Itacaré Capital Investments Limited

("Itacaré Capital", the "Company" or the "Group")

 

AUDITED RESULTS FOR THE YEAR ENDED 31 DECEMBER 2009

 

Itacaré Capital announces continued solid progress through 2009

 

Itacaré Capital Investments Limited, (AIM: ITA) a real estate investment company focused on high-end residential resorts in Brazil, today announces its final audited results for the year ended 31 December 2009.

 

Highlights

§ Net profit for the year of $4.5 million (2008: loss of $5.8 million) - includes $1.7 million gain from the sale of land at Três Praias - its first investment realisation

§ Basic Net Asset Value per share up 6.1% to $1.07 (2008: $1.01) - including cash and cash equivalents of $14.5 million

§ Value of investment properties increased 15% to $84.35 million compared to $73.1 million in 2008 (excluding cost base for 10% of Três Praias as sold), and up 77.7% compared to 2007 (2007: $47.45 million)

§ Strong financial position maintained, with zero debt at a Company or asset level

§ Robust, uncommitted cash position of $7.6 million, against an annual run rate of approximately $3 million per annum providing funds until a time when the Company expects to have started generating cashflow through the realisation of investments

§ Financing opportunities in Brazil remain available at attractive terms and the country's prospects continue to be strong, with additional economic stimuli such as Rio de Janeiro's gaining of the 2016 Olympic Games announced during the year

§ Sale of part of the Três Praias site for $3.2 million marked a major milestone for the Company.

 

Post-period events

§ Approval of the master plan for the Duas Barras scheme received in February 2010.

 

Commenting, Michael St Aldwyn, Chairman of Itacaré Capital, said:

 

"The Company continued to make solid progress throughout 2009.  We emerged relatively untouched by the global financial crisis and believe that this is a strong endorsement of the both the Brazilian economy's resilience and our investment strategy.

 

"Two events since our last annual results are of particular significance. In July 2009, the Company made its first realisation when it sold part of the site at Três Praias, Brookfield Incorporacoes.  In addition, in February 2010, we obtained the first planning consent for our masterplan at Duas Barras.

 

"Unlike many companies operating in the real estate sector, we continue to operate with no debt, at a Company or at an asset level.  We have a strong cash position, which more than covers our running costs for the next few years by which time we expect to be generating cashflow through the realisation of our investments."

 

For further information:

 

Itacaré Capital Investments Chairman, Michael St. Aldwyn	Tel: +44 (0)20 7616 7401
Itacaré Capital Partners      Pedro de Miranda	Tel: +55 11 2678 0800
Duet Private Equity  David Mattey	Tel: +44 (0)20 8959 8534
Numis Securities Stuart Skinner, Nominated Adviser Alex Ham, Corporate Broker	Tel: +44 (0)20 7260 1000
Financial Dynamics Richard Sunderland/Jamie Robertson	Tel: +44 (0)20 7831 3113

 

CHAIRMAN'S REPORT

 

I am pleased to report that the Company made continued progress throughout 2009.  We emerged largely untouched by the global financial crisis and believe that this is a strong endorsement of both the Brazilian economy's resilience and our investment strategy.

 

Itacaré Capital has completed its initial investment programme through the acquisition of the five projects that the Company currently owns and is holding a healthy cash balance which we believe will comfortably fund its ongoing expenditure until the realisations of its schemes are initiated.

 

Two events since our last annual results are of particular significance. In July 2009, the Company made its first realisation when it sold part of the site at Três Praias to Brookfield Incorporacoes (Bovespa:  BISA3).  In addition, in February 2010, the Company obtained the first planning consent for its masterplan at Duas Barras.

 

Results

The results for the year ended 31 December 2009 are headlined by a profit of $4.5 million, compared with a loss of $5.8 million for the previous year. Contributing to the profit for the year was the $1.7 million gain that the Company realised on the sale of land at Três Praias, an important milestone.  The majority of the year's profitability derives from a net uplift in the US dollar valuation of our investment properties, which amounted to $7.5 million, less the $1.1 million associated deferred tax provision.

During the year, our investment manager Itacaré Capital Partners (the "Manager") has made solid advances in the development processes with three of our investments, with the timing of planning applications and consents being broadly in line with expectations.

 

With the continued expansion of the Brazilian economy as a whole, we now expect a greater take up of our investment projects from Brazilian second home buyers.  However, we have also seen a general increase in local building costs, which Jones Lang LaSalle (JLL) has incorporated into its independent valuations. End user prices have not yet reflected this and, consequently, forecast sale prices will not be increased until JLL has clearer visibility on sales and prices to be achieved in the market place.

 

A strengthening in the Brazilian Real versus the US Dollar, from 2.356 as at December 2008 to 1.749 as at December 2009, has meant that the valuations made in Brazilian Reais became more valuable in US Dollar terms, our reporting currency.

 

Operational Update

As outlined in the Manager's report, considerable progress has been made in all of our raw land projects and, subject to market conditions, we are hopeful that we will be able to initiate off-plan sales during the course of 2010.

 

Our main challenge this year has been to protect our position on Warapuru, where the developer has continued to experience financial problems leading to a material halt in its development activities. The contracts that we had negotiated afforded us additional protection and included specific default clauses, which enabled us to acquire 100% of Warapuru Phase 3, the land adjacent to the hotel scheme, for a favourable price just before the year end. In addition, our Manager has worked throughout the year with the developer and villa owners to find alternative sources of funding to enable the villa and hotel schemes in Phases 1 and 2 to be finished.  Given the delays experienced and the lack of any formal funding proposal, we have deferred to JLL's lower valuation of our land and villa interests which have been prepared on a forced sale basis.

 

Unlike many companies operating in the real estate sector, we continue to operate with no debt at a Company or at an asset level.  As at 31 December 2009, we had cash of $14.5 million with an uncommitted cash position of $7.6 million, which compares to expected annualised Company running costs of approximately $3 million per annum.  This position, therefore, provides funding for a further two years of operations by which time we expect to be generating cashflow through the realisation of our investments.

 

During the course of the year your Board has continued to be impressed with the diligence and creativity of the Manager and the Investment Advisor and we look forward to 2010 with confidence.  We believe that, as the market improves and we continue to make realisations through sales, the true potential of the Company will be recognised.

 

I would like to take this opportunity to thank my fellow members of the Board of Directors for all their hard work and insight during the past year.

 

Michael St Aldwyn

Chairman

30 March 2010

 

 

INVESTMENT MANAGER'S REPORT

We are pleased to be reporting solid operational progress for the year ended 31 December 2009.

 

Brazilian Economy

The global financial crisis had a less pronounced effect on the Brazilian economy than initially expected, but still resulted in Brazil's GDP to contract by 0.2% in 2009.  However, we are encouraged that current economic forecasts for 2010 predict GDP growth of between 5-6%.  During the first half of 2009 the Brazilian Real was the best performing emerging markets currency against the US Dollar, which was a result of both sound economic fundamentals in the domestic arena and very loose monetary policies in the G7 economies. The currency appreciation slowed down during the second half of the year, especially after the government introduced a 2% tax on foreign purchases of stocks and bonds.

 

The government's current account has deteriorated mainly as a result of a collapse in tax collection in 2009, which is strongly correlated to industrial production. In addition, the government offered tax rebates on durable goods to stimulate local industry, further reducing tax revenues. The deficit in the current account of around 4% could lead to pressures on the currency, but that has been balanced by strong foreign interest, specifically from Asian countries.  However, a return to economic expansion did take hold in the second quarter of 2009, demonstrating that Brazil's solid market fundamentals have enabled rapid adjustment to the change in the global outlook. 

 

One noticeable transaction in 2009 was a $10 billion loan-for-oil entered into between the Chinese Development Bank and Petrobras, the Brazilian state owned oil company (NYSE: PBR).  In addition, we also noted The Carlyle Group's acquisition of a majority stake in CVC, Brazil's largest tourism operator, in January 2010 which we believe clearly demonstrates the attractiveness of the Brazilian tourist sector to foreign investors.  This latter transaction also helped strengthen many analysts' predictions that private equity investment into Brazil will increase substantially during 2010 due to the solid economic fundamentals of the country underpinning a rise in the middle class and in consumer spending.

 

2010 is an election year in Brazil, which will bring in a new president. The volatility seen in 2002 during the last change of government is not expected to repeat itself as each of the leading candidates is expected to continue to maintain the solid foundations produced by the current macroeconomic policy.

 

A major announcement during 2009 was that Rio de Janeiro will host the 2016 Olympic Games. This, along with the preparation for hosting the 2014 FIFA World Cup, should stimulate above-average investment in infrastructure such as trains, airports and the road system over coming years, all of which we expect to have a positive knock on effect on the prospects for the Company's investments. 

 

 

 

 

Portfolio Update

The charts below illustrate the value progression in the Company's five projects both in local currency and US Dollar equivalent. The Real appreciated by 35% from 1 January to 31 December 2009, which has had a positive influence on our US Dollar reported numbers. We are confident in our investment approach to acquire prime beachfront property and have built a diversified project portfolio, which targets 60% local buyers and 40% foreign buyers. Therefore, despite the global economic slowdown, our beachfront property portfolio should be capable of generating less volatile results than other second-home residential markets that are purely reliant on foreign demand.

 

Evolution of Assets in Brazilian Real million

Project	Entry Price	Valuation June 2008	Valuation December 2008	Valuation June 2009	Valuation December 2009
Duas Barras	15.5	22.3	36.3	31.6	29.7
Warapuru 2	19.8	20.2	24.3	9.4	9.2
Três Praias	29.7	52.8	52.9	60.8	56.2
Trancoso	27.4	27.8	40.0	38.5	36.5
Havaizinho	17.9	14.6	28.5	14.4	15.1
	110.3	137.7	182.1	154.7	146.8

 

Evolution of Assets in US Dollar million

Project	Entry Price	Valuation June 2008	Valuation December 2008	Valuation June 2009	Valuation December 2009
Duas Barras	8.2	14.0	15.5	16.2	17.1
Warapuru 2	11.1	12.7	10.4	4.8	5.3
Três Praias	16.7	33.2	22.6	31.2	32.3
Trancoso	16.0	17.5	17.1	19.8	21.0
Havaizinho	10.4	9.2	12.2	7.4	8.7
	62.4	86.6	77.8	79.4	84.4

 

* The valuation of Três Praias up to and including June 2009 represents 100% ownership.  The December 2009 valuation represents the value post the sale of 10% land portion for $3.2 million (R$6.5 million)

 

Duas Barras

Duas Barras, in the state of Alagoas, is situated on a 200-hectare beachfront plot, which is divided into two main parts where villas will be located. The first is a relatively flat plateau that sits approximately 30 metres above sea level and offers panoramic ocean views. The second is a beach-level coconut plantation with access to approximately 2.3 kilometres of white sandy beach.

