TIDMCBA
RNS Number : 3565A
Ceiba Investments Limited
29 September 2020
29 September 2020
CEIBA INVESTMENTS LIMITED
(the "Company")
(TICKER CBA, ISIN: GG00BFMDJH11)
Legal Entity Identifier : 213800XGY151JV5B1E88
HALF-YEARLY FINANCIAL REPORT
COMPANY OVERVIEW
GENERAL
CEIBA Investments Limited ("CEIBA" or the "Company") is a
Guernsey-incorporated, closed-ended investment company, with
registered number 30083. Its shares were listed (the "Listing") on
the Specialist Fund Segment ("SFS") of the London Stock Exchange's
Main Market on 22 October 2018, where it currently trades under the
symbol CBA. The Company is governed by a Board of Directors, the
majority of whom are independent. Like many other investment
companies, it outsources its investment management, administration
and other services to third party providers. The Company does not
have a fixed life. Through its consolidated subsidiaries (together
with the Company, the "Group"), the Company invests in Cuban real
estate and other assets by acquiring shares in Cuban joint venture
companies that own the underlying properties. The Company also
arranges and invests in financial instruments granted in favour of
Cuban borrowers.
FINANCIAL HIGHLIGHTS AS AT 30 JUNE 2020 IN GBP AND US$ (FOREX:
GBP/US$ = 1.2359)
Given the fact that the Net Asset Value ("NAV") and share price
of the Company are quoted in Sterling (GBP) and that the functional
currency of the Company is the US Dollar (US$), the financial
highlights of the Company set out below are provided in both
currencies, applying the applicable exchange rate as at 30 June
2020.
In GBP
Total Net Assets NAV per share (1) Number of shares in
issue
GBP143.6m (31 December 104.3p (31 December
2019: GBP157.7m) 2019: 114.5p) 137,671,576 Ordinary
GBP146.3m (2) (31 106.3p (2) (31 December Shares
December 2019: GBP160.6m) 2019: 116.6p) (2) (31 December 2019:
(2) 137,671,576 Ordinary
Shares)
Market Capitalisation Share price Net Loss to shareholders
GBP88.8m (31 December 64.5p (31 December GBP (23.8m) (3 0 June
2019: GBP97.7m) 2019: 71.0p) 2019: GBP(4.1m))
GBP (24.2m) (2) (30
June 2019: GBP(4.4m)
(2) )
------------------------- --------------------------
Loss per share NAV Total Return(1) Discount to NAV
(17.3)p (30 June 2019: (8.9%) (3 0 June 2019: (38.2%) (31 December
(2.9p)) (2.5%)) 2019: (38.0%))
(17.6)p (2) (30 June (8.9%) (2) (3 0 June (40.0%) (2) (31 December
2019: (3.2p) (2) ) 2019: (2.7%) (2,3) 2019: (39.1%) (2) )
)
------------------------- --------------------------
In US$
Total Net Assets NAV per share(1) Number of shares in
issue
US$177.5m (31 December US$1.29 (31 December
2019: US$206.7m) 2019: US$1.50) 137,671,576 Ordinary
US$180.8m (2) (31 US$1.31 (2) (31 December Shares
December 2019: US$210.6m) 2019: US$1.53) (2) (31 December 2019:
(2) 137,671,576 Ordinary
Shares)
Market Capitalisation Share price Net Loss to shareholders
US$109.7m (31 December US$0.80 (31 December (US $ 29.5m) (30 June
2019: US$128.2m) 2019: US$0.93) 2019: US $(5.1m ))
(US $ 29.9m) (2) (30
June 2019: US $(5.6
m) (2) )
-------------------------- ---------------------------
Loss per share NAV Total Return(1, Discount to NAV(1)
3)
(US$0.21) ( 30 June (38.2%) ( 31 December
2019: US$(0.04)) (14.1%) (30 June 2019: 2019: (38.0%))
(US$0.22) (2) ( 30 (2.7%)) (40.0%) (2) ( 31 December
June 2019: (14.1%) (2) (30 June 2019: (39.1%) (2) )
US$(0.04) (2) ) 2019: (2.9%) (2) )
-------------------------- ---------------------------
1 These are considered Alternative Performance Measures.
2 These figures differ from the figures derived from the audited
Consolidated Financial Statements. The figures are calculated in
full accordance with International Financial Reporting Standards
("IFRS"), except that they include the effect of an adjustment
recognising the full amount of US$5.0m / GBP3.9m received from
Aberdeen Standard Fund Managers Limited on 23 November 2018 in
connection with the execution of the Management Agreement in the
Statement of Comprehensive Income for the year ended 31 December
2018, rather than deferring this amount over the five-year term of
the Management Agreement as required by IFRS. This adjustment
resulted in the increase of the net income attributable to the
shareholders of the Company for the year ended 31 December 2018 by
US$5.0m / GBP3.9m and decreases the net income attributable to the
shareholders of the Company by the amount of US$1.0m / GBP0.81m per
year over the five year term of the Management Agreement.
Consequently, for the six months ended 30 June 2020 the adjustment
resulted in a decrease in the net income attributable to the
shareholders of the Company in the amount of US$0.5m / GBP0.4m.
3 The comparative 30 June 2019 NAV Total Return figures have
been restated from the prior year due to a change in the
methodology of their calculation. In June 2019, the calculations
accounted for the reinvestment of the dividend at the year end, not
when the dividends went ex-dividend. To be in line with industry
practice, the figures above have been calculated on the basis that
dividends declared during the period are reinvested on the day that
the shares traded ex-dividend.
MANAGEMENT
The Company has appointed Aberdeen Standard Fund Managers
Limited ("ASFML"or the "AIFM") as the Company's alternative
investment fund manager to provide portfolio and risk management
services to the Company. The AIFM has delegated Portfolio
management of the portfolio to Aberdeen Asset Investments Limited
(the "Investment Manager"). Both ASFML and the Investment Manager
are wholly-owned subsidiaries of Standard Life Aberdeen plc, a
publicly-quoted company on the London Stock Exchange. Aberdeen
Standard Investments ("ASI") is a brand of Standard Life Aberdeen
plc. References throughout this document to ASI refer to both the
AIFM and the Investment Manager.
CHAIRMAN'S STATEMENT
OVERVIEW
At the time of my Chairman's statement in the 2019 Annual
Report, the Company and Cuba had, in effect, just entered into the
Covid -19 crisis. The implications, which then were unclear, are
now somewhat easier to assess but there still remains considerable
uncertainty about the duration and long-term impact of the pandemic
and the expected return to normality. At present, all regular
international flights to Cuba remain suspended and nearly all
hotels are still closed, although a gradual reopening of both
flights and hotels is expected to take place from November 2020
onwards. Cuba, which depends to a significant degree upon tourism,
has therefore been particularly badly impacted by the dramatic drop
in income from this source, exacerbated by a further deterioration
in the relationship with the Trump administration in the U.S.
Our prime concern has been to protect our people and it is
notable that Cuba's reported number of Covid -19 cases and
mortality rates are relatively low. The Investment Manager, the
Havana team, the Administrator and all other service providers have
adopted all reasonable measures to protect the safety of the people
working to advance the affairs of the Company.
Results for the six months to 30 June 2020
The NAV per Share at 30 June 2020 was US$1.29 (104.3p) compared
to US$1.50 (114.5p) at 31 December 2019 and the loss in the first
six months of the financial year was US$0.21 (17.3p) compared to a
loss of $0.04 (2.9p) for the same period last year. The valuation
of assets of the Company as well as earnings in respect of the six
months ended 30 June 2020 has clearly been negatively impacted by
the Covid -19 pandemic. This was primarily experienced within the
hotel interests where trading, with the exception of the Meli ã
Habana (as described below), ceased as from the end of March. In
addition to this, the valuations of the Hotels have also been
written down by $41.7 million in aggregate, reflecting both the
present lack of trading and the uncertain road to full recovery.
