Unaudited Interim Financial Statements as at 30 September 2009
TERRA CATALYST FUND
UNAUDITED INTERIM FINANCIAL STATEMENTS
Terra Catalyst Fund (“the Company”) has today announced the publication of its Unaudited Interim Financial Statements for the six months to 30 September 2009 (“the Interim Financial Statements”).
Further to the announcement earlier today confirming that the Interim Financial Statements are available on the Company’s website, the full text of the Interim Financial Statements is set out below.
-ends-
ENQUIRIES TO:
Terra Catalyst Fund
Mike Haxby, Director
Tel: +44 (0)1624 690 900
Fairfax I.S. PLC
James King/ Gillian McCarthy
Tel: +44 (0)207 598 5368
NOTE TO EDITORS
Terra Catalyst Fund
Terra Catalyst Fund is a closed-ended Cayman Islands registered, exempted company established to invest in listed property companies and funds in Europe, with the objective of seeking to identify undervalued securities and actively seeking to close the valuation gap between the value at which the security is trading and its intrinsic value.
TERRA CATALYST FUND
Unaudited Interim Financial Statements for the six months to 30 September 2009
Investment Manager’s Report
For the six months to 30th September, 2009
During the period under review, the NAV of TCF increased from 39.00 pence as at 31st March, 2009 to 53.61 pence as at 30th September, 2009 representing an increase of 37.46%. The share price of TCF increased from 30.25 pence as at 31st March, 2009 to 47.75 pence as at 30th September, 2009 representing an increase of 57.85%. The outperformance of TCF’s share price has come about as the discount to NAV has narrowed from 22.4% at the start of the period to 10.9% at the end of the period.
These performances compare to the European Public Real Estate Association (“EPRA”) index which increased from 814.1 to 1215.5 or 49.3% during the period. Whilst TCF’s portfolio is very different in nature from the key constituents of the EPRA index and the Investment Manager does not seek to manage TCF’s portfolio with reference to the EPRA index, we highlight this index as a reasonable measure of investor attitude towards the listed European real estate sector in general.
Investors should note that the investment in Spazio (which comprises over half the TCF portfolio) is currently held at the market price despite the very low free float of the company (less than 10%) following the bid which concluded on 13th July, 2009. If the board of Spazio decides at some point to delist the company, then the directors of Terra Catalyst Fund will have to decide what value should be attributed to the stake in the company. This may lead to periodic future adjustments to the stated NAVs (see section on Investment Carrying Values below). The NAV of Spazio was substantially in excess of the market price of the stock throughout the reporting period.
As at 30th September, 2009 the “look-through” NAV of TCF has been estimated to be 138 pence which represents a premium of 165% over the closing mark-to-market NAV at that date. The “look through” NAV of TCF’s portfolio is calculated with reference to the NAVs of the underlying holdings, as opposed to the mark-to-market NAV which is calculated with reference to the share prices of the underlying holdings. Clearly the investment in Spazio accounts for a significant portion of the difference between the “look through” NAV and the mark-to-market NAV.
Over time, the Investment Manager will seek to capture the gap between the mark-to-market NAV and the “look-through” NAV by the use of a pro-active portfolio management strategy. Whilst investors should expect some further short term falls in the NAV of portfolio companies, the bulk of the downside pressure on NAVs now seems to have passed. Indeed, the Investment Manager has noted that NAVs are, for some UK and European property companies, now actually rising.
Investment Activity
TCF undertook two major transactions during the reporting period in question which were the sale of the stake in Shaftesbury plc on 11th June, 2009 and the subsequent bid for Spazio Investment NV.
On 13th July, 2009, the bid vehicle, Terra European Investments BV, declared the offer for Spazio unconditional and had an aggregated holding as at that date of 66.3% of the target. The offer was then extended for a further two weeks, at the end of which, Terra European Investments BV had an aggregated holding of 71.4% of Spazio. TCF holds currently 46.3% of Terra European Investments BV. The final bid price for Spazio was EUR 5.125 per share which compares to its estimated NAV (after cancellation of treasury shares) as at 30th June, 2009 of EUR 14.7 per share.
On 13th October, shortly after period end, TCF participated in a further significant transaction. This was the purchase by Terra Investments of 10,670,000 shares in Rugby REIT which triggered a mandatory (Rule 9) bid for Rugby REIT by Terra Investments jointly with a number of funds under the management of Laxey Partners, including TCF. The total holding in Rugby REIT by Laxey funds and Terra Investments following this transaction was 35.7%. TCF has made a cash contribution to Terra Investments equal to 25.7% of the estimated deal value in the event of 100% acceptances. The initial offer period ran until 24th November, 2009, following which it lapsed.
