TIDMDTL
RNS Number : 4066D
Dexion Trading Limited
29 April 2013
Dexion Trading Limited (the 'Company')
ANNUAL FINANCIAL REPORT
The Company has today, in accordance with DTR 6.3.5, released
its Annual Financial Report for the year ended 31 December 2012.
The Report is available via www.dexiontrading.com and will shortly
be submitted to the National Storage Mechanism and will also
shortly be available for inspection at www.hemscott.com/nsm.do
The report gives notice to its Shareholders of this year's
Annual General Meeting, which will be held on 12 June 2013.
CHAIRMAN'S STATEMENT
I am pleased to present Shareholders with the Annual Report and
Accounts of Dexion Trading Limited for the year ended 31 December
2012.
The year under review has once again proved to be an extremely
challenging one, with macro-economic conditions such as the
continuing European fiscal crisis, global economic slowdown and
monetary easing affecting markets and leading to low trading
volumes. Some of the uncertainty within the markets, however, was
lifted by the outcome of the U.S. presidential election.
Nevertheless, the Company's Shares continued to trade at a discount
to net asset value ('NAV'); over the 12 month period ended 20
February 2013, the Shares traded, on average, at a discount to
estimated NAV of 11.57 per cent., therefore triggering a further
continuation vote in early 2013. A Circular convening a meeting to
consider the relevant resolution was posted to Shareholders on 4
April 2013 convening an Extraordinary General Meeting on 3 May
2013. Details concerning the Resolution and potential outcomes are
detailed within the Directors' Report. On 23 April 2013 the Board
announced that the Company will adopt an enhanced discount control
policy which will be subject to the passing of the continuation
resolution in each year, details of which are disclosed in Note 16
of these financial statements.
The Board's corporate activities, however, started in February
2012 when the Company's rolling 12 month discount floor provision
was triggered requiring, in accordance with the Company's Articles
of Association, a continuation vote to be proposed by way of
ordinary class resolution. A meeting of Shareholders for the
purpose of considering a continuation vote was held on 21 March
2012, at which the 2012 Continuation Resolution was passed with
58.60 per cent. of the issued share capital being voted of which
72.11 per cent. of the votes cast were cast in favour.
Performance for the year proved to be positive with returns up
0.92 per cent. (in GBP terms), compared to a decrease of 1 per
cent. (in U.S. dollar terms) for the HFRX Macro Index over the same
period. The annualised return on Shares from inception to 31
December 2012 has been 4.02 per cent. with annualised volatility of
5.31 per cent..
The Board continues to maintain its commitment to act in the
best interests of Shareholders as a whole by continuing to provide
information and transparency on the Company's reporting through the
Monthly Portfolio Reviews and the investor audio web conference
which took place on 25 July. Upon request, the directors will make
themselves available for meetings with Shareholders throughout the
year.
I would like to take this opportunity to thank my fellow
directors for their time and commitment to the Board over the last
year.
We look forward to welcoming Shareholders to the Annual General
Meeting of the Company at 2.00 p.m. on 12 June 2013, which will be
held at 1 Le Truchot, St Peter Port, Guernsey.
Christopher Spencer
Chairman
26 April 2013
MANAGER'S REPORT
We report that the NAV of the Company's Shares (in GBP terms)
increased by 0.92 per cent., net of fees and expenses, over 2012,
compared to a decrease of 1.00 per cent. (in U.S. dollar terms) for
the HFRX Macro Index.
The following provides the Investment Adviser's overview of the
performance (in U.S. dollar terms) of the Portfolio by hedge fund
sub-strategy, over the period under review. Performance is shown
net of the underlying managers' fees and expenses only. References
to the Portfolio are, where the context requires, to the portfolio
of Permal Macro Holdings Ltd. ('Permal Macro' or the 'Fund'), of
which the Company is a feeder fund.
General
In 2012, global economies continued to be beset by weak growth,
a slowdown in China, and eurozone related concerns, including
austerity measures, a possible exit by Greece and worries over
Spanish banks. Against this anaemic economic backdrop policymakers
came out, not surprisingly, with various policy initiatives and
statements to quell investors' fears about financial conditions and
prop up asset prices. Ultimately these various measures, namely
easing monetary policy and abundant liquidity, engendered a rally
in the markets. However, the market buoyancy masked considerable
intra-year volatility and trend reversals as investor sentiment
swung frequently between risk-on and risk-off. These shifts in
market reaction were not only driven by repeated policy
pronouncements but also by numerous developments on the political
scene such as elections in France, the U.S. and Japan as well as
the leadership transition in China.
As the year wore on, investors' concerns subsided and equity
markets ended 2012 in positive territory. German and U.S.
government bonds also rose during the year, although the trend was
markedly less pronounced than in 2011, given the frequent shifts in
sentiment and ultimate rise in yields at year-end. Currency markets
proved volatile with movements also dictated by active policy
intervention: the euro notably embarked on an upward move at
mid-year amid political support for the eurozone, namely European
Central Bank ('ECB') President Mario Draghi stating that he would
do 'whatever it takes' to save the euro. One of the most
significant foreign exchange developments, however, was the fall in
the Japanese yen towards year end as the Japanese Liberal
Democratic Party sought to end Japan's deflationary spiral.
Commodity markets witnessed various swings throughout 2012 but
ended the year roughly flat. A more detailed breakdown of what
occurred in the various asset classes can be found in the
paragraphs below.
