RNS Number:6701R
Commoditrade Inc.
22 February 2007
22 February 2007
Commoditrade Inc.
("Commoditrade" or "the Company")
Preliminary Results
Commoditrade, the AIM-listed group specialising in the commodities sector,
announces its audited preliminary results for the year ended 31 December 2006.
Summary of 2006
During the year Commoditrade completed its first two acquisitions since being
admitted to AIM:
* Acquisition of interest in revenue stream from largest trading team on the
London Metal Exchange - acquisition was for #24.4 million in cash and shares
completed 24 April 2006. Deferred consideration in the form of 6 million
ordinary shares is payable if certain performance targets are met. Chris
Adams, head LME trader of LME Trading Team, and Geoffrey Conway-Henderson,
35 years experience international finance, joined the Board of Commoditrade
as non-executive directors.
* AMCO Commodities LLP - economic interest acquired for #1.4 million before
costs in cash and shares completed 4 August 2006
Board changes announced on 17 November - Graham Butt moving to Chief Executive
and Chris Adams to Non-Executive Chairman and Andrew Dobie a new appointment to
Board as Non-Executive Director.
Results 2006
* Strong trading performance from the LME Trading Team generated gross
revenues in 2006 of #41.7 million of which #30.9 million relates to the
period since acquisition. After deduction of Sucden (UK) Ltd's proportion
of clearing and administration costs of #7.7 million Commoditrade's gross
revenue from the LME Trading Team for the eight months was #23.2 million
* Commoditrade's net income for the period was #13.98 million (after direct
costs, financing charges and trader bonuses) giving profit for the year
before amortisation of #13.41 million. After amortisation of #7.49 million
the net profit for the year was #5.92 million.
* Earnings per share before amortisation of 4.64 pence. Basic earnings
per ordinary share of 2.05 pence (2005: 0.20 pence). There was no debt at
the year end and cash balances stood at #6.9 million
Current Trading and Outlook
Graham Butt, Chief Executive of Commoditrade Inc, said:
"Our strategy has been successful in delivering very profitable growth for
shareholders. The LME Trading Team has produced a very strong trading
performance during 2006 which has produced an excellent level of profits for
Commoditrade for the year. We are very encouraged by the performance of the LME
Trading Team in the current year to date which continues to see good volumes and
high volatility levels in the base metals market. We are also seeing continued
growth in the base metals open interest market from international institutions.
Discussions which may or may not lead to an offer being made for Commoditrade
are ongoing and the Board will update shareholders when it is appropriate to do
so."
Enquiries:
John Bick
t: +44 (0) 20 7451 9800 (on 22 February 2007)
m:+44 (0)7917 649362
www.commoditrade.net
CHAIRMAN'S STATEMENT
Results
The Board is pleased to report Commoditrade's audited results for the year ended
31 December 2006 which includes eight months contribution from the LME Trading
Team since the completion by the Company of its acquisition of the Tambelan
Interest.
The LME Trading Team produced a very strong trading performance over the full
year generating gross revenues in 2006 of #41.7 million, of which #30.9 million
relates to the period since acquisition. After deduction of Sucden (UK) Ltd's
proportion of clearing and administration costs of #7.7 million Commoditrade's
gross revenue from the LME Trading Team for the eight months was #23.2 million.
After direct costs, financing charges and trader bonuses net income for the
Company was #13.98 million prior to amortisation of the intangible asset (2005:
#nil) and profit before tax was #13.41 million.
The Company has prepared its accounts under International Financial Reporting
Standards (IFRS) and as a consequence, for the reasons detailed in the attached
notes, the acquisition of the Tambelan Interest is deemed to be an acquisition
of an associate. The underlying asset acquired is deemed to be an intangible
asset which the Directors consider is appropriate to amortise over three years,
again as detailed in the attached notes. As a consequence, the net income of
the Company produced by the LME Trading Team attributable to Commoditrade of
#13.98 million is reduced by the amortisation of the intangible asset of #7.49
million, with the resulting net income of #6.49 million being treated as income
from an associate. The profit before taxation after amortisation was #5.92
million (2005: loss of #180,000).
Basic earnings per share before amortisation was 4.58 pence and after
amortisation was 2.05 pence (2005: loss per share of 0.20 pence).
Acquisitions
Commoditrade joined AIM in March 2005 with the primary objective of building,
through investment and acquisition, a group specialising in the commodities
sector and during the year it completed two acquisitions.
