TIDMVOC
RNS Number : 6372X
Vision Opportunity China Fund Ltd
09 December 2010
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART INTO THE UNITED
STATES, CANADA, AUSTRALIA, SOUTH AFRICA OR JAPAN
09 December 2010
Vision Opportunity China Fund Limited (the "Company" or "VOC")
Full Year Results for the year ended 30 September 2010
Vision Opportunity China Fund Limited (AIM: VOC.L), the closed-ended fund traded
on AIM that invests in companies with operations principally within Greater
China, today announces results for the year ended 30 September 2010.
Highlights
· NAV per share increase of 0.48% to $2.10 (since 30 September 2009)
· Inclusive of the capital return in May, share price total return over the
12 month period ended 30 September 2010 was 37.2%
· Adoption of policy to return between 20% and 50% of relevant net realised
gains to shareholders each year
· Initial return of capital of $0.05 per share, amounting to $3.31 million
in aggregate, paid on 28 May 2010
· As part of this policy, Board intends to buy back shares in the market
for a further $1.44 million in aggregate
· Significant realisation from $9.45 million investment in Lihua
International in October 2008, with total proceeds from sale in January 2010
amounting to $33.84 million
· $19 million principally invested in three new investments including:
China Security & Surveillance Technology (NYSE: CSR), China Gerui Advance
Materials (NASDAQ: CHOP) and Keyuan Petrochemicals (NASDAQ: KEYP)
· First overseas office opened in Beijing, China in October 2010 and four
additional hires made to strengthen the investment team of the Investment
Manager
Adam Benowitz, Chief Investment Officer of Vision Capital Advisors, LLC,
commented:
"The Company's portfolio has continued to mature and we are delighted to have
added three new portfolio companies that represent innovative corners of China's
fast-growing industries which are all poised to benefit from the growing
consumption within China. We will continue to focus our efforts on second and
third tier cities in China where competitive forces are less prevalent and
opportunities are richer in upside while striving to realise investments where
appropriate in order to deliver meaningful results to shareholders."
Chris Fish, Chairman of the Company, commented:
"Against the backdrop of so many opportunities in China and with the opening of
the Investment Manager's office in Beijing and the addition of further resources
to its investment team, I believe that the Company is poised for future growth
and, as a result, well-positioned to continue to serve the interests of
shareholders."
Financial Highlights
+----------------+--------------+---------------+--------+
| | Year ended | Year ended | Growth |
| | 30 September | 30 September | |
| | 2010 | 2009 | |
| | | | |
+----------------+--------------+---------------+--------+
| Net Asset | $139,314,433 | $138,649,851 | +0.48% |
| Value (NAV) | | | |
+----------------+--------------+---------------+--------+
| Net Asset | $2.1048 | $2.0947 | +0.48% |
| Value (NAV) | | | |
| per Ordinary | | | |
| Share | | | |
+----------------+--------------+---------------+--------+
| Share Price | $1.625 | $1.186 | +37.0% |
| Performance | | | |
+----------------+--------------+---------------+--------+
| Discount to | - 22.6% | - 41.8% | 19.2% |
| NAV % | | | |
+----------------+--------------+---------------+--------+
| Earnings Per | $0.0600 | $0.6467 | -90.7% |
| Share | | | |
+----------------+--------------+---------------+--------+
For further information, please contact:
Vision Opportunity China Fund Limited
David Benway / Adam Benowitz
Tel: +1 (212) 849 8225
Canaccord Genuity Limited
Tel: +44 (0)20 7050 6500
Sue Inglis / Guy Blakeney
Financial Dynamics
Tel: +44 (0)20 7269 7132
Ed Gascoigne-Pees / Ed Berry
NOTE TO EDITORS
Vision Opportunity China Fund Limited is a closed-ended fund traded on AIM. VOC
primarily invests directly in listed companies with operations principally
within Greater China.
Greater China is a collective term for the territories administered by the
People's Republic of China, those administered by the Republic of China and
Singapore.
Chairman's Statement
Year ended 30 September 2010
Introduction
2010 was a challenging year for Vision Opportunity China Fund Limited but not
without a number of significant accomplishments. While the upturn from
sentiments felt throughout most of 2009 was notable, difficult market conditions
over the summer eroded some gains and, while the Share price rose significantly
over the year, the NAV per Share was disappointingly flat year on year. On a
further positive note, the Board introduced of a number of new corporate
initiatives, which contributed to a re-rating of the Shares.
Performance
During the 12 months ended 30 September 2010, the net NAV per Share rose 0.5%
from US$2.095 to US$2.105. The NAV total return per Share over the same period
was slightly higher at 2.4%, underperforming the MSCI China Index, which
achieved a total return of 11.5%. Our portfolio companies missed a broad market
rally that brought large cap and mid-cap names higher toward the year-end. Over
the longer-term, the Company has performed strongly, with the NAV total return
per Share exceeding the total return on the MSCI China Index by 147 percentage
points since the Company's launch in November 2007.
More significantly, the Share price increased substantially over the period.
The heightened awareness of the Company and its noteworthy longer-term
performance served to appreciably close the discount from 41.8% at 30 September
2009 to 22.6% at the financial year end. Inclusive of the capital return in
May, the Share price total return over the period was 37.2%.
At 30 November 2010, the NAV per Share was US$1.934, just below the year-end
level (9.5 percentage points less than the total return on the MSCI Index for
the same period). In addition, the Share price discount to NAV had narrowed to
just 13.4%.
Corporate Initiatives
After the challenges the Company faced in 2009, one of the key goals for 2010
was to attract a broader range of investors in the Company. Accordingly, in
2010 the Board undertook a series of initiatives toachieve this, including
increasing the Company's market profile, improving the liquidity in the trading
of its Shares and improving its transparency.
The Company's investment manager has worked closely with Canaccord Genuity,
which was appointed as the Company's corporate broker at the beginning of the
year, in implementing a number of these initiatives with noticeable success: the
Shareholder register has been transformed through the introduction of long-term
Shareholders who have invested with an eye toward strong fundamentals and value
creation, turnover in the Shares has increased substantially and, as I mentioned
earlier, there has been a significant improvement in the rating of the Shares.
We have also sought to provide Shareholders with greater transparency: we now
provide the market with weekly NAV updates and regular portfolio updates through
the monthly factsheets.
As you are aware, we had expected to migrate the Company from AIM to the premium
segment of the Official List and to the London Stock Exchange's Main Market
following the year end. As announced on 27 October, this migration has been
delayed until we are in a position to comply with the UK Listing Authority's
request that the Company make additional disclosures in its prospectus regarding
the formal request for documents and information which the Investment Manager
has received from the US Securities & Exchange Commission. The Board remains
fully committed to continue with the migration as soon as possible, although
this is unlikely to occur whilst the SEC's current enquiry is ongoing.
Board
We added an additional independent director, Mr. John Hallam, to the board in
July. Mr Hallam, who is a former audit partner at PricewaterhouseCoopers and
has considerable experience of London-traded closed-end funds, assumed the role
of chairman of the audit committee following his appointment.
In addition, Dr Randolph Cohen stood down as a Director in September, as
planned. He continues to work closely with the Company in his role as Senior
Managing Director and President of the Investment Manager.
Distribution Policy
During the year, we adopted a policy to return between 20 per cent. and 50 per
cent. of relevant net realised gains to Shareholders each year. As a result of
this new distribution policy, the Company made an initial return of capital of
US$0.05 per Share, amounting to US$3.31 million in aggregate, which was paid on
28 May 2010 to Shareholders on the register on 7 May 2010. That return is
equivalent to a yield on the Shares of 3.1%, based on the Share price at the
year-end.
As this has been a strong year for realisations for the Company, the Board has
resolved to return the lower end of the return scheme. As at the date of this
statement, the minimum amount still to be distributed under the distribution
policy in respect of the year ended 30 September 2010 was US$1.44 million. The
Board intends to use the minimum amount to buy back Shares in the market.
Portfolio
At the portfolio level, we enjoyed our first significant realisation from an
investment and the Company deployed US$19 million principally into three new
investments.
The remaining portfolio companies also continue to mature and gain market
acceptance. By the end of financial year, not only were all of the portfolio
companies publicly quoted, but they had all migrated to a major exchange,
reinforcing higher standards of governance and providing their shareholders,
including the Company, with additional protection. I believe that, as our
portfolio companies continue to mature, the market will further appreciate their
value and their share prices will rise accordingly.
Outlook
Of course, China has been a story in itself. Despite the economic malaise that
plagues much of the western world, China marches on; claiming one economic title
after another while maintaining double-digit growth. The "economic miracle" that
is happening in China has been fueling the entrepreneurial efforts behind
thousands of small companies. Many of the firms are well-managed, insightful
enterprises that are served by investors like VOC.
Against the backdrop of so many opportunities, the opening of the Investment
Manager's office in Beijing and the addition of further resources to its
investment team, I believe that the Company is poised for future growth and, as
a result, well-positioned to continue to serve the interests of Shareholders.
Christopher Fish
Chairman
Vision Opportunity China Fund Limited
Date: 8 December 2010
Investment Manager's Report
Year ended 30 September 2010
The publication of these financial accounts coincides with the commencement of
our fourth year in operation; representing about half of the period that Vision
Capital Advisors ("VCA" or "Vision") has been making investments. We made our
first investment in China in 2005 in what was to become the first US-listed
Chinese company to reach the New York Stock Exchange (the "NYSE"). The success
of the investment could not have been more telling of the growth in our
business, or the expansion of opportunities for investment in China.
We are extremely gratified by the trust that investors in Vision Opportunity
China Fund Limited have placed in us as managers and are proud to have delivered
such meaningful returns throughout such turbulent times. Indeed, as at 30
September 2010, the Chinese market was down roughly 22.2% from the time of VOC's
launch in November of 2007. However, during that time, VOC delivered 123.0%
growth in NAV and 62.5% growth in Share price.
Investment Strategy
The success to date has been founded on the in-depth due diligence we conduct
before making investment decisions. Vision carefully analyses companies'
competitive advantages in their fast-changing industry landscape. We thoroughly
examine detailed financial reports and records in order to obtain a full
understanding of the financial dynamics of the business and to avoid making
investments in businesses with questionable conduct and practices. Part of our
process includes working closely with legal and financial advisers to correctly
structure investments for the portfolio. Indeed, recent media attention
targeting the US-listed Chinese small-cap stocks is testament to the importance
of our prudent investment approach. As our deal flow has been strong, we remain
very selective in our investment of Shareholder capital. As the reinvestment of
the proceeds from the sale of Lihua International, Inc. demonstrated, we will
only elect to deploy capital into what we believe are compelling opportunities,
even if it means being patient.
Vision is also committed to assisting our portfolio companies after we make an
investment. A key component of our investment strategy is providing advocacy and
guidance for our portfolio companies to help them navigate Wall Street. We do
not take the place of an investor relations firm, an auditor or an investment
bank. However, we work to help portfolio companies make the most of these
relationships by providing our insights and expertise in small company finance
directly to management teams. Raising capital is just one small part of the
capital markets puzzle. For a Chinese company, entering the US capital markets
means taking on a complex combination of responsibilities. Vision works with
management to strengthen its corporate governance and compliance to meet the
higher standard of US listing. In that regard, we achieved a significant
milestone in 2010: as our Chairman noted earlier, all of our portfolio companies
are now listed on a major US stock exchange.
Portfolio Developments
The Company's portfolio continues to mature, despite much of the emotive
criticism levelled at small Chinese companies.
Shengkai Innovations (NASDAQ: VALV)
Our largest holding, VALV completed its new factory in July 2010, increasing
production capacity from 7,500 sets of valves to 24,000 sets of valves. The
company has indicated that it expects to be running at full production capacity
by the end of 2010 and based on that expectation, it forecast between $93
million to US$95 million in revenue and between US$30 million and US$32 million
in non-GAAP net income for the financial year ended 30 June 2011.
VALV has also accomplished a number of positive developments on the capital
markets front that we expect will improve visibility and trading liquidity. The
company's shares moved up from OTCBB to NYSE AMEX in December 2009 and then to
NASDAQ Global Market in May 2010. Both Rodman & Renshaw and Global Hunter
Securities initiated research coverage on VALV in the second quarter of 2010. In
addition, Mr. David He Ming was appointed to the post of chief financial officer
in March 2010 and the company retained BDO China Li Xin Da Hua CPA Co., Ltd as
the independent public accounting firm in June 2010.
Shengkai Innovations (NASDAQ: VALV), continued
After visiting the new manufacturing facility in May 2010, we continue to have
confidence in the management team's business execution capability. With the
increased production capacity, continued strong demand for the company's
products and improving capital markets activities, we remain very confident
about the company's long-term prospects and stock price.
QKL Stores (NASDAQ: QKLS)
Our second largest position has continued to increase its store count and opened
its new distribution centre in Harbin. The company expects that the bulk of the
balance will open in Q1 2011. As at 30 September 2010, QKLS operated a total of
38 stores, up from 33 stores a year ago. This is comprised of 35 supermarkets
totalling 146,000 sq. metres and three department stores totalling 43,000 sq.
metres. QKLS has most recently revised its guidance regarding new store openings
from 20 to 11 by the end of 2010.
The company generated US$278 million of revenue and US$11 million non-GAAP net
income for the twelve months ended 30 June 2010. On the capital markets front,
QKLS moved from OTCBB to NASDAQ and retained BDO China Li Xin Da Hua CPAs as its
auditor in October 2009. The company received net proceeds of approximately
US$37.4 million in December 2009 by issuing 6.9 million new shares at US$5.75
per share in a public offering. Roth Capital Partners and Global Hunter
Securities initiated research coverage on QKLS.
We continue to be very encouraged by on the burgeoning retail sector in China.
We believe that QKL Stores' strong local sourcing capabilities, combined with
its private label development strategy will be its competitive advantage in
expanding within Tier III and Tier IV cities in China, where shopping in
supermarkets is still an emerging trend.
China Integrated Energy (NASDAQ: CBEH)
CBEH also continues to expand its business. The company acquired five more
retail petrol stations and also plans to double its production capacity of
biodiesel from 100,000 tons per year to 200,000 tons per year by the end of
2010.
The company recently raised its FY 2010 sales guidance to US$435 million and
non-GAAP net income to US$53.5 million. In order to help finance its
acquisitions, CBEH raised gross proceeds of US$28.8 million in a public equity
offering in November 2009. Oppenheimer & Co, Cowen & Co, Roth Capital Partners
and Rodman & Renshaw initiated research coverage on CBEH, increasing its
visibility.
We continue to be impressed by the management's capability to execute its
business plans to drive growth while improving profitability, and believe that
with continuing performance its stock price should trade more in line with other
comparable companies.
New Investments
As our portfolio of investments continues to mature, three new portfolio
companies representing innovative corners of China's fast-growing industries
have been added. China Security & Surveillance Technology (NYSE: CSR), China
Gerui Advance Materials (NASDAQ: CHOP) and Keyuan Petrochemicals (NASDAQ: KEYP)
represent three important industries, which are all poised to benefit from
growing consumption within China.
China Security & Surveillance Technology is a leading domestic security and
surveillance solutions provider well-positioned to participate in the growth of
the industry. Due to its scale and portfolio offerings, CSR has won a series of
large government contracts in 2009 and 2010. VOC invested US$8.0 million in CSR
in May 2010 at a price of US$4.00, about 4x 2009 earnings. As an established
company trading well on the NYSE, we were very pleased to be putting capital to
work for Shareholders at such an attractive valuation.
China Gerui Advance Materials is the largest manufacturer of high precision
cold-rolled narrow strip steel in China with a market share of 12.5%. CHOP
expects to complete the construction of two cold-rolled steel production lines
and a chromium plating line by early 2011. These new facilities will increase
its cold-rolled steel capacity from 250,000 metric tons to 400,000 metric tons
and its plating capacity from 50,000 metric tons to 250,000 metric tons. In
addition, research coverage on CHOP was initiated by Maxim Group, Rodman &
Renshaw, Global Hunter and Brean Murray, Carret & Co. VOC invested US$7.0
million in the company in May as a part of a US$18.8 million financing. We
believe that the specialty steel industry (in which China remains a net
importer) represents an excellent opportunity to take advantage of increasing
Chinese domestic consumption.
Keyuan Petrochemicals is a manufacturer of petrochemical products with an annual
petrochemical refining capacity of 550,000 metric tons. The company's
proprietary manufacturing processes enable it to lower raw material costs and
increase utilisation and yields. In September 2010, KEYP moved from OTCBB to
NASDAQ and undertook a small secondary offering. VOC invested US$2.0 million in
KEYP in May as a part of a larger financing. Like specialty steel, domestically
refined specialty chemicals are in high demand in China and we believe that KEYP
is in a unique position to benefit in the quarters ahead.
Realisations
2010 saw our first major investment realisation with the sale of our position in
Lihua International Inc. Having invested a total of US$9.45 million in Lihua
International Inc from October 2008, we exited positions in January 2010 for
total proceeds of US$33.84 million. What makes this event especially significant
was the fact that the holding period was a mere 14 months; only half of the
expected investment tenure. Transaction costs were slightly higher than usual
on the sale of these shares, but we consider that these were justified by the
attractive returns earned for Shareholders. We expect that 2011 will bring
additional realisations of investments.
