TIDMSED
RNS Number : 0632C
Saltus European Debt Strategies Ltd
26 April 2012
SALTUS EUROPEAN DEBT STRATEGIES LIMITED
(The "Company") (Registered in Guernsey - Number 46912)
Registered Office:
2(ND) FLOOR, REGENCY COURT, GLATEGNY ESPLANADE,
ST PETER PORT, GUERNSEY GY1 3NQ
TELEPHONE: +44 1481 720321 FACSIMILE: +44 1481 716117
E-MAIL: Funds@bfgl.com
For immediate Release 26 April 2012
---------------------- --------------
SALTUS EUROPEAN DEBT STRATEGIES LIMITED
ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS 2011
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http://www.rns-pdf.londonstockexchange.com/rns/0632C_-2012-4-25.pdf
SUMMARY INFORMATION
Principal Activity
Saltus European Debt Strategies Limited ("the Company") is an
authorised closed-ended investment scheme domiciled in Guernsey.
The Company is listed and traded on the London Stock Exchange.
Investment Objective and Policy
The Company's investment objective is to produce annual returns
in excess of 3-month Sterling LIBOR plus 7.5 per cent over a
rolling 5-year period, with annual standard deviation of under 5
per cent.
The Company's investment policy is to invest in a portfolio of
absolute return funds, which is expected to comprise mostly of
debt-oriented hedge funds, but which may also include long only
debt funds and closed-ended limited partnerships with longer
lock-ups.
Asset Allocation by Hedge Fund Strategy
Excluding cash, the estimated allocation to underlying hedge
fund strategies as at 31 December 2011 was as follows:
Direct Wtg%
---------------------- -------
Distressed 66.5%
Multi-Strategy
Credit 30.2%
Asset Backed Lending 3.1%
Leveraged Loans 0.2%
Total 100.0%
---------------------- -------
Look-through * Wtg%
----------------------- -------
Distressed 57.7%
Special Situations 18.8%
High Yield Long/Short 12.3%
Asset Backed Lending 4.3%
Credit Trading 3.1%
Other 2.2%
Leveraged Loans 1.6%
----------------------- -------
Total 100.0%
----------------------- -------
*Estimate by Saltus Partners LLP based on interviews with a
sample of underlying managers.
The top table shows the allocation of the Company to the
underlying managers by strategy type. The bottom table breaks down
the multi-strategy managers by positions to give a look through of
the underlying portfolio exposure of the Company.
Analysis of Significant Investments
At 31 December 2011 the Company's investment portfolio comprised
the following principal holdings:
Market % of
Value Portfolio
Name of Investment Strategy GBP Value
-------------------------------------- ---------------- ----------- -----------
Apollo European Principal Finance
LP Distressed 2,451,027 15.19%
Strategic Value Restructuring
Fund Distressed 2,188,989 13.55%
OCM European Principal Opportunities
Fund Distressed 1,904,917 11.79%
Multi-strategy
King Street Europe Fund credit 1,892,652 11.72%
Fortelus Special Situations Distressed 1,867,453 11.56%
RAB European Credit Opportunities Multi-strategy
Fund credit 1,543,925 9.56%
Multi-strategy
Ffenics I Fund LP credit 1,294,640 8.02%
Capeview Recovery Fund Distressed 1,058,699 6.55%
Ironshield Special Situations
Fund Distressed 882,399 5.46%
Asset backed
Trafalgar Kahala Jet Fund lending 497,107 3.08%
Trafalgar Discovery Fund Distressed 235,950 1.46%
Sub Total 15,817,758 97.94%
-------------------------------------------------------- ----------- -----------
Other (individually less than
1% of portfolio value) 333,422 2.06%
-------------------------------------------------------- ----------- -----------
Total 16,151,180 100.00%
-------------------------------------------------------- ----------- -----------
CHAIRMAN'S STATEMENT
I present below my report to shareholders in respect of the
financial year ended 31 December 2011.
Performance and Investment Review
Over the period the Company's net asset value per share
decreased by 5.3 per cent. in local currency terms. In sterling
terms, including the impact of foreign currency movements the net
asset value per share fell 6.4% to 57.80p. Over the same period,
the share price increased 0.5% as the discount to net asset value
at which the shares traded narrowed from 20.3% to 14.4%. European
equity and credit markets experienced challenging conditions, with
equities ending the year down (MSCI Europe: -17.4%), high yield and
distressed also down (respectively Bank of America Merrill Lynch
Euro High Yield Master: -2.5% and HFR Distressed -8.0%).
Whilst risk assets generally suffered during 2011, Europe bore
the brunt of the negative returns because of concerns over the
mounting costs of distressed sovereign bail-outs and an increased
probability of a disorderly Euro break-up. Credit prices were hit
in part also because of increased selling pressure on the part of
European banks, looking to free up their balance sheets as part of
the deleveraging process in order to comply with increasingly
stringent regulatory capital requirements.
The Sub-Manager's report reviews the investment performance in
greater detail and comments on the outlook.
Share buyback programme
During the course of the year your Board increased the intensity
of the Company's share buyback activity, acquiring and cancelling
some 4,558,504 Ordinary Shares (2010: 1,629,977), representing over
11% of the Company's share capital The Ordinary Shares were
acquired at an average discount of 18.8% and this contributed 2.1%
to performance.
Outlook
The Company currently has cash balances significantly in excess
of its working capital and capital commitments and can therefore
look forward to the future with confidence. The prospects for the
long lock up funds remain attractive, given the abundant
opportunity set for buyers willing to invest in illiquid and
complex situations and the relative oversupply of opportunities
compared to available capital chasing such opportunities. A
significant majority of the portfolio comprising liquidating funds
has now either been returned or been written down substantially.
Whilst we cannot say for certain that this process has run its
course, the potential for further material negative impact on the
net asset value from such write-downs are more limited, given that
these liquidating funds comprised only 6.8% of the Company's net
asset value at the year end.
In August 2009, due to the Company's poor performance during the
Credit Crunch on the one hand and the illiquidity of the investment
portfolio on the other hand, and following consultation with
shareholders at the time, the Board committed to present a vote at
the forthcoming Annual General Meeting to consider the Company's
future. Accordingly, a special resolution will be proposed at the
Annual General Meeting to this effect.
Having consulted further with the Company's existing major
Shareholders, a number of whom have indicated that they wish to
realise their investment in the Company in an orderly manner, the
Board currently expect to recommend that Shareholders vote in
favour of a managed wind down. The Board believes that the main
benefits of a managed wind-down would be that it will allow cash to
be returned to Shareholders as and when it becomes available, in
accordance with the liquidity profile of the Company's underlying
portfolio, and in a cost efficient manner.
A circular will be sent to Shareholders shortly convening the
Annual General Meeting at which a special resolution regarding the
Company's future will be proposed. Ordinary resolutions will also
be proposed at the Annual General Meeting regarding the approval of
the annual accounts, re-election of directors and re-appointment of
the auditors. It is expected that the Annual General Meeting will
be held in June.
I would like to thank our shareholders, once again, for their
continuing support.
G Baird, Chairman
Date: 25 April 2012
SUB-MANAGER'S REPORT
During the year ended 31 December 2011 the net asset value per
share decreased 6.4%, comprising 5.3% from fund performance in
local currency terms and 1.1% from foreign exchange
translation.
31/12/2010 31/12/2011 Change
NAV 61.78p 57.80p -6.4%
Share price 49.25p 49.50p 0.5%
Discount -20.3% -14.4%
For the same period, HFR Distressed was down 8.0% and European
equities down 17.4%, reflecting the ongoing sovereign debt malaise
in the Euro area and subsequent "risk on, risk off" attitude of
investors creating significant uncertainty and volatility of stock
markets.
Since 2011
2011 Inception Volatility
Saltus European Debt (NAV) -6.4% -11.2% 6.3%
Saltus European Debt (NAV - local currency) -5.3% -8.4% 6.3%
HFR Distressed -8.0% -9.4% 7.5%
MSCI Europe - equities -17.4% -13.6% 19.7%
European Leveraged Loans -5.1% -4.4% 5.6%
ML European High Yield -2.5% 4.7% 13.0%
Source: Datastream
Performance
The chart below represents the monthly change in NAV over the
period and shows the impact respectively of the underlying funds'
performance and foreign exchange movement.
[Refer to Chart 1]
As can be seen from the chart, performance during the first half
was encouraging but marred in June by the write off of the
remaining value in the Cognis liquidating portfolio at a cost of 3%
of NAV. This largely comprised a single investment which was
subject to litigation which went against it. Performance for the
second half was weaker both at the underlying fund level and as a
result of currency movements. At the fund level, there were
significant write downs by Trafalgar Kahala Jet, a jet leasing fund
in liquidation for whom rising aviation fuel prices have
significantly impacted the resale value of their jets, and two of
the Company's major distressed positions, Fortelus and SVP
Restructuring, who performed disappointingly as distressed credit
markets saw substantial down moves, in some cases close to
equities. Currency movements also contributed -4.7% in the second
half as questions about the future of the Euro caused it to decline
8.1% against Sterling.
Investment Review
Contribution by strategy was as follows:
[Refer to Chart 2]
As previously described, the main detractors from performance
were SVP Restructuring and Fortelus (Distressed), Trafalgar Kahala
Jet (Asset Backed Lending) and Cognis (Multi-Strategy Credit).
Investment Exposure and Leverage
Overall net exposure at the year-end was as follows:
% GAV % NAV
Gross Long 89% 69%
Gross Short 24% 19%
Net Long 65% 50%
Gross long and short exposures by asset type were estimated as
follows:
[Refer to Chart 3]
Strategy Exposure
The chart below gives a breakdown of the description of the
managers' strategies at a fund level at 31 December 2011. The
largest single category is now allocated to distressed debt
funds.
[Refer to Chart 4]
The following chart describes the securities in which our
managers are investing on a look through basis:
[Refer to Chart 5]
Company Liquidity
The Company had net cash resources of GBP4.65m at year end
(2010: GBP4.27m) and outstanding capital commitments of GBP1.96m
(2010: GBP 2.25m).
