TIDMTCF
RNS Number : 6388U
Terra Catalyst Fund
31 July 2015
31 July 2015
TERRA CATALYST FUND
(the "Company")
AUDITED FINANCIAL STATEMENTS
Terra Catalyst Fund (the "Company" or "TCF") (AIM:TCF) today
announces the release of its Audited Financial Statements for the
year ended 31 March 2015 ("the Financial Statements"). The full
text of the Financial Statements, with the exception of a number of
charts and illustrations within the Investment Manager's Report, is
set out below.
An electronic copy of the Financial Statements is available on
the Company's website at www.terracatalystfund.com*. Printed copies
of the Financial Statements will be posted to shareholders shortly
and will also be available, free of charge, for one month from the
date of posting from the Company's investment manager, Laxey
Partners Ltd, 4th Floor, Derby House, 64 Athol Street, Douglas,
Isle of Man IM1 1JD.
*Neither the content of Terra Catalyst Fund's website nor the
contents of any website accessible from hyperlinks on that website
(or any other website) is incorporated into, or forms part of, this
Announcement.
ENQUIRIES TO:
Terra Catalyst Fund
Mike Haxby, Director
www.terracatalystfund.com
Tel: +44 (0)1624 690 900
Smith & Williamson Corporate Finance Limited
Azhic Basirov
Tel: +44 (0)20 7131 4000
Directors' Report
For the year ended 31(st) March 2015
The Directors have pleasure in presenting their report and
audited financial statements of the Company for the year ended
31(st) March 2015.
The Company
TCF was incorporated in the Cayman Islands on 21(st) December
2007 and was admitted to the AIM market of the London Stock
Exchange plc, on 25(th) February 2008.
Investment Objective
The investment objective of the Company changed at the Annual
General Meeting on 25(th) September 2012 when a Realisation
Resolution was approved by shareholders. The new investment
objective and policy is to seek realisation of the Company's
portfolio of investments in the ordinary course of business and,
subject to retaining sufficient cash to meet operating costs and
liabilities, to return the net proceeds of all such realisations to
Shareholders on a periodic basis, following which the Company will
be wound-up.
The Company will make no new investments except follow on
investments required to protect the interests of the Company.
Results and Distributions
The Net Asset Value per share of the Company at 31(st) March
2015 was GBP1.89 (31(st) March 2014: GBP2.08). On the 15(th)
September 2014, the Company conducted a compulsory redemption of
2,100,280 ordinary shares at a price of GBP1.095 per share. The
total value of the redemption was GBP2,299,504.
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Directors'
Report and the financial statements in accordance with applicable
law and regulations.
In addition, the Directors have elected to prepare the financial
statements in accordance with International Financial Reporting
Standards, as adopted by the EU.
The financial statements are required 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 they have been prepared in accordance with
International Financial Reporting Standards; 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 that are sufficient to show and explain the Company's
transactions and 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 International Financial
Reporting Standards as adopted by the European Union (EU). 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.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation governing the preparation and
dissemination of financial statements may differ from one
jurisdiction to another.
The Directors have resolved to prepare the financial statements
for each financial year.
Directors
The Directors who held office during the year and to date were
as follows:
Robert Thomas Ware (Chairman)
Martin Michael Adams
Michael Andrew Haxby
As at 31(st) March 2015 the interests of the Directors in the
issued share capital of the Company was as follows:
2015 2014
Number Number of
of
Director Shares Shares
Martin Michael
Adams 6,637 7,536
Michael Andrew Haxby 12,191 13,842
Robert Thomas Ware 33,729* 34,607*
*Robert Thomas Ware's shares are held in his Self-invested
Personal Pension.
Details of Directors' Remuneration for the year are given in
Note 18.
Auditors
Our Auditors, KPMG Audit LLC, being eligible, have expressed
their willingness to continue in office.
For and on behalf of the Board of Directors 30(th) July
2015.
Michael Andrew Haxby Martin Michael Adams
Director Director
Investment Manager's Report
For the year ended 31(st) March 2015
Portfolio Review and Investment Activity
The sole remaining material holding on Terra Catalyst Fund
("TCF") is Spazio Investments NV ("Spazio"). More information on
Spazio can be found at www.spazioinvestment.com
Spazio
Carrying value
The carrying value per share of Spazio in these financial
statements is EUR6.2695, being the audited Net Asset Value per
share of Spazio as at 31(st) December 2014.
Strategy and Market Update
Spazio Industriale ("The Fund"), the Italian registered fund
through which Spazio invests in Italian property, continues to
concentrate on its strategic plan to improve the marketability of
the portfolio through asset refurbishment and re-leasing, with a
focus on increasing the rental income and extending the lease
duration from a series of its assets, including the Telecom Italia
proportion of the portfolio. In regards the extension of these
leases, agreement with Telecom Italia was reached in Q2 2015. The
following main terms for the Telecom Italia Assets was agreed:
-- Effective start date of 1(st) June 2015;
-- Average lease duration of 16.96 years (based on contract expiration);
-- No break option;
-- 75% indexation to annual CPI (upwards only with no catch-up if CPI is negative in any year);
-- Ordinary maintenance, extraordinary maintenance and insurance
costs to be borne by Telecom Italia (previously these were
approximately EUR800,000p.a.);
-- Renegotiated leases agreed at 15% discount to the current rental stream.
The Telecom Italia assets are an attractive proposition for
institutional investors. As discussed in the Interim Accounts to
the 30(th) September 2014, interest in portfolios of well leased
assets is increasing from overseas investors looking to invest in
the Italian commercial property market.
Italy is attracting a growing number of investors who are
looking at Europe and gradually moving into non-core markets, which
offer greater opportunities in terms of yields. Direct investments
in non-residential properties in Europe, in the third quarter of
2014, amounted to approximately EUR48bn, up by 4% compared with the
previous quarter and by 27% compared with the same period in 2013.
