RNS Number:3791S
Queen's Walk Investment Limited
06 March 2007
6 March 2007
Queen's Walk Investment Limited
Financial Results for the Quarter
ended 31 December 2006
Queen's Walk Investment Limited ("Queen's Walk") is a Guernsey-incorporated
investment company listed on the London Stock Exchange. The Company's investment
objective is to preserve capital and to provide stable returns to shareholders
in the form of quarterly dividends. To achieve this, Queen's Walk invests
primarily in a diversified portfolio of subordinated tranches of asset backed
securities, including the unrated "equity" or "first loss" residual income
positions typically retained by the banks or other financial institutions which
have originated the loan assets that collateralise a securitisation transaction.
The Company makes such investments where its investment manager, Cheyne Capital
Management (UK) LLP ("Cheyne Capital"), considers the coupon or cashflows from
the investment to be attractive relative to the credit exposure of the
underlying asset collateral. For more information regarding Queen's Walk, please
visit www.queenswalkinv.com or call Caroline Villiers: +44 20 7153 1521.
Highlights
*Queen's Walk generated distributable net profit of Euro9.5 million and
earnings per ordinary share of Euro0.23 for the quarter
*An interim quarterly dividend of Euro0.23 per share has been declared,
resulting in a cumulative interim dividend of Euro0.75 for the financial year
to date
*Although the majority of the Company's investments continued to perform
better than or in line with expectations, the performance of certain UK
assets led to an adjustment to current prepayment and default assumptions.
The net effect of all adjustments was a reduction of the Company's asset
portfolio and a charge to income of Euro2.7 million for the quarter
*The Company's diversified investment portfolio totals Euro565.0 million as
at 31 December 2006, with net indebtedness of Euro160.8 million, representing
approximately 28.5% of the investment portfolio
*NAV per share has declined marginally to Euro9.90 from Euro9.93 per share as at
30 September 2006
*The weighted average yield of new assets added to the Company's
investment portfolio was 13.5% in local currency terms. After taking both
new assets and valuation adjustments into account, the weighted average
yield for the investment portfolio as a whole decreased slightly to 12.9%
from 13.1% as at 30 September 2006
*The Company added five new assets to its investment portfolio in the
quarter and Cheyne Capital continues to evaluate new investment
opportunities
*The Directors will seek the requisite shareholder authorities to enable
the Company to buy back shares up to 9.99% of its existing share capital
without requiring an offer to be made for the Company's shares by the
"concert party"
Financial Highlights
+--------------------+------------+------------+-----------+------------+
| |Q3 - Quarter|Q2 - Quarter|Q1 - |Period from |
| |ended 31 |ended 30 |Quarter |6 September |
| |December |September |ended 30 |2005 to 31 |
| |2006 |2006 |June 2006 |March 2006 |
| | | | | |
+--------------------+------------+------------+-----------+------------+
|Operating income | Euro14,484,653| Euro15,674,473|Euro14,992,921| Euro12,480,487|
+--------------------+------------+------------+-----------+------------+
|Operating expenses | (2,658,532)| (3,349,855)|(2,813,090)| (2,455,408)|
+--------------------+------------+------------+-----------+------------+
|Finance costs | (2,317,658)| (1,772,011)|(1,182,461)| (260,052)|
+--------------------+------------+------------+-----------+------------+
|Net profit | 9,508,463| 10,552,607| 10,997,370| 9,765,027|
+--------------------+------------+------------+-----------+------------+
|Distributable net | 9,508,463| 10,583,319| 10,599,894| 9,765,027|
|profit | | | | |
+--------------------+------------+------------+-----------+------------+
|Earnings per share | 0.23| 0.26| 0.27| 0.24|
+--------------------+------------+------------+-----------+------------+
|Distributable | 0.23| 0.26| 0.26| 0.24|
|earnings per share | | | | |
+--------------------+------------+------------+-----------+------------+
| | | | | |
+--------------------+------------+------------+-----------+------------+
|Total assets | 517,883,247| 520,550,381|531,153,613| 493,842,561|
+--------------------+------------+------------+-----------+------------+
|Total liabilities | 132,475,401| 117,194,951|127,789,393| 91,773,445|
|(incl. financing) | | | | |
+--------------------+------------+------------+-----------+------------+
|Equity capital | 402,302,497| 403,355,430|403,364,220| 402,069,116|
+--------------------+------------+------------+-----------+------------+
|NAV per share | 9.90| 9.93| 9.93| 9.90|
+--------------------+------------+------------+-----------+------------+
Third Quarter Dividend
The Board of Directors has declared an interim quarterly dividend for the period
ended 31 December 2006 of Euro0.23 payable on 9 April 2007 to shareholders of
record on 16 March 2007.