New Office, Additional Staff
Vision opened its first overseas office in Beijing, China in October 2010.
Located in the heart of the financial district, this new base of operations will
provide a conduit to generate additional deal flow and a local presence to
interact with portfolio companies.
On the personnel front, our investment team has expanded significantly. The team
is led by Adam Benowitz, the Portfolio Manager and Carl Kleidman, the Managing
Director. We promoted Dr. Tianning (Tina) Yu to be in charge of the China team
and hired four new people, each of whom brings significant experience and
expertise to the group.
Fluent in Mandarin, Stuart Bradley has more than 7 years of investment and
financial experience in China. He was an investment banker at UBS and HSBC and a
business manager in China.
A Chinese national, Eric Pan worked as an Investment Banking Associate at
Chardan Capital Markets where he focused on Chinese companies. He also worked
for three years as a Sales Engineer and a Strategy & Operations Consultant in
China.
Jerry Xu returned to Vision, having previously taken part in a summer internship
programme. He has worked in China as an investment banker and as an accountant
at PricewaterhouseCoopers and Arthur Andersen.
Ray Wong joined us from BlackRock, Inc. where he specialised in quantitative
modelling and portfolio analysis.
Eric and Ray are based in New York while Stuart and Jerry, along with Antti
Uusiheimala, work from the Beijing office. Antti is a highly experienced member
of Vision's investment team who joined the firm when it was founded in 2005.
Working to achieve the goals of seamless idea sharing and information exchange,
the Vision team is based in the two largest economies in the world and strives
to maximise the returns on having both Chinese local knowledge and US capital
market prowess.
Looking to 2011
VOC is poised to continue to benefit as China grows and matures to meet the
needs of its enormous population. We will continue to seek out the strongest
small and medium sized enterprises, targeting skilled management teams and sound
business models. Our expanded team and local presence in China will provide
additional value in the form of new deal flow channels, enhanced diligence and
portfolio monitoring.
Shareholders should continue to benefit from an investment manager that strives
to operate at the forefront of innovation and value creation. We will continue
to focus our efforts on second and third tier cities in China where competitive
forces are less prevalent and opportunities are richer in upside.
We will continue our efforts to bring additional diversification to the
portfolio by realising investments where appropriate and redeploying capital in
new opportunities. As ever, we will continue to work closely with VOC's board of
directors to maintain high standards of corporate stewardship and to strive to
deliver meaningful results to Shareholders.
We are grateful for the support our Shareholders have shown us and remain
steadfastly committed to their service.
Adam Benowitz
Chief Investment Officer, Senior Managing Director
Vision Capital Advisors
Date: 8 December 2010
Directors' Report
Year ended 30 September 2010
The Directors of the Company are pleased to present their third annual report
and audited consolidated financial statements for the year ended 30 September
2010.
The Directors submit their Report together with the Group's Consolidated
Statement of Financial Position, the Consolidated Statement of Comprehensive
Income, the Consolidated Statement of Changes in Equity, the Consolidated
Statement of Cash Flows and the accompanying related notes for the year ended 30
September 2010, which have been prepared in accordance with International
Financial Reporting Standards, in accordance with any relevant enactment for the
time being in force, and are in agreement with the accounting records, which
have been kept in accordance with Section 238 of the Companies (Guernsey) Law,
2008.
The Company
The Company is a Guernsey registered, closed-ended investment company. The
Company commenced business on 28 November 2007 when the Ordinary Shares were
admitted to trading on AIM.
Group Structure
The underlying investments of the Group are held by the Limited Partnership
which was registered as a limited partnership in Guernsey under the Limited
Partnership (Guernsey) Law, 1995. The Company is the limited partner of the
Limited Partnership and the Company's subsidiary, GPCo, is the general partner
of the Limited Partnership.
GPCo was incorporated in Guernsey and is licensed under The Protection of
Investors (Bailiwick of Guernsey) Law 1987, as amended. GPCo's principal
activity is to manage the Limited Partnership which it does by employing the
services of Vision Capital Advisors under the Investment Management Agreement.
GPCo is responsible for the continuing fees of the Investment Manager.
The Company owns all of the issued A Ordinary Share capital of GPCo. The A
Ordinary Shares give the Company the sole control rights over GPCo.
Vision Capital Advisors owns all of the issued B Redeemable Preference Share
capital of GPCo. The B Redeemable Preference Shares give the Investment Manager
the sole economic rights to the performance allocation to which GPCo is entitled
under the terms of the Limited Partnership and the return on the US$100,000
capital invested by Vision Capital Advisors for the B Redeemable Preference
Shares.
Through its interest as a limited partner in the Limited Partnership, the
Company is entitled to a return on the amount it invested in the Limited
Partnership to enable the Group to make investments.
Together the Company, the GPCo and the Limited Partnership form an integrated
fund structure. The Investment Manager's holding in the GPCo is the interest in
the B Redeemable Preference Shares issued by GPCo.
Results, Dividends & Returns of Capital
The results for the year are set out in the Consolidated Statement of
Comprehensive Income on page 21.
The Directors do not recommend the payment of a dividend for the financial year
(30 September 2009: US$Nil).
On 28 May 2010, the Company paid to Shareholders (on the register as at close of
business on 7 May 2010) a return of capital of 5 cents per Ordinary Share,
amounting to US$3.31 million in aggregrate (30 September 2009: US$Nil). The
remaining amount to be distributed to Shareholders as at 30 September 2010 was
US$1.44 million.
Dividend Policy
The Company has never paid any dividends on the Ordinary Shares and, as the
Company's investment objective is to generate returns for Shareholders
principally through capital appreciation, the Directors have no current plans to
pay any dividends in the short to medium term. The Board will, however, review
the Company's dividend policy at appropriate intervals and at least annually.
Distibution Policy
During the year the Directors introduced a distribution policy which will aim to
return to Shareholders an amount equivalent to up to 50%, and not less than 20%,
of the Company's relevant net realisation proceeds achieved in each financial
year. For this purpose, the "relevant net realisation proceeds" will be, in each
financial year, 80% of the net realisation proceeds, being the proceeds on
realisation of investments during that year less the original acquisition costs
of the realised investments and any other expenses directly attributable to the
acquisition or realisation of such investments. The remaining 20% of such net
realisation proceeds takes account of the potential performance allocation that
the Investment Manager may be entitled to.
The Directors have discretion to determine the mechanics to be used on each
occasion an amount is to be returned to Shareholders in accordance with the
distribution policy.
Directors
The Directors who served during the year, all of whom are non-executive
directors, are as listed below. All the Directors, with the exception of John
Hallam (appointed 29 July 2010), were appointed on 8 November 2007 and
Christopher Fish, Ruiping Wang, Dr Christopher Polk and John Hallam are
independent Directors.
Christopher Norman Fish (Chairman)
Dr Randolph Cohen (resigned 1 October 2010)
David William Benway
Ruiping Wang
Dr Christopher Polk
John Hallam (appointed 29 July 2010)
The Investment Manager
The Investment Manager has been appointed as investment manager to the Group
pursuant to an Investment Management Agreement dated 16 November 2007 between
the Investment Manager and the Company.
The Investment Manager is responsible for sourcing, evaluating, negotiating,
completing, monitoring and managing investments on behalf of the Group. The
appointment of the Investment Manager under the Investment Management Agreement
is for an initial 3 years from Admission and continues thereafter unless
terminated by 12 months' notice in writing, such notice to be given on or after
the third anniversary of Admission. Notwithstanding the above, the Investment
Management Agreement can be terminated immediately, by either party giving
written notice to the other, upon material breach of the Investment Management
Agreement by the other party that is not capable of remedy, or, in the case of a
remediable breach, if such breach is not remedied within 30 days. The Investment
Management Agreement may also be terminated in other prescribed circumstances,
including where one party goes into liquidation.
The Administrator
The Administrator has been appointed administrator of the Group pursuant to an
administration agreement dated 16 November 2007 between the Administrator and
the Company (the "Administration Agreement").
The Administrator provides day-to-day administration and secretarial services to
the Company, GPCo and the Limited Partnership. The Administration Agreement is
terminable by either party giving not less than 180 days' notice in writing and
in certain other circumstances, including material breach of the terms of the
agreement by either party.
Custodian & Prime Broker
Jeffries has been appointed as Custodian and Prime Broker to the Company and in
that capacity has custody of the Groups' investments. In accordance with U.S.
securities laws, the assets of Jefferies' customers are required to be
segregated from Jefferies' proprietary assets.
The Limited Partnership pays the Prime Broker commissions and other transaction
fees (for the execution of purchases and sales of securities). These fees are
payable at the Prime Broker's prevailing rates.
Registrar
The Registrar has been appointed to act as registrar of the Group under a
registrar agreement dated 16 November 2007 between the Company and the Registrar
(the "Registrar Agreement"). The Registrar Agreement sets out the fees which
the Registrar will charge for performing its duties as registrar. The Registrar
Agreement may be terminated by either the Company or the Registrar giving not
less than 3 months' notice in writing or otherwise in circumstances where the
Company or the Registrar goes into liquidation or where either party commits and
fails to make good a material breach of the Registrar Agreement. The Registrar
Agreement will also terminate if the Registrar ceases to hold a required
licence, consent, permit or registration.
Nominated Adviser and Broker
Canaccord has been appointed to act as Nominated Adviser and Broker to the
Company under a NOMAD and Broker agreement dated 1 October 2009 between the
Company and Canaccord (the "NOMAD and Broker Agreement"). The NOMAD and Broker
Agreement is on normal market terms, and under those terms the Company has
agreed, inter alia, to consult and discuss with Canaccord all of its
announcements and statements and to provide Canaccord with any information which
Canaccord reasonably requires to enable it to carry out its obligations as a
Nominated Adviser and Broker. The NOMAD and Broker Agreement is terminable by
either party on 2 months' written notice and in certain other circumstances.
Corporate Governance
As a Guernsey incorporated company, the Company is not required to comply with
the provisions of the Combined Code on Corporate Governance (the "Combined
Code") issued by the Financial Reporting Council. However, the Directors believe
that high standards of corporate governance should be maintained and have
therefore adopted those provisions of the Combined Code which the Board believe
are relevant to the Company given its status as a non-UK investment company. In
respect of the financial year ended 30 September 2010, the Company complied with
the Combined Code save with regard to the following provisions:
* The role of the chief executive: The Board considers that the post of chief
executive officer is not relevant for the Company as this role has effectively
been delegated to the Investment Manager under the terms of the Investment
Management Agreement.
* The appointment of a Senior Independent Director: Given the size and
composition of the Board it is not felt necessary to separate the roles of
Chairman and Senior Independent Director. The Board considers that all the
independent Directors have different qualities and areas of expertise on which
they may lead where issues arise and to whom concerns can be conveyed.
* Executive directors' remuneration: As the Board has no executive directors, it
is not required to comply with the principles of the Combined Code in respect of
executive directors' remuneration and does not have a remuneration committee.
* Establishment of nomination committee: Since all of the Directors are
non-executive, the Board does not consider it necessary to establish a
nomination committee. The Board as a whole monitors performance and plans for
succession of the Board, either through Board meetings or, if appropriate,
through the use of an appropriately constituted committee.
* Internal audit function: The Company delegates to third parties its day-to-day
operations and has no employees. These third parties have their own internal
audit function and the Board has therefore determined that there is no
requirement for the Company to have its own internal audit function. The
Directors consider annually whether a function equivalent to an internal audit
is needed and will continue to monitor its systems of internal controls in order
to provide assurance that they operate as intended.
With effect from 29 June 2010 The UK Corporate Governance Code (the "Code")
replaced the Combined Code.
Independence of Directors
As at 30 September 2010, the Board consisted of six members, all of whom are
non-executive. With the exception of Dr Cohen and Mr Benway all other Directors
of the Company are independent. The Board believes that Dr Cohen's and Mr
Benway's experience added considerable value to the Company during the year.
Neither Dr Cohen nor Mr Benway takes part in discussing any contractual
arrangements between the Board and the Investment Manager due to their interests
in the Investment Manager. Dr Cohen resigned as a Director of the Company on 1
October 2010.
The Directors recognise the importance of succession planning for company boards
and review the composition of the Board annually. However, the Board is of the
view that length of service will not necessarily compromise the independence or
contribution of Directors of an investment company where continuity and
experience can be a benefit to the Board. Furthermore, the Board agrees with the
view expressed in the AIC Code of Corporate Governance that long serving
Directors should not be prevented from forming part of an independent majority
or from acting as Chairman. Consequently no limit has been imposed on the
overall length of service of the Directors.
With the exception of Mr Hallam (appointed 29 July 2010), all other Directors
were initially appointed to the Board on 8 November 2007 and a third of them
will retire, and seek reappointment at each annual general meeting ("AGM"). At
the second AGM, held on 10 February 2010, Mr Fish and Mr Polk retired by
rotation, under the articles of association, and were then re-elected. At the
Company's next AGM, Ordinary Resolutions will be proposed for Mr Benway to
retire by rotation, under the articles of association, and seek reappointment
and for Mr Hallam to be elected.
The Directors believe that the Board has a balance of skills and experience
which enable it to provide effective strategic leadership and proper governance
of the Company.
The Board has contractually delegated external agencies for the management of
the investment portfolio, the custodial services and the day to day accounting
and company secretarial requirements. Each of these contracts was only entered
into after proper consideration by the Board of the quality and services
offered.
Internal Controls
The Directors are responsible for overseeing the effectiveness of the internal
financial control systems of the Company, which are designed to ensure proper
accounting records are maintained, that the financial information on which the
business decisions are made and which is issued for publication is reliable, and
that the assets of the Company are safeguarded. Such a system of internal
financial controls can only provide reasonable and not absolute assurance
against misstatement or loss.
In accordance with the guidance published by the Institute of Chartered
Accountants in England and Wales ("the Turnbull Report"), the Board has reviewed
the Company's internal control procedures. These internal controls are
implemented by the Company's three main service providers, the Investment
Manager, the Administrator and the Custodian. The Audit Committee contacts each
service provider on an annual basis to seek confirmation that each service
provider had effective controls in place to control the risks associated with
the services that they are contracted to provide to the Group. The Board is
satisfied with the internal controls of the Company.
The Directors meet on a quarterly basis to assess Company operations and the
setting and monitoring of investment strategy and investment performance. At
such meetings, the Board receives from the Administrator and Investment Manager
a full report on the Company's holdings and performance. The Board gives
directions to the Investment Manager as to the investment objectives and
limitations, and receives reports in relation to the financial position of the
Company and the custody of its assets.
The Board does not consider it appropriate to put social, ethical and
environmental policies in place within an investment company investing in
financial instruments. However, in addition to financial, legal and market due
diligence, the Investment Manager's investment appraisal includes a rigorous
assessment of a potential Investee Company's social, ethical and environmental
policies, and the Investment Manager monitors such policies and practices
following any investment.
The Board has considered non-financial areas of risk such as disaster recovery
and investment management, staffing levels and considers adequate arrangements
to be in place.
Meetings
The table below, details the attendance at Board and Committee meetings during
the year:
+--------------------------------+--------+-------------+--------------+
| | | | Investment |
| |Board* | Audit |Committee*** |
| | |Committee** | |
+--------------------------------+--------+-------------+--------------+
| Christopher Fish | 12 | 2 | 1 |
+--------------------------------+--------+-------------+--------------+
| Dr Randolph Cohen (resigned 1 | 10 | N/A | N/A |
| October 2010) | | | |
+--------------------------------+--------+-------------+--------------+
| David Benway | 11 | N/A | N/A |
+--------------------------------+--------+-------------+--------------+
| Ruiping Wang | 7 | 2 | 1 |
+--------------------------------+--------+-------------+--------------+
| Dr Christopher Polk | 11 | 2 | 1 |
+--------------------------------+--------+-------------+--------------+
| John Hallam (appointed 29 July | 3 | - | - |
| 2010) | | | |
+--------------------------------+--------+-------------+--------------+
* 12 Board meetings have been held during the year ended 30 September 2010
** 2 Audit Committee meetings have been held during the year ended 30 September
2010
*** 1 Investment Committee meeting has been held during the year ended 30
September 2010
Audit Committee
An audit committee has been appointed and is responsible for reviewing and
monitoring internal financial control systems and risk management systems on
which the Group is reliant, considering the annual accounts and audit report,
considering the appointment and remuneration of the Company's auditors and
monitoring and reviewing annually their independence, objectivity, effectiveness
and qualifications. The members of the audit committee are John Hallam
(Chairman), Christopher Fish, Dr Christopher Polk and Ruiping Wang. The audit
committee has performed reviews of the internal financial control systems and
risk management systems during the year. The audit committee is satisfied with
the internal financial control systems of the Group. The audit committee will
meet at least twice a year. In accordance with best practice, effective from 24
November 2010 Christopher Fish resigned as a member the audit committee.
Management Engagement Committee
The Board has established a Management Engagement Committee comprising the four
independent Directors being Christopher Fish, John Hallam, Dr Christopher Polk
and Ruiping Wang. The Management Engagement meets once a year to supervise the
Investment Manager and its performance under the Investment Management
Agreement. It will also meet on an ad hoc basis to consider investment
opportunities which are outside the investment restrictions and investment
decisions where there is a potential conflict between the Group's interests and
those of Vision Capital Advisors or other funds it manages. The Management
Engagement Committee was formerly known as the Investment Committee.
