ITACARÉ CAPITAL INVESTMENTS LTD ANNUAL REPORT AND...

ITACARÉ CAPITAL INVESTMENTS LTD

ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2015


YEAR ENDED 31 DECEMBER 2015

CONTENTS

Page

Company Information 2

Chairman's Report 4

Directors' Report 9

Statement of Directors' Responsibilities 11

Report of the Independent Auditors 12

Consolidated Statement of Comprehensive Income 14

Consolidated Statement of Financial Position 15

Consolidated Statement of Changes in Equity 16

Consolidated Cash Flow Statement 17

Notes to the Financial Statements 18



2

COMPANY INFORMATION

Directors

Michael St Aldwyn (Non-Executive Chairman)

Raymond Smith (Non-Executive Director)

Frederick Dubignon (Non-Executive Director - resigned 16 November 2016)

Frederico Schiliró (Non-Executive Director - appointed 11 May 2015)

Pierre Charalambides (Non-Executive Director - appointed 11 May 2015)

Samsão Woiler (Non-Executive Director - resigned 11 May 2015)

Ricardo Reisen de Pinho (Non-Executive Director - resigned 11 May 2015)

Registered Office

3rd Floor, Yamraj Building

Market Square, P.O. Box 3175

Road Town

Tortola

British Virgin Islands

Local Management Team

Real Estate Development Company

R. Leopoldo Couto de Magalhães Jr. 110 - CJ 101/102

Sao Paulo

Brazil

CEP 04542-000

Group Accountant

David Mattey

R. Leopoldo Couto de Magalhães Jr. 110 - CJ 101/102

Sao Paulo

Brazil

CEP 04542-000

Administrator & Company Secretary

EFG Fund Services

No 1 Seaton Place

St Helier

Jersey JE4 8YJ

Channel Islands



3

COMPANY INFORMATION (continued)

Custodian

EFG Bank

24 Quai de Seujet

1211 Geneva 2

Switzerland

Auditors

Grant Thornton UK LLP

Grant Thornton House

Melton Street

Euston Square

London

NW1 2EP

United Kingdom

Valuer

Cushman & Wakefield Negocios Imobiliarios

Alameda Araguaia, No 2.044

Bloco 1, Salas 1.311/12

Empreendimento CEA

06455-000, Barueri

Sao Paulo

Brazil

Registrar

Capita Registrars (Guernsey) Limited

2nd Floor, No 1 Le Truchot

St. Peter Port

Guernsey GY1 4AE

Channel Islands

Website

www.itacareinvestments.com



4

CHAIRMAN'S STATEMENT

Dear Shareholder

Chairman's Statement

The statement below refers to the activities of the Company during the year ended 31 December 2015.

Historically the Company has always produced its audited accounts within 6 months of the year end. In this

year the auditors had initially indicated that they wished to qualify their report, as regards the Company's

ability to continue as a going concern.

Your Board determined that it was preferable to delay the publication of the audited accounts pending

potential asset disposals or the sale of the Company, which would provide greater clarity as to the realistic

value.

As a consequence in July 2016, letters were sent to all shareholders, with draft accounts together with an

outline of potential transactions, which could bring some liquidity and enable the repayment of the BGO

(now Dorchester) loan.

In the final analysis the first disposal was not one of those outlined in the letter but rather an opportunity

which arose in September, and was concluded in October, to sell the Company's interest in the BB Trancoso

project for $10.5mil cash. This sale enabled the Company to repay the Dorchester loan and to provide

adequate proof of funds to be deemed a going concern.

Therefore, when reading the report below, it should be noted that there are significant post-balance sheets

events. While there is claity for one asset, there are two, Três Praias and Havaizinho, which remain to be

sold. There also remains the repayment of the Convertible Loan, for which there is sufficient cash in the

Company. The ongoing costs, including a reduction in Directors' and Manager's fees of 50%, have fallen

further to a budgeted $550,000 per annum.

During the year the Company’s assets in Brazil have been effectively managed by Real Estate Development

Company ("REDCO"), the manager appointed to replace Itacaré Capital Partners, at a significantly lower cost

than before the change. The total running costs of the Company have fallen from $3.8 million to $1.3 million.

It is with some trepidation that I am writing to you as your Chairman, given the results that we are presenting

– a loss of $0.38 per share during 2015. Since the last Annual Report a number of changes have taken place

which has had a significant impact on the Company.

The first has been the current financial and political crisis in Brazil. A combination of political uncertainty,

deriving from the corruption scandal within the government, and weak currency and equity markets has

brought the real estate market to a standstill. Given that your Company operates in US$, a significant

proportion of the loss is derived from the 48% fall in the value of the Real during the period. The first quarter

of 2016 saw some clarification in the political situation, with the impeachment of the President, and during

2016 the currency rallied against the US$. This does not mean that there is an immediate expectation of a

resolution to the current financial crisis but serves to demonstrate that markets can rally as quickly as they

can fall.



5

CHAIRMAN'S STATEMENT (continued)

Results

Despite the illiquid nature of the Brazilian real estate market we believe that for an investor with a long term

perspective, this is an attractive time to be acquiring Brazilian real estate assets. For our shareholders, whose

patience has been severely tested, we recognise that a delayed sale process of our remaining assets would be

an unwelcome piece of news. We can, at this stage, assure you that all possible efforts are being made to

realise our remaining assets within a realistic timeframe and to bring you, at least, a potential realisation of

your investment.

The results for the year ended 31 December 2015 show a loss of $27.5 million driven by the material 48%

exchange movement in the Brazilian Real (R$) against the US Dollar ($), as well as modifications to the

valuation model on Três Praias to reflect the sale of a reduced number of units plus land plots, compared to

the build and sale of 1,500 units as was previously contemplated. In light of a changing Brazilian economy,

the management team, working with project consultants, determined to reduce the build plans for both BB

Trancoso and Três Praias, in favour of a reduced capital risk and shorter sales cycles. For the prior year

ended 31 December 2014 the Company reported a loss of $14.9 million which was also derived from

unrealised losses on the revaluation of its Investment Assets, during a year that suffered a 14% negative

exchange movement. The Company reported a Basic Loss per share of $0.38 compared to a Basic Loss per

share of $0.16 for the year to 31 December 2014. The amicable termination of the Investment Manager

(Itacare Capital Partners Limited) gave rise to some one off termination costs in the year, but the forward

operating costs are now significantly reduced.

As at the year end, the Company had total assets of $35.7 million (2014: $61.6 million) and total liabilities of

$8.3 million (2014: $6.6 million). The net effect gave rise to a Basic NAV per share of $0.37 (2014: $0.75).

In March 2015 the Company raised $2.975 million through the issuance of a 6% Convertible loan note

offered to all shareholders, and within the BB Trancoso joint venture, a further 8% Convertible loan note was

issued. When added to the existing Dorchester Working Capital Loan (formerly referred to as the BGO

Working Capital Loan) the Company's consolidated loan position amounted to $7.2 million (2014: $3.6

million) giving rise to an interest expense for the year amounting to $581,966 (2014: $164,060).

The unrealised write down of the Investment Properties has meant their respective valuations have fallen

below original cost when converted into US Dollars (see chart below). Consequently, the Deferred Tax

provision is no longer required and has been written to zero in the year.

During the year our largest shareholder, the BGO Fund plc (BGO), was acquired by Dorchester Capital

Secondaries Offshore III LP (Dorchester) and given that the Company's working capital loan was held by

BGO, Dorchester took ownership of the loan as well. The loan of $3.6 million was due and payable on March

31st 2016 and following discussions between the Company's management team and the Dorchester

principals, the loan was fully repaid in November 2016.

A number of initiatives are underway to identify potential buyers for the remaining assets of the Company.

