TIDMTCF
RNS Number : 8825R
Terra Catalyst Fund
27 September 2017
27 September 2017
TERRA CATALYST FUND
(the "Company")
AUDITED FINANCIAL STATEMENTS AND PROPOSED DELISTING FROM AIM AND
TISE
Terra Catalyst Fund (the "Company" or "TCF") (AIM: TCF) today
announces the release of its Audited Financial Statements for the
year ended 31 March 2017 ("the Financial Statements").
As detailed below, the Directors are seeking shareholder
approval at the Annual General Meeting to cancel the listing of TCF
on the AIM market of the London Stock Exchange ("AIM") and The
International Stock Exchange ("TISE").
An electronic copy of the Financial Statements is available on
the Company's website at www.terracatalystfund.com*. Printed copies
of the Financial Statements including the Notice of Annual General
Meeting 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.
The Annual General Meeting will be held at the offices of Laxey
Partners Ltd, 4th Floor, Derby House, 64 Athol Street, Douglas,
Isle of Man IM1 1JD on Tuesday 31 October 2017 at 12 noon.
*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.
This announcement is inside information for the purposes of
Article 7 of Regulation 596/2014.
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 2017
The Directors have pleasure in presenting their report and the
audited financial statements of the Company for the year ended
31(st) March 2017.
The Company
Terra Catalyst Fund (the "Company" or "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. The Company was also listed on The International Stock
Exchange on 19(th) December 2011. The Company's website is
http://www.terracatalystfund.com/.
The Directors are seeking shareholder approval at the next
Annual General Meeting to cancel the listing of TCF on the AIM
market of the London Stock Exchange and The International Stock
Exchange, as detailed below.
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
2017 was GBP0.58 (31(st) March 2016: GBP2.26).
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, as adopted by the EU;
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. 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 2017 the interests of the Directors in the
issued share capital of the Company were as follows:
2017 2016
Number Number
of of
Director Shares Shares
Martin Michael Adams 6,637 6,637
Michael Andrew Haxby 12,191 12,191
Robert Thomas Ware 33,729* 33,729*
*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.
Auditor
Our Auditor, KPMG Audit LLC, being eligible, have expressed
their willingness to continue in office.
For and on behalf of the Board of Directors
Michael Andrew Haxby Martin Michael Adams
Director Director
Proposed Cancellation from listing on AIM and TISE
The Directors have recently undertaken a review of the benefit
of the Company's ordinary shares ("Ordinary Shares") continuing to
be listed on the AIM market of the London Stock Exchange ("AIM")
and The International Stock Exchange ("TISE").
Having completed this review, which included consultation with
the Company's major Shareholders, your Directors have concluded
that it is in the best interests of the Company and its
Shareholders as a whole if admission of the Ordinary Shares to
trading on both AIM and TISE is cancelled (the "Delisting").
Rationale for the Delisting
In 2012, Shareholders approved the Company's adoption of a
realisation investment policy, with capital being returned to
Shareholders subject to retaining sufficient resources to meet
operating costs and liabilities. Since the realisation strategy was
adopted, all portfolio investments, with the exception of the
indirect holding in Spazio Investments NV ("Spazio"), have been
sold and no new investments have been made. At each of the
Company's Board meetings in recent years, the Directors have
considered and implemented a variety of cost reduction measures.
The recent review undertaken by the Directors considered the most
effective ways to further reduce the projected level of operating
costs during the period of realisation of the property investments
held by Spazio in Italy and the eventual distribution of its
residual equity capital to the Company and its Shareholders.
Realisation of the property investments held by Spazio through
its Italian fund, and therefore the distribution of residual
capital to Spazio, is expected to take time:
-- the Italian economy and the investment environment in Italy
for selling industrial properties, such as those held in the
Italian fund's portfolio, remain challenging and market prices have
not yet recovered from the levels prevailing prior to the 2008
global financial crisis;
-- proceeds from the sale of properties by the Italian fund will
first be used to meet operating costs and liabilities in Italy, in
particular the servicing and repayment of secured bank borrowings,
before material distributions can be made to Spazio; and
-- the Italian property investment manager, IDeA FIMIT, is not
currently incentivised to realise the property investment
portfolio. The board of Spazio intends to review with IDeA FIMIT
the operating structure and continuing management arrangements in
Italy with a view to aligning interests with both the secured
lenders and Spazio. Given the legal and regulatory complexities in
Italy, this process will take time to agree and implement.