The Board considers that the substantial reduction in the hotel
valuations is in large measure a direct result of the profound but
temporary disruption to Cuban and international tourism operations
caused by the pandemic, and notwithstanding the uncertain timeline
to recovery, we are optimistic that the valuations will improve
once again when the situation is normalised. In addition, the Board
believes that other positive factors may in the months ahead
potentially have a strong impact on the present level of volatility
in the valuations, including the possible election of Joe Biden in
the Presidential elections in the United States in November of this
year as well as the ongoing reform efforts
of the Cuban government (more fully described in the Manager's
Review), which we expect will result in concrete improvements to
the economic conditions under which our joint venture companies
operate.
Pleasingly, during the first six months of 2020, the Company's
largest asset - the Miramar Trade Centre, in which it holds a 49%
interest - operated at almost full occupancy levels, with income
and net profits ahead of those achieved during the same period last
year. The valuation of the Company's participation in the Miramar
Trade Centre fell from US$86,702,576 (GBP66,119,558) at 31 December
2019 to US$81,258,903 (GBP65,748,771) at 30 June 2020, as a result
of an increase in the discount rate due to investment uncertainty
created by the pandemic as well as continued aggressive sanctions
against Cuba adopted by the United States, and the application of
slightly more conservative assumptions in the first few years of
the discounted cash flow projections. Overall, the outlook for this
asset for the remainder of 2020 remains encouraging although a
small drop in income is anticipated as a result of temporary lease
reliefs granted to certain tenants. No further decline in occupancy
levels is anticipated.
With regard to the hotel interests of the Company, the Meliã
Habana has remained open throughout the pandemic with a skeleton
capacity of 30 rooms and one semi-functional restaurant providing
take-away meals. All of the other hotels, which are located in
Varadero, were closed at the end of March and only one has
partially reopened since then. Meliã , the operator of each of the
hotels, has recently put forward proposals whereby the Sol Palmeras
hotel and the Meliã Habana will continue to operate at very modest
occupancy levels until the end of the year. It is not anticipated
that the other two hotels within Miramar - the Meliã Varadero and
the Meliã las Americas - will reopen during the present year.
Clearly the Manager and the Board are sensitive to plans and
decisions made by Cuba's tourism authorities and those may result
in amending the Company's plans.
I am pleased to observe that Miramar is well capitalised and is
able to continue to operate without recourse to additional funding
and indeed is using the closures to undertake certain cosmetic
upgrading of rooms and facilities.
Progress on the construction of the beachfront hotel near
Trinidad being undertaken by TosCuba, in which the Company has a
40% interest, has advanced steadily throughout the year and all of
the structural works are now complete. Nevertheless, the project is
behind schedule as a result of delays in the delivery of imports
caused by the Covid-19 pandemic and other factors. Negotiations to
amend the turn-key construction contract are ongoing on the basis
of extending the capital expenditure programme and spreading out
the disbursement schedule over a longer timeframe. This would imply
that the hotel would begin operations in Q4 2021.
In the light of the present environment the following actions
have also been taken by the Board:-
1. The repayment schedule of the credit facility granted to Casa
Financiera S.A. FINTUR ("FINTUR"), under which the aggregate
present exposure of the Company is EUR1,716,667, has been
renegotiated with a one year grace period extended to FINTUR,
reflecting the fact that FINTUR is receiving almost no income
through tourism at present.
2. In general, an ongoing detailed review of all uncommitted
capital and other expenditures has been undertaken with a view to
limiting all expenditures that can reasonably be delayed.
3. With such inherent uncertainty, continuous focus is being
maintained upon the future cash requirements of the Company to meet
its existing and future plans. In this context, the existing
dividend policy has been temporarily suspended and no dividend will
be paid in the current financial year. The policy will be kept
under constant review.
Cuba - Ongoing Economic Reforms
On 16 July 2020, t he Cuban government headed by Miguel
Díaz-Canel announced a series of promising new economic reforms
aimed at accelerating the systematic implementation of the reform
guidelines adopted by the government in 2011 and alleviating the
short-term liquidity crisis of the country. The new measures aim to
boost hard currency income in the short term by encouraging
exports, the local production of food and other necessary products
and the creation of a new internal hard currency market for certain
goods and services.
The reforms decrease the government's administrative control
over the economy and promote the development of an economic system
in which autonomous actors interact on the basis of management
decisions rather than centralised government controls. They also
include the unification of the two currencies: the Cuban Peso (CUP)
and the Cuban Convertible Peso (CUC), a very important step that is
rumoured to be imminent.
The Board applauds the announced reforms and believes that they
will stimulate Cuba's economy, including the emerging private
sector. In addition, we expect full implementation of the reforms
to increase the attractiveness of the country as a market for
foreign direct investment, to improve the autonomy of joint venture
companies and to have a marked positive impact on the investments
of the Company.
US-Cuban relations
Unfortunately, the relationship between Cuba and the Trump
administration has continued to deteriorate. Cuba's initiatives to
send doctors and other medical staff to various countries to assist
in their battle against the Covid-19 pandemic has come under attack
by the U.S. administration. In June 2020, the Trump administration
further expanded the Cuba restricted list, a public list of Cuban
entities with whom US persons are prohibited from doing business.
The list now includes Fincimex, a Cuban financial corporation that
handles the majority of US and other international family
remittances to Cuba. Also in June, Marriott, the hotel group,
announced that the U.S. Department of Treasury had refused to
extend its licence to operate in Cuba.
The result of the upcoming U.S. presidential elections will
naturally be of material significance to U.S.- Cuban relations. Joe
Biden, the Democratic party nominee has been critical of the
decision to undo the policies aimed at rapprochement put in place
by the Obama administration. If the Democratic party win the next
election it is reasonable to expect a significant softening of the
U.S sanctions against Cuba and a material reversion to the opening
up of tourism and trade as experienced during the Obama years. This
should over the longer term obviously have a very positive impact
on the Company's assets.
The Board extends its sincere thanks to the Investment Manager
and to the entire management team based in Cuba for their
commitment and efforts on behalf of the Company in these very
challenging and uncertain times.
John Herring
Chairman
28 September 2020
INVESTMENT MANAGER'S REVIEW
PERFORMANCE
Over the six-month period to 30 June 2020, the Company's net
asset value (NAV) declined by 14% in US dollar terms / 9% in
sterling terms. The Net Asset Value of the Company as at 30 June
2020 amounted to US$177,498,536 / GBP143,618,849 (31 December 2019:
US$206,734,334 / GBP157,656,016), of which approximately 77% was
indirectly invested in income-generating Cuban commercial and
tourism related real estate assets and 14% represented finance
facilities and cash. The total dividend income from the Cuban joint
venture companies during the six months ended 30 June 2020 was
US$6,884,559 / GBP5,570,482 (six months ended 30 June 2019:
US$12,454,918 / GBP9,829,467).
The loss attributable to the shareholders of the Company for the
six months ended 30 June 2020 was US$29,453,418 / GBP23,831,554
(six months ended 30 June 2019: loss of US$5,137,375 /
GBP4,054,435), and NAV per share at 30 June 2020 was US$1.29 /
104.3p (31 December 2019: US$1.50 / 114.5p). The principal factor
that contributed negatively to the results was the decrease in the
fair values of both the hotels of Miramar S.A. ("Miramar") and the
Miramar Trade Centre real estate complex of Inmobiliaria Monte
Barreto S.A. ("Monte Barreto").
These fair values are determined by applying discounted cashflow
methodology. The discount and capitalisation rates that were
applied by the Company's independent valuator in the discounted
cashflow models this year were increased in order to reflect the
impact of the Covid-19 pandemic and the heightened aggression of
the renewed U.S. Cuban embargo under President Trump. In addition,
in the case of the hotels of Miramar, the projected income was
adjusted downward significantly in order to reflect the temporary
closure of the hotels at the end of March 2020 and the estimated
timeline for the hotels to return to pre-Covid occupancy levels and
room rates. As well, a modestly more conservative view was taken on
the future occupancy rates and projected rental increases of the
Miramar Trade Centre.
We are conscious of the fact that the impact of the increased
discount and capitalisation rates in combination with the decreased
projected income levels has resulted in a substantial reduction in
the valuations of the hotel assets and in turn the Company's
holding values. Given the present uncertainty regarding the timing
and other details with respect to the reopening of Cuba's tourism
sector, the availability of airlift to Cuba, and general
behavioural patterns concerning the return of worldwide business
and holiday travel, the independent RICS valuers who carried out
the valuations have issued their desk top valuation reports under
the caveat of "material valuation uncertainty".
