REG-BACIT Limited: Annual Financial Report <Origin Href="QuoteRef">BACT.L</Origin> - Part 4
05/07/2016 07:05
- Part 4: For the preceding part double click ID:nPRr41F10c
require delivery of assets within the timeframe established by
regulation or convention in the marketplace. The Group classifies its
financial assets as financial assets at fair value through profit or loss and
loans and receivables.
Financial liabilities are classified as either financial liabilities at fair
value through profit or loss or other financial liabilities.
Financial assets at fair value through profit or loss (“investments”)
Investments purchased are initially recorded at fair value, being the
consideration given and excluding transaction or other dealing costs
associated with the investment. Gains and losses on investments sold are
recognised in the Statement of Comprehensive Income in the period in which
they arise. The appropriate classification of the investments is determined at
the time of the purchase and is re-evaluated on a regular basis.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. The carrying
amounts, being the cost, shown in the Consolidated Statement of Financial
Position approximate the fair values due to the short term nature of these
loans and receivables. The Group’s loans and receivables consist of cash and
cash equivalents and trade and other receivables.
Forward currency contracts
Forward foreign currency contracts are derivative contracts and as such are
recognised at fair value on the date on which they are entered into and
subsequently remeasured at their fair value. Fair value is determined by rates
in active currency markets.
Other financial liabilities
Other financial liabilities include all other financial liabilities other
than those designated as financial liabilities at fair value through profit or
loss. The Group’s other financial liabilities include trade and other
payables. The carrying amounts shown in the Consolidated Statement of
Financial Position approximate the fair values due to the short term nature of
these other financial liabilities.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount
reported in the Consolidated Statement of Financial Position if, and only if,
there is a currently enforceable legal right to offset the recognised amounts
and there is an intention to settle on a net basis, or to realise assets and
settle the liabilities simultaneously.
Fair Value
As a result of the adoption of IFRS 10: Investment Entities Exemption the
Group has only one investment, being the investment in the Partnership which
is being valued at the Net Asset Value (“NAV”) of the Partnership. The net
assets of the Partnership, which at 31 March 2016 principally comprise
financial assets at fair value through profit and loss, are required to be
valued at fair value in the carrying value of investments. This change did not
affect the NAV of the Group.
The investments of the Partnership that are listed or quoted on a recognised
market are valued at mid market price in the relevant market at the Statement
of Financial Position date. The valuations of all investments in investment
funds are based upon the latest information available to the Partnership
provided by the underlying investment funds in which the Partnership has
invested, except for listed investments where information was taken from
business and financial market news sites.
The valuation date of such funds is not always coterminous with the valuation
date of the Partnership and in such cases the valuation of the fund as at the
last valuation date is used. The NAV reported by the fund manager or
administrator may be unaudited and in some cases, the notified NAV is based
upon estimates.
In certain cases the Partnership adjusts values to their best estimate.
Whilst the Partnership has no reason to suppose that any such valuations are
unreasonable, the amounts realised from the ultimate redemption or sale of
these funds may materially differ from these values.
The Partnership also invests in private equity and infrastructure funds which
are held at fair value through profit or loss. Their value is determined in
accordance with the information provided by the investee funds to the
Partnership in relation to such investments, although the Partnership may make
appropriate adjustment to such valuations if acting in good faith it
determines that such valuations do not accurately reflect the true value of
the investments. The Partnership’s assessment of fair value is determined in
accordance with International Private Equity and Venture Capital
(‘‘IPEVC’’) valuation guidelines, as the Board consider that the IPEVC
valuation methodology used in deriving a fair value is not materially
different from the fair value requirements of IFRS 13.
The Partnership also invests in the Pioneer Fund and may invest in drug
development and medical innovation projects undertaken by the ICR or its
subsidiaries. These investments are expected to be in the research and
development stage. The Board values these investments in line with the IPEVC
valuation guidelines. The Partnership has committed to invest up to
£20 million in the Pioneer Fund. See note 21 for further details.
Gains and losses arising from changes in the fair value of financial assets
are shown as net gains or losses on financial assets through profit or loss in
note 5 and recognised in the Consolidated Statement of Comprehensive Income in
the period in which they arise.