As soon as the results of these initiatives are known we will contact shareholders.



6


Project Valuation $m

Três Praias BB Trancoso

Entry Price 16.7 16.0

37.2 22.1

41.5 34.4

38.7 32.4

34.1 24.2

16.3 15.4

Project Valuation R$m

Três Praias BB Trancoso

Entry Price 29.7 27.4

69.3 41.2

85.0 70.4

91.0 76.0

91.3 64.9

64.7 60.9

Três Pralas

The Company ended the year with cash balances of $928,997 (2014: $207,232) which are expected to cover

the working capital requirements of the Company in anticipation of a sale. The Company will continue to

accrue interest on its loans which it will not be in a position to repay until assets are sold and/or the Company

is sold.

As announced in July 2009, the Company and its project partner, Brookfield lncorporações SA (BOVESPA:

BISA3), one of Brazil's largest real estate developers ("Brookfield"), agreed new terms to the original

investment agreement signed in December 2007. Brookfield acquired approximately nine hectares, or 10% of

the entire site, for a cash consideration of R$6.5 million ($3.2 million), all received by the Company by

July 2011. Under the amended agreement with Brookfield, in addition to the sale of 10% of the site,

Brookfield is responsible for the master planning and preliminary licensing of the entire site and all related

costs.

Valuation Dec-2012

Valuation Dec-2013

Valuation Dec-2014

Valuation Dec-2011

Três Praias is expected to benefit from a significant increase in the level of investment into the state, as

more foreigners and locals move there to work in the oil and steel industries, when those markets recover

from current levels.

Valuation Dec-2011

The Três Praias residential project is situated in the state of Espirito Santo. The state is the leading

producer of iron ore and steel slabs in the country; being home to the world's largest steel plant,

Arcelor Mittal Brasil. Vitória, the capital city, is the largest steel-producing city in the world. The city has

an important port for exporting iron ore and steel. In addition, Espirito Santo is an important oil and gas

driller; a major granite producer, exporting the product worldwide, and the second largest producer of coffee

and cellulose in the country. Like many other states in Brazil, the tourism industry is also a prominent

industry of Espirito Santo and its beaches are the nearest for residents of Minas Gerais and its capital Belo

Horizonte, Brazil’s third largest city.

Valuation Dec-2012

Valuation Dec-2013

Valuation Dec-2014

Valuation Dec-2015

Valuation Dec-2015



7


BB Trancoso

In December 2010, ltacare Capital signed a Hotel Operating Agreement with Hotel Marco Internacional S.A.,

the operator of Fasano Hotels, a premium luxury brand in Brazil, and JHSF Participações S.A, the

controlling shareholder of Fasano Hotels, for the development of Fasano Trancoso. The project team

also comprises Hart Howerton, a London-based firm of master-planners, and lsay Weinfeld, the award

winning Brazilian architect.

In December 2012, the Company signed a facility with Banco do Nordeste do Brasil ("BNB") for a 13-year

R$40.1 million construction loan, with an annual interest rate of 2.5%, to cover the hotel build and its

infrastructure related cost.

Over the past three years the Company and our Swedish partners have sought to identify potential partners to

provide the additional funding that is required to initiate sales and construction, having obtained full

planning consent and overcome our various legal challenges. Given that the parties with whom we have had

detailed negotiations have failed to produce an acceptable bid, we have now moved to raising the necessary

resources by selling off plots on the plateau area, a process which has only recently been initiated. All

licences are now in place to build the villas and hotel, a beach club, spa and tennis club.

The planning approval process has taken much longer than anticipated and each of our Company reports has

indicated that the approvals are imminent. This year we can report that the preliminary licence has been

received, with a number of conditions that need to be satisfied. Resolution of the conditions is well advanced

and as a consequence we are starting to seek interest from potential development partners.

In November 2011, the project received approval by the Municipality of Porto Seguro for the issuance of the

Installation License and the Construction License for Phase 1 of the Project. Phase 1 comprises a 40-room

Fasano hotel, restaurant, spa and 23 Fasano residential villas for sale, all located in the beachfront part of the

site.

The Cushman and Wakefield (“C&W”) valuation in local currency has fallen from R$91.27 million ($34.05

million) in 2014 to R$ 64.67 million ($16.33 million) in December 2015. Much of the fall in the local

currency valuation was driven by C&W considering a reduced build program, blended with plot sales which

require a lower cash investment and have a shorter sales timeframe.

The BB Trancoso project is situated on a 293-hectare site with approximately 600 metres of beachfront. It is

less than two kilometres from the village of Trancoso, Bahia and 47 km south of Porto Seguro International

Airport, which is served by domestic and international charter flights. There is also a 1,500-metre paved

landing strip located within a 15-minute drive to the project. The project will see the phased development of

177 residential units, a small 40-bungalow luxury hotel, a beach club, a spa and other amenities on the site.

In light of changing market conditions the sales plan has changed to comprise a mixture of villa sales and

plot sales. Total sales value is now projected at R$547 million and 50% of the profit generated thereon will

be attributable to the Company.



8


Brazilian Economy

Conclusion

Michael St Aldwyn

Chairman 30 January 2017

The Company’s 50% share of the C&W valuation in local currency decreased from R$64.92 million ($24.22

million) in December 2014 to R$60.91 million ($15.38 million) in December 2015, which because of the

exchange movement gave rise to a more material movement in the Dollar equivalent.

I extend my thanks to my fellow Directors, the REDCO team and our Group Accountant for their

considerable efforts in the face of testing conditions.

2015 was a disastrous year for Brazil’s economy with momentum slipping and negative GDP growth. The

real estate sector suffered considerably and the level of uncertainty in the market worsened with the volume

of transactions significantly reduced.

The next few months are critical for the future of the Company and we will ensure that you are kept informed

of all significant outcomes.

BB Trancoso was sold in November 2016 for $10.5 million giving rise to a book loss reflecting the

continuing deterioration of the Brazilian property market in the 11 months post the year end.



9

DIRECTOR'S REPORT

Principal activity and incorporation

Results and dividends

The Directors do not recommend the payment of a dividend.

Financial Performance

Consolidated loss per share

2015 2014

$ $

Basic and diluted loss per share (0.38) (0.16)

Basic and diluted loss per share excluding Deferred tax (0.41) (0.18)

The Group's results for the financial period ending 31 December 2015 are set out in the Consolidated

Statement of Comprehensive Income on page 14. A review of the Group's activities is set out in the

Chairman's Statement on pages 4 to 8.

The Directors take pleasure in presenting their report and financial statements of the Group for the year

ended 31 December 2015.

These consolidated financial statements comprise the results of the Company and its subsidiaries (together

referred to as the “Group”), together with prior year comparatives.

The Company is a limited liability closed-end real estate investment company, incorporated on 27 April

2006 in the British Virgin Islands (BVI). It was admitted to the Alternative Investment Market (AIM) of the

London Stock Exchange on 30 May 2007, and delisted from the exchange on 16 May 2014.

The Company owns beachfront real estate assets in the northeast region of Brazil on which it has worked to

obtain planning consents. These investments are now being marketeted for sale to interested parties.



10

DIRECTOR'S REPORT (continued)

Net asset value per share

Net asset value per share attributable

2015

$

Basic 0.37

Diluted 0.37

Diluted excluding Deferred Tax 0.37

Company Secretary

Auditors

By Order of the Board

Michael St Aldwyn

Chairman 30 January 2017

The auditors, Grant Thornton UK LLP, have indicated their willingness to continue in office and a

resolution concerning their re-appointment will be proposed by the Board.

The secretary of the Company during the period from incorporation and to the date of this report was EFG

Wealth Solutions (Jersey) Limited.