Equity Markets
Global equity markets started the year with a sharp rally,
buoyed by positive U.S. economic data and the commitment from the
U.S. Federal Reserve to keep interest rates low through to at least
late 2014. However, macro shocks emanating from renewed fears of
contagion in the eurozone as well as slowing growth in China
(Beijing lowered its growth target for the first time in eight
years) drove equities lower throughout the second quarter, with
further disappointment coming from the April U.S. Federal Open
Market Committee ('FOMC') minutes, which showed no indication of
additional quantitative easing. In late July, Mario Draghi's
statement on the euro served to ease fears, as many believed his
comments removed the left tail risk in Europe, and sparked a new
upward trend in equities. Heading into the final quarter of the
year, stocks were driven lower by fears over the upcoming U.S.
elections and the looming fiscal cliff. By mid November, however,
this trend reversed, and continued into year end, on improved
economic data and promising rhetoric from China, as policymakers
reiterated their intention to encourage urbanisation and boost
domestic consumption. Japanese equities in particular had a notable
run at year end as Japanese Prime Minister, Shinzo Abe, suggested
that the Bank of Japan should raise its inflation target from 1 per
cent. to 2 per cent., sparking a sharp decline in the Japanese yen
and a resulting upturn in stocks.
Fixed Income
Developed market government bonds failed to find a clear trend
in 2012. During the first quarter, yields drifted higher on the
back of encouraging economic data, particularly in the U.S.,
leading to speculation that the U.S. Federal Reserve would not
announce another round of quantitative easing. A continuous flow of
negative growth reports, along with fears of bank failures in the
European periphery, sparked safe haven buying in the second
quarter, culminating in a record low 10 year U.S. treasury yield of
1.38 per cent. on 24 July 2012 ahead of Draghi's comments. Bonds
traded in a narrow range for much of the remainder of the year,
often oscillating between risk-on and risk-off due to constant
changes in policy and sentiment, including the much anticipated
announcement of 'QE Infinity.'
After widening sharply in 2011, funding rates in the European
periphery narrowed in 2012, with the exception of Spain. Greek
yields were the most notable mover, initially declining sharply in
March following the country's massive debt restructuring, before
widening again on the back of fears that another restructuring may
be necessary. However, fears soon shifted to Spain amid worrisome
issues in the banking sector and Spanish government bond yields
climbed above the psychologically significant 6 per cent. level in
mid-July. Towards year end, bonds in the periphery saw some relief
amid the ECB's announcement that it was prepared to step in and buy
peripheral bonds.
Foreign Exchange
As with fixed income, currencies also lacked clear trends in
2012. Euro/U.S. dollar was particularly volatile during the year,
with the euro initially strengthening amid a general sense of
comfort that the ECB's longer term refinancing operation ('LTRO')
removed a significant amount of tail risk from the region. The euro
weakened at the start of the third quarter, before moving higher
again, driven largely by encouraging rhetoric from European
policymakers and expectations of a third round of U.S. quantitative
easing, ultimately ending the year higher against the U.S.
dollar.
Price action in the Japanese yen was particularly notable during
2012. In early February, the yen fell sharply against the U.S.
dollar following a surprise announcement of significant easing and
inflation targeting from the Bank of Japan ('BOJ'). The yen drifted
somewhat higher for most of the second and third quarters before
plummeting into year end in response to expectations that new
Japanese Prime Minister Abe would deliver a significant policy
response to stimulate the economy, weaken the yen, and ultimately
to try to end the deflation spiral.
Commodity and emerging market currencies generally appreciated
against the U.S. dollar amid a search for yield and optimism over
healthy growth prospects in the developing world. Higher yielding
currencies did witness a sharp sell-off in May, with the Mexican
peso and New Zealand dollar particularly hard hit as investors
sought exposure to only the most liquid currencies as the European
situation continued to deteriorate. However, concerns over the U.S.
election and fiscal cliff ultimately weighed on the U.S. dollar
into year end, benefiting emerging market currencies.
Commodities
On balance, the commodity sector ended the year roughly flat,
with the Dow Jones UBS Commodity Index down 1.1 per cent. and the
S&P GSCI Index up 0.3 per cent., masking considerable
intra-period volatility. West Texas Intermediate crude oil prices
ended the year lower. Although prices initially advanced on rising
tensions in the Middle East, higher than expected production in
Saudi Arabia and the U.S. and easing geopolitical concerns later in
the year, prices ultimately fell in 2012. Conversely, natural gas
prices ended the year higher on the back of smaller-than-expected
U.S. stockpiles. Precious metals posted strong returns in 2012.
Gold prices increased 7.0 per cent., but faced several sharp
drawdowns throughout the year as markets digested the ongoing
crisis in the eurozone. Industrial metals likewise fared well as
the global economy improved later in the year and prices moved
higher. Grain prices ended the year higher, led by wheat, primarily
due to hot and dry weather throughout the U.S. midwest, which
suffered the worst U.S. drought in 56 years.
