Annual Financial Report
RNS Number : 6044U
Black Sea Property PLC
30 July 2020
 

 

 

 

BLACK SEA PROPERTY PLC

("Black Sea Property" or the "Company")

 

Audited Results for the year ended 31 December 2019

 

The Board of Black Sea Property PLC is pleased to announce its audited results for year ended 31 December 2019.

 

 

Electronic copies of the annual report will be available at the Company's website http://www.blackseapropertyplc.com

 

 

 

BLACK SEA PROPERTY PLC

Alex Borrelli -  Chairman

 

+44(0) 774 702 0600

PETERHOUSE CAPITAL LIMITED

AQSE Corporate Adviser

Heena Karani and Duncan Vasey

+44 (0) 207 469 0930

 


Chairman's Statement

 

I am pleased to present the financial statements of Black Sea Property PLC ("Black Sea Property" or the "Company") for the year ended 31 December 2019. This follows an extension granted by Aquis Stock Exchange (AQSE) as a result of logistical issues arising from Covid-19 restrictions and in accordance with the Stakeholder Update released by AQSE on 31 March 2020.

 

The net asset value as at 31 December 2019 was €16,066,843 or 1.27 cents per share (2018: €12,002,389 or 0.95 cents per share).

 

The Company generated revenues from camping reservations of €671,030 (2018: €433,410). This resulted in earnings per share of 0.32 cents (2018: 0.18 cents, after taking into account the purchase gain of €3,759,352) after operating expenses.

 

Investments and Financings

 

Camping South Beach EOOD ("CSB")

 

During the period, the Company continued its reconstruction of CSB while also marketing the development as a destination for luxury camping holidays which resulted in further revenue generation in the period.

 

However, the impact of the closure of all non-essential businesses in Bulgaria from 13 March 2020 to combat the spread of the Covid-19 has had a material effect on occupancy. The Bulgarian government lifted this state of emergency on 13 May 2020 and immediately replaced it with an "extraordinary epidemic situation". Although internal travel is now permitted, strict regulations in the hospitality segment have to be followed.

 

The seaside beaches have been opened since 1 June 2020 and the holiday summer season started at the beginning of July. However, it is not expected that occupancy levels which were achieved in 2019, will be repeated this year as Bulgarians are still advised to refrain from non-essential travel. The Company is in the process of renegotiating the payment plans of its credit facilities.

 

The Directors expect CSB to benefit from the increased move within the Bulgarian hospitality market towards camping holidays in local markets which allow for social distancing while holidaying within the country.

 

The fair value of the investment property in CSB at the yearend was €16,260,000 which represents a marginal increase of €15,234 above the balance at the end of the previous year, but this includes the additions during the year of €2,788,744 and is stated after adjusting for the reduction in fair value of €2,773,510 (note 8).

 

The Company was able to recognise other income of €1,046,962 in respect of a receivable in CSB which had previously been impaired (note 6).

 

Ivan Vazov 1 Building

 

We are currently preparing further development proposals for the Ivan Vazov 1 Building which will be submitted for further approvals in due course. There is currently no letting of the building and we expect to be in a position shortly to advance its refurbishment.

 

The Company is in the process of renegotiation with Ivan Vazov 1 Bulbank for an extension of the credit repayment period by 12 months. Final draft of the Annex for the extension was agreed and will be signed by the end of July.

 

The Ivan Vazov 1 Building was valued at €11,329,000 at 31 December 2019 (note 8).

 

Byala Plots of Land ("Byala")

On 27 December 2019, the Company signed a settlement agreement for the cancellation of the sale of 23 plots of land in Byala, located near Varna on the Black Sea Coast. The former management of the Company had previously agreed to the sale of Byala in 2014 at a consideration of €1,020,000 (including VAT) being a price level significantly under the then market valuation. Under the terms of the settlement agreement, the transfer of Byala was rescinded and was restored to the Company. The Company paid a net cost of €1,065,723 which included legal costs and to cover expenses and improvements related to Byala. Byala was valued at €8,397,000 at 31 December 2019 (note 8).

 

The Directors expect to develop Byala as a further camping site with luxury facilities, complementary to CSB, and will significantly extend the Company's operations.

 

ECDC Group

 

In February 2020, the Company completed the acquisition of 100% of European Convergence Development (Cayman) Limited ("ECD Cayman") and ECD Management (Cayman) Limited from European Convergence Development Company PLC ("ECDC") for €3,582,639 (note 23).

 

The Company also completed the acquisition of 29.85% of ECDC at a price per share equal to its estimated net asset value of €0.00168 which equates to a consideration of €44,855.

 

ECD Cayman's main assets include a 70% holding via a subsidiary in two plots in Kraymorie, Burgas and a 100% holding in two plots in Plovdiv, which are currently valued at a minimum of €3,300,000.

 

The main rationale for the acquisition of interests in ECDC Group includes: the opportunity to add two development plots suitable for logistics/industrial development (the site in Plovdiv) and residential, commercial or hospitality development (the site in Kraimorie), thus diversifying BSP portfolio. Both ECD Cayman and ECDC have established structures in place that will save time and costs for future investments.

 

Financings

 

To enable Black Sea Property to fund the acquisition of Byala, Mamferay Holdings Limited ("Mamferay") provided an unsecured loan of €1,214,318 in addition to its current loan of €180,000 with an interest rate of 2.75% per annum and for repayment by 16 December 2022. Mamferay is a wholly owned subsidiary of Phoenix Capital Holding JSC which owns 79.99% of the shares of Phoenix Capital Management JSC, the Company's investment adviser, and also owns 26.94% of the shares of Black Sea Property.

 

Subsequent to the year end, in January 2020, the Company raised €4,585,682 through a placement of 416,880,162 new ordinary shares at €0.011 per share for further development of the Company's real estate portfolio and for making investments. At the same time, Mamferay converted its existing loans of €1,397,391 into 127,035,545 new ordinary shares at €0.011 per share. Mamferay currently holds 488,457,561 ordinary shares representing 26.94% of the Company's issued share capital (note 23).

 

BSP's suspension in trading in June 2019

 

Trading in the Company's shares on the NEX Growth Market (now AQSE) was suspended on 3 June 2019 as the audited accounts were not able to be published by 31 May 2019. 

 

Subsequently, the Company addressed all the recommendations of the auditors and implemented the necessary procedures:

·    Adoption of an internationally recognised reservations system;

·    Outsourcing of the accounting function to Crowe Bulgaria Advisory Limited in order to improve the accounting and internal control function; and

·    Utilisation of available cash resources in the Company's normal business operations for settlement of liabilities to contractors and suppliers.

 

Following publication of both the audited accounts for the year ended 31 December 2018 and the unaudited interim results to 30 June 2019, trading in the Company's shares re-commenced on the NEX Growth Market (now AQSE).

 

Annual General Meeting and Resolutions

 

The resolutions for the forthcoming Annual General Meeting will be contained in a separate Notice to be issued shortly.

 

Outlook

 

The Company is not able to fully assess the impact of the current restrictions on the results for the year ending 31 December 2020, as it is still uncertain for how long this disruption will continue and the ongoing effect these issues will have on consumer demand in the short and medium term particularly for its operations. The Board is taking prudent steps to mitigate and manage its cash flow and cost base and is confident that the business is well equipped to withstand this near-term uncertainty.

 

We believe that CSB will attract strong rental demand from both domestic and other European customers for the current season following our marketing campaigns. We are pleased with the overall project design and expect the project to generate a solid revenue stream for the Company.

 

We believe that the development of the plots of land at Byala will add significantly to the Group's operations as a luxury camping operator taking into account the increased demand for high-class camping locations and the relatively low supply at the Black Sea coast.

 

We also look forward to progressing our plans for the refurbishment of the Ivan Vazov 1 Building during the current year with a view to this prestigious asset, generating returns for the Company in due course.

