TIDMELX
RNS Number : 8581R
El Oro Ltd
26 September 2017
Chairman's statement
The El Oro Group's profit before taxation for the year ended 30
June 2017 was GBP7,426,687 (loss before taxation for the year ended
30 June 2016: GBP615,636). The Group's net assets at 30 June 2017
were GBP55,680,730 or 88.1p per share (net assets at 30 June 2016:
GBP50,598,883 or 79.7p per share).
August marks the 10th Anniversary of the 2007 crash; the
centenary of Passchendaele and its horrendous slaughter of the
manhood of Western Europe and the Commonwealth; and the Russian
Revolution with its consequent murder of the Romanovs, along with
millions of Russians and eventual enslavement of much of Eastern
Europe.
Amidst such unpropitious auguries, and the thunder of invective
echoing around the North Korean peninsular, it is comforting for
shareholders to see their company back on track, and running if not
on all cylinders, at least on more than experienced in recent
years.
The completion of the Dee Valley takeover by Severn Trent,
finally concluded in February, enabled a significant pay-down in
debt, and that process has continued after the end of this
accounting period: albeit requiring the disposal or reduction of
some of our more cherished holdings.
The bug-bear of the swaps has been somewhat reduced, as rates
have begun to rise in the United States, even if the Governor of
the Bank of England is yet to reverse the reduction he made
following the Brexit vote last year. Given the devastating effect
low rates have had on many pension plans, forcing long-established
companies to the brink of or into insolvency, it is to be hoped the
Monetary Policy Committee will eventually force his hand. The risk
of inaction remains that should a downturn materialise within the
UK, as expected by some and predicted by former luminaries of the
Conservative upper echelons, there will be nothing in reserve to
bring relief. Reports from the recent conference at Jackson Hole
are somewhat less encouraging, and the recent decline in the dollar
is partly attributable to the belief that there will be few
interest rises in the United States in months to come.
Among our individual holdings M.P.Evans, safe for at least
another four months from a renewed approach by KLK, continues to
show impressive growth, in palm oil production, prices received and
dividend growth, all of which have sustained the share price near
the level of the offer rejected by shareholders last year. We hope
that in due course the various obstacles that have beset REA
Holdings will be surmounted, and it will begin to match its more
southerly neighbour in output and price performance.
On the oil front, Hurricane Energy enjoyed a stellar performance
early in the year, with buying from 2 funds which propelled it to a
multiple of its lows, only to cede much of that gain as it placed a
large tranche of stock to enable production from its prospective
wells. We are encouraged that it was able to raise money in a
market otherwise hostile towards hydro-carbons, and believe that
barring technical disappointments it should in due course reach
higher levels.
Pantheon Resources suffered several technical problems in its
drilling programme, and seen a slump in its share price, but its
most recent pronouncements, prior to Hurricane Harvey, show greater
potential.
The gadarene rush towards renewables has enhanced our lithium
exposure, with Bacanora and Critical Elements vying for credibility
in that sector. Our holding in Cadiz, the Californian aquifer
project, has been enhanced by a more pragmatic approach by the
Californian legislature, although its old adversary, Mrs Feinstein,
still refuses to accept defeat and inserts yet more adversarial
clauses to block its development, giving renewed heart to the
shortsellers.
Amongst other favourable moves, Grande West has thrived with its
production of buses for the United States and Canadian markets, and
Shopify, has been a huge beneficiary of the growth of Amazon and
other areas of the technology sector. Herald Investment Trust, with
its holding in Apple and intimate knowledge of the technology
sector has continued its remarkable growth and thrived under the
unsung stewardship of Katie Potts; Burford Capital with its funding
of large litigation cases has continued to win verdicts, although
whether all get paid out remains to be seen.
The Vietnam Enterprise Investment Fund, a year on from its
admittance to the London Stock Exchange, continues to grow, and
holds out promise for the future; possibly also as a counter to
what some see as excessive valuations within the United States. The
Vietnamese Communist party lost its mandate from Heaven (in
Confucian terms) in 2013, and as the State reduces its involvement
in the economy, growth is showing levels of 12-12.5%, with PEs
around 13. $1 invested in 1995 is now worth $5.
PZ Cussons more recently shows signs of sloughing off some of
its Nigerian malaise, with a better set of figures, and improved
share price. Given the huge appreciation in the price of Unilever
and the interest expressed briefly by the Buffet consortium, it
would appear a strong hold, despite the disruption inherent in its
main market of Nigeria.
