TIDMGRIT
RNS Number : 9103Y
Global Resources Investment Tst PLC
05 December 2014
To: RNS and the Channel Islands Securities Exchange Authority Limited
From: Global Resources Investment Trust plc
Date: 5 December 2014
Audited results for the year ended 31 August 2014
-- Net asset value total return of -28.5 per cent since launch.
-- Ordinary share price total return of -66.0 per cent since launch.
The Chairman, Lord St John stated,
Introduction
I am pleased to be writing to you for the first time since your
Company's successful launch in March this year, when GBP39.6m was
raised. Unfortunately, results have not been as good as the Board
would have wished during a very challenging first trading
period.
Investment and Share Price Performance
At 31 August 2014 your Company's net asset value was 67.2 pence,
down 28.5% since launch. The net asset value has since fallen
further to 51.1 pence, which has resulted in a total fall of
45.6%.
The Company's ordinary share price has performed considerably
worse, declining 66.0% to 34 pence at 31 August and to 26.75 pence
since, a total fall of 73.25%. The discount at which the Company's
shares trade was 49.4% at 31 August and is currently 47.7%.
A degree of weakness in your Company's share price was expected.
The Company's initial portfolio was acquired in exchange for shares
in the Company at the time of the launch, and a key driver for many
of the investee companies participating was to obtain an
alternative source of funding by realising their holding in our
shares.
What was not forecast was the degree to which the squeeze on
already badly depressed commodity markets would intensify. The
Company does not have a benchmark, but the AIM Basic Resources
Index has declined 32.7% since launch. The Investment Manager deals
with this matter at greater length in its Review.
Income and Dividends
The Company made a loss of 0.47 pence per share for the period
since launch and, as anticipated in the prospectus, no dividend is
proposed. A further loss is expected to accrue next year.
Gearing and 9% Cumulative Unsecured Loan Stock 2017 ('CULS')
The Company issued GBP4,850,000 nominal of CULS on launch to
provide working capital. The CULS were originally unlisted. A
listing on the Channel Islands Securities Exchange Authority
Limited was obtained on 30 October 2014. As anticipated at the time
of the launch, a further GBP150,000 nominal of CULS was issued on
28 November 2014.
The CULS provide a degree of structural gearing. The Company was
14.3% geared at 31 August 2014. Gearing has increased to 17.6%
since the period end.
Alternative Investment Fund Managers' Directive
The Company's application to be a Small Registered UK AIFM has
been approved by the FCA. The Company was entered in the register
of small registered UK AIFMs on 16 July 2014, under the Alternative
Investment Fund Managers Regulations 2013.
Board Changes
James Williams served as a Director of the Company from 31
January 2014 until he stepped down on 21 October 2014. I would like
to thanks James for his contribution both at the time of the launch
and during your Company's formative months. He is replaced by
Nicholas Paris, who has had considerable closed-ended funds
experience. Your Board looks forward to working closely with
him.
Outlook
After a two year period which saw commodity prices in freefall,
the middle of 2014 was forecast to offer hope and a promise of
stability. The reality was a renewed slump as commodity prices
continued to decline and with limited investment appetite for
exploration stocks. Gold, in particular, failed to recover, with
bullion having fallen 30 per cent from its highs and mining stocks
having declined further. 41% of your Company's portfolio is
represented by gold.
While the investment outlook remains uncertain, the same sector
provided the best example of why the Company's strategy remains
valid; Merrex Gold, of which the Company owned almost 20%, more
than quadrupled in value in a matter of weeks. We were able to take
some profit into strength and, although the stock has subsequently
given back a good part of that gain, the balance of our position
still represents 5% of the investment portfolio at a price double
that paid for it and remains hugely promising.
It is exactly this sort of opportunity that underpinned the
Company's raison d'être and, as the flags of surrender are raised
and the signs of market capitulation accumulate, we are more than
ever convinced by the merits of its investment case, a case
reinforced by the large discount at which the Company's shares
trade. While the sector continues to languish, the protection
provided by geographic and commodity diversity is vital, and the
Company continues to provide unique diversified access into the
least accessible parts of the junior natural resources sector.