In view of the factors outlined above, the Directors have
concluded that the direct and indirect costs to the Company
associated with maintaining the Company's AIM and TISE quotations,
outweigh the benefits.
In reaching this conclusion, the Board has focused on the
following key factors:
-- the management time and the legal and regulatory burden
associated with maintaining the Company's listing on AIM and TISE,
and complying with the AIM Rules, the TISE Rules and related
regulatory requirements (including reporting, disclosure and
corporate governance requirements) is disproportionate to the
benefits to the Company;
-- like other small quoted companies the Company suffers from a
very low level of liquidity in terms of trading in its Ordinary
Shares which can cause volatility in the share price. In the twelve
months to 31(st) August 2017 there were 183 trading days when no
Ordinary Shares were traded on AIM (72 per cent. of trading days)
and in that time period only approximately 1,859,000 Ordinary
Shares were traded, representing approximately 12 per cent. of the
Ordinary Shares in issue;
-- in light of the limited trading in the Ordinary Shares, the
tangible costs associated with maintaining the AIM and TISE
quotations (such as legal, accounting, broking, London Stock
Exchange, TISE and nominated adviser costs) are disproportionately
high when compared to the benefits, and the Directors consider that
reducing operating costs further following Delisting will maximise
the net realisation proceeds from Spazio, which will eventually be
distributed to Shareholders; and
-- the Delisting will provide the Company with greater
flexibility in terms of making capital returns to Shareholders.
Effects of the Delisting
The principal effects that the Delisting would have on a
Shareholder are as follows:
-- it will significantly reduce the liquidity and marketability
of the Ordinary Shares. Following the Delisting, although the
Ordinary Shares will remain transferable, they will no longer be
traded on AIM or TISE;
-- Shareholders will hold their Ordinary Shares in an unquoted
entity and therefore there will no longer be a public market for
such Ordinary Shares. Accordingly, it may be difficult to sell
Ordinary Shares following the Delisting;
-- at present, the Board has no definitive plans to put in place
a matched bargain settlement facility. Any Shareholders wishing to
sell their Ordinary Shares following the Delisting are advised to
contact the Board for assistance in identifying any potential
buyers;
-- the Company would no longer be required to comply with many
of the corporate governance requirements applicable to companies
admitted to trading on AIM and TISE;
-- the Company would no longer be subject to, and Shareholders
would no longer be afforded the protections given by, the AIM Rules
and the Market Abuse Regulation. Consequently, the Company would no
longer be required to announce material events, substantial
transactions, related party transactions, interim or final results
or disclose major shareholdings in the Company;
-- the Company would remain subject to its current articles of
association and company law in the Cayman Islands, which mandate
Shareholder approval for certain limited matters; and
-- following Delisting, the Board will make annual financial
statements available to all Shareholders, and intends to maintain
the Company's website at www.terracatalystfund.com to provide
information on significant events and developments in respect of
the Company. The Board intends that following Delisting, access to
the Company's website will be password protected. Information
regarding the activities of Spazio will continue to be available
for the foreseeable future from its website
http://www.spazioinvestment.com.
Shareholders should be aware that, if and when the Delisting
takes effect, they will, at that time, cease to hold Ordinary
Shares in a Company whose shares are admitted to trading on AIM and
TISE and the matters set out above will automatically apply to the
Company from the date of Delisting.
Process for Delisting
In accordance with Rule 41 of the AIM Rules, the Company has
notified the London Stock Exchange of the Delisting subject to
Shareholder approval. Under the AIM Rules, it is a requirement that
the Delisting is approved by the requisite majority of Shareholders
voting at a General Meeting (being not less than 75 per cent of the
votes cast). Under the Articles, the quorum for a General Meeting
is attendance by two Shareholders of the Company's Ordinary
Shares.
It is expected that these audited financial statements for the
year ended 31(st) March 2017, including the Notice of the Annual
General Meeting ("AGM"), will be available from the Company's
website and posted to Shareholders on or about 29(th) September
2017. Accordingly, the Resolution numbered 6 (the "Resolution") set
out in the Notice of the AGM will seek, inter alia, Shareholders'
approval of the Delisting.