There are several more successes secreted within the portfolio,
as it re-balances the predominance of resources: BAT has until
recently been a stellar performer, as has Melrose in engineering,
RWS in Patent protection, and Porvair in filters.
Victrex has been buoyed by that rarest of rare events where its
patents have earned a reduced level of taxation from HMRC under the
UK Patent Box legislation. A fine business adapting its engineering
expertise to modern technology.
It is to be hoped that Goodwin, supplying the castings for the
worldwide energy and defence sectors, as well as jewellery lost wax
casting, has passed the nadir of its decline in profits amidst the
reduction in demand in the carbon fuel sector. Its fine record of
productivity exceeding that in Europe by 100% makes it a strong
hold within the portfolio, despite the travails of recent years,
and thankfully with a maintained dividend.
A & J Mucklow in industrial units within the Midlands,
Phoenix Group in its absorption of closed pension funds, and Palace
Capital with its astutely managed property portfolio, primarily
outside the London and RSA Insurance have all helped reinforce the
dividend income flow, which had faltered from the mining
sector.
Happily the strength of the UK market, abetted by an up-lift in
some of our unquoted brewers, such as McMullens and Wadworth, has
risen above the political uncertainties of Brexit and the mistimed
and woefully managed General Election, with its interventionist
agenda and pernicious attack on free markets.
The dirty dog in the desert has been Troy, although in its case
the desert was the tropical rainforest; the maxim of the late Nils
Taube' 'never to invest in a market where you did not need an
overcoat in winter' would have been especially applicable to
Guyana. Troy's fall from grace has been precipitate, prolonged and
unpalatable, partly a result of the pit-wall failure followed by an
interested party selling during a close period. The bargain
basement levels reached recently have attracted interest from
turn-round teams, and the rise in the gold price past $1,300 should
in due course come to its aid, along with more favourable
production levels.
Sadly, Shanta seemingly so promising earlier in the year with
increasing production and lower costs has succumbed to the maverick
approach of Tanzania's 'Bulldozer' President. His menace to mining
influenced, for all we know by some concealed NGO, has brought
Acacia to its knees with a tax demand of $165 billion, and
increased the royalty payable by Shanta amongst other mines. He is
perhaps sharing the same textbook for business destruction as that
adopted in Venezuela by Nicholas Maduro; it would be tragic if
through ignorance and political dogma a viable sector is brought to
the edge of oblivion. Our holding in Maris Africa has also suffered
due to the curtailment of its drilling contracts within Kenya by
Acacia Mining, as has Capital Drilling.
The vicissitudes of business in Africa have in recent years
become more oppressive, as witnessed in South Africa where a
corrupt President has succeeded in resisting impeachment by a small
margin, and the suggestion of additional shares for Black
Empowerment participants is a continuing threat.
We have sadly disposed of our holding in Impala Platinum, long a
stalwart of the dividend payers as platinum demand soared to supply
exhaust catalysts. The fall in the platinum price, the prospect of
demand continuing to reduce due to the 'Dieselgate' imbroglio and
rise of hybrid cars along with Labour unrest has made its retention
less appealing. Perhaps the hydrogen car will come to its
rescue.
The deterrent to inward investment other than from China,
appears only partially perceived. Anti-business rhetoric within
Britain and Europe hardly enhances the cause of capitalism, such as
the proposed cap on Energy prices put forward by the Conservatives
prior to the Election; also the attempts by the EU to tax or fine
Apple, Google and other titans of technology for perceived
infringements against the predominance of the Old World order.
The latest lunacy within Britain is the announcement that the
sale of new diesel and petrol cars will be prohibited by 2040. The
presumption that our national power supplies will have miraculously
emerged from a prolonged moratorium on the continuation or building
of thermal-powered electricity, with Hinkley Point way over budget
and behind schedule, and succeed in producing significantly more
power to recharge a glistening array of electric vehicles is to our
mind at least utterly fanciful.
