TIDMCED2
RNS Number : 4386Y
Close Enhanced Commodities Fund II
21 February 2013
CLOSE ENHANCED COMMODITIES FUND II LIMITED (the "Company")
HALF-YEARLY FINANCIAL REPORT (UNAUDITED) FOR THE PERIOD ENDED 31
DECEMBER 2012
ABOUT THE COMPANY
The Company is a Guernsey incorporated, closed-ended investment
company. With the exception of two Management Shares, issued for
administrative reasons, the Company's issued share capital
comprises 45,250,000 Participating Shares (the "Shares") the
performance of which is designed to provide a geared exposure to
any increase in the prices of a notional portfolio of certain
industrial, precious metals and energy related commodities. The
Commodity Portfolio is a notional portfolio of commodities
comprising by value on 31 May 2007 (the "Start Date") one eighth
oil, one eighth copper, one eighth aluminium, one eighth zinc, one
eighth nickel, one eighth sugar, one eighth corn and one eighth
wheat.
Pursuant to the initial placing and offer for subscription,
45,250,000 Shares were issued at a price of 100p each on 31 May
2007. All 45,250,000 Shares in issue rank pari passu, have been
admitted to the Official List of the United Kingdom Listing
Authority and are capable of being dealt in on the London Stock
Exchange. The Company has an unlimited life but the Shares will be
redeemed on or around 14 June 2013 (the "Redemption Date").
Investment Objective and Policy
The investment objective of the Company is to provide
shareholders, on the Redemption Date, with a capital payment which
will comprise a capital amount of 100p per Share and a growth
amount per Share equal to two times any percentage increase in the
Value of the Commodity Portfolio on 31 May 2013 (the "End Value")
relative to the Value of the Commodity Portfolio on the Start Date
(the "Start Value"), such amount being expressed in pence and
rounded down to the next whole penny (the "Redemption Proceeds").
If the End Value is lower than the Start Value, the Shares are
designed to repay the full capital amount of 100p per Share on the
Redemption Date. The final return is subject to there being no
counterparty default or any other unforeseen circumstances.
The Redemption Proceeds per Share in Sterling is designed to be
determined by applying the performance of the Commodity Portfolio
as valued and measured using US Dollar values over the calculation
period from the Start Date to 31 May 2013 (the "End Date") to the
initial issue price of GBP1 per Share.
The US Dollar prices used in order to calculate the value of the
Commodity Portfolio on any date are: in respect of oil, the
official closing price of the Inter Continental Exchange crude oil
future contract next to expire in US Dollars per barrel; in respect
of copper, aluminium, zinc and nickel, the Official London Metal
Exchange Closing Cash Price in US Dollars per metric tonne; in
respect of sugar, the official closing price of the New York Board
of Trade Exchange Sugar Number 11 future contract next to expire in
US cents per lbs; and in respect of corn and wheat, the official
closing price of the Chicago Board of Trade Corn and Wheat future
contracts next to expire in US cents per barrel.
As at the End Date, the final value of the Commodity Portfolio
will be calculated by reference to the US Dollar aggregate daily
value of each constituent of the Commodity Portfolio on the last
business day of each month over a calculation period of one year
ending on the End Date.
In accordance with the Company's investment policy, the net
proceeds derived by the Company from the issue of Shares have been
invested in a portfolio of debt securities at prices relative to
the value of the Commodity Portfolio on the Start Date (the "Debt
Securities").
As both the Shares and the Debt Securities are
Sterling-denominated, shareholders will not be exposed to direct
currency risk. However, each of the commodities is priced in US
Dollars. Accordingly, in the event that the US Dollar strengthens
in value, this may cause a reduction in the prices of the
commodities and could result in a reduction in the Redemption
Proceeds.
MANAGER'S REPORT FOR THE PERIOD ENDED 31 DECEMBER 2012
Investment Performance
At launch the net proceeds derived from the issue of Shares of
the Company were invested in the Debt Securities based on the
Commodity Portfolio. On 31 December 2012, the Commodity Portfolio
had increased by 2.9 per cent. over the six month reporting period
and had risen by 21.4 per cent. since launch. The total market
value of the Shares grew by 29.7 per cent. over the six month
reporting period ended 31 December 2012 and by 37.5 per cent. since
inception.
As the Company's final capital entitlement is based upon the
performance of the Commodity Portfolio, it is possible to show the
potential capital entitlements available to Shareholders based on
the percentage increase in the End Value of the Commodity Portfolio
relative to its Start Value. The End Value will be the month end
average value of the Commodity Portfolio over the one year period
ending on 31 May 2013. The chart below is for illustrative purposes
only and does not represent forecasts or take into account any
unforeseen circumstances.
Market Review
Over the six month reporting period, the value of the Commodity
Portfolio grew by 2.9 per cent.
As at 30(th) As at 31(st) December Return
June 2012 (USD) 2012 (USD) over period
Brent Crude
Oil 97.8 111.11 13.6%
Nickel 16,475.00 17,085.00 3.7%
Aluminium 1,834.50 2,040.00 11.2%
Copper 7,604.50 7,915.00 4.1%
Zinc 1,843.00 2,034.50 10.4%
Wheat 739.00 778.00 5.3%
Corn 672.50 698.25 3.8%
Sugar 21.81 19.51 -10.5%
Commodity Portfolio 2.9%
Over the reporting period, Brent Crude Oil saw the largest price
gains driven by concerns that political unrest in the middle-east
would disrupt supply while emerging market demand would remain
stable.
Industrial metals, namely aluminium, nickel and zinc also
enjoyed price gains on the back of stable emerging market demand
expectations and positive investor sentiment regarding a global
economic recovery. Copper saw more muted gains over the reporting
period as China, which represents 60 per cent. of global copper
demand, indicated ample stockpiles and a slowdown in their copper
inventory accumulation.