Investments in the first 9 months of 2014 amounted to approximately
EUR130bn, up by 27% on the first nine months of 2013. Although the
main core European countries such as the UK and Germany continued
to record good results, it was the peripheral countries in
particular Ireland and Spain, that achieved the highest percentage
growth in investments in the third quarter of 2014 (+240% and 174%
respectively compared with the third quarter of 2013) (source:
CBRE, European Investment Quarterly Q3 2014), even if on modest
absolute figures.
In the third quarter of 2014, institutional real estate
investments in Italy exceeded the EUR1bn threshold. This represents
a 5.5% (source: CBRE, Italian Investment Quarterly Q3 2014)
increase on the previous quarter. Investment volumes increased for
the third consecutive quarter and interest on the part of investors
did not decrease after the summer. The volume invested came back
above the quarterly average of the last three years, and portfolio
transactions continued to account for the largest proportion of the
total volume of investments, at just over half. Besides available
liquidity, real estate investments in Italy are attracting a
growing number of investors.
Compared with the previous months, a number of changes were
introduced in the government document "Sblocca Italia" ("Unlock
Italy") to encourage further recovery in investment volume in the
Italian real estate sector. In particular there are provisions
aimed at simplifying the rules for creating REITs and making rental
contracts more balanced between tenant and landlord, as well as
more landlord-friendly rules for contracts with annual rent of more
than EUR150,000. A competitiveness decree allows for widening the
range of institutions that may provide loans, beyond the banks.
This will enable insurance companies to perform financing
activities without having to go through a banking intermediary,
which should make a greater amount of cash available. A real boost
for real estate investments in the future.
The volume of investments in Italy in the first nine months of
2014 amounted to approximately EUR2.7bn, 7% down on the same period
of the previous year. The slowness in completing investments
together with a product shortage of large-scale assets contributed
to this result. Nevertheless, the volume for the whole of 2014
should exceed EUR5bn. In the first nine months, the volume of
domestic investments in the third quarter slightly reduced the
overall proportion of foreign capital invested; 71% of the total.
However, international investors continue to look with
ever-increasing interest at the peripheral countries, thanks to the
better yields offered - the result of the repricing in the last few
years.
For the first nine months of 2014 the retail sector was again
the most attractive with 50% of total investments. The offices
sector followed with 30% of the total invested.
In the third quarter pf 2014 there were two main portfolio
acquisitions in Italy. The AEW portfolio of logistic warehouses
acquired by P3, a Czech investor specialising in logistic
properties, and the first acquisition in Italy by the American
private equity fund Cerberus; the Calvino portfolio from the
Atlantic 2 - Berenice fund and a portfolio of barracks from the
Patrimonio 1 fund, combined for approximately EUR240m.
In regards significant transactions of single properties, the
sales of the Le Terrazze shopping centre (La Spezia) and the Credit
Suisse HQ in Milan were completed for more than EUR100m each. The
sale of 50% of the CBREGI shares in the Roma Est shopping centre to
CIG and the acquisition of the Olinda Fondo Shop real estate fund
by AXA, for approximately EUR300m, were also recently closed. At
just under EUR400m, the volume of retail investments in the third
quarter of 2014 was down 41% compared with the previous quarter and
by 38% compared with the same period of 2013. This does not mean,
however, that interest in the sector has decreased, but rather that
investment completion times have lengthened; and thereby increasing
the volume of sales in the pipeline. The estimated volume of retail
investments in Q4 2014 was close to EUR1bn. This figure includes
the Roma Est shopping centre, the Fashion District outlet centres,
the remaining portfolio of the Olinda Fondo Shop fund and a number
of negotiations for single centres and high street shops that were
very near completion (again, at the time of writing).
The latest data provided by the Observatory on the Real Estate
Market (Osservatorio sul Mercato Immobiliare - OMI) of the Land
Registry (Agenzia del Territorio) has shown that the Italian retail
real estate market began to grow again in the third quarter of
2014, at a quarterly rate per total number of sales of 3.6%
(source: Agenzia del Territorio, OMI - Note 3rd Quarter 2014).
The most growth, compared with the same quarter of the previous
year, was recorded in the residential (+4.1%) and commercial (+9%)
sectors, while the services sector continues to decline (-2%).
Overall for the Italian real estate market, price erosion has
continued. Since 2008 prices have declined significantly across the
13 main markets: by 19.2% for new homes, 21% for offices and 17.7%
for shops (source: Nomisma, III Rapporto sul Mercato Immobiliare
(3rd Report on the Real Estate Market) 2014). In the second half of
2014, compared to the first, prices recorded a negative change of
1.7% for new homes, 1.7% for offices and 1.7% for shops. It should
be noted that the repricing process, which began with a slight
delay compared to the contraction of sales, is expected to continue
throughout 2015.
In regards yields, strong competition for certain products,
especially those located in the prime zones of Milan and Rome, led
to a drop in prime yields of 15-25 basis points; back in line with
the levels of 2012 (source: BNP Real Estate, Investment in Italy,
Q3 2014).
Portfolio
Spazio owns a portfolio of 170 properties of predominantly
industrial and logistics use, located throughout Italy and with a
total open market value (OMV) as 31(st) December 2014 of EUR357.8m,
virtually unchanged from the valuation of EUR359.5m at 31(st)
December 2013.
For the period under review, four small sales of vacant lots
were completed for a total value of EUR693k. This represents a
discount to their carrying value of 22%.
A binding offer for industrial land located in Segrate (Milan)
held by Spazio worth EUR1.15m was received in Q1, 2015. This values
the land at a 40% discount to its carrying value. The transaction
discount is so wide due to the fact that the last valuation had not
factored in the decision by the Italian Supreme Court to cancel the
previously approved town planning for the land due to
irregularities. As a result, the land lost its building right and
most likely faces a lengthy litigation process before anyone can
build on the land (and the entire Segrate municipality). This is
considered an isolated case in the whole Fund portfolio due to very
specific, and unusual, circumstances. Similar cases are not
expected.