On 24 April 2006 the Company completed its first acquisition for an initial
aggregate consideration of #24.4 million plus costs, acquiring 75 per cent of
the net revenue stream produced by the largest trading team on the London Metal
Exchange (the Tambelan Interest), the world's premier non-ferrous metals market
with highly liquid contracts and a worldwide reputation. The consideration was
satisfied by the payment of #14 million in cash and by the issue of 83.4 million
new ordinary shares at a price of 12.5p pence per share. In addition, a further
6 million deferred consideration shares may be issued on the achievement of
certain performance criteria. The Directors considered at the date of
acquisition, and continue to consider, that these criteria will be met and so
have included the cost of the deferred consideration shares in the cost of the
acquisition. On completion of the LME Trading Team transaction Chris Adams and
Geoffrey Conway-Henderson joined the board of Commoditrade as non-executive
directors. Chris is the head LME trader of the LME Trading Team. He has 19
years experience in the commodities industry, the last 10 years in senior
management and has previously held positions at Billiton Enthoven Metals
Limited, Credit Lyonnais Rouse and AIG International.
The LME Trading Team is well established and has strong client and market
relationships. The LME Trading Team generates income by acting as a
market-maker, buying and selling the metals traded on the exchange and also
dealing as principal trader taking positions subject to pre-set "caps and
collars". Metals traded by the LME Trading Team on the LME are copper,
aluminium, nickel, zinc, lead and tin; with copper, gold and silver also being
traded on New York's Commodity Exchange Inc. There are 11 category one members
of the LME and the LME Trading Team is the largest on the LME. It makes markets
in base metals in the 'open outcry' ring as well as telephone trading and
trading on the LME's electronic trading platform. Since the acquisition was
completed the LME Trading Team has continued to perform very strongly
On 4 August 2006 Commoditrade acquired a 75 per cent interest in the net profits
of commodities investment management company, AMCO Commodities LLP ("AMCO") for
a total consideration of #1.4 million before costs. AMCO, which is regulated by
the FSA, manages the AMCO Commodities Fund Limited which was launched in May
2006 with the objective of raising up to USD500 million over the first three
years of the fund's life. The Company has not received nor is due at 31
December 2006 any income from this interest since acquisition.
The fund's investment strategy is based on identifying fundamental trading
opportunities across a range of base metals including opportunities in the
changes in the directional price of the underlying commodities; relative value
trades in calendar spreads; location arbitrage; and changes in the volatility of
the underlying futures markets. The fund has continued to grow its assets under
management and has a broad investment base with a current value of US$59.5
million. Performance of the fund during the period has also been ahead of
expectations.
Finances and Share Issues
In order to satisfy the cash consideration in respect of the LME Trading Team
acquisition, and to provide working capital for Commoditrade, 144,000,000 new
ordinary shares in Commoditrade were placed with institutional investors at a
price of 12.5 pence per share on 24 April 2006.
The consideration for the AMCO acquisition of #1.4 million was satisfied by
#0.5 million in cash and the issue of 5,000,000 new Ordinary Shares at a price
of 17.75 pence per share on 4 August 2006.
Commoditrade had cash of #6.93 million as at 31 December 2006 and the total
number of ordinary shares in issue was 376.27 million.
Board Changes
On 17 November 2006 the Company announced further Board changes, reflecting the
significant progress made with the business as it continues to grow. Graham
Butt, Executive Chairman was appointed Chief Executive and Chris Adams,
Non-Executive Director, was appointed Non-Executive Chairman. Andrew Dobie (age
42) was appointed to the Board of Commoditrade as Non-Executive Director.
Andrew has worked in the commodities industry for 18 years and joined the LME in
1998 firstly as Assistant Manager in the LME's Market Operations taking over as
Manager of LME's trade floor in 2001 where he managed a team of 11 in the LME's
Market Operations and a further 150 brokers representing 11 Category 1 members
on the trade floor. Andrew had previously operated as a trader on the LME since
1995.
Update on potential offer for the Company
On 7 December 2006 the Directors confirmed that it was in preliminary
discussions with a number of parties regarding a possible offer for the Company
and that there was no certainty that these discussions would lead to a formal
offer being made for the issued share capital of the Company. These discussions
are ongoing and the Company will inform shareholders of further developments as
is appropriate.
Jefferies International Limited was appointed strategic adviser to the Company
earlier in the year. It is wholly owned by Jefferies & Company, Inc, the global
investment bank and institutional securities firm, headquartered in New York.
Current Trading and Outlook
Our strategy has been successful in delivering very profitable growth for
shareholders. The LME Trading Team has produced a very strong trading
performance during 2006 which has produced an excellent level of profits for
Commoditrade for the year.
In the current year to date we are very encouraged by the performance of the LME
Trading Team which continues to see good volumes and high volatility levels in
the base metals market. We are also seeing continued growth in this open
interest market from international institutions.