11

STATEMENT OF DIRECTORS' RESPONSIBILITIES

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

In so far as each of the Directors is aware:

The Directors are responsible for keeping adequate accounting records that disclose with reasonable

accuracy at any time the financial position of the Group and enable them to ensure that the financial

statements comply with the BVI Business Companies Act 2004 (as amended). They are also responsible for

safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection

of fraud and other irregularities.

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

- The Directors have taken all steps that they ought to have taken to make themselves aware of

any relevant audit information and to establish that the auditors are aware of that information

The Directors are responsible for preparing the Annual Report and the financial statements in accordance

with applicable law and regulations.

The Group is subject to legislation that requires the Directors to prepare financial statements for each

financial year. Under that legislation the Directors have elected to prepare financial statements in

accordance with International Financial Reporting Standards as adopted by the European Union (“IFRSs”).

The financial statements are required by law to give a true and fair view of the state of affairs of the Group

and of the profit or loss of the Group for that period.

- state whether applicable IFRS’s have been followed, subject to any material departures

disclosed and explained in the financial statements

- prepare the financial statements on the going concern basis unless it is inappropriate to presume

that the Group will continue in business.



12

INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF ITACARE

CAPITAL INVESTMENTS LTD

Independent auditor's report to the directors of Itacaré Capital Investments Ltd.

Respective responsibilities of directors and auditor

Scope of the audit of the financial statements

We have audited the financial statements of Itacaré Capital Investments Ltd. for the year ended 31 December

2015, which comprise the consolidated statement of comprehensive income, the consolidated statement of

financial position, the consolidated statement of changes in equity, the consolidated cash flow statement, and

related notes. The financial reporting framework that has been applied in their preparation is applicable law

and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

As explained more fully in the Directors’ Responsibilities Statement set out on page 11, the directors are

responsible for the preparation of the financial statements and for being satisfied that they give a true and fair

view. Our responsibility is to audit and express an opinion on the financial statements in accordance with

applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to

comply with the Auditing Practices Board’s Ethical Standards for Auditors.

This report is made solely to the Group’s directors, as a body, in accordance with our engagement letter

dated 29 March 2016. Our audit work has been undertaken so that we might state to the Group’s directors

those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest

extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the

Group’s directors as a body, for our audit work, for this report, or for the opinions we have formed.

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient

to give reasonable assurance that the financial statements are free from material misstatement, whether

caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to

the company's circumstances and have been consistently applied and adequately disclosed; the

reasonableness of significant accounting estimates made by the directors; and the overall presentation of the

financial statements. In addition, we read all the financial and non-financial information in the annual report

to identify material inconsistencies with the audited financial statements and to identify any information that

is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in

the course of performing the audit. If we become aware of any apparent material misstatements or

inconsistencies we consider the implications for our report.



14

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Notes 2015 2014

$ $

Valuation loss on investment properties 8 (26,746,500) (13,553,055)

Valuation gain on investment properties 8 - 616,170

Valuation loss on assets held for sale 9 (74,026) (120,300)

Valuation gain on assets held for sale 9 - 396,580

Management fees 2.11 (1,561,515) (1,740,000)

Other administration fees and expenses 4 (1,674,547) (1,883,791)

Total operating loss (30,056,588) (16,284,396)

Interest received 2.6 42,185 15,284

Loss for the year before tax (30,014,403) (16,269,112)

Deferred tax 5 2,196,901 1,899,091

(27,817,502) (14,370,021)

Other comprehensive income

Items that will be reclassified subsequently to profit or loss

287,377 (517,296)

(27,530,125) (14,887,317)

Basic and diluted loss per share 6 (0.38) (0.16)

The accompanying notes are an integral part of the statements

Loss for the year attributable to owners of the

parent

Exchange differences on translating foreign

operations

Total comprehensive loss attributable to

owners of the parent



15

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

2015 2014

ASSETS Notes $ $

Non-current assets

Investment properties 8 31,704,500 58,265,500

31,704,500 58,265,500

Current Assets

Trade and other receivables 13 66,909 103,708

Cash and cash equivalents 15 928,997 207,232

Total current assets 995,906 310,940

Assets held for sale 9 3,000,000 3,000,000

Total assets 35,700,406 61,576,440

EQUITY

Capital and reserves attributable to equity holders

Ordinary Shares 10 736,961 736,961

Share premium account 10 70,366,696 70,366,696

Retained earnings (47,921,948) (20,104,446)

Foreign exchange reserve 4,253,724 3,966,347

Total equity 27,435,434 54,965,558

LIABILITIES

Non Current Liabilities

Deferred tax liability 5 - 2,196,901

6% Convertible Loan Notes 14 3,107,859 -

Loan notes 14 469,607 -

Payables/Commitments to developers 14 699,408 -

Trade and other payables 14 -

4,276,874 2,196,901

Current Liabilities

Working capital loan 14 3,632,160 2,646,315

Trade and other payables 14 355,940 1,767,666

3,988,100 4,413,981

Total liabilities 8,264,974 6,610,882

Total equity and liabilities 35,700,406 61,576,440

Basic NAV per Share 11 $0.37 $0.75

Michael St Aldwyn


These financial statements were approved by the Board on the 30 January 2017 and signed on their behalf

by:



16

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Share Share Retained Foreign

Capital Premium Earnings Exchange Total

$ $ $ $ $

Balance at 1 January 2014 935,251 89,997,406 (5,734,425) 4,483,643 89,681,875

Issued shares swapped to Treasury

shares (198,290) (19,630,710) - - (19,829,000)

Transaction with owners (198,290) (19,630,710) - - (19,829,000)

- - (14,370,021) - (14,370,021)

- - - (517,296) (517,296)

Balance at 31 December 2014 736,961 70,366,696 (20,104,446) 3,966,347 54,965,558

Balance at 1 January 2015 736,961 70,366,696 (20,104,446) 3,966,347 54,965,558

Issued shares swapped to Treasury

shares - - -

Transaction with owners - - - - 0

- - (27,817,502) - (27,817,502)

-

- - - 287,377 287,377

Balance at 31 December 2015 736,961 70,366,696 (47,921,948) 4,253,724 27,435,434

Loss for the year

Loss for the year


Foreign exchange movement on

investments in foreign operations

Foreign exchange movement on

investments in foreign operations





17

CONSOLIDATED CASH FLOW STATEMENT

Note 2015 2014

$ $

Net loss for the year (27,817,502) (14,370,021)

Revaluation of investment properties 8 26,746,500 12,936,885

Revaluation of assets held for resale 9 74,026 (276,280)

Decrease/(increase) in receivables 36,799 1,640,951

Increase/(decrease) in payables 3,850,992 (20,681)

Decrease in deferred taxation 5 (2,196,901) (1,899,091)

Net cash used in operating activities 693,914 (1,988,236)

Cashflows from investing activities

Increase in investment properties (259,526) (888,105)

Net cash outflow from investing activities (259,526) (888,105)

Cash flows from financing activities

Issue of working capital - 2,500,000

Issue of loan notes - 575,000

Net cash inflow from financing activities - 3,075,000

Net decrease in cash and cash equivalents 434,388 198,659

Cash and cash equivalents at the start of the period 207,232 525,869

287,377 (517,296)

Cash and cash equivalents at the end of the period 15 928,997 207,232


Exchange differences on translating foreign operations



18

NOTES TO THE FINANCIAL STATEMENTS

1. General information

2. Accounting policies

2.1 Basis of preparation

2.2 Basis of measurement

The Company is a limited liability closed-end real estate investment company, incorporated on 27 April

2006 in the British Virgin Islands (BVI). The Company is focused on master planned residential resorts

in Brazil.

