TIDMGRIT
RNS Number : 8382W
Global Resources Investment Tst PLC
29 April 2016
To: RNS and the Channel Islands Securities Exchange Authority Limited
From: Global Resources Investment Trust plc
Date: 29 April 2016
Audited results for the period ended 31 December 2015
Introduction
This is the second full Chairman's Statement that I have
written, and it gives me no pleasure to report on what was a
dreadful period for global commodity markets. The junior resource
sector again proved to be especially vulnerable and illiquid. 2016
has, however, started more brightly with indications that the worst
may, finally, be behind us.
On 31 July 2015, your Company announced that it had extended its
accounting period from 31 August to 31 December. The rationale
behind this move was to better align the Company's accounting
period with those of the majority of its investee companies and
also the payment periods attaching to its Convertible Unsecured
Loan Stock "CULS". Your Company is therefore presenting this Annual
Report covering the period from 1 September 2014 to 31 December
2015.
Investment and Share Price Performance
At 31 December 2015 your Company's NAV was 20.3 pence, down
60.8% since 31 August 2014. The NAV at 27 April 2016 was 25.7p, an
increase of 27%.
The Company's ordinary share price continued to decline faster
than the NAV, falling 81.3% to 6.4p during the sixteen month period
to 31 December 2015. The share price has stabilised since the year
end and is currently 6.1p, representing a discount to the
prevailing NAV per share of 76%.
I said when I wrote to you in October 2015 that "there is no
denying the funding problems that even robust projects have found
themselves suffering". This funding crisis came to a head in the
last quarter of 2015 and the Company has written down a number of
unquoted investments which contributed significantly to the fall in
NAV. You will find more on this in the Investment Manager's
Review.
Sentiment has improved significantly since the year end, with
precious metal producers a particular beneficiary. Concrete
evidence of this can be seen in the Company's sale of NuLegacy Gold
in April for GBP2.2m; this compared with a carrying value of
GBP0.9m at 31 December 2015.
9% Cumulative Unsecured Loan Stock 2017 ('CULS') and Going
Concern
The Company issued GBP5 million nominal of CULS in 2014 to
provide working capital. The CULS provide a degree of structural
gearing and the Company was 41.0% geared at 31 December 2015.
Under the terms of the CULS your Company gave an undertaking
that the cover ratio (being the ratio of the value of its
investment portfolio to the principal amount of the outstanding
CULS) must be at all times no less than 4:1. The steep decline in
NAV meant that this ceased to be the case and on 14 March 2016 LIM
Asia Multi-Strategy Fund ("LIM"), the largest CULS holder (owning
GBP3.5m of the GBP4.7m CULS still in issue) formally requested
repayment of its CULS.
The Company does not have sufficient cash or liquid assets to
repay the amount owed immediately. LIM and the other two CULS
holders have all indicated in writing a current intention to
support the Company through the realisation of assets over a longer
period with the purpose of enabling the Company to repay the CULS.
The ability of the Company to continue as a going concern is
therefore dependent on the continued support of the CULS holders in
not seeking immediate repayment which would result in a liquidation
event.
As reported above, the Company sold its whole position in
NuLegacy Gold in April, realising GBP2.2m, and the Manager has said
that it expects to be able to realise sufficient proceeds from the
sale of a small number of quoted positions over a period of 3-4
months to allow the CULS to be repaid.
Outlook and Future Plans
When I wrote to you in April 2015 I said that we were
"considering several options both to support our portfolio of
companies and to pro-actively rationalise and consolidate the
portfolio in anticipation of a return to a growth cycle." The speed
and depth of the summer retreat caused us to accelerate this
process and proposals were announced on 26 January based around a
proposed Subscription and Open Offer. The Board subsequently
decided that it was not in the best interest of shareholders to
proceed with these. I will be writing to you within the next six
weeks giving notice of the Company's Second Annual General Meeting
and will provide a further update at that time.