In line with the strategy of focusing on leasing and asset
management, the below table illustrates the number of leases that
have been signed for the period under review. Additional yearly
rent totalling EUR0.905m is expected from these new leases. The
Board is pleased to report that new leases signed with Wambao
Italia Spa substitute the one previously in place with ACC Spa, a
tenant that was not paid its rent for the last two years, (more
details below).
UE2 Property Tenant detail EUR/year Lease Lease start Expiring
* length (second
(Years) break)
=== ============== ================ ============== ============== ===================== ===============
Pavia, Via Migliavacca
247 Veneroni S.p.A. 25,000 6+6 1-Jul-2014 30-Jun-26
Pavia, Via Riso Scotti
247 Veneroni S.p.A. 120,000 6+6 01-Apr-14 31-Mar-26
Portogruaro Fincantieri
449 (VE) S.p.A. 148,455 6+6 1-Jul-2014 30-Jun-26
Bagni Di
249 Tivoli (RM) MTN S.p.A. 300,000 6+6 1-Oct-2014 30-Sep-26
Bagni Di Seven One
249 Tivoli (RM) S.r.l. 312,000 6+6 1-Jan-2014 31-Dec-25
Wambao Italia
459 MEL (BL) S.p.A. 800,000 12+6 1-Gen-2015 30-Sep-26
=== ============== ================ ============== ============== ===================== ===============
* Normalized annual rent (after step-up)
Step-up detail
=================== ================ ============== ============== ======= ============ ===============
Tenant Year Year Year Year
1 2 3 4
=================== ================ ============== ============== ======= ============ ===============
Fincantieri
S.p.A. 111,250 133,500 149,075 158,455
MTN S.p.A. 240,000 270,000 270,000 300,000
Wambao Italia
Spa 600,000 650,000 700,000 800,000
=================== ================ ============== ============== ======= ============ ===============
It should be noted that in June 2014, a lease agreement was
signed with Ital Trans Spa for a portion of the logistic building
in Bagni di Tivoli (RM) for a total yearly rent of EUR180,000.
However, the tenant breached the contract and never occupied the
property. The Fund was obliged to terminate the signed contract but
Ital Trans did pay a penalty of EUR135,000.
As at 31(st) December 2014, the total annualised passing rent
was approximately EUR18.1m. This compares to a total annualised
passing rent of approximately EUR18.2m as at 30(th) June 2014 and a
total annualised passing rent at 31(st) December 2013 of
approximately EUR17.4m.
In addition to the agreed lease extensions with Telecom Italia,
a binding offer has been received for a new lease worth EUR0.35m on
the TURATE (CO) buildings. This building has remained empty for two
years after it was vacated by the original tenant Prima
Comunicazione due in part to its specific characteristics - it is a
multi-storey high-tech lab. A binding agreement with Matica Tech
Spa (the Italian branch of a German company producing credit cards
and bank accessories) has been signed for 50% of the building, with
the lease contract expected to be signed by September this year;
rental income will begin to flow in from January 2016. Matica also
has a buy option over the portion rented for a total value of EUR7m
- around a 20% premium on its carrying value. In addition, over
Bagni di Tivoli there are negotiations with an important tenant to
lease the residual vacant portion of the building (approx 7,000sqm
on the total 22,000sqm).
In the past months the Fund has accomplished significant
extraordinary maintenance as part of the agreements of certain
lease negotiations with tenants. Currently there are only ordinary
maintenance works on the properties.
With respect to certain unpaid rents, IDeA FIMIT, the SGR has
also been focusing on resolving a number of legacy issues with
certain tenants:
-- At Mel, where ACC Compressors went into insolvency in June
2013 and had not paid its rent for around two years, the situation
is now fully resolved following the sale of the company to the
Chinese Wanbao Group Compressor Company. The bankruptcy procedure
should pay out the majority of the unpaid rent in the next few
months, while a new triple net 12+6 year lease for a total amount
of EUR0.8m was signed in March 2015;
-- At Sesto San Giovanni, litigation continues with the former
tenant for some of the office space of Centro Edilmarelli (for
approximately EUR2.8m), following the termination of the contract
by mutual consent. The tenant group went bust in December 2014 and
the collecting procedure will most likely take longer than
expected;
-- At Turate, where the previous SGR signed a settlement
agreement for EUR2.1m against a total of EUR5m outstanding, the
former Tenant has now paid all the outstanding monies.
All of these activities are combining to improve the profile of
the portfolio. The Board believes that the marketability of
properties where the asset management activities are substantially
complete, has been significantly enhanced.
Bank financing
At the loan covenant testing date of 31(st) December 2014, the
net LTV of the Fund was 59.8%.
The Fund's debt facilities are shown below:
-- Jumbo Loan - EUR182.3m fixed until 31(st) October 2016 at an all in cost of 3.27%
-- EGP Loan - EUR43.7m fixed until 31(st) December 2015 at an all in cost of 3.1%
At 31(st) December 2014 the remaining balances on these
facilities were EUR180m for the Jumbo loan, and EUR36.1m for the
EGP loan, and the latter will be reduced at EUR 32m by 30(th) June
2015
In the last two years, Spazio has repaid a total of EUR14.7m. Of
that sum, the EGP loan has been reduced by EUR11.7m or 26%.
As previously reported, there is a cross collateralisation
provision, and cash sweeps have been put in place to reduce the LTV
ratio across both loans. A formula is in place so that a portion of
property sales proceeds are applied to pay down the loan to which
the property relates, and a portion are applied to pay down the
Portoguaro loan.
Under the current arrangement, the cash trap will remain in
place until the Portoguaro loan has been paid down, and the LTV on
the Jumbo loan is below 55%. At this point, rental income will also
become freely available to the Fund, but until that occurs,
recurring free cash flow from rents will be held in a cash trap
account, available for capex and operating expenditure, but not for
distribution.
Spazio intends to initiate debt renegotiations with the Italian
banks ahead of the expiry of the EGP loan. Italian banking
conditions have improved substantially since 2013 and both Intesa
and Unicredit (the institutions providing the finance) are actively
searching for new real estate opportunities to finance.