During the year, we received cash distributions from Apollo
(EUR1.42m), Oaktree European Credit Opportunities (EUR0.43m) and
Ffenics (EUR0.01m). Redemptions were received from Liontrust
(GBP0.90m), RAB European Credit (GBP0.70m), King Street (EUR0.82m),
Fortelus (EUR0.38m), Trafalgar Recovery (EUR0.30m) and Ironshield
(EUR0.29m). In addition, from funds which are in liquidation we
received EUR0.52m from Trafalgar Kahala Jet, EUR0.22m from
Trafalgar Discovery, EUR0.07m Cognis, $0.44m from ADM Gladius,
$0.38m from Orn, and $0.01m Pardus. This reduced the percentage of
net asset value represented by liquidating share classes from 14.3%
at 31 December 2010 to 6.8% at the year end whilst cash resources
increased to 22.3% (2010: 17.2%).
At the beginning of the year we added $1.4m to our Fortelus and
$1.1m to our Strategic Value Partners positions and capital
contributions were made to Apollo (EUR0.89m), Oaktree (EUR0.38m)
and Ffenics (EUR0.04m, $0.03m).
As a result of this activity and expenditure of GBP2.3m during
the year to buy back and cancel 4.5m Shares, the liquidity profile
of the Company at the year end was as follows:
% NAV
2010 2011
Quarterly 32.8% 33.8%
Semi annual 5.1% -
Annual 6.6% 9.0%
Less frequent 24.0% 28.1%
Liquidating Share Classes 14.3% 6.8%
Cash 17.2% 22.3%
100.0% 100.0%
*Liquidity analysis does not take account of initial lock-ups,
gates, notice periods or redemption suspensions. It also excludes
capital commitments.
Source: Saltus Partners LLP
Market Commentary and Outlook
The timing of the launch of the Company in June 2007 marked the
onset of the Credit Crunch. The ensuing four and a half years have
seen the universe of European credit hedge funds which were
operating prior to this point cut down from around thirty to only a
small handful at the time of writing. The market turmoil of 2008
and 2009 did not lead to the surge in bankruptcies that would
typically have followed such events, as governments intervened with
unprecedented force both in terms of loose monetary policy and
measures to protect the banking system, thereby enabling many
highly leveraged companies to postpone or permanently avoid debt
restructurings.
[Refer to Chart 6 and 7]
Source: Moody's
With credit quality now fast deteriorating once again (as
measured by Moody's ratings drift - see chart), and the fact that
the repayment schedules for leveraged loans issued prior to 2008
are starting to bite, it is likely that cumulative default rates
will continue their climb from their 2009 lows well in to 2013.
Saltus Partners LLP
Date: 25 April 2012
BOARD OF DIRECTORS
The Directors of the Company, all of whom are non-executive, are
listed as follows:
George Baird* (Chairman), born 1950, qualified as a chartered
accountant in 1974 with Arthur Young McClelland Moores &
Company. In 1980, he was employed by the States of Jersey and from
1991 to 1999 was Treasurer of the States of Jersey. He served as
Group Finance and Operations Director of the Mourant Group from
1999 until his retirement in 2002. He holds a number of
non-executive directorships including Chairmanship of both Invesco
Leveraged High Yield Fund Limited (1999 to date) and Geiger Counter
Limited (2006 to date). He is a resident of Jersey.
Rupert Dorey*, born 1960, has over 23 years of experience in
debt capital markets, specialising in credit related products,
including derivative instruments. Mr Dorey's expertise is
principally in the areas of debt distribution, origination and
trading, covering all types of debt from investment grade to high
yield and distressed debt. He was at Credit Suisse First Boston
("CSFB") for 17 years from 1988 until May 2005. From 2000 until he
left CSFB, he was the head of sterling credit sales at CSFB.
Previously, he held a number of positions at CSFB, including
establishing CSFB's high yield debt distribution business in
Europe, fixed income credit product co-ordinator for European
offices and head of UK Credit and Rates Sales. Mr Dorey is a
director of a number of hedge funds, fund of hedge funds and
private equity funds. He is a resident of Guernsey and a member of
the Institute of Directors.
Jon Macintosh+, born 1968, was a Managing Director of Lehman
Brothers from 2003 to 2004 where he was co-head of the European
Mezzanine Group within the Private Equity Division, responsible for
investing in subordinated debt instruments in European leveraged
buy-out transactions. From 1997 to 2003, he worked for Deutsche
Bank where he was a Managing Director of DB Capital Partners and a
director of Morgan Grenfell Private Equity Limited, responsible for
the origination and execution of European leveraged buy-out
transactions. From 1991 to 1995 he worked for Schroders plc in the
investment management division (1991 to 1993) and the equity
capital markets division (1993 to 1995). He is a director of Saltus
(Channel Islands) Limited, Saltus Partners Limited and a partner of
Saltus Partners LLP (2004 to present). He is also a director of
Guernsey Portfolios PCC Limited (October 2006 to present). He is a
resident of the United Kingdom.
Christopher Sherwell*, born 1947, is a non-executive director of
a number of investment related companies. He was Managing Director
of Schroders (CI) Limited from April 2000 until January 2004 and
served as a director of various Schroder group companies and
investment funds. He continued as a non-executive director of
Schroders (CI) Limited before stepping down in December 2008. His
other directorships include chairmanship of Goldman Sachs Dynamic
Opportunities Limited. Before joining Schroders in 1993 he worked
as Far East regional strategist with Smith New Court Securities in
London and then Hong Kong. He was previously a journalist, working
for the Financial Times. He is a resident of Guernsey.
* Independent Non-Executive Directors.
+ Representative of the Manager and Sub-Manager.
DIRECTORS' REPORT
The Directors of Saltus European Debt Strategies Limited ("the
Company") are pleased to submit their Annual Report and the Audited
Financial Statements for the year ended 31 December 2011.
The Company
The Company is an authorised closed-ended investment scheme
domiciled in Guernsey. The Ordinary Shares are listed on the London
Stock Exchange.
Principal Activity and Investment Objective
The Company's primary investment objective is to provide annual
returns in excess of 3-month sterling LIBOR plus 7.5 per cent over
a rolling 5 year period, and annual standard deviation of under 5
per cent. The Company's principal activity is to invest in a
portfolio of absolute return funds, which is expected to comprise
mostly hedge funds, but which may also include long-only funds
(debt and equity) and, in certain cases, closed ended funds
including limited partnerships with longer lock-ups, of typically
2-3 years and some of which may be up to 10 years, where considered
appropriate by the Sub-Manager.
A review of the business and prospects is contained in detail in
the Sub-Manager's Report.
Results and Distributions
The results for the year are shown in the Statement of
Comprehensive Income on page 20.
In accordance with the Prospectus, it is the Directors'
intention not to declare or make any distributions to
shareholders.
Independent Auditors
A resolution to re-appoint BDO Limited as auditors will be
proposed at the next Annual General Meeting.
Investment Manager and Sub Manager
The Directors are responsible for the determination of the
Company's investment policy and have overall responsibility for the
Company's activities. The Company has, however, entered into an
Investment Management Agreement with Saltus (Channel Islands)
Limited under which Saltus (Channel Islands) Limited has been
appointed with overall responsibility for the management of the
Company's portfolio and the provision of various other management
services to the Company, subject to the overriding supervision of
the Directors. The Investment Manager has delegated some of its
duties, including that of making investment decisions and
day-to-day management of the Company's portfolio to Saltus Partners
LLP, the Sub-Manager.
The Directors have reviewed the performance and terms of
appointment of the Investment Manager and Sub-Manager and consider
that it is in the best interests of all shareholders for the
Company to continue with their appointment on their existing terms
of appointment. A summary of these terms, including the management
fee, performance fee and notice of termination period, is set out
in note 10 of the Financial Statements.
Custody Arrangements
Historically the Company's assets have been held in custody by
Bank Julius Baer & Co Limited ("Julius Baer") pursuant to an
agreement dated 6 June 2007. On 16 August 2011 the Company entered
into a Custody Agreement with Butterfield Bank (Guernsey) Limited
("Butterfield Bank") and terminated the agreement with Julius Baer.
As a consequence of this change, the majority of the Company's
assets have been reregistered into the name Butterfield Bank
although this process remains to be completed in relation to a
number of the liquidating share classes which currently remain in
Julius Baer's name.
The custodian receives a fee of 0.05 per cent of the net asset
value of the Company, charged quarterly in arrears, subject to a
minimum annual fee of GBP9,500. The agreement may be terminated by
giving not less than 90 days' written notice or otherwise where
either party goes in to liquidation.
Both the Administrator and Sub-Manager reconcile the assets held
in Custody on a monthly basis to statements received from
underlying managers or their administrators.
The Board conducts an annual review of the Custody arrangements
as part of its general internal control review.
Authorised and Issued Share Capital
The Company has the power to issue an unlimited number of shares
of no par value which may be issued as Ordinary Shares or C Shares
or otherwise and which may be denominated in Sterling, Euro, US
Dollars or any other currency.
Upon incorporation 2 Ordinary Shares of no par value each were
issued. Following the launch of the Company on the London Stock
Exchange the Company had issued 48,000,000 Ordinary Shares of no
par value.
With confirmation of the Royal Court in Guernsey on 6 July 2007
the amount standing to the credit of the Share Premium Account of
the Company was cancelled and credited to a Distributable Reserve
which shall be able to be applied in any manner in which the
Company's profits available for distribution are able to be
applied, including the purchase of the Company's own shares and the
payment of dividends.
Repurchases made pursuant to the Company's discount management
policy will be funded through available cash reserves. Any
subsequent sale of assets from the Company's investment portfolio
will be implemented by the Investment Manager in an orderly manner
and in accordance with the Company's stated investment objectives
and policies.
Historically the Board has sought and obtained on an annual
basis shareholder authority to repurchase up to 14.99 per cent of
the issued share capital and it has utilised this authority when it
has been able to purchase Shares at a significant discount to net
asset value per share. It has been the Board's policy to cancel all
Shares bought back. During the year ended 31 December 2011 the
Board bought back and cancelled 4,558,504 Shares (2010:
1,629,977).
The existing authority to buy back Shares will expire at the
forthcoming Annual General Meeting.
Treasury Shares
In accordance with the Companies (Guernsey) Law, 2008 (the
'Law') any Shares repurchased pursuant to the Company's share
buyback authority may, subject to an overall limit of 10 per cent
of the shares then in issue, be held in Treasury. However, it has
been and remains the Board's policy to cancel all Shares bought
back and not to hold them in Treasury.
No Shares were held in treasury during the year ended 31
December 2011 (2010: nil).
