Information  X 
Enter a valid email address

Value Catalyst Fund (VCF)

  Print      Mail a friend       Annual reports

Thursday 04 November, 2010

Value Catalyst Fund

Final Results

RNS Number : 5896V
Value Catalyst Fund Limited (The)
04 November 2010
 



4 November 2010

 

The Value Catalyst Fund Limited ("VCF" or "the Company")

Preliminary Results for the year ended 30th June, 2010

 

The Board of The Value Catalyst Fund Limited announces its results for the year ended 30th June, 2010.

 

The Company confirms that copies of the audited Annual Report for the year to 30th June, 2010 have been posted to shareholders, today, and a copy is available on its website, http://www.valuecatalystfund.com.

 

The Company has also published a notice convening its annual general meeting (the "Notice") to be held at 4th floor, Derby House, 64 Athol Street, Douglas, Isle of Man, IM11JD on Tuesday, 14th December, 2010 at 10 am.

 

A letter from the Chairman of VCF accompanying the Notice sets out the following background information in relation to the items of special business:

 

"Continuation Vote - Resolution 7 

 

In January this year, shareholders of the Company ("Shareholders") were invited by the Board to express their preferred route for VCF as it approached its second, five year continuation vote. Mindful that many closed-end funds had been asked by Shareholders to distribute money back to them, your Board stated that it would seek to follow the preferred route indicated by the majority of shareholders and offer options where possible to satisfy as many different standpoints as practical. The majority view expressed by Shareholders was for the Company to continue and for the largest holdings to be realised so as to extract the maximum value over the optimal time frame, at which point cash from asset sales (following the repayment of VCF's leverage - 40% of net assets as at 19th October, 2010) would be available for distribution to Shareholders who wished to exit or reduce their interest in the Company.

 

Under the Articles of VCF, the Company now invites Shareholders to vote on VCF's future. Following the vote your Board intends to bring forward proposals in 2011 that will seek to ensure Shareholders achieve their desired results being either the continuation of the Company or an orderly and voluntary realisation.

 

Background to Continuation Resolution

 

The Company is a closed-ended investment company established in 2000 with the objective to generate value from investing in closed-ended companies and equities which trade at discounts to net asset value in circumstances where the Board and Laxey Partners Ltd ("the Investment Adviser") consider there is scope for value enhancement through the active involvement of the Company and the Investment Adviser.

 

The Company had three substantial equity positions in active opportunities going into the crisis, which combined accounted for approximately 150% of net assets as at 30 June 2009. One of these, Implenia AG ("Implenia"), was sold last year, after Laxey Partners Ltd had made a hostile bid and then came to an amicable solution with the Implenia board of directors. The second is DouglasBay Capital Plc ("DouglasBay"), which made an agreed offer for TDG, the UK logistics business and has performed extremely well since purchase. The third position is Celtic Property Developments ("Celtic"), a Polish property developer that aims to join the Warsaw Stock Exchange in December, 2010. All three companies have produced growth during the last two years despite the economic backdrop and none of the three companies are or have been in financial distress. The listing of Celtic will not in itself be a liquidity event but will hopefully create liquidity as Celtic begins construction on one of Warsaw's largest residential sites in 2011. For the Company to be in a net cash position one of the two remaining core investments will need to be realised.

 

The Board and Investment Adviser believe that there is a substantial benefit to continuing the Company as a going concern and that a continuing vehicle will provide the best asset performance. To complete the realisation of Celtic and DouglasBay, at a price that reflects fair value and to realise the remaining portfolio, the Board believes could take a further two to three years. As the Company realises its portfolio and assets shrink, the Board and Investment Adviser are mindful that maintaining a listed company in realisation will generate certain fixed expenses, with the ratio of expenses to assets growing as more positions are sold and distributions are made.  Should a substantial majority of Shareholders opt for realisation at the forthcoming annual general meeting your Board believes that the most economical step would be to delist the Company in order to save costs and reduce time for any further distributions.

 

As stated, the Board and Investment Adviser believe that there is a substantial benefit to continuing the Company as a going concern. The Board and Investment Adviser believe that a continuing vehicle will provide the best asset performance, and an exit for those Shareholders who desire a complete exit whilst maximising value for those Shareholders who wish to capture the full value from the portfolio. The Board is aware of a large number of hedge funds which have gone into liquidation in recent times and your Board believes that, in many cases, those funds which provided continuing vehicles delivered the better returns and ultimately provided more favourable liquidity options for their shareholders. In the Board's view, by contrast the liquidating portion of such hedge funds has often generated poor returns and been a long and painful process.

 

Your Board recommends that Shareholders vote for the continuation of The Value Catalyst Fund Limited. Having already received indications from certain Shareholders, the Board is confident that VCF will continue to target and profit from the elimination of the discount to the underlying value of select assets namely closed-end fund assets, the area the Investment Adviser sees most potential presently.

