 5,998,040 4,243,165 Disposals (109,807) - Repayment of deposit (865,801) - Impairment (13,846,603) - _____________ _____________ At 31 December 6,801,000 15,625,171 _____________ _____________ _____________ _____________ At valuation 6,801,000 28,108,057 _____________ _____________ _____________ _____________ During the year an agreement was reached whereby the Group agreed with the property developer (BuySell) to relinquish its rights to parts of the inventory under the BuySell contract. In consideration for this the Group received a return of its deposit totalling ?865,801 together with a termination fee of ?853,005 which is included in income statement as other income. On 17 April 2009 the Group served a notice on BuySell to terminate the development contract due to non performance. As a result of this termination directors have decided to write down the carrying value of the BuySell project to nil and to recognise an impairment charge of ?10,379,426 in the income statement. Further details on BuySell are included in note 26. Remaining properties were valued on an open market basis as at 31 December 2008 by King Sturge Kft, independent valuers not connected to the Group. As a result of decrease in the market value of the properties, as determined by the valuers, an impairment charge has been recognised on these properties as well. The carrying value has been set as the lower of cost and net realisable value as set out under the requirements of IAS 2, Inventories. The total carrying value of all the properties impaired is ?6,801,000. 14. INVESTMENT IN SUBSIDIARIES Investment Loans 2008 Total ? ? ? At 1 January 10,521,309 31,254,053 41,775,362 Loans advanced in the year - 4,217,019 4,217,019 Impairment on loans to subsidiary companies (12,050,000) (12,050,000) ____________ ____________ ____________ At 31 December 10,521,309 23,421,072 33,942,381 ____________ ____________ ____________ ____________ ____________ ____________ The loans are interest free and have no set repayment terms as they are provided for the purpose of long term financing of the subsidiaries. The Directors consider the loans to be additional capital contributions and have therefore been accounted for as non-current assets. As a result of decrease in the market value of properties owned by subsidiary companies an impairment charge has been recognised on loans advanced to the subsidiary companies. Details of the Company's subsidiary undertaking are as follows: Name of subsidiary undertaking % Holding and Country of Principal voting rights incorporation activity Lewis Charles Sofia Property Fund Bulgaria EOOD 100% Bulgaria Property Investment Splendid Investments S.A. 100% Luxembourg Holding company Black Sea Properties EOOD 100% Bulgaria Property Investment Fumero Properties S.A. 100% Luxembourg Holding company VT Developments Bulgaria EOOD 100% Bulgaria Property Investment 15. TRADE AND OTHER RECEIVABLES Consolidated Consolidated Company Company 2008 2007 2008 2007 ? ? ? ? Accrued income 433 680 433 680 Debtors - 4,238 - - Prepayments 17,598 17,884 15,781 17,884 VAT receivable 453,778 490,098 - - Other receivables 77,018 - - - ___________ ___________ ___________ ___________ 548,827 512,900 16,214 18,564 ___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________ The aging of these receivables is as follows: Less than 3 months 433 4,920 433 682 3 to 6 months 535,472 493,685 2,859 3,587 Over 6 months 12,922 14,295 12,922 14,295 ___________ ___________ ___________ ___________ 548,827 512,900 16,214 18,564 ___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________ Trade receivables are not considered impaired and relate to receivables for which there is no recent history of default and as such it is assessed that all of the receivables will be recovered. The directors consider that the carrying amount of trade and other receivables approximates fair value. Allocation of the carrying amount of the Group's trade and other receivables by foreign currency is presented in Note 22. 