 

Oscar Niemeyer, the famous Brazilian architect, concluded the design of a 40-room hotel while New York-based Field Operations prepared the master plan and submitted both for approval in the second half of 2009. In February 2010, we were pleased to announce that the project had been approved by the State of Alagoas Environmental Council (CEPRAM) for the issuance of the preliminary license.

 

JLL valued the investment on a "Residual of Master Plan" basis. Due to the strengthening of the Real, the local currency valuation was reduced by 6.5% to reflect an increase in local construction costs. A further impact on the valuation is an allowance for a longer sales cycle, given that the residential villas that are to be built will be targeted mainly to European and US buyers, and that the sales prices will be US Dollar denominated.  In US Dollars, our 50% share of the project increased by approximately 10%, from $15.5 million to $17.1 million (versus a decrease in the Real valuation from R$31.6 million to R$29.7 million), during the year to 31 December 2009.  This valuation was concluded prior to planning consent granted in February 2010.

 

Warapuru 2

The Company's second investment was the acquisition of four luxury villas in Warapuru Phase 2, a planned new resort development comprising a six-star, 40-bungalow resort hotel complex. The site is located south of the city of Itacaré, Bahia and 55 km north of Ilheus Airport, a regional airport with several daily flights from São Paulo and Salvador.

 

Anouska Hempel and her team of architects and designers, headed up by Australian architect Russell Jones, designed the hotel. The spa treatment rooms are planned to look out to sea and a central staircase leads to a restaurant, lounge, bars, reflection pools and a beach club.

 

Due to financial issues experienced by the developer since 2008, the Company accelerated payment on its remaining financial obligations in exchange for a discount to the originally agreed price and an increased security package to protect the Company's investment.

 

The developer has continued to work on a refinancing package as well as holding discussions regarding the sale of the project to potential third parties interested in taking the scheme forward.  The Manager has been supporting the refinancing of the project, most notably by helping with the negotiation of a solution with the parties involved.

 

Given the difficulties in obtaining financing and the associated uncertainties with the timing of completion, JLL has valued the Warapuru Phase 2 investment on a forced sale/liquidation basis with a resultant valuation of $5.3 million (R$9.2 million). The small increase compared to the June 2009 interim valuation is due entirely to currency fluctuation.

 

Três Praias

The Company's third investment was a $16.7 million (R$29.7 million) investment in the Três Praias residential project, situated in the state of Espirito Santo, Brazil.

 

Três Praias is expected to benefit from a wave of investment in the state, as more foreigners and locals move there to work in the oil and steel industries. Petrobras, is investing $6 billion over the next four years in Espirito Santo, to expand production, and Vale (NYSE: VALE) is expected to invest up to $5 billion in its new steel facility. The expansion of the oil and steel business in the region is expected to contribute to further infrastructure developments, as well as the growth of the middle to upper classes and a resultant increase in demand for residential properties, including our own.

 

As announced in July 2009, the Company and its project partner, a subsidiary of Brookfield Incorporacoes SA , one of Brazil's largest real estate developers ("Brookfield"), agreed new terms to the original investment agreement signed in December 2007. Brookfield acquired approximately nine hectares, which is one-tenth of the entire site, for a cash consideration of R$6.5 million ($3.2 million) to be paid as follows:

 

§ R$2 million ($1 million) received in July 2009;

§ R$2.25 million ($1.1 million) in July 2010; and

§ R$2.25 million ($1.1 million) in July 2011.

 

The new agreement with Brookfield brings forward the timing of the Company's cashflows in this project, as the Company had previously anticipated that realisations would begin in 2010. Under the new agreement, in addition to the sale of 10% of the site, Brookfield is responsible for the master planning and preliminary licensing of the entire site and all related costs. Also, Brookfield exchanged its participation rights in the Três Praias project special purpose vehicle ("SPV") in return for an option to participate in future phases of the project on terms to be mutually agreed.

 

The Três Praias project targets only local buyers and the JLL Residual Valuation in local currency has been adjusted to reflect the sale of the 10% stake mentioned above. The valuation has increased from R$54.7 million (90% of R$60.8 million) to R$56.2 million. This increase plus the effect of the appreciation of the Real has created a 15% increase in the US Dollar value of our 90% residual investment during the six month period to December 2009, from $28.0 million to $32.3 million.

 

Trancoso - Bahia Beach

The Trancoso-Bahia Beach project is situated on a 293-hectare site with approximately 600 metres of beachfront. It is next to the village of Trancoso, Bahia, 47 km south of Porto Seguro International Airport, which is served by domestic and international charter flights. There is also a 1,500 metre paved landing strip located within a 15-minute drive from the project.

 

The project will see the phased development of 185 residential units, a small luxury hotel, a beach club, a spa and other amenities on the site.

 

In February 2008, Itacaré signed a Term Sheet with Hotel Marco Internacional S.A., the operator of the Fasano Hotels ("Fasano Hotels"), a premium luxury brand in Brazil and JHSF Participações S.A. ("JHSF"), the controlling shareholder of the Fasano Hotels, for the development of Fasano Trancoso. Fasano Trancoso is expected to comprise a 40-room boutique hotel and 40 Fasano residential villas for sale.

 

This will be located primarily on the beachfront portion of the 293-hectare Bahia Beach Trancoso site. The development of Fasano Trancoso will be the first phase of the Bahia Beach Trancoso project. Hart Howerton, a London-based firm of master planners, has now finalised the master plan of the entire site. Isay Weinfeld, the award-winning Brazilian architect, made solid progress on the hotel architectural project concluding the conceptual drawings as well as initiating the pre-execution project.  Notably, all the required documentation for the preliminary licence (LL- Licença de Localização) was submitted to the local municipality in August 2009.

 

JLL conducted a Residual Valuation analysis of the project recognising that the project is likely to attract a good mix of wealthy Brazilians and foreign buyers. JLL also took into account a market study, prepared by Economics Research Associates, which benchmarks Trancoso to other international second-home destinations. During the year under review, the US Dollar valuation of the Company's share of the project increased by 22.8% from $17.1 million to $21.0 million (compared with a decrease in the Real valuation from R$38.5 million to R$36.5 million), which reflects the strengthening of local currency during the period.  As is the case with our other projects under active development, the JLL local currency valuations have included a higher build cost but do not yet include a comparable increase in sales values.

 

Havaizinho (formerly Warapuru 3)

In March 2008, the Company and Harmattan Ltda ("Harmattan") each subscribed for an equal number of shares in an SPV that controlled the site of this project, being a 33-hectare land parcel adjacent to Warapuru 1 and 2. The site has 860 metres of sea frontage and a small cove beach and has lower levels of dense vegetation than the sites of the first and second phases of the development, which are consequently expected to simplify the process of obtaining construction permits.

 

The terms of this investment were subsequently amended in July 2008 which resulted in a number of changes. These included, among other things, reducing the Company's obligations to the SPV to the level of the equity for which it had already subscribed and paid for.  They also included Harmattan agreeing to match the Company's investment by 31 October 2009 through a cash payment of R$5 million to pay for the remaining unpaid quota of its shares in the SPV.

 

Harmattan failed to invest the required capital by 31 October 2009. As such, the Company announced on 4 November 2009 that it had that day issued to Harmattan a 30-day notice to remedy the situation. At a shareholders' meeting of the SPV held on 4 December 2009, the following measures were approved:
(i) cancellation of Harmattan's unpaid SPV share capital thus resulting in the Company increasing its ownership from 50% to 72%, and (ii) the Company exercising its contractual right to acquire Harmattan's remaining shares in the SPV for R$3.1 million (approx $1.8 million), thus resulting in the Company owning 100% of the SPV.

 

Shortly after the year end the Company funded its 100% owned SPV to settle the last remaining installment of the land acquisition price ($1.43 million) to the original landowner.

 

As noted above, the Company's Investment Manager continues to work with Harmattan in order to help secure a solution to the construction of Warapuru 1 and 2.

 

Due to the financial situation of the developer, the permit process has been put on hold for the time being and the Investment Manager has started to look at other development options for Havaizinho on a stand-alone basis. Regardless, the Company is adopting a wait-and-see approach in relation to the outcome of the first phases of Warapuru before making any development plans for this site.  However, the Company remains confident in the knowledge that the site is a prime beachfront location that should appreciate in value over time and has future development potential.

 

Given the uncertainties associated with Warapuru, JLL has valued Havaizinho as an independent project giving a resultant valuation of $8.7 million, which is below our cost basis of $10.4 million. This reflects that fact that a new project would not necessarily be able to leverage the common infrastructure developed in Warapuru phases 1 and 2.

 

Looking ahead

We believe that our first divestment, announced in July 2009, marks an important milestone in the life of the Company as it looks to continue to establish its presence in the local market and attract high quality partners.

 

On the development front, we are working closely with architects and planners to use local materials and pre-fabricate where possible. We are also working with government bodies to expedite the approval process and devoting significant resources to find a solution for Warapuru in the current year.

 

We continue to believe that the government will sponsor loan facilities for tourist related development projects, including our own, on favourable terms.  We also expect that the hosting of the World Cup and the Olympic Games in 2014 and 2016, respectively, will help to attract a larger number of investors and tourists to Brazil during the years when our investment projects become ready for realisation.

 

 

 

Pedro P. de Miranda

Managing Director

Itacaré Capital Partners Ltd

30 March 2010

DIRECTORS' REPORT

 

The Directors take pleasure in presenting their report and financial statements of the Group for the year ended 31 December 2009.

 

Principal activity and incorporation

 

The Company is a limited liability closed-end real estate investment Company, incorporated on 27 April 2006 in the British Virgin Islands (BVI). It was admitted to the Alternative Investment Market (AIM) of the London Stock Exchange on 30 May 2007.

 

The Company's investment objective is to provide Shareholders with strong capital growth combined with a medium to low risk profile through investing in high-quality residential resort developments in Brazil, principally in the northeast region. These projects will be developed with the assistance of professional developers chosen by the Investment Manager. The high-quality residential developments will typically include a number of holiday, second or retirement home units integrated with a small 5-star luxury hotel and a combination of leisure components.

 

These consolidated financial statements comprise the results of the Company and its subsidiaries (together referred to as the "Group"), together with prior year comparatives.

 

Results and dividends

 

The Group's results for the financial period ending 31 December 2009 are set out in the Consolidated Statement of Comprehensive Income.  A review of the Group's activities is set out in the Chairman's Statement and Investment Manager's Report respectively.