 

Investment Policy

 

The Company is currently focusing on closed-end funds where there is an attractive opportunity to take advantage of the lack of hedge fund capacity in the sector. The major areas of opportunity are currently in the UK and Australia. In addition to closed end funds the Company will take advantage of opportunities in property funds and property related assets trading at a discount. It is unlikely that further substantial equity positions will be taken on.  The policy of the Company is to continue investing and re-investing until there is a clear alternative direction for the Company.

 

Dividend

 

The Board does not recommend the payment of a dividend.

 

Distributions

 

Should it be possible to realise either of the remaining core positions the Company would expect to be in a net cash position and would aim to distribute that cash so as to remain fully invested regardless of the continuation resolution.

 

Allotment of Shares - resolutions 5 and 6

 

Resolutions 5 and 6 are proposed as Special Resolutions and these resolutions will renew the authorities in respect of the allotment of Ordinary Shares which were granted at the Annual General Meeting in 2009.  Resolution 5 will authorise the Directors to allot Ordinary Shares for cash up to $566.39 (which sum represents an aggregate nominal value of one third of the nominal value of the issued Ordinary Shares as at 29 October 2010 (the last practicable date prior to publication of this circular). Resolution 6 will authorise the Directors to allot Ordinary Shares for cash on a non pre-emptive basis up to $169.92 (which sum represents 10 per cent of the nominal value of the issued Ordinary Shares as at 29 October 2010 (the last practicable date prior to publication of this circular)."

 

 

 

For further information, please contact:

 

Azhic Basirov / Siobhan Sergeant

Smith & Williamson Corporate Finance Limited

+44 (0)20 7131 4000

 

Investment Adviser's Report

For the year ended 30th June, 2010

 

For the twelve months ended 30th June, 2010 The Value Catalyst Fund Limited ("VCF" or "the Company") returned a loss of 7.07%. From inception to that date, VCF has returned a loss of 5.21%.

 

Portfolio Review

 

The Company has been involved in a number of re-organisations over the year including Throgmorton Trust, Framlington Innovative Growth, Eircom Holdings, vanEyk Three Pillars, Invesco English and International Trust, and has continued to see demand from investors to seek the return of funds where possible. At the time of writing, some of VCF's largest positions were, or are, about to become active. We have a number of investments which have either announced schemes to re-organise or are about to become active. In particular, LinQ Resources Fund has announced a tender of up to 35% at a discount between 5%-15%; the final exit discount will be set at auction. We have bought at an average discount in excess of 30% and committed to tender all our shares at the beginning of November, receiving the entire cash proceeds by no later than the beginning of February 2011. We have also taken a substantial position in Alliance Trust and will shortly be raising some specific issues with them and seeking clarification of their intentions regarding enhancing discount management and other corporate governance issues which we will call for and may seek a vote on.

 

Portfolio Breakdown by Gross Assets, as of 30th September, 2010.

 

Closed-end funds

39%

DouglasBay

27%

Celtic

29%

Equity Investments

3%

Property ex Celtic

2%

Total

100%

 

Estimated Liquidity Analysis as of 30th September, 2010.

 

Liquidity Analysis


sell within 1 year

54.1%

sell within 2 years

12.7%

sell within 3 Years

33.3%



Total

100.0%

 

The Investment Adviser has attempted to estimate the liquidity of the whole portfolio but the above should only be taken as a rough indication. It also includes the sale of one of the core positions in that time frame, which is far from certain.

 

Celtic Property Development SA ("Celtic")

 

Formerly EEDF, a closed-end fund re-organised by Laxey Partners, Celtic is now one of Eastern Europe's leading property developers and managers, with a significant presence in Poland.

 

The Polish real estate market continues to recover following two years of difficult trading conditions as witnessed by the recent sale by Celtic of the holding SPV of the 15,000sq.m Mokotow Plaza office building in Warsaw ("Mokotow Plaza"), which is now over 85% let. The sale of Mototow Plaza to Spanish investor, Azora, for an amount of €33.2m reduces Celtic's debt level by €20.5m to a total of €14m and a net cash position of approximately €10 m.

 

Construction on the 14,150sq.m second phase is due to start in November, the company having obtained 100% construction finance for the project from a local bank.

 

The Koszykowa apartment building in central Warsaw is now completed with two of the units sold and good interest in the remainder. Marketing of forty building plots in Magdalenka has commenced, with one unit sold already. The sales on both these properties will provide good cash flow for the company for the remaining part of the year.

 

Bank financing is currently being sought for the first 11,000sq.m phase of the Jana Kazemerzia office scheme and Celtic expects to commence construction in the spring when all the permitting has been completed, and subject to the market continuing to recover.

 

The company continues to make good fees on its activities in the UK, and, along with Pirelli has disposed of close to €100m of the €720m of assets held in Spazio Industriale, the largest industrial owner in Italy: this should generate between €25m to €35m revenue in the coming three years.

