RNS Number:7303S
Absolute Capital Mgmt Holdings Ltd
12 March 2007
Absolute Capital Management Holdings Limited
("ACMH" or "the Company")
Preliminary Results for the year ended 31 December 2006
ACMH, the fund management company focused on delivering investment returns
through the management of absolute return equity and debt funds, today announces
its preliminary results for the year ended 31 December 2006.
Financial highlights
* Organic AUM growth of 91% in 2006.
* Pre-tax profit increased by 76% to Euro27.6 million (2005: Euro15.7 million).
* Turnover increased by 72% to Euro52.5 million (2005: Euro30.5 million).
* Basic earnings per share increased by 68% to Euro0.52 (2005: Euro0.31), and diluted
earnings per share was up 53% to Euro0.46 (2005: Euro0.30).
* Proposed final dividend, including the previously announced special dividend,
of Euro0.447 (30.4p) per share.
* Combined management and performance fee income increased by 69% to Euro49.4
million (2005: Euro29.3 million)
* Operating profit margin was a market leading 50.9%.
* Acquired award-winning, top-quartile, debt-fund manager Argo Capital
Management ("Argo"), creating an enlarged group with AUM of $2.64 billion as
at 1 March 2007.
Operating highlights
* ACMH was awarded European Hedge Fund Group of the year for 2006.
* 3 new funds successfully launched in 2006.
* Employee numbers increased from 20 to 58, and new offices were opened in Zug,
Switzerland and Warsaw, Poland. The Argo acquisition added offices, in Cyprus,
Singapore, Sao Paolo and Buenos Aires.
* Since the fourth quarter of 2006 a retail version of our hedge funds is now
available via a listed closed-end German investment vehicle, the Euro100 million
Absolute Capital Certificate.
* ACMH recently announced the formation of a new direct sales team to market its
funds globally. A senior appointment has already been made.
* All ACMH's equity funds and Argo's debt funds performed well in 2006, and have
made a strong start to 2007.
Sean Ewing, Chairman and CEO, commented: "2006 was a very successful year for
ACMH, which saw substantial increases in AUM and top quartile fund performances,
generating record post-tax profits. Since the year end, the acquisition of Argo
increased our AUM to $2.45 billion, now $2.64 billion, and significantly
expanded our product offering and geographic reach. 2007 has begun well and we
view the recent increase in volatility as an opportunity for our funds, all of
which are non-market correlated."
Enquiries:
ACMH Sean Ewing, Chairman and CEO T: 020 7659 6155
Solomon Hare Corporate Finance Nick Reeve T: 0117 933 3344
Martyn Fraser
Cardew Group Tim Robertson T: 020 7930 0777
Shan Shan Willenbrock
David Roach
CHAIRMAN'S STATEMENT
We are very pleased to report that ACMH continued to make significant progress
in its first year as a public company after listing on AIM in March 2006.
We recorded strong growth in all of the key indicators. Assets under management
increased by 84% to $1.55 billion as at 1 January 2007 and since the year-end
the acquisition of Argo and further organic growth has increased AUM to $2.64
billion. Turnover grew sharply by 72% to Euro52.5m (2005: Euro30.5m); and pre-tax
profits increased by 76% to Euro27.6m (2005: Euro15.7m). Profit margins remain very
high due to tight cost control, with a combined group cost/income ratio of 49.1%
(2005: 48.9%) and operating profit margins of 50.9% (2005: 51.1%). ACMH
continues to be a very cash generative group. Operating profit was Euro30.0 million
before share-based payments and AIM listing costs of Euro3.27 million.
Our successful investment strategies, in equity and now in debt funds, combined
with tight cost controls, are creating a very profitable business model. We are
developing a virtuous cycle in which we are attracting significant asset growth,
leading to increased management and performance fees, and ultimately driving
group profitability.
Strong growth in earnings is in time recognized and rewarded by the stock
market, and this will further permit us to build the business - not only through
organic growth but also through further acquisitions. We continue to make
progress against our internal growth and performance targets, creating an
environment in which the interests of our employees, our shareholders and our
management are fully aligned with the interests of our investors.
During the year the awareness of the ACMH group increased. This included the
group being awarded European Hedge Fund of the Year 2006 by Hedge Funds Review.
In addition, ACMH was nominated for numerous awards for its individual funds
throughout the world.
To date ACMH has raised its assets through word of mouth and third-party
marketing agents. The group announced in February its intention to build a
direct sales and marketing capability to widen the geographic investor base and
to attract new investors. Given the growing global institutional appetite to
invest in established alternative asset managers such as ACMH there is a clear
opportunity to further improve distribution of our funds and a number of new
initiatives are planned for 2007.
The new direct sales team will market its funds globally, with plans for local
representation in Europe, the US and Asia. The key benefits of developing an
in-house sales team include the ability to target directly the sizeable segment
of the institutional market which demands a minimum 5 year record. ACMH's and
Argo's largest funds have been running for between 5 and 6 years. The new direct
sales team will broaden the number of countries from where ACMH raises new
funds.
The Company is also evaluating opportunities in attracting permanent capital,
and to further extend the access of the group's funds to retail investors and
smaller institutions. Since the fourth quarter of 2006 a retail version of our
hedge funds is available in a listed, closed-end German investment vehicle. The
Euro100 million capacity Absolute Capital Certificate is structured as an
obligation issued by SEB Bank, the investment manager, now tracking the
performance of six of the eight ACMH equity funds. Other products are currently
being structured for launch.
In early 2007 access to a select range of ACMH's hedge fund strategies will be
possible via Panacea SPC, an offshore umbrella fund of hedge funds vehicle, one
of whose principal investors is Barclays Capital. These funds will also be
distributed by a large European insurance group. A number of different
segregated portfolios can be set up, with almost complete flexibility with
respect to liquidity, currency, investment objective/policy, and subscription
level.