Conference Call
A conference call to review the Company's financial results for the quarter
ended 31 December 2006 will take place at 8:30 a.m. London time on 6 March 2007.
All interested parties are welcome to participate on the live call. You can
access the conference call by dialing +44 20 7138 0835 (or +1 718 354 1172 from
the US) ten minutes prior to the scheduled start of the call; please reference
Queen's Walk Investment Limited Financial Results.
A webcast of the conference call will be available on a listen-only basis at
www.queenswalkinv.com. Please allow extra time prior to the call to visit the
site and download the necessary software required to listen to the internet
broadcast. A replay of the webcast will be available for three months following
the call.
Company Performance
In accordance with the Investment Manager's valuation methodology, adjustments
were made to default and prepayments assumptions in respect of the quarter ended
31 December 2006. Generally, the curves used to value the assets were adjusted
to reflect higher default rates in the UK, stable default rates in Europe and
the US, and generally lower prepayment rates globally.
While the Investment Manager's initial changes to asset valuations in the course
of the quarter had a relatively muted impact on income and NAV, performance data
subsequently received in respect of certain UK assets reflected a higher than
expected upturn in prepayment rates that was not offset by an increase in income
from prepayment charges. While prepayment rates appear to be slowing generally
in the UK, this upturn was related to borrowers whose mortgage loans had
recently reverted from a discounted (or "teaser") mortgage interest rate to a
full mortgage interest rate. This performance data led the Investment Manager to
further adjust its valuations in respect of these assets. The net effect of
these and all other adjustments to asset valuations was a reduction of the
Company's investment portfolio and a charge to income in the quarter of Euro2.7
million. The Company issued a press release on 20 February 2007 to announce this
charge to income and to adjust its dividend targets.
As a result of the charge taken to income in the quarter, the Company's total
revenues for the quarter declined by 7.6% to Euro14.5 million. Net profit for the
quarter was Euro9.5 million, a decrease of 9.9% on the previous quarter. This net
profit translates into distributable earnings of Euro0.23 per share.
The Company's investment portfolio as at 31 December 2006 (including amounts
receivable under total return swap agreements but excluding cash) totalled Euro565
million, compared to Euro531 million as at 30 September 2006. The Company's net
indebtedness as at 31 December 2006 (including amounts payable under total
return swaps and net of cash) totalled Euro160.8 million, compared to Euro126.1
million as at 30 September 2006. In percentage terms, leverage on the portfolio
at the end of the quarter was 28.5%, compared to 23.7% as at 30 September 2006.
The weighted average leverage ratio during the quarter was 26.5%.
Five assets were added to the Company's portfolio in the quarter. As highlighted
at the end of the previous quarter, the Company has sought to increase portfolio
exposure to the Small-and-Medium Enterprise (SME) sector. Over the quarter ended
31 December 2006, SME residual positions totalling approximately Euro39.4 million
were added to the portfolio. Consequently, the Company's exposure to the SME
sector has increased from approximately 4% to 9.3% of the portfolio. These
acquisitions were funded with proceeds from the redemption of certain
investments, principal repayments and external financing.
The weighted average yield of the Company's investment portfolio in local
currency terms decreased slightly to 12.9% from 13.1% as at 30 September 2006.