 

Celtic is still cooperating with, and providing assistance to, the Warsaw city authorities to progress the planning changes for the large 56ha Ursus site in Warsaw; this constitutes half of Celtic's balance sheet. The new zoning plan for the area was issued in first draft in November 2009, and has now passed the public consultation stage. It is hoped that a final valid plan will be completed imminently. As currently drafted, the site would have its designated use changed from the existing industrial to 660,000 m² of high density residential, offices and retail. We expect that the Ursus site will be a main driver of value for the group in the coming years. To take full advantage of the increase in its value, Celtic is currently on track to finalise its planned IPO in Q4, 2010. A listing on the Warsaw Stock Exchange would allow Polish pension funds and other Polish institutional investors to access Celtic.

 

DouglasBay Capital Plc ("DouglasBay")

 

DouglasBay is an Isle of Man based investment holding company listed on AIM, majority owned (93%) by funds managed by Laxey Partners. In October 2008 it merged with The Laxey Investment Trust PLC a listed vehicle also managed by Laxey Partners and simultaneously acquired TDG Plc ("TDG"), one of Europe's major supply chain management and logistics service providers with £700m turnover, 7,000 employees and operations in the UK, Ireland, France, Spain, the Netherlands and Belgium.

 

TDG is ranked number four in the logistics market in the UK and has a portfolio of blue-chip clients such as Kimberly Clarke, Tesco, Coca-Cola and Dulux. Since the acquisition by DouglasBay, TDG, under the guidance of Laxey Partners, has substantially restructured the group streamlining the business and reducing the cost base. The business, benefiting from the need of corporates to save costs and thus to outsource to specialist providers, has proved resilient to the recent challenging economic environment. In early August, 2010, DouglasBay announced its first half results for 2010 showing a doubling of operating profit on a like-for-like basis since the takeover. The Group has also successfully degeared with only £35m of debt outstanding from the initial £155m at the time of the acquisition, thus substantially increasing the equity value of the business.

 

DouglasBay also manages a portfolio of 172 acres of industrial real estate assets, which the company is redeveloping.

 

Alternative Investment Trust ("AIT")

 

The Australian investment trust, AIT, has exposure to a portfolio of leading absolute return funds and a remaining single direct investment. Formerly Everest Babcock & Brown Alternative Investment Trust, following a vote by unit holders at a meeting held on the 30th January, 2009, AIT was put into wind down with an orderly realisation of its portfolio to be managed by Laxey.

 

The investment portfolio of AIT consists of leveraged exposure to a basket of absolute return funds via a Swap Agreement with Macquarie Bank, as well as a single investment - held outside the Swap - in EBI Income Fund. Under the revised terms of the realisation of AIT's assets, the leverage associated with the Swap must be fully paid down before any cash realised from assets held within the Swap can be released for distributions to holders of AIT. Post 30th June, 2010 AIT had repaid its outstanding debt (from the peak of $289m in January 2009) and amassed a small cash balance. A secondary swap with BNP (held in the Macquarie Swap) that was used to gain exposure to certain US funds, has a sizeable cash balance but under the terms of the BNP secondary swap is not due to expire and release these proceeds until the end of 2010. Following expiration and the receipt of the funds, AIT will make a distribution to unitholders in Q1, 2011.

 

The remainder of AIT's portfolio is largely either undergoing liquidation or proceeding according to the original redemption terms (56% of AIT's assets at the time of writing), with 23% of assets side pocketed without a stated redemption point; although in liquidation.

 

Laxey is looking at the secondary market to accelerate the redemption of these positions to expedite the return of more capital.

 

LinQ Resources Fund ("LinQ")

 

LinQ is a listed investment trust formed in Australia that aims to provide superior returns through capital appreciation and income distributions from dividends and convertible note interest coupons. The trust invests in smaller-to-medium sized resource companies at all stages of development from exploration through to production, in Australia and overseas.

 

LinQ is no stranger to shareholder activism. In September 2007, LinQ's Responsible Entity ("RE") (equivalent to a board of directors), LinQ Capital Limited, was called on by unitholders to outline its proposed strategies to reduce the substantial discount that LINQ's units were trading to Net Tangible Assets (NTA). LinQ Capital Limited countered by asking unitholders to vote against such a resolution because "the Board has in place an existing strategy" and "it has proved effective".

 

The existing strategy proved inadequate to tackle the persistent discount to NTA that LinQ's units continued to trade; as at the 23rd July, 2010, LinQ closed on a 32% discount to NTA. There were questions about the exit of two unitholders from the fund in September 2008 at a discount considerably better than the current one, and at the cost of LinQ's remaining unitholder base who bore the brunt of the tax liability this exit created. There were also some questionable corporate governance disclosures around LinQ's largest investment, Ferrous Resources (20% of total assets) and the fact that Ferrous Resources granted a loan to a company owned by the same person whose other company brokered the deal and received payment for it. It was apparent that there were grounds to call for a change in RE and an alternative solution to address the discount.