 

The Directors do not recommend the payment of a dividend.

 

Financial Performance

 

Consolidated Earnings per share

 

	2009	2008	2007
	$	$	$
Basic earnings/(loss) per share	0.05	(0.07)	0.27
Diluted earnings/(loss) per share	0.05	(0.07)	0.27
Basic earnings/(loss) per share excluding Deferred tax	0.06	(0.07)	0.32
Diluted earnings/(loss) per share excluding Deferred tax	0.06	(0.07)	0.32

 

Net asset value per share

 

	Net asset value per share attributable
	2009	2008	2007
	$	$	$
Basic	1.07	1.01	1.06
Diluted	1.07	1.01	1.06
Diluted excluding Deferred Tax	1.11	1.04	1.09

 

 

Future Outlook

 

The key elements of the Group's strategy for 2010 are as follows:

 

§ Focus on adding value to its existing project portfolio by (i) advancing on building permissions, (ii) completing master-plans, (iii) partnering with recognized  hotel operators, (iv) ensuring timely delivery from sub-contractors, and (v) adhering to approved budgets

§ The Company also aims to realise full or partial market value of assets as opportunities arise based on prevailing market conditions.

§ Continue to build relationships with local construction and development partners, which are willing to work with the Company on our investment projects

 

Key Performance Indicators

 

The Group expects to deliver a performance that meets its investment objectives through continued focus on Net Asset Value appreciation of its investments as well as to seek full or partial cash exits that can be distributed in the form of dividends.

 

Non-financial performance is measured against the Group's ability to attract investment and operating partners that can positively enhance the profile and value of its investments.

 

The Group believes that the Investment Manager incentives are aligned with Shareholders since management only receives a performance fee on cash profits, subject to a 13% annual preferred return to investors. In addition, payments of any performance fees are subject to escrow and claw back provisions.

 

Company Secretary

 

The secretary of the Company during the period from incorporation and to the date of this report was EFG Private Bank (Channel Islands) Limited.

 

Auditors

 

The auditors, Grant Thornton UK LLP, have indicated their willingness to continue in office and a resolution concerning their re-appointment will be proposed at the Annual General Meeting.

 

On behalf of the Board

 

 

 

Michael St Aldwyn, Director

 

 

 

STATEMENT OF DIRECTORS' RESPONSIBILITIES

 

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

 

The Group is subject to legislation that requires the Directors to prepare financial statements for each financial year.  Under that legislation the Directors have elected to prepare financial statements in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRSs").  The financial statements are required by law to give a true and fair view of the state of affairs of the Group and of the profit or loss of the Group for that period.

 

In preparing these financial statements, the Directors are required to:

 

§ select suitable accounting policies and then apply them consistently

§ make judgments and estimates that are reasonable and prudent

§ state whether applicable IFRS's have been followed, subject to any material departures disclosed and explained in the financial statements

§ prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business.

 

The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Group and enable them to ensure that the financial statements comply with the BVI Business Companies Act 2004.  They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

 

In so far as each of the Directors is aware:

 

§ There is no relevant audit information of which the Group's auditors are unaware; and

§ The Directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditors are aware of that information.

 

 

 

BOARD OF DIRECTORS

 

The Directors of the Company, all of whom are non-executive, are responsible for supervising the Investment Manager and for the overall investment activities of the Group. The Directors are:

 

Director	Appointed
Michael St Aldwyn	17 April 2007
Raymond Smith	17 April 2007
Samsão Woiler	17 April 2007
Ricardo Reisen de Pinho	02 February 2009

 

Michael St. Aldwyn, Earl St. Aldwyn (Non-Executive Chairman), aged 60, is a director of the BlackRock Latin American Investment Trust plc. He has had a long association with Brazil, having worked there in the Real Estate sector from 1973 to 1979, and having responsibility for the region in the New York office of Man Group plc from 1979 to 1989, where he conducted the physical trading of sugar and coffee, and subsequently the promotion of Futures funds.  From 1989 to 1994 he worked in the London offices of Man Group plc, creating and launching investments funds.  In 1994 he established International Fund Marketing (UK) Limited, a promoter of hedge funds, of which he is currently managing director.  He also served as chairman of the Anglo-Brazilian Society from 1996 to 2002.  Michael St. Aldwyn is fluent in Spanish and Portuguese, and a graduate of Oxford University.

 

Raymond Smith (Non-Executive Director), aged 60, has over 40 years experience in most aspects of professional real estate advisory, starting his career in the City of London with firms such as Richard Ellis, St. Quintins and Gooch & Wagstaff.  In 1979 he moved to Brazil where he was appointed manager of the Vestey family's property assets in Brazil, Argentina, Uruguay and Venezuela.  In this capacity he was responsible for managing and developing extensive land holdings and urban properties throughout the region with a total portfolio value in excess of $500 million.  In 1993, with the closure of the Vestey real estate operations in Brazil, he established Commercial Properties, which grew to become one of the most respected and nationally recognised firms of property consultants in Brazil, extending their activities to the international field through an alliance with CB Commercial Limited.  In 1999 he helped to establish the Brazilian office of Cushman & Wakefield, where he completed several significant commercial transactions for clients such as Sonae and British Petroleum.  Since 2001 he has worked exclusively with resort development in the northeast region of Brazil. In his career Mr Smith has been involved with assignments ranging from single properties to large multi-property portfolios for a variety of international clients, including Citibank, Chemical Bank, IBM and the Emir of Qatar, as well as many Brazilian companies and pension funds. Mr Smith is a fellow of the Royal Institution of Chartered Surveyors.

 

Samsão Woiler (Non-Executive Director), aged 71, has been a director, member of the board of advisors or consultant to a number of companies such as Unibanco, CESP, Prodam, Metal Leve, SPP-NEMO, Standard Eletrica and Cia Suzano de Papel e Celulose, together with successfully taking part in various projects and negotiations carried out since 1976 by Brasilinvest.  He was the controlling partner from December 1982 until August 1986 of Standard Eletronica, which was subsequently merged into Alcatel Group.  In the non-profit sector he is a former president, director and advisor for Fundação Carlos Alberto Vanzolini. In the academic arena, after 30 years of service to Escola Politécnica (School of Engineering) of the University of São Paulo, he retired from the position of Professor of the Production Engineering Department of which he was in charge for 12 years, and was also an Associate Professor at the School of Economics and Business Science of the University of São Paulo.  Mr Woiler holds B.S. degrees in Mathematics and Mechanical Engineering from the University of São Paulo, and an M.S. and Ph.D. degree from Stanford University

 

Ricardo Reisen de Pinho (Non-Executive Director), aged 49, is head of the Harvard Business School Latin America Research Centre in Brazil and has more than 15 years experience in senior commercial and investment positions within the financial services industry, including roles held at Banco Itau, Banco Garantia and ABN Amro Brazil. He also serves on several boards of directors of leading companies or non-profit organizations in Brazil such as Embratel Participações, Metalfrio Solutions, Banco Nossa Caixa, Tupy, Saraiva Livreiros Editores, LAB SSJ and AACD,  and became an investor in various business ventures. Ricardo holds a PMD from Harvard Business School, an AMP from Wharton, a DBA in Strategy from FGV-EAESP, a M.Sc. in Finance and a B.Sc. in Mechanical Engineering from PUC-RJ.

 

CORPORATE GOVERNANCE STATEMENT

 

Although the Group is not obliged by the listing rules to do so, the Directors recognise the value of the Principles of Good Governance and Code of Best Practice as set out in the Combined Code. The Board has agreed to use these as a benchmark when considering appropriate measures to be adopted when dealing with all matters of governance and business practice whilst also taking into account the size of the Group and the nature of its business.

 

The following table sets out the number of Board and Audit Committee meetings held for the year ended 31 December 2009 and the number of meetings attended by each Director:

 

	Board of Directors			Audit committee
	Held(4)	Attended		Held	Attended
Michael St Aldwyn(1)	8	8		2	2
Raymond Smith	8	7		2	N/A
Samsão Woiler	8	8		2	2
Gabriel Bitran(2)	1	-		-	-
Ricardo Reisen de Pinho (3)	7	7		2	2

 

1. Michael St Aldwyn, although not a member of the Audit committee, attended all Audit committee meetings held during the year.

2. Gabriel Bitran resigned as a director on 2 February 2009 and therefore did not attend any meetings during the year.

3.  Ricardo Reisen de Pinho was appointed on 2 February 2009  and attended all seven of the Board meetings held during the period of his appointment.

4.  Meetings held during the period of appointment

 

 

Responsibilities of the Board

 

The Board of Directors is responsible for the determination of the investment policy of the Group and for its overall supervision via the investment policy and objectives that it has set out. The Board is also responsible for the Group's day-to-day operations; however, since the Board members are all non-executive, in order to fulfil these obligations, the Board has delegated operations through arrangements with the Investment Manager and the Administrator.

 

At each of the regular Board meetings held, the financial performance of the Group is reviewed. In addition, the members of the Board receive a regular report on the status of the Group's assets from the Administrator. The Board also receives a regular investment performance report from the Investment Manager and management accounts from the Administrator.

 

Audit Committee

 

The Board has appointed an Audit Committee that comprises all the members of the Board, other than Michael St Aldwyn and Raymond Smith.  The Audit Committee is a sub-committee of the Board and makes recommendations to the Board, which retains the final decision. The Audit Committee has primary responsibility for reviewing the annual and interim financial statements and the accounting policies, principles and practice underlying them, liaising with the external auditors and reviewing and monitoring the effectiveness of internal controls and risk management systems. The terms of reference of the Audit Committee covers the following:

 

§ The composition of the Committee, quorum and other participants of the meetings

§ Appointment and duties of the Chairman

§ Duties in relation to external reporting, including reviews of financial statements, shareholder communications and other announcements

§ Duties in relation to the external auditors, including appointment/dismissal, approval of fees, discussion of the audit

§ Approval of non-audit services by the external auditor.

 

REPORT OF THE INDEPENDENT AUDITORS TO THE MEMBERS OF ITACARÉ

CAPITAL INVESTMENTS LTD

 

We have audited the Group (consolidated) financial statements of Itacaré Capital Investments Ltd. for the year ended 31 December 2009, which comprise the consolidated statement of comprehensive income, the consolidated statement of financial position, the consolidated statement of changes in equity, the consolidated cash flow statement, and related notes.  These Group financial statements have been prepared under the accounting policies set out therein.

 

This report is made solely to the Shareholders of the Group, as a body, in accordance with BVI law.  Our audit work has been undertaken so that we might state to the Shareholders of the Group 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 Group and the Shareholders of the Group as a body, for our audit work, for this report, or for the opinions we have formed.