Derecognition of financial instruments
A financial asset is derecognised when: (a) the rights to receive cash flows
from the financial asset have expired, (b) the Group retains the right to
receive cash flows from the financial asset, but has assumed an obligation to
pay them in full without material delay to a third party under a “pass
through arrangement”; or (c) the Group has transferred substantially all the
risks and rewards of the financial asset, or has neither transferred nor
retained substantially all the risks and rewards of the financial asset, but
has transferred control of the financial asset.
A financial liability is derecognised when the contractual obligation under
the liability is discharged, cancelled or expired.
Commitments
Through its investment in the Partnership, the Group has outstanding
commitments on investments that are not recognised in the Consolidated
Financial Statements. Refer to note 21 for further details.
Income
All income is accounted for on an accruals basis and is recognised in the
Consolidated Statement of Comprehensive Income.
The Partnership receives fee rebates and donations from its investments.
Please refer to note 4 for details.
Expenses
Expenses are accounted for on an accruals basis. Expenses incurred on the
acquisition of investments at fair value through profit or loss are charged to
the Consolidated Statement of Comprehensive Income in capital. All other
expenses are charged to the Statement of Comprehensive Income in revenue.
Charitable donations are accounted for on an accruals basis and are recognised
in the Consolidated Statements of Comprehensive Income. Expenses directly
attributable to the issuance of shares are charged against capital and
recognised in the Consolidated Statement of Changes in Net Assets Attributable
to Holders of Redeemable Participating Shares.
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and demand deposits. Cash
equivalents are short-term, highly liquid investments that are readily
convertible to known amounts of cash and which are subject to insignificant
changes in value.
Translation of foreign currency
Items included in the Group’s Consolidated Financial Statements are
measured using the currency of the primary economic environment in which it
operates (the “functional currency”). The Consolidated Financial
Statements are presented in Sterling (£), which is the Group’s functional
and presentational currency.
Transactions in currencies other than Sterling are translated at the rate of
exchange ruling at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies at the date of the Consolidated
Statement of Financial Position are translated into Sterling at the rate of
exchange ruling at that date.
Foreign exchange differences arising on retranslation are recognised in the
Consolidated Statement of Comprehensive Income. Non-monetary assets and
liabilities that are measured in terms of historical cost in a foreign
currency are translated using the rate of exchange at the date of the
transaction.
Non-monetary assets and liabilities denominated in foreign currencies that
are stated at fair value are retranslated into Sterling at foreign exchange
rates ruling at the date the fair value was determined.
Significant accounting judgements, estimates and assumptions
The preparation of the Group’s Consolidated Financial Statements requires
the Directors to make judgements, estimates and assumptions that affect the
reported amounts of income, expenses, assets and liabilities at the reporting
date. However, uncertainties about these assumptions and estimates, in
particular relating to the Partnership’s private equity and infrastructure
investments could result in outcomes that require a material adjustment to the
carrying amount of the assets or liabilities affected in future periods.
The Group’s investment consists of its investments in the Partnership and
is valued as the Group’s share of the Partnership’s NAV. As at the year
end, none of the Partnership’s underlying investments have imposed
restrictions on redemptions. However underlying managers often have the right
to impose such restrictions. The Directors believe it remains appropriate to
estimate their fair values based on NAV as reported by the administrators of
the relevant investments.
Except for listed investments, the Directors believe that such NAV represents
fair value because subscriptions and redemptions in the underlying investments
occur at these prices at the consolidated statement of financial position
date, where permitted.
Standards, amendments and interpretations adopted by the Group
The Group had adopted IFRS 10 ‘Consolidated Financial Statements’,
including the Amendments, ‘Investment Entities (Amendments to IFRS 10)’ in
the prior year ended 31 March 2015. The Amendments require entities that
meet the definition of an investment entity to fair value certain subsidiaries
through profit or loss in accordance with IAS 39 Financial Instruments:
Recognition and Measurement, rather than consolidate their results.
The impact of adopting Investment Entities (Amendments to IFRS 10) is the
exclusion from consolidation of assets, liabilities, income and expenses of
the Partnership which were previously consolidated on a line-by-line basis. As
such the Partnership is now held at fair value and no longer consolidated. The
General Partner continues to be consolidated as it provides investment related
services to the Company.
Assessment as investment entity
Entities that meet the definition of an investment entity within IFRS 10 are
required to measure their subsidiaries, other than those that provide
investment services to the Group, at fair value through profit or loss rather
than consolidate them. The criteria which define an investment entity are, as
follows:
· An entity that obtains funds from one or more investors for the
purpose of providing those investors with investment services;
· An entity that commits to its investors that its business purpose
is to invest funds solely for returns from capital appreciation, investment
income or both; and
· An entity that measures and evaluates the performance of
substantially all of its investments on a fair value basis.