6. CASH AND CASH EQUIVALENTS Consolidated Consolidated Company Company 2008 2007 2008 2007 ? ? ? ? Lehman Euro Liquidity Fund 30,403 3,840,410 30,403 3,840,410 Blackrock Euro Liquidity Fund 152,443 179,229 152,443 179,229 Cash at Bank 585,074 3,189,982 189,130 2,209,510 ____________ ____________ ____________ ____________ 767,920 7,209,621 371,976 6,229,149 ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ The cash equivalent investments are considered to be highly liquid investments readily convertible to a known amount of cash subject to minimum risk of change in value such that book cost is considered equivalent to book value. The weighted average interest rate on cash balances at 31 December 2008 was 0.87% (2007: 1.13% ). The Company has no material interest bearing liabilities. 17. TRADE AND OTHER PAYABLES Consolidated Consolidated Company Company 2008 2007 2008 2007 ? ? ? ? Current liabilities Audit fee payable 30,028 27,196 30,028 27,196 Legal fee payable 134,970 77,450 134,970 77,450 Performance fee accrual 2,841,623 - 2,841,623 - Other creditors 66,164 659,984 43,077 2,600 ____________ ____________ ____________ ____________ 3,072,785 764,630 3,049,698 107,246 ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ Non-current liabilities Performance fee accrual - 5,393,210 - 5,393,210 Sundry creditors 4,386,477 3,423,632 - - ____________ ____________ ____________ ____________ 4,386,477 8,816,842 - 5,393,210 ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ The Group has financial management policies in place to ensure that all payables are paid within the credit time frame. There is no difference between the carrying value of trade and other payables and their fair value. As a result of the Group giving notice to terminate the management agreement the performance fee accrued has been included within current liabilities in the current year. Please refer to note 26 for further details. 18. SHARE CAPITAL Consolidated Consolidated Company Company 2008 2007 2008 2007 ? ? ? ? Authorised 62,500,000 (2007: 62,500,000) ordinary shares of nil par value - - - - ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ Issued and fully paid 48,345,000 (2007: 48,345,000) ordinary shares of nil par value - - - - ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ The company has one class of ordinary share which carries no right to fixed income. The Company will have a maximum life of seven years expiring on 2012. It is intended to arrange the Property Portfolio so that it can be realised in an orderly way by the end of six years. If this is achieved the Company will be liquidated at the end of the six year period. The life of the Company may be extended by no more than a year (to seven years in total) at the discretion of the Directors, on the advice of the Manager, if it is necessary for an orderly realisation of the Company's assets. 19. SHARE PREMIUM AND SPECIAL RESERVE Consolidated Consolidated Company Company 2008 2007 2008 2007 ? ? ? ? Share premium - - - - Special reserve 56,956,985 56,956,985 56,956,985 56,956,985 ____________ ____________ ____________ ____________ 56,956,985 56,956,985 56,956,985 56,956,985 ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ On 8 July 2005 the Royal Court of Guernsey approved the reduction of capital by way of a cancellation of the Company's share premium account. The amount cancelled, being ?56,956,985, has been credited as a distributable reserve established in the Company's books of account. This shall be available as distributable profits to be used for all purposes permitted under Guernsey Company Law including the buy back of shares and the payment of dividends. 20. CAPITAL AND REVENUE RESERVE Balances in the capital reserve reflect cumulative unrealised gains on the revaluation of properties, impairment losses on inventory, provision for performance fees that will become payable as a result of the uplift in property values and the notional loss on foreign currency dating back to the conversion of the initial subscription proceeds. The balance on the revenue reserve reflects cumulative operational expenditure in excess of the non-property inventory related operational income. 