Remuneration and Nomination Committees
Since all of the Directors are non-executive, the Board does not consider it
necessary to establish remuneration and nomination committees.
Substantial Shareholdings
As at 30 September 2010 the Company was aware of the following interests in the
issued share capital of the Company that exceeded 3% of the issued share
capital.
+---------------------------------+----------------+----------------+
| | Number of | Percentage of |
| Shareholder | Ordinary |Total Ordinary |
| | Shares Held* | Shares Issued |
| | | Held |
+---------------------------------+----------------+----------------+
| City of London Investment | 14,329,923 | 21.65% |
| Management Company | | |
+---------------------------------+----------------+----------------+
| Baillie Gifford & Co | 9,847,300 | 14.88% |
+---------------------------------+----------------+----------------+
| Vision Capital Advisors | 7,537,845 | 11.39% |
+---------------------------------+----------------+----------------+
| Fidelity | 6,446,600 | 9.74% |
+---------------------------------+----------------+----------------+
| Henderson New Star | 3,508,330 | 5.30% |
+---------------------------------+----------------+----------------+
| JP Morgan Asset Management | 3,200,000 | 4.83% |
+---------------------------------+----------------+----------------+
| Gramercy Asset Management | 3,168,200 | 4.79% |
+---------------------------------+----------------+----------------+
| PCT Partners | 2,259,480 | 3.41% |
+---------------------------------+----------------+----------------+
* Based on the Shareholder register as at 30 Sepetmber 2010
Directors Interests
As at 30 September 2010 the interests in Ordinary Shares held by the Directors
who held office during the year, and their families, are set out below:
+-----------------------------------+----------------+----------+----------------+
| | 30 | | 30 |
| |September 2010 | |September 2009 |
+-----------------------------------+----------------+----------+----------------+
| | No. of | | No. of |
| | Ordinary | | Ordinary |
| | Shares | | Shares |
+-----------------------------------+----------------+----------+----------------+
| Christopher Fish (Chairman) | - | | - |
+-----------------------------------+----------------+----------+----------------+
| Dr Randolph Cohen (resigned 1 | 7,537,845 | | 7,850,000 |
| October 2010)* | | | |
+-----------------------------------+----------------+----------+----------------+
| David Benway | - | | - |
+-----------------------------------+----------------+----------+----------------+
| Ruiping Wang | - | | - |
+-----------------------------------+----------------+----------+----------------+
| Dr Christopher Polk | - | | - |
+-----------------------------------+----------------+----------+----------------+
| John Hallam (appointed 29 July | - | | - |
| 2010) | | | |
+-----------------------------------+----------------+----------+----------------+
*Dr Cohen is interested in 7,537,845 or 11.39% (30 September 2009: 7,850,000 or
11.86%) Ordinary Shares due to his ownership of a proportion of the economic
rights in Vision Capital Advisors' Ordinary Shares.
There were no changes in the interests of the Directors prior to the date of
this report.
Dr Cohen has an indirect interest through Vision Capital Advisors' holdings of B
Redeemable Preference Shares in the GPCo.
Vision Capital Advisors has agreed, in principle, to pay Mr Benway a
discretionary bonus relating to the portfolio performance of VOC. The bonus
will be payable if Mr Benway remains employed by Vision Capital Advisors on 31
December 2010.
Other than Dr Cohen and Mr Benway, no Director and no connected person of any
Director has an interest in the Ordinary Shares which, is known to, (or could
with reasonable diligence be ascertained by) the Directors, whether held
directly or through a third party.
Directors Statement
The Directors make the following statement:
· so far as the Directors are aware, there is no relevant audit information
of which the Group's auditors are unaware; and
· that all steps have been taken by the Directors to make themselves aware
of any relevant audit information and to establish that the Group's auditors are
aware of that information.
Statement of Directors' responsibilities
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 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 then 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.
Taxation Status
The Income Tax Authority of Guernsey has granted the Company exemption from
Guernsey income tax under the Income Tax (Exempt Bodies) (Guernsey) Ordinance,
1989 and the income of the Company may be distributed or accumulated without
deduction of Guernsey income tax. Exemption under the above mentioned Ordinance
entails payment by the Company of an annual fee of GBP600. It should be noted,
however, that interest and dividend income accruing from the Group's investments
may be subject to withholding tax in the country of origin. With effect from 1
January 2008 the standard rate of income tax for most companies in Guernsey is
zero per cent. Tax Exempt status continues to exist and the Company has been
granted this status for 2010.
The Company has not suffered any withholding tax in the year (30 September 2009:
US$Nil).
Auditors
The auditors of the Company, KPMG Channel Islands Limited, have expressed their
willingness to continue in office and a resolution giving authority to
re-appoint them will be proposed at the forthcoming Annual General Meeting.
Director: Christopher Fish
Director: John Hallam
Date: 8 December 2010
On behalf of the Board of Directors
INDEPENDENT AUDITOR'S REPORT TO MEMBERS OF VISION OPPORTUNITY CHINA FUND LIMITED
We have audited the Group financial statements (the "Financial Statements") of
Vision Opportunity China Fund Limited (the "Company") for the year ended 30
September 2010 which comprise the Consolidated Statement of Financial Position,
the Consolidated Statement of Comprehensive Income, the Consolidated Statement
of Changes in Equity, the Consolidated Statement of Cash Flows and the related
notes. These financial statements have been prepared under the accounting
policies set out therein.
This report is made solely to the Company's members, as a body, in accordance
with section 262 of the Companies (Guernsey) Law, 2008. Our audit work has been
undertaken so that we might state to the Company's members those matters we are
required to state to them in an auditor's report and for no other purpose. To
the fullest extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company and the Company's members as a body, for our
audit work, for this report, or for the opinions we have formed.
Respective responsibilities of Directors and auditors
The Directors' responsibilities for preparing the financial statements which
give a true and fair view and are in accordance with International Financial
Reporting Standards and are in compliance with applicable Guernsey law are as
set out in the Statement of Directors' Responsibilities on page 18.
Our responsibility is to audit the financial statements in accordance with
relevant legal and regulatory requirements and International Standards on
Auditing (UK and Ireland).
We report to you our opinion as to whether the financial statements give a true
and fair view, are in accordance with International Financial Reporting
Standards and comply with the Companies (Guernsey) Law, 2008. We also report to
you if, in our opinion, the Company has not kept proper accounting records, or
if we have not received all the information and explanations we require for our
audit.
We read the other information accompanying the financial statements and consider
whether it is consistent with those statements. We consider the implications for
our report if we become aware of any apparent misstatements or material
inconsistencies with the financial statements.
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing
(UK and Ireland) issued by the Auditing Practices Board. An audit includes
examination, on a test basis, of evidence relevant to the amounts and
disclosures in the financial statements. It also includes an assessment of the
significant estimates and judgements made by the Directors in the preparation of
the financial statements, and of whether the accounting policies are appropriate
to the Company's circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
Opinion
In our opinion the financial statements:
· give a true and fair view of the state of the Group's affairs as at 30
September 2010 and of its return for the year then ended;
· are in accordance with International Financial Reporting Standards; and
· comply with the Companies (Guernsey) Law, 2008.
KPMG Channel Islands Limited
Chartered Accountants
Date: 8 December 2010
Consolidated Statement of Financial Position
As at 30 September 2010
+--------------------------------+-------+--------------+----------+--------------+
| |Notes |30 September | |30 September |
| | | 2010 | | 2009 |
+--------------------------------+-------+--------------+----------+--------------+
| | | US$ | | US$ |
+--------------------------------+-------+--------------+----------+--------------+
| Investments: | 6 | | | |
+--------------------------------+-------+--------------+----------+--------------+
| Investment designated as: | | | | |
+--------------------------------+-------+--------------+----------+--------------+
| Fair value through profit or | | 99,696,687 | | 97,385,577 |
| loss | | | | |
+--------------------------------+-------+--------------+----------+--------------+
| Held for trading | | 34,089,070 | | 35,987,698 |
+--------------------------------+-------+--------------+----------+--------------+
| Total investments | | 133,785,757 | | 133,373,275 |
+--------------------------------+-------+--------------+----------+--------------+
| | | | | |
+--------------------------------+-------+--------------+----------+--------------+
| Current assets: | | | | |
+--------------------------------+-------+--------------+----------+--------------+
| Cash and cash equivalents | 7 | 6,162,090 | | 23,088,891 |
+--------------------------------+-------+--------------+----------+--------------+
| Other prepayments | 8 | 52,792 | | 581,155 |
+--------------------------------+-------+--------------+----------+--------------+
| | | 6,214,882 | | 23,670,046 |
+--------------------------------+-------+--------------+----------+--------------+
| | | | | |
+--------------------------------+-------+--------------+----------+--------------+
| Total Assets | | 140,000,639 | | 157,043,321 |
+--------------------------------+-------+--------------+----------+--------------+
| | | | | |
+--------------------------------+-------+--------------+----------+--------------+
| Current liabilities: | | | | |
+--------------------------------+-------+--------------+----------+--------------+
| Bank overdraft | 7 | - | | 180 |
+--------------------------------+-------+--------------+----------+--------------+
| Other payables | 9 | 586,206 | | 18,293,290 |
+--------------------------------+-------+--------------+----------+--------------+
| | | 586,206 | | 18,293,470 |
+--------------------------------+-------+--------------+----------+--------------+
| | | | | |
+--------------------------------+-------+--------------+----------+--------------+
| Non-current liabilities: | | | | |
+--------------------------------+-------+--------------+----------+--------------+
| B Redeemable Preference Shares | 11 | 100,000 | | 100,000 |
| of GPCo | | | | |
+--------------------------------+-------+--------------+----------+--------------+
| | | | | |
+--------------------------------+-------+--------------+----------+--------------+
| Total Liabilities | | 686,206 | | 18,393,470 |
+--------------------------------+-------+--------------+----------+--------------+
| | | | | |
+--------------------------------+-------+--------------+----------+--------------+
| Total net assets | | 139,314,433 | | 138,649,851 |
+--------------------------------+-------+--------------+----------+--------------+
| | | | | |
+--------------------------------+-------+--------------+----------+--------------+
| Represented by Shareholders' | | | | |
| Equity: | | | | |
+--------------------------------+-------+--------------+----------+--------------+
| | | | | |
+--------------------------------+-------+--------------+----------+--------------+
| Share capital | 11 | 61,259,952 | | 64,569,430 |
+--------------------------------+-------+--------------+----------+--------------+
| Reserves | 10 | 78,054,481 | | 74,080,421 |
+--------------------------------+-------+--------------+----------+--------------+
| | | | | |
| Total net assets | | 139,314,433 | | 138,649,851 |
+--------------------------------+-------+--------------+----------+--------------+
| | | | | |
+--------------------------------+-------+--------------+----------+--------------+
| | | | | |
+--------------------------------+-------+--------------+----------+--------------+
| NAV per Ordinary Share | 12 | 2.1048 | | 2.0947 |
+--------------------------------+-------+--------------+----------+--------------+
The financial statements on pages 16 to 43 were approved at a meeting of the
Board of Directors held on
8 December 2010 and signed on its behalf by:
Director: Christopher Fish
Director: John Hallam
The accompanying notes on pages 20 to 43 form an integral part of these
financial statements.
Consolidated Statement of Comprehensive Income
For the year ended 30 September 2010
+--------------------------------+-------+--------------+----------+--------------+
| | | 1 October | | 1 October |
| | | 2009 | | 2008 |
| |Notes | to | | to |
| | |30 September | |30 September |
| | | 2010 | | 2009 |
+--------------------------------+-------+--------------+----------+--------------+
| | | US$ | | US$ |
+--------------------------------+-------+--------------+----------+--------------+
| Income | | | | |
+--------------------------------+-------+--------------+----------+--------------+
| Bank interest | | 14 | | 6,916 |
+--------------------------------+-------+--------------+----------+--------------+
| Dividend income | | 8,804 | | 182,657 |
+--------------------------------+-------+--------------+----------+--------------+
| Movement in net unrealised | 6 | (9,767,682) | | 57,456,161 |
| gains on investments | | | | |
+--------------------------------+-------+--------------+----------+--------------+
| Net realised gains on | 6 | 28,046,269 | | 8,951,085 |
| investments | | | | |
+--------------------------------+-------+--------------+----------+--------------+
| Net foreign exchange losses | | (7,651) | | (2,255) |
+--------------------------------+-------+--------------+----------+--------------+
| | | | | |
| Net investment income | | 18,279,754 | | 66,594,564 |
+--------------------------------+-------+--------------+----------+--------------+
| | | | | |
+--------------------------------+-------+--------------+----------+--------------+
| | | | | |
+--------------------------------+-------+--------------+----------+--------------+
| Expenses | | | | |
+--------------------------------+-------+--------------+----------+--------------+
| Investment Manager's fees | 3 | 3,120,898 | | 1,781,540 |
+--------------------------------+-------+--------------+----------+--------------+
| Performance allocation | 3 | - | | 17,975,492 |
+--------------------------------+-------+--------------+----------+--------------+
| Realised movement in value of | | | | |
| GPCo invested PPU's redeemed | 3 | 6,666,830 | | (1,576,076) |
| during the year | | | | |
+--------------------------------+-------+--------------+----------+--------------+
| Income allocation on B | | | | |
| Redeemable Preference Shares | | 129,342 | | 142,025 |
| of GPCo | | | | |
+--------------------------------+-------+--------------+----------+--------------+
| Administrator's fees | 3 | 229,252 | | 135,260 |
+--------------------------------+-------+--------------+----------+--------------+
| Directors' fees | 4 | 179,644 | | 170,000 |
+--------------------------------+-------+--------------+----------+--------------+
| Auditor's remuneration | | 79,459 | | 91,639 |
+--------------------------------+-------+--------------+----------+--------------+
| Custodian's fees | 3 | 107,879 | | 36,289 |
+--------------------------------+-------+--------------+----------+--------------+
| Registrar's fees | 3 | 18,432 | | 17,521 |
+--------------------------------+-------+--------------+----------+--------------+
| NOMAD & Broker's fees | 3 | 211,351 | | 80,992 |
+--------------------------------+-------+--------------+----------+--------------+
| Prime Broker's commissions | 3 | 1,633,937 | | 388,372 |
+--------------------------------+-------+--------------+----------+--------------+
| D&O insurance | | 112,995 | | 112,421 |
+--------------------------------+-------+--------------+----------+--------------+
| Annual listing fees | | 11,124 | | 11,669 |
+--------------------------------+-------+--------------+----------+--------------+
| Legal and professional fees | | 471,126 | | 323,005 |
+--------------------------------+-------+--------------+----------+--------------+
| Transaction costs | | 431,417 | | 155,859 |
+--------------------------------+-------+--------------+----------+--------------+
| Marketing fees | | 65,425 | | 71,435 |
+--------------------------------+-------+--------------+----------+--------------+
| Purchase and cancellation of | | 660,000 | | - |
| Fairfax Option | | | | |
+--------------------------------+-------+--------------+----------+--------------+
| Other expenses | | 176,583 | | 96,427 |
+--------------------------------+-------+--------------+----------+--------------+
| | | | | |
+--------------------------------+-------+--------------+----------+--------------+
| Total expenses | | 14,305,694 | | 20,013,870 |
+--------------------------------+-------+--------------+----------+--------------+
| | | | | |
+--------------------------------+-------+--------------+----------+--------------+
| Return for the year | | | | |
| attributable to Ordinary | 10 | 3,974,060 | | 46,580,694 |
| Shareholders from operations | | | | |
+--------------------------------+-------+--------------+----------+--------------+
| | | | | |
+--------------------------------+-------+--------------+----------+--------------+
| Total comprehensive income for | | 3,974,060 | | 46,580,694 |
| the year | | | | |
+--------------------------------+-------+--------------+----------+--------------+
| | | | | |
+--------------------------------+-------+--------------+----------+--------------+
| Earnings per Ordinary Share | | | | |
| (basic and diluted) | 5 | 0.0600 | | 0.6467 |
+--------------------------------+-------+--------------+----------+--------------+
The results from the current and prior years are derived from continuing
operations.
The accompanying notes on pages 20 to 43 form an integral part of these
financial statements.