Lord St John
Chairman
4 December 2014
Investment Manager's Review
Global Resources Investment Trust plc ('GRIT') was formally
listed on the Premium Main Market of the London Stock Exchange on 7
March 2014 with an asset base of GBP39.6 million comprising of
forty-one investments. For most of the prior two years the resource
sector had experienced a steady decline leading us to believe that
the sector was close to a bottom. However, during the period under
review most resource stocks continued to decline, with the result
that the Net Asset Value ('NAV') per share fell from 94p to 67.2p,
a fall of 28.5%, while the share price declined on little volume to
34p, a discount of 49.4% to the NAV. The Company does not have a
directly comparable benchmark but the closest is the AIM Basic
Resource Index, which declined 25% during this period. Being
limited to AIM quoted companies it does not encapsulate as wide a
range of companies as that to which GRIT is exposed, but is an
illustrative yardstick nevertheless. The NAV is calculated and
announced on a daily basis using 'bid' prices.
It has been without doubt one of the most difficult periods in
resource equity markets for several decades. In the wake of the
financial crisis and a slowdown in the major economies, commodity
prices fell sharply, putting operating and financial pressure on
virtually all producers. Even worse affected have been the
pre-production, development companies, which largely comprise the
Company's portfolio. These small cap companies, which are in the
process of developing resource
projects, are continually in need of capital, and have suffered
due to a lack of equity capital in an unreceptive environment. This
has caused undue and, in many cases, unjustified, falls in share
prices.
In the bulk commodity markets iron ore and coal have been the
major casualties. The majors have expanded iron ore production
aggressively, which has driven down prices to the extent that
higher cost producers and projects under development are at severe
risk of failure and the Investment
Manager took a conscious decision not to invest in the sector.
Although the coal price has suffered due to slack demand, it is a
much more fragmented market and projects are more dependent on
local infrastructure, location and proximity to end users such as
power stations. Both the Company's holdings, Arakan and Waterberg
Coal, are strategically located in this respect, and have Memoranda
of Understandings to supply thermal coal for domestic power
consumption.
Perhaps the surprise in the commodity markets over the past year
has been the extent of the weakness in precious metal prices,
namely gold and silver. In an environment of benign inflation,
strong equity markets and a firm US Dollar, Exchange Traded Funds
experienced large outflows and investment demand suffered
accordingly. The decline from a high of over $1900 in 2011 to below
$1200 has taken its toll on gold companies putting operating
margins under severe pressure. However, Asian demand remains strong
with a resurgence in India, overtaking China as the largest country
consumer.
Russia has noticeably increased its reserves to a record level
in an effort to counter the weakness in the Rouble.
The low valuations of smaller gold producers and developers has
attracted the attention of predators and resulted in an increase in
M&A activity, as mid and larger companies move to acquire low
cost ounces in the ground. This activity has been a feature in West
Africa and parts of Latin America. With high capital costs for mine
development further consolidation in the industry can be expected.
We have commented in our monthly reports on our better performers
such as Merrex and IncaOne and further details are reported in the
separate comments on the top ten holdings.
The outlook for the global economy remains muted but all is not
doom and gloom. The one bright spot is the US but there is evidence
of a slowdown there as well. Although Chinese growth has slowed,
the overall outlook for greater Asia remains positive as a growing
middle class population steadily increases its living standards.
India has overtaken China by population and a more pro-business
government bodes well for the future. Emerging market economies
remain patchy, but again consumption is rising as consumers' living
standards improve. Over the past year oil prices have fallen almost
thirty per cent, reducing inflationary pressures but, more
importantly, providing a much needed boost to consumer disposable
income.
In the absence of an improvement in commodity prices the
environment for resource companies will remain challenging. Many of
the companies in the portfolio have quality projects which have the
potential to be developed into successful operating companies in a
better economic climate. We will
continue to co-operate with management in offering financial,
technical and corporate assistance where possible.
David Hutchins and Kjeld Thygesen
RDP Fund Management LLP
4 December 2014
Enquiries:
RDP Fund Management LLP
David Hutchins
Tel +44 (0) 207 290 8541
Beaumont Cornish Limited
Roland Cornish
Tel: +44 (0) 207 628 3396
Felicity Geidt
Tel: +44 (0) 207 628 3396
R&H Fund Services Limited
Martin Cassels
Tel: +44 (0) 131 524 6140
Audited Income Statement
Year ended 31 August 2014
Revenue Capital Total
Notes GBP'000 GBP'000 GBP'000
-------------------------------------- ------ -------- --------- ---------
Losses on investments - (10,117) (10,117)
Income 590 - 590
Investment management fee (204) - (204)
Other expenses (357) - (357)
-------------------------------------- ------ -------- --------- ---------
Net return before finance costs
and taxation 29 (10,117) (10,088)
Interest payable and similar charges (213) - (213)
-------------------------------------- ------ -------- --------- ---------
Net return on ordinary activities
before taxation (184) (10,117) (10,301)
Tax on ordinary activities - - -
-------------------------------------- ------ -------- --------- ---------
Net return attributable to equity
shareholders (184) (10,117) (10,301)
-------------------------------------- ------ -------- --------- ---------
Loss per ordinary share 2 (0.47)p (25.86)p (26.33)p
-------------------------------------- ------ -------- --------- ---------
Comparative figures for the year to 31 August 2013 are not
included as the Company did not trade and received no income and
incurred no expenditure and therefore did not make a profit or
loss.
