REG - Baker Steel Res Tst - Half-year Report <Origin Href="QuoteRef">BSRT.L</Origin> - Part 2
16/08/2017 11:15
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33,247
Other expenses 32,205 - 32,205
Audit fees 23,950 - 23,950
Broker Fees 17,500 - 17,500
Directors' expenses 8,695 - 8,695
Total expenses 587,470 - 587,470
Net gain for the period (585,089) 4,672,204 4,087,115
Net gain for the period per Ordinary Share:
Basic and diluted (in pence) 5 (0.5) 4.0 3.5
In the period ended 30 June 2017 there were no other gains or losses than those recognised above.
The Directors consider all results to derive from continuing activities.
The format of the Income Statement follows the recommendations of the AIC Statement of Recommended Practice.
UNAUDITED CONDENSED INTERIM STATEMENT OF COMPREHENSIVE INCOME
FOR THE PERIOD FROM 1 JANUARY 2017 TO 30 JUNE 2016
Unaudited period ended 30 June2016 Unaudited period ended 30 June2016 Unaudited period ended 30 June 2016
Revenue Capital Total
Notes £ £ £
Income
Net gain on financial assets at fair value through profit or loss 3 - 6,550,736 6,550,736
Net foreign exchange gain - 4,634 4,634
Net income - 6,555,370 6,555,370
Expenses
Management fees 7 177,529 - 177,529
Interest expense 66,014 - 66,014
Directors' fees 57,500 - 57,500
Administration fees 45,828 - 45,828
Other expenses 44,238 - 44,238
Custody fees 29,678 - 29,678
Legal fees 26,612 - 26,612
Audit fees 26,348 - 26,348
Directors' expenses 6,963 - 6,963
Total expenses 480,710 - 480,710
Net gain for the period (480,710) 6,555,370 6,074,660
Net gain for the period per Ordinary Share:
Basic and diluted (in pence) 5 (0.4) 5.7 5.3
In the period ended 30 June 2016 there were no other gains or losses than those recognised above.
The Directors consider all results to derive from continuing activities.
The format of the Income Statement follows the recommendations of the AIC Statement of Recommended Practice.
UNAUDITED CONDENSED INTERIM STATEMENT OF CHANGES IN EQUITY
FOR THE PERIOD FROM 1 JANUARY 2017 TO 30 JUNE 2017
ManagementOrdinaryShares Ordinary Shares Treasury Shares Profit and loss account (Revenue) Profit and loss account (Capital) Total Equity
£ £ £ £ £ £
Balance as at 1 January 2017 10,000 81,165,017 (140,492) (8,284,845) (17,141,890) 55,607,790
Net gain for the period - - - (585,089) 4,672,204 4,087,115
Balance as at 30 June 2017 10,000 81,165,017 (140,492) (8,869,934) (12,469,686) 59,694,905
Note:
8 8
UNAUDITED CONDENSED INTERIM STATEMENT OF CHANGES IN EQUITY
FOR THE PERIOD FROM 1 JANUARY 2016 TO 30 JUNE 2016
ManagementOrdinaryShares Ordinary Shares Treasury Shares Profit and loss account (Revenue) Profit and loss account (Capital) Total Equity
£ £ £ £ £ £
Balance as at 1 January 2016 10,000 80,698,476 (140,492) (7,292,263) (34,938,453) 38,337,268
Net gain for the period - - - (480,710) 6,555,370 6,074,660
Balance as at 30 June 2016 10,000 80,698,476 (140,492) (7,772,973) (28,383,083) 44,411,928
UNAUDITED CONDENSED INTERIM STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM 1 JANUARY 2017 TO 30 JUNE 2017
Unaudited Period ended30 June2017 Unaudited Period ended30 June2016
£ £
Cash flows from operating activities
Net gain for the period 4,087,115 6,074,660
Adjustments to reconcile gain/(loss) for the period to net cash used in operating activities:
Net gain on financial assets at fair value through profit or loss (4,692,844) (6,550,736)
Net decrease/(increase) in other receivables 98,495 (40,405)
Net (decrease)/increase in payables (28,178) 1,712
(535,412) (514,769)
Interest received - 60,282
Net cash used in operating activities (535,412) (454,487)
Cash flows from investing activities
Purchase of financial assets at fair value through profit or loss (1,345,029) (381,211)
Sale of financial assets at fair value through profit or loss 5,662,374 342,135
Net cash provided by/(used in) investing activities 4,317,345 (39,076)
Net increase/(decrease) in cash and cash equivalents 3,781,933 (493,563)
Cash and cash equivalents at the beginning of the period 549,612 562,101
Cash and cash equivalents at the end of the period 4,331,545 68,538
NOTES TO THE UNAUDITED CONDENSED INTERIM FINANCIAL STATEMENTS
FOR THE PERIOD FROM 1 JANUARY TO 30 JUNE 2017
1. GENERAL INFORMATION
Baker Steel Resources Trust Limited (the "Company") is a closed-ended
investment company with limited liability incorporated and domiciled on 9
March 2010 in Guernsey under the Companies (Guernsey) Law, 2008 with
registration number 51576. The Company is a registered closed-ended investment
scheme registered pursuant to the POI Law and the Registered Collective