Fund Performance
--------------- ------ ----- --------- ----------- ------ ------- ------ --------
ACMH Group Funds Launch Jan Since Annualised Sharpe Down Open / AUM US$m
Date 2007 Inception Performance Ratio Months Closed
(CAGR)
% % % %
--------------- ------ -----
EQUITY (Absolute
Capital)
Absolute
Return Europe
Fund Mar-02 1.57 111.00 16.40 2.40 2 out of 59 Open 483.8
European
Catalyst Fund Oct-03 1.66 87.36 20.73 1.90 4 out of 40 Closed 205.8
Absolute
Germany Fund Jan-04 4.34 82.38 21.52 3.06 2 out of 37 Open 268.2
Absolute East
West Fund Jul-05 0.19 39.43 23.36 3.02 1 out of 19 Open 166.8
Absolute
Octane Fund Jul-05 1.00 80.76 45.34 2.42 1 out of 19 Closed 311.6
Absolute Large
Cap Fund Feb-06 0.79 21.68 21.68 2.24 1 out of 12 Open 115.4
Absolute India
Fund Jul-06 0.83 8.83 15.61 6.83 0 out of 7 Open 18.0
Absolute
Activist Value
Fund Jul-06 2.86 22.14 40.89 4.58 0 out of 7 Open 165.6
DEBT (Absolute
Argo)
Argo Fund Oct-00 0.36 185.82 18.10 3.22 3 out of 76 Open 443.0
Argo Global
Special
Situations
Fund Aug-04 0.21 44.26 15.79 2.67 3 out of 30 Open 396.0
Argo Capital
Partners Fund n/a 70.0
--------------- ------ ----- --------- ----------- ------ ------- ------ --------
Note: Performance as at 31 January 2007. Assets as at 1 March 2007.
Investment Commentary
All of the Group's funds performed in line with or in excess of their target
returns. In addition all funds performed well in the difficult trading
environment for hedge funds which characterized 2006. Over the last two years,
the net return for all our equity funds, weighted by AUM, were 18.5% and, for
our debt funds, 17.7%.
The Absolute Return Europe (ARE) fund is now 5 years old and has delivered a
compound growth rate of 16.4% per annum, with only two negative months. The
Absolute East West (AEW) fund returned 21.1% in 2006. The Absolute Germany Fund
(AGF) is now three years old and continues to deliver strong performance with a
compound growth rate of 21.5% per annum. For newly launched funds, 2006 was also
a good year with a net return of 20.7% in the year for the Absolute Large Cap
(ALC) fund, and 18.8% for the Absolute Activist Value (AAV) fund.
As a measure of reliability and consistency, Sharpe ratios - the standard
deviation of returns compared to the net return achieved over and above the risk
free rate - are 1.90 or higher, for all our equity and debt funds - well in
excess of our peer groups. Over the past two years, the Sharpe ratio for our
equity funds, weighted by AUM, was 2.70 and for our debt funds, 3.10.
Equity funds
ACMH currently manages eight "long/short" equity hedge funds, all of which share
the same investment objective: to seek absolute capital gains controlled by a
strict stop-loss policy.
Absolute Return Europe, March 2002: Long and short equity positions in European
stocks; the strategy is a blend of pair trading and catalyst driven situations.
European Catalyst Fund, October 2003: Long and short equity positions in
European stocks; emphasising those positions which are "catalyst" driven.
Absolute Germany Fund, January 2004: Long and short equity positions in German
stocks; in a blend of pair trading and catalyst driven situations.
Absolute East West Fund, July 2005: Aims to exploit political and economic
developments, valuation discrepancies and special catalyst-driven opportunities;
in pair-trading between Eastern and Western Europe.
Absolute Octane Fund, July 2005: The Fund may invest in all asset classes on a
global basis to seek a high absolute return for those investors, with a high
risk tolerance.
Absolute Large Cap, February 2006: Investing in Large Caps in Western European
and other developed Markets, in a blend of pair trading and catalyst driven
situations.
Absolute Activist Value, July 2006: Focusing on undervalued companies in Western
European markets which are mismanaged, benefit from change, experience some
"problems" which obfuscate intrinsic value, are potential industry consolidators
or are potential takeover candidates.
Absolute India Fund, July 2006: Focusing on the Indian market, in a blend of
pair trading and catalyst driven situations.
Post year-end Argo acquisition - Debt funds
On 18 January 2007 ACMH announced the acquisition of the award winning hedge
fund management businesses of Argo Capital Management, one of the first European
emerging markets focused hedge fund groups. The acquisition took ACMH, primarily
a developed markets equity manager, into credit markets for the first time, and
opens up substantial new opportunities in both debt investing and in emerging
markets. Argo's business is focussed on generating absolute returns through the
management of 3 funds investing in emerging market fixed income credit products,
distressed debt, special situations and private equity:
Argo Fund, October 2000: Invests on a relative-value basis across the whole
spectrum of emerging market credit products - distressed debt, bank loans and
Eurobonds - in order to maximise the total return in a diversified sovereign and
corporate fixed-income portfolio.
Argo Global Special Situations Fund, August 2004: Is a strategy specific fund
not bound by geography, although the majority of its portfolio is in emerging
markets and its broad strategy is to exploit situations where other market
participants are constrained.
Argo Capital Partners Fund, August 2006: Is a private equity fund which aims to
capture special situations where a 2 to 3 year investment horizon is required.