The 'total' column of this statement represents the Company's
profit and loss account, prepared in accordance with IFRS.
All revenue and capital items in this statement derive from
continuing operations. All of the loss for the year is attributable
to the owners of the Company.
No operations were acquired or discontinued in the year.
A Statement of Total Recognised Gains and Losses is not required
as all gains and losses of the Company have been reflected in the
above Income Statement.
Reconciliation of Movements in Shareholders' Funds
Year ended Period ended
31 August 31 August
2014 2013
Audited Audited
GBP'000 GBP'000
-------------------------------------------------- ----------- -------------
Opening equity shareholders' funds 50 -
Losses on investments (10,117) -
Net return attributable to ordinary shareholders (184) -
Issue of ordinary shares 39,520 50
Expenses of issue (2,670) -
-------------------------------------------------- ----------- -------------
Closing equity shareholders' funds 26,599 50
-------------------------------------------------- ----------- -------------
Audited Balance Sheet
As at As at
31 August 2014 31 August
2013
Notes GBP'000 GBP'000
Fixed assets
Investments 30,410 -
Investments in subsidiary - 50
-------------------------------- ------ ---------------- -----------
Current assets
Debtors 845 50
Cash at bank and on deposit 450 -
-------------------------------- ------ ---------------- -----------
1,295 100
Creditors: amounts falling due
within one year (256) (50)
Net current assets 1,039 50
-------------------------------- ------ ---------------- -----------
9% Convertible Unsecured Loan
Stock 2017 4 (4,850) -
-------------------------------- ------ ---------------- -----------
Net assets 26,599 50
-------------------------------- ------ ---------------- -----------
Stated capital and reserves
Stated capital 396 1
Share premium 5 36,504 49
Capital reserve 5 (10,117) -
Revenue reserve 5 (184) -
-------------------------------- ------ ---------------- -----------
Equity shareholders' funds 26,599 50
-------------------------------- ------ ---------------- -----------
Net asset value per share 67.22p 100.00p
-------------------------------- ------ ---------------- -----------
Audited Cash Flow Statement
Year ended
31 August 2014
GBP'000
Operating activities
Loss before finance costs and taxation (10,088)
Loss on investments 10,117
Increase in other receivables (791)
Increase in other payables 157
-------------------------------------------- ----------------
Net cash outflow from operating activities
before interest and taxation (605)
-------------------------------------------- ----------------
Interest paid (114)
Net cash outflow from operating activities (719)
-------------------------------------------- ----------------
Investing activities
Purchases of investments (40,651)
Sales of investments 70
-------------------------------------------- ----------------
Net cash outflow from investing activities (40,581)
-------------------------------------------- ----------------
Financing
Issue of ordinary shares 39,570
Expenses of issue (2,670)
Issue of CULS 4,850
-------------------------------------------- ----------------
Net cash inflow from financing 41,750
-------------------------------------------- ----------------
Increase in cash and cash equivalents 450
-------------------------------------------- ----------------
Net cash at the start of the year -
-------------------------------------------- ----------------
Net cash at the end of the year 450
-------------------------------------------- ----------------
No comparatives are shown for the prior year as the Company was
dormant throughout that period.
Principal Risks and Uncertainties and Risk Mitigation
Risks are inherent in the investment process, but it is
important that their nature and magnitude are understood so that
risks, particularly those which the Company does not wish to take,
can be identified and either avoided or controlled. The Board has
established a detailed framework of the key risks that the business
is exposed to, with associated policies and processes devised to
mitigate or manage those risks. The principal risks faced by the
Company are set out below.
Investment and Strategy Risk - The Board is responsible for
deciding the investment strategy to fulfil the Company's objectives
and monitoring the performance of the Investment Manager.
Inappropriate strategy, including country and sector allocation,
stock selection and the use of gearing, could lead to poor returns
for shareholders. To manage this risk the Board requires the
Investment Manager to provide an explanation of significant stock
selection decisions and the rationale for the composition of the
investment portfolio at each Board meeting, when gearing levels are
also reviewed. The Board monitors the spread of investments to
ensure that it is adequate to minimise the risk associated with
particular countries or factors specific to particular sectors. The
Investment Manager also provides the Board and shareholders with
monthly factsheets which include an investment commentary.
