Annual / Quarterly Financial Statement • Jun 12, 2008
Annual / Quarterly Financial Statement
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Financial Statements Years ended December 31, 2007 with Report of Independent Auditors
Ernst & Young, S.L.
Torre Picasso Plaza Pablo Ruiz Picasso, 1 28020 Madrid
Tel.: 902 365 456 Fax: 915 727 300 www.ey.com/es
Independent Auditor's Report
To the Board of Directors Caja San Fernando Preference Limited by appointment of the Board of Directors
We have audited the accompanying financial statements of Caja San Fernando Preference Limited (the "Company") which comprise the balance sheet as at December 31, 2007 and the income and retained earnings and cash flows statement and statement of changes in shareholder's equity for the year then ended, and a summary of significant accounting policies and other explanatory notes.
Management is responsible for the preparation and fair presentation of these financial statements in accordance with Internationals Financial Reporting Standards. 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.
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 auditor's judgment, 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 polices used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
Domicilio Social: P., Pablo Ruiz Picasso, 1, 28020 Macrid. Hascrita en el Registro Mercantil de Madrid al Temo 12749, Libro 0, Folio 215, Sección 81, Ttoja M-23123, inscriación 116. C.LE B-78970506.
Ernst & Young, S.L. Torre Picasso Plaza Pablo Ruiz Picasso, 1 28020 Madrid
2
Tel.: 902 365 456 Fax: 915 727 300 www.ey.com/es
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
In our opinion, the financial statements give a true and fair view of the financial position of Caja San Fernando Preference Limited as of December 31, 2007 and of its financial performance and its cash flows and the changes in its equity for the year then ended in accordance with International Financial Reporting Standards.
The accompanying management report for the year ended December 31, 2007 contains such explanations as the Company's directors consider appropriate concerning the situation of Caja San Fernando Preference Ltd., the evolution of their business and other matters, and is not an integral part of the financial statements. We have checked that the accounting information included in the management report mentioned above agrees with the financial statements for the year ended December 31, 2007. Our work as auditors is limited to verifying the management report in accordance with the scope mentioned in this paragraph, and does not include the review of information other than that obtained from the accounting records of the Company.
This report is made solely to the directors, as a body. Our audit work has been undertaken so that we might state to the directors those matters we are required to state to them in an auditors' 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 directors as a body, for our audit work, for this report, or for the opinions we have formed.
Knownd
José Carlos Hernández Barrasús
-Domicino Social: Pl. Pablo Ru z Picasso, 1. 28020 Madrid l'hiscrita en el Registro Morcantil de Madrid al Tamo 12749, Fibro 0, Fallo 215, Sección 81 - Hoja M-23123, Ireccipción 116. C.LF, B-78970506
Accrued interest income Cash and cash equivalents (Note 2)
Total assets
Capital and reserves (Note 4) Ordinary shares Preference shares Retained carnings
Total shareholder's equity
Accrued dividends payable (Note 4)
| 122,226,275 | 121,677,431 | |
|---|---|---|
| 235,124 | 177,332 | |
| L ,051,151 | TOU,UYY |
| 120,260,675 | 120,201,431 |
|---|---|
| 120,000,000 251,132 |
120,000,000 191,888 |
| 9,543 | 9,543 |
| $\sim$ | ||
|---|---|---|
| Total liabilities | 2,005,600 | 1,476,000 |
| Total shareholder's equity and liabilities | 122,266,275 | 121,677,431 |
The accompanying Notes 1 to 10 are an integral part of these financial statements
Statements of income and retained earnings for the years ended as of December 31, $2007$ and 2006 (Expressed in Euros)
| Interest income (Note 3) | 5,340,905 | 3,831,230 |
|---|---|---|
| Net interest income | 5,340,905 | 3,831,230 |
| Operating expenses | (4,862) | (17,071) |
| Total expenses | (4, 862) | (17,071) |
| Net income | 5,336,043 | 3,814,159 |
| Retained earnings, beginning of year | 192,888 | 144,529 |
| Dividends (Note 4) | 5,281,661 | 3,766,800 |
| Retained carnings, end of year | 251,132 | 191,888 |
The accompanying Notes 1 to 10 are an integral part of these financial statements
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$-2-$
Cash flows statement for the years ended as of December 31, 2007 and 2006 (Expressed in Euros)
Cash flows from operating activities
Net income for the year
2006 2007 3,814,159 5,336,043
Adjustments to reconcile net income to net cash provided by operating activities