Consolidated Statement of Changes in Equity
For the year ended 30 September 2010
+-----------------------+-------+------------+-------------+----------+-------------+
| | | 1 October 2009 to 30 September 2010 |
+-----------------------+-------+---------------------------------------------------+
| | | Revenue | Share |Treasury | Total |
| |Notes | Reserve | Capital | Shares | |
+-----------------------+-------+------------+-------------+----------+-------------+
| | | US$ | US$ | US$ | US$ |
+-----------------------+-------+------------+-------------+----------+-------------+
| Balance brought | | 74,080,421 | 64,569,430 | - | 138,649,851 |
| forward | | | | | |
+-----------------------+-------+------------+-------------+----------+-------------+
| | | | | | |
+-----------------------+-------+------------+-------------+----------+-------------+
| Capital distribution | 11 | - | (3,309,478) | - | (3,309,478) |
+-----------------------+-------+------------+-------------+----------+-------------+
| | | | | | |
+-----------------------+-------+------------+-------------+----------+-------------+
| Total comprehensive | | | | | |
| income for the year | 10 | 3,974,060 | - | - | 3,974,060 |
+-----------------------+-------+------------+-------------+----------+-------------+
| | | | | | |
+-----------------------+-------+------------+-------------+----------+-------------+
| | | | | | |
| Balance carried | | 78,054,481 | 61,259,952 | - | 139,314,433 |
| forward | | | | | |
+-----------------------+-------+------------+-------------+----------+-------------+
| | | | | | |
+-----------------------+-------+------------+-------------+----------+-------------+
For the year ended 30 September 2009
+-----------------------+-------+------------+--------------+-------------+--------------+
| | | 1 October 2008 to 30 September 2009 |
+-----------------------+-------+--------------------------------------------------------+
| | | Revenue | Share | Treasury | Total |
| |Notes | Reserve | Capital | Shares | |
+-----------------------+-------+------------+--------------+-------------+--------------+
| | | US$ | US$ | US$ | US$ |
+-----------------------+-------+------------+--------------+-------------+--------------+
| Balance brought | | 27,499,727 | 94,427,417 | - | 121,927,144 |
| forward | | | | | |
+-----------------------+-------+------------+--------------+-------------+--------------+
| | | | | | |
+-----------------------+-------+------------+--------------+-------------+--------------+
| Tender offer | 11 | - | (29,857,987) | - | (29,857,987) |
+-----------------------+-------+------------+--------------+-------------+--------------+
| | | | | | |
+-----------------------+-------+------------+--------------+-------------+--------------+
| Repurchase of | | | | | |
| Ordinary Shares | 11 | - | 6,494,668 | (6,494,668) | - |
| - held as Treasury | | | | | |
| Shares | | | | | |
+-----------------------+-------+------------+--------------+-------------+--------------+
| | | | | | |
+-----------------------+-------+------------+--------------+-------------+--------------+
| Cancellation of | | | | | |
| Ordinary Shares | 11 | - | (6,494,668) | 6,494,668 | - |
| - held as Treasury | | | | | |
| Shares | | | | | |
+-----------------------+-------+------------+--------------+-------------+--------------+
| | | | | | |
+-----------------------+-------+------------+--------------+-------------+--------------+
| Total comprehensive | | | | | |
| income for the year | 10 | 46,580,694 | - | - | 46,580,694 |
+-----------------------+-------+------------+--------------+-------------+--------------+
| | | | | | |
+-----------------------+-------+------------+--------------+-------------+--------------+
| | | | | | |
| Balance carried | | 74,080,421 | 64,569,430 | - | 138,649,851 |
| forward | | | | | |
+-----------------------+-------+------------+--------------+-------------+--------------+
| | | | | | |
+-----------------------+-------+------------+--------------+-------------+--------------+
The accompanying notes on pages 20 to 43 form an integral part of these
financial statements.
Consolidated Statement of Cash Flows
For the year ended 30 September 2010
+-------------------------------+-------+--------------+----------+--------------+
| | | 1 October | | 1 October |
| | | 2009 | | 2008 |
| |Notes | to | | to |
| | |30 September | |30 September |
| | | 2010 | | 2009 |
+-------------------------------+-------+--------------+----------+--------------+
| | | US$ | | US$ |
+-------------------------------+-------+--------------+----------+--------------+
| | | | | |
+-------------------------------+-------+--------------+----------+--------------+
| Cash flows used in operating | | | | |
| activities | | | | |
+-------------------------------+-------+--------------+----------+--------------+
| Bank interest received | | 14 | | 15,977 |
+-------------------------------+-------+--------------+----------+--------------+
| Dividends received | | 8,804 | | 182,657 |
+-------------------------------+-------+--------------+----------+--------------+
| Operating expenses paid | | (32,021,211) | | (8,728,222) |
+-------------------------------+-------+--------------+----------+--------------+
| Amounts paid on purchases of | | (33,545,409) | | (30,144,363) |
| investments | | | | |
+-------------------------------+-------+--------------+----------+--------------+
| Sales proceeds received from | | | | |
| disposal of investments | | 51,948,310 | | 34,772,855 |
+-------------------------------+-------+--------------+----------+--------------+
| | | | | |
| Net cash used in operating | | (13,609,492) | | (3,901,096) |
| activities | | | | |
+-------------------------------+-------+--------------+----------+--------------+
| | | | | |
+-------------------------------+-------+--------------+----------+--------------+
| | | | | |
+-------------------------------+-------+--------------+----------+--------------+
| Cash flows used in financing | | | | |
| activities | | | | |
+-------------------------------+-------+--------------+----------+--------------+
| Amounts paid re capital | 11 | (3,309,478) | | - |
| distribution | | | | |
+-------------------------------+-------+--------------+----------+--------------+
| Amounts paid re Tender Offer | 11 | - | | (29,857,987) |
+-------------------------------+-------+--------------+----------+--------------+
| | | | | |
| Net cash used in financing | | (3,309,478) | | (29,857,987) |
| activities | | | | |
+-------------------------------+-------+--------------+----------+--------------+
| | | | | |
+-------------------------------+-------+--------------+----------+--------------+
| Net decrease in cash and cash | | | | |
| equivalents during the year | | (16,918,970) | | (33,759,083) |
+-------------------------------+-------+--------------+----------+--------------+
| | | | | |
+-------------------------------+-------+--------------+----------+--------------+
| Cash and cash equivalents, | | 23,088,711 | | 56,850,049 |
| start of the year | | | | |
+-------------------------------+-------+--------------+----------+--------------+
| | | | | |
+-------------------------------+-------+--------------+----------+--------------+
| Effect of exchange rate | | | | |
| changes during the year | | (7,651) | | (2,255) |
+-------------------------------+-------+--------------+----------+--------------+
| | 7 | | | |
| Cash and cash equivalents, | | 6,162,090 | | 23,088,711 |
| end of the year | | | | |
+-------------------------------+-------+--------------+----------+--------------+
+-------------------------------+------+--------------+----------+--------------+
| Cash and cash equivalents | | | | |
| comprise the following | | | | |
| amounts: | | | | |
+-------------------------------+------+--------------+----------+--------------+
| Bank deposits | | 6,162,090 | | 23,088,891 |
+-------------------------------+------+--------------+----------+--------------+
| Bank overdrafts | | - | | (180) |
+-------------------------------+------+--------------+----------+--------------+
| | | 6,162,090 | | 23,088,711 |
+-------------------------------+------+--------------+----------+--------------+
The accompanying notes on pages 20 to 43 form an integral part of these
financial statements.
Notes to the Consolidated Financial Statements
For the year ended 30 September 2010
+------------------------------------+----------+------------+--------+
| | | | |
+------------------------------------+----------+------------+--------+
| | | | |
+------------------------------------+----------+------------+--------+
1. The Company:
The Company is a Guernsey registered, closed-ended investment company. The
Company commenced business on 28 November 2007 when the Ordinary Shares were
admitted to trading on AIM. The registered office of the Company is Sarnia
House, Le Truchot, St Peter Port, Guernsey, GY1 4NA.
The Company is a Guernsey Registered Closed-ended Investment Scheme and is
subject to the Registered Collective Investment Scheme Rules 2008.
The Company's investment policy is disclosed on page 5.
The underlying investments of the Group are held by the Limited Partnership
which was registered as a limited partnership in Guernsey under the Limited
Partnership (Guernsey) Law, 1995. The Company is the limited partner of the
Limited Partnership and the Company's subsidiary, GPCo, is the general partner
of the Limited Partnership.
GPCo was incorporated in Guernsey and is licensed under The Protection of
Investors (Bailiwick of Guernsey) Law 1987, as amended. GPCo's principal
activity is to manage the Limited Partnership which it does by employing the
services of Vision Capital Advisors under the Investment Management Agreement.
GPCo is responsible for the continuing fees of the Investment Manager.
The Company owns all of the issued A Ordinary Share capital of GPCo. The A
Ordinary Shares give the Company the sole control rights over GPCo.
Vision Capital Advisors owns all of the issued B Redeemable Preference Share
capital of GPCo. The B Redeemable Preference Shares give the Investment Manager
the sole economic rights to the performance allocation to which GPCo is entitled
under the terms of the Limited Partnership and the return on the US$100,000
capital invested by Vision Capital Advisors for the B Redeemable Preference
Shares.
Through its interest as a limited partner in the Limited Partnership, the
Company is entitled to a return on the amount invested in the Limited
Partnership to enable the Group to make investments.
The Company, the GPCo and the Limited Partnership together form an integrated
fund structure and consequently the Company has consolidated its interests in
GPCo and the Limited Partnership. The Investment Manager's holding in the GPCo
is the interest in B Redeemable Preference Shares issued by the GPCo.
2. Principal Accounting Policies:
The following accounting policies have been applied consistently in dealing with
items which are considered material in relation to the Group's financial
statements:
(a) Basis of Preparation:
(i) General
The financial statements give a true and fair view, they have been prepared in
accordance with International Financial Reporting Standards ("IFRS") and are in
compliance with the Companies (Guernsey) Law, 2008 and the Listing Rules of the
UK Listing Authority.
The financial statements of the Group have been prepared under the historical
cost convention modified by the revaluation of investments and assets and
liabilities at fair value through profit or loss, in accordance with IFRS.
(ii) Functional and Presentation Currency
These consolidated financial statements are presented in US Dollars. The
Directors consider the US Dollar to be the currency that most faithfully
represents the economic effects of the underlying transactions, events and
conditions.
Foreign currency transactions of the Company, the Limited Partnership and the
GPCo are translated into the functional currency using the exchange rates
prevailing at the dates of the transactions. The Group's foreign exchange gains
and losses resulting from the settlement of such transactions and from the
translation at period-end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognised in the Consolidated Statement
of Comprehensive Income. Translation differences on non-monetary financial
assets and liabilities such as equities at fair value through profit or loss are
recognised in the Consolidated Statement of Comprehensive Income.
(iii) Judgements and estimates
The preparation of financial statements in conformity with IFRS requires
management to make judgements, estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. The estimates and
associated assumptions are based on historical experience and other factors that
are considered to be relevant. Actual results could differ from such estimates.
The estimates and underlying assumptions are reviewed on an on-going basis.
Revisions to accounting estimates are recognised in the period in which the
estimate was revised if the revision affects only that period or in the period
of the revision and future periods if the revision affects both current and
future periods.
The most critical judgements, apart from those involving estimates, that
management has made in the process of applying the Group's accounting policies
and that have the most significant effect on the amounts recognised in the
financial statements are the functional currency of the Group (see note
2(a)(ii)) and the fair value of investments classified to be at fair value
through profit or loss (see note 2(e)(ii) and 2(e)(iv)). The valuation
methods/techniques used by the Group in valuing financial instruments involve
critical judgements to be made and therefore the actual value of financial
instruments could differ significantly from the value disclosed in these
financial statements.
(iv) IFRS
New standards and interpretations adopted
The Group has adopted the following new and amended accounting standards for
accounting periods commencing on or after effective 1 January 2009:
· Determination and presentation of operating segments
The Group has adopted IFRS8 Operating Segments as of 1 October 2009, which
requires a "management approach", under which segment information is presented
on the same basis as that used for internal reporting purposes.
The Board has considered the requirements of IFRS8. The Board, as a whole, has
been determined as constituting the chief operating decision maker ("CODM") of
the Group.
The Board is charged with setting the Group's investment strategy in accordance
with the Prospectus. They have delegated the day to day Investment Management of
the Group to the Investment Manager, under the terms set out in the Investment
Management Agreement, but the Board retains the responsibility to ensure that
adequate resources of the Group are directed in accordance with their decisions.
The Board therefore retains full responsibility for the allocation decisions
made on an ongoing basis. Pursuant to the terms of the Investment Management
Agreement the Investment Manager is obliged to comply with the investment
strategy detailed in the Prospectus. This strategy sets out guidelines for
proposed investments and the procedures that the Investment Manager is required
to follow in dealing with the Group's assets. These guidelines and procedures
are regularly reviewed and can be altered by the Board if it considers it
appropriate to do so.
The key measure of performance used by the Board in its capacity of CODM, is to
assess the Group's performance and to allocate resources based on the total
return of each individual investment within the Group's portfolio, as opposed to
geographic regions. As a result, the Board is of the view that the Group is
engaged in a single segment of business, being investment in a diversified
portfolio of equities and equity-related securities principally in Greater
China. Therefore, no reconciliation is required between the measure of gains or
losses used by the Board and that contained in these consolidated financial
statements.
Information on realised gains and losses derived from sales of investments are
disclosed in Note 13 to the financial statements.
The Company has no assets classified as non-current assets. The Company has a
diversified portfolio of investments and no single Investee Company accounts for
more than 40.64% of the Company's net assets.
The Company has a diversified Shareholder population and no individual investor
is known to own more than 21.65% of the issued capital of the Company as
disclosed in the Directors report on page 17.
· Disclosures pertaining to fair values and liquidity risk for financial
instruments
The Group has applied Improving Disclosures about Financial Instruments
(Amendments to IFRS 7), issued in March 2009, that require enhanced disclosures
about fair value measurements and liquidity risk in respect of financial
instruments.
The amendments require that fair value measurement disclosures use a three-level
fair value hierarchy that reflects the significance of the inputs used in
measuring fair values of financial instruments. Specific disclosures are
required when fair value measurements are categorised as Level 3 (significant
unobservable inputs) in the fair value hierarchy. The amendments require that
any significant transfers between Level 1 and Level 2 of the fair value
hierarchy be disclosed separately, distinguishing between transfers into and out
of each level. Furthermore, changes in valuation techniques from one period to
another, including the reasons therefore, are required to be disclosed for each
class of financial instruments.
Revised disclosures in respect of fair values of financial instruments are
included in note 14.
Further, the definition of liquidity risk has been amended and it is now defined
as the risk that an entity will encounter difficulty in meeting obligations
associated with financial liabilities that are settled by delivering cash or
another financial asset.
The amendments require disclosure of a maturity analysis for non-derivative and
derivative financial liabilities, but contractual maturities are required to be
disclosed for derivative financial liabilities only when contractual maturities
are essential for an understanding of the timing of cash flows. For issued
financial guarantee contracts, the amendments require the maximum amount of the
guarantee to be disclosed in the earliest period in which the guarantee could be
called.
Revised disclosures in respect of liquidity risk are included in note 14.
New standards and interpretations not yet adopted
A number of new standards, amendments to standards and interpretations are not
yet effective for the year ended 30 September 2010, and have not been applied in
preparing these financial statements. None of these will have an effect on the
consolidated financial statements of the Group, with the exception of the
following:
IFRS 9 Financial Instruments, In November 2009, the IASB issued IFRS 9
"Financial Instruments" which becomes effective for accounting periods
commencing on or after 1 January 2013. This represents the first of a three part
project to replace IAS 39"Financial Instruments: Recognition and Measurement".
The objective of the standard is to enhance the ability of Investors and other
users of financial information to understand the accounting of financial assets
and to reduce complexity.
The Company is currently in the process of evaluating the potential effect of
this standard. The standard is not expected to have a significant impact on the
financial statements since the majority of the Company's financial assets are
designated at fair value through profit or loss.
· Amendments to IAS 39 Financial Instruments: Recognition and Measurement -
Eligible Hedged Items clarifies the application of existing principles that
determine whether specific risks or portions of cash flows are eligible for
designation in a hedging relationship. The amendments will become mandatory for
the Group's 2011 consolidated financial statements, with retrospective
application required. The amendments are not expected to have a significant
impact on the Group's consolidated financial statements.
(b) Basis of Consolidation:
The consolidated financial statements comprise the results of the Company, the
GPCo and the Limited Partnership and there are no non-controlling interests.
Control is achieved where the Company has the power to govern the financial and
operating policies of the subsidiaries so as to benefit the Company.
(c) Income:
Bank interest and loan interest are included in the financial statements on an
accruals basis. Dividend income is included in the financial statements when the
right to receive payment is established.
(d) Financial Instruments:
Financial assets and financial liabilities are recognised in the Consolidated
Statement of Financial Position when the Group becomes a party to the
contractual provisions of the instrument.
(i) Financial Assets
The classification of financial assets at initial recognition depends on the
purpose for which the financial assets were acquired and their characteristics.
The Group's financial assets are categorised as financial assets at fair value
through profit or loss. Unless otherwise indicated the carrying amounts of the
Group's financial assets approximate to their fair values. Gains and losses
arising from changes in the fair value of financial assets classified as fair
value through profit or loss are recognised in the Consolidated Statement of
Comprehensive Income.
A financial asset (in whole or in part) is derecognised either:
· when the Group has transferred substantially all the risk and rewards
of ownership;
· when it has not retained substantially all the risk and rewards and
when it no longer has control over the asset or a portion of the asset; or
· when the contractual right to receive cash flow has expired.
(ii) Financial Liabilities
The classification of financial liabilities at initial recognition depends on
the purpose for which the financial liability was issued and its
characteristics.