Subject to the Resolution being passed at the AGM, it is
expected that trading in the Ordinary Shares on AIM and the TISE
will cease at the close of business on 7(th) November 2017 with
Delisting taking effect when a dealing notice is issued at 7.00am
on 8(th) November 2017.
Recommendation
The Board unanimously recommends, and the investment manager,
Laxey Partners Ltd supports, the Delisting. The Directors, together
with the investment manager, who together hold 1,356,024 Ordinary
Shares representing 8.75% of the Company's issued share capital,
intend to vote for the Resolution at the AGM.
Investment Manager's Report
For the year ended 31(st) March 2017
Portfolio Review
The remaining asset in Terra Catalyst Fund ("TCF") is Spazio
Investments NV ("Spazio"). More information on Spazio can be found
at http://www.spazioinvestment.com/. This externally managed,
previously AIM listed property fund, specialises in investment in
Italian industrial real estate. Through a wholly-owned Italian
regulated property fund, Spazio Industriale (the "Fund"), Spazio
owns interests in a portfolio of Italian industrial properties. TCF
indirectly held a 26.7% interest in Spazio as at 31(st) March 2017.
Laxey Partners Ltd (the "Investment Manager"), TCF and other funds
under the management of the Investment Manager together control
72.4% of Spazio.
Spazio
Strategy and Market Update
The Fund invests in Italian property and continues to
concentrate on its strategic plan to improve the marketability of
the portfolio through asset refurbishment and re-leasing, with a
focus on (i) increasing rental income and extending lease duration
and (ii) selling vacant properties at the highest possible value in
order to release cash and improve the Fund's cash flow.
The Fund's property agent, Celtic Italy S.r.l., together with
certain other brokers (Gabetti Property Solutions S.p.A. for the
vacant/trading properties, GVA Redilco S.r.l. and Cushman &
Wakefield LLP for certain leased assets), are currently actively
marketing certain properties.
The Italian real-estate market
Published data shows that in Q3 2016 the Italian real estate
market recorded 265,323 'normal' transactions, further cementing
the growing trend recorded in the two previous quarters, and up by
17.8% against the same period in 2015. The factors that contributed
to this bullish trend include the persistent extremely low loan
interest rates and the economy in general. These factors continue
to increase the relative attractiveness of the real estate
investment.
Portfolio
As at 31(st) December 2016, the Fund owned a portfolio of 168
properties with predominantly industrial and logistics use, located
throughout Italy and with an audited total open market value (OMV)
at 31(st) December 2016 of EUR351.9m, compared with EUR375.2m at
31(st) December 2015.
On 4(th) February 2014, the Fund signed a conditional
preliminary contract of sale with Eurospin Tirrenica S.p.A. for a
property in Portoferraio (LI), Corso Italia, for EUR2.65m. Although
the required decontamination certificate was obtained later than
expected due to various authority delays, the sale was completed on
26(th) June 2017 for EUR2.54m.
Bank financing
The Fund has a single bank loan with a face value of EUR213.9m
from three institutions: Banca IMI S.p.A (agent and lender bank),
Natixis S.A. (lender bank) and UniCredit S.p.A (lender bank). This
debt arrangement was signed on 30(th) December 2015 and will
finally mature on 31(st) December 2022.
The residual Fund debt outstanding at 31(st) December 2016,
following the repayment of EUR5.0m (partially through sales and
partially through cashflow) was EUR208.9m.
As of 30(th) June 2017, due to difficulties in selling real
estate assets in the portfolio at valuations determined in
conjunction with the lending banks, the Fund has not repaid the
amortization instalment envisaged in the loan agreement of EUR5.0m.
This amounts to a default.
In anticipation of this potential default event, during the
first half of 2017, the Fund commenced negotiations with the
lending banks aimed at reassessing the terms and conditions of the
loan agreement with the aim of agreeing to a new disinvestment plan
at sales prices significantly lower than those envisaged in the
current business plan, in order to allow an acceleration in the
repayment of debt. In line with the need to define the
disinvestment plan, the Fund requested an independent expert, Eagle
& Wise Service S.p.A., to estimate a "quick asset" value of the
properties in the portfolio. Eagle & Wise Service S.p.A
reported a "quick asset value" of approximately EUR276m as at
30(th) June 2017. Discussions with the lending banks are
ongoing.