Dividend
On 11 December 2006 ACMH announced its intention to return up to Euro20 million to
shareholders after the audit of its 2006 results. Given the strong performance
in 2006 and the cash-generative nature of the business, it has been decided to
increase this amount to Euro29.9 million. We are therefore pleased to announce the
payment of a dividend Euro0.447 (30.4p) per share, comprising an ordinary dividend
for 2006 of Euro0.165 (11.22p) plus a special dividend of Euro0.282 (19.18p) per
share. The dividend will be paid in sterling and the payment date for this
dividend has been set as Thursday 5 April 2007 for shareholders recorded on the
register as at close of business on Friday 23 March 2007.
It remains our intention to review our cash reserves and to raise the level of
dividend payouts in line with growth in underlying earnings.
Outlook
2006 was a year of continued progress, including our listing on AIM. The Group
went on to record substantial increases in AUM and top quartile fund
performances, all of which combined to generate record post-tax profits for the
year, up 73% against 2005. Since the year-end, ACMH acquired Argo, which
increased our AUM to $2.45 billion (now $2.64 billion) and significantly expands
our product offering as well as our geographic reach. The enlarged business
should appeal to a wider institutional audience at a time when market views on
alternative asset management are changing, resulting in an increase in global
institutional capital being invested in hedge funds. We will continue to
evaluate potential acquisitions in line with our business model as we continue
to drive the organic growth across the Group. The current year has commenced
well and we view the recent increase in volatility as an opportunity for our
funds, all of which are non-market correlated. As single stocks begin to diverge
more from the mean we anticipate a more opportunistic environment for efficient
alternative portfolio management.
Sean Ewing
Chairman and Chief Executive Officer
12 March 2007
Recent ACMH achievements
No. 1 Best Hedge Fund Group, 2006 Hedge Fund Review
No. 1 European Event Driven Fund, 2005 Eurohedge
No. 1 Risk Adjusted Long/Short Fund 2005 Barclay Group
No. 1 Germany Fund over 1, 2 and 3 years, 2004 Micropal
No. 1 European Long Short Fund, 2002 HFI
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED 31 DECEMBER 2006
2006 2005
Note Euro Euro
Subscription fees 964,059 388,249
Management fees 19,728,911 8,720,763
Incentive fees 29,715,218 20,535,642
Redemption fees 589,963 868,451
Other income 1,483,259 -
----------- -----------
Revenue 2(d) 52,481,410 30,513,105
Legal and professional expenses (524,533) (271,406)
Management and incentive fees payable 2(e) (9,956,388) (8,654,996)
Operational expenses (2,322,429) (976,881)
Employee costs 3 (9,554,765) (4,688,680)
Foreign exchange (loss) / gain (80,954) 18,776
Excess of acquirer's interest in net value of
identifiable net assets - 14,254
Depreciation (47,645) (3,355)
AIM listing costs (566,204) -
Share-based payments 5 (2,703,584) (379,786)
----------- -----------
Operating profit 26,724,908 15,571,031
Financial revenue 436,856 114,877
Unrealised gain on investments 400,208 312
----------- -----------
Profit on ordinary activities before taxation 27,561,972 15,686,220
Taxation 6 (502,756) (35,663)
----------- -----------
Profit for the year after taxation
attributable to members of the company 27,059,216 15,650,557
=========== ===========
Earnings per share (basic) 7 Euro 0.52 Euro 0.31
Earnings per share (diluted) 7 Euro 0.46 Euro 0.30
CONSOLIDATED BALANCE SHEET
AS AT 31 DECEMBER 2006
31 Dec 2006 31 Dec 2005
Note Euro Euro
Assets
Non current assets
Intangible assets 9 14,913,094 -
Property, plant and machinery 10 406,662 46,553
----------- -----------
15,319,756 46,553
Current assets
Trade and other receivables 6,973,633 6,696,433
Cash and cash equivalents 33,205,949 3,026,610
----------- -----------
40,179,582 9,723,043
Financial assets
Investments at fair value through
profit and loss 11 3,401,008 600
Loans and advances receivable 12 71,854 187,205
----------- -----------
3,472,862 187,805
----------- -----------
Total assets 58,972,200 9,957,401
=========== ===========
Equity and liabilities
Equity
Issued share capital 13 541,250 500,000
Share premium 30,287,146 22,769,453
Revenue reserve 29,923,267 3,761,551
Other reserves 1,428,982 269,341
Shares to be issued 8, 13 9,250,000 -
Merger reserve (22,950,745) (22,950,745)
----------- -----------
48,479,900 4,349,600
----------- -----------
Current liabilities
Trade and other payables 14 9,989,949 5,568,951
Taxation payable 502,351 38,850
----------- -----------
Total current liabilities 10,492,300 5,607,801
----------- -----------
----------- -----------
Total equity and liabilities 58,972,200 9,957,401
=========== ===========
Approved by:
Darren Sisk Ronald E. Tompkins
Finance Director Director
8 March 2007 8 March 2007
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2006
Share Shares to Share Revenue Other Merger Total
Capital be issued Premium Reserve Reserves Reserve
Euro Euro Euro Euro Euro Euro Euro
As at 31
December 2004 2,296,797 - 20,671,176 2,415,076 - (22,950,745) 2,432,304
Profit for the
year - - - 15,650,557 - - 15,650,557
Distribution
on 13 May 2005
(Euro0.03 per
share) - - - (6,124,082) - - (6,124,082)
Distribution
on 1 December
2005 (Euro0.1636
per share) - - - (8,180,000) - - (8,180,000)
Issue of
7,103,497
shares
(Euro0.01 each at
par) 71,035 - - - - - 71,035
Issue of
2,439,580
shares
(Euro0.01 par at
Euro0.049 per
share) 24,396 - 95,604 - - - 120,000
Share-based
payments - - - - 379,786 - 379,786
Exercise of
share options - - 110,445 - (110,445) - -
Reorganisation
of share
capital (1,892,228) - 1,892,228 - - - -
---------- ---------- ---------- ---------- ---------- ---------- ----------
As at 31
December 2005 500,000 - 22,769,453 3,761,551 269,341 (22,950,745) 4,349,600
Profit for the
year - - - 27,059,216 - - 27,059,216
Distribution
on 24 February
2006 (Euro0.01795
per share) - - - (897,500) - - (897,500)
Issue of
2,500,000
shares
(Euro0.01 par at
Euro2.25 per
share) 25,000 - 5,600,000 - - - 5,625,000
Shares to be
issued - 9,250,000 - - - - 9,250,000
Share-based
payments - - - - 2,703,584 - 2,703,584
Exercise of
share options 16,250 - 1,917,693 - (1,543,943) - 390,000
---------- ---------- ---------- ---------- ---------- ---------- ----------
As at 31
December 2006 541,250 9,250,000 30,287,146 29,923,267 1,428,982 (22,950,745) 48,479,900
========== ========== ========== ========== ========== ========== ==========
Shares to be issued are performance-related and are issuable to the former
shareholders of TCA Group Limited if predetermined performance targets are
achieved.