This reduction is due to a decrease in the overall portfolio yield that resulted
from revising the individual booking yields for the assets in the portfolio to
take account of changes to assumptions. The reduction was partially offset by
the addition of new assets in the quarter, including SME residual positions. The
weighted average yield of assets added during the quarter was 13.5% in local
currency terms.
Portfolio Overview
The Company's investment portfolio as at 31 December 2006 is comprised of 28
investments in total. While the portfolio remains well diversified both
geographically and by asset class, it continues to be backed predominantly by
residential mortgages - the largest European asset class. As at 31 December
2006, the portfolio was comprised of: 86% RMBS (87% as at 30 September 2006); 9%
(SME) (4%); and 5% ABS CDO (9%). The geographic breakdown of the portfolio as at
31 December 2006 relative to the portfolio as at 30 September 2006 (net of
foreign exchange movements) is set out in the tables that follow.
+----------------------------------------------------------+
|Queen's Walk Portfolio Breakdown by Jurisdiction as at 31 |
|December 2006 |
| |
| |
+------------------------+---------------------------------+
|UK |54% |
+------------------------+---------------------------------+
|US |12% |
+------------------------+---------------------------------+
|ABS CDO |5% |
+------------------------+---------------------------------+
|Germany |7% |
+------------------------+---------------------------------+
|Holland |3% |
+------------------------+---------------------------------+
|Italy |5% |
+------------------------+---------------------------------+
|Portugal |14% |
+------------------------+---------------------------------+
+----------------------------------------------------------+
|Queen's Walk PortfolioBreakdown by Jurisdiction as at 30 |
|September 2006 |
| |
| |
+------------------------+---------------------------------+
|UK |52% |
+------------------------+---------------------------------+
|US |13% |
+------------------------+---------------------------------+
|Italy |6% |
+------------------------+---------------------------------+
|Holland |2% |
+------------------------+---------------------------------+
|Germany |3% |
+------------------------+---------------------------------+
|Portugal |15% |
+------------------------+---------------------------------+
|ABS CDO |9% |
+------------------------+---------------------------------+
Buy Back of Company Shares
The Directors are mindful of the need to manage the share capital of the Company
for the benefit of all shareholders and have decided that they wish to have in
place all necessary authorities to enable a managed programme of share buybacks
of up to 9.99% of the issued share capital of the Company to commence as soon as
practicable.
On listing, the Directors were given authority to purchase the Company's own
shares up to a maximum of 9.99% of the Company's share capital on completion of
the initial public offering. However, as disclosed in the Company's prospectus,
Cheyne ABS Opportunities Fund LP holds 44.1% of the Company's shares and parties
deemed by the City Code on Takeover and Mergers (the "Code") to be acting in
concert with it (together the "Concert Party") hold a further 1.7% of the
Company's shares. If the Company were to repurchase shares such that the Concert
Party's percentage holding were to increase, the Concert Party would, unless the
Panel on Takeovers and Mergers (the "Panel") agreed otherwise, be required by
the Code to make an offer for all the shares in the Company not held by it.
Following consultation with the Panel, the Company intends, at the earliest
practicable opportunity, to seek the approval of shareholders, in accordance
with the "whitewash" procedures in the Code to effect repurchases of shares in
circumstances where as a result of such repurchases the holdings of the Concert
Party and of Cheyne ABS Opportunities Fund LP may increase.
Outlook
While the Company has limited exposure to US assets (which account for
approximately 12% of the Company's investment portfolio as at 31 December 2006)
and while those assets have performed broadly in line with expectations, recent
movements in the US ABS market indicate that a negative sentiment has spread
from concerns regarding particular sub-prime loan vintages to the entire US
sub-prime market and to other segments of the mortgage market. These market
movements reflect a wider and higher range of discount rates as well as an
increase in implied future cumulative loss rates, some of which are
significantly in excess of the cumulative loss rates projected for the Company's
assets and historic cumulative loss rates across the entire market. As the
accounting policies of the Company require valuation of the Company's assets at
fair value, these higher discount rates and the increased credit risk implied by
the market may have a material adverse impact on the valuation of the Company's
US assets for the quarter ended 31 March 2007. Any resulting adjustment to
valuations will be charged through the income statement and will reduce the net
asset value of the Company (in accordance with the Company's accounting policy).