Market Risk - The Company's assets consist principally of listed
equities and its greatest risks are in consequence market-related.
In addition to ordinary movements in the prices of the Company's
investments and the loss that the Company might suffer through
holding investments in the face of negative market movements, the
Company's investment strategy necessarily amplifies this risk (see
Sector Risk below). The Board seeks to mitigate this risk through
the processes described in the paragraph above, monitoring the
implementation and results of the investment process with the
Investment Manager.
Sector Risk - The largest part of the Company's assets consist
of equity-related investments in natural resources and mining
companies, usually mid and small-cap companies, with a wide range
of commodity exposures. The prices of the underlying commodities
are often volatile and the companies can be located in countries at
risk of political instability and vulnerable to natural disasters.
The liquidity in the shares of the companies is often restricted,
meaning that it can be difficult to buy or sell volumes of shares
at the quoted price. The Board seeks to mitigate this risk through
the processes described in the paragraph above on Investment and
Strategy Risk. In addition, the closed-ended structure of the
Company is an essential part of the Board's management of this
risk, ensuring that parts of the portfolio do not have to be sold
to raise liquidity to fund redemptions at short notice.
Financial Risk - The Company's investment activities expose it
to a variety of financial risks that include market price risk,
foreign currency risk, interest rate risk and liquidity and credit
risk. Further details of these risks and the ways in which they are
managed are disclosed in note 9.
Earnings Risk - Fluctuations in earnings resulting from changes
to the underlying portfolio, currency movements, or changes in the
tax treatment of the dividends or interest received by the Company
could reduce the level of income earned by the Company. The Board
monitors and manages this risk by considering detailed income and
cash flow forecasts prepared by the Company Secretary at each Board
meeting.
Operational Risk - The Company relies upon the services provided
by third parties and is reliant on the control systems of the
Investment Manager and the Company's other service providers. The
security and/or maintenance of, inter alia, the Company's assets,
dealing and settlement procedures, and accounting records depend on
the effective operation of these systems. These are regularly
tested and monitored and are reported on at each Board meeting. An
internal control report, which includes an assessment of risks,
together with the procedures to mitigate such risks, is prepared by
the Investment Manager and the Company Secretary and reviewed by
the Audit Committee once a year. The Custodian, BNP Paribas
Securities Services, produces an internal control report each year
which is reviewed by its auditors and gives assurance regarding the
effective operation of controls. This is reviewed by the Audit
Committee.
Regulatory Risk - A breach of regulatory rules could lead to the
suspension of the Company's stock exchange listing or financial
penalties. Breach of Sections 1158 to 1159 of the Corporation Tax
Act 2010 could lead to the Company being subject to tax on
chargeable gains. The Company Secretary monitors the Company's
compliance with the Listing Rules of the UK Listing Authority and
the relevant regulations regarding maintenance of Investment Trust
status. Compliance with the principal rules is reviewed by the
Directors at each Board meeting.
Notes
1. Accounting Policies
(a) Basis of accounting
These financial statements have been prepared in accordance with
International Financial Reporting Standards ('IFRS') as adopted by
the International Accounting Standards Board ('IASB') and in
accordance with the guidance set out in the Statement of
Recommended Practice ('SORP') for investment trust companies and
venture capital trusts issued by the Association of Investment
Companies ('AIC') in January 2009.
The functional and reporting currency of the Company is pounds
sterling because that is the primary economic environment in which
the Company operates. The notes and financial statements are
presented in pounds sterling and are rounded to the nearest
thousand except where otherwise indicated.
The financial statements has been prepared on the historical
cost basis, except that investments are stated at fair value and
categorised as financial assets at fair value through profit or
loss.
The following new standard has been adopted in the current
year:
-- In May 2011, the IASB issued IFRS 13 'Fair Value
Measurement'. IFRS 13 establishes a single source of guidance under
IFRS for all fair value measurements, IFRS 13 does not change when
an entity is required to use fair value, but rather provides
guidance on how to measure fair value under IFRS when fair value is
required or permitted. In particular, it unifies the definition of
fair value as the price at which an ordinary transaction to sell an
asset or to transfer a liability would take place between investor
participants at the measurement date. It also replaces and expands
the disclosure requirements about fair value measurements in other
IFRSs, including IFRS 7 'Financial Instruments: Disclosures'. This
standard became effective for accounting periods beginning on or
after 1 January 2013 and requires specific disclosures on fair
value but has not materially affected the fair value measurements
made by the Company.
