Annual Report and Financial Statements 31 March 2007
CONTENTS
Directors and Administration……...... 2
Summary Sheet……………………...... 3
Chairman’s Statement……………...... 4
About the Company………………...... 5 - 7
About Cuba…………………………...... 8 - 13
Investment Review…………………...... 14 - 17
Schedule of Investments…………...... 18 - 19
Directors’ Report……………………...... 20 - 22
Financial Statements………………...... 23 - 39
The opinions expressed in the sections “About Cuba” and “Investment Review” are those of the Investment Manager. The Investment Review is included in this Annual Report to provide background information to Shareholders. The information is selective and should not be used as the basis of a decision to buy or sell any particular security. Much of the information, statistics and forecasts contained in the Investment Review has been obtained or extracted from published sources and documents but no attempt has been made to verify the accuracy of such data. Information relating to Cuba may be incomplete and unreliable. Investment in Cuba may involve greater than normal risk and is not suitable for unsophisticated investors. Past performance is not a guide to future performance.
1 DIRECTORS AND ADMINISTRATION
REGISTERED OFFICE Frances House, Sir William Place St Peter Port, Guernsey GY1 4HQ Tel. +44 (1481) 723573 Fax +44 (1481) 732131
REGISTRATION NUMBER 30083
INVESTMENT MANAGER ZAPA International Management Ltd. c/o CEIBA Property Corporation Ltd. Miramar Trade Center, Ed. Barcelona, Suite 401 5th Avenue, between 76 and 78, Miramar, Playa Havana, Republic of Cuba Tel. +53 (7) 2047934 Fax +53 (7) 2047935
ADMINISTRATOR, REGISTRAR, CUSTODIAN AND SECRETARY Bachmann Fund Administration Limited Frances House, Sir William Place St Peter Port, Guernsey GY1 4HQ
PRINCIPAL BANKER Barclays Private Clients International Limited Le Marchant House, Le Truchot St Peter Port, Guernsey GY1 3BE
LEGAL ADVISORS Maclay, Murray & Spens Solicitors 5 Old Bailey EC 4M 7JX London, England
INDEPENDENT AUDITORS PricewaterhouseCoopers CI LLP, Guernsey National Westminster House Le Truchot, St Peter Port, Guernsey GY1 4ND
DIRECTORS Sir John Morgan (Chairman) Colin Kingsnorth Sebastiaan A.C. Berger Jaime García-Andrade Federico Spinola Martin Lancaster (Appointed 10 July 2006) Peter Fletcher (Appointed 21 February 2007) Enrique Rottenberg (Appointed 21 February 2007)
2 SUMMARY SHEET
31 March 2007 31 March 2006
Total Net Assets (Company) € 75,614,289 € 54,398,817
Shares in Issue 102,732,188 75,006,523
Net Asset Value per Share € 0.7360 € 0.7251
Dividends for the Year Nil* € 3,079,613*
Yield 7.2% 6.5%
* The 2005/2006 year-end dividends were declared on 18 May 2006 and are not included in the NAV per Share as at 31 March 2006 (See note 7 of the Financial Statements).
COMPANY NAV/SHARE PLUS DISTRIBUTED DIVIDENDS (March 2003 - March 2007)
COMPANY NET ASSET VALUE (March 2003 - March 2007)
3 CHAIRMAN´S STATEMENT
Dear Shareholders,
I believe that it is fair to say that, as a result of years of hard work, a rigorous professional approach and the development of an excellent relationship with the Cuban authorities, CEIBA Investments Ltd. (“CEIBA Investments” or the “Company”) is presently considered to be the leading foreign investor in Cuba’s commercial real estate sector.
In particular, as a result of various transactions executed by the Company during the past financial year, CEIBA Investments is now the controlling shareholder in the foreign partner of Inmobiliaria Monte Barreto S.A., Cuba’s largest real estate joint venture, which has constructed and manages the Miramar Trade Center complex. The successful placing in March 2007 of approximately €16M of new capital was used in part to pay for this acquisition. The latest Placing was oversubscribed and almost entirely taken up by existing shareholders.
In the year since the illness of Fidel Castro was first announced, Cuba has maintained a high degree of social and political stability, to the surprise of many. Although significant uncertainty continues to surround the future role that Fidel will play in the country, it is looking more and more likely that the provisional team led by Raúl Castro and other senior ministers will remain in control of day-to-day government affairs and that this team will generally adopt a more favourable view towards renewed foreign investment as a means to drive the Cuban economy forward. We believe that the Company will be uniquely positioned to take advantage of new opportunities as they arise in this challenging new environment.
Indeed, in recent months, the Company has been able to rapidly advance a number of existing and exciting new projects. Amongst others, advanced negotiations are presently underway regarding the build-out of further phases of the Miramar Trade Center to increase the existing rentable area of approximately 56,000 m2 to over 120,000 m2. The Company is also discussing the incorporation of a new Cuban joint venture company for the construction and management of new office and apartment complexes in Varadero, Cuba’s principal beach resort destination. In addition, the Company has executed a letter of intent regarding the construction and management of a recreational and commercial complex to be constructed on a 15 hectare plot in Varadero, and is presently waiting for the approval of the Cuban authorities for the proposed extension to 50 years of the land surface rights for the TosCuba project, a project for the construction and management of a 292 room beach hotel resort to be located near the city of Trinidad. Numerous other projects are also under development.
In order to carry out these projects and pursue other investment opportunities as they present themselves, it is likely that the Company will, during the course of its present financial year, return to the capital markets to raise substantial new funds. Before doing so, the Company intends to issue to its present shareholders a one-for-one subscription right having a term of three years.
In summary, the Company continues to expand and further improve its already unique position in a very challenging investment market. It is in an excellent position to profit from future developments and is committed to continue to create value for its shareholders.
Your continuing support and confidence in CEIBA Investments Ltd. is very much appreciated.
Sir John Morgan Chairman
4 ABOUT THE COMPANY
Introduction
CEIBA Investments Ltd. (the “Company” or “CEIBA Investments”) is an investment company registered with limited liability under the laws of Guernsey, Channel Islands. The Company was formerly known as CEIBA Finance Ltd. and officially changed its name effective on 12 January 2007. The Company was listed on the Channel Islands Stock Exchange (CISX) on 13 May 2004 (trading symbol CBA). The Company has been listed on the London Stock Exchange service for mid-cap and most AIM listed securities, SEAQ, since 29 July 2004.
On 31 March 2007, the Company had 102,732,188 Shares in issue, having a nominal value of €0.10 per Share. Shares in the Company are issued in certificated form, and may be held and settled through Clearstream. Shares may be purchased and sold through non-US brokers. The Articles of Association of the Company prohibit US Persons (as this term is defined in the US Cuban Assets Control Regulations) from investing in the Company or holding Shares on behalf of third parties.
Investment Policy
At a meeting of the Board of Directors of the Company held on 21 February 2007, the following investment policy of the Company was adopted:
Principal Investment Objective
The principal investment objective of CEIBA Investments is to achieve long-term capital growth from direct and indirect investment in or with Cuban businesses, balanced by current income from interest-bearing financial instruments and other financial transactions and revenue- generating investments primarily related to Cuba.
Investment Policies
The Company may make any investment primarily related to Cuba, but the primary focus of the Company will be to:
make long-term investments in Cuba's real estate sector;
take participations in listed and unlisted companies, joint ventures and other foreign investment vehicles and entities generating substantially all of their revenues from activities related to Cuba, whether incorporated in Cuba or elsewhere;
participate in development projects in Cuba;
arrange and invest in interest-bearing financial instruments and other financial transactions related to Cuba.
The Company may invest with Cuban partners in Cuban and non-Cuban companies, joint ventures and other entities that earn all or a substantial part of their revenues from activities outside Cuba, although such investments will normally be limited to less than 10% of the total assets of the Company, unless with prior Shareholder approval.
All investment decisions relating to the portfolio of the Company will be made by the Investment Manager under the supervision of the Board of Directors of the Company.
5 In the case of direct or indirect equity investments, preference will be given to projects where: ABOUT THE COMPANY there is an experienced foreign or foreign-trained management team;
the Company will have a sufficient interest that will allow the Company to influence management decisions;
accounting, auditing and financial reporting are carried out to an internationally acceptable standard; and
a suitable exit strategy has been identified.
Investments and financial participations may be made in conjunction with Cuban or foreign partners, strategic investors, international banks and financial institutions, without limitation.
The Company may acquire a majority interest in any vehicle or entity. Where the Company holds a significant interest in a company or entity, the Company and the Investment Manager will normally have the power to influence management. Such influence will generally be confined to the provision of strategic advice for the purpose of enhancing the value of the Company’s investments, but may extend to day-to-day management functions where appropriate.
The Company should not knowingly or intentionally invest in any entity that owns or uses property in respect of which there is a material risk of significant liability resulting from an outstanding claim that has been certified by the US Foreign Claims Settlement Commission, or invest directly in any such property.
Liquidity may be maintained at any time in short-term bank deposits, government obligations and other liquid financial instruments, in any currency.
It will not be the policy of the Company to engage in derivates trading, except if practicable and considered appropriate for the purposes of efficient portfolio management and/or currency hedging.
The Company will not make any investment that exposes the Company to unlimited liability.
The Company will hedge its secured and unsecured financial instruments and other liquid financial assets. The Company may, but will not be obliged to, hedge its other investments.
Investment Manager
The investment manager of the Company is ZAPA International Management Ltd. (“ZAPA” or the “Investment Manager”). The foreign professionals of the Investment Manager residing in Cuba include Sebastiaan A.C. Berger, Cameron Young and Enrique Rottenberg.