Agricultural commodities also saw more muted returns over the
reporting period as prices consolidated after strong gains. Sugar
was the only negative performer in the Commodity Portfolio as
supply side disruptions, which had led to sharp price gains,
dissipated and speculative buyers exited their positions.
Market Outlook
There continue to be a number of factors underpinning increased
demand for commodities over the medium term. Growth of the middle
class in emerging markets, economic recovery in developed markets,
overdue industrial replacement as well as maintenance programs,
changing consumption patterns and proposed national infrastructure
projects are all supportive of higher commodity prices.
Nonetheless, idiosyncratic risks remain high with political
uncertainty, weather events, potential for slower than expected
economic recovery in developed countries and a slowdown in emerging
markets growth creating potential for short-term volatility and
weaker near-term commodity demand. It is also likely that continued
speculative trading in real assets will accentuate volatility in
commodities, especially metals, and could lead to sharp price moves
in the short term. Geo-political news flow and monetary policy
changes are also likely to lead to strong fluctuations in the US
dollar which, in turn, would impact commodity prices, especially
oil, and could lead to outsized price moves across the commodity
complex.
Overall, the greatest medium term risk to commodity prices is
from a slowdown in economic growth and the corresponding reduction
in commodity demand. Improving economic data from the US, further
sentiment improvement in Europe and continued strong growth in
emerging markets would trigger further commodity price increases.
Conversely, if the economic outlook were to deteriorate it is
likely that commodities would see a fall in price.
Close Investments Limited
21 February 2012
INTERIM MANAGEMENT REPORT FOR THE PERIOD ENDED 31 DECEMBER
2012
Detailed in the Manager's Report and the Notes to the Financial
Statements, is a description of the important events that have
occurred during the financial period, their impact on the
performance of the Company as shown in the Financial Statements and
a description of the principal risks and uncertainties facing the
Company for the remaining six months of the financial year.
There were no material related party transactions which took
place in the financial period.
This half-yearly financial report has not been audited or
reviewed by auditors pursuant to the Auditing Practices Board
guidance on Review of Interim Financial Information.
The performance of the investments held by the Company over the
reporting period and the outlook for the future are described in
the Manager's Report. The Company's financial position, its cash
flows and liquidity position are set out in the Financial
Statements and the Company's financial risk management objectives
and policies, details of its financial instruments and its
exposures to market price risk, credit risk, liquidity risk,
interest rate risk and currency risk are set out at Note 12 to the
Financial Statements.
The Company currently holds five debt securities the issuers of
which, as at the date of this report, have credit ratings from
either Moody Investor Services ("Moodys") or from Standard &
Poors Rating Agency ("S&P").
As part of its investment portfolio, the Company holds a debt
security issued by Irish Life & Permanent ("IL&P") with a
nominal value of GBP9,050,000. On 19 July 2012, as a result Irish
Life & Permanent becoming two separate entities and the debt
now belonging to Permanent TSB PLC ("PTSB"), S&P downgraded
PTSB one notch from BB- to B+. For the same period, Moodys has kept
its ratings at Ba2 with negative outlook.
The Company also holds a debt security issued by SNS Bank N.V
with a nominal value of GBP9,050,000 and an S&P rating of A-
with a negative outlook and a Moodys long-term senior debt rating
of Baa1. The Board monitors credit risk and will consider further
action if the credit rating of an issuer falls below A3 or A- as
ranked by Moodys and S&P respectively.
The Company also holds a debt security issued by Caisse Centrale
du Credit Immobilier de France SA ("CCCIF") with a nominal value of
GBP9,050,000. On 28 August 2012 Moodys downgraded CCCIF's long-term
senior debt rating to Baa1 with a negative outlook and on 25 of
October 2012 the rating was downgraded further to Baa2 with a
negative outlook.
As noted in the Annual Financial Report for the year ended 30
June 2012, as a result of earlier rating agencies actions, the
Board considered both the sale and the retention of the above debt
securities, acting in the best interests of the Company and its
shareholders. On the basis of the prevailing facts, the Board
concluded that it would not be in the best interests of the
Company, or its shareholders, to sell one or all of the debt
securities, but it would continue to monitor the situation.
The Company also holds a debt security issued by Erste Group
Bank AG with a nominal value of GBP9,050,000. There were no rating
changes over the reporting period.
The Company also holds a debt security issued by Mediobanca SpA
with a nominal value of GBP9,050,000. There were no rating changes
over the reporting period.
In the event of a default by an issuer of a debt security
purchased by the Company, the Company would rank as an unsecured
creditor in respect of sums due from the issuer of such debt
security. In such event, the Company may (in respect of that debt
security) receive a lesser amount (if any) and at a different time
than the proceeds anticipated at the maturity of the debt security.
Any losses would be borne by the Company and returns to
Shareholders would be significantly adversely affected.
As disclosed in Note 12(c) to the Financial Statements, upon the
issue of Shares in May 2007, the Company created a cash reserve in
the amount of 2.10 per cent. of the amount raised by the issue of
such Shares, plus GBP600,000, such amount being estimated, in the
opinion of the directors and upon the advice of the Administrator,
to be sufficient (when taken in combination with the additional
arrangements detailed in note 12(c)) to meet the operating expenses
reasonably expected to be incurred over the life of the Fund.
After making enquiries, the directors have a reasonable
expectation that the Company has adequate resources to continue in
operational existence until the Redemption Date. As the Company's
Shares are due to redeem 14 June 2013, being less than 12 months
from the balance sheet date, in accordance with International
Financial Reporting Standards, the Financial Statements cannot be
prepared on a going concern basis. Accordingly, the Financial
Statements have been prepared on a break-up basis.