Future Prospects for TCF
Due to the inherent uncertainty associated with the
determination of the value of the investment in Spazio, the
Directors of TCF, with the advice of the Investment Manager, have
effectively written down the value of the underlying investment
portfolio held by the Fund by another EUR25.5m to form the basis of
the Directors valuation of Spazio disclosed in note 6 to the
financial statements.
As previously announced, due to the cash sweeps in place, since
October 2013 there has not been any free cash for distributions
from the Fund back to Spazio. Spazio has returned EUR3.38 per share
to TCF shareholders to date, equivalent to 66% of the average
weighted acquisition price. However, TCF does not expect further
substantial returns in the short to medium term until substantial
progress has been made in repaying the bank loan.
The focus for Spazio has been to reduce costs where possible and
the board of Spazio believes that there is substantial scope for
additional cost reduction on management fees, consultancy work and
property administration and increasing the rent roll through asset
management and reducing vacancies.
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 Company intends to comply with the corporate
governance regime for listed investment companies in the UK,
currently the AIC Code of corporate governance, to the extent
appropriate for a Cayman Islands incorporated investment company
quoted on AIM and the Board is committed to high standards of
corporate governance. A summary of the main elements of corporate
governance are described below:
Board of Directors
The composition of the Board is set out in the paragraph headed
'Directors' above. 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 2017, which comprise
the Statement of Financial Position, the Statement of Comprehensive
Income, 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 above, 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 2017 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), 3 and 6 to the financial statements concerning the
valuation of the holding in Spazio Investment NV ("Spazio") of
GBP8,263,484. This is stated at a Directors' valuation based on the
adjusted net asset value. 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 Financial Position
As at 31(st) March 2017
2017 2016
Notes GBP GBP
Current assets
Cash at bank 15 1,101,758 1,405,947
Equities - long at fair value through
profit or loss 6 8,263,484 34,053,412
Other debtors and accrued income 9 4,385 3,837
-------------- -------------
Total assets 9,369,627 35,463,196
-------------- -------------
Equity
Share capital 7 155,048 155,048
Share premium 8 52,935,499 52,935,499
Retained losses 8 (44,107,630) (17,975,015)
-------------- -------------
Total equity 8,982,917 35,115,532
-------------- -------------
Liabilities
Other creditors and accrued expenses 10 386,710 347,664
-------------- -------------
Total liabilities 386,710 347,664
-------------- -------------
Total liabilities and equity 9,369,627 35,463,196
============== =============
Net asset value per ordinary share 11 0.58 2.26
============== =============
These accounts were approved and authorised by the Board of
Directors on 26(th) September 2017 and are signed on their behalf
by:
Michael Andrew Haxby Martin Michael Adams
Director Director
The notes are an integral part of the financial statements.
Statement of Comprehensive Income
For the year ended 31(st) March 2017
2017 2016
Notes GBP GBP
Income
Distribution income 36,566 -
Interest - Cash balances 909 2,796
Net realised gains/(losses) on
financial assets and liabilities
at fair value through profit or
loss
- Cash balances 628 (3,077)
Net unrealised (losses)/gains
on financial assets and liabilities
at fair value through profit or
loss
- Cash balances (10,021) (180)
- Equities (25,789,928) 6,255,065
------------- ----------
Total net investment (loss)/income (25,761,846) 6,254,604
------------- ----------
Expenses
Investment management fee 4 36,321 174,169
Administration fee 5 57,720 47,747
Audit fees 14,307 16,042
Directors' remuneration 18 100,000 100,000
Other expenses 162,185 172,442
Interest expense - Cash balances 236 64
------------- ----------
Total expenses 370,769 510,464
------------- ----------
(Loss)/profit for the year (26,132,615) 5,744,140
------------- ----------
Total comprehensive (loss)/income
for the year (26,132,615) 5,744,140
============= ==========
(Loss)/earnings per share
Basic and fully diluted 12 (GBP1.69) GBP0.37
------------- ----------
The Directors consider that all results derive from continuing
activities.
The notes are an integral part of the financial statements.