| Increase / Decrease in interest receivables | (531, 052) | (515,006) |
|---|---|---|
| Net cash provided by operating activities | 4,804,991 | 3,299,153 |
| Cash flows from financing activities | ||
| Dividends paid | (4,747,199) | (3,253,200) |
| Net cash used in financing activities | (4,747,199) | (3,253,200) |
| Increase in cash and cash equivalents | 57,792 | 45,953 |
| Cash and cash equivalents, beginning of year | 177,332 | 131,379 |
| Cash and cash equivalents, end of year | 235,124 | 177,332 |
Supplemental cash flow information
Interest received
4,809,853 3,316,224
The accompanying Notes 1 to 10 are an integral part of these financial statements
Statements of changes in shareholder's equity for the years ended December 31, 2007 and 2006 (Expressed in Euros)
Issued ordinary
Issued preference
Retained
| shares | shares | carnings | Total | |
|---|---|---|---|---|
| Balance at December 31, 2005 | 9,543 | 120,000,000 | 144,529 | 120,154,072 |
| Net income Dividends paid on preferences shares |
3,814,159 (2,290,800) |
3,814,159 (2,290,800) |
||
| Interim dividends declared | (1,476,000) | (1,476,000) | ||
| Balance at December 31, 2006 | 9,543 | 120,000,000 | 191,888 | 120,201,431 |
| Net income | 5,336,043 | 5,340,905 | ||
| Dividends paid on preferences shares | (3,271,199) | (3,276,061) | ||
| Interim dividends declared | (2,005,600) | (2,005,600) | ||
| Balance at December 31, 2007 | 9,543 | 120,000,000 | 251,132 | 120,260,675 |
The accompanying Notes 1 to 10 are an integral part of these financial statements
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Notes to the financial statements for the year ended as of December 31, 2007
Caja San Fernando Preference Limited (the "Company") was incorporated on May 17, 2001 for an unlimited duration as an exempted limited liability company under the Companies Law (Revised) of the Cayman Islands. The Company's registered office is P.O. Box 309, George Town, Cayman Islands.
The Company is a wholly owned subsidiary of Caja de Ahorros Provincial San Fernando de Sevilla y Jerez (the "Bank"), which uses the company for fund raising transactions.
All the administrative services are performed by Maples Finance (formerly Queensgate SPV Services Ltd.). The Company has no employees.
The Company was established as a special purpose vehicle whose primary function is to issue Non Cumulative Guaranteed Non Voting Euro Preference Shares (the "Euro Preference Share") pursuant to a Spanish Prospectus ("Folleto Informativo") and a Placement and Agency Agreement entered into with the Bank and Confederacion Española de Cajas de Ahorro ("C.E.C.A."). The proceeds of issuance of preference shares are deposited with the Bank in a time deposit. Accordingly, there is a concentration of credit risk with the Bank.
These Financial Statements were authorized for issue by the Directors on March 28, 2008.
Basis of presentation
The accompanying financial statements have been prepared based on the Company's accounting records as of December 31, 2007. The financial statements have been prepared in accordance with the International Financial Reporting Standards issued by the International Accounting Standards Board.
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Notes to the financial statements for the year ended as of December $31, 2007$
Certain standards and interpretations issued by the International Accounting Standards Boards came into effect in 2007. These standards and interpretations, the most relevant of which are set out below, have not had a significant effect on the financial statements:
As of the date these financial statements were prepared, some new standards and interpretations have been issued; however, it will be applicable to the Company in 2009. The most relevant standards and interpretations are:
impact on the Company's financial position.
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The significant accounting policies are:
Notes to the financial statements for the year ended as of December 31, 2007
Accounting principles
Cash and Cash Equivalents a)
Cash and cash equivalents comprise cash at the Bank and in hand and short-term deposits with an original maturity of three months or less.
Financial assets are investments in a time deposit placed with the Bank. This deposit is initially recognized at cost, being the fair value of the consideration given and including acquisition charges associated with the investment.
After initial recognition, investments, which are classified as held-to-maturity, are subsequently measured at amortized cost using the effective interest rate method. For investments carried at amortized cost, gains and losses are recognized in income when the investments are derecognized or impaired, as well as through the amortization process.
Interest income is recorded on the accrual basis, based on the effective interest rate.