The shares of the Company were admitted to the Alternative Investment Market (“AIM”) of the London

Stock Exchange on 30 May 2007. The consolidated financial statements for the year to 31 December

2015 comprise the Company and its subsidiaries (together referred to as the “Group”). The Company

delisted from AIM on 16 May 2014.

The consolidated financial statements have been prepared using the measurement bases specified

by IFRS for each type of asset, liability, income and expense. The measurement bases are more

fully described in the accounting policies below.

The financial statements of the Group have been prepared in accordance with International

Financial Reporting Standards as adopted by the EU (“IFRS”), and the BVI Business Companies

Act 2004. The financial statements have been prepared under the historical cost convention as

modified by the revaluation of investment properties held at fair value.

The preparation of financial statements in conformity with IFRS requires the use of certain critical

accounting estimates and exercise of judgment by the Directors while applying the Group’s

accounting policies. These estimates are based on the Directors’ best knowledge of the events that

existed at the balance sheet date; however, the actual results may differ from these estimates. The

areas involving a higher degree of judgment or complexity, or areas where assumptions and

estimates are significant to the consolidated financial statements are disclosed in subsequent

notes.



19


2. Accounting policies (continued)

2.3 Standards and amendments to existing standards effective 1 January 2016

IFRS 9 Financial Instruments (IASB effective date 1 January 2018 - not yet adopted by the EU)

The following standards and amendments to existing standards have been published and are

mandatory for the Group’s accounting periods beginning on or after 1 January 2015 or later

periods. Certain other new standards and interpretations have been issued but are not expected to

have a material impact on the Group’s financial statements:

IFRS 9 ‘Financial instruments: Classification and measurement’

The standard requires an entity to classify its financial assets on the basis of the entity’s business

model for managing the financial assets and the contractual cash flow characteristics of the

financial asset, and subsequently measures the financial assets as either at amortised cost or fair

value. The new standard is mandatory for annual periods beginning on or after 1 January 2018.

The Group’s management has yet to assess the impact of this new standard on the Group’s

consolidated financial statements.



20


2.4 Basis of Consolidation

(a) Consolidation

(b) Business combinations

2.5 Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the

chief operating decision maker. The chief operating decision maker is the person or group that

allocates resources to and assesses the performance of the operating segments of an entity. The

Group has determined that its chief operating decision maker is the board of Directors of the

Group.

The board considers the business based on the performance of the Investment Properties and

considers these to be the Group's operating segments. The segmental information provided to the

Board can be found in Note 8 Investment Properties.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated

Statement of Comprehensive Income from the effective date of acquisition or up to the effective

date of disposal, as appropriate. Where necessary, adjustments are made to the financial

statements of subsidiaries to bring the accounting policies used into line with those used by the

Group. All intra-Group transactions, balances, income and expenses are eliminated on

consolidation.

The group's assets and liabilities arise in relation to the Group's investment property portfolio on

the coast of Brazil.

The consolidated financial statements incorporate the financial statements of the Company and

entities controlled by the Group (its subsidiaries and subsidiary undertakings). Control is achieved

where the Group has the power to govern the financial and operating policies of a Group company

so as to obtain benefits from its activities.

The acquisition of subsidiaries is accounted for using the acquisition method. The cost of the

acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given,

liabilities incurred or assumed, and equity instruments issued by the Group in exchange for

control of the portfolio Group. The portfolio Group’s identifiable assets, liabilities and contingent

liabilities that meet the conditions for recognition under IFRS 3 are recognised at their fair value

at the acquisition date, except for non-current assets (or disposal groups) that are classified as held

for resale in accordance with IFRS 5 Non Current Assets Held for Sale and Discontinued

Operations, which are recognised and measured at fair value less costs to sell.



21



2.6 Interest Receivable

2.7 Foreign currency transactions

(a) Functional and presentation currency

(b) Transactions and balances

(c) Group companies

(ii) income and expenses for each income statement are translated at average exchange rates

(unless this average is not a reasonable approximation of the cumulative effect of the rates

prevailing on the transaction dates, in which case income and expenses are translated at the rate

on the dates of the transactions); and

(i) assets and liabilities for each statement of financial position presented are translated at the

closing rate at the date of that statement of financial position.

Interest receivable on cash held in deposit accounts is recognised on an accruals basis.

(iii) all resulting exchange differences are recognised in other comprehensive income and

accumulated in a separate component of equity.

Foreign currency transactions are translated into the functional currency of the parent company

using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and

losses resulting from the settlement of such transactions and from the translation at year-end

exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised

in the profit or loss. Non-monetary assets and liabilities denominated in foreign currencies that are

measuered at fair value are retranslated to the functional currency at the exchange rate at the date

that the fair value was determined.

The results and financial position of all the Group entities (none of which has the Currency of a

hyperinflationary economy) that have a functional Currency different from the presentation

Currency are translated into the presentation Currency as follows:

Items included in the Group’s financial statements are measured using the currency of the primary

economic environment in which it operates. This is the US Dollar, which is most reflective of the

Group’s cash flows.



22



2.8 Investment properties

2.9 Assets held for sale

2.10 Financial Liabilities

Any gain or loss resulting from the sale of an investment property is immediately recognised in

profit or loss.

Financial liabilities are obligations to pay cash or other financial assets and are recognised when

the group becomes a party to the contractual provisions of the instrument. Financial liabilities

categorised as at fair value through profit or loss are recorded initially at fair value, all transaction

costs are recognised immediately in the profit or loss. All other financial liabilities are recorded

initially at fair value, net of direct issue costs, where applicable.

Any gain or loss arising from a change in fair value is recognised in profit or loss.

Investment properties are those which are held either to earn rental income or for capital

appreciation or both. Investment properties are stated at fair value. An external, independent

valuation company, having an appropriate recognised professional qualification and recent

experience in the location and category of property being valued, values the portfolio every year.

The fair values are based on market values, being the estimated amount for which a property

could be exchanged on the date of valuation between a willing buyer and a willing seller in an

arm’s length transaction after proper marketing wherein the parties had each acted

knowledgeably, prudently and without compulsion. As no properties have been completed as yet

no rental income has been recognised as yet.

Assets classified as held for sale are measured at the lower of their carrying amounts immediately

prior to their classification as held for sale and their fair value less costs to sell. However, some

held for sale assets such as financial assets or deferred tax assets, continue to be measured in

accordance with the Group’s relevant accounting policy for those assets. Once classified as held

for sale, the assets are not subject to depreciation or amortisation. Any profit or loss arising from

the sale or remeasurement of discontinued operations is presented as part of a single line item,

profit or loss from discontinued operations (see note 9).

When the Group intends to sell a non-current asset or a group of assets (a disposal group), and if

sale within 12 months is highly probable, the asset or disposal group is classified as held for sale

and presented separately in the statement of financial position. Liabilities are classified as held for

sale and presented as such in the statement of financial position if they are directly associated

with a disposal group.



23



2.10 Financial Liabilities (continued)

2.11 Investment Manager and Performance Fee

2.12 Cash and cash equivalents

2.13 Share capital and premium

Share capital represents the issued amount of shares outstanding at their par value. Any excess

amount of capital raised is included in share premium. External costs directly attributable to the

issue of new shares are shown as a deduction, net of tax, in share premium from the proceeds.

Financial liabilities categorised as at fair value through profit or loss are re measured at each

reporting date at fair value, with changes in fair value being recognised in the income statement.

All other financial liabilities are recorded at amortised cost using the effective interest method,

with interest-related charges recognised as an expense in the finance cost in the income statement.

Finance charges, including premiums payable on settlement or redemption and direct issue costs,

are charged to profit or loss on an accruals basis using the effective interest method and are added

to the carrying amount of the instrument to the extent that they are not settled in the period in

which they arise.

A financial liability is derecognised only when the obligation is extinguished, that is, when the

obligation is discharged or cancelled or expires.