 

Signed on behalf of the Board by:

 

Alex Borrelli

Chairman

 

29 July 2020

 

Directors' Report for the year ended 31 December 2019

 

Shareholders' Interests

 

As at 31 December 2019, the significant shareholders of Black Sea Property Plc ("the Company") were as follows:

 

Beneficial shareholder

Holding

Percentage

Mamferay Holdings Limited

357,814,581

28.18%

Compass Capital JSC

217,936,000

17.17%

Neo London Capital AD

372,126,806

24.82%

Capman AM

105,000,000

8.27%

 

There are no changes to the significant shareholders of the Company from prior year.

 

Auditor

 

During the financial year, BDO LLP resigned and Grant Thornton Limited was appointed as auditor in accordance with Section 80C of the Isle of Man Companies Act 2006. Grant Thornton Limited, being eligible, has expressed its willingness to continue in office.

 

Directors' interests

 

No current Director has an interest in the share capital of the Company.

 

Directors' remuneration

 

Directors' remuneration comprises solely the fee payments received by the Directors. No Directors received any benefits under long term or short term incentive schemes.

 

The maximum amount of the aggregate Directors' ordinary remuneration permitted under Article 83.1 of the Company's Articles of Association is £100,000 (€112,130 at year-end exchange rate) per annum, plus expenses.

 

 

Fees invoiced

 

Fees payable

 

Fees invoiced

 

Fees payable


Year ended

31 Dec 2019

 

As at

31 Dec 2018

 

Year ended

31 Dec 2018

 

As at

31 Dec 2018


 

 

 

Alex Borrelli*

25,447

13,901

 

13,525

 

30,955

 

5,580

Ventsislava Altanova

(appointed 20 November 2018)

13,873

 

7,095

 

1,350

 

1,350

Elena Fournadjieva

(resigned 26 September 2018)

-

 

-

 

16,775

 

-

Miroslav Georgiev

(appointed 20 November 2018)

13,873

 

7,095

 

1,350

 

1,350

Boris Lagadinov

13,901

 

7,109

 

13,441

 

-

Yordan Naydenov

13,945

 

7,095

 

20,376

 

-

 

81,039

 

41,919

 

84,247

 

8,280

*includes 20% VAT charge.

 

Corporate Governance

 

The Company is committed to applying the highest principles of corporate governance commensurate with its size.

 

While the Company is not required to comply in full with the provisions set out in the UK Corporate Governance Code Issued by the Financial Reporting Council, or to comment on its compliance with the provisions of that Code, the Board is nevertheless accountable to shareholders for the good corporate governance of the Company.

 

The Board consists of five Directors and holds at least four board meetings annually. Matters which would normally be referred to appointed committees, such as the Audit, Remuneration and Nomination Committees, are dealt with by the Board as a whole.

 

Going concern

 

The Group had €1,069,312 current assets at 31 December 2019, the majority of which was held as cash and cash equivalents at underlying subsidiaries.

 

Subsequent to the year-end the Group has raised additional funding through a share capital raise in order to further the development of the Company's real estate portfolio. Further details are given below.

 

Accordingly, the Directors have a reasonable expectation that the Company and the Group will continue in operational existence for the foreseeable future, and for a period of at least 12 months from the date of signing of these financial statements. Therefore, the financial statements have been prepared as a going concern.  

 

Post balance sheet events

 

Cash placing and debt to equity conversion

On 20 January 2020 the Company performed a share placing and simultaneous debt to equity conversion. The overall amount raised before expenses was €4,585,682, through a placement of 416,880,162 new ordinary shares of nil par value (the "Placing Shares") at a price of €0.011 per Ordinary Share (the "Placing").

In addition to the Placing, Mamferay Holdings Limited ("Mamferay") agreed to convert all its outstanding loans being €1,397,391 including interest, into 127,035,545 ordinary shares at €0.011 per share (the "Loan Shares").

 

ECDC Group acquisition

On 25 February 2020 the Company successfully completed the acquisition of 100% of European Convergence Development (Cayman) Limited ("ECD Cayman") and ECD Management (Cayman) Limited ("ECD Management"), both being subsidiaries of European Convergence Development Company PLC, Isle of Man ("ECDC"), including outstanding receivables of €122,221,701 (a loan granted by ECDC to ECD Cayman). The consideration paid for ECD Cayman and ECD Management and the outstanding receivables was €3,582,639. The Company also signed agreements for the acquisition of 29.85% of ECDC at a price per share equal to the net asset value of the shares of €0.00168.

 

Change in registered office address

With effect from 9th March 2020 the Company changed its registered office to 55 Athol Street, Douglas, Isle of Man, IM1 1LA.

 

Statement of Directors' Responsibilities

 

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

 

The Directors are required to prepare Group financial statements for each financial year. The Directors have elected to prepare the Group financial statements in accordance with International Financial Reporting Standards ("IFRSs") as adopted by the European Union and applicable law.

 

The Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and of its profit or loss for that period. In preparing each of the Group financial statements, the Directors are required to: 

·    select suitable accounting policies and then apply them consistently; 

·    make judgements and estimates that are reasonable, relevant and reliable; 

·    state whether they have been prepared in accordance with IFRSs; 

·    assess the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and 

·    use the going concern basis of accounting unless they either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. 

 

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group's transactions and disclose with reasonable accuracy at any time the financial position of the Group and enable them to ensure that its financial statements comply with the Isle of Man Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. 

 

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Group's website. Legislation in the Isle of Man governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

 

 

Alex Borrelli

Chairman

29 July 2020

 

Independent Auditor's report to the shareholders of Black Sea Property Plc

 

Opinion

We have audited the financial statements of Black Sea Property Plc (the 'Company') and its subsidiary companies (the 'Group') for the year ended 31 December 2019 which comprise the Consolidated Statement of Comprehensive Income, Consolidated Statement of Financial Position, Consolidated Statement of Changes in Equity, Consolidated Statement of Cash Flow and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

 

In our opinion, the financial statements:

·      give a true and fair view of the state of the Group's affairs as at 31 December 2019 and of its profit for the year then ended;

·      have been properly prepared in accordance with IFRSs as adopted by the European Union; and

·      have been prepared in accordance with the requirements of the Isle of Man Companies Act 2006.

 

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial statements, including the FRC's Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

 

Who we are reporting to

This report is made solely to the Company's members, as a body, in accordance with the terms of our engagement. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.

 

Conclusions relating to going concern

The Directors have prepared the financial statements on the going concern basis as they have concluded that the Group's financial position and net cash resources means that it is realistic to do so. The Directors have also concluded that there are no material uncertainties that could have cast significant doubt over its ability to continue as a going concern for at least twelve months from the date of the financial statements.

 

We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:

·      the Directors' use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or

·      the Directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the Group's ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue.

 

However, as we cannot predict with certainty all future events or conditions and as any subsequent events may result in outcomes that are inconsistent with judgements that were reasonable at the time they were made, the absence of reference to a material uncertainty in this auditor's report cannot be viewed as a guarantee as the Group's ability to continue as a going concern.

 

Other matter

The prior year was audited by BDO LLP and their audit report was signed on 1 November 2019.

·     

A disclaimer of opinion was issued in the prior year due to the following audit findings:

·     It was not possible to verify the existence and valuation of cash held at Camping Gradina EOOD. Due to this it was not possible to conclude on the valuation of the bargain acquisition recognised in the prior year financial statements

·     South Beach EOOD did not have a systematic set of processes and controls over the recording of revenue therefore completeness and accuracy of revenue could not be determined.

 

During the year the Group has addressed these points by implementing the following:

·     Adopted an internationally recognised reservation system at South Beach EOOD

·     Outsourced the accounting function of the Bulgarian subsidiaries to Crowe Bulgaria Advisory Limited to improve accounting and internal control function.

 

No disclaimer of opinion is required in the current year financial statements as a result of these matters.