 

Laxey wrote to all LinQ unitholders at the end of July asking them to support a vote to replace the RE and in mid-October, LinQ countered with a tender exit at a minimum discount of 15% to NTA. VCF will participate in this tender process, tendering its entire holding with proceeds expected in February, 2011.

 

Trading Emissions PLC ("Trading Emissions")

 

In August 2010, Trading Emissions gave details of proposed changes to its future strategy and management arrangements.  This included an intention to move to a realisation strategy in the period up to 31st December, 2012.  

 

Trading Emissions PLC ("Trading Emissions") (continued)

 

Earlier on this year Trading Emissions tried to merge with another fund managed by the same group, Leaf Clean, but that was voted down.  We believe that this was substantially because there was believed to be an end date to Trading Emissions of 2012 and investors did not wish to lose their ability to see their money returned.

 

Earlier this year, we sent a letter before claim to Trading Emissions setting out our concerns that the Fund should be managed to wind up in 2012 as stated in the Chairman's statement to the report and accounts for the year ended 30 June 2007 and in the interim statement of results for the six months ending 31 December 2008. In this letter, we also raised our concerns about how the Board has dealt with the matter.  We stated that we would hold the company and the manager responsible in the event of non-compliance and loss.

 

Ceiba Investment Ltd ("Ceiba")

 

Ceiba is a closed-end investment company incorporated in Guernsey. The Fund seeks to provide long term capital growth and high current income by investing directly or indirectly primarily in Cuban joint ventures, unlisted companies and in interest bearing securities relating to Cuba.

 

Ceiba is presently finalising its efforts to restructure and move from an investment fund to an operating company with a listing on a major exchange, which we hope will help its share price better reflect the true value of the assets.  Ceiba has continued to develop its business and we believe its prospects look very exciting. In the event of a continuation of the fund, we would aim to maintain the Company's position for some time to come.


Framlington Innovative Growth Trust PLC ("Framlington")

 

Framlington aims to produce attractive long-term capital growth through selective investment in a portfolio of growth companies based in or predominantly trading in the UK.

 

On the 6th August, 2010, Framlington published a circular to its shareholders setting out details of a proposed tender offer for up to 50% of its issued shares at a discount of 5% to realisation value as well as a default scheme for the reconstruction and winding-up of the Company should the tender offer be oversubscribed. The latter did happen and we now await reconstruction and wind-up details.

 

Invesco English and International Trust plc ("Invesco English and International")

 

Invesco English and International seeks to achieve capital growth through investment mainly in UK quoted smaller companies.

 

On the 11th August, 2010, Invesco English and International published a circular in relation to recommended proposals for its reconstruction and wind up. Having considered various proposals from third parties and consulted with the major shareholders, the directors have concluded that it was in the interests of shareholders as a whole to propose a scheme of reconstruction, comprising a members' voluntary liquidation together with options for those who were eligible to elect for a managed cash exit by realising their investment for cash and/or to elect for shares in a sub-fund of a UK open-ended investment company with variable capital, to have a substantially similar portfolio to that of Invesco English and International.

 

The Throgmorton Trust PLC ("Throgmorton")

 

A UK incorporated investment trust, Throgmorton aims to provide capital growth and total returns from investments in predominately listed smaller UK companies.

 

On the 4th June, 2010, Throgmorton announced a tender offer to purchase up to 25% of the ordinary shares in issue at a discount of 9% plus any associated costs, as well as a possible subsequent repurchase of up to 14.99%. In addition, the announcement detailed the cancellation of the company's share premium account.

 

Portfolio Statement

As at 30th June, 2010



2010


2010


2009


2009



Market


% of Total


Market


% of Total



value


net assets


value


net assets

Description


US$




US$



Investment funds - long


36,413,335


              38.00


27,972,539


27.13

Investment funds - short


(372,423)


(0.39)


(28)


                    -  

Investment funds - long swaps


(2,330,865)


(2.43)


(2,522,279)


(2.45)

Investment funds - short swaps


34,207


                0.03


34,630


0.03

Equities - long


95,117,255


              99.26


173,897,768


168.64

Equities - short


(2,656,934)


(2.77)


                    -  


                    -  

Equity swaps - long


223,835


                0.23


223,656


0.22

Equity swaps - short


1,730


                    -  


                    -  


                    -  

Equities - warrants


      2,145,867


                2.24


2,694,677


2.61

Futures - short


         525,386


                0.55


                    -  


                    -  

Index swaps - short


64,629


                0.07


                    -  


                    -  

Total investments


129,166,022


134.79


202,300,963


196.18










Other assets less liabilities


(33,337,755)


(34.79)


(99,179,543)


(96.18)

Total net assets


95,828,267

100.00

103,121,420


100.00








Analysis of investments by currency






2010


2009







% of investments


% of investments

British pound






41.21


25.64

United States dollar






1.28


1.01

Euro






46.87


34.14

Other






10.64


39.21





100.00


100.00








Analysis of investments by geographical position (domicile)




