Qannas Investments Limited
('Qannas' or the 'Company')
Audited Financial Statements and Posting of Audited Financial Statements
Qannas (AIM:QIL), the closed-ended investment company listed on the AIM market, is pleased to announce the release of its audited financial statements for the period ending 31 December 2014. Extracts from these statements are enclosed below.
Qannas also advises that the audited financial statements for the period ended 31 December 2014, together with a Notice of the AGM are available on the Company's website atwww.qannasinvestments.comand will be posted to shareholders today.
QANNAS INVESTMENTS LIMITED | |
GENERAL INFORMATION | |
FOR THE YEAR ENDED 31 DECEMBER 2014 |
DIRECTORS | PRINCIPAL BANKERS | ||
Jassim Mohamed Alseddiqi | RBS International | ||
PO Box 64, Royal Bank House | |||
Richard John Stobart Prosser | 71 Bath Street | ||
St Helier | |||
Christopher Ward (Chairman) | Jersey JE4 8PJ | ||
Channel Islands | |||
Andrew Noel Whelan (resigned 17 June 2014) | |||
REGISTRAR | |||
Richard Green (appointed 17 June 2014) | Capita Registrars (Jersey) Limited | ||
12 Castle Street | |||
Mustafa Kheriba (appointed 17 June 2014) | St Helier | ||
Jersey JE2 3RT | |||
COMPANY NUMBER | Channel Islands | ||
CT 286543 (registered in Cayman Islands) | |||
NOMINATED ADVISOR | |||
COMPANY SECRETARY | finnCap Ltd | ||
Codan International Limited | 60 New Broad Street | ||
Century Yard, Cricket Square | London EC2M 1JJ | ||
Hutchins Drive | England | ||
PO Box 2681 | |||
George Town, Grand Cayman, Cayman Islands | NOMINATED BROKER | ||
finnCap Ltd | |||
REGISTERED OFFICE | 60 New Broad Street | ||
Codan Trust Company (Cayman) Limited | London EC2M 1JJ | ||
Cricket Square, Hutchins Drive, PO Box 2681 | England | ||
George Town, Grand Cayman KY1-1111 | |||
Cayman Islands | LEGAL ADVISORS | ||
Appleby | |||
ADMINISTRATOR | 13-14 Esplanade | ||
Appleby Fund Administrators (Jersey) Limited | St Helier | ||
13-14 Esplanade | Jersey JE1 1BD | ||
St Helier | Channel Islands | ||
Jersey JE1 1BD | |||
Channel Islands | Herbert Smith LLP | ||
Exchange House | |||
AUDITOR | Primrose Street | ||
BDO Limited | London EC2A 2HS | ||
Windward House | England | ||
La Route de la Liberation | |||
St Helier | COMPANY WEBSITE | ||
Jersey JE1 1BG | www.qannasinvestments.com | ||
Channel Islands | |||
INVESTMENT MANAGER | |||
ADCM Ltd | |||
Codan Trust Company (Cayman) Limited | |||
Cricket Square, Hutchins Drive, PO Box 2681 | |||
George Town, Grand Cayman KY1-1111 | |||
Cayman Islands | |||
QANNAS INVESTMENTS LIMITED | |||
CHAIRMAN'S REPORT | |||
FOR THE YEAR ENDED 31 DECEMBER 2014 | |||
It is with great pleasure that I present my third report on the performance of Qannas Investments Limited (the 'Company') during which it witnessed remarkable growth, both in terms of size and income. The Company's journey began with its IPO in March 2012 with the objective of investing opportunistically primarily in the Gulf Cooperation Council countries. Today, the Company has evolved into a successful investment company with a diverse portfolio spread mainly across Middle East, Eastern Europe and Central London.
By the end of its second year (ending 31-Dec-13), the Company had reached several milestones, including: the completion of five deals; the successful exit from two of those at impressive IRRs; distribution of dividends of $3.5 million ($0.18 per share) in April 2013; and a second round of funding to raise $11.5 million during Q2 2013.
The year 2014 witnessed the continued momentum of the Company's aggressive growth strategy. During Q1 2014, the Company acquired interests in two investment funds, ADCM Secondary Private Equity Fund LP and SPE Qannas C Ltd., at a discount of 20% and 15% respectively to their estimated Net Asset Value ('NAV') of $59.3 million as at 31 December 2013 (Project Beast). Since acquisition, these investment funds have distributed an aggregate of $8.7 million to the Company during the year. As a result of this transaction, the Company's issued share base increased from 34.7 million to 78.1 million. As part of Project Beast, the Company also amended its investment policy and investment strategy to provide the investment manager with the flexibility to invest outside the GCC and with greater freedom in portfolio weightings. Additionally, the Company's domicile was moved from Jersey to The Cayman Islands, taking the Company outside the City Code which required shareholders in excess of 30% to make a mandatory full bid. Post Project Beast, the investment manager of the Company is entitled to a quarterly cash management fee assessed as 0.4375% of the Company's NAV as at the last day of each quarter.
The Company has been very active on the new investment front, investing in five projects during the year in addition to Project Beast, and has committed to three more investments since the year end. The Company has also successfully exited from a further two investments. Full details of the Company's investment activity are contained in the Investment Manager's Report.
The year witnessed some key corporate events such as the appointment of Richard Green and Mustafa Kheriba as directors of the Company during Q2 2013. At the same time, Andrew Whelan stepped down from the board and I wish to thank him for his significant contribution. The Company distributed a special dividend of $9 million ($0.115 per share) during Q3 2014, in line with its implied policy of regularly paying out dividends to the shareholders. To fund its growth and invest in the pipeline of opportunities, the Company secured a loan facility of $10 million during 2014 from First Gulf Bank at a rate of 2.5% margin over LIBOR and secured against certain existing assets. In early 2015 this facility was increased by $20 million, bringing the total facility to $30 million.
The Company has been recognized for its achievements, notably its investment strategy and portfolio returns. Just after the year-end, the Company was awarded the 'Outstanding Performance & Innovation' award for the second consecutive year, by MENA FM (Middle East and North Africa Fund Managers) at its annual awards event in January 2015. The MENA FM Performance Awards is one of the largest gatherings of fund managers in the industry's calendar, and the award recognizes the Company's investment manager's (ADCM Ltd) competitive edge in creating superior returns for the Company's shareholders.
I am pleased with the pace at which the Company is evolving and look forward to the Company continuing to deliver value to shareholders by executing its investment strategy in line with our mandate. I would like to thank shareholders, the board of directors, service providers, and the investment manager for their continued support.
QANNAS INVESTMENTS LIMITED | |
INVESTMENT MANAGER'S REPORT | |
FOR THE YEAR ENDED 31 DECEMBER 2014 |
ADCM Ltd. ('ADCM'), the investment manager for Qannas Investments Limited (the 'Company'), is pleased to present the annual investment manager's report for the year ending 31 December 2014.
Investment Summary
2014 was an eventful year for the Company where it achieved several milestones and maintained its growth momentum while evolving its investment strategy. During the year, the Company completed six new investment deals and exited two.
During 2014, the Company committed to investments in the following: Integrated Financial Group (Project Integration); ACC Hotel; developing Hard Rock Café Podgorica through EE F&B Holding Limited (Project HRC); Palace Preferred Partners L.P. (Project PPP); loans to Injaz Eastern European Property Development Company Limited (Project IEEPDC); and Limited Partner (L.P.) interests in ADCM Secondary Private Equity Fund L.P. (96.5%) and in SPE Qannas C Ltd (74.3%) (together, Project Beast).
Subsequent to the year end, the Company has made commitments to three further investments: a preferred equity investment for the development of the Taj Hotel Downtown Dubai (Project Taj), a 296 room five star luxury hotel in Dubai; a preferred equity investment for the development of a mixed use scheme in Central London (Project Broadway); and the purchase of residential units in a building nearing completion in Dubai (Project Apex).
The Company's Investments | ||||||
Project Name | Investment Type | Sector/Type | Geography | Amount Committed | Invested as at 31 December 2014 | |
Committed in 2015 | ||||||
Taj | Murabaha Debt | Real Estate | Central London | AED 4m | ||
Broadway | Preferred equity | Real Estate | Central London | £3.5m | ||
Apex | Equity | Real Estate | UAE | AED 9.1m | ||
Committed during 2014 | ||||||
Integration | Equity | Financial Services | UAE | $20.4m | $7.2m | |
ACC Hotel | Equity | Hospitality | Eastern Europe | €11m | $0.2m | |
HRC | Equity | Hospitality | Eastern Europe | €3m | $1.6m | |
PPP | L.P. Interest | Real Estate | Central London | £11m | $5.2m | |
IEEPDC | Debt | Real Estate Fund | Eastern Europe | €7.0m | €7.0m | |
Beast | L.P. Interests | Funds of funds | Diversified | $37.1m | $37.1m | |
Committed prior to 2014 | ||||||
Scholar | Equity | Education | UAE | $0.07m |
The Company's Exits so far | |||||||
Project Name |
Date of Exit |
Date of Acquisition |
Holding Period |
Cost
(in millions) |
NAV at exit
(in millions) |
Exit Multiple |
Exit IRR |
Exits in 2014 | |||||||
Marina |
19-May-14 |
20-May-12 |
24 months |
$9.9 |
$14.9 |
1.51x |
22.8% |
Gazelle |
6-Mar-14 |
17-May-13 |
10 months |
$3.3 |
$6.1 |
1.87x |
118.1% |
Previous Exits | |||||||
Oilco |
8-Dec-13 |
6-Mar-12 |
21 months |
$3.9 |
$6.7 |
1.73x |
39.1% |
Oasis |
13-Feb-13 |
10-Oct-12 |
4 months |
$3.3 |
$4.1 |
1.24x |
87.9% |
During 2014, the Company disposed of its investment in a land plot on Reem Island, Abu Dhabi (Project Gazelle) and exited from the structured debt investment in Sheffield Holdings (Project Marina).
Net Asset Value (NAV) SummaryAs of 31 December 2014, the Company had a NAV of approximately $79.4 million or $1.02 per share and total cash of $3.3 million. Additionally, the Company has transferred $18 million to a client account of the investment manager for pipeline investments that are currently in progress (namely: Integration, HRC and ACC Hotel) and this is shown as a receivable from investment manager in the financial statements. During the year, the Company raised a line of credit for $10 million (representing 12.7% of NAV as on December 31, 2014).
NAV Summary | $, m | ||
Investments | 31 Dec 2014 | ||
IEEPDC | $8.51 | ||
PPP | $5.22 | ||
Scholar | $0.07 | ||
HRC | $1.61 | ||
RADCM SPEF | $45.71 | ||
SPE Qannas C | $9.34 | ||
Receivable from investment manager | $18.00 | ||
Cash in Bank | $3.27 | ||
Net Current Assets | -$12.37 | ||
NAV | $79.36 | ||
Shares Outstanding | 78.1 | ||
NAV per share | $1.02 | ||
Investment Update
Project Beast
During the first quarter of 2014, the Company acquired interests in two investment funds, ADCM SPEF L.P. and SPE Qannas C Ltd., at a discount of 20% and 15% respectively (to their estimated NAV at 31 December 2013). These L.P. interests were acquired through the issuance of 44.7 million shares from the Company as consideration. Post transaction, the Company's NAV increased from $34 million to $91 million and the issued share base increased from 34.7 million to 78.1 million.
ADCM SPEF is invested in 11 funds and the carrying value of investments (pro-rated for the Company's interest) as of December 31, 2014 is $45.7 million. The Company holds a 96.5% interest in ADCM SPEF.