 

Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

 

This is not a complete list of all risks identified by our audit.

 

Key audit matter

How the scope of our audit addressed the key audit matter

Carrying value of investment property

As detailed in note 8, the Group owns investment properties with a fair value of €35,986,000 at 31 December 2019.

 

The determination of the fair value of the investment properties is considered to be a significant judgement as detailed in note 3 and we therefore considered this to be a significant audit risk and key audit area.

 

The Group engages an independent valuer (Forton) to determine the fair value of the property at the year end. This valuation considers the nature of the property, its location and any comparable property transactions. The valuations require the independent valuer to make significant professional judgements in relation to expected future cash flows, market capitalisation yields and appropriate input information provided by the management in relation to occupancy and rental values. Any inaccuracies in this input information or unreasonable judgements made in the valuation could result in a material misstatement of the Statement of Comprehensive Income and the Statement of Financial Position.

 

Our audit work included, but was not restricted to, the following:

· We assessed the competency, independence, qualifications and objectivity of the independent valuer to confirm that they are appropriately qualified to value the properties.

 

· We reviewed the valuation reports to ensure that all valuations have been carried out in line with relevant professional standards and in accordance with the group's accounting policy.

 

· We assessed the significant judgements used in the valuations to ensure they are reasonable.

 

· We reviewed the appropriateness of the disclosures within the group's financial statements in relation to the valuation methodology, key valuation inputs and valuation uncertainty.

 

· We recalculated the movement in fair value, ensured that this was reasonable and agreed this to the financial statements.

 

 

Key observations

As a result of our work we concluded that the valuation of the Group's investment properties is appropriate and in line with the Group's accounting policies

 

Valuation and recoverability of the intergroup loans

 

The Company holds receivables with its subsidiary companies totalling €3,828,952 at 31 December 2019. These loans have been issued to support the operations of the Bulgarian subsidiaries. Due to the nature of these loans they are considered key to the audit of the Company.

 

Our audit work included, but was not restricted to, the following:

·   We obtained and reviewed all loan agreements in place and recalculated the interest receivable from the subsidiary companies.

 

·   We reviewed the consolidation to ensure that all loans and interest were fully eliminated on consolidation and preparation of the group financial statements.

Key observations

As a result of our work we concluded that the valuation of the intergroup loans is appropriate and in line with the Group's accounting policies

 

Our application of materiality

We define materiality as the magnitude of a misstatement in the financial statements that makes it probable that the economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality in determining the nature, timing and extent of our audit work and in evaluating the results of that work.

 

The materiality for the Group was set at €477,000, which equates to 1.5% of group total assets at the planning stage of our audit, before the final property valuations had been accounted for. This benchmark was considered to be the most appropriate given the nature of the asset based group. We chose not to revise our materiality threshold throughout the course of the audit once the final property valuation figures were known as this would result in a higher materiality to that set at planning which we did not feel was appropriate.

 

We use a different level of materiality, performance materiality, to drive the extent of our testing. This was set at 60% of the financial statement materiality which reflects our assessment of risk inherent in the audit.

We determined the threshold at which we will report individual audit differences to the Board to be €23,900. In addition, we communicate misstatements below that threshold that, in our view, warrant reporting on qualitative grounds.

 

An overview of the scope of our audit

Our audit approach was based on a thorough understanding of the Group's business and is risk-based. Our audit was scoped by obtaining an understanding of the Group and its environment, including the Group's system of internal control, and assessing the risk of material misstatement at the Group level.

 

A full scope audit was carried out on each component of the Group. Detailed audit instructions were issued to the auditors of the components which detailed the significant risks that were to be addressed through the audit and indicated the information that needed to be reported back to the Group audit team. The Group audit team communicated with all component auditors throughout the planning, fieldwork and concluding stages of the local audits.

 

Other information

The Directors are responsible for the other information. The other information comprises the information included in the Chairman's Statement and the Directors' Report set, other than the financial statements and our auditor's report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.

 

We have nothing to report in this regard.

 

Responsibilities of Directors

As explained more fully in the Directors' responsibilities statement, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

 

In preparing the financial statements, the Directors are responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.

 

Auditor's responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.

 

Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

 

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.

 

 

 

Grant Thornton Limited

Douglas

Isle of Man

 

29 July 2020

 

Consolidated Statement of Comprehensive Income

for the year ended 31 December 2019

 

 

 

Year to


Year to


Notes

31 Dec 19


31 Dec 18


 


Total revenue


 

 

 

 

 

 

 

 

Revenue

2

671,030

 

433,410

Property operating expenses

2

(468,514)


(382,146)



202,516


51,264






Gain/(loss) on revaluation of investment properties

8

4,564,767


(497,881)

Bargain purchase on acquisition

6

-


 3,759,352

Net gain on investment properties


4,564,767


 3,261,471


 

 

 

 

Administration and other expenses

5

(977,728)


(628,599)

Operating profit


3,789,555


2,684,136






Other income

6

1,318,513


420,847

Interest payable and similar charges

6

(652,436)


(740,646)

Profit before tax


4,455,632


2,364,337


 

 

 

 

Taxation

7

(391,178)


(23,645)

Profit and total comprehensive income attributable to shareholders

 

4,064,454


2,340,692


 

 

 

 

Gain per share


 

 

 

Basic and Diluted gain per share (cents)

16

0.32


0.18

 

 

The results are derived from continuing operations during the year.

 

The notes are an integral part of these consolidated financial statements.



 

Consolidated Statement of Financial Position

as at 31 December 2019

 

 

 

2019

 

2018

 

Notes

 

Non-current assets

 

 

 

 

Investment properties

8

35,986,000

 

27,566,766

 

 

35,986,000

 

27,566,766

Current assets

 

 

 

 

 

 

 

 

 

Trade and other receivables

9

351,367

 

566,263

Cash and cash equivalents

10

717,945

 

3,698,239

 

 

1,069,312

 

4,264,502

 

 

 

 

 

Total assets

 

37,055,312

 

31,831,268

 

 

 

 

 

Equity and liabilities

 

 

 

 

 

 

 

 

 

Issued share capital

14

64,774,886

 

64,774,886

Retained earnings

15

(47,174,957)

 

(51,239,411)

Foreign currency translation reserve

15

(1,533,086)

 

(1,533,086)

Total equity

 

16,066,843

 

12,002,389

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

Bank loans

12

8,326,534

 

16,535,339

Deferred tax liability

7

1,903,784

 

1,509,773

 

 

10,230,318

 

18,045,112

Current liabilities

 

 

 

 

Trade payables

11

496,684

 

234,261

Shareholder loans

22

1,394,958

 

-

Bank loans

12

8,866,509

 

1,549,506

 

 

10,758,151

 

1,783,767

 

 

 

 

 

Total liabilities

 

20,988,469

 

19,828,879

 

 

 

 

 

Total equity and liabilities

 

37,055,312

 

31,831,268

 

 

 

 

 

Number of ordinary shares in issue

14

1,269,407,896

 

1,269,407,896

NAV per ordinary share (cents)

16

1.27

 

0.95

 

 

The notes are an integral part of these consolidated financial statements.

 

The financial statements were approved and authorised for issue by the Board of Directors on 29 July 2020 and were signed on their behalf by:

 

 

 

 

Alex Borrelli                                                                        Ventsislava Altanova

Chairman                                                                             Director                                                               



 

Consolidated Statement of Changes in Equity

for the year ended 31 December 2019

 

 

 

 

 Share capital

 Retained earnings

Foreign currency translation reserve

Total

 

At 1 January 2018

64,774,886

(53,580,103)

(1,533,086)

9,661,697

 

 

 

 

 

Profit for the year

-

2,340,692

-

2,340,692

Other comprehensive income

 -

 -

 -

 -

Total comprehensive income

-

2,340,692

-

2,340,692

 

 

 

 

 

At 31 December 2018

64,774,886

(51,239,411)

(1,533,086)

12,002,389

 

 

At 1 January 2019

64,774,886

(51,239,411)

(1,533,086)

12,002,389

 

 

 

 

 

Profit for the year

-

4,064,454

-

4,064,454

Other comprehensive income

 -

-

-

-

Total comprehensive income

-

4,064,454

-

4,064,454

 

 

 

 

 

At 31 December 2019

64,774,886

(47,174,957)

(1,533,086)

16,066,843

 

 

The notes are an integral part of these consolidated financial statements.