Performance Attribution
2012 proved a challenging year for macro strategies with market
movements driven less by fundamental economic data, which allows
for dexterous trading by Discretionary macro managers, than by the
various policy interventions. In addition, the frequent trend
reversals made the environment difficult for the Systematic
managers. Against this demanding backdrop, the Company delivered a
positive return on the year thanks to adept shifts in the
allocation among the Portfolio's core strategies. More
specifically, the allocation to Discretionary macro was increased,
while Systematic was reduced at the start of 2012. At year end, the
Portfolio's Discretionary allocation stood at 58 per cent., up from
51 per cent. at the beginning of 2012. This shift was based on the
view that in 2012 the market would reward those managers with a
more trading oriented and nimble investment approach. The
identification of new talent in the Discretionary space centered
around smaller managers in the belief that their size would work to
their advantage and allow them to better capitalise on
opportunities and navigate the volatile markets. This view proved
to be beneficial as many of these niche managers were amongst the
strongest performers.
All sub-strategies, with the exception of Systematic managers,
were positive in 2012.
Discretionary
Discretionary managers (a 58 per cent. allocation at 31 December
2012) returned 6.85 per cent. for the year against 8.57 per cent.
for the HFRX Discretionary Thematic Index. Discretionary managers
benefited from a successful start to the year driven by their
bullish positioning, which they expressed via longs in U.S. and
Japanese equities, as well as shorts in U.S. treasuries and in the
Japanese yen. The second quarter proved far more challenging given
the market's frequent risk-on/risk-off swings, and many of those
positions that had proved lucrative early in the year subsequently
proved punishing, particularly during the violent risk sell off in
May. Managers' short bias towards the
euro also caused sharp losses in June.
The Discretionary traders started gaining positive traction once
again in the third quarter, with profits led by managers who
capitalised on global central banks' accommodative policy. Managers
expressed these trades via longs in risk assets, as well as
sovereign bonds, viewed as being direct beneficiaries of easing
monetary policy in Europe. The Portfolio's smaller Discretionary
managers in particular made significant gains by profiting from the
decline in sovereign yields at the European periphery, such as in
Ireland, Italy, Spain and Greece, while emerging market focused
managers registered sizeable profits from being long emerging
market sovereign bonds. They also gained from long exposure to
emerging market currencies.
Ultimately Discretionary macro managers finished the year
strongly with gains primarily led by the currency sector, both from
long positions in emerging markets and most notably, towards year
end, shorts in the Japanese yen. Long positions in Asian, European
and U.S. equities also paid off handsomely, in particular long
exposure to the Nikkei towards year end. In fixed income, long
positions along the euro curve in emerging market sovereign debt
and European peripheral bonds were notable positive
contributors.
Systematic
Systematic managers (a 21 per cent. allocation) were down 2.30
per cent. for the year versus down 7.40 per cent. for the HFRX
Systematic Diversified Index. 2012 was a particularly challenging
year for Systematic managers. Although performance appeared to
stabilise in December, most of the year was characterised by a lack
of trends and frequent sharp reversals, as well as a high
correlation among asset classes (caused by the prevalence of the
risk-on/risk-off trade). However, the Portfolio's diversification
between trend following and non-trend following managers, as well
as its diversification of trading time frame and asset classes,
benefited performance and resulted in significant alpha versus the
index. On the trend following side, managers suffered in nearly
every asset class with the exception of equities, where long
positions at year end offset earlier losses, and fixed income, due
to long bond positions in the middle part of the year. On the
non-trend following side, negative performance was almost solely
attributable to losses from long Japanese yen positions. However,
offsetting these losses were managers with long positions in the
yen and well-timed long positions in U.S. and German bonds,
particularly during May and July.
Natural Resources
Natural Resources (a 8 per cent. allocation) was up 0.55 per
cent. for the year, while the HFRX Commodity Index was up 2.33 per
cent.. The primary driver of underperformance relative to the index
during the year was the Portfolio's overweight long exposure to
gold and gold-related equities, particularly small cap equities. In
addition, trading in agricultural commodities also detracted from
performance as managers failed to capitalise on the sharp run-up in
grain prices during the summer drought. Losses were offset by gains
from managers, including long positions in oil and gas E&P
stocks, as well as well timed long positions in Brent crude
oil.
Relative Value Arbitrage
Relative Value Arbitrage (a 6 per cent. allocation) was up 2.86
per cent. for the year against down 4.66 per cent. for the HFRX
Equity Market Neutral Index. Managers generally benefited during
the year from lower equity correlations. In addition, a combination
of statistical arbitrage and fundamental stock pickers served to
increase diversification and contribute positively to performance
during the year.
Outlook
We are optimistic on the outlook for macro strategies for 2013.
We believe that with confidence in the markets re-established and
much of the tail risk removed from the major economies, markets
will once again start trading based on fundamental economic data,
which makes for a very opportune environment for global macro.
In the U.S., with the fiscal cliff debacle avoided, the focus
can turn to the underlying data, which has been encouraging,
particularly on the employment front as well as housing. This may
likely set the stage for a more favourable environment for risk
assets while having bearish overtones for government bonds.
In Europe, while the growth situation remains delicate,
sentiment is improving as is confidence in the region, while
concerns of a eurozone breakup, which dominated markets so
intensely over the past couple of years have receded.
In Japan, the new government remains on track to curtail Japan's
deflationary trajectory via a gradual depreciation of the yen.
Discretionary Macro Manager Positioning
Managers maintain pro-risk portfolios based on an encouraging
economic backdrop and the heightened probability that investors
will shift their holdings away from safe haven assets in favour of
risk assets.