We agree with the assumptions that triggered the pronounced
downward valuation in the hotel assets in which the Company holds
an interest and would underline that - in the case of investments
in Cuba - the material valuation uncertainty described above may in
the near term and until the situation is stabilised result in
fluctuations in valuations that are potentially more pronounced
than in other countries. However, in contrast, we also believe that
potentially positive future events that may eliminate or minimize
the impact of the Covid-19 pandemic or the election of Democratic
candidate Joe Biden in the November 2020 U.S. presidential election
could provoke an equally pronounced decrease in the applicable
discount and capitalisation rates, increase in projected income and
corresponding uplift to the fair values resulting therefrom.
During the first half of 2020, Monte Barreto had its best
performance ever for the first six months, with net income of
US$7.2 million / GBP5.8 million (six months ended 30 June 2019:
US$6.9 million / GBP5.5 million). However, the performance of the
Meliã Habana Hotel and the Varadero Hotels were substantially
affected by the Covid-19 pandemic. The net income of Miramar for
the six months ended 30 June 2020 was US$2.2 million / GBP1.8
million (six months ended 30 June 2019: US$10.6 million / GBP8.3
million), a decline in US$ of 79%.
As noted above, the loss on the change in the fair value of the
equity investments of US$46,879,952 / GBP37,931,833 (for the year
ended 30 June 2019: loss of US$19,166,144 / GBP15,125,992) was
primarily due to the decrease in the fair value of Miramar, which
was a result of lower room rates and income levels compared to the
prior year. The decrease of the Group's share in the fair value of
Miramar, was US$30,471,969 / GBP24,655,691 (30 June 2019: loss of
US$12,457,994 / GBP9,831,895).
INTRODUCTION
In the Investment Manager's Review in the Annual Report of the
Company for the year ended 31 December 2019, we opined that it
would be inevitable that Cuba and the Company would be affected by
the Covid-19 pandemic, above and beyond the negative impact to the
Cuban economy caused by the ongoing U.S. Cuban embargo
regulations.
Although Cuba's comprehensive response to the Covid-19 pandemic
has largely been successful and the number of reported cases and
deaths resulting from the pandemic have been low, both absolutely
and relatively speaking, there has been a recent resurgence of the
number of new cases reported and it is still too early to predict
the final impact. The fact that Cuba began to implement a phased
plan to reopen its economy and tourism sector in July 2020, and
that the first international tourists began returning to Cuban
resorts located on the offshore islands in September 2020, is
encouraging.
We are following developments closely in the U.S presidential
race, since there is a clear difference in the platforms of the two
candidates with respect to Cuba. If Joe Biden were to win the
election in November 2020 and go on to implement his stated policy
towards Cuba, this would imply a rapid discontinuation of President
Trump's aggressive stance aimed at strengthening the U.S. Cuba
embargo and the restoration of the policy of rapprochement
introduced in the final years of the Obama administration. It is
very likely that the Company would benefit from such a change in
policy.
The Miramar Trade Centre office complex, the Company's most
important real estate investment, continued to perform strongly
with occupancy rates in the high nineties and income levels similar
to those of 2019. On the other hand, the Covid-19 pandemic had a
significant negative impact on the tourism investments of the
Company, in particular through the forced temporary closure of
three of the four hotels in which the Company has an interest, with
the fourth operating on a minimal level throughout the crisis.
However, we continue to expect that in the end the 2020 year-end
EBITDA of the Hotels will still be positive.
In addition, we are encouraged by recent announcements
concerning important new reforms being adopted by the Cuban
government to stimulate private enterprise on the island, to unify
Cuba's dual currency system and encourage the use of the United
States dollar and other hard currencies, to allow all natural and
legal persons to open and operate hard currency bank accounts, and
to increase the autonomy of Cuban State companies and joint
ventures with respect to their operations and the transferability
of hard currency.
THE U.S. CUBAN EMBARGO AND THE NOVEMBER 2020 U.S. PRESIDENTIAL
ELECTIONS
As predicted in the Annual Report of the Company for the year
ended 31 December 2019, the negative impact of the ongoing efforts
of the Trump administration to further tighten U.S. travel
restrictions and other important parts of the U.S. embargo
continues to be felt by Cuba in 2020. And against the backdrop of
the upcoming U.S. Presidential election and the sustained efforts
of the U.S. administration to force Cuba to withdraw its support
for Venezuela, there is little hope that relations will improve in
the coming months. New measures continue to target the principal
Cuban sources of hard currency income: tourism, family remittances,
foreign investment and international (medical) services.
The latest actions taken by the Trump administration include
adding the remittance processing company FINCIMEX and Havana
International Bank (HAVIN) to the Cuba Restricted List of entities
that U.S. persons are prohibited from dealing with and suspending
all private charter flights from the U.S. to Cuba, including to
Havana. In parallel, the U.S. is painting Cuba's foreign medical
(COVID-19) brigades in a negative light as instruments of "modern
slavery" and is encouraging its allies not to contract Cuban
doctors and nurses.
With respect to the Helms-Burton Act, the first case to reach
judgment (involving the use by Carnival Cruise Lines of shipping
terminals in Santiago de Cuba) was rejected in July 2020 on
technical grounds. Although it is too early to see any trends in
this case, it will set precedent and it is a welcome development
that at least in the first case the court has adopted a narrow and
restrictive interpretation of the controversial rules set out in
this highly disputed extraterritorial legislation.
Like many others in the world, Cuba will be paying close
attention to the upcoming presidential election in the United
States. If former Vice President Biden wins in November, this would
likely trigger a renewed rapprochement between the countries and
the easing of the U.S.-Cuban embargo rules.
CUBA - ECONOMIC REFORMS AND RECENT DEVELOPMENTS
On 16 July 2020, the Cuban government announced the urgent
implementation of a series of new economic strategies and reform
measures aimed at combatting the combined effects on the Cuban
economy of the Covid 19 pandemic and the recent tightening of the
US embargo. The main strategies outlined include (i) the increase
of exports, (ii) the incentivisation of national production in
order to substitute imports, with a focus on food and agriculturee,
(iii) improved management autonomy at State companies, (iv) the
adoption of several new measures aimed at encouraging the private
sector of the economy, including the consolidation of cooperatives
and the self-employed and the creation of micro, small and medium
sized private companies, (v) the creation of retail and wholesale
markets in US dollars, and (vi) currency unification. In addition,
the government has announced that the foreign investment sector
will benefit from a new monetary framework which is expected to
provide more profound financial autonomy to Cuban joint venture
companies.
Many of these measures have been outlined before, in particular
in the 2011 and 2016 guidelines adopted by the Cuban Communist
Party on modernisation of the Cuban economy, but it would appear
that there is now sufficient impetus to move forward with the
implementation of these strategies, given the profound disruption
to the Cuban economy and liquidity position caused by the Covid-19
pandemic and heightened aggression from the U.S. A number of
implementing measures have already been adopted, although further
regulatory action will be required for many of the proposed
reforms.
As details emerge regarding the new measures that will affect
the foreign investment sector, it is clear that an important goal
is to provide to the management of joint venture companies a far
greater degree of autonomy and control over the liquidity and
financial resources of those companies. We believe that these
measures will have a strong positive effect on the operations of
the joint venture companies in which the Company has an interest.
We will be closely following developments in this regard.
Notwithstanding the difficult year that Cuba has had so far, a
number of new transactions have been announced in recent months.
These include the approval of new joint ventures in the hotel, rum
production and mining (gold/silver and nickel) sectors, the
development of a joint Cuba-China biotech park to produce and
market Cuban biotechnology products in China as well as a new joint
venture to develop and market Cuban medicines in the UK and Europe,
and the approval of a 100% foreign capital company that will
operate as a non-banking financial institution.
PORTFOLIO UPDATE
The Miramar Trade Centre / Monte Barreto
The Company is the largest foreign investor in Cuba's commercial
real estate sector through its interest in the Miramar Trade
Centre, Havana's leading mixed-use office and retail real estate
complex. The Company's 49% interest in the Miramar Trade Centre is
held through Monte Barreto, the Cuban joint venture company that
owns and operates the complex. The Miramar Trade Centre is a
six-building complex comprising approximately 56,000 square metres
(approximately 600,000 square feet) of net rentable area that
constitutes the core of the new Miramar business district in
Havana.