 

Respective responsibilities of directors and auditors

 

The Directors' responsibilities for preparing the Annual Report and the Group (consolidated) financial statements in accordance with BVI law and International Financial Reporting Standards (IFRSs) as adopted by the European Union are set out in the Statement of Directors' Responsibilities.

 

Our responsibility is to audit the Group (consolidated) 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 Group financial statements give a true and fair view and whether the Group financial statements have been properly prepared in accordance with BVI law.  We also report to you whether in our opinion the information given in the Directors' Report is consistent with the financial statements.

 

In addition we report to you if, in our opinion, we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors' remuneration and other transactions is not disclosed.

 

We read other information contained in the Annual Report and consider whether it is consistent with the audited Group (consolidated) financial statements. The other information comprises only the Chairman's Statement, the Investment Managers Report the Directors' Report, and the Corporate Governance Statement.  We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the Group financial statements.  Our responsibilities do not extend to any other information.

 

Basis of audit opinion

 

We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the Group financial statements. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the Group financial statements, and of whether the accounting policies are appropriate to the Group'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 Group 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 Group financial statements.

 

Opinion

 

In our opinion:

 

§ the Group financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, of the state of the Group's affairs as at 31 December 2009 and of its profit for the year then ended;

 

§ the Group financial statements have been properly prepared in accordance with the BVI International Business Act 1984 (as amended); and

 

§ the information given in the Directors' Report is consistent with the financial statements

 

 

GRANT THORNTON UK LLP

REGISTERED AUDITOR

CHARTERED ACCOUNTANTS

London

Date: 30 March 2010

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 

	Notes		2009		2008
			$		$
Interest received	2.7		341,396		724,162
Gain on sale of part of Três Praias	8		1,728,680		-
Exchange gain on certificates of deposit			-		118,285
Valuation gain on investment properties	8		15,164,117		6,191,170
Valuation (loss) on investment properties	8		(7,635,480)		(8,080,061)
Total operating profit/(loss)			9,598,713		(1,046,444)
Management fees	2.11		(1,740,000)		(1,740,000)
Other administration fees and expenses	4		(1,998,475)		(3,344,723)
Deferred performance fee on Três Praias gain	2.11		(261,818)		-
			(4,000,293)		(5,084,723)
Profit/(loss) for the year before tax			5,598,420		(6,131,167)
Deferred tax	5		(1,129,295)		283,334
Profit/(loss) for the year			4,469,125		(5,847,833)
Foreign exchange movement			414,566		(772,117)
Total Comprehensive income/(loss)			4,883,691		(6,619,950)
Basic Earnings/(Loss) per Share	6		0.05		(0.07)

 

 

 

 

The accompanying notes are an integral part of the statements

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 

		2009		2008		2007
ASSETS	Notes	$		$		$
Non-current assets
Investment properties	8	84,350,000		74,800,000		47,452,225
Long term receivable	8	1,141,812		-		-
		85,491,812		74,800,000		47,452,225
Current Assets
Trade and other receivables	12	1,428,377		620,690		183,094
Cash and cash equivalents	14	14,537,539		19,362,364		52,723,336
Total current assets		15,965,916		19,983,054		52,906,430
Total assets		101,457,728		94,783,054		100,358,656
EQUITY
Capital and reserves attributable to equity holders
Ordinary Shares	9	850,965		850,965		795,000
Share premium account	9	86,177,272		86,177,272		77,624,097
Retained earnings		4,349,781		(119,344)		5,765,729
Foreign exchange reserve		(153,225)		(567,791)		204,326
Total equity		91,224,793		86,341,102		84,389,152
LIABILITIES
Non Current Liabilities
Deferred tax liability	5	3,562,911		2,433,616		2,716,950
Trade and other payables	13	2,653,320		2,336,101		2,995,722
		6,216,231		4,769,717		5,712,672
Current Liabilities
Founder shareholder warrants		-		-		8,965,935
Trade and other payables	13	4,016,704		3,672,235		1,290,896
		4,016,704		3,672,235		10,256,831
Total liabilities		10,232,935		8,441,952		15,969,503
Total equity and liabilities		101,457,728		94,783,054		100,358,655
Basic NAV per Share	10	$1.07		$1.01		$1.06

 

 

These financial statements were approved by the Board on 30 March 2010 and signed on their behalf by:

Michael St Aldwyn

 

The accompanying notes are an integral part of the statements

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 

	Share		Share		Retained		Foreign
	Capital		Premium		Earnings		Exchange		Total
	$		$		$		$		$
Balance at 1 January 2008	795,000		77,624,097		5,765,729		204,326		84,389,152
Net loss for the year	-		-		(5,847,833)		-		(5,847,833)
Foreign exchange movement	-		-		-		(772,117)		(772,117)
Founder shareholder warrants	-		-		(37,240)		-		(37,240)
Total recognised income and expenses for the year	795,000		77,624,097		(119,344)		(567,791)		77,731,962
Shares issued from Treasury	15,000		1,500,000		-		-		1,515,000
Founder shareholder warrants	90,565		8,965,935		-		-		9,056,500
Directors shares issued	400		37,240		-		-		37,640
Share buy back into treasury	(50,000)		(1,950,000)		-		-		(2,000,000)
Balance at 31 December 2008	850,965		86,177,272		(119,344)		(567,791)		86,341,102
Balance at 1 January 2009	850,965		86,177,272		(119,344)		(567,791)		86,341,102
Net profit for the year	-		-		4,469,125		-		4,469,125
Foreign exchange movement	-		-		-		414,566		414,566
Balance at 31 December 2009	850,965		86,177,272		4,349,781		(153,225)		91,224,793

 

 

 

The accompanying notes are an integral part of the statements

CONSOLIDATED CASH FLOW STATEMENT

 

	Note		2009		2008
			$		$
Net profit/(loss) for the year			2,740,445		(5,847,833)
Revaluation of investment properties	8		(7,528,637)		1,888,891
(Increase) in receivables			(1,949,499)		(437,596)
Increase/(decrease) in payables			661,688		(7,244,217)
Foreign exchange			414,566		(496,558)
Deferred taxation	5		1,129,295		(283,334)
Net cash generated/(used) in operating activities			(4,532,142)		(12,420,647)
Cashflows from investing activities
Purchase of investment properties			(3,671,363)		(27,921,639)
Acquisition adjustment	8		-		(1,627,826)
Disposal of investment properties			3,378,680		-
Net cash outflow from investing activities			(292,683)		(29,549,465)
Cashflows from financing activities
Net proceeds on issue of equity shares, after issue costs			-		10,609,140
Share buy back	9		-		(2,000,000)
Net cash from investing activities			-		8,609,140
Net (decrease)/increase in cash and cash equivalents			(4,824,825)		(33,360,972)
Cash and cash equivalents at the start of the period			19,362,364		52,723,336
Cash and cash equivalents at the end of the period	14		14,537,539		19,362,364

 

 

 

 

The accompanying notes are an integral part of the statements

NOTES TO THE FINANCIAL STATEMENTS

 

1.             General information

 

The Company is a limited liability closed-end real estate investment company, incorporated on 27 April 2006 in the British Virgin Islands (BVI). The Company is focused on master planned residential resorts in Brazil and managed by Itacáre Capital Partners Ltd.

 

The shares of the Company were admitted to the Alternative Investment Market ("AIM") of the London Stock Exchange on 30 May 2007. The consolidated financial statements for the year to 31 December 2009 comprise the Company and its subsidiaries (together referred to as the "Group").

 

2.             Accounting policies

 

2.1          Basis of preparation

 

The financial statements of the Group have been prepared in accordance with International Financial Reporting Standards as adopted by the EU ("IFRS"), and the BVI Business Companies Act 2004. The financial statements have been prepared under the cost convention as modified by the revaluation of investment properties held at fair value.

 

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates and exercise of judgment by the Directors while applying the Group's accounting policies. These estimates are based on the Directors' best knowledge of the events that existed at the balance sheet date; however, the actual results may differ from these estimates. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in subsequent notes.

 

2.2          Basis of measurement

 

The consolidated financial statements have been prepared using the measurement bases specified by IFRS for each type of asset, liability, income and expense. The measurement bases are more fully described in the accounting policies below.

 

2.3          Standards and amendments to existing standards effective 1 January 2009

 

The following standards, amendments and interpretations, which became effective in 2009, are of relevance to the Group:

 

Standard/ interpretation		Content		Applicable for financial years beginning on/after
IAS 1		Presentation of financial statements		1 January 2009

 

 

Standard/ interpretation		Content		Applicable for financial years beginning on/after
IFRS 7		Amendment: Improving disclosures about financial instruments		1 January 2009
IFRS 8		Operating segments		1 January 2009
IAS 40R		Investment property		1 January 2009

 

 

 

• Adoption of IAS 1, 'Presentation of financial statements'

 

A revised version of IAS 1 was issued in September 2007. The revised standard prohibits the presentation of items of income and expenses (that is, 'non-owner changes in equity') in the statement of changes in equity, requiring 'non-owner changes in equity' to be presented separately from owner changes in equity in a statement of comprehensive income. As a result, the Group presents in the consolidated statement of changes in equity all owner changes in equity; all non-owner changes in equity are presented in the consolidated statement of comprehensive income. The adoption of this revised standard impacts only presentation aspects; therefore, it has no impact on profit or earnings per share.

 

• Adoption of Amendment to IFRS 7, 'Improving disclosures about financial instruments'

 

The IASB published amendments to IFRS 7 in March 2009. The amendment requires enhanced disclosures about fair value measurements and liquidity risk. In particular, the amendment requires disclosure of fair value measurements by level of a three-level fair value measurement hierarchy. In addition to that, the amendment clarifies that the maturity analysis of liabilities should include issued financial guarantee contracts at the maximum amount of the guarantee in the earliest period in which the guarantee could be called; and secondly requires disclosure of remaining contractual maturities of financial derivatives if the contractual maturities are essential for an understanding of the timing of the cash flows. The entity has to disclose a maturity analysis of financial assets it holds for managing liquidity risk, if that information is necessary to enable users of its financial statements to evaluate the nature and extent of liquidity risk. The adoption of the amendment results in additional disclosures but does not have an impact on profit or earnings per share.

 

• Adoption of IFRS 8, 'Operating segments'

 

IFRS 8 replaces IAS 14, 'Segment reporting', and is effective for annual periods beginning on or after 1 January 2009. The new standard requires a 'management approach', under which segment information is presented on a similar basis to that used for internal reporting purposes. The effects of adoption by the Group are disclosed in Notes 8, 12 and 13.