The following new standards have been issued but are not
effective for this accounting period and have not been adopted
early:
-- In October 2010, the IASB issued IFRS 9 'Financial
Instruments' which, following an amendment in December 2011,
becomes effective for accounting periods commencing on or after 1
January 2018. This represents part of a project to replace IAS 39
'Financial Instruments: Recognition and Measurement'. The objective
of the standard is to enhance the ability of investors and other
users of financial information to understand the accounting of
financial assets and to reduce complexity.
-- In May 2011, the IASB issued IFRS 10 'Consolidated Financial
Statements'. IFRS 10 establishes a single control model that
applies to all entities including special purpose entities. The
changes introduced by IFRS 10 will require management to exercise
significant judgement to determine which entities are controlled
and therefore are required to be consolidated by a parent, compared
with the requirements that were in IAS 27. This standard becomes
effective in the EU for accounting periods beginning on or after 1
January 2014.
-- In May 2011, the IASB issued IFRS 12 'Disclosure of
Involvement with Other Entities'. IFRS 12 includes all the
disclosures which were previously required by IAS 27 related to
consolidated financial statements, as well as all of the
disclosures that were previously included in IAS 31 and IAS 28.
These disclosures relate to an entity's interests in subsidiaries,
joint arrangements, associates and structured entities. A number of
new disclosures are also required. This standard becomes effective
in the EU for accounting periods beginning on or after 1 January
2014.
-- As a consequence of the new IFRS 10 and IFRS 12 above, what
remains of IAS 27 'Separate Financial Statements (2011)' is limited
to accounting for subsidiaries, jointly controlled entities and
associates in separate financial statements. The amendment becomes
effective in the EU for accounting periods beginning on or after 1
January 2014.
-- On 31 October 2012, the IASB issued amendments to IFRS 10
'Consolidated Financial Statements', IFRS 12, 'Disclosure of
Interests in Other Entities' and IAS 27, 'Separate Financial
Statements'. These amendments are expected to exempt the Company
from consolidating controlled investments and allow the Company to
fair value controlled investments, rather than having to
consolidate them. The amendments to IFRS 12 introduce additional
disclosures. The amendments become effective in the EU for
accounting periods beginning on or after 1 January 2014; earlier
application is permitted.
The Company does not consider that the future adoption of any
new standards, in the form currently available, will have any
material impact on the financial statements as presented except for
changes to disclosures.
Critical accounting estimates and judgements
The preparation of the financial statements necessarily requires
the exercise of judgement both in application of accounting
policies which are set out below and in the selection of
assumptions used in the calculation of estimates. These estimates
and judgements are reviewed on an ongoing basis and are continually
evaluated based on historical experience and other factors.
However, actual results may differ from these estimates. The most
significant judgements are the valuation of unlisted investments
which is described in note 1(b) below and the adoption of the going
concern basis of preparation.
A summary of the principal accounting policies which have been
applied to all periods presented in these financial statements is
set out below.
(b) Fixed asset investments
Purchases or sales of investments are recognised/derecognised on
the date the Company commits to purchase/sell the investments.
Investments are classified at fair value through profit and loss
on initial recognition with any resultant gain or loss recognised
in the Income Statement. Listed securities are valued at bid price
or last traded price, depending on the convention of the exchange
on which the investment is listed, adjusted for accrued income
where it is reflected in the market price. Investments which are
not listed or where trading in the securities of an investee
company is suspended are valued at the Board's best estimate of
fair value. Unlisted investments are valued by the Directors on the
basis of all the information available to them at the time of
valuation. This includes a review of: the financial and trading
information of the Company, covenant compliance and ability to
repay the interest and cash balances. For convertible bonds this
includes consideration of the discounted cash flows of the interest
and principal and underlying equity value, based on the information
provided by the Investment Manager. Where no reliable fair value
can be estimated, investments may be carried at cost less any
provision for impairment.
Realised gains or losses on the disposal of investments and
permanent impairments in the value of investments are taken to the
capital reserve. Gains and losses arising from changes in the fair
value of investments are included in the Income Statement as a
capital item.
(c) Income
Dividends receivable on equity shares are recognised as income
on the date that the related investments are marked ex-dividend.
Dividends receivable on equity shares where no ex-dividend date is
quoted are recognised as income when the Company's right to receive
payment is established.
Fixed returns on non-equity shares are recognised on a time
apportioned basis so as, if material, to reflect the effective
interest rate on those instruments. Other returns on non-equity
shares are recognised when the right to the return is established.