Net Asset Valuation and Price Information
The Net Asset Value of the Shares is calculated and published on the last day of every calendar month. It is displayed on the official site of the Channel Islands Stock Exchange (www.cisx.com) under the symbol CBA. The price of the Company’s Shares is also displayed on Reuters (JEFFUNDS18 and LCFR14) and Bloomberg (JEFFUNDS and LCFR) as quoted on the London Stock Exchange.
Valuing the Investments
The Company and its subsidiaries will value their investments and other financial assets at cost, unless it is reasonable, based on readily available market prices, transactions involving third- parties, independent valuations or other factors that the Directors, at their full discretion, will deem relevant, to value such investments and other financial assets on the basis of their current fair value taking into account these factors. Significant investments in operational real estate ventures will be valued on the basis of annual independent valuations.
6 Extension of the Life of the Company ABOUT THE At the Annual General Meeting (“AGM”) of the Company held on 9 November 2005, it was COMPANY resolved to extend the life of the Company for a further 5 year period. At the AGM to be convened in the fall of 2007, a proposal will be tabled to revise the provision of the Articles of Association of the Company that requires the Shareholders to extend the life of the Company every 5 years so that such extension will be valid for 10 year periods. If this proposal is approved, the next vote concerning the extension of the life of the Company will be in 2015.
Compulsory Share Transfer Mechanism
US Persons may not hold Shares of the Company.
The Articles of the Company provide that, in the event that the Board becomes aware that Shares of the Company may be held directly or indirectly by a US Person without the Board’s prior authorization, the Board may serve a compulsory transfer notice upon such US Person requiring the compulsory transfer of the relevant Shares of the Company to another person that is not a US Person. If such transfer is not completed within the period specified in the Articles, the Board has the power to cause the compulsory transfer of the relevant Shares to be carried out by the Company, with the proceeds of sale resulting therefrom to be held by the Company for the benefit of the former holder that is a US Person pending delivery of the certificates representing the relevant Shares. The Company may register the new holder of the relevant Shares and issue new certificates representing same, and the former holder will have neither further interest in the relevant Shares nor any claim against the Company, except the right to receive the proceeds of sale upon delivery of the original certificates.
7 ABOUT CUBA
ECONOMY
General
Economic growth in 2006 was reported by the Cuban Government to be 12.5% (using its own GDP formula that differs from standard international methods as regards the valuation of subsidized social services). By contrast, the Economist Intelligence Unit (EIU) estimated GDP growth in 2006 to be 9.5%. Cuba estimated that growth for 2007 would be once again above 10%. The EIU also estimated that economic growth would remain strong in 2007 - above 8%. The difference in these numbers results primarily from the decision by Cuba to value public services at market value rather than cost in calculating GDP.
Cuba reported current-account Gross domestic product % changes, year on year surpluses of approximately USD 1.1 billion and USD 100 million in 2005 and 2006, respectively. Although imports continue to increase steadily and significantly, leading to a rising goods deficit (USD 5.5 billion and USD 6.6 billion in 2005 and 2006, respectively), such increases have been offset by a steady surplus on the services side (USD 6.4 billion in 2005 and USD 6.5 billion in 2006), fueled primarily by the sale of medical and other professional services to Venezuela. The EIU estimates that the balance of payments will remain steady for 2007 at -0.1% of GDP.
The increased confidence of the Government is reflected in the slogan “VAMOS BIEN” (“We are doing well”), which has been displayed on numerous billboards in the city of Havana since 2005. This has been accompanied by a steady increase in social spending (increases of minimum wages and pensions, a 7% revaluation of the CUP against the CUC, the distribution of subsidized electrical goods) as well as major investments in housing, education, healthcare and power generation and distribution throughout 2005 and 2006. The Cuban National Assembly approved significant increases in the CUP budgets for 2006 and 2007. The primary plan for the coming period would appear to be continued improvements in the collective standard of living and increased economic efficiency in the economy. The Government has announced public and social investment for 2007 in the amount of CUP 4.8 billion.
Increased Centralization and Control
In recent years, the Cuban Government has taken a number of steps to recentralize the economy and regain greater control over foreign currency flows.
The Cuban Central Bank (“BCC”) has issued a succession of resolutions since 2001 aimed at increasing the level of control over expenditures by Cuban state companies with a view to optimizing the use of funds. A single account policy for all hard-currency deposits of Cuban companies was established, allowing the BCC to centrally control and allot all financial resources. The general decentralization trend in the financial system of previous years, which saw many new financial entities emerge in the mid-1990s, was largely reversed in recent years, with virtually no new licenses granted to non-banking financial institutions.
8 Foreign Investment Policy ABOUT In recent years, Cuba’s foreign investment policy has evolved towards a “quality” rather than CUBA “quantity” approach. The number of joint ventures with foreign companies in Cuba declined from 403 in 2002 to 236 by the end of 2006. This decline generally results from the liquidation of several non-profitable joint venture companies and partnerships and/or the inability of the foreign party to provide promised investment or finance in some cases. In addition, many smaller foreign trading entities and intermediaries have been affected by the closing of the free trade zones, and many licenses of foreign branch offices have not been renewed. In general, inspections and enforcement actions have increased significantly. This general trend has been attributed to both a “cleaning house” function and a renewed focus on large and strategic foreign partners, preferably from friendly nations, as exemplified by the numerous recent new projects announced in early 2007 with Venezuela. The more selective approach also illustrates Cuba’s higher level of confidence in its present economic position.
Nonetheless, significant levels of foreign investment in key sectors of the Cuban economy, including tourism, telecommunications, oil exploration, power generation, mining, water, cement, food and beverage production and biotechnology remain committed, illustrating Cuba’s present foreign investment strategy of selectively focusing on strategic projects with partners that can commit significant resources, technology, know-how and/or export markets. In the short term, it is expected that conditions will remain stable in these strategic sectors earmarked for expansion, while new investment opportunities in other areas will remain highly restricted.
The trends described above, taken together with the increased structural centralization of all aspects of the economy, further confirm the high present barriers to entry for new investors, unless investing in existing businesses or projects.
However, in the new circumstances created by the provisional transfer of power to a team of senior ministers led by Raúl Castro following the sudden illness of Fidel Castro in late July 2006, there are some signs of a new openness towards foreign investment. Although there remains a significant degree of uncertainty regarding the future role that Fidel will play in Cuba, there is a growing expectation, backed by recent speeches of Raúl Castro, that renewed foreign investment will once again be welcomed.
Tourism
As part of the general process of recentralization of the state economy under the lead of the BCC, the Cuban Ministry of Tourism was significantly restructured during 2004/2005, including a reduction in the number of operating hotel chains and service providers with a view to streamline processes, reducing overheads and fighting corruption and theft.
Growth in Tourist Arrivals
Tourist arrivals decreased by 3.6% in 2006 to 2.22 million (against an increase of 10.6% in 2005). Cuba reported hard currency income from international tourism of CUC 2.1 billion (USD 2.268 billion). It is expected that 2007 will show a further decline in tourist arrivals as a result of a weak first quarter.
9 Daily flights arrive to 11 international airports located throughout Cuba via more than 50 ABOUT international airlines. Cuba reported total capacity of nearly 52,000 rooms at the end of 2006 CUBA (including rooms dedicated to national tourism), with approximately 5,000 new rooms added during the year. Varadero continues to represent the most important destination in Cuba with 16,072 rooms, followed by Havana with 14,205 rooms. Of the total rooms mentioned above, approximately 30,000 have been categorized by Cuba as having 4 or 5 stars.
Residential Real Estate
Residential property was opened to foreign investment and ownership in 1995. A series of condominium projects were constructed in Havana in the years immediately following such opening, and numerous apartments were sold to foreign persons. In April 2000, further development of the residential sector for ownership was suspended and the Cuban partners in existing projects purchased all unsold units for the purpose of commercializing same under rental agreements.
Banking and Finance
Hard currency reserves increased again in 2006 as a result of the bilateral agreements with Venezuela and China, steady tourist arrivals, strong international nickel prices and sustained family remittances. However, Cuba has reported total “active debt” of over USD 7.8 billion at the close of 2006, representing a USD 2.1 billion increase over 2005. Of this total, USD 3.9 billion was reported as official debt, USD 1.4 billion as bank debt and USD 2.5 billion as owed to suppliers. It should be noted that Cuba’s active debt only takes into account the debt that is currently being serviced and does not include non-performing old debt that is presently in default and not being serviced.
The recentralization of financial decision-making in the hands of the Cuban Central Bank over recent years has resulted in continued downward pressure on interest rates, although changes are expected in the Cuban banking and finance sector in 2007 as certain foreign financial institutions are likely to withdraw.
Oil and Gas
Oil and gas production remained stable in 2006 at 57,000 bpd in output for oil and 1,085 billion cubic meters in output for natural gas, representing combined production of 3.9 million tons of oil equivalent (2.9 million tons of oil and 1.0 million tons equivalent of natural gas). This production satisfies approximately half of national consumption according to the Cuban Government, with the remaining half being imported from Venezuela under the existing “oil-for- doctors” agreements and preferential payment terms.
Cuban domestic crude has a Oil and Gas Production (m tons of oil equivalent) high sulfur content, which makes refining more difficult and less efficient. Most Cuban crude oil is burned directly in modified thermoelectric generating plants. Substantial investments are underway to modernize and/or replace some of these major plants by smaller and more efficient generators.
Fifty-nine oil exploration blocks in Cuba’s Gulf of Mexico territory have been made available to foreign partners. Although the US Geological Service estimated that there could be 5 billion barrels of oil in the zone, no significant discoveries have been made so far. Deepwater exploration by overseas partners continues. Chinese, Indian and Norwegian companies entered existing or new deepwater projects in 2005 and 2006. In early 2007,
10 Venezuela announced its participation in a deepwater exploration project involving four blocks, as well as its participation in the completion of the Cienfuegos oil refinery, now ABOUT expected in 2008. CUBA
Mining
Cuba holds vast nickel reserves (estimated to be the second or third largest reserves in the world), and produced nearly 76,000 tons in 2005 (output is expected to be down slightly in 2006 as a result of production bottlenecks). Cuba has not reported nickel output for 2006.
