TIDMREOP
RNS Number : 0766O
REO Securities Limited
23 June 2010
REO SECURITIES LIMITED
ANNUAL REPORT
FOR THE 14 MONTHS ENDED 28 February 2010
REGISTRATION NUMBER 97292
Table of contents
Directors and other information
3
Chairman's statement
4 - 6
Directors' report
7 - 11
Corporate governance
12 - 15
Statement of directors' responsibilities
16 - 17
Independent auditor's report
18 - 19
Statement of financial position
20
Statement of comprehensive income
21
Statement of changes in equity
22
Statement of cash flows
23
Notes to the financial statements
24 - 31
Directors and other information
Directors
Ray Horney
Richard Barrett
Martin Richardson
Keith Jenkins
Philip Jenkinson
Garth Milne
Administrator, secretary UK broker
and registered office
Ogier Fund Administration (Jersey) Limited
Matrix Corporate Capital LLP
Whiteley Chambers
One Vine Street
Don Street
London W1J OAH
St Helier
Jersey JE4 9WG
Investment adviser Irish
broker
Treasury Holdings
Goodbody Stockbrokers
Connaught House
Ballsbridge Park
1 Burlington Road
Ballsbridge
Dublin 4
Dublin 4
Ireland
Ireland
Registrar
Auditor
Capita Registrars (Jersey) Limited
KPMG
12 Castle Street
Chartered Accountants
St. Helier
1 Stokes Place
Jersey JE4 5UW
St Stephen's Green
Dublin 2
Ireland
Chairman's statement
REO Securities is a wholly owned subsidiary of Real Estate Opportunities plc.
Shareholders attention is drawn to Real Estate Opportunities plc preliminary
results which are also published today (23 June 2010).
Real Estate Opportunities plc ("REO") has commenced preliminary discussions with
certain key holders of loan instruments supporting the business including
holders of the Zero Dividend Preference Shares ("ZDPs") with a view to agreeing
a consensual restructuring of the Group's Balance Sheet prior to their repayment
date on 31 May 2011. The Board has appointed a restructuring adviser, Talbot
Hughes McKillop, to assist in these negotiations and the Company expects to
update shareholders in due course as these discussions advance.
Company background
On 14 February 2008 the Royal Court of Jersey granted approval for a Scheme of
Arrangement (described in a circular to the shareholders of Real Estate
Opportunities plc ('REO' or 'the Group') dated 18 December 2007). The Scheme
involved the ZDP shares, part of the share capital of REO being cancelled and,
in exchange, New ZDP Shares were issued on a one for one basis by REO Securities
Limited ('the Company'), a newly incorporated subsidiary of REO. Implementation
of the Scheme will allow the new ZDP Shares to be repaid by way of winding up of
REO Securities Limited on 31 May 2011 rather than the winding up or
reconstruction of REO itself.
Admission of the 57,755,782 New ZDP Shares of REO Securities Limited to the
Official List of the UK Listing Authority took place on 18 February 2008, with
dealings therein on the London Stock Exchange commencing on the same day.
Going concern
The Company's major asset is a receivable from its parent, REO a company
incorporated in Jersey. REO Securities' ability to continue in business and
satisfy its future obligations to the holders of the ZDP's is dependent on REO.
To that end, REO and REO Securities Limited have entered into an arrangement
pursuant to an Undertaking Agreement whereby the net assets of REO will
effectively be made available to meet the repayment entitlement of the ZDP
Shares on the Repayment Date, 31 May 2011.
At 28 February 2010, the Group had total borrowings of GBP1.721 billion. At
that date, the Group also had cash and cash equivalents of GBP21.1 million,
restricted cash of GBP17.7 million and an investment in CREO of GBP27.7 million
which was realised in cash subsequent to the year end. The Group has an
investment and development property portfolio valued at GBP1.1 billion and had a
deficit on its shareholders' funds of GBP722 million.
The Group's future operating performance will be affected by general economic,
financial and business conditions, many of which are beyond the Group's control.
At 28 February 2010, the Group had aggregate bank loans of GBP923 million
classified as current liabilities. In addition, the Group had aggregate
obligations of GBP371 million due to the holders of its Convertible Unsecured
Loan Notes (CULs), its Zero Dividend Preference shares (ZDPs) and the 6.324%
Series A and B unsecured loan notes. All of these instruments mature in May
2011 and based on the Group's current financial position, the Group does not
have the ability to repay those instruments on their maturity in May 2011.
Each of the CULs and ZDPs mature in May 2011. The liability at 28 February 2010
in respect of the CULs and the ZDPs is GBP101 and GBP122 million respectively.
In the case of the CULs, interest is paid every six months in the amount of
GBP3.8 million and the next interest payment is due in August 2010.
The Series A and Series B unsecured loan notes in the aggregate amount of
GBP147.8 million mature in May 2011. Interest at the rate of 6.324% per annum
is payable half yearly and the next interest payment due date is 31 August 2010
in the amount of GBP5.0 million.
The Irish Government established the National Asset Management Agency (NAMA) as
a key part of the solution to the current banking difficulties in Ireland. NAMA
was established on a statutory basis under the aegis of the National Treasury
Management Agency (NTMA).
NAMA is an asset management company established to acquire loans from
participating institutions. It will manage these assets (hold, dispose, develop
or enhance them) with the aim of achieving the best possible return for the
Irish tax payer on the acquired loans and on the underlying assets over a
seven/ten year time frame.
NAMA is a work out vehicle, not a liquidation vehicle, and can take a longer
term view on borrowers and assets if it makes commercial sense to do so.
Subsequent to the period end, NAMA acquired Group loans from participating
institutions with an aggregate value of GBP815 million at 28 February 2010. As
required by NAMA, the Group has submitted a detailed business plan which is
currently being evaluated by NAMA with a view to seeking its approval to that
plan. This evaluation process is currently underway and the Directors believe
that the plan will be approved following which NAMA will monitor the Group's
subsequent performance to ensure that we adhere to the targets contained in the
business plan. Whilst initial communications between NAMA and the Company
support the Directors' belief that NAMA will work alongside the Company's other
banks to provide support to the operations of the Group, no formal approval of
the Group's business plan has been received at this time.
The Battersea Powerstation is a major development project in central London. The
development costs are currently funded 75% by a consortium of lenders, with the
balance financed by the Group. The lenders are currently providing interest
roll up on the existing debt. The Battersea facilities expire in March 2011 and
in preparing the Group's business plan, the Directors have assumed that these
facilities will be rolled over and renewed on broadly similar terms or
alternatively will be re-financed on broadly similar terms. This has been
approved by the banks' credit committees but is now subject to the completion of
legal documentation.
The key assumptions made in preparing the business plan for the Group for the
period to 30 June 2011 include:
· The acceptance by NAMA of the Group's business plan.
· The renewal by NAMA of bank facilities in the amount of GBP815 million on
broadly similar terms.
· The agreement of NAMA to defer interest payments.
· The provision by NAMA of working capital facilities.
· The agreement of the holders of the CULS and Series A and Series B loan
notes to a standstill on the payment of interest in the period to June 2011.
· Agreement with each of the holders of the CULS, ZDPs and Series A and B
notes whereby the capital amounts due on maturity in May 2011 will not represent
a cash outflow for REO.
· Certain of the Group's fee arrangements with Treasury will be
restructured to cap the fees paid in the period to June 2011.
· Planning permission for the proposed development of Battersea Power
Station will be granted in 2010.
· It is anticipated the Group's interest in Battersea will be restructured
and that an equity partner will be introduced on the Battersea development
providing all project financing from January 2011.
Based on the Group's business plan and the key assumptions noted above, the
directors believe that the Group will have sufficient cash and cash equivalents
to meet its liquidity requirements for at least twelve months from the date of
approval of the financial statements.