Other reserves are in respect of share-based payments made to employees of the
group and others providing similar services.
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED TO 31 DECEMBER 2006
Year to Year to
31 December 31 December
2006 2005
Note Euro Euro
Net cash inflow from operating activities 15 33,687,834 15,675,820
Cash flows from investing activities
Interest income received 436,856 114,877
Purchase of subsidiaries (39,789) (1,500)
Proceeds on sale of investment - 128,626
Purchase of property, plant and equipment (407,754) (48,038)
Cash acquired on purchase of subsidiary - 33,914
Loans made to shareholders - (67,110)
Repayment of loans 115,351 1,352,788
Purchase of financial investments (3,000,200) -
AIM listing costs (566,204) -
Taxation paid (39,255) -
---------- ---------
Net cash (outflow) / inflow from investing
activities (3,500,995) 1,513,557
---------- ---------
Cash flows from financing activities
Dividends paid (897,500) (14,304,082)
Issue of share capital 390,000 120,000
Option exercise proceeds received 500,000 -
---------- ---------
Net cash outflow from financing activities (7,500) (14,184,082)
---------- ---------
---------- ---------
Net cash inflow 30,179,339 3,005,295
========== =========
ANALYSIS OF CHANGES IN CASH DURING THE YEAR
2006 2005
Euro Euro
Cash and cash equivalents as at 1 January 3,026,610 44,761
Bank overdraft as at 1 January - (23,446)
Net cash inflow during the year 30,179,339 3,005,295
---------- ----------
Cash and cash equivalents as at 31 December 33,205,949 3,026,610
========== ==========
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2006
1. CORPORATE INFORMATION
The company is incorporated as an exempt company with limited liability in the
Cayman Islands. The company is domiciled in the Cayman Islands. Its principal
activity is that of provision of investment management and advisory services to
mutual funds. The functional currency of group undertakings is Euros. The group
has 58 employees (2005: 20 employees).
2. ACCOUNTING POLICIES
(a) Accounting convention
These financial statements have been prepared in accordance with International
Financial Reporting Standards.
(b) Basis of consolidation
The consolidated financial statements incorporate the financial statements of
the group. Subsidiaries are consolidated from the date control is transferred to
the group and cease to be consolidated from the date control is transferred from
the group.
The company acquired the business of providing investment management and
advisory services to mutual funds from FM Fund Management Ltd in 2005. As the
acquisition was between entities under common control, it was outside the scope
of IFRS3 "Business Combinations", and the combination was accounted for as a
pooling of interests as if the group, as then constituted, had always been in
place. On pooling of interests, the excess of the consideration given by the
company over the book value of assets and liabilities of the underlying fund
management business is recognised in a merger reserve.
(c) Foreign currency translation
The financial statements are expressed in Euros. Transactions denominated in
currencies other than Euros have been translated at the rate of exchange
prevailing at the date of the transaction. Assets and liabilities in other
currencies are translated to Euros at the rates of exchange prevailing at the
balance sheet date. The resulting profits or losses are reflected in the
consolidated statement of operations.
(d) Revenue
Revenue is recognised to the extent that it is probable that economic benefit
will flow to the group and the revenue can be reliably measured.
Management and incentive fees receivable
The group recognises revenue for providing management services to mutual funds.
Revenue accrues on a monthly basis on completion of management services and is
based on the funds under management of each mutual fund together with monthly
performance.
(e) Management and incentive fees payable
The group pays management and incentive fees based on a proportion of fees
receivable from mutual funds. Fees payable are accrued for on a monthly basis
consistent with revenue streams earned.
(f) Depreciation
The cost of property, plant and equipment is depreciated on a straight-line
basis over the expected useful lives of the assets as follows:-
Fixtures and fittings 10% to 15% per annum
Office equipment 10% to 15% per annum
Computer equipment and software 30% per annum
(g) Investments held at fair value through the profit and loss account
All investments are classified as held at fair value through the profit and loss
account. Investments are initially recognised at fair value. Transaction costs
are expensed as incurred.
After initial recognition, investments are measured at fair value, with
unrealised gains and losses on investments and impairment of investments
recognised in the consolidated statement of income. Investments held at fair
value in managed mutual funds are valued at fair value of the net assets as
provided by the administrators of those funds. Investments in the management
shares of the Absolute Return Europe Fund, European Catalyst Fund, Absolute
Germany Fund, Absolute East West Fund, Absolute Octane Fund, Absolute Large Cap
Fund, Absolute Activist Value Fund and Absolute India Fund are stated at fair
value, being the recoverable amount.
(h) Trade date accounting
All "regular way" purchases and sales of financial assets are recognised on the
"trade date", i.e., the day that the entity commits to purchase or sell the
asset. Regular way purchases or sales are purchases or sales of financial assets
that require delivery of the asset within the time frame generally established
by regulation or convention in the market place.