The Investment Manager ("ICP") received an annual management fee payable quarterly in

advance equivalent to 2% per annum of “equity funds” being the combination of (i) $87 million

plus (ii) the gross proceeds of any further subsequent equity Group raisings, plus (iii) realised net

profits from investments, less (iv) distributions to Shareholders. In March 2015, ICP retired by

mutual agreeement and was replaced by Real Estate Development Company ("REDCO") based in

Brazil on a cost reimbursement basis, plus a discretionary bonus to be awarded by the Board

based upon the Company's success.

Cash and cash equivalents comprise of cash deposited with banks and bank overdrafts repayable

on demand. Cash equivalents are short-term, highly liquid investments that are readily convertible

to known amounts of the cash and which are subject to an insignificant risk of changes in value.

Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash

management are included as a component of cash and cash equivalents for the purpose of the cash

flow statement.



24



2.14 Income tax

2.15 Joint Ventures and Joint Operations

2.16 Treasury Shares

The taxation credit included in the current year income statement comprises deferred tax only.

Deferred tax is provided using the balance sheet liability method, providing for temporary

differences between the carrying amounts of assets and liabilities for financial reporting purposes

and the amounts used for taxation purposes. The amount of deferred tax provided is based on the

expected manner of realisation or settlement of the carrying amount of assets and liabilities, using

tax rates enacted or substantially enacted at the reporting date.

Investments in Joint Ventures that do not meet the criteria of a Joint Operation are accounted for

using the equity method.

Where any Group company purchases the Group’s equity share capital (treasury shares), the

consideration paid, including any directly attributable incremental costs, is deducted from equity

attributable to the Group’s equity holders until the shares are cancelled, reissued or disposed of.

Where such shares are subsequently sold or reissued, any consideration received, net of any

directly attributable incremental transaction costs and the related income tax effects, is included in

equity attributable to the Group’s shareholders.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits

will be available against which the asset can be utilised. Deferred tax assets are reduced to the

extent that it is no longer probable that the related tax benefit will be realised.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted

or substantially enacted at the reporting date, and any adjustment to tax payable in respect of

previous years.

Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is

recognised in the profit or loss except to the extent that it relates to items recognised directly in

equity, in which case it is recognised in equity.

The Group’s interests in jointly controlled entities are accounted for by proportionate

consolidation where the arrangement meets the definition of a Joint Operation. The Group

combines its share of the joint ventures’ individual income and expenses, assets and liabilities and

cash flows on a line-by-line basis with similar items in the Group’s financial statements. The

Group recognises the portion of gains or losses on the sale of assets by the Group to the joint

venture to which it is attributable to the other venturers. The Group does not recognise its share of

profits or losses from the joint venture that result from the Group’s purchase of assets from the

joint venture until it resells the assets to an independent party. However, a loss on the transaction

is recognised immediately if the loss provides evidence of a reduction in the net realisable value

of a current asset, or an impairment loss.



25



2.17 Financial Assets

2.18 Going concern

The Directors believe that the Company is able to manage its business risk successfully and

following the sale of BB Trancoso in November 2016, the Company now has adequate cash

resources to settle all outstanding loans and have sufficient surplus cash to continue operations for

the foreseeable future.

Loans and receivables are non-derivative financial assets with fixed or determinable payments

that are not quoted in an active market. Trade receivables, sundry receivables and interest

receivable are classified as loans and receivables. Loans and receivables are measured subsequent

to initial recognition at amortised cost using the effective interest method, less provision for

impairment. Any change in their value through impairment or reversal of impairment is

recognised in profit or loss.



26


3. Critical accounting estimates and assumptions

(a) Estimate of fair value of investment properties

(b) Classification of Investment Properties

(c) Classification of Trancoso as a Joint Operation

(d) Assets Held for Sale

The Directors make estimates and assumptions concerning the future. The resulting accounting estimates

will, by definition, seldom equal the related actual results. The estimates and assumptions that have a

significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within

the next financial year are outlined below.

Estimates and judgments are continually evaluated and are based on historical experience as adjusted for

current market conditions and other factors.

The Group has classified its joint venture in BB Trancoso Ltd. as a joint operation, as defined by

IFRS11, as such the Group has consolidated its share of any assets, liabilities, revenues and expenses.

The Group has classified property in development as investment property, as defined by IAS40, as these

are being held by the Group for the purposes of either earning capital appreciation or rental income or

both.

Post year end BB Trancoso was sold (see note 18). As at the balance sheet date BB Trancoso did not

meet the definition of an Asset Held for Sale as defined by IFRS 5 and as such it has not been reclassified

from Investment Properties to Assets Held for Sale in these financial statements.

The Group holds full or partial ownership interests in a number of investment properties. Cushman &

Wakefield conducted an independent valuation of the investment properties owned by these companies as

at 31 December 2015 (see note 8).



27


4. Other administration fees and expenses

2015 2014

$ $

NOMAD fee - 75,000

Secretarial and administration fee 135,842 168,291

Directors' fees 187,500 212,500

Legal and Professional fees - corporate 554,764 979,272

Travelling expenses 57,516 142,105

Taxation (1) - 2,737

Insurance 26,840 31,100

Regulatory fees - 11,834

Audit fees (2) 32,638 43,047

General administration and sundry expenses 97,481 53,845

Loan interest payable 8% BB Trancoso Limited 63,262 -

385,845 164,060

Loan interest payable Convertible Loan Notes 132,859 -

1,674,547 1,883,791

(1) Taxation represents amounts paid by the Brazilian subsidiaries.

5. Deferred Taxation

Loan interest payable Dorchester Capital Secondaries Offshore III LP

The deferred tax provision for the Brazilian subsidiaries is based on the capital gains tax rate, which is

15%. Such tax liability is likely to be avoided if on realising the investments the Company sells the BVI

special purpose holding companies established specifically to hold its interests in Brazilian investment

companies.

As a Company incorporated under the BVI International Business Companies Act (Cap. 291), the

Company is exempt from taxes on profit, income or dividends. Each Company incorporated in BVI is

required to pay an annual government fee, which is determined by reference to the amount of the

Company’s authorised share capital.

(2) Audit fees represent auditor’s remuneration for work undertaken in connection with the statutory audit of the Group, these fees were payable to

the Company’s auditor for the audit of the Group accounts.

The unrealised write down of the Investment Properties has meant their respective valuations have fallen

below original cost when converted into US Dollars. Consequently, the Deferred Tax provision is no

longer required and has been written to zero in the year.



28


5. Deferred Taxation (continued)

Deferred tax

liability

$

Balance at 1 January 2014 4,095,992

(Credit) in the income statement (1,899,091)

Balance as at 31 December 2014 2,196,901

Balance at 1 January 2015 2,196,901

(Credit) in the income statement (2,196,901)

Balance as at 31 December 2015 -

Deferred tax liability is attributable to the following:

Revaluation of investment property -

Total -

6. Consolidated loss per share

2015 Basic and Basic and

Diluted Diluted

EPS EPS

(excluding

deferred

tax)

$ $

Net loss (27,817,502) (27,817,502)

Deferred tax - (2,196,901)

Adjusted net loss (27,817,502) (30,014,403)

Weighted average number of

shares in issue (see below) 73,696,071 73,696,071

Loss per share (0.38) (0.41)



29


6. Consolidated loss per share (continued)

2014 Basic and Basic and

Diluted Diluted

EPS EPS

(excluding

deferred

tax)

$ $

Net loss (14,370,021) (14,370,021)

Deferred tax - (1,899,091)

Adjusted net loss (14,370,021) (16,269,112)

Weighted average number of

shares in issue (see below) 88,201,120 88,201,120

Loss per share (0.16) (0.18)