Fixed Income
In the U.S., given managers' relatively strong views on the
economy, they are generally short rates in the 10-year sector. In
Europe, while managers maintain long positioning in European rates
due to the continued economic malaise, they have recently reduced
this exposure rather significantly in light of adverse market
action, although they believe the trade is still fundamentally
sound given poor growth prospects in Europe. In Japan, certain
managers have small shorts in Japanese Government Bonds as an
expression of the 'reflation trade'. Emerging market focused
managers have short exposure in markets where they believe the bond
rally has overshot while maintaining longs in places like Mexico on
the view that the 'lower for longer' policy still applies.
Currencies
Managers continue to be short the Japanese yen, believing that
the cycle of 'reflation' in Japan is continuing and will be
achieved through yen depreciation. They are tactically trading the
euro against the U.S. dollar, with some holding long positions
based on improving sentiment in the region, while others hold a
short bias given poor economic data. On the emerging market front,
they are long those currencies with favourable yields and
relatively strong supporting fundamentals, such as the Mexican peso
and Russian rouble.
Equities
Most discretionary managers believe that the U.S. economic
recovery will be underpinned by continued accommodative monetary
policy and solid economic data. In addition, a rotation from bonds
into equities, where investors are still generally
under-positioned, is likely to occur. Both of these developments
are likely to support equity prices. The story is also positive in
Japan where stocks are expected to be buoyed by a weaker yen, as
well as China where the economic picture has improved.
Commodities
Commodities exposure, whilst light, is dominated by long
positions in the agricultural sector, due to the attractive
supply/demand fundamentals, as well as long energy, based on highly
accommodative policy.
Analysis of significant investments
The ten largest holdings of the Company as at 31 December 2012
are set out below. These investments were held via Permal
Macro.
% of
Market % of issued
value Company's share
Name of Investment Strategy (GBP) net assets capital(1)
------------------------------------------ -------------- ---------- ------------ --------------
Caxton Global Investments Limited Discretionary 12,394,947 9.61 0.21
Moore Global Investments Limited Discretionary 5,938,889 4.60 0.10
Vinik Offshore Fund Limited Discretionary 5,937,729 4.60 0.10
Tudor BVI Global Fund Limited Discretionary 5,655,879 4.38 0.07
Permal Systematic Macro Limited Systematic 4,997,450 3.87 1.97
Permal Fixed Income Special Opportunities
Limited Discretionary 4,626,756 3.59 0.40
Graham Prop Matrix Systematic 4,267,634 3.31 0.43
Permal WCM Limited Systematic 3,652,714 2.83 0.01
Permal Global Opportunities Limited Discretionary 3,476,050 2.69 0.30
Gavea Fund Limited Discretionary 3,118,218 2.42 0.19
------------------------------------------ -------------- ---------- ------------ --------------
54,066,266 41.90
--------------------------------------------------------- ---------- ------------ --------------
(1) Percentages of issued share capital are based on estimates
of fund capital provided by underlying manager as of 31 December
2012.
(2) The total of the top 10 largest investments in 2011 was
41.25% of the Company's net assets and no holding was larger than
8.15%.
Source: Permal Investment Management Services Limited (data),
Dexion Capital plc (calculation)
The above table forms an integral part of the financial
statements. Refer to Note 4b)i).
Whilst it is generally considered best practice to disclose the
full portfolio of an investment company, the composition of the
Permal Macro's investment portfolio is the subject of
confidentiality provisions with Permal Macro.
Dexion Capital (Guernsey) Limited
26 April 2013
STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE
FINANCIAL STATEMENTS
The Directors are responsible for preparing the Directors'
Report and the financial statements in accordance with applicable
law and regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law they have
elected to prepare the financial statements in accordance with
International Financial Reporting Standards (IFRS) and applicable
law.
The financial statements are required by law to give a true and
fair view of the state of affairs of the Company and of the profit
or loss of the Company for that period.
In preparing these financial statements, the Directors are
required to:
- select suitable accounting policies and apply them consistently;
- make judgements and estimates that are reasonable and prudent;
- state whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the financial statements; and
- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping proper accounting
records which disclose with reasonable accuracy at any time the
financial position of the Company and to enable them to ensure that
the financial statements comply with the Companies (Guernsey) Law,
2008. They have general responsibility for taking such steps as are
reasonably open to them to safeguard the assets of the Company and
to prevent and detect fraud and other irregularities.
Under applicable laws and regulations the Directors are also
responsible for preparing this Directors' report and Corporate
Governance Statement that comply with Company law and
regulations.
Directors' Responsibility Statement
The Directors confirm that they have complied with the above
requirements in preparing the financial statements and that to the
best of our knowledge and belief:
(a) This management report (comprising the Chairman's Statement,
Manager's Report and Directors' Report) includes a fair review of
the development and performance of the business and the position of
the Company together with a description of the principal risks and
uncertainties that the Company faces; and
(b) The financial statements, prepared in accordance with
International Financial Reporting Standards, give a true and fair
view of the assets, liabilities, financial position and profit of
the Company.