 

Consolidated Statement of Cash Flows

for the year ended 31 December 2019

 

 

 

2019

 

2018

 

Notes

 

 

 

 

 

 

Operating activities

 

 

 

 

Profit before taxation

 

4,455,632

 

2,364,337

 

 

 

 

 

(Gain)/loss on revaluation of investment property

8

(4,564,767)

 

497,881

Bargain Purchase on Acquisition

6

-

 

(3,759,352)

Other income

6

(1,318,513)

 

-

Finance expense

6

652,436

 

740,646

 

 

(775,212)

 

(156,488)

Changes in working capital

 

 

 

 

Increase in trade and other receivables

 

(659,493)

 

(628,870)

Increase/(decrease) in trade and other payables

 

265,256

 

(323,539)

Tax paid

 

-

 

(85,309)

 

 

 

 

 

Net cash outflow from operating activities

 

(1,169,449)

 

(1,194,206)

 

 

 

 

 

Investing activities

 

 

 

 

Investment property additions and acquisitions

8

(3,854,467)

 

(540,035)

Interest received

6

1,318,513

 

-

Cash held by the acquired subsidiary

 

-

 

4,154,758

Net cash (outflow)/inflow from investing activities

 

(2,535,954)

 

3,614,723

 

 

 

 

 

Financing activities

 

 

 

 

 

 

 

 

 

Interest paid and other charges

12

(669,849)

 

(720,719)

Loans received

22

1,394,958

 

-

Bank loan received

12

-

 

(240,370)

 

 

 

 

 

Net cash inflow/(outflow) from financing activities

 

725,109

 

(961,089)

 

 

 

 

 

Net (decrease)/increase in cash and cash equivalents

 

(2,980,294)

 

1,459,428

 

 

 

 

 

Cash and cash equivalents at the beginning of the year

10

3,698,239

 

2,238,811

 

 

 

 

 

Cash and cash equivalents at the end of the year

10

717,945

 

3,698,239

 

 

The notes are an integral part of these consolidated financial statements.

 

Notes to the Consolidated Financial Statements

for the year ended 31 December 2019

 

1)    General information

 

Black Sea Property PLC (the "Company") was originally incorporated in Jersey and re-domiciled to the Isle of Man with effect from 20 July 2016 and continues under the Isle of Man Companies Act 2006 with registered number 013712V.

The Company operates as a closed ended investment company for the purposes of the Isle of Man Collective Investment Schemes Act 2008 and the Isle of Man Collective Investment Schemes (Definition) Order 2008. The Company became a Regulated Fund in the Isle of Man on 26 February 2015 and it is subject to the Isle of Man Collective Investment Schemes Regulations.

The Company seeks to generate capital gains through the development, financing and sale of property in Bulgaria, including the prime areas of Bulgaria's Black Sea coast, the ski resorts and the capital, Sofia.

The Company has five wholly owned Jersey subsidiaries and four wholly owned Bulgarian subsidiaries (collectively the "Group").

 

2)            Summary of significant accounting policies

 

a)            Basis of preparation

 

The principal accounting policies applied in the preparation of the financial statements are set out below. These policies have been consistently applied throughout the year, unless otherwise stated.

The financial statements have been prepared on a going concern basis under the historical-cost convention as modified by the revaluation of financial assets held at fair value through profit or loss and investment properties that have been measured at fair value.

Statement of compliance

The financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") issued by the International Accounting Standards Board ("IASB") and International Financial Reporting Interpretations Committee ("IFRIC") interpretations as applicable to an Isle of Man company under the Companies Act 2006.

Use of estimates and judgements

The preparation of financial statements in conformity with IFRS requires the Directors to make judgements, estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses.  These estimates and associated assumptions are based on historical experience and various other factors, which are believed to be reasonable under the circumstances, and are reviewed on an on-going basis. The Directors believe that the estimates utilised in preparing its financial statements are reasonable and prudent. Actual results could differ from these estimates. The most significant accounting estimate affecting the financial statements is the valuation of investment property (see note 3). 

 

b)            Standards and amendments which are first effective for the period beginning 1 January 2019

 

The Company has initially adopted IFRS 16 Leases from 1 January 2019. A number of other new standards are effective from 1 January 2019 but they do not have a material effect on the Company's financial statements.

 

IFRS 16 introduced a single, on-balance sheet accounting model for lessees. The Company is not a lessee or a lessor. The adoption of IFRS 16 had no impact on the net assets attributable to holders of shares or the Company and no restatement of comparative information was required from the adoption of this new accounting standard.

 

The Company's subsidiary Camping South Beach EOOD ("CSB") owns a camping site on which it leases premises to third parties which are classified as operating leases. The Group has applied IFRS 16 for lessors, but lessor accounting remains similar to previous accounting policies.

 

The adoption of IFRS 16 had no impact on the net assets attributable to holders of shares in the Group and no restatement of comparative information was required from the adoption of this new accounting standard.

 

The accounting policies applicable to the Group as a lessor are not different from those under IAS 17. The Group is not required to make any adjustments on the transition to IFRS 16 for leases in which it acts as a lessor. However, the Group has applied IFRS 15 Revenue from Contracts with Customers to allocate consideration in the contract to each lease and non-lease component. This has had no impact on the Group.

 

c)            New standards, amendments and interpretations issued but not yet effective and not early    

                adopted

 

A number of new standards are effective for annual periods beginning after 1 January 2019 and earlier application is permitted; however, the Group has not early adopted the new or amended standards in preparing these consolidated financial statements.

 

The following amended standards and interpretations are not expected to have a significant impact on the Group's consolidated financial statements:

·    Amendments to References to Conceptual Framework in IFRS Standards;

·    Definition of a Business (Amendments to IFRS 3);

·    Definition of Material (Amendments to IAS 1 and IAS 8); and

·    IFRS 17 Insurance Contracts.

 

d)            Basis of consolidation

 

The financial statements comprise the results of the Company and its subsidiaries as set out in note 13. Subsidiaries in which the Company has the ability to exercise control are fully consolidated. Control is defined as having exposure, or rights, to variable returns due to involvement in an investee and the ability to affect those returns.

 

Inter-company transactions, balances and unrealised gains and losses on transactions between Group companies are eliminated. The accounting policies of the subsidiaries are consistent with those of the Company.

 

e)            Going concern

The Group had €1,069,312 current assets at 31 December 2019, the majority of which was held as cash and cash equivalents at underlying subsidiaries.

 

Subsequent to the year-end the Group has raised additional funding through a share capital raise in order to further the development of the Company's real estate portfolio. As part of their going concern assessment, the Board of Directors have reviewed cash flow forecasts reviewed for the 12 months from the date these financial statements were signed. Further details are given in note 23.

 

Accordingly, the Directors have a reasonable expectation that the Company and the Group will continue in operational existence for the foreseeable future, and for a period of at least 12 months from the date of signing of these financial statements. Therefore, the financial statements have been prepared as a going concern.  

 

f)             Functional and presentation currency

(i)           Functional and presentation currency

 

Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates (the 'functional currency'). The consolidated financial statements are presented in Euros, which is the Company's presentational currency. The functional currency of each entity within the Group is a key judgement of management and the Directors. This judgement prioritises primary factors, such as the source of competitive forces and the denomination of sales prices and input costs, over secondary considerations such as the source of financing, in accordance with IAS21. These considerations indicate that the functional currency of the Bulgarian entities is Bulgarian Lev and the functional currency of the holding companies is the Euro.