Following the anticipated Battersea restructuring, the Group will continue to
have a deficit on its shareholders' equity and, as a consequence, it is
anticipated that the Group will require ongoing financial support from NAMA and
its non NAMA lenders in the period beyond June 2011.
The Directors of the Company have concluded that the above factors represent
material uncertainties. Were the assumptions and objectives not to be achieved,
it could cast significant doubt on the ability of the Group to continue as a
going concern and it may therefore be unable to realise its assets and discharge
its liabilities in the normal course of business. Nevertheless, having
discussed the basis of preparation and the assumptions underlying the Group's
cash flow projections, together with the current status of negotiations with
NAMA and the Group's other lenders, and assuming the roll over and renewal of
expiring facilities and required further waivers are put in place within the
required time scales, the Directors of the Company have a reasonable expectation
that the Group will be able to meet its liabilities as they fall due for the
foreseeable future. It is on that basis that the Directors consider it
appropriate to prepare the financial statements on a going concern basis. These
financial statements do not include any adjustment that would result from the
going concern basis of preparation being inappropriate.
Ray Horney
Chairman
Directors' report
The directors present their report on the affairs of the Company, together with
the audited financial statements for the period ended 28 February 2010.
Principal activities and business review
The Company is a wholly owned subsidiary of Real Estate Opportunities plc
("REO"), and forms part of the Real Estate Opportunities plc Group (the
"Group"). REO is a property company investing mainly in the Irish and UK
property markets.
The Company was incorporated as part of a Scheme of Capital Restructuring of the
REO Group so as to remove the requirement that REO be wound up in 2011. On the
18 January 2008 shareholders of REO passed all resolutions proposed at the Class
Meeting of the zero dividend preference shareholders relating to the Scheme of
Capital Restructuring.
On 14 February 2008 the Court approved a scheme for REO to cancel the share
premium account and to cancel the existing zero dividend preference shares and
to issue in exchange zero dividend preference shares ("ZDPs") in the Company.
On the 18 February 2008, the entire issued zero dividend preference shares of
REO were suspended from trading prior to cancellation. On the same day zero
dividend preference shares in the Company issued to the former zero dividend
preference shareholders of REO, commenced trading.
Status
The Company was incorporated on 27 April 2007 and as a wholly owned subsidiary
of REO, forms part of a closed ended collective investment fund, as defined in
the Collective Investment Funds (Jersey) Law 1988, as amended, and the
subordinate legislation made thereunder.
The Company has applied for international service entity status under the Goods
and Services Tax (International Service Entities) (Jersey) Regulations 2008 in
respect of the period ended 28 February 2010.
With effect from 1 January 2009 the Company moved to a 0% rate of income tax
following the abolition of exempt company status.
The Company is registered in Jersey under number 97292.
Results
The financial results for the period ended 28 February 2010 are shown in the
statement of comprehensive income page 21.
Change of Accounting Year End
In November 2009, the board took the decision to change the accounting year end
from 31 December to 28 February. The board was of the opinion that due the
economic climate and the delay in the transfer of a substantial portion of the
Company's loans to NAMA, thereby preventing any discussions on rollovers of loan
facilities, preparation of financial statements as at 31 December would not be
appropriate. The board requested and received consent from the Jersey Financial
Services Commission in respect of the change.
Directors
There are six directors of the Company. On 26 June 2009 Mr. Leech resigned from
the board to pursue other business opportunities.
In accordance with the Articles of Association, Mr. Horney and Mr. Richardson
will offer themselves for re-election.
No director has a service contract with the Company.
Mr. Barrett is a director and 50% shareholder of Treasury Holdings ("Treasury").
Treasury has an agreement to provide investment advisory services in respect of
the Global Property Portfolio and Irish Property Portfolio and to provide
property management services to the Group.
The directors who held office at the period end and their beneficial interests
in the ZDPs at 28 February 2010 are shown below:
+-----------------------+---------+------------+---------+--------------+
| | At 28 February 2010 | At 31 December 2008 |
+-----------------------+----------------------+------------------------+
| | Zero Dividend | Zero Dividend |
| | Preference Shares | Preference Shares |
+-----------------------+----------------------+------------------------+
| | | | | |
+-----------------------+---------+------------+---------+--------------+
| R Y F Horney | - | - |
| | | |
+-----------------------+----------------------+------------------------+
| R J Barrett | - | - |
+-----------------------+----------------------+------------------------+
| K A Jenkins | - | - |
+-----------------------+----------------------+------------------------+
| J P Jenkinson | - | - |
+-----------------------+----------------------+------------------------+
| G P D Milne | 5,000 | 5,000 |
+-----------------------+----------------------+------------------------+
| M W Richardson | - | - |
+-----------------------+----------------------+------------------------+
| | | | | |
+-----------------------+---------+------------+---------+--------------+
Share buy-backs
The Company's authority to make market purchases of up to 57,775,782 of its
issued ZDPs was renewed on 9 June 2009. The Company will be seeking to renew
this authority at this year's AGM, notice of which is set out on pages 32 and
33. This authority will only be exercised on terms that are in the interests of
shareholders.
Financial Statements
The directors' responsibilities regarding the financial statements and
safeguarding of assets are set out on pages 16 and 17.
Committees of the Board
The Board does not consider it appropriate for a company of this size and nature
to appoint an audit committee, remuneration committee, management engagement
committee or nominations committee. All such matters that would normally be
dealt with by these committees are considered by the board of REO. The board of
REO will make recommendations from time to time as appropriate to the Board of
the Company.
Terms of appointment
The parent, REO, considers the investment management and advisory agreements
annually in respect of the Group. The Board of REO has confirmed that they are
satisfied with the performance and current terms of appointment of Treasury
Holdings.
Going Concern
The Company's major asset is a receivable from its parent, REO a company
incorporated in Jersey. REO Securities' ability to continue in business and
satisfy its future obligations to the holders of the ZDP's is dependent on REO.
To that end, REO and REO Securities Limited have entered into an arrangement
pursuant to an Undertaking Agreement whereby the net assets of REO will
effectively be made available to meet the repayment entitlement of the ZDP
Shares on the Repayment Date, 31 May 2011.
At 28 February 2010, the Group had total borrowings of GBP1.721 billion. At
that date, the Group also had cash and cash equivalents of GBP21.1 million,
restricted cash of GBP17.7 million and an investment in CREO of GBP27.7 million
which was realised in cash subsequent to the year end. The Group has an
investment and development property portfolio valued at GBP1.1 billion and had a
deficit on its shareholders' funds of GBP722 million.
The Group's future operating performance will be affected by general economic,
financial and business conditions, many of which are beyond the Group's control.
At 28 February 2010, the Group had aggregate bank loans of GBP923 million
classified as current liabilities. In addition, the Group had aggregate
obligations of GBP371 million due to the holders of its Convertible Unsecured
Loan Notes (CULs), its Zero Dividend Preference shares (ZDPs) and the 6.324%
Series A and B unsecured loan notes. All of these instruments mature in May
2011 and based on the Group's current financial position, the Group does not
have the ability to repay those instruments on their maturity in May 2011.
Each of the CULs and ZDPs mature in May 2011. The liability at 28 February 2010
in respect of the CULs and the ZDPs is GBP101 and GBP122 million respectively.
In the case of the CULs, interest is paid every six months in the amount of
GBP3.8 million and the next interest payment is due in August 2010.
The Series A and Series B unsecured loan notes in the aggregate amount of
GBP147.8 million mature in May 2011. Interest at the rate of 6.324% per annum
is payable half yearly and the next interest payment due date is 31 August 2010
in the amount of GBP5.0 million.
The Irish Government established the National Asset Management Agency (NAMA) as
a key part of the solution to the current banking difficulties in Ireland. NAMA
was established on a statutory basis under the aegis of the National Treasury
Management Agency (NTMA).