Responsibility Statement
The Board of directors jointly and severally confirm that, to
the best of their knowledge:
(a) The Financial Statements, prepared in accordance with
International Financial Reporting Standards, give a true and fair
view of the assets, liabilities, financial position and profit or
loss of the Company; and
(b) This Interim Management Report includes, or incorporates by reference,:
(i) an indication of important events that have occurred during
the first six months of the financial year and their impact on the
Financial Statements;
(ii) a description of the principal risks and uncertainties for
the remaining six months of the financial year;
(iii) confirmation that there were no related party transactions
in the first six months of the current financial year that have
materially affected the financial position or the performance of
the Company during that period; and
(iv) changes in the related parties transactions described in
the last annual report that could have a material effect on the
financial position or performance of the Company in the first six
months of the current financial year.
John Stuart Graham Harrison
Director Director
21 February 2013
Notes 1 Jul 2012 1 Jul 2011
to 31 Dec to 31 Dec
2012 2011
GBP GBP
Net movement in unrealised appreciation
/
(depreciation) on investments 5 4,685,057 (10,099,185)
Operating expenses 2 (220,628) (235,729)
----------- -------------
Net gain / (loss) for the period
attributable to
shareholders 4,464,429 (10,334,914)
Other Comprehensive Income - -
----------- -------------
Total Comprehensive Income 4,464,429 (10,334,914)
=========== =============
Pence Pence
Earnings per Share for the period
- Basic and
Diluted 4 9.87 (22.84)
STATEMENT OF COMPREHENSIVE INCOME for the period ended 31
December 2012
In arriving at the results for the financial period, all amounts
above relate to continuing operations.
There are no recognised gains or losses for the period other
than those disclosed above.
Reconciliation of earnings / (loss) per Share for investment
purposes to earnings / (loss) per Share per the financial
statements:
1 Jul 2012 1 Jul 2011
to 31 Dec to 31 Dec
2012 2011
Pence Pence
Earnings / (loss) per Share for investment
purposes 10.35 (22.31)
Adjustment to include expenses on an
accruals basis (0.48) (0.53)
Earnings / (loss) per Share per the financial
statements 9.87 (22.84)
In accordance with International Financial Reporting Standards
("IFRS"), expenses should be attributed to the period to which they
relate.
The earnings per Share for investment purposes represents the
loss per Share attributable to Shareholders in accordance with the
Prospectus, which recognises all expenses of the Company up to and
including the date that the redemption proceeds become payable.
The notes form an integral part of these financial
statements.
STATEMENT OF FINANCIAL POSITION (UNAUDITED) as at 31 December
2012
31 Dec 2012 30 Jun 2012
GBP GBP
Notes
CURRENT ASSETS
Unquoted financial assets
designated as at fair value
through profit or loss 5 64,914,329 60,229,272
Receivables 6 80,554 171,292
Cash and cash equivalents 201,419 336,159
------------- -------------
65,196,302 60,736,723
CURRENT LIABILITIES
Payables - due within one
year 7 39,751 44,601
------------- -------------
NET ASSETS ATTRIBUTABLE
TO
SHAREHOLDERS 65,156,551 60,692,122
============= =============
SHARES IN ISSUE 45,250,000 45,250,000
Pence Pence
NAV PER SHARE 143.99 134.13
Reconciliation of NAV per Share for investment purposes to NAV
per Share per the financial statements:
31 Dec 30 Jun
2012 2012
Pence Pence
NAV per Share for investment purposes 143.52 133.10
Adjustment to include expenses on an accruals
basis 0.47 1.03
NAV per Share per the financial statements 143.99 134.13
In accordance with IFRS, expenses should be attributed to the
period to which they relate.
The notes form an integral part of these financial
statements.
The NAV per Share for investment purposes represents the NAV per
Share attributable to Shareholders in accordance with the
Prospectus, which recognises all expenses of the Company up to and
including the date that the redemption proceeds become payable.
The financial statements were approved by the Board of directors
on 21 February 2013 and are signed on its behalf by:
John Stuart Graham Harrison
Director Director
The notes form an integral part of these financial
statements.
STATEMENT OF CASH FLOWS (UNAUDITED) for the period ended 31
December 2012
1 Jul 2012 1 Jul 2011
to 31 Dec to 31 Dec
2012 2011
GBP GBP
Operating activities
Net gain / (loss) for the period attributable
to Shareholders 4,464,429 (10,334,914)
Unrealised (appreciation) / depreciation
on investments (4,685,057) 10,099,185
Interest received (824) (1,064)
Amortisation of debt issue costs 84,959 84,959
(Decrease) / increase in accrued expenses (4,850) 6,178
Decrease in prepayments and accrued
income
excluding debt issue costs 5,779 6,205
------------ -------------
Net cash outflow from operating activities (135,564) (139,451)
------------ -------------
Investing activities
Interest received 824 1,064
------------ -------------
Net cash inflow from investing activities 824 1,064
------------ -------------
Cash and cash equivalent at beginning
of period 336,159 621,612
Decrease in cash and cash equivalents (134,740) (138,387)
------------ -------------
Cash and cash equivalents at end of
period 201,419 483,225
============ =============
The notes form an integral part of these financial
statements.