Lord St John
Chairman
29 April 2016
Investment Manager's Review
The past two years have been the most difficult for the resource
markets since the latter stages of the 2000/01 commodity bear
market. While commodity prices for the most part are higher in
nominal terms than then, resource equities, especially the junior
stocks, have experienced considerably greater falls in most cases.
This is reflected in the 69.8% decline in the NAV over the period
to 31st December 2015. Some further write-downs of the unquoted
were made in the final quarter of 2015.
The dominant influence on the metal markets and resource
equities during 2015 was undoubtedly the negative impact of the
economic slowdown in China. The slump in the Shanghai Index in June
wiped $2trillion off the Chinese equity market which had a severely
depressing effect on bulk commodities, base metals and precious
metals. The oil market came under pressure as well, as perceptions
of a deal on Iran's nuclear programme, and lifting of sanctions,
heightened the possibility of increased oil production, further
depressing the price.
The slowdown in demand from China, with its manufacturing sector
experiencing its largest decline in six years, took its toll on the
metal markets. The Chinese devaluation had an unsettling effect on
all financial markets, including commodities and currencies.
Virtually all the gains from the so called commodity super cycle
have been eroded since the 2008 peak, with the Bloomberg Commodity
Index falling to a thirteen year low. In such volatile markets most
resource stocks came under severe pressure, although many were
already extremely depressed, trading at or close to all-time
lows.
Amongst this market turmoil gold was a lone beneficiary, again
demonstrating its safe haven status, rising from under $1100 to
$1160, before giving up some of the gain. There was little response
from the stocks however, with the XAU gold mines index at an
all-time low relative to the gold price. Taking advantage of the
depressed valuations there has been an increase in merger and
takeover activity in the small to midsize gold sector. During the
year there were over fifteen gold company deals, eight among
producers, and seven among developers. At current valuations it is
easier, and in some cases cheaper, to acquire resource ounces in
the market, rather than through exploration. The gold industry has
been quicker to respond to the decline in prices compared with the
diversified mining companies.
The fund has over forty per cent exposure to developing gold
companies all of which are making steady progress. Our largest
listed gold holding, Merrex, and its joint venture partner,
Iamgold, reported excellent results from the last phase of its 2015
drill programme, and a maiden resource statement recently disclosed
an indicated and inferred resource of 1.2m ounces. Further drilling
in the current year is likely to expand this highly promising
project. Inca One, which is processing high grade gold ore from the
artisanal miners in Peru, has embarked on an ambitious expansion
programme to treble production over the next 2-3 years. NuLegacy
Gold completed its fifth phase of drilling in the Cortez trend in
Nevada, to earn a 70% working interest in the project from Barrick
Gold. An initial estimate of the resource is put at over 100m
tonnes at an average grade of 1g/t. It recently completed the
acquisition of the remaining 30% for equity, with the result that
Barrick now owns 16% of the company and also holds a 2% net profits
royalty interest. Since the year end, the entire NuLegacy holding
has been sold on market.
The distressed state of the global mining industry is partially
one of its own making. Record metal prices and profitability in the
latter stages of the super cycle boom resulted in over exuberance,
with many acquisitions and expansion programmes being implemented
near the peak of the cycle. Excessive debt taken on to finance
acquisitions and expansions has resulted in oversupply and excess
capacity, severely impacting the markets and the mining companies.
Write-downs and impairments have exceeded $100bn to date. The
industry is currently going through a period of painful adjustment
to bring supply and demand back into balance, which will involve
production cutbacks and mine closures, along with aggressive cost
cutting. It is likely to be some time before base metals and bulk
commodities have a meaningful recovery.
Prior to the year end, a decision was taken to write down to nil
the Company's entire investment in Alhambra Resources Ltd, after
the Specialised Interdistrict Economic Court of the Akmola Oblast
in Kazakhstan ordered that Alhambra's wholly owned Kazakhstan
subsidiary Saga Creek Gold Company JV LLP be declared bankrupt.