Further Issues of Shares
The Company's Articles of Association provide the Directors with
wide powers to issue further Shares (of one or more currency
classes and whether as C shares or ordinary shares) on a
non-pre-emptive basis and without seeking further Shareholder
approval. The Board has no present intention to issue new
Shares.
Directors
The Directors, all of whom are non-executive, are listed on page
38.
None of the Directors has a service contract with the Company
and no such contracts are proposed. The fees payable to each
independent non-executive director from 1 April 2010 were: Mr G
Baird, Chairman, who receives GBP29,000 per annum (prior to 31
March 2010: GBP25,000); Mr R Dorey who receives GBP20,000 per annum
(prior to 31 March 2010: GBP15,000); and Mr C Sherwell who receives
GBP19,000 per annum (prior to 31 March 2010: GBP15,000) plus an
additional GBP2,500 per annum for being Chairman of the Audit
Committee. Mr J Macintosh waived his fee as a Director as described
in note 22.
At the reporting date the Directors' and families' shareholdings
in the Company were as follows:
No of Ordinary
Name Shares Percentage
-------------------- --------------- ------------
G Baird (Chairman) 10,000 0.03%
R Dorey 50,000 0.14%
J Macintosh 249,414 0.70%
C Sherwell 25,000 0.07%
Substantial Shareholdings
As of 10 April 2012, being the latest practicable date prior to
the publication of these Financial Statements, the Company has been
notified of the following shareholdings in excess of 3% of the
issued Share Capital:
No of Ordinary
Name Shares Percentage
------------------------ --------------- ------------
Weiss Asset Management 9,256,211 25.84%
Saltus Partners * 6,324,514 17.65%
Laxey Partners 5,902,234 16.48%
Sandalwood Securities 5,480,000 15.30%
CG Asset Management 1,675,000 4.68%
Paradigm Capital 1,325,543 3.70%
* These include the 249,414 shares owned by J Macintosh.
Related Parties
Details of transactions with related parties are disclosed in
note 22 to these Financial Statements.
Directors' Responsibilities
The Directors are responsible for preparing the Financial
Statements in accordance with International Financial Reporting
Standards ("IFRS") and the Companies (Guernsey) Law, 2008 for each
financial period which give a true and fair view of the state of
affairs of the Company and its profit or loss for that period.
International Accounting Standard 1 requires that financial
statements present fairly for each financial period the Company's
financial position, financial performance and cash flows. This
requires the faithful representation of the effects of
transactions, other events and conditions in accordance with the
definitions and recognition criteria for assets, liabilities,
income and expenses set out in the International Accounting
Standards Board's "Framework for the preparation and presentation
of financial statements". In virtually all circumstances a fair
presentation will be achieved by compliance with all applicable
International Financial Reporting Standards.
In preparing financial statements the Directors are required
to:
- Ensure that the financial statements comply with the
Memorandum and Articles of Association and International Financial
Reporting Standards, as published by the International Accounting
Standards Board;
- Select suitable accounting policies and apply them consistently;
- Present information including accounting policies, in a manner
that provides relevant, reliable,
comparable and understandable information;
- Make judgements and estimates that are reasonable and prudent; and
- Prepare the Financial Statements on the going concern basis,
unless it is inappropriate to presume
that the Company will continue in business.
The Directors confirm that they have complied with these
requirements in preparing the Financial Statements.
Each of the Directors, whose names are listed on page 38,
confirms to the best of each person's knowledge and belief:
- the Financial Statements, prepared in accordance with the
International Financial Reporting Standards (IFRS) in accordance
with the requirements of the London Stock Exchange (LSE), give a
true and fair view of the assets, liabilities, financial position
and loss of the Company; and
- the Sub-Manager's report includes a fair review of the
development and performance of the business and the position of the
Company together with a description of the principal risks and
uncertainties they face.
The Directors are also responsible for the keeping of proper
accounting records which disclose with reasonable accuracy at any
time, the financial position of the Company and to enable them to
ensure that the Financial Statements comply with the Companies
(Guernsey) Law, 2008 and the Listing Rules of the London Stock
Exchange. They are also responsible for the system of internal
controls, safeguarding the assets of the Company and hence for
taking reasonable steps for the prevention and detection of fraud
and other irregularities.
So far as the Directors are aware, there is no relevant audit
information of which the Company's auditor is unaware, having taken
all the steps the Directors ought to have taken to make themselves
aware of any relevant audit information and to establish that the
Company's auditor is aware of that information.
Corporate Governance
Saltus European Debt Strategies Limited is an authorised
closed-ended investment scheme domiciled in Guernsey. The Company
has a standard listing of its shares on the London Stock Exchange
and is exempt from the requirements of the UK Corporate Governance
Code ("the Code") as issued by the UK Listing Authority. However,
the Board has embraced some of the main principles of the Code
where relevant to the Company. Outlines of the main principles are
stated below.
Directors
The Board of Directors aims to meet at least four times during
each calendar year, and throughout the year ended 31 December 2011,
it comprised four non-executive Directors. All members of the Board
are considered to be independent, with the exception of Mr J
Macintosh, who is a Partner in the Sub-Manager and a Director of
the Investment Manager.
Under the Company's Articles of Association it is required that
all non-executive Directors are appointed for a fixed term lasting
no more than three years after an individual Director's election or
re-election by shareholders at a general meeting. Any Director who
was elected or last re-elected at or before the Annual General
Meeting held in the third year before the current year shall retire
by rotation. Therefore, up to one-third of the number of Directors
in office shall retire by rotation at each Annual General Meeting.
In the event that their number is not a multiple of three, the
number nearest to but not exceeding one-third shall retire from
office. In addition, any Director who is also a director or Partner
of the Investment Manager or the Sub-Manager, will be subject to
annual re-election. Consequently the Directors who will retire by
rotation and offer themselves for re-election at the next Annual
General Meeting of the Company will be Mr R Dorey and Mr J
Macintosh.
Although no formal training in Corporate Governance is given to
Directors, the Directors are kept up to date on Corporate
Governance issues through bulletins and training materials provided
from time to time by the Company Secretary, lawyers and
accountants.
The Board receives monthly reports and meets at least quarterly
to review the overall business of the Company and to consider
matters specifically reserved for its review. At these meetings the
Board monitors the investment performance of the Company. The
Directors also review the Company's activities every quarter to
ensure that it adheres to the Company's investment policy or, if
appropriate, to make any changes to these policies. Additional ad
hoc reports are received as required and Directors have access at
all times to the advice and services of the Company Secretary, who
is responsible for ensuring that the Board procedures are followed
and that applicable rules and regulations are complied with.
The Board monitors the level of the share price premium and
discount to determine what action is desirable (if any) to reduce
it.
A procedure has been adopted for the Directors, in the
furtherance of their duties, to take independent professional
advice at the expense of the Company.
Directors' Performance Evaluation
The Board has established an informal system for the evaluation
of its own performance and that of the Company's individual
Directors. It considers this to be appropriate having regard to the
non-executive role of the Directors and the significant outsourcing
of services by the Company to external providers.
The independent Directors undertake, on an annual basis, a
verbal assessment of the effectiveness of the Board particularly in
relation to its oversight and monitoring of the performance of the
Investment Manager and other key service providers. The Board also
evaluates the effectiveness of any of the Directors who are
proposed for the re-election at each Annual General Meeting of the
Company. The Board is pleased to confirm that each of the Directors
put forward for re-election continue to perform effectively and
demonstrate commitment to their roles.
The Directors are entitled to receive, by way of a fee for their
services as Directors, such sum as the Board may from time to time
determine, provided that the aggregate total paid in any given
financial year does not exceed GBP250,000.
Relations with Shareholders
The Company reports to shareholders four times a year by way of
an Interim Report, two Interim Management Statements and the Annual
Report and Financial Statements. In addition, net asset values are
published monthly and the Manager publishes monthly fact sheets and
quarterly newsletters on its website, www.saltus.co.uk.
The Board receives quarterly reports on the shareholder profile
of the Company and regular contact with major shareholders is
undertaken by the Company's corporate brokers and the executives of
the Manager. Any issues raised by major shareholders are reported
to the Board on a regular basis.
The Chairman and individual Directors are willing to meet major
shareholders to discuss any particular items of concern regarding
the performance of the Company. The Chairman, Directors and Manager
are also available to answer any questions which may be raised by
any shareholder at the Company's Annual General Meeting.
Audit Committee
The Audit Committee comprises all Board members, with the
exception of Mr J Macintosh, and has agreed to meet at least twice
a year. Mr C Sherwell is Chairman of the Audit Committee.
The key objectives of the Audit Committee include a review of
the Company's Financial Statements to ensure they are prepared to a
high standard and comply with all relevant legislation and
guidelines, where appropriate, and to maintain an effective
relationship with the external auditors. With respect to the
external auditor, the Committee's role will include the assessment
of their independence, review of auditor's engagement, remuneration
and any non-audit services provided by the auditors.
Other responsibilities of the Committee include the review of
the Company's internal controls, interim and annual reports.
Directors' Attendance
The table below shows the attendance at Board and Audit
Committee meetings during the year. There were seven formal Board
meetings and two Audit Committee meetings held.
Board Audit Committee
G Baird 7 2
R Dorey 6 2
J Macintosh 4 -
C Sherwell 7 2
In addition there were a number of other ad hoc meetings held
during the year to deal with various administrative matters.
Internal Control Review
The Board of Directors is responsible for having in place a
system of internal controls relating to the Company and for
reviewing the effectiveness of those systems. The review of
internal controls is an ongoing process for identifying and
evaluating the risks faced by the Company, and which are designed
to manage risks rather than eliminate the risk of failure to
achieve the Company's objectives.
It is the responsibility of the Board to undertake risk
assessment and review of the internal controls in the context of
the Company's objectives that covers business strategy,
operational, compliance and financial risks facing the Company.
Going Concern
The Investment Manager regularly monitors the Company's
liquidity position and the Board of Directors reviews it on a
quarterly basis. Refer to notes 5 and 23 for further details
relating respectively to liquidity risk and bank facilities.
The Company has considerable financial resources and after
making enquiries the Directors have a reasonable expectation that
the Company has adequate resources to continue in operational
existence for the forseeable future. Accordingly the Directors
continue to adopt the going concern basis in preparing the Annual
Report and Financial Statements.
However, it should be noted that the Board has committed to put
a resolution at the next Annual General Meeting to consider the
winding down of the Company. Since there is uncertainty regarding
the outcome of the shareholder vote, this may impact on the timing
of any course of action that may be taken by the Company and
whether any such action may be concluded within or after a period
of 12 months.