Operating expenses reflect all necessary expenses for the activity of the Company.
Preparation of the financial statements in Euros e)
The Company has prepared its financial statements in Euros which it was deemed the funcional currency of the Company.
Foreign Currency Translation f)
Translation of assets and liabilities denominated in currencies other than the reporting currency of Euro is at exchange rates prevailing at the balance sheet date.
Gains and losses on translation are recorded in the statements of income and retained earnings.
Notes to the financial statements for the year ended as of December 31, 2007
Investments comprise a time deposit held with the Bank which earns interest on a half-yearly basis, at a floating rate constituted by the sum of 6 month Euribor rate plus a margin that will be fixed by the Company and the Bank, based on the principal amount deposited and period it was fixed for (number of days) bearing in mind the conditions of the Spanish Prospectus of the related preference share issue (the "Issue"). At the request of the Company, the Bank will repay all or part of the deposit so that the Company can make the necessary payments, as set out in the Spanish Prospectus of the Issue and as per the Terms and the Conditions of the Issue established in the Program documentation (see Note 4).
The maturity of this time deposit is tied to the redemption date of the Euro Series A Preferences Shares (see Note 4). The interest rate at December 31, 2007 was 4,689%.
Related income is recorded under the "Interest income" caption in the Statements of Income and Retained Earnings of December 31, 2007.
Authorised share capital is as follow:
| Euros | ||
|---|---|---|
| 2007 | 2006 | |
| 10,000 Ordinary shares of US\$ 1.00 each 800,000 Series A Non Cumulative Guaranteed Non Voting Euro Preference Shares par value of EUR 300 each |
9,543 | 9,543 |
| 240,000,000 | 240,000,000 | |
| 240,009,543 | 240,009,543 | |
| EMIOS. | ||
|---|---|---|
| 2007 | 2006 | |
| 10,000 Ordinary shares of US\$ 1.00 each | 9,543 | 9.543 |
| 400,000 Scrics A Non Cumulative Guaranteed Non Voting Euro Preference Shares par value of EUR 300 each |
120,000,000 | 120,000,000 |
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$E$ ---- $\sim$
Notes to the financial statements for the year ended as of December $31, 2007$
Ordinary shares
As at December 31, 2007, 10,000 Ordinary shares had been issued at par and are owned by the Bank.
Euro Series A Preference Shares
The preference shares have a par value balance of EUR 120,000,000 as at December 31, 2007. These shares entitle holders to receive non-cumulative preferential cash dividends, at a rate of six months Euribor rate plus 0.25% payable half-yearly. The current dividend rate at December 31, 2007 was 4,639%. The dividend is paid on February 28 and August 31.
The Euro Series A Preferences Shares were issued on September 1, 2001 and they can be redeemed by the Company on or after September 1, 2006, subject to the prior approval of the Bank of Spain and the Bank, in whole or in part, at the nominal value per share plus any recognized dividend pending payment (see Note 6).
The aggregate amount of Euro Series A Preference Shares dividend declared and accrued at December 31, 2007 was EUR 2,005,600 (2006: EUR 1,476,000) and is recorded under the "Interim dividends" caption of the Statement of Income and Retained Earnings as of December 31, 2007. This total amount corresponds to unpaid dividends as of December 31, 2007 and is recorded under "Accrued dividends payable", caption of the Balance sheets.
Shareholders with preferential Euro Series A Preferences Shares are to receive dividends if sufficient "distributable profit" is generated by the Bank for the year and minimum equity requirements established for credit institutions under prevailing legislation in Spain have been met.
The Euro Series A Preference Shares are listed on the AIAF Market in Madrid, Spain. As of December 31, 2007 their market value per share was $101,160\%$ .
The Euro Series A Preference Shares do not allow voting rights, except for:
Notes to the financial statements for the year ended as of December 31, 2007
At the present, no income, profit, capital or capital gain taxes are levied in the Cayman Islands and, accordingly, no provision for such taxes has been recorded in the accompanying financial statements. In the event that such taxes were levied, the Company has received an undertaking from the Cayman Islands Government exempting it from all of this kind of taxes until May 17, 2021.
Subject to certain limitations, the Bank undertakes to irrevocably pay the holders of the Euro Series A Preference Shares the sum total of the Guaranteed Payments (except to the extent that said amounts are paid by the Company) in the manner and at the time that they are due, irrespective of any exception, right to compensation or reconvention to which the Company may be entitled or which may be invoked by the Company.