(MORE TO FOLLOW) Dow Jones Newswires
April 29, 2016 07:00 ET (11:00 GMT)
Another company to fall victim of the particularly difficult
conditions in the natural resource sector and where the Company has
had to take another major write down is Arakan Resources. Arakan's
wholly owned subsidiary Posit Coal Pty Ltd had a joint venture to
operate the Kara Keche Coal Mine in the Kyrgyz Republic. The Kara
Keche contracts are now in dispute with the Kyrgyz Government and
Posit Coal has engaged legal counsel to seek arbitration
proceedings against the Government. As a result of the significant
uncertainly that this legal action has created about Arakan's major
asset, we have decided to write down to nil the Company's
investment in Arakan. However, if over time, the company should be
successful in its arbitration proceedings against the Kyrgyz
Government we will have the ability to revalue the investment to
reflect this success.
With an increasingly uncertain economic outlook and general
financial instability, investment interest has returned to the gold
market. Last year the price fell to a low of $1040, driven down by
substantial ETF fund sales. Since the beginning of the year this
trend has reversed with ETF's acquiring more gold than was sold
during 2015, helping push the price up to a recent high of $1280.
Negative interest rates in several countries have added to the
appeal of diversifying into gold. This has generated a sharp
recovery in gold stocks, particularly the producers.
In the meantime we continue to rationalise the portfolio,
focussing on a smaller number of core holdings that are likely to
generate positive returns when better economic conditions
return.
David Hutchins and Kjeld Thygesen
RDP Fund Management LLP
29 April 2016
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) 131 550 3760
Audited Income Statement
Sixteen months ended
31 December 2015
Revenue Capital Total
Notes GBP'000 GBP'000 GBP'000
------------------------------ ------ -------- --------- ---------
Losses on investments - (16,929) (16,929)
Exchange losses - (5) (5)
Income (221) - (221)
Investment management
fee (368) - (368)
Other expenses (670) - (670)
------------------------------ ------ -------- --------- ---------
Net return before finance
costs and taxation (1,259) (16,934) (18,193)
Interest payable and similar
charges (591) - (591)
------------------------------ ------ -------- --------- ---------
Net return on ordinary
activities before taxation (1,850) (16,934) (18,784)
Tax on ordinary activities - - -
------------------------------ ------ -------- --------- ---------
Net return attributable
to equity shareholders (1,850) (16,934) (18,784)
------------------------------ ------ -------- --------- ---------
Loss per ordinary share 2 (4.67)p (42.73)p (47.40)p
------------------------------ ------ -------- --------- ---------
Year ended 31 August
2014
Revenue Capital Total
Notes GBP'000 GBP'000 GBP'000
------------------------------ ------ -------- --------- ---------
Losses on investments - (10,117) (10,117)
Exchange losses - - -
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
------------------------------ ------ -------- --------- ---------
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.
The accompanying notes are an integral part of the financial
statements.