C. Sherwell R. Dorey
Director Director
Date: 25 April 2012
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF SALTUS EUROPEAN
DEBT STRATEGIES LIMITED
We have audited the Financial Statements of Saltus European Debt
Strategies Limited for the year ended 31 December 2011 which
comprise the Statement of Comprehensive Income, the Statement of
Changes in Shareholders' Equity, the Statement of Financial
Position, the Statement of Cash Flows, and the related notes 1 to
25. The financial reporting framework that has been applied in
their preparation is applicable law and International Financial
Reporting Standards (IFRSs) as adopted by the European Union.
This report is made solely to the Company's members, as a body,
in accordance with Section 262 of the Companies (Guernsey) Law,
2008. Our audit work is undertaken so that we might state to the
Company's members 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 Company's members as a body,
for our audit work, for this report, or for the opinions we have
formed.
Respective Responsibilities of the Directors and Auditor
As explained more fully in the Directors' Responsibilities
Statement within the Directors' Report, the directors are
responsible for the preparation of the financial statements and for
being satisfied that they give a true and fair view.
Our responsibility is to audit and express an opinion on the
Financial Statements in accordance with applicable law and
International Standards on Auditing (UK and Ireland). Those
standards require us to comply with the Auditing Practices Board's
(APB's) Ethical Standards for Auditors.
Scope of the Audit of the Financial Statements
An audit involves obtaining evidence about the amounts and
disclosures in the Financial Statements sufficient to give
reasonable assurance that the Financial Statements are free from
material misstatement, whether caused by fraud or error. This
includes an assessment of: whether the accounting policies are
appropriate to the company's circumstances and have been
consistently applied and adequately disclosed; the reasonableness
of significant accounting estimates made by the directors; and the
overall presentation of the Financial Statements. In addition, we
read all the financial and non-financial information in the Annual
Report to identify material inconsistencies with the audited
Financial Statements. If we become aware of any apparent
misstatements or inconsistencies we consider the implications for
our report.
Opinion on the Financial Statements
In our opinion the Financial Statements:
-- give a true and fair view of the state of the Company's
affairs as at 31 December 2011 and of its loss for the year then
ended;
-- have been properly prepared in accordance with IFRSs as adopted by the European Union; and
-- have been properly prepared in accordance with the
requirements of the Companies (Guernsey) Law, 2008.
Emphasis of matter - going concern
In forming our opinion on the Financial Statements, which is not
modified, we have considered the adequacy of the disclosure made in
note 2 to the Financial Statements concerning the future of the
Company.
As disclosed in note 2 the Board is considering proposals
regarding the future of the Company which will be put to
Shareholders at the next Annual General Meeting of the Company.
Depending on the nature and outcome of the proposals, this may
result in the Company being wound down in a timescale yet to be
determined.
The above matter indicates the existence of a material
uncertainty which may cast significant doubt about the Company's
ability to continue as a going concern. The Financial Statements do
not include the adjustments that might result if the Company was
unable to continue as a going concern.
Matters on which we are required to report by exception
We have nothing to report in respect of the following
matters:
Under the Companies (Guernsey) Law, 2008 we are required to
report to you if, in our opinion:
-- proper accounting records have not been kept by the Company; or
-- the Financial Statements are not in agreement with the accounting records; or
-- we have failed to obtain all the information and
explanations, which, to the best of our knowledge and belief, are
necessary for the purposes of our audit.
Richard Michael Searle FCA
For and on behalf of BDO Limited
Chartered Accountants and Recognised Auditor
Place du Pre
Rue du Pre
St Peter Port
Guernsey
Date: 25 April 2012
STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2011
2011 2010
Notes GBP GBP
Net losses on fair value through
profit or loss investments 13 (1,600,377) (131,131)
Other gains and losses 7 144,846 41,580
--------------------- ----------
(1,455,531) (89,551)
--------------------- ----------
Income
Other operating income 8 8,618 114,788
--------------------- ----------
Expenses 10
Management and performance fees (234,127) (262,599)
Other expenses (287,683) (237,875)
--------------------- ----------
(521,810) (500,474)
--------------------- ----------
Net expenses (513,192) (385,686)
--------------------- ----------
Finance costs 9 (2,208) (225)
--------------------- ----------
Loss for the financial year (1,970,931) (475,462)
--------------------- ----------
Other comprehensive income - -
--------------------- ----------
Total comprehensive expense (1,970,931) (475,462)
===================== ==========
Basic and Diluted Loss per Ordinary
Share 12 (5.16)p (1.14)p
Weighted Average Number of Ordinary
Shares outstanding 12 38,208,119 41,744,798
All items in the above statement derive from continuing
operations.
All income is attributable to the Ordinary Shares of the
Company.
The accompanying notes on pages 24 to 37 form an integral part
of the Financial Statements.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the year ended 31 December 2011
Share Distributable Accumulated
Premium Reserve Profits/(losses) Total
Notes GBP GBP GBP GBP
At 1 January 2010 - 42,609,792 (16,368,897) 26,240,895
------- ------------- ---------------- -----------
Total comprehensive expense
for the year - - (475,462) (475,462)
Ordinary Shares cancelled
during the year 18 (b) - (788,160) - (788,160)
At 31 December 2010 - 41,821,632 (16,844,359) 24,977,273
------- ------------- ---------------- -----------
Total comprehensive expense
for the year - - (1,970,931) (1,970,931)
Ordinary Shares cancelled
during the year 18 (b) - (2,274,140) - (2,274,140)
At 31 December 2011 - 39,547,492 (18,815,290) 20,732,202
======= ============= ================ ===========
The accompanying notes on pages 24 to 37 form an integral part
of the Financial Statements.
STATEMENT OF FINANCIAL POSITION
At 31 December 2011
2011 2010
Notes GBP GBP
Non-current assets
Investments at fair value through
profit or loss 13 16,151,180 20,747,754
------------ ------------
Current assets
Prepayments 9,845 11,207
Due from broker 13 - 6,663
Cash and cash equivalents 14 4,650,571 4,267,967
------------ ------------
Total current assets 4,660,416 4,285,837
------------ ------------
Current liabilities
Accrued expenses 16 (79,394) (56,318)
------------ ------------
Total current liabilities (79,394) (56,318)
------------ ------------
Net current assets 4,581,022 4,229,519
------------ ------------
Net assets 20,732,202 24,977,273
============ ============
Equity attributable to equity holders
Share capital 17 - -
Share premium 18 (a) - -
Other distributable reserves 18 (b) 39,547,492 41,821,632
Accumulated losses (18,815,290) (16,844,359)
------------ ------------
Total shareholders' equity 20,732,202 24,977,273
============ ============
Net asset value per Ordinary Share 19 57.80p 61.78p
The Financial Statements on pages 20 to 37 were approved by the
Board of Directors and authorised for issue on 25 April 2012. They
were signed on its behalf by:-
C. Sherwell R. Dorey
Director Director
The accompanying notes on pages 24 to 37 form an integral part
of the Financial Statements.
STATEMENT OF CASH FLOWS
For the year ended 31 December 2011
2011 2010
Notes GBP GBP
Cash flows from operating activities
Loss for the year (1,970,931) (475,462)
Decrease/(increase) in prepayments
and other receivables 1,362 (48)
Increase/(decrease) in accrued
expenses 23,076 (12,157)
(1,946,493) (487,667)
Purchase of investments 13 & 20 (2,767,307) (1,695,486)
Sales of investments 13 & 20 5,770,167 6,555,450
----------- -----------
1,056,367 4,372,297
Adjustment for:
Movement in unrealised losses on
investments 13 954,176 (4,319,196)
Realised losses on investments 13 646,201 4,450,327
----------- -----------
Net cash inflow from operating
activities 2,656,744 4,503,428
----------- -----------
Cash flows from financing activities
Buy back of Shares for cancellation 18 (b) (2,274,140) (788,160)
Net cash outflow from financing
activities (2,274,140) (788,160)
----------- -----------
Net increase in cash and cash equivalents 382,604 3,715,268
Cash and cash equivalents at beginning
of year 4,267,967 552,699
----------- -----------
Cash and cash equivalents at end
of year 14 & 20 4,650,571 4,267,967
=========== ===========
The accompanying notes on pages 24 to 37 form an integral part
of the Financial Statements.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2011
1. GENERAL INFORMATION
Saltus European Debt Strategies Limited is an authorised
closed-ended investment scheme domiciled in Guernsey. The Company's
Share Capital consists of Ordinary Shares. The Ordinary Shares are
listed on the London Stock Exchange.
These Financial Statements have been prepared for the year ended
31 December 2011. The comparative period is for the year ended 31
December 2010.
The Company invests in a portfolio consisting primarily of
absolute return funds, which is expected to comprise mostly
debt-oriented hedge funds, but which may also include long-only
debt funds and closed-ended limited partnerships with longer
lock-ups. The Company's investment strategy is to provide annual
returns in excess of 3-month Sterling LIBOR plus 7.5 per cent over
a rolling 5-year period, and annual standard deviation of under 5
per cent.
2. GOING CONCERN
The Board has previously committed to shareholders to put a
resolution at the next Annual General Meeting to consider the
winding down of the Company. The Board is currently considering
various options regarding this which they will shortly present to
shareholders by means of a separate circular and it is expected
that the Annual General Meeting will be convened in June 2012.
The Company has considerable financial resources and after
making enquiries the Directors have a reasonable expectation that
the Company has adequate resources to continue in operational
existence for the forseeable future. Accordingly the Directors
continue to adopt the going concern basis in preparing the Annual
Report and Financial Statements. Nevertheless, there is an
uncertainty regarding the outcome of the shareholder vote and how
that may impact on the timing of any course of action that may be
taken by the Company and whether any such action may be concluded
within or after a period of 12 months.
3. SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The Financial Statements have been prepared in accordance with
International Financial Reporting Standards ("IFRS") as endorsed by
the European Union, which comprise standards and interpretations
approved by the International Accounting Standards Board ("IASB")
and International Accounting Standards ("IAS") and Standing
Interpretations approved by the International Accounting Standards
Committee ("IASC") that remain in effect, together with applicable
legal and regulatory requirements of Guernsey Law and the Listing
Rules of the London Stock Exchange.
Accounting Convention
The Financial Statements have been prepared under the historical
cost or amortised cost basis, except for the revaluation of certain
financial instruments. The principal accounting policies adopted
are set out below. The preparation of financial statements in
conformity with International Financial Reporting Standards
requires the Company to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the
Financial Statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates.