The Canadian company Sherritt International Corporation has been the largest single foreign partner in the mining sector to date, although China and Venezuela have recently announced their intention of investing significant sums in new nickel projects.
POLITICS
General
Numerous television appearances and articles appearing in Cuba’s daily newspaper (Granma) under his name have demonstrated that Cuba’s President Fidel Castro has further recovered from his illness. However, one year later he has not yet appeared in public and with each passing day it becomes less likely that he will resume full day-to-day management responsibilities (Fidel has made it clear that he is consulted on all major questions). It appears that the provisional government led by Raúl Castro is firmly in control and recent speeches have shown a more practical and pragmatic approach to the country’s problems.
Examples of this approach include a currently ongoing general review of the efficiency of all sectors of Cuba’s economy and administration, the fact that Cuba is presently showing a modest re-opening to foreign investment, the implementation of measures aimed at improving the general wellbeing of the Cuban people (the easing of customs restrictions regarding the importation of DVD players, car parts and other items into the country by individuals; rumors regarding the possibility that Cubans may stay in certain hotels and acquire cellular phone numbers; etc.), and references to Vietnam and its economy as a possible role model. Whether Fidel Castro will resume the Presidency and change this new direction remains to be seen.
Politics – US
Although numerous bills aimed at lifting or softening the US Cuban Embargo were introduced following the US congressional elections of November 2006 that resulted in Democratic majorities in both houses of Congress, it appears unlikely that substantial changes will be made to US policy towards Cuba before the Presidential elections in 2008.
Politics – EU
On 18 June 2007, the Council of Ministers of the European Union adopted several decisions regarding Cuba that would appear to open the door for member states to initiate bilateral political dialogue with Cuba and end the so-called "cocktail wars," which began in June 2003 when the EU decided that the embassies of its member states should invite opponents of the Cuban regime under measures to increase pressure on the government in Havana. The EU declaration was hailed as a victory by Spain's foreign minister, Miguel Ángel Moratinos, who visited Cuba in April and met with Raúl Castro. Moratinos welcomed the fact that the EU declaration does not mention European sanctions and said he planned new meetings with the government in Havana in September. In a statement, the British government welcomed the deal, saying that it reaffirmed "the EU's desire for political and economic reform in Cuba”.
The EU will continue to insist that meetings between the EU and Cuban officials be matched by similar contacts with the opposition, although in the past such a policy has been difficult to enforce. Political sanctions will remain frozen, rather than be repealed. But the dialogue marks an attempt by the EU to establish itself as a force in the transition it hopes will take place as
11 Fidel Castro relinquishes his grip on power. In its statement the EU said it would be "ready to resume ABOUT a comprehensive and open political dialogue with the Cuban authorities on all topics of mutual CUBA interest." This should be on a "reciprocal and non-discriminatory basis" and include human rights.
RISK FACTORS
Shareholders and potential investors in the Company should be aware that investment in Cuba involves a high degree of risk and that trading in the Shares of the Company is likely to be limited. Investment in the Company is only suitable for sophisticated investors who understand the nature of these risks.
Country Risk
Cuba remains a socialist country where the government maintains a very high degree of control over economic matters. Cuban government policies may have a significant impact on business in general and the prospects of the Company in particular. There remain a large number of restrictions on the operations of foreign companies and foreign investment vehicles in Cuba and future changes in government policy may adversely affect the Company or its investments in Cuba.
Cuba’s Economy
Although the Cuban economy has shown growth in recent years, continued growth and development will depend, amongst other factors, upon the ability of the Cuban government and people to successfully adapt to new circumstances, upon government support of foreign investments and upon external factors such as world oil and nickel prices, the state of the world tourism market, Cuba’s relationships with its allies Venezuela and China, the tense relationship with the United States and the US Cuban embargo, which has had, and is expected to continue to have, a significant adverse effect on the Cuban economy.
Cuban Law and Commercial Practice
Cuba has adopted a legal and regulatory system that on its face encourages and protects foreign investments. However, Cuba’s legal system and the institutions that implement it are not characteristic of a parliamentary democracy or market economy. As in many other pre-emerging markets, Cuba’s legal and regulatory system is in a formative stage and lacks independent institutional history and regularly observed procedural safeguards. There can be no assurance that previously relaxed controls or regulations will not be re-imposed or that new restrictions will not be imposed in the future. Legal rights of foreign investors may not be enforceable in Cuba to the same extent as they would be in fully developed industrialized states. There is no applicable regulatory regime governing the investment management sector in Cuba.
Accounting Standards and Audits
The Financial Statements of the Company are prepared in accordance with applicable United Kingdom accounting standards and under the historical cost convention as modified by the revaluation of investments. Where possible, the Company applies International Financial Reporting Standards to all subsidiary companies, which are audited by an international audit firm applying these standards to the financial statements. However, a number of companies in which the Company holds a participation are subject to Cuban accounting standards, which differ from internationally-recognized standards. Consequently, the financial information provided by these companies may not be as reliable as financial information prepared by companies in other countries.
Liquidity of Investments and Deadlock
All investments in Cuban joint venture companies and other foreign investment vehicles will generally be illiquid. Significant legislative changes will be required before direct interests in Cuban foreign investment vehicles can be held in a form that can be freely traded. Although the Company generally tries to balance its investment portfolio between debt and equity instruments
12 and generally tries to structure its equity investment in Cuban foreign investment vehicles so as to include a viable exit strategy, this factor may limit the ability of the Company to ABOUT formulate and execute appropriate realization strategies or to realize investments in the short CUBA or medium term. The fact that most of the Cuban foreign investment vehicles are structured as 50/50 partnerships where the Cuban and foreign parties have equal representation on management and other decision-making bodies may give rise to deadlock situations which may have a material adverse effect on the ability of such partnerships to make key decisions affecting operations.
US Cuban Embargo Regulations
The (US) Cuban Assets Control Regulations prohibit US Persons from involvement in any transaction connected with property in which Cuba or a national thereof has any interest of any kind. The use of bank or custody accounts in the US or non-US branches of US banks or custodians for payments or receipts of funds or for the custody of certificates relating to the Shares of Ceiba Investments is therefore not allowed.
It is the policy of the Board that the Company should not knowingly and intentionally invest in a business or venture which owns, uses or controls property in respect of which there is a significant risk of liability as a result of an outstanding claim which has been certified by the US Foreign Claims Settlement Commission.
Currency Risks
The Share capital of the Company is denominated in Euros, and the accounts and net asset value of the Company are calculated and reported in Euros. However, a significant portion of the Company’s investments are reported in US Dollars. In order to mitigate currency risk and any negative effect resulting from movements in the exchange rate between the Euro and the US Dollar, the Company has adopted the policy of hedging its liquid investments in US Dollars.
The Cuban Convertible Peso (“CUC”) is the single currency for all hard currency transactions in Cuba. Its value is presently pegged to the US Dollar at a rate of 1.08. All Cuban State- owned companies operate in CUCs and Cuban Pesos (“CUP”). Foreign companies are presently not allowed to operate in CUCs. The fixed exchange rate between the US Dollar and the CUC may be revalued by the Cuban Central Bank and the CUC may be imposed in all transactions in Cuba. Such an extension of the use of the CUC as the single currency for all transactions and operations in Cuba may adversely affect the direct investments of the Company in Cuba, although Cuba’s Foreign Investment Act guarantees the free repatriation of profits in freely convertible currency.
Dependence on Investment Manager and Key Officers
All investment decisions relating to the portfolio of the Company will be made by the Investment Manager under the supervision of the Board of Directors of the Company.
Key officers of the Investment Manager have significant experience in the structuring, execution and implementation of direct investments and finance transactions in Cuba. The success of the investments of the Company in Cuba may depend to a large extent on such key officers. There can be no assurance that the key officers of the Investment Manager will remain with the Investment Manager or that adequate replacement personnel may be recruited in the event of their departure. The key officers of the Investment Manager include in particular Sebastiaan A.C. Berger, Cameron Young and Enrique Rottenberg.
13 INVESTMENT REVIEW
The Monte Barreto Project
In successive transactions carried out between March 2004 and December 2006, the Company acquired a substantial mixed debt and equity interest in the Cuban joint venture company Inmobiliaria Monte Barreto S.A. (“Monte Barreto”), which was incorporated for the purpose of constructing and operating the Miramar Trade Center, a mixed-use office and retail complex of up to 16 buildings located in the Miramar neighborhood of Havana (the “Miramar Trade Center” or the “Monte Barreto Project”). At present, six buildings have been completed and are fully leased, representing over 56,000 m2 of rentable area. The Monte Barreto Project constitutes without a doubt the most important commercial real estate development in Havana and represents the heart of the new Havana business district in Miramar.
The shares of Monte Barreto are presently held 51% by Inmobiliaria Lares S.A. (“Lares”), a Cuban government real estate company, and 49% by CEIBA MTC Properties Inc. (“CEIBA MTC”), the foreign shareholder. In the most recent acquisition completed in February 2007, CEIBA Property Corporation Ltd. (“CPC”), a wholly-owned subsidiary of the Company, doubled its ownership interest in CEIBA MTC from 47% to 94% (representing a 46.06% total interest in Monte Barreto). In addition, CPC is presently in negotiations with the remaining other shareholder of CEIBA MTC in respect of the possible acquisition of the last 6% of CEIBA MTC that it does not already own. Upon completion of this final transaction, if successful, CPC will own 100% of CEIBA MTC (representing the full 49% foreign interest in Monte Barreto).