Investment Scheme Rules 2015 issued by the Guernsey Financial Services
Commission ("GFSC"). On 28 April 2010 the Ordinary Shares and Subscription
Shares of the Company were admitted to the Official List of the UK Listing
Authority and to trading on the Main Market of the London Stock Exchange. The
Company's Ordinary and Subscription Shares were admitted to the Premium
Listing Segment of the Official List on 28 April 2010.
The final exercise date for the Subscription Shares was 2 April 2013. No
Subscription Shares were exercised at this time and all residual/unexercised
Subscription Shares were subsequently cancelled.
The Company's portfolio is managed by Baker Steel Capital Managers (Cayman)
Limited (the "Manager"). The Manager has appointed Baker Steel Capital
Managers LLP (the "Investment Manager") as the Investment Manager to carry out
certain duties. The Company's investment objective is to seek capital growth
over the long-term through a focused, global portfolio consisting principally
of the equities, or related instruments, of natural resources companies. The
Company invests predominantly in unlisted companies (i.e. those companies
which have not yet made an Initial Public Offering ("IPO")) and also in listed
securities (including special situations opportunities and less liquid
securities) with a view to exploiting value inherent in market inefficiencies
and pricing anomalies.
Baker Steel Capital Managers LLP (the "Investment Manager") was authorised to
act as an Alternative Investment Fund Manager ("AIFM") of Alternative
Investment Funds ("AIFs") on 22 July 2014. On 14 November 2014, the Investment
Manager signed an amended Investment Management Agreement with the Company, to
take into account AIFM regulations. AIFMD focuses on regulating the AIFM
rather than the AIFs themselves, so the impact on the Company is limited.
The Half-Yearly financial report has not been audited or reviewed by the
auditors pursuant to the Auditing Practices Board
guidance on review of Interim Financial Information.
2. SIGNIFICANT ACCOUNTING POLICIES
The accounting policies adopted in the preparation of these unaudited
condensed interim financial statements have been
consistently applied during the period, unless otherwise stated.
a) Statement of compliance
The unaudited condensed interim financial statements of the Company for the
period 1 January 2017 to 30 June 2017 have been prepared in accordance with
IAS 34, "Interim Financial Reporting" as adopted in the EU, together with
applicable legal and regulatory requirements of The Companies (Guernsey) Law,
2008 and the Listing Rules of the London Stock Exchange's Main Market. The
unaudited condensed interim financial statements do not include all the
information and disclosure required in the annual financial statements and
should be read in conjunction with the annual report and audited financial
statements at 31 December 2016.
b) Basis of preparation
The unaudited condensed interim financial statements have been prepared under
the historical cost basis, modified by the revaluation of certain financial
instruments designated at Fair value through Profit or Loss. The accounting
policies adopted in the preparation of these unaudited condensed interim
financial statements have been consistent with the accounting policies stated
in Note 2 of the annual financial statements for the year ended 31 December
2016. The preparation of unaudited condensed interim financial statements in
conformity with IAS 34, "Interim Financial Reporting", requires the Company to
make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the unaudited condensed interim financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The Company's functional currency is the Great Britain pound Sterling ("£"),
being the currency in which its Ordinary Shares are issued and in which
returns are made to shareholders. The presentation currency is the same as the
functional currency. The Financial Statements have been rounded to the nearest
£. The Company invests in companies around the world whose shares are
denominated in various currencies. Currently the majority of the portfolio is
denominated in US Dollars but this will not necessarily remain the case as the
portfolio develops.
c) Significant accounting judgements and estimates
The preparation of the Company's financial statements requires the Directors
to make judgements, estimates and assumptions that affect the reported amounts
recognised in the financial statements and disclosure of contingent
liabilities.