By order of the Board
Christopher Spencer Carol Goodwin
Director Director
26 April 2013
STATEMENT OF FINANCIAL POSITION (Audited)
As at As at
31 December 31 December
2012 2011
GBP000 GBP000
---------------------------------------------- ------------ ------------
Assets
Current assets
Financial assets at fair value through profit
or loss 128,932 130,527
Cash and cash equivalents 117 -
Other receivables 3 11
Total assets 129,052 130,538
---------------------------------------------- ------------ ------------
Liabilities
Current liabilities
Bank overdraft - 629
Accounts payable and accrued expenses 48 53
Total liabilities 48 682
---------------------------------------------- ------------ ------------
Net assets 129,004 129,856
---------------------------------------------- ------------ ------------
Represented by:
Shareholders' equity and reserves
Share premium 86,683 86,683
Other reserves 42,321 43,173
---------------------------------------------- ------------ ------------
Total Shareholders' equity 129,004 129,856
---------------------------------------------- ------------ ------------
Net assets per Share 135.10p 133.87p
---------------------------------------------- ------------ ------------
STATEMENT OF COMPREHENSIVE INCOME (Audited)
For the For the
year ended year ended
31 December 31 December
2012 2011
GBP000 GBP000
---------------------------------------------- ------------ ------------
Income
Interest income - 1
Net gains/(losses) on financial assets at
fair value through profit or loss 1,405 (4,285)
---------------------------------------------- ------------ ------------
Net income /(loss) 1,405 (4,284)
---------------------------------------------- ------------ ------------
Expenses
Directors' remuneration and expenses (86) (77)
Fund administration fee (39) (40)
Custodian fee (39) (40)
Audit fee and audit related fee (27) (26)
Legal fees (24) (24)
Other professional fees (116) (124)
Other operating expenses (141) (153)
---------------------------------------------- ------------ ------------
Total operating expenses before finance costs (472) (484)
---------------------------------------------- ------------ ------------
Finance costs
Interest expense (3) (6)
---------------------------------------------- ------------ ------------
Total comprehensive income 930 (4,774)
---------------------------------------------- ------------ ------------
Basic and Diluted return/(loss) per Share 0.97p (4.82)p
---------------------------------------------- ------------ ------------
All items derive from continuing activities
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (Audited)
FOR THE YEAR ENDED 31 DECEMBER 2012
Share Other
Premium Reserves Total
GBP000 GBP000 GBP000
----------------------------------------- -------- --------- -------
Balance at 1 January 2012 86,683 43,173 129,856
----------------------------------------- -------- --------- -------
Total comprehensive income for the year
Total return for the year - 930 930
----------------------------------------- -------- --------- -------
Transactions with Shareholders, recorded
directly in equity Purchases of own
Shares for cancellation - (1,782) (1,782)
----------------------------------------- -------- --------- -------
Balance as at 31 December 2012 86,683 42,321 129,004
----------------------------------------- -------- --------- -------
Share Other
FOR THE YEAR ENDED 31 DECEMBER 2011 Premium Reserves Total
GBP000 GBP000 GBP000
----------------------------------------- -------- --------- -------
Balance at 1 January 2011 86,683 52,600 139,283
----------------------------------------- -------- --------- -------
Total comprehensive income for the year
Total loss for the year - (4,774) (4,774)
----------------------------------------- -------- --------- -------
Transactions with Shareholders, recorded
directly in equity Purchases of own
Shares for cancellation - (4,653) (4,653)
----------------------------------------- -------- --------- -------
Balance as at 31 December 2011 86,683 43,173 129,856
----------------------------------------- -------- --------- -------
STATEMENT OF CASH FLOWS (Audited)
For the For the
year ended year ended
31 December 31 December
2012 2011
GBP000 GBP000
----------------------------------------------------- ------------ ------------
Cash flows from operating activities
Total comprehensive income for the year 930 (4,774)
Adjustments for:
Net (gains)/losses on financial assets held
at fair value through profit or loss (1,405) 4,285
Decrease/(increase) in other receivables 8 (2)
Decrease in accounts payable and accrued expenses (5) (6)
Net cash flows used in operating activities (472) (497)
----------------------------------------------------- ------------ ------------
Cash flows from investing activities
Proceeds from sale of investments 3,000 4,500
----------------------------------------------------- ------------ ------------
Net cash flows from investing activities 3,000 4,500
----------------------------------------------------- ------------ ------------
Cash flows from financing activities
Purchase of own Shares for cancellation (1,782) (4,653)
----------------------------------------------------- ------------ ------------
Net cash flows used in financing activities (1,782) (4,653)
----------------------------------------------------- ------------ ------------
Net increase/(decrease) in cash and cash equivalents 746 (650)
----------------------------------------------------- ------------ ------------
Cash and cash equivalents at the beginning of
the year (629) 21
----------------------------------------------------- ------------ ------------
Cash and cash equivalents at the end of the
year 117 (629)
----------------------------------------------------- ------------ ------------
Analysis of cash and cash equivalents at the
end of the year
Cash at bank 117 -
Bank overdraft - (629)
----------------------------------------------------- ------------ ------------
117 (629)
----------------------------------------------------- ------------ ------------
Cash flows from operating activities include:
Interest income on financial assets that are
not at fair value through profit or loss - 1
Interest expense for financial liabilities that
are not fair value through profit or loss (3) (6)
----------------------------------------------------- ------------ ------------
Significant accounting policies
Basis of preparation
The Company's Shares have continued to trade at a discount to
net asset value ('NAV'); over the 12 month period ended 20 February
2013, the Shares traded, on average, at a discount to estimated NAV
of 11.57 per cent., therefore triggering a further continuation
vote in early 2013. The Board issued a Shareholder circular on 4
April 2013 to consider a Continuation Resolution at the Meeting to
be held on 3 May 2013 at 2.30 p.m. Where the 2013 Continuation
Resolution is not passed, the Board is required to put forward a
proposal offering to redeem all of the Shares at an amount which
each such Share would have received on a return of capital on a NAV
Calculation Date determined by the Board (less all costs associated
with such redemption). Alternatively, the Board may put forward a
proposal determined by the Board (in its absolute discretion) as
having an economic value substantially equivalent to such a
redemption.