Moreover the huge advances achieved in the development of
internal combustion engines over recent years has brought them to a
point of perfection, where only minor improvements are now needed
to eliminate the worst excesses of particulates and other
emissions. Once again a political diktat has been imposed on one of
Britain's most important employers, without it would seem any
consultation with those manufacturers. It is instructive to
consider Tony Seba's use of the photograph of Wall Street at the
beginning of the 20th Century, with the caption 'Spot the car' of
which one is visible, and the same scene a few years later, saying
'Spot the horse', of which one remains. As far as we are aware, no
government decided that change should occur, but it happened with
huge rapidity, and formed the basis for America's industrial
supremacy.
The market should remain supreme, unleashing all its magnificent
power of innovation and development, with only gentle nudges from
government to uphold law, avoid perverse consequences and ensure
the appropriate treatment of employees. The adage by Ronald Reagan
oft quoted but seldom heeded, in 1986 as being the most terrifying
words in the English language: 'I am from the government and I am
here to help', have never been more appropriate with today's
ever-increasing urge by government to implement more QE, eternally
low interest rates, and intrude into every nook and cranny of daily
life. The increased tax on carbonated drinks is a case in point,
forcing large producers of well-known drinks such as Irn-Bru, Vimto
and Lucozade to alter the life-long recipes, and the National Trust
its flapjacks, whereas studies by Czarnikow show no increase in per
head consumption of sugar since 1905, only an increasingly inactive
and over-fed populace.
Sadly the financial sector faces similar challenges, where MiFID
II is the ogre on the horizon, and its implementation in January
2018 is likely to lead to a vast array of complications and
unintended consequences, not least the devastation of the
stockbroking research sector, as payment will have to be
apportioned for research received, rather than bundled up with
commission fees.
We sense the blunders of Brussels, aided by a British
bureaucracy only too keen to usurp the market mechanisms that have
successfully managed the monitoring for many years. It will be very
hard to rebuild the structures and firms that have grown over the
years, if this bulldozer approach flattens the whole sector, or at
least its smaller participants. We even hear of some major players
moving their traders overseas to avoid the new regulations,
inflicting more damage on the City of London, already threatened by
the fall-out from Brexit. The interference of the FCA in the
running of hitherto successful companies has been demonstrated by
its refusal to allow Hargreaves Lansdown to pay its customary
special dividend, in order to safeguard its reserves. We would
consider that capable and long-standing executives have a better
grasp of their business than recently-appointed bureaucrats reading
new guidelines. We read that J P Morgan spends an estimated $9
billion per annum complying with regulations, and feeding
information to Alex in the Daily Telegraph; the number of
regulators has risen from 1 in 11,000 to 1 in 300. The European
Union, with 7.2% of the World's population, 23.8% of the World's
GDP, has 58% of the World's welfare spending, as described by the
Mises Institute.
One wonders whether Britain will emerge any better once its
departure from the EU is assured. Seeing occupants of some London
tower blocks, one cannot but be impressed by the strength of a
system that allows so many new-arrivals to be housed in proximity
to one of the wealthiest areas in the world; whilst at the same
time reflecting on the abolition in 1985 of the role of District
Surveyor, who monitored Building regulations rigorously and
impartially.
It is disturbing to see the only people being taken to court
following the banking collapses of 2007 are those who kept their
bank out of the grasp of the Government; a somewhat topsy-turvy
version of justice to the uninitiated. The latest addition to the
board of the Monetary Policy Committee is an Argentine opponent of
Brexit and austerity, from the National University of Tucuman: one
really does have to wonder what it is that Argentina has to teach
Britain about financial rectitude and stability.
The new Editor of the Evening Standard, not content with piling
abuse on Theresa May, has left a toxic legacy in the housing
market, where grotesquely excessive stamp duty has brought London's
housing market to a shuddering halt, and greatly distorted that of
the major part of southern England. It is sad that civil servants
within the Treasury were unable to comprehend the scale of
resentment and resistance that a change from an earlier level of 1%
to 12%, over a relatively short period of time, would achieve. Some
well-known and long-established estate agents have already gone
bust, and the slow-down in housing activity and the rate of
construction, has been exacerbated by the removal of tax allowances
on buildings bought for buy-to-let, and increased stamp duty on
purchases of second homes.
A well-ordered market has been brought to its knees by myopic
revenue-raising to plug short-term spending targets. The failure of
large housebuilders to build at a rate to satisfy the needs of the
younger generation also threatens the social fabric of the country,
and is grist to the Corbyn mill of State Socialism. Without the
incentive to provide rented accommodation, a provision with which
much of today's generation are content, the shortage of housing
will prove a poisonous potion for capitalism and this Conservative
government. This is being exacerbated by a huge fall in mortgage
lending, as demonstrated by Nationwide recently. Perhaps M.J.