All financial liabilities are initially recognised at fair value net of
transaction costs incurred. All purchases of financial liabilities are recorded
on trade date, being the date on which the Group becomes party to the
contractual requirements of the financial liability. Unless otherwise indicated
the carrying amounts of the Group's financial liabilities approximate to their
fair values.
Financial liabilities measured at amortised cost include trade payables and
other short-term monetary liabilities, which are initially recognised at fair
value and subsequently carried at amortised cost using the effective interest
rate method.
A financial liability (in whole or in part) is derecognised when the Group has
extinguished its contractual obligations, it expires or is cancelled. Any gain
or loss on derecognition is taken to the Consolidated Statement of Comprehensive
Income.
(e) Investments:
The Group's investments comprise of equities and warrants (for listed equities).
(i) Classification
Equities have been designated as fair value through profit or loss in accordance
with IAS 39 (Revised) "Financial Instruments: Recognition and Measurement".
Warrant investments meet the definition of "Derivatives" under IAS 39 and have
been designated as held for trading in accordance with IAS 39 (Revised)
"Financial Instruments: Recognition and Measurement". They are accounted for as
fair value through profit or loss.
Investments designated as fair value through profit or loss at inception are
those that are managed and their performance evaluated on a fair value basis in
accordance with the Group's documented investment strategy. The Group's policy
is for the Investment Manager and the Board of Directors to evaluate the
information about these investments on a fair value basis together with other
related financial information.
(ii) Measurement
Equities and warrants are initially recognised at fair value. Transaction costs
are expensed in the Consolidated Statement of Comprehensive Income. Subsequent
to initial recognition, equities and warrants are measured at fair value.
Realised gains and losses on disposal of investments, where the disposal
proceeds are higher/lower than the book cost of the investment are presented in
the Consolidated Statement of Comprehensive Income in the period in which they
arise. Unrealised gains and losses arising on the fair value of investments are
presented in the Consolidated Statement of Comprehensive Income in the period in
which they arise. Dividend income, if any, from equity investments at fair value
through profit or loss is recognised in the Consolidated Statement of
Comprehensive Income within dividend income when the Group's right to receive
payments is established.
For new investments made by the Group, the Company's valuation policy requires a
calculation of the discount of the purchase price to the current market price of
equivalent freely tradable public securities. This discount is then applied to
the closing bid for the equivalent freely tradable public securities, with a
minimum of a 20% discount used at the onset. This discount is then amortised to
zero over the period of time until the expected date of registration or the
Group is in a position to sell the securities under Rule 144: Selling Restricted
and Control Securities. The discount is not amortised below 10%, however, until
the security is able to be sold without restrictions.
Warrant values are calculated using the Black-Scholes models using the above
discount. However, this value is then subject to a further 50% discount of the
"time value".
Volatility estimates are those for similar companies, companies with operations
in Greater China that are listed on the OTCBB and have market caps between
US$100 million and US$1 billion. This volatility was 81% for the year ended 30
September 2010 (30 September 2009: 81%).
(iii) Recognition/derecognition
All regular way purchases and sales of investments are recognised on trade date
- the date on which the Group commits to purchase or sell the investment.
Investments are derecognised when the rights to receive cash flows from the
investments have expired or the Group has transferred substantially all risks
and rewards of ownership.
All financial assets are initially recognised at fair value.
Gains and losses on securities sold are determined on the basis of identified
cost, and are included in the Consolidated Statement of Comprehensive Income.
Unrealised gains and losses arising on revaluation are also included in the
Consolidated Statement of Comprehensive Income.
(iv) Fair value estimation
Quoted investments at fair value through profit or loss are valued at the bid
price on the relevant stock exchange, discounted, where necessary, to reflect
restrictions on resales.
Unquoted investments at fair value through profit or loss are valued in
accordance with valuation techniques that make maximum use of observable market
inputs such as the market value of similar securities, interest rates and
volatility.
The fair value of convertible preference shares has been determined using the
market value of the related common stock in which those shares are to be
converted given that there is no market for the convertible preference shares
held by the Company and as per its investment strategy the Company generally
expects to realise the value in convertible preference shares by converting
those shares into the common shares and then selling the common shares. The
convertible preference shares are considered to be freely convertible into the
common shares as there are no restrictions or conditions attached to the
conversion.
Private warrants and options exercisable into common, ordinary or preferred
shares of a class which is listed on US, UK or other securities exchange
(including NASDAQ and the OTCBB), or traded on the Pink Sheets, AIM or the
Official List of the London Stock Exchange are valued using the Black-Scholes
model. Observable market inputs to the model such as interest rates and
volatility are used where possible. The time value of the Black-Scholes model
is discounted by 50% as a liquidity adjustment. The Company also holds options
to make additional investments in investee companies by predetermined dates,
generally within 1 year following the investment, on predetermined terms.
Exercise of these warrants is required in order for the underlying associated
warrants included in the package to become vested ("J warrants").The values of J
and associated warrants are calculated as follows: The Black-Scholes value is
calculated as above. This value is added to the stock price in the evaluation
of the J warrant in the Black-Scholes framework as described above. This value
represents the value of the package of warrants.
(f) Impairment of Financial Assets:
Financial assets are assessed at each reporting date to determine whether there
is any objective evidence that they are impaired. A financial asset is
considered to be impaired if objective evidence indicates that one or more
events have had a negative effect on the estimated future cash flows of that
asset.
An impaired loss in respect of a financial asset measured at amortised cost is
calculated as the difference between its carrying amount and the present value
of the estimated future cash flows discounted at the original effective interest
rate.
Individually significant financial assets are tested for impairment on an
individual basis. The remaining financial assets are assessed collectively in
groups that share similar credit risk characteristics.
All impairment losses are recognised in the Consolidated Statement of
Comprehensive Income.
An impairment loss is reversed if the reversal can be related objectively to an
event occurring after the impairment loss was recognised. The reversal is
recognised in the Consolidated Statement of Comprehensive Income.
(g) Expenses:
Expenses are accounted for on an accruals basis. All expenses of the Group are
borne by the Limited Partnership.
(h) Cash and Cash Equivalents:
Cash and cash equivalents are defined as cash in hand, demand deposits and
highly liquid investments readily convertible to known amounts of cash and
subject to insignificant risk of changes in value. For the purposes of the
Consolidated Statement of Cash Flows, cash and cash equivalents consist of cash
in hand, short-term deposits in bank and overdrafts.
(i) Other Prepayments and Other Payables:
Other prepayments are stated at amortised cost less any provision for doubtful
debts. Other payables are stated at amortised cost.
(j) Treasury Shares:
Where the Company purchases its own Ordinary Shares, the consideration paid,
including any directly attributable incremental costs is deducted from equity
attributable to the Company's equity holders until the Shares are cancelled,
reissued or disposed of. Where such Ordinary Shares are subsequently sold or
reissued, any consideration received, net of any directly attributable
incremental transaction costs, is included in equity attributable to the
Company's equity holders.
3. Related Parties & Material Contracts:
The Company is responsible for the continuing fees of GPCo, the Administrator,
the Custodian, the Prime Broker, the NOMAD & Broker and the Registrar in
accordance with the Limited Partnership, Administration, Custodian, the Prime
Broker, NOMAD & Broker and Registrar agreements, respectively.
The Investment Manager is a related party of the Group as a result of a number
of connections. Dr Randolph Cohen was a Director of the Company during the
period and is co-founder and Senior Managing Director of the Investment Manager.
Mr David Benway is a Director of the Company and is also Director of Research
and Investments for the Investment Manager. Dr Cohen resigned as a Director of
the Company on 1 October 2010.
Limited Partnership Agreement
Pursuant to the provisions of the Limited Partnership Agreement dated 22
November 2007, GPCo's compensation consists of all expenses incurred in relation
to the constitution, administration and business of the Limited Partnership,
without limitation or exception.
The GPCo is responsible for the continuing fees of the Investment Manager in
accordance with the Investment Management Agreement.
Investment Management Agreement
Pursuant to the Investment Management Agreement, GPCo pays a management fee to
the Investment Manager of 0.5% of the final month-end NAV of the previous
quarter, paid quarterly in advance.
As at 30 September 2010 the management fee creditor was US$Nil (30 September
2009: US$Nil).
The Investment Manager is also entitled to a performance allocation, through its
interest in GPCo, in respect of a performance period if two conditions are met,
namely (i) the performance hurdle test is met; and (ii) the High Watermark is
exceeded.
The performance hurdle test will be met in a performance period if the Adjusted
Closing NAV per Ordinary Share exceeds the Hurdle NAV at the end of such period.
The Hurdle NAV is the greater of (a) the Opening NAV per Ordinary Share and (b)
the High Watermark, increased over the relevant performance period by a rate
equal to 10% per annum.
The High Watermark will be exceeded if the Adjusted Closing NAV per Ordinary
Share at the end of the relevant performance period is higher than the High
Watermark.
The performance allocation is based on "NAV Increase per Ordinary Share" which
is the amount by which the Adjusted Closing NAV per Ordinary Share exceeds
either (i) the Opening NAV per Ordinary Share, or (ii) in the case where the
High Watermark exceeds the Hurdle NAV, the High Watermark.
The performance allocation is an amount equal to 20% of the NAV increase per
Ordinary Share multiplied by the time weighted average of the total number of
Ordinary Shares in issue for the relevant period. Vision Capital Advisors will
not be entitled to any such part of the performance allocation to which it would
otherwise be entitled if allocating such part of the performance allocation
would have caused the performance hurdle test or High Watermark test to not be
met.
The first performance period began on Admission and ended on 30 September 2008.
Each subsequent performance period is a period of one financial year commencing
on 1 October.
The Investment Manager has agreed to treat a portion of its performance
allocation as invested each year. The portion of the performance allocation
which is represented by realised gains, less expenses, from investments will be
distributable in cash by the Limited Partnership to GPCo in arrears at the end
of each performance period (the "Cash Performance Allocation"). Any amount of
the performance allocation which is not represented by realised gains (or which
the Investment Manager via GPCo otherwise elects not to receive in cash as part
of the Cash Performance Allocation) will be treated as invested by GPCo at the
end of each performance period in Performance Partnership Units ("PPUs") in the
Limited Partnership. PPUs will accrue a preferred share of the profits and
losses of the Limited Partnership on the basis of fluctuations in the market
price of Ordinary Shares from the date of their allocation to GPCo until the
date PPUs are redeemed, such that GPCo's return on its PPUs will track the
return of an investor in Ordinary Shares over the same period (ignoring dealing
costs).
GPCo is entitled to receive a priority distribution from the Limited Partnership
equivalent to the Cash Performance Allocation and the return on the PPUs. GPCo's
entitlement to the Cash Performance Allocation and the return on the PPUs will
be payable to the Investment Manager as the owner of 100% of the B Redeemable
Preference Shares in GPCo.
At the end of each performance period, the Administrator will calculate the
proposed performance allocation and the split between the Cash Performance
Allocation payable and the amount which will be automatically treated as
invested in PPUs (to be reviewed and agreed by the Board) and, if cash is
available, GPCo will pay a dividend on the non-voting B Redeemable Preference
Shares or permit certain of them to be redeemed to pay the Cash Performance
Allocation to the Investment Manager. If cash is not available or, if Vision
Capital Advisors elects, the Cash Performance Allocation may be satisfied by the
issue of further PPUs to Vision Capital Advisors. For the financial year ended
30 September 2010, the performance allocation High Watermark is US$2.1048 per
Ordinary Share (30 September 2009: US$ 2.0947).
As at 30 September 2010 the Cash Performance Allocation creditor was US$Nil (30
September 2009: US$1,977,610) and the amount which would be automatically
treated as invested PPUs, upon crystalisation, is US$Nil (30 September 2009:
US$15,997,882).
On 11 January 2010 the Investment Manager redeemed 4,000,000 PPU's issued in
relation to the performance period ended 30 September 2009. On 26 January 2010
the Investment Manager redeemed the remaining 9,166,981 PPU's issued in relation
to the performance period ended 30 September 2009. At the date of these
redemptions the total PPU's had an aggregated value of US$22,664,712, which
resulted in an aggregated expense to the Group of US$6,666,830. This expense is
reflected in the Consolidated Statement of Comprehensive Income.
Administration Agreement
Praxis Fund Services Limited has been appointed as Administrator to the Group
under an administration agreement dated 16 November 2007 (the "Administration
Agreement"). The Administrator provides day-to-day administration and
secretarial services to the Group.
The Administration Agreement may be terminated by either party on not less than
180 days' written notice, or earlier upon certain breaches of the Administration
Agreement or the insolvency or receivership of either party or if the
Administrator ceases to be qualified to act as such.
Pursuant to the provisions of the Administration Agreement, the Administrator is
entitled to receive the following administration fees from the Group:
· Accounting and NAV calculation - a fee based upon 0.10% of NAV subject to
a minimum of GBP4,500 per month;
· Company Secretarial & US Shareholder Reporting- time based fee; and
· GPCo - time based fee subject to a minimum of GBP10,000 per annum.
As at 30 September 2010 the administration fee creditor was US$24,490 (30
September 2009: US$18,849).
Registrar Agreement
Pursuant to the provisions of the registrar agreement between the Registrar and
the Group, dated 16 November 2007, the Registrar is entitled to an annual
maintenance fee of GBP2 per Shareholder account, subject to an annual minimum of
GBP5,000 per annum, together with a per deal fee per Shareholder transaction. In
addition, the Registrar is also entitled to an investor relations fee of
GBP2,720 per annum and a compliance fee of GBP750 per annum.
As at 30 September 2010 the registrar fee creditor was US$3,860 (30
September 2009: US$8,221).
Custodian & Prime Broker Agreement
Jefferies & Company Inc. has been appointed as custodian to the Group and in
that capacity currently has custody of all of the Group's investments. In
accordance with US securities laws, the assets of the Custodian's customers are
required to be segregated from the Custodian's proprietary assets.
As at 30 September 2010 the custodian fee creditor was US$Nil (30
September 2009: US$Nil).
Jefferies & Company Inc. has also been appointed as prime broker to the Limited
Partnership. The Limited Partnership pays the Prime Broker commissions and
other transaction fees (for the execution of purchases and sales of securities).
These fees are payable at the Prime Broker's prevailing rates.
As at 30 September 2010 the Limited Partnership had amounts due to the Prime
Broker of US$9,812 (30 September 2009: US$4,331).
NOMAD & Broker Agreement
With effect from 1 October 2009 Canaccord replaced Fairfax as NOMAD & Broker to
the Company under a nominated adviser and Broker agreement dated 1 October 2009
between the Company and Canaccord (the "NOMAD & Broker Agreement"). The NOMAD &
Broker Agreement is on normal market terms, and under those terms the Company
has agreed, inter alia, to consult and discuss with Canaccord all of its
announcements and statements and to provide Canaccord with any information which
Canaccord reasonably requires to enable it to carry out its obligations as a
NOMAD and Broker. The NOMAD & Broker Agreement is terminable by either party on
2 months written notice and in certain other circumstances.
As at 30 September 2010 the fees paid in advance to Canaccord were US$123,110
(30 September 2009: US$23,354 creditor (Fairfax)).
Co-investments with the Master Fund
The Master Fund is a related party as a result of also being managed by the
Investment Adviser. As at 30 September 2010 the Group held investments in the
three underlying investment companies noted below, which the Master Fund also
held an interest in:
* China Integrated Energy Inc
* Jingwei International Limited
* Wuhan General Group (China) Inc
The Limited Partnership, collectively with the Master Fund, does not hold an
aggregated controlling interest in any of the above co-investments.
Directors Interests
As at 30 September 2010 the interests in Ordinary Shares held by the Directors
who held office during the year, and their families, are set out below:
+---------------------------------+----------------+----------+----------------+
| | 30 | | 30 |
| |September 2010 | |September 2009 |
+---------------------------------+----------------+----------+----------------+
| | No. of | | No. of |
| | Ordinary | | Ordinary |
| | Shares | | Shares |
+---------------------------------+----------------+----------+----------------+
| Christopher Fish (Chairman) | - | | - |
+---------------------------------+----------------+----------+----------------+
| Dr Randolph Cohen (resigned 1 | 7,537,845 | | 7,850,000 |
| October 2010)* | | | |
+---------------------------------+----------------+----------+----------------+
| David Benway | - | | - |
+---------------------------------+----------------+----------+----------------+
| Ruiping Wang | - | | - |
+---------------------------------+----------------+----------+----------------+
| Dr Christopher Polk | - | | - |
+---------------------------------+----------------+----------+----------------+
| John Hallam (appointed 29 July | - | | - |
| 2010) | | | |
+---------------------------------+----------------+----------+----------------+
*Dr Cohen is interested in 7,537,845 or 11.39% (30 September 2009: 7,850,000 or
11.86%) Ordinary Shares due to his ownership of a proportion of the economic
rights in Vision Capital Advisors' Ordinary Shares.
There were no changes in the interests of the Directors prior to the date of
this report.
Dr Cohen has an indirect interest through Vision Capital Advisors' holdings of B
Redeemable Preference Shares in the GPCo.
Vision Capital Advisors has agreed, in principle, to pay Mr Benway a
discretionary bonus relating to the portfolio performance of VOC. The bonus
will be payable if Mr Benway remains employed by Vision Capital Advisors on 31
December 2010.