The Board's current expectation, in the event that the 2013
Continuation Resolution is not passed, is that the Board would put
forward a Redemption Proposal within 2 months of the conclusion of
the Meeting. Such Redemption Proposal would be contingent upon the
level of acceptances of the Redemption Proposal not exceeding an
amount such that the remaining Company would be below the size at
which the Board believed that the Company could continue to be
viable. Until the outcome of the 2013 Continuation Resolution is
known, and given changes that may occur between the date of this
document and the making of any Redemption Proposal in, for
instance, settlement obstructions or general market conditions, the
Board is currently unable to say with certainty what the mechanics
and timing of any Redemption Proposal required to be put forward
may be.
After making enquiries and given the nature of the Company and
its investments, the Directors are satisfied that it is appropriate
to continue to adopt the going concern basis in preparing the
financial statements. However, the outcome of the continuation vote
is unknown and therefore constitutes a material uncertainty which
may cast doubt about the Company's ability to continue as a going
concern.
Financial Risk Management
The Investment Manager provides services to the Company,
co-ordinates access to domestic and international financial
markets, monitors and manages risks relating to the operations of
the Company through internal risk reports which analyse exposures
by degree and magnitude of risks.
The techniques and instruments utilised for the purposes of
efficient portfolio management are those which are reasonably
believed by the Investment Manager to be economically appropriate
to the efficient management of the Company. The Company's financial
instruments include investments designated as fair value through
profit or loss, cash and currency hedging instruments. The main
risks arising from the Company's financial instruments are market
price risk, interest rate risk, currency risk, liquidity risk and
credit risk.
a) Capital risk management
The Company manages its capital to ensure that it is able to
continue as a going concern while maximising the return to equity
holders through the optimisation of equity balance. The capital
structure of the Company consists of Shareholders' equity which
comprises issued share capital, and other reserves. To maintain or
adjust the capital structure, the Company may return capital to
Shareholders or issue new Shares. There are no regulatory
requirements to return capital to Shareholders. During the year,
1,512,500 Shares were repurchased and cancelled so as to maximise
the value of the Company to remaining Shareholders. The Shares had
been trading at a discount to net asset value during the year. The
Company adheres to the Listing Rules of the UK Listing
Authority.
b) Market risk
Market risk embodies the potential for both losses and gains and
includes currency risk, interest rate risk and price risk.
The Company's strategy on the management of investment risk is
driven by the Company's investment objective. The Company's
investment objective is detailed in the Directors' Report (see full
Annual Report & Accounts). The Company's main investment
guidelines and restrictions are:
- The Company invests all or substantially all of its assets in
Class A GBP shares issued by Permal Macro. The investment policy of
Permal Macro is to diversify its investment risk.
- No more than 20% of the value of Permal's gross assets may be
lent to or invested in the securities of any one issuer (including
the issuer's subsidiaries and affiliates) or may be exposed to the
creditworthiness or solvency of any one counterparty (including
that counterparty's subsidiaries or affiliate).
- Gross assets in excess of 20% and up to 40% of the value of
Permal Macro may be invested in any one Underlying Fund or may be
allocated to any one Portfolio Manager to manage on a discretionary
basis, provided that each such Underlying Fund or Portfolio Manager
operates on the principle of risk spreading. Permal Asset
Management will monitor the investment portfolio of the Underlying
Funds and Portfolio Managers with which Permal Macro has invested
more than 20% of the value of its gross assets to ensure that, in
the aggregate, the restrictions quoted above are not breached.
- Permal Macro may not invest in aggregate more than 20% of the
value of its gross assets in other funds whose principal investment
objectives include investing in other funds.
- Permal Macro may not take or seek to take legal or management
control of the issuer of any of its underlying investments.
- Permal Macro may not invest more than 10% in aggregate, of the
value of its gross assets directly in physical commodities.
- Permal Macro has the power to borrow and may do so not only to
meet redemptions (which would otherwise result in Permal Macro
prematurely liquidating investments), but also as part of its
investment philosophy. Such borrowing, in the aggregate, will not
exceed 20% of the net assets of Permal Macro.
i) Market price risk management
Market price risk arises mainly from uncertainty about future
prices of financial instruments held. It represents the potential
for both loss and gain that might be suffered through holding
market positions in the face of price movements. The Company's
investment portfolio is exposed to market price fluctuations which
are monitored by the Investment Adviser in pursuance of its
investment objective and policies.
Details of the Company's exposure in underlying investments held
via Permal Macro as at 31 December 2012 are disclosed in summary
form in the Manager's Report (see full Annual Report &
Accounts).
Price sensitivity analysis
The Company's only investment is in Permal Macro. Therefore,
market price risk is managed indirectly through diversification of
the investment portfolio in Permal Macro.
The Investment Adviser provides a Portfolio & Risk analysis
for Permal Macro that is included within the Board report process.
The analysis provides data on a Value at Risk measurement of 99% on
a best fit or 'proxy' data that aligns with the investment strategy
of the portfolio. Performance data is approximated reasonably by
using Extreme Value Theory. The Investment Adviser also analyses
the time-varying market factor sensitivities of Permal Macro.