 

(ii)          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 profit or loss. Non-monetary items carried at fair value, which are denominated in foreign currencies, are translated at the rates prevailing at the date when the fair value was determined, and the gain or loss is recognised in the profit or loss. 

 

(iii)         Foreign operations

 

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

 

·     assets and liabilities are translated to Euro at exchange rates at the reporting date;

·     income and expenses 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 dates of the transactions); and

·     all resulting exchange differences are recognised as a separate component of Other Comprehensive Income.

 

When a foreign operation is sold, such exchange differences are recognised in the Consolidated Statement of Comprehensive Income as part of the gain or loss on sale.

 

g)            Fair value measurement principles

 

The Group measures its investments in properties at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either in the principal market for the asset or liability or, in the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible to the Group.

 

The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. The fair value for financial instruments traded in active markets at the reporting date is based on their mid quoted price or binding dealer price quotations, without any deduction for transaction costs. Securities defined in these accounts as 'listed' are traded in an active market.

The valuations of investment properties are performed by an external accredited independent valuer with recognised and relevant professional qualifications and with recent experience in the location and category of the investment property being valued. The valuations are prepared in accordance with the RICS Valuation - Global Standards, which incorporate the International Valuation Standards ("IVS") and the RICS UK Valuation standards (the "RICS Red Book"), as set out by the International Valuation Standards Council ("IVSC"), taking into consideration the relevant IFRS 13 requirements. In arriving at their estimates of market values, the valuers have used their market knowledge and professional judgement and not only relied on historical transactional comparables. Properties are valued annually.

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

·   Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities.

·   Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value     

      measurement is directly or indirectly observable.

·   Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value  

measurement is unobservable.

h)          Impairment of financial assets

 

The Group assesses at each reporting date whether a financial asset is impaired. A financial asset is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that have occurred after the initial recognition of the asset and that loss event has an impact on the estimated future cash flows of the financial asset that can be reliably estimated.

 

If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the assets' carrying amount and the present value of estimated future cash flows discounted using the asset's original effective interest rate.

 

i)             Interest income

 

Income on investments is recognised on an accruals basis.

 

j)             Revenue recognition

 

Revenue includes mainly fees from camping reservations. Such fees are recognised in income when received and in the period that the company reservation has occurred.

 

k)            Expenses

 

Expenses are accounted for on an accruals basis. The Group's property operating expenses, administration fees, finance costs and all other expenses are charged to the profit or loss. Transaction costs directly attributable to the purchase of investment property are included within the cost of the property.

 

l)             Loans payable at amortised cost

 

Loans payable are recognised on an amortised cost basis. Loans payable are recognised when cash is received from lenders and are derecognised when the cash, and related interest, has been repaid. Loans payable are initially recorded at fair value plus any directly attributable transaction costs and are subsequently measured at amortised cost using the effective interest method.

 

m)          Cash and cash equivalents

 

Cash and cash equivalents comprise cash on hand, cash held at the bank and demand deposits.

 

Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and that are subject to an insignificant risk of changes in value.

 

n)            Trade and other receivables

 

Trade receivables are non-derivative financial assets with fixed or determinable payment terms that are not quoted in an active market. The carrying value of trade receivables approximates their fair values. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables.

 

o)            Investment properties

 

Property that is held for rental yields or for capital appreciation or both is classified as investment property. Investment property comprises freehold land, freehold buildings, and land held under long term operating leases. Investment property is measured initially at its cost, including related transaction costs and subsequently revalued annually to fair value.  

 

Investment property that is being redeveloped for continuing use as investment property or for which the market has become less active continues to be measured at fair value.

Investment properties are accounted for on completion of contract when ownership is recorded in the trade registry.

p)            Taxation

 

The tax expense represents the sum of the tax currently payable and deferred tax.

 

Current tax is payable on taxable profits for the year. Taxable profit differs from net profit as reported in the Consolidated Statement of Comprehensive Income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting date.

 

Current taxes include irrecoverable withholding tax on the interest receivable on loans from the Company to its Bulgarian subsidiaries.

 

Deferred tax is recognised in respect of all temporary differences that have originated but not reversed at the reporting date, where transactions or events that result in an obligation to pay more tax in the future or right to pay less tax in the future have occurred at the reporting date. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be sufficient profits from which the future reversal of the temporary differences can be deducted.

 

q)            Trade and other payables

 

Trade and other payables are recognised at amortised cost and relate to amounts accrued in the normal course of business which are payable within one year.



 

r)             Share capital

 

Ordinary share capital

 

Ordinary shares are classified as equity. External costs directly attributable to the issue of new shares are deducted from the proceeds of issue and shown as a deduction to reserves.

 

Founder shares

 

Founder shares are classified as equity.

 

s)            Acquisition of businesses

 

The acquisition method of accounting is used to account for business combinations by the Group.

 

The consideration transferred for the acquisition of a subsidiary comprises the fair value of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred also includes the fair value of any contingent consideration arrangement and the fair value of any pre-existing equity interest in the subsidiary. Acquisition-related costs are expensed as incurred.

 

t)             Financial instruments

 

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another.

 

(i) Financial assets

 

Financial assets are classified at initial recognition. The classification of financial assets at initial recognition that are debt instruments depends on the financial asset's contractual cash flow characteristics and the Group's business model for managing them. The Group initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs.

 

In order for a financial asset to be classified and measured at amortised cost or fair value through other comprehensive income ("OCI"), it needs to give rise to cash flows that are solely payments of principal and interest ("SPPI") on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level.

 

Classification and measurement is based on both whether contractual cash flows are solely payments of principal and interest; and whether the debt instrument is held to collect those cash flows. In the case of the Company or Group, all financial assets meet this criteria and so are held at amortised cost.

 

Impairment of financial assets

 

IFRS 9's impairment requirements use more forward-looking information to recognise expected credit losses ("ECLs") - the ECL model. This replaces IAS 39's 'incurred loss model'.

 

ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted at the original effective interest rate ("EIR"). The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.

 

ECLs are recognised in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12 months (a '12-month ECL'). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a 'lifetime ECL').

 

For trade receivables and contract assets, the Group applies a simplified approach in calculating ECLs. Therefore, the Group does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date.

 

It is the Group's policy to measure ECLs on such instruments on a 12-month basis.

 

(ii) Financial liabilities

 

Financial liabilities are classified, at initial recognition, as financial liabilities at amortised cost. The Group's financial liabilities include trade and other payables and loans.

 

Subsequent measurement

 

Loans and borrowings and trade and other payables

 

After initial recognition, interest-bearing loans and borrowings and trade and other payables are subsequently measured at amortised cost using the EIR method. Gains and losses are recognised in profit or loss and OCI when the liabilities are derecognised, as well as through the EIR amortisation process.

 

Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included as finance costs in the statement of profit or loss and other comprehensive income.

 

This category generally applies to trade and other payables.

 

Derecognition

 

A financial liability is derecognised when the associated obligation is discharged or cancelled or expires.

 

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in profit or loss and other comprehensive income.

 

3)         Significant accounting judgements, estimates and assumptions

 

The preparation of the Group's financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts recognised in the financial statements and disclosure of contingent liabilities. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability affected in future periods.

 

The Group based its assumptions and estimates on parameters available when the financial statements were prepared. However, existing circumstances and assumptions about future developments may change due to market changes or circumstances arising beyond the control of the Group. Such changes are reflected in the assumptions when they occur.

 

A key judgement area for the Group is the valuation of investment properties. External independent valuers assessed the fair value of investment properties. The valuations are performed by a recognised valuer with a relevant professional qualification and recent experience in the location and category of the investment properties as described in note 2g. Details of investment properties held at fair value can be found in note 8.