 

• Adoption of IAS 40, 'Investment property', amendment (and consequential amendment to IAS 16, 'Property, plant and equipment')

 

The amendments are part of the IASB's annual improvements project published in May 2008 and are effective from 1 January 2009. Property that is under construction or development for future use as investment property is brought within the scope of IAS 40. Where the fair value model is applied, such property is measured at fair value. However, where fair value of investment property under construction is not reliably determinable, the property is measured at cost until the earlier of the date construction is completed and the date at which fair value becomes reliably measurable. This does not have a current impact on the Group.

 

• Adoption of 'Improvements to IFRS' (issued in May 2008)

 

The Improvements project contains numerous amendments to IFRS that the IASB considers non-urgent but necessary. 'Improvements to IFRS' comprise amendments that result in accounting changes for presentation, recognition or measurement purposes, as well as terminology or editorial amendments related to a variety of individual IFRS standards. Most of the amendments are effective for annual periods beginning on or after 1 January 2009. No material changes to accounting policies arose as a result of these amendments.

 

2.4          Standards, amendments and interpretations to existing standards that are not yet effective and

have not been adopted early by the Group

 

Standard/ interpretation		Content		Applicable for financial years beginning on/after
IFRS 3		Business combinations		1 July 2009
IFRS 9		Financial instruments: Classification and measurement		1 January 2013

 

 

Standard/ interpretation		Content		Applicable for financial years beginning on/after
IAS 24*		Related party disclosures		1 January 2011
IAS 32*		Classification of rights issues		1 February 2010
IAS 39*		Financial instruments: Recognition and measurement - Eligible hedged items		1 July 2009
IFRS 1*		First-time adoption of International Financial Reporting Standards		1 July 2009
Amendment: IFRS 1*		Additional exemptions for first-time adopters		1 January 2010
Amendment: IFRS 2*		Group cash-settled share-based payment transactions		1 January 2010
IAS 27*		Consolidated and separate financial statements		1 July 2009
IFRIC 17*		Distribution of non-cash assets to owners		1 July 2009
IFRIC 18*		Transfers of assets from customers		1 July 2009

 

*Not expected to be relevant to the Group.

 

• IFRS 3, 'Business combinations' (revised 2008; effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009). The revised standard continues to apply the acquisition method to business combinations, with some significant changes. For example, all payments to purchase a business are to be recorded at fair value at the acquisition date, with contingent payments classified as debt subsequently re-measured through the income statement. There is a choice on an acquisition-by-acquisition basis to measure the non-controlling interest in the acquiree either at fair value or at the non-controlling interest's proportionate share of the acquiree's net assets. All acquisition-related costs should be expensed. The Group will apply the revised standard prospectively to all business combinations from 1 January 2010.

 

 

• IFRS 9, 'Financial instruments: Classification and measurement': In November 2009, the Board issued the first part of IFRS 9 relating to the classification and measurement of financial assets. IFRS 9 will ultimately replace IAS 39. The standard requires an entity to classify its financial assets on the basis of the entity's business model for managing the financial assets and the contractual cash flow characteristics of the financial asset, and subsequently measures the financial assets as either at amortised cost or fair value. The new standard is mandatory for annual periods beginning on or after 1 January 2013.

 

• 'Improvements to IFRS' (issued in April 2009): The improvements project contains numerous amendments to IFRS that the IASB considers non-urgent but necessary. 'Improvements to IFRS' comprise amendments that result in accounting changes for presentation, recognition or measurement purposes, as well as terminology or editorial amendments related to a variety of individual IFRS standards. Most of the amendments are effective for annual periods beginning on or after 1 January 2010 respectively, with earlier application permitted. No material changes to accounting policies are expected as a result of these amendments

 

In 2009, the Group did not early adopt any new or amended standards and do not plan to early adopt any of the standards issued not yet effective.

 

2.5          Basis of Consolidation

 

(a) Consolidation

 

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Group (its subsidiaries and subsidiary undertakings). Control is achieved where the Group has the power to govern the financial and operating policies of a portfolio Group so as to obtain benefits from its activities.

 

The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group. All intra-Group transactions, balances, income and expenses are eliminated on consolidation.

 

(b) Business combinations

 

The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the portfolio Group, plus any costs directly attributable to the business combination. The portfolio Group's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognised at their fair value at the acquisition date, except for non-current assets (or disposal groups) that are classified as held for resale in accordance with IFRS 5 Non Current Assets Held for Sale and Discontinued Operations, which are recognised and measured at fair value less costs to sell.

 

Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Group's interest in the net fair value of the portfolio Group's identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in profit or loss.

 

2.6          Segment reporting

 

All of the Group's assets and liabilities arise in relation to the Group's investment property portfolio on the coast of Brazil

 

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker is the person or group that allocates resources to and assesses the performance of the operating segments of an entity. The Group has determined that its chief operating decision maker is the board of Directors of the Group.

 

The board considers the business based on the performance of the Investment Properties and considers these to be the Group's operating segments.  The segmental information provided to the Board can be found in Note 8 Investment Properties.

 

2.7          Revenue recognition

 

The revenue generating source and the recognition policy is that deposit interest is recognised on an accruals basis.

 

2.8          Foreign currency transactions

 

(a) Functional and presentation currency

 

Items included in the Group's financial statements are measured using the currency of the primary economic environment in which it operates (the "functional currency").  This is the US Dollar, which is most reflective of the Group's cash flows.

 

(b) Transactions and balances

 

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions.  Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the consolidated income statement. Non-monetary assets and liabilities denominated in foreign currencies that are measuered at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Foreign currency differences arising on retranslation are recognised in the consolidated income statement.

 

(c) Group companies

 

The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation urrency are translated into the presentation currency as follows:

 

(i) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;

 

(ii) income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions); and

 

(iii) all resulting exchange differences are recognised as a separate component of equity.

 

2.9          Investment properties

 

Investment properties are those which are held either to earn rental income or for capital appreciation or both. Investment properties are stated at fair value. An external, independent valuation company, having an appropriate recognised professional qualification and recent experience in the location and category of property being valued, values the portfolio every six months. The fair values are based on market values, being the estimated amount for which a property could be exchanged on the date of valuation between a willing buyer and a willing seller in an arm's length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.

 

The valuation analysis of properties is based on all the pertinent market factors that relate both to the real estate market and, more specifically, to the subject properties. The valuation analysis of the properties used two approaches: the direct sales comparison approach and the residual value approach. The direct sales comparison approach is based on the premise that persons in the marketplace buy by comparison. It involves acquiring market sales/offerings data on properties similar to the subject property. The prices of the comparable are then adjusted for any dissimilar characteristics as compared to the subject's characteristics. Once the sales prices are adjusted, they can be reconciled to estimate the market value of the subject property. The residual value approach is used for the valuation of the land and depends on two basic factors: the location and the total value of the buildings developed on a site. Under this approach, the residual value of the land is calculated by subtracting from the estimated sales value the completed development the development cost.

 

Each of the above-mentioned techniques results in a separate valuation indication for the subject property. Then a reconciliation process is performed to weigh the merits and limiting conditions of each approach. Once this is accomplished, a value conclusion is reached by placing primary weight on the technique, or techniques, that are considered to be the most reliable, given all factors.

 

Any gain or loss arising from a change in fair value is recognised in the consolidated income statement.

 

A property interest under an operating lease is classified and accounted for as an investment property on a property-by-property basis when the Group holds it to earn rentals or for capital appreciation or both. Any such property interest under an operating lease classified as an investment property is carried at fair value.

 

Any gain or loss resulting from the sale of an investment property is immediately recognised in the consolidated statement of comprehensive income.

 

2.10        Financial Liabilities

 

Financial liabilities are obligations to pay cash or other financial assets and are recognised when the Group becomes a party to the contractual provisions of the instrument.  Financial liabilities categorised as at fair value through profit or loss are recorded initially at fair value, all transaction costs are recognised immediately in the income statement.  All other financial liabilities are recorded initially at fair value, net of direct issue costs, where applicable.

 

Financial liabilities categorised as at fair value through profit or loss are re measured at each reporting date at fair value, with changes in fair value being recognised in the income statement.  All other financial liabilities are recorded at amortised cost using the effective interest method, with interest-related charges recognised as an expense in the finance cost in the income statement.  Finance charges, including premiums payable on settlement or redemption and direct issue costs, are charged to the income statement on an accruals basis using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.

 

Financial liabilities are categorised as at fair value through profit or loss where they are classified as held-for-trading or designated as at fair value through profit or loss on initial recognition.  Financial liabilities are designated as at fair value through profit or loss where they are managed and their performance evaluated on a fair value basis in accordance with the Group's risk management and investment strategy.

 

A financial liability is derecognised only when the obligation is extinguished, that is, when the obligation is discharged or cancelled or expires.

 

2.11        Investment Manager and Performance Fee

 

The Investment Manager receives an annual management fee payable quarterly in advance equivalent to 2% per annum of "equity funds" being the combination of (i) $87 million plus (ii) the gross proceeds of any further subsequent equity Group raisings, plus (iii) realised net profits from investments, less (iv) distributions to Shareholders.

 

In addition, in relation to any investment made by the Group, the Manager is potentially entitled to a performance fee based on the net realised cash profits made by the Group subject to the Group receiving the "Relevant Investment Amount", which is an amount equal to the aggregate of all cost instalments for an investment: each instalment being multiplied by a compounded annualized percentage return of 13% from the quarter date when such cost instalment is paid less the sum of all accumulated cash distributions received by the Group in relation to that investment (the "Hurdle").

 

In the event that the Group has received distributions from an investment equal to the Relevant Investment Amount, then provided that at that time the Group has received a return equal to or in excess of the Hurdle for all realised investments (including as "realised" for this purpose any investments which have been written down or written off) and such payment would not result in the Investment Manager receiving more than 20% of the cumulative net realised cash profits from the Group's investments, upon receipt by the Group or any subsequent net realised cash profits in respect of that investment, the following performance fee shall be paid to the Investment Manager:

 

(i) first, a payment equivalent to 70% of such further profits as are paid to the Group until the Investment Manager shall have received an amount equal to 20% of the investment's net realised cash profits; and

 

(ii) thereafter, a payment equivalent to 20% of any future cash distributions the Group receives in excess of the Relevant Investment Amount.

 

2.12        Cash and cash equivalents

 

Cash and cash equivalents comprise of cash deposited with banks and bank overdrafts repayable on demand. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of the cash and which are subject to an insignificant risk of changes in value. Bank overdrafts that are repayable on demand and form an integral part of the Group's cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.