STATEMENT OF CHANGES IN EQUITY ATTRIBUTABLE TO SHAREHOLDERS
(UNAUDITED) for the period ended 31 December 2012
Share Share Premium Accumulated Total
Capital Gains
GBP GBP
Balance as at 1 July
2012 2 45,250,000 15,442,120 60,692,122
Net gain for the period
attributable to shareholders - - 4,464,429 4,464,429
--------- -------------- ------------ ------------
Balance as at 31 December
2012 2 42,250,000 19,906,549 65,156,551
--------- -------------- ------------ ------------
Share Share Premium Accumulated Total
Capital Gains
GBP GBP
Balance as at 1 July
2011 2 45,250,000 23,925,770 69,175,772
Net loss for the period
attributable to shareholders - - (8,483,650) (8,483,650)
--------- -------------- -------------- --------------
Balance as at 31 December
2011 2 42,250,000 15,442,120 60,692,122
--------- -------------- -------------- --------------
The notes form an integral part of these financial
statements.
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) for the period
ended 31 December 2012
1 ACCOUNTING POLICIES
(a) Basis of Preparation
The financial statements have been prepared in accordance with
IFRS, which comprise standards and interpretations approved by the
International Accounting Standards Board ("IASB") and International
Financial Reporting Interpretations Committee ("IFRIC") and
applicable Guernsey law. The financial statements have been
prepared on an historical cost basis except for the measurement at
fair value of financial instruments, and give a true and fair
view.
Break up basis of accounting
As the Company's Participating Shares (the "Shares") are due to
be redeemed within twelve months, on or around 14 June 2013 the
("Redemption Date"), the Financial Statements have been prepared on
a break up basis. The directors do not anticipate the costs of
liquidation to be material. Such costs will be borne out of the
Expenses Provision described in Note 7 to the Financial
Statements.
The preparation of Financial Statements in accordance with the
break up basis requires that assets are reduced to their
recoverable amounts and that provisions are made for future losses.
The directors have considered whether there is any indication that
the recoverable amount of the Company's assets is lower than the
amount recorded as fair value at 31 December 2012. They have
concluded that any post balance sheet changes in value reflect fair
value changes and do not indicate a reduction in the recoverable
amount at 31 December 2012 and, accordingly, that no adjustment is
required to the carrying amount of the Company's assets or increase
in the Company's liabilities at fair value through profit or loss.
In addition the directors have considered whether any provision is
required for future losses. The Company will continue to incur
expenses up to the Redemption Date of the Shares. However, the
anticipated excess of redemption value over the fair value at 31
December 2012 of the Company's investments is expected to exceed
the Company's estimated future expenses and, accordingly, the
directors do not consider that a provision for future losses is
required.
Changes in accounting policy and disclosures:
No new Standards or Interpretations affecting the Company have
been applied in the period.
The following Standards or Interpretations that are expected to
affect the Company have been issued but not yet adopted by the
Company as shown below. Other standards or interpretations issued
by the IASB and the IFRIC are not expected to affect the
Company.
IFRS 7 Financial Instruments: Disclosures - Amendments relating
to the offsetting of assets and liabilities effective for annual
periods beginning on or after 1 January 2013 and interim periods
within those periods.
IFRS 9 Financial Instruments- Deferral of mandatory effective
date of IFRS 9 and amendments to transition disclosures effective
for annual periods beginning on or after 1 January 2015.
IFRS 9 Financial Instruments- reissue to include requirements
for the classification and measurement of financial liabilities and
incorporate derecognition requirements effective for annual periods
beginning on or after 1 January 2015.
IFRS 13 Fair value measurement- Original issue effective for
annual periods beginning on or after 1 January 2013.
IAS 1 Presentation of Financial Statements- Amendments to revise
the way other comprehensive income is presented effective for
annual periods beginning on or after 1 July 2012.
IAS 1 Presentation of Financial Statements- Amendments resulting
from Annual Improvements 2009-2011 Cycle (comparative information)
for annual periods beginning on or after 1 January 2013.
IAS 32 Financial Instruments: Presentation - Amendments relating
to the offsetting of assets and liabilities effective for annual
periods beginning on or after 1 January 2014.
The directors have considered the above and are of the opinion
that the above Standards and Interpretations are not expected to
have an impact on the Company's Financial Statements except for the
presentation of additional disclosures and changes to the
presentation of components of the Financial Statements. These items
will be applied in the first financial period for which they are
required.
(b) Taxation
The Company has been granted exemption under the Income Tax
(Exempt Bodies) (Guernsey) Ordinance, 1989 from Guernsey Income
Tax, and is charged an annual fee of GBP600.
(c) Expenses
All expenses are accounted for on an accruals basis.
(d) Debt Issue Costs
The debt issue costs incurred amounted to GBP1,018,125. Because
the Company's Shares are redeemable on or around 14 June 2013 and
because the Management Shares are subordinate, they are required to
be classified as debt instruments under IAS 32. Consequently, issue
costs are required to be amortised over the life of the
instrument.
(e) Interest Income
Interest income is accounted for on an accruals basis.
(f) Cash and Cash Equivalents
Cash in bank and short term deposits which are held to maturity
are carried at cost. Cash and cash equivalents are defined as call
deposits, short term deposits and highly liquid investments readily
convertible to known amounts of cash and subject to insignificant
risk of changes in value. For the purposes of the Statement of Cash
Flows, cash and cash equivalents consists of cash and deposits at
bank.
(g) Investments
All investments and derivative financial instruments are
classified as "at fair value through profit or loss". Investments
are initially recognised at cost, being the fair value of the
consideration given, excluding transaction costs associated with
the investment. After initial recognition, investments are measured
at fair value, with unrealised gains and losses on investments
being recognised in the Statement of Comprehensive Income.
Fair value is the amount for which the financial instruments
could be exchanged, or a liability settled, between knowledgeable
willing parties in an arms length transaction. Fair value also
reflects the credit quality of the issuers of the financial
instruments.
Valuations of the Company's investments are based on valuations
provided to the Company by Future Value Consultants Limited (the
"Calculation Agent"). These valuations are intended to be an
indication of the fair value of the Company's investments,
including an issuer's credit risk, designed to reflect the best
estimation of the price at which they could be sold, even though
there is no guarantee that a willing buyer might be found if the
Company chose to sell the relevant investment.