2010


2009







% of investments


% of investments

Asia exc Japan






4.53


0.34

British Virgin Islands






30.73


                    -  

Europe Developed exc UK






4.93


3.95

Europe Emerging






0.15


0.22

European Regional Developed






0.00


46.99

Greece






(1.07)


(1.29)

Isle of Man






29.79


                    -  

Japan






0.89


0.16

Netherlands






0.00


1.50

Norway






0.00


0.54

Other






2.81


2.10

Switzerland






4.94


35.94

United Kingdom






22.26


8.83

USA






0.04


0.72





100.00


100.00

 

Statement of Comprehensive Income

For the year ended 30th June, 2010


2010


2009


US$


US$

Income




Dividends on long equity securities and investment funds

2,589,137


5,607,507

Interest



                          

 - Cash balances

153,360


298,520

 - Debt securities

                       -  


                       -  

 - Loan

343,943


179,433

 - Other

1,329,444


                       -  

Other income

1,182,559


31,836

Net realised (losses)/gains on financial assets and liabilities at fair value through profit or loss




 - Equities and funds

      (32,024,220)


    (121,152,290)

 - Derivatives

        (9,949,769)


13,581,748

 - Forwards

13,448,538


39,435,807

Net unrealised gains/(losses) on financial assets and liabilities other than currency forwards at fair value through profit or loss




 - Equities and funds

24,379,054


      (99,109,150)

 - Derivatives

             234,105


        (2,748,304)

Net unrealised (loss)/gain on currency forwards

        (5,718,903)


8,067,624


        (4,032,752)


    (155,807,269)





Expenses




Investment Expenses




Dividends payable on short equity securities and investment funds

32,276


354,640

Interest expense




 - Cash balances

1,045,061


4,155,993

 - Derivatives

75,126


101,455

Investment expenses

1,152,463


4,612,088





Other Expenses




Investment Advisory fee

819,979


1,420,856

Audit fees

47,690


45,419

Administration fees

174,903


272,321

Directors' fees and expenses

124,185


126,620

Other expenses

621,206


2,487,637

Other foreign currency loss

              319,975


                       -  

Total other expenses

2,107,938


4,352,853





Total expenses

3,260,401


8,964,941





Net loss

        (7,293,153)


    (164,772,210)





Other comprehensive income/loss

                         -


                       -  





Total comprehensive loss for the year

        (7,293,153)


    (164,772,210)





Loss per ordinary share




Basic and fully diluted

US$(0.05)


US$(1.15)

 

Statement of Financial Position

As at 30th June, 2010


 2010


2009


US$


US$

Assets




Cash at bank and brokers

3,317,261


821,023

Cash held as margin at brokers

         1,275,886


441,306

Investment funds - long at fair value through profit or loss

36,413,335


27,972,539

Investment funds - long swaps at fair value through profit or loss

1,910


97,793

Investment funds - short swaps at fair value through profit or loss

34,207


34,630

Equities - long at fair value through profit or loss

95,117,255


173,897,768

Equities - warrants at fair value through profit or loss

2,145,867


2,694,677

Equities swaps - long at fair value through profit or loss

223,835


242,832

Equities swaps - short at fair value through profit or loss

3,714


                        -  

Index swaps - short at fair value through profit or loss

64,629


                        -  

Futures - short at fair value through profit or loss

525,386


                        -  

Amounts receivable on currency forwards

10,919


2,556,369

Amounts due for outstanding sale settlements

70


3,095,634

Other debtors and accrued income

1,315,097


337,155

Loan receivable

410,509


2,668,897

Total assets

140,859,880


214,860,623





Equity




Share Capital

1,798


1,619

Share premium

181,934,679


171,291,268

Retained losses

(86,108,210)


(68,171,467)

Total shareholders' equity

95,828,267


103,121,420





Liabilities




Overdrawn balances at brokers

36,150,367


108,579,155

Equities - short at fair value through profit or loss

2,656,934


                        -  

Equity swaps - long at fair value through profit or loss

                       -  


19,176

Equities swaps - short at fair value through profit or loss

1,984


                        -  

Investment funds - short at fair value through profit or loss

372,423


28

Investment funds - long swaps at fair value through profit or loss

2,332,775


2,620,072

Amounts payable on currency forwards

3,178,501


5,048

Amounts due for outstanding purchase settlements

20,407


29,345

Other creditors and accrued expenses

318,222


486,379

Total liabilities

45,031,613


111,739,203





Total liabilities and equity

140,859,880


214,860,623





Net asset value per ordinary share

 US$0.56


 US$0.68

 

Statement of Changes in Shareholders' Equity

For the year ended 30th June, 2010

 


Share


Share


Retained




Capital


Premium


(losses)


Total






/earnings




US$


US$


US$


US$









Balance at 1st July, 2008

   1,420


  154,115,451


  113,776,759


    267,893,630









Total comprehensive loss for the year:








Loss for the year

           -


                     -


 (164,772,210)


 (164,772,210)

Other comprehensive income

           -


                     -


                    -


                      -









Transaction with owners recorded directly








in equity:
















Contributions by and distributions to owners
















Capitalisation in lieu of dividend

           -


                     -


  (17,176,016)


   (17,176,016)

Issue of shares

      199


    17,175,817


                    -


      17,176,016

Redemption of shares

-


-


                     -


                      -









Balance at 30th June, 2009

   1,619


  171,291,268


  (68,171,467)


    103,121,420









Balance at 1st July, 2009

   1,619


  171,291,268


  (68,171,467)


    103,121,420









Total comprehensive loss for the year:








Loss for the year

           -


                     -


    (7,293,153)


     (7,293,153)

Other comprehensive income

          -


                    -


                    -


                       -









Transaction with owners recorded directly








in equity:
















Contributions by and distributions to owners
















Capitalisation in lieu of dividend

           -


                     -


  (10,643,590)


   (10,643,590)

Issue of shares

      179


    10,643,411


                     -


      10,643,590

Redemption of shares

           -


                     -


                     -


                       -









Balance at 30th June, 2010

   1,798


  181,934,679


  (86,108,210)


      95,828,267

 

On 31st December, 2009, there was a capitalisation in lieu of dividend of US$10,643,590. As a result of this capitalisation, 17,864,367 additional ordinary shares were issued.

Statement of Cash Flows

For the year ended 30th June, 2010

 


2010


2009


US$


US$





Dividends received

2,043,192


8,050,883

Interest received

1,067,552


492,084

Other income received

1,182,559


31,836

Dividends paid on short positions

                    (32,037)


                  (373,533)

Advisory fee paid

                  (853,711)


                (1,502,256)

Administration fee paid

                  (177,192)


                  (292,922)

Other expenses paid

                (1,035,740)


                (2,230,008)

Interest paid

                (1,191,643)


                (4,557,786)

Decrease/(increase) in other receivable

327,198


541,264

(Increase)/decrease in loans receivable

2,258,388


                    (18,906)

Increase in cash held as margin

                  (652,840)


12,293,914

Purchase of investments

              (20,879,201)


            (127,511,306)

Sale of investments

92,868,501


160,669,659

Net cash inflow from operating activities

74,925,026


45,592,923









Increase in cash and cash equivalents

74,925,026


45,592,923





Opening cash and cash equivalents

            (107,758,132)


            (153,351,055)





Closing cash and cash equivalents

              (32,833,106)


            (107,758,132)





Significant non-cash transactions:




Capitalisation in lieu of dividend

10,643,590


17,176,016

 

Notes to the financial statements

For the year ended 30th June, 2010

 

1.         Accounting policies

 

The financial statements of the Company have been prepared in accordance with the historical cost convention as modified by the revaluation of investments. The principal accounting policies which have been applied are set out below. Such policies are in accordance with and comply with International Financial Reporting Standards ("IFRSs").

 

The Company has adopted the US Dollar ("US$") as its measurement and reporting currency in which shares are issued.

 

Change in accounting policy

 

Presentation of financial statements

The Company applies revised IAS 1 Presentation of Financial Statements (2007), which became effective as of 1st January 2009. As a result, the Company presents in the Statement of Changes in Shareholders Equity all owner changes in equity, whereas all non-owner changes in equity are presented in the Statement of Comprehensive Income. This presentation has been applied in these financial statements as of and for the year ended 30th June 2010. 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.

 

2.         Dividends

 

 2010 Dividend

 The directors do not propose a dividend in respect of the year ended 30th June, 2010.

 

2009 Dividend


US$

Paid 31st December 2009 - Capitalisation in lieu of dividend of US$0.07

per ordinary share


10,643,590




                                               

3.         Investments

 



2010


2009



US$


US$






Long positions:





Market value


131,569,428


202,266,361






Cost


174,964,222


269,392,267






Short positions:





Market value


(2,403,405)


34,602






Cost


(3,402,106)


(82,051)

 

The Company's accounting policy on fair value measurement is disclosed in note 1.b of the Annual Financial Statements. All securities owned and sold are categorised as Level I for valuation purpose, except for those noted below under Level III, and all investments in derivatives are categorised as level II for valuation purposes. The changes in the investments classified as Level III are as follows:

 



2010


2009



US$


US$






Balance at 1st July


          93,015,706


                     -  






Purchases/Sales


                       -  


        18,116,422

Realised gains/(losses)


                       -  


                       -         

Transfer from Level I to Level III


                       -  


107,516,449

Movement in unrealised gains/(losses)


(10,294,315)


(32,617,165)






Balance at 30th June


82,721,391


        93,015,706






Cost of investments held at year end


102,799,384


102,799,384

 

Investment categorised as Level III comprise DouglasBay Capital plc, Celtic Property Developments S.A and Balkan Reconstruction Investment Financing S.C.A.