The fixed return on a debt security is recognised on a time
apportioned basis so as to reflect the effective interest rate on
each such security.
Income from deposit interest and underwriting commission is
recognised on an accruals basis.
Where the Company has elected to receive its dividends in the
form of additional shares rather than cash, an amount equal to the
cash dividend is recognised as income. Any excess in the value of
the shares received over the amount of the cash dividend is
recognised in the capital reserves.
(d) Taxation
The charge for taxation is based on net revenue for the year.
The tax effect of different items of income/gain and
expenditure/loss is allocated between capital and revenue on the
same basis as the particular item to which it relates. Deferred tax
is provided, using the liability method, on all temporary
differences at the balance sheet date between the tax bases of
assets and liabilities and their carrying amounts for financial
reporting purposes. Deferred tax liabilities are measured at the
tax rates that are
expected to apply to the period when the liability is settled,
based on tax rates (and tax laws) that have been enacted or
substantively enacted at the balance sheet date. Deferred tax
assets are only recognised if it is considered more likely than not
that there will be suitable profits from which the future reversal
of underlying timing differences can be deducted.
Because the Company intends each year to qualify as an
investment trust under Chapter 4 of Part 24 of the Corporation Tax
Act 2010 (previously S842 of the Income and Corporation Taxes Act
1988), no provision is made for deferred taxation in respect of the
capital gains that have been realised, or are expected in the
future to be realised, on the sale of fixed asset investments.
(e) Expenses
All expenses are accounted for on an accruals basis. Expenses
are charged through the Income Statement as a revenue item except
as follows:
- expenses which are incidental to the acquisition of an
investment are included within the cost of the investment;
- expenses which are incidental to the disposal of an investment
are deducted from the disposal proceeds of the investment;
- expenses connected with the maintenance or enhancement of the
value of the investments.
(f) Foreign currency
Transactions denominated in foreign currencies are recorded in
the local currency at actual exchange rates at the date of the
transaction.
Overseas assets and liabilities denominated in foreign
currencies at the year-end are reported at the rates of exchange
prevailing at the year-end. Any gain or loss arising from a change
in exchange rates subsequent to the date of a transaction is
included as an exchange gain or loss in capital reserves. The
financial currency of the Company, being its statutory reporting
currency, is sterling.
(g) Finance costs
Finance costs are accounted for on an accruals basis. Finance
costs of debt, insofar as they relate to the financing of the
Company's investments or to financing activities aimed at
maintaining or enhancing the value of the Company's investments,
are allocated between revenue and capital in accordance with the
Board's expected long-term split of returns, in the form of income
and capital gains respectively, from the Company's investment
portfolio.
(h) 9% Convertible Unsecured Loan Stock 2017 ('CULS')
The CULS were unquoted and at the year-end are valued at fair
value by the Directors based upon all information available to them
at the time of valuation. This includes consideration of the
discounted cash flows of the interest and principal and underlying
equity value.
Direct expenses associated with the CULS issue are allocated to
the share premium account. The interest expense on the CULS is
recognised on an accruals basis.
(i) Reserves
(a) Share premium - the surplus of net proceeds received from
the issuance of new shares over their par value is credited to this
account and the related issue costs are deducted from this account.
This reserve is non-distributable.
(b) Capital reserve - the following are accounted for in this
reserve:
- gains and losses on the realisation of investments;
- realised and unrealised exchange differences on transactions
of a capital nature;
- capitalised expenses and finance costs, together with the
related taxation effect; and
- increases and decreases in the valuation of investments
held.
(c) Revenue reserve - the net profit/(loss) arising in the
revenue column of the Income Statement is added to or deducted from
this reserve. This reserve is available for paying dividends.
(j) Segmental information
The Directors are of the opinion that the Company is engaged in
a single segment of business, being investment business.
2. The revenue loss per ordinary share is based on a net loss
after taxation of GBP184,000 and on a weighted average of
39,122,895 ordinary shares in issue during the year.
The capital loss per ordinary share is based on a net capital
loss of GBP10,117,000 and on a weighted average of 39,112,895
ordinary shares in issue during the year.
3. The net asset value per ordinary share is based on net assets
of GBP26.6 million (2013: GBP50,000) and on 39,570,012 (2013:
50,000) ordinary shares, being the number of ordinary shares in
issue at the year end.