These various transactions resulted in material changes to the composition of TCF’s portfolio during the period. The following table of key holdings illustrates this:
|
Holding
|
TCF Holding
31 March 2009
GBP million
|
TCF Holding
30 Sep 2009
GBP million
|
Change
GBP million
|
% held across Laxey funds
Sep 09
|
|
Shaftesbury plc
|
31.0
|
-
|
(31.0)
|
-
|
|
Spazio Investment NV
|
6.4
|
31.3
|
24.9
|
71.4%
|
|
Rugby Estates plc
|
4.7
|
4.5
|
(0.2)
|
27.6%
|
|
NR Nordic and Russian Properties
|
3.1
|
7.8
|
4.7
|
16.3%
|
|
Carpathian plc
|
1.3
|
3.2
|
1.9
|
11.4%
|
|
Rugby Estates Investment Trust
|
0.9
|
1.1
|
0.2
|
17.6%
|
|
Bulgarian Land Development
|
0.9
|
0.8
|
(0.1)
|
15.3%
|
|
Loan to TDG
|
3.5
|
3.5
|
-
|
|
|
Other
|
2.5
|
4.0
|
1.5
|
|
|
|
|
|
|
|
|
Total
|
54.3
|
56.2
|
1.9
|
|
The TDG facility currently carries a coupon of between 3 month Libor + 10% and 3 month Libor + 15% (with variations in the interest rate depending on certain conditions relating to the amount of the loan outstanding) and matures on 31st July, 2010 at which point all outstanding amounts will be repaid. A GBP 1.1 million prepayment on the facility is expected by 31st December, 2009.
During the reporting period, total cash receipts from distributions made by investee companies amounted to approximately GBP 1.3 million, the majority of which comprised the 50 pence per share distribution by Rugby Estates in July. This figure does not include interest received from the loan note.
Investment Carrying Values
Spazio has an EGM coming up to consider its de-listing which at least 94% of the share register is committed to support (being shares held by Laxey funds and shares held by Pirelli Real Estate). At present TCF carries Spazio at the market (bid) price, and so will need to adopt a valuation technique for estimating fair value in the event that the stock is de-listed. The latest NAV for Spazio as at June 2009 was EUR 14.7 per share and the price of the bid by Laxey funds was EUR 5.125. TCF’s weighted average purchase cost for Spazio (including purchases made before the bid) is EUR 6.68.
Immediately following the delisting, the position will be carried at the weighted average cost (currently EUR 6.68). If this carrying value had been adopted on 13th November 2009, it would have caused TCF’s NAV per share to move from 52.46 pence to 67.51 pence.
From the end of the reporting period in which delisting occurs (currently anticipated to be the 31st March 2009 year end), the position will be carried at Directors’ best estimate of fair value. The carrying value of the investment in Spazio will be reviewed by the Directors on a quarterly basis using an appropriate valuation model calibrated to estimate the realisable NAV of Spazio on an orderly liquidation basis. Inputs to the model will include Spazio’s revalued NAV (currently EUR 14.7), current market conditions and information received regarding the underlying portfolio, including the amount and pricing of sales achieved to date. As part of this process a full property valuation will be carried out at least annually by an independent third party valuer.
Investors should note than the manager will only charge annual management fees based on the weighted average cost of the investment and not on the estimated fair value.
Hedging and Gearing
The Investment Manager may mitigate against certain country, currency and other market risks by applying hedges where deemed appropriate.
Hedges against foreign currency exposure for that part of the portfolio whose underlying assets were based in continental Europe were, and continue to be applied.
As at 30th September, the total exposure hedged by equity shorts was approximately GBP 6.7 million against a gross long position of GBP 56.2 million, a cash balance of GBP 8.8 million and a net asset value of GBP 56.9 million.
TCF therefore had no fund-level net gearing as at the end of September.
Share buybacks and significant shareholders
TCF conducted a share buyback in June 2009, and repurchased a total of 11.5 million shares at an average price of 45 pence. The Investment Manager intends to continue to buy back shares where a discount of more than 15% persists, and where the board considers it prudent to do so, with reference to the cash resources available to the fund at the time.
Following the share buybacks, the six largest shareholders in TCF as at 25th October, 2009 were as follows:
|
Shareholder
|
Shares
|
% of Outstanding
|
|
Laxey Partners
|
16,550,870
|
15.7
|
|
Insight Investment
|
11,625,965
|
11.0
|
|
Asset Value Investors
|
10,255,189
|
9.7
|
|
Lehman Brothers Inc
|
5,090,771
|
4.8
|
|
SVM Asset Management
|
5,000,000
|
4.7
|
|
Baillie Gifford & Co
|
4,965,300
|
4.7
|
There were 105,468,630 shares outstanding as at the end of October 2009.