Statement of Changes in Equity
For the year ended 31(st) March 2017
Share Share Retained
capital premium (losses)/gains Total
GBP GBP GBP GBP
Balance at 1(st) April
2015 155,048 52,935,499 (23,719,155) 29,371,392
Total comprehensive
income
Profit for the year - - 5,744,140 5,744,140
Balance at 31(st)
March 2016 155,048 52,935,499 (17,975,015) 35,115,532
======== =========== =============== ===========
Share Share Retained
capital premium (losses)/gains Total
GBP GBP GBP GBP
Balance at 1(st) April
2016 155,048 52,935,499 (17,975,015) 35,115,532
Total comprehensive
loss
Loss for the year - - (26,132,615) (26,132,615)
Balance at 31(st)
March 2017 155,048 52,935,499 (44,107,630) 8,982,917
======== =========== =============== =============
The notes are an integral part of the financial statements.
Statement of Cash Flows
For the year ended 31(st) March 2017
Note 2017 2016
GBP GBP
Cash flows from operating activities:
Distribution received 36,566 -
Interest received 1,145 2,860
Prepaid expenses (44,613) 784
Management fee paid 4 14,961 9,462
Administration fee paid 5 (57,034) (47,681)
Other expenses paid (245,585) (288,759)
Interest paid (236) (64)
Net realized and unrealized losses
on foreign currency (9,393) (3,257)
---------- ----------
Net cash outflow from operating
activities 14 (304,189) (326,655)
---------- ----------
Decrease in cash and cash equivalents (304,189) (326,655)
Opening cash and cash equivalents 1,405,947 1,732,602
---------- ----------
Closing cash and cash equivalents 15 1,101,758 1,405,947
========== ==========
The notes are an integral part of the financial statements.
Notes to the financial statements
For the year ended 31(st) March 2017
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. The Company was
also listed on The International Stock Exchange on 19(th) December
2011.
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 ("IFRSs"), as adopted by the EU.
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 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 gains and losses 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 incomes,
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 statement of financial position 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 2017, 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 recognised in the Company's
financial statements.
IFRS 9 Financial Instruments (effective from 1 January 2018)
IFRS 9 specifies how an entity should classify and measure
financial assets and liabilities, including some hybrid contracts.
The standard improves and simplifies the approach for
classification and measurement of financial assets compared with
the requirements of IAS 39 Financial Instruments: Recognition and
Measurement ("IAS 39"). Most of the requirements in IAS 39 for
classification and measurement of financial liabilities were
carried forward unchanged. The standard applies a consistent
approach to classifying financial assets and replaces the numerous
categories of financial assets in IAS 39, each of which had its own
classification criteria. The standard is not expected to have a
significant impact on the Company's financial position or
performance, as it is expected that the Company will continue to
classify its financial assets as being at fair value through profit
or loss.
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 IFRSs
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 GBP6,733
(2016: GBP8,789) of which GBP0 (2016: GBP0) related to distribution
fees. Fees of GBP476 (2016: GBP655) 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 NAV of Spazio, 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. Aggregate management fees
charged during the year in relation to TEI were GBP29,588 (2016:
GBP165,380). Fees of GBP291,447 (2016: GBP239,986) 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
2017 2016
GBP GBP
Long positions:
Market value 8,263,484 34,053,412
=========== ===========
Cost 13,988,345 13,988,345
=========== ===========
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 the investments classified as Level III are as
follows:
2017 2016
GBP GBP
Balance at 1(st) April 34,053,412 27,798,347
Movement in unrealised (losses)/gains (25,789,928) 6,255,065
Balance at 31(st) March 8,263,484 34,053,412
============= ===========
Cost of investments held at year
end 13,988,345 13,988,345
============= ===========
Investment categorised as Level III comprise of Spazio
Investment NV ("Spazio").
As at 31st March 2017, the Company had an interest in Spazio of
GBP8,263,484 (2016: GBP 34,053,412) or 88.19% (2016: 96.02%) of the
Total Assets of the Company. The Directors, with the advice of the
Investment Manager, have resolved to carry the investment at
EUR1.5764 per share (2016: EUR7.0083 per share). This is based on
the adjusted net asset value of Spazio as at 31 December 2016.