Gleeson, or H.Boot, supplying reasonably priced houses in the
Midlands, are a sanctuary at this time.
On the wider front, the former Chairman of the Federal Reserve
is now warning of a 'Bond Bubble', and the ability of the
serial-defaulter Argentina to issue 100 year debt, and Iraq to
borrow at 6.75% and be over-subscribed by 7 times, shows no
shortage of money-lenders taking a different view. There are also
many who fear complications with Personal Car Policies, or
Auto-loans, which have underpinned a large increase in car sales,
on the supposition the car sold in a few years' time will retain a
certain percentage of its value, and go towards the next purchase.
This would seem a sector ripe for a reaction to excessively lenient
lending, both in the UK and the United States.
The unpredictable character of Donald Trump, the revenge-seeking
of his erstwhile opponents, and the continuing failure of any of
his reforms to be enacted into law, mean that some of the uplift
originally expected from infrastructure spending and tax reform may
never occur. Even if Britain were to achieve a trade deal with the
United States, and accept amongst other imports 'chlorine-washed'
chicken, it is to be suspected that the United States with its
tradition of protectionism would come out on top, and quite
possibly the vast expansion of chicken production within the UK
come to a grinding halt.
The glorious June enjoyed on a par with 1976 has proved a huge
boost to our pub investments, and will have brought benefit to
Fuller, Smith and Turner, along with Young's amongst others; the
counter-balance of a consistently wet August will have off-set some
of this benefit, but despite the significant challenges of rate
reviews, living wage, apprenticeship levies and increased alcohol
duty, we would expect the sector to continue growing, even if at a
reduced rate.
Demand for industrial metals such as copper and lithium, and
even coal, seems set to recover and indeed rise, as long as the
much-predicted slow-down in China is yet again deferred; gold may
well flourish amongst angst and uncertainty in World affairs.
With debt reduced, and a good balance within the portfolio of
stable and long-established companies, we see no reason that your
company's progress and recovery should not continue.
The outlook for the UK is clouded by the impasse confronting
Britain's negotiators over leaving the EU: it would appear that
elements within the European Commission are determined to punish
Britain for its temerity in voting to leave, and to fulfil the
predictions of disaster made by all and sundry prior to June 23(rd)
. At all costs the departure must not be seen to be a success,
hence the suggestion of sky-high leaving bills, and other malignant
manoeuvres.
Concomitant with this uncertainty, the good economic figures
Britain has enjoyed up to now are beginning to fade, under the
burden of rising import prices, and cost increases resulting from
apprenticeship levies, living wage and a variety of extra
regulations. Sadly also our important invisible export of student
education has fallen prey to the attack on migration numbers, so
much so that Britain now lags Australia as a location for further
education, despite possessing more than twice the number of its
universities. It seems perverse to stymy one of the glories of
Britain imperilling long-established relations with the
Commonwealth and other countries, whose brightest and best may
well, in the future, pursue careers in other more welcoming
countries. Meanwhile, Eton continues to draw its intake from around
the World, at the expense of native-born sons.
We are therefore somewhat sanguine on the outlook for UK centred
companies, although our overseas investments should benefit from
any further weakness of the pound.
The Board are currently evaluating a number of proposals for the
future of your company and hope to be able to advise shareholders
accordingly in due course.
Proverbs XV v 22: Without counsel, purposes are disappointed,
but in the multitude of counsellors they are established.
Our appreciation is due in spades to the dedication and effort
displayed by the unflappable Una, ever-positive Abbie and
consistency of Nancy and Nick in making the management of the
company run so smoothly. We are indeed grateful for their support
and achievements.