On 22 January 2007, Brown & Co. (an independent real estate valuator) valued the assets of Monte Barreto at US$135,000,000 and the 46.06% interest of the Company therein at US$56,000,000. On 2 April 2007, the Board of Directors of the Company revalued the interest of the Company in the Monte Barreto Project as at 31 March 2007 at US$43,843,490 taking into account the above-mentioned third party valuation as well as the present value of existing indebtedness and future operating costs.
Detailed discussions regarding the build-out of further phases of the Miramar Trade Center (the construction and operation of additional new buildings having total rentable area in excess of 2 120,000 m ) have been undertaken with Lares and the relevant Cuban authorities. The general
14 strategy of CEIBA MTC in the coming period will be (i) to have Monte Barreto attract new finance for the purpose of acquiring the surface rights for the remaining plots of land necessary to INVESTMENT complete all future phases and of building out Phase III of the Miramar Trade Center made up REVIEW of 4 buildings, (ii) to begin construction of Phase III, and (iii) to use free cash flow from Phases I and II to repay the present and future indebtedness of Monte Barreto owed to international banks and shareholders (including the Company). Depending on the outcome of discussions with Lares and the receipt of required permits, licenses and governmental approvals, the construction of Phase III of the Monte Barreto Project is expected to begin in 2009.
FINTUR Facilities
The Company has arranged and participates in two syndicated €25 million facilities extended to Casa Financiera FINTUR S.A. (“FINTUR”), the financial house of the Cuban Ministry of Tourism and the collection entity for over 50% of all Cuban tourism revenues.
The repayment of these facilities is secured by Euro-denominated off-shore tourism proceeds payable to FINTUR by certain international hotel operators managing hotels in Cuba and by selected European and Latin American tour operators. As at 31 March 2007, the aggregate principal amount outstanding to the Company under these facilities was €24,500,000.
Hotel Saratoga
Until recently, the Company held an equity and debt interest in the Cuban joint venture company Hotel Saratoga S.A., which has constructed and is presently operating a 96 room 5-star boutique hotel located in historic Old Havana. The Cuban partner in this joint venture is Habaguanex S.A., the commercial and investment branch of the City Historian’s Office of Havana. The hotel began operations in November 2005 and is managed by a foreign and Cuban management team supervised directly by the joint venture company Hotel Saratoga S.A.
On 17 January 2007, the Company entered into agreements to sell Caritel Investment Holdings Ltd., the investment vehicle through which the Company held its indirect 7.4% interest in Hotel Saratoga S.A., for US$ 2,600,000 to Coral Capital Hospitality S.A. The issued and paid-up capital of Hotel Saratoga S.A. is US$28,000,000. The completion of this transaction was scheduled to take place on 26 February 2007, which date was extended to 11 November 2007 in consideration for an extension payment.
TosCuba Project
On 10 January 2006, CPC agreed to acquire (subject to the fulfillment of various conditions precedent that are presently pending) all outstanding shares in the capital of Mosaico Hoteles S.A., a Swiss company that holds a 50% interest in the Cuban joint venture company TosCuba S.A., incorporated for the purpose of constructing a 292 room beach resort hotel at Playa Maria Aguilar near Trinidad in Sancti Spiritus Province (the “TosCuba Project”) to be operated by the Spanish hotel group Sol Melia.
In the all-share acquisition of Mosaico Hoteles S.A., 1,400,000 Shares in the capital of CEIBA Investments have been conditionally allotted to the sellers (subject to the fulfillment of various conditions precedent that are presently pending), which will be subject to a lock-up and dividend waiver period ending 30 June 2008. In addition, a Warrant Certificate for 600,000 Warrants has been issued in favor of the sellers (presently held in escrow), giving the right to acquire 600,000 additional Shares in the Company at a strike price of €1.25/Share. The Warrants will expire on 31 March 2009. This transaction, including the final allotment of the above Shares and the delivery of the Warrants described above, is conditional upon certain conditions precedent being fulfilled to the satisfaction of CPC.
The total investment to complete the TosCuba Project is estimated at approximately US$36 million, of which approximately US$4.3 million has already been invested in the acquisition of surface rights for the property, the development of architectural works and technical drawings, and ground preparation. It is estimated that construction of the hotel will begin during the first quarter of 2008 and that the hotel will begin operations during the year 2011.
15 CEIBA Leisure Projects INVESTMENT REVIEW CEIBA Leisure Ltd. was incorporated in September 2004 by CEIBA Investments and Leisure Canada Inc. (TSX-V symbol LCN) for the purpose of developing various tourism-related real estate projects in Cuba, including a city hotel in Havana and a beach resort to be located on the island of Cayo Largo that is intended to be operated by the Spanish hotel group Sol Melía.
The Company’s participation in these projects will depend on the outcome of ongoing negotiations regarding corporate and financial structures and the economic feasibility of the projects.
GrandSlam Ltd.
GrandSlam Ltd. is a wholly-owned subsidiary of the Company. In 2005 and 2006, GrandSlam executed agreements with the Cuban companies Flora y Fauna and Ecotur S.A. in respect of the finance, construction and joint operation of numerous small-size ecotourism projects and sports fishing resorts. GrandSlam also operates a travel agency out of Havana specialized in ecotourism and sports fishing (including the joint products mentioned above).
In addition, GrandSlam is developing, in collaboration with CPC, small modular floating hotels intended to be certified by the International Ecotourism Association and located at remote keys and other natural marine areas of interest.
Other Investments
CEIBA Publications Ltd. was incorporated by the Company in 2004 and has launched a lifestyle magazine/guide named The H, of which three issues were published (0, 1 and 2). In September 2005, the format of The H was converted to an annual book/guide rather than a quarterly magazine. The second annual HAVANA - The H book/guide was printed in December 2006 and is presently being distributed. The frequency of The H and its format in the future will depend, amongst others, on the ability of CEIBA Publications Ltd. to distribute The H in Cuba as well as internationally. In July 2007, the website operated by The H (www.thehmagazine.com) began direct online sales of Cuban hotels, rental cars and flights in association with the leading online provider of travel services to Cuba.
The Company has a small investment in the Cuban paper sector alongside a Canadian multi- national paper company, which is held at a considerable discount.
16 Outlook and Projects under Development INVESTMENT Following a considerable period of time during which new foreign investment projects were REVIEW neither encouraged nor approved by the Cuban authorities, it would appear that the attitude of the provisional leadership of the country is presently evolving and that there is a modest opening towards new investments, especially for projects with existing investors having a proven track record such as CEIBA Investments. The Company is following these developments closely.
In this respect, it should be noted that the Company is already benefitting from these improved circumstances and has recently been invited to negotiate the terms and conditions for the build out of the remaining phases of the Monte Barreto Project. In addition, the Company is expecting a decision in the near future from the Executive Committee of the Council of Ministers in relation to the remaining outstanding conditions on the Toscuba Project and the Company has made rapid progress on numerous new commercial real estate investments to be located in Varadero, Cuba’s principal resort destination, and Havana that are presently under negotiation.
Should these projects develop as presently envisaged, it is likely that the Company will return to the capital markets to raise substantial new capital during the present financial year.
17 SCHEDULE OF INVESTMENTS
Investments and Loans - Company
Cost Valuation 2007 2007 Percent Nominal € €
LOANS AND LENDING FACILITIES FINTUR S.A. €25M Facility 2005 - - 7,500,000 7,500,000 €25M Facility 2006 - - 17,000,000 17,000,000
FDI Holdings Ltd. $21M Loan 2006 - - 16,100,661 15,705,655 $6.6M Loan 2004 - - 5,550,883 4,936,063
Inmobiliaria Monte Barreto S.A. $3M Loan 2006 - - 2,325,015 2,243,665 48,476,559 47,385,383
UNLISTED INVESTMENTS CEIBA Property Corporation Ltd. (CPC) Ordinary Shares 100 58,560 3,945,884 8,595,370
CEIBA Finance Corporation Ltd. (CFC) Ordinary Shares 100 8,000 795,159 2,740,642
Industrias Antillanas Ltd. (Industrias) Ordinary Shares 100 20,000 1,677,996 751,337 6,419,039 12,087,349
LISTED INVESTMENTS Thundermin Resources Ltd. (THR:TSX) Common Stock - 289,667 413,641 16,906 413,641 16,906
SHORT-TERM LOANS - - 242,989 231,068 242,989 231,068
TOTAL INVESTMENTS AND LOANS - COMPANY 55,552,228 59,720,706
The listed company mentioned above is relatively small in size and volume of transactions in its shares is correspondingly low. Purchases or sales of its shares over a period may therefore cause a significant movement in its share price.
Presented below are the cost and valuation at 31 March 2006 of the largest unlisted and listed investments of the Company: Cost Valuation 2006 2006 € €
CEIBA Property Corporation Ltd. 3,945,884 5,297,696 CEIBA Finance Corporation Ltd. 795,159 3,122,721 Industrias Antillanas Ltd. 1,677,996 755,935 YM Biosciences Inc. 413,641 33,738
18 Investments and Loans - Group Cost Valuation SCHEDULE OF 2007 2007 INVESTMENTS € € LOANS AND LENDING FACILITIES FINTUR S.A. €25M Facility 2005 ~ 7,500,000 7,500,000 €25M Facility 2006 ~ 17,000,000 17,000,000
Inmobiliaria Monte Barreto S.A. $3M Loan 2006 ~ 2,325,015 2,243,665 $4.5M Loan 2001 3,344,640 3,344,640 30,169,655 30,088,305
UNLISTED INVESTMENTS Unlisted Investments held by CPC * 30,939,012 36,913,145 Unlisted Investments held by Industrias * 2,417,573 750,000 33,356,585 37,663,145 LISTED INVESTMENTS Thundermin Resources Ltd. (THR:TSX) Common Stock † 413,641 16,906 413,641 16,906
SHORT-TERM LOANS # 763,804 616,898 763,804 616,898
SUMMARY OF INVESTMENTS AND LOANS - GROUP 64,703,685 68,385,254
Loans were made and repayments received on loans and lending facilities and short-term loans. Comparative information for the group is summarized below:
Cost Valuation 2006 2006 € €
Loans and lending facilities 20,722,400 21,753,761 Short-term loans 1,331,002 1,355,152
19 DIRECTORS’ REPORT
The Directors submit their Report and Audited Financial Statements for the year ended 31 March 2007.