(i) Cash and cash equivalents
Cash and cash equivalents are defined as cash in hand, demand deposits and
short-term, highly liquid investments which are readily convertible to known
amounts of cash, subject to insignificant risk of changes in value, and have a
maturity of less than 3 months from the date of acquisition.
For the purposes of the cash flow statement, cash and cash equivalents consist
of cash in hand and bank deposits.
(j) Segmental reporting
The directors are of the opinion that the group is engaged in a single segment
of business being an investment advisor to funds which is principally carried
out in one geographical segment, Europe. Although one fund is focussed on India,
its contribution is not materially sufficient to warrant segmental reporting.
(k) Loans and borrowings
All loans and borrowings payable are initially recognised at cost, calculated as
the fair value of the consideration received less issue costs where applicable.
After initial recognition, all interest-bearing loans and borrowings are
subsequently measured at amortised cost. Amortised cost is calculated by using
the effective interest method, taking into account any issue costs, and
discounts and premiums on settlement.
All loans and borrowings receivable are initially recognised at cost, and
subsequently measured at amortised cost.
(l) Taxation
Current tax assets and liabilities for the current and prior period are measured
at the amount expected to be recovered from or paid to the taxation authorities.
The tax rates and tax laws used to compute the amounts are those enacted or
substantially enacted by the balance sheet date.
(m) Deferred taxation
Deferred income tax is provided for using the liability method on temporary
timing differences at the balance sheet date between tax basis of assets and
liabilities and their carrying amounts for financial reporting purposes.
Deferred tax liabilities are recognised in full for all temporary differences.
Deferred tax assets are recognised for all deductible temporary differences
carried forward of unused tax credits and unused tax loss to the extent that it
is probable that taxable profit will be available against which the deductible
temporary differences, and carry-forward of unused tax credits and unused losses
can be utilised.
The carrying amount of deferred income tax assets is revalued at each balance
sheet date and reduced to the extent that it is no longer probable that
sufficient taxable profit will be available to allow all or part of the deferred
income tax asset to be utilised. Unrecognised deferred income tax assets are
reassessed at each balance sheet date and are recognised to the extent that is
probable that future taxable profits will allow the deferred tax asset to be
recovered.
Deferred income tax assets and liabilities are measured at the tax rates that
are expected to apply to the year when the asset is realised or the liability
settled, based on tax rates that have been enacted or substantively enacted at
the balance sheet date.
(n) Share-based payments
Certain employees (including senior executives) of the group and others
providing similar services receive remuneration in the form of share-based
payment transactions, whereby employees and others providing similar services
render services as consideration for equity instruments (equity-settled
transactions).
The cost of equity-settled transactions is measured with reference to the fair
value at the date on which they were granted. The fair value is determined by an
external valuer using the binomial method. Previously equity instruments of the
group were not traded at the measurement date and, as the fair value could not
be assessed, the cost of equity-settled transactions were measured at the
intrinsic value, this being the difference between the fair value of the shares
to which the counterparty had the right to subscribe and the price the
counterparty would be required to pay for those shares, at the date of grant.
The cost of equity-settled transactions is recognised, together with a
corresponding increase in equity, over the period in which the performance and/
or service conditions are fulfilled, ending on the date on which the relevant
employees become fully entitled to the award ("the vesting date"). The
cumulative expense recognised for equity-settled transactions at each reporting
date until the vesting date reflects the extent to which the vesting period has
expired and the group's best estimate of the number of equity instruments that
will ultimately vest. The income statement charge or credit for a period
represents the movement in cumulative expense recognised as at the beginning and
end of that period.
No expense is recognised for awards that do not ultimately vest, except for
awards where vesting is conditional upon a market condition, which are treated
as vesting irrespective of whether or not the market condition is satisfied,
provided that all other performance conditions are satisfied.
Where the terms of an equity-settled award are modified, the minimum expense
recognised is the expense if the terms had not been modified. An additional
expense is recognised for any modification, which increases the total fair value
of the share-based payment arrangement, or is otherwise beneficial to the
employee as measured at the date of modification.
Where an equity-settled award is cancelled, it is treated as if it had vested on
the date of cancellation, and any expense not yet recognised for the award is
recognised immediately. However, if a new award is substituted for the cancelled
award, and designated as a replacement award on the date that it is granted, the
cancelled and new awards are treated as if they were a modification of the
original award, as described in the previous paragraph.
The dilutive effect of the outstanding options is reflected as additional
dilution in the computation of earnings per share.
(o) Intangible assets
Intangible assets acquired separately are measured on initial recognition at
cost. The cost of intangible assets acquired in a business combination is fair
value as at the date of acquisition. Following initial recognition, intangible
assets are carried at cost less any accumulated amortisation and any accumulated
impairment losses.
The useful lives of intangible assets are assessed to be either finite or
indefinite.
Intangible assets with finite lives are amortised over the useful economic life
and assessed for impairment whenever there is an indication that the intangible
asset may be impaired. The amortisation period and the amortisation method for
an intangible asset with a finite useful life are reviewed at least at each
financial year end. Changes in the expected useful life or the expected pattern
of consumption of future economic benefits embodied in the asset is accounted
for by changing the amortisation period or method, as appropriate, and treated
as changes in accounting estimates. The amortisation expense on intangible
assets with finite lives is recognised in the income statement in the expense
category consistent with the function of the intangible asset.
Intangible assets with indefinite useful lives are tested for impairment
annually either individually or at the cash generating unit level. Such
intangibles are not amortised. The useful life of an intangible asset with an
indefinite life is reviewed annually to determine whether indefinite life
assessment continues to be supportable. If not, the change in the useful life
assessment from indefinite to finite is made on a prospective basis.