As valuation changes arising from higher discount rates do not have an impact on
the cash flows generated by its portfolio, the Company does not expect that any
significant adjustments will be made to distributable profits or that the amount
of future dividends will be affected.
The Company's dividend target for the quarter ended 31 March 2007 is Euro0.22 to
Euro0.25 per share. The reason for this range is that the Investment Manager is
continuing to assess the significance of recent prepayment activity by borrowers
reverting to full mortgage interest rates. As the level of actual prepayment
activity relative to the Investment Manager's assumptions will impact the
effective yield and valuation of a particular asset, the Company's earnings and
target dividends may be affected. While the Investment Manager has made prudent
adjustments to its prepayment assumptions in respect of the Company's UK asset
portfolio, it will continue to evaluate them further as additional performance
data is received.
Consistent with its increased focus on SME investments in recent quarters, the
Company expects to continue rebalancing its investment portfolio in order to
diversify risk and to further enhance portfolio yield. While asset dispositions
to effect this rebalancing may entail some minor volatility in both quarterly
earnings and NAV going forward, the Company maintains its dividend target for
the financial year ended 31 March 2008 of not less than Euro1.00 per share.
For further information please contact:
Investor Relations:
Caroline Villiers +44 (0) 20 7153 1521
Cheyne Capital:
Nicole von Westenholz +44 (0) 20 7031 7482
About the Company:
Queen's Walk Investment Limited is a Guernsey-incorporated investment company
listed on the London Stock Exchange. The Company's investment objective is to
preserve capital and to provide stable returns to shareholders in the form of
quarterly dividends. To achieve this, Queen's Walk invests primarily in a
diversified portfolio of subordinated tranches of asset backed securities,
including the unrated "equity" or "first loss" residual income positions
typically retained by the banks or other financial institutions which have
originated the loan assets that collateralise a securitisation transaction. The
Company makes such investments where its investment manager, Cheyne Capital
Management (UK) LLP, considers the coupon or cashflows from the investment to be
attractive relative to the credit exposure of the underlying asset collateral.
The Company believes that its investment focus provides equity investors with
exposure to a relatively new investment opportunity in this asset class.
The content of this announcement includes statements that are, or may be deemed
to be, "forward-looking statements". These forward-looking statements can be
identified by the use of forward-looking terminology, including the terms
"believes", "estimates", "anticipates", "expects", "intends", "may", "will" or
"should". They include the statement regarding the target aggregate dividend. By
their nature, forward-looking statements involve risks and uncertainties and
readers are cautioned that any such forward-looking statements are not
guarantees of future performance. The Company's actual results and performance
may differ materially from the impression created by the forward-looking
statements. The Company undertakes no obligation to publicly update or revise
forward-looking statements, except as may be required by applicable law and
regulation (including the Listing Rules).
Any target dividends are based on certain assumptions as to future events which
may not prove to be realised. Due to the uncertainty surrounding these future
events, the targets are not intended to be and should not be regarded as profits
or earnings forecasts. There can be no assurance that these targets will be
achieved or that the Company will be able to pay dividends at the target levels
or at all. The payment of any target dividends is subject to the Company
generating sufficient profits or having sufficient retained earnings and there
can be no assurance that this will be the case. Any target dividends that the
Company may announce from time to time should not be regarded as providing any
guidance regarding the level of the Company's distributable net income for any
period. The Company may revise its dividend policy from time to time.
The following extracts from the accounts of the Company for the quarter ended 31
December 2006 are unaudited.