Audited financial statements for Spazio as at 31 December 2016 are
not available. However, audited financial statements are available
for Spazio Industriale (the "Fund"), all of whose units are owned
by Spazio, which owns the underlying property portfolio and has a
bank loan. The adjusted net asset value is based on the audited
financial statements for the Fund as at 31 December 2016 as amended
for the revised valuation of the property portfolio based on the
accelerated property disposal programme agreed with the bank post
year-end, as detailed below.
The Fund owns a portfolio of 168 properties with predominantly
industrial and logistics use, located throughout Italy and with an
audited total open market value at 31st December 2016 of EUR351.9m,
compared with EUR375.2m at 31st December 2015. The Fund has a bank
loan with a face value of EUR213.9m. Interest on the debt is
payable 6 monthly. Principal must be repaid according to an agreed
amortisation schedule. The residual debt as at 31st December 2016
was EUR208.9m.
As of 30(th) June 2017, due to difficulties in selling real
estate assets in the portfolio at valuations determined in
conjunction with the lending banks, the Fund has not repaid the
amortization instalment envisaged in the loan agreement of EUR5.0m.
This amounts to a default.
In anticipation of this potential default event, during the
first half of 2017, the Fund commenced negotiations with the
lending banks aimed at reassessing the terms and conditions of the
loan agreement with the aim of agreeing to a new disinvestment plan
at sales prices significantly lower than those envisaged in the
current business plan, in order to allow an acceleration in the
repayment of debt. In line with the need to define the
disinvestment plan, the Fund requested an independent expert to
estimate a "quick asset" value of the properties in the portfolio.
The independent expert reported a "quick asset" value of
approximately EUR276m as at 30(th) June 2017. Discussions with the
lending banks are ongoing.
Due to the inherent uncertainty associated with the
determination of the valuation, the Directors, with the advice of
the Investment Manager, have written down the portfolio by another
EUR25.5m to EUR250.5m to form the basis of the Directors' valuation
of EUR1.5764 per share.
The Company held a 26.7% interest in Spazio as at 31(st) March
2017 (2016: 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
GBP25,789,928 (2016: gain of GBP6,255,065).
7. Share capital
2017 2017 2016 2016
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
=========== ===========
2017 2017 2016 2016
Number GBP Number GBP
Issued share capital
At 1(st) April 15,504,787 155,048 15,504,787 155,048
15,504,787 155,048 15,504,787 155,048
=========== ======== =========== ========
8. Reserves
2017 2016
GBP GBP
Share premium
At 1(st) April 52,935,499 52,935,499
At 31(st) March 52,935,499 52,935,499
============= =============
Retained losses
At 1(st) April (17,975,015) (23,719,155)
Total comprehensive (loss)/income
for the year (26,132,615) 5,744,140
------------- -------------
At 31(st) March (44,107,630) (17,975,015)
============= =============
9. Other debtors and accrued income
2017 2016
GBP GBP
Prepaid consulting fees 2,949 2,169
Prepaid listing fees 1,436 1,432
Interest receivable - 236
4,385 3,837
====== ======
10. Other creditors and accrued expenses
2017 2016
GBP GBP
Administration fee payable 4,976 4,290
Accounting fees payable 9,000 9,239
Audit fee payable 10,557 12,500
Corporate secretarial fees payable 2,000 2,000
Directors' fees payable 25,000 25,000
Investment management fee payable 291,923 240,641
Accrued liquidation fee 35,000 35,000
Other payables 8,254 18,994
386,710 347,664
======== ========
11. Net asset value per ordinary share
2017 2017 2016 2016
Total Per Share Total Per Share
GBP GBP GBP GBP
Net asset value 8,982,917 0.58 35,115,532 2.26
========== ========== =========== ==========
12. Earnings per share
The basic and fully diluted earnings per share is based on the
loss for the year of GBP26,132,615 (2016: gain of GBP5,744,140) and
the weighted average number of shares outstanding at the year of
15,504,787 (2016: 15,504,787).
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 now
holds only the investment in Spazio, which represents 88.19%
(2016:96.02%) of total assets. The Company is therefore exposed to
the performance of Spazio, which invests in Italian commercial
property through the Fund.
The Fund has a significant level of gearing, with a bank loan as
at 31(st) December 2016 of EUR208.9m compared to the valuation of
the property portfolio (as estimated by the Directors for the
adjusted net asset value included in these financial statements) of
EUR250.5m. This is equivalent to a loan-to-value ratio of 83%.