Business Review
The principal activity of the Company is to hold direct and indirect investments related to businesses in Cuba.
A review of the business and prospects of the Company is contained in the Chairman’s Statement and the Investment Review prepared by the Investment Manager.
The Company was incorporated with a share capital denominated in Swiss Francs, which was deemed to be the most appropriate currency at the time. In July 2003, the Shares were redenominated to Euro whereby every 1,000 shares became 6,535 shares of €0.10 each.
Results
As at 31 March 2007, the Net Asset Value attributable to the shareholders amounted to €75,614,289 (2006 - €54,398,817), being €0.7360 per Share (2006 - €0.7251) for the Company and €75,133,949 (2006 - €53,664,989) being €0. 7314 per share (2006 - €0.7155) for the Group.
The total recognized gains for the year amounted to €2,631,227 (2006 - €1,520,791) for the Company and €2,884,715 (2006 - €1,366,865) for the Group.
Directors
The Directors who served throughout the year are listed on Page 2. All the Directors are non- executive directors. On 10 July 2006, Martin Lancaster was appointed Director. On 21 February 2007, Enrique Rottenberg and Peter Fletcher were appointed Directors.
Directors' Responsibilities in Respect of the Financial Statements
The Directors are responsible for preparing financial statements for each financial year which give a true and fair view, in accordance with applicable Guernsey laws and United Kingdom Accounting Standards, of the state of affairs and the profit or losses of the Company 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 accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and which enable them to ensure that the financial statements comply with The Companies (Guernsey) Law. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
20 The Directors confirm that they have complied with the above requirements in preparing these Financial Statements. DIRECTORS’ REPORT Directors Interests
No Director has any interest in any transaction which, since its incorporation, has been effected by the Company, or any interest, direct or indirect, in the promotion of the Company or in any assets which have been acquired or disposed of by or leased to the Company or are proposed to be acquired, disposed of by or leased to the Company.
The Investment Manager, its shareholders and related parties, and funds managed by such persons, hold an interest in the share capital of the Company. Colin Kingsnorth is a director of Laxey Partners Limited, the Investment Manager and the Company. Sebastiaan AC Berger is a director of the Investment Manager and the Company. Enrique Rottenberg is a director of the Investment Manager and the Company.
Martin Lancaster is a director of a private investment company that holds an interest in the share capital of the Company.
Peter Fletcher is managing director of an investment advisory firm that advises an investment company that holds an interest in the share capital of the Company.
Significant Holdings
The following are holdings of 10% or more in the issued share capital of the Company as at 31 March 2007.
Shareholder No of Shares % of Issued Share Capital Fortis Banque Lux 42,653,118 41.52% Value Catalyst Fund Ltd. 17,518,715 17.05%
Management Agreement
The Company’s investments are managed by ZAPA International Management Ltd. The Investment Manager’s duties effectively commenced from 1 July 2002 under an investment management agreement that may be terminated by six months’ prior written notice to be given by either party. The Investment Manager is entitled to receive an annual base fee in the amount of 1.75% of the average quarterly total assets under management of the Company (defined to mean the aggregate of the Company’s assets less current liabilities, excluding borrowings and performance fees), calculated and payable at the beginning of each quarter.
The Investment Manager also receives a performance fee (the “Performance Fee”), payable annually at the rate of 20% of the uplift in the Net Asset Value per Share excluding any liability for performance fees, with a high watermark, after adjusting for the value of any distributions made, exclusive of Value Added Tax or any similar tax where appropriate. The reason for the high watermark is to ensure that the Investment Manager's compensation is linked to the shareholders net cumulative return.
The agreement contains certain indemnities in favour of the Investment Manager and certain provisions regarding the legal responsibilities of the Investment Manager, including a provision that the Investment Manager shall not be under any liability on account of anything done or suffered to be done by the Investment Manager in good faith in accordance with any specific written request of the Company.
21 Share Capital DIRECTORS’ REPORT On 18 May 2006, an Extraordinary General Meeting of the Shareholders of the Company was held where it was resolved to reduce the Share Capital of the Company by converting the entire balance of the share premium account of €53,942,297 into a distributable Special Reserve. Additional details of the movements in the share capital during the financial year are set out in note 7 of these Financial Statements.
Independent Auditors
PricewaterhouseCoopers CI LLP has indicated its willingness to remain in office and a resolution to reappoint PricewaterhouseCoopers CI LLP as independent auditors to the Company will be proposed at the Annual General Meeting.
Approved by the Board of Directors on 10 September 2007 and signed on its behalf:
Sebastiaan A.C. Berger Jaime García-Andrade Director Director
22 FINANCIAL STATEMENTS
Independent Auditors’ Report...... 24 - 25
Balance Sheets……………………...... 26
Statements of Total Return....……...... 27
Statements of Total Recognised Gains...... 28
Statements of Cash Flow...….……...... 29
Notes to the Financial Statements...... 30 - 39
23 INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF CEIBA INVESTMENTS LIMITED
Report on the financial statements
We have audited the accompanying financial statements of Ceiba Investments Limited which comprise the Company and consolidated balance sheets as of 31 March 2007 and the company and consolidated statements of total return incorporating the revenue accounts, the statements of total recognised gains and losses, the statements of cash flows for the year then ended and a summary of significant accounting policies and other explanatory notes.
Director’s Responsibility for the Financial Statements
The Directors are responsible for the preparation and fair presentation of these financial statements in accordance with United Kingdom Accounting Standards and with the requirements of Guernsey law. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements give a true and fair view of the financial position of the Company and the Group as of 31 March 2007, and of the financial performance and cash flows of the Company and the Group for the year then ended in accordance with United Kingdom Accounting Standards and have been properly prepared in accordance with the requirements of The Companies (Guernsey) Law, 1994.
Report on other legal and regulatory requirements
We read the other information contained in the Annual Report and consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. The other information comprises only the summary sheet, the Chairman’s Statement, About the Company, About Cuba, the Investment Review, the Schedule of Investments and the director’s report.
24 INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS In our opinion the information given in the director’s report is consistent with the financial OF CEIBA statements. INVESTMENTS LIMITED This report, including the opinion, has been prepared for and only for the company’s members as a body in accordance with Section 64 of The Companies (Guernsey) Law, 1994 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
PricewaterhouseCoopers CI LLP Chartered Accountants Guernsey, Channel Islands 2007
25 Company Company Consolidated Consolidated COMPANY AND 31 March 31 March 31 March 31 March CONSOLIDATED Notes 2007 2006 2007 2006 BALANCE € € € € SHEETS AS AT LONG-TERM ASSETS 31 MARCH Loans and lending facilities 47,385,383 21,743,876 30,088,305 21,753,761 2007 Unlisted investments 4 12,087,349 9,176,352 37,663,145 7,275,523 Listed investments 4 16,906 33,738 16,906 33,738 Property, plant and equipment - - 186,933 86,183
59,489,638 30,953,966 67,955,289 29,149,205
CURRENT ASSETS Debtors, prepayments and accrued income 850,145 718,657 2,884,517 1,109,076 Amounts due from Group companies 15,349,664 6,656,714 - - Cash and cash equivalents 22,422,905 21,852,957 22,705,237 22,818,681 Short-term loans receivable 231,068 904,523 616,898 1,355,152
38,853,782 30,132,851 26,206,652 25,282,909
CURRENT LIABILITIES Creditors and accrued expenses 5 1,085,685 730,772 1,285,983 767,125 Amounts due to Group companies 5,643,446 5,957,228 - - Short-term borrowings 6 16,000,000 - 16,000,000 -
22,729,131 6,688,000 17,285,983 767,125
NET CURRENT ASSETS 16,124,651 23,435,851 8,920,669 24,515,784
TOTAL NET ASSETS 75,614,289 54,389,817 76,875,958 53,664,989
CAPITAL AND RESERVES Share capital 7 10,273,219 7,500,652 10,273,219 7,500,652 Share premium 7 18,891,291 53,942,297 18,891,291 53,942,297 Special reserve 8 50,862,684 - 50,862,684 - Capital reserve 8 (3,840,390) (6,866,461) (3,632,176) (8,152,374) Revenue reserve 8 (572,515) (177,671) (1,305,096) 375,486 Foreign exchange reserve on consolidation 8 - - 44,027 (1,072)
CAPITAL AND RESERVES ATTRIBUTABLE TO THE SHAREHOLDERS 75,614,289 54,398,817 75,133,949 53,664,989
Add: minority interest - - 1,742,009 -
TOTAL CAPITAL EMPLOYED 75,614,289 54,398,817 76,875,958 53,664,989
Net Asset Value per financial statements 0.7360 0.7251 0.7314 0.7155 Published Net Asset Value 0.7360 0.7263 n/a n/a Shares in issue 7 102,732,188 75,006,523 102,732,188 75,006,523
The notes on pages 30 to 39 form an integral part of these Financial Statements.