NAMA is an asset management company established to acquire loans from
participating institutions. It will manage these assets (hold, dispose, develop
or enhance them) with the aim of achieving the best possible return for the
Irish tax payer on the acquired loans and on the underlying assets over a
seven/ten year time frame.
NAMA is a work out vehicle, not a liquidation vehicle, and can take a longer
term view on borrowers and assets if it makes commercial sense to do so.
Subsequent to the period end, NAMA acquired Group loans from participating
institutions with an aggregate value of GBP815 million at 28 February 2010. As
required by NAMA, the Group has submitted a detailed business plan which is
currently being evaluated by NAMA with a view to seeking its approval to that
plan. This evaluation process is currently underway and the Directors believe
that the plan will be approved following which NAMA will monitor the Group's
subsequent performance to ensure that we adhere to the targets contained in the
business plan. Whilst initial communications between NAMA and the Company
support the Directors' belief that NAMA will work alongside the Company's other
banks to provide support to the operations of the Group, no formal approval of
the Group's business plan has been received at this time.
The Battersea Powerstation is a major development project in central London. The
development costs are currently funded 75% by a consortium of lenders, with the
balance financed by the Group. The lenders are currently providing interest
roll up on the existing debt. The Battersea facilities expire in March 2011 and
in preparing the Group's business plan, the Directors have assumed that these
facilities will be rolled over and renewed on broadly similar terms or
alternatively will be re-financed on broadly similar terms. This has been
approved by the banks' credit committees but is now subject to the completion of
legal documentation.
The key assumptions made in preparing the business plan for the Group for the
period to 30 June 2011 include:
· The acceptance by NAMA of the Group's business plan.
· The renewal by NAMA of bank facilities in the amount of GBP815 million on
broadly similar terms.
· The agreement of NAMA to defer interest payments.
· The provision by NAMA of working capital facilities.
· The agreement of the holders of the CULS and Series A and Series B loan
notes to a standstill on the payment of interest in the period to June 2011.
· Agreement with each of the holders of the CULS, ZDPs and Series A and B
notes whereby the capital amounts due on maturity in May 2011 will not represent
a cash outflow for REO.
· Certain of the Group's fee arrangements with Treasury will be
restructured to cap the fees paid in the period to June 2011.
· Planning permission for the proposed development of Battersea Power
Station will be granted in 2010.
· It is anticipated the Group's interest in Battersea will be restructured
and that an equity partner will be introduced on the Battersea development
providing all project financing from January 2011.
Based on the Group's business plan and the key assumptions noted above, the
directors believe that the Group will have sufficient cash and cash equivalents
to meet its liquidity requirements for at least twelve months from the date of
approval of the financial statements.
Following the anticipated Battersea restructuring, the Group will continue to
have a deficit on its shareholders' equity and, as a consequence, it is
anticipated that the Group will require ongoing financial support from NAMA and
its non NAMA lenders in the period beyond June 2011.
The Directors of the Company have concluded that the above factors represent
material uncertainties. Were the assumptions and objectives not to be achieved,
it could cast significant doubt on the ability of the Group to continue as a
going concern and it may therefore be unable to realise its assets and discharge
its liabilities in the normal course of business. Nevertheless, having
discussed the basis of preparation and the assumptions underlying the Group's
cash flow projections, together with the current status of negotiations with
NAMA and the Group's other lenders, and assuming the roll over and renewal of
expiring facilities and required further waivers are put in place within the
required time scales, the Directors of the Company have a reasonable expectation
that the Group will be able to meet its liabilities as they fall due for the
foreseeable future. It is on that basis that the Directors consider it
appropriate to prepare the financial statements on a going concern basis. These
financial statements do not include any adjustment that would result from the
going concern basis of preparation being inappropriate.
Creditor Payment Policy
The Company's policy is to pay Stock Exchange trade creditors on dates of
settlement and all other creditors are normally paid within 30 days or in
accordance with contracted terms.
By order of the Board
Ogier Fund Administration (Jersey) Limited
Secretary and Administrator
Whiteley Chambers
Don Street
St Helier
Jersey
JE4 9WG
22 June 2010
Corporate governance
Introduction
Director's Statement of Compliance with the 2008 FRC Combined Code on Corporate
Governance ("the Code")
The Board is accountable to Shareholders for the governance of the Company's
affairs. This Statement describes how the principles of the Code have been
applied in the affairs of the Company. The Directors are committed to
maintaining the highest standards of corporate governance.
The Directors believe that, during the period under review, they have complied
with the provisions of the Code, insofar as they are relevant to the Company's
business, save in respect of those matters explained below in the relevant
sections.
Directors and the board
The board
The Board comprises of six Directors, all of whom are non-executive. Mr. Horney
is Chairman of the Company and Mr. Milne is the senior independent Director.
Five of the directors (and therefore a majority of the Board) are independent of
the Investment Adviser to the Real Estate Opportunities plc Group (the "Group").
Board responsibilities
The Company is a subsidiary of the Real Estate Opportunities plc ("REO"), Group.
Overall responsibility for promoting the success of the Group rests with the
board of the sole ordinary shareholder of the Company. The Board of REO carries
out this role by directing and supervising its affairs within a framework of
effective controls, which enables risk to be assessed and managed and making
recommendations it feels appropriate to the Board of the Company. A formal
schedule of matters reserved for decision by the Board and detailing the
responsibilities of the Board is not a requirement of this company as all such
matters are dealt with by the Board of REO and recommendations made to the Board
of the Company as appropriate.
The Investment Adviser and the Administrator ensure that the Board of REO have
timely access to all relevant management, financial and regulatory information
to enable informed decisions to be made and recommendations be made to the Board
of the Company as appropriate. The Board meets at least four times a year and
additional meetings are arranged as and when necessary. Between these formal
meetings there is regular contact with the Investment Adviser and the
Administrator to the Group.
It is the responsibility of the Board to carry out a review of the Company's
corporate governance procedures as applicable for a company of this nature.
During the year the Board carried out a review of the Company's corporate
governance procedures in line with corporate governance procedures adopted by
the Board of REO. The main outcome of this review comprised the updated share
dealing policy for persons discharging managerial responsibility.
Meetings
During the period the Board met 7 times. Details of Board meeting attendance,
committee membership and committee meeting attendance are provided in the table
below. It should be noted that apart from 4 main board meetings which are held
in Jersey each year, a number of smaller meetings are held to deal with
individual transactions and these generally are attended by the Jersey resident
directors only.
+--------------------+-----------+-----------+
| |Quarterly |Telephone |
| | Board | Board |
| | Meeting |Meeting / |
| | | Ad hoc |
| | | Board |
| | | Meeting |
+--------------------+-----------+-----------+
| Number of meetings | 4 | 3 |
| in 2009/10 | | |
+--------------------+-----------+-----------+
| Mr. Ray Horney | 4 | 2 |
+--------------------+-----------+-----------+
| Mr. Richard | 4 | 1 |
| Barrett | | |
+--------------------+-----------+-----------+
| Mr. Keith Jenkins | 4 | 3 |
+--------------------+-----------+-----------+
| Mr. Philip | 4 | 2 |
| Jenkinson | | |
+--------------------+-----------+-----------+
| Mr. Garth Milne | 4 | 2 |
+--------------------+-----------+-----------+
| Mr. Martin | 4 | 3 |
| Richardson | | |
+--------------------+-----------+-----------+
It is deemed not appropriate for a Company of this nature to have an Audit
Committee, Management Engagement Committee or Remuneration Committee.
Delegation
The Board of REO have appointed Treasury Holdings as the accounting services
provider to the Group.
Board balance and director independence
The Chairman of the Company is Mr. Horney, a non-executive, who is independent
of the Investment Adviser. Mr. Milne is the senior independent director. Since
all the Directors are non-executive and many day-to-day management
responsibilities are sub-contracted, the Company does not have a Chief Executive
Officer.