Outlook
There has been a sea change in investor sentiment within the listed real estate sector during the reporting period. In March and April 2009, it seemed that a substantial proportion of European property companies were facing financial distress or outright bankruptcy. Discounts to NAV were present across the sector and had reached extreme levels whilst equity investors were running for the hills. By September and October 2009, the situation had reversed with most UK REITs trading at significant premiums to NAVs and talk of a “wall of money” looking for a home in good quality commercial property. It now seems likely that there will be relatively few instances of financial fatalities amongst listed property companies, although it is clear that equity investors in the larger UK REITs have suffered capital losses that are unlikely to be recovered anytime soon.
What will our sector look like over the next six to twelve months?
The Investment Manager does not seek to make big market calls, but the disciplined application of TCF’s stated strategy should ensure a degree of protection for shareholders regardless of wider market moves. Due to a much improved investment market for physical property, the Investment Manager does expect to start receiving significant distributions from investee companies over the next six to twelve months as property assets are sold. TCF may also make some outright realisations of certain positions. Re-investment decisions will, to a significant extent, be dictated by the opportunities that present themselves as cash is returned to the fund.
Review of Key Holdings
Spazio Investment (“Spazio”)
This externally-managed AIM listed property fund specialises in Italian industrial real estate. Spazio owns a portfolio of EUR 730 million of Italian industrial properties of which around 43% comprises 347 Telecom Italia exchange buildings. In the short term, the portfolio is generally very well let on relatively long leases to sound covenants. In the medium term, there is believed to be substantial potential within both the Telecom Italia portfolio and also some of the other assets to obtain a change of use and redevelop the sites as residential or other higher value real estate. The external manager is Pirelli Real Estate.
When Laxey Partners joined the share register in February 2008, over 60% of the shares of Spazio were already in the hands of just four shareholders. This situation resulted in poor liquidity and a depressed share price. In addition, negative sentiment associated with externally-managed, AIM listed property vehicles affected the stock. Laxey Partners worked with the board through the summer of 2008 to try and address these issues.
On 19th September, 2008 Spazio announced an accelerated business plan, including targeted disposals of EUR 450 million (representing over 60% of the portfolio) over the period to 31st December, 2010. On 3rd November, 2008 it then announced a revised management fee arrangement that rewards Pirelli Real Estate primarily on the basis of cash returns to shareholders above a minimum hurdle rate over the period to end 2011, rather than simply on gross assets under management as had previously been the case.
In January 2009, Spazio announced its first cash distribution of EUR 25 million which was to be by way of a tender offer. On 16th January, the company announced that 4,545,448 shares had been tendered at a price of EUR 5.50 which represented approx 16.5% of the shares in issue at the time.
In June 2009, Terra European Investments BV (TEI), a vehicle controlled by funds under management of Laxey Partners announced a cash offer at a price of EUR 5.125 per share for all the shares in Spazio Investment NV not already owned by funds under the management of Laxey Partners. On 13th July, 2009 TEI declared the offer unconditional and announced aggregate holdings of 66.3% of the Spazio shares in issue, and subsequent acceptances and purchases of shares increased TEI’s holding in Spazio to 71.4%.
TCF has made a significant investment into TEI and therefore has a significant stake in an entity which controls Spazio. The investment made by TCF into TEI is less than 50% of the shares in TEI and therefore Spazio is not required to be consolidated into the accounts of TCF. TCF currently has a stake of 46.3% in TEI.
Laxey Partners believes that the investment into TEI will prove to be a driver of significant value for shareholders in TCF over the medium term. As well as increasing TCF’s stake in Spazio, the bid allows Laxey to work closely with Pirelli to ensure that assets are sold and cash returned to shareholders as quickly as possible, and will therefore assist in capturing the discount between the bid price of EUR 5.125 and the adjusted NAV of Spazio as at 30th June, 2009 of EUR 14.7 (after cancellation of treasury shares).
Funds under the management of Laxey Partners had a total holding of 71.4% in Spazio as at September 2009.
NR Nordic and Russia Properties (“NR Nordic”)
This externally-managed AIM listed property fund has a portfolio of EUR 604 million of real estate primarily in Sweden and Russia and with a mix of industrial, office, logistic, retail and hotel use. NR Nordic IPO-ed in November 2006 as Northern European Properties with the objective of investing in the Nordic and Baltic Europe region to generate a high income yield for investors and has since undergone a dramatic transformation, including the disposal of over 50% of the initial portfolio, a change in investment strategy, a change in dividend policy, a move from AIM to Euronext and a change of name to NR Nordic and Russian Properties. The external manager is London and Regional Properties.