Other than Dr Cohen and Mr Benway, no Director and no connected person of any
Director has an interest in the Ordinary Shares which, is known to, (or could
with reasonable diligence be ascertained by) the Directors, whether held
directly or through a third party.
Additionally, as at 30 September 2010 Jonathan Shane and Carl Kleidman,
employees of Vision Capital Advisors, held a collective 535,000 (30 September
2009: 535,000) Ordinary Shares that carry certain restrictions.
4. Directors' Fees:
Each of the Directors has entered into an agreement with the Company providing
for them to act as a non-executive Director of the Company. Their annual fees,
excluding all reasonable expenses incurred in the course of their duties which
will be reimbursed by the Company and are included in other expense, are as
follows:
+---------------------------------+----------------+----------+----------------+
| | 30 | | 30 |
| |September 2010 | |September 2009 |
+---------------------------------+----------------+----------+----------------+
| | Annual Fee | | Annual Fee |
+---------------------------------+----------------+----------+----------------+
| | US$ | | US$ |
+---------------------------------+----------------+----------+----------------+
| Christopher Fish (Chairman) | 70,000 | | 70,000 |
+---------------------------------+----------------+----------+----------------+
| Dr Randolph Cohen (resigned 1 | - | | - |
| October 2010) | | | |
+---------------------------------+----------------+----------+----------------+
| David Benway | - | | - |
+---------------------------------+----------------+----------+----------------+
| Ruiping Wang | 50,000 | | 50,000 |
+---------------------------------+----------------+----------+----------------+
| Dr Christopher Polk | 50,000 | | 50,000 |
+---------------------------------+----------------+----------+----------------+
| John Hallam (appointed 29 July | 9,644 | | N/A |
| 2010) | | | |
+---------------------------------+----------------+----------+----------------+
Dr Cohen and Mr Benway were not entitled to any Directors' fees for the year. As
at 30 September 2010, the Directors' fees creditor was US$Nil (30 September
2009: US$12,500).
For the year ended 30 September 2010, Directors' fees were US$179,644 (30
September 2009: US$170,000).
5. Basic & diluted earnings per Ordinary Share:
Basic and diluted earnings per Ordinary Share is based on the return for the
year of US$3,974,060 (30 September 2009: US$46,580,694)and on a weighted average
of 66,189,574 (30 September 2009: 72,025,346) Ordinary Shares in issue.
6. Investments:
+-----------------------------------+--------------+----------+--------------+
| | 1 October | | 1 October |
| Fair Value Through Profit or Loss | 2009 | | 2008 |
| Investments: | to | | to |
| |30 September | |30 September |
| | 2010 | | 2009 |
+-----------------------------------+--------------+----------+--------------+
| | US$ | | US$ |
+-----------------------------------+--------------+----------+--------------+
| | | | |
| Listed equity securities (freely | 28,717,222 | | 80,184,124 |
| tradeable) | | | |
+-----------------------------------+--------------+----------+--------------+
| Listed equity securities | 70,979,465 | | 17,201,453 |
| (restricted) | | | |
+-----------------------------------+--------------+----------+--------------+
| | 99,696,687 | | 97,385,577 |
+-----------------------------------+--------------+----------+--------------+
| | | | |
+-----------------------------------+--------------+----------+--------------+
| Opening fair value | 97,385,577 | | 56,794,508 |
+-----------------------------------+--------------+----------+--------------+
| Purchases | 33,459,101 | | 30,144,363 |
+-----------------------------------+--------------+----------+--------------+
| Sales - proceeds | (51,411,514) | | (35,141,651) |
+-----------------------------------+--------------+----------+--------------+
| Sales - realised gains on | 28,046,269 | | 8,783,085 |
| disposals | | | |
+-----------------------------------+--------------+----------+--------------+
| Movement in net unrealised gains | (7,782,746) | | 36,805,272 |
+-----------------------------------+--------------+----------+--------------+
| Closing fair value at 30 | 99,696,687 | | 97,385,577 |
| September | | | |
+-----------------------------------+--------------+----------+--------------+
| | | | |
+-----------------------------------+--------------+----------+--------------+
| Closing book cost at 30 September | 54,442,278 | | 44,348,422 |
+-----------------------------------+--------------+----------+--------------+
| Closing net unrealised gains | 45,254,409 | | 53,037,155 |
+-----------------------------------+--------------+----------+--------------+
| Closing fair value at 30 | 99,696,687 | | 97,385,577 |
| September | | | |
+-----------------------------------+--------------+----------+--------------+
+-----------------------------------+--------------+----------+--------------+
| | 1 October | | 1 October |
| | 2009 | | 2008 |
| Held for Trading Investments: | to | | to |
| |30 September | |30 September |
| | 2010 | | 2009 |
+-----------------------------------+--------------+----------+--------------+
| | US$ | | US$ |
+-----------------------------------+--------------+----------+--------------+
| | | | |
| Unlisted investments - warrants | 34,089,070 | | 35,987,698 |
+-----------------------------------+--------------+----------+--------------+
| | | | |
+-----------------------------------+--------------+----------+--------------+
| Opening fair value | 35,987,698 | | 15,336,809 |
+-----------------------------------+--------------+----------+--------------+
| Purchases | 86,308 | | - |
+-----------------------------------+--------------+----------+--------------+
| Sales - proceeds | - | | (168,000) |
+-----------------------------------+--------------+----------+--------------+
| Sales - realised gains on | - | | 168,000 |
| disposals | | | |
+-----------------------------------+--------------+----------+--------------+
| Movement in net unrealised gains | (1,984,936) | | 20,650,889 |
+-----------------------------------+--------------+----------+--------------+
| Closing fair value at 30 | 34,089,070 | | 35,987,698 |
| September | | | |
+-----------------------------------+--------------+----------+--------------+
| | | | |
+-----------------------------------+--------------+----------+--------------+
| Closing book cost at 30 September | 93,486 | | 7,178 |
+-----------------------------------+--------------+----------+--------------+
| Closing net unrealised gains | 33,995,584 | | 35,980,520 |
+-----------------------------------+--------------+----------+--------------+
| Closing fair value at 30 | 34,089,070 | | 35,987,698 |
| September | | | |
+-----------------------------------+--------------+----------+--------------+
+-----------------------------------+--------------+----------+--------------+
| | 1 October | | 1 October |
| | 2009 | | 2008 |
| Total Investments: | to | | to |
| |30 September | |30 September |
| | 2010 | | 2009 |
+-----------------------------------+--------------+----------+--------------+
| | US$ | | US$ |
+-----------------------------------+--------------+----------+--------------+
| | | | |
| Listed equity securities (freely | 28,717,222 | | 80,184,124 |
| tradeable) | | | |
+-----------------------------------+--------------+----------+--------------+
| Listed equity securities | 70,979,465 | | 17,201,453 |
| (restricted) | | | |
+-----------------------------------+--------------+----------+--------------+
| Warrants | 34,089,070 | | 35,987,698 |
+-----------------------------------+--------------+----------+--------------+
| | 133,785,757 | | 133,373,275 |
+-----------------------------------+--------------+----------+--------------+
| | | | |
+-----------------------------------+--------------+----------+--------------+
| Opening fair value | 133,373,275 | | 72,131,317 |
+-----------------------------------+--------------+----------+--------------+
| Purchases | 33,545,409 | | 30,144,363 |
+-----------------------------------+--------------+----------+--------------+
| Sales - proceeds | (51,411,514) | | (35,309,651) |
+-----------------------------------+--------------+----------+--------------+
| Sales - realised gains on | 28,046,269 | | 8,951,085 |
| disposals | | | |
+-----------------------------------+--------------+----------+--------------+
| Movement in net unrealised gains | (9,767,682) | | 57,456,161 |
+-----------------------------------+--------------+----------+--------------+
| Closing fair value at 30 | 133,785,757 | | 133,373,275 |
| September | | | |
+-----------------------------------+--------------+----------+--------------+
| | | | |
+-----------------------------------+--------------+----------+--------------+
| Closing book cost at 30 September | 54,535,764 | | 44,355,600 |
+-----------------------------------+--------------+----------+--------------+
| Closing net unrealised gains | 79,249,993 | | 89,017,675 |
+-----------------------------------+--------------+----------+--------------+
| Closing fair value at 30 | 133,785,757 | | 133,373,275 |
| September | | | |
+-----------------------------------+--------------+----------+--------------+
7. Cash and Cash Equivalents:
+-----------------------------------+--------------+----------+--------------+
| |30 September | |30 September |
| | 2010 | | 2009 |
+-----------------------------------+--------------+----------+--------------+
| | US$ | | US$ |
+-----------------------------------+--------------+----------+--------------+
| Cash at bank | 6,162,090 | | 23,088,891 |
+-----------------------------------+--------------+----------+--------------+
| Bank overdraft | - | | (180) |
+-----------------------------------+--------------+----------+--------------+
| | 6,162,090 | | 23,088,711 |
+-----------------------------------+--------------+----------+--------------+
| | | | |
+-----------------------------------+--------------+----------+--------------+
8. Other Prepayments:
+-----------------------------------+--------------+----------+--------------+
| |30 September | |30 September |
| | 2010 | | 2009 |
+-----------------------------------+--------------+----------+--------------+
| | US$ | | US$ |
+-----------------------------------+--------------+----------+--------------+
| Unsettled investment sales | - | | 536,796 |
+-----------------------------------+--------------+----------+--------------+
| Prepayments | 52,792 | | 44,359 |
+-----------------------------------+--------------+----------+--------------+
| | 52,792 | | 581,155 |
+-----------------------------------+--------------+----------+--------------+
The Directors consider that the carrying amount of other receivables
approximates fair value.
9. Other Payables:
+-----------------------------------+--------------+----------+--------------+
| |30 September | |30 September |
| | 2010 | | 2009 |
+-----------------------------------+--------------+----------+--------------+
| | US$ | | US$ |
+-----------------------------------+--------------+----------+--------------+
| Performance allocation | - | | 17,975,492 |
+-----------------------------------+--------------+----------+--------------+
| Income allocation on B Redeemable | | | |
| Preference Shares | 129,342 | | 142,189 |
+-----------------------------------+--------------+----------+--------------+
| Administrator's fee | 24,490 | | 18,849 |
+-----------------------------------+--------------+----------+--------------+
| Registrar's fee | 3,860 | | 8,221 |
+-----------------------------------+--------------+----------+--------------+
| NOMAD & Broker's fees | 123,110 | | 23,354 |
+-----------------------------------+--------------+----------+--------------+
| Prime Broker fees | 9,812 | | 4,331 |
+-----------------------------------+--------------+----------+--------------+
| Legal & professional fees | 201,363 | | 15,868 |
+-----------------------------------+--------------+----------+--------------+
| Directors fees | - | | 12,500 |
+-----------------------------------+--------------+----------+--------------+
| Audit fee | 85,810 | | 73,573 |
+-----------------------------------+--------------+----------+--------------+
| Travel & marketing | 116 | | 8,491 |
+-----------------------------------+--------------+----------+--------------+
| Sundry payables | 8,303 | | 10,422 |
+-----------------------------------+--------------+----------+--------------+
| | 586,206 | | 18,293,290 |
+-----------------------------------+--------------+----------+--------------+
The Directors consider that the carrying amount of other payables approximates
fair value.
10. Revenue reserve:
+-----------------------------------+---------------+-+---------------+
| | 1 October | | 1 October |
| | 2009 | | 2008 |
| | to | | to |
| | 30 September | | 30 September |
| | 2010 | | 2009 |
+-----------------------------------+---------------+-+---------------+
| | US$ | | US$ |
+-----------------------------------+---------------+-+---------------+
| Opening revenue reserve | 74,080,421 | | 27,499,727 |
+-----------------------------------+---------------+-+---------------+
| Total comprehensive income for | 3,974,060 | | 46,580,694 |
| the year | | | |
+-----------------------------------+---------------+-+---------------+
| Closing revenue reserve | 78,054,481 | | 74,080,421 |
+-----------------------------------+---------------+-+---------------+
11. Share Capital:
+------------------------------------------------+----+---------------+
| | | 30 September |
| | | 2010 |
| | | & |
| | | 30 September |
| | | 2009 |
+------------------------------------------------+----+---------------+
| Authorised Share Capital: | | US$ |
+------------------------------------------------+----+---------------+
| Unlimited shares of no par value that may be | | |
| issued as Ordinary Shares | | - |
+------------------------------------------------+----+---------------+
+-----------------------------------+---------------+-+---------------+
| | 1 October | | 1 October |
| | 2009 | | 2008 |
| | to | | to |
| | 30 September | | 30 September |
| | 2010 | | 2009 |
+-----------------------------------+---------------+-+---------------+
| Allotted, Issued and Fully Paid: | No. | | No. |
+-----------------------------------+---------------+-+---------------+
| Brought forward | 66,189,574 | | 100,000,000 |
+-----------------------------------+---------------+-+---------------+
| Tender Offer | - | | (33,810,426) |
+-----------------------------------+---------------+-+---------------+
| Repurchased Ordinary Shares held | | | |
| in treasury repurchased | - | | 7,354,397 |
+-----------------------------------+---------------+-+---------------+
| Ordinary Shares held in treasury | - | | (7,354,397) |
| cancelled | | | |
+-----------------------------------+---------------+-+---------------+
| | 66,189,574 | | 66,189,574 |
+-----------------------------------+---------------+-+---------------+
| | | | |
+-----------------------------------+---------------+-+---------------+
+-----------------------------------+---------------+-+---------------+
| | 1 October | | 1 October |
| | 2009 | | 2008 |
| | to | | to |
| | 30 September | | 30 September |
| | 2010 | | 2009 |
+-----------------------------------+---------------+-+---------------+
| Share Capital: | US$ | | US$ |
+-----------------------------------+---------------+-+---------------+
| Share capital brought forward | 64,569,430 | | 94,427,417 |
+-----------------------------------+---------------+-+---------------+
| Capital distribution | (3,309,478) | | - |
+-----------------------------------+---------------+-+---------------+
| Share capital on Tender Offer | - | | (29,857,987) |
| during the year | | | |
+-----------------------------------+---------------+-+---------------+
| Share capital on repurchase of | | | |
| Ordinary Shares held in treasury | - | | 6,494,668 |
| of during the year | | | |
+-----------------------------------+---------------+-+---------------+
| Share capital on cancellation | | | |
| Ordinary Shares held in treasury | - | | (6,494,668) |
| of during the year | | | |
+-----------------------------------+---------------+-+---------------+
| | | | |
| Share capital carried forward | 61,259,952 | | 64,569,430 |
+-----------------------------------+---------------+-+---------------+
On 28 May 2010, in accordance with the Company's distribution policy, the
Company paid to Shareholders (on the register as at close of business on 7 May
2010) a return of capital of 5 cents per Ordinary Share, amounting to US$3.31
million in aggregrate (30 September 2009: US$Nil). The remaining amount to be
distributed to Shareholders as at 30 September 2010 was US$1.44 million.
On 2 December 2008, Shareholders approved the Tender Offer pursuant to which the
Company, through Fairfax, acquired 33,810,426 Ordinary Shares from Shareholders
for an aggregate price (including costs) of US$30 million. Following the Tender
Offer, 26,456,029 Ordinary Shares were cancelled and the issued Ordinary Share
capital of the Company became 73,543,971 Ordinary Shares, of which 7,354,397
were held in treasury. On 25 September 2009 the 7,354,397 Ordinary Shares
previously held in treasury were cancelled. Following the cancellation, as at 30
September 2009, the issued Ordinary Shares of the Company was 66,189,574.
The repurchase of Ordinary Shares by the Company was funded from the Company's
cash resources.
+-----------------------------------+---------------+-+---------------+
| | 1 October | | 1 October |
| | 2009 | | 2008 |
| | to | | to |
| | 30 September | | 30 September |
| | 2010 | | 2009 |
+-----------------------------------+---------------+-+---------------+
| Treasury Shares | US$ | | US$ |
+-----------------------------------+---------------+-+---------------+
| Brought forward | - | | - |
+-----------------------------------+---------------+-+---------------+
| Repurchase of 7,354,397 Treasury | - | | 6,494,668 |
| Shares | | | |
+-----------------------------------+---------------+-+---------------+
| Cancellation of 7,354,397 | - | | (6,494,668) |
| Treasury Shares | | | |
+-----------------------------------+---------------+-+---------------+
| Carried forward | - | | - |
+-----------------------------------+---------------+-+---------------+
The Company's authorised capital structure comprises an unlimited number of
shares of no par value.
Ordinary Shareholders have the following rights:
(i) Dividends
During the period Shareholders (other than the Company itself where it holds its
own Ordinary Shares as treasury Ordinary Shares) are entitled to receive, and
participate in, any dividends or other distributions out of the profit of the
Company available for dividend and resolved to be distributed in respect of any
accounting period or other income or right to participate therein.
(ii) Winding up
On a winding up, Shareholders (other than the Company itself where it holds its
own Ordinary Shares as treasury Ordinary Shares) shall be entitled to the
surplus assets remaining after payment of all the creditors of the Company.
