RNS Number:9916W
Ottoman Fund Limited (The)
22 May 2007
For Immediate Release 22 May 2007
THE OTTOMAN FUND LIMITED
Interim Results for the six months ending 28 February 2007
The Ottoman Fund Limited (the "Fund"), which invests in the development of local
housing and holiday homes in the major cities and coastal resorts of Turkey, is
pleased to announce its interim financial statements for the period ending 28
February 2007.
Period highlights
* Property portfolio independently valued at 20% above cost
* Increase in adjusted NAV by 8.5% to 102p since November 2006
* Further Investments:
- 917,900m2 of land at Riva, Istanbul,
plus additional land aggregation in the same area
- 50% investment in 274,524m2 of land at Kazikli
* 50/50 JV with Ado Group in respect of Kazikli land
* Phase 1 Golturkbuku, Bodrum ready for launch
Copies of the Financial Statements are currently being sent to shareholders and
may be obtained free of charge from Development Capital Management Limited,
84 Grosvenor Street, London, W1K 3JZ.
Contacts
Development Capital Management 020 7355 7600
Roger Hornett
Ertan Sevinc
Tom Pridmore
Buchanan Communications 020 7466 5000
Charles Ryland
Isabel Podda
Numis Securities 020 7260 1000
Iain McDonald
Bruce Garrow
THE OTTOMAN FUND LIMITED
CONDENSED INTERIM FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 28 FEBRUARY 2007
Chairman's Statement
The six months since the year end in August 2006 have seen some significant
developments for the Ottoman Fund. Further investment has continued, joint
ventures and partnerships have been put in place and the development of existing
sites has made good progress. The Fund is viewed as a significant property
investor in Turkey and is regularly approached by developers and land owners
alike, a testament to the hard work of the Manager's Turkish office.
New Investments
As I mentioned in the annual report, the Fund purchased in September just under
one million square metres of land in Riva. This is a significant investment for
the Fund in terms of value, physical size and strategic importance. The area,
just outside Istanbul on the Black Sea coast, is expected to become a major
suburb of the city, particularly with travel time down to 35 minutes following
recent infrastructure improvements. These prospects can already be seen in the
rising valuations, with the site having increased 20% in value over the six
months since its purchase. In addition to the original site, the Fund has
continued to aggregate further small plots of adjacent land as suitable
opportunities have arisen.
As announced in January, the Fund purchased a 50% share of a 274,524m2 plot at
Kazikli, on the Aegean coast. In conjunction with this we entered into a 50/50
joint venture with the co-owner, Ado Group, to develop the site. One of the
largest suppliers of building materials to Turkey and neighbouring countries,
they bring significant local expertise to the project. Planning approval is
progressing well and we are currently tendering for concept designers.
Just after the period end, the Fund bid in partnership with the Akfen Group for
a highly prestigious plot in the central business district of Istanbul. We were
unsuccessful but both parties considered that our final bid was at the right
level and a good relationship has been established with Akfen. The Manager
continues to look at other suitable sites that become available as part of the
privatisation process.
Existing Portfolio
Progress on the existing investments continues apace. At the Bodrum site concept
designs are complete, local architects have been selected and the marketing of
phase 1 is due to commence shortly. The final payment at Alanya has been made
and the sales strategy is being reviewed with the developer.
Turkey
The election of a new president led to a political crisis at the end of April as
secularist opposition to the nominated candidate, Abdullah Gul, lead to large
scale public demonstrations and a statement by the Army which was widely taken
as a threat to intervene. In the event the vote was annulled by the
Constitutional Court; a parliamentary general election has been called for 22
July.
Negotiations on EU accession are virtually at a standstill. Lack of progress and
the negative stance of some EU members have continued to swing opinion away from
support for accession.
Losses by the Turkish lira and on the Istanbul stock market at the height of the
crisis reversed in early May. Political uncertainty will continue to affect
markets, at least until after the parliamentary elections.
Prospects
The Fund is now 65% invested, whilst the remainder is currently allocated for
the sales and development of the invested sites. A number of new investments are
under review and the Manager is keen to explore further joint ventures with
potential partners in Turkey.