21. NAV PER SHARE Consolidated Consolidated 2008 2007 Net Asset Value 44,092,026 66,205,547 Average number of shares in issue 48,345,000 48,345,000 Net asset value per share 0.912 1.369 22. FINANCIAL INSTRUMENT RISK MANAGEMENT Financial risk factors The Company's' activities expose it to a variety of risks from its use of financial instruments: - market risk (including interest rate risk, price risk and currency risk) - credit risk - liquidity risk The accounting policy with respect to the financial instruments are disclosed in note 2 The Board of Directors has overall responsibility for the establishment and oversight of the Company's' risk management framework. This note presents information about the Company's' exposure to each of the above risks and the Board of Directors' objectives, policies and processes for measuring and managing these risks. There have been no changes in such policies during the year. Market risk Market risk is the risk that changes in the market prices will affect the Company's' income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposure within acceptable parameters. (a) Price risk The Group and Company have no exposure to price risk as its investments are in property development or land baskets. 22. FINANCIAL INSTRUMENT RISK MANAGEMENT (b) Interest rate risk The majority of the Company's financial assets are non-interest bearing. Interest-bearing financial assets consist only of cash and cash equivalents. As a result, the Company is subject to limited exposure to fair value interest rate risk due to fluctuations in the prevailing levels of market interest rates. At any time that the Company is not fully invested, the Company may invest in Euro denominated government bonds with maximum maturities of the lesser of two years or the remaining life of the Company and/or invest in AAA rated liquidity funds. Any change to interest rates relevant for a particular security may result in income either increasing or decreasing. The Group has not invested in bonds during the years ended 2008 and 2007. The Company has chosen to invest in high liquidity, floating rate instruments to mitigate the risk that similar returns would be unavailable on the expiry of contracts. A 100 basis points change in interest rate would increase/decrease the net interest expense/income by ?7,679 for the Group and ?3,719 for the Company (2007: Group ?72,096; 2007: Company ?62,291). Instruments subject to interest rate movements are disclosed in note 16 and are all at variable rates. (c) Currency risk Currency risk is the risk that the Income Statement and Balance Sheet can be affected by currency translation movements. The Board consider that the Company's exposure to currency risk is minimal as the majority of the Company's transactions are made in Euros and the books and records are kept in Euros. Where there are assets and liabilities recorded in Bulgarian Lev, the risk is considered minimal as the Lev is tied to the Euro in preparation for adoption of the Euro in Bulgaria. The Lev is expected to be replaced by the Euro on 1 January 2010. The tables below summarise exposure to foreign currency risk at 31 December 2008 and 2007. Assets and liabilities at carrying amounts are included in the table, categorised by the currency at their carrying amount. Group As at 31 December 2008 ? GBP Total ? Trade and other receivables 548,827 - 548,827 Cash and cash equivalents 767,847 73 767,920 _____________ _____________ _____________ Total assets 1,316,674 73 1,316,747 _____________ _____________ _____________ Trade and other payables 7,386,157 73,105 7,459,262 _____________ _____________ _____________ Total liabilities 7,386,157 73,105 7,459,262 _____________ _____________ _____________ Net balance sheet currency position (6,069,483) (73,032) (6,142,515) _____________ _____________ _____________ _____________ _____________ _____________ Group As at 31 December 2007 ? GBP Total ? Trade and other receivables 495,018 17,882 512,900 Cash and cash equivalents 7,198,021 11,600 7,209,621 _____________ _____________ _____________ Total assets 7,693,039 29,482 7,722,521 _____________ _____________ _____________ Trade and other payables 9,554,276 27,196 9,581,472 _____________ _____________ _____________ Total liabilities 9,554,276 27,196 9,581,472 _____________ _____________ _____________ Net balance sheet currency position (1,861,237) 2,286 (1,858,951) _____________ _____________ _____________ _____________ _____________ _____________ 22. FINANCIAL INSTRUMENT RISK MANAGEMENT (c) Currency risk Group As at 31 December 2008 ? GBP Total ? Amounts receivable from subsidiary undertakings* 23,421,072 - 23,421,072 Trade and other receivables 16,214 - 16,214 Cash and cash equivalents 371,903 73 371,976 _____________ _____________ _____________ Total assets 23,809,189 73 23,809,262 _____________ _____________ _____________ Trade and other payables 2,976,593 73,105 3,049,698 _____________ _____________ _____________ Total liabilities 2,976,593 73,105 