(p) Adoption of IFRS during the year
The group has adopted new/revised mandatory standards for financial years
commencing on or after 1 January 2006. Adoption of these revised standards and
interpretations did not have any effect on the financial statements.
These revised standards are as follows:
IAS19 Amendment; Employee Benefits
IAS21 Amendment; The effects of changes in Foreign Exchange Rates
IAS39 Amendment; Financial Instruments: Recognition and Measurement
IFRIC5; Rights to Interests Arising from Decommissioning. Restoration and
environmental Rehabilitation Funds.
IFRIC6; Liabilities Arising from Participating in a Specific Market-Waste
Electrical and Electronic Equipment.
IFRIC7; Applying the Restatement Approach under IAS29-Financial Reporting in
Hyperinflationary Economics
IFRIC8; Scope of IFRS2
The directors are of the opinion that there will be no material adjustments
required on adoption of the following standards that have been issued:
IFRS7; Financial Instruments; Disclosures
3. EMPLOYEE COSTS
2006 2005
Euro Euro
Wages and salaries 9,462,648 4,653,284
Social security costs 92,117 35,396
--------- ---------
9,554,765 4,688,680
========= =========
4. KEY MANAGEMENT PERSONNEL REMUNERATION
2006 2005
Total Total
Euro Euro
Directors and key management personnel 5,183,879 2,882,006
Share-based payments to directors and key management
personnel 209,259 -
--------- ---------
5,393,138 2,882,006
========= =========
5. SHARE-BASED PAYMENTS
The expense of Euro2,703,584 (2005: Euro379,786) recognised for services received from
employees and others providing similar services is an expense arising from
equity-settled share-based payment transactions.
The fair value of the options is estimated at the grant date using a binomial
pricing model, taking into account the terms and conditions upon which the
instruments were granted. The key inputs to the model driving the option value
were a volatility of 41%, dividend yields of 5% and 6%, a staff turnover level
of 25%, and a 75% probability that performance targets be achieved. The
valuation model employed in 2005 was the intrinsic value based on the fair value
of the business of the company at the measurement date compared with the
exercise price.
Movements in options in the year
2006 2006 2005 2005
Number Weighted Number Weighted
average average
exercise exercise
price price
Outstanding at 1 January 1,000,000 Euro 0.24 - -
Granted during the year 6,755,000 Euro 1.59 1,500,000 Euro 0.24
Forfeited during the year (300,000) Euro 2.65 - -
Exercised during the year (1,625,000) Euro 0.24 (500,000) Euro 0.24
Expired during the year - - - -
---------- ----------
Outstanding at 31 December 5,830,000 Euro 1.68 1,000,000 Euro 0.24
========== ==========
Exercisable at 31 December 1,875,000 Euro 1.73 - -
The outstanding share options as at 31 December 2006 are detailed below:-
Optionee Exercise dates Shares Exercise
From To price per share
Key management personnel 03/03/06 31/01/12 1,375,000 Euro 2.00
Pampero Limited 13/08/06 13/02/09 500,000 Euro 1.00
Doyne Investments
Limited 13/04/07 12/07/07 1,062,500 Euro 0.24
(note 16)
CSI Asset Management
Establishment (note 16) 13/04/07 12/07/07 562,500 Euro 0.24
Key management personnel 01/07/08 20/08/16 30,000 #1.80
Group employees 01/07/08 20/08/16 2,300,000 #1.80
----------
5,830,000
==========
Shareholder agreements previously entered into with Doyne Investments Limited
(note 16) were modified during the year to the extent that Doyne Investments
Limited (note 16) renounced the non-dilution rights it held in return for fixing
the number of shares it would be allotted on exercising its options.
6. TAXATION
The company is registered as an exempt company in the Cayman Islands and
consequently no tax is payable in the Cayman Islands. During the year the
company established a branch office in the Swiss Canton of Zug and from the date
of establishment of the branch taxation of up to 6.4% will be levied on company
profits. Taxation rates applicable to Spanish and UK subsidiaries range from 19%
to 35%.
2006 2005
Euro Euro
Taxable profits of the company at 6.1% from the date of
establishing the Zug branch 413,438 -
Taxation on Spanish and UK subsidiaries 89,318 35,663
--------- ---------
Taxation charge for the year 502,756 35,663
========= =========
No provision for deferred taxation has been recognised in the financial
statements as amounts incurred are insignificant.
7. EARNINGS PER SHARE
Earnings per share is calculated by dividing the net profit for the year by the
weighted average number of shares outstanding during the year.
2006 2005
Euro Euro
Net profit attributable to shareholders 27,059,216 15,650,557
========== =========
2006 2005
Weighted average of ordinary shares for basic
earnings per share 52,137,329 49,723,398
Effect of dilution : share options 2,524,181 1,948,529
Effect of dilution : shares to be issued 3,544,661 -
---------- ----------
Weighted average number of ordinary shares for
diluted earnings per share 58,206,171 51,671,927
========== ==========
8. BUSINESS COMBINATIONS
With effect from 1 January 2006 the group acquired TCA Group Limited. Initial
consideration of 2.5 million shares were issued to the vendors of TCA Group
Limited and a further 3 million shares and Euro2.5 million worth of shares at the
then prevailing market price will also be issued to the vendors if predetermined
targets are met. These shares have been included in the calculation of the
excess of the consideration over the fair value of assets acquired. The market
value of one ordinary share of the company immediately prior to completion was
Euro2.25 and this is the amount that has been used to value the acquisition.