On 4th August, 2008 it was announced that, after further discussions with NR Nordic, Laxey Partners had agreed to adjourn the EGM (which has been requested by Laxey) indefinitely, and the board has agreed to appoint two new directors, Colin Kingsnorth (principal of Laxey Partners) and Robert Ware (chairman of TCF), to its board. The board further announced that it would not make any new investments and “has agreed to put specific proposals to shareholders which, if approved, would provide them with the option to have capital returned, whilst allowing those shareholders who wish to do so to retain an interest in the Company…”
Since then, a deterioration in the Russian real estate market reduced the options available to the board for a major short term restructuring. However NR Nordic has addressed its excessive cash balance by making two further significant special cash dividend payments to shareholders, one in October 2008 and a further one in January 2009. It also clearly stated its intention to continue realising assets and returning cash to shareholders.
The company remains comfortably within its banking covenants and is cash generative with a relatively resilient portfolio of assets. Laxey Partners has continued to work with the board to explore all options available to maximise both the size of and speed up the timing of further cash returns to shareholders.
However, progress in selling assets had become frustratingly slow and Laxey has also become increasingly concerned about the apparent conflicts of interest inherent in the structure of the fund and whether these were potentially hindering progress on the disposal of the portfolio. After further discussions with board members proved fruitless, Laxey decided to requisition a further EGM which was to be held on 28th September, 2009 to propose a further significant board restructuring. The EGM was subsequently adjourned and four new appointments were made to the NR Nordic board and the chairman announced his intention to step down.
On 29th September, 2009 Ohman, a financial advisor for Ian Livingstone and Richard Livingstone announced that they were considering a possible joint offer for NR Nordic and “any offer, if made, is likely to be solely in cash.” The new board of NR Nordic, now containing a majority of individuals not connected to the offerors, is currently reviewing strategic options for the company in the light of this announcement.
Funds under the management of Laxey Partners had a total holding of 16.3% in NR Nordic as at September 2009.
Rugby Estates plc (“Rugby”)
This micro cap UK property company owns a small (GBP 41.5 million) but diversified portfolio of income-producing assets across the UK. Rugby also has a number of external management contracts with two separately listed property funds (including Rugby REIT – see below) and a private investment partnership. These external management contracts generate significant fee income.
Over the autumn of 2008, Laxey Partners started to engage with management and was looking to address the discount that the shares had been trading at and also ensure that Rugby’s administrative cost base appropriately reflects the size of the company and the more difficult economic environment in which it now operates.
On 11th December, 2008 Rugby announced that it would be returning excess cash on the balance sheet to shareholders, and was planning to cut its cost base and refocus the business on the asset management unit. The wholly owned portfolio of assets is to be “managed with a view to maximising net rental income and, in due course, capital receipts.”
On 28th May, 2009 Rugby announced a scheme for the return of 50 pence per share in cash to shareholders (which is approximately the free cash on the balance sheet of the company) and also a new incentive scheme for management to sell assets and return cash to shareholders. Management will receive bonuses based on a percentage of cash returned to shareholders in the period to 31 January, 2014 with a 50% retention, to be paid only on the full sell down of the assets on the balance sheet. There is an additional incentive scheme designed to reward management for growing the external management side of the business which was designed to ensure that there will be an ongoing entity, albeit one which does not tie up large amounts of its own capital.
On 4th November 2009, Rugby announced two disposals of property assets at prices in excess of their last valuation and an intention to return a further 40 pence per share in cash “within the next few months.”
Funds under the management of Laxey Partners had a total holding of 27.6% in Rugby as at 30th September, 2009.
Carpathian plc (“Carpathian”)
This AIM listed fund has a EUR 571 million portfolio of retail assets in Central and Eastern Europe with the majority of the portfolio in Hungary and Poland.
Having been launched in July 2005 as Dawnay Day Carpathian, it was one of the earlier examples of the AIM offshore property funds, and as such was able to acquire some relatively good quality retail assets before the CEE direct property market became excessively overheated. However, like all AIM funds where the base management fee was a percentage of gross assets, there was a significant incentive to continue to buy properties even when the market had become very frothy, with a further capital increase for this purpose taking place as late as May 2007. As a result the assets vary significantly in quality from institutional grade shopping centres to retail warehouse assets of a very secondary nature.
On 22nd October, 2008 Carpathian announced the appointment of Hawkpoint Partners to conduct a strategic review in order to maximise shareholder value. After pressure from its shareholders, Carpathian announced on 17th November, the appointment of a new chairman who is an experienced restructuring specialist well known to Laxey Partners.
On 1st May, 2009 Carpathian announced the results of its strategic review which essentially comprises the return of approximately 8 pence (EUR 0.09) per share in cash to shareholders in the short term and the orderly realisation of its portfolio over the medium term.