4. 9% Convertible Unsecured Loan Stock 2017
Nominal value of
CULS
GBP'000
--------------------------------- -----------------
Balance at the beginning of the -
year
Issue of CULS 4,850
--------------------------------- -----------------
Balance at the end of the year 4,850
--------------------------------- -----------------
5. Reserves
Share premium Capital Revenue
GBP'000 reserve reserve
GBP'000 GBP'000
-------------------------- ---------------- ---------- ----------
At 1 September 2013 49 - -
Losses on investment - (10,117) -
Retained net revenue for
the year - - (184)
Issue of ordinary shares 39,125 - -
Expenses of issue (2,670)
At 31 August 2014 36,504 (10,117) (184)
-------------------------- ---------------- ---------- ----------
6. The following are considered related parties: the Board of
Directors ('the Board') and RDP Fund Management LLP (the
'Investment Manager'). Mr N Paris is an employee of LIM Advisors
('LIM'). LIM Advisors are the largest holder of the Company's CULS
and are authorised to appoint a director to the Board to represent
their interest. Mr N Paris is the representative appointed on
behalf of LIM.
7. Post Balance Sheet Events
On 30 October 2014, the Company's CULS were admitted to listing
on the Channel Islands Securities Exchange Authority Limited.
On 28 November 2014, the Company issued a further GBP150,000 of
CULS and a further 150,000 warrants.
8. The financial information set out above does not constitute
the Company's statutory accounts for the year ended 31 August 2014.
The statutory accounts for 2014 are audited and the Auditors have
issued an unqualified opinion. The statutory accounts for 2014 will
be finalised on the basis of the financial information presented in
this announcement and will be delivered to the Registrar of
Companies following the Company's Annual General Meeting.
9. Financial Instruments
The Company's financial instruments comprise its investment
portfolio, cash balances, bank facilities and debtors and creditors
that arise directly from its operations. As an investment trust the
Company holds a portfolio of financial assets in pursuit of its
investment objective.
The Company can make use of flexible borrowings for short term
purposes to achieve improved performance in rising markets and to
seek to enhance the returns to shareholders, when considered
appropriate by the Investment Manager. The downside risk of
borrowings may be reduced by raising the level of cash balances
held.
Listed fixed asset investments held are valued at fair value.
For listed securities this is either bid price or the last traded
price depending on the convention of the exchange on which the
investment is listed. Unlisted investments are valued by the
Directors on the basis of all the information available to them at
the time of valuation. The fair value of all other financial assets
and liabilities is represented by their carrying value in the
Balance Sheet. The fair value of the 9% Convertible Unsecured Loan
Stock 2017 is not materially different from its carrying value in
the Balance Sheet.
The main risks that the Company faces arising from its financial
instruments are:
(i) market price risk, being the risk that the value of
investment holdings will fluctuate as a result of changes in market
prices caused by factors other than interest rate or currency rate
movements;
(ii) interest rate risk, being the risk that the future cash
flows of a financial instrument will fluctuate because of changes
in market interest rates;
(iii) foreign currency risk, being the risk that the value of
investment holdings, investment purchases, investment sales and
income will fluctuate because of movements in currency rates;
(iv) credit risk, being the risk that a counterparty to a
financial instrument will fail to discharge an obligation or
commitment that it has entered into with the Company; and
(v) liquidity risk, being the risk that the bank may demand
re-payment of any loan or that the Company may not be able to
liquidate quickly its investments.
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. To mitigate the risk the Board's
investment strategy is to select investments for their fundamental
value. Stock selection is therefore based on disciplined
accounting, market and sector analysis, with the emphasis on long
term investments. An appropriate spread of investments is held in
the portfolio in order to reduce both the statistical risk and the
risk arising from factors specific to a country or sector. The
Investment Manager actively monitors market prices throughout the
year and reports to the Board, which meets regularly in order to
consider investment strategy. Investment and portfolio performance
are discussed in more detail in the Investment Manager's
Review.
Interest rate risk
Financial assets
Bond and preference share yields, and their prices, are
determined by market perception as to the appropriate level of
yields given the economic background. Key determinants include
economic growth prospects, inflation, the Government's fiscal
position, short term interest rates and international market
comparisons. The Investment Manager takes all these factors into
account when making any investment decisions as well as considering
the financial standing of the potential investee company.
Returns from bonds and preference shares are fixed at the time
of purchase, as the fixed coupon payments are known, as are the
final redemption proceeds. Consequentially, if a bond is held until
its redemption date, the total return achieved is unaltered from
its purchase date. However, over the life of a bond the market
price at any given time will depend on the market environment at
that time. Therefore, a bond sold before its redemption date is
likely to have a different price to its purchase level and a profit
or loss may be incurred.
Interest rate risk on fixed rate interest instruments is
considered to be part of market price risk as disclosed above.