For purposes of this Guarantee, "Guaranteed Payments" means (i) any Preferred Dividend of the Euro Series A Preference Shares accrued but not paid up, corresponding to the nearest six-monthly period of accrual (ii) the Redemption Price of the Euro Series A Preference Share that are redeemed by the Company, (iii) the Liquidation Quota corresponding to each Euro Series A Preference Shares in the event of liquidation, which will equal to 300 euros per Euro Series A Preference Share plus the unpaid dividends at the date of payment and (iv) any additional quantities that the Company may pay.
The following table presents all balances in the financial statements with the Bank and related income or expenses:
| 2007 | Euros | |
|---|---|---|
| Balances Dr / (Cr) |
Income/ (Expenses) |
|
| Euro Time Deposit with the Bank Euro Deposit Account |
120,000,000 235,124 |
5,340,905 |
$-10-$
Notes to the financial statements for the year ended as of December 31, 2007
The Company's financial instruments comprise a time deposit, cash and the preference shares.
Financial risk management's objectives and policies are summarised below:
The main risks arising from the Company's financial instruments are credit risk, interest risk rate, foreign exchange risk and liquidity risk. The Board reviews and agrees policies for managing each of these risks and they are summarized below:
Interest rate, liquidity risk and foreign exchange risk a)
Interest rate, credit and foreign exchange risk have been effectively hedged due to the linkage of the interest rates and currencies on assets and liabilities and to the matching of their maturity/redemption dates, according with the Pricing Supplement of the Issue.
$\mathbf{b}$ Credit risk
The only credit risk is with the Bank and therefore management considers that the credit risk is minimal.
International Financial Reporting Standard No. 7, "Financial Instruments: Disclosure", requires the disclosure of fair value information about financial instruments, whether or not recognized in the financial statements, for which it is practicable to estimate the value. Financial instruments utilized by the Company include a time deposit. Accordingly, the estimated fair value is not significantly different from the carrying value for each recorded asset, due to the way in which half-yearly interest is established for financial assets.
No events have taken place to date since December 31, 2007 which significantly affect or
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The Board of Directors of Caja San Fernando Preference Ltd., unanimously approved these Financial Statements which comprise the balance sheet as of December 31, 2007, the statement of income and retained earnings, the cash flow statement and the statement of changes in shareholder's equity and the notes thereto for the year then ended and the Management Report for the year ended December 31, 2007 for submission to the Shareholder General Meeting.
The members of the Board of Directors declare that, to the best of their knowledge, the Financial Statements for 2007 have been prepared in accordance with applicable accounting principles and give a true and fair view of the equity, the financial position, and the results of Caja San Fernando Preference Ltd. and that the Management Report contains a true and fair analysis of the performance and business results and of the position of Caja San Fernando Preference Ltd. with a description of the main risks and uncertainties facing them.
Seville (Spain) on Mach 28, 2008
D. Juan Salido Freyre Director
Œ
D. Rafael Jiménez Luz Director-Secretary
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Caja San Fernando Preference Ltd considers risk a key strategic element.
The main risks arising from the Company's financial instruments are:
Credit risk arises from the potential loss caused by borrowers' failure to comply with contractual obligations. The only credit risk is with its parent company and therefore management considers that the credit risk is minimal.
Market risk includes the potential impact of negative movements in interest rates on assets and liabilities, in exchange rates applicable to significant balance sheet and income statement figures.
Interest rate risk is defined as the possibility that interest rate fluctuations could have a negative effect on financial margin or on Caja San Fernando Preference Ltd's economic value.
Interest rate has been effectively hedged due to the linkage of interest rates on assets and liabilities and to the maching of their maturity and redemption dates.
Currency risk derives from adverse movements in the exchange rates of the currencies comprising the balance sheet.
This risk on its balance sheet is marginal.
Legal risk reflects the potential impact of changes in prevailing tax or other legislation on the company's earnings.
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This risk on its balance sheet is marginal.
Operational risk is defined as the risk of sustaining direct losses from causes attributable to failures in or inappropriate internal procedures, personnel, business processes, systems or external factors.
Due to the company's activities, this risk is marginal.
In addtion, the directors indicate that the Company does not contract any derivate intruments to cover risks, does not have any activities in relation to Research & Development and does not have any transaction with treasury shares.
Seville (Spain) on Mach 28, 2008
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