The indicative fair values of the investments are based on an
approximation of the market level of the investments. As the
investments are not traded in an active market, the indicative fair
value was determined by using valuation techniques. The Calculation
Agent used a variety of methods and made assumptions that were
based on market conditions existing at the reporting date.
Valuation techniques used may include the use of comparable
recent arm's length transactions (where available), discounted cash
flow analysis, option pricing models and other valuation techniques
commonly used by market participants.
Models use observable data, to the extent practicable. However,
areas such as counterparty credit risk, volatilities and
correlations require the Calculation Agent to make estimates.
Changes in assumptions about these factors could affect the
reported fair value of financial instruments.
Different assumptions regarding these factors, combined with
different valuation techniques and models used, could lead to
significantly different valuations of the financial instruments
produced by different parties. As at the reporting date, valuation
data provided by JP Morgan Securities Limited was GBP32,901 (Jun
2012: GBP1,800,331) higher than that provided by the Calculation
Agent.
Being cognisant of current market conditions, the Company
believes that the valuations provided by the Calculation Agent
comply with the definition of fair value as defined by IFRS and are
more appropriate.
The investments will be derecognised on their redemption date,
being 14 June 2013 and accordingly, the investments have been
reclassified as current assets as at 30 June 2012. Gains and losses
on the sale of investments will be taken to the Statement of
Comprehensive Income.
(h) Trade Date Accounting
All "regular way" purchases and sales of financial assets are
recognised on the "trade date", i.e. the date that the entity
commits to purchase or sell the asset. Regular way purchases or
sales are purchases or sales of financial assets that require
delivery of the asset within the timeframe generally established by
regulation or convention in the market place.
(i) Segmental Reporting
The directors are of the opinion that the Company is engaged in
a single segment of business, being investment business in the
United Kingdom.
2 OPERATING EXPENSES
1 Jul 2012 1 Jul 2011
to 31 Dec to 31 Dec
2012 2011
GBP GBP
Amortisation of debt issue costs 84,959 84,959
Management fees (1) 79,838 79,838
Auditor remuneration - 5,000
Directors' and Officers' insurance 3,087 3,497
Registration fees 4,864 4,595
Administration fees 17,847 19,408
Custody fees 9,479 9,828
Directors' remuneration 10,500 10,500
Annual fees 8,777 13,763
Printing costs 80 3,991
Sundry costs and charges 2,021 1,414
----------- -----------
221,452 236,793
Less: Interest earned on expense
provision bank account (824) (1,064)
----------- -----------
220,628 235,729
=========== ===========
(1) The Manager is entitled to receive a fee from the Company at
an annual rate of 0.35% of the Initial Gross Proceeds.
3 DIRECTORS' REMUNERATION
The Prospectus provides that each director will be paid a fee of
GBP7,000 per annum by the Company. The remuneration will remain
fixed over the life of the Company.
4 EARNINGS / (LOSS) PER SHARE
The earnings / (loss) per Share is based on the net earnings /
(loss) for the period attributable to Shareholders of GBP4,464,429
(2011: GBP10,334,914 loss) and on 45,250,000 (2011: 45,250,000)
Shares, being the weighted average number of Shares in issue during
the period. There are no dilutive instruments and therefore basic
and diluted loss per Share are identical.
5 INVESTMENTS
UNQUOTED FINANCIAL ASSETS DESIGNATED 31 Dec 2012 30 Jun 2012
AS AT FAIR VALUE THROUGH PROFIT
OR LOSS
GBP GBP
Opening portfolio cost 38,424,943 38,424,943
Unrealised appreciation on valuation
brought forward 21,804,329 29,813,229
Unrealised appreciation / (depreciation)
on valuation
for the period 4,685,057 (8,008,900)
------------ ------------
Unrealised appreciation on valuation
carried forward 26,489,386 21,804,329
Closing valuation 64,914,329 60,229,272
============ ============
Valuations of investments are based on valuations provided by
the Calculation Agent. The provided valuations were derived from
proprietary models based upon well-recognised financial principles
and reasonable estimates about relevant future market conditions
using suitable inputs from market data such as interest rates,
credit default swap spreads, and notional Commodity Portfolio
levels.
To comply with the definition of fair value as defined by IFRS,
the Calculation Agent was engaged to provide valuations of the
investments, taking account of the current counterparty credit risk
of the issuers of the Debt Securities held by the Company for the
account of the Fund. Details of the quantitative effect of using
different valuation providers are given in Note 1(g).
IFRS 7 requires the fair value of investments to be disclosed by
the source of inputs, using a three level hierarchy as detailed
below:
Quoted prices (unadjusted) in active markets for identical
assets or liabilities (Level 1);
Inputs other than quoted prices included in Level 1 that are
observable for the asset or liability, either directly (as prices)
or indirectly (derived from prices) (Level 2);
Inputs for the asset or liability that are not based on
observable market data (unobservable inputs) (Level 3).
All Debt Securities held by the Company have been classified as
Level 2 in accordance with fair value hierarchy. There have been no
transfers between Level 1 and Level 2 of the fair value hierarchy
during the period under review.
The performance of the financial assets is based on the
performance of the Commodities Portfolio between 31 May 2007 and 31
May 2013. The instruments are designed to give a return of two
times the performance of the Commodities Portfolio.
Valuation data provided by the Calculation Agent to the Company
is provided for informational purposes only and does not represent
an offer to buy or sell the Debt Securities by the Calculation
Agent or any other party. The valuations provided are an indication
of market levels and do not imply that they can be sold at that
valuation price. They are based on assumptions and data the
Calculation Agent considers in its judgement reasonable, but an
alternative valuer might arrive at different valuations for the
same investments.