Floating rate
When the Company retains cash balances they are held in floating
rate deposit accounts. The benchmark rate which determines the
interest payments received on cash balances is the bank base rate
for the relevant currency for each deposit.
Fixed rate
The Company holds fixed interest investments and has fixed
interest liabilities.
Foreign currency risk
The Company invests in overseas securities and may hold foreign
currency cash balances which give rise to currency risks. The
Company does not hedge its currency exposure and as a result the
movement of exchange rates between pounds sterling and the other
currencies in which the Company's investments are denominated may
have a material effect, unfavourable or favourable, on the returns
otherwise experienced on the investments made by the Company.
Although the Investment Manager may seek to manage all or part of
the Company's foreign exchange exposure, there is no assurance that
this can be performed effectively.
The Investment Manager does not intend to hedge the Company's
foreign currency exposure at the present time.
Credit risk
Credit risk is the risk that a counterparty to a financial
instrument will fail to discharge an obligation or commitment that
it has entered into with the Company. The Investment Manager has in
place a monitoring procedure in respect of counterparty risk which
is reviewed on an ongoing basis. The carrying amounts of financial
assets best represents the maximum credit risk exposure at the
balance sheet date.
Credit risk on fixed interest investments is considered to be
part of market price risk.
Credit risk arising on transactions with brokers relates to
transactions awaiting settlement. Risk relating to unsettled
transactions is considered to be small due to the short settlement
period involved and the high credit quality of the brokers used.
The Board monitors the quality of service provided by the brokers
used to further mitigate this risk.
The cash held by the Company and all the assets of the Company
which are traded on a recognised exchange are held by BNP Paribas
Security Services ('BNP'), the Company's custodian. Bankruptcy or
insolvency of the custodian may cause the Company's rights with
respect to securities held by the custodian to be delayed or
limited. The Board monitors the Company's risk by reviewing the
custodian's internal control reports. Should the credit quality or
the financial position of BNP deteriorate significantly the
Investment Manager will move the cash holdings to another bank.
There were no significant concentrations of credit risk to
counterparties as at 31 August 2014. No individual investment
exceeded 21.7 per cent of net assets as at 31 August 2014.
Liquidity risk
The Company's financial instruments include investments in
unlisted investments which are not traded in an organised public
market and which generally may be illiquid. As a result, the
Company may not be able to liquidate these investments at an amount
close to their fair value.
The Company's liquidity risk is managed on an ongoing basis by
the Investment Manager in accordance with policies and procedures
in place as described in the Directors' Report. The Company's
overall liquidity risks are monitored on a quarterly basis by the
Board.
The Company maintains sufficient cash, has a short term bank
facility and readily realisable securities to pay accounts payable
and accrued expenses. The Company also maintains sufficient cash
and readily realisable securities to meet any demand repayments on
its overdraft facility.
Statement of Directors' Responsibilities in Respect of the
Annual Financial Report
The Directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law and
regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law they have
elected to prepare the financial statements in accordance with
applicable law and International Financial Reporting Standards
("IFRS") as adopted by the EU.
Under company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Company and of the profit or
loss of the Company for that period. In preparing these financial
statements, the Directors are required to:
-- select suitable accounting policies and then apply them
consistently;
-- make judgments and estimates that are reasonable and
prudent;
-- state whether applicable IFRS have been followed, subject to
any material departures disclosed and explained in the financial
statements; 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 are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the financial statements comply with the Companies Act 2006. They
have general responsibility for taking such steps as are reasonably
open to them to safeguard the assets of the Company and to prevent
and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a Directors' Report, Directors'
Remuneration Report and Statement of Corporate Governance that
comply with that law and those regulations. The financial
statements are published on www.grit.london which is a website
maintained by the Company's Investment Manager. The Directors are
responsible for the maintenance and integrity of the corporate and
financial information included on the Company's website.
Legislation in the UK governing the preparation and dissemination
of financial statements may differ from legislation in other
jurisdictions.
The Directors confirm that to the best of our knowledge:
-- the financial statements, prepared in accordance with IFRS,
give a true and fair view of the assets, liabilities, financial
position and profit or loss of the Company;
-- that in the opinion of the Directors, the Annual Report and
Accounts taken as whole, is fair, balanced and understandable and
it provides the information necessary to asses the Company's
performance, business model and strategy; and
-- the Strategic Report includes 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 that the Company faces.
On behalf of the Board
Lord St. John
Chairman
4 December 2014
This information is provided by RNS
The company news service from the London Stock Exchange
END
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