The Company meets the criteria as follows:
The Company is a closed-ended investment company and has a number of
investors who pool their funds to gain access to the Company’s investment
services and investment opportunities that they might not have had access to
individually. The Company, being listed on the London Stock Exchange, obtains
funding from a diverse group of external shareholders.
The Company’s objective is consistent with that of an investment entity.
The Company has the intention to realise the constituents of each of its
investment classes.
The Partnership measures and evaluates the performance of substantially all
of its investments on a fair value basis. The fair value method is used to
represent the Company’s performance in its communication to the market,
including investor presentations. In addition, the Company reports fair value
information internally to Directors, who use fair value as a significant
measurement attribute to evaluate the performance of its investments and to
make investment decisions for mature investments.
The IFRS 10 Investment Entity Exemption requires investment entities to fair
value all subsidiaries that are themselves investment entities. As the
Partnership meets the criteria of an investment entity it has been
deconsolidated by the Group.
Standards, amendments and interpretations not yet effective
At the date of approval of these Consolidated Financial Statements, the
following standards and interpretations, which have not been applied in these
Consolidated Financial Statements, were in issue but not yet effective:
IFRS 9 – Financial instruments: Classification and measurement (effective
– 1 January 2018)
IFRS 15 – Revenue from Contracts with Customers (effective – 1 January
2018)
IFRS 16 – Leases (effective 1 January 2019)
The Board expects that the adoption of these standards in the future period
will not have a material impact on the financial statements of the Group. IFRS
9, ‘Financial Instruments’ was issued in December 2009 and addresses the
classification and measurement of financial assets and is likely to affect the
Group’s accounting for financial assets. The standard is not expected to be
applicable until 1 January 2018 but it is available for early adoption. The
Group is currently in the process of evaluating the potential effect of this
standard. The standard is not expected to have a significant impact on the
financial statements since the majority of the Group’s financial assets are
designated at fair value through profit or loss.
Presentation of the Statement of Comprehensive Income
In order to better reflect the activities of an investment company and in
accordance with guidance issued by the Association of Investment Companies,
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.
2. TAXATION
The Company and the General Partner are exempt from taxation in Guernsey
under the provisions of The Income Tax (Exempt Bodies) (Guernsey) Ordinance,
1989 and have both paid an annual exemption fee of £1,200 (31 March 2015:
£600).
The General Partner is incorporated and tax resident in Guernsey, its
corporate affairs being managed solely in Guernsey. Having regard to the
non-UK tax residence of the General Partner and the Company, and on the basis
that the Partnership is treated as transparent for UK and Guernsey tax
purposes and that the Partnership’s business is an investment business and
not a trade, no UK tax will be payable on either the General Partner’s or
the Company’s shares of Partnership profit (save to the extent of any UK
withholding tax on certain types of UK income such as interest).
3. DISTRIBUTION TO SHAREHOLDERS
The Company may pay a dividend at the discretion of the Board. Following the
EGM in October 2013, each dividend paid by the Company will be in the form of
scrip as a default, with a cash dividend alternative, under which Shareholders
may elect to receive cash in place of new Shares. New Shares issued pursuant
to a scrip dividend will be issued at the applicable NAV per Share. The scrip
dividends are recognised as incurred where the dividend declaration allows for
a cash alternative. See note 23 for details of the 2016 dividend.
During the year ended 31 March 2016, the Company paid a dividend of
£8,040,000 (31 March 2015: £7,620,000) relating to the year ended
31 March 2015 (31 March 2014). The dividend was comprised of £5,819,000
cash (31 March 2015: £5,464,000) and a scrip dividend of £2,221,000
(31 March 2015: £2,156,000).
4. INCOME
Income consists of investment income received from the Partnership.
During the year, income received from the Partnership amounted to
£11,880,000 (31 March 2015: £10,972,000) of which £4,776,000 (31 March
2015: £4,422,000) remained receivable at 31 March 2016.
5. NET (LOSSES)/GAINS ON FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR
LOSS
The net (losses)/gains on financial assets at fair value through profit or
loss arise from the Group’s holding in the Partnership. The movement is
driven by the following amounts within the financial statements of the
Partnership.