Standards and Interpretations in issue but not yet effective
At the date of authorisation of these Financial Statements, the
following Standards and interpretations, which have not been
applied in these Financial Statements but will be relevant in
future periods, were in issue but not yet effective:
IAS 1 (amended) - Presentation of Financial Statements - for
accounting periods beginning on or after 1 July 2012.
IAS 19 (amended) - Employee Benefits - for accounting periods
beginning on or after 1 January 2013.
IAS 28 (amended) - Investments in Associates - for accounting
periods beginning on or after 1 January 2013.
IAS 27 (amended) - Consolidated and Separate Financial
Statements - for accounting periods beginning on or after 1 January
2013.
IAS 12 (amended) - Income Taxes - for accounting periods
beginning on or after 1 January 2012.
IFRS 7 (amended) - Financial Instruments - Disclosures - for
accounting periods beginning on or after 1 July 2011.
IFRS 11 - Joint Arrangements - for accounting periods beginning
on or after 1 January 2013.
IFRS 9 - Financial Instruments - Classification and Measurement
- for accounting periods beginning on or after 1 January 2013.
IFRS 12 - Disclosures of interests in other entities - for
accounting periods beginning on or after 1 January 2013.
IFRS 13 - Fair Value Measurement - for accounting periods
beginning on or after 1 January 2013.
IFRS 10 - Consolidated Financial Statements - for accounting
periods beginning on or after 1 January 2013.
The directors believe that other pronouncements, which are in
issue but not yet operative or adopted by the Company, will not
have a material impact on the Financial Statements of the
Company.
The directors believe that the annual report contains all of the
information required to enable Shareholders and potential investors
to make an informed appraisal of the investment activities and
profits and losses of the Company for the year to which it relates
and does not omit any manner or development of significance.
Investments
The Directors value all investments in funds at the net asset
value of that fund as at the relevant valuation date as determined
in accordance with the terms of the funds and as notified to the
Company by the relevant fund manager or the relevant administrator.
The valuation date of each fund may not always be coterminous with
the valuation date of the Company and in such cases the valuation
of the fund at the last valuation date is used in conjunction with
other related financial information.
The net asset values reported by the relevant fund managers
and/or fund administrators and used by the Directors as at 31
December 2011 may be unaudited as at that date and may differ from
the amounts which would have been realised from a redemption of the
investment in the relevant fund as at 31 December 2011.
Investments are recognised and derecognised on the trade date
where a purchase or sale is under a contract whose terms require
delivery within the timeframe established by the market concerned,
and are initially measured at fair value.
Investments are classified as fair value through profit or loss.
As the Company's business is investing in financial assets with a
view to profiting from their total return in the form of interest,
dividends or increases in fair value, listed equities and fixed
income securities are designated as fair value through profit or
loss on initial recognition. The Company manages and evaluates the
performance of these investments on a fair value basis in
accordance with its investment strategy, and information about the
Company is provided internally on this basis to the Company's key
management personnel.
Financial assets designated as at fair value through profit or
loss are measured at subsequent reporting dates at fair value,
which is either the bid price or the last traded price, depending
on the convention of the exchange on which the investment is
quoted. Investments in units of unit trusts or shares in Open Ended
Investment Companies ("OEICs") are valued at the closing price
released by the relevant investment manager.
Gains and losses arising from changes in the fair value of
investments classified as fair value through profit or loss are
recognised in the Statement of Comprehensive Income.
Foreign Exchange
Foreign currency assets and liabilities are translated into
Sterling at the rate of exchange ruling at the reporting date (31
December 2011: GBP1: US$1.5541 and GBP1: EUR1.1972; 31 December
2010: GBP1: US$1.5657 and GBP1: EUR1.1671). Transactions in foreign
currencies are translated at the rate of exchange ruling on the
transaction date. Differences thus arising are dealt with in the
Statement of Comprehensive Income.
The Board of Directors considers Sterling the currency that most
faithfully represents the economic environment in which the Company
operates. Sterling is the currency in which the Company measures
its performance and reports its results, as well as the currency in
which capital is raised.
Income
Dividend income from investments is recognised when the
Shareholders' rights to receive payment has been established,
normally the ex-dividend date.
Interest income is accrued on a time basis, by reference to the
principal outstanding and at the effective interest rate
applicable, which is the rate that exactly discounts estimated
future cash receipts through the expected life of the financial
asset to the asset's net carrying amount.
Expenses
All expenses are accounted for on an accruals basis and are
presented as revenue items except for expenses that are incidental
to the disposal of an investment which are deducted from the
disposal proceeds.
Finance Costs
Finance costs are accounted for on an accruals basis and relate
to bank interest resulting from the Company drawing down on the
facility with Julius Baer. All finance costs are expensed through
the Statement of Comprehensive Income as incurred.
Financial Instruments
Financial assets and financial liabilities are recognised on the
Company's Statement of Financial Position when the Company becomes
a party to the contractual provisions of the instrument. The
Company shall offset financial assets and financial liabilities if
the Company has a legally enforceable right to set off the
recognised amounts and interests and intends to settle on a net
basis.
A financial asset (in whole or in part) is derecognised
either:
- when the Company has transferred substantially all the risk
and rewards of ownership;
- when it has not retained substantially all the risk and
rewards and when it no longer has control over the asset or a
portion of the asset; or
- when the contractual right to receive cash flow has
expired.
Fair Value Measurement Hierarchy
IFRS 7 requires certain disclosures which require the
classification of financial assets and financial liabilities
measured at fair value using a fair value hierarchy that reflects
the significance of the inputs used in making the fair value
measurement (see note 5). The fair value hierarchy has the
following levels:
- quoted prices (unadjusted) in active markets for identical
assets or liabilities (Level 1);
- inputs other than quoted prices included within Level 1 that
are observable for the asset or liability, either directly (i.e. as
prices) or indirectly (i.e. derived from prices) (Level 2); and
- inputs for the asset or liability that are not based on
observable market data (unobservable inputs) (Level 3).
The level in the fair value hierarchy within which the financial
asset or financial liability is categorised is determined on the
basis of the lowest level input that is significant to the fair
value measurement. Financial assets and financial liabilities are
classified in their entirety into only one of the three levels.
Other Receivables
Other receivables do not carry any interest and are short-term
in nature and are accordingly stated at their nominal value as
reduced by appropriate allowances for estimated irrecoverable
amounts.
Cash and Cash Equivalents
Cash includes amounts held in interest bearing overnight
accounts and debt balances. Cash and cash equivalents comprise bank
balances and cash held by the Company including short-term bank
deposits with an original maturity of three months or less. The
carrying value of these assets approximates their fair value.
Financial Liabilities and Equity
Financial liabilities and equity are classified according to the
substance of the contractual arrangements entered into. An equity
instrument is any contract that evidences a residual interest in
the assets of the Company after deducting all of its liabilities.
Financial liabilities and equity are recorded at the proceeds
received, net of issue costs.
A financial liability (in whole or in part) is derecognised when
the Company has extinguished its contractual obligations, it
expires or is cancelled. Any gain or loss on derecognition is taken
to the Statement of Comprehensive Income.
Other Accruals and Payables
Other accruals and payables are not interest-bearing and are
stated at their nominal value.
Derivative Financial Instruments
The Company's activities expose it primarily to the financial
risks of changes in foreign exchange rates. The Company
historically used forward foreign exchange contracts to hedge these
exposures. The Company does not use derivative financial
instruments for speculative purposes.
The use of financial derivatives is governed by the Company's
policies approved by the Board of Directors, which provide written
principles on the use of financial derivatives. The Company does
not use hedge accounting and all gains or losses on forward foreign
exchange contracts are taken to the Statement of Comprehensive
Income.
Interest-bearing Loans and Borrowings
Interest-bearing borrowings are recognised initially at fair
value less attributable transaction costs. Subsequent to initial
recognition, interest bearing borrowings are stated at amortised
cost with any difference between cost and redemption value being
recognised in the Statement of Comprehensive Income over the period
of the borrowings on an effective interest basis.
Operating Segments
The Directors are of the opinion that the Company is engaged in
a single segment of business of investing in a portfolio consisting
primarily of absolute return funds, which is expected to comprise
mostly debt-oriented hedge funds, but which may also include
long-only debt funds and closed-ended limited partnerships with
longer lock-ups.
4. OTHER CRITICAL ACCOUNTING JUDGEMENTS
The Board assessment of the Company's position as at 31 December
2011 and the factors impacting the forthcoming year are set out in
the Chairman's Statement and the Sub-Manager's Report on pages 4 to
10 and in the Directors' Report which incorporates the business
review and corporate governance statements.
The financial position of the Company, its cash flows, and its
liquidity position is set out on pages 20 to 23 of the Financial
Statements. Note 5 to the Financial Statements includes the
Company's policies and process for managing its capital; its
financial risk management objectives; details of financial
instruments and hedging activities. Exposure to credit risk and
liquidity risk are also disclosed.
In the application of the Company's accounting policies, which
are described in note 3 to the Financial Statements, management is
required to make judgements, estimates and assumptions about the
carrying amount of assets and liabilities that are not readily
apparent from their sources. The estimates and associated
assumptions are based on historical experience and other factors
that are considered to be relevant. Actual results may differ from
these estimates.
The estimates and underlying assumptions are reviewed on an
on-going basis. Revisions to accounting estimates are recognised in
the period in which the estimate was revised if the revision
affects only that period or in the period of the revision and
future periods if the revision affects both current and future
periods.
Critical judgements in applying accounting policies
The most critical judgement, apart from those involving
estimates (see below), that management has made in the process of
applying the Company's accounting policies and that have the most
significant effect on the amounts recognised in the Financial
Statements, is in respect of the functional currency.
Functional currency and presentation currency
The Board of Directors considers Sterling the currency that most
faithfully represents the economic environment in which the Company
operates. Sterling is the currency in which the Company measures
its performance and reports its results, as well as the currency in
which capital is raised.
Key sources of estimation uncertainty
The following key assumption and source of estimation
uncertainty at the reporting date has a significant risk of causing
a material adjustment to the carrying amounts of assets and
liabilities within the next financial year.