Therefore, any movement in the valuation of the underlying property
portfolio has a significant effect on the net asset value of
Spazio. For indicative purposes, a 5% reduction in the value of the
property portfolio would reduce the value of TCF's investment in
Spazio by 30% (assuming no other assets or liabilities).
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 provides a breakdown of 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 than No stated
1 month 1-12 months maturity Total
GBP GBP GBP GBP
As at 31(st) March
2017
Other creditors and
accrued expenses 386,710 - - 386,710
---------- ------------ ---------- --------
Total financial liabilities 386,710 - - 386,710
========== ============ ========== ========
Less than No stated
1 month 1-12 months maturity Total
GBP GBP GBP GBP
As at 31(st) March
2016
Other creditors and
accrued expenses 347,664 - - 347,664
---------- ------------ ---------- --------
Total financial liabilities 347,664 - - 347,664
========== ============ ========== ========
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 2017 the Company's exposure to foreign currency,
on a look through basis, was as follows:
2017 2016
Weighted % Weighted %
EUR 90.26% 96.76%
GBP 9.72% 3.24%
$ 0.02% -
----------- -----------
100.00% 100.00%
=========== ===========
At 31(st) March 2017 and 31(st) March 2016 the Company held no
open forward contracts.
14. Reconciliation of gain/(loss) for the year to net cash inflow from operating activities
2017 2016
GBP GBP
Total comprehensive (loss)/income for
the year (26,132,615) 5,744,140
Net realised loss on financial assets (628) 3,077
Net unrealised loss/(gain) on financial
assets 25,799,949 (6,254,885)
(Increase)/decrease other debtors and
accrued income (548) 849
Increase in other creditors and accrued
expenses 39,046 183,421
Net realized and unrealized losses
on foreign currency (9,393) (3,257)
Net cash outflow from operating activities (304,189) (326,655)
============= ============
15. Cash at bank and brokers
2017 2016
GBP GBP
At 1(st) April 1,405,947 1,732,602
Decrease in cash and cash equivalents (304,189) (326,655)
At 31(st) March 1,101,758 1,405,947
========== ==========
Cash at bank 1,101,758 1,405,947
1,101,758 1,405,947
========== ==========
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 2017, the Investment Manager owned 1,303,467 shares
(2016: 1,303,467 shares) in the Company. Fees charged to the
Investment Manager in respect of the year were GBP6,733 (2016:
GBP8,789) of which GBP476 (2016: GBP655) 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 receives a fee from Terra European
Investments BV ("TEI"), a Spazio group company. The Investment
Manager receives an annual management fee of 0.5% based on the
latest audited NAV of Spazio, 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. Aggregate management fees charged during the
year in relation to TEI were GBP29,588 (2016: GBP165,380). Fee of
GBP291,447 (2016: GBP239,986) was outstanding at the year end.
Colin Kingsnorth, a director and an ultimate beneficial owner of
the Investment Manager is also a director of Spazio.
Ian Melvin, a director of the Investment Manager is also a
director of Spazio.
The Company held a 26.7% interest in Spazio as at 31(st) March
2017 (2016: 26.7%). The Investment Manager controls 72.4% of Spazio
(2016: 72.4%).
18. Directors' remuneration
Details of the 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:
2017 2016
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 Directors 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 2017 through
to 26(th) September 2017, being the date that the annual statements
were issued/available to be issued. Except as already included in
the notes to financial statements, the Company has determined that
no events have occurred that would require recognition or
additional disclosures in these financial statements.
Supplementary information (unaudited)
Reconciliation of Net Asset Value to Total Equity per Statement
of Financial Position as at 31(st) March 2017
2017 2016
GBP GBP
Net Assets as at 31(st) March 37,278,127 31,525,694
Revaluation of Spazio from EUR7.0083
per share
to EUR1.5764 per share as at 31(st)
March 2017 (2016: EUR6.2695 to EUR7.0083) (28,474,002) 3,589,838
TEI management fee adjustment 178,792 -
Shareholder's Funds per Statement
of Financial Position 8,982,917 35,115,532
============= ===========
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR PGUPUBUPMGQQ
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September 27, 2017 02:00 ET (06:00 GMT)
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