As previously communicated, due to the cash sweeps in place,
since October 2013 there has not been any free cash for
distributions from the Fund up to Spazio, without substantial
property sales. Spazio has managed to return EUR3.38 per share to
shareholders to date, or 66% of the bid price.
Corporate Governance Statement
The Company's shares are quoted on the AIM market of the London
Stock Exchange. As an AIM quoted company, the Company is not
required to follow the provisions of the UK Corporate Governance
code. However, the Board is committed to high standards of
corporate governance and a summary of the main elements of
corporate governance are described below:
Board of Directors
The composition of the Board is set out on page 1. The Board
meets regularly and is provided with relevant information on
financial, business and corporate matters prior to meetings.
The following committees deal with specific aspects of the
Company's affairs:
Audit Committee
The Audit Committee is responsible for reviewing the adequacy of
the Company's internal controls, accounting policies and financial
reporting and provides a forum through which the Company's external
auditors report to the Company.
The Audit Committee comprises Martin Adams (Chairman) and Robert
Ware.
Remuneration Committee
The Remuneration Committee is responsible for setting the
remuneration of Directors. The Remuneration Committee comprises
Robert Ware (Chairman) and Martin Adams.
Nomination Committee
The Nomination Committee is responsible for making
recommendations regarding the composition of the Board. The
Nomination Committee comprises Robert Ware (Chairman) and Martin
Adams.
Management and Engagement Committee
The Management and Engagement Committee is responsible for the
supervision of the Investment Manager and its performance under the
Investment Management Agreement. The Management and Engagement
Committee comprises Robert Ware (Chairman) and Martin Adams.
Internal Control
The Directors are responsible for establishing and maintaining
the Company's system of internal control. This system of internal
control is designed to safeguard, as far as is reasonably
practical, the Company's assets and to ensure proper accounting
records are maintained and that financial information produced by
the Company is reliable. There are inherent limitations in any
system of internal control and such a system can provide only
reasonable, but not absolute, assurances against material
misstatement or loss. The Directors, through the Audit Committee,
have reviewed the effectiveness of the Company's system of internal
control.
Report of the Independent Auditors, KPMG Audit LLC,
To the Members of Terra Catalyst Fund
We have audited the accompanying financial statements of Terra
Catalyst Fund for the year ended 31(st) March 2015, which comprise
the Statement of Comprehensive Income, the Statement of Financial
Position, the Statement of Changes in Equity, the Statement of Cash
Flows and related notes. The financial reporting framework that has
been applied in their preparation is applicable law and
International Financial Reporting Standards (IFRSs), as adopted by
the EU.
The report is made solely to the Company's members, as a body.
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 the opinion we have
formed.
Respective responsibilities of Directors and Auditors
As explained more fully in the Statement of Directors'
Responsibilities set out on page 2, the Directors are responsible
for the preparation of financial statements that give a true and
fair view. Our responsibility is to audit, and express an opinion
on, the financial statements in accordance with applicable law and
International Standards on Auditing (UK and Ireland). Those
standards require us to comply with the Auditing Practices Board's
(APB's) Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free from
material misstatement, whether caused by fraud or error. This
includes an assessment of: whether the accounting policies are
appropriate to the Company's circumstances and have been
consistently applied and adequately disclosed; the reasonableness
of significant accounting estimates made by the Directors; and the
overall presentation of the financial statements.
In addition, we read all the financial and non-financial
information in the Directors report to identify material
inconsistencies with the audited financial statements and to
identify any information that is apparently materially incorrect
based on, or materially inconsistent with, the knowledge acquired
by us in the course of performing the audit. If we become aware of
any apparent material misstatements or inconsistencies we consider
the implications for our report.
Opinion on the financial statements
In our opinion the financial statements:
-- give a true and fair view of the state of the Company's
affairs as at 31(st) March 2015 and of its loss for the year then
ended; and
-- have been properly prepared in accordance with IFRSs, as adopted by the EU.
Emphasis of matter - valuation of holding in Spazio investment
NV
In forming our opinion on the financial statements, which is not
modified, we have considered the adequacy of the disclosures made
in notes 2(b) and 6 to the financial statements concerning the
valuation of the holding in Spazio Investment NV ("Spazio") of
GBP27,798,347. This is stated at Directors' valuation, with the
advice of the Investment Manager, in the absence of readily
ascertainable and reliable market values and is based on the net
asset value of Spazio per its latest audited accounts as at 31(st)
December 2014. As further referred to in note 6, Spazio is
dependent on the successful outcome of negotiations to extend or
replace financing facilities. The uncertainty regarding these
negotiations indicates the existence of a material uncertainty
which may cast significant doubt about Spazio's ability to continue
as a going concern. Due to the inherent uncertainty associated with
the determination of the valuation the amount realised on disposal
may differ materially from the amount at which it is stated in the
financial statements. The impact of such uncertainty cannot be
quantified.
KPMG Audit LLC
Chartered Accountants
Heritage Court
41 Athol Street
Douglas
Isle of Man IM99 1HN
Statement of Comprehensive Income - For the year ended 31(st)
March 2015
2015 2014
Notes GBP GBP
Income
Distributions on long equity
securities and investment funds 72,461 265,539
Interest - Cash balances 3,743 10,281
Net realised gains/(losses)
on financial assets and liabilities
at fair value through profit
or loss
- Cash balances (6,858) 10,868
- Equities and Funds 357,313 (4,061,212)
- Forwards - (175,318)
Net unrealised (losses)/gains
on financial assets and liabilities
other than currency forwards
at fair value through profit
or loss
- Cash balances (22,458) (7,319)
- Equities and Funds (4,698,186) 24,344,040
Net unrealised losses on currency
forwards at fair value
through profit or loss - (3,796)
Total net investment (expense)/income (4,293,985) 20,383,083
------------ ------------
Expenses
Investment management fee 4 247,640 313,138
Administration fee 5 45,731 30,460
Audit fees 18,613 25,455
Directors' remuneration 18 100,000 100,000
Other expenses 121,942 267,647
Interest expense - Cash balances 62,951 83,267
Total expenses 596,877 819,967
------------ ------------
(Loss)/profit for the year (4,890,862) 19,563,116
------------ ------------
Total comprehensive (loss)/income
for the year (4,890,862) 19,563,116
============ ============
Gain per ordinary share
Basic and fully diluted 12 (GBP0.30) GBP0.87
------------ ------------
The notes are an integrated part of the financial
statements.