 

The investment properties are valued annually.  The Directors consider any relevant movements in property markets that may impact the carrying values of the property held between the date of the last valuation and the date of financial statements.

 

Another key judgement area for the Group is the fair value of trade and other receivables including the Camp South Beach EOOD ("CSB") acquisition reversal detailed in note 6. Impairments of trade receivables are assessment in accordance with note 2h.

4)            Net operating income

 

 

Year ended


Year ended



31 Dec 2019


31 Dec 2018


 


Camping reservations

 

670,723

 

433,410

Property operating expenses


(487,134)


(382,146)



183,589


51,264

 

All income during the year is primarily due to camping reservations from CSB - see note 8.

 

5)            Administration and other expenses

 

Year ended

 

Year ended

 

31 Dec 2019

 

31 Dec 2018

 

 

Directors' remuneration

81,039

 

84,247

Administration fees - Isle of Man

48,491

 

47,334

Administration fees - Jersey

17,685

 

39,358

Administration fees - Bulgaria

379,826

 

126,464

Legal and professional fees

123,232

 

19,361

Auditor's remuneration

43,477

 

32,404

Foreign currency expenses

3,920

 

4,295

Registrar fees

2,970

 

2,212

Broker fees

33,961

 

33,933

Other administration and professional fees

243,127

 

238,991

 

977,728

 

628,599

 

In 2019, key management personnel comprise the Board (2018: The Board). The Board's compensation comprised Directors' fees only during the year, the amount of which is summarised within the Directors' Report.

 

6)            Finance income/(expense)

 

The following amounts have been included in the Consolidated Statement of Comprehensive Income line for the reporting periods presented:

 

Other income

Year ended


Year ended


31 Dec 2019


31 Dec 2018



Interest income - cash and deposit instruments

271,551


420,847

Reversal of fair value adjustment of CSB acquisition receivable balance

1,046,962


-


1,318,513


420,847

 

On 2 January 2018, the Company through its owned subsidiary, BSPF Project 1 EAD, acquired CSB including all its assets and liabilities. A bargain purchase on acquisition was recognised for the year ended 31 December 2018 of €3,759,352 after fair value adjustments to the acquired assets and liabilities including the carrying value of the receivable that was acquired. At 31 December 2019 the fair value of the remaining receivable balance has been reassessed and an increase in the fair value of €1,046,962 has been recognised.

 



 

Interest payable and similar charges

Year ended


Year ended


31 Dec 2019


31 Dec 2018



Interest expense on borrowings *

628,996


717,206

Amortisation of bank loan arrangement fee

23,440


23,440


652,436


740,646

*The interest on borrowings relates mainly to the secured debt funding on note 12.

7)            Taxation

 

Isle of Man

 

There is no taxation payable on the Company's or its Jersey subsidiaries' results as they are based in the Isle of Man and in Jersey respectively where the Corporate Income Tax rates for resident companies are 0% (2018: 0%). Additionally, neither the Isle of Man nor Jersey levies tax on capital gains.

 

Consequently, shareholder's resident outside of the Isle of Man and Jersey will not incur any withholding tax in those jurisdictions on any distributions made to them.

 

Bulgaria

 

Subsidiaries of the Company incorporated in Bulgaria are taxed in accordance with the applicable tax laws of Bulgaria. The Bulgarian corporate tax rate for the year was 10% (2018: 10%).

 

No deferred tax assets are recognised on trading losses in the subsidiary companies as there is significant uncertainty as to whether sufficient future profits will be available in order to utilise these losses.

 

A reconciliation of the tax charge for the year to the standard rate of corporation tax for the Isle of Man of 0% (2018: 0%) is shown below.


Year ended


Year ended


31 Dec 2019


31 Dec 2018



Profit before tax

4,455,632


2,364,337





Profit on ordinary activities multiplied by the standard rate in the Isle of Man of 0% (2018: 0%) 

-


-

Effect of different tax rates in other countries

6,285


(85,309)

Deferred tax liability on fair value uplift of investment property

384,893


61,664

Current charge for the year

391,178


(23,645)





Bulgarian tax losses brought-forward at 10%

(750,356)


(773,649)

Tax losses utilised in the year    

391,178


23,293

Bulgarian tax losses carried-forward at 10%

(359,178)


(750,356)

 

Deferred tax liability




Opening deferred tax liability balance

1,509,773


42,879

Deferred tax liability on fair value uplift of investment property on acquisition of a subsidiary

-


1,528,558

Bulgarian deferred tax liability charge

391,178


(61,664)

Reclassification of prior year balance

2,833


-

Closing deferred tax liability balance

1,903,784


1,509,773

 



 

8)            Investment properties


Year ended


Year ended


31 Dec 2019


31 Dec 2018



Beginning of year

27,566,766


11,229,740

Acquisition

1,065,723


16,294,872

Additions

2,788,744


540,035

Fair value adjustment

4,564,767


(497,881)

Total investment property

35,986,000


27,566,766





Ivan Vazov 1 Building

11,329,000


11,322,000

CSB

16,260,000


16,244,766

Byala land

8,397,000


-

Total investment property

35,986,000


27,566,766

On 27 December 2019, the Company signed a settlement agreement (the "Agreement") for the cancellation of the sale of 23 plots of land in Byala ("Plots of land"). The former management of the Company had previously agreed to the sale of the Plots of Land in 2014 at a consideration of €1,020,000 VAT included, being a price level significantly under the then market valuation. Under the terms of the Agreement the transfer agreement for the ownership of the Plots of Land was rescinded and is restored to the Company. The Company paid a net cost of €1,065,723, which included legal costs, for the return of the Plots of Land.

The valuations of the properties at 31 December 2019 and 31 December 2018 were based on the most recent independent valuation received for each property. The valuations were performed by external accredited independent valuers with recognised professional qualifications and with recent experience in the location and category of the investment properties being valued.

The fair value of completed investment property has been determined on a market value basis in accordance with the RICS "Red Book". In arriving at their estimates of market values, the valuers have used their market knowledge and professional judgement, historical transactional comparables and discounted cash flow forecasts.  The highest and best use of the investment properties is not considered to be different from its current use.

The cost of the investment properties comprises their purchase price and directly attributable expenditure. Directly attributable expenditure includes professional fees for legal services and stamp duty land tax.

9)            Trade and other receivables


As at


As at


31 Dec 2019


31 Dec 2018



Trade receivables*

345,657


566,263

Prepayments

5,710


-


351,367


*All amounts are due within one year. The expected credit losses (ECL) for this amount is nil.

 

10)          Cash and cash equivalents


As at


As at

                                                                                                                                  

31 Dec 2019


31 Dec 2018



Cash in hand

647


322,446

Cash at bank

717,298


3,375,793


717,945


3,698,239

 

Cash and cash equivalents comprise cash on hand, cash held at the bank and demand deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and that are subject to an insignificant risk of changes in value. None of the Group's cash balances are restricted.

 

11)          Trade and other payables


As at


As at


31 Dec 2019


31 Dec 2018



Trade creditors

482,494


234,261

Other payables

14,190


-


496,684


234,261

 

12)          Bank loans

 

As at


As at

 

31 Dec 2019


31 Dec 2018



Loan from UniCredit (a)

6,980,477


6,975,121

Central Cooperative Bank (b)

10,212,566


11,109,724


17,193,043


18,084,845

Long term bank loans

8,326,534

 

16,535,339

Current bank loans

8,866,509

 

1,549,506

 

Reconciliation of bank loans


 

 

Beginning of year (gross loan)

18,084,845


7,000,000

Acquisition

-


11,348,251

Bank loan arrangement fees (amortised)/capitalised

23,440


(42,963)

Interest charged

652,436


740,646

Principal repayments

(897,829)


(240,370)

Interest payments

(669,849)


(720,719)

Value at end of year

17,193,043


18,084,845

 

(a)    In October 2017, the Company entered into a secured debt funding of €7 million from UniCredit Bulbank AD ("UniCredit"), a leading Bulgarian commercial bank which was used to complete the acquisition of the Ivan Vazov 1 Building. The debt funding from UniCredit is secured by a commercial mortgage on the property valued at €11,329,000 (see note 8). The term of the debt funding is thirty-six months from date of execution of the loan documentation. The repayment shall be made as a one-off payment on the repayment deadline. At the date these financial statements were signed the Company was in the process of renegotiating an extension of the credit repayment period by 12 months.