The following details the Company's sensitivity to a 10%
increase and decrease in the market prices, with 10% being the
sensitivity rate used when reporting price risk internally to key
management personnel and representing management assessment of the
possible change in market prices. At 31 December 2012 if the market
prices had been 10% higher with all other variables held constant,
the increase in the net assets attributable to equity Shareholders
for the year would have been GBP12,893,179 (2011: GBP13,052,693);
an equal change in the opposite direction would have decreased the
net assets attributable to equity Shareholders.
Actual trading results may differ from the above sensitivity
analysis and those differences may be material.
ii) Interest rate risk management
Interest rate risk represents the uncertainty of investment
return due to changes in the market rates of interest.
Substantially all of the Company's assets are non-interest bearing
equity investments and its exposure to interest rate changes is
minimal. Interest receivable on bank deposits and interest payable
on bank overdraft positions will be affected by fluctuations in
interest rates. All cash balances and bank overdrafts are at
variable rates. Increases in interest rates will increase the
borrowing costs of the Company should the overdraft facility be
used. The rate of interest in respect of the overdraft facility is
fixed at Royal Bank of Canada (Channel Islands) Limited base rate
plus 1%. Credit monies are sufficient to provide liquidity for
ongoing expenses of the Company.
The Company's investment in Permal Macro is not directly exposed
to interest rate risk. However, the Company may be indirectly
exposed through the underlying portfolio held by Permal Macro.
As at 31 December 2012, all of the Company's assets and
liabilities were non-interest bearing with the exception of cash
and cash equivalents (see table below).
Non-interest
1 - 3 months bearing
GBP000 GBP000 Total GBP000
============================================ ============= ============ ===================
Assets
Financial assets at fair value through
profit or loss:
Investment in Fund of Hedge Funds - 128,932 128,932
Loans and receivables:
Cash and cash equivalents 117 - 117
Other receivables - 3 3
============================================ ============= ============ ===================
Total assets 117 128,935 129,052
============================================ ============= ============ ===================
Liabilities
Financial liabilities measured at amortised
cost:
Accounts payable and accrued expenses - 48 48
============================================ ============= ============ ===================
Total liabilities - 48 48
============================================ ============= ============ ===================
Total interest sensitivity gap 117 - -
============================================ ============= ============ ===================
As at 31 December 2011, all of the Company's assets and
liabilities were non-interest bearing with the exception of cash
and cash equivalents (see table below).
Non-interest
1 - 3 months bearing
GBP000 GBP000 Total GBP000
============================================ ============== ============ ===================
Assets
Financial assets at fair value through
profit or loss:
Investment in Fund of Hedge Funds - 130,527 130,527
Loans and receivables:
Other receivables - 11 11
============================================ ============== ============ ===================
Total assets - 130,538 130,538
============================================ ============== ============ ===================
Liabilities
Financial liabilities measured at amortised
cost:
Bank overdraft (629) - (629)
Accounts payable and accrued expenses - (53) (53)
============================================ ============== ============ ===================
Total liabilities (629) (53) (682)
============================================ ============== ============ ===================
Total interest sensitivity gap (629) - -
============================================ ============== ============ ===================
Interest rate sensitivity analysis
Cash and cash equivalents will be affected by movements in
interest rates. However there will be no material impact on the
Statement of Comprehensive Income or Statement of Changes in
Shareholder's Equity from movements in interest rates due to the
immateriality of the bank balances at year end. At year end the
Company's cash balance was GBP117,064 (31 December 2011:
GBP(629,018)).
iii) Currency risk management
The Company's investment in Permal Macro is predominantly in
pounds sterling; therefore, the effect of currency fluctuation is
minimal. Permal Macro's investments comprises predominantly of US
dollar denominated investments. Whilst Permal Macro will (subject
to the availability of appropriate foreign exchange and credit
lines) engage in currency hedging in an attempt to reduce the
impact on its Class A GBP shares of currency fluctuations,
volatility of returns may result from such currency exposure. Any
uninvested monies such as working capital requirements are
monitored by the Investment Manager.
The Company had no significant exposure to currency risk at 31
December 2012 and 31 December 2011.
c) Liquidity risk management
The ultimate responsibilities for liquidity risk management
rests with the Board of Directors which has appropriately reviewed
the funding requirements for the management of the Company's short,
medium and long-term funding needs. The Company maintains adequate
reserves by continuously monitoring forecast and actual cash flows
and maintains an overdraft facility as described on page 37 of the
Annual Report & Accounts to assist with any unforeseen timing
mismatches.
The Company's financial instrument is an investment in Permal
Macro which generally may be illiquid. The Company is currently
required to give 20 days prior notice of redemption to redeem its
holdings in Permal Macro.
Some of the investments made by Permal Macro may not be readily
realisable and their marketability may be restricted and it may be
difficult for Permal Macro to sell or realise its investments in
whole or in part.
Residual contractual maturities of financial Less than
liabilities 1 month Total
31 December 2012 GBP000 GBP000
============================================= ================= ======
Accounts payable and accrued expenses 48 48
31 December 2011
Accounts payable and accrued expenses 53 53
--------------------------------------------- ----------------- ------
d) Credit risk
Credit risk refers to the risk that a counterparty will default
on its contractual obligations resulting in financial loss to the
Company. The carrying amounts of financial assets best represent
the maximum credit risk exposure at the reporting date. Investments
made by Permal Macro may not be regulated by the rules of any stock
exchange or investment exchange or other regulatory body or
authority. The counterparties to such investments may have no
obligation to make markets in such investments and may have the
ability to apply essentially discretionary margin and credit
requirements. As a result, the Company will be subject to the risk
of bankruptcy of, or the inability or refusal to perform with
respect to such investments by the counterparties with which the
Company deals. The diversity of the portfolio assists with the
mitigation of such risk.