Robin Woodbine Parish
26 September 2017.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 30 June
30 June 30 June
2017 2016
GBP GBP
Revenue 1,483,710 1,536,987
Net gains / (losses) on investments 7,946,532 467,584
------------ ------------
Total investment income /(loss) 9,430,242 2,004,571
Expenses (1,263,440) (1,436,220)
------------ ------------
Profit / (loss) before finance
costs and taxation 8,166,802 568,351
Finance costs (740,115) (1,183,987)
------------ ------------
Loss before taxation 7,426,687 (615,636)
Taxation (634,608) 886,813
Profit / (loss) for the financial
year and total comprehensive
income 6,792,079 271,177
------------ ------------
Earnings / (losses) per share (basic) 10.8p 0.4p
------------ ------------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 30 June
30 June
2017 30 June 2016
GBP GBP
Opening capital and reserves
attributable to equity holders 50,598,883 51,827,562
Total comprehensive income
and profit / (loss) for the
financial year 6,792,079 271,177
Decrease of share capital
on cancellation of shares (2,826) (9,413)
Increase of capital redemption
reserves on cancellation of
shares 2,826 9,413
Decrease of retained earnings
on cancellation of shares (194,306) (151,342)
Dividends paid (net) (1,515,926) (1,348,514)
Closing capital and reserves
attributable to equity holders 55,680,730 50,598,883
------------ -------------
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
at 30 June
30 June 30 June
2016 2016
GBP GBP
Non-current assets
Property, plant and equipment 611,247 609,216
Investment in artwork 500,000 500,000
Intangible asset 18,400 91,666
1,129,647 1,200,882
----------- -----------
Current assets
Trade and other receivables 818,216 364,710
Investments held at fair value
through profit or loss 63,599,004 66,612,318
Cash and cash equivalents 913,260 693,943
----------- -----------
Total current assets 65,330,480 67,670,971
Current liabilities
Trade and other payables 567,320 496,886
Financial liabilities at fair
value through profit or loss 3,094,600 4,242,531
Current tax liability 716,280 148,603
Total current liabilities 4,378,200 4,888,020
----------- -----------
Net current assets 60,952,280 62,782,951
----------- -----------
Non-current liabilities
Borrowings 4,600,000 11,000,000
Deferred tax liabilities 1,801,197 2,384,950
----------- -----------
Total non-current liabilities 6,401,197 13,384,950
----------- -----------
Net assets 55,680,730 50,598,883
----------- -----------
Capital and reserves attributable
to equity holders
Share capital 434,906 437,732
Reserves
Share premium 6,017 6,017
Capital redemption reserve 359,641 356,815
Merger reserve 3,564 3,564
Retained earnings 54,876,602 49,794,755
----------- -----------
Total equity 55,680,730 50,598,883
----------- -----------
Net asset value per share 88.1 p 79.7 p
------- -------
The Board of Directors approved and authorised the Group's
financial statements for issue on 26 September 2017.
Signed on behalf of the Board by: CRW Parish (Director) and RAR
Evans (Director).
The Annual Report is available at www.eloro.com
CONSOLIDATED STATEMENT OF CASH FLOW
For the year ended 30 June
30 June 30 June
2017 2016
GBP GBP
Operating activities
Net loss before tax 7,426,687 (615,636)
Adjustments for:
Depreciation 14,715 1,531
Net unrealised gains on fair
value investments through
the profit or loss (8,000,879) (500,804)
Finance costs 740,115 1,183,987
------------ -------------
Cash flow from operations
before changes in working
capital 180,638 69,078
Decrease in financial assets
at fair value through the
profit or loss 10,317,093 5,894,415
(Increase)/decrease in trade
and other receivables (451,973) 1,549,736
(Decrease)/increase in trade
and other payables (347,255) 335,467
------------ -------------
Cash flow from operations 9,698,503 7,848,696
Income taxes paid (650,684) (396,978)
------------ -------------
Cash flow from operating
activities 9,047,819 7,451,718
Investing activities
Purchase of property, plant (16,746) -
and equipment
Cash flow used in investing (16,746) -
activities
------------ -------------
Financing activities
Interest paid (699,991) (1,180,967)
Net dividends paid to Shareholders (1,517,459) (1,348,514)
Repayment of borrowing (6,400,000) (9,000,000)
Repayment of interest rate
swap - (1,170,000)
Purchase of own shares subsequently
cancelled (194,306) (151,342)
Loan note fee paid - (150,000)
Cash flow used in financing
activities (8,811,756) (13,000,823)
------------ -------------
Net increase in cash and cash equivalents 219,317 (5,549,105)
Cash and cash equivalents at 1 July 693,943 6,243,048
Cash and cash equivalents at 30 June 913,260 693,943
------------ -------------
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END
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September 26, 2017 12:30 ET (16:30 GMT)
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