Graham Butt, Chief Executive Chris Adams, Chairman
22 February 2007 22 February 2007
www.commoditrade.net
Income Statement
For the Year ended 31 December 2006
Year Year Year Period from
ended 31 ended 31 ended 31 6 January 2005 to
December December December 31 December 2005
Note 2006 2006 2006
Result prior to Amortisation
amortisation of of intangible
intangible asset asset within
within associate associate Total Total
Continuing operations #'000 #'000 #'000 #'000
Income from associate 6 13,979 (7,494) 6,485 -
Administrative expenses (663) - (663) (180)
Operating profit/(loss) 13,316 (7,494) 5,822 (180)
Finance income 94 - 94 -
Profit/(loss) for the period before taxation 5,916 (180)
13,410 (7,494)
Tax charge 4 - - - -
Net profit/(loss) for the period 13,410 (7,494) 5,916 (180)
Earnings/(loss) per ordinary share 5
- Basic 2.05p (0.20p)
- Diluted 2.02p -
Income from associates relates to activities acquired in the year.
Statement of changes in equity
For the year ended 31 December 2006
Share Profit
Share based and
capital Share Shares to Translation payment loss
premium be issued reserve reserve account Total
#'000 #'000 #'000 #'000 #'000 #'000 #'000
At 6 January 2005 - - - - - - -
Issue of new shares 103 524 - - - - 627
Issue costs - (165) - - - - (165)
Net loss for the period - - - - - (180) (180)
Share based payment - (20) - - 20 - -
At 31 December 2005 103 339 - - 20 (180) 282
Issue of new shares 273 34,123 1,800 - - - 36,196
Issue costs - (1,010) - - - - (1,010)
Currency translation - - - (459) - - (459)
Net profit for the year - - - - - 5,916 5,916
At 31 December 2006 376 33,452 1,800 (459) 20 5,736 40,925
The shares to be issued relate to the estimated value of shares to be issued in
respect of the acquisition of the associated undertaking.
Balance Sheet
For the year ended 31 December 2006
At 31 At 31
December December
2006 2005
Note #'000 #'000
Assets
Non-current assets
Investment in associate 6 26,231 -
Other receivable 1,052 -
27,283 -
Current
Available for sale financial assets 7 2,064 -
Trade and other receivables 4,772 1,087
Cash and cash equivalents 6,928 179
Total current assets 13,764 1,266
Total assets 41,047 1,266
Liabilities
Current
Trade and other payables 122 984
Total liabilities 122 984
Equity
Share capital 376 103
Share premium 33,452 339
Shares to be issued 1,800 -
Translation reserve (459) -
Share based payment reserve 20 20
Profit and loss account 5,736 (180)
Total equity 40,925 282
Total equity and liabilities 41,047 1,266
Cash flow statement
For the year ended 31 December 2006
Year
ended 31 Period from 6
December January 2005 to 31
2006 December 2005
#'000 #'000
Operating activities
Profit/(loss) after tax 5,916 (180)
Amortisation of intangible asset in associate 7,494 -
Change in trade and other receivables (4,737) (1,087)
Change in trade and other payables (862) 984
Foreign exchange (459) -
Net cash inflow/(outflow) from operating 7,352 (283)
activities
Investing activities
Purchase of associate (16,416) -
Purchase of available for sale financial assets (1,177) -
(17,593) -
Financing activities
Issue of shares 18,000 607
Share issue costs (1,010) (145)
Net cash inflow from financing activities 16,990 462
Net increase in cash and cash equivalents 6,749 179
Cash and cash equivalents at beginning of year 179 -
Cash and cash equivalents at end of year 6,928 179
FOR THE YEAR ENDED 31 DECEMBER 2006
1 ACCOUNTING POLICIES
Basis of preparation
The preliminary announcement has been prepared in accordance with applicable
accounting standards and under the historical cost convention. The Company was
incorporated as a Corporation in the Cayman Islands which does not prescribe the
adoption of any particular accounting framework. The Board had previously
resolved that the Company would follow United Kingdom Accounting Standards and
apply the Companies Act 1985 when preparing its annual financial statements.
The Board have now resolved that Commoditrade Inc. will adopt International
Financial Reporting Standards as adopted by the European Union (IFRS), as
developed and published by the International Accounting Standards Board (IASB),
for the first time in its financial statements for the year ended 31 December
2006. This financial report has therefore been prepared under the historical
cost convention and in accordance the requirements of International Financial
Reporting Standard 1 "First Time Adoption of International Reporting Standards"
relevant to financial reports.
The transition to IFRS reporting has resulted in a number of changes in the
reported financial statements, notes thereto and accounting principals compared
to the previous annual report. Note 2 provides further details on the transition
from UK GAAP to IFRS.
The principal accounting policies of the Company, which have been applied
consistently are set out below.