The Company is exposed to material credit risk in respect of
cash and cash equivalents. All cash is placed with Royal Bank of
Canada (Channel Islands) Limited ('RBC'). The Company is subject to
credit risk to the extent that this institution may be unable to
return this cash. RBC is a wholly owned subsidiary of the Royal
Bank of Canada Group ('RBCG'). RBCG is publicly traded and a
constituent of S&P 500. RBCG has a credit rating of AA- from
Standard & Poor's.
The Company's financial assets which were exposed to credit risk
via investment in Permal Macro were concentrated as follows:
As at As at
31 December 31 December
2012 2011
GBP000 GBP000
=========================== ============= ============
Cash and cash equivalents 117 -
Investment in Permal Macro 128,932 130,527
=========================== ============= ============
129,049 130,527
=========================== ============= ============
Related Parties and Significant Agreements
Related Parties
a) Directors' Remuneration and Expenses
Up until 30 June 2011, the annual Directors' fees comprised
GBP26,000 paid to Mr Spencer, the Chairman, GBP22,000 to Ms Goodwin
as Chairman of the Audit Committee and GBP20,000 to Mr Niven. From
1 July 2011 the annual Director's fees were each increased to
comprise GBP32,000 paid to Mr Spencer, the Chairman, GBP28,000 to
Ms Goodwin as Chairman of the Audit Committee and GBP26,000 to Mr
Niven. Mr Bowie has waived his right to his fee of GBP26,000.
Directors' fees payable at 31 December 2012 were GBPNil (2011:
GBP21,441).
Any additional remuneration where Directors are involved in
duties beyond those normally expected as part of a Director's
appointment will be disclosed in the Directors' Report of the
financial statements in respect of that financial year.
b) Manager
Following the restructuring of the Company from 1 October 2007,
Permal Macro will pay the Investment Adviser an annual fee (payable
monthly in arrears) of 2.0% of the value of the Total Assets
attributable to its Class A shares in Permal Macro held by the
Company (together with certain other operational costs and
expenses). The Investment Adviser has agreed to rebate half of that
amount to the Manager in complete discharge of the Company's
obligation to pay fees to the Manager pursuant to the Investment
Management Agreement out of which 0.5% will be available as a trail
commission to Qualifying Investors.
During the year ended 31 December 2012, Permal Macro paid a
total annual fee amounting to the equivalent of GBP2,545,306 (2011:
GBP2,698,392) to the Investment Adviser and half of this amount
(the equivalent of GBP1,272,653, 2011: GBP1,349,196) was paid by
the Investment Adviser to the Manager.
The Manager is responsible for discharging all the fees of the
Investment Consultant.
The Investment Management Agreement may be terminated by either
party giving to the other not less than 9 months' notice, or
otherwise in circumstances where, amongst other things, one of the
parties has a receiver appointed of its assets or if an order is
made or an effective resolution passed for the winding up of one of
the parties or if, following a continuation vote not being passed
or if a resolution for the winding-up of the Company is passed.
Under the Investment Advisory Agreement, the Company pays a
nominal fee to the Investment Adviser save where the Company's
investment in Permal Macro is redeemed otherwise than on at least
nine months' notice in which case a termination fee equal to the
fee which would otherwise have been payable if due notice had been
given in respect of the Company's investment in Permal Macro which
is then being redeemed (as at the Valuation Date immediately
preceding redemption) is payable by the Company to the Investment
Adviser.
On 17 April 2012 Dexion Capital (Guernsey) Limited purchased
1,686,000 shares in the Company. On 15 June 2012, Dexion Capital
(Guernsey) Limited sold these shares pursuant to a sale and
repurchase-like agreement (structured as an accreting strike
option) under which it is expected that Dexion Capital (Guernsey)
Limited will repurchase the shares in approximately one year,
although they are entitled to purchase the shares at any time
during that period. The repurchase consideration (exclusive of
interest and charges) is equal to the disposal consideration.
Dexion Capital (Guernsey) Limited will retain no voting rights in
the shares. However, all of the risk and reward of beneficial
ownership of the shares remains with Dexion Capital (Guernsey)
Limited.
c) Investment Adviser
As at 31 December 2012 Permal Asset Management, an affiliate of
the Company's Investment Adviser, own 3,435,000 shares in the
Company (31 December 2011: Nil).
d) Secretary
Dexion Capital (Guernsey) Limited (the 'Secretary') performs
secretarial duties for which it was remunerated at an annual fee of
GBP20,000.
Significant Agreements
e) Administrator
RBC Offshore Fund Managers Limited (the 'Administrator'),
performs administrative duties for which it was remunerated at a
rate of 0.03% of the Net Asset Value of the Company subject to a
minimum of GBP30,000 per annum.
f) Custodian
Royal Bank of Canada (Channel Islands) Limited (the
'Custodian'), is remunerated at an annual rate of 0.03% of the Net
Asset Value of the Company subject to a minimum of GBP10,000 per
annum.
Enquiries:
Carol Kilby:
Dexion Capital (Guernsey) Limited
Tel: +44 (0) 1481 743943
This information is provided by RNS
The company news service from the London Stock Exchange
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