Overall, the Miramar Trade Centre had its most profitable half
year ever in the first half of 2020, notwithstanding that occupancy
rates fell slightly from 100% to 98% as a result of the Covid-19
pandemic. Departing tenants were primarily limited to small travel
agencies and other tourism-related companies that ceased operations
as a result of the pandemic. Revenues and net income were up 1% and
4%, respectively, as compared to the same period last year.
In recent years, the Miramar Trade Center has effectively
maintained a near 100% occupancy rate. The average monthly rent per
square meter rose from US$25.22 in 2018, to US$26.28 in 2019, to
US$26.31 in the first half of 2020. As a result, Monte Barreto
continued its strong performance, with an EBITDA of US$9.4 million
/ GBP7.6 million for the first half of the year (6 months ended 30
June 2019: US$9.0 million/ GBP7.1 million) and net income after tax
of US$7.2 million / GBP5.8 million during the period (6 months
ended 30 June 2019: US$6.9 million/ GBP5.5 million). The increase
is due to Monte Barreto continuing to raise rental rates as tenant
leases are renewed. However, it is anticipated that Monte Barreto
will temporarily delay further increases in rental rates pending
resolution of the market uncertainty surrounding the Covid-19
pandemic.
The valuation of Monte Barreto has been adjusted downward by
approximately US$5.4 million. The decreased value is due to an
increase in the discount rate and the application of more
conservative assumptions in the first few years of the discounted
cash flow projections due to the uncertainty created by the
pandemic.
Demand, predominantly from multi-national companies, NGOs and
foreign diplomatic missions for international-standard office
accommodation in Havana currently continues to exceed supply. Monte
Barreto remains the dominant option in this market segment. As a
consequence, and notwithstanding the Covid-19 pandemic, the outlook
for Monte Barreto in the second half of 2020 remains encouraging,
as we expect occupancy levels to remain in the high nineties with a
gradual return to the 100% level and loss of rental income as a
result of concessions to travel and tourism companies to be
modest.
The Hotels of Miramar S.A.
Through its indirect ownership of a 32.5% interest in Miramar,
the Group has interests in the following hotels (the "Hotels"):
- the Meliã Habana Hotel, a 397-room international-category
5-star business hotel located on prime ocean-front property in
Havana (directly opposite the Miramar Trade Center);
- the Meliã las Americas Hotel, a 340-room
international-category 5-star beach resort hotel located in
Varadero;
- the Meliã Varadero Hotel, a 490-room international-category
5-star beach resort hotel located in Varadero; and
- the Sol Palmeras Hotel, a 607-room international-category
4-star beach resort hotel located in Varadero.
All of the Hotels are operated by Meliã Hotels International
S.A. ("Meliã Hotels International"), which also has a 17.5% equity
interest in Miramar (and a 10% equity interest in TosCuba).
Performance of the Hotels
The Hotels were strongly impacted by the sudden halt of all
flights to Cuba and the closure of nearly all hotels on the island
in March 2020 as a result of the measures taken by the Cuban
government to combat the Covid-19 pandemic.
During the first two months of the year, all of the Hotels were
able to maintain occupancy as compared with the prior year
(occupancy rose 9% at the Meli ã Habana Hotel as compared to the
prior period), although income per room fell in all cases,
resulting in a decrease in income compared with the corresponding
period of the prior year. Factors affecting room rates include the
continued aggressive measures of the Trump administration aimed at
discouraging U.S. travel to Cuba (primarily in the case of the Meli
ã Habana Hotel) and high levels of competition from other Caribbean
tourism destinations prior to the Covid-19 pandemic.
However, normal operations of the Hotels were interrupted in
March 2020 with the arrival of the pandemic. The Meliã Habana Hotel
in Havana remained open throughout the period from March 2020 to
June 2020, although with very limited operations, catering to
flight crews for repatriation flights and the mandatory 14-day
isolation of diplomats and certain other authorised persons
arriving in Havana. The three Varadero Hotels ceased operations in
March 2020 and as at the time of writing, only the Sol Palmeras
Hotel has received authorisation to resume operations. The Sol
Palmeras Hotel was opened for national Cuban tourism in early July
2020.
Confirming and Discounting Facility
In early December 2019, HOMASI (the foreign shareholder of
Miramar) executed a confirming and discounting facility with
Miramar that has a maximum limit of US$7 million for the purpose of
confirming and discounting supplier invoices relating to the
operations of the four hotels owned by the joint venture company.
The facility is financed in part by a EUR3.5 million credit line
received by HOMASI from a Spanish bank for this purpose, thus
alleviating the present cash flow position of the Company. The
facility has attractive economic terms (finance cost below 5%), and
the facility is secured by the external cash flows generated by the
Hotels. Management expects that the execution of this facility will
assist in stabilising the operations relating to supply of the
Hotels and minimizing the impact of the current liquidity
difficulties that Cuba is experiencing.
Planned Investments
In December 2019, the joint venture agreed that a four year
refurbishment and development plan will be carried out, which
includes all of the Hotels and which will see a total of 187 new
rooms and new facilities added and 512 rooms and 57 bungalows
refurbished across the whole estate. The investment programme
approved for the year 2020 was US$21 million and includes works at
all four hotels, but the extent to which the 2020 investment
programme will be carried out will, amongst others, depend on the
impact of the Covid-19 pandemic and the timing of the re-opening of
the Hotels.
2020 Outlook for Miramar
Although Miramar has no third party finance and a healthy cash
balance that would allow it to operate without receiving any income
for a period in excess of 12 months, it is inevitable, given the
temporary loss of income and the present uncertainty surrounding
the long-term effects of the Covid-19 pandemic on the Cuban and
worldwide travel markets, that the real income levels for 2020 and
possibly beyond will fall below the prior projections, resulting in
a significant decline in the value of the hotel assets of the
Company. We expect that it will take some time for travel markets
to return to a more optimistic profile.
The TosCuba Project
Construction of the Meliã Trinidad Pen í nsula Hotel near
Trinidad, Cuba began in December 2018 and was advancing steadily,
on budget (although with some delay) when the operations of the
Italian-Cuban construction partnership and the flow of imported
materials and equipment became severely impacted by the Covid-19
pandemic in February-March 2020.
At present all major structural works have been completed and
significant internal works are already underway, including
electrical, plumbing, doors and windows, flooring, internal
divisions and drywall installation.
The total capital of TosCuba is US$16 million. The capital has
been spent on the surface rights over the property,
pre-construction planning and development costs and the payment of
part of the required deposit under the turnkey construction
contract executed with the Cuban-Italian construction joint venture
in 2018, which provides for a total construction cost of
approximately US$60 million. During 2019, additional investments to
include elevators, roadworks (entrance, parking, etc.), beach
improvement, and other costs were added to the investment
budget.
In April 2018, the Company arranged, and still participates in a
US$45 million construction finance facility to be disbursed under
two tranches of US$22.5 million / GBP17.2 million each. Further
detail on this facility is provided in the notes to the financial
statements below.
TosCuba received a grant in the amount of US$10 million / GBP7.6
million under the Spanish Cuban Debt Conversion Programme. In
accordance with the terms of the grant, these funds were used by
the joint venture company to fund local purchases of goods and
services delivered under the construction contract by Cuban
suppliers, thereby reducing the external funding that the Company
would otherwise have needed to provide.
Since being informed that the construction would be affected by
the Covid-19 pandemic, works have continued at a considerably
slower pace and TosCuba is presently in discussions with the
constructor to amend the turn-key construction contract, reschedule
construction activities and cash-outlays and fix a new delivery
date for the hotel. Management now expects the hotel to open during
the last quarter of 2021.
FINTUR and TosCuba Finance Facilities
FINTUR Facility
Since 2002, the Company has arranged and participated in
numerous secured finance facilities extended to Casa Financiera
FINTUR S.A. ("FINTUR"), the Cuban government financial institution
for the tourism sector. These facilities act as a medium-term
investment and treasury management tool for the Company.