However, uncertainty about these assumptions and estimates could result in
outcomes that could require a material adjustment to the carrying amount of
the asset or liability in future periods.
(i) Judgements
In the process of applying the Company's accounting policies, the Directors
have made the following judgements, which have had the most significant effect
on the amounts recognised in the financial statements:
Assessment as Investment Entity
As per IFRS 10, an entity shall determine whether it is an investment entity.
An investment entity is an entity that fulfils the following criteria:
Ø It obtains funds from one or more investors for the purpose of providing
those investors with investment services.
Ø It commits to its investors that its business purpose is to invest funds
solely for returns from capital appreciation, investment income or both.
Ø It measures and evaluates the performance of substantially all of its
investments on a fair value basis.
The Company meets the above criteria and is therefore considered to be an
investment entity and therefore all investments, including those which qualify
as subsidiaries or associates are carried at fair value through profit or
loss.
Subsidiaries
Entities in which the Company holds more than 50% of the voting rights, and
where the Company has appointed or has the right to appoint the majority of
directors or where the Company is otherwise able to exercise control are
considered as subsidiaries of the Company. These are disclosed in Note 11 of
these unaudited condensed interim financial statements. Investments in
subsidiaries are carried at fair value through profit or loss.
Associates
The Directors consider that entities over which the Company exercises
significant influence, including where it holds between 20% and 50% of the
voting rights, or where there is a shareholders agreement giving the Company
the right to appoint a director and the right to veto significant financial
decisions, should be considered as associates of the Company. These are
disclosed in Note 13 of the Annual Report. This also includes entities where
the Company has representation on the board and such representation is
considered to have significant influence over the major decisions of such
entity.
Going Concern
As stated in the Directors' Report the Directors have assessed the principal
risks and uncertainties (as described in pages 10
and 11 of the Annual Report) and the other matters discussed in connection
with the viability statement as set out on pages
11 and 12 of the Annual Report for the year ended 31 December 2016. The
Directors consider it is appropriate to adopt the
going concern basis in preparing these interim accounts.
(ii) Estimates and assumptions
The key assumptions concerning the future and other key sources of uncertainty
at the reporting date, that have a significant risk of causing a material
adjustment to the carrying amounts of assets liabilities within the next
financial year, are discussed below. The Company based its assumptions and
estimates on parameters available when the financial statements were prepared.
However, existing circumstances and assumptions about future developments may
change due to market changes or circumstances arising beyond the control of
the Company. Such changes are reflected in the assumptions when they occur.
Please refer to Note 3 for further information.
(iii) Fair value of financial instruments
When the fair values of financial assets and financial liabilities recorded in
the statement of financial position cannot be derived from active markets,
their fair value is determined using a variety of valuation techniques that
include the use of valuation models. The inputs to these models are taken from
observable markets where possible, but where this is not feasible, estimation
is required in establishing fair values. The estimates include considerations
of liquidity and model inputs related to items such as credit risk,
correlation and volatility. Changes in assumptions about these factors could
affect the reported fair value of financial instruments in the statement of
financial position and the level where the instruments are disclosed in the
fair value hierarchy. The models are tested for validity by calibrating to
prices from any observable current market transactions in the same instrument
(without modification or repackaging) when available. To assess the
significance of a particular input to the entire measurement, the Company
performs sensitivity analysis or stress testing techniques.