3,049,698 _____________ _____________ _____________ Net balance sheet currency position 20,832,596 (73,032) 20,759,564 _____________ _____________ _____________ _____________ _____________ _____________ * After impairment as disclosed in note 14 Group As at 31 December 2007 ? GBP Total ? Amounts receivable from subsidiary undertakings 31,254,053 - 31,254,053 Trade and other receivables 682 17,882 18,564 Cash and cash equivalents 6,217,549 11,600 6,229,149 _____________ _____________ _____________ Total assets 37,472,284 29,482 37,501,766 _____________ _____________ _____________ Trade and other payables 5,473,260 27,196 5,500,456 _____________ _____________ _____________ Total liabilities 5,473,260 27,196 5,500,456 _____________ _____________ _____________ Net balance sheet currency position 31,999,024 2,286 32,001,310 _____________ _____________ _____________ _____________ _____________ _____________ The following significant exchange rates applied during the year: Average rate Reporting date spot rate 2008 2007 2008 2007 ? ? ? ? Euro 1 GBP 0.802 0.691 0.957 0.735 1 BGN * 1.956 1.956 1.957 1.956 * The Bulgarian Lev (BGN) was fixed to the Euro at 1.95583 BGN to 1 Euro on 5 July 1999. The sensitivity analysis below is based on a change in an assumption while holding all other assumptions constant. In practice this is unlikely to occur. The tables above present financial assets and liabilities denominated in foreign currencies held by the Group and the Company in 2008 and 2007 used to monitor foreign currency risk at the reporting dates. If the Euro had strengthened/weakened by 10% against the UK pound as at 31 December, with all other variables held constant, post-tax Group and Company profit for the year would have been ?7,303 (2007:?229) higher/lower. As the Lev is fixed against the Euro this results in no additional exposure to any Euro movements. 22. FINANCIAL INSTRUMENT RISK MANAGEMENT Liquidity risk Liquidity risk is the risk that arises when the maturity of assets and liabilities does not match. An unmatched position potentially enhances profitability, but can also increase the risk of losses. The Group has procedures with the object of minimising such losses such as maintaining sufficient cash and other highly liquid current assets and will negotiate additional credit facilities as and when required. Cash and cash equivalents are placed with financial institutions on a short term basis reflecting the Group's desire to maintain a high level of liquidity to enable timely completion of investment transactions. An analysis of other financial assets is provided in notes 15 and 16. A summary table with maturity of financial liabilities is presented below: Group Total Less than 6 to 12 Greater 2008 6 months months than Financial 12 months liabilities ? ? ? ? Trade and other 7,459,262 231,162 2,841,623 4,386,477 payables __________ __________ __________ ___________ __________ __________ __________ ___________ Financial Total Less than 6 to 12 Greater liabilities 2007 6 months months than 12 months ? ? ? ? Trade and other 9,581,472 278,605 486,025 8,816,842 payables __________ __________ __________ ___________ __________ __________ __________ ___________ Company Total Less than 6 to 12 Greater 2008 6 months months than Financial 12 months liabilities ? ? ? ? Trade and other 3,049,698 208,075 2,841,623 - payables __________ __________ __________ ___________ __________ __________ __________ ___________ Financial Total Less than 6 to 12 Greater liabilities 2007 6 months months than 12 months ? ? ? ? Trade and other 5,500,456 104,646 2,600 5,393,210 payables __________ __________ __________ ___________ __________ __________ __________ ___________ Credit risk Credit risk is the risk that a counterparty will be unwilling or unable to meet a commitment that it has entered into with the Company. The Company has exposure to credit risk relating to its cash and cash equivalents. The Company has tried to mitigate this risk by investing in high liquidity, AAA rated instruments. 