01.04.15 to 01.04.14 to
31.03.16 31.03.15
£'000 £'000
Investment income 1,302 2,207
Rebates and donations (note 6) 3,244 3,262
Expenses (206) (188)
Distributions (note 4) (11,880) (10,972)
Realised gains on financial assets at fair value through profit or loss 6,724 7,965
Realised losses on financial assets at fair value through profit or loss (3,178) (6,859)
Movement in unrealised gains on financial assets at fair value through profit or loss 29,966 56,332
Movement in unrealised losses on financial assets at fair value through profit or loss (33,250) (15,918)
(Losses)/gains on forward currency contracts (66) 7,734
Gains on foreign currency 487 765
Net (losses)/gains on financial assets at fair value through profit or loss (6,857) 44,328
6. REBATES AND DONATIONS
Substantially all investments made by the Partnership either (a) are not
subject to any management or performance fees or (b) are made on the basis
that the Group is effectively reimbursed the amount of any such fees by
rebate, donation back to the Group or other arrangements. The Group has,
however, made an investment in the Pioneer Fund, which is not made on a
fee-free basis.
At the year end the uncrystallised performance fee rebates included as
receivables within the Partnership’s financial assets at fair value through
profit or loss amounted to £100 (31 March 2015: £914,000).
During the year, rebates and donations earned by the Partnership amounted to
£3,244,000 (31 March 2015: £3,262,000), of which £281,000 (31 March 2015:
£289,000) remained receivable at 31 March 2016. Of the 33 (31 March 2015:
31) underlying funds in the Partnership’s Portfolio Statement, 22 (31 March
2015: 21) of these underlying funds are invested in a fee free share class and
the remaining 11 (31 March 2015: 10) apply rebates or donations.
7. CHARITABLE DONATIONS
In accordance with the Framework Agreement entered into between the Company
and the ICR on 1 October 2012, the Group has an obligation to make a donation
to charity, paid in arrears, of one-twelfth of 1% of the total NAV of the
Company as at each month-end during the period, half of which is donated to
the ICR and the other half to The BACIT Foundation. The BACIT Foundation
grants those funds to charities named in a list proposed annually by The BACIT
Foundation which includes the ICR, in proportions determined each year by
Shareholders of the Company.
During the year, charitable donations amounted to £4,752,000 (31 March
2015: £4,719,000). The prior year included an additional donation of
£300,000 to The BACIT Foundation to provide regulatory capital for BACIT (UK)
Limited. As at 31 March 2016, £4,752,000 (31 March 2015: £4,419,000)
remained payable.
8. ADMINISTRATION FEE
The Group’s administrator is Northern Trust International Fund
Administration Services (Guernsey) Limited (the “Administrator”). The
Administrator is entitled to receive an annual fee of up to 6 basis points of
the NAV of the Company, calculated monthly in arrears, subject to a minimum
fee of £120,000 per annum.
Fees are reviewed on an annual basis. In addition, the Administrator and any
of its delegates are also entitled to reimbursement of certain expenses
incurred by them in connection with their duties.
No administration fees are charged to the Subsidiary.
During the year ended 31 March 2016, administration fees of £165,000
(31 March 2015: £162,000) were charged to the Group and £28,000 (31 March
2015: £54,000) remained payable at the year end.
9. MANAGEMENT EXPENSE CONTRIBUTION
The Group’s investment manager is BACIT (UK) Limited (the “Investment
Manager”). Operating expenses of the Investment Manager are covered by a
Management Expense Contribution, payable by the Company to the Investment
Manager equal to 0.19% of NAV per annum, payable in monthly instalments by
reference to the most recent month-end NAV. The Group will still directly bear
certain expenses (“Sundry Expense Contribution”) of the Investment Manager
up to an amount equal to two per cent. of the NAV of the prior year end.
During the year ended 31 March 2016, fees of £226,000 (31 March 2015: £Nil)
were charged by the Investment Manager to the Group and £Nil (31 March 2015:
£Nil) remained payable at the year end.
10. OTHER EXPENSES
31.03.16 31.03.15
£'000 £'000
Professional fees* 370 296
Legal fees 163 86
Group audit and tax fees 56 57
Investment Manager Sundry Expense Contribution (note 15) 47 13
Directors' insurance 26 25
General expenses 130 164
792 641
* Included in professional fees above was a fee of £140,000 (31 March 2015:
£55,000) paid to Martin Thomas. See note 15 for further details.
11. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
The financial assets at fair value through profit or loss represent the
movement in the underlying investment in the Partnership during the year.
31.03.16 31.03.15
£'000 £'000
Cost of the Partnership's investments at the start of the year 380,977 358,244
Purchases during the year 63,450 91,089
Sales during the year (58,986) (63,317)
Return of capital (575) (2,391)
Reduction in investment (note 19) - (3,754)
Net realised gains on disposals during the year 3,546 1,106
Cost of the Partnership's investments at the end of the year 388,412 380,977
Net unrealised gains on investments at the end of the year 72,006 75,290
Other net current assets 11,876 22,884
Financial assets at fair value through profit or loss
at the end of the year 472,294 479,151
12. TRADE AND OTHER RECEIVABLES
31.03.16 31.03.15
£'000 £'000
Investment income receivable (note 4) 4,776 4,422
Prepayments 19 16
4,795 4,438
13. TRADE AND OTHER PAYABLES
31.03.16 31.03.15
£'000 £'000
Charitable donations payable (note 7) 4,752 4,419
Directors' fee payable (note 15) 19 25
Administration fee payable (note 8) 28 54
Audit fee payable 42 23
Other payables 44 27
4,885 4,548
14. SHARE CAPITAL ACCOUNT
A. Authorised Share Capital
The Company is authorised to issue an unlimited number of shares, which may
have a par value or no par value, as the Directors see fit. The shares can be
issued as Ordinary Shares, C Shares or other such classes and in any currency
at the discretion of the Board.
The Company is a closed-ended investment company with an unlimited life. The
Ordinary Shares are not puttable instruments because redemption is conditional
upon certain market conditions and/or Board approval. As such they are not
required to be classified as debt under IAS 32 – “Financial Instruments:
Disclosure and Presentation”.
As the Company’s Shares have no par value, the share price consists solely
of share premium and the amounts received for issued shares are recorded in
the Share Capital Account in accordance with The Companies (Guernsey) Law.
The Company’s Articles provide that Shareholders will be entitled to vote
on the discontinuation of the Company every five years. The vote will require
more than 50% of the votes cast on the resolution to be in favour to require
the Directors to formulate proposals, to be put to Shareholders within six
months of such resolution being passed, for the reorganisation or
reconstruction of the Company. A special resolution of the Shareholders is
required to wind up the Company, requiring a 75% vote.
The Company also has the authority, subject to various terms as set out in
its Articles and in accordance with The Companies (Guernsey) Law, 2008, to
acquire up to 14.99% of the Shares in issue. The Company intends to renew this
authority annually. However, the Directors have no current intention to
utilise this authority.
Ordinary Shares of each class carry the right to receive all income of the
Group attributable to the Ordinary Shares of such class and to participate in
any distribution of such income made by the Group, pro-rata to the relative
calculated NAV of each of the classes of Ordinary Shares and within each such
class income shall be divided pari passu among the holders of Ordinary Shares
of that class in proportion to the number of Ordinary Shares of such class
held by them.
The Founder Share issued at the date of incorporation was redesignated, by
special resolution dated 28 September 2012, as a Deferred Share and
transferred to The BACIT Foundation. This non-participating non-redeemable
Deferred Share has no other rights to assets or dividends, except to payment
of £1 on the liquidation of the Company and carries a right to vote only if
there are no other classes of voting share of the Company in issue.
Ordinary Shares Ordinary Shares
01.04.15 to 01.04.14 to
31.03.16 31.03.15
£'000 £'000
Deferred Share (1 Share issued at £1) - -
Ordinary Share Capital
Balance at the start of the year 403,987 401,831
Issued during the year 2,221 2,156
Balance at the end of the year 406,208 403,987
Ordinary Shares Ordinary Shares
01.04.15 to 01.04.14 to
Ordinary Share Capital 31.03.16 31.03.15
Shares Shares
Balance at the start of the year 382,867,127 380,974,677
Issued during the year 1,798,031 1,892,450
Balance at the end of the year 384,665,158 382,867,127
Ordinary Shares issued during the year ended 31 March 2016 (31 March 2015)
relate to the 2015 (2014) dividend. Refer to note 3 for details.
B. Capital Reserves
Gains and losses recorded on the realisation of investments, realised
exchange differences, unrealised gains and losses recorded on the revaluation
of investments held at the year end and unrealised exchange differences of a
capital nature are transferred to Capital Reserves.