Statement of Financial Position - As at 31(st) March 2015
2015 2014
Notes GBP GBP
Current Assets
Cash at bank and brokers 15 1,732,602 721,781
Equities - long at fair value
through profit or loss 6 27,798,347 32,569,969
Investment funds - long at
fair value through profit or
loss 6 - 3,284,876
Other debtors and accrued income 9 4,686 103,741
Total Assets 29,535,635 36,680,367
============= =============
Equity
Share capital 7 155,048 176,051
Share premium 8 52,935,499 55,214,300
Retained losses 8 (23,719,155) (18,828,293)
------------- -------------
Total Equity 29,371,392 36,562,058
------------- -------------
Liabilities
Other creditors and accrued
expenses 10 164,243 118,309
------------- -------------
Total liabilities 164,243 118,309
Total liabilities and equity 29,535,635 36,680,367
============= =============
Net asset value per ordinary
share 11 1.89 2.08
============= =============
Statement of Changes in Equity - For the year ended 31(st) March
2015
Share Share Retained
Capital Premium (loss)/gain Total
GBP GBP GBP GBP
Balance at 1(st) April
2013 305,227 61,335,332 (38,391,409) 23,249,150
Total comprehensive
income
Profit for the year - - 19,563,116 19,563,116
Transaction with owners
recorded directly
in equity:
Contributions by and
distributions to owners
Repurchase of shares (129,176) (6,121,032) - (6,250,208)
Balance at 31(st) March
2014 176,051 55,214,300 (18,828,293) 36,562,058
========== ============ ============= ============
Share Share Retained
Capital Premium losses Total
GBP GBP GBP GBP
Balance at 1(st) April
2014 176,051 55,214,300 (18,828,293) 36,562,058
Total comprehensive
income
Loss for the year - - (4,890,862) (4,890,862)
Transaction with owners
recorded directly
in equity:
Contributions by and
distributions to owners
Repurchase of shares (21,003) (2,278,801) - (2,299,804)
Balance at 31(st) March
2015 155,048 52,935,499 (23,719,155) 29,371,392
========== ============ ============= ============
Statement of Cash Flows - For the year ended 31(st) March
2015
Note 2015 2014
GBP GBP
Cash flows from operating
activities:
Distribution received 176,147 161,853
Interest received 3,498 10,513
Prepaid expenses (1,954) 1,722
Management fee paid (192,329) (347,163)
Administration fee paid (43,757) (31,078)
Other expenses paid (254,338) (397,218)
Interest paid (62,951) (83,267)
Purchase of investments - (129,849)
Proceeds from sales of
investments 3,686,309 4,770,302
Net cash flow from operating
activities 14 3,310,625 3,955,815
------------ ------------
Cash flows from financing
activities:
Repurchase of shares (2,299,804) (6,250,208)
Net cash flow from financing
activities (2,299,804) (6,250,208)
------------ ------------
Increase/(decrease) in
cash and cash equivalents 1,010,821 (2,294,393)
============ ============
Opening cash and cash equivalents 721,781 3,016,174
Closing cash and cash equivalents 15 1,732,602 721,781
============ ============
The notes below are an integrated part of the financial
statements.
Notes to the Financial Statements - For the year ended 31(st)
March 2015
1. General
The Company was incorporated in the Cayman Islands on 21(st)
December 2007 and its shares were admitted to the AIM market of the
London Stock Exchange plc, on 25(th) February 2008.
2. Accounting policies
(a) Basis of preparation
The financial statements of the Company have been prepared in
accordance with the historical cost convention as modified by the
revaluation of investments. The principal accounting policies which
have been applied are set out below. Such policies are in
accordance with and comply with International Financial Reporting
Standards ("IFRS"), as adopted by the EU.
Changes in accounting policy and disclosures
Amendments to IAS 32, 'Offsetting financial assets and financial
liabilities' is effective for annual periods beginning on or after
1(st) January 2014. These amendments clarify the offsetting
criteria in IAS 32 and address inconsistencies in their
application. This includes clarifying the meaning of 'currently has
a legally enforceable right of set-off' and that some gross
settlement systems may be considered equivalent to net settlement.
The amendments did not have an impact on the Company's financial
position or performance.
The Company has adopted the Pound Sterling (GBP) as its
measurement and reporting currency in which shares are issued.
(b) Financial assets and liabilities
Classification
The Company classifies its investments in equities, investment
funds and related derivatives as financial assets or financial
liabilities at fair value through profit or loss. These financial
assets and financial liabilities are classified as held for trading
or designated by the Board of Directors at fair value through
profit or loss at inception.
Recognition/derecognition
Purchases and sales of investments are accounted for on the date
the securities are purchased or sold. Investments are derecognised
when the rights to receive cash flows from the investments have
expired or the Company has transferred substantially all risks and
rewards of ownership. The computation of the cost of sale of
securities is made on the first in first out basis. Realised and
unrealised gains and losses are recognised in the profit or loss,
and are shown net of all estimated broker charges.
Measurement
Financial assets and financial liabilities at fair value through
profit or loss are initially recognised at fair value. Transaction
costs are expensed in the Statement of Comprehensive Income.
Subsequent to initial recognition, all financial assets and
financial liabilities at fair value through profit or loss are
measured at fair value. Gains and losses arising from changes in
the fair value of the 'financial assets or financial liabilities at
fair value through profit or loss' category are presented in the
Statement of Comprehensive Income in the period in which they
arise.