 

The interest on the loan is the internal interest percentage by the bank plus 3.00%. The interest rate cannot be lower than 3.00%. At year-end date the applicable annual interest rate of the loan is 3.05%.

 

(b)   Central Cooperative bank loan and overdraft


As at


As at


31 Dec 2019


31 Dec 2018



Central Cooperative Bank overdraft (i)

667,102


664,474

Central Cooperative bank overdraft (ii)

7,837,176


8,569,252

Central Cooperative bank investment loan (ii)

1,708,288


1,875,998


10,212,566


11,109,724

 

(c)    This is an overdraft with Central Cooperative Bank. The interest on the account is 4.00% and repayable on 24 June 2020. At the date these financial statements were signed the Company was in the process of renegotiating an extension of the credit repayment period by 12 months.

(i)     The interest rate on the overdraft and the investment loan is 3.6%. The maturity date for both the overdraft and the investment loan is 21 January 2028.

 

13)          Details of Group undertakings

 

The Group holds 20% or more of the nominal value of any class of share capital in the following investments:

 


Share-holding

Nature of Business

Country of Incorporation

Held directly:




BSPF (Property 2) Limited

100%

Property investment

Jersey

BSPF (Property 3) Limited

100%

Property investment

Jersey

BSPF (Property 4) Limited

100%

Property investment

Jersey

BSPF (Property 5) Limited

100%

Property investment

Jersey

BSPF (Property 6) Limited

100%

Property investment

Jersey

BSPF Project 1 EAD

100%

Property investment

Bulgaria

BSPF Super Borovetz EAD

100%

Property investment

Bulgaria

BSPF Bulgaria EAD

100%

Investment property

Bulgaria

Held indirectly:




Camping South Beach EOOD

100%

Property investment

Bulgaria

 

BSPF (Property 3) Limited and BSPF (Property 6) Limited are both dormant companies.

 

Subsequent to the year end the Company successfully completed the acquisition of 100% of European Convergence Development (Cayman) Limited ("ECD Cayman") and ECD Management (Cayman) Limited ("ECD Management") and 29% of European Convergence Development Company PLC, Isle of Man ("ECDC"), see note 23 for further details.

 

14)          Issued share capital


As at


As at


31 Dec 2019


31 Dec 2018

Authorised

Number


Number





Founder shares of no par value

10


10

Ordinary shares of no par value

Unlimited


Unlimited







Issued and fully paid




2 Founder shares of no par value (2018: 2)

-


-

1,269,407,896 ordinary shares of no par value (2018: 1,269,407,896)

64,774,886


64,774,886

The Founders shares do not carry any rights to dividends or profits and on liquidation they will rank behind Shares for the return of the amount paid up on each of them. The shares carry the right to receive notice of and attend general meetings, but carry no right to vote thereat unless there are no Participating Shares in issue.

 

Subsequent to the year end the Company successfully completed a share raise of 416,880,162 new ordinary shares of nil par value (at a price of €0.011 per ordinary share, see note 23 for further details.

 

Capital management

 

The Directors consider capital to be the net assets of the Group.

 

The capital of the Company will be managed in accordance with the Investment Strategy documented on the Company's website.



 

15)          Reserves

 

The following describes the nature and purpose of each reserve within equity:

 

Retained earnings - The retained earnings represent cumulative net profits and losses recognised in the Group's statement of comprehensive income.

 

Foreign currency translation reserve - Exchange differences relating to the translation of the results and net assets of the Group's foreign operations from their functional currencies to the Group's presentation currency (i.e. Currency Units). The Bulgarian subsidiaries' functional currency is the Bulgarian Lev which is pegged to the Euro at 1 EUR = 1.95583 BGN, hence there is no movement of foreign currency translation reserve during the year.

 

16)          Profit and Net Asset Value per share

 

Profit per share

 

The basic profit per ordinary share is calculated by dividing the net profit attributable to the ordinary shareholders of the Company by the weighted average number of ordinary shares in issue during the year.

 

 

As at

 

As at

 

31 Dec 2019

 

31 Dec 2018

 

 

Profit attributable to owners of parent (€)

4,064,454

 

2,340,692

Weighted average number of ordinary shares in issue

1,269,407,896

 

1,269,407,896

Basic profit per share (cents)

0.32

 

0.18

 

 

 

 

The Company has no dilutive potential ordinary shares; the diluted earnings per share is the same as the basic earnings per share.

 

 

 

 

Net asset value per share

 

 

 

 

As at

 

As at

 

31 Dec 2019

 

31 Dec 2018

Net assets attributable to owners of the parent (€)

16,066,843

 

12,002,389

Number of ordinary shares outstanding

1,269,407,896

 

1,269,407,896

Net Asset Value per share (cents)

1.27

 

0.95

17)          Segmental analysis

 

IFRS 8 Operating Segments requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segments and to assess their performance.

 

Other than the previous investments in money market funds in the UK, the Group is organised into one main operating and reporting segment focusing on investment in the Bulgarian property market.

 

No additional disclosure is included in relation to segmental reporting as the Group's activities are limited to one operating and reporting segment.

 

18)          Contingencies and commitments

There are no contingencies or commitments outstanding at 31 December 2019 (2018: nil).



 

19)          Directors' interests

 

Total compensation paid to the Directors during the period was €81,039 (2018: €84,247). Outstanding Directors' fee was €41,919 (2018: €8,280).

 

20)          Ultimate controlling party

 

The Directors consider that there is no controlling or ultimate controlling party of the Group.

 

21)          Financial risk management objectives and policies

 

The Group's financial instruments comprise cash and cash equivalents, receivables and payables that arise directly from its operations, for example, in respect of sales and purchases awaiting settlement, and receivables for accrued income. All of the Group's financial instruments are loans and receivables. The main risks the Group faces from its financial instruments are (i) market price risk (comprising currency risk, interest rate risk and other price risk), (ii) liquidity risk and (iii) credit risk.

 

The Board regularly considers risks applicable to the portfolio.

 

As a result of the short term nature of the Group's financial instruments, the carrying values approximate to fair value.

 

i.    Currency risk

 

The functional and presentational currency of the Group is Euros. The Group does not hedge this risk.

 

An analysis of the Group's currency exposure is detailed below:

 

 

GBP

EUR

EUR

Bulgarian LEV

Total

As at 31 December 2019

Investment property

-

-

35,986,000

35,986,000

Trade and other receivables

6,322

-

345,045

351,367

Cash and cash equivalents

245

493,288

224,412

717,945

Trade and other payables

(112,714)

(212,155)

(171,815)

(496,684)

Deferred tax liability

-

-

(1,903,784)

(1,903,784)

Shareholder loans

-

(1,394,958)

-

(1,394,958)

Bank loans

-

(7,000,000)

(10,193,043)

(17,193,043)

Net exposure

(106,147)

(8,113,825)

24,286,815

16,066,843


 

 

 

 

 

GBP

EUR

Bulgarian LEV

Total

As at 31 December 2018

Investment property

-

-

27,566,766

27,566,766

Trade and other receivables

4,209

-

562,054

566,263

Cash and cash equivalents

156,046

795,472

2,746,721

3,698,239

Trade and other payables

(132,543)

-

(101,718)

(234,261)

Deferred tax liability

-

-

(1,509,773)

(1,509,773)

Bank loans

-

(7,000,000)

(11,084,845)

(18,084,845)

Net exposure

27,712

(6,204,528)

18,179,205

12,002,389

 

Foreign currency sensitivity

 

The Bulgarian lev has been pegged to the Euro since its launch in 1999 at the rate of 1.95583 leva = 1 euro, hence effectively there is no foreign currency risk as long as the peg is in place. If the EUR/GBP exchange rate as at 31 December 2019 was to strengthen or weaken by +/-10% it would result in a decrease or increase respectively in the net liabilities of €10,615 (2018: a decrease or increase in net assets of €2,771).