The fair value of the identifiable net assets and liabilities of TCA Group
Limited at the date of acquisition and the consideration are detailed below:-
Euro
Debtors 2,786,513
Creditors (2,784,818)
Net assets acquired 1,695
Goodwill 14,913,094
----------
Total 14,914,789
----------
Satisfied by
Shares issued 5,625,000
Deferred share consideration 9,250,000
14,875,000
Costs of acquisition 39,789
----------
Total 14,914,789
----------
The excess of the consideration over the fair value of the assets acquired has
been classified as an intangible asset in the group accounts. This corresponds
to the customer base of TCA Group Limited. Maintaining this customer base will
depend on TCA Group Limited's ability to provide a satisfactory service to its
customers principally by identifying fund managers capable of providing
satisfactory returns.
9. INTANGIBLE ASSETS
Customer base Total
Euro Euro
Cost
As at 1 January 2006 - -
Additions 14,913,094 14,913,094
---------- ----------
At 31 December 2006 14,913,094 14,913,094
========== ==========
Amortisation and impairment
As at 1 January 2006 - -
Amortisation - -
Impairment - -
---------- ----------
At 31 December 2006 - -
========== ==========
Net book value
31 December 2006 14,913,094 14,913,094
========== ==========
31 December 2005 - -
========== ==========
10. PROPERTY, PLANT AND EQUIPMENT
Computer
equipment
Fixtures & Office and Total
fittings equipment software
Euro Euro Euro Euro
Cost
As at 1
January 2006 - 26,321 24,246 50,567
Additions 237,364 38,496 131,894 407,754
--------- -------- -------- ---------
As at 31 December 2006 237,364 64,817 156,140 458,321
========= ======== ======== =========
Depreciation
As at 1 January 2006 - 1,422 2,592 4,014
Charge for year 17,212 5,104 25,329 47,645
--------- -------- -------- ---------
As at 31 December 2006 17,212 6,526 27,921 51,659
========= ======== ======== =========
Net book value
31 December 2006 220,152 58,291 128,219 406,662
========= ======== ======== =========
31 December 2005 - 24,899 21,654 46,553
========= ======== ======== =========
11. INVESTMENTS AT FAIR VALUE THROUGH PROFIT AND LOSS
2006 2006 2005 2005
Holding Investment Total cost Fair value Total Fair
cost value
Euro Euro Euro Euro
Management shares
100 Absolute Return Europe Fund 100 100 100 100
100 European Catalyst Fund 100 100 100 100
100 Absolute Germany Fund 100 100 100 100
100 Absolute East West Fund 100 100 100 100
100 Absolute Octane Fund 100 100 100 100
100 Absolute Large Cap Fund 100 100 100 100
100 Absolute Activist Value Fund 100 100 - -
100 Absolute India Fund 100 100 - -
Participating shares
300 Absolute Activist Value Fund 1,500,000 1,619,015 - -
300 Absolute India Fund 1,500,000 1,781,193 - -
--------- --------- ------- -------
3,000,800 3,401,008 600 600
========= ========= ======= =======
The fair value of investments is stated at the redemption prices quoted by fund
managers and is based on the fair value of the underlying net assets of the
funds, because although the funds are listed, there is no active market.
12. LOANS AND ADVANCES RECEIVABLE
2006 2005
Euro Euro
Deposits on leased premises 71,854 -
Due from FM Fund Management Limited - 187,205
--------- ---------
71,854 187,205
========= =========
The loans and advances were unsecured, interest free and repayable on demand.
13. SHARE CAPITAL
2006 2005
Euro Euro
Authorised
500,000,000 ordinary shares of Euro0.01 each 5,000,000 5,000,000
========== ==========
Issued and fully paid
Ordinary equity shares of Euro0.01 each 541,250 500,000
========== ==========
During the year, the company issued 1,062,500 shares for cash consideration to
Doyne Investments Limited (note 16).
During the year, the company issued 562,500 shares for cash consideration to CSI
Asset Management Establishment (note 16).
The company issued 2,500,000 shares to the vendors of TCA Group Limited (note 8)
when this company was acquired. Further shares may be issued to the vendors of
TCA Group Limited (note 8).
14. TRADE AND OTHER PAYABLES
2006 2005
Euro Euro
Trade and other payables 2,305,338 2,883,620
Other creditors and accruals 7,684,611 2,685,331
---------- ----------
9,989,949 5,568,951
========== ==========
Trade and other payables are normally settled on 30-day terms.
15. RECONCILIATION OF NET CASH INFLOW FROM OPERATING ACTIVITIES TO OPERATING
PROFIT
2006 2005
Euro Euro
Profit for the period before taxation 27,561,972 15,686,220
Interest income (436,856) (114,877)
AIM listing costs 566,204 -
Depreciation 47,645 3,355
Increase in payables 1,136,182 3,409,189
Decrease / (Increase) in receivables 2,509,311 (3,676,192)
Unrealised gains on investments (400,208) (412)
Loans written off - 3,006
Excess of acquirer's interest in net value of
identifiable net assets - (14,255)
Share-based payments 2,703,584 379,786
--------- ---------
Net cash inflow from operating activities 33,687,834 15,675,820
========= =========
16. RELATED PARTY TRANSACTIONS
John Fleming and Ronald Tompkins are directors of the company and are also
directors of the related parties listed below, from which fees were received
during the year, and amounts were receivable at the year end, as detailed below.
The company holds investments in managed funds as detailed in note 11.
Fee income Fee income Fees receivable Fees receivable
2006 2005 2006 2005
Related party Euro Euro Euro Euro
Absolute
Return Europe
Fund 13,603,887 12,912,946 1,322,770 1,841,114
European
Catalyst Fund 8,390,268 7,272,736 992,013 1,794,269
Absolute
Germany Fund 8,608,946 5,873,846 550,050 861,339
Absolute East
West Fund 5,070,275 888,360 609,309 307,132
Absolute
Octane Fund 9,492,868 3,565,217 1,383,788 1,066,000
Absolute Large
Cap Fund 2,694,218 - 308,222 -
Absolute
Activist Value
Fund 2,516,878 - 449,997 -
Absolute India
Fund 475,812 - 57,432 -
Michael Kloter is a director of the company and also partner in a legal firm
which supplies services to the group. This firm charged Euro117,573 for services
rendered to the group in 2006.