Weighted average shares in issue calculation

Basic and diluted- 2015

Days in

Ongoing Cumulative Issue Weighted

Shares in issue at 1 January 2015 73,696,071 73,696,071 365 73,696,071

73,696,071 73,696,071

Basic and diluted- 2014

Days in

Ongoing Cumulative Issue Weighted

Shares in issue at 1 January 2014 93,525,071 93,525,071 365 93,525,071

Share swap on sale of Duas Barras (19,829,000) 73,696,071 98 (5,323,951)

73,696,071 88,201,120

Number of shares

Number of shares



30


7. Investments in subsidiaries and joint ventures

Subsidiaries

Itacaré Capital Investments II, LLC (1) 100%

Itacap Three, LLC (2) 100%

Itacap Três Incorporações e Participações Ltda(2) 100%

Itacap MP, LLC (3) 100%

Itacap Seven Ltd. (4) 100%

W Villa Holding Ltd. (5) 100%

Goveport International Ltd. (5) 100%

Goveport International, LLC (5) 100%

100%

Joint Ventures

BB Trancoso Ltd. (4) 50%

Trancoso Investment One, LLC(4) 50%

Bahia Beach Empreendimentos Imobiliários e Hotelaria S/A. (4) 50%

Bahia Beach Participagoes Ltda. (4) 50%

Country

of incorporation

Brazil

BVI

BVI

of Incorporation

BVI

Brazil

Brazil

Brazil

BVI

Delaware USA

Delaware USA

Delaware USA

Delaware USA

Country

The subsidiaries of the Company are recorded at cost in the accounts of the Company and are all included in the

consolidated financial statements. Joint Ventures are accounted for by proportionate consolidation where the

arrangement meets the definition of a Joint Operation.

Delaware USA

Proportion

of

Ownership

Interest

Proportion

of

Ownership

Interest

The following amounts represent the Group's 50% share of the assets and liabilities, and results of the joint venture.

They are included in the consolidated statement of financial position and consolidated statement of comprehensive

income.

Villas do Havaizinho Hotelaria e Empreendimentos Imobiliários Ltda. (5)



31


7. Investments in subsidiaries and joint ventures (continued)

2015 2014

$ $

Assets

Long-term assets 15,379,908 24,224,216

Current assets 78,215 126,759

15,458,123 24,350,975

Liabilities

Long-term liabilities 1,818,177 1,530,837

Current liabilities 4,643 22,949

1,822,820 1,553,786

Net assets 13,635,303 22,797,189

Income 881 2,167

Expenses (423,105) (318,992)

Loss after tax (422,224) (316,825)

Interest in joint ventures

There are no contingent liabilities relating to the Group’s interest in the joint ventures (Dec 2014:nil), and no

contingent liabilities of the ventures themselves (Dec 2014:nil).

The Group has a 50% interest in a joint venture BB Trancoso Ltd, who own Bahia Beach Empreendimentos

Imobiliários Ltda through Trancoso Investment One LLC.

BB Trancoso Ltd



32


7. Investments in subsidiaries and joint ventures (continued)

(1)

(2)

(3)

(4)

(5)

Itacare Capital Investments II LLC owns 100% of, Itacap Three LLC, and Itacap MP, LLC.

Itacap Seven Ltd. owns 50% of BB Trancoso Ltd., which in turn owns 100% of Trancoso Investment One LLC,

which in turn owns 99.9% of Bahia Beach Participações Ltda., which in turn owns 100% of Bahia Beach

Empreendimentos Imobiliários e Hotelaria S/A, which owns the Bahia Beach Property. BB Trancoso was

disposed of post year end (see note 18).

As Brazilian corporate law requires Brazilian companies to have at least two quotaholders (or shareholders in

the case of a corporation), Itacap MP, LLC was formed to hold one quota, or share, of each of the Project

Companies, when necessary. Itacap MP, LLC owns 0.01% of Itacap Três Incorporações e Participações Ltda.

and Villas do Havaizinho Hotelaria e Empreendimentos Imobiliários Ltda. No fair value gain has been included

in the consolidated financial statements in relation to Itacap MP, LLC.

W Villa Holdings Ltd. owns 100% of Goveport International Ltd., which in turn owns 100% of Goveport

International, LLC. Goveport International, LLC owns 99.99% of Villas do Havaizinho Hotelaria e

Empreendimentos Imobiliários Ltda., which owns the Havaizinho property.

Itacap Three, LLC owns 99.99% of Itacap Três Incorporações e Participações Ltda, which was established to

facilitate the Company’s ownership of the property Três Praias.



33


8. Investment properties

Tres BB Duas

Praias Trancoso Barras Total

$ $ $ $

At 1 January 2014 38,745,000 32,350,500 18,771,500 89,867,000

Additions in year - 723,055 44,750 767,805

38,745,000 33,073,555 18,816,250 90,634,805

Fair value adjustment (4,700,000) (8,853,055) 616,170 (12,936,885)

Transfer to assets held for resale - - (19,432,420) (19,432,420)

At 31 December 2014 34,045,000 24,220,500 - 58,265,500

At 1 January 2015 34,045,000 24,220,500 - 58,265,500

Additions in year 11,244 174,256 - 185,500

34,056,244 24,394,756 - 58,451,000

Fair value adjustment (17,729,244) (9,017,256) - (26,746,500)

At 31 December 2015 16,327,000 15,377,500 - 31,704,500

The Group has no contractual obligations to build any properties on the land currently under development.

The analysis of market value of the properties is based on all the pertinent factors that relate both to the real estate

market and, more specifically, to the subject properties. The valuation analysis of the properties used two

approaches: the comparison approach, the residual value approach. The comparison approach is based on the

premise that persons in the marketplace buy by comparison. It involves acquiring market sales/offerings data on

properties similar to the subject property. The prices of the comparables are then adjusted for any dissimilar

characteristics as compared to the subject’s characteristics. Once the sales prices are adjusted, they can be

reconciled to estimate the market value of the subject property. The residual value approach is an assessment of the

value of a scheme as completed and deduction of the costs of development (including developer's profit) to arrive at

the underlying land value. These valuations are deemed to be the fair value of the investment property. Cushman &

Wakefield's determination of fair value was supported by market evidence, and no adjustments have been made to

such valuations.

Each of the above-mentioned techniques results in a separate valuation indication for the subject property. A

reconciliation process is performed to weigh the merits and limiting conditions of the first two approaches. Once

this is accomplished, a value conclusion is reached by placing primary weight on the technique, or techniques, that

are considered to be the most reliable, given all factors.

During the year the Group had no major customers.

All investment properties are held in Brazil.

The Directors appointed Cushman & Wakefield, an internationally recognised firm of surveyors to conduct a

valuation of the Group’s acquired sites to determine their fair asset value as at 31 December 2015. These valuations

were prepared in accordance with generally accepted appraisal standards, as set out by the American Society of

Appraisers (the “ASA”), and in conformity with the Uniform Standards of Professional Appraisal Practice of the

Appraisal Foundation and the Principles of Appraisal Practice and Code of Ethics of the ASA and RICS (the

“Royal Institute of Chartered Surveyors”).



34


8. Investment properties (continued)

All additions relate to expenditure on existing assets, in both the current and prior year.