Reconciliation of Movement in Shareholders' Funds
Sixteen months Year ended
ended 31 August
31 December 2014
2015 Audited
Audited GBP'000
GBP'000
------------------------------ --------------- -----------
Opening equity shareholders'
funds 26,599 50
Issue of ordinary shares - 39,520
Losses on investments (16,929) (10,117)
Net return attributable
to ordinary shareholders (1,850) (184)
Conversion of CULS 300 -
Exchange losses (5) -
Expenses of issue - (2,670)
------------------------------ --------------- -----------
Closing equity shareholders'
funds 8,115 26,599
------------------------------ --------------- -----------
Audited Balance Sheet
As at As at
31 December 31 August
2015 2014
Notes GBP'000 GBP'000
---------------------------------- ------ ------------- -----------
Fixed assets
Investments 12,256 30,410
Investments in subsidiary - -
---------------------------------- ------ ------------- -----------
Current assets
Debtors 399 845
Cash at bank and on deposit 331 450
---------------------------------- ------ ------------- -----------
730 1,295
Creditors: amounts falling
due within one year
Other creditors (171) (256)
9% Convertible Unsecured (4,700) -
Loan Stock 2017
---------------------------------- ------ ------------- -----------
Net current (liabilities)/assets (4,141) 1,039
9% Convertible Unsecured
Loan Stock 2017 - (4,850)
---------------------------------- ------ ------------- -----------
Net assets 8,115 26,599
---------------------------------- ------ ------------- -----------
Capital and Reserves
Called up share capital 400 396
Share premium 5 36,800 36,504
Capital reserve 5 (27,051) (10,117)
Revenue reserve 5 (2,034) (184)
---------------------------------- ------ ------------- -----------
Equity shareholders' funds 8,115 26,599
---------------------------------- ------ ------------- -----------
Net asset value per share 3 20.30p 67.22p
---------------------------------- ------ ------------- -----------
(MORE TO FOLLOW) Dow Jones Newswires
April 29, 2016 07:00 ET (11:00 GMT)
Audited Cash Flow Statement
Sixteen Year
months ended ended
31 December 31 August
2015 2014
GBP'000 GBP'000
------------------------------- -------------- -----------
Operating activities
Loss before finance costs
and taxation (18,193) (10,088)
Loss on investments 16,929 10,117
Decrease/(Increase) in
other receivables 392 (791)
Increase in other payables 41 157
Net cash outflow from
operating activities
before interest and taxation (831) (605)
-------------------------------- -------------- -----------
Interest paid (690) (114)
Taxation paid (27) -
Net cash outflow from
operating activities (1,548) (719)
-------------------------------- -------------- -----------
Investing activities
Purchases of investments (665) (40,651)
Sales of investments 1,944 70
Net cash inflow/(outflow)
from investing activities 1,279 (40,581)
-------------------------------- -------------- -----------
Financing
Issue of ordinary shares - 39,570
Expenses of issue - (2,670)
Issue of CULS 150 4,850
Net cash inflow from
financing 150 41,750
-------------------------------- -------------- -----------
(Decrease)/increase in
cash and cash equivalents (119) 450
-------------------------------- -------------- -----------
Net cash at the start 450 -
of the period/year
------------------------------- -------------- -----------
Net cash at the end of
the period/year 331 450
-------------------------------- -------------- -----------
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 - 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 at least 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.
In order to better reflect the activities of an investment trust
company and in accordance with guidance issued by the AIC,
supplementary information which analyses the Statement of
Comprehensive Income between items of a revenue and capital nature
has been presented alongside the Statement of Comprehensive Income.
Additionally, the net revenue of the Company is the measure the
Directors believe appropriate in assessing its compliance with
certain requirements set out in Sections 1158 - 1159 of the
Corporation Tax Act 2010.
At the date of authorisation of these financial statements, the
following Standards and Interpretations were effective for annual
periods beginning on or after 1 January 2016:
-IFRS 14 - Regulatory Deferral Accounts
At the date of authorisation of these financial statements, the
following Standards and Interpretations were effective for annual
periods beginning on or after 1 January 2018:
-IFRS 9 - Financial Instruments (revised, early adoption
permitted)
-IFRS 15 - Revenue from Contracts with Customers (early adoption
permitted)
At the date of authorisation of these financial statements, the
following Standards and Interpretations were effective for annual
periods beginning on or after 1 January 2019:
-IFRS 16 - Leases (early adoption permitted)
The following amendments to Standards are all effective for
annual periods beginning on or after 1 January 2016:
-IFRS 10 and IAS 28 - Sale or Contribution of Assets between an
Investor and its Associate or Joint Venture
-IFRS 10, IFRS 12 and IAS 28 - Investment Entities: Applying the
Consolidation Exception
-IFRS 11 - Accounting for Acquisitions of Interests in Joint
Operations
-IAS 1 - Disclosure Initiative
-IAS 16 and IAS 38 - Clarification of Acceptable Methods of
Depreciation and Amortisation
(MORE TO FOLLOW) Dow Jones Newswires
April 29, 2016 07:00 ET (11:00 GMT)
-IAS 27 - Equity Method in Separate Financial Statements
In addition, under the Annual Improvements to IFRSs 2012 - 2014
Cycle, a number of Standards are included for annual periods
beginning on or after 1 January 2016.