Valuation of financial instruments
IFRS 13 establishes a hierarchal disclosure framework which
prioritizes and ranks the level of market price observability used
in measuring investments at fair value. Market price observability
is impacted by a number of factors, including the type of
investment and the characteristics specific to the investment.
Investments with readily available active quoted prices or for
which fair value can be measured from actively quoted prices
generally will have a higher degree of market price observability
and a lesser degree of judgment used in measuring fair value.
Investments measured and reported at fair value are classified
and disclosed in one of the following categories:
Level I - Quoted prices are available in active markets for
identical investments as of the reporting date. The type of
investments included in Level I are publicly traded equity
securities and are valued at the closing bid price on a national
securities exchange on the valuation date. Securities sold, not yet
purchased that are listed or dealt on a national securities
exchange are valued at the closing offer price on the valuation
date. As required by IFRS 13, the Company does not adjust the
quoted price for these investments even in situations, if any,
where the Company holds a large position and a sale could
reasonably impact the quoted price.
Level II - Pricing inputs are other than quoted prices in active
markets, which are either directly or indirectly observable as of
the reporting date, are valued at prices for similar assets or
liabilities in markets that are not active, or determined through
the use of models or other valuation methodologies. Investments
which are generally included in this category are publicly traded
equity securities with restrictions and derivative contracts.
Level III - Pricing inputs are unobservable and include
situations where there is little, if any, market activity for the
investment. Fair value of these investments is determined using
valuation methodologies that consider a range of factors, including
but not limited to the price at which the investment was acquired,
independent appraisals of the values of the underlying properties,
the nature of the investment, local market conditions, trading
values on public exchanges for comparable securities, current and
projected operating performance and financing transactions
subsequent to the acquisition of the investment. The inputs into
the determination of fair value require significant management
judgment. Due to the inherent uncertainty of these estimates, these
values may differ materially from the values that would have been
used had a ready market for these investments existed. Investments
that are included in this category generally are privately held
debt and equity securities.
In certain cases, the inputs used to measure fair value may fall
into different levels of the fair value hierarchy. In such cases,
an investment's level within the fair value hierarchy is based on
the lowest level of input that is significant to the fair value
measurement. The assessment of the significance of a particular
input to the fair value measurement in its entirety requires
judgment, and considers factors specific to the investment.
Unrealised gains and losses resulting from recording securities
and derivative financial instruments at fair value are included in
net unrealised appreciation/(depreciation) in the Statement of
Comprehensive Income.
All financial assets and liabilities not stated at fair value in
the financial statements are categorised as Level II in the fair
value hierarchy.
(c) Income
Dividend income is recognised in the Statement of Comprehensive
Income when the relevant investment is first listed ex-dividend and
is shown net of withholding taxes. Other income is recognised on a
receivable basis.
(d) Taxation
Under current laws of the Cayman Islands, there are no income,
estate, transfer, sales or other taxes payable in the Cayman
Islands by the Company.
(e) Fair values
The Company's financial instruments are investments, cash,
accrued income, broker receivables, accrued expenses and broker
payables. The value of these financial instruments in the financial
statements approximates to their fair value.
(f) Cash and cash equivalents
Cash and cash equivalents comprise cash balances held at banks
together with bank overdrafts. The banks overdrafts are repayable
on demand and form an integral part of the Company's cash
management.
(g) Accrued expenses
Accrued expenses are recognised at fair value and subsequently
stated at amortised cost using the effective interest rate
method.
(h) Translation of foreign currencies
Foreign currency transactions during the year are translated
into Pounds Sterling at the rates of exchange ruling at the dates
of the transactions. Assets and liabilities denominated in foreign
currencies are translated into Pounds Sterling at the rates of
exchange ruling at the balance sheet date. Exchange differences are
included in the Statement of Comprehensive Income.
(i) Future changes in accounting policies
A number of new standards, amendments to standards and
interpretations are not yet effective for the year ended 31(st)
March 2015, and have not been applied in preparing these financial
statements. None of these are expected to have a significant effect
on the measurement of the amounts recognized in the Company's
financial statements; however, IFRS 9, Financial Instruments ("IFRS
9") may change the classification of financial assets.
There are no other standards, interpretations or amendments to
existing standards that are not yet effective that would be
expected to have a significant impact on the Company.
3. Critical accounting estimates and assumptions
The preparation of financial statements in conformity with IFRS
as adopted by the EU requires the Directors to make estimates and
assumptions that affect the reported amounts in the financial
statements. The Directors believe that the estimates utilised in
preparing its financial statements are reasonable and prudent,
however, actual results could differ from these estimates. The most
significant estimates and judgements that are required to be made
are in respect of the valuation of investments for which no
reliable market price is available (see Note 6).
4. Investment Management fee
Management fee basis:
- A monthly payment of one twelfth of 0.5% of the NAV, less the
carrying value of the Company's indirect interest in Spazio NV;
- 1.5% of any distributions made to shareholders.
Aggregate management fees charged during the year were GBP50,133
(2014: GBP313,138) of which GBP34,497 (2014: GBP93,753) related to
distribution fees. Fees of GBP893 (2014: GBP1,700) were outstanding
at the year end. The agreement between the Company and the
Investment Manager may be terminated subject to twelve months'
notice by either party.
The Investment Manager receives a fee from Terra European
Investments BV ("TEI"), a group company of Spazio Investment NV
("Spazio"). The Investment Manager receives an annual management
fee of 0.5% based on the latest audited Spazio NAV, payable monthly
in arrears. The fee remunerates the Investment Manager for managing
TEI's holding in Spazio. The carrying value of Spazio is not
included in the calculation of the management fee paid by the
Company to the Investment Manager. To allow TEI to settle this fee
its shareholders, including the Company, make payments to TEI.
Amounts paid to TEI, and expensed by the Company, during the year
were GBP197,507 (2014: NIL). Fees of GBP57,486 (2014: NIL) were
outstanding at the year-end.
5. Administration fee
The Company pays a fee to the Administrator at the rate of 0.16%
per annum of the NAV. The fee is calculated and paid on a monthly
basis.