These Financial Statements on pages 26 to 39 were approved by the Board of Directors on 10 September 2007 and signed on its behalf by:
Sebastiaan A.C. Berger Jaime García-Andrade Director Director 26 Company Company Consolidated Consolidated 31 March 31 March 31 March 31 March STATEMENTS 2007 2006 2007 2006 OF TOTAL Notes € € € € RETURN GAINS/(LOSSES) ON INVESTMENTS INCORPORAT- AND LOANS ING THE Realised losses - (8,047,421) (180,322) (128,371) REVENUE Net unrealised loss thereon already ACCOUNTS recognised in prior years - 8,306,072 394,028 387,022 FOR THE YEAR Realised gain for the year - 258,651 213,706 258,651 ENDED 31 MARCH 2007 Unrealised gains 2,894,165 1,004,090 3,303,245 185,212 Foreign exchange gains/(losses) 131,906 (267,971) 1,021,388 (239,180)
CAPITAL SURPLUS 3,026,071 994,770 4,538,339 204,683
REVENUES Interest revenue 2,850,926 1,850,574 2,675,261 1,892,011 Other revenue 170,000 378,688 377,571 800,656 Currency exchange (losses)/gains (691,066) 121,495 (294,227) (188,084) Dividend revenue from subsidiaries - - - 288,681
2,329,860 2,350,757 2,758,605 2,793,264
EXPENSES Performance fee 9 (948,850) (498,366) (948,850) (498,366) Management fee 9 (862,282) (609,709) (862,282) (609,709) Interest expense 6 (312,890) - (640,856) - Miscellaneous operational expenses 10 (236,575) (374,176) (346,975) (362,652) Directors' fees and expenses 11 (89,446) (92,413) (89,446) (92,413) Placing costs (85,723) (95,098) (85,723) (95,098) Administration fees and expenses 12 (73,590) (53,115) (73,590) (56,969) Custodian fee 12 (14,709) (10,248) (14,709) (10,248) Selling and operational costs of subsidiaries - - (615,406) (368,690) Legal expenses (54,822) (36,564) (278,086) (124,782) Audit fee (28,841) (6,822) (62,185) (33,598) Travel (16,976) (48,225) (23,340) (71,608) Staff costs of subsidiaries - - (318,546) (154,280) Depreciation - - (30,494) (10,028) (2,724,704) (1,824,736) (4,390,488) (2,488,441)
REVENUE (DEFICIT)/SURPLUS (394,844) 526,021 (1,631,883) 304,823
Less: Amounts attributable to minority shareholders - - 132,998 -
Revenue (deficit)/surplus attributable to shareholders (394,844) 526,021 (1,498,885) 304,823
TOTAL SURPLUS BEFORE DIVIDENDS 2,631,227 1,520,791 3,039,454 509,506
Dividends paid (3,079,613) - (3,079,613) -
TOTAL (DEFICIT)/SURPLUS FOR THE YEAR (448,386) 1,520,791 (40,159) 509,506
Earnings per Share - Capital (cents per Share) 15 0.04 0.02 0.06 0.01 (Loss)/earnings per Share - Revenue (cents per Share) 15 (0.01) 0.01 (0.01) 0.01
The notes on pages 30 to 39 form an integral part of these Financial Statements. 27 Company Company Consolidated Consolidated STATEMENTS 31 March 31 March 31 March 31 March OF TOTAL Notes 2007 2006 2007 2006 RECOGNISED € € € € GAINS AND LOSSES FOR Total surplus for the year before dividends 2,631,227 1,520,791 3,039,454 509,506 THE YEAR Foreign exchange arising on consolidation - - (154,739) 857,359 ENDED 31 MARCH 2007 13 2,631,227 1,520,791 2,884,715 1,366,865
The notes on pages 30 to 39 form an integral part of these Financial Statements.
28 Company Company Consolidated Consolidated 31 March 31 March 31 March 31 March STATEMENTS 2007 2006 2007 2006 OF COMPANY € € € € AND CONSOLIDATED Revenue (Deficit)/Surplus (394,844) 526,021 (1,631,883) 304,823 CASH FLOW FOR THE YEAR Adjustments and Items not involving the movement ENDED 31 of cash: MARCH 2007 Depreciation - - 30,494 10,028 Placing fees paid with shares 162,291 - 162,291 -
Increase in debtors (131,488) (457,416) (1,748,969) (826,452) Increase/(decrease) in creditors 354,913 (58,521) 518,858 (652,533)
NET CASH (OUTFLOW)/INFLOW FROM OPERATING ACTIVITIES (9,128) 10,084 (2,669,209) (1,164,134)
Investing Activities Net payments made to and on behalf of subsidiaries (4,076,732) (1,150,500) - - Purchases of fixed assets - - (157,716) (67,099) Investment in listed companies - (73,449) - (73,449) Investment in unlisted companies - - (19,993,510) - Proceeds on disposal of unlisted investments - - 1,977,404 - Proceeds on disposal of listed investments - 1,035,495 - 1,035,495 Loans and lending facilities repaid 15,871,104 3,535,676 15,880,989 3,535,676 Loans and lending facilities issued (43,321,849) (5,770,494) (27,221,188) (5,780,379) Short-term loans repaid 955,249 329,516 1,050,478 329,516 Short-term loans issued (330,102) (1,240,371) (525,651) (1,240,371) Realised gains/(losses) on foreign exchange activities 1,989,452 (1,622,098) 2,053,005 (1,370,157)
NET CASH OUTFLOW FROM INVESTING ACTIVITIES (28,912,878) (4,956,225) (26,936,189) (3,630,768)
Financing Activities Shares issued 16,558,143 19,537,500 16,558,143 19,537,500 Short-term borrowings 16,000,000 - 16,000,000 - Payment of dividends (3,066,189) (91,995) (3,066,189) (91,995)
NET CASH INFLOW FROM FINANCING ACTIVITIES 29,491,954 19,445,505 29,491,954 19,445,505
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 569,948 14,499,364 (113,444) 14,650,603
Cash and cash equivalents - Beginning of year 21,852,957 7,353,593 22,818,681 8,168,078
CASH AND CASH EQUIVALENTS - END OF YEAR 22,422,905 21,852,957 22,705,237 22,818,681
The notes on pages 30 to 39 form an integral part of these Financial Statements.
29 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2007
1. CORPORATE INFORMATION
CEIBA Investments Ltd. (the “Company” or “CEIBA Investments”) is an investment company registered with limited liability under the laws of Guernsey, Channel Islands. The Company was formerly known as CEIBA Finance Ltd. and officially changed its name effective on 12 January 2007. The Company was listed on the Channel Islands Stock Exchange (CISX) on 13 May 2004 (trading symbol CBA). The address of the registered office is shown on page 2.
The principal investment objective of the Company is to achieve long-term capital growth from direct and indirect investment in or with Cuban businesses, balanced by current income from interest-bearing financial instruments and other financial transactions and revenue-generating investments primarily related to Cuba.
These financial statements were authorised by the Board of Directors for publication on 10 September 2007.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements of the Company have been prepared in accordance with applicable United Kingdom accounting standards. The financial statements have been prepared on the historical cost basis, as modified by the revaluation of investments. The principal accounting policies are set out below.
a) Consolidation
The consolidated statement of total return, consolidated balance sheet and consolidated cash flow statement include the financial statements of the Company and entities controlled by the Company (its subsidiaries) drawn up to 31 March 2007. Control is achieved where the Company has the power to govern the financial and operating activities of an investee so as to obtain benefits from its activities. The results of subsidiaries acquired during the period are included in the consolidated statements from the date control is transferred to the Group. The entities that have been consolidated for the year ended 31 March 2007 are: Entity Name Interest held CEIBA Property Corporation Ltd. 100% CEIBA Finance Corporation Ltd. 100% Industrias Antillanas Ltd. 100% CEIBA Publications Ltd. 100% GrandSlam Ltd. 100% CEIBA Leisure Ltd. 50% Antilles Property Ltd. 100% FDI Holdings Ltd. 100% CEIBA MTC Properties Inc. 94%
Entities in which the Company has a significant influence over the financial and operating activities, but does not have control, are accounted for using the equity method whereby the Company’s share of the investee’s financial results are included in the consolidated statement of total return.
All inter-company transactions, balances, income, expenses and unrealised surpluses and deficits on transactions between group companies have been eliminated on consolidation.
Minority interests represent the interests in the operating results and net assets of subsidiaries attributable to minority shareholders.
30 b) Foreign currency translation NOTES TO THE I) Functional and presentation currency FINANCIAL STATEMENTS Items included in the financial statements of each of the Group’s entities are measured FOR THE YEAR using the currency of the primary economic environment in which the entity operates. ENDED These financial statements are presented in Euros, which is the Company’s functional 31 MARCH and presentation currency. 2007
II) Transactions and balances
Transactions denominated in foreign currencies during the period are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Assets and liabilities denominated in foreign currencies are translated into Euros at the rate prevailing at the year end with the exception of unquoted investments held at cost, which are held at the rate prevailing at the time of the investment. c) Investments
I) Listed investments
Investments listed or traded on a stock exchange or over the counter and for which market quotations are available are valued at the last market price available on the balance sheet date.
II) Unlisted investments
Unlisted investments are valued at cost unless, in the absolute discretion of the Directors, the Directors consider it appropriate to re-value an investment as a result of an independent third-party valuation or transaction in the private market relating to the asset or if there are factors which the Directors deem relevant and which should, in the Directors' absolute discretion, be taken into account. In the Company's balance sheet unlisted investments are included at their net asset value determined in accordance with the accounting policies of the group. Any resulting unrealized gains and losses are included in the capital reserve.
III) Loans and lending facilities
Loans and lending facilities are non-derivative financial assets that are not quoted in an active market. They are initially recognised at fair value net of transaction costs incurred and are subsequently stated at amortised value. The related interest income is accrued in the statement of total returns on a time basis, by reference to the principal outstanding and at the effective interest rate applicable using the effective interest method.
Realised gains and losses on the disposal of all investments are calculated by reference to the net proceeds received on disposal and the average cost attributable to those investments, and included in the statement of total return and the capital reserve.