The facilities are fully secured by external tourism proceeds
from numerous internationally managed hotels in Cuba. The Company
has a successful 18-year track record in arranging and
participating in over EUR150 million of facilities extended to
FINTUR, with no defaults occurring during this period.
Under the most recent facility, originally executed in 2016 in
the principal amount of EUR24 million and subsequently amended in
2019 through the addition of a second tranche in the principal
amount of EUR12 million, the Company had an initial participation
of EUR4 million under the first tranche and a EUR2 million
participation under the second tranche. This facility generates an
8.00% interest rate and operated successfully without delay or
default until the closure of all Cuban hotels in March 2020 as a
result of the Covid-19 pandemic. At that time, the income from the
hotels that serve as the basis for payments under the FINTUR
facility ceased and such income is expected to resume only after
Cuba's tourism restarts for international tourism. International
tourism is expected to restart on numerous Cuban islands and other
isolated resort destinations (including numerous destinations where
the facility hotels are located) in the fall of 2020, although it
remains unclear at this time how quickly such income will return to
previous levels.
With effect from 1 April 2020, the Company and FINTUR agreed to
revise the remaining outstanding payments under the FINTUR facility
and to provide a one-year period of grace on the payment of
principal and a two-year principal payment period thereafter.
Interest payments have been suspended during the period during
which the hotels are closed, but will resume as soon as the hotels
resume operations or by 31 December 2020 at the latest. The
principal amount outstanding in favour of the Company under the
revised FINTUR facility at 30 June 2020 is US$1,930,759 /
GBP1,562,229 (31 December 2019: US$3,230,171 / GBP2,463,334).
TosCuba - Construction Facility
As mentioned above, in April 2018 CEIBA arranged and executed a
secured construction finance facility in favour of TosCuba in order
to provide funding for the construction of the Meliã Trinidad Playa
Hotel. The facility is in the maximum principal amount of up to
US$45 million, to be disbursed in two tranches, with an 8.00%
interest rate. The Company is a participant in both tranches and
the first disbursement under Tranche A of the facility was made in
November 2018 in the lead-up period to the formal construction
start of the project in December 2018. As at 30 June 2020 the
principal amount of US$13,614,722 / GBP11,016,039 (31 December
2019: US$9,915,549 / GBP7,561,619) had been disbursed under the
Company's participation. The remainder of the facility will be
disbursed over the remaining construction period, followed by a
nine-year repayment period.
This facility may be syndicated and is secured by the future
income of the hotel under construction and 50% of the principal
amount is further secured by a guarantee given by Cubanacán S.A.,
Corporación de Turismo y Comercio Internacional ("Cubanacán"), the
Cuban shareholder of TosCuba, backed by income from another hotel
in Cuba.
As a result of the expected temporary loss of dividend income
from Miramar and the uncertainty with respect to the receipt of
dividend income from Monte Barreto during the Covid-19 pandemic, it
is possible that in the future the Company may be forced to attract
funding from its shareholders or third parties in order to continue
providing the amounts committed under the facility. We are
currently envisaging debt rather than equity funding for this
purpose.
OUTLOOK
Management expects that, as a result of the Covid-19 pandemic,
the very difficult economic and political circumstances faced by
Cuba in the first half of 2020 will continue for the rest of the
year and possibly into 2021, and that the local market conditions
in which the Group operates will remain very challenging for some
time to come.
The further accentuation of the liquidity challenges faced by
the Cuban economy as a result of the pandemic and the U.S. Cuban
embargo are expected to negatively impact the timing of dividend
and other payments to the Company, as well as the timing of the
ongoing development of the TosCuba Project. However, these negative
factors are offset by (i) promising new reform measures announced
in July 2020 regarding the financial and currency framework within
which Cuban joint venture companies will operate going forward,
which are expected (following a short transition period and once
the regulatory framework is fully put in place) to provide to the
management of joint venture companies a far greater degree of
control over company finances, including the payment of future
dividends, and (ii) the possibility of a Biden victory in the
presidential elections to be held in November.
We do expect that all of the hotels of Miramar will re-open in
2020, that occupancy levels in the hotels will gradually return to
pre-pandemic levels during the course of the coming year and that
all of our underlying Cuban real estate assets, the Cuban joint
ventures in which we are invested and the loan facilities in which
we participate will continue to generate positive operational
results. In addition, with the TosCuba construction project and
renovations at existing hotels underway and in execution, we are
investing today to ensure and safeguard growth in the future. We
also anticipate that we will be able to leverage our long-standing
experience in the marketplace to continue investing in the country
despite the challenging environment, as well as to negotiate and
execute attractive new long-term investment opportunities.
Sebastiaan A.C. Berger
Aberdeen Asset Investments Limited
28 September 2020
INTERIM BOARD REPORT
DIRECTORS' RESPONSIBILITY STATEMENT
The Directors are responsible for preparing this Half-Yearly
Report in accordance with applicable law and regulations.
The Directors confirm to the best of their knowledge that:
- the Interim Condensed Consolidated Financial Statements,
prepared in accordance with the applicable accounting standards,
give a true and fair view of the assets, liabilities, financial
position and profit or loss of the Company, and all the
undertakings included in the consolidation as a whole;
- this Interim Board Report includes a fair review of the
information required by DTR 4.2.7R of the FCA's Disclosure Guidance
and Transparency Rules, being an indication of important events
that have occurred during the first six months of the financial
year and their impact on the condensed set of financial statements,
and a description of the principal risks and uncertainties for the
remaining six months of the year; and
- the financial statements include a fair review of the
information required by DTR 4.2.8R of the FCA's Disclosure Guidance
and Transparency Rules, being related party transactions that have
taken place in the first six months of the financial year and that
have materially affected the financial position or performance of
the Company during that period, and any changes in the related
party transactions described in the last Annual Report that could
do so.
PRINCIPAL RISKS AND UNCERTAINTIES
The Board regularly reviews the principal risks and
uncertainties affecting the Company together with the mitigating
actions it has established to manage these risks. These are set out
in detail in the Company's Annual Report and Financial Statements
for the year ended 31 December 2019 and can be summarised under the
following headings:
-- Emerging Risk
- Global Pandemic
-- Risks Relating to the Company and its Investment Strategy
- Investment Strategy and Objective
- Investment Restrictions
-- Portfolio and Operational Risks
- Joint Venture Risk
- Real Estate Risk
- Tourism Risk
- Valuation Risk
- Dependence on Third Party Service Providers
- Loss of Key Fund Personnel
-- Risks Relating to Investment in Cuba and the U.S. Embargo
- General Economic, Political, Legal and Financial Environment within Cuba
- U.S. Government Restrictions relating to Cuba
- Helms-Burton Risk
- Liquidity Risk
-- Risks Relating to Regulatory and Tax framework
- Tax Risk
The Board notes that there are a number of contingent risks
stemming from the Covid-19 pandemic that currently impact, and may
continue to impact, the operations of the Company as set out in the
Chairman's Statement and the Manager's Review. With the support
from the Board, the Manager will continue to review carefully the
composition of the Company's portfolio and will be pro-active in
taking investment decisions where necessary.
In all other respects, the Company's principal risks and
uncertainties have not materially changed since the date of the
2019 Annual Report.
GOING CONCERN
In accordance with the FRC's Guidance on Risk Management,
Internal Control and Related Financial and Business Reporting, the
Directors have undertaken a rigorous review of the Company's
ability to continue as a going concern.
The Directors have reviewed cash flow projections that detail
revenue and liabilities and will continue to receive cashflow
projections as part of the Company's reporting and monitoring
processes. After reviewing the cashflow projections and the
significant capital commitments, as well as taking into account the
principal risks and uncertainties, including the impact of
Covid-19, the Directors believe that the Company has adequate
financial resources to continue its operational existence for the
foreseeable future and at least 12 months from the date of this
Half-Yearly Report.
Accordingly, the Directors believe that it is appropriate to
continue to adopt the going concern basis in preparing the Interim
Condensed Consolidated Financial Statements.