The Directors also sit as directors on the board of REO. Many of the management,
financial and regulatory issues relating to the Group as a whole are dealt with
by the Board of REO and therefore the Board of the Company does not consider
there to be a conflict of interest in sitting on both boards.
The Board is of the opinion that the Company has been in compliance with the
Combined Code provisions set out in Section A3 of the Combined Code.
Directors' Remuneration
In accordance with the Memorandum and Articles of Association, annual director's
fees must not exceed GBP50,000 per annum. To date the Directors have not
received any remuneration for their appointment to the Board and do not intend
to claim remuneration for the forthcoming year. They do not reserve the right to
claim expenses resulting from carrying out their duties as a director in
accordance with the Memorandum and Articles of Association.
The Board do not consider it necessary that a Remuneration Committee be
appointed by the Company.
Appointment and re-election of Directors
The Directors do not consider it necessary to appoint a Nominations Committee
and Directors are selected and appointed by the Board as a whole. The Board is
responsible for reviewing the size and structure of the Board and the skills of
Directors and for the consideration and approval of any changes.
The Articles of Association provide that the Directors must submit themselves
for re-election at the first opportunity after their appointment and retire by
rotation every three years. In accordance with Article 85 of the Company's
Articles of Association, Mr. Horney and Mr. Richardson submit themselves for
re-election at the Annual General Meting. The Board confirms that the
performance of Mr. Horney and Mr. Richardson is effective and demonstrates
commitment to the role of non-executive Director. The Board recommends to
shareholders the approval of resolutions two and three relating to the Directors
seeking re-election. On being appointed to the Board the Directors are fully
briefed as to their responsibilities and are continually updated throughout
their term of office on industry and regulatory developments. A Directors'
normal tenure of office will be for three terms of three years, except that the
Board may determine otherwise if it is considered that the continued service on
the Board of an individual Director is in the best interests of the Company and
its shareholders.
Performance evaluation
The Board of REO recognises the importance of the Code particularly in terms of
evaluating the performance of the Board as a whole. A performance evaluation of
the REO Board was carried out during the year and, on the basis of the results,
they did not consider it appropriate to make any recommendations to the Board of
the Company.
Relations with Shareholders
Zero Dividend Preference ("ZDP") shareholder relations are given high priority
by the Board. The prime medium by which the Company communicates with ZDP
shareholders is through the interim and annual reports of REO, which aim to
provide ZDP shareholders with a full understanding of the Group's activities and
results.
Whilst ZDP shareholders are not permitted to vote at the AGM, they are welcome
to attend the AGM at which they will have opportunity to address questions to
the Chairman of the Board. At other times the Company responds to letters from
ZDP shareholders on a range of issues.
Details of votes on resolutions at general meetings of the Company are disclosed
on REO's website, the address of which is www.realestateopportunities.co.uk.
Audit Committee
It is deemed not appropriate for a company of this nature to appoint an Audit
Committee. Any specific issues are dealt with by the Audit Committee and Board
of REO and recommendations made to the Board of the Company as appropriate.
The Board has recommended the reappointment of the current auditors, KPMG
Dublin, to shareholders on the basis of a recommendation by the Board of REO.
The Board considered KPMG Dublin to be the most appropriate firm to undertake
the engagement. There are no contractual obligations restricting the Board's
choice of auditor and the performance of the auditors is monitored on an ongoing
basis by the Board of REO and recommendations made to the Board of the Company
as appropriate.
Non-audit services are provided to the Group as a whole and accordingly no such
services have been provided specifically for this Company. The REO Board sets a
policy for the provision of non-audit services to the Group and considers the
ability of the auditor to maintain independence when providing any non-audit
services.
Management Engagement Committee
It is deemed not appropriate for a company of this nature to appoint a
Management Engagement Committee. Any specific issues are dealt with by the
Management Engagement Committee and Board of REO and recommendations made to the
Board of the Company as appropriate.
Internal Financial and Non-Financial Controls
The Board of REO accepts responsibility for the Group's system of internal
financial and non-financial controls ("internal controls"). The effectiveness of
the Group's operations has been reviewed by the Board of REO, and the control
systems codified to enable the ongoing management of risks and facilitate a
regular review. The Board of REO considers that these procedures enable the
Group to comply with the Turnbull Guidance and sections 7.1 and 7.2 of the FSA
Disclosure and Transparency Rules.
REO has entered into various written agreements which specifically define the
roles and responsibilities of the Investment Adviser and other third party
service providers to the Group.
The Board of REO meets regularly and reviews financial reports and performance
against approved forecasts and relevant stock market criteria. Reports are also
produced annually on the internal controls and procedures in place for the
operation of investment management and accounting activities.
The control systems as designed by the Board of REO are designed to provide
reasonable, but not absolute, assurance against material misstatement or loss
and to manage rather than eliminate the risk of failure to achieve business
objectives of the Group.
Statement of directors' responsibility
The directors are responsible for preparing the Annual Report and financial
statements, in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each
financial year. Under that law the directors have elected to prepare the
financial statements in accordance with IFRSs as adopted by the EU and as
applied in accordance with the Companies (Jersey) Law 1991, as amended.
The financial statements are required by law and IFRSs as adopted by the EU to
present fairly the financial position and performance of the company. The
Companies (Jersey) Law 1991 (as amended) provide in relation to such financial
statements that references in the relevant part of that Act to financial
statements giving a true and fair view are references to their achieving a fair
presentation.
In preparing the 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 that the financial statements comply with IFRSs as adopted by the EU
as applied in accordance with the Companies (Jersey) Law 1991 (as amended); and
· prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the group and the parent company will continue in
business.
Under applicable law and the requirements of the Listing Rules issued by the
London Stock Exchange, the directors are also responsible for preparing a
Directors' Report and reports relating to directors' remuneration and corporate
governance that comply with that law and those Rules. In particular, in
accordance with the Transparency (Directive 2004/109/EC) Regulations 2007 (the
Transparency Regulations), the directors are required to include in their report
a fair review of the business and a description of the principal risks and
uncertainties facing the group and the company and a responsibility statement
relating to these and other matters, included below.
The directors are responsible for keeping proper books of account that disclose
with reasonable accuracy at any time the financial position of the company and
enable them to ensure that the financial statements comply with the Companies
(Jersey) Law 1991 (as amended). They are also responsible for taking such steps
as are reasonably open to them to safeguard the assets of the company and to
prevent and detect fraud and other irregularities.
The financial statements are published on www.realestateopportunities.co.uk,
which is a website maintained by the Company. The work carried out by the
auditors does not involve consideration of the maintenance and integrity of this
website and, accordingly, the auditors accept no responsibility for any changes
that have occurred to the financial statements since they were initially
presented on the website. Visitors to the website need to be aware that the
legislation in Jersey governing the preparation and dissemination of the
financial statements may differ from legislation in their jurisdictions.
Responsibility Statement, in accordance with the Transparency Regulations
Each of the directors, whose names and functions are listed confirm that, to the
best of each person's knowledge and belief:
· the financial statements, prepared in accordance with IFRSs as adopted by
the EU, give a true and fair view of the assets, liabilities and financial
position of the company at 28 February 2010 and its result for the year then
ended;
· the directors' report contained in the Annual Report includes a fair review
of the development and performance of the business and the position of the
company, together with a description of the principal risks and uncertainties
that they face.
On behalf of the Board
Keith Jenkins Martin
Richardson
DirectorDirector
22 June 2010
Independent auditors' report to the members of REO Securities Limited
We have audited the financial statements of REO Securities Limited for the 14
month period to 28 February 2010 which comprises the statement of financial
position, the statement of comprehensive income, statement of cash flows,
statement of changes in equity and the related notes. These financial statements
have been prepared under the accounting policies set out therein.