The agreement between the Company and the Administrator may be
terminated subject to three months' notice by either party.
6. Investments
2015 2014
GBP GBP
Long positions:
Market value 27,798,347 35,854,845
=========== ===========
Cost 15,145,206 18,503,518
=========== ===========
The Company's accounting policy on fair value measurement is
disclosed in note 2.b. All securities are categorised as Level III.
The changes in these investments, classified as Level III, are as
follows:
2015 2014
GBP GBP
Balance at 1(st) April 32,559,900 12,801,395
Purchases - -
Sales - -
Realised (losses)/gains - -
Movement in unrealised (losses)/gains (4,761,553) 19,758,505
Balance at 31(st) March 27,798,347 32,559,900
============ ===========
Cost of investments held
at year end 13,988,345 13,988,345
============ ===========
Investment categorised as Level III comprise Spazio Investment
NV ("Spazio").
As at 31(st) March 2015, the Company had an interest in Spazio
Investment NV ("Spazio NV") of GBP27,798,347 (2014:GBP32,559,900)
or 94.12% (2014: 88.77%) of the Total Assets of the Company. The
Directors, with the advice of the Investment Manager, have resolved
to carry the investment at its most recent audited Net Asset Value,
being EUR6.2695 per share (2014: EUR6.4264 per share).
Spazio owns a portfolio of 170 properties of predominantly
industrial and logistics use, located throughout Italy and with a
total open Market Value as at 31(st) December2014 of EUR357.8m
virtually unchanged from the valuation of EUR359.5m at 31(st)
December 2013.
Spazio intends to renegotiate to extend or replace its current
finance facilities, which have initial maturities between December
2015 and October 2016. At the date of approving these financial
statements there is no certainty regarding the extension or
replacement of the loans and therefore constitutes a material
uncertainty regarding Spazio's ability to continue as a going
concern. If Spazio were unable to continue as a going concern the
realisation proceeds from the sale of its assets could be
materially different from the carrying values. Although an
extension of the financing has not been realized to date, Spazio
expects that an agreement will be reached.
The Company held a 26.7% interest in Spazio as at 31(st) March
2015 (2014: 26.7%)
The aggregate of realised gains/losses and movement in
unrealised gains/losses for the year resulting from Spazio recorded
in the Statement of Comprehensive Income amounted to a loss of
GBP4,761,553 (2014: loss of GBP19,758,505).
7. Share capital
2015 2015 2014 2014
Number GBP Number GBP
Ordinary shares of GBP0.01 each 1,000,000,000 10,000,000 1,000,000,000 10,000,000
10,000,000 10,000,000
=========== ===========
2015 2015 2014 2014
Number GBP Number GBP
Issued share capital
At 1(st) April 17,605,067 176,051 30,522,669 305,227
Issued during year - - - -
Repurchased during year (2,100,280) (21,003) (12,917,602) (129,176)
15,504,787 155,048 17,605,067 176,051
============== =========== ============== ===========
A compulsory redemption of shares was made on 12(th) September
2014 at 109.5 pence per share. The total value of the redemption
was GBP2,299,804
8. Reserves
2015 2014
GBP GBP
Share Premium
At 1(st) April 55,214,300 61,335,332
Relating to repurchase of
shares (2,278,801) (6,121,032)
Relating to distribution -
At 31(st) March 52,935,499 55,214,300
============= =============
Retained losses
At 1(st) April (18,828,293) (38,391,409)
Total comprehensive (loss)/income
for the year (4,890,862) 19,563,116
At 31(st) March (23,719,155) (18,828,293)
============= =============
9. Other debtors and accrued income
2015 2014
GBP GBP
Dividends receivable - 103,686
Prepaid consulting fees 2,950 -
Prepaid listing fees 1,436 -
Interest receivable 300 55
4,686 103,741
====== ========
10. Other creditors and accrued expenses
2015 2014
GBP GBP
Administration fee payable 4,224 2,250
Accounting fees payable 15,461 7,000
Audit fee payable 12,500 12,000
Corporate secretarial fees
payable 2,000 2,000
Directors' fees payable 25,000 25,000
Investment management fee
payable 57,011 1,700
Other payables 48,047 68,359
164,243 118,309
========== ========
11. Net asset value per ordinary share
2015 2015 2014 2014
Total Per Share Total Per Share
GBP GBP GBP GBP
Net asset value 29,371,392 1.89 36,562,058 2.08
=========== ========== =========== ==========
12. Basic and diluted loss per share
The basic and fully diluted loss per share is based on the loss
for the year of GBP4,890,862 (2014: profit of GBP19,563,116) and
the weighted average number of shares in issue during the year of
16,470,491 (2014: 22,544,070).
13. Risk profile
The Company's activities expose it to a variety of financial
risks: market price risk, currency risk, interest rate risk, credit
risk and liquidity risk. The Company's overall risk management
programme focuses on the unpredictability of financial markets and
seeks to minimise potential adverse effects on the Company's
financial performance.
13.1 Market price risk
Market price risk is the risk that the market price of a
financial instrument will fluctuate due to changes in factors
specific to the security or its issuer, factors affecting all
securities traded in the market, foreign exchange rates or market
interest rates.
Following the disposal of most of its securities the Company
primarily now invests in Spazio, which represents 94.25% of total
assets.
The Company is therefore exposed to the performance of Spazio,
which invests in Italian commercial property.
If the fair value of the Company's investment portfolio had
increased/decreased in value by 5% as at 31(st) March 2015 the
effect on net assets would have been an increase/decrease of
GBP1,389,917 (2014: GBP1,792,742).
13.2 Interest rate risk
The majority of the Company's financial assets and liabilities
are non-interest bearing. As a result, the Company is not subject
to the significant amounts of risk due to fluctuation in the
prevailing levels of market interest rates. Any excess cash and
cash equivalents are invested at short-term market interest rates.
Overdrawn balances at brokers are also subject to short-term market
interest rate movements.