For and on behalf of the Board
Peter Cornell Keith Corbin
28 September 2020 28 September 2020
INDEPENT REVIEW REPORT TO CEIBA INVESTMENTS LIMITED
Introduction
We have reviewed the condensed set of consolidated financial
statements of CEIBA Investment Limited and its Subsidiaries
(together, the 'Group') included in the half yearly report for the
six months ended 30 June 2020, which comprises the Interim
Condensed Consolidated Statement of Financial Position as at 30
June 2020 and the related Interim Condensed Consolidated Statement
of Comprehensive Income, the Interim Condensed Consolidated
Statement of Changes in Equity and the Interim Condensed
Consolidated Statement of Cash Flows for the six-month period then
ended and a summary of significant accounting policies and other
explanatory notes.
The half yearly report is the responsibility of, and has been
approved by, the Directors. The Directors are responsible for
preparing the half yearly report in accordance with the Disclosure
Guidance and Transparency Rules of the United Kingdom's Financial
Conduct Authority. The Directors are responsible for the
preparation and fair presentation of the interim condensed
financial statements contained in the half yearly report, in
accordance with International Accounting Standard 34, 'Interim
Financial Reporting' issued by the International Accounting
Standards Board. Our responsibility is to express a conclusion on
the interim condensed financial statements based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 , 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity.' A review of interim financial information consists
of making inquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing
(UK) and consequently does not enable us to obtain assurance that
we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit
opinion.
Emphasis of matter - valuation uncertainty
In forming our conclusion, we have considered the adequacy of
the disclosures made in Note 2 to the interim condensed
consolidated financial statements concerning the material
uncertainty on the valuation of the underlying real estate assets
comprising the valuation of the equity investments. As explained in
Notes 2 and 16, the investments are carried at fair value,
determined using a valuation methodology which involves judgments
and estimates made by management. The valuation of the underlying
real estate assets has been prepared in a period of significant
market instability as a result of the Covid-19 pandemic, and it is
not possible to ascertain when the Cuban tourism sector and economy
will recover to anywhere near previous levels, which result in
uncertainty in valuing the underlying properties. However, the
Board believes that the Group has adequate financial resources to
continue its operational existences for the foreseeable future and
at least 12 months from the date of the Group's interim condensed
financial statements, and that the going concern basis remains
appropriate in preparing the Interim Condensed Consolidated
Financial Statements. Our review conclusion is not qualified in
this respect.
Unqualified conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of consolidated
financial statements in the half yearly report for the six months
ended 30 June 2020 is not prepared, in all material respects, in
accordance with International Accounting Standard 34 and the
Disclosure Guidance and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
Grant Thornton Limited
Chartered Accountants
St Peter Port, Guernsey, Channel Islands
25 September 2020
Consolidated Statement of Unaudited Audited
Financial Position as at 6 months as at 12 months
As at 30 June 2020 30 Jun 2020 31 Dec 2019
Note US$ US$
------- ---------------- -------------------
Assets
Current assets
Cash and cash equivalents 4 9,605,315 13,102,578
Accounts receivable and
accrued income 5 9,488,025 2,211,832
Loans and lending facilities 6 3,589,116 2,558,018
---------------- -------------------
Total current assets 22,682,456 17,872,428
---------------- -------------------
Non-current assets
Accounts receivable and
accrued income 5 1,177,599 5,646,484
Loans and lending facilities 6 13,614,722 10,587,702
Equity investments 8 180,517,685 227,340,559
Property, plant and equipment 550,620 568,346
---------------- -------------------
Total non-current assets 195,860,626 244,143,091
---------------- -------------------
Total assets 218,543,082 262,015,519
---------------- -------------------
Liabilities
Current liabilities
Accounts payable and accrued
expenses 9 2,210,550 2,066,213
Deferred liabilities 12 1,000,000 1,000,000
Short-term borrowings 7 1,551,727 -
Total current liabilities 4,762,277 3,066,213
---------------- -------------------
Non-current liabilities
Deferred liabilities 12 2,333,333 2,833,333
---------------- -------------------
Total non-current liabilities 2,333,333 2,833,333
---------------- -------------------
Total liabilities 7,095,610 5,899,546
---------------- -------------------
Equity
Stated capital 106,638,023 106,638,023
Revaluation surplus 319,699 319,699
Retained earnings 65,968,585 95,422,003
Accumulated other comprehensive
income 4,572,229 4,354,609
---------------- -------------------
Equity attributable to the
shareholders of the parent 177,498,536 206,734,334
---------------- -------------------
Non-controlling interest 10 33,948,936 49,381,639
-------------------
Total equity 211,447,472 256,115,973
-------------------
Total liabilities and equity 218,543,082 262,015,519
---------------- -------------------
NAV 10 177,498,536 206,734,334
NAV per share 10 1.29 1.50
See accompanying notes 1 to 18, which are an integral part of
these interim condensed consolidated financial statements. These
interim condensed consolidated financial statements were approved
by the board of Directors and authorised for issue on 28 September
2020. They were signed on the Company's behalf by:
Peter Cornell, Director Keith Corbin, Director
Consolidated Statement of Comprehensive Unaudited Unaudited
Income 6 months 6 months
For the period ended 30 June 2020 30 Jun 2020 30 Jun 2019
Note US$ US$
------- ---------------- -----------------
Income
Dividend income 8 6,884,559 12,454,918
Interest income 703,456 322,147
Travel agency commissions 1,439 7,321
7,589,454 12,784,386
---------------- -----------------
Expenses
Loss on change in fair value
of equity investments 8 (46,879,952) (19,166,144)
Management fees 12 (1,010,822) (1,012,149)
Other staff costs (31,991) (35,610)
Travel (36,840) (55,908)
Operational costs (39,217) (47,434)
Legal and professional fees (603,368) (505,975)
Administration fees and
expenses (136,742) (136,536)
Interest expense (41,168) -
Audit fees (162,367) (340,210)
Miscellaneous expenses (46,005) (63,668)
Director fees and expenses 12 (112,846) (124,200)
Depreciation (19,990) (18,057)
Foreign exchange loss (394,798) (283,319)
(49,516,106) (21,789,210)
---------------- -----------------
Net loss before taxation (41,926,652) (9,004,824)
---------------- -----------------
Income taxes - -
---------------- -----------------
Net loss for the period (41,926,652) (9,004,824)
---------------- -----------------
Other comprehensive income
to be reclassified to profit
or loss in subsequent periods - -
Gain/(loss) on exchange
differences of translation
of foreign operations 334,802 (725,749)
Total comprehensive loss (41,591,850) (9,730,573)
---------------- -----------------
Net loss for the period
attributable to:
Shareholders of the parent (29,453,418) (5,137,375)
Non-controlling interest (12,473,234) (3,867,449)
Total comprehensive loss
attributable to:
Shareholders of the parent (29,235,798) (5,609,112)
Non-controlling interest (12,356,052) (4,121,461)
Basic and diluted (loss)/gain
per share 13 (0.21) (0.04)
See accompanying notes 1 to 19, which are an integral part
of these interim condensed consolidated financial statements.
Consolidated Statement of Cash Flows
For the period ended 30 June 2020
6 months 6 months
Note 30 Jun 2020 30 Jun 2019
------- ---------------- -----------------
Operating activities
Net loss for the period (41,926,652) (9,004,824)
Items not effecting cash:
Depreciation 19,990 18,057
Change in fair value of equity
investments 46,879,952 19,166,144
Foreign exchange gain 394,798 283,319
5,368,088 10,462,696
Increase in accounts receivable
and accrued income (2,807,308) (2,300,127)
Increase in accounts payable
and accrued expenses 144,337 1,080,089
Amortisation of deferred liability 12 (500,000) (500,000)
Net cash flows from operating
activities 2,205,117 8,742,658
---------------- -----------------
Investing activities
Purchase of property, plant
& equipment (2,264) (44,330)
Miramar Confirming facility 6 (1,658,357) -
Loans and lending facilities
disbursed (3,699,173) (2,620,608)
Loans and lending facilities
recovered 1,299,412 774,757
Net cash flows used in investing
activities (4,060,382) (1,890,181)
---------------- -----------------
Financing activities
Receipt of past dividends
not settled with shareholder - 276,823
Short term borrowings received 7 1,551,727 -
Payment of cash dividends - (8,560,689)
Cash distribution to non-controlling (3,161,056) -
interest
Contributions received from
non-controlling interest 84,405 22,386
Net cash flows used in from
financing activities (1,524,924) (8,261,480)
---------------- -----------------
Change in cash and cash equivalents (3,380,189) (1,409,003)
Cash and cash equivalents
at beginning of the period 13,102,578 19,814,790
Foreign exchange on cash (117,074) (66,202)
Cash and cash equivalents
at end of the period 9,605,315 18,339,585
---------------- -----------------
Dividends received 6,000,000 10,396,811
Interest received 267,650 106,712
Interest paid 41,168 -
See accompanying notes 1 to 19, which are an integral part
of these consolidated interim financial statements .