This report is made solely to the Company's members, as a body, in accordance
with Article 113A of the Companies (Jersey) Law 1991 (as amended). Our audit
work has been undertaken so that we might state to the company's members those
matters we are required to state to them in an Auditor's Report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company and the company's members as a
body, for our audit work, for this report, or for the opinion we have formed.
Respective responsibilities of directors and auditors
The directors' responsibilities for preparing the Annual Report and the
financial statements in accordance with applicable law and International
Financial Reporting Standards (IFRSs) as adopted by the EU, are set out in the
statement of director's responsibilities on pages 16 and 17.
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 our opinion as to whether the financial statements give a true
and fair view in accordance with IFRSs as adopted by the EU and are properly
prepared in accordance with the Companies (Jersey) Law 1991 (as amended).
We also report to you if, in our opinion, the company has not kept proper
accounting records or if we have not received all the information and
explanations we require for the audit.
We also report to you if, in our opinion, any information specified by law or
the Listing Rules of the London Stock Exchange regarding directors' remuneration
and directors' transactions is not disclosed and, where practicable, include
such information in our report.
At the request of the Board we review whether the Corporate Governance Statement
reflects the company's compliance with the nine provisions of the 2008 FRC
Combined Code specified for our review by the Listing Rules of the London Stock
Exchange, and we report if it does not. We are not required to consider whether
the Board's statements on internal controls cover all risks and controls, or
form an opinion on the effectiveness of the Group's corporate governance
procedures or its risk and control procedures.
We read the other information contained in the annual report and consider
whether it is consistent with the audited financial statements. The other
information comprises only the Chairman's Statement and director's 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 audit opinion
We conducted our audit in accordance with the International Standards on
Auditing (UK and Ireland) issued by the Auditing Practises 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 other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
Opinion
In our opinion:
· the financial statements give a true and fair view, in accordance with
IFRSs as adopted by the EU, of the state of the company's affairs as at 28
February 2010 and of its result for the period then ended; and
· the financial statements have been properly prepared in accordance with the
Companies (Jersey) Law 1991, (as amended).
Emphasis of Matter - Going Concern
In forming our opinion on these financial statements, which are not qualified,
we have considered the adequacy of the disclosures made in note 2a to the
financial statements concerning the Company's ability to continue as a going
concern. The company and its parent have entered into an arrangement whereby the
net assets of REO will be made available to meet the repayment entitlement of
the ZDP shares on the repayment date, 31 May 2011.
As set out in that note, there are a number of material uncertainties which,
were the assumptions and objectives not be achieved, cast significant doubt on
the ability of the Group to continue as a going concern. These matters include
the approval by NAMA of the Group's business plan, the renewal of existing
borrowing facilities, the deferral of interest and restructuring of capital
payments on financial instruments, the receipt of planning permission on the
Group's Battersea property and the restructuring of the Group's investment in
Battersea. While the ultimate outcome of these matters cannot be assessed with
certainty at this time, the Directors are of the opinion that, based on the
current stage of discussions with the various involved parties, it is
appropriate to prepare the financial statements on the going concern basis.
The financial statements do not include the adjustments that would result if the
company was unable to continue as a going concern.
Ruaidhri Gibbons
Senior Statutory Auditor
For and on behalf of KPMG
Chartered Accountants
Registered Auditor
Dublin, Ireland
22 June 2010
Statement of financial position
As at 28 February
+------------------------------------+------+----------+----------+
| In thousands of pounds sterling | Note | 28 | 31 |
| | | February | December |
| | | 2010 | 2008 |
+------------------------------------+------+----------+----------+
| | | | |
+------------------------------------+------+----------+----------+
| Assets | | | |
+------------------------------------+------+----------+----------+
| Trade and other receivables | 4 | 122,119 | 110,495 |
+------------------------------------+------+----------+----------+
| Total non current assets | | 122,119 | 110,495 |
+------------------------------------+------+----------+----------+
| Total assets | | 122,119 | 110,495 |
+------------------------------------+------+----------+----------+
| | | | |
+------------------------------------+------+----------+----------+
| Equity | | | |
+------------------------------------+------+----------+----------+
| Issued capital | 5 | - | - |
+------------------------------------+------+----------+----------+
| Retained earnings | 6 | - | - |
+------------------------------------+------+----------+----------+
| Total shareholders' equity | | - | - |
+------------------------------------+------+----------+----------+
| | | | |
+------------------------------------+------+----------+----------+
| Liabilities | | | |
+------------------------------------+------+----------+----------+
| Zero Dividend Preference Shares | 7 | 122,119 | 110,495 |
+------------------------------------+------+----------+----------+
| Total non-current liabilities | | 122,119 | 110,495 |
+------------------------------------+------+----------+----------+
| Total liabilities | | 122,119 | 110,495 |
+------------------------------------+------+----------+----------+
| | | | |
+------------------------------------+------+----------+----------+
| Total shareholders' equity and | | 122,119 | 110,495 |
| liabilities | | | |
+------------------------------------+------+----------+----------+
| | | | |
+------------------------------------+------+----------+----------+
The notes on pages 24 to 31 are an integral part of these financial statements.
On behalf of the Board
Keith Jenkins Martin
Richardson
DirectorDirector
22 June 2010
Statement of comprehensive income
for the 14 month period ended 28 February
+----------+-----------------------------------+--+------+--+--------+--+-------+----------+
| | Note | 14 month | Year | |
| | | period | ended 31 | |
| | | ended 28 | December | |
| | | February | 2008 | |
| | | 2010 | | |
+----------------------------------------------+---------+-----------+----------+----------+
| In thousands of pounds sterling | | | | |
+----------------------------------------------+---------+-----------+----------+----------+
| | | | | |
+----------------------------------------------+---------+-----------+----------+----------+
| Finance income | 8 | 11,624 | 8,058 | |
+----------------------------------------------+---------+-----------+----------+----------+
| Financial expense | 8 | (11,624) | (8,058) | |
+----------------------------------------------+---------+-----------+----------+----------+
| Net financing expense | | - | - | |
+----------------------------------------------+---------+-----------+----------+----------+
| | | | | |
+----------------------------------------------+---------+-----------+----------+----------+
| Loss before tax | | - | - | |
+----------------------------------------------+---------+-----------+----------+----------+
| | | | | |
+----------------------------------------------+---------+-----------+----------+----------+
| Income tax expense | 9 | - | - | |
+----------------------------------------------+---------+-----------+----------+----------+
| Loss for the period / year | | - | - | |
| | | | | |
| | | | | |
+----------------------------------------------+---------+-----------+----------+----------+
| | | | | |
+----------------------------------------------+---------+-----------+----------+----------+
| Earnings per Share | | | |
+----------------------------------------------+---------+-----------+----------+
| Basic loss per Ordinary Share | 10 | - | - |
+----------------------------------------------+---------+-----------+----------+
| | | | | | | | | |
+----------+-----------------------------------+--+------+--+--------+--+-------+----------+
The notes on pages 24 to 31 are an integral part of these financial statements.
On behalf of the Board
Keith Jenkins Martin
Richardson
DirectorDirector
22 June 2010
Statement of changes in equity
for the period ended 28 February 2010
+--------------------------------+---------+----------+-------+
| In thousands of pounds | | | |
| sterling | | | |
+--------------------------------+---------+----------+-------+
| | Share | Retained | Total |
| | capital | earnings | |
+--------------------------------+---------+----------+-------+
| Balance at 1 January 2009 | - | - | - |
+--------------------------------+---------+----------+-------+
| Total comprehensive income | - | - | - |
+--------------------------------+---------+----------+-------+
| Balance at 28 February 2010 | - | - | - |
+--------------------------------+---------+----------+-------+
| | | | |
+--------------------------------+---------+----------+-------+
| Balance at 1 January 2008 | - | - | - |
+--------------------------------+---------+----------+-------+
| Total comprehensive income | - | - | - |
+--------------------------------+---------+----------+-------+
| Balance at 31 December 2008 | - | - | - |
+--------------------------------+---------+----------+-------+
| | | | |
+--------------------------------+---------+----------+-------+
The notes on pages 24 to 31 are an integral part of these financial statements.