C. Basic and Diluted Earnings per Share
The calculations for the basic earnings per share attributable to the
Ordinary Shares of the Group are based on the following data:
01.04.15 to 01.04.14 to
31.03.16 31.03.15
Earnings for the purposes of earnings per share (999,950) 49,678,043
Weighted average number of shares 383,977,387 382,053,114
Basic earnings per share (0.26)p 13.00p
There is no potential for dilution therefore no diluted earnings per share is
calculated.
15. RELATED PARTY TRANSACTIONS
Parties are considered to be related if one party has the ability to control
the other party or exercise significant influence over the other party in
making financial or operational decisions.
The Directors are responsible for the determination of the investment policy
of the Group and have overall responsibility for the Group’s activities. The
Group’s investment portfolio is managed by the Investment Manager, BACIT
(UK) Limited.
The Company has six non-executive directors. The Directors of the Company
with the exception of Ms Cecil also serve as Directors of the General Partner.
Mr Henderson is also a director of BACIT (UK) Limited and BACIT Discovery
Limited.
For the year ended 31 March 2016, each Director was entitled to a fee of
£20,000 per annum, except for the Chairman who was entitled to £30,000 per
annum. With effect from 1 April 2016, the Chairman is entitled to a fee of
£40,000 per annum, the Chairman of the Audit Committee is entitled to a fee
of £30,000 per annum and the other Directors are each entitled to a fee of
£25,000 per annum. Mr Tigue, Mr Henderson and Ms Cecil will continue to
waive their right to receive their fees. For the Directors’ interests in the
Group please refer to the Directors’ and Other Interests section of the
Directors’ Report. In addition, the investee funds may hold shares in
companies related to the Directors.
Directors’ fees for the year to 31 March 2016, including outstanding
Directors’ fees at the end of the year, are set out below.
31.03.16 31.03.15
£'000 £'000
Directors' fees for the year 88 100
Payable at end of year 19 25
The Group may have underlying investments which, from time to time, include
investments associated with members of the Board. In no case does the member
have any direct ability to influence the investment policy of the Group’s
portfolio investments to make, hold or dispose of such investments.
In accordance with the Group’s Articles of Incorporation, 50% of the
Charitable Donations are made to The BACIT Foundation. The BACIT Foundation
was incorporated in England and Wales on 17 May 2012 as a private company
limited by guarantee, with exclusively charitable purposes and holds the
Group’s Deferred Share. The amount paid to The BACIT Foundation during year
ended 31 March 2016, in respect of the year to 31 March 2015, was
£2,210,000 (31 March 2015: in respect of the year to 31 March 2014, was
£2,209,000).
The Company appointed BACIT (UK) Limited as its Alternative Investment Fund
Manager, which has taken over the investment management activities previously
carried out by the General Partner. BACIT (UK) Limited is a wholly owned
subsidiary of The BACIT Foundation.
Following the Extraordinary General Meeting held on 11 December 2015,
shareholders approved the change in expense arrangements of the Group and with
effect from 1 January 2016 the amended Expenses Deed Agreement (the
“Deed”) entered into between the Company, General Partner and Farla
Limited, a company controlled by Thomas Henderson was terminated.
Prior to 1 January 2016, Farla Limited provided office space and equipment
for, and either paid directly or reimbursed the Group in respect of
out-of-pocket expenses of the team managing the investment portfolio.
With effect from 1 January 2016, operating expenses of the Investment
Manager, including those previously covered by the Deed, are covered by a
Management Expense Contribution, payable by the Company to the Investment
Manager equal to 0.19% of NAV per annum, payable in monthly instalments by
reference to the most recent month-end NAV. The Group will still directly bear
certain expenses (“Sundry Expense Contribution”) of the Investment Manager
up to an amount equal to two per cent. of the NAV of the prior year end.
Gravity Partners, a company controlled by Ms Cecil, receives a fee from the
Investment Manager equal to 0.09% of NAV per annum, payable in monthly
instalments in arrears by reference to the most recent month-end NAV, under a
consultancy agreement with the Investment Manager.
During the year, £47,000 (31 March 2015: £13,000) of Sundry Expense
Contribution (see note 10) was borne by the Company on behalf of BACIT (UK)
Limited and £2,400 (31 March 2015: £1,000) remained payable as at 31 March
2016. Also included in Other Expenses (see note 10) were Professional fees of
£140,000 (31 March 2015: £55,000) paid to Martin Thomas.