Political uncertainty overshadows the period ahead but the Fund is
well-positioned to move forward in any of the likely outcomes.
Sir Timothy Daunt
Chairman
May 2007
Manager's Report
During the period a number of further land purchases were made, partnerships
have been established with significant companies and the development of our
existing sites has progressed well. The focus of investment remains on early
stage land purchase and development whether in joint ventures or directly. This
continues to be, in the Manager's experience, the best long term strategy.
Investment activity
Riva
As previously mentioned following the year end the Fund purchased 917,900 square
metres of development land in Riva. The site is part of the Beykoz-Riva-Kavacik
subregion, the north east part of Istanbul on the Asian side, adjoining the
Black Sea coast.
The region is expected to become a major
new housing area to supply demand from commuters into Istanbul. Significant
infrastructure is now in place reducing commuting time down to 35 minutes. A
number of key developers are working in the
region and prices have been rising as the prospects for the area increase. The
Fund purchased the site for $110m in September 2006. Following this the Fund
aggregated two further plots for $0.3m in February and continued this process
adding a further eleven plots costing $2.3m in April and May. As at the period
end the current independent valuation for the holding is $132.4m, an increase of
20% over the six months under review. Overall proposals for the entire site have
been submitted to the regional planners and we await the response. Concept
designs for phase one, which already has 1:1000 scale permission, are being
finalised and local architects are being appointed to produce the technical
designs for these 70 units. Once complete the Manager expects construction
permits to be granted swiftly.
Kazikli
In January the Fund purchased a 50% share in 11 contiguous parcels of prime
coastal land in Kazikli village, approximately 25 miles from Bodrum-Milas
international airport. The total area of the land is 274,524m2 and cost $10m for
the 50% stake. In conjunction with this the Fund also entered into a 50/50 joint
venture with Ado Group, one of Turkey's largest suppliers of building materials.
The JV company into which each party has invested $3m of equity, will be
responsible for the development of the site. At the period end the company had
received approval from the local authorities for a new zoning plan for
the site. As a result of this and general market movements, the land held by the
Fund had increased in value by 24% to $12.4m as at the end of February.
Golturkbuku, Bodrum
The site at Bodrum is moving forward well, the concept designs from WATG have
been converted to technical specifications and the construction permit has been
applied for. Initial pre-marketing of the first phase consisting of 26 three and
four bedroom villas has commenced with a full launch expected in June.
Discussions are ongoing with several international hotel and spa operators.
Prices in the local area have continued to rise and this has been reflected in
the land valuation for the site which stood at $38.4m on 28 February against the
purchase price of $33.4m. Since the period end the Manager has been able to
secure two further plots adjacent to the site along the coast for $5.3m.
Alanya
Sales at the site remain subdued, which the Manager believes stems from a
combination of increased supply and lower pricing of developments in the
immediate area. Although the site remains one of the best in the vicinity it is
increasingly clear a more aggressive stance on pricing will be required. The
remaining payment of Euro4.1m was made in December 2006 bringing the total
investment to $12.7m against an independent valuation of $18.5m at the period
end.
Tender for land in Besiktas, Istanbul
Following the period end the Fund formed a joint partnership with the Akfen Real
Estate Investment Company to bid for 96,505m2 of state owned land in the central
business area of Besiktas in the European side of Istanbul. Akfen is one of the
largest conglomerates in Turkey and is a leading property developer both in
Turkey and the surrounding region. Together a meaningful bid was tendered.
Ultimately however, the site, in a highly sought after area of the capital, was
won by the Zorlu Group for a record $800m.
Valuation
In order that shareholders may identify the value created by the Fund from
investing in locations and markets with strong growth potential, independent
valuations of the property portfolio are obtained on a regular basis.
Below is set out the revaluation of the Fund's assets that cannot be reflected
on the balance sheet under IFRS.