22. FINANCIAL INSTRUMENT RISK MANAGEMENT The Group and Company's maximum exposure to credit risk by class of financial instruments is shown below. Group Group Company Company 2008 2008 2008 2008 ? ? ? ? Carrying Maximum Carrying Maximum value exposure value exposure Amounts receivable - - 23,421,072 23,421,072 from subsidiary undertakings* __________ __________ __________ __________ Trade and other 548,827 548,827 16,214 16,214 receivables Cash and cash 767,920 767,920 371,976 371,976 equivalents __________ __________ __________ __________ Total 1,316,747 1,316,747 23,809,262 23,809,262 __________ __________ __________ __________ __________ __________ __________ __________ * After impairment as disclosed in note 14 Group Group Company Company 2007 2007 2007 2007 ? ? ? ? Carrying Maximum Carrying Maximum value exposure value exposure Amounts receivable - - 31,254,053 31,254,053 from subsidiary undertakings Trade and other 512,900 512,900 18,564 18,564 receivables Cash and cash 7,209,621 7,209,621 6,229,149 6,229,149 equivalents __________ __________ __________ __________ Total 7,722,521 7,722,521 37,501,766 37,501,766 __________ __________ __________ __________ __________ __________ __________ __________ Capital risk management The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may return the capital to shareholders, issue new shares or sell assets to reduce debt. 23. RELATED PARTY DISCLOSURES The Company has taken advantage of the exemption within IAS 24 Related Party Disclosures and elected not to disclose details of intra-group transactions. Transactions with directors are as disclosed in Director's report, the Consolidated Income Statement and note 6 to the financial statements. The balances outstanding as at the year end are as disclosed in note 17.Bachmann Fund Administration Limited is a related party by virtue of its appointment as Administrator and Secretary to the Group. Fees paid to this entity are declared on the face of the income statement and also in note 3. The balances outstanding as at the year end are as disclosed in note 17. Lewis Charles Securities Limited is a related parties by virtue of its appointments as Investment Manager, Co-distributor and Promoter. Fees paid to this entity are declared on the face of the income statement and also in note 4. The balances outstanding as at the year end are as disclosed in note 17. 24. CONTROLLING PARTY In the opinion of the Directors there is no controlling party as no one party has the ability to direct the financial and operating policies of the Company with a view to gaining economic benefits from their direction. 25. RECONCILIATION OF NAV PER THE FINANCIAL STATEMENTS TO PUBLISHED NAV 2008 2008 2007 2007 ? Per share ? Per share Net Asset Value per financial statements 44,092,026 0.91 66,205,547 1.37 Add back: Adjustment to value of properties - - 8,319,285 0.17 Adjustment to performance fee - - (2,069,050) (0.04) Preliminary expenses 736,896 0.02 1,311,188 0.03 Adjustment to calculated deferred tax 1,414,464 0.03 2,687,886 0.06 ____________ ____________ ____________ ____________ Published Net Asset Value 46,243,389 0.96 76,454,856 1.59 ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ An adjustment is required within the financial statements to record the value of inventory from fair value, as used for the published Net Asset Value, to cost as required to ensure compliance with International Accounting Standard 16 "Property, Plant and Equipment". The Company's principal documents require the dealing valuation of the Company's net assets to include preliminary expenses incurred in the establishment of the Company, such expenses to be amortised over the expected life of the Company. However, this accounting treatment is not permitted for financial reporting purposes and has been adjusted accordingly within these financial statements. 26. POST BALANCE SHEET EVENTS Sale of Bristitsa On 20 January 2009 Splendid Investments S.A. (a 100% owned subsidiary of the Fund) whose subsidiary Blacksea Properties EOOD owns the Bristitsa project, entered into a financing arrangement with Enderton Company Assets Inc. ("Enderton"), whose registered office is in British Virgin Islands. Shares of Blacksea Properties EOOD were sold and loan receivable from Blacksea EOOD was transferred to Enderton with an option to transfer back both the shares and the loan by the 15 December 2009 at an agreed price of ?4million. Proceeds raised from this financing transaction were ?1.826 million. The Group intends that it will raise cash to exercise the option under the above financial arrangement. Various sources of financing have been considered by the board including raising of fresh equity and the disposal of properties at a discount. A final decision regarding the source