Significant agreements
Northern Trust International Fund Administration Services (Guernsey) Limited
(the “Administrator”) performs administrative duties to the Group. The
Administrator is entitled to receive an annual fee of up to 6 basis points of
the NAV of the Company, calculated monthly in arrears, subject to a minimum
fee of £120,000 per annum. Please refer to note 8.
Northern Trust (Guernsey) Limited serves as custodian to the Partnership.
During the year ended 31 March 2016, custodian fees of £177,000 (31 March
2015: £169,000) were charged by Northern Trust (Guernsey) Limited to the
Partnership and £30,000 (31 March 2015: £28,000) remained payable as at
31 March 2016.
16. OPERATING SEGMENTS
Through its investment in the Partnership, the Group has a highly diversified
portfolio of investments and as at 31 March 2016, no (31 March 2015: none)
single investment accounts for more than 7.7% of the Group’s Net Assets.
The Board has considered the requirements of IFRS 8 ‘Operating Segments’,
and is of the view that the Group’s activities form a single segment under
the standard, being investments in a diversified portfolio of hedge, equity
and long-term alternative investment funds across multiple asset classes. The
Group’s investments are managed on a global basis.
The Board, as a whole, has been determined as constituting the chief decision
maker of the Group. The key measure of performance used by the Board to assess
the Group’s performance and to allocate resources is the total return based
on the NAV per share, as calculated under IFRS.
The Group is part-domiciled in Guernsey. Entity wide disclosures are not
necessary as the Group is engaged in a single segment of business, investing
in hedge, equity and long-term alternative investment funds across multiple
asset classes.
17. FINANCIAL INSTRUMENTS
In accordance with its investment objectives and policies, the Group holds
financial instruments which at any one time may comprise the following:
• securities held in accordance with the investment objectives and
policies;
• cash and short-term receivables and payables arising directly from
operations; and
• derivative instruments including forward foreign currency
contracts.
The financial instruments held by the Group are comprised principally of the
investment in the Partnership.
Details of the Group’s significant accounting policies and methods adopted,
including the criteria for recognition, the basis of measurement and the basis
on which income and expenses are recognised, in respect of its financial
assets and liabilities are disclosed in note 1.
31.03.16 31.03.15
Fair Value Fair Value
£'000 £'000
Financial assets designated at fair value through profit or loss
BACIT Investments LP Incorporated 472,294 479,151
Total financial assets designated at fair value
through profit or loss 472,294 479,151
Other financial assets 4,836 4,461
Financial liabilities designated at fair value through profit or loss
Other financial liabilities (4,885) (4,548)
Total net assets 472,245 479,064
The financial instruments held by the Partnership are comprised principally
of hedge, equity, long-term alternative investment funds and cash.
The table below analyses the carrying amounts of the financial assets and
liabilities held by the Partnership by category as defined in IAS 39 –
“Financial Instruments: Recognition and Measurement”.
31.03.16 31.03.15
Fair Value Fair Value
£'000 £'000
Financial assets designated at fair value through profit or loss
Listed investments 98,188 120,567
Unlisted investments 362,230 335,700
Unrealised gains on open forward foreign currency contracts 4,049 665
Total financial assets designated at fair value through profit or loss 464,467 456,932
Other financial assets 12,639 26,675
Financial liabilities designated at fair value through profit or loss
Other financial liabilities (4,812) (4,456)
Total net assets of the Partnership 472,294 479,151
18. FINANCIAL RISK MANAGEMENT AND ASSOCIATED RISKS
The Group is exposed to a variety of financial risks as a result of its
activities. These risks include market risk (including market price risk,
foreign currency risk and interest rate risk), credit risk and liquidity risk.
These risks have existed throughout the year and the Group’s policies for
managing them are summarised below.
The risks below do not reflect the risks of the underlying investment
portfolios of the financial assets at fair value through profit or loss
(“investment entities”) in the Partnership’s Statement of Financial
Position. The Group has very significant indirect exposure to a number of
risks through the underlying portfolios of the investment entities. However
this is the intention of the Group in order to achieve capital gains. There is
no sensible mechanism to “control” these risks without considerably
prejudicing return objectives.