Statement of Cash Flows
for the period ended 28 February 2010
+------------------------------------------+-----+----------+-----------+
| | | | |
| | | 14 month | Year to |
| In thousands of pounds sterling | | period | 31 |
| | | to 28 | December |
| | | February | 2008 |
| | | 2010 | |
+------------------------------------------+-----+----------+-----------+
| | | | |
+------------------------------------------+-----+----------+-----------+
| | | | |
+------------------------------------------+-----+----------+-----------+
| Cash flows from operating activities | | | |
+------------------------------------------+-----+----------+-----------+
| Loss for the year | | - | - |
+------------------------------------------+-----+----------+-----------+
| Adjustments for: | | | |
+------------------------------------------+-----+----------+-----------+
| Net financial expense | | - | - |
+------------------------------------------+-----+----------+-----------+
| Increase in ZDP entitlement | | 11,624 | 110,495 |
+------------------------------------------+-----+----------+-----------+
| Increase in trade and other receivables | | (11,624) | (110,495) |
+------------------------------------------+-----+----------+-----------+
| Net cash from operating activities | | - | - |
+------------------------------------------+-----+----------+-----------+
| | | | |
+------------------------------------------+-----+----------+-----------+
| | | | |
+------------------------------------------+-----+----------+-----------+
| Net movement in cash and cash | | - | - |
| equivalents | | | |
+------------------------------------------+-----+----------+-----------+
| Cash and cash equivalents at 1 January | | - | - |
| 2009 | | | |
+------------------------------------------+-----+----------+-----------+
| Cash and cash equivalents at 28 February | | - | - |
| 2010 | | | |
+------------------------------------------+-----+----------+-----------+
The notes on pages 24 to 31 are an integral part of these financial statements.
Notes to the annual financial statements
1. Reporting Entity
REO Securities Limited ("the Company") is a company incorporated in Jersey. The
annual financial statements of the Company for the period ended 28 February 2010
(previously 31 December each year) were approved by the Board of Directors on 23
June 2010.
2. Basis of Preparation
(a) Going concern
The Company's major asset is a receivable from its parent, REO a company
incorporated in Jersey. REO Securities' ability to continue in business and
satisfy its future obligations to the holders of the ZDP's is dependent on REO.
To that end, REO and REO Securities Limited have entered into an arrangement
pursuant to an Undertaking Agreement whereby the net assets of REO will
effectively be made available to meet the repayment entitlement of the ZDP
Shares on the Repayment Date, 31 May 2011.
At 28 February 2010, the Group had total borrowings of GBP1.721 billion. At
that date, the Group also had cash and cash equivalents of GBP21.1 million,
restricted cash of GBP17.7 million and an investment in CREO of GBP27.7 million
which was realised in cash subsequent to the year end. The Group has an
investment and development property portfolio valued at GBP1.1 billion and had a
deficit on its shareholders' funds of GBP722 million.
The Group's future operating performance will be affected by general economic,
financial and business conditions, many of which are beyond the Group's control.
At 28 February 2010, the Group had aggregate bank loans of GBP923 million
classified as current liabilities. In addition, the Group had aggregate
obligations of GBP371 million due to the holders of its Convertible Unsecured
Loan Notes (CULs), its Zero Dividend Preference shares (ZDPs) and the 6.324%
Series A and B unsecured loan notes. All of these instruments mature in May
2011 and based on the Group's current financial position, the Group does not
have the ability to repay those instruments on their maturity in May 2011.
Each of the CULs and ZDPs mature in May 2011. The liability at 28 February 2010
in respect of the CULs and the ZDPs is GBP101 and GBP122 million respectively.
In the case of the CULs, interest is paid every six months in the amount of
GBP3.8 million and the next interest payment is due in August 2010.
The Series A and Series B unsecured loan notes in the aggregate amount of
GBP147.8 million mature in May 2011. Interest at the rate of 6.324% per annum
is payable half yearly and the next interest payment due date is 31 August 2010
in the amount of GBP5.0 million.
The Irish Government established the National Asset Management Agency (NAMA) as
a key part of the solution to the current banking difficulties in Ireland. NAMA
was established on a statutory basis under the aegis of the National Treasury
Management Agency (NTMA).
NAMA is an asset management company established to acquire loans from
participating institutions. It will manage these assets (hold, dispose, develop
or enhance them) with the aim of achieving the best possible return for the
Irish tax payer on the acquired loans and on the underlying assets over a
seven/ten year time frame.
NAMA is a work out vehicle, not a liquidation vehicle, and can take a longer
term view on borrowers and assets if it makes commercial sense to do so.
Subsequent to the period end, NAMA acquired Group loans from participating
institutions with an aggregate value of GBP815 million at 28 February 2010. As
required by NAMA, the Group has submitted a detailed business plan which is
currently being evaluated by NAMA with a view to seeking its approval to that
plan. This evaluation process is currently underway and the Directors believe
that the plan will be approved following which NAMA will monitor the Group's
subsequent performance to ensure that we adhere to the targets contained in the
business plan. Whilst initial communications between NAMA and the Company
support the Directors' belief that NAMA will work alongside the Company's other
banks to provide support to the operations of the Group, no formal approval of
the Group's business plan has been received at this time.
The Battersea Powerstation is a major development project in central London. The
development costs are currently funded 75% by a consortium of lenders, with the
balance financed by the Group. The lenders are currently providing interest
roll up on the existing debt. The Battersea facilities expire in March 2011 and
in preparing the Group's business plan, the Directors have assumed that these
facilities will be rolled over and renewed on broadly similar terms or
alternatively will be re-financed on broadly similar terms. This has been
approved by the banks' credit committees but is now subject to the completion of
legal documentation.
The key assumptions made in preparing the business plan for the Group for the
period to 30 June 2011 include:
· The acceptance by NAMA of the Group's business plan.
· The renewal by NAMA of bank facilities in the amount of GBP815 million on
broadly similar terms.
· The agreement of NAMA to defer interest payments.
· The provision by NAMA of working capital facilities.
· The agreement of the holders of the CULS and Series A and Series B loan
notes to a standstill on the payment of interest in the period to June 2011.
· Agreement with each of the holders of the CULS, ZDPs and Series A and B
notes whereby the capital amounts due on maturity in May 2011 will not represent
a cash outflow for REO.
· Certain of the Group's fee arrangements with Treasury will be
restructured to cap the fees paid in the period to June 2011.
· Planning permission for the proposed development of Battersea Power
Station will be granted in 2010.
· It is anticipated the Group's interest in Battersea will be restructured
and that an equity partner will be introduced on the Battersea development
providing all project financing from January 2011.
Based on the Group's business plan and the key assumptions noted above, the
directors believe that the Group will have sufficient cash and cash equivalents
to meet its liquidity requirements for at least twelve months from the date of
approval of the financial statements.
Following the anticipated Battersea restructuring, the Group will continue to
have a deficit on its shareholders' equity and, as a consequence, it is
anticipated that the Group will require ongoing financial support from NAMA and
its non NAMA lenders in the period beyond June 2011.