of financing has not been made. As at 31 December 2008 the carrying value of Bistrista Project was ?23.1 million and is included in investment properties in note 12 to these financial statement. It is the intention of directors to exercise this option to ensure the project stays on the balance sheet of the Group. BuySell On 21 November 2005 the Company announced that it had exercised seven options to purchase properties in Sofia situated in the Vitoshavets Simeonovo, Krustovat and Dragalevtsi areas of Sofia. These properties comprised residential villas and apartment developments, together with shops, some small offices and parking to be developed by BuySell Real Estate Agent Limited ('BuySell'), a Bulgarian incorporated property development company. 26. POST BALANCE SHEET EVENTS BuySell The Group received legal advice that BuySell is in default under the six remaining option agreements in place and served notices giving BuySell until 17 April 2009 to perform its obligations under each of these option agreements. BuySell has failed to perform its obligations by the due date, and the Group has therefore rescinded all of the remaining option agreements and preliminary sales contracts due to non-performance. The Group has received legal advice that it is entitled to claim from BuySell all payments made under each option agreement, including all deposits, and in addition to receive a sum equivalent to the deposit by way of penalty. The total amount paid to date is ?10,379,426 which includes deposits of ?9,000,494. The recoverability of this money may be contingent on the outcome of any legal proceedings that may take place in the Bulgarian courts and, should the outcome of the legal proceedings be in favour of the Group, whether BuySell is in a financial position to make the determined payment. In the opinion of directors, as there is uncertainity over recoverability of the sums, the amount of ?10,379,426 has been fully impaired in the current year as outlined in note 13. As a result of rescission of the above mentioned contract, the Group is not liable to any capital commitments associated with these option agreements that were disclosed in the prior year financial statements. Termination of management agreement On 31 March 2009, the Group announced termination of management agreement dated 20 September 2005 with Lewis Charles Securities Limited. Termination will take effect on 1 October 2009. The management fee (note 4) payable to the investment manager will cease. The performance fee (note 5) will be recalculated on 30 September 2009 based on the property values as of that date and will crystallise (if any due), and become payable on that date. As at the date of publication of these financial statements the Board has not announced the appointment of new investment manager. THE FOLLOWING PAGES DO NOT FORM PART OF THE AUDITED FINANCIAL STATEMENTS OF THE COMPANY AND ARE PRESENTED FOR INFORMATION PURPOSES ONLY Company income statement Restated into Pounds Sterling for information purposes only for the year ended 31 December 2008 Revenue Capital Total 31 Dec 2007 GBP GBP GBP GBP ___________________________________ __________ Revenue - - - - Expenses Administration fees 97,944 - 97,944 89,562 Management fees 723,083 - 723,083 715,249 Performance fees - (2,046,118) (2,046,118) 1,642,476 Directors' fees and expenses 55,722 - 55,722 63,508 Foreign exchange loss 8,972 - 8,972 13,316 Other expenses 555,313 - 555,313 730,274 Impairment on loan to subsidiary companies - 9,662,895 9,662,895 - ___________________________________ __________ 1,441,034 7,616,777 9,057,811 3,254,385 ___________________________________ __________ Operating loss (1,441,034) (7,616,777) (9,057,811) (3,254,385) Finance income 43,056 - 43,056 282,327 ___________________________________ __________ Loss before taxation (1,397,978) (7,616,777) (9,014,755) (2,972,058) Tax on profit on ordinary activities - - - - ___________________________________ __________ Loss for the year (1,397,978) (7,616,777) (9,014,755) (2,972,058) ___________________________________ __________ ___________________________________ __________ Consolidated income statement Restated into Pounds Sterling for information purposes only for the year ended 31 December 2008 Revenue Capital Total 31 Dec 2007 GBP GBP GBP GBP ___________________________________ __________ Revenue Property sales 115,774 - 115,774 - Cost