Associates
Associates are those entities over which the Company is able to exert
significant influence but which are neither subsidiaries nor interests in a
joint venture. Investments in associates are initially recognised at cost and
subsequently accounted for using the equity method.
On initial acquisition of an associate, the investor's share of the net fair
value of the associate's identifiable assets, liabilities and contingent
liabilities is accounted for under IFRS 3 using the purchase method. Any
goodwill arising is treated in accordance with IFRS 3 and is not amortised but
instead is subject to an annual impairment review. Included in the identifiable
assets are intangible assets which meet the relevant recognition criteria. The
underlying intangible assets are thereafter amortised over their useful life.
All subsequent changes to the share of interest in the equity of the associate
are recognised in the Company's carrying amount of the investment. Changes
resulting from the profit or loss generated by the associate are charged against
"income from associates" in the income statement and therefore affect net
results of the Company. These changes include subsequent depreciation,
amortisation or impairment of the fair value adjustments of assets and
liabilities.
However, when the Company's share of losses in an associate equals or exceeds
its interest in the associate, including any other unsecured receivables, the
Company does not recognise further losses, unless it has incurred obligations or
made payments on behalf of the associate. Once the associate then becomes
profit making profits are not recognised until they exceed the share of the loss
that had not previously been recognised.
Unrealised gains on transactions between the Company and its associates are
eliminated to the extent of the Company's interest in the associates.
Unrealised losses are also eliminated unless the transaction provides evidence
of an impairment of the asset transferred.
Intangible assets
Expenditure on intangible assets, including those in the Company's associates,
is capitalised at cost and amortised over its estimated useful economic life.
Impairment reviews
The Company's assets are subject to impairment testing.
For the purposes of assessing impairment, assets are grouped at the lowest
levels for which there are separately identifiable cash flows (cash-generating
units). As a result, some assets are tested individually for impairment and some
are tested at cash-generating unit level. Goodwill in particular is allocated
to those cash-generating units that are expected to benefit from synergies of
the related business combination and represent the lowest level within the
Company at which management controls the related cash flows.
Individual assets or cash-generating units that include goodwill and other
intangible assets with an indefinite useful life or those not yet available for
use are tested for impairment at least annually. All other individual assets or
cash-generating units are tested for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable.
An impairment loss is recognised for the amount by which the asset's or
cash-generating unit's carrying amount exceeds its recoverable amount. The
recoverable amount is the higher of fair value, reflecting market conditions
less costs to sell and value in use, based on an internal discounted cash flow
evaluation. Impairment losses recognised for cash-generating units, to which
goodwill has been allocated, are credited initially to the carrying amount of
goodwill. Any remaining impairment loss is charged pro rata to the other assets
in the cash generating unit. With the exception of goodwill, all assets are
subsequently reassessed for indications that an impairment loss previously
recognised may no longer exist.
Financial assets
The Company's financial assets include available for sale financial assets, cash
and amounts due from associate and other receivables.
All financial assets are recognised on entering into contractual arrangements.
All financial assets are initially recognised at fair value, plus transaction
costs.
Derecognition of financial assets occurs when the rights to receive cash flows
from the investments expire or are transferred and substantially all of the
risks and rewards of ownership have been transferred. An assessment for
impairment is undertaken at least at each balance sheet date whether or not
there is objective evidence that a financial asset or a group of financial
assets is impaired.
Amounts due from associate and other receivables are provided against when
objective evidence is received that the Company will not be able to collect all
amounts due to it in accordance with the original terms of the receivables. The
amount of the write-down is determined as the difference between the asset's
carrying amount and the present value of estimated future cash flows.
Available for sale financial assets include non - derivative financial assets
that are either designated to this category or do not qualify for inclusion in
any other categories of financial assets. All financial assets of the category
are subsequently measured at fair value, unless otherwise disclosed, with
changes in value recognised in equity, net of any effects arising from income
taxes. Gains and losses arising from securities classified as available for
sale financial are recognised in the income statement when they are sold or when
the investment is impaired. In the case of impairment any loss previously
recognised in equity is transferred to the income statement. Gains on equity
instruments are not then recycled through the income statement as these are
dealt with in reserves.
Cash and cash equivalents
For the purposes of the cash flow statement, cash and cash equivalents comprise
cash in hand and amounts repayable on demand with banks and short-term highly
liquid investments which are readily convertible into known amounts of cash
without notice and which were within three months of maturity when acquired.
Equity
An equity instrument is any contract that evidences a residual interest in the
assets of an entity after deducting all of its liabilities.
Share capital is determined using the nominal value of shares that have been
issued.
The share premium account represents premiums received on the initial issuing of
the share capital. Any transaction costs associated with the issuing of shares
are deducted from share premium, net of any related income tax benefits.
Shares to be issued represent future shares to be issued under arrangements in
place at the balance sheet date.