The Directors of the Company have concluded that the above factors represent
material uncertainties. Were the assumptions and objectives not to be achieved,
it could cast significant doubt on the ability of the Group to continue as a
going concern and it may therefore be unable to realise its assets and discharge
its liabilities in the normal course of business. Nevertheless, having
discussed the basis of preparation and the assumptions underlying the Group's
cash flow projections, together with the current status of negotiations with
NAMA and the Group's other lenders, and assuming the roll over and renewal of
expiring facilities and required further waivers are put in place within the
required time scales, the Directors of the Company have a reasonable expectation
that the Group will be able to meet its liabilities as they fall due for the
foreseeable future. It is on that basis that the Directors consider it
appropriate to prepare the financial statements on a going concern basis. These
financial statements do not include any adjustment that would result from the
going concern basis of preparation being inappropriate.
(b) Statement of Compliance
The consolidated financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRSs).
(c) Basis of measurement
The financial statements are prepared on the historical cost basis.
(d) Functional currency
The Company's functional currency is pounds sterling. All financial information
is presented in pounds sterling, rounded to the nearest thousand, unless
otherwise indicated.
(e) Use of estimates and judgements
The preparation of financial statements in conformity with IFRSs requires
management to make judgements, estimates and assumptions that affect the
application of policies and reported amounts of assets and liabilities, income
and expenses. The estimates and associated assumptions are based on experience
and various other factors that are believed to be reasonable under the
circumstances. Actual results may differ from these estimates. The estimates and
underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognised in the year in which the estimate is revised if the
revision affects only that period or in the period of the revision and future
periods if the revision affects both current and future years.
3. Significant Accounting Policies
(a) Trade and other receivables
Trade and other receivables are measured initially at fair value and are
subsequently stated at amortised cost less impairment losses.
(b) Share capital
(i) Ordinary share capital
Ordinary shares are classified as equity
(ii) Preference share capital
Preference share capital is classified as a liability if it is redeemable on a
specific date or at the option of the shareholders or if dividend payments are
not discretionary (as more fully discussed in note (c) below).
(c) Finance expense
All borrowing costs are recognised in the income statement using the effective
interest rate method.
(d) Earnings per share
The Company presents basic earnings per share (EPS) for its ordinary shares. EPS
is calculated by dividing the entitlement attributable to shareholders by the
weighted average of the number of shares outstanding during the period.
(e) Classification of financial instruments
Financial assets and liabilities are recognised on the balance sheet when the
Company becomes a party to the contractual provisions of the instrument.
Financial instruments issued by the Company are treated as equity (i.e. forming
part of Shareholders' funds) only to the extent that they meet the following two
conditions:
(i) they include no contractual obligations on the Company to deliver cash or
other financial assets or to exchange financial assets or financial liabilities
with another party under conditions that are potentially unfavourable to the
Company; and
(ii) where the instrument will or may be settled in the Company's own equity
instruments, it is either a non-derivative that includes no obligation to
deliver a variable number of the Company's own equity instruments or is a
derivative that will be settled by the Company exchanging a fixed amount of cash
or other financial assets for a fixed number of its own equity instruments.
To the extent that this definition is not met, the proceeds of issue are
classified as a financial liability. Finance payments associated with financial
liabilities are dealt with as part of financial expenses.
(f) New standards and interpretations not yet adopted
The Directors have considered all IFRSs and interpretations that have been
issued, but which are not yet effective and confirm that they do not believe
that they will have a significant impact on how the results of operations and
financial position of the Group are prepared and presented.
4. Trade and other receivables - non current
+----------------------------------------+----------+----------+
| In thousands of pounds sterling | | |
+----------------------------------------+----------+----------+
| | 28 | 31 |
| | February | December |
| | 2010 | 2008 |
+----------------------------------------+----------+----------+
| | | |
+----------------------------------------+----------+----------+
| Amounts due by parent undertaking | 122,119 | 110,495 |
+----------------------------------------+----------+----------+
| | 122,119 | 110,495 |
+----------------------------------------+----------+----------+
The amount due from parent undertaking is repayable in 2011.
5. Called -Up Share Capital
+----------------------------------------+----------+----------+
| | 28 | 31 |
| | February | December |
| | 2010 | 2008 |
+----------------------------------------+----------+----------+
| | GBP | GBP |
+----------------------------------------+----------+----------+
| Authorised | | |
+----------------------------------------+----------+----------+
| 1,000 ordinary shares of GBP1 | 1,000 | 1,000 |
+----------------------------------------+----------+----------+
| 60,000,000 Zero Dividend Preference | 600 | 600 |
| (ZDP) Shares of GBP0.00001 | | |
+----------------------------------------+----------+----------+
| | 1,600 | 1,600 |
+----------------------------------------+----------+----------+
| Allotted, called up and paid in full | | |
+----------------------------------------+----------+----------+
| 2 ordinary shares of GBP1 | 2 | 2 |
+----------------------------------------+----------+----------+
| 57,755,782 Zero Dividend Preference | 578 | 578 |
| (ZDP) Shares of GBP0.00001 | | |
+----------------------------------------+----------+----------+
| | 580 | 580 |
+----------------------------------------+----------+----------+
| Presented as debt | | |
+----------------------------------------+----------+----------+
| 57,755,782 Zero Dividend Preference | 578 | 578 |
| (ZDP) Shares of GBP0.00001 | | |
+----------------------------------------+----------+----------+
| Presented as Equity | | |
+----------------------------------------+----------+----------+
| 2 ordinary shares of GBP1 | 2 | 2 |
+----------------------------------------+----------+----------+
| | 580 | 580 |
+----------------------------------------+----------+----------+
On 18 February 2008 the Company was listed on the London Stock Exchange and
57,755,782 New ZDP shares were issued at 0.001p per New ZDP share. These new ZDP
shares were issued on a one for one basis in exchange for the cancelled ZDP
shares in Real Estate Opportunities Limited, the holding company of REO
Securities Limited.
Rights attaching to the ZDP Shares and the Ordinary shares:
(a) As to dividends:
· the Ordinary shares carry the right to receive the profits of the Company
(including accumulated revenue reserves) available for distribution and
determined to be distributed by way of interim and/or final dividend.
· the ZDP shares carry no right to receive dividends out of the revenue or
any other profits of the Company.
(b) As to winding-up, after the payment of the Company's liabilities in full:
· the holders of the Ordinary Shares are entitled to the surplus assets of
the company available for distribution.
· the holders of the ZDP shares are entitled to an amount equal to 100p per
ZDP share as increased each day from 22 June 2001 up to and including 31 May
2011 at the daily compound rate, which results in a fixed entitlement of 235.51p
on 31 May 2011.
(c) As to voting:
· the ordinary shareholders have the right to vote at general meetings of
the Company and each shareholder present shall have 1 vote in respect of each
share held.
· the ZDP Shareholders shall not have the right to attend or vote at any
general meeting of the Company unless the business of the meeting includes any
resolution to vary, modify or abrogate any of the special rights attached to the
ZDP shares, or any resolution to wind up the Company. At any meeting when such
business is to be conducted, such holders shall be entitled to vote in relation
to that business only. When entitled to vote, each holder present, in person or
proxy, shall have 1 vote in respect of each share held.
6. Retained earnings
+----------------------------------------+----------+----------+
| In thousands of pounds sterling | | |
+----------------------------------------+----------+----------+
| | 28 | 31 |
| | February | December |
| | 2010 | 2008 |
+----------------------------------------+----------+----------+
| | | |
+----------------------------------------+----------+----------+
| At 1 January 2009 | - | - |
+----------------------------------------+----------+----------+
| Result for the year | - | - |
+----------------------------------------+----------+----------+
| Balance at the 28 February 2010 | - | - |
+----------------------------------------+----------+----------+
7. Non current liabilities
+----------------------------------------+----------+----------+
| In thousands of pounds sterling | | |
+----------------------------------------+----------+----------+
| | 28 | 31 |
| | February | December |
| | 2010 | 2008 |
+----------------------------------------+----------+----------+
| | | |
+----------------------------------------+----------+----------+
| Zero Dividend Preference Shares | 112,119 | 110,495 |
+----------------------------------------+----------+----------+
| | 112,119 | 110,495 |
+----------------------------------------+----------+----------+
The Zero Dividend Preference Shares are due to be repaid on the 31 May 2011 or
earlier on winding up
of the Company.