 

ii.  Credit risk

 

Credit risk arises on investments, cash balances and debtor balances. The amount of credit risk is equal to the amounts stated in the statement of financial position for each of these assets. Cash balances are limited to high-credit-quality financial institutions. There are no impairment provisions as at 31 December 2019 (2018: nil).

The allowance for expected credit losses (ECLs) are nil.

iii.    Interest rate risk

 

Interest rate movements may affect: (i) the fair value of the investments in fixed interest rate securities and (ii) the level of income receivable on cash deposits. There are no fixed interest rate securities as at 31 December 2019 or 31 December 2018. The interest rate profile of the Group's financial instruments excluding other receivables was as follows:

 

Variable rate


Non-interest bearing


Total




As at 31 December 2019


 

 

 

 

Trade and other payables

-


(496,684)


(496,684)

Trade and other receivables

1,211


350,156


351,367

Cash and cash equivalents

1,742


716,203


717,945

Shareholder loans

(1,394,958)


-


(1,394,958)

Bank loans

(17,193,043)


-


(17,193,043)


(18,585,048)


569,675


(18,015,373)

As at 31 December 2018


 

 

 

 

Trade and other payables

-


(234,261)


(234,261)

Cash and cash equivalents

3,698,239


-


3,698,239

Bank Loans

(17,463,334)


-


(17,463,334)


(13,765,095)


(234,261)


(13,999,356)

Interest rate sensitivity

 

An increase of 100 basis points in interest rates during the year would have decreased the net assets attributable to shareholders and changes in net assets attributable to shareholders by €178,000 (2018: increase €145,000). A decrease of 100 basis points would not be possible because an interest rate floor has been set with loan providers which is currently in operation.

iv.     Liquidity risk

 

'Liquidity risk' is the risk that the Group will encounter difficulty in meeting obligations associated with its financial liabilities that are settled by delivering cash or another financial asset.

 

The Group's policy and the Boards approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stress conditions. The Group's financial assets include investment properties, which are generally illiquid. As a result, the Group may not be able to liquidate some of its investments in due time to meet its liquidity requirements. The Group's liquidity is managed on a daily basis by the administrators of the Company and its subsidiaries in accordance with policies and procedures in place. The Group's overall liquidity risk is managed on a monthly basis by the Board of Directors.

 

The following table sets out the carrying amount, by maturity, of the Group's financial instruments that are exposed to liquidity risk:

 

 

< 1 year

1-5 years

> 5 years

Total

As at 31 December 2019

Trade and other payables

(493,105)

(3,579)

-

(496,684)

Shareholder loans

(1,394,958)

-

-

(1,394,958)

Bank loans and interest

(8,886,032)

(4,516,435)

(3,810,099)

(17,212,566)

 

(10,774,095)

4,520,014

(3,810,099)

(19,104,208)

 

 

 

 

 

As at 31 December 2018

 

 

 

 

Trade and other payables

(234,261)

-

-

(234,261)

Bank loans and interest

(2,206,313)

(12,670,302)

(6,408,719)

(21,285,334)

 

(2,440,574)    

 (12,670,302)    

 (6,408,719)    

 (21,519,595)    

 

22)          Related party transactions

 

During the financial year the Group was provided with an unsecured loan facility. The balance on the loan facility at 31 December 2019 was €1,394,958. Interest on borrowed amounts is calculated on the 3 months' Euro Interbank Offered Rate plus 2.5% per annum and the amount of interest accrued and unpaid at 31 December was €640.

 

In July 2017, the Company appointed Phoenix Capital Management JSC as its investment adviser with responsibility for advising on the investment of the Company's property portfolio. Phoenix Capital Holding JSC owns 79.99% of the Phoenix Capital Management JSC shares. Phoenix Capital Holding JSC, through its wholly owned subsidiary Mamferay, holds 28.18% (2018: 28.18%) of the issued share capital of the Company. Phoenix Capital Management JSC received fees of €214,272 (2018: €214,272). The amount outstanding as at year-end is €160,704 (2018: €53,568).

 

Yordan Naydenov is a Director of the Company and a partner with Boyanov & Co, a legal adviser to the Company. During the year, Boyanov & Co received fees of €86,010 (2018: €7,700). The amount outstanding as at year-end is €51,451 (2018: € nil).

 

23)          Subsequent events

 

Cash placing and debt to equity conversion

On 20 January 2020 the Company performed a share placing and simultaneous debt to equity conversion. The overall amount raised before expenses was €4,585,682, through a placement of 416,880,162 new ordinary shares of nil par value (the "Placing Shares") at a price of €0.011 per Ordinary Share (the "Placing").

In addition to the Placing, Mamferay Holdings Limited ("Mamferay") agreed to convert all its outstanding loans being €1,397,391 including interest, into 127,035,545 ordinary shares at €0.011 per share (the "Loan Shares").

 

ECDC Group acquisition

On 25 February 2020 the Company successfully completed the acquisition of 100% of ECD Cayman and ECD Management. The consideration paid for ECD Cayman and ECD Management in total was €3,582,639. Both companies are subsidiaries of ECDC.

 

The Company also signed agreements for the acquisition of 29.85% of ECDC at a price per share equal to the net asset value of the shares of €0.00168 or a total of €44,855.

 

The main rationale for the acquisition of interests in ECDC Group includes: the opportunity to add two development plots suitable for logistics/industrial development (the site in Plovdiv) and residential, commercial or hospitality development (the site in Kraimorie), thus diversifying BSP portfolio. Both ECD Cayman and ECDC have established structures in place that will save time and costs for future investments.

Under IFRS 3 Business combinations the following disclosure is required for acquisitions made subsequent to the yearend which has not been included in these financial statements:

·      details of the goodwill;

·      the fair value of consideration and details of contingent consideration;

·      details of acquired receivables;

·      details of assets acquired and liabilities assumed;

·      details of contingent liabilities recognised; and

·      details of bargain purchases.

 

The above disclosure has not been made because at the date of issuance of these financial statements initial accounting for the business combination is incomplete.

 

Change in registered office address

With effect from 9th March 2020 the Company changed its registered office to 55 Athol Street, Douglas, Isle of Man, IM1 1LA.

 

COVID-19

On the 11 March 2020, the World Health Organisation declared COVID-19 a global pandemic. Given the uncertainty with respect to the duration and severity of COVID-19 and its related economic impacts, the Board have given careful consideration to assumptions and judgments made in relation to property valuations and forecasted revenues.

 

Cash flow forecasts have been updated for the expected impact of the pandemic and reviewed by the Board of Directors as part of their assessment of the Group's going concern, see note 2e. The extent of the financial impact of COVID-19 on the Group at this stage is still unknown, and the Group will monitor the situation closely.

 

Subsequent to the yearend CSB's occupancy rates have been significantly impacted by the closure of all non-essential businesses in Bulgaria from 13 March 2020. The Bulgarian government lifted this state of emergency on 13 May 2020 and immediately replaced it with an "extraordinary epidemic situation". Internal travel is now permitted, subject to strict regulations in the hospitality segment.

 

The holiday summer season started at the beginning of July. It is not expected that occupancy levels which were achieved in the year ended 31 December 2020, however Directors expect CSB to benefit from the increased move within the Bulgarian hospitality market towards camping holidays in local markets which allow for social distancing while holidaying within the country.

 

 

 


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