Foreign currency translation differences are included in the translation
reserve.
The share based payment reserve represents the value of services provided under
share based payments.
The profit and loss account includes all current and prior period results as
disclosed in the income statement.
Share based payments
All share based payment arrangements are recognised in the financial statements.
The Company does not currently operate equity settled share based remuneration
plans for remuneration of its employees but has issued a share warrant.
All services received in exchange for the grant of any share based remuneration
are measured at their fair values. These are indirectly determined by reference
to the fair value of the share options/warrants awarded. Their value is
appraised at the grant date and excludes the impact of any non-market vesting
conditions (for example, profitability and sales growth targets).
Share based payments are ultimately recognised as an expense in profit or loss
or included as part of the cost of share issues with a corresponding credit to
the share based payment reserve, net of deferred tax where applicable. If
vesting periods or other vesting conditions apply, the expense is allocated over
the vesting period, based on the best available estimate of the number of share
options/warrants expected to vest. Non-market vesting conditions are included in
assumptions about the number of options that are expected to become exercisable.
Estimates are subsequently revised, if there is any indication that the number
of share options/warrants expected to vest differs from previous estimates. No
adjustment is made to the expense or share issue cost recognised in prior
periods if fewer share options/warrants ultimately are exercised than originally
estimated.
Upon exercise of share options/warrants, the proceeds received net of any
directly attributable transaction costs up to the nominal value of the shares
issued are allocated to share capital with any excess being recorded as share
premium.
Financial liabilities
Financial liabilities represent obligations to deliver cash or another financial
asset to another entity. The Company's financial liabilities include trade and
other payables.
Financial liabilities are recognised when the Company becomes a party to the
contractual agreements of the instrument. All interest related charges are
recognised as an expense in "finance cost" in the income statement.
Trade payables are recognised at their nominal value.
Taxation
Current income tax assets and/or liabilities comprise those obligations to, or
claims from, fiscal authorities relating to the current or prior reporting
period, that are unpaid at the balance sheet date. They are calculated according
to the tax rates and tax laws applicable to the fiscal periods to which they
relate, based on the taxable result for the year. All changes to current tax
assets or liabilities are recognised as a component of tax expense in the income
statement.
Deferred income taxes are calculated using the liability method on temporary
differences. This involves the comparison of the carrying amounts of assets and
liabilities in the consolidated financial statements with their respective tax
bases. In addition, tax losses available to be carried forward as well as other
income tax credits to the Company are assessed for recognition as deferred tax
assets.
Deferred tax liabilities are always provided for in full. Deferred tax assets
are recognised to the extent that it is probable that they will be able to be
offset against future taxable income. Deferred tax assets and liabilities are
calculated, without discounting, at tax rates that are expected to apply to
their respective period of realisation, provided they are enacted or
substantively enacted at the balance sheet date.
Most changes in deferred tax assets or liabilities are recognised as a component
of tax expense in the income statement. Only changes in deferred tax assets or
liabilities that relate to a change in value of assets or liabilities that is
charged directly to equity are charged or credited directly to equity.
Dividends
Dividend distributions to shareholders are included in 'other short term
financial liabilities' when the dividends are approved by the shareholders'
meeting.
Other provisions, contingent liabilities and contingent assets
Other provisions are recognised when present obligations will probably lead to
an outflow of economic resources from the Company and they can be estimated
reliably. Timing or amount of the outflow may still be uncertain. A present
obligation arises from the presence of a legal or constructive commitment that
has resulted from past events, for example, legal disputes or onerous contracts.
Provisions are measured at the estimated expenditure required to settle the
present obligation, based on the most reliable evidence available at the balance
sheet date, including the risks and uncertainties associated with the present
obligation. Any reimbursement expected to be received in the course of
settlement of the present obligation is recognised, if virtually certain as a
separate asset, not exceeding the amount of the related provision. Where there
are a number of similar obligations, the likelihood that an outflow will be
required in settlement is determined by considering the class of obligations as
a whole. In addition, long term provisions are discounted to their present
values, where time value of money is material.
All provisions are reviewed at each balance sheet date and adjusted to reflect
the current best estimate.
In those cases where the possible outflow of economic resource as a result of
present obligations is considered improbable or remote, or the amount to be
provided for cannot be measured reliably, no liability is recognised in the
balance sheet. Probable inflows of economic benefits to the Company that do not
yet meet the recognition criteria of an asset are considered contingent assets.
Functional currency
The functional currency of the Company is United States dollars. However, for
presentation purposes, the financial statements are prepared in United Kingdom
sterling.
Transactions in foreign currencies are translated into the presentational
currency at the approximate rates ruling on the dates of the transactions.