Net assets as at 28 February 2007 #137,958,806
Increase in valuation of inventory properties above cost
Golturkbuku, Bodrum #2,534,034
Riva #11,290,427
Kazikli #1,198,185
Adjusted net asset value #152,981,452
Number of ordinary shares in issue 150,000,000
Adjusted net asset value per share as at 28 February 2007 101.99p
Adjusted net asset value per share as at 30 November 2006 93.87p
The political climate
Turkey has been in an electoral phase for the best part of the last year, with
most expecting Prime Minister Erdogan to put his name forward for the
Presidency. However it was decided such a move would be too contentious and
Foreign Minister Abdullah Gul was nominated by the ruling AKP.
This was still a step too far for the secularists who, fearing creeping
Islamism, demonstrated on the streets in large numbers, triggering a political
crisis. An announcement from the General Staff followed, which was taken by most
as a threat by the Army to become involved. The CHP opposition party then
successfully challenged the presidential result in the Constitutional Court,
resulting in the Parliament calling an early general election for 22 July and
proposing several amendments to the Constitution, including the direct elections
of the President by the people.
The stock market's reaction to all of this was relatively muted, the initial 4%
fall having now been regained and the Lira has held its own, a surprising
outcome given the strength of both this year. FDI remains undeterred with a
foreign-led consortium investing $1.2bn for the operating rights of Izmir's
port. The focus of most investors will now be on the forthcoming elections and
any reaction by the General Staff.
EU negotiations
The period under review has been interspersed with spasmodic bouts of tension
between the negotiating parties. Of particular contention is Article 301 of the
penal code covering the crime of anti-Turkishness, an indictable offence in
Turkey but strictly against the freedom of speech chapter enshrined in the
Treaty of Rome. However it was not this that temporarily halted negotiations but
the refusal of the Turkish government to open its ports and airports to Greek
Cypriot traffic by early December as the EU directive had demanded. The Turkish
government believes this is a problem for the UN to solve and not something
which should be seen as part of the EU negotiating process. Willingness for the
inclusion of Turkey into the EU will be tested in the coming months particularly
with the recent elections of the conservative Nicolas Sarkozy in France and
Angela Merkel in Germany.
The economy
The massive increase in interest rates by 425 basis points to 17.50% in June has
had a material but generally positive effect on the economy. The Lira has
recovered some lost ground and is steady against the US Dollar at $1.40, where
it remains competitive; GDP growth has slowed but not reversed and inflation
shows signs of coming under control.
Tourism
2006 was a poor year for tourism, especially the final quarter, where terrorist
attacks in August targeting Istanbul, Marmaris, Antalya, Van and Diyarkbakir,
reduced foreign arrivals leaving full year numbers down 6.2% at 12.2m visitors.
Full year revenue fell back 7.2% to $16.9bn. It should not be forgotten however
that 2005 had been an exceptional year with arrivals 20% ahead of 2004 levels,
thus the decline still leaves tourism up on 2004 levels. Since the end of
November the position seems to have improved with arrivals recording a 7.6% year
on year increase in December and 7.1% in January. The decision of the Turkish,
US and Iraqi authorities to join forces against the terrorists creeping across
the Iraqi border, no doubt played a major role here. The outlawed PKK Kurdistan
Workers Party, which claimed responsibility for the terrorist attacks, is
increasingly losing any popular support they may have had.
The most recent numbers have shown foreign tourist arrivals increased by 25.6%
in February year on year which bodes very well for the summer season.
The property market
The long awaited mortgage law was finally presented to and passed by parliament
at the end of February and will take effect from 1 January 2008. Fixed and
variable rate mortgages will replace typical 5 year housing loans and will be
tradable by the banks. They will be offered for periods of 20 years or more and
sensibly there will be no tax breaks against interest paid. Those with housing
loans may switch to mortgages without the usual 2.0% early repayment penalty and
in addition the 5.0% banking insurance operating tax will be dropped.
There is a huge shortage of appropriate housing. Industry and government agree
that demand will average 700,000 a year for the next decade. Less than half that
number are currently being built. Meanwhile some 55% of all residences have been
built without a licence or permit, most not even approaching earthquake
standards. Approximately 60% of existing housing stock is over 20 years old and
40% of all houses are in need of considerable repair. The market in these
circumstances is likely to remain tight and prices firm.