9. Assets held for sale Duas

Havaizinho Barras Total

$ $ $

At 1 January 2014 3,000,000 - 3,000,000

Additions in year 120,300 - 120,300

Transfers in the year - 19,432,420 19,432,420

3,120,300 19,432,420 22,552,720

Fair value adjustment (120,300) 396,580 276,280

Disposals in year - (19,829,000) (19,829,000)

At 31 December 2014 3,000,000 - 3,000,000

At 1 January 2015 3,000,000 - 3,000,000

Additions in year 74,026 - 74,026

Transfers in the year - - -

3,074,026 - 3,074,026

Fair value adjustment (74,026) - (74,026)

Disposals in year - - -

At 31 December 2015 3,000,000 - 3,000,000

Havaizinho

. Havaizinho is available for immediate sale and can be sold to a potential buyer in its current condition

Real estate valuations are complex, derived from data which is not widely publicly available and involve a degree

of judgement. For these reasons, and consistent with EPRA’s guidance, management have classified the valuations

of our property portfolio as Level 3 as defined by IFRS 13. Inputs to the valuations, some of which are

‘unobservable’ as defined by IFRS 13, include the Brazilian National Index of Construction Cost (INCC) price

index. All other factors remaining constant, an increase in future sales proceeds would increase valuations, whilst

increases in discount rate would result in a fall in values and vice versa. However, there are interrelationships

between unobservable inputs as they are determined by market conditions. The existence of an increase of more

than one unobservable input would augment the impact on valuation.

On 30 December 2013, the Board of Directors announced its decision to dispose of Havaizinho and, therefore,

classified it as a disposal group held for sale. The Board considered the investment property met the criteria to

be classified as held for sale at that date for the following reasons:

BB Trancoso was sold in November 2016 for $10.5 million giving rise to a book loss reflecting the continuing

deterioration of the Brazilian property market in the 11 months post the year end. This fair value loss has not been

recognised in these financial statements.



35


9. Assets held for sale (continued)

Havaizinho (continued)

10. Share Capital

2015 2014

Authorised share capital Number of shares Number of shares

Ordinary shares of $0.01 each 500,000,000 500,000,000

Movement in share capital and premium

Number of shares Share Capital Share Premium

No. $ $

93,525,071 935,251 89,997,406

Issued shares swapped to Treasury shares (19,829,000) (198,290) (19,630,710)

73,696,071 736,961 70,366,696

Number of shares Share Capital Share Premium

No. $ $

73,696,071 736,961 70,366,696

73,696,071 736,961 70,366,696

22,400,429 Shares held on 1 January 2015 and 31 December 2015

Shares in issue on 31 December 2014

Shares in issue on 1 January 2015

Treasury shares

Shares in issue on 1 January 2014

Shares in issue on 31 December 2015

. The Board had a plan to sell Havaizinho and had signed a 36- month option agreement to 30 December 2016,

with Dominic Redfern (“the Buyer” of Warapuru), with a strike price of $3 million (plus the sum of accumulated

costs.)



36


11. Net asset value per share

NAV

Calculation

2015 2014 2015 2014 2015 2014

Number Number $ $ $'000 $'000

Basic 73,696,071 73,696,071 0.37 0.75 27,435 54,966

Diluted 73,696,071 73,696,071 0.37 0.75 27,435 54,966

73,696,071 73,696,071 0.37 0.77 27,435 57,059

12. Directors' interests

27,346,071 Ordinary Shares

Michael St Aldwyn(2) 995,000 Ordinary Shares

Raymond Smith 20,000 Ordinary Shares

(1)

(2)

13 Trade and other receivables

2015 2014

$ $

Trade receivables 532 619

Sundry receivables 66,377 103,089

66,909 103,708

Per note 14 the Company issued 6% Convertible Loan Notes. BGO Fund Plc subscribed for US$1,100,000

(representing up to 8,213,333 shares) and Michael St Aldwyn subcribed for US$50,000 (representing up to

373,333 shares)

Frederick Dubignon is a board member as a representative of BGO Fund. (On 21st December 2015 the BGO

Fund was sold to Dorchester Capital Secondaries Offshore III LP and the shares have been transferred into their

name). Their holding representing 37.1% of the issued share capital.

The Directors interests in the shares of the Group at 31 December 2015 are stated below.

Dorchester Capital Secondaries Offshore

III LP (1)(2)

Basic net asset value per share is based on net assets at the year end, and on 73,696,071 (2014: 73,696,071)

ordinary shares, being the respective number of shares in issue at the year end.

The net asset value per share and the net asset values attributable to ordinary shares at the year end are calculated in

accordance with their entitlements in the Articles of Association and were:

Diluted excluding deferred

tax liability

Net asset value

attributableNet asset value per share

attributable

Number of ordinary shares



37


14 Trade and other payables

2015 2014

$ $

Non Current Liabilities

6% Convertible Loan Notes (1) 2,975,000 -

Interest payable on Loan Notes 132,859 -

3,107,859 -

Payables/Commitments to developers 699,408 -

Loan notes (2) 469,607 -

4,276,874 -

2015 2014

Current liabilities $ $

Payables/Commitments to developers - 938,093

Working capital loan 3,632,160 2,646,315

Loan notes - 592,745

Sundry payables 355,940 236,829

3,988,100 4,413,982

15 Cash and cash equivalents

2015 2014

$ $

Cash at bank 928,997 207,232

928,997 207,232

(1) As part of the restructuring the Company offered shareholders the opportunity to participate in a $3

million 6% unsecured redeemable Convertible Loan Note, with a maturity date for repayment of 31

March 2017.The Company has 22,400,429 Ordinary shares held in treasury which have been set aside to

cover any conversions arising for capital and interest thereon, at a conversion price of 15 cents per share.

The Notes can be converted by the debt holders at any time up to maturity. A total of $2,975,000 was

raised via subscriptions from existing shareholders and members of the management team, and the

funding round was completed in April 2015.

(2) BB Trancoso Limited issued US$2,067,800 (2014: US$1,150,000) of 8% Unsecured Subordinated

Convertible PIK Notes of US$1 each. The Notes shall rank pari passu equally and rateably without

discrimination or preference and as an unsecured obligation of the Issuer. The notes are issued via BB

Trancoso Limited of which the Company owns a 50% stake. The Company participated in US$ 645,300

of the total. The net liability to the Company after interest is US$469,407.

The Company raised $3.1 million of working capital loan facility from the BGO Fund who have

subsequently been acquired by Dorchester Capital Secondaries Offshore III LP. The loan facility carries

interest at 11% p.a. and was not repaid when the loan fell due on 31 March 2016. Beyond that date the

loan carried interest at 12% p.a. Following the sale of the Company's interest in BB Trancoso the

Company has repaid the loan together with accrued interest up to and including November 2016.



38


16. Related party transactions

2015 2014

Directors' Directors'

Fees Fees

$ $

Michael St Aldwyn (1) 62,500 62,500

Raymond Smith (2) 50,000 50,000

Frederick Dubignon (resigned 16 November 2016) (3) - -

Frederico Schiliró (4) - -

Pierre Charalambides - -

Samsão Woiler (resigned 11 May 2015) (5) 37,500 50,000

Ricardo Reisen de Pinho (resigned 11 May 2015) (5) 37,500 50,000

Total 187,500 212,500

(1) Micky St Aldwyn received US$ 31,250 during the year with a further US$ 31,250 being deferred.

(2) Raymond Smith received US$ 25,000 during the year with a further US$ 25,000 being deferred.

(3) The Company raised $3.1 million of working capital loan facility from the BGO Fund (“BGO”) to

allow the Company more time to make asset disposals and/or place shares to fund future requirements.

The loan facility carries interest at 11% and becomes repayable on 30th

March 2016. BGO are the

Company’s largest shareholder and Frederick Dubignon represents their interest on the Board. The loan

terms were negotiated at arms length, and Fred Dubignon abstained from voting on the Board’s decision

to enter into the loan arrangement. On 21st December 2015 the BGO Fund was sold to Dorchester

Capital Secondaries Offshore III LP.

(4) Frederico Schiliró is a partner of REDCO who were appointed to manage the Company's assets with

effect from 1st April 2015 following the termination of the previous Manager. For the nine month period

ending 31 December 2015 the Company paid to REDCO fees amounting to $524,515 which have been

categorised within management fees to cover the cost of the local Brazilian office and all staff employed

therein.