Risks
The risks inherent in the Company's investments are of a nature and degree not normally associated with investing in securities of listed companies on the major securities markets. Such risks include political, economic, legal and industrial risks in Cuba and are additional to the normal risks inherent in any equity investment. The valuation of unquoted investments in emerging markets such as Cuba is a highly subjective process. Economic and political circumstances, and the position of most companies, are subject to changes not normally associated with major economies and timely audited information may not always be available. The eventual sale proceeds following the disposal of investments may vary significantly from current valuations. The long-term future of the Company will be significantly influenced by the continuance of economic reform in Cuba and political factors such as the lifting or tightening of the US Cuban embargo legislation.
31 d) Cash and cash equivalents NOTES TO THE FINANCIAL Cash and cash equivalents are defined as cash in hand and short-term deposits, and other STATEMENTS short-term highly liquid investments that are readily convertible to a known amount of cash FOR THE YEAR and are subject to insignificant risk of changes in value. ENDED 31 MARCH e) Property, plant and equipment 2007 Property, plant and equipment held be companies in the Group is stated at cost. Depreciation is calculated using the straight-line method which allocates the cost, less residual value, over the estimated useful lives, as follows:
Office furniture and equipment 4 to 7 years Motor vehicles 5 years Leasehold Improvements 3 years
f) Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred and are subsequently stated at amortised value. The related interest expense is accrued in the statement of total returns on a time basis, by reference to the principal outstanding and at the effective interest rate applicable using the effective interest method.
g) Income
Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable. Dividends arising on the Company's investments are recognised when the Company’s right to receive payment is established.
h) Expenses
All expenses are recognised in the income statement on the accrual basis except for transaction costs incurred on the acquisition of an investment which are included within the cost of that investment. Transaction costs incurred on the disposal of investments are deducted from the proceeds on sale.
i) Net asset value per share
The net asset value per share disclosed on the face of the balance sheet is calculated by dividing the capital and reserves attributable to the shareholders by the number of Shares outstanding at the end of the period. The Management Shares do not have any residual interest in the net assets of the Company and therefore do not affect the calculation of the Company’s net asset value per share.
j) Taxation
The Company is exempt from taxation in Guernsey under the provisions of the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989. As such, the Company is only liable to pay a fixed annual fee, currently £600.
3. FINANCIAL INSTRUMENTS RISK
The major types of risks to which the Company and the Group are exposed and how these risks are managed, in addition to the risks set out on page 12, are summarised below.
In pursuing its investment objectives as set out on page 5, the Company and the Group hold a number of financial instruments. These comprise, or may from time to time comprise:
Equity and non-equity shares (both unlisted and listed) and fixed and/or floating rate loans originated by the Company and the Group. These are held in accordance with the Company’s and the Group's investment objectives and policies; and
32 Cash, liquid resources and short-term debtors and creditors that arise directly from its operations. NOTES TO THE FINANCIAL The main risks arising from the Company’s financial instruments are market price, foreign STATEMENTS currency, credit risk and interest rate and liquidity risks. The Investment Manager reviews FOR THE YEAR policies for managing each of these risks and they are summarised below. These policies have ENDED remained unchanged since the beginning of the period to which these Financial Statements 31 MARCH relate. 2007
Market price risk
Market price risk arises mainly from uncertainty about future prices of financial instruments held. It represents the potential loss the Company might suffer through holding market positions in the face of price movements. The Investment Manager meets regularly to consider the asset allocation of the portfolio in order to minimise the risk associated with particular industry sectors whilst continuing to follow the investment objective. The Investment Manager has responsibility for monitoring the existing portfolio selected in accordance with the overall asset allocation parameters and seeks to ensure that individual holdings also meet an acceptable risk/reward profile.
The Investment Manager does not use derivative instruments to hedge the investment portfolio against market risk, as in its opinion the cost of doing so would be unacceptable.
Foreign currency risk
The Total Return and Balance Sheet value of investments can be affected by currency translation movements as certain assets and income are denominated in currencies other than Euro.
The Investment Manager has identified three main areas of foreign currency risk:
Movements in rates affecting the value of investments; Movements in rates affecting short-term timing differences; and Movements in rates affecting any income received.
The Company has adopted a policy of hedging its liquid investments that are priced in United States Dollars whereby gains/losses in the value of these investments are offset by corresponding gains/losses earned from currency forward contracts.
Income may be received in currencies other than Euro and movements in exchange rates can affect the Euro value of this income.
Credit risk
Credit risk is the risk that the borrower (or counterparty) is unable to meet its financial obligations. In the event of a default, the Company and the Group generally incurs a loss equal to the amount owed by the debtor.
Interest rate risk
At any time that it is not fully invested in equities, surplus funds may be invested in fixed-rate and floating-rate securities both in Euro and in currencies other than Euro. Although these are generally short-term any change to the interest rates relevant for particular securities may result in either income increasing or decreasing, or the Investment Manager being unable to secure similar returns on the expiry of contracts or the sale of securities. In addition, changes to prevailing rates or changes in expectations of future rates may result in an increase or decrease in the value of securities held.
In general, if interest rates rise, income potential also rises but the value of fixed rate securities may decline. A decline in interest rates will in general have the opposite effect.
33 Liquidity risk NOTES TO THE FINANCIAL Assets currently mainly comprise unlisted securities and loans, which are not readily realisable. If the STATEMENTS Company or the Group, for whatever reason, wished to dispose of these assets quickly, the realisation FOR THE YEAR values might well be lower than those at which the relevant assets are held in the balance sheet. ENDED 31 MARCH Other risks 2007 Certain transactions in securities may create exposure to the risk that the counterparty will not deliver the investment or cash.
Listed investments are only transacted through brokers or intermediaries that have been approved by the Investment Manager as acceptable counterparties. In addition, limits are set as to the maximum exposure to any individual broker that may exist at any time; these limits are reviewed regularly. Unlisted Investments are transacted by the Investment Manager with the assistance of external legal and financial advisors.
The interest rate and currency risk profile of the Group's financial assets at the balance sheet date was as follows:
2007 Fixed Floating Non-interest Total Rate Rate Bearing € € € €
Investments (CAD) 16,906 - - 16,906 Investments (USD) 37,663,145 - - 37,663,145 Loans and lending facilities (EUR) 24,500,000 - 24,500,000 - Loans and lending facilities (USD) 5,588,305 2,243,665 - 3,344,640 Short-term loans (USD) 616,898 616,898 - - Cash at bank (EUR) 22,453,631 - 22,453,631 - Cash at bank (USD) 250,010 - 250,010 - Cash at bank (GBP) 1,596 - 1,596 -
2006 Fixed Floating Non-interest Total rate rate bearing € € € €
Investments (CAD) 33,738 - - 33,738 Investments (USD) 7,275,523 - - 7,275,523 Loans and lending facilities (EUR) 4,500,000 - 4,500,000 - Loans and lending facilities (USD) 17,253,761 6,270,797 10,983,064 - Short-term loans (USD) 1,355,152 1,355,152 - - Cash at bank (EUR) 21,865,834 - 21,865,834 - Cash at bank (USD) 952,553 - 952,553 - Cash at bank (GBP) 294 - 294 -
The weighted-average interest rate of loans and lending facilities is 8.78% (2006: 7.89%).
The average period for which the interest rates are fixed is one month.
Short term debtors and all creditors have been excluded in the balance from the disclosures of financial instruments.
The financial assets and liabilities of the Company are included in the balance sheet at fair value except for certain unlisted investments which are included at cost and loans and lending facilities that are initially recognised at fair value net of transaction costs incurred and are subsequently stated at amortised value. For unlisted investments included at cost, the Directors do not consider that it is currently possible to reliably estimate the fair value of these investments, but their fair value is considered to exceed carrying value.
34 4. INVESTMENTS Company Consolidated NOTES TO THE 31 March 2007 31 March 2007 FINANCIAL Listed investments € € STATEMENTS FOR THE YEAR Cost brought forward 413,641 413,641 ENDED 31 MARCH Movement in the year: - - 2007
Cost carried forward at 31 March 2007 413,641 413,641
Unrealised loss on revaluation of investments (396,735) (396,735)
Market Value at 31 March 2007 16,906 16,906
Market Value at 31 March 2006 33,738 33,738
Company Consolidated 31 March 2007 31 March 2007 Unlisted investments € €
Cost brought forward 6,419,039 6,724,405
Movement in the year: Purchases - 28,789,906 Sales - (1,977,404) Realised losses on sales and write offs - (180,322)
Cost carried forward at 31 March 2007 6,419,039 33,356,585
Unrealised gain on revaluation of investments 5,668,310 4,306,560
Market Value at 31 March 2007 12,087,349 37,663,145
Market Value at 31 March 2006 9,176,352 7,275,523
The Company had direct and indirect interests in the following entities as at 31 March 2007:
Entity Name Country of Incorporation Interest held CEIBA Property Corporation Ltd. Guernsey 100% CEIBA Finance Corporation Ltd. Guernsey 100% Industrias Antillanas Ltd. Guernsey 100% CEIBA Publications Ltd. Guernsey 100% GrandSlam Ltd. Guernsey 100% CEIBA Leisure Ltd. Guernsey 50% Antilles Property Ltd. Guernsey 100% FDI Holdings Ltd. British Virgin Islands 100% CEIBA MTC Properties Inc. Panama 94% Inmobiliaria Monte Barreto S.A. Cuba 46% Caricel Inc. Barbados 10% Intercan Inc. Barbados 10% Caripap Inc. Barbados 5% Productos Sanitarios S.A. Cuba 5%
35 5. CREDITORS AND ACCRUED EXPENSES NOTES TO THE FINANCIAL Company Company Consolidated Consolidated STATEMENTS 2007 2006 2007 2006 FOR THE YEAR Creditors due within one year € € € € ENDED 31 MARCH Accrued performance fee (948,850) (498,366) (948,850) (493,482) 2007 Accrued expenses (84,049) (137,308) (115,273) (168,965) Accrued placing costs (28,342) (95,098) (28,342) (95,098) Accrued interest payable (24,444) - (24,444) - Other creditors - - (169,074) (9,580)
(1,085,685) (730,772) (1,285,983) (767,125)
6. SHORT-TERM BORROWINGS
On 19 January 2007, the Company entered into a bridge facility agreement with Longbow Finance SA, a shareholder of the Company, to borrow €16,000,000. The terms of the facility included an annual interest rate of 11% with accrued interest payable monthly and the principal balance repayable in full on or before 30 April 2007. The outstanding balance of the facility was paid in full on 2 April 2007.