The mini economic crisis of 2006 however took its toll on the property market,
with 65% of first time buyers delaying for a year. New build held up well, with
buyers encouraged by free gifts, the promise of holidays and pre-arranged
attractive financing. The situation appears to have stabilised, although
it is difficult to predict in the current climate.
Prospects
Whilst the current unrest is causing some media commentators alarm, the
fundamentals of the local property market remain strong. The position of the
portfolio means that little of the stock due to come to the market in the near
future will be aimed at the international investor. Our focus on a more direct
development strategy also gives us the flexibility to adapt to market movements.
For the remainder of the year the Manager expects the focus to be predominantly
on moving the existing sites through planning and into construction. Sales and
marketing strategies are being drawn up and we expect phased releases to have
started for most sites by the year end.
Development Capital Management (Jersey) Limited
May 2007
Consolidated Balance Sheet (unaudited)
As at 28 February 2007
(unaudited) (audited)
28 February 31 August
2007 2006
Group Group
notes # #
Non-current assets
Inventories 4 79,524,583 19,377,286
Loans & receivables 5 7,192,613 4,381,865
86,717,196 23,759,151
Current assets
Other receivables 325,219 612,736
Cash and cash equivalents 51,104,890 114,862,336
51,430,109 115,475,072
Total assets 138,147,305 139,234,223
Current liabilities
Other payables (188,499) (197,125)
Net assets 137,958,806 139,037,098
Equity
Share Capital 6 150,000,000 150,000,000
Retained Earnings (12,041,133) (10,962,860)
Equity attributable to 137,958,867 139,037,140
owners of the parent
Minority interest equity (61) (42)
Total equity 137,958,806 139,037,098
Net asset value per share 7 92.0 92.7
(pence)
Consolidated Income Statement (unaudited)
For the six months ended 28 February 2007
(unaudited) (audited)
Six months 9 December
ended 2005
28 February to 31 August
2007 2006
notes # #
Income
Bank interest 1,350,306 3,709,237
Total income 1,350,306 3,709,237
Operating expenses
Management fee 2 (1,487,671) (2,030,136)
Other operating expenses (583,365) (663,645)
Foreign exchange gains/(losses) 12,134 (210,870)
Total operating expenses (2,058,902) (2,904,651)
(Loss)/profit for the period (708,596) 804,586
Attributable to:
Equity shareholders of the company (708,607) 804,585
Minority interest 11 1
(708,596) 804,586
Basic and diluted (loss)/ earnings
per share (pence) 3 (0.5) 0.5
Consolidated Statement of Cash Flows (unaudited)
For the six months ended 28 February 2007
(unaudited) (audited)
Six months 9 December
ended 2005
28 February to 31 August
2007 2006
Group Group
Cash flow from operating activities # #
(Loss)/profit for period (708,596) 804,586
Net foreign exchange (gains)/losses (12,134) 210,870
Decrease/(increase) in other receivables 287,517 (612,736)
(Decrease)/increase in other payables (8,626) 197,125
Net cash (outflow)/inflow from operating (441,839) 599,845
activities
Cash flow from investing activities
Purchase of inventories (60,147,297) (19,768,599)
Loan to developer (2,798,088) (4,472,247)
Net cash outflow from investing activities (62,945,385) (24,240,846)
Cash flow from financing activities
Issue of shares - 150,000,000
Share issue expenses - (11,250,000)
Net cash inflow from financing activities - 138,750,000
Net (decrease)/increase in cash and cash (63,387,224) 115,108,999
equivalents
Cash and cash equivalents at 31 August 2006 114,862,336 -
Effect of foreign exchange rates (370,222) (246,663)
Cash and cash equivalents at 28 February 51,104,890 114,862,336
2007
Consolidated Statement of Changes in Equity (unaudited)
Group
Share Retained Minority
capital earnings Interest Total
# # # #
For the period 9
December 2006 to
31 August 2006
(audited)
Issue of share 150,000,000 - - 150,000,000
capital
Expenses of share - (11,250,000) - (11,250,000)
issue
Foreign exchange on
subsidiary - (517,447) (41) (517,488)
translation
Profit for the period - 804,587 (1) 804,586
Balance at 31 August 150,000,000 (10,962,860) (42) 139,037,098
2006
For the six months
ended
28 February 2007
(unaudited)
Balance at 31 August 150,000,000 (10,962,860) (42) 139,037,098
2006
Foreign exchange on
subsidiary - (369,666) (30) (369,696)
translation
Loss for the period - (708,607) 11 (708,596)
Balance at 28 150,000,000 (12,041,133) (61) 137,958,806
February 2007
Notes to the Financial Statements (unaudited)
For the six months ended 28 February 2007
1 Accounting Policies
These condensed interim financial statements have been prepared in accordance
with International Financial Reporting Standards ("IFRS") issued by the
International Accounting Standards Board (IASB) and interpretations issued by
the International Financial Reporting Committee of the IASB (IFRIC).