Laxey Partners continues to engage actively with the board of Carpathian to maximise shareholder value and ensure a satisfactory outcome to the orderly realisation of its portfolio. On 23rd September, 2009 Andrew Shepherd, a director of TCF was appointed to the board of Carpathian.
Funds under the management of Laxey Partners had a total holding of 11.4% in Carpathian as at September 2009.
Rugby Estates Investment Trust plc (“Rugby REIT”)
Rugby REIT is the smallest UK REIT with a diversified portfolio of UK property assets last valued at GBP 57 million and is externally managed by Rugby Estates plc.
The REIT was originally set up in May 2007, during the last few months of the property bull market in the UK as a tax efficient vehicle to acquire private property companies with significant embedded capital gains tax liabilities. The REIT structure offered an opportunity to eliminate this tax liability and therefore gave the REIT a competitive advantage as a purchaser of such companies.
Unfortunately the two year property bear market which followed the launch of Rugby REIT has resulted in a circa 45% peak-to-trough decline in UK commercial property values and therefore a huge reduction in the number of private property companies with material embedded capital gains tax liabilities. Rugby REIT does not therefore expect to be able to make further acquisitions of such companies at the present time. Furthermore, the share price of Rugby REIT has fallen to a significant discount relative to its net asset value which has made the likelihood of raising further capital for any such acquisitions from the equity markets extremely slim.
Rugby REIT’s lack of scale has left it with a very high total expense ratio relative to its NAV, a feature which is common to many smaller cap property companies, particularly the externally managed ones. Furthermore, the existence of a large retained earnings deficit has meant that the REIT never managed to pay a dividend since its inception.
With no obvious way forward for Rugby REIT, funds under the management of Laxey Partners (including TCF) decided in October 2009, to purchase a large stake from another shareholder in the company which caused the total shareholding of the funds to exceed 30% and therefore triggered a mandatory cash bid for the shares not already owned at a price of 41p. The initial offer period ran until 24th November, following which it lapsed.
Funds under the management of Laxey Partners had a total holding of 17.6% in Rugby REIT as at September 2009. Following the acquisition of the further stake in October 2009, Laxey funds had a total holding of 35.7% in Rugby REIT.
Review report by KPMG Audit LLC to Terra Catalyst Fund
Introduction
We have reviewed the accompanying condensed statement of financial position of Terra Catalyst Fund (the “Company”) as at 30th September 2009, and the condensed statements of comprehensive income, changes in equity and cash flows for the six-month period then ended and the related explanatory notes (“the condensed interim financial information”). Management is responsible for the preparation and presentation of this condensed interim financial information in accordance with IAS 34 Interim Financial Reporting and the AIM Rules. Our responsibility is to express a conclusion on this condensed interim financial information based on our review.
This report is made solely to the Company in accordance with the terms of our engagement. Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this 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 for our review work, for this report, or for the conclusions we have reached.
Scope of review
We conducted our review in accordance with the International Standard on Review Engagements 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed interim financial information as at 30th September 2009 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting and the AIM Rules.
KPMG Audit LLC
Chartered Accountants
Douglas
Isle of Man
Statement of Comprehensive Income (unaudited)
For the six months to 30th September, 2009
|
|
|
|
|
|
(Note 3)
|
|
|
|
Notes
|
2009
|
|
2008
|
|
|
|
|
GBP
|
|
GBP
|
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends on long equity securities and investment funds
|
|
|
1,608,351
|
|
5,200,897
|
|
Interest
|
|
|
|
|
|
|
- Cash balances
|
|
|
31,702
|
|
702,505
|
|
- Derivatives
|
|
|
-
|
|
248,050
|
|
- Loan
|
|
|