 

2.13        Share capital and premium

 

Share capital represents the issued amount of shares outstanding at their par value. Any excess amount of capital raised is included in share premium. External costs directly attributable to the issue of new shares are shown as a deduction, net of tax, in share premium from the proceeds.

 

2.14        Income tax

 

Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in the consolidated income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

 

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.

 

The taxation charge included in the current year income statement comprises deferred tax only. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at the balance sheet date.

 

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

 

2.15        Joint Ventures

 

The Group's interests in jointly controlled entities are accounted for by proportionate consolidation. The Group combines its share of the joint ventures' individual income and expenses, assets and liabilities and cash flows on a line-by-line basis with similar items in the Group's financial statements. The Group recognises the portion of gains or losses on the sale of assets by the Group to the joint venture that it is attributable to the other venturers. The Group does not recognise its share of profits or losses from the joint venture that result from the Group's purchase of assets from the joint venture until it resells the assets to an independent party. However, a loss on the transaction is recognised immediately if the loss provides evidence of a reduction in the net realisable value of current asset, or an impairment loss.

 

Interest in joint ventures

 

The Group has a 50% interest in a joint venture Duas Barras Ltd., who owns Itacap Um Empreendimentos e Participações Ltda through Itacap One, LLC.

 

 

The Group has a 50% interest in a joint venture BB Trancoso Ltd., who owns Bahia Beach Empreendimentos Imobiliários Ltda. through Trancoso Investment One, LLC.

 

The Group previously held a 50% interest in a joint venture W Villa Holdings Ltd., who own Villas do Havaizinho Hotelaria e Empreendimentos Imobiliários Ltda. (Warapuru 3) through Goveport International Ltd. and Goveport International, LLC. On 23 December 2009 the Group acquired the remaining 50% of the company for R$3,104,994 and now owns 100%.

 

The following amounts represent the Group's 50% share of the assets and liabilities, and results of the joint ventures. They are included in the balance sheet and income statement.

 

 

 

 

			Duas Barras Ltd				BB Trancoso Ltd				W Villa Holdings Ltd
	2009		2008		2009		2008		2009		2008
	$		$		$		$		$		$
Assets
Long-term assets	6,765,401		5,742,395		21,013,835		16,103,306		-		7,153,435
Current assets	128,869		134,381		802,520		784,256		-		17,093
	6,894,270		5,876,776		21,816,355		16,887,562		-		7,170,528
Liabilities
Long-term liabilities	1,973,402		1,988,053		1,500,238		2,708,135		-		-
Current liabilities	659,119		505,881		542,390		532,992		-		488,687
	2,632,521		2,493,934		2,042,628		3,241,127		-		488,687
Net assets	4,261,749		3,382,842		19,773,727		13,646,435		-		6,681,841
Income	19,791		-		3,473,273		88,130		-		5,785
Expenses	(68,879)		(66,127)		(408,246)		(81,921)		-		(17,833)
(Loss)/profit after tax	(49,088)		(66,127)		3,065,027		6,209		-		(12,048)

 

There are no contingent liabilities relating to the Group's interest in the joint ventures (Dec 2008:nil), and no contingent liabilities of the ventures themselves (Dec 2008:nil).

 

2.16        Treasury Shares

 

Where any Group company purchases the Group's equity share capital (treasury shares), the consideration paid, including any directly attributable incremental costs, is deducted from equity attributable to the Group's equity holders until the shares are cancelled, reissued or disposed of. Where such shares are subsequently sold or reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the Group's shareholders.

 

2.17        Financial Assets

 

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.  Trade receivables, sundry receivables and interest receivable are classified as loans and receivables.  Loans and receivables are measured subsequent to initial recognition at amortised cost using the effective interest method, less provision for impairment.  Any change in their value through impairment or reversal of impairment is recognised in the income statement.

 

2.18        Registration as Closed-ended Investment Fund

 

The Group has obtained consent under the Control of Borrowing (Bailiwick of Guernsey) Ordinance, 1959 as amended. To receive such consent, application was made by the Group under the Guernsey Financial Services Commission's framework relating to Registered Closed-ended Investment Funds. Under this framework neither the Guernsey Financial Services Commission nor the States of Guernsey Policy Council have reviewed these Annual Report and Audited Statements but instead have relied on specific warranties provided by the Guernsey licensed administrator of the Group, EFG Private Bank (Channel Islands) Limited. Neither the Guernsey Financial Services Commission nor the States of Guernsey Policy Council takes any responsibility for the financial soundness of the Group or for the correctness of any of the statements made or opinions expressed with regard to it.

 

 

3.             Critical accounting estimates and assumptions

 

Estimates and judgments are continually evaluated and are based on historical experience as adjusted for current market conditions and other factors.

 

The Directors make estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are outlined below.

 

(a) Estimate of fair value of investment properties

 

The Group holds full or partial ownership interests in a number of investment properties. Jones Lang LaSalle conducted an independent valuation of the investment properties owned by these companies as at 31 December 2009.

 

(b) Estimated performance fee (carried interest) on investments

 

No provision has yet been established for performance fees on the revaluation of investments, however a provision has been made for the performance fee attributable to the part disposal of land at Três Praias. This is based on the fair value gains recognised to date and a current estimate of the ultimate Internal Rate of Return of each investment. The performance fee has been discounted back to present value at a rate of 8.75%.

 

(c) Classification of Investment Properties

 

The Group has classified property in development as investment property, as defined by IAS40, as these are being held by the Group for the purposes of either earning capital appreciation or rental income or both.

 

(d) Acquisition of Investment Properties

 

The acquisition of the issued share capital of subsidiaries have been treated in these accounts as the purchase of assets, specifically the investment properties held by the subsidiaries. The directors have judged that the acquisition should not be treated as the acquisition of a business under IFRS3 'Business Combinations' as it does not comply with the definition of a business provided in the standard.

 

 

4.             Directors' fees

 

		2009		2008
		$		$
NOMAD fee		150,000		150,000
Secretarial and administration fee		190,777		166,161
Director fee		212,500		253,750
Legal and Professional fees		877,809		1,066,959
Aborted Bovespa listing and fundraising expenses		-		1,031,929
Travelling expenses		315,756		456,450
Taxation		126,382		14,132
Insurance		50,449		137,650
Regulatory fees		4,149		5,446
Audit fees		31,792		36,175
General administration and sundry expenses		38,861		26,071
		1,998,475		3,344,723

 

Audit fees represent auditor's remuneration for work undertaken in connection with the statutory audit of the Group.

 

5.             Deferred Taxation

 

As a company incorporated under the BVI International Business Companies Act (Cap. 291), the Company is exempt from taxes on profit, income or dividends. Each company incorporated in BVI is required to pay an annual government fee, which is determined by reference to the amount of that company's authorised share capital.

 

The deferred tax provision for the Brazilian subsidiaries is based on the capital gains tax rate, which is 15%. Such tax liability may not materialise if, on realising the investments, the Company sells the BVI special purpose holding companies established specifically to hold its interests in Brazilian investment companies.

 

In accordance with IAS 12 Income Taxes, full provision has been made for the 15% liability that would arise if the Company were to sell its interest in the Brazilian property directly instead. Details of the Company's net asset value and earnings per share that reflect the impact of avoiding such deferred tax have been included in notes 6 and 10 respectively.

 

 

		Deferred tax
		liability
		$
Balance at 1 January 2008		(2,716,950)
Credit in the income statement		283,334
Balance as at 31 December 2008		(2,433,616)
Balance at 1 January 2009		(2,433,616)
(Charge) in the income statement		(1,129,295)
Balance as at 31 December 2009		(3,562,911)
Deferred tax liability is attributable to the following:
Revaluation of investment property		(3,562,911)
Total		(3,562,911)

 

 

6.             Consolidated earnings/(loss) per share

 

2009		Basic		Basic		Diluted		Diluted
		EPS		EPS		EPS		EPS
				(excluding				(excluding
				deferred				deferred
				tax)				tax)
		$		$		$		$
Net profit		4,469,125		4,469,125		4,469,125		4,469,125
Deferred tax		-		891,096		-		891,096
Adjusted net loss		4,469,125		5,360,221		4,469,125		5,360,221
Weighted average number of
shares in issue (see below)		85,096,500		85,096,500		85,096,500		85,096,500
Earnings per share		0.05		0.06		0.05		0.06

 

2008		Basic		Basic		Diluted		Diluted
		EPS		EPS		EPS		EPS
				(excluding				(excluding
				deferred				deferred
				tax)				tax)
		$		$		$		$
Net (loss)		(5,847,833)		(5,847,833)		(5,847,833)		(5,847,833)
Deferred tax		-		(282,334)		-		(282,334)
Adjusted net profit		(5,847,833)		(6,130,167)		(5,847,833)		(6,130,167)
Weighted average number of
shares in issue (see below)		84,890,239		84,890,239		88,626,664		88,626,664
(Loss) per share		(0.07)		(0.07)		(0.07)		(0.07)

 

 

Weighted average shares in issue calculation

 

Basic - 2009		Number of shares
						Days in
		Ongoing		Cumulative		Issue		Weighted
Shares in issue at 1 January 2009		85,096,500		85,096,500		365		85,096,500
		85,096,500						85,096,500

 

Diluted - 2009		Number of shares
						Days in
		Ongoing		Cumulative		Issue		Weighted
Shares in issue at 1 January 2009		85,096,500		85,096,500		365		85,096,500
		85,096,500						85,096,500

 

Basic - 2008		Number of shares
						Days in
		Ongoing		Cumulative		Issue		Weighted
Shares in issue at 1 January 2008		79,500,000		79,500,000		366		79,500,000
Treasury shares 6 March 2008		1,000,000		80,500,000		300		819,672
Directors warrants 8 April 2008		40,000		80,540,000		267		29,180
Shareholder warrants 30 May 2008		9,056,500		89,596,500		215		5,320,075
Treasury shares 24 June 2008		500,000		90,096,500		190		259,563
Treasury shares 16 October 2008		(5,000,000)		85,096,500		76		(1,038,251)
		85,096,500						84,890,239

 

Diluted - 2008		Number of shares
						Days in
		Ongoing		Cumulative		Issue		Weighted
Shares in issue at 1 January 2008		88,556,500		88,556,500		366		88,556,500
Treasury shares 6 March 2008		1,000,000		89,556,500		300		819,672
Directors warrants 8 April 2008		40,000		89,596,500		267		29,180
Treasury shares 24 June 2008		500,000		90,096,500		190		259,563
Treasury shares 16 October 2008		(5,000,000)		85,096,500		76		(1,038,251)
		85,096,500						88,626,664

 

 

7.             Investments in subsidiaries and joint ventures

 

The subsidiaries of the Company are recorded at cost in the accounts of the Company and are all included in the consolidated financial statements. Joint Ventures are accounted for by proportionate consolidation.