of sales (88,053) (88,053) - Other revenue 684,025 - 684,025 - ___________________________________ __________ Gross profit 711,746 - 711,746 - ___________________________________ __________ Expenses Administration fees 154,134 - 154,134 142,550 Management fees 723,083 - 723,083 715,249 Performance fees - (2,046,118) (2,046,118) 1,642,476 Directors' fees and expenses 55,722 - 55,722 63,508 Foreign exchange loss 26,144 - 26,144 14,663 Other expenses 967,663 - 967,663 905,227 Impairment of inventory - 11,103,591 11,103,591 - Revaluation of investment properties - 8,532,431 8,532,431 (8,559,521) ___________________________________ __________ 1,926,746 17,589,904 19,516,650 (5,075,848) ___________________________________ __________ Operating (loss) / profit (1,215,000)(17,589,904) (18,804,904) 5,075,848 Finance income 50,914 - 50,914 292,935 ___________________________________ __________ (Loss)/profit before (1,164,086)(17,589,904) (18,753,990) 5,368,783 taxation Taxation - 1,021,157 1,021,157 (855,952) ___________________________________ __________ (Loss)/Profit for the year (1,164,086)(16,568,747) (17,732,833) 4,512,831 ___________________________________ __________ ___________________________________ __________ Earnings per share - basic and diluted (pence per share) (36.68) 9.33 Company balance sheet Restated into Pounds Sterling for information purposes only as at 31 December 2008 Company 2008 Company 2007 GBP GBP GBP GBP Non-current assets Investment in subsidiary undertakings 10,069,314 10,069,314 Amount receivable from subsidiary undertakings 22,414,903 20,635,577 ____________ ____________ 32,484,217 30,704,891 Current assets Trade and other receivables 15,517 13,645 Cash and cash equivalents 355,996 4,578,425 ____________ ____________ 371,513 4,592,070 ____________ ____________ Total assets 32,855,730 35,296,961 ____________ ____________ Current liabilities Trade and other payables (2,918,683) (78,826) ____________ ____________ (2,918,683) (78,826) Non-current liabilities Trade and other payables - (3,964,009) ____________ ____________ - (3,964,009) ____________ ____________ Total liabilities (2,918,683) (4,042,835) ____________ ____________ Net assets 29,937,047 31,254,126 ____________ ____________ ____________ ____________ Equity Share capital - - Special reserve 38,676,000 38,676,000 Capital reserve (11,759,027) (4,142,250) Revenue reserve 3,020,074 (3,279,624) ____________ ____________ Total Equity 29,937,047 31,254,126 ____________ ____________ ____________ ____________ Consolidated balance sheet Restated into Pounds Sterling for information purposes only as at 31 December 2008 Company 2008 Company 2007 GBP GBP GBP GBP Non-current assets Investment properties 42,921,330 40,518,498 Current assets Inventory 6,508,829 11,484,501 Property options 5 4 Trade and other receivables 525,249 376,980 Cash and cash equivalents 734,930 5,299,071 ____________ ____________ 7,769,013 17,160,556 ____________ ____________ Total assets 50,690,343 57,679,054 ____________ ____________ Current liabilities Trade and other payables (2,940,778) (562,003) ____________ ____________ (2,940,778) (562,003) Non-current liabilities Trade and other payables (4,198,034) (6,480,379) Deferred taxation (1,353,699) (1,975,596) ____________ ____________ (5,551,733) (8,455,975) ____________ ____________ Total liabilities (8,492,511) (9,017,978) ____________ ____________ Net assets 42,197,832 48,661,076 ____________ ____________ ____________ ____________ Equity Share capital - - Special reserve 38,676,000 38,676,000 Capital reserve (4,065,340) 12,503,407 Revenue reserve 7,587,172 (2,518,331) ____________ ____________ Total Equity 42,197,832 48,661,076 ____________ ____________ ____________ ____________ NAV per share (pence per share) 87.28 100.65 NAV per share at launch (pence per share) 72.80 72.80 Statements of changes in equity Restated into Pounds Sterling for information purposes only for the year to 31 December 2008 Consolidated 2008 Share Capital Special Capital Reserve Revenue Total Equity Reserve Reserve GBP GBP GBP GBP GBP As at 31 December 2007 - 38,676,000 12,503,407 (2,518,332) 48,661,075 Loss for the year - - (16,568,747) (1,164,086) (17,732,833) Foreign exchange adjustment - - - 11,269,590 11,269,590 arising on translation to Sterling ____________ ____________ ____________ ____________ ____________ As at 31 December 2008 - 38,676,000 (4,065,340) 