6 RECEIVABLES
31 Dec 2012 30 Jun 2012
GBP GBP
Prepaid debt issue costs 76,186 161,145
Prepayments & accrued income 4,368 10,147
80,554 171,292
============ ============
7 PAYABLES
(amounts falling due within one year)
31 Dec 2012 30 Jun 2012
GBP GBP
Accrued administration fees 3,063 3,287
Accrued registration fees 683 800
Accrued Investment Manager's
fees 24,468 13,017
Accrued audit fees - 10,000
Accrued custody fees 4,979 5,131
Accrued printing costs 2,500 5,590
Other accrued expenses 2,058 6,776
Expense provision 229,251 332,739
Less: Prepaid expense provision
(see below) (229,251) (332,739)
------------ ------------
39,751 44,601
============ ============
The prepaid expense provision represents monies set aside to
meet the on-going, annual and redemption expenses of the Company,
as set out in the Prospectus.
If, at the Redemption Date, there is any surplus remaining from
the expense provision (together with accrued interest thereon),
this surplus will revert to the Manager. In the event of redemption
or repurchase of all the Shares, or upon a winding-up of the
Company, in each case prior to the Redemption Date, any balance of
the expense provision (together with accrued interest thereon)
other than the investment management fee will also revert to the
Manager.
8 SHARE CAPITAL
Authorised SHARES GBP
Participating Shares of no Unlimited -
par value
Management Shares of GBP1.00
each 2 2
----------------
2
================
Issued SHARES
Participating Shares - fully
paid 45,250,000
Management Shares - fully
paid 2
----------------
Number of Shares in issue
at 31 December 2012 and at
30 June 2012 45,250,002
================
GBP
Issued capital at 31 December
2012 and at 30 June 2012 2
================
The issue of participating
Shares took place as follows:
Number of Price per Amount received
Date of issue Shares Share pence
GBP
31 May 2007 45,250,000 100.00 45,250,000
Shares are redeemable on the Redemption Date of 14 June 2013.
The Company is closed-ended and therefore shareholders have no
right to request the Company to repurchase their Shares or to
redeem them prior to the redemption date. If the Company is wound
up prior to the Redemption Date, Shareholders will be entitled to
the net asset value of the Shares on the winding up date. No
dividends will be paid on the Shares.
Management Shares are not redeemable, do not carry any right to
dividends and in a winding up rank only for a return of the amount
of paid up capital after return of capital on Shares.
Given the immateriality of the Management Shares to the net
assets of the Company, they have been included in net assets
attributable to Participating Shareholders.
9 SHARE PREMIUM
GBP
Share premium at 31 December 2012 and at
30 June 2012 45,250,000
-----------
10 FINANCIAL INSTRUMENTS
The Company's main financial instruments comprise:
(a) Cash and cash equivalents that arise directly from the Company's operations; and
(b) Debt Securities.
11 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
The main risks arising from the Company's financial instruments
are market price risk, credit risk, liquidity risk, interest rate
risk and currency risk. The Board regularly review and agree
policies for managing each of these risks and these are summarised
below.
(a) Market Price Risk
Market price risk arises mainly from uncertainty about future
prices of financial instruments held. It represents the potential
loss the Company might suffer through holding market positions in
the face of price movements. The Manager actively monitors market
prices and reports to the Board as to the appropriateness of the
prices used for valuation purposes. A list of investments held by
the Company is shown in the Schedule of Investments.
Details of the Company's Investment Objective and Policy are
contained within this report.
Price sensitivity
The following details the Company's sensitivity to a 10%
increase and decrease in the final market prices of its constituent
financial assets and liabilities.
The performance of the financial assets is based on the
performance of the Commodities Portfolio of commodities between the
Start Date and the End Date. The final redemption value of the
Shares will comprise a capital amount of 100 pence per Share and a
growth amount per Share equal to two times the percentage increase
in the End Value of the Commodity Portfolio relative to its Start
Value.
If the value of the commodities as at 31 December 2012 had been
10% higher, and assuming these values were to remain unchanged
through to the end of the life of the Company, with all other
variables held constant, the increase in the estimated Final
Capital Entitlement (based on the commodity portfolio valuation) on
the Redemption Date would have been 167 pence per Share arising due
to an increase in the amount payable per Share on redemption of 25
pence per Share.
If the value of the commodities as at 31 December 2012 had been
10% lower, and assuming these values were to remain unchanged
through to the end of the life of the Company, with all other
variables held constant, the decrease in the estimated Final
Capital Entitlement (based on the commodity portfolio valuation) on
the Redemption Date would have been 118 pence per Share arising due
to a decrease in the amount payable per Share on redemption of 24
pence per Share.
(b) Credit Risk
Credit risk is the risk that an issuer or counterparty will be
unable or unwilling to meet a commitment that it has entered into
with the Company. At the date of this report four out of five
issuers carried an investment grade credit rating. This is per
Moody's ratings as no S&P rating was available for Caisse
Centrale du Credit Immobilier ("CIF").
Investors should be aware that the prospective returns to
Shareholders mirror the returns under the Debt Securities held or
entered into by the Company and that any default by an issuer of
any such debt securities held or entered into by the Company would
have a consequential adverse effect on the ability of the Company
to pay some or all of the redemption proceeds to Shareholders. Such
a default might, for example, arise on the insolvency of an issuer
of a debt security.
The following table details the aggregate grades of the debt
securities in the portfolio, based on the valuations of the
investments as at 31 December 2012 (30 June 2012 for the
comparative period) as rated by S&P.