Ordinary Shareholders have the following rights, continued:
(iii) Voting
Shareholders (other than the Company itself where it holds its own Ordinary
Shares as treasury Ordinary Shares) shall have the right to receive notice of
and to attend and vote at general meetings of the Company and each Shareholder
being present in person or by proxy or by a duly authorised representative (if a
corporation) at a meeting shall upon a show of hands have one vote and upon a
poll each such holder present in person or by proxy or by a duly authorised
representative (if a corporation) shall have one vote in respect of every
Ordinary Share held by him.
B Redeemable Preference Shares
Proceeds from the issue of B Redeemable Preference Shares in the GPCo are
classified as debt in these financial statements in accordance with IFRS and
have the following special rights:
a) At any time the B Redeemable Preference Shareholders of the GPCo shall be
entitled on liquidation of the Company to a sum equal to any undistributed
vested performance allocation, due from the Limited Partnership, plus any
amounts due to the Company under the Limited Partnership Agreement allocated
between such Shareholders pro rata to the number of B Redeemable Preference
Shares they hold at the date of distribution in priority to any other
distributions on the A Ordinary Shares of the GPCo.
b) Subject to the provisions of the Law, on each annual NAV publication date,
of the Limited Partnership, an amount equal to any undistributed vested
performance allocation, in the Limited Partnership, shall become distributable
to the B Redeemable Preference Shareholders of the GPCo.
c) Should the Company be unable to pay a dividend equal to any undistributed
vested performance allocation, due from the Limited Partnership, in accordance
with (b) above, the Company shall pay a maximum dividend it is permitted to pay
to the B Redeemable Preference Shareholders of the GPCo and the remainder of the
undistributed vested performance allocation shall be dealt with in accordance
with (d) below.
d) In relation to any remaining undistributed vested performance allocation,
any B Redeemable Preference Shareholders of the GPCo may deliver an election in
writing to the GPCo (the "Election") requesting that the GPCo redeems one of the
B Redeemable Preference Shares held by the B Redeemable Preference Shareholder
for a cash payment representing the Shareholder's share of the greater of (i)
the undistributed vested performance allocation at that time and (ii) the
maximum amount payable by the GPCo under the Law, such share to be calculated on
the basis of the proportion calculated by dividing the number of B Redeemable
Preference Shares held by such a Shareholder prior to any redemptions by that
Shareholder pursuant under this section by the number of B Redeemable Preference
Shares in issue prior to any redemptions pursuant under this clause by any
Shareholder. Subject to the provisions of the Law, the GPCo shall then redeem
such B Redeemable Preference Shares accordingly within two business days of
receipt of the election and shall within one month thereafter give notice in
writing of such redemption to The Guernsey Registry.
e) The B Redeemable Preference Shares of the GPCo shall have no voting rights,
save where any undistributed vested performance allocation remains outstanding
for more than 5 business days when each B Redeemable Preference Share in the
GPCo shall carry 10 votes at any general meeting of the GPCo.
f) The B Redeemable Preference Shareholders of the GPCo have the sole
economic rights to the performance allocation to which the Company is entitled
under the terms of the limited partnership agreement and the return on the
US$100,000 capital invested by the B Redeemable Preference Shareholders of the
GPCo for the B Redeemable Preference Shares in the GPCo.
12. NAV per Ordinary Share:
The NAV per Ordinary Share is based on the net assets attributable to Ordinary
Shareholders of US$139,314,433 (30 September 2009: US$138,649,851) and on the
Ordinary Shares at the year end in issue of 66,189,574 (30 September 2009:
66,189,574).
13. Financial Instruments:
(a) Significant accounting policies:
Details of the significant accounting policies and methods adopted, including
the criteria for recognition, the basis of measurement and the basis on which
income and expenses are recognised, in respect of its financial assets and
financial liabilities are disclosed in note 2 to these financial statements.
(b) Categories of financial instruments:
Financial instruments comprise equities, warrants, cash and cash equivalents,
receivables and payables. The warrants are derivative instruments and have been
classified as held for trading and are accounted for as fair value through
profit or loss. All other financial instruments have been classified as fair
value through profit or loss. A financial asset is classified as fair value
through profit or loss if it is classified as held for trading or is designated
as such upon initial recognition. Financial assets are designated at fair value
through profit or loss if the Group manages such investments and makes purchase
and sale decisions based on their fair value in accordance with the Group's
documented risk management or investment strategy. Upon initial recognition,
attributable transaction costs are recognised in the Consolidated Statement of
Comprehensive Income. Financial assets at fair value through profit or loss are
measured at fair value, and changes therein are recognised in the Consolidated
Statement of Comprehensive Income.
+--------------------------+-------------+--------------+--------------+--------------+
| | 1 October 2009 | 1 October 2008 |
| | to | to |
| | 30 September | 30 September |
| | 2010 | 2009 |
+--------------------------+----------------------------+-----------------------------+
| | | Percentage | | Percentage |
| | | of net | | of net |
| | | assets | | assets |
| | |attributable | |attributable |
| | | to holders | | to holders |
| | | of Ordinary | | of Ordinary |
| | Fair | Shares | Fair | Shares |
| | Value | | Value | |
+--------------------------+-------------+--------------+--------------+--------------+
| Assets | US$ | % | US$ | % |
+--------------------------+-------------+--------------+--------------+--------------+
| Financial assets at fair | | | | |
| value through profit or | | | | |
| loss: | | | | |
+--------------------------+-------------+--------------+--------------+--------------+
| Listed equity securities | | 20.61 | | 57.83 |
| (freely tradeable) | 28,717,222 | | 80,184,124 | |
+--------------------------+-------------+--------------+--------------+--------------+
| Listed equity securities | | 50.95 | | 12.41 |
| (restricted) | 70,979,465 | | 17,201,453 | |
+--------------------------+-------------+--------------+--------------+--------------+
| Warrants | 34,089,070 | 24.47 | 35,987,698 | 25.95 |
+--------------------------+-------------+--------------+--------------+--------------+
| | 133,785,757 | 96.03 | 133,373,275 | 96.19 |
+--------------------------+-------------+--------------+--------------+--------------+
| | | | | |
+--------------------------+-------------+--------------+--------------+--------------+
| Cash and cash | 6,162,090 | 4.42 | 23,088,891 | 16.66 |
| equivalents | | | | |
+--------------------------+-------------+--------------+--------------+--------------+
| Other prepayments | 52,792 | 0.04 | 581,155 | 0.42 |
+--------------------------+-------------+--------------+--------------+--------------+
| | | | | |
+--------------------------+-------------+--------------+--------------+--------------+
| | 140,000,639 | 100.49 | 157,043,321 | 113.27 |
+--------------------------+-------------+--------------+--------------+--------------+
| Liabilities | | | | |
+--------------------------+-------------+--------------+--------------+--------------+
| Bank overdraft | - | - | (180) | - |
+--------------------------+-------------+--------------+--------------+--------------+
| Other payables | (586,206) | (0.42) | (18,293,290) | (13.20) |
+--------------------------+-------------+--------------+--------------+--------------+
| | (586,206) | (0.42) | (18,293,470) | (13.20) |
+--------------------------+-------------+--------------+--------------+--------------+
| | | | | |
+--------------------------+-------------+--------------+--------------+--------------+
| B Redeemable Preference | | | | |
| Shares of GPCo | (100,000) | (0.07) | (100,000) | (0.07) |
+--------------------------+-------------+--------------+--------------+--------------+
| | | | | |
+--------------------------+-------------+--------------+--------------+--------------+
| | (686,206) | (0.49) | (18,393,470) | (13.27) |
+--------------------------+-------------+--------------+--------------+--------------+
(c) Net gains and losses on financial assets:
+------------------------+--------------+------------+-------------+-----------+
| | 1 October 2009 | 1 October 2008 |
| | to | to |
| | 30 September 2010 | 30 September 2009 |
+------------------------+---------------------------+-------------------------+
| | Movement | | Movement | |
| | in net | Net | in net | Net |
| | unrealised | realised | unrealised | realised |
| | gains | gains on | gains | gains on |
| | | disposals | |disposals |
+------------------------+--------------+------------+-------------+-----------+
| | US$ | US$ | US$ | US$ |
+------------------------+--------------+------------+-------------+-----------+
| Financial assets at | | | | |
| fair value through | | | | |
| profit or loss: | | | | |
+------------------------+--------------+------------+-------------+-----------+
| Listed equity | | | | |
| securities (freely | 5,455,101 | 5,236,128 | 30,311,609 | 4,849,743 |
| tradeable) | | | | |
+------------------------+--------------+------------+-------------+-----------+
| Listed equity | | | | |
| securities | (13,237,847) | 22,810,141 | 6,493,663 | 3,933,342 |
| (restricted) | | | | |
+------------------------+--------------+------------+-------------+-----------+
| Warrants | (1,984,936) | - | 20,650,889 | 168,000 |
+------------------------+--------------+------------+-------------+-----------+
| | (9,767,682) | 28,046,269 | 57,456,161 | 8,951,085 |
+------------------------+--------------+------------+-------------+-----------+
(d) Derivatives:
The following table details the Company's investments in derivative contracts,
by maturity, outstanding:
Warrants
+------------------------------------+--------------+----------+--------------+
| |30 September | |30 September |
| | 2010 | | 2009 |
+------------------------------------+--------------+----------+--------------+
| Maturity | Fair Value | | Fair Value |
+------------------------------------+--------------+----------+--------------+
| | US$ | | US$ |
+------------------------------------+--------------+----------+--------------+
| 2-3 years | 33,506,497 | | - |
+------------------------------------+--------------+----------+--------------+
| 3-4 years | - | | 31,264,331 |
+------------------------------------+--------------+----------+--------------+
| 4-5 years | 582,573 | | 3,618,374 |
+------------------------------------+--------------+----------+--------------+
| 5-6 years | - | | 1,104,993 |
+------------------------------------+--------------+----------+--------------+
| Total | 34,089,070 | | 35,987,698 |
+------------------------------------+--------------+----------+--------------+
A warrant is a derivative financial instrument which gives the right, but not
the obligation to buy a specific amount of a given stock, at a specified price
(strike price) by a specific date. The fair value of the warrants are included
in warrants classified as financial assets at fair value through profit or loss,
as disclosed in note 13 (b). The warrants are valued using a 50% discount to the
time value of the Black Scholes model as a liquidity adjustment (see note 2e
(iv)).
14. Financial Risk Management:
Strategy in Using Financial Instruments:
The Company's investment objective is to provide Shareholders with an attractive
return on their investment predominantly through capital appreciation. The
Group's investment policy is detailed on pages 5 and 6.
The Group's activities expose it to a variety of financial risks: market risk
(including currency risk, interest rate risk and price risk), credit risk and
liquidity risk. The overall risk management policies employed by the Group focus
on the unpredictability of financial markets and seek to minimise potential
adverse effects on the Group's financial performance to these risks and are
discussed below.
Market Price Risk:
Market price risk results mainly from the uncertainty about future prices of
financial instruments held. It represents the potential loss the Group may
suffer through holding market positions in the face of price movements and
changes in interest rates or foreign exchange rates, with the maximum risk
resulting from financial instruments being determined by the fair value of the
financial instruments. The Group's investment portfolio is monitored by the
Investment Manager and the Directors in pursuance of the investment objectives
as set out in the Directors' Report.
All investments present a risk of loss of capital. The Investment Manager
moderates this risk through a careful selection of securities and other
financial instruments within specified limits in accordance with the Group's
investment restrictions. The maximum risk resulting from financial instruments
is determined by the fair value of the financial instruments. The Group's
portfolio and investment strategy is reviewed continuously by the Investment
Manager and on a quarterly basis by the Board.
The profitability of a significant portion of the Group's investment programme
depends to a great extent upon correctly assessing the future course of
movements in share prices, interest rates, currencies and other investments.
There can be no assurance that the Investment Manager will be able to predict
accurately these price movements. The Investment Manager moderates this risk
through a careful selection of securities and other financial instruments within
specified limits. The maximum risk resulting from financial instruments is
determined by the fair value of the financial instruments. The Group's portfolio
and investment strategy is reviewed continuously by the Investment Manager and
on a quarterly basis by the Board.
The following details the Group's sensitivity to a 5% increase and decrease in
market prices of equities, with 5% being the sensitivity rate used when
reporting price risk internally to key management personnel and representing
management's assessment of the possible changes in market prices.
At 30 September 2010, the Group's market risk is affected by four main
components: changes in actual market prices, credit risk, interest rate and
foreign currency movements. Credit risk, interest rate and foreign currency
movements are covered below. A 5% increase in the value of equity investments,
with all other variables held constant, would bring about a 3.58% or
US$4,984,834 (30 September 2009: 3.51% or US$4,869,279) increase in net assets
attributable to equity shareholders due to an increase in the value of the
Group's equity investments at fair value through profit and loss. If the value
of equity investments had been 5% lower, with all other variables held constant,
net assets attributable to equity shareholders would have fallen by 3.58% or
US$4,984,834 (30 September 2009: 3.51% or US$4,869,279) due to the decrease in
value of the Group's equity investments at fair value through profit and loss.
Warrants by their nature may be more sensitive to changes in the value of the
underlying equity instrument dependent upon a number of factors including time
to expire and whether or not they are in the money or not. As at 30 September
2010 a 5% increase in the value of underlying equity prices for derivatives
held, with all other variables held constant, would bring about a 2.59% or
US$3,605,210 (30 September 2009: 2.66% or US$3,684,901) increase in net assets
attributable to equity shareholders due to the increase in the value of the
Group's warrant investments held for trading. A 5% decrease in the value of
underlying equity prices for derivatives held, with all other variables held
constant, would bring about a 2.32% or US$3,238,643 (30 September 2009: 2.63% or
US$3,652,119) decrease in net assets attributable to equity shareholders due to
the decrease in the value of the Group's warrant investments held for trading.
Currency Risk:
Currency risk is the risk that the fair value of future cash flows of a
financial instrument will fluctuate because of changes in foreign exchange
rates.
The Group's assets are denominated principally in US Dollars however the Group
may invest in securities and other investments that are denominated in
currencies different to the reporting currency. Accordingly, the value of an
investment may be affected favourably or unfavourably by fluctuations in
exchange rates. The Group may through forward foreign exchange contracts hedge
its exposure back to the US Dollar but has not done so during the year.
Currency Exposure:
At the reporting date, a proportion of the net assets of the Group are
denominated in currencies other than US Dollars. The carrying amounts of these
assets and liabilities are as follows:
+--------------------+--------------+----------+---------------+----------+---------------+
| | Monetary | | Monetary | | Net Exposure |
| | Assets | | Liabilities | | |
+--------------------+--------------+----------+---------------+----------+---------------+
| |30 September | | 30 September | | 30 September |
| | 2010 | | 2010 | | 2010 |
+--------------------+--------------+----------+---------------+----------+---------------+
| | US$ | | US$ | | US$ |
+--------------------+--------------+----------+---------------+----------+---------------+
| | | | | | |
+--------------------+--------------+----------+---------------+----------+---------------+
| Sterling | 47,314 | | (321,735) | | (274,421) |
+--------------------+--------------+----------+---------------+----------+---------------+
+--------------------+--------------+----------+---------------+----------+---------------+
| | Monetary | | Monetary | | Net Exposure |
| | Assets | | Liabilities | | |
+--------------------+--------------+----------+---------------+----------+---------------+
| |30 September | | 30 September | | 30 September |
| | 2009 | | 2009 | | 2009 |
+--------------------+--------------+----------+---------------+----------+---------------+
| | US$ | | US$ | | US$ |
+--------------------+--------------+----------+---------------+----------+---------------+
| | | | | | |
+--------------------+--------------+----------+---------------+----------+---------------+
| Sterling | 37,054 | | (151,294) | | (114,240) |
+--------------------+--------------+----------+---------------+----------+---------------+
The Group has a minimal exposure to Sterling currency risk as detailed above.
The sensitivity analysis below has been determined based on the sensitivity of
the Group's outstanding foreign currency denominated financial assets and
liabilities to a 10% increase/decrease in the US Dollar against Sterling,
translated at the reporting date.
10% is the sensitivity rate used when reporting foreign currency risk internally
to key management personnel and represents management's assessment of the
possible change in foreign exchange rates.
As at 30 September 2010 if US Dollar had weakened by 10% against the Sterling,
with all other variables held constant, the net assets attributable to Ordinary
Shares would have been US$27,421 (30 September 2009: US$11,424) lower.
Conversely, if US Dollar had strengthened by 10% against the Sterling, with all
other variables held constant, the net assets attributable to Ordinary Shares
would have been US$27,421 (30 September 2009: US$11,424) higher.
Interest Rate Risk:
The Group is exposed to risks associated with the effects of fluctuations in the
prevailing levels of market interest rates on its financial instruments and
future cash flows.
The Group is exposed to interest rate risk on cash and cash equivalents which
are invested at short term rates. The Investment Manager manages the Group's
exposure to interest rate risk daily in accordance with the Group's investment
objectives and policies. The Group's overall exposure to interest rate risk is
monitored on a quarterly basis by the Board of Directors.