Unaudited Consolidated Income Statement
For the quarter ended 31 December 2006
Note Quarter Quarter Quarter Period from
ended 31 ended 30 ended 30 6 September
December September June 2006 2005 to
2006 2006 March 2006*
Euro Euro Euro Euro
Operating income 14,484,653 15,674,473 14,992,921 12,480,487
Operating expenses
Other operating expenses (2,658,532) (3,349,855) (2,813,090) (2,455,408)
Finance costs (2,317,658) (1,772,011) (1,182,461) (260,052)
Total operating expenses (4,976,190) (5,121,866) (3,995,551) (2,715,460)
Net profit 9,508,463 10,552,607 10,997,370 9,765,027
Distributable profits 2 9,508,463 10,583,319 10,599,894 9,765,027
Non-distributable profits 2 - (30,712) 397,476 -
9,508,463 10,552,607 10,997,370 9,765,027
Retained distributable
profits at the start of
the quarter 2 10,637,862 10,615,940 9,765,027 -
Distributions to the
Ordinary Shareholders 2 (10,561,396) (10,561,397) (9,748,971) -
Distributable profits
for the quarter 2 9,508,463 10,583,319 10,599,894 9,765,027
Retained distributable
profits at the end of the 9,584,929 10,637,862 10,615,940 9,765,027
quarter
Earnings per Ordinary Share
Basic Euro 0.234 Euro 0.260 Euro 0.271 Euro 0.240
Diluted Euro 0.234 Euro 0.259 Euro 0.269 Euro 0.238
Retained distributable profits
per Ordinary Share
Basic Euro 0.23 Euro 0.26 Euro 0.26 Euro 0.24
Diluted Euro 0.23 Euro 0.26 Euro 0.26 Euro 0.23
Weighted average Ordinary Number Number Number Number
Shares outstanding
Basic 40,620,756 40,620,756 40,620,756 40,620,756
Diluted 40,661,625 40,721,759 40,852,819 41,053,527
All items in the above statement are derived from continuing operations.
All income is attributable to the Ordinary Shareholders of the Company.
* The Company commenced its operations on 8 December 2005.
Unaudited Consolidated Statement of Changes in Shareholders' Equity
For the quarter ended 31 December 2006
Share Share Other Capital Accumulated Total
Capital Premium Reserve Reserve Profits
Euro Euro Euro Euro Euro Euro
Balance at
inception - - - - - -
Net profit for
the period - - - - 9,765,027 9,765,027
Issuance of
Ordinary Shares - 406,207,540 - - - 406,207,540
Share options
issued - - - 7,672,500 - 7,672,500
Costs related
to issuance of - (21,575,951) - - - (21,575,951)
Ordinary
Shares
Cancellation of
share premium - (384,631,589) 384,631,589 - - -
Balance at 31
March 2006 - - 384,631,589 7,672,500 9,765,027 402,069,116
Net profit for
the quarter - - - - 10,997,370 10,997,370
Over accrual of
costs related to - - 46,715 - 46,715
issuance of
Ordinary Shares -
Distributions
to the Ordinary - - - - (9,748,981) (9,748,981)
Shareholders
of the Company
Balance at 30
June 2006 - - 384,678,304 7,672,500 11,013,416 403,364,220
Net profit for
the quarter - - - - 10,552,607 10,552,607
Distributions to
the Ordinary - - - - (10,561,397) (10,561,397)
Shareholders
of the Company
Balance at 30
September 2006 - - 384,678,304 7,672,500 11,004,626 403,355,430
Net profit for
the quarter - - - - 9,508,463 9,508,463
Distributions
to the Ordinary - - - - (10,561,396) (10,561,396)
Shareholders
of the Company
Balance at 31
December 2006 - - 384,678,304 7,672,500 9,951,693 402,302,497
Unaudited Consolidated Balance Sheet
As at 31 December 2006
31 December 30 September 30 June 2006 31 March 2006
2006 2006
Euro Euro Euro Euro
Non-current assets
Investments at fair
value through 517,883,247 491,340,570 501,439,102 487,890,499
profit or Loss
Current assets
Cash and cash equivalents 6,466,179 13,557,006 20,735,431 -
Other assets 10,428,472 15,652,805 8,979,080 5,952,062
16,894,651 29,209,811 29,714,511 5,952,062
Total assets 534,777,898 520,550,381 531,153,613 493,842,561
Equity and liabilities
Equity
Share capital - - - -
Share premium account - - - -
Other reserve 384,678,304 384,678,304 384,678,304 384,631,589
Capital reserve in respect
of share options 7,672,500 7,672,500 7,672,500 7,672,500
Accumulated profits 9,951,693 11,004,626 11,013,416 9,765,027
402,302,497 403,355,430 403,364,220 402,069,116
Current liabilities
Distribution payable - - 9,748,981 -
Repurchase agreements 129,434,953 113,724,744 115,783,806 88,880,531
Other liabilities 3,040,448 3,470,207 2,256,606 2,892,914
Total liabilities 132,475,401 117,194,951 127,789,393 91,773,445
Total equity and
liabilities 534,777,898 520,550,381 531,153,613 493,842,561
Notes to the Unaudited Financial Statements
As at 31 December 2006
1. General information
Queen's Walk Investment Limited (the "Company") was registered on 6 September
2005 with registered number 43634 and is domiciled in Guernsey, Channel Islands.