Rating *21 February 31 Dec 2012 30 Jun 2012
2013
A 20.14% 20.14% 20.54%
BBB 39.98% 39.98% 40.34%
BB 0.00% 0.00% 18.64%
B 19.90% 19.90% 0.00%
NR 19.99% 19.99% 20.48%
*Based on the value of the Company's investments at 31 December
2012.
It should be noted that the S&P rating of CIF debt security
is not rated as at 31 December 2012 and as at the date of signing.
S&P withdrew the counterparty credit ratings and issue ratings
of CIF on 23 November 2011 at the request of the French bank. CIF
has been given an investment grade rating of Baa2 by Moodys as at
31 December 2012 and Baa2 at the date of signing.
Credit risk was mitigated at launch by the Company by purchasing
the Debt Securities from five different issuers. At the time of
purchase four of the issuers were rated by S&P at grade A, with
the remaining issuer rated by S&P at grade AA.
The Company's financial assets exposed to credit risk are as
follows:
31 Dec 2012 30 Jun
2012
GBP GBP
Unquoted financial assets designated
as at fair value through profit or
loss 64,914,329 60,229,272
Receivables 80,554 171,292
Cash and cash equivalents 201,419 336,159
------------- -------------
65,196,302 60.736,723
============= =============
(c) Liquidity Risk
Liquidity risk is the risk that the Company will encounter
difficulty in realising assets or otherwise raising funds to meet
financial commitments. The Company's main financial commitment is
its on-going operating expenses.
Upon the issue of Shares in May 2007 the Company created a cash
reserve (the "Expense Provision") in the amount of 2.10% of the
Initial Gross Proceeds plus GBP600,000, such amount being estimated
in the opinion of the directors upon the advice of the Manager to
be sufficient to meet operating expenses reasonably expected to be
incurred over the life of the Shares.
At each quarterly Board meeting and at the end of each financial
period the directors review the Expense Provision against the
expected future expenses (other than the Manager's fee) of the
Company. To the extent that the directors consider that the Expense
Provision is less than 150% of the expected future expenses of the
Company (other than the Manager's fee), the directors may, having
first consulted the Manager, at their discretion reduce the amount
of investment management fees payable to the Manager (subject to a
maximum reduction of 50%) in order to re-establish the 150%
cover.
If at any time during the life of the Company, notwithstanding
the arrangements summarised above, the Expense Provision is
exhausted then, subject to the relevant excess expenses having been
agreed by the Manager, the Manager will make good such shortfall
from its own resources, subject to a maximum of 0.25% of the
Initial Gross Proceeds. Should these expenses exceed this cap the
return to Shareholders will be adversely impacted. The directors do
not anticipate that the expenses will exceed the Expense
Provision.
The Debt Securities purchased by the Company mature on 14 June
2013 (the "Maturity Date") and are designed to pay on the Maturity
Date, a capital payment which will comprise a capital amount of
100p per Share, and a growth amount per Share equal to two times
any percentage increase in the End Value of the Commodity Portfolio
relative to its Start Value, such amount being expressed in pence
and rounded down to the next whole pence. If the End Value is lower
than the Start Value, the Shares are designed to repay the full
initial subscription amount of 100p per Share on the 14 June 2013,
all provided that no counterparty defaults on its obligations to
the Company. The End Value is defined as the aggregate of the
average official closing price of each constituent of the Commodity
Portfolio on the last Business Day of each month in the Calculation
Period. It is not anticipated that dividends will be paid in
respect of the Shares.
The directors and the Manager monitor the credit ratings of all
issuers of the Debt Securities. In the event of any downgrading in
the long-term credit rating of any issuer below A- or A3, as
determined by S&P and/or Moodys respectively, the Company may
in its absolute discretion seek to sell the relevant Debt
Securities to third party purchasers and to reinvest the proceeds
in the purchase of Debt Securities of another issuer such that the
new Debt Securities will replicate as closely as possible the terms
and conditions of the original Debt Securities.
The directors would only seek to sell the relevant Debt
Securities if they consider on the advice of the Manager that such
would be in the best interests of the Company and its Shareholders.
If the purchase of such Debt Securities is not possible, the
directors may reinvest such proceeds as they see fit in investments
which, in the opinion of the directors, as nearly as is
practicable, replicate the investment characteristics of the Debt
Securities sold and so that the proceeds are invested, as nearly as
is practicable, in accordance with the Company's stated investment
objective. As at the date of signing this report and the reporting
date, four out of five issuers of the Debt Securities carried an
investment grade credit rating as rated by Moodys.
No assurance can be given that the Company will be able to sell
the Debt Securities, for the reasons described above or on a
winding up of the Company, at a favourable price or at all. Even if
the Company is able to sell such Debt Securities, the sale of the
Debt Securities may result in a lower return than would have been
the case if the long term credit rating of the issuer of the
relevant Debt Securities had not been downgraded and the original
Debt Securities had been retained and were redeemed on the Maturity
Date.
The table below details the residual contractual maturities of
financial liabilities:
As at 31 December 1-3 months Over 1 year Total
2012
Accrued expenses 39,751 - 39,751
----------- ------------ -------
Total 39,751 - 39,751
----------- ------------ -------
As at 30 June 2012 1-3 months Over 1 year Total
Accrued expenses 44,601 - 44,601
----------- ------------ -------
Total 44,601 - 44,601
----------- ------------ -------
(d) Interest Rate Risk
Interest rate risk arises from the possibility that changes in
interest rates will affect future cash flows or the fair value of
financial instruments. Except for cash set aside to meet expenses,
the Company's assets and liabilities are expected to be held until
the Maturity Date.
Interest rate risk is the risk that fluctuations in market
interest rates will result in a reduction in deposit interest
earned on cash deposits held by the Company. The Company holds cash
on fixed deposit, the return on which is subject to fluctuations.