Fair value of investments at fair value through profit or
loss
As disclosed in note 1, the Company invests in debt oriented
hedge funds. The investments are valued at the net asset value of
the funds as at the relevant valuation date in accordance with the
terms of the funds and as notified by the relevant fund manager /
administrator. However the valuation date may be non-coterminous
with the valuation date of the Company and hence in such cases the
latest valuation is used in conjunction with other related
financial information.
The values used in the financial statements may be unaudited as
at that date and hence may differ from the amount which may have
been realised on redemption of the investment at the reporting
date.
5. FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS
Strategy in using financial instruments
The Company's activities expose it to a variety of financial
risks: market risk (including currency risk, fair value interest
rate risk, cash flow interest rate risk and price risk), credit
risk and liquidity risk. The Company's overall risk management
programme focuses on the unpredictability of financial markets and
seeks to minimise potential adverse effects on the Company's
financial performance.
Significant accounting policies
Details of the significant accounting policies and methods
adopted, including the criteria for recognition, the basis of
measurement and the basis on which income and expenses are
recognised in respect of each class of financial asset, financial
liability and equity instrument are disclosed in note 3 to the
Financial Statements.
Categories of financial instruments
Carrying value Carrying value
2011 2010
GBP GBP
Financial assets
Fair value through profit or loss
(FVTPL)
- Designated as FVTPL (level 2) 16,151,180 20,747,754
Loans and receivables 4,650,571 4,274,630
-------------- --------------
Total assets 20,801,751 25,022,384
============== ==============
Financial liabilities
Amortised cost 79,394 56,318
-------------- --------------
Total liabilities 79,394 56,318
============== ==============
Loans and receivables presented above represents cash and cash
equivalents and other receivables as detailed in the Statement of
Financial Position.
Financial liabilities measured at amortised cost presented above
represent accrued expenses and other payables as detailed in the
Statement of Financial Position.
Capital Risk Management
The Company's principal activity and primary investment
objective is to produce annual returns in excess of 3-month
Sterling LIBOR plus 7.5% over a rolling 5-year period, with annual
standard deviation of under 5%. The Company's investment policy is
to invest in a portfolio of absolute return funds, which is
expected to comprise mostly of debt-oriented hedge funds.
The capital structure of the Company consists of debt, cash and
cash equivalents and equity attributable to equity holders,
comprising issued capital, share premium, distributable reserve and
retained earnings as disclosed in notes 17 and 18. The Company does
not have any externally imposed capital requirements.
The Company manages its capital to endeavour to ensure that its
objective is met. It does this by investing available cash whilst
maintaining sufficient liquidity to meet on-going expenses.
The Manager ensures that on investment not more than 15% of the
Company's total assets are invested in any one underlying
individual hedge fund and not more than 20% of the Company's total
assets are invested in aggregate in funds managed by any single
underlying hedge fund manager.
Market price risk
Market price risk is the risk that the value of an investment
will fluctuate as a result of changes in market prices (other than
those arising from interest rate risk or currency risk), whether
caused by factors specific to an individual investment or all
factors affecting all investments in the market. As the Company's
financial instruments are carried at fair value with fair value
changes recognised in the Statement of Comprehensive Income, all
changes in market conditions will directly affect net investment
income.
All securities investments present a risk of loss of capital.
The Investment Manager moderates this risk through a careful
selection of securities and other financial instruments within
specified limits. The Company's overall market positions are
monitored on a daily basis by the Company's Investment Manager and
are reviewed on a quarterly basis by the Board of Directors.
The Company's market price risk is managed through
diversification of the investment portfolio ratio exposures. Refer
to the Sub-Manager's Report for this information.
At 31 December 2011, the Company's financial instruments are
affected by the following risks in actual market prices, interest
rates, credit exposure, liquidity and foreign currency movements.
Interest rate and foreign currency movements are covered separately
within this note.
The Company invests in a portfolio consisting primarily of
debt-oriented hedge funds, which are held to obtain long term
gains. The market prices of the underlying hedge funds are affected
by the managers of the underlying funds correctly assessing the
future price movements of the securities held. If the underlying
hedge fund prices at 31 December 2011 had increased by 5%, net of
all performance fees, with all other variables held constant, this
would have increased net assets attributable to holders of Ordinary
Shares in the Company by approximately GBP0.81 million (2010:
GBP1.04 million). Conversely, if the underlying hedge fund prices
decreased by 5%, net of all performance fees, this would have
decreased net assets attributable to holders of Ordinary shares in
the Company by approximately GBP0.81million (2010: GBP1.04
million).
Interest rate risk
The majority of the Company's financial assets and liabilities
are non-interest bearing. As a result, the Company is not subject
to significant amounts of risk due to fluctuations in the
prevailing levels of market interest rates. Any excess of cash or
cash equivalents are invested at short-term interest rates.
The Company's interest bearing financial assets and liabilities
expose it to risks associated with the effects of fluctuations in
the prevailing levels of market interest rates on its financial
position and cash flows.
The tables below summarise the Company's exposure to interest
rate risks:
Floating
rate Non-interest
Financial bearing Financial
Assets Assets Total
2011 2011 2011
2011 GBP GBP GBP
Assets
Investments at fair value
through profit or loss - 16,151,180 16,151,180
Cash and cash equivalents 4,650,571 - 4,650,571
---------- ------------------ ----------
Total assets 4,650,571 16,151,180 20,801,751
---------- ------------------ ----------
Floating
rate Non-interest
Financial bearing Financial
Liabilities Liabilities Total
2011 2011 2011
GBP GBP GBP
Liabilities
Accrued expenses - 79,394 79,394
Total liabilities - 79,394 79,394
------------ ------------------ ----------
Total interest sensitivity
gap 4,650,571 16,071,786 20,722,357
------------ ------------------ ----------
Floating
rate Non-interest
Financial bearing Financial
Assets Assets Total
2010 2010 2010
2010 GBP GBP GBP
Assets
Investments at fair value
through profit or loss - 20,747,754 20,747,754
Other receivables - 6,663 6,663
Cash and cash equivalents 4,267,967 - 4,267,967
---------- ------------------ ----------
Total assets 4,267,967 20,754,417 25,022,384
---------- ------------------ ----------
Floating
rate Non-interest
Financial bearing Financial
Liabilities Liabilities Total
2010 2010 2010
GBP GBP GBP
Liabilities
Accrued expenses - 56,318 56,318
Total liabilities - 56,318 56,318
------------ ------------------ ----------
Total interest sensitivity
gap 4,267,967 20,698,099 24,966,066
------------ ------------------ ----------
At 31 December 2011, should interest rates have lowered by 25
basis points with all other variables remaining constant, the
decrease in net assets attributable to holders of Ordinary shares
for the year would amount to approximately GBP3,642 (2010: decrease
of GBP3,303). If interest rates had risen by 25 basis points, the
increase in net assets attributable to holders of Ordinary shares
would amount to GBP3,642 (2010: increase of GBP3,303).
The Investment Manager monitors the Company's overall interest
sensitivity on a regular basis by reference to prevailing interest
rates and the level of the Company's cash balance.
Credit risk
The Company takes on exposure to credit risk, which is the risk
that a counterparty will be unable to pay amounts in full when due.
Impairment provisions are provided for losses that have been
incurred by the reporting date, if any.
Assets held by the Company which potentially expose it to credit
risk primarily comprise receivables in respect of redeemed
investments in underlying hedge funds and cash balances.
The following table shows the maximum exposure to credit
risk:
2011 2010
GBP GBP
Investments at fair value through
profit or loss 16,151,180 20,747,754
Cash and cash equivalents 4,650,571 4,267,967
Interest and other receivables - 6,663
---------- ----------
Total 20,801,751 25,022,384
========== ==========
Amounts in the above table are based on the carrying value of
all accounts.
The Sub-Manager's Report includes a chart of the managers'
strategies at a fund level, which gives information regarding the
concentration of risk for the Company. The Investment Portfolio
also includes details of the Company's principal investment
holdings.
The Investment Manager monitors the Company's credit position on
a daily basis, and the Board of Directors reviews it on a quarterly
basis. The Investment Manager also assesses the risk associated
with investments by performing financial analysis on the issuing
companies as part of its normal scrutiny of prospective
investments, which includes an assessment of the principal service
providers to the hedge funds including administrators, auditors and
prime brokers. Receivables for redeemed investments in underlying
hedge funds are typically received within two months of the
redemption date though may be subject to gating, liquidation or
suspension provisions imposed by the underlying fund manager.
Substantially all of the cash held by the Company is held by
Julius Baer and Butterfield Bank ("the Banks"). Bankruptcy or
insolvency of the Banks may cause the Company's rights with respect
to these assets to be delayed or limited. The Company monitors its
risk by monitoring the credit rating of the Banks, which are
currently respectively Aa3 for Julius Baer and A- for Butterfield
Bank. If credit quality deteriorates, the Investment Manager may
move the holdings to another bank.
The Company may enter into forward foreign exchange contracts.
Transactions in forward foreign exchange contracts are not
regulated by any regulatory authority nor are they guaranteed by an
exchange or clearing house. The Company will be subject to the risk
of the inability or refusal of its counterparties to perform with
respect to such contracts. Any such default would eliminate any
potential profit and compel the Company to cover its commitments
for re-sale or repurchase, if any, at the then current market
price. There were no outstanding commitments in respect of forward
foreign exchange contracts at the year end.
Credit risk on liquid funds and derivative financial instruments
is limited because the counterparties are banks with high credit
ratings assigned by international credit rating agencies. The
Investment Manager assesses the risk associated with investments by
performing financial analysis on the issuing companies as part of
its normal scrutiny of prospective investments.
The carrying amount of financial assets recorded in the
Financial Statements best represents the Company's maximum exposure
to credit risk.
Liquidity risk
The Company takes on exposure to liquidity risk, which is the
risk that the Company will encounter in realising assets or
otherwise raising funds to meet financial commitments.
Some of the Company's investments may comprise securities which
are traded in recognised financial markets. The Company may also
invest in securities which may lack an established secondary
trading market or are otherwise considered illiquid. Liquidity of a
security relates to the ability to easily dispose of the security
and the price to be obtained and does not generally relate to the
credit risk or likelihood of receipt of cash at maturity.
The Company had a cash balance at 31 December 2011 of GBP4.65m
(2010: GBP4.27m) and therefore has no present requirement for bank
facilities. No borrowings were utilised at 31 December 2011 (2010:
GBPnil). See note 23 for further information regarding the
Company's bank facilities.
The Investment Manager regularly monitors the Company's
liquidity position, and the Board of Directors reviews it on a
quarterly basis.