 

Subsidiaries		Country of		Proportion of
		Incorporation		Ownership interest
Itacap One Ltd. (1)		BVI		100%
Itacaré Capital Investments,  LLC (2)		Delaware USA		100%
Itacap Three, LLC (3)		Delaware USA		100%
Itacap Três Incorporações e Participações Ltda(3)		Brazil		100%
Itacap MP, LLC (4)		Delaware USA		100%
Itacap Two, LLC(5)		Delaware USA		100%
Itacap Four, LLC(6)		Delaware USA		100%
Itacap Five, LLC(6)		Delaware USA		100%
Itacap Six, LLC(6)		Delaware USA		100%
Itacap Dois Empreendimentos e Participações Ltda. (6)		Brazil		100%
Itacap Quatro Emp. e Participações Ltda. (6)		Brazil		100%
Itacap Seven Ltd. (7)		BVI		100%
W Villa Holding Ltd. (8)		BVI		100%
Goverport International Ltd. (8)		BVI		100%
Goverport International, LLC (8)		Delaware USA		100%
W Villa 12 Ltd. (9)		BVI		100%
W Villa 13 Ltd. (9)		BVI		100%
W Villa 15 Ltd. (9)		BVI		100%
W Villa 16 Ltd. (9)		BVI		100%
Villas do Havaizinho Hotelaria e Emp. Imob. Ltda. (8)		Brazil		100%
Joint Ventures		Country of		Proportion of
		Incorporation		Ownership interest
Duas Barras Ltd. (1)		BVI		50%
Itacap One, LLC(1)		Delaware USA		50%
Itacap Um Empreendimentos e Participações Ltda(1)		Brazil		50%
BB Trancoso Ltd. (7)		BVI		50%
Trancoso One Investment, LLC(7)		Delaware USA		50%
Trancoso Two Investment, LLC(7)		Delaware USA		50%
Ilha da Madeira Ltda. (7)		Brazil		50%
Bahia Beach Empreendimentos Imobiliários S.A. (7)		Brazil		50%

 

(1)           Itacap One Ltd. owns 50% of Duas Barras Ltd., which in turn owns 100% of Itacap One, LLC, which in turn owns 99.99% of Itacap Um Incorporações e Participações Ltda., which has been established to facilitate the Company's purchase of the Duas Barras property. The Company's overall ownership of the Duas Barras project is 50%.

 

(2)           Itacaré Capital Investments, LLC owns 100% of Itacap Two, LLC, Itacap Three, LLC, Itacap Four, LLC, Itacap Five, LLC, Itacap Six, LLC, and Itacap MP, LLC.

 

(3)           Itacap Three, LLC owns 99.99% of Itacap Três Incorporações e Participações Ltda., which has been established to facilitate the Company's purchase of the property Três Praias.

 

(4)           As Brazilian corporate law requires Brazilian companies to have at least two quotaholders (or shareholders in the case of a corporation), Itacap MP, LLC was formed to hold one quota, or share, of each of the Project Companies, when necessary.  Itacap MP, LLC owns 0.01% of Itacap Um Incorporações e Participações Ltda., Itacap Dois Incorporações e Participações Ltda., Itacap Três Incorporações e Participações Ltda., Itacap Quatro Incorporações e Participações Ltda. No fair value gain has been included in the consolidated financial statements in relation to Itacap MP, LLC.

 

(5)           Itacap Two, LLC has been utilised to hold Brazilian Reals against future capital commitments of the property at Duas Barras.

 

(6)           The Company formed a number of shelf companies to be ready to use when the need arises. These shelf companies are Itacap Four, LLC, Itacap Five, LLC, Itacap Six, LLC, Itacap Dois Incorporações e Participações Ltda., Itacap Quatro Incorporações e Participações Ltda. Two of these shelf companies, namely Itacap Cinco Incorporações e Participações Ltda. and Itacap Seis Incorporações e Participações Ltda. were closed  on 2 February 2009.

 

(7)           Itacap Seven Ltd. owns 50% of BB Trancoso Ltd., which in turn owns 100% of Trancoso Investment One, LLC that owns 99.9% of Bahia Beach Empreendimentos Imobiliários Ltda., which owns the Bahia Beach Property. Trancoso Investment Two, LLC merged into Trancoso Investment One, LLC on 20 January 2009 and Ilha da Madeira Participações Ltda. merged into Bahia Beach Empreendimentos Imobiliários Ltda. on 29 July 2009.

 

(8)           W Villa Holdings Ltd. owns 100% of Goverport International Ltd., which in turn owns 100% of Goverport International, LLC. Goverport International, LLC owns 100% of Villas do Havaizinho Hotelaria e Empreendimentos Imobiliários Ltda., which owns the Warapuru 3 property, having purchased the remaining 50% of the company on 23 December 2009, for R$3,104,994.  The significant asset within Waraparu 3 is the investment property and for this reason the acquisition of the remaining 50% has been treated as a purchase of assets and not as a business combination under IFRS 3 and is included with the Additions in the Year in Note 8.

 

(9)           W Villa Holdings Ltd. owns 100% of W Villa 12 Ltd., W Villa 13 Ltd., W Villa 15 Ltd. and W Villa 16 Ltd., which in turn were formed to hold the villas in the Warapuru 2 Project, once the division and registration of the parcels of land of the Warapuru 2 property is finalised.

 

 

8.             Investment Properties

 

	Duas		Waraparu		Três		Bahia	Havaizinho
	Barras		2		Praias		Beach		Total
	$		$		$		$	$	$
At 1 January 2007	-		-		-		-	-	-
Additions in year	6,055,194		6,895,344		16,388,687		-	-	29,339,225
	6,055,194		6,895,344		16,388,687		-	-	29,339,225
Fair value adjustment	5,613,000		1,300,000		11,200,000		-	-	18,113,000
At 31 December 2007	11,668,194		8,195,344		27,588,687		-	-	47,452,225
At 1 January 2008	11,668,194		8,195,344		27,588,687		-	-	47,452,225
Exchange movement	(312,799)		-		-		-	-	(312,799)
Additions in year	-		4,218,013		267,305		16,282,886	7,153,435	27,921,639
	11,355,395		12,413,357		27,855,992		16,282,886	7,153,435	75,061,065
Acquisition adjustment	-		-		-		1,627,826	-	1,627,826
	11,355,395		12,413,357		27,855,992		17,910,712	7,153,435	76,688,891
Fair value adjustment	4,144,605		(2,013,357)		(5,255,992)		(810,712)	2,046,565	(1,888,891)
At 31 December 2008	15,500,000		10,400,000		22,600,000		17,100,000	9,200,000	74,800,000
At 1 January 2009	15,500,000		10,400,000		22,600,000		17,100,000	9,200,000	74,800,000
Additions in year	520,761		135,480		-		1,115,122	1,900,000	3,671,363
	16,020,761		10,535,480		22,600,000		18,215,122	11,100,000	78,471,363
Disposals in year	-		-		(1,650,000)		-	-	(1,650,000)
	16,020,761		10,535,480		20,950,000		18,215,122	11,100,000	76,821,363
Fair value adjustment	1,029,239		(5,235,480)		11,350,000		2,784,878	(2,400,000)	7,528,637
At 31 December 2009	17,050,000		5,300,000		32,300,000		21,000,000	8,700,000	84,350,000

 

The Directors appointed Jones Lang LaSalle, an internationally recognised firm of surveyors to conduct a valuation of the Group's acquired sites to determine their fair asset value as at 31 December 2009. These valuations were prepared in accordance with generally accepted appraisal standards, as set out by the American Society of Appraisers (the "ASA"), and in conformity with the Uniform Standards of Professional Appraisal Practice of the Appraisal Foundation and the Principles of Appraisal Practice and Code of Ethics of the ASA and RICS (the "Royal Institute of Chartered Surveyors").

 

During the year part of the Três Praias investment property was disposed of for $3.2 million with an estimated profit of $1.7 million. Part of the sale proceeds have been deferred for 12 months and 24 months respectively. These amounts have also been discounted to their present values at a rate of 8.75% p.a.

 

The analysis of market value of the properties is based on all the pertinent factors that relate both to the real estate market and, more specifically, to the subject properties. The valuation analysis of the properties used three approaches: the comparison approach, the residual value approach and a liquidated sale approach. The comparison approach is based on the premise that persons in the marketplace buy by comparison. It involves acquiring market sales/offerings data on properties similar to the subject property. The prices of the comparables are then adjusted for any dissimilar characteristics as compared to the subject's characteristics. Once the sales prices are adjusted, they can be reconciled to estimate the market value of the subject property. The residual value approach is an assessment of the value of a scheme as completed and deduction of the costs of development (including developers profit) to arrive at the underlying land value. The liquidated sale approach is used where the investment has not performed as expected. Under this approach, special assumptions are made whereby the liquidated value is determined in a similar manner to the direct sales or residual approach but with a discount factor to reflect the fact that the interest that is being valued is subject to special circumstances and cannot be offered freely and openly in the market.

 

Each of the above-mentioned techniques results in a separate valuation indication for the subject property. Unless the liquidation approach has been used, a reconciliation process is performed to weigh the merits and limiting conditions of the first two approaches. Once this is accomplished, a value conclusion is reached by placing primary weight on the technique, or techniques, that are considered to be the most reliable, given all factors.

 

 

9.             Share Capital

 

				2009		2008
Authorised share capital				Number of shares		Number of shares
Ordinary shares of $0.01 each				500,000,000		500,000,000
Movement in share capital and premium
		Number of shares		Share Capital		Share Premium
		No.		$		$
Shares in issue on 1 January 2007		11,130,000		111,300		11,018,700
Shares issued from AIM primary placement on 30 May 2007		75,870,000		758,700		75,111,300
Treasury shares bought back on 13 December 2007		(7,500,000)		(75,000)		(5,325,000)
Issue costs		-		-		(3,180,903)
Shares in issue on 31 December 2007		79,500,000		795,000		77,624,097
Shares in issue on 1 January 2008		79,500,000		795,000		77,624,097
Shares issued from Treasury
holding on 28 February 2008		1,000,000		10,000		990,000
Shares issued from Treasury
holding on 24 June 2008		500,000		5,000		510,000
Founder shareholder warrants issued		9,056,500		90,565		8,965,935
Directors shares issued		40,000		400		37,240
Buy back shares 16 October 2008		(5,000,000)		(50,000)		(1,950,000)
Share in issue on 31 December 2008		85,096,500		850,965		86,177,272
Shares in issue on 1 January 2009 and 31 December 2009		85,096,500		850,965		86,177,272

 

 

 

Treasury shares

 

On 13 December 2007 the Group purchased 7.5 million of its $0.01 ordinary shares at a price paid per share of $0.72. The Board considered that the purchasing of shares at such level would strongly enhance the Group's net asset value per share. The shares have been treated as if they were cancelled in deriving the basic NAV, providing an uplift of $1.725 million, or $0.02 per remaining share in issue.