d) Change in accounting policy
Amendments to IAS 7 - Statements of cash flow
Amendments to IAS 7, 'Statements of cash flow' effective for annual periods
beginning on or after 1 January 2017. The IASB requires that the following
changes in liabilities arising from financing activities are disclosed (to the
extent necessary): (i) changes from financing cash flows; (ii) changes arising
from obtaining or losing control of subsidiaries or other businesses; (iii)
the effect of changes in foreign exchange rates; (iv) changes in fair values;
and (v) other changes. The amendments state that one way to fulfil the new
disclosure requirement is to provide reconciliation between the opening and
closing balances in the statement of financial position for liabilities
arising from financing activities. Finally, the amendments state that changes
in liabilities arising from financing activities must be disclosed separately
from changes in other assets and liabilities. Adoption of these amendments
does not have a significant impact on the Company's financial statements.
e) Accounting standards and amendments to existing accounting standards in
issue but not yet effective
At the date of authorisation of these financial statements, the following
standards and interpretations, which have not been applied, were in issue but
not yet effective. There are other accounting pronouncements but the ones
listed are most relevant to the financial statements of the Company and are
therefore expanded on below.
IFRS 9 Financial Instruments
IFRS 9 Financial Instrument, effective date for annual periods beginning on or
after 1 January 2018, specifies how an entity should classify and measure
financial assets and liabilities, including some hybrid contracts. The
standard changes the approach for classification and measurement of financial
assets compared with the requirements of IAS 39 Financial Instruments:
Recognition and Measurement. Most of the requirements in IAS 39 for
classification and measurement of financial liabilities were carried forward
unchanged. The standard applies a consistent approach to classifying financial
assets and replaces the numerous categories of financial assets in IAS 39,
each of which had its own classification criteria.
The Company's financial assets in equity instruments and derivative
instruments continue to be held at fair value through profit or loss
("FVTPL"). Debt instruments are measured at FVTPL as the Company's business
model is to convert the debt to equity and sell for gain.
The application of IFRS 9 may change the measurement and presentation of many
financial instruments, depending on their contractual cash flows and the
business model under which they are held. However, it is not expected that
classification of financial assets and liabilities will change from FVTPL and
therefore it is not expected that the implementation of IFRS 9 on 1 January
2018 and reflected in the financial statements as at year end 31 December 2018
will have a significant impact on the financial statements given most
financial instruments are expected to be at FVTPL.
IFRIC 22 Foreign Currency Transactions and Advance Consideration
On 8 December 2016, the IFRS Interpretations Committee of the International
Accounting Standards Board (IASB) issued IFRS Interpretation, IFRIC 22,
Foreign Currency Transactions and Advance Consideration which clarifies the
date of the transaction for the purpose of determining the exchange rate to
use on initial recognition of the related asset, expense or income, when an
entity has received or paid advance consideration in a foreign currency.
As per IFRIC 22, the date of the transaction for the purpose of determining
the exchange rate to use on initial recognition of the related asset, expense
or income (or part of it) is the date on which an entity initially recognises
the non-monetary asset or non-monetary liability arising from the payment or
receipt of advance consideration. Where there are multiple payments or
receipts in advance, the entity should determine a date of the transaction for
each payment or receipt of advance consideration.
This interpretation is applicable for annual periods beginning on or after 1
January 2018. Early application is permitted. The Company does not expect the
requirements to have a significant impact on its financial statements.
3. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
Investment Summary: Period ended 30 June 2017 Year ended 31 December 2016
£ £
Opening book cost 54,964,732 56,701,184
Purchases at cost 1,345,029 2,490,872
Proceeds on sale (5,662,374) (2,982,758)
Realised gains/(losses) 2,989,997 (1,244,566)
Closing cost 53,637,384 54,964,732
Unrealised gains 1,853,682 150,835
Financial assets held at fair value through profit or loss 55,491,066 55,115,567
The following table analyses net gains/ (losses) on financial assets at fair
value through profit or loss for the period/year ended 30 June 2017 and 31
December 2016.
Period ended 30 June 2017 Year ended 31 December 2016
£ £
Financial assets at fair value through profit or loss
Realised gains/(losses) on:
- Listed equity shares 1,718,705 (1,244,564)
- Unlisted equity shares 1,271,292 (2)
2,989,997 (1,244,566)
Movement in unrealised gains on:
- Listed equity shares 508,088 8,956,354
- Unlisted equity shares 1,283,887 15,087,023
- Debt instruments (86,030) (5,009,892)
- Warrants (3,098) (4,954)
1,702,847 19,028,531
Net gain on financial assets at fair value through profit or loss 4,692,844 17,783,965
The following table analyses investments by type and by level within the fair
valuation hierarchy at 30 June 2017.