NAV of ADCM SPEF (as of 31 December, 2014) | in $'000 |
Fund Name | NAV |
The Abraaj Buyout Fund II L.P. | $4,334 |
Infrastructure Growth Capital Fund L.P. | $19,103 |
Abraaj Real Estate Fund L.P. | $2,847 |
Permal Private Equity Holdings 2000 L.P. | $347 |
Goldman Sachs PEP IX | $3,744 |
Global Opportunistic Fund I | $108 |
Global Opportunistic Fund II | $360 |
Abraaj Real Estate Fund L.P. | $561 |
Havenvest Private Equity Middle East L.P. | $5,941 |
Gulf Capital Equity Partners Fund II, L.P. | $5,093 |
TNI Growth Capital Fund, L.P. | $3,783 |
Lumina Real Estate SSF I L.P. | $795 |
Net Current Assets (Liabilities) | ($139) |
NAV | $46,877 |
During the year, the Company received a total distribution of $8.5 million from ADCM SPEF L.P. and made a contribution of $0.48 million.
SPE Qannas C Ltd. is invested in The Abraaj Buyout Fund II L.P. and the carrying value of investments (pro-rated for the Company's interest) as of December 31, 2014 is $9.3 million. The Company holds a 74.3% interest in SPE Qannas C. During the year, the Company received a total distribution of $0.2 million from SPE Qannas C.
Since acquisition, the carrying value of ACDM SPEF and SPE Qannas C increased by $4.5 million which represents a gain of 10.8% on the acquisition cost of the portfolio.
Project IEEPDC
During the third quarter of 2014, the Company completed a debt investment (senior secured term loan) of €7.0 million in IEEPDC for a term of two years with the interest being rolled up until maturity. The loan proceeds were deployed to enable IEEPDC to complete the acquisition of two land holding companies and to subsequently develop plots in Bulgaria and Montenegro into hospitality-focused assets.
Project PPP
During October 2014, the Company committed to an investment of £11 million (approximately $18.2 million) in Palace Preferred Partners LP, an SPV created for the redevelopment of 1 Palace Street ('1PS'), London. The investment is part of an overall tranche of £50 million which in turn is invested in the project as preferred equity with a preferred return rate of 15%. It is expected that the debt principal and interest will be paid by 2018, when the redevelopment is complete and sales proceeds are collected. 1PS is located adjacent to Buckingham Palace, with excellent views overlooking Buckingham Palace Gardens. Gross Development Value of 1PS is expected to exceed £500 million based on an MRICS Red Book valuation by Savills. Subsequent to the year 2014, the Company has contributed an amount of £4.4 million, of the total commitment of £11 million.
During the year, full planning consent was acquired for a residential scheme including a restaurant, spa / health centre and a reception / concierge to provide 24 hours service to 72 ultra-luxury apartments.
Post-acquisition, there has been significant progress in the project, including approval of the revised planning consent; design and initial site works; and securing of a £260 million long-term development facility from National Bank of Abu Dhabi to refinance the acquisition bridge loan and further development.
Project Integration
During November 2014, the Company committed to invest $20.4 million to acquire an equity interest of approximately 49% in Integrated Financial Group LLC ('IFG'), a UAE-based holding company incorporated for the purposes of acquiring and consolidating two financial services companies (the 'Transaction'). At the year-end, IFG was in the process of acquiring, by means of a share-for-share swap with the existing shareholders, a controlling interest in two UAE-focused financial services companies:
·First Gulf Financial Services LLC (to be renamed to 'Integrated Securities' or 'IS'), which is in the business of trading securities on the Abu Dhabi and Dubai stock exchanges; and
·Integrated Capital PJSC ('IC'), which is a fully licensed, UAE central bank-regulated investment company.
The transaction consists of two steps: the acquisition of interests from shareholders of IC and IS seeking to exit; and the swapping of shares of the remaining shareholders for shares in IFG. The process is currently in progress and is expected to be completed by the H1 2015.
Note: Abu Dhabi Financial Group (ADFG) owns 100% of ADCM.
Project ACC Hotel
During November 2014, the Company committed up to €11.0 million for an equity investment in an SPV developing a four star hotel at Atlas Capital Centar ('ACC') in Podgorica, the capital of Montenegro.
The proceeds will be used for financing the development costs. The hotel will have a gross floor area (GFA) of 9,500 sqm, with 135 rooms and 90 parking spaces. The hotel will be the second largest hotel in the city.
ACC is one of the largest mixed use development projects in the Balkan region (with approximately 89,974 sqm GFA) located in the central business district of Podgorica with unique architecture, landmark design and scale, and a truly luxurious hospitality, retail, commercial and residential offering.
Project HRC
During the fourth quarter of 2014, the Company committed to invest approximately €3 million in an equity investment to develop the Hard Rock Café in the ACC (Podgorica). The proceeds were used for the construction, equipment and pre-operating costs of HRC. This project is part of a larger Area Development Agreement with Hard Rock Limited to develop three Hard Rock Cafés in Podgorica (Montenegro), Belgrade (Serbia) and Sofia (Bulgaria).
Subsequent to the year-end, the first Hard Rock Café in Podgorica, launched its operations on 8th Feb 2015, had a grand opening in May 2015 attended by over six thousand people, and is now fully operational.
Project Scholar
The Company acquired 250,000 shares of Madaares in 2013, a private company which, through its subsidiary Taaleem PJSC, operates 10 schools and nurseries in the UAE with 5,875 students enrolled.
Exits
In the year 2014, the Company exited from two investments: -
·Reem Plot
In March 2014, the Company sold its investment in the 29,267 sq. ft. plot of land on Reem Island in Abu Dhabi for AED 22.68 million ($6.2 million) in cash. This plot was purchased by the Company in May 2013 for AED 12 million ($3.3 million). In the ten months, the Company generated a multiple of 1.89x the capital invested and an annualized IRR of 118.1%.
·Marina 101
In May 2014, the Company received AED 54.8 million ($14.9 million) from Sheffield Holdings, as per the sale and repurchase agreement signed in May 2012, thereby closing its position in Marina 101. Project Marina generated a return of 51% on capital invested and an IRR of 22.8 %.Corporate Activity
During 2014, the Company secured a two year term loan facility of $10 million from First Gulf Bank to fund its growth and invest in the pipeline of opportunities. The loan has a rate of 2.5% margin over LIBOR and is secured against certain existing assets of the Company. Subsequent to the year end, this loan facility has been increased to $30 million.
The Company distributed a special dividend of $9 million ($0.115 per share) during the third quarter of 2014, in line with its ambition of regularly paying out dividends to the shareholders.
Pipeline Investments
Subsequent to the year end, the Company has made commitments to three further transactions:
Project Apex
The Company has committed to an equity investment of AED 9.1 million ($2.5 million) for the purchase of 2 premium units of 3,653 sq ft area each (3-bedroom penthouses on the 88th floor) at the development Marina 101 at Dubai Marina, Dubai UAE. One of the units has a sea view (West) while the other has views to the East.
ADCM, the investment manager, has sourced the units from the developer at a discounted price of AED 1,250 per sq ft ($340 psf), including all related costs. Currently, 3- bedroom units of a similar floor area in the Dubai Marina micro-market are selling at the rate of AED 1,900-1,950 per sq ft.
Previously, the Company participated in a structured debt arrangement with the developer of the project. Recently, ADCM secured Hard Rock Hotels International as the operator of the 5 star hotel, which will be operated within the building (up to 32nd floor). The project is c 85% complete, with completion targeted for second quarter of 2016.
Project Broadway
The Company has entered into an agreement to participate in a preferred equity investment of ₤3.5 million in BL Development Ltd ('BLD'), an SPV incorporated for the development of a mixed use development project in Central London. Holders of the preferred equity instrument are entitled to a preferred return of 14% of their investment per annum.
The proceeds will be used towards pre-completion activities including transaction costs incurred during the acquisition of the property, architecture design, obtaining planning consent and preparing development works.
Project Taj
The Company has entered into an agreement to invest AED 4.0 million in a secured Murabaha issue of AED 52 million by Verne Preferred Limited, an SPV incorporated for the investment by way of preferred equity for the development of the Taj Hotel Downtown Dubai, a 296 room five star luxury hotel in Dubai, the United Arab Emirates. Holders of the issue are entitled to a preferred return of between 12-17% of their investment per annum depending on redemption date, with the coupon serviced through a combination of cash and accrued payment in kind.
The hotel started its operations and soft-launched on 2nd June 2015.
Market Outlook
2014 was an eventful year, which saw significant turbulence across certain asset classes. The year opened with geopolitical uncertainties in the Middle East and Russia, stagnation in the real estate prices in the UAE, currency shocks (Swiss franc appreciation, volatility in the Euro and the GB Pound against the USD) and closed with uncertainty over the UK election and US interest rates, volatility in the fixed income markets and a sharp slump in the oil prices which further exacerbated the Russian crisis.
However, the macroeconomic events during the year presented several opportunities which the Company exploited to build a portfolio across the Central London, Eastern Europe and UAE market. The investment manager believes that the real estate investment opportunities offered by Central London, the recovery of Eastern European region and the growth in the UAE offer growth and diversification opportunities to the Company.
The UAE Region
ADCM believes that the UAE growth story will continue, helped by recovering oil prices in 2015 and driven by growth in the non-oil sectors. Despite declining oil prices in 2014, the growth in UAE's GDP in 2015 is estimated at 3.5%, driven by the non-oil sectors of the economy which is approximately 70% of GDP. The UAE's economy is more diversified than its regional peers and is ranked 12 out of 144 countries in the World Economic Forum's Competiveness Index. In 2014, the real estate sector witnessed lukewarm response from buyers, particularly due to the Russian Rouble crisis as well as the overall negative sentiment during the falling equity markets and the decline in oil prices. The impact of falling oil prices on the equity markets was evident in the drop in average daily trading volumes across the regional stock exchanges. However, subsequent to the year-end, oil has bounced back to $60 in May 2015 and so have the equity markets, with renewed interest in IPOs.
Central London
ADCM believes that the Central London Real Estate market offers a safe investment destination for global investors.
This was evident during the Swiss franc shock which led to a surge in the number of enquiries from Swiss-based investors looking to move their money into London real estate as a safe haven.
The change in the Stamp Duty Law in 2014 has further increased the attractiveness of Central London as an investment destination for real estate investors. Subsequent to the year-end, Central London's prime property market declined marginally, but primarily due to the uncertainty related to the general election and fears over a possible mansion tax (tax on homes worth more than £2 million) supported by the UK's Labour Party. However, Central London's prime property market regained confidence and stability after the UK election results, which delivered a majority government led by Conservative Party.
Eastern Europe / Montenegro
The Eastern European region remained largely unaffected by the oil price fall and the Russian crisis. Montenegro recently unveiled its privatization plans for 2015 to attract more foreign investors. Montenegro has gained global recognition as a tourist destination since Forbes listed it as a 'must see' destination and the luxury hotel operator One&Only is scheduled to open its first European property on Tivat Bay in 2016.
On the global front, the US economy grew 2.4% in 2014 and the unemployment rate declined by 100 basis points to 5.6%. We note that in the first quarter of 2015, the US economic growth declined to 0.2%, primarily due to harsh winter weather and a strong dollar. However, the recent statement in May 2015 by the US Fed Chair reinforcing that the Fed will take the initial step to raise the federal funds rate if the economy continues to improve, reflects signs of US growth.