All fixed deposits mature within three months.
The weighted average effective interest rate for cash and bank
balances for the period ended 31 December 2012 was 0.28% (Jun 2012:
0.57%).
None of the other assets or liabilities of the Company attract
or incur interest.
Interest rate sensitivity
If interest rates had been 25 basis points higher and all other
variables were held constant, the Company's net assets attributable
for the period ended 31 December 2012 would have been GBP252 (Jun
2012: GBP841) greater due to an increase in the amount of interest
receivable on the bank balances.
If interest rates had been 25 basis points lower and all other
variables were held constant, the Company's net assets attributable
for the period ended 31 December 2012 would have been GBP252 (Jun
2011: GBP841) less due to a decrease in the amount of interest
receivable on the bank balances.
The Company's sensitivity to interest rates is lower in the
period ended 31 December 2012 than in the year ended 30 June 2012
because of a decrease in the amount of cash balances held.
(e) Currency Risk
Whilst shareholders are not exposed to direct currency risk,
since the Shares and Debt Securities are all Sterling-denominated,
in the event that the US Dollar strengthens in value this may cause
a reduction in the prices of the Commodities and could result in a
reduction in the redemption proceeds.
(f) Capital Management
The investment objective of the Company is to provide
Shareholders on the Redemption Date with a capital payment which
will comprise a capital amount of 100p per Share and a gross amount
per Share equal to two times any percentage increase in the End
Value of the Commodity Portfolio relative to its Start Value, such
amount being expressed in pence and rounded down to the next whole
penny. If the End Value is lower than the Start Value, the Shares
are designed to repay the full capital amount of 100p per Share on
the Redemption Date.
The Shares have a fixed life and a fixed capital and this is not
expected to change during the life of the Shares. Until then the
Company has a fixed capital.
12 RELATED PARTIES
There were no transactions with related parties during the
period.
13 ULTIMATE CONTROLLING PARTY
In the directors' opinion the Company has no controlling
party.
SCHEDULE OF INVESTMENTS (UNAUDITED) as at 31 December 2012
NOMINAL VALUATION TOTAL NET
DEBT SECURITIES PORTFOLIO HOLDINGS GBP ASSETS
Caisse Centrale du Credit
Immobilier
de France 0% EMTN 14 June
2013 9,050,000 12,973,196 19.91%
Erste Bank 0% EMTN 14 June
2013 9,050,000 13,072,465 19.99%
Irish Life & Permanent
plc 0% EMTN
14 June 2013 9,050,000 12,915,881 19.82%
Mediobanca SpA 0% EMTN
14 June
2013 9,050,000 13,023,526 19.99%
SNS Bank NV 0% EMTN 14
June 2013 9,050,000 12,929,261 19.84%
45,250,000 64,914,329 99.55%
=========== =========== ==========
SCHEDULE OF INVESTMENTS (UNAUDITED) as at 30 June 2012
NOMINAL VALUATION TOTAL NET
DEBT SECURITIES PORTFOLIO HOLDINGS GBP ASSETS
Caisse Centrale du Credit
Immobilier
de France 0% EMTN 14 June
2013 9,050,000 12,336,615 20.33%
Erste Bank 0% EMTN 14 June
2013 9,050,000 12,369,443 20.38%
Irish Life & Permanent plc
0% EMTN
14 June 2013 9,050,000 11,224,256 18.49%
Mediobanca SpA 0% EMTN 14
June
2013 9,050,000 12,096,630 19.93%
SNS Bank NV 0% EMTN 14 June
2013 9,050,000 12,202,328 20.11%
45,250,000 60,229,272 99.24%
----------- ----------- ----------
SHAREHOLDER INFORMATION
The Company's Shares are listed on the London Stock
Exchange.
Company announcements and daily market closing prices of the
Shares are available on Reuters, Bloomberg and on-line on the web.
The ISIN of the Company's Participating Shares is GG00B1WT2P00, and
the London Stock Exchange mnemonic is CED2.
SHARE DEALING
Shares may be dealt in directly through a stockbroker or
professional adviser acting on an investor's behalf. The buying and
selling of Shares may be settled through CREST.
SHAREHOLDER ENQUIRIES
The Company's registrar is Anson Registrars Limited in Guernsey
and they can be contacted on 01481 711301.
Directors John William Stuart (Chairman)
Graham Michael Harrison
Trevor Charles Ash
Custodian BNP Paribas Trust Company (Guernsey)
Limited
PO BOX 412
BNP Paribas House
St Julians Avenue, St Peter Port
Guernsey GY1 3WE
Manager Close Investments Limited
(Authorised and regulated by the
Financial Services Authority)
10 Exchange Square
Primrose Street
London, England EC2A 2BY
Administrator and Secretary Anson Fund Managers Limited
PO Box 405, Anson Place Mill Court,
La Charroterie
St Peter Port
Guernsey GY1 3GF
Principal Bankers Royal Bank of Scotland International
Limited
Royal Bank Place
1 Glategny Esplanade
St Peter Port
Guernsey GY1 4BQ
Auditors Saffery Champness
La Tonnelle House
Les Banques
St Sampson
Guernsey GY1 3HS
Registrar, Transfer Agent Anson Registrars Limited
and Paying Agent PO Box 426
Anson Place Mill Court, La Charroterie
St Peter Port
Guernsey GY1 3WX
UK Transfer Agent Anson Administration (UK) Limited
3500 Parkway
Whiteley, Fareham
Hampshire
England PO15 7AL
Corporate Broker Panmure Gordon (UK) Limited
One New Exchange, London
England, EC4M 9AF
(Appointed 12 November 2012).
This information is provided by RNS
The company news service from the London Stock Exchange
END
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