Cash balances and overdrawn balances at brokers are due on
demand. A sensitivity analysis regarding interest rate risk has not
been given as the Company is not subject to significant interest
rate risk.
13.3 Credit risk
The Company assumes exposure to credit risk, which is the risk
that a counterparty will be unable to pay amounts in full when due.
The Company is exposed to credit risk in relation to its cash
balances, investments and debtor balances as stated in the
Statement of Financial Position.
The Company mitigates credit risk through using only reputable
banks and brokers. The credit worthiness of the banks and brokers
are monitored by the Investment Manager.
13.4 Liquidity risk
Liquidity risk may arise from the potential inability to sell a
financial instrument without undue delay at a price close to its
market value. The Company's policy in managing liquidity risk is to
have sufficient liquid assets to meet its liabilities as they fall
due, without incurring undue losses.
The table below analyses the Company's financial liabilities
into relevant maturity groupings based on the remaining period at
the end of the financial year to the contractual maturity date. The
amounts in the table are the contractual undiscounted cash
flows.
Less No stated
than
1 month 1-12 maturity Total
months
GBP GBP GBP GBP
-------- -------- ---------- --------
As at 31(st) March
2015
Other creditors and
accrued expenses 164,243 - - 164,243
-------- -------- ---------- --------
Total financial liabilities 164,243 - - 164,243
======== ======== ========== ========
Less No stated
than
1 month 1-12 maturity Total
months
GBP GBP GBP GBP
-------- --------------- --------------- --------
As at 31(st) March
2014
Other creditors and
accrued expenses 118,309 - - 118,309
-------- --------------- --------------- --------
Total financial liabilities 118,309 - - 118,309
======== =============== =============== ========
13.5 Currency risk
The Company holds assets denominated in currencies other than
its functional currency, the Pound Sterling. It is therefore
exposed to currency risk, as the value of the securities
denominated in other currencies will fluctuate due to changes in
exchange rates. The following table summarises the Company's
exposure to foreign currencies as a percentage of net assets.
At 31(st) March 2015 the Company's exposure to foreign currency,
on a look through basis, was as follows:
2015 2014
Weighted Weighted
% %
GBP 4.81% 9.91%
EUR 95.17% 90.09%
USD 0.02% -
100.00% 100.00%
========= =========
At 31(st) March 2015 and 31(st) March 2014 the Company held no
open forward contracts.
14. Reconciliation of (loss)/ gain for the year to net cash inflow from operating activities
2015 2014
GBP GBP
Total comprehensive (loss)/income
for the year (4,890,862) 19,563,116
Net realized (gain)/loss on
financial assets (350,455) 4,225,662
Net unrealised loss/(gain)
on financial assets 4,720,644 (24,332,925)
Decrease/(increase) in revenue
debtors and accrued income 99,055 (99,301)
Increase/(decrease) in revenue
creditors and accrued expenses 45,934 (41,190)
Purchase of investments - (129,849)
Sale of investments 3,686,309 4,770,302
Net cash inflow from operating
activities 3,310,625 3,955,815
============ =============
15. Cash at bank and brokers
2015 2014
GBP GBP
At 1(st) April 721,781 3,016,174
Increase/(decrease) in cash
and cash equivalents 1,010,821 (2,294,393)
At 31(st) March 1,732,602 721,781
========== ============
Cash at bank 1,732,602 721,781
1,732,602 721,781
========== ============
16. Prime brokerage agreements
Under the terms of the Company's prime brokerage agreement, the
prime broker holds a first fixed charge over the Company's assets
and cash held with the prime broker as security for the payment and
performance by the Company of its obligations to the prime
broker.
17. Related parties
The Company and the Investment Manager are related by virtue of
the existence of a material contract as referred to in Note 4. As
at 31(st) March 2015, the Investment Manager owned 1,303,467 shares
(2014: 1,480,035 shares) in the Company. Fees charged to the
Investment Manager in respect of the year were GBP50,133 (2014:
GBP313,138) of which GBP893 (2014: GBP1,700) was outstanding at the
year end.
Michael Haxby, a Director of the Company, is also a Director of
the Investment Manager and of member companies of the Spazio group.
Mr Haxby receives a fee from Terra European Investments BV ("TEI"),
a Spazio group company, of EUR12,000 per year.
The Investment Manager has entered into an agreement with TEI
which will pay the Investment Manager an annual management fee of
0.5% based on the latest audited Spazio NAV, payable monthly in
arrears. The fee will remunerate the Investment Manager for
managing TEI's holding in Spazio. The carrying value of Spazio is
not included in the calculation of the management fee paid by the
Company to the Investment Manager. To allow TEI to settle this fee
its shareholders, including the Company, make payments to TEI.
Amounts paid to TEI, and expensed by the Company, during the year
were GBP197,507 (2014: NIL). Fees of GBP57,486 (2014: NIL) were
outstanding at the year-end.
Colin Kingsnorth, a Director and an ultimate beneficial owner of
the Investment Manager is also a director of Spazio.
The Company held a 26.7% interest in Spazio as at 31(st) March
2015 (2014: 26.7%). The Investment Manager controls 72.4% of Spazio
(2014: 72.4%).
18. Directors' Remuneration
Details of Directors remuneration earned in respect of the
financial year by each Director of the Company acting in such
capacity during the financial year are as follows:
2015 2014
GBP GBP
Robert Thomas Ware 65,000 65,000
Martin Michael Adams 35,000 35,000
Michael Andrew Haxby* - -
100,000 100,000
-------- --------
*Michael Haxby has waived the right to receive a Director's fee
from the Company while he is a director of the Investment
Manager.
The fees detailed above are the only remuneration paid to the
Directors.
19. Subsequent Events
In preparing these financial statements, the Company has
evaluated events that have occurred from 1(st) April 2015 through
30(th) July 2015 (the date that the annual statements were
issued/available to be issued) and except as already included in
the notes to financial statements, it has determined that no events
have occurred that would require recognition or additional
disclosures in these financial statements.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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