Overall ADCM remains optimistic on global economic growth. Post Project Beast, the Company's broader mandate to look at global opportunities gives it the flexibility to invest in opportunistic investments outside the GCC, particularly in Central London and Eastern Europe that offer lucrative opportunities. The Company is currently completing the pipeline projects in these markets and anticipates further growth in the Company's NAV driven by the portfolio's exposure to these markets.
QANNAS INVESTMENTS LIMITED | |
DIRECTORS' REPORT | |
FOR THE YEAR ENDED 31 DECEMBER 2014 |
The directors present their report and the audited financial statements of the Company for the year ended 31 December 2014.
Incorporation
The Company was incorporated and domiciled in Jersey, Channel Islands as a public limited company (registration number 109878) on 17 January 2012. On 31 March 2014 the Company migrated to the Cayman Islands (registration number CT 286543) and ceased to be a Jersey registered Company.
Principal activities
The Company's principal activity is that of generating value for Shareholders by creating a portfolio of opportunistic investments in real estate, debt, and equities (both public and private) in the MENA region, Europe and North America. Investments are made where there is liquidity requirement or portfolio repositioning on the part of a vendor such that assets become available at a discount to their intrinsic value. The Company aims to acquire such assets and subsequently dispose of them at a premium to their acquisition cost.
Results and dividends
The Statement of Comprehensive Income for the year is set out on page 9. The Company generated Total Comprehensive Income of $9,721,132 for the year ended 31 December 2014 (2013: $3,004,243). The Company made a distribution of $8,985,342 during the year (2013: $3,545,694).
Directors
The directors who held office throughout the year and up to the date of approving the financial statements were:
Jassim Mohamed Alseddiqi
Richard John Stobart Prosser
Christopher Ward (Chairman)
Andrew Noel Whelan (resigned 17 June 2014)
Richard Green (appointed 17 June 2014)
Mustafa Kheriba (appointed 17 June 2014)
Details of the financial interests of directors are disclosed in note 3 of the financial statements.
Secretary
Appleby Secretaries (Jersey) Limited resigned as company secretary on 31 March 2014 and Codan Trust Company (Cayman) Limited were appointed in their place.
Registered office
The registered office of the Company from 31 March 2014 and up to the date of approving the financial statements was that of Codan Trust Company (Cayman) Limited, Cricket Square, Hutchins Drive, PO Box 2681, George Town, Grand Cayman KY1-1111, Cayman Islands.
Independent auditor
BDO Limited is the independent auditor and has expressed its willingness to continue in office.
Responsibilities of the directors
The directors are responsible for preparing the annual report and financial statements in accordance with International Financial Reporting Standards as endorsed for use in the European Union ('IFRS'). In preparing these financial statements, the directors are required to:
·select suitable accounting policies and then apply them consistently;
·make judgements and estimates that are reasonable and prudent;
·specify which generally accepted accounting principles have been followed, subject to any material departures disclosed and explained in the financial statements; and
·prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
The directors are responsible for keeping accounting records which are sufficient to show and explain the Company's transactions and are such as to disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements prepared by the Company comply with the requirements of the Alternative Investment Market listing rules. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The directors confirm that they have complied with the above requirements.
Statement of disclosure to auditors
The directors confirm that:
·so far as they are aware there is no relevant audit information of which the Company's Auditors are unaware; and
·they have taken all steps they ought to have taken to make themselves aware of any relevant audit information and to establish that the Company's Auditors are aware of that information.
We have audited the financial statements of Qannas Investments Limited (the 'Company') for the year ended 31 December 2014 which comprise the Statement of Comprehensive Income, Statement of Financial Position, Statement of Changes in Equity, Statement of Cash Flows and the related notes 1 to 25. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards as adopted by the European Union.
This report is made solely to the Company's members. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditors' report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditorAs explained more fully in the Statement of Directors' Responsibilities, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Company's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements.
In addition, we read all the financial and non-financial information in the Chairman's Report, Investment Manager's Report and the Directors' Report to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implication for our report.
Opinion on financial statementsIn our opinion the financial statements:
·give a true and fair view of the state of the Company's affairs as at 31 December 2014 and of its profit for the year then ended; and
·have been properly prepared in accordance with International Financial Reporting Standards as adopted by the European Union.
BDO Limited
Chartered Accountants
Jersey
29 June 2015
QANNAS INVESTMENTS LIMITED | |
STATEMENT OF COMPREHENSIVE INCOME | |
FOR THE YEAR ENDED 31 DECEMBER 2014 |
Notes | 01.01.14 to 31.12.14 | 01.01.13 to 31.12.13 | |||||
$ | $ | ||||||
Income | |||||||
Management and performance fee rebate | 19 | 7,781,127 | - | ||||
Investment income | 4 | 3,131,010 | - | ||||
Profit on disposal of quoted investment | 5 | - | 1,076,943 | ||||
10,912,137 | 1,076,943 | ||||||
Expenditure | |||||||
Loss on disposal of available for sale financial asset | 9 | 22,071 | - | ||||
Loss on disposal of freehold land | 7 | 40,817 | - | ||||
Loss on disposal of unquoted investment | - | 452,457 | |||||
Secretarial and administration fees | 209,287 | 127,394 | |||||
Directors' remuneration | 3 | 92,829 | 83,065 | ||||
Insurance expense | 12,237 | 15,868 | |||||
Investment manager fees | 1,182,397 | 767,049 | |||||
Performance fees | 19 | 2,146,759 | 1,486,082 | ||||
Legal and professional fees | 1,233,473 | 541,655 | |||||
Audit fees | 26,009 | 25,274 | |||||
Sundry expenses | 97,149 | 8,171 | |||||
Bank charges | 1,984 | 1,676 | |||||
5,065,012 | 3,508,691 | ||||||
Operating profit/(loss) before net investment income | 5,847,125 | (2,431,748) | |||||
Net gains on investments | 8 | 4,396,700 | 2,895,359 | ||||
Finance costs | |||||||
Loan interest payable | (44,907) | - | |||||
Unrealised foreign exchange losses on loans receivable | 6 | (918,126) | - | ||||
(Loss)/gain on foreign exchange | (42,089) | 17,989 | |||||
Operating profit for the year | 9,238,703 | 481,600 | |||||
Finance income | |||||||
Interest income - cash and cash equivalents | 10,519 | 3,279 | |||||
Interest income - loans receivable | 6 | 471,910 | - | ||||
Interest income - available for sale financial assets | 9 | 1,178,774 | 2,602,876 | ||||
Total profit for the year before taxation | 10,899,906 | 3,087,755 | |||||
Taxation provision for the year | - | - | |||||
Total profit for the year after taxation | 10,899,906 | 3,087,755 | |||||
Other comprehensive income | |||||||
Loss on available for sale financial assets | 9 | (1,178,774) | (83,512) | ||||
Total comprehensive income for the year | 9,721,132 | 3,004,243 | |||||
Earnings per share | |||||||
Basic eps on profit for the year | 16 | 0.16 | 0.09 |
QANNAS INVESTMENTS LIMITED | |
STATEMENT OF FINANCIAL POSITION | |
AS AT 31 DECEMBER 2014 |
31.12.14 | 31.12.13 | |||||||||
Notes | $ | $ | $ | $ | ||||||
Assets | ||||||||||
Non-current assets | ||||||||||
Unquoted investments at fair value | ||||||||||
through profit and loss | 4 | 53,213,946 | 68,063 | |||||||
Quoted investments at fair value | ||||||||||
through profit and loss | 5 | - | - | |||||||
Loans receivable | 6 | 9,463,120 | - | |||||||
Trade and other receivables | 10 | 7,315,202 | ||||||||
Total non-current assets | 69,992,268 | 68,063 | ||||||||
Current assets | ||||||||||
Freehold land | 7 | - | 6,155,237 | |||||||
Available for sale financial assets | 9 | - | 14,930,935 | |||||||
Trade and other receivables | 10 | 949,446 | 12,490 | |||||||
Receivable from investment manager | 11 | 18,000,000 | - | |||||||
Cash and cash equivalents | 12 | 3,273,099 | 14,813,456 | |||||||
Total current assets | 22,222,545 | 35,912,118 | ||||||||
Total assets | 92,214,813 | 35,980,181 | ||||||||
Equity and liabilities | ||||||||||
Equity | ||||||||||
Management shares | 15 | 2 | 2 | |||||||
Participating shares | 15 | 76,638,586 | 31,965,349 | |||||||
Retained earnings | 21 | 2,723,583 | 809,019 | |||||||
Available for sale reserve | 22 | - | 1,178,774 | |||||||
79,362,171 | 33,953,144 | |||||||||
Liabilities | ||||||||||
Current liabilities | ||||||||||
Trade and other payables | 13 | 698,461 | 2,027,037 | |||||||
Loans payable | 14 | 9,847,233 | - | |||||||
Total current liabilities | 10,545,694 | 2,027,037 | ||||||||
Non-current liabilities | ||||||||||
Trade and other payables | 13 | 2,306,948 | - | |||||||
Total liabilities and equity | 92,214,813 | 35,980,181 | ||||||||
Representing net asset value per Participating share | $1.02 | $0.98 | ||||||||
QANNAS INVESTMENTS LIMITED | |
STATEMENT OF CHANGES IN EQUITY | |
FOR THE YEAR ENDED 31 DECEMBER 2014 |
Management | Participating | Retained | Available for | |||||||||
share capital | share capital | earnings | sale reserve | Total | ||||||||
$ | $ | $ | $ | $ | ||||||||
At 1 January 2013 | 2 | 19,698,302 | 1,266,958 | 1,262,286 | 22,227,548 | |||||||
Issue of participating shares | - | 12,267,047 | - | - | 12,267,047 | |||||||
Distribution | - | - | (3,545,694) | - | (3,545,694) | |||||||
Total comprehensive income | - | - | 3,087,755 | (83,512) | 3,004,243 | |||||||
At 31 December 2013 | 2 | 31,965,349 | 809,019 | 1,178,774 | 33,953,144 | |||||||
At 1 January 2014 | 2 | 31,965,349 | 809,019 | 1,178,774 | 33,953,144 | |||||||
Issue of participating shares | - | 44,673,238 | - | - | 44,673,238 | |||||||
Repurchase of participating shares | - | (1) | - | - | (1) | |||||||
Distribution | - | - | (8,985,342) | - | (8,985,342) | |||||||
Total comprehensive income | - | - | 10,899,906 | (1,178,774) | 9,721,132 | |||||||
At 31 December 2014 | 2 | 76,638,586 | 2,723,583 | - | 79,362,171 | |||||||
QANNAS INVESTMENTS LIMITED | |
STATEMENT OF CASH FLOWS | |
FOR THE YEAR ENDED 31 DECEMBER 2014 |
01.01.14 to 31.12.14 | 01.01.13 to 31.12.13 | ||||||
$ | $ | ||||||
Cash flows from operating activities | |||||||
Total profit for the year before taxation | 10,899,906 | 3,087,755 | |||||
Expenses settled by issue of participating shares | - | 767,049 | |||||
Gain on disposal of quoted investments | - | (1,076,943) | |||||
Loss on disposal of unquoted investments | - | 452,457 | |||||
Loss on disposal of available for sale financial asset | 22,071 | - | |||||
Loss on disposal of freehold land | 40,817 | - | |||||
Gain on movements in fair value of freehold land | - | (2,895,359) | |||||
Non-cash investment income | (2,479,493) | - | |||||
Interest income | (1,661,203) | (2,606,155) | |||||
Interest payable | 44,907 | - | |||||
Unrealised loss on loans receivable | 918,126 | - | |||||
Loss/(gain) on foreign exchange | 42,089 | (17,989) | |||||
Increase in trade receivables | (7,780,248) | (384) | |||||
Increase in receivable from investment manager | (18,000,000) | - | |||||
Increase in trade payables | 950,698 | 1,495,790 | |||||
Net cash outflows from operating activities | (21,399,030) | (793,779) | |||||
Investing activities | |||||||
Interest received | 10,519 | 3,279 | |||||
Issue of loans receivable | (10,381,246) | - | |||||
Purchase of unquoted investments | (6,430,113) | (68,063) | |||||
Disposal of unquoted investments | - | 6,664,500 | |||||
Capital distributions received from unquoted investments | 4,833,660 | - | |||||
Disposal of quoted investments | - | 4,072,586 | |||||
Purchase of freehold land | - | (3,259,878) | |||||
Disposal of freehold land | 6,114,420 | - | |||||
Disposal of available for sale financial assets | 14,908,864 | - | |||||
Net cash inflows from investing activities | 9,056,104 | 7,412,424 | |||||
Financing activities | |||||||
Issue of participating shares | - | 11,499,998 | |||||
Drawdown of bank loan | 9,830,000 | - | |||||
Distribution | (8,985,342) | (3,545,694) | |||||
Net cash inflows from financing activities | 844,658 | 7,954,304 | |||||
Net increase in cash and cash equivalents | (11,498,268) | 14,572,949 | |||||
Effect of foreign exchange movements | (42,089) | 17,989 | |||||
Cash and cash equivalents brought forward | 14,813,456 | 222,518 | |||||
Cash and cash equivalents at end of year | 3,273,099 | 14,813,456 | |||||
QANNAS INVESTMENTS LIMITED | |
NOTES TO THE FINANCIAL STATEMENTS | |
FOR THE YEAR ENDED 31 DECEMBER 2014 |
1. GENERAL INFORMATION
The Company was a limited liability closed-end investment Company incorporated in Jersey on 17 January 2012 with an unlimited life. The Company joined London's Alternative Investment Market ('AIM') on 6 March 2012. The registered office of the Company was 13-14 Esplanade, St Helier, Jersey, JE1 1BD, Channel Islands. On 31 March 2014, the Company migrated to the Cayman Islands as an exempt company and ceased to be a company incorporated under Jersey Company Law on that date. The registered office of the Company is that of Codan Trust Company (Cayman) Limited, Cricket Square, Hutchins Drive, PO Box 2681, George Town, Grand Cayman KY1-1111, Cayman Islands.