Each Director received compensation based on an annual fee of $50,000, except the Chairman who

received $62,500 and Frederick Dubignon, Pierre Charlambides, and Frederico Schiliró , who received

nil. Total fees and expenses paid to the Directors for the year to 31 December 2015 were as follows:

(5) On the resignation of Samsão Woiler and Ricardo Reisen de Pinho, the Company agreed to pay them

US$ 12,500 each on resignation, with a further US$ 25,000 payable to each when the Company sells an

asset and has repaid the Dorchester Capital Secondaries Offshore III LP loan.



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17. Financial Risk Management

The key risks identified by the board are as follows:

(a) Market price risk

Cost Fair Value

$ $

67,389,581 34,704,500

(b) Interest rate risk

(c) Liquidity risk

The Group is exposed to risks associated with the effects of fluctuations in the prevailing levels of

market interest rates on its financial position and cash.

During 2015 if interest rates on overnight deposits had been 0.2% higher/lower, given the Group has no

borrowings, post tax profit for the year would have been $4,145 higher/lower.

2015

The market price is exposed to the real estate market fluctuation that depends intrinsically on the market

demand. Therefore prices may increase and or decrease following demand thus affecting positively or

negatively the fair value of the assets. Recognition of such variation is included in the Statement of

Income and Expenditure.

Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate

because of changes in market interest rates.

The Group’s activities expose it to a variety of financial risks: market risk (including currency risk, fair

value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The

Group’s overall risk management programme focuses on the unpredictability of financial markets and

seeks to minimise potential adverse effects on the Group’s financial performance. There will always be

some risk when undertaking property investments but the control process is aimed at mitigating and

minimising these risks where possible.

Investment properties and assets held for resale measured at

fair value under IAS40

The liquidity risk is that the Group cannot meet its financial obligations when they fall due. Liquidity

risk may arise from the potential inability to sell a financial instrument without undue delay at a price

close to its fair value. Prudent liquidity risk management implies maintaining sufficient cash and

marketable securities, the availability of funding and ability to close out market positions. Of the

liabilities all are due within one year.



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17. Financial Risk Management (continued)

(d) Environmental risk

(e) Credit risk

(f) Currency risk

Additional contractual warranties and/or financial credit instruments provided by sellers, where

applicable, mitigate credit risks arising from investment property purchase deals.

Currency risks arise where instruments, investments and material costs are denominated in a currency

different from the Functional Currency. As some financial assets of the Group are denominated in

currencies other than the Functional Currency, the effect is that the Balance Sheet and Income Statement

can be affected by currency movements. The Group has no outstanding currency hedging transactions.

Credit risk is managed on a Group basis. Credit risk arises from cash and cash equivalents, deposits with

banks and financial institutions, including outstanding receivables and committed transactions.

A further risk factor identified by the Board encompasses environmental risks. In addition to the need to

act as a responsible landlord there may, in some circumstances, be occasions when the Group buys a site

with pollution or deforestation. Each acquisition undertaken by the Group includes an environmental

report from a specialist consultancy. These reports may indicate the need for further investigation and in

some cases remediation. The Group’s policy is then to either undertake such investigations or

remediation or potentially reject the purchase as no longer viable.

The Group is not susceptible to high credit risk as its cash transactions are limited to high-credit-quality

financial institutions and no credit limits were exceeded during the reporting period. Furthermore, the

Group enters into investment transactions, which attract both off-balance sheet market risks and off-

balance sheet credit risks

The Group continuously monitors defaults of customers and other counterparties, identified either

individually or by group, and incorporates this information into its credit risk controls. Where available

at reasonable cost, external credit ratings and/or reports on customers and other counterparties are

obtained and used. The Group's policy is to deal only with creditworthy counterparties. The Group's

management considers that all the above financial assets that are not impaired or past due for each of the

reporting dates under review are of good credit quality.

The Functional Currency of the Group’s investments in Brazilian subsidiaries is the Brazilian Real and

the majority of its costs and expenditures are denominated in local currency.



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(f) Currency risk (continued)

2015

$ R$ Total

ASSETS

Current assets

Trade and other receivables - 66,909 66,909

Cash and cash equivalents 674,976 254,021 928,997

Total Current Assets 674,976 320,930 995,906

EQUITY

Capital and reserves

Ordinary shares 736,961 - 736,961

Share premium 70,366,696 - 70,366,696

Retained earnings (47,921,948) - (47,921,948)

Foreign exchange reserve 3,653,645 - 3,653,645

LIABILITIES

Current liabilities

Trade and other payables - 5,643,545 5,643,545

Total financial liabilities and equity 26,835,355 5,643,545 32,478,900

$ amount per accounts

For Brazilian subsidiaries’ projects the currency exchange rate at 31 December 2015 was Brazilian Real

R$3.9608 to $1.00.



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(f) Currency risk (continued)

2014

$ R$ Total

ASSETS

Current assets

Trade and other receivables - 103,708 103,708

Cash and cash equivalents 141,694 65,538 207,232

Total Current Assets 141,694 169,246 310,940

EQUITY

Capital and reserves

Ordinary shares 736,961 - 736,961

Share premium 70,366,696 - 70,366,696

Retained earnings (20,207,464) - (20,207,464)

Foreign exchange reserve 3,966,347 - 3,966,347

LIABILITIES

Current liabilities

Trade and other payables - 4,413,981 4,413,981

Total financial liabilities and equity 54,862,540 4,413,981 59,276,521

(g) Capital management

The Group's capital management objectives are:

- To ensure the Group's ability to continue as a going concern;

- To increase the value of the assets of the business; and

These objectives will be achieved by developing the Group's investment property portfolio, adding value

to these projects and ultimately taking them through to sale and cash flow, either with partners or by

their own means.

The Group monitors capital on the basis of the carrying amount of equity less cash and cash equivalents

as presented on the face of the consolidated statement of financial position. Capital for the reporting

periods under review is summarised in the consolidated statement of changes in equity.

- To provide an adequate return to shareholders in the future

The Group’s exposure varies in an average 3% increase/decrease in the $ against Brazilian Real and may

potentially impact in cash flows for investments. As of 31 December 2015 the impact of such currency

exchange rate fluctuation would have led to a decrease/increase in NAV of $823,063 (2014:

$1,646,000). The Group's loss would also have led to an increase/decrease of $825,904 (2014:

$449,526).

$ amount per accounts

For Brazilian subsidiaries’ projects the currency exchange rate at 31 December 2014 was Brazilian Real

R$2.68038 to $ 1.00.



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(g) Capital management (continued)

18. Events After The Balance Sheet Date

The Group sets the amount of capital in proportion to its overall financing structure, i.e. equity and

financial liabilities. The Group manages the capital structure and makes adjustments to it in the light of

changes in economic conditions and the risk characteristics of the underlying assets.

Details of events that have occurred after the balance sheet date are as follows:

In November 2016 the Company sold its 50% joint venture interest in BB Trancoso for cash

consideration of $10.5 million. Consequently, the Company repaid Dorchester Capital Secondaries

Offshore III Lp the BGO loan balance, which including rolled up interest amounted to $4.01 million.

In March 2016 the Company was notified that BGO, the Company's largest shareholder, and provider of

the BGO working capital loan, was acquired by Dorchester Capital Secondaries Offshore III LP who

advised the Board that they were not interested to provide further funding to the Company.

Consequently, and in light of the uncertainty of the Brazilian market and the Company's limited cash

resounces, it was determined that a sale of the Company or its assets would be in the shareholders' best

interests.

ITACARÉ CAPITAL INVESTMENTS LTD ANNUAL REPORT AND...

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