239,623
|
|
-
|
|
Net realised (losses) / gains on financial assets and liabilities
|
|
|
|
|
|
|
at fair value through profit or loss
|
|
|
|
|
|
|
- Cash balances
|
|
|
(167,344)
|
|
-
|
|
- Equities and Funds
|
|
|
(17,433,558)
|
|
723,157
|
|
- Derivatives
|
|
|
-
|
|
(286,960)
|
|
- Forwards
|
|
|
(446,971)
|
|
(280,670)
|
|
Net unrealised gains / (losses) on financial assets and liabilities
|
|
|
|
|
|
|
other than currency forwards at fair value through profit or loss
|
|
|
|
|
|
- Cash balances
|
|
|
81,214
|
|
-
|
|
- Equities and Funds
|
|
|
35,427,727
|
|
(25,437,622)
|
|
- Derivatives
|
|
|
(280,012)
|
|
302,215
|
|
Net unrealised (losses) / gains on currency forwards
|
|
|
|
|
|
|
at fair value through profit or loss
|
|
|
(1,265,089)
|
|
756,615
|
|
|
|
|
|
|
|
|
Total net investment income / (expense)
|
|
|
17,795,643
|
|
(18,071,813)
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
Dividends payable on short positions
|
|
|
156,798
|
|
612,600
|
|
Investment management fee
|
|
|
579,769
|
|
309,002
|
|
Administration fee
|
|
|
55,789
|
|
111,168
|
|
Audit fees
|
|
|
16,779
|
|
23,581
|
|
Other expenses
|
|
|
697,711
|
|
469,194
|
|
Interest expense
|
|
|
|
|
|
|
- Cash balances
|
|
|
44,954
|
|
300,294
|
|
- Derivatives
|
|
|
57,468
|
|
132,203
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
1,609,268
|
|
1,958,042
|
|
|
|
|
|
|
|
|
Gain / (loss) and total comprehensive income / (loss)
|
|
|
|
|
|
|
for the period
|
|
|
16,186,375
|
|
(20,029,855)
|
|
|
|
|
|
|
|
|
Earnings / (loss) per ordinary share
|
|
|
|
|
|
|
Basic and fully diluted
|
|
8
|
GBP0.15
|
|
GBP(0.17)
|
|
|
|
|
|
|
|
Statement of Financial Position (unaudited)
As at 30th September, 2009
|
|
|
|
|
|
(Note 3)
|
|
|
Notes
|
|
2009
|
|
2008
|
|
|
|
|
GBP
|
|
GBP
|
|
Current assets
|
|
|
|
|
|
|
Investment funds - long at fair value through profit or loss
|
4
|
|
-
|
|
929,885
|
|
Equities - long at fair value through profit or loss
|
4
|
|
52,690,031
|
|
50,015,072
|
|
Equity swaps - long at fair value through profit or loss
|
4
|
|
44,199
|
|
-
|
|
Cash at bank and brokers
|
|
|
8,030,417
|
|
165,140
|
|
Cash held as margin at brokers
|
|
|
821,781
|
|
13,032
|
|
Other debtors and accrued income
|
|
|
636,505
|
|
38,527
|
|
Loan receivable
|
11
|
|
3,500,000
|
|
3,500,000
|
|
Total assets
|
|
|
65,722,933
|
|
54,661,656
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
Share Capital
|
5
|
|
1,060,709
|
|
1,175,709
|
|
Share premium
|
6
|
|
106,870,508
|
|
111,930,508
|
|
Retained losses
|
|
|
(51,070,639)
|
|
(67,257,014)
|
|
Total equity
|
|
|
56,860,578
|
|
45,849,203
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
Investment funds - long swaps at fair value
|
|
|
|
|
|
|
through profit or loss
|
4
|
|
-
|
|
106,480
|
|
Equities - short at fair value through profit or loss
|
4
|
|
6,408,632
|
|
5,236,654
|
|
Equity swaps - short at fair value through profit or loss
|
4
|
|
324,211
|
|
-
|
|
Amounts payable on currency forwards
|
|
|
1,402,046
|
|
136,957
|
|
Overdrawn balances at brokers
|
|
|
14,262
|
|
3,058,276
|
|
Amounts due for outstanding purchase settlements
|
|
|
-
|
|
16,220
|
|
Other creditors and accrued expenses
|
|
|
713,204
|
|
257,866
|
|
Total liabilities
|
|
|
8,862,355
|
|
8,812,453
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
|
65,722,933
|
|
54,661,656
|
|
|
|
|
|
|
|
|
Net asset value per ordinary share
|
7
|
|
0.54
|
|
0.39
|
|
|
|
|
|
|
|
Statement of Changes in Equity (unaudited)
For the six months ended 30th September, 2009
|
|
|
Share
|
|
Share
|
|
Retained
|
|
|
|
|
|
Capital
|
|
Premium
|
|
losses
|
|
Total
|
|
|
|
GBP
|
|
GBP
|
|
GBP
|
|
GBP
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 31st March, 2009
|
|
1,175,709
|
|
111,930,508
|
|
(67,257,014)
|
|
45,849,203
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income for the period:
|
|
|
|
|
|
|
|
|
|
Profit for the period
|
|
-
|
|
-
|
|
16,186,375
|
|
16,186,375
|
|
Other comprehensive income
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions with owners recorded directly in equity:
|
|
|
|
|
|
|
|
|
|
Contributions by and distributions to owners
|
|
|
|
|
|
|
|
|
|
Repurchase of shares
|
|
(115,000)
|
|
(5,060,000)
|
|
-
|
|
(5,175,000)
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 30th September, 2009
|
|
1,060,709
|
|
106,870,508
|
|
(51,070,639)
|
|
56,860,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
|
|
Share
|
|