The Company's principal activity is that of investing, centred around a theme-based investment approach, which have evolved over the years, starting with a focus on distressed / opportunistic investments in the UAE in 2012 and 2013 and broadening to the acquisition of secondary portfolios of regional PE funds and European real estate investments in 2014. The Company's investment objective is to generate value for Shareholders by creating a portfolio of opportunistic investments in real estate, debt, and equities (both public and private) in the MENA region, Europe and North America. Investments will be made where there is liquidity requirement or portfolio repositioning on the part of a vendor such that assets become available at a discount to their intrinsic value. The Company will aim to acquire such assets and then to dispose of them at a premium to their acquisition cost.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of preparation
The financial statements have been prepared under the historical cost convention, except for the revaluation of certain financial instruments and investments which are included at fair value, and in accordance with applicable International Financial Reporting Standards as endorsed for us in the European Union ('IFRS'). The principal accounting policies are set out below.
Basis of measurement
The Company classifies its investments in the following categories: investments at fair value through profit or loss, loans and receivables and available-for-sale financial assets. The classification depends on the nature and purpose of each investment. The directors determine the classification of its investments at initial recognition.
Investments at fair value through profit and loss
The Company classifies its investments in equity and limited partnership interests as financial assets at fair value through profit or loss.
Investments are recognised and de-recognised on the trade date - the date on which the Company commits to purchase or sell an investment. Investments are initially recognised at cost. Transaction costs are expensed as incurred in the statement of comprehensive income. Investments are derecognised when the rights to receive cash flows from the investments have expired or the Company has transferred substantially all risks and rewards of ownership.
Subsequent to initial recognition, investments are measured at their fair value. Gains and losses arising from changes in the fair value are presented in the statement of comprehensive income within net gains on investments in the period in which they arise.
Dividend income is recognised in the statement of comprehensive income within investment income when the Company's right to receive payments is established.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of financial assets and liabilities traded in active markets (such as publicly traded securities) are based on quoted market prices at the close of trading on the reporting date. The Company utilises the last traded market price for both financial assets and financial liabilities where the last traded price falls within the bid-ask spread. In circumstances where the last traded price is not within the bid-ask spread, the directors will determine the point within the bid-ask spread that is most representative of fair value.
The fair value of financial assets and liabilities that are not traded in an active market is determined using valuation techniques. The Company uses a variety of methods and makes assumptions that are based on market conditions existing at each reporting date. Valuation techniques used include the use of comparable recent arm's length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants making the maximum use of market inputs and relying as little as possible on entity-specific inputs.
Loans receivable
Loans receivable are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are classified as loans and receivables.
Loans receivable are recognised on the date on which the Company commits to provide a loan. The loans are initially recognised at cost. Transaction costs associated with the loans expensed as incurred within the statement of comprehensive income. Loans receivable are derecognised when the rights to receive interest income have expired and the loan has been repaid.
Subsequent to initial recognition, loans receivable are measured at amortised cost using the effective interest rate method, less provision for impairment.
Interest income is recognised in the statement of comprehensive income within interest income - loans receivable when the Company's right to receive payments is established.
Available for sale financial assets
Available for sale ('AFS') investments are initially recognised and subsequently carried at fair value. Gains and losses arising from changes in the fair value are recognised in other comprehensive income. When securities classified as AFS are sold or impaired, the accumulated fair value adjustments recognised in other comprehensive income are included in the statement of profit and loss as 'Loss on disposal of available for sale financial asset'.
Interest on AFS debt instruments is calculated using the effective interest method and is recognised in the statement of comprehensive income as interest income - available for sale financial assets.
Freehold land
The Company classifies its investments in freehold land as a financial asset at fair value through profit or loss.
Freehold land is recognised and de-recognised on the trade date - the date on which the Company commits to purchase or sell a plot. Freehold land is initially recognised at fair value. Transaction costs are expensed as incurred in the statement of comprehensive income. Freehold land is derecognised when the rights to receive cash flows from the land has expired or the Company has transferred substantially all risks and rewards of ownership.
Subsequent to initial recognition, freehold land is measured at fair value. Gains and losses arising from changes in the fair value are presented in the statement of comprehensive income within net gains on investments in the period in which they arise.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Functional and presentational currency
The performance of the Company is measured and reported to the investors in US dollars. The board of directors considers the US dollar as the currency that most faithfully represents the economic effects of the underlying transactions, events and conditions. The financial statements are presented in US dollars, which is the Company's functional and presentation currency.
Use of estimates and judgements
The preparation of the financial statements in conformity with IFRS and applicable Statute law requires the directors to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates with the most significant effects on the carrying amounts of the assets and liabilities in the financial statements are outlined below:
(i) Valuation of unquoted investments - The fair value of these is determined via valuation techniques. For further details of the judgements and assumptions made see note 20.
(ii) Valuation of quoted investments - These are valued at the last traded price on the reporting date and in accordance with IFRS, no discount is applied for the liquidity of the stock or any dealing restrictions.
(iii) Valuation of loans receivable - Loans receivable are held at amortised cost. The directors undertake regular impairment reviews of loans receivable to ensure that they remain recoverable.
(iv) Valuation of freehold land - This is valued with reference to comparison to similar sales transactions. For further details on the judgements and assumptions made see note 20.
(v) Valuation of available for sale financial assets - These are valued using a discounted cash flow methodology. For further details of the judgements and assumptions made see note 20.
Foreign currencies
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign currency assets and liabilities are translated into the functional currency using the exchange rate prevailing at the statement of financial position date.
Foreign exchange gains and losses arising from translation are included in the statement of comprehensive income. Foreign exchange gains and losses relating to cash and cash equivalents are presented in the statement of comprehensive income within '(loss) / gain on foreign exchange. Foreign exchange gains and losses relating to the financial assets and liabilities carried at fair value through profit or loss are presented in the statement of comprehensive income within 'net gains on investments'.
Financial assets and liabilities
The Company classifies its financial assets and liabilities as follows:
Cash and cash equivalents
Cash and cash equivalents includes cash in hand, deposits held at call with banks and other short-term investments in an active market with original maturities of less than three months.
Trade and other receivables
Trade and other receivables are initially recognised at fair value and subsequently carried at amortised cost; their carrying values are a reasonable approximation of fair value.
Trade receivables include the contractual amounts for the settlement of trades and other obligations due to the Company.
Receivable from investment manager
Receivable from investment manager comprises deposits held by the investment manager in order to allow them to facilitate on-going transactions arising from structures at different stages of formation at the year end.
Trade and other payables
Trade and other payables are initially recognised at fair value and subsequently carried at amortised cost; their carrying values are a reasonable approximation of fair value.
Trade and other payables represent contract amounts and obligations due by the Company.
Loans payable
Loans payable are measured initially at cost. Subsequent to initial recognition, they are measured at amortised cost using the effective interest rate method. They are classified as loans and receivables. These financial liabilities are recognised when the Company enters into a Loan Agreement and are derecognised when the loan agreement is terminated.
The effective interest rate method is a method of calculating the amortised cost of a financial liability and of allocating the interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts over the expected life of the financial instrument, in order that the present value of the future cash flows, including fees or transaction costs, is equal to the carrying amount of the financial instrument.
Finance costs associated with loans payable have been spread on an effective interest rate constant basis over the life of the loan.
Shares in issue
Management Shares are not redeemable, do not participate in the net income or dividends of the Company and are recorded at $1.00 per share.
Participating shares in issue are not redeemable at the shareholder's option.
Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable in the normal course of business. The Company recognises revenue when the amount of revenue can be reliably measured and when it is probable that the future economic benefits will flow into the Company.
Taxation
The Company is domiciled in the Cayman Islands and is treated as resident for tax purposes and is subject to the zero per cent standard income tax rate.
Expenditure and transaction costs
All items of expenditure including the performance and management fees are recognised on an accruals basis.
Distributions payable
The payment of dividends will depend on the availability of distributable reserves, cash resources and the working capital requirements of the Company. Dividends paid are included in the Company financial statements in the period in which the related dividends are declared.
Non consolidation
The Company fulfils the definition of an investment entity under IFRS 10 ('Consolidated Financial Statements') and as a result does not consolidate investments in subsidiaries but instead measures its investment at fair value through profit and loss. IFRS 10 defines an investment entity as one that obtains funds from investors for the purpose of providing investors with investment management services, commits to its investors that its purpose is to invest funds solely for returns from capital appreciation, investment income or both and measures and evaluates the performance of substantially all its investments on a fair value basis.
Segmental reporting
The Company is operated as one segment by the board of directors (which is considered to be the Chief Operating Decision Maker).
Operating segments are reported in a manner consistent with the internal reporting used by the chief operating decision-maker. The board of directors is responsible for allocating resources and assessing performance of the operating segments, has been identified as the board of directors.
The directors make the strategic resource allocations on behalf of the Company. The Company has determined the operating segments based on the reports reviewed by the board of directors, which are used to make strategic decisions.
The board of directors is responsible for the Company's entire portfolio and considers the business to have a single operating segment. The board of directors asset allocation decisions are based on a single, integrated investment strategy, and the Company's performance is evaluated on an overall basis.