The Directors anticipate that the adoption of these Standards
and Interpretations in future periods will have no material
financial impact on the financial statements of the Company. The
Company concludes however that certain additional disclosures may
be necessary on their application.
Going Concern basis of accounting
The Company's operations have been cash flow negative since its
inception, the Company relying on the sale of investments to
generate the cash needed to continue to operate. GBP1.9m was
realised from the sale of investments during the period under
review.
Due to factors detailed elsewhere in this report (especially in
the Chairman's Statement and Investment Manager's Review) the
carrying value of the investment portfolio reduced significantly
from GBP30.4m to GBP12.3m during the sixteen months to 31 December
2015. As a result, the Company was at several points during the
period and subsequent to the period end in breach of the coverage
ratio required to be maintained under the terms of the Convertible
Unsecured Loan Stock 2017 ("CULS"). There are three CULS holders:
at 31 December 2015 LIM Asia Multi-Strategy Fund Inc ("LIM") owned
(and continues to own) GBP3.5m of the GBP4.7m of CULS in issue. On
14 March 2016, LIM formally requested repayment of its CULS
incorporating principal and accrued interest amounts. The Company
does not have sufficient cash or liquid assets to repay the amount
owed immediately. LIM confirmed to the Company in writing on 16
March 2016 that it was its current intention to support the Company
through the realisation of assets over a longer period with the
purpose of enabling the Company to repay the amounts owed to LIM.
This continues to be the case, and the other two loan note holders
have indicated ,in writing, their support for this process.
The ability of the Company to continue as a going concern is
therefore dependent on the continued support of LIM and the two
other CULS holders in not seeking immediate repayment which would
result in a liquidation event.
In April 2016 the Company sold its whole position in Nulegacy
Gold, realising GBP2.2m.
The Manager has said that it expects to be able to realise
sufficient proceeds from the sale of a small number of quoted
positions over a period of 3-4 months to satisfy the balance of
debt payable to LIM. The Directors have carefully probed the
Manager as to how realistic this assumption is; the sales will be
of entire positions representing a significant interest in the
investee companies concerned and, after close enquiry, the
Directors have concluded that these sales are more likely than not
to go ahead. Should these sales not go ahead over the timescale
envisaged then the continued support of the CULS holders may be
imperilled.
These matters indicate the existence of a material uncertainty
which may cast significant doubt as to the Company's ability to
continue as a going concern. Nevertheless, the Directors believe
that the risks around the possible immediate repayment of the CULS
amounts due being required have been appropriately taken into
consideration and accordingly the financial statements have been
prepared on a going concern basis and do not include the
adjustments that would result if the Company were unable to
continue as a going concern.
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 which is discussed above.
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. 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 as per note (i).
(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 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 period.
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
basis 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 period end are reported at the rates of exchange
prevailing at the period 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 period 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
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(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. Return per Ordinary Share
The revenue loss per ordinary share is based on a net loss after
taxation of GBP1,850,000 (2014: GBP184,000) and on a weighted
average of 39,631,340 ordinary shares in issue during the
period.
The capital return per ordinary share is based on a net capital
loss of GBP16,934,000 (2014: GBP10,117,000) and on a weighted
average of 39,631,340 ordinary shares in issue during the
period.
3. Net Asset Value per Ordinary Share
The net asset value per ordinary share is based on net assets of
GBP8.1 million (2014: GBP26.6 million) and on 39,970,012 (2014:
39,570,012) ordinary shares, being the number of ordinary shares in
issue at the period end.