Retained
|
|
|
|
|
|
Capital
|
|
Premium
|
|
(losses)/ gains
|
|
Total
|
|
|
|
GBP
|
|
GBP
|
|
GBP
|
|
GBP
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income for the period:
|
|
|
|
|
|
|
|
|
|
Loss for the period
|
|
-
|
|
-
|
|
(20,029,855)
|
|
(20,029,855)
|
|
Other comprehensive income
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Transactions with owners recorded directly in equity:
|
|
|
|
|
|
|
|
|
|
Contributions by and distributions to owners
|
|
|
|
|
|
|
|
|
|
Issue of ordinary shares
|
|
1,166,000
|
|
115,434,000
|
|
-
|
|
116,600,000
|
|
Repurchase of shares
|
|
(31,500)
|
|
(2,231,644)
|
|
-
|
|
(2,263,144)
|
|
Share issue costs
|
|
-
|
|
(2,926,327)
|
|
-
|
|
(2,926,327)
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 30th September, 2008
|
|
1,134,500
|
|
110,276,029
|
|
(20,029,855)
|
|
91,380,674
|
|
|
|
|
|
|
|
|
|
|
Statement of Cash Flows (unaudited)
For the six months ended 30th September, 2009
|
|
|
|
|
(Note 3)
|
|
|
|
2009
|
|
2009
|
|
|
|
GBP
|
|
GBP
|
|
|
|
|
|
|
|
Cashflow from operating activities
|
|
|
|
|
|
Dividends received
|
|
1,278,784
|
|
3,835,899
|
|
Interest received
|
|
2,914
|
|
944,765
|
|
Dividends paid on short positions
|
|
(135,848)
|
|
(567,325)
|
|
Management fee paid
|
|
(140,452)
|
|
(265,743)
|
|
Administration fee paid
|
|
(39,792)
|
|
(91,374)
|
|
Other expense paid
|
|
(723,378)
|
|
(220,032)
|
|
Interest paid
|
|
(114,461)
|
|
(382,729)
|
|
Increase in cash held as margin
|
|
(808,749)
|
|
-
|
|
Purchase of investments
|
|
(68,164,542)
|
|
(181,815,169)
|
|
Sale of investments
|
|
84,929,815
|
|
49,892,563
|
|
Net cash inflow / (outflow) from operating activities
|
|
16,084,291
|
|
(128,669,145)
|
|
|
|
|
|
|
|
Cashflow from financing activities:
|
|
|
|
|
|
Subscriptions received
|
|
-
|
|
116,600,000
|
|
Share issue costs paid
|
|
-
|
|
(2,862,309)
|
|
Repurchase of shares
|
|
(5,175,000)
|
|
(2,263,144)
|
|
Net cash inflow from financing activities
|
|
(5,175,000)
|
|
111,474,547
|
|
|
|
|
|
|
|
Increase / (Decrease) in cash and cash equivalents
|
|
10,909,291
|
|
(17,194,598)
|
|
|
|
|
|
|
|
Opening cash and cash equivalents
|
|
(2,893,136)
|
|
-
|
|
|
|
|
|
|
|
Closing cash and cash equivalents
|
|
8,016,155
|
|
(17,194,598)
|
|
|
|
|
|
|
Notes to the Interim Financial Statements
For the six months ended 30th September, 2009
1. General
The Company was incorporated in the Cayman Islands on 21st December, 2007 and its shares were admitted to AIM, a market operated by London Stock Exchange plc, on 25th February, 2008.
The financial statements of the Company for the period from 21st December, 2007 (date of incorporation) to 31st March, 2009 are available upon request from the Company’s registered office.
At the Annual General Meeting held on 29th September, 2009, the shareholders approved an amendment to the investment policy. The revised investing policy is set out below:
"The Company has been established to achieve an absolute return for its shareholders (in sterling) primarily through capital growth by investment in property (up to a maximum of 30 per cent of the Company's gross asset value) and property related securities. The Company may hold large positions in a concentrated number of portfolio companies and there is no limit on the amount of the Company's assets which may be invested in any one investment. There is no restriction of the length of time that investments may be held. The Company may incur borrowings up to an amount equal to 200 per cent. of the Company's Net Asset Value. Other than those stated, there are no investing restrictions or restrictions in relation to cross-holdings. The Company intends, but is not obliged, to provide shareholders with returns by way of annual dividends.
The Company's strategy by which its investing policy is achieved is to take positions in undervalued securities and actively seeking to close the valuation gap between the value at which the security is trading and its intrinsic value."
2. Basis of preparation
Statement of Compliance
These interim financial statements have been prepared in accordance with International Accounting Standard (IAS) 34: Interim Financial Reporting. They do not include all of the information required for full annual financial statements and should be read in conjunction with the financial statements of the Company for the period from 21st December, 2007 (date of incorporation) to 31st March, 2009.