Quoted prices in active markets Quoted market based observables Unobservable inputs
Level 1 Level 2 Level 3 Total
£ £ £ £
Financial assets at fair value through profit or loss
Listed equity shares 12,848,185 - - 12,848,185
Unlisted equity shares - - 38,351,155 38,351,155
Warrants - - 2,205 2,205
Debt instruments - - 4,289,521 4,289,521
12,848,185 - 42,642,881 55,491,066
The following table analyses investments by type and by level within the fair
valuation hierarchy at 31 December 2016.
Quoted prices in active markets Quoted market based observables Unobservable inputs
Level 1 Level 2 Level 3 Total
£ £ £ £
Financial assets at fair value through profit or loss
Listed equity shares 13,252,979 - - 13,252,979
Unlisted equity shares - - 37,819,837 37,819,837
Warrants - - 5,303 5,303
Debt instruments - - 4,037,448 4,037,448
13,252,979 - 41,862,588 55,115,567
The tables below shows a reconciliation of beginning to ending fair value
balances for Level 3 investments and the amount of total gains or losses for
the period included in net gain on financial assets and liabilities at fair
value through profit or loss held at 30 June 2017.
Debt
30 June 2017 Unlisted Equities instruments Warrants Total
£ £ £ £
Opening balance 1 January 2017 37,819,837 4,037,448 5,303 41,862,588
Purchases of investments 440,697 338,103 - 778,800
Sales during the period (2,464,558) - - (2,464,558)
Change in net unrealised gains 1,283,887 (86,030) (3,098) 1,194,759
Realised gains 1,271,292 - - 1,271,292
Closing balance 30 June 2017 38,351,155 4,289,521 2,205 42,642,881
Unrealised gains / (losses) on investments still held at 30 June 2017 1,283,887 (86,030) (3,098) 1,194,759
The tables below shows a reconciliation of beginning to ending fair value
balances for Level 3 investments and the amount of total gains or losses for
the year included in net loss on financial assets and liabilities at fair
value through profit or loss held at 31 December 2016.
Debt
31 December 2016 Unlisted Equities instruments Warrants Total
£ £ £ £
Opening balance 1 January 2016 12,290,239 17,531,086 10,257 29,831,582
Purchases of investments 801,949 1,156,882 - 1,958,831
Reorganisation 9,640,628 (9,640,628) - -
Change in net unrealised gains 15,087,023 (5,009,892) (4,954) 10,072,177
Realised (losses) (2) - - (2)
Closing balance 31 December 2016 37,819,837 4,037,448 5,303 41,862,588
Unrealised gains / (losses) on investments still held at 31 December 2016 15,087,023 (5,009,892) (4,954) 10,072,177
It is the Company's policy to recognise a change in hierarchy level when there
is a change in the status of the investment, for example when a listed company
delists or vice versa, or when shares previously subject to a restriction have
that restriction released. The transfers between levels are recorded either on
the value of the transaction the value of the investment immediately after the
event or the carrying value of the investment at the beginning of the
financial year.
In determining an investment's position within the fair value hierarchy, the
Directors take into consideration the following factors:
Investments whose values are based on quoted market prices in active markets
are classified within Level 1. These include listed equities with observable
market prices. The Directors do not adjust the quoted price for such
instruments, even in situations where the Company holds a large position and a
sale could reasonably impact the quoted price.
Investments that trade in markets that are not considered to be active but are
valued based on quoted market prices, dealer quotations or alternative pricing
sources supported by observable inputs, are classified within Level 2. These
include certain less-liquid listed equities.Level 2 investments are valued
with reference to the listed price of the shares should they be freely
tradable after applying a discount for liquidity if relevant. As Level 2
investments include positions that are not traded in active markets and/or are
subject to transfer restrictions, valuations may be adjusted to reflect
illiquidity and/or non-transferability, which are generally based on available
market information. The Company held nil Level 2 investments at 30 June 2017
(31 December 2016: £nil).