Due to the lack of transparency in many of the Partnership’s underlying
assets it is not possible to quantify or hedge the impact of these risks on
the portfolio as each investment entity may have complex and changing risk
dynamics that are not easily observable or predictable. These risks will
include extensive interest, foreign exchange and other market risks which are
magnified by significant gearing in many cases, resulting in increased
liquidity and return risk.
Market risk
Market risk is the risk that the fair value of a financial instrument will
fluctuate because of changes in market prices. The Group’s activities expose
it primarily to the market risks of changes in market prices, foreign currency
exchange rates and interest rates.
Market price risk
Market price risk arises mainly from the uncertainty about future prices of
the financial instruments held by the Partnership’s underlying funds. It
represents the potential gain or loss the Group may suffer through holding
market positions in the face of price movements.
Market risk encompasses the potential for both gains and losses and is
affected by three main components: changes in actual market prices, actual
levels of and changes in interest rates and foreign currency movements.
Interest rate and foreign currency movement risks are covered elsewhere in
this note. The overall market risk management of each of the holdings of the
Partnership is primarily driven by their respective investment objectives. The
Investment Manager assesses the risk in the Partnership’s portfolio by
monitoring exposures, liquidity, and concentrations of the underlying funds’
investments, in the context of the historic and current volatility of their
asset classes, and the portfolio manager’s risk appetite.
The maximum risk resulting from financial instruments is generally determined
by the fair value of underlying funds and the fair value of the committed
funds of underlying Limited Partners. The overall market exposure as at
31 March 2016 is shown in the Consolidated Statement of Financial Position.
The financial instruments are sensitive to market price risk; any increase or
decrease in market price will have an equivalent movement in market value of
the financial instruments.
Foreign currency risk
Foreign currency risk arises from fluctuations in the value of a foreign
currency against a reporting currency. It represents the potential loss or
gain the Group may suffer through holding foreign currency assets in the face
of foreign exchange movements. The Group’s treatment of currency
transactions is set out in note 1 to the Consolidated Financial Statements
under “Translation of foreign currency” and “Forward currency
contracts”. There is no material currency risk at the Group level, however
currency risk exists in the Partnership’s underlying investments, the
analysis of which is not feasible.
The Group’s Shares are denominated in Sterling, its operating expenses are
incurred in Sterling, and its investment in the Partnership is denominated in
Sterling. The investments of the Partnership are denominated in US Dollars,
Euros, Swedish Krona and Sterling. The Group’s functional and presentation
currency is Sterling; hence the Consolidated Statement of Financial Position
may be significantly affected by movements in the exchange rates between the
foreign currencies previously mentioned. The Investment Manager may manage
exposure to Euro and US Dollar movements by using forward foreign currency
contracts to hedge exposure to investments in Euro and US Dollar denominated
share classes. As at 31 March 2016, the Partnership had two open forward
foreign currency contracts (31 March 2015: one).
Mark to Market 31.03.16
Unrealised
Sell Buy Equivalent (loss)/gain
000 £'000 £'000 £'000
One Sterling/Euro Forward Currency Contract
Settlement date 30 June 2016 € 85,000 67,507 67,547 (40)
One Sterling/USD Forward Currency Contract
Settlement date 2 March 2017 $175,000 125,543 121,454 4,089
Total unrealised gains as at 31 March 2016 4,049
Mark to Market 31.03.15
Unrealised
Sell Buy Equivalent gain
000 £'000 £'000 £'000
One Sterling/Euro Forward Currency Contract
Settlement date 29 May 2015 € 76,000 55,710 55,045 665
Total unrealised gains as at 31 March 2015 665
The following table presents the Partnership’s assets and liabilities in
their respective currencies, converted into the Group’s functional currency.
31.03.16
USD EUR GBP SEK Total
£'000 £'000 £'000 £'000 £'000
Financial assets at fair value through profit or loss
234,612 65,112 156,766 3,928 460,418
Bank and cash deposits 3,241 1,363 7,754 - 12,358
Trade and other receivables 229 11 41 - 281
Unrealised (losses)/gains on forward currency contracts
(121,454) (67,547) 193,050 - 4,049
Trade and other payables - - (36) - (36)
Distribution payable - - (4,776) - (4,776)
116,628 (1,061) 352,799 3,928 472,294
31.03.5
USD EUR GBP SEK Total
£'000 £'000 £'000 £'000 £'000
Financial assets at fair value through profit or loss
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