 

The Company has a holding in DouglasBay Capital plc (DouglasBay) of US$38,468,485 or 27.31% of the Total Assets of the Company (40.14% of Net Assets) as at 30th June, 2010. The Directors, with the advice of the Investment Adviser, consider that although DouglasBay has a stock market quotation, trading is not sufficient to enable the quoted price to be a reliable estimate of fair value. Therefore, the Directors, with the advice of the Investment Adviser, have reviewed the fair value based on comparable earnings multiples and the value of the property portfolio. On the basis of this review, the Directors have resolved to carry the investment at cost being £0.10 per share (2009: £0.10 per share).

 

The Company has a holding in Celtic Property Developments S.A. (Celtic) of US$39,489,925, or 28.03% of the Total Assets of the Company (41.21% of Net Assets) as at 30th June, 2010.  The Directors, with the advice of the Investment Adviser, consider that although Celtic has a stock market quotation, trading is not sufficient to enable the quoted price to be a reliable estimate of fair value.  Therefore, the Directors, with the advice of the Investment Adviser, have estimated the fair value based on the proportionate share of the estimated net asset value of Celtic as at 30th June, 2010 to be €35 per share (2009: €35 per share).

 

The Company has a holding in Balkan Reconstruction Investment Financing S.C.A. (BRIF) of US$4,762,981, or 3.38% of the Total Assets of the Company (4.97% of Net Assets) as at 30th June, 2010.  BRIF is not quoted and the Directors, with the advice of the Investment Adviser, consider that the latest reported net asset value as at 30th June, 2010 is not a reliable estimate of fair value. Instead the investment is being carried at €12.77 per share (2009: €12.77 per share), the price at which the company issued new shares in December 2008, February 2009 and March 2009. As no more recent information has been made available, the Directors, with the advice of the Investment Adviser, consider this to be the most accurate estimate of fair value as at 30th June, 2010.

 

These three investments comprise a combined total value of US$82,721,391 or 58.72 % of the Total Assets of the Company as at 30th June, 2010.  The aggregate of realised gains/loss and movement in unrealised gains/loss for the year resulting from these three investments recorded in the Statement of Comprehensive Income amounted to a loss of US$10,294,315 (2009: loss of US$31,972,161).

 

4.         Share capital

 




2010


2010


2009


2009




Number


US$


Number


US$











Founder shares of US$1 each



                100


                100


                100


                100

Ordinary shares of US$0.00001 each



4,990,000,000


           49,900


4,990,000,000


           49,900






           50,000




           50,000
























2010


2010


2009


2009




Number


US$


Number


US$

Issued share capital










Founder shares of US$1 each



               100


               100


               100


               100











Ordinary shares of US$0.00001 each










At 1st July



  152,051,283


            1,519


   132,123,198


            1,320

Issued on account of dividend reinvestment


    17,864,367


               179


    19,928,085


               199

At 30th June



  169,915,650


            1,698


   152,051,283


            1,519











Total issued share capital





            1,798




            1,619











 

Characteristics of shares

 

Founder shares and Ordinary shares

On a show of hands every Member, being a holder of Founder or Ordinary shares, who is present in person shall have one vote, and on a poll every Member present in person or by proxy shall be entitled to one vote for every share of which he is the holder save that while any Ordinary shares are in issue no voting rights shall attach to the Founder shares.

 

Share rights on a winding up

On a winding up of the Company, the liquidator of the Company shall, so far as is possible, apply the assets available for distribution in the following manner:

 

(i)         firstly, in payment pari passu to holders of Shares of the par value paid up thereon;

(ii)        secondly, in payment pari passu to holders of Founder Shares of the par value paid up thereon; and

(iii)       thirdly, any surplus assets then remaining shall be distributed pro rata among the holders of Shares based on the aggregate Net Asset Values of the Shares they hold.

 

Share rights on redemption

 

Any ordinary shareholder who in aggregate holds more than 10 per cent of the issued ordinary share capital of the Company has the right to request the Company for an in specie redemption at any time. Subject to the discretion of the Directors, that ordinary shareholder will receive a pro rata distribution of the Company's portfolio which may be adjusted at the Director's discretion to protect the value of the Company's portfolio as a whole, within 180 days of the Company receiving such a request.

 

Capital Management

 

The Company considers capital to comprise share capital, share premium and retained earnings. Capital is deployed to meet the investment objective. Gearing maybe used up to 200% of the Net Asset Value. The Company is not subject to any externally imposed Capital requirements.

 

5.         Reserves



2010


2009



US$


US$

Share Premium










At 1st July


171,291,268


154,115,451

Relating to issue of shares


10,643,411


17,175,817

At 30th June


181,934,679


171,291,268






Retained losses





At 1st July


(68,171,467)


     113,776,759

Total comprehensive loss for the year


(7,293,153)


(164,772,210)

Dividend


(10,643,590)


(17,176,016)

At 30th June


(86,108,210)


(68,171,467)

 

6.         Net asset value per ordinary share

 

The net asset value per ordinary share is based on the net assets attributable to ordinary shares and the number of ordinary shares in issue at 30th June, 2010.