Investments classified within Level 3 have significant unobservable inputs.
They include unlisted debt instruments, unlisted equity shares and warrants.
Level 3 investments are valued using valuation techniques explained below. The
inputs used by the Directors in estimating the value of Level 3 investments
include the original transaction price, recent transactions in the same or
similar instruments if representative in volume and nature, completed or
pending third-party transactions in the underlying investment of comparable
issuers, subsequent rounds of financing, recapitalisations and other
transactions across the capital structure, offerings in the equity or debt
capital markets, and changes in financial ratios or cash flows. Level 3
investments may also be adjusted with a discount to reflect illiquidity and/or
non-transferability in the absence of market information.
Valuation methodology of Level 3 investments
The default valuation technique is of "Latest Recent Transaction". Where an
unquoted investment has been acquired or where there has been a material arm's
length transaction during the past six months it will be carried at
transaction value unless there are changes or events which suggest cost is not
equivalent to fair value. Where there has been no Latest Recent Transaction
the primary valuation driver is IndexVal. For each core unlisted investment,
the Company maintains a weighted average basket of listed companies which are
comparable to the investment in terms of commodity, stage of development and
location ("IndexVal"). IndexVal is used as an indication of how an
investment's share price might have moved had it been listed. Movements in
commodity prices are deemed to have been taken into account by the movement of
IndexVal.
A secondary tool used by Management to evaluate potential investments as well
as to provide underlying valuation references for the Fair Value already
established is Development Risk Adjusted Values ("DRAV"). DRAVs are not a
primary determinant of Fair Value. The Investment Manager prepares discounted
cash flow models for the Company's core investments annually and also for
significant new information and decision making purposes when required. From
these, DRAVs are derived. The computations are based on consensus forecasts
for long term commodity prices and investee company management estimates of
operating and capital costs. The Investment Manager takes account of market,
country and development risks in its discount factors. Some market analysts
incorporate development risk into the discount rate in arriving at a net
present value ("NPV") rather than establishing an NPV discounted purely for
cost of capital and country risk and then applying a further overall discount
to the project economics dependent on where such project sits on the
development curve per the DRAV calculations.
The valuation technique for Level 3 investments can be divided into four
groups:
i. Transactions
Where there have been transactions within the past 6 months either through a
capital raising by the investee company or known secondary market
transactions, representative in volume and nature and conducted on an arm's
length basis, this is taken as the primary driver for valuing Level 3
investments.
ii. IndexVal
Where there have been no known transactions for 6 months, at the Company's
half year and year end, movements in IndexVal will generally be taken into
account in assessing Fair Value where there has been at least a 10% movement
in IndexVal over at least a six month period. The IndexVal results are used as
an indication of trend and are viewed in the context of investee company
progress and any requirement for finance in the short term for further
progression.
iii. Warrants
Warrants are valued using a simplified Black & Scholes model taking into
account time to expiry, exercise price and volatility. Where there is no
established market for the underlying shares an assumed volatility of 40% is
used, due to the difficulty in establishing a sensible volatility for unlisted
shares without giving distorted results.
iv. Convertible loans
Convertible loans are valued at fair value through profit and loss, taking
into account credit risk and the value of the conversion aspect. This is then
compared with the DRAV for that equity. When there is a clear path towards
conditions for conversion, for example, an IPO, the equity value of the
investment on conversion is also taken into account when determining Fair
Value.