Monetary assets and liabilities denominated in foreign currencies are translated
into the presentational currency at the approximate rates ruling on the balance
sheet date. Gains and losses arising on exchange from the functional to the
presentational currency are taken to the currency translation reserve in equity.
Financial instruments
Financial liabilities and equity instruments are classified according to the
substance of the contractual arrangements entered into. An equity instrument is
any contract that evidences a residual interest in the assets of the entity
after deducting all of its financial liabilities.
Where the contractual obligations of financial instruments (including share
capital) are equivalent to a similar debt instrument, those financial
instruments are classed as financial liabilities. Financial liabilities are
presented as such in the balance sheet. Finance costs and gains or losses
relating to financial liabilities are included in the statement of total return.
Finance costs are calculated so as to produce a constant rate of return on the
outstanding liability.
Where the contractual terms of share capital do not have any terms meeting the
definition of a financial liability then this is classed as an equity
instrument. Dividends and distributions relating to equity instruments are
debited direct to equity.
Impact of recently issued IFRSs
The revised, amended and new IFRSs which are effective for accounting periods
beginning on or after 1 January 2007 may result in changes in the future as to
how the Company's financial performance and financial position are prepared and
presented.
The Company has not early adopted these revised, amended and new standards for
the year ended 31 December 2006. The Company has commenced its assessment of
the impact of these standards but it is not yet in a position to state whether
these standards would have a material impact on its results of operations and
financial position.
Critical judgments
The key judgment the directors have made in preparing these financial statements
is the accounting treatment of the acquisition of the Tambelan Interest. The
Directors have carefully considered the substance of the acquisition and have
concluded that the acquisition represents an investment in an associate and that
the acquisition consideration should be allocated to intangible fixed assets in
respect of the investors share in the underlying net assets of the associate as
determined on acquisition. The rationale supporting these judgments is detailed
in note 6.
Key sources of estimation uncertainty
The key source of estimation uncertainty in preparing the financial statements
is the period over which the underlying intangible asset acquired with the
Tambelan Interest is amortised. The Directors have decided an amortisation
period of three years is appropriate, the rationale for which is detailed in
note 6.
2 TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS
The transition from previous UK GAAP to IFRS has been made in accordance with
IFRS 1, "First-time Adoption of International Financial Reporting Standards".
The Company's financial statements for the year ended 31 December 2006 and the
comparatives presented for the period ended 31 December 2005 comply with all
presentation recognition and measurement requirements of IFRS applicable for
accounting periods commencing on or after 1 January 2005.
The following reconciliations and explanatory notes thereto describe the effects
of the transition for the financial period ended 31 December 2005. All
explanations should be read in conjunction with the IFRS accounting policies of
Commoditrade Inc..
Since Commoditrade Inc. was incorporated on 6 January 2005 that is the
transition date to IFRS. As that was the date of incorporation of the Company
no reconciliation of equity is required at that date.
The re-measurement of balance sheet items as at 31 December 2005 may be
summarised as follows:
Reconciliation as at 31 December 2005 Effect of IFRS
UK GAAP transition
#'000 #'000 #'000
Share premium 359 (20) 339
Share based payment reserve - 20 20
Total adjustment to assets and equity 359 - 359
There is no difference between the profit and loss reported under UK GAAP for
the period ended 31 December 2005 and the profit and loss as reported under
IFRS.
The Company has modified its former balance sheet and income statement structure
on transition to IFRS. The only change is to recognise the share based payment
in connection with the warrants issued to the Company's Nominated Advisor as
part of their fee for services provided in connection with the Admission of the
Company to the AIM market in March 2005.
3 SEGMENTAL REPORTING
(a) By business segment (primary segment):
As defined under International Accounting Standard 14 (IAS14), the only material
business segment the Company has is that of an investment company specialising
in investments in the commodities trading sector.
(b) By geographical segment (secondary segment):
Under the definitions contained in IAS 14, the only material geographic segment
that the Company operates in is currently Switzerland.
4 TAX
There is no tax charge/income for either period. The Company does not operate
in the United Kingdom and there is no tax arising on its operations. The profit
of the associate is not taxable as profits are remitted to Switzerland to a non
Swiss company and are therefore not taxable. The relationship between the
expected tax expense/income at 30% and the tax expense/income actually
recognised in the income statement can be reconciled as follows:
Year Period from 6
ended 31 January
December 2005 to 31
2006 December 2005
#'000 #'000
Profit/(loss) for the period before taxation 5,916 (180)
Tax rate 30% 30%
Expected tax expense/(credit) 1,775 (54)
Income not subject to tax (1,775) -
Losses not recognised as deferred tax asset - 54
Actual tax income - -
5 EARNINGS/(LOSS) PER SHARE
The calculation of the basic earnings/(loss) per share is based on the net
profit for the year of #5,916,000 (period ended 31 December 2005 : loss
#180,000) divided by the weighted average number of shares in issue during the
year of 288,715,832 (period ended 31 December 2005 : 89,529,528).