8. Financial income/ (expense)
+----------------------------------------+----------+----------+
| In thousands of pounds sterling | | |
| | | |
+----------------------------------------+----------+----------+
| | Period | Year |
| | ended 28 | ended 31 |
| | February | December |
| | 2010 | 2008 |
+----------------------------------------+----------+----------+
| | | |
+----------------------------------------+----------+----------+
| Income on REO intercompany advance | 11,624 | 8,058 |
+----------------------------------------+----------+----------+
| Interest in respect of zero dividend | (11,624) | (8,058) |
| preference shares | | |
+----------------------------------------+----------+----------+
| Net finance expense recognised in | - | - |
| income statement | | |
+----------------------------------------+----------+----------+
| | | |
+----------------------------------------+----------+----------+
9. Taxation
The Company is entitled to exempt company status in Jersey under the provisions
of article 123(A) of the Income Tax (Jersey) Law 1961 on payment of an annual
fee of GBP600 per company. The Company has obtained exempt company status for
the period ended 31 December 2008 and accordingly, income and capital gains of
the Company, other than Jersey source income (excluding bank deposit interest),
was exempt from taxation in Jersey for the financial period to 31 December 2008.
With effect from 3 June 2008, the income tax rate for new companies in Jersey
was reduced from 20% to 0% and exempt company status for all new companies was
abolished. The existing exempt company status of the Company remained in place
until 31 December 2008 at which time they moved to a 0% rate of income tax. As
a result, income and capital gains of the Company was subject to taxation in
Jersey at a rate of 0% for the financial period to 28 February 2010.
With effect from 6 May 2008, a 3% Goods and Services Tax ("GST") was introduced
under the Goods and Services Tax (Jersey) Law 2007. The Company may apply for
international service entity status under the Goods and Services Tax
(International Services Entities) (Jersey) Regulations 2008 on payment of an
annual fee of GBP100 per company and be treated as being outside the scope of
GST. The Company has been granted international service entity status for the
year ended 28 February 2010.
10. Earnings per share
+----------------------------------------+----------+----------+
| In thousands of pounds sterling, | | |
| except shares | | |
+----------------------------------------+----------+----------+
| | Period | Year |
| | ended 28 | ended 31 |
| | February | December |
| | 2010 | 2008 |
+----------------------------------------+----------+----------+
| | | |
+----------------------------------------+----------+----------+
| Basic Earnings per Share | | |
+----------------------------------------+----------+----------+
| Loss attributable to equity holders | - | - |
+----------------------------------------+----------+----------+
| | - | - |
+----------------------------------------+----------+----------+
| | | |
+----------------------------------------+----------+----------+
| Weighted average number of ordinary | 2 | 2 |
| shares | | |
+----------------------------------------+----------+----------+
| | | |
+----------------------------------------+----------+----------+
| Basic loss per Ordinary Share | - | - |
| (GBP'000) | | |
+----------------------------------------+----------+----------+
11. Financial instruments
The Company's activities are exposed to a variety of financial and market risks
which include:
· Credit risk
· Liquidity risk
· Market risk
This note presents information about the Company's exposure to each of the above
risks, the Company's objectives, policies and processes for measuring and
managing risk, and the Company's management of capital. Further quantitative
disclosures are included throughout these consolidated financial statements.
The Board of Directors has overall responsibility for the establishment and
oversight of the Company's risk management framework. The Company's risk
management policies are established to identify and analyse the risks faced by
the Company, to set appropriate risk limits and controls, and to monitor risks
and adherence to limits. Risk management policies and systems are reviewed
regularly to reflect changes in market conditions and the Company's activities.
The Company's Board of Directors overseas how management monitors compliance
with the Company's risk management policies and procedures and reviews the
adequacy of the risk management framework in relation to the risks faced by the
Company.
Capital Management
The Company has a fixed life and will be wound up on the 31 May 2011. The
Company's objective is to settle the entitlement of the ZDP's on the winding up
date. Real Estate Opportunities plc ("REO") has commenced preliminary
discussions with certain key holders of loan instruments supporting the business
including holders of the Zero Dividend Preference Shares ("ZDPs") with a view to
agreeing a consensual restructuring of the Group's Balance Sheet prior to their
repayment date.
(a) Credit Risk
Credit risk is the risk of financial loss to the Company, if a counterparty to a
financial instrument, fails to meet its contractual obligations and arises
wholly from the Company's exposure to the amount due from its parent Company,
REO. The maximum exposure to credit risk as 28 February 2010 was GBP122,119,000
(2008: GBP110,495,000).
(b) Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its
financial obligations as they fall due. The Company's objective it to settle the
entitlement of the ZDP's on the winding up date on or before the 31 May 2011.
(c) Fair value
The fair values together with the carrying amounts shown on the balance sheet
are as follows:
+-----------------------------------+-----------+----------+-----------+----------+
| Primary financial instrument held | Carrying | Fair | Carrying | Fair |
| or issued to finance the | amount | value | amount | value |
| Company's operation | | | | |
+-----------------------------------+-----------+----------+-----------+----------+
| In thousands of pounds sterling | 2010 | 2010 | 2008 | 2008 |
+-----------------------------------+-----------+----------+-----------+----------+
| | | | | |
+-----------------------------------+-----------+----------+-----------+----------+
| Zero Dividend Preference Shares |(122,119) |(11,551) |(110,495) |(21,947) |
+-----------------------------------+-----------+----------+-----------+----------+
| Trade and other receivables | 122,119 | 122,119 | 110,495 | 110,495 |
+-----------------------------------+-----------+----------+-----------+----------+
| | - | 110,568 | - | 88,548 |
+-----------------------------------+-----------+----------+-----------+----------+
The fair value of the Zero Dividend preference shares is based on quoted market
prices at the balance sheet date.
Trade and other receivables have fair values that approximate their carrying
value amounts because of their short term nature.
12. Group membership
The Company is a wholly owned subsidiary of Real Estate Opportunities plc, a
company incorporated in Jersey. The consolidated financial statement of Real
Estate Opportunities may be obtained from Whiteley Chambers, Don Street, St
Helier, Jersey JE49WG, Channel Islands.
13. Related party disclosures
REO Securities Limited was incorporated for the purpose of facilitating a scheme
of arrangement to cancel the Zero Dividend Preference (ZDP) shares in Real
Estate Opportunities plc and to issue the New ZDP shares in REO Securities
Limited on a one for one basis to the existing shareholders of Real Estate
Opportunities plc.
This transaction completed in February 2008. Although the New ZDP shares are
entitled to a pre-determined capital repayment on the ZDP Repayment Date, being
the 31 May 2011, this is not guaranteed. The rights of the New ZDP share are
substantially similar to the rights of the ZDP shares in Real Estate
Opportunities plc which were cancelled as part of the scheme of arrangement.
In order for REO Securities Limited to have sufficient assets to repay the ZDP
Shares, Real Estate Opportunities plc and REO Securities Limited have entered
into an arrangement pursuant to an Undertaking Agreement whereby the net assets
of Real Estate Opportunities plc will effectively be made available to meet the
repayment entitlement of the ZDP Shares on the Repayment Date, 31 May 2011.
Pursuant to the Undertaking Agreement, Real Estate Opportunities plc agrees to
contribute to the Company (by way of gift, capital contribution or otherwise)
such an amount as will result in REO Securities Limited having sufficient assets
to satisfy the then current or, as the case may be, final capital entitlement of
the ZDP Shares on the Repayment Date or any earlier winding up of the Company.
The related party transaction referred to above was made on an arms length
basis.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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