The Company commenced its operations on 8 December 2005. The Company is a
closed-ended investment company with limited liability formed under The
Companies (Guernsey) Law, 1994 and its Ordinary Shares are listed on the London
Stock Exchange. The registered office of the Company is Dorey Court, Admiral
Park, St Peter Port, Guernsey, GY1 3BG, Channel Islands. "Group" is defined as
the Company and its subsidiary. At 31 December 2006, the Company's only
subsidiary was Trebuchet Finance Limited.
The Company's investment objective is to preserve capital and provide stable
returns to Shareholders in the form of quarterly dividends. It seeks to achieve
this by investing primarily in a diversified portfolio of tranches of
asset-backed securities ("ABS") where the Investment Manager considers that the
coupon or cash flows on the tranche are attractive relative to the underlying
credit. These are and will be, in most cases, below investment grade or unrated
and do or will, in many cases, represent the residual income positions typically
retained by the originator of a securitisation transaction as the "equity" or
"first loss" position.
The Group's investment management activities are managed by its Investment
Manager, Cheyne Capital Management (UK) LLP (the "Investment Manager"), an
investment management firm authorised and regulated by the Financial Services
Authority. The Company has entered into an Investment Management Agreement (the
"Investment Management Agreement") under which the Investment Manager manages
its day-to-day investment operations, subject to the supervision of the
Company's Board of Directors. The Company has no direct employees. For its
services, the Investment Manager receives a monthly management fee (which
includes a reimbursement of expenses) and a quarterly performance-related fee.
The Company has no ownership interest in the Investment Manager. The Company is
administered by Kleinwort Benson (Channel Islands) Fund Services Limited (the
"Administrator").
2. Distributable and non-distributable profits
Non-distributable profits relate to gains from investments which under the
United Kingdom Listing Rules are prohibited from being distributed to investors.
All other income is classed as distributable income. Distributable profits
represent the net of this distributable income less operating expenses.
3. Subsequent Event
The Company's Investment Manager believes that recent movements in the US ABS
market indicate that a negative sentiment has spread from concerns regarding
particular sub-prime loan vintages to the entire US sub prime market and to
other segments of the mortgage market, and that these market movements reflect a
wider and higher range of discount rates as well as an increase in implied
future cumulative loss rates, some of which are significantly in excess of the
default rates projected for the Company's assets as well as historic default
rates across the entire market. As the accounting policies of the Company
require valuation of the Company's assets at fair value, these higher discount
rates and the increased credit risk implied by the market may have a material
adverse impact on the valuation of the Company's US assets for the quarter ended
31 March 2007. Any resulting adjustment to valuations will be charged through
the income statement and will reduce the net asset value of the Company (in
accordance with the Company's accounting policy). As valuation changes arising
from higher discount rates do not have an impact on the cash flows generated by
its portfolio, the Company does not expect that any significant adjustments will
be made to distributable profits or that the amount of future dividends will be
affected.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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