7. SHARE CAPITAL AND SHARE PREMIUM
a) Authorised 400,000,000 Ordinary shares of €0.10 each €40,000,000
b) Issued
Number of Number of Share Share Management Ordinary Capital Premium Shares Shares € €
As at 31 March 2006 12 75,006,523 7,500,652 53,942,297
Converted to Special Reserve - - - (53,942,297) Equity Shares issued in the year - 27,725,665 2,772,567 18,891,291
As at 31 March 2007 12 102,732,188 10,273,219 18,891,291
On 18 May 2006, an Extraordinary General Meeting of the Shareholders of the Company (EGM) was held where it was resolved to reduce the Share Capital of the Company by converting the entire balance of the share premium account into a distributable Special Reserve. At the EGM, it was also resolved to distribute a dividend from the distributable reserve to be paid in cash at a rate of €0.041 per Share, or in Shares at a rate of 1 Ordinary Share per 17.7 Ordinary Shares held. As a result of this a dividend of €3,066,189 was paid by the Company in cash and 18,498 Ordinary Shares were issued.
On 13 February 2007, an EGM was held where it was resolved to amend the Company’s Memorandum of Association so that the authorised share capital of the Company was increased from €9,150,387 divided into 91,503,866 shares of €0.10 each to €40,000,000 divided into 400,000,000 shares of €0.10 each.
On 8 March 2007, 6,800,000 Shares were issued as consideration of €4,930,000 for the acquisition by the Company’s subsidiary, CEIBA Property Corporation Ltd., of the remaining 51% of shares, which it did not already hold, of Antilles Property Limited. On 26 March 2007, 20,697,679 Shares were issued for a total consideration of €16,558,143 as a result of a placing of new Shares in the Company.
36 In April 2006, the Investment Manager received 106,000 Shares of the Company for fees NOTES TO THE related to the placing of new Shares in the Company. The Investment Manager also acquired FINANCIAL 221,433 Ordinary Shares from an existing shareholder of the Company. In June 2006, the STATEMENTS Investment Manager received 18,498 Ordinary Shares of the Company in payment of dividends. FOR THE YEAR In relation to a placing of new Shares in the Company during March 2007, the Investment ENDED Manager purchased 76,000 Shares and also received an additional 103,488 Shares for fees 31 MARCH related to the placing. 2007
8. RESERVES
Company reserves
Special Capital Revenue Reserve Reserve Reserve € € €
Balance brought forward - (6,866,461) (177,671) Converted from Share Premium 53,942,297 - - Dividends paid during the year (3,079,613) - - Surplus/(deficit) for the year - 3,026,071 (394,844)
Reserves carried forward 50,862,684 (3,840,390) (572,515)
Consolidated reserves
Foreign Special Capital Revenue Exchange Reserve Reserve Reserve Reserve € € € €
Balance brought forward - (8,152,374) 375,486 (1,072) Converted from Share Premium 53,942,297 - - - Dividends paid during the year (3,079,613) - - - Surplus/(deficit) for the year - 4,538,339 (1,498,885) (154,739) Foreign exchange (loss)/gain on consolidation - (18,141) (181,697) 199,838
Reserves carried forward 50,862,684 (3,632,176) (1,305,096) 44,027
9. MANAGEMENT FEE AND INVESTMENT MANAGER’S INTERESTS
The Company’s investments are managed by ZAPA International Management Ltd. The Investment Manager’s duties effectively commenced from 1 July 2002 under an investment management agreement that may be terminated by six months’ prior written notice to be given by either party. The Investment Manager is entitled to receive an annual base fee in the amount of 1.75% of the average quarterly total assets under management of the Company (defined to mean the aggregate of the Company’s assets less current liabilities, excluding borrowings and performance fees), calculated and payable at the beginning of each quarter.
The Investment Manager also receives a performance fee (the “Performance Fee”), payable annually at the rate of 20% of the uplift in the Net Asset Value per Share excluding any liability in for performance fees, with a high watermark, after adjusting for the value of any distributions made, exclusive of Value Added Tax or any similar tax where appropriate. Management and Performance Fees for the year are shown in the statement of total return and amounts payable at the year end are shown in note 5.
37 10. MISCELLANEOUS OPERATIONAL EXPENSES NOTES TO THE FINANCIAL Company Company Consolidated Consolidated STATEMENTS 2007 2006 2007 2006 FOR THE YEAR € € € € ENDED 31 MARCH Channel Island Stock Exchange fees (7,616) (15,275) (7,616) (15,275) 2007 Consulting fees (139,607) (251,098) (139,607) (251,098) Directors’ liability insurance (31,750) (36,387) (31,750) (36,387) Other miscellaneous operational expenses (57,602) (71,416) (168,002) (59,892)
(236,575) (374,176) (346,975) (362,652)
11. DIRECTORS’ FEES AND EXPENSES
Each Director receives a fee of €9,000 per annum with the Chairman receiving €25,000. The Chairman and Directors also receive €1,700 in attendance fees per quarterly meeting and are reimbursed other expenses properly incurred by them in attending meetings and other business of the Company.
12. ADMINISTRATION AND CUSTODIAN FEES
Bachmann Fund Administration Limited (“Bachmann”) receives from the Company an annual base fee of £10,000 payable in arrears, which fee covers the safe custody and maintenance of a securities portfolio account, the collection of dividends and interest, the production of asset schedules and overseeing the duties of possible sub-custodians. In addition, the Company has agreed to reimburse the Custodian its expenses, including sub-custodial costs.
Under an administration, registrar and secretarial agreement, Bachmann is entitled to receive an administration fee from the Company, computed and paid monthly in arrears. The fee is subject to a minimum of €2,750 per month and is calculated per annum at a rate of (i) 0.180% of the Net Asset Value where the Net Asset Value is between €0.00 and €40,000,000 and (ii) 0.135% of the Net Asset Value where the Net Asset Value is above €40,000,000. In addition, the Company has agreed to reimburse the Administrator its expenses.
13. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS’ FUNDS
Company Company Consolidated Consolidated 2007 2006 2007 2006 € € € €
Total recognised gains for the year 2,631,227 1,520,791 2,884,715 1,366,865 Net Proceeds of issue of Share capital 21,663,858 19,689,181 21,663,858 19,689,181 Dividends paid (3,079,613) - (3,079,613) -
Net addition to Shareholders’ funds 21,215,472 21,209,972 21,468,960 21,056,046
Opening Shareholders’ funds 54,398,817 33,188,845 53,664,989 32,608,943
Closing Shareholders’ funds 75,614,289 54,398,817 75,133,949 53,664,989
14. RELATED PARTIES
During the year there were a number of transactions involving the issuance of Shares of the Company and related parties. For additional information see note 7.
In January 2007, the Company entered into a bridge facility agreement with a shareholder of the Company. For additional information see note 6.
38 Metage Special Emerging Markets Fund Limited, The Value Catalyst Fund Limited and Northview Investments Limited are shareholders of the Company and are also participating in syndicated NOTES TO THE facilities with FINTUR S.A. FINANCIAL STATEMENTS 15. EARNINGS PER SHARES FOR THE YEAR ENDED The income/(deficit) per share has been calculated on a weighted-average basis and is arrived at 31 MARCH by dividing the net income/(deficit) for the year attributable to shareholders by the weighted- 2007 average number of shares in issue.
16. COMMITMENTS AND CONTINGENCIES
TosCuba Project
On 10 January 2006, the Company agreed to acquire (subject to the fulfillment of various conditions precedent), through its subsidiary CEIBA Property Corporation Ltd., all outstanding shares in the capital of Mosaico Hoteles S.A., a Swiss company that has a 50% interest in the Cuban joint venture company TosCuba S.A. TosCuba S.A. was incorporated for the purpose of constructing a 292 room beach resort hotel at Playa Maria Aguilar, Trinidad, Province of Sancti Spiritus, Cuba (the “TosCuba Project”), to be operated by the Spanish hotel group Sol Melia.
In the all-share acquisition of Mosaico Hoteles S.A., 1,400,000 Shares in the capital of CEIBA Investments have been conditionally allotted to the sellers (subject to the fulfillment of various conditions precedent), which will be subject to a lock-up period ending 30 June 2008 and a dividend waiver in respect of these Shares during or in respect of the lock-up period. In addition, a Warrant Certificate for 600,000 Warrants has been issued in favour of the sellers, giving the right to acquire 600,000 Shares in the Company at a strike price of €1.25. The Warrants will expire on 31 March 2009. The transaction, including the allotment of the Shares and the issuance of the Warrants described above, is conditional upon certain conditions precedent being fulfilled to the satisfaction of CEIBA Property Corporation Ltd.
The total investment amount of the TosCuba Project is estimated at approximately US$ 36 million, of which approximately US$ 4.3 million has already been invested in the acquisition of surface rights for the property, the development of architectural works and technical drawings, and ground preparation. It is estimated that construction of the hotel will begin during the first half of 2007 and that the hotel will begin operations during the year 2009.
17. SUBSEQUENT EVENTS
No major subsequent events are noted for the Group.
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