2010


2010


2009


2009



Total


Per Share


Total


Per Share



US$


US$


US$


US$










Net asset value


95,828,267


0.56


103,121,420


0.68

 

7.         Loss per ordinary share

 

The basic loss per ordinary share is based on the net loss during the year of US$7,293,153 (2009: US$164,772,210) and the weighted average number of ordinary shares in issue during the year of 161,007,938 (2009: 143,097,294).

 

8.         Related parties

 

The Company and the Administrator are related by virtue of the existence of a material contract as referred to in note 4 of the Annual Financial Statements.

 

Andrew Pegge, Colin Kingsnorth and Michael Haxby, the Directors of the Company, are also the Directors of Laxey Partners Limited, the Investment Adviser to the Company. As at 30th June, 2010, the Investment Adviser held 12,101,385 (2009: 10,829,331) Ordinary shares and 100 founder shares in the Company. The fees payable by the Company to the Investment Adviser for the period were US$819,979 (2009: US$1,420,856) of which US$58,343 (2009: US$92,075) were outstanding at the year end.

 

The Company holds shares in DouglasBay Capital plc (DouglasBay), Celtic Property Developments S.A and Ceiba Finance Limited, which are considered to be related parties, by virtue of common investment adviser.

 

In addition to the shares held, the Company advanced loans to DouglasBay Capital plc (as disclosed in Note 20) and executed various guarantees in favour of TDG Trustees Limited, pension trustee for TDG (as disclosed in Note 21). TDG is a wholly owned subsidiary of DouglasBay Capital plc.

 

9.         Directors Remuneration

 

Details of Directors remuneration earned in respect of the financials year by each Director of the company acting in such capacity during the financial year are as follows:


2010


2009



US$


US$






John Bourbon

      51,500


      51,500

Michael Haxby

            -  


             -  

Andrew Pegge

            -  


             -  

Gordon Brough

      40,000


      40,000

Ann Clayton

      40,000


      40,000

Colin Kingsnorth

            -  


             -  



    131,500


    131,500

 

Michael Haxby, Andrew Pegge and Colin Kingsnorth have waived the right to receive Directors fees while they are still Directors of the Investment Adviser.

 

The fees detailed above are the only form of remuneration paid to the Directors of the Company.     

 

10.        Loan receivable

 

Loan with Ceiba

 

On 31st October 2006, the Company entered into a loan agreement with Ceiba Finance Limited and Northview Investment Fund Ltd to lend Casa Fianciera Fintur SA a maximum facility amount of €25,000,000. The loan is repayable in 12 quarterly instalments, after an initial 12 month grace period. Interest is payable quarterly at a rate of 5.9% in excess of Euribor.

 

The Borrower will also pay and indemnify the Company for any reasonable fees, costs, damages and expenses incurred.

 

As security for the loan, the quarterly proceeds must have a "security ratio" of at least 1.4 times (on a rolling 12-month average) the required principal payments. If the ratio should ever fall below this amount, the loan is guaranteed against the income of the Borrower.

 

The balance outstanding as at 30th June, 2010 was US$410,509 (€335,136). The interest charged for the year was US$41,276 (€29,560) of which US$2,208 (€1,803) was outstanding at 30th June, 2010. The final repayment on the loan is due in November 2010.

 

DouglasBay loan

 

On 13th October, 2008, the Company entered into a loan agreement with DouglasBay Capital plc. The loan accrues interest at 10% above 3 month LIBOR and the facility was repaid on the 28th June, 2010.

 

The interest charged during the year was US$302,667 (£186,372) which was outstanding at year end.

 

11.        Guarantee

 

As part of the acquisition of TDG plc by DouglasBay Capital plc in October, 2008, the Company and Douglasbay Capital plc executed a four year guarantee of £12.2m, a seven year guarantee of £15m and an unlimited guarantee of £3.3m in favour of TDG Trustees Limited ("TDGTL") (pension trustee for TDG), pursuant to which, the Company and Douglasbay Capital plc agreed to guarantee to TDGTL the punctual performance by TDG of all its guaranteed obligations. The maximum liability is £30.5m.

 

The interest charged on the guarantee for the year was US$1,329,444 (£877,405) of which US$485,550 (£321,077) was outstanding at year end.

 

12.    Publication of Non-Statutory Accounts

 

The financial information set out in this preliminary announcement does not constitute statutory accounts.  The balance sheet as at 30 June 2010 and the group profit and loss account, statement of changes in net assets, consolidated cash flow statement and associated notes for the year then ended have been extracted from the Company's 2010 financial statements upon which the auditor's opinion is unqualified.

 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
FR KKNDQFBDDDDK