Quantitative information of significant unobservable inputs - Level 3
Description 30 June 2017£ Valuation technique Unobservable input Range(weighted average)
Unlisted Equity 23,358,515 Recent Transactions Private transactions n/a
Unlisted Equity 14,880,459 IndexVal Change in IndexVal n/a
Unlisted Equity 112,181 Other Exploration results, study results, financings n/a
Debt Instruments
Black Pearl Limited Partnership 2,694,588 Valued at mean estimated recovery Estimated recovery range +/-50%
Other Convertible Debentures/Loans 1,594,933 Valued at fair value with reference to credit risk and value of embedded derivatives Rate of Credit Risk n/a
Warrants 2,205 Simplified Black & Scholes Model Volatilities 40%
Description 31 December2016£ Valuation technique Unobservable input Range(weighted average)
Unlisted Equity 28,676,885 Recent Transactions Private transactions n/a
Unlisted Equity 9,025,782 IndexVal Change in IndexVal n/a
Unlisted Equity 117,170 Other Exploration results, study results, financings n/a
Debt Instruments
Black Pearl Limited Partnership 2,834,238 Valued at mean estimated recovery Estimated recovery range +/-50%
Others/Loans 1,203,210 Valued at fair value with reference to credit risk and value of embedded derivative Rate of Credit Risk n/a
Warrants 5,303 Simplified Black & Scholes Model Volatilities 40%
Information on third party transactions in unlisted equities is derived from
the Investment Manager's market contacts. The change in IndexVal for each
particular unlisted equity is derived from the weighted average movements of
the individual baskets for that equity so it is not possible to quantify the
range of such inputs. A sensitivity of 70% has been used in the analysis above
as this was the greatest amount that IndexVal moved for any single investment
during any six month period since IndexVal was first adopted.
Sensitivity analysis to significant changes in unobservable inputs within
Level 3 investments
The significant unobservable inputs used in the fair value measurement
categorised within Level 3 of the fair value hierarchy together with a
quantitative sensitivity analysis as at 30 June 2017 are as shown below:
Description Input Sensitivity used* Effect on Fair Value (£)
Unlisted Equity Change in IndexVal +/-70% +/-26,845,809
Debt Instruments
Black Pearl Limited Partnership Probability weighting +/-33% +/- 898,196
Others/Loans Rate discount rate +/-20% -285,623/+103,231
Warrants Volatility of 40% +/-20% +1,410/-1262
The significant unobservable inputs used in the fair value measurement
categorised within Level 3 of the fair value hierarchy together with a
quantitative sensitivity analysis as at 31 December 2016 are as shown below:
Description Input Sensitivity used* Effect on Fair Value (£)
Unlisted Equity Change in IndexVal +/-70% +/-26,845,809
Debt Instruments
Black Pearl Limited Partnership Probability weighting +/-33% +/-944,746
Others/Loans Rate discount rate +20% -231,287/+97,872
Warrants Volatility of 40% +/-20% +5,458/-3,620
*The sensitivity analysis refers to a percentage amount added or deducted from
the input and the effect this has on the fair value.The 70% sensitivity was
used as this was the highest movement observed for IndexVal for any investment
since the commencement of the technique.
4. OTHER FINANCIAL INSTRUMENTS
The Company has not disclosed the fair value for financial assets such as cash
and cash equivalents and short-term receivables and payables, because their
carrying amounts are a reasonable approximation of fair values.
Cash and cash equivalents include cash in hand, deposits held with banks and
other short-term investments in an active market.
Other assets include the contractual amounts for settlement of the trades and
other obligations due to the Company. Investment management fees payable,
directors' fees payable, audit fees payable, administration fees payable and
other payables represent the contractual amounts and obligations due by the
Company for settlement for trades and expenses.
5. NET ASSET VALUE PER SHARE AND LOSS PER SHARE
Net asset value per share is based on the net assets of £59,694,905 (31
December 2016: £55,607,790) and 116,139,980 (31 December 2016: 116,139,980)
Ordinary Shares, being the number of shares in issue at 30 June 2017. The
calculation for basic and diluted NAV per share is as below:
30 June 2017 31 December 2016
Ordinary Shares Ordinary Shares
Net assets at the period end (£) 59,694,905 55,607,790
Number of shares* 116,139,980 116,139,980
Net asset value per share (in pence) basic and diluted 51.4 47.9
Weighted average number of shares 116,139,980 115,098,883
*Including 10,000 Management Ordinary Shares
The basic and diluted gain per share for the period ended 30 June 2017 is
based on the net gain for the period of the Company of £4,087,115 and on
116,139,980 Ordinary Shares, being the weighted average number of Ordinary
Shares in issue during the period.
The basic and diluted gain per share for the period ended 30 June 2016 is
based on the net gain for the period of the Company of £6,074,660 and on
114,578,335 Ordinary Shares, being the weighted average number of Ordinary
Shares in issue during the period.