The diluted profit per share for the year ended 31 December 2006 is based on a
weighted average number of shares in issue on a fully diluted basis of
292,478,563 calculated as follows:
Year
ended 31
December
2006
Weighted average shares in issue 288,715,832
Dilutive impact of warrants 3,762,731
Weighted average diluted shares in issue 292,478,563
The impact of the warrants on the loss per share for the period ended 31
December 2005 is anti-dilutive.
An adjusted earnings per share has also been calculated for the year ended 31
December 2006 based on the profit for the year prior to amortisation of the
intangible asset within the associate of #7.494 million. The adjusted earnings
per share is therefore based on the adjusted net profit for the year of #13.410
million divided by the weighted average number of shares in issue during the
year of 288,715,832 which results is an adjusted earnings per share of 4.64
pence.
The diluted adjusted profit per share for the year ended 31 December 2006 is
based on a weighted average number of shares in issue on a fully diluted basis
of 292,478,563 which results is an adjusted diluted earnings per share is 4.58
pence.
6 INVESTMENT IN ASSOCIATE UNDERTAKING
31 December 31 December
2006 2005
#'000 #'000
Additions in the year at cost 33,725 -
Profit for the financial year 13,979 -
Foreign exchange (239) -
Amortisation (7,494) -
39,971 -
Included in trade and other receivables (4,473) -
Cash received from associate (9,267) -
Net book value at 31 December 26,231 -
The investors underlying share of the assets of the associate acquired
represents an intangible asset of #33,725,000 against which amortisation of
#7,494,000 has been charged, leaving a net book value of #26,231,000 together
with a offsetting debtor and creditor of #4,473,000 due from Sucden (UK) Limited
(Sucden) to the associate and from the associate to the Company.
On 25 April 2006 the Company acquired the Tambelan Interest for the an initial
aggregation consideration of #24.4 million, of which #14 million was settled in
cash and the balance in shares, together with deferred consideration in the form
of 6 million ordinary shares payable if certain performance targets are met.
The professional costs incurred on the acquisition amounted to #7.5 million
which includes cash expenses and the value of new ordinary shares issued to
settle certain transaction costs. The value of the deferred consideration has
been estimated at #1.8 million. The cash element of the consideration and the
costs were funded by a placing of 144 million ordinary shares at 12.5p per share
raising #18 million before expenses.
The Tambelan Interest was an agreement entered into between Tambelan Company
Limited (Tambelan) and Sucden pursuant to which Tambelan introduced a London
Metals Exchange Trading Team (the LME Trading Team) to Sucden. Tambelan agreed
to underwrite losses generated by the LME Trading Team in consideration for
Tambelan receiving 75% of the trading profits (which is gross income from buying
and selling metals contracts plus commission received from clients less the
direct personnel costs (including bonuses) of the LME Trading Team, execution
charges, credit facility charges and the cost of maintaining the required
initial margin funding at cost) attributable to that team. Sucden is one of the
11 "category one" members of the LME and the LME Trading Team makes markets in
base metals in the ring as well as via telephone trading. It also trades on the
LME's electronic trading platform.
The current key terms of the Tambelan Agreement, which were revised at the time
of the acquisition, are:
* The Tambelan Agreement has an indefinite term but can be terminated
after 12 months by either party giving 12 months notice to the other or by
Sucden immediately upon the occurrence of an event of default (as described by
the Tambelan Agreement). The remaining minimum term of the Tambelan Agreement
from acquisition was therefore two years.
* Tambelan undertakes to compensate Sucden for all trading losses after
direct costs, without limit, incurred as a result of trading LME contracts;
* Sucden will employ the LME Trading Team, and authorises the LME Trading
Team to trade instruments and investments on behalf of Sucden. Trading by the
LME Trading Team is subject to FSA requirements, the rules of the LME and
Sucden's internal rules.
6 INVESTMENT IN ASSOCIATE UNDERTAKING (CONTINUED)
* Sucden will pay Tambelan 75% of:
i the amount calculated by Sucden as representing the net profit
resulting from buying and selling contracts (which include both open positions
and realised positions) and shall be deemed to be the whole amount of such
profit or loss whether or not the LME Trading Team were trading within limits
set by Sucden; and
ii commission received from clients,
less:
i direct personnel costs of the LME Trading Team, execution charges,
credit facility charges and the cost of maintaining the required initial margin
funding at cost; and
ii the total discretionary bonus payable by Sucden to the members of the
LME trading team.