The Company trades in a diversified portfolio of securities with the objective of generating value for shareholders.
The internal reporting provided to the board of directors for the Company's assets, liabilities and performance is prepared on a consistent basis with the measurement and recognition principles of IFRS.
There were no changes in the reportable segments during the year.
Adoption of new and revised standards
The directors have assessed the impact, or potential impact, of all new accounting requirements. In the opinion of the directors, there are no mandatory new accounting requirements applicable in the current year that have any material effect on the reported performance, financial position, or disclosures of the Company. The Company has not adopted any new accounting requirements that are not mandatory.
Amendments adopted early by the Company
There were no standards, amendments and interpretations which are effective for the financial year beginning on 1 January 2014 that were material to the Company.
New standards and interpretations not yet adopted
A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after 1 January 2014, and have not been applied in preparing these financial statements. None of these is expected to have a significant effect on the financial statements of the Company, except the following:
IFRS 9 Financial Instruments
IFRS 9 addresses the classification, measurement and recognition of financial assets and financial liabilities. The complete version of IFRS 9 was issued in July 2014. It replaces the guidance in IAS 39 that relates to the classification and measurement of financial instruments. IFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortised cost, fair value through OCI and fair value through P&L. The basis of classification depends on the entity's business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are required to be measured at fair value through profit or loss with the irrevocable option at inception to present changes in fair value in OCI not recycling. There is now a new expected credit losses model that replaces the incurred loss impairment model used in IAS 39.
For financial liabilities there were no changes to classification and measurement except for the recognition of changes in own credit risk in other comprehensive income, for liabilities designated at fair value through profit or loss. IFRS 9 relaxes the requirements for hedge effectiveness by replacing the bright line hedge effectiveness tests. It requires an economic relationship between the hedged item and hedging instrument and for the 'hedged ratio' to be the same as the one the directors actually use for risk management purposes. Contemporaneous documentation is still required but is different to that currently prepared under IAS 39. The standard is effective for accounting periods beginning on or after 1 January 2018. Early adoption is permitted, subject to EU endorsement.
The directors anticipate that the application of IFRS 9 in the future may have an impact on the presentation of the Company's financial assets. However, it is not practicable to provide a reasonable estimate of the effect of IFRS 9 until a detailed review has been completed. The directors will undertake this review in due course.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers. Revenue is recognised when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service. The standard replaces IAS 18 'Revenue' and IAS 11 'Construction contracts' and related interpretations. The standard is effective for annual periods beginning on or after 1 January 2017 and earlier application is permitted, subject to EU adoption. The Company is in the process of assessing the impact of IFRS 15.
3. DIRECTORS' REMUNERATION AND INTERESTS
The remuneration of the individual directors who served in the year to 31 December 2014 was:
31.12.14 | 31.12.13 | |||
$ | $ | |||
Jassim Mohamed Alseddiqi | - | - | ||
Richard John Stobart Prosser (see note 23) | 28,796 | 27,757 | ||
Christopher Ward | 33,746 | 27,554 | ||
Andrew Noel Whelan | 14,452 | 27,754 | ||
Richard Green | 15,835 | - | ||
Mustafa Kheriba | - | - | ||
92,829 | 83,065 |
Directors' interests in the shares of the Company including family interest, at 31 December 2014 were:
Share | Nominal | % Held | ||
Jassim Mohamed Alseddiqi | Participating shares | 2,262,442 | * | 2.9% |
Christopher Ward | Participating shares | 100,000 | 0.1% | |
Richard Green | Participating shares | 100,000 | 0.1% | |
Mustafa Kheriba | Participating shares | 609,318 | 0.8% |
* - In addition to the above, Jassim Mohamed Alseddiqi also has an indirect interest in 5,833,454 shares
4. UNQUOTED INVESTMENTS AT FAIR VALUE THROUGH PROFIT AND LOSS
31.12.14 | 31.12.13 | |||
$ | $ | |||
Fair value brought forward | 68,063 | 7,185,020 | ||
Additions | 54,331,232 | - | ||
Capital Distributions | (5,582,049) | - | ||
Disposals | - | (7,116,957) | ||
Unrealised gains on the revaluation of investments | 4,396,700 | - | ||
Fair value at 31 December | 53,213,946 | 68,063 |
Unquoted investments at 31 December 2014 comprise: | ||||||||
Class of | No. of | Percentage | Fair | |||||
shares | shares held | holding | value | |||||
$ | ||||||||
Madaares PJSC | Ordinary | 250,000 | 0.03% | 68,063 | ||||
SPE Qannas C Ltd. | Preference | 8,039,559 | 74.3% | 8,260,249 | ||||
ADCM Secondary Private Equity Fund L.P. | - | - | 96.5% | 39,004,778 | ||||
EE F&B Holding Limited | Ordinary | 1,000 | 100% | 660,137 | ||||
Palace Preferred Partners L.P. | - | - | 22% | 5,220,719 | ||||
53,213,946 |
The investment in Madaares PJSC is valued at cost being the best approximation of fair value at the year end. The Company's exit strategy with regard to this investment is either via a secondary transaction or an initial public offering after around two years.
During March 2014 the Company acquired interests in ADCM Secondary Private Equity Fund L.P. ('ADCM SPEF') and SPE Qannas C ('SPE Qannas C') in exchange for the issue of shares (see note 15). These interests comprised a portfolio of limited partnership interests in private equity funds. The investments were acquired at a discount. Following the acquisition of these investments, the directors revalued them to their estimated Net Asset Value. ADCM SPEF was established for an initial term of five years from 27 July 2011, which can be extended for a further 2 years by approval of the directors of its general partner.
During the year and post-acquisition, ADCM SPEF and SPE Qannas C declared dividends of $3,058,562 and $72,448 respectively.
The loan due to First Gulf Bank PJSC (as detailed in note 14) is secured by way of a charge over the Company's investment in ADCM SPEF.
In October 2014, the Company acquired 100% of the share capital of EE F&B Holding Limited, a company that has signed a franchise agreement with Hard Rock Limited to run the Hard Rock Café in Podgorica, Montenegro. The investment is held at cost, being the best approximation to fair value at the year end.
During October 2014, the Company acquired a 22% interest in Palace Preferred Partners LP. Palace Preferred Partners LP is providing mezzanine finance to a company developing luxury residential apartments at a property located in London, United Kingdom. Under the Limited Partnership agreement with Palace Preferred Partners LP, the Company has committed to providing up to £11,000,000 (US$17,145,040) of which £3,300,000 (US$5,220,719) has been contributed as at 31 December 2014.
5. QUOTED INVESTMENTS AT FAIR VALUE THROUGH PROFIT AND LOSS
31.12.14 | 31.12.13 | |||
$ | $ | |||
Fair value brought forward | - | 2,995,643 | ||
Additions | - | - | ||
Disposals | - | (2,995,643) | ||
Unrealised losses on the revaluation of investments | - | - | ||
Fair value at 31 December | - | - |
At 1 January 2013, quoted investments comprised 20,000,000 shares in A1 Waha Capital held at fair value. These shares were sold in February 2013, resulting in a profit on disposal of $1,076,943 during 2013. The Company held no quoted investments throughout the year ended 31 December 2014 or as at 31 December 2013.
6. LOANS RECEIVABLE
31.12.14 | 31.12.13 | |||
$ | $ | |||
Brought forward | - | - | ||
Additions | 10,381,246 | - | ||
Disposals | - | - | ||
Unrealised losses on foreign exchange | (918,126) | - | ||
9,463,120 | - |
In August 2014, the Company made loans totalling €7,000,500 ($9,396,070). The loans were made in the sum of €6,338,500 to Injaz Eastern Property Development Company Limited, €59,000 to Lucice Montenegro d.o.o. and €603,000 to Arqutino EAD. The loan to Injaz Eastern Property Development Company Limited was utilised to purchase the entire share capital of Arqutino EAD and Lucice Montenegro d.o.o.. The loan facilities with Arqutino EAD and Lucice Montenegro d.o.o. were used by the respective entities to refinance certain debt, financing on-going projects and transaction costs. The loans are repayable in August 2016 and bear interest at the rate of 15% per annum which is capitalised annually in August.
In November 2014, the Company entered into an agreement with Integrated EE Holdings d.o.o. to provide a loan of €785,000 ($985,175) in respect of the development of the Hard Rock Café in Podgorica. The loan bears interest at the rate of 4% per annum and is repayable on 20 November 2016.
Loan interest in respect of the above loans totalling $471,910 is included in the Statement of Comprehensive Income and Trade and other receivables.
The loans to Injaz Eastern Property Development Company Limited, Lucice Montenegro d.o.o. and Arqutino EAD are secured by way of share pledges and mortgage agreements in the underlying companies.
7. FREEHOLD LAND
31.12.14 | 31.12.13 | |||
$ | $ | |||
Fair value brought forward | 6,155,237 | - | ||
Additions | - | 3,259,878 | ||
Disposals | (6,114,420) | - | ||
Loss on disposal | (40,817) | |||
Unrealised gains on the revaluation of freehold land | - | 2,895,359 | ||
Fair value at 31 December | - | 6,155,237 |
On 17 May 2013, the Company purchased land at Reem Island, Abu Dhabi with permission to build up to 63,000 sq. ft. of residential space. The land was purchased at a cost of $3.26 million (AED 12 million). The land was sold in March 2014 for net sales proceeds of $6,114,420 realising a profit of $2,854,542 over purchase price of $3,259,878. The disposal resulted in a reduction of $40,817 over fair value as at 31 December 2013.
8. NET GAINS ON INVESTMENTS
31.12.14 | 31.12.13 | |||
$ | $ | |||
Gain on movement in fair value of unquoted investments (see note 4) | 4,396,700 | - | ||
Gain on movement in fair value of freehold land (see note 7) | - | 2,895,359 | ||
Net gains on investments at 31 December | 4,396,700 | 2,895,359 |
9. AVAILABLE FOR SALE FINANCIAL ASSETS
31.12.14 | 31.12.13 | |||
$ | $ | |||
Fair value brought forward | 14,930,935 | 12,411,571 | ||
Interest income | 1,178,774 | 2,602,876 | ||
Disposals | (14,908,864) | - | ||
Loss on disposal | (22,071) | |||
Unrealised gains on the revaluation of available for sale financial asset | (1,178,774) | (83,512) | ||
Fair value at 31 December | - | 14,930,935 |
In May 2012, the Company entered into a property sale and repurchase agreement with Sheffield Holdings Limited ('Sheffield'), the developer of Marina 101, a landmark high-rise hotel and apartment building located at the Dubai Marina. The Company invested $9.9 million (AED 36,231,500) in this transaction. Sheffield was obliged to repurchase the property at a premium to the acquisition price on or before two years from the acquisition date.
Marina 101 (now renamed Dream Dubai Marina) was classified as an available for sale financial asset and was carried at a value equal to the principal amount multiplied by the repayment multiple of 1.51x. Interest was charged on a daily basis at a constant rate using an effective interest rate of 21%. Unrealised gains on revaluation are recognised in Other comprehensive income.
The asset was sold during May 2014 for net sale proceeds of $14,908,864 (AED 54.8 million) realising a profit of $5,008,913 over purchase price of $9,899,951 (AED 36.3 million). The disposal resulted in a reduction of $22,071 over fair value as at 31 December 2013.