Consolidated Statement of Changes in Equity
For the period ended 30 June 2020
Total
Equity
Other attributable
Stated Revaluation Retained comprehensive to the Non-controlling
Capital Surplus Earnings income parent interest Total Equity
Note US$ US$ US$ US$ US$ US$ US$
Balance
at 1 January
2020 106,638,023 319,699 95,422,003 4,354,609 206,734,334 49,381,639 256,115,973
Net loss
for the period - - (29,453,418) - (29,453,418) (12,473,234) (41,926,652)
Capital contributions
from non-controlling
interest - - - - - 84,405 84,405
Cash distribution
to non-controlling
interest - - - - - (3,161,056) (3,161,056)
Net other
comprehensive
income to
be reclassified
to profit
or loss in
subsequent
periods - - - 217,620 217,620 117,182 334,802
Balance at
30 June 2020 106,638,023 319,699 65,968,585 4,572,229 177,498,536 33,948,936 211,447,472
See accompanying notes 1 to 19, which are an integral part of
these interim condensed consolidated financial statements.
For the period ended 30 June 2019
Total
Equity
Other attributable
Stated Revaluation Retained comprehensive to the Non-controlling Total
Capital Surplus Earnings income parent interest Equity
Note US$ US$ US$ US$ US$ US$ US$
Balance at
1 January
2019 106,638,023 298,449 96,403,178 2,301,696 205,641,346 55,674,370 261,315,716
Net loss
for the period - - (5,137,375) - (5,137,375) (3,867,449) (9,004,824)
Capital
contributions
from
non-controlling
interest - - - - - 22,386 22,386
Net income
for the period - - - (471,737) (471,737) (254,012) (725,749)
Dividend
declared
during the
period 18 - - (8,560,689) - (8,560,689) - (8,560,689)
Balance at
30 June 2019 106,638,023 298,449 82,705,114 1,829,959 191,471,545 51,575,295 243,046,840
(i) See accompanying notes 1 to 19, which are an integral part
of these consolidated interim financial statements.
CEIBA Investments Limited
Notes to the Interim Consolidated Financial Statements
For the six months ended 30 June 2020
1. Corporate information
These interim condensed consolidated financial statements for
the Interim Financial Report include the accounts of CEIBA
Investments Limited and its subsidiaries, which are collectively
referred to as the "Group" or "CEIBA".
CEIBA was incorporated in 1995 in Guernsey, Channel Islands as a
registered closed-ended collective investment scheme with
registered number 30083. In May 2013, the status of CEIBA changed
to an unregulated investment company rather than a regulated
investment fund. The status of CEIBA was changed back to a
registered closed-ended collective investment scheme on 11
September 2018 under The Protection of Investors (Bailiwick of
Guernsey) Law, 1987 as amended. The registered office of CEIBA is
located at Dorey Court, Admiral Park, St. Peter Port, Guernsey,
Channel Islands GY1 2HT.
The principal holding and operating subsidiary of the Group is
CEIBA Property Corporation Limited ("CPC") which holds a license
issued by the Cuban Chamber of Commerce and has offices in Cuba
located at the Miramar Trade Center, Edificio Barcelona, Suite 401,
5(ta) Avenida, esq. a 76, Miramar, Playa, La Habana, Cuba.
The principal investment objective of CEIBA is to achieve
capital growth and dividend income from direct and indirect
investment in or with Cuban businesses, primarily in the tourism
and commercial real estate sectors, and other revenue-generating
investments primarily related to Cuba.
The Group currently invests in Cuban joint venture companies
that are active in two major segments of Cuba's real estate
industry: (i) the development, ownership and management of
revenue-producing commercial properties, and (ii) the development,
ownership and management of hotel properties. In addition, the
Group occasionally arranges and participates in secured finance
facilities and other interest-bearing financial instruments granted
in favour of Cuban borrowers, primarily in the tourism sector. The
Group's asset base is primarily made up of equity investments in
Cuban joint venture companies that operate in the real estate
segments mentioned above.
The officers are contracted through third party entities or
consultancy agreements. CEIBA and its subsidiaries do not have any
obligations in relation to other future employee benefits.
On 22 October 2018, CEIBA completed an initial public offering
and listed its ordinary shares on the Specialist Fund Segment of
the London Stock Exchange ("LSE-SFS"), where it trades under the
symbol "CBA". The Group also entered into a management agreement,
with effect from 1 November 2018, under which the Group has
appointed Aberdeen Standard Fund Managers Limited ("ASFML" or the
"AIFM") as the Group's alternative investment fund manager to
provide portfolio and risk management services to the Group. The
AIFM has delegated portfolio management to Aberdeen Asset
Investments Limited (the "Investment Manager"). Both the AIFM and
the Investment Manager are wholly-owned subsidiaries of Standard
Life Aberdeen plc (see note 12).
2. Basis of preparation
2.1 Statement of compliance and basis of measurement
The same accounting policies and methods of computation are
followed in the Interim Financial Report with the most recent
Annual Report and Consolidated Financial Statements (31 December
2019). The interim condensed financial statements have been
prepared in accordance with IAS 34 Interim Financial Reporting.
The interim condensed consolidated financial statement do not
include all the information and disclosures required in the annual
financial statements, and should be read in conjunction with the
Annual Consolidated Financial Statements as at 31 December
2019.
2.2 Functional and presentation currency
These interim condensed consolidated financial statements are
presented in United States Dollars ("US$"), which is the Group's
reporting currency and the Parent Company's functional currency.
The majority of the Group's income, equity investments and
transactions are denominated in US$, subsidiaries are re-translated
to US$ to be aligned with the functional currency of the Group.
2.3 Use of estimates and judgements
The preparation of the Group's interim condensed consolidated
financial statements, in conformity with IFRS, requires management
to make judgements, estimates, and assumptions that affect the
application of accounting policies and the reported amounts of
assets and liabilities, disclosure of contingent assets and
liabilities at the date of the interim condensed consolidated
financial statements, and the reported amounts of revenues and
expenses during the reporting period.
Management judgements
The key management judgements made by management in relation to
the interim condensed consolidated financial statements are:
a) That the Group is not an Investment Entity;
b) That the Group is a Venture Capital Organisation.
c) That the functional currency of the parent company (Ceiba Investments Limited) is US$.
Management estimates - valuation of equity investments
Significant areas requiring the use of estimates also include
the valuation of equity investments. Actual results could differ
from those estimates.
Estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognised in the
period in which the estimates are revised and in any future period
affected.
In determining estimates of recoverable amounts and fair values
for its equity investments, the Group relies on independent
valuations, historical experience, and assumptions regarding
applicable industry performance and prospects, as well as general
business and economic conditions that prevail and are expected to
prevail. Assumptions underlying asset valuations are limited by the
availability of reliable comparable data and the uncertainty of
predictions concerning future events (see note 8).
By their nature, asset valuations are subjective and do not
necessarily result in precise determinations. Should the underlying
assumptions change, the carrying amounts could change and,
potentially, by a material amount.
Valuation of equity investments
The determination of the fair values of the equity investments
may include independent valuations of the underlying properties
owned by the joint venture companies. These valuations assume a
level of working capital required for day to day operations of the
properties. Management estimates the amount of cash required for
these working capital needs to determine if the joint venture
companies hold any excess cash that should be added as a component
of the fair value of the equity investments.
2.4 Reportable operating segments
An operating segment is a distinguishable component of the Group
that is engaged in the provision of products or services (business
segment). The primary segment reporting format of the Group is
determined to be business segments as the Group's business segments
are distinguishable by distinct financial information provided to
and reviewed by the chief operating decision maker in allocating
resources arising from the products or services engaged by the
Group.