6. TAXATION
The Company is a Guernsey Exempt Company and is therefore not subject to
taxation on its income under the Income Tax (Exempt Bodies) (Guernsey)
Ordinance, 1989. An annual exemption fee of £1,200 (2016: £1,200) has been
paid.
7. MANAGEMENT AND PERFORMANCE FEES
The Manager was appointed pursuant to a management agreement with the Company
dated 31 March 2010 (the "Management Agreement"). The Company pays to the
Manager a management fee which is equal to 1/12th of 1.75 per cent of the
total average market capitalisation of the Company during each month. The
management fee is calculated and accrued as at the last business day of each
month and is paid monthly in arrears. The Investment Managers fees are paid by
the Manager.
The management fee for the period ending 30 June 2017 was £366,589 (30 June
2016: £177,529) of which £57,952 (31 December 2016: £47,212) was outstanding
at the period end.
The Manager is also entitled to a performance fee. The Performance Period is
each 12 month period ending on 31 December in each year (the "Performance
Period"). The amount of the performance fee is 15 per cent of the total
increase in the NAV, if the Hurdle has been met, at the end of the relevant
Performance Period, over the highest previously recorded NAV as at the end of
a Performance Period in respect of which a performance fee was last accrued,
having made adjustments for numbers of Ordinary Shares issued and/or
repurchased as described above. In addition, the performance fee will only
become payable if there have been sufficient net realised gains.
There were no performance fees for the current or prior period.
If the Company wishes to terminate the Management Agreement without cause it
is required to give the Manager 12 months prior notice or pay to the Manager
an amount equal to: (a) the aggregate investment management fee which would
otherwise have been payable during the 12 months following the date of such
notice (such amount to be calculated for the whole of such period by reference
to the Market Capitalisation prevailing on the Valuation Day on or immediately
prior to the date of such notice); and (b) any performance fee accrued at the
end of any Performance Period which ended on or prior to termination and which
remains unpaid at the date of termination which shall be payable as soon as,
and to the extent that, sufficient cash or other liquid assets are available
to the Company (as determined in good faith by the Directors), provided that
such accrued performance fee shall be paid prior to the Company making any new
investment or settling any other liabilities; and (c) where termination does
not occur at 31 December in any year, any performance fee accrued at the date
of termination shall be payable as soon as and to the extent that sufficient
cash or other liquid assets are available to the Company (as determined in
good faith by the Directors), provided that such accrued performance fee shall
be paid prior to the Company making any new investment or settling any other
liabilities.
8. SHARE CAPITAL
The share capital of the Company on incorporation was represented by an
unlimited number of Ordinary Shares of no par value. The Company may issue an
unlimited number of shares of a nominal or par value and/or of no par value or
a combination of both.
The Company has a total of 116,129,980 (31 December 2016: 116,129,980)
Ordinary Shares in issue with an additional 700,000 (31 December 2016:
700,000) held in treasury. In addition, the Company has 10,000 (31 December
2016: 10,000) Management Ordinary Shares in issue, which are held by the
Investment Manager.
On 28 August 2014, the Company agreed to subscribe for 1,462,500 Ordinary
Shares of Cemos Group plc for a consideration of £585,000. This consideration
was settled through the issue of 1,376,470 Ordinary Shares of the Company at
the unaudited NAV of 42.5 pence per share on 27 February 2015. In accordance
with IFRS the consideration of the transaction is recorded in the Company's
financial statements based on its (trading) share price, which was 32.5 pence
per share. The consideration was therefore £0.45 million.
On 25 February 2015, the Company acquired two portfolios of Investments with a
total value of £16 million. This consideration was settled through the issue
of 30,468,522 new Ordinary Shares of the Company based on the unaudited NAV of
42.6 pence per share on 18 February 2015 and 8,351,079 new Ordinary Shares of
the Company based on a 15% discount to this unaudited NAV. In accordance with
IFRS the consideration of the transaction is recorded in the Company's
financial statements based on its (trading) share price, which was 32.6 pence
per share. The consideration was therefore £12.66 million. The fair values of
the loan notes and shares received were determined by reference to the
valuation techniques as outlined in Note 3.
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