 

On 28 February 2008 the Group issued 1,000,000 of its $0.01 ordinary shares at $1.00 per share, as part consideration of its investment in Trancoso, and in parallel cancelled 1,000,000 of the treasury shares.

 

On 24 June 2008 the Group issued 500,000 of its $0.01 ordinary shares at $1.03 per share and in parallel cancelled 500,000 of the treasury shares.

 

On 16 October 2008 the Group purchased 5.0 million of its $0.01 ordinary shares at a price paid per share of $0.42. The Board considered that the purchasing of shares at such level would strongly enhance the Group's net asset value per share. The shares have been treated as if they were cancelled in deriving the basic NAV, providing an uplift of $2.65 million, or $0.03 per remaining share in issue.

 

 

10.          Net asset value per share

 

The net asset value per share and the net asset values attributable to ordinary shares at the year end are calculated in accordance with their entitlements in the Articles of Association and were:

 

NAV
Calculation
	Number of ordinary shares			Net asset value per share attributable			Net asset value attributable
	2009	2008		2009	2008		2009	2008
	Number	Number		$	$		$'000	$'000
Basic	85,096,500	85,096,500		1.07	1.01		91,225	86,341
Diluted	85,096,500	85,096,500		1.07	1.01		91,225	86,341
Diluted excluding deferred tax liability	85,096,500	85,096,500		1.11	1.04		94,788	88,774

 

Basic net asset value per share is based on net assets at the year end, and on 85,096,500 (2008: 85,096,500) ordinary shares, being the respective number of shares in issue at the year end.

 

 

11.          Directors' interests

 

The Directors interests in the shares of the Group at 31 December 2009 is stated below. These include 10,000 ordinary shares to each of the original Directors which were awarded on their appointment as warrrants, which became exercisable on the first anniversary of their appointment, 17 April 2008.

 

Michael St Aldwyn	70,000 Ordinary Shares
Raymond Smith	10,000 Ordinary Shares
Samsão Woiler	10,000 Ordinary Shares
Ricardo Reisen de Pinho	nil    Ordinary Shares

 

 

 

 

12           Trade and other receivables

		2009		2008		2007
		$		$		$
Prepayments		33,000		516,500		177,589
Trade receivables		2,157		4,000		394
Sundry receivables		156,352		100,190		5,111
Funds due on sale of Três Praias		1,236,868		-		-
		1,428,377		620,690		183,094

 

 

13           Trade and other payables

 

		2009		2008		2007
Current liabilities		$		$		$
Commitments to developers		1,159,572		498,584		611,000
Trade payables		1,168,696		895,920		292,049
Sundry payables		1,688,436		2,277,731		387,847
		4,016,704		3,672,235		1,290,896
		2009		2008		2007
Non-current liabilities		$		$		$
Commitments to developers		2,391,502		2,336,101		2,995,722
Performance fee accrual		261,818		-		-
		2,653,320		2,336,101		2,995,722

 

 

14           Cash and cash equivalents

 

		2009		2008		2007
		$		$		$
Cash at bank		5,086,539		4,006,364		537,459
Cash held on overnight deposit		9,451,000		15,356,000		52,185,877
		14,537,539		19,362,364		52,723,336

 

 

15.          Related party transactions

 

Pedro P. de Miranda was the sole executive director of the Group until 24 August 2007 when he resigned, and is the controlling shareholder in Itacaré Capital Partners Ltd., the Manager to the Group, which received management fees of $1,740,000 during the year to 31 December 2009 (2008: $1,740,000). The balance due to Itacaré Capital Partners Ltd. as at 31 December 2009 was nil (2008: nil). Through his investment as Founding Shareholder Pedro Miranda received Founding Shareholder Warrants.

 

In addition to the management fee mentioned above Itacaré Capital Partners Ltd is due a performance fee in relation to the part sale of Três Praias, in the sum of $261,818. This amount is due in more than one year.

 

The Group's key management personnel are the Directors. Each Director received compensation based on an annual fee of $50,000, except the Chairman who received $62,500. Total fees and expenses paid to the Directors for the year to 31 December 2009 were as follows:

 

		2009		2008
		Directors'		Directors'
		Fees		Fees
		$		$
Michael St Aldwyn		62,500		56,250
Raymond Smith		50,000		45,000
Christopher Eddis		-		82,500
Samsão Woiler		50,000		45,000
Ricardo Reisen de Pinho		50,000		-
Gabriel Bitran		-		25,000
Total		212,500		253,750

 

 

16.          Financial Risk Management

 

The Group's activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The Group's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group's financial performance. There will always be some risk when undertaking property investments but the control process is aimed at mitigating and minimising these risks where possible.

 

The key risks identified by the board are as follows:

 

(a) Market price risk

 

		2009
		Cost		Fair Value
		$		$
Investment properties designated at fair value		60,597,254		84,350,000

 

The market price is exposed to the real estate market fluctuation that depends intrinsically to the market demand.  Therefore prices may increase and or decrease following demand thus affecting positively or negatively the fair value of the assets.  Recognition of such variation is in profit and loss.

 

(b) Interest rate risk

 

Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

 

 

The Group is exposed to risks associated with the effects of fluctuations in the prevailing levels of market interest rates on its financial position and cash.

 

During 2009, if interest rates on overnight deposits had been 0.2% higher/lower, given the Group has no borrowings, post tax profit for the year would have been $18,902 higher/lower.

 

(c) Liquidity risk

 

The liquidity risk is that the Group cannot meet its financial obligations when they fall due.  Liquidity risk may arise from the potential inability to sell a financial instrument without undue delay at a price close to its fair value.  Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding and ability to close out market positions. Of the liabilities $4,016,704 are due within one year and $2,653,320 due between one and two years.

 

(d) Environmental risk

 

A further risk factor identified by the board encompasses environmental risks.  In addition to the need to act as a responsible landlord there may, in some circumstances, be occasions when the Group buys a site with pollution or deforestation.  Each acquisition undertaken by the Group includes an environmental report from a specialist consultancy.  These reports may indicate the need for further investigation and in some cases remediation.  The Group's policy is then to either undertake such investigations or remediation or potentially reject the purchase as no longer viable.

 

(e) Credit risk

 

Credit risk is managed on a Group basis. Credit risk arises from cash and cash equivalents, deposits with banks and financial institutions, including outstanding receivables and committed transactions.

 

The Group is not susceptible to high credit risk as their cash transactions are limited to high-credit-quality financial institutions and no credit limits were exceeded during the reporting period. Furthermore, the Group enters into investment transactions, which attract both off-balance sheet market risks and off-balance sheet credit risks

 

Additional contractual warranties and or financial credit instruments provided by sellers, where applicable, mitigate credit risks arising from investment property purchase deals.

 

(f) Currency risk

 

Currency risks arise where instruments, investments and material costs, are denominated in a currency different from the Functional Currency. Certain of the financial assets of the Group are denominated in currencies other than the Functional Currency with the effect that the Balance Sheet and Income Statement can be affected by currency movements. The Group has no outstanding currency hedging transactions.

 

The Functional Currency of the Group's local investments is the Brazilian Real and the majority of its costs and expenditures are denominated in local currency, however, the sales prices for residences and hotel rates are linked to the US dollar.

 

For Brazilian subsidiaries' projects the currency exchange rate at 31 December 2009 was Brazilian Real R$1.7494 to $1.00.

 

 

2009				USD amount per accounts
		USD		BRL		GBP		Total
ASSETS
Non current assets
Long term debtor		-		1,141,812				1,141,812
ASSETS
Current assets
Trade and other receivables		1,287,638		140,739		-		1,428,377
Cash and cash equivalents		10,234,364		4,303,175		-		14,537,539
Total Current Assets		11,522,002		5,585,726		-		17,107,728
EQUITY
Capital and reserves
Ordinary shares		850,965		-		-		850,965
Share premium		86,177,272		-		-		86,177,272
Retained earnings		4,349,781		-		-		4,349,781
Foreign exchange reserve		(153,225)		-		-		(153,225)
LIABILITIES
Non-current liabilities
Trade and other payables		261,818		2,304,944		-		2,566,762
Current liabilities
Trade and other payables		-		3,238,391		101,444		3,339,835
Total financial liabilities and equity		91,486,611		5,543,335		101,444		97,131,390

 

For Brazilian subsidiaries' projects the currency exchange rate at 31 December 2008 was Brazilian Real R$2.356 to $ 1.00.

 

2008				USD amount per accounts
		USD		BRL		GBP		Total
ASSETS
Current assets
Trade and other receivables		597,850		22,840		-		620,690
Cash and cash equivalents		18,762,110		600,254		-		19,362,364
Total Current Assets		19,359,960		623,094		-		19,983,054
EQUITY
Capital and reserves
Ordinary shares		850,965		-		-		850,965
Share premium		86,177,272		-		-		86,177,272
Retained earnings		(119,344)		-		-		(119,344)
Foreign exchange reserve		(567,791)		-		-		(567,791)
LIABILITIES
Non-current liabilities
Trade and other payables		-		2,336,101		-		2,336,101
Current liabilities
Trade and other payables		2,335,514		1,238,462		98,259		3,672,235
Total financial liabilities and equity		88,676,616		3,574,563		98,259		92,349,438

 

The Group's exposure varies in an average 3% increase/decrease in the $ against Brazilian Real and may potentially impact in cash flows for investments.   As of 31 December 2009, the impact of such currency exchange rate fluctuation would have led to a decrease/increase in NAV of $1,772 (2008: $91,492).

 

No financial receivables or liabilities are passed their due date.

 

All non-current financial liabilities are due within one to two years.

 

 

17.          Events after the balance sheet date

 

Havaizinho

On 14 January 2010, the Company announced further actions to those announced on 9 December 2009 in relation to Havaizinho, whereby it had completed both the cancellation of Harmattan's shares and the acquisition of Harmattan's remaining shares in the Havaizinho SPV, thus resulting in the Company owning 100% of the SPV.

 

 

Duas Barras

On 9 February 2010, the Company announced that Duas Barras received unanimous approval by the State of Alagoas Environmental Council (CEPRAM) for the issuance of the Preliminary License which authorised the change of zoning from agricultural use to tourism and residential and gave planning approval for the master plan submitted by the Company.