Coterminous with the acquisition of the Tambelan Interest, the Company also
entered into an agreement with each of the LME Trading Team pursuant to which,
in the event that Sucden terminates the Tambelan Agreement, each member of the
LME Trading Team agreed upon received by him of a written request from the
Company, at any time up until 30 April 2008 to serve notice upon Sucden to
terminate his employment with Sucden; and accept the written offer of employment
that will accompany the Company's request, providing that the offer of
employment is from a company with relevant resources that would allow the
relevant member of the LME Trading Team to trade on the LME and provides for
remuneration and benefits that are not less than those to which the relevant
member of the LME Trading Team is entitled and contains other key terms
substantially similar to those in his current contract of employment with
Sucden. Any offer made to any member of the LME Trading Team will be subject to
that member not being in breach of his legal and fiduciary obligations to Sucden
and to obtaining all necessary regulatory consents.
The Directors consider that the Company has acquired a business as they have
acquired an integrated set of activities, in that they have the access to a seat
on the LME through Sucden and their consequential access to the LME Trading
Team, from which the Company obtains a return. Therefore the substance of the
transaction between the Company and Sucden is that the Company acquired an
interest in a business in accordance with IFRS 3 Business combinations. The
Company has the rights to receive 75% of the profits and is responsible for all
of the losses of the business, the right to terminate the agreement by
exercising due notice and until 30 April 2008, if Sucden terminates the
contract, then the Company has the legal right to obtain the employment services
of the LME Trading Team. However, the Company does not employ the LME Trading
Team, nor can it direct how they operate. As a consequence the Company is in a
position to exercise significant influence, but not control, over the business
and therefore the acquisition of the Tambelan Interest has been accounted for as
an associate.
IFRS 3 requires the fair value of the underlying balance sheet value of the
associate to be considered on acquisition. The assets of the business are a
combination of access to an exclusive license to allow it to earn income from
the London Metal Exchange together with access to the services of a specialist
team of traders. The Directors consider that the only intangible asset acquired
is the exclusive licence to allow it to earn income from the LME, the fair value
of which also comprises the back-up, including the LME Trading Team, required to
exploit the value of that licence.
6 INVESTMENT IN ASSOCIATE UNDERTAKING (CONTINUED)
Given the influence the Company is able to exert over the LME Trading Team, as
detailed above, it is considered unlikely that Sucden will give notice to
terminate until 30 April 2008 at the earliest with the result being that the LME
Trading Team will trade for the Company's benefit (for 75% of the net revenue
stream) until at least 30 April 2009 and even after 30 April 2008 they could
still give notice to terminate to Sucden, without being forced to by the
Company. On this basis the Directors consider that the useful economic life of
the intangible asset acquired on acquisition of the business is three years. It
should also be noted that the Tambelan Agreement has operated for approximately
six years without either party to the agreement giving notice to terminate.
As the Company's activities comprise that of an investment company the Directors
consider the share of the profit of the associate forms part of the operating
activities and have therefore included it as part of the operating profit in the
income statement
7 AVAILABLE FOR SALE FINANCIAL ASSETS
On 4 August 2006 the Company acquired a 75% interest in the net profits of
commodities investment management company, AMCO Commodities LLP ("AMCO") for a
total consideration of #1.4 million before costs which was satisfied #0.5
million in cash and the issue of 5,000 000 ordinary shares at a price of 17.75p.
AMCO manages the AMCO Commodities Fund Limited, whose investment strategy is
based on a research driven approach of seeking out fundamental trading
opportunities across a range of base metals, into which the Company has invested
US$1million during the year.
The Company is unable to exert any influence over the above assets and therefore
they have been designated as available for sale financial assets in accordance
with IAS 39. In the opinion of the directors the fair value of these financial
asset at 31 December 2006 is not materially different to their original cost and
therefore the directors consider it reasonable to continue to carry the assets
at this value as at 31 December 2006.
8 PUBLICATION OF NON-STATUTORY ACCOUNTS
The financial information set out in this preliminary announcement does not
constitute statutory accounts as defined in section 240 of the Companies Act
1985.
The balance sheet at 31 December 2006 and the income statement, statement of
changes in equity, cash flow statement and associated notes for the year then
ended have been extracted from the Company's 2006 statutory financial statements
upon which the auditors opinion is unqualified and does include any statement
under Section 237 of the Companies Act 1985.
The annual report for the year ended 31 December 2006 will be sent to
shareholders shortly. The Annual General Meeting of the Company will be held at
30 Quai Gustave-Ador, 1207, Geneva 3, Switzerland on 22 March 2007 at 10.00am.
--------------------------
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR TBMTTMMMTTLR_SN_RNS6701R_SU_RNSTEST_XX_070257.4022_RZ__RT_R.xRoute.0.2
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