The table overleaf analyses the Company's financial assets and
liabilities into relevant maturity groups based on the remaining
period at the reporting date to the contractual maturity date. The
amounts in the table are the contractual undiscounted cash flows.
Balances due within 12 months equal their carrying balances, as the
impact of discounting is not significant.
Less than No stated
1 month 1-3 months 4-12 months maturity
2011 GBP GBP GBP GBP
Assets
Investments at fair value
through profit or loss - - - 16,151,180
Cash and cash equivalents 4,650,571 - - -
--------- ---------- ----------- ----------
Total financial assets 4,650,571 - - 16,151,180
--------- ---------- ----------- ----------
Liabilities
Accrued expenses 3,428 53,344 22,622 -
Total financial liabilities 3,428 53,344 22,622 -
--------- ---------- ----------- ----------
Total liquidity gap 4,647,143 (53,344) (22,622) 16,151,180
========= ========== =========== ==========
Less than No stated
1 month 1-3 months 4-12 months maturity
2010 GBP GBP GBP GBP
Assets
Investments at fair value
through profit or loss - - - 20,747,754
Other receivables - - 6,663 -
Cash and cash equivalents 4,267,967 - - -
--------- ---------- ----------- ----------
Total financial assets 4,267,967 - 6,663 20,747,754
--------- ---------- ----------- ----------
Liabilities
Accrued expenses 3,750 31,137 21,431 -
Total financial liabilities 3,750 31,137 21,431 -
--------- ---------- ----------- ----------
Total liquidity gap 4,264,217 (31,137) (14,768) 20,747,754
========= ========== =========== ==========
The Company's investments in funds are shown as having no stated
maturity dates because redemptions had not been placed for 31
December 2011. These investments are typically subject to initial
lock-up periods of different lengths and varying redemption
frequency and redemption notice periods. They may also be liable to
redemption gating, suspension or the creation of side-pockets for
illiquid assets at the discretion of the underlying fund
manager.
Currency risk
The majority of the net assets of the Company are denominated in
currencies other than Sterling, its functional currency, with the
effect that the Statement of Financial Position and Statement of
Comprehensive Income can be significantly affected by currency
movements. Currency risk is a function of both basis risk (the
change in absolute foreign exchange rates month on month) and
market risk (the change in the value of the underlying assets being
hedged). The table below summarises the Company's exposure to
currency risks.
Sterling Euro US Dollar Total
2011 GBP GBP GBP GBP
Fair Value through
profit or loss 1,543,925 11,495,364 3,111,891 16,151,180
Loans and receivables 2,867,952 1,704,883 77,736 4,650,571
Amortised Cost (79,394) - - (79,394)
Net Exposure 4,332,483 13,200,247 3,189,627 20,722,357
=============== =============== ============ ===============
Sterling Euro US Dollar Total
2010 GBP GBP GBP GBP
Fair Value through
profit or loss 859,741 17,512,342 2,375,671 20,747,754
Loans and receivables 3,231,031 837,939 205,660 4,274,630
Amortised Cost (56,318) - - (56,318)
Net Exposure 4,034,454 18,350,281 2,581,331 24,966,066
=============== ============= ============= ===============
Loans and receivables presented above represents cash and cash
equivalents and other receivables as detailed in the Statement of
Financial Position.
The Company's investment portfolio comprises of Sterling, Euro
and US Dollar denominated investments.
At 31 December 2011, had the exchange rate between Sterling
increased or decreased compared to US Dollar and Euro by 5% with
all other variables held constant, the decrease or increase
respectively in net assets attributable to holders of Ordinary
Shares would amount to approximately GBP0.152 million and GBP0.629
million respectively (2010: decrease or increase respectively of
GBP0.123 million and GBP0.875 million).
The Investment Manager monitors the Company's currency position
on a daily basis, and the Board of Directors reviews it on a
quarterly basis.
Fair value of financial instruments
The fair value of financial assets and financial liabilities are
determined as follows:
- The fair value of non-derivative financial assets and
financial liabilities is determined as set out in note 3.
The carrying amounts of financial assets and financial
liabilities recorded at amortised cost in the Financial Statements
approximate their fair values.
6. SEGMENT INFORMATION
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision maker.
The chief operating decision maker, who is responsible for
allocating resources and assessing performance of the operating
segments, has been identified as the Board of Directors of the
Company.
For management purposes, the Company is organised in to one main
operating segment, which focuses on long term growth from
investments. All of the Company's activities are interrelated, and
each activity is dependent on the others. Accordingly, all
significant operating decisions are based upon analysis of the
Company as one segment. The financial results from this segment are
equivalent to the financial statements of the Company as a
whole.
In terms of the funds in which the Company invests, these are
predominantly incorporated in the United States and Europe. The
underlying investments in the funds however, may be in other
countries.
Geographical information:
Net (losses)/gains on Non-current assets by
fair value through profit location of assets
or loss investments by
location of assets
2011 2010 2011 2010
GBP GBP GBP GBP
United States (580,095) (881,988) 3,111,891 2,375,671
Europe (1,020,282) 750,857 13,039,289 18,372,083
--------------- ------------ ----------- -----------
(1,600,377) (131,131) 16,151,180 20,747,754
=============== ============ =========== ===========
7. OTHER GAINS AND LOSSES
2011 2010
GBP GBP
Held for trading: Derivative financial
instruments:
Net realised foreign exchange gains
on forward foreign exchange contracts
and currency translations - 37,119
Net gains on currency translations 144,846 4,461
------- ------
144,846 41,580
======= ======
8. OTHER OPERATING INCOME
2011 2010
GBP GBP
Other operating income arising on
financial assets at fair value through
profit or loss:
Bank interest 8,618 4,195
Investment income - 110,593
8,618 114,788
===== =======
9. FINANCE COSTS
2011 2010
GBP GBP
Finance costs arising on financial
liabilities not at fair value through
profit or loss:
Bank debt interest 2,208 225
===== ====
The bank interest resulted from the Company's debt facility with
Julius Baer entered in to on 5 April 2011. See note 23 for further
detail.
10. EXPENSES
2011 2010
GBP GBP
Management fees 234,127 262,599
Other expenses:
Directors' remuneration 70,500 69,716
Legal and professional fees 44,976 8,162
Accounting, secretarial and administration
fees 27,378 22,451
Auditors' remuneration for audit services 23,150 24,500
Advisers' fees 20,816 15,299
Listing fees 20,767 16,175
Miscellaneous expenses 20,041 14,225
Custodian fees 18,831 13,539
Registrar fees 18,222 17,077
Directors & Officers Insurance 12,885 14,257
Trading commissions 4,917 2,959
Statutory fees 4,200 4,100
Bank facility fees 1,000 15,415
287,683 237,875
------- ------------------------
Total expenses 521,810 500,474
======= ========================
The Company has no employees. The Directors are the only key
management personnel of the Company. Their remuneration disclosed
above is all in respect of short-term employee benefits.
No amounts were paid to the auditors during the year in respect
of non-audit services.
Management and Performance fees
The Company is responsible for the fees of the Investment
Manager in accordance with the Investment Management Agreement
between the Company and the Investment Manager dated 6 June
2007.
For the services performed under the Investment Management
Agreement, the Company pays the Investment Manager a management fee
equal to 1% per annum of total assets, calculated and payable
monthly in arrears.
The Investment Manager compensates the Sub-Manager for its
services to the Company under the terms of the Sub-Management
Agreement.
In addition to the management fee, subject to a high water mark
and a hurdle rate of the mean monthly LIBOR plus 2 per cent, the
Investment Manager will be entitled to a performance fee equivalent
to 10% of the amount by which the net asset value attributable to
the shares at the end of each accounting period exceeds the greater
of the initial net asset value and the greatest period end net
asset value for any previous calculation period. The fee is
calculated in respect of each period of 12 months ending on 31
December. No performance fee was payable in respect of this year
(31 December 2010: GBPnil). The high water mark of the Company is
currently 98.5p per Share.
The Investment Management Agreement may be terminated by either
party giving to the other not less than twelve months' written
notice.
Administration fees
The Company is responsible for the fees of the Administrator
(Butterfield Fulcrum Group (Guernsey) Limited) in accordance with
the Administration Agreement made between the Company and the
Administrator dated 6 June 2007.
In respect of the services provided under the Administration
Agreement, from 1 October 2011 the Company pays the Administrator a
fee as below, subject to a monthly minimum of GBP1,750.
- 0.125% per annum of the net asset value of the Company up to
GBP50 million
- 0.10% per annum of the net asset value of the Company
exceeding GBP50 million
Prior to 1 October 2011 the Company paid the Administrator a fee
which did not exceed 0.085% per annum of the net asset value of the
Company, subject to a minimum annual payment of GBP10,000.
In addition, the Administrator is entitled to receive fees for
any extraordinary duties performed to be charged on a time spent
basis. The Administration Agreement is terminable by either side on
three months' notice.
Custodian fees
The Company is responsible for the fees of the custodian.
At the beginning of the year the custodian was Julius Baer who
were entitled to a quarterly fee at the rate of 0.05% of the net
asset value of the Company per annum subject to a minimum fee of
GBP3,325 per quarter. The custodian agreement with Julius Baer was
terminable by either side on three months' notice and notice to
terminate was served by the Company on 10 August 2011.
The Company appointed Butterfield Bank (Guernsey) Limited as new
Custodian of the assets of the Company, effective 16 August 2011.
The new Custodian is now actively engaged in the process of
transferring the custody of the Company's investments from Julius
Baer to itself. The new Custodian is entitled to receive an annual
fee of the higher of 0.05% of the net asset value of the Company or
GBP9,500, payable quarterly in arrears. The agreement may be
terminated on 90 days notice.
The Custodian does not have any decision making discretion
relating to the investment of the assets of the Company.
11. TAX STATUS
The Company is exempt from Guernsey income tax under the Income
Tax (Exempt Bodies) (Guernsey) Ordinance 1989 and is charged an
annual exemption fee of GBP600.
12. BASIC AND DILUTED LOSS PER ORDINARY SHARE
Basic and diluted loss per Ordinary Share are calculated by
dividing net income available by the weighted average number of
Ordinary Shares outstanding during the year.