10. TRADE AND OTHER RECEIVABLES
31.12.14 | 31.12.13 | |||
$ | $ | |||
Non-current | ||||
Performance fee rebate receivable (see note 19) | 7,315,202 | - | ||
Current | ||||
Sundry debtors | 34 | 34 | ||
Management fee rebate receivable (see note 19) | 465,925 | - | ||
Loan interest receivable (see note 6) | 471,910 | - | ||
Prepayments | 11,577 | 12,456 | ||
949,446 | 12,490 |
The performance fee rebate receivable will become due at the time of completion of the liquidation of the funds of ADCM Secondary Private Equity Fund L.P. and SPE Qannas C Ltd.
The directors consider that the carrying amount of trade and other receivables approximates to their fair value.
11. RECEIVABLE FROM INVESTMENT MANAGER
Receivable from investment manager represents amounts advanced to ADCM Ltd at the year end for deployment into various investments following the year end.
US$10,000,000 was advanced on 15 November 2014 with a further US$8,000,000 advanced on 18 December 2014.
The receivable is held to facilitate the investment manager forwarding funds into investments of the Company in the most efficient manner.
12. CASH AND CASH EQUIVALENTS
31.12.14 | 31.12.13 | |||
$ | $ | |||
First Gulf Bank | 3,025,001 | 14,414,969 | ||
Barclays Private Clients International | 41 | 41 | ||
HSBC | 265 | - | ||
Royal Bank of Scotland International | 247,792 | 398,446 | ||
3,273,099 | 14,813,456 |
13. TRADE AND OTHER PAYABLES
31.12.14 | 31.12.13 | |||
$ | $ | |||
Non-current | ||||
Performance fees | 2,306,948 | - | ||
Current | ||||
Director fees | 23,964 | 7,251 | ||
Secretarial, administration and accountancy fees | 85,238 | 38,140 | ||
Sundry expenses | 89,523 | - | ||
Investment manager fees | 403,990 | - | ||
Audit fees | 19,639 | 25,275 | ||
Performance fees | - | 1,884,372 | ||
Legal and professional fees | 48,432 | 71,999 | ||
Loan interest payable | 27,674 | - | ||
Participating shares | 1 | - | ||
698,461 | 2,027,037 |
The directors consider that the carrying amount of trade and other payables approximates to their fair value.
14. LOANS PAYABLE
31.12.14 | 31.12.13 | |||
$ | $ | |||
First Gulf Bank | 10,000,000 | - | ||
Capitalised Costs | ||||
On drawdown of First Gulf Bank loan | (170,000) | - | ||
Amortised during the year | 17,233 | - | ||
9,847,233 | - |
On 25 November 2014 the Company drew down $10,000,000 in respect of a loan facility with First Gulf Bank PJSC. The loan is repayable on 25 November 2015 and bears annual interest at the rate of 2.5% plus US LIBOR.
The loan is secured by way of a pledge with First Gulf Bank PJSC in respect of the receivable accounts held by the Company and by way of a charge over the Company's investment in ADCM SPEF.
The loan is initially measured at its net proceeds with the issue costs being spread at a constant rate using the effective interest rate over the life of the loan.
15. SHARE CAPITAL
31.12.14 | 31.12.13 | |||
Management shares | ||||
Authorised: | ||||
2 ordinary non-participating shares of no par value | 2 | 2 | ||
$ | $ | |||
Issued and fully paid: | ||||
2 shares of $1 each | 2 | 2 | ||
Participating shares | ||||
Authorised: | ||||
Unlimited participating shares of no par value | - | - | ||
$ | $ | |||
Issued and fully paid: | ||||
78,133,409 (2013: 34,658,116) participating shares of | ||||
no par value at various issue prices | 76,638,587 | 31,965,349 | ||
Treasury shares: | ||||
1,197,945 (2013: nil) participating shares of no par value redeemed at an aggregate price of $1 | (1) | - | ||
In addition to the above, the Company has two further share classes - redeemable 'B' and redeemable 'C'. Both of these share classes have an unlimited number of participating shares of no par value authorised for issue. At 31 December 2014 and 31 December 2013 no redeemable 'B' shares and redeemable 'C' shares were in issue.
The Management Shares carry no right to receive any dividends, whether by way of finance costs, return of capital or otherwise, other than the return (on a winding up) of the issue price paid on such shares, are non-redeemable and are recorded at $1.00 per share.
Participating Shares carry the right to receive a dividend out of the income of the Company in such amounts and at such times that the directors shall determine, and to receive a dividend on a return of capital of the assets of the Company on a winding up, in proportion to the number of shares held. Participating shares in issue are redeemable at the option of the Company.
During the year, the Company issued an additional 44,673,238 $1 participating shares in exchange for 96.5% Limited Partnership interest in ADCM SPEF L.P. and 74.3% of the issued preference shares of SPE Qannas C Ltd.
During the period, the Company agreed to accept the return of 1,197,945 participating shares from the investment manager for an aggregate price of $1. These shares are held as treasury shares and as such are not entitled to any dividends paid by the Company or any rights to vote at meetings of the Company. At the year end, this amount had not been paid and hence was held within Trade and other payables.
During the prior year, 935,426 no par value participating shares were issued to the investment manager at a price of $0.82 each in consideration for the provision of services pursuant to the Investment Management Agreement. These expenses were recognised in the Statement of Comprehensive Income.
B Shares
This class of share has no rights to receive dividends, to receive notice of or vote at general meetings of the Company or to receive amounts available for distribution on a winding up, for the purpose of a reorganisation or otherwise or upon any distribution of capital.
C Shares
The directors are authorised to issue C Shares of different classes which are convertible into Participating Shares. If the shares were converted into Participating Shares, then these shares would rank equal to, and hold the same rights attaching to, Participating Shares currently in issue at the date of conversion.
This class of share will be entitled to receive such dividends as the directors may resolve to pay to such shares out of the assets attributable to this class of share. This class of share carries no right to attend or vote at any general meeting of the Company. The capital and assets of the Company on a winding up or on a return of capital attributable to this class of share shall be divided amongst the shareholders of this class of share according to their holding.
16. EARNINGS PER SHARE
Earnings per share is calculated by dividing the profit attributable to the participating shareholders of the Company by the weighted average number of participating shares in issue during the year, excluding the average number of participating shares purchased by the Company and held as treasury shares.
Up until 27 March 2014, there were 34,658,116 preference shares in issue. On 27 March 2014 a further 44,673,238 preference shares were issued and 1,197,945 preference shares were repurchased and held in equity. The average number of shares in issue during the year ended 31 December 2014 was 66,974,225.
31.12.14 | 31.12.13 | |||
Total profit for the year after taxation ($) | 10,899,906 | 3,087,755 | ||
Weighted average number of participating shares in issue | 66,974,225 | 34,658,116 | ||
Basic earnings per share ($ per share) | 0.16 | 0.09 |
The Company has not issued any shares or other instruments that are considered to have dilutive potential.
17. TAXATION
Provision has been made in these financial statements for Cayman Islands income tax at 0%.
18. DISTRIBUTIONS
Distributions of $8,985,342 (2013: $3,545,694) were paid during the year.
19. PERFORMANCE FEES
The investment manager is entitled to a fee based upon the performance of the investments (the 'Performance Fee'). The calculation for this fee changed during the year following the acquisition of ADCM SPEF L.P. and SPE Qannas C Ltd.
Performance Fee calculation to 27 March 2014
Up until 27 March 2014, the Performance Fee was payable once the Company had made aggregate distributions in cash to the shareholders, in accordance with the following methodology:
The Company firstly had to make distributions to shareholders equivalent to:
i) their gross share subscription price paid (the 'contributed capital'), and
ii) a premium of 'simple' interest of 7% per annum on the contributed capital (the 'preferred return').
When the thresholds had been met then:
i) on the event of any further cash distributions to shareholders the investment manager was entitled to an equal amount until he had received payments which in total are equivalent to 20% of the amounts distributed to the shareholders in excess of the contributed capital.
ii) when the 20% has been achieved, the investment manager is entitled to 20% of any further cash distributions.
The above calculation was replaced by a new method of calculation that was applied from 27 March 2014.
Performance Fee calculation since 27 March 2014
Under the new method of calculation, the investment manager is entitled to be paid a performance fee in respect of each asset in the Company's portfolio from time to time.
On the disposal by the Company of the whole or part of its interest in any Asset, the investment manager shall be entitled to a Performance Fee equal to 15 per cent. of the amount by which the net disposal proceeds (after deducting the costs incurred and any taxes payable in connection with such disposal) together with the net proceeds of any previous disposal of interests in such Asset (together, the 'Total Proceeds') are greater than the cost (including any fees and expenses) of acquiring the Asset (the 'Acquisition Cost').
For the unquoted investments of ADCM SPEF L.P. and SPE Qannas C Ltd, acquired in March 2014, each of their underlying fund investments will be considered as separate Assets. As such the Acquisition Cost in respect of each underlying fund investment shall be deemed to be such proportion of the ADCM SPEF L.P. and SPE Qannas C Ltd consideration (after being adjusted for the net receivables from ADCM SPEF L.P. and SPE Qannas C Ltd investors (on an individual basis)) as is attributable to such ADCM SPEF L.P. and SPE Qannas C Ltd Assets. Similarly, the date of acquisition of any ADCM SPEF L.P. and SPE Qannas C Ltd asset shall be deemed to be the effective date of 27 March 2014 relating to ADCM SPEF L.P. and SPE Qannas C Ltd.
Any Performance Fee payable by the Company to the investment manager shall be reduced to the extent required to ensure that, in respect of the Asset to which the Performance Fee relates, an amount equal to a simple 7 per cent per annum return on the Acquisition Cost of such Asset from the date of its acquisition to the date on which the Total Proceeds first exceed the Acquisition Cost has been retained by the Company before the payment of any Performance Fee to the investment manager.
Any Performance Fee payable by the Company to the investment manager shall be paid to the investment manager within 10 days of the receipt by the Company of the relevant disposal proceeds.
As a result of the above mentioned change in Performance Fee structure, the Performance Fee accrual has been reduced by $1,149,109.69 during the first quarter of 2014. The investment manager has also returned 1,197,945 participating shares for an aggregate price of $1 which were issued under original agreement to the investment manager in lieu of management fee before 27 March 2014 (see note 15).
Rebates
Following the acquisition of ADCM SPEF L.P., in order to prevent the double-charging of Management and Performance Fees ADCM Ltd (in its capacity as investment manager to ADCM SPEF L.P.) and ADCM SPEF GP Limited (in its capacity as general partner of ADCM SPEF L.P.) entered into an agreement with the Company, such that they shall rebate to the Company any Management Fee or Performance Fee that they receive from ADCM SPEF L.P., which is attributable to the Company's percentage ownership of ADCM SPEF L.P.
Following the acquisition of SPE Qannas C, in order to prevent the double-charging of Performance Fees ADCM Ltd (in its capacity as investment manager to SPE Qannas C) entered into an agreement with the Company, such that they shall rebate to the Company any Performance Fee that they receive from SPE Qannas C.
The Company has accrued Management Fee rebate income in respect of ADCM SPEF L.P. of $465,925 to 31 December 2014 (2013: $nil). The Company has accrued Performance Fee rebate income in respect of ADCM SPEF L.P. and SPE Qannas C Ltd of $7,315,202 to 31 December 2014 (2013: $nil).
The timing of receipt of the Performance Fee rebate is uncertain and is dependent on the realisation of the underlying investments held by ADCM SPEF L.P. and SPE Qannas C Ltd. As such, the Performance Fee rebate has been classified as a non-current asset within the Statement of Financial Position.
20. FINANCIAL RISK MANAGEMENT
The Company's activities expose it to a variety of financial risks: market risk (including price risk, interest rate risk and foreign currency risk), credit risk and liquidity risk. The Company's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Company's financial performance.