7,587,172 42,197,832 ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ Company 2008 Share Capital Special Capital Reserve Revenue Total Equity Reserve Reserve GBP GBP GBP GBP GBP As at 31 December 2006 - 38,676,000 (4,142,250) (3,279,624) 31,254,126 Loss for the year - - (7,616,777) (1,397,978) (9,014,755) Foreign exchange adjustment - - - 7,697,676 7,697,676 arising on translation to Sterling ____________ ____________ ____________ ____________ ____________ As at 31 December 2007 - 38,676,000 (11,759,027) 3,020,074 29,937,047 ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ Consolidated 2007 Share Capital Special Capital Reserve Revenue Total Equity Reserve Reserve GBP GBP GBP GBP GBP As at 31 December 2007 - 38,676,000 6,442,314 (3,812,397) 41,305,917 Profit/(loss) for the year - - 6,061,093 (1,548,262) 4,512,831 Foreign exchange adjustment 2,842,328 2,842,328 arising on translation to Sterling ____________ ____________ ____________ ____________ ____________ As at 31 December 2008 - 38,676,000 12,503,407 (2,518,331) 48,661,076 ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ Company 2007 Share Capital Special Capital Reserve Revenue Total Equity Reserve Reserve GBP GBP GBP GBP GBP As at 31 December 2006 - 38,676,000 (2,499,774) (3,937,631) 32,238,595 Loss for the year - - (1,642,476) (1,329,582) (2,972,058) Foreign exchange adjustment - - - 1,987,589 1,987,589 arising on translation to Sterling ____________ ____________ ____________ ____________ ____________ As at 31 December 2007 - 38,676,000 (4,142,250) (3,279,624) 31,254,126 ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ Company cash flow statement Restated into Pounds Sterling for information purposes only for the year ended 31 December 2008 2008 2007 GBP GBP Loss for the year (9,014,755) (2,972,058) Adjustment for: Impairment on loan to subsidiary companies (43,056) (3,431) Finance income 9,662,895 - ____________ ____________ Operating cash flows before movements in working capital 605,084 (2,975,489) Decrease in operating trade and (1,884) 26,753 other receivables (Decrease) / increase in (1,965,263) 1,896,863 operating trade and other payables ____________ ____________ (1,362,063) (1,051,873) Interest received 43,056 3,431 Taxation - - ____________ ____________ Net cash outflow from operating activities (1,319,007) (1,048,442) Investing activities Investment in subsidiary undertakings (3,381,628) (9,956,017) ____________ ____________ Net cash outflow from investing activities (3,381,628) (9,956,017) Net decrease in cash and cash equivalents (4,700,635) (11,004,459) Exchange difference arising on 478,206 81,328 translation to Sterling Cash and cash equivalents at start of year 4,578,425 15,501,556 ____________ ____________ Cash and cash equivalents at end of year 355,996 4,578,425 ____________ ____________ ____________ ____________ Consolidated cash flow statement Restated into Pounds Sterling for information purposes only for the year ended 31 December 2008 2008 2007 GBP GBP (Loss) /profit for the year (17,732,833) 4,512,831 Adjustment for: Finance income (50,914) (14,039) Revaluation of investment properties 8,532,431 (8,559,521) Impairment of inventory 11,103,591 - Taxation (1,021,157) 979,672 ____________ ____________ Operating cash flows before movements in working capital 831,118 (3,081,057) (Increase) / decrease in operating and (28,810) 62,001 other receivables (Decrease) / increase in operating and (1,701,800) 4,782,691 other payables Increase in inventory (4,027,488) - ____________ ____________ (4,926,980) 1,763,635 Interest received 50,914 14,039 Taxation - - ____________ ____________ Net cash (outflow)/ inflow from (4,876,066) 1,777,674 operating activities ____________ ____________ Investing activities Repayment of loan to property developer - 942,313 Purchases of investment properties (289,534) (13,129,856) Net cash outflow from investing activities (289,534) (12,187,542) Net decrease in cash and cash equivalents (5,165,600) (10,409,868) Exchange difference arising on 601,458 (243,438) translation to Sterling Cash and cash equivalents at start of year 5,299,072 15,952,378 ____________ ____________ Cash and cash equivalents at end of year 734,930 5,299,072 ____________ ____________ ____________ ____________
1 Year Lewis Charles Sofia Prop Fund Chart |
1 Month Lewis Charles Sofia Prop Fund Chart |
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