The table below summarises the Group's exposure to interest rate risk:
+------------------------+-----------+-------------+-----------+--------------+
| | 30 September 2010 | 30 September 2009 |
+------------------------+-------------------------+--------------------------+
| | Weighted | | Weighted | |
| | average | | average | |
| |effective | |effective | |
| | interest | Total | interest | Total |
| | rate | | rate | |
+------------------------+-----------+-------------+-----------+--------------+
| | % | US$ | % | US$ |
+------------------------+-----------+-------------+-----------+--------------+
| Assets | | | | |
+------------------------+-----------+-------------+-----------+--------------+
| Floating interest rate | | | | |
| cash at bank | 0.10* | 6,162,090 | 0.00* | 23,088,891 |
+------------------------+-----------+-------------+-----------+--------------+
| Non-interest bearing | - | 133,838,549 | - | 133,954,430 |
+------------------------+-----------+-------------+-----------+--------------+
| Total assets | | 140,000,639 | | 157,043,321 |
+------------------------+-----------+-------------+-----------+--------------+
| | | | | |
+------------------------+-----------+-------------+-----------+--------------+
| Liabilities | | | | |
+------------------------+-----------+-------------+-----------+--------------+
| Floating interest rate | | | | |
| bank overdrafts | - | - | 0.00* | (180) |
+------------------------+-----------+-------------+-----------+--------------+
| Non-interest bearing | - | (686,206) | - | (18,393,290) |
+------------------------+-----------+-------------+-----------+--------------+
| Total liabilities | | (686,206) | | (18,393,470) |
+------------------------+-----------+-------------+-----------+--------------+
| | | | | |
+------------------------+-----------+-------------+-----------+--------------+
* - as at 30 September 2010 the weighted average effective interest rate on the
Groups cash and cash equivalents was 0.10% (30 September 2009: nil).
The sensitivity analysis below have been determined based on the Group's
exposure to interest rates for interest bearing assets and liabilities (included
in the interest rate exposure table above) at the reporting date and the
stipulated change taking place at the beginning of the financial period and held
constant through the reporting period in the case of instruments that have
floating rates.
A 200 basis point increase or decrease is used when reporting interest rate risk
internally to key management personnel and represents management's assessment of
the possible change in interest rates.
If interest rates had been 200 basis points higher throughout the year, based on
assets and liabilities as at 30 September 2010 that are subject to changing
interest rates, and all other variables were held constant, the Group's net
assets attributable to Ordinary Shares for the year ended 30 September 2010
would have been US$123,242 (30 September 2009: US$461,778) higher due to the
increase in the interest earned on the Group's cash balances.
If interest rates had been 200 basis points lower throughout the year, based on
assets and liabilities as at 30 September 2010 that are subject to changing
interest rates, and all other variables were held constant, the Group's net
assets attributable to Ordinary Shares for the year ended 30 September 2010
would have been US$6,159 (30 September 2009: US$Nil) lower due to the decrease
in the interest earned on the Group's cash balances.
Liquidity Risk:
Liquidity risk is the risk that the Group will encounter in realising assets or
otherwise raising funds to meet financial commitments.
The Group uses complex contracts to structure its investments in investee
companies. Such contracts may not be marketable or may have a limited
marketability. Investments in securities of investee companies may also suffer
illiquidity, and the lack of marketability of an investment may severely reduce
its value. If the Group acquires securities which for the purposes of US
securities laws may not be sold or re-sold in or into the US otherwise than
pursuant to an exemption provided by the Securities Act, it may be unable to
secure their registration with the SEC, which may also severely reduce the
returns on such investments.
Where the Group has significant investments in Investee Companies which are
listed entities and which include restricted securities purchased directly from
an issuer in a private placement, registration of those securities for public
resale is typically affected under Rule 415 of the Securities Act ("Rule 415").
Recently, the SEC has articulated a more restrictive interpretation of a
company's ability to register its shares under Rule 415, under which a company
which has issued shares may not register more than 33 per cent. of the shares in
public hands under certain circumstances. As a result, the registration of some
of the Group's securities may be significantly delayed. If not registered, the
Group may only be able to sell such securities after a six month to one year
holding period under Rule 144 of the Securities Act ("Rule 144") or under other
exemptions from the registration requirements under the Securities Act.
Unless and until registration occurs or applicable holding periods under Rule
144 have elapsed, there is likely to be an extremely limited market for any
restricted securities held by the Group, the sale of any such securities may be
possible only at substantial discounts and it may be extremely difficult at
times to value any such investments accurately.
The Group may also purchase securities of Investee Companies which are private
companies and which intend to become listed in the short term. Until such an
Investee Company obtains a listing, such securities will not publicly trade and
such securities may only be sold in a private transaction, making the purchase
or sale of such securities at desired prices or in desired quantities difficult
or impossible. It will also be extremely difficult to value investments
accurately.
The following table details the maturity profile of the Company's financial
instruments:
Maturity Analysis
+-----------------+-----------+------------+-------+---------+------------+-------------+
| At 30 September | less | | | | No | |
| 2010 | than 1 | 2-3 | 3-4 | 4-5 | fixed | Total |
| | year | years |years | years | maturity | |
+-----------------+-----------+------------+-------+---------+------------+-------------+
| Assets | US$ | US$ | US$ | US$ | US$ | US$ |
+-----------------+-----------+------------+-------+---------+------------+-------------+
| Financial | | | | | | |
| assets at fair | | | | | | |
| value through | | | | | | |
| profit or loss: | | | | | | |
+-----------------+-----------+------------+-------+---------+------------+-------------+
| Listed equity | | | | | | |
| securities | | | | | | |
| (freely | - | - | - | - | 28,717,222 | 28,717,222 |
| tradeable) | | | | | | |
+-----------------+-----------+------------+-------+---------+------------+-------------+
| Listed equity | | | | | | |
| securities | | | | | | |
| (restricted) | - | - | - | - | 70,979,465 | 70,979,465 |
+-----------------+-----------+------------+-------+---------+------------+-------------+
| Warrants | - | 33,506,497 | - | 582,573 | - | 34,089,070 |
+-----------------+-----------+------------+-------+---------+------------+-------------+
| Cash and cash | | - | - | - | - | |
| equivalents | 6,162,090 | | | | | 6,162,090 |
+-----------------+-----------+------------+-------+---------+------------+-------------+
| Other | 52,792 | - | - | - | - | 52,792 |
| prepayments | | | | | | |
+-----------------+-----------+------------+-------+---------+------------+-------------+
| | 6,214,882 | 33,506,497 | - | 582,573 | 99,696,687 | 140,000,639 |
+-----------------+-----------+------------+-------+---------+------------+-------------+
| | | | | | | |
+-----------------+-----------+------------+-------+---------+------------+-------------+
| Liabilities | | | | | | |
+-----------------+-----------+------------+-------+---------+------------+-------------+
| Other payables | (586,206) | - | - | - | - | (586,206) |
+-----------------+-----------+------------+-------+---------+------------+-------------+
| B Redeemable | | | | | | |
| Preference | | | | | | |
| Shares of GPCo | - | - | - | - | (100,000) | (100,000) |
+-----------------+-----------+------------+-------+---------+------------+-------------+
| | (586,206) | - | - | - | (100,000) | (686,206) |
+-----------------+-----------+------------+-------+---------+------------+-------------+
+-----------------+--------------+------------+-----------+-----------+------------+--------------+
| At 30 September | less | | | | No | |
| 2009 | than 1 | 3-4 | 4-5 | 5-6 | fixed | Total |
| | year | years | years | years | maturity | |
+-----------------+--------------+------------+-----------+-----------+------------+--------------+
| Assets | US$ | US$ | US$ | US$ | US$ | US$ |
+-----------------+--------------+------------+-----------+-----------+------------+--------------+
| Financial | | | | | | |
| assets at fair | | | | | | |
| value through | | | | | | |
| profit or loss: | | | | | | |
+-----------------+--------------+------------+-----------+-----------+------------+--------------+
| Listed equity | | - | - | - | | |
| securities | | | | | | |
| (freely | - | | | | 80,184,124 | 80,184,124 |
| tradeable) | | | | | | |
+-----------------+--------------+------------+-----------+-----------+------------+--------------+
| Listed equity | | - | - | - | | |
| securities | | | | | | |
| (restricted) | - | | | | 17,201,453 | 17,201,453 |
+-----------------+--------------+------------+-----------+-----------+------------+--------------+
| Warrants | - | 31,264,331 | 3,618,374 | 1,104,993 | - | 35,987,698 |
+-----------------+--------------+------------+-----------+-----------+------------+--------------+
| Cash and cash | | - | - | - | - | |
| equivalents | 23,088,891 | | | | | 23,088,891 |
+-----------------+--------------+------------+-----------+-----------+------------+--------------+
| Other | 581,155 | - | - | - | - | 581,155 |
| prepayments | | | | | | |
+-----------------+--------------+------------+-----------+-----------+------------+--------------+
| | 23,670,046 | 31,264,331 | 3,618,374 | 1,104,993 | 97,385,577 | 157,043,321 |
+-----------------+--------------+------------+-----------+-----------+------------+--------------+
| | | | | | | |
+-----------------+--------------+------------+-----------+-----------+------------+--------------+
| Liabilities | | | | | | |
+-----------------+--------------+------------+-----------+-----------+------------+--------------+
| Bank overdraft | (180) | - | - | - | - | (180) |
+-----------------+--------------+------------+-----------+-----------+------------+--------------+
| Other payables | (18,293,290) | - | - | - | - | (18,293,290) |
+-----------------+--------------+------------+-----------+-----------+------------+--------------+
| B Redeemable | | | | | | |
| Preference | | | | | | |
| Shares of GPCo | - | - | - | - | (100,000) | (100,000) |
+-----------------+--------------+------------+-----------+-----------+------------+--------------+
| | (18,293,470) | - | - | - | (100,000) | (18,393,470) |
+-----------------+--------------+------------+-----------+-----------+------------+--------------+
Credit Risk:
Credit risk is the risk that an issuer or counterparty will be unable or
unwilling to meet a commitment that it has entered into with the Group. The
maximum exposure to credit risk that the Group faces is equal to the fair value
of the cash and cash equivalents held by the Group. The credit risk on cash and
cash equivalents is partially mitigated as it is held with counterparties that
are regulated entities with credit-ratings assigned by international
credit-rating agencies.
The Group's credit risk exposure is moderated by the careful selection of
securities and other financial instruments by the Investment Manager. The
Group's portfolio and investment strategy is reviewed continuously by the
Investment Manager and on a quarterly basis by the Board. The credit risk on
cash transactions is partially mitigated as the transactions are through
counterparties that are regulated entities subject to prudential supervision or
with credit-ratings assigned by international credit-rating agencies.
Concentration Risk:
While the Investment Manager will attempt to spread the Group's assets among a
number of investments in accordance with the investment policies adopted by the
Group, at times the Group may hold a relatively small number of investments each
representing a relatively large portion of the Group's net assets. Losses
incurred in such investments could have a materially adverse effect on the
Group's overall financial condition. Whilst the Group's portfolio is diversified
in terms of the companies in which it invests, the investment portfolio of the
Group may be subject to more rapid change in value than would be the case if the
Group were required to maintain a wider diversification among types of
securities, countries and industry groups.
Classification of Fair Value Measurements
The Company adopted the amendment to IFRS 7, effective 1 January 2009. This
requires the Company to classify fair value measurements using a fair value
hierarchy that reflects the significance of the inputs used in making the
measurements. The fair value hierarchy has the following levels:
· Quoted prices (unadjusted) in active markets for identical assets or
liabilities (level 1);
· Inputs other than quoted prices included within level 1 that are observable
for the asset or liability, either directly (that is, as prices) or indirectly
(that is, derived from prices) (level 2); and
· Inputs for the asset or liability that are not based on observable market
data (that is, unobservable inputs) (level 3).
The level in the fair value hierarchy within which the fair value measurement is
categorised in its entirety is determined on the basis of the lowest level input
that is significant to the fair value measurement in its entirety. For this
purpose, the significance of an input is assessed against the fair value
measurement in its entirety. If a fair value measurement uses observable inputs
that require significant adjustment based on unobservable inputs, the
measurement is a level 3 measurement. Assessing the significance of a particular
input to the fair value measurement in its entirety requires judgement,
considering factors specific to the asset or liability.
The determination of what constitutes "observable" requires significant
judgement by the Company. The Company considers observable data to be that
market data that is readily available, regularly distributed or updated,
reliable and verifiable, not proprietary, and provided by independent sources
that are actively involved in the relevant market.
The following table analyses within the fair value hierarchy the Company's
financial assets (by class) measured at fair value at 30 September 2010:
+----------------------------+------------+------------+------------+-------------+
| | Fair Value as at 30 September 2010 |
+----------------------------+----------------------------------------------------+
| | Level 1 | Level | Level | Total |
| | | 2 | 3 | |
+----------------------------+------------+------------+------------+-------------+
| | US$ | US$ | US$ | US$ |
+----------------------------+------------+------------+------------+-------------+
| Financial assets at fair | | | | |
| value through profit or | | | | |
| loss: | | | | |
+----------------------------+------------+------------+------------+-------------+
| Listed equity securities | | | | |
| (freely | 28,717,222 | - | - | 28,717,222 |
| tradable) | | | | |
+----------------------------+------------+------------+------------+-------------+
| Listed equity securities | - | 70,979,465 | - | 70,979,465 |
| (restricted) | | | | |
+----------------------------+------------+------------+------------+-------------+
| Warrants | - | - | 34,089,070 | 34,089,070 |
+----------------------------+------------+------------+------------+-------------+
| | 28,717,222 | 70,979,465 | 34,089,070 | 133,785,757 |
+----------------------------+------------+------------+------------+-------------+
| | | | | |
+----------------------------+------------+------------+------------+-------------+
Investments whose values are based on quoted market prices in active markets,
and therefore classified within level 1, include active listed equities. No
adjustments are made to the quoted price for these instruments.
Financial instruments that trade in markets that are not considered to be active
but are valued based on quoted market prices, dealer quotations or alternative
pricing sources supported by observable inputs are classified within level 2. As
level 2 investments may include positions that are not traded in active markets
and/or are subject to transfer restrictions, valuations may be adjusted to
reflect illiquidity and/or non-transferability, which are generally based on
available market information.
Investments classified within level 3 have significant unobservable inputs, as
they trade infrequently. Level 3 instruments include unquoted equity instruments
which the Company values in accordance with the International Private Equity and
Venture Capital valuation guidelines or any other valuation model and techniques
which can provide a reasonable estimate of fair value of the investment
involved. The Company considers liquidity, credit and other market risk factors.
The table below provides a reconciliation from brought forward to carried
forward balances of financial instruments categorised under level 3:
+-----------------------------------+---------------+--------------+
| |Held for Trading Investments |
| |at Fair Value based on Level |
| | 3: |
+-----------------------------------+------------------------------+
| | Warrants | Total |
+-----------------------------------+---------------+--------------+
| | US$ | US$ |
+-----------------------------------+---------------+--------------+
| Opening Fair value | 35,987,698 | 35,987,698 |
+-----------------------------------+---------------+--------------+
| Purchases | 86,308 | 86,308 |
+-----------------------------------+---------------+--------------+
| Movement in net unrealised gains | (1,984,936) | (1,984,936) |
+-----------------------------------+---------------+--------------+
| Closing fair value at 30 | 34,089,070 | 34,089,070 |
| September | | |
+-----------------------------------+---------------+--------------+
| | | |
+-----------------------------------+---------------+--------------+
The movement in net unrealised gains of US$1,984,936 relating to level 3
investments has been included in the net unrealised gains on investments in the
consolidated statement of comprehensive income.
15. Dividend:
The Directors do not recommend the payment of a dividend for the year ended 30
September 2010 (period ended 30 September 2009: US$Nil).
16. Distribution:
On 28 May 2010, the Company paid to Shareholders (on the register as at close of
business on 7 May 2010) a return of capital of 5 cents per Ordinary Share,
amounting to US$3.31 million in aggregrate (30 September 2009: US$Nil). The
amount outstanding to be distributed to Shareholders as at 30 September 2010 was
US$1.44 million.
17. Taxation:
The Company is exempt from Guernsey income tax under the Income Tax (Exempt
Bodies) (Guernsey) Ordinance, 1989 and is charged an annual exemption fee of
GBP600.
18. Capital Management:
The Company has the ability to borrow up to 25% of net assets in order to meet
ongoing expenses and obligations. Any such borrowing requires Board approval.
The Company has been granted authority to make market purchases of up to 14.99%
of its own Ordinary Shares. Any such purchases require Shareholders' approval.
The Company has the ability to apply to the Financial Services Authority for a
Placing and Offer to increase the size of the Company through further share
issuance.
19. Contingent Liability:
Legal proceedings have been brought against the Company, the Limited Partnership
and nine other defendants in the Nevada courts, by the Trustee of the Litigation
Trust of Astrata Group Inc, a former investee of the Company. The Directors,
having taken legal advice, consider the claim for an amount in excess of US$380
million to be without merit and it is accordingly being strenuously defended. At
the time of approving these financial statements the outcome of the proceedings
is not known. No provision in respect of the action has been made in the
financial statements of the Company or the Limited Partnership, although de
minimis legal costs incurred to date have been expensed.
20. Post Year End Events:
On 1 October 2010, Dr Randolph Cohen resigned as Director of the Company.
There were no other significant post year end events that require disclosure in
these financial statements.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR LLFFTFSLTIII
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