The management of these risks is performed by the board of directors. The policies for managing each of these risks are summarised below.
Management of market risk
Price risk
The Company is exposed to market price risk in respect of its portfolio of investments via equity securities price risk. The risk arises from investments held by the Company for which prices in the future are uncertain. Where non-monetary financial instruments are denominated in currencies other than the US dollar, the price initially expressed in foreign currency and then converted into US dollar will also fluctuate because of changes in foreign exchange rates (further details on the foreign exchange risk can be seen later in this note).
The Company mitigates price risk by having established investment appraisal processes and asset monitoring procedures which are subject to overall review by the board. The Company also manages the risk by appropriate diversification of its assets.
Details of the Company's investments are given in notes 4, 5, 6, 7 and 9.
Price risk sensitivity
The table below summarises the impact on the Company's profit before taxation for the year and on equity of a 10 per cent increase / decrease in the price of the investment portfolio. The sensitivity is based on the effect of the market volatility in the current climate and previous experience with regards to the Company's quoted investment.
2014 | |||
Impact of a 10% price change | Unquoted Investments | Total | |
Investment portfolio | 5,321,395 | 5,321,395 |
Interest rate risk
The Company's interest rate risk principally arises from borrowings in the form of the Loan Payable (see note 14) and receivables in the form of Loans Receivable (see note 6).
The Company relies on receipt of investment income and realised gains on investments to meet interest obligations due on the Loan Payable. The Loan Payable is a short term one year facility which bears interest at 2.5% plus US LIBOR. The board has, in consultation with the investment manager, reviewed the terms of the loan and are satisfied that the risk of significant movements in US LIBOR over the term of the loan is low. Through cash flow projections and the structuring of the Company, the board of directors believe the Company will have sufficient cash available to meets its obligations as they fall due and therefore, there is no material interest rate risk.
The Loans receivables carry fixed rates of interest and so there is no risk arising from movement in interest rates on income receivable by the Company.
Foreign exchange risk
The Company operates internationally and is exposed to foreign exchange risk arising from various currency exposures.
Foreign exchange risk is the risk that the fair value of future transactions, recognised monetary and non-monetary assets and liabilities denominated in other currencies fluctuate due to changes in foreign exchange rates. Trade payables are settled within short time periods in order to minimise the fluctuation between expected and actual expenditure.
The Company's investments in financial instruments are valued in US dollars. The Company holds cash deposits denominated in a currency other than US dollars, the functional/presentational currency. Some of the Company's payables are transacted in currencies other than US dollars.
The board considers that its exposure to the level of foreign currency risk is limited since the significant currency assets of the Company are held in AED, GBP and EUR. The AED is 'pegged' to USD and the investment manager monitors EUR and GBP currency movements and proposes any action deemed appropriate.
The table below summarises the Company's assets and liabilities, monetary and non-monetary, which are denominated in a currency other than the US dollar.
(amounts in US dollars) | 31.12.14 | 31.12.13 | ||||||
EUR | GBP | AED | EUR | GBP | AED | |||
Assets | ||||||||
Monetary assets | - | 243,958 | 137 | - | 389,497 | - | ||
Non-monetary assets | 9,935,030 | 2,357 | 68,063 | - | 12,456 | 21,154,235 | ||
Liabilities | ||||||||
Monetary liabilities | - | - | - | - | - | - | ||
Non-monetary liabilities | - | 152,355 | 101,595 | - | 111,535 | - |
The below table summarises the sensitivity of the Company's monetary and non-monetary assets and liabilities to changes in foreign exchange movements at 31 December. The analysis is based on the assumptions that the relevant foreign exchange rate increased/decreased by the percentage disclosed in the table below, with all other variables held constant. This represents the directors' best estimate of a reasonable possible shift in the foreign exchange rates, having regard to historical volatility of those rates.
Currency | Reasonable possible rate shift | 31.12.14 | Reasonable possible rate shift | 31.12.13 | ||
$ | $ | |||||
Euros (EUR) | ||||||
Monetary | + / - 5% | - | + / - 5% | - | ||
Non-monetary | + / - 5% | + / - 496,751 | + / - 5% | - | ||
Pound Sterling (GBP) | ||||||
Monetary | + / - 5% | + / - 12,198 | + / - 5% | + / - 19,925 | ||
Non-monetary | + / - 5% | + / - 7,500 | + / - 5% | + / - 4,954 |
As disclosed above, the AED is 'pegged' to the USD and so no sensitivity analysis has been prepared for AED denominated amounts.
Credit risk
The Company's principal financial assets are Trade & other receivables, Receivable from investment manager, Cash & cash equivalents and Loans receivable.
Credit risk on Trade and other receivables is managed by regular review by the board of directors of the positions with debtors to ensure that amounts included remain recoverable. The board of directors is satisfied that amounts included within Trade and other receivables are recoverable. The Company's maximum exposure in respect of Trade & other receivables is detailed in note 10.
The Company seeks to limit the level of credit risk on the cash balances by only depositing surplus liquid funds with counterparty banks with high credit ratings. The Company does not hold any derivative financial instruments.
The credit risk associated with trading and portfolio investments is considered minimal.
Credit Risk Sensitivity
31.12.14 | 31.12.13 | |||
$ | $ | |||
Cash and cash equivalents | ||||
AA | 3,025,307 | 14,415,010 | ||
A | 247,792 | 398,446 | ||
3,273,099 | 14,813,456 |
The maximum exposure to credit risk on the Company's financial assets is represented by their carrying amount, as outlined in the categorisation of bank balances as seen in note 12.
The Company has significant Loans receivable at the year end. The Board of the directors reviews the position of the counterparty prior to entering into any loan arrangement and the investment manager provides subsequent quarterly updates. The investment manager's review includes review of external ratings, where available, and financial information in respect of the counterparty. Further disclosure in respect of Loans receivable can be seen in note 6.
The receivable from the investment manager was a significant balance at the year end. The board of directors is in regular contact with the investment manager and is comfortable that there are no issues in terms of the security of funds held by the investment manager. The funds are held in a segregated client account by the investment manager and are considered separate from the assets and liabilities of the investment manager and hence considered a secure deposit.
The Company does not consider that any changes in fair value of financial assets in the year are attributable to credit risk.
No aged analysis of financial assets is presented as no financial assets are past due at the reporting date.
The maximum exposure to credit risk before any credit enhancements at 31 December is the carrying amount of the financial assets as set out below.
31.12.14 | 31.12.13 | |||
$ | $ | |||
Loans receivable | 9,463,120 | - | ||
Trade and other receivables | 8,264,648 | 12,490 | ||
Receivable from investment manager | 18,000,000 | - | ||
Cash and cash equivalents | 3,273,099 | 14,813,456 | ||
39,000,867 | 14,825,946 |
Liquidity risk
The Company seeks to manage liquidity risk to ensure that sufficient liquidity is available to meet foreseeable needs and to invest cash assets safely and profitably. The Company deems there is sufficient liquidity for the foreseeable future. The Company has a strong relationship with various financial institutions and has utilised these relationships to borrow funds when necessary. During the year the Company entered into a facility for $10 million from First Gulf Bank and increased this facility by a further US$20 million post year end. The board of directors is comfortable that the Company has sufficient resources to meet the requirements of the Company.
The table below analyses the Company's financial liabilities into relevant maturity groupings based on the remaining period at the statement of financial position date. The amounts in the table are the undiscounted cash flows.
Less than 1 month | 1 to 3 months | 3 to 6 months | 6 to 12 months | More than 12 months | ||
$ | $ | $ | ||||
Trade and other payables | 698,461 | - | - | - | 2,306,948 | |
Loans payable | - | - | - | 9,847,233 | - | |
698,461 | - | - | 9,847,233 | 2,306,948 |
Capital risk management
The Company manages its capital to ensure that it will be able to continue as a going concern while maximising the return to stakeholders.
The capital of the Company is represented by the share capital of the Company. The Company has sufficient assets to cover the Company's liabilities at the statement of financial position date. As such at 31 December 2014 the Company has $76,638,588 of share capital (2013: $31,965,351).
To maintain or adjust the capital structure, the Company may propose dividend payment to the shareholders, buy back shares or issue new shares.
Concentration risk
The Company aims to mitigate concentration risk through investing in companies that operate in a variety of different markets.
Fair value measurements recognised in the Statement of Comprehensive Income
IFRS 13 requires the disclosure of fair value measurements by level of the following fair value measurement hierarchy:
·Quoted prices (unadjusted) in active markets for identical assets (level 1).
·Inputs other than quoted prices included within level 1 that are observable for the asset, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2).
·Inputs for the asset that are not based on observable market data (that is, unobservable inputs) (level 3).
The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.
If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3.
The following table shows an analysis of the fair values of the financial instrument recognised in the Statement of Financial Position by level of the fair value hierarchy:
Level 1 $ | Level 2 $ | Level 3 $ | Total $ | |
2014 | ||||
Unquoted investments | - | - | 53,213,946 | 53,213,946 |
2013 | ||||
Unquoted investments | - | - | 68,063 | 68,063 |
Freehold land | - | 6,155,237 | - | 6,155,237 |
Available for sale financial assets | - | - | 14,930,935 | 14,930,935 |
Investments whose values are based on quoted market prices in active markets, and are therefore classified within level 1, include active listed equities. The Company does not adjust the quoted price for these instruments.
Financial instruments 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. 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 following table sets out the valuation technique used in determination of fair values within level 2 including the key inputs used.
Fair value measurements recognised in the Statement of Comprehensive Income - continued
Item | Valuation approach and inputs used |
Freehold land | The fair value of land is determined using a sales comparison approach. Sale prices of comparable land in a similar location are adjusted for differences in key attributes such as land size. The valuation model is based on price per square metre. |
Investments classified within level 3 have significant unobservable inputs, as they trade infrequently. Level 3 instruments include corporate debt positions. As observable prices are not available for these securities, the Company has used valuation techniques to derive the fair value.
The following table sets out the valuation techniques used in the determination of fair values within level 3 including the key unobservable inputs used and the relationship between unobservable inputs to fair value.
Item and valuation approach | Key unobservable input | Relationship between unobservable inputs and fair value |
Unquoted investments - ADCM SPEF L.P. and SPE Qannas C Ltd The carrying value of the investments is based on valuations provided by the General Partners of the underlying funds. These valuations are based on the latest available reports for the quarter ending 31-Dec-14 which are prepared in line with IPEV Guidelines | Value of the underlying investments within the funds. | An increase in the value shown in the financial reports of the underlying fund would result in the year end valuation being higher and vice-versa. |
Unquoted investment - Madaares Held at cost as it is a small position in an unquoted security. Recent proposal for exit from Madaares confirm the par value of the investment, therefore it is considered that the cost approximates to the fair value. | Share price in the recent exit proposal from the investment position. | An increase in the share price would result in the year end valuation being higher and vice-versa. |
Unquoted investment - EE F&B Holding Limited The carrying value represents the cost of acquiring the rights for using the brand name of Hard Rock Cafe brand. The investment is held at cost as it is recently acquired. Operations commenced post year end and subsequently the methodology will be switched to DCF approach for estimating fair value in the coming year. | The value of the Hard Rock brand may be impaired but this cannot yet be determined with any reliability as the facility has recently opened. | The value of the brand impacts on the year end carrying value. |
Unquoted investment - Palace Preferred Partners LP The carrying value of the investment is based on the valuation provided by the General Partner of Palace Preferred Partners. These valuations are based on the latest available report for the quarter ending 31-Dec-14 prepared in line with IPEV Guidelines. (as per Section II, Clause 4.1 Valuing Fund Interests - IPEV Guidelines) | The value of the underlying investments of Palace Preferred Partners LP | An increase in the value of Palace Preferred Partners LP investment would result in the year end valuation being higher and vice-versa. |
Available for sale financial assets Fair value is determined by applying the repayment multiple based on the agreement dated 19 May 2012 with Sheffield Holdings Limited for the repurchase of the Marina 101 site | Repayment multiple, that is based on the agreement dated 19 May 2012 with Sheffield Holdings Limited | The multiple determines the amount to be repaid. A sensitivity analysis has not been prepared because the multiple is fixed in line with the repurchase agreement. |
Reconciliation of level 3 fair value measurements of financial assets
31.12.14 | 31.12.13 | |||
$ | $ | |||
Balance brought forward | 14,998,998 | 12,479,634 | ||
Purchases (note 4) | 54,331,232 | - | ||
Capital Distributions (note 4) | (5,582,049) | |||
Disposals (note 9) | (14,930,935) | - | ||
Revaluations (note 8) | 4,396,700 | 2,519,364 | ||
Balance at 31 December | 53,213,946 | 14,998,998 |
The Company's policy is to recognise transfers into and out of fair value hierarchy levels as at the date of the event of change in circumstances that cause the transfer.