2011 2010
Number of Ordinary Number of Ordinary
Shares Shares
Weighted average number of Ordinary
Shares 38,208,119 41,744,798
================== ==================
Total comprehensive expense (1,970,931) (475,462)
================== ==================
Basic and diluted loss per Ordinary
Share (5.16)p (1.14)p
================== ==================
13. INVESTMENTS
2011 2010
GBP GBP
Fair value through profit or loss
investments
Opening fair value as at beginning
of year 20,747,754 25,715,052
Purchases at cost 2,767,307 1,695,486
Sales - proceeds (5,763,504) (6,531,653)
- realised losses on sales (646,201) (4,450,327)
Movement in unrealised losses on investments
for the year (954,176) 4,319,196
----------- -----------------------
(1,600,377) (131,131)
----------- -----------------------
Closing fair value at end of year 16,151,180 20,747,754
=========== =======================
Closing cost 17,557,142 21,199,540
Unrealised losses on investments (1,405,962) (451,786)
Closing fair value at end of year 16,151,180 20,747,754
=========== =======================
Further information and analysis of the investments is included
in the Summary Information and Sub-Manager's Report.
As at 31 December 2011 GBPnil (2010: GBP6,663) of investment
sales proceeds were receivable.
14. CASH AND CASH EQUIVALENTS
2011 2010
GBP GBP
Opening cash and cash equivalents 4,267,967 552,699
Net movement in the year 382,604 3,715,268
--------- ----------------------
Closing cash and cash equivalents 4,650,571 4,267,967
========= ======================
Cash and cash equivalents comprise bank balances and cash held
by the Company including short-term bank deposits with an original
maturity of three months or less. The carrying value of these
assets approximates to their fair value.
15. CURRENT ASSETS AND LIABILITIES
The Directors consider that the carrying amount of other
receivables and other payables approximates to their fair
value.
16. ACCRUED EXPENSES
2011 2010
GBP GBP
Directors' remuneration 17,625 -
Management fee 17,297 21,238
Auditors' remuneration 17,175 16,750
Custodian fee 6,738 1,130
Printing costs 5,447 4,681
Sundry expenses 4,230 605
Administration fee 4,029 1,805
Registrar fee 3,428 3,750
Advisers' fee 3,425 6,359
79,394 56,318
====== ======
17. SHARE CAPITAL
Authorised Capital
The Company has the power to issue an unlimited number of shares
of no par value which may be issued as Ordinary Shares or C Shares
or otherwise and which may be denominated in Sterling, Euros, US
Dollars or any other currency. The redeemable shares are redeemable
at the option of the Company, not shareholders.
Issued Capital
Treasury Ordinary Shares Total
31 December 2011
At 1 January 2011 - 40,429,912 40,429,912
Shares cancelled during the
year - (4,558,504) (4,558,504)
At 31 December 2011 - 35,871,408 35,871,408
======== =============== ===========
31 December 2010
At 1 January 2010 - 42,059,889 42,059,889
Shares cancelled during the
year - (1,629,977) (1,629,977)
At 31 December 2010 - 40,429,912 40,429,912
======== =============== ===========
The rights attaching to the Ordinary Shares are as follows:
Ordinary shareholders have one vote at a meeting of the Company
for each share held. The Ordinary shareholders are entitled to
receive all dividends declared out of the assets attributable to
their respective share class. Upon winding up, the holders of
Ordinary Shares are entitled to receive a pro rata portion of the
capital attributable to their respective share class according to
their holdings of shares.
Upon incorporation, 2 Ordinary Shares of no par value each were
issued. Following the launch of the Company on the London Stock
Exchange the Company had issued a total of 48,000,000 Ordinary
Shares of no par value.
Further Issues of Shares
The Company's Articles of Association provide the Directors with
wide powers to issue further shares (of one or more currency
classes and whether as C shares or ordinary shares) on a
non-pre-emptive basis and without seeking further shareholder
approval. The Board would only issue shares at or at a premium to
the net asset value per share but in view of the proposed winding
down of the Company have no current intention of doing so.
Buy Back of Ordinary Shares and Authority to Buy Back Shares
The Company has authority to repurchase up to 5,803,000 Ordinary
Shares equivalent to 14.99 per cent of its issued share capital. As
at 31 December 2011 this authority was unutilised in respect of
2,987,706 Ordinary Shares. The authority will expire at the next
Annual General Meeting of the Company.
18. RESERVES
a) Share Premium Account 2011 2010
GBP GBP
Share Premium Account as at beginning
and end of year - -
=========== =======================
b) Other Distributable Reserve 2011 2010
GBP GBP
Other Distributable Reserve as at
beginning of year 41,821,632 42,609,792
Ordinary Shares cancelled (2,274,140) (788,160)
Other Distributable Reserve as at
end of year 39,547,492 41,821,632
=========== =======================
With confirmation of the Royal Court in Guernsey on 6 July 2007
the amount standing to the credit of the Share Premium Account of
the Company was cancelled and credited to a Distributable Reserve
which is able to be applied in any manner in which the Company's
profits available for distribution are able to be applied,
including the purchase of the Company's own shares and the payment
of dividends.
19. NET ASSET VALUE PER SHARE
The net asset value per Ordinary Share of 57.80p (31 December
2010: 61.78p) is based on the net assets at the year end of
GBP20,732,202 (31 December 2010: GBP24,977,273) and on 35,871,408
(31 December 2010: 40,429,912) Ordinary Shares, being the number of
Ordinary Shares in issue at the year end.
20. NOTES TO THE CASH FLOW STATEMENT
Purchases and sales of investments are considered to be
operating activities of the Company, given its purpose, rather than
investing activities. The cash flows arising from these activities
are shown in the Cash Flow Statement.
Cash and cash equivalents (which are presented separately on the
face of the Statement of Financial Position) comprise cash at
bank.
21. COMMITMENTS AND CONTINGENT LIABILITIES
At 31 December 2011 and 31 December 2010 there were no
commitments in respect of forward foreign exchange contracts with
the Custodian.
At 31 December 2011 the Company had the following outstanding
capital commitments:
- Apollo, EUR2,022,592 (31 December 2010: EUR2,001,881); and
- Oaktree, EUR250,000 (31 December 2010: EUR625,000); and
- Ffenics I Fund, EUR110,066 and USD120,810 (31 December 2010:
nil).
Using year end exchange rates the total outstanding commitment
was GBP2,067,928 (2010: GBP2,250,776).
The Company has no other financial commitments as at 31 December
2011 or 31 December 2010.
The Company has no contingent liabilities at the reporting
date.
22. RELATED PARTY TRANSACTIONS
Saltus (Channel Islands) Limited (the "Investment Manager"),
Saltus Partners LLP (the "Sub-Manager") and the Directors are
regarded as related parties. The only related party transactions
are described below:
The fees and expenses payable to the Investment Manager are
explained in note 10. The management fee balance due at the end of
the year was GBP17,297 (31 December 2010: GBP21,238). There was no
performance fee balance due at the year end (31 December 2010:
GBPnil).
There were no direct transactions with the Sub-Manager during
the year.
The fees payable to each independent non-executive director from
1 April 2010 were: Mr G Baird, Chairman, who receives GBP29,000 per
annum (prior to 31 March 2010: GBP25,000); Mr R Dorey who receives
GBP20,000 per annum (prior to 31 March 2010: GBP15,000); and Mr C
Sherwell who receives GBP19,000 per annum (prior to 31 March 2010:
GBP15,000) plus an additional GBP2,500 per annum for being Chairman
of the Audit Committee.
Mr J Macintosh is a director of the Investment Manager and a
partner in the Sub-Manager and as such he has waived his right to
remuneration as a director of the Company.
23. BANK FACILITIES
During the year the Company had a GBP250,000 overdraft facility
with Julius Baer. Since the level of cash held at year end of
GBP4.65m (2010: GBP4.27m) and since has been considerably in excess
of the Company's outstanding capital commitments (see note 21) and
working capital commitments, this facility was cancelled on 14
February 2012. The Board is confident that the Company has
sufficient available resources from its existing cash balances and
redeemable investments to meet its working capital commitments and
outstanding uncalled capital commitments as they fall due.
24. RECONCILIATION OF ACCOUNTING NAV AND PUBLISHED NAV PER SHARE
Net Asset NAV per share Net Asset NAV per share
Value Value
31 December 31 December 31 December 31 December
2011 2011 2010 2010
GBP GBP GBP GBP
Published
Net Asset
Value 20,736,439 0.5781 24,982,175 0.6179
Adjustments
to expense
accruals (4,237) (0.0001) (4,902) (0.0001)
------------------------------------- -------------- ------------ ---------------------
Net Asset
Value 20,732,202 0.5780 24,977,273 0.6178
===================================== ============== ============ =====================
25. EVENTS AFTER THE REPORTING PERIOD
From 1 January 2012 to the date of approval of these financial
statements, the Company acquired 58,526 of its own Ordinary Shares
for cancellation at an average price of 50.07p per Share.
MANAGEMENT AND ADMINISTRATION
Directors
G Baird (Chairman)
R Dorey
J Macintosh +
C Sherwell
+ Representative of the Manager and Sub-Manager
Registered Office and Directors' Address Administrator and
Secretary
2nd Floor Butterfield Fulcrum Group (Guernsey) Limited
Regency Court 2nd Floor
Glategny Esplanade Regency Court
St Peter Port Glategny Esplanade
Guernsey GY1 3NQ St Peter Port
Guernsey GY1 3NQ
Investment Manager Registrar
Saltus (Channel Islands) Limited Capita IRG Registrars
(Guernsey) Limited
2nd Floor 2nd Floor
Regency Court 1 Le Truchot
Glategny Esplanade St Peter Port
St Peter Port Guernsey GY1 4AE
Guernsey GY1 3NQ
Sub-Manager Legal Advisers in Guernsey
Saltus Partners LLP Carey Olsen
72 New Bond Street Carey House
London W1S 1RR Les Banques
St Peter Port
Guernsey GY1 4BZ
Custodian
Butterfield Bank (Guernsey) Limited Legal Advisers in United
Kingdom
P O Box 25 Macfarlanes LLP
Regency Court 20 Cursitor Street
Glategny Esplanade London
St Peter Port EC4A 1LT
Guernsey GY1 3AP
Independent Auditors Financial Adviser / Corporate Broker
BDO Limited Cenkos Securities Plc
P O Box 180 6.7.8 Tokenhouse Yard
Place du Pre London
Rue du Pre EC2R 7AS
St Peter Port
Guernsey GY1 3LL
This information is provided by RNS
The company news service from the London Stock Exchange
END
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