(a) Basis of preparation
The financial statements have been prepared on a historical cost basis, except
for certain financial instruments detailed below.
(b) Basis of consolidation
The interim financial statements incorporate the financial statements of the
Company and entities controlled by the Company (its subsidiaries) made up to 28
February. Control exists when the Company has the power, directly or indirectly,
to govern the financial and operating policies of an entity so as to obtain
benefits from its activities. The financial statements of subsidiaries are
included in the consolidated financial statements from the date that control
commences up to the date that control ceases.
(c) Revenue recognition
Interest receivable on fixed interest securities is recognised on an effective
yield basis. Interest on short term deposits, expenses and interest payable are
treated on an accruals basis.
(d) Expenses
Expenses are charged through the income statement, except for expenses which are
incidental to the disposal of an investment which are deducted from the disposal
proceeds of the investment. In addition certain expenses associated with the
acquisition of an investment have been capitalised.
(e) Investments
General
Assets are recognised at the trade date on acquisition and disposal. Proceeds
will be measured at fair value which will be regarded as the proceeds of sale
less any transaction costs.
Inventories
Inventories are stated at the lower of cost and net realisable value. Land
inventory is recognised at the time a liability is recognised - generally after
the exchange of contracts.
Loans and receivables
Loans and receivables are recognised on an amortised cost basis. Where they are
denominated in a foreign currency they are translated at the prevailing balance
sheet exchange rate.
(f) Movements in fair value
Changes in the fair value of all held-at-fair-value assets are taken to the
income statement. On disposal, realised gains and losses are also recognised in
the income statement.
(g) Cash and cash equivalents
Cash and cash equivalents comprise current deposits with banks.
(h) Taxation
The Fund is an Exempt Company for Jersey taxation purposes. The Company pays an
exempt company fee, for each company within the group, which is currently #600
per annum. However withholding tax may be payable on repatriation of assets and
income to the Fund. The subsidiaries will be liable for Turkish corporation tax
at a rate of 20%. Additionally, a land sale and purchase fee may arise when land
is purchased.
Deferred tax is recognised in respect of all temporary differences that have
originated but not reversed at the balance sheet date, where transactions or
events that result in an obligation to pay more tax in the future or right to
pay less tax in the future have occurred at the balance sheet date. This is
subject to deferred tax assets only being recognised if it is considered more
likely than not that there will be suitable profits from which the future
reversal of the temporary differences can be deducted.
(i) Foreign currency
The results and financial position of the Fund are expressed in pounds sterling,
which is
the functional currency of the Company. Transactions in currencies other than
sterling are recorded at the rates of exchange prevailing on the dates of the
transactions. At each balance sheet date, monetary items and non monetary assets
and liabilities that are fair valued and that are denominated in foreign
currencies are retranslated at the rates prevailing on the balance sheet date.
Gains and losses arising on retranslation are included in net profit or loss for
the period where investments are classified as fair value through profit or
loss. Exchange differences on translation of the company's net investment in
foreign operations are recognised directly in equity.
(j) Share Capital
Shares are classified as equity. External costs directly attributable to the
issue of new shares are shown as a deduction to reserves.
2 Management fee
Six months ended 09 December 2005
28 February 2007 to 31 August 2006
# #
Management fee 1,487,671 2,030,136
The Manager receives a management fee quarterly in advance of 2% per annum of
the net amount raised by the placing plus any capital gains retained for
investment.