Sean Ewing, a director of the company, is a potential beneficiary of Doyne
Investments Limited, which is owned by First Tower Trustees Limited, who act as
trustee of a trust. Shares were issued to Doyne Investments Limited during the
year (notes 5, 13).
The family of Florian Homm, Chief Investment Officer of the company, has an
interest in CSI Asset Management Establishment. Shares were issued to CSI Asset
Management Establishment during the year (notes 5, 13).
17. FINANCIAL INSTRUMENTS
(a) Use of financial instruments
The group has generated a healthy cashflow from its ongoing operations and
consequently has not had to use alternative financial instruments to finance the
group's operations. The group has various financial assets and liabilities such
as trade receivables, cash, short-term deposits, and trade and other payables
which arise directly from its operations.
(b) Capital Management
The primary objective of the group's capital management is to ensure that the
company has sufficient cash and cash equivalents on hand to finance its ongoing
operations. This is achieved by ensuring that trade receivables are collected on
a timely basis and that excess liquidity is invested in an optimum manner. This
is achieved by placing fixed short-term deposits.
(c) Market price risk
Market risk arises from uncertainty about future prices of financial instruments
held. It represents the potential loss the company might suffer through holding
market positions in the face of price movements. The company considers the asset
allocation of the portfolio in order to minimise the risk associated with
particular market sectors.
(d) Credit/counterparty risk
The company will be exposed to counterparty risk on parties with whom it trades
and will bear the risk of settlement default. Credit risk is concentrated in the
funds under management as detailed in note 16.
Trade receivables are normally settled on 30 days terms.
At the year-end cash balances were held at, Barclays, the Royal Bank of Canada,
Royal Bank of Scotland, Solbank, Credit Suisse, Zuger Kantonalbank and Credit
Agricole.
(e) Liquidity risk
The main liquidity risks of the company are associated with the need to satisfy
payments to creditors. Trade receivables and trade payables are on 30 day terms.
(f) Interest rate risk
The interest rate profile of the group at 31 December 2006 is as follows:
Financial Total as per Variable Assets on which no
Assets balance sheet rate* interest is receivable
Euro Euro Euro
Cash at bank 33,205,949 33,205,949 -
Investments 3,401,008 - 3,401,008
Trade and other
receivables 6,973,633 - 6,973,633
Loans and advances
receivable 71,854 - 71,854
---------- ---------- ----------
43,652,444 33,205,949 10,446,495
========== ========== ==========
Financial Total as per Variable Assets on which no
liabilities balance sheet rate* interest is payable
Euro Euro Euro
Trade and
other payables 10,492,300 - 10,492,300
---------- --------- ----------
10,492,300 - 10,492,300
========== ========= ==========
*Changes in the Euro base rate may cause movements.
As at 31 December 2005:
Financial Assets Total as per Variable Assets on which no
balance sheet rate* interest is receivable
Euro Euro Euro
Cash and cash
equivalents 3,026,610 3,026,610 -
Investments 600 - 600
Trade and
other
receivables 6,696,433 - 6,696,433
Loans and
advances
receivable 187,205 - 187,205
--------- --------- ---------
9,910,848 3,026,610 6,884,238
========= ========= =========
Financial Total as per Variable Assets on which no
liabilities balance sheet rate* interest is payable
Euro Euro Euro
Trade and
other payables 5,607,801 - 5,607,801
--------- --------- ---------
5,607,801 - 5,607,801
========= ========= =========
* Changes in the Euro base rate may cause movements.
(e) Fair value
The carrying values of the financial assets and liabilities equate to the fair
value of the financial assets and liabilities and are as follows.
2006 2005
Euro Euro
Assets
Trade and other receivables 6,973,633 6,696,433
Cash and cash equivalents 33,205,949 3,026,610
Investments at fair value through the profit and loss 3,401,008 600
Loans and advances receivable 71,854 187,205
---------- ----------
3,472,862 187,805
---------- ----------
---------- ----------
43,652,444 9,910,848
========== ==========
Liabilities
Trade and other liabilities 9,989,949 5,568,951
Taxation payable 502,351 38,850
---------- ----------
10,492,300 5,607,801
========== ==========
17. FINANCIAL INSTRUMENTS
Financial assets and liabilities, other than investments, are either repayable
on demand or have short repayment dates. The fair value of investments is stated
at the redemption prices quoted by fund managers and is based on the fair value
of the underlying net assets of the funds, because although the funds are
listed, there is no active market.
18. ULTIMATE CONTROLLING PARTY
CSI Asset Management Establishment was the immediate and ultimate parent company
during 2006 but ceased to be so as a result of the acquisition of Argo Capital
Management (note 19).
19. EVENTS SUBSEQUENT TO THE BALANCE SHEET DATE
On 18 January 2007 the company acquired the Argo Capital Management group. The
consideration paid was made up of a cash payment of #6.55 million and 12.3
million new shares in the company.
CSI Asset Management Establishment ceased to be the ultimate controlling party
on 18 January 2007 when its interest in the company fell below 50% as a
consequence of the issue of 12.3 million new shares to the vendors of Argo
Capital Management.
Pampero Limited exercised its share option to acquire 500,000 new shares in
December 2006. These shares were issued in January 2007.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SSSFAUSWSEDD
Absolute Capital (LSE:ACMH)
Historical Stock Chart
From Jun 2024 to Jul 2024
Absolute Capital (LSE:ACMH)
Historical Stock Chart
From Jul 2023 to Jul 2024