4 . 9% Convertible Unsecured Loan Stock 2017
Nominal value
of CULS
GBP'000
--------------------------- --------------
Balance at the beginning
of the period 4,850
Issue of CULS 150
Conversion of CULS (300)
--------------------------- --------------
Balance at the end of the
period 4,700
--------------------------- --------------
5. Reserves
Share Capital Revenue
premium reserve reserve
GBP'000 GBP'000 GBP'000
-------------------------- --------- --------- ---------
At 1 September 2014 36,504 (10,117) (184)
Losses on investment - (16,929) -
Exchange losses - (5) -
Retained net revenue
expense for the year - - (1,850)
Issue of ordinary shares 296 - -
At 31 December 2015 36,800 (27,051) (2,034)
-------------------------- --------- --------- ---------
6. Related Party Transactions
The following are considered related parties: the Board of
Directors ('the Board') and RDP Fund Management LLP ('Investment
Manager').
Mr N Paris is an employee of LIM Advisors which is a subsidiary
of LIM Asia Multi-Strategy Fund ('LIM'). LIM 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.
The balance due to Directors for fees at the period end was
GBP18,500.
7. Post Balance Sheet Events
As a result of a breach of the coverage ratio attaching to the
CULS in March 2016, the CULS became immediately repayable at the
request of the CULS holder on 14 March 2016. LIM Asia
Multi-Strategy Fund Inc ("LIM") formally requested repayment of its
CULS incorporating principal and accrued interest amounts on that
date. The Company does not have sufficient cash or liquid assets to
repay the amount owed immediately. LIM confirmed to the Company in
writing on 16 March 2016 that it was its current intention to
support the Company through the realisation of assets over a longer
period with the purpose of enabling the Company to repay the
amounts owed to LIM. This continues to be the case, and the other
two loan note holders have indicated, in writing their support for
this process.
On 14 March 2016 Mr N Paris resigned from the Board
On 19 April 2016 the Company sold 20,000,000 shares of Nulegacy
Gold for net proceeds of GBP2.2m.
8. Financial Information
The financial information set out above does not constitute the
Company's statutory accounts for the period ended 31 December 2015.
The statutory accounts for 2015 are audited and the Auditors have
issued an unqualified opinion. The statutory accounts for 2015 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. The Company's operations have
been cash flow negative since its inception, the Company relying on
the sale of investments to generate the cash needed to continue to
operate. GBP1.9m was realised from the sale of investments during
the period under review.
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
period 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.
If the investment portfolio valuation fell by 10 per cent at 31
December 2015, the impact on the profit or loss and the net asset
value would have been negative GBP1.2 million. If the investment
portfolio valuation rose by 10 per cent the impact would have been
equal and opposite. The calculations are based on the portfolio
valuation as at the balance sheet date and are not representative
of the period as a whole, and may not be reflective of future
market conditions.
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
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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 December 2015. No individual investment
exceeded 25.2 per cent of net assets as at 31 December 2015.
Liquidity risk
The Company's financial instruments include investments in
unlisted investments which are not traded on 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 has identified securities that could be sold to pay
accounts payable and accrued expenses.
As a result of the CULS coverage ratio being breached in March
2016, as noted earlier, the Company are realising investments to
satisfy the amounts payable to CULS holders who have requested
repayment.
Statement of Directors' Responsibilities in Respect of the
Annual Financial Report
The Directors are responsible for preparing the Annual Report
and the Company financial statements in accordance with applicable
law and regulations.
Company law requires the Directors to prepare company 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 and applicable law.
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 the company
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
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 Strategic Report, Directors' Report,
Directors' Remuneration Report and Statement of Corporate
Governance that comply with that law and those regulations.
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 the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the Company;
-- the Strategic Report includes a fair review of the
development and performance of the business and the position of the
Company, together with a description of the principal risks and
uncertainties that the Company faces.
We consider the annual report and accounts, taken as a whole, is
fair, balanced and understandable and provides the information
necessary for shareholders to assess the Company's position and
performance, business model and strategy.
On behalf of the Board
Lord St. John
Chairman
29 April 2016
This information is provided by RNS
The company news service from the London Stock Exchange
END
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