The management agreement between the Fund and the Manager is terminable by the
Manager on six month's notice and the Fund on twelve months notice, subject to
an initial term of twenty four months. The Manager is entitled to receive a
performance fee of 20% of any cash returns from the sale of a property
investment above a hurdle rate of 10% compound per annum up to 100% and 30% of
any returns in excess of this. As at 28 February 2007 there is no contingent
performance fee. 20% of the performance fee calculated is subject to a claw back
retention against the future performance of the Fund.
3 Earnings per share
The basic and diluted earnings per share is based on the net loss for the period
of #708,596 (2006:profit of #804,586) and on 150,000,000 shares.
4 Inventories
(a) Land held for 28 February 2007 31 August 2006
development
# #
Opening book cost 19,377,286 -
Purchases at cost 60,147,297 19,377,286
Closing book cost 79,524,583 19,377,286
5 Loans and receivables
28 February 2007 31 August 2006
# #
Loans to third party 7,270,339 4,472,251
Exchange loss on (77,726) (90,386)
revaluation of loan
7,192,613 4,381,865
6 Called up share capital
Authorised:
Founder shares of no par value 10
Shares of no par value Unlimited
Issued and fully paid: #
2 Founder shares of no par value -
150,000,000 shares of no par value 150,000,000
On incorporation of the Fund, 2 founder shares of no par value were issued to
the Manager. These shares are not eligible for participation in the fund
investments and carry no voting rights at general meetings of the fund.
On the initial launch date, 28 December 2005, 150,000,000 shares of no par value
were issued.
7 Net asset value per share
The net asset value per share is based on the net assets attributable to equity
shareholders of #137,958,806 (31 August 2006: #139,037,098) and on 150,000,000
shares, being the number of shares in issue at the end of each relevant period.
8 Financial instruments
The Fund's financial instruments comprise investments, loans, cash balances and
debtors and creditors that arise directly from its operations, for example, in
respect of sales and purchases awaiting settlement, and debtors for accrued
income. The principal risks the Group faces through the holding of financial
instruments are: market risk, credit risk, foreign currency risk, interest rate
risk, and liquidity risk. The Board regularly reviews and agrees policies for
managing each of these risks. As required by IAS32: Disclosure and Presentation,
an analysis of financial assets and liabilities, which identifies the risk to
the Fund of holding such items is given below.
Market price risk
Market price risk arises mainly from uncertainty about future prices of
financial instruments used in the Fund's operations. It represents the potential
loss the Fund might suffer through holding market positions as a consequence of
price movements and movements in exchange rates.
Credit risk
The Fund places loans with third parties and is therefore potentially at risk
from the failure of any such third party of which it is a debtor. Recovery of
the loans is dependent on successful completion and sale of properties by the
developer.
Foreign currency risk
The Fund operates Sterling, Euro, US dollar, and Turkish Lira bank accounts.
Exchange gains or losses arise as a result of the movement in the exchange rate
between the date of the transaction denominated in a currency other than
Sterling and its settlement.
An analysis of the Group's currency exposure is detailed below:
Net monetary Net monetary
Investments assets Investments assets
at 28 at 28 at 31 at 31 August
February February August
2007 2007 2006 2006
# # # #
Euro 7,192,613 612,568 4,381,865 3,395,067
US Dollar 79,524,583 14,025,880 19,377,286 56,997,128
Turkish Lira - 112,736 - 1,811,722
86,717,196 14,751,184 23,759,151 62,203,917
Interest rate risk
The Fund cash balances earn interest at the prevailing market rate, dependant on
the account type.
Floating Non interest Floating Non
interest
rate bearing rate bearing
at 28 at 28 at 31 at 31
February February August August
2007 2007 2006 2006
# # # #
Sterling 36,353,715 - 52,658,419 -
Euro 612,569 7,490,701 601,592 7,175,340
US Dollar - 79,524,583 56,997,128 19,377,286
Turkish Lira 112,736 - 1,811,722 -
37,079,020 87,015,284 112,068,861 26,552,626
Liquidity risk
The Fund's assets mainly comprise cash balances and realisable investments,
which can be sold to meet funding commitments if necessary.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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