These interim financial statements were approved by the Board of Directors on 2 December 2009.
Significant accounting policies
The accounting policies adopted in the preparation of the interim financial statements are consistent with those followed in the preparation of the Company’s annual financial statements for the period from 21st December, 2007 (date of incorporation) to 31st March, 2009, except for the impact of the adoption of the Standards and Interpretations described below.
Change in accounting policy
Presentation of financial statements
The Company applies revised IAS 1 Presentation of Financial Statements (2007), which became effective as of 1 January 2009. As a result, the Company presents in the statement of changes in equity all owner changes in equity, whereas all non-owner changes in equity are presented in the consolidated statement of comprehensive income. This presentation has been applied in these interim financial statements as of and for the six months period ended on 30 September 2009. Comparative information has been re-presented so that it also is in conformity with the revised standard. Since the change in accounting policy only impacts presentation aspects, there is no impact on earnings per share.
3. Comparative figures
The comparative figures shown in the Statement of Financial Position is at 31st March, 2009 and in the case of the Statement of Comprehensive Income, Statement of Changes in Equity and Statement of Cash Flows are for the period from 21st December, 2007 (date of incorporation) to 30th September, 2008.
4. Investments
|
|
|
|
|
|
|
30th September 2009
GBP
|
|
31st March 2009
GBP
|
|
Long positions:
|
|
|
|
|
|
|
|
|
|
Market Value
|
52,734,230
|
|
50,838,477
|
|
|
|
|
|
|
Cost
|
80,631,780
|
|
115,643,177
|
|
|
|
|
|
|
Short positions:
|
|
|
|
|
|
|
|
|
|
Market Value
|
(6,732,843)
|
|
(5,236,654)
|
|
|
|
|
|
|
Cost
|
(5,138,549)
|
|
(5,401,796)
|
|
|
|
|
|
All of the Company's investments are designated at fair value through profit or loss and are stated at quoted market prices.
As at 30th September, 2009, there were no investments for which a reliable market price could not be obtained.
5. Share capital
|
|
|
30th September, 2009
|
|
Ordinary Shares of GBP0.01 each
|
Number
|
GBP
|
|
In issue at 1st April 2009
|
117,570,870
|
1,175,709
|
|
Repurchased during the period
|
(11,500,000)
|
(115,000)
|
|
In issue at 30th September 2009
|
106,070,870
|
1,060,709
|
On 15th June, 2009, the Company bought back 11,500,000 ordinary shares in issue for a total consideration of GBP5,175,000, all of which were cancelled.
6. Reserves
|
Share premium
|
|
30th September, 2009
|
|
|
|
GBP
|
|
At 1st April, 2009
|
|
111,930,508
|
|
Relating to repurchase of shares during the period
|
|
(5,060,000)
|
|
At 30th September, 2009
|
|
106,870,508
|
7. Net asset value per share
The net asset value per share as at 30th September 2009 is GBP0.54 based on 106,070,870 ordinary shares in issue as at that date (31st March, 2009: GBP0.39 based on 117,570,870 ordinary shares).
8. Basic and diluted earnings per share
Basic earnings per share is based on the profit for the period of GBP 16,186,375 and the weighted-average number of ordinary shares in issue during the period of 110,846,826 (2008: loss of GBP 20,029,855 and 116,005,734 shares). There is no difference between the basic and diluted earnings per ordinary share.
9. Prime brokerage agreements
Under the terms of the prime brokerage agreement which the Company has entered into, the prime broker holds a first fixed charge over the Company's assets and cash held with the prime broker as security for the payment and performance by the Company of its obligations to the prime broker.
10. Gearing
Gearing, or leverage, is the percentage of borrowing compared to the percentage of assets. Pursuant to the Company’s articles of association, this borrowing should not exceed 200% of the Net Asset Value.
11. Loan receivable
On 9th March, 2009, the Company entered into a secured loan agreement with TDG , a subsidiary of DouglasBay Capital plc. The loan is repayable on or before 31st July, 2010 and the interest is payable quarterly at LIBOR plus 10%.
Funds managed by Laxey Partners , the Investment Manager of the Company, own 92.80% of DouglasBay Capital plc.
12. Related parties
The Company and the Investment Manager are related by virtue of the existence of a material contract. As at 30th September, 2009, the Investment Manager owned 16,550,870 shares in the Company. Fees payable to the Investment Manager in respect of the period were GBP579,769 of which GBP459,469 was outstanding at the period end.
Michael Haxby, the Director of the Company, is also the Director of Laxey Partners , the Investment Manager of the Company.