The following table analyses the Company's financial assets and liabilities by category: -
Assets per statement of financial position | Loans and receivables $ | Assets at fair value through profit and loss $ | Total $ |
31 December 2014 | |||
Unquoted investments at fair value through profit and loss | - | 53,213,946 | 53,213,946 |
Loans receivable | 9,463,120 | - | 9,463,120 |
Trade and other receivables | 8,264,648 | - | 8,264,648 |
Receivable from investment manager | 18,000,000 | - | 18,000,000 |
Cash and cash equivalents | 3,273,099 | - | 3,273,099 |
Total assets | 39,000,867 | 53,213,946 | 92,214,813 |
31 December 2013 | |||
Unquoted investments at fair value through profit and loss | - | 68,063 | 68,063 |
Freehold land | - | 6,155,237 | 6,155,237 |
Available for sale financial assets | - | 14,930,935 | 14,930,935 |
Trade and other receivables | 12,490 | - | 12,490 |
Cash and cash equivalents | 14,813,456 | - | 14,813,456 |
Total assets | 14,825,946 | 21,154,235 | 35,980,181 |
Liabilities per statement of financial position | Liabilities at fair value through profit and loss $ | Other financial liabilities $ | Total $ |
31 December 2014 | |||
Trade and other payables | - | 3,005,409 | 3,005,409 |
Loans payable | - | 9,847,233 | 9,847,233 |
Total liabilities | - | 12,852,642 | 12,852,642 |
31 December 2013 | |||
Trade and other payables | - | 2,027,037 | 2,027,037 |
- | 2,027,037 | 2,027,037 |
21. RETAINED EARNINGS
31.12.14 | 31.12.13 | |||
$ | $ | |||
Balance brought forward | 809,019 | 1,266,958 | ||
Total profit after taxation | 10,899,906 | 3,087,755 | ||
Dividend paid | (8,985,342) | (3,545,694) | ||
Balance at 31 December | 2,723,583 | 809,019 |
Retained earnings represent the cumulative Comprehensive Income net of distributions to owners.
22. AVAILABLE FOR SALE RESERVE
31.12.14 | 31.12.13 | |||
$ | $ | |||
Balance brought forward | 1,178,774 | 1,262,286 | ||
Unrealised gain on the revaluation of available for sale financial asset | (1,178,774) | (83,512) | ||
Balance at 31 December | - | 1,178,774 |
Available for sale reserve represents the cumulative increase in value on available for sale financial assets during the year, less interest.
23. RELATED PARTY TRANSACTIONS
Richard John Stobart Prosser, a director of the Company, is also an officer of Appleby Secretaries (Jersey) Limited, which acted as Company Secretary until 31 March 2014, and Appleby Fund Administrator (Jersey) Limited, which acts as administrator. Secretarial and administration fees and legal and professional fees incurred by the Company with Appleby Fund Administrator (Jersey) Limited and Appleby Secretaries (Jersey) Limited for the year ended 31 December 2014 were $268,554 (2013: $127,394) of which $85,239 (2013: $38,140) was outstanding at 31 December 2014. Administration fees are calculated at an annual rate on the basis of the net asset value ('NAV') of the Company on each NAV calculation date. Administration fees equal to 0.1% of the NAV are payable up to $79 million, with 0.075% payable on net assets above $79 million. The fee is subject to a minimum of £55,000 per annum. In addition to these fees, other administration costs are charged on a time spent basis up to a maximum of £23,000 and finally, a fee of £17,500 per annum is also charged in respect of the provision of one Jersey director.
Jassim Alseddiqi, a director of the Company, is also a Director of ADCM Ltd, which acts as investment manager to the Company. Investment manager fees incurred by the Company with ADCM Ltd for the year ended 31 December 2014 were $1,182,397 (2013: $767,049) of which $403,990 (2013: $nil) was outstanding at 31 December 2014. At 31 December 2014, the investment manager held $18,000,000 on behalf of the Company for onward investment in early 2015.
Management fees are charged by the investment manager in consideration for its management of the Company. The Company in consideration for the provision of services pursuant to the Investment Management Agreement, issued to the investment manager nil (2013: 935,426) no par value participating shares at a price of $nil (2013: $0.82) each, representing 0% (2013: 2.70%) of the total subscription. The investment manager returned 1,197,945 shares in the Company for a total consideration of $1 from ADCM Ltd during the year.
The investment manager will be entitled to be paid a performance fee by the Company, full details of which can be seen in note 19. Performance fees accrued by the Company with ADCM Ltd for the year ended 31 December 2014 were $2,146,759 (2013: $1,486,082) of which $2,306,948 (2013: $1,884,372) were outstanding at 31 December.
Divyesh Mahajan owns 287,487 shares in the Company. Divyesh Mahajan is a full time employee of the investment manager.
ADCM Ltd, the investment manager, owns 2 management shares in the Company.
Richard John Stobart Prosser, a director of the Company, is also a director of Palace Investors Holdings Limited and Mustafa Kheriba and Jassim Alseddiqi, directors of the Company, are also officers of Palace Real Estate Partners GP Ltd. The Company has an investment of $5,220,719 in Palace Preferred Partners LP at 31 December 2014 which hold shares indirectly in Palace Investors Holdings Limited and of which Palace Real Estate Partners GP is the general partner.
Mustafa Kheriba and Jassim Alseddiqi, directors of the Company, are also officers of SPE Qannas C Ltd. The Company has an investment of $8,260,249 at 31 December 2014 in SPE Qannas C Ltd. Dividends totalling $72,448 were received from SPE Qannas C Ltd during the year and was included as part of investment income within the statement of comprehensive income.
Mustafa Kheriba and Jassim Alseddiqi, directors of the Company, are also officers of ADCM SPEF GP Ltd. ADCM SPEF GP Ltd is the general partner of ADCM SPEF L.P. which the Company had an investment of $39,004,778 at 31 December 2014. Dividends totalling $3,058,562 were received from ADCM SPEF L.P. during the year and was included as part of investment income within the statement of comprehensive income.
The Loans receivable from Injaz Eastern Property Development Company Limited, Lucice Montenegro d.o.o. and Arqutino EAD (the 'IEEPDC') which totalled $8,508,968 at the year end, were arranged by Integrated Alternative Finance ('IAF'), a wholly owned subsidiary of Abu Dhabi Financial Group (which is the ultimate parent company of ADCM Ltd, the Company's investment manager) and regulated by the Dubai Financial Services Authority. Jassim Alseddiqi, a director of the Company, is also a director of ADFG, ADCM and of IEEPDC, and of its owner, Injaz MENA Investment Company. IEEPDC will pay a fee to IAF of 3% of the value of the Loan on completion. Interest of $468,624 was recognised in the statement of comprehensive income of the Company in respect of loans to IEEPDC, all of which was outstanding at the year end and included within trade and other debtors.
24. IMMEDIATE HOLDING COMPANY AND ULTIMATE CONTROLLING PARTY
In the directors' opinion there is no controlling or ultimate controlling party.
25. POST BALANCE SHEET EVENTS
In January 2015, the board approved the purchase of 2 premium residential units (penthouses) in the development Marina 101 at Dubai Marina for $2.5 million (AED 9.1 million).
During February 2015, the Company secured a two year term loan facility of $30 million from First Gulf Bank. This is an extension of $20 million to the previous facility of $10 million, which the Company had fully drawn down on 25 November 2014 (see note 13). The Loan has a rate of 2.5% margin over LIBOR and is secured against certain existing assets of the Company. The facility has a covenant of 1.75x net asset value to loan value. Proceeds from the Loan will be used to make further investments in the Company's pipeline of opportunities in UAE, Eastern Europe and Central London. Subsequent to the year end, the Company drew down $10 million of the extended facility on 24 February 2015. Under the loan agreement, $7.5 million is due for repayment in November 2015 and the remaining $22.5 million is due for repayment in November 2016.
The Company entered into an agreement to participate in an investment of ₤3.5 million in BL Development Ltd ('BLD'), a special purpose vehicle incorporated for the development of a mixed use development project in Central London, in April 2015. Holders of the preferred equity instrument are entitled to a preferred return of 14% of their investment per annum, repayable in full (including accrued interest) on or before 31st December 2016. Abu Dhabi Financial Group ('ADFG'), the ultimate controlling shareholder of the Company's investment manager, is also the owner of BLD. Jassim Alseddiqi, director the Company, is also a Director of BLD. The independent directors of the Company (being Richard Green, Christopher Ward and Richard Prosser), consider the terms of the Company's investment in BLD to be fair and reasonable insofar as the Company's independent shareholders are concerned. Subsequent to the year end, the Company invested £1.5m in BLD during April 2015, as part of the project's first capital call.
In June 2015, the Company entered into an agreement, alongside other investors, to participate with an investment of $1.09 million (AED 4 million) in a secured Murabaha issue of $14.15 million (AED 52million) (the 'Issue') by Verne Preferred Limited ('VPL'). VPL is a special purpose vehicle incorporated for the investment by way of preferred equity in Downtown Investments Limited (the 'Borrower') for the development of the Taj Hotel Downtown Dubai, a 296 room five star luxury hotel in Dubai, United Arab Emirates of which it is the freeholder. Holders of the Issue are entitled to a preferred return of between 12-17% of their investment per annum depending on the redemption date with the coupon serviced through a combination of cash and accrued payment in kind. ADFG, the ultimate controlling shareholder of the Company's investment manager, is also a co-investor in the Issue. The Issue been arranged by Integrated Alternative Finance ('IAF'), a related company to ADFG, which is regulated by the Dubai Financial Services Authority. Jassim Alseddiqi and Mustafa Kheriba, directors of the Company, are also directors of IAF. Jassim Alseddiqi is also a director of ADFG. On completion, the Borrower will pay a fee to IAF of 1.75% of the value of the Issue.
As detailed in note 4 the Company has a total commitment of £11m in Palace Preferred Partners ('PPP LP '), an SPV incorporated for the investment by way of preferred equity for the development of 1 Palace Street, which is a luxury residential property. This investment carries a preferred return of 15% IRR, payable from the realized value of the project after the repayment of principal debt. The Company has already contributed £3.3m in November 2014. Subsequent to the year end, the Company invested £1.1m in PPP LP during March 2015, as part of the project's second capital call.
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