2.5 Equity investments
Equity investments include the direct and indirect interests of
the Group in Cuban joint venture companies, which in turn hold
commercial properties, hotel properties and hotel properties under
development. Cuban joint venture companies are incorporated under
Cuban law and have both Cuban and foreign shareholders.
Equity investments of the Group are measured at fair value
through profit or loss in accordance with IFRS 9, Financial
Instruments: ("IFRS 9"), on the basis of the exception provided for
per IAS 28. Changes in fair value are recognised in the statement
of comprehensive income in the period of the change.
2.6 New standards, amendments and interpretations that are
relevant to the Group issued but not effective for the financial
year beginning 1 January 2020 and early adopted
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 Group.
2.7 Changes in accounting policies
Standards and interpretations applicable this period
The accounting policies applied during this year are fully
consistent with those applied in the previous period.
2.8 Going concern
The Directors have a reasonable expectation that the Company has
adequate resources to continue in operational existence for the
foreseeable future and has significant liquid funds to do so.
Accordingly, the Directors have adopted the going concern basis in
preparing the financial statements.
3. Summary of significant accounting policies
The accounting policies set out below have been applied
consistently to all periods presented in these interim condensed
consolidated financial statements.
3.1 Consolidation
The interim condensed consolidated financial statements comprise
the financial statements of CEIBA and its subsidiaries as at 30
June 2020. Control is achieved when the Group is exposed, or has
rights, to variable returns from its involvement with the investee
and has the ability to affect those returns through its power over
the investee. Specifically, the Group controls an investee if and
only if the Group has:
-- Power over the investee (i.e. existing rights that give it
the current ability to direct the relevant activities of the
investee)
-- Exposure, or rights, to variable returns from its involvement with the investee, and
-- The ability to use its power over the investee to affect its returns
When the Group has less than a majority of the voting or similar
rights of an investee, the Group considers all relevant facts and
circumstances in assessing whether it has power over an investee,
including:
-- The contractual arrangement with the other vote holders of the investee
-- Rights arising from other contractual arrangements
-- The Group's voting rights and potential voting rights
The Group re-assesses whether or not it controls an investee if
facts and circumstances indicate that there are changes to one or
more of the three elements of control.
Subsidiaries are consolidated from the date on which control is
transferred to the Group and cease to be consolidated from the date
on which control is transferred out of the Group. Where there is a
loss of control of a
subsidiary, the interim condensed consolidated financial
statements include the results for the part of the reporting period
during which the Group has control.
The Group had direct and indirect equity interests in the
following entities as at 30 June 2020 and 31 December 2019:
Equity interest
held indirectly
Country of by the Group
Entity Name Incorporation or holding entity
30 Jun 2020 31 Dec
2019
1. CEIBA Property Corporation Limited
(a) (i) Guernsey 100% 100%
1.1. GrandSlam Limited (a) (ii) Guernsey 100% 100%
1.2. CEIBA MTC Properties Inc.(a)
(iii) Panama 100% 100%
1.2.1 Inmobiliaria Monte Barreto
S.A. (b) (iv) Cuba 49% 49%
1.3. CEIBA Tourism B.V. (a) (viii) Netherlands 100% 100%
1.3.1. HOMASI S.A. (a) (iii) Spain 65% 65%
1.3.1.1. Miramar S.A. (b) (vi) Cuba 50% 50%
1.3.2. Mosaico Hoteles S.A. (a)
(iii) Switzerland 80% 80%
1.3.2.1 TosCuba S.A. (b) (vii) Cuba Netherlands 50% 50%
1.3.3. Mosaico B.V. (a) (v) 80% 80%
a) Company consolidated at 30 June 2020 and at 31 December 2019.
b) Company accounted at fair value at 30 June 2020 and at 31 December 2019
(i) Holding company for the Group's interests in real estate
investments in Cuba that are facilitated by a representative office
in Havana.
(ii) Operates a travel agency that provides services to
international clients for travel to Cuba.
(iii) Holding company for underlying investments with no other significant assets.
(iv) Joint venture Company that holds the Miramar Trade Center as its principal asset.
(v) On 11 March 2019, all of the shares in Mosaico Hoteles S.A.
held by Mosaico B.V., together with (i) the full outstanding value
of the shareholder loan extended by Mosaico B.V. to Mosaico Hoteles
S.A., and (ii) all payables owed by Mosaico B.V., were transferred
by Mosaico B.V. to CEIBA Tourism B.V. (80%) and to Meliã Hotels
International (20%) in accordance with their shareholdings in
Mosaico B.V., with the result that Mosaico Hoteles S.A. is now
owned directly by CEIBA Tourism B.V. (80%) and Meliã Hotels
International S.A. (20%) and Mosaico B.V. no longer has any assets
or liabilities. It is intended that Mosaico B.V. will be liquidated
in the near future.
(vi) Joint venture that holds the Meli ã Habana Hotel, Meli ã
Las Americas Hotel, Meli ã Varadero Hotel and Sol Palmeras Hotel as
its principal assets.
(vii) Joint Venture Company incorporated to build a beach hotel in Trinidad, Cuba.
All inter-company transactions, balances, income, expenses and
unrealised surpluses and deficits on transactions between CEIBA
Investments Limited and its subsidiaries have been eliminated on
consolidation. Non-controlling interest represent the interests in
the operating results and net assets of subsidiaries attributable
to minority shareholders.
4. Cash and cash equivalents
30 Jun 2020 31 Dec 2019
US$ US$
------------ ------------
Cash on hand 6,293 16,183
Bank current accounts 9,599,022 13,086,395
------------
9,605,315 13,102,578
------------ ------------
5. Accounts receivable and accrued income
30 Jun 2020 31 Dec 2019
US$ US$
------------ ------------
Dividends receivable from Miramar S.A. 310,596 -
Dividends receivable from Inmobiliaria
Monte Barreto S.A. 7,496,931 6,922,968
Loan interest receivable from TosCuba
S.A. 1,095,870 633,070
Other accounts receivable and deposits 1,762,227 302,278
10,665,624 7,858,316
------------ ------------
Current portion 9,488,025 2,211,832
------------ ------------
Non-current portion 1,177,599 5,646,484
------------ ------------
The following table details the expected liquidity of accounts
receivable:
30 Jun 2020 31 Dec 2019
US$ US$
------------ ------------
Up to 30 days 579,807 120,898
Between 31 and 90 days 1,083,179 66,335
Between 91 and 180 days 2,317,960 2,010,678
Between 181 and 365 days 5,507,079 13,921
Over 365 days 1,177,599 5,646,484
------------ ------------
10,665,624 7,858,316
------------ ------------
Trade receivables are assessed in terms of the simplified
approach for expected credit losses per IFRS 9 due to trade
receivables not containing a significant financing component and
majority consisting of accounts receivable from travel agency
activities in GrandSla m which are immaterial. GrandSlam is a
wholly-owned subsidiary of the Group. As a result of the
composition of the receivables balance the credit risk is assessed
to be low due to the nature of the receivables and impairment loss
to be immaterial. Dividend receivables that are short-term in
nature are outside the scope of IFRS 9's simplified approach and
there has been no history of defaults and therefore based on the
relationship with Inmobiliaria Monte Barreto S.A. and Miramar S.A
there is no expectation of default over the next 12 months.
6. Loans and lending facilities
30 Jun 2020 31 Dec 2019
US$ US$
------------ ------------
TosCuba S.A. (i) 13,614,722 9,915,549
Casa Financiera FINTUR S.A. (ii) 1,930,759 3,230,171
Miramar Facility (iii) 1,658,357 -
17,203,838 13,145,720
------------ ------------
Current portion 3,589,116 2,558,018
------------ ------------
Non-current portion 13,614,722 10,587,702
------------ ------------
(i) In April 2018, the Group entered into a construction finance
agreement (the "Construction Facility") with TosCuba S.A.
("TosCuba") for the purpose of extending to TosCuba part of the
funding necessary for the construction of the Meli ã Trinidad
Peninsula Hotel. The Construction Facility is in the maximum
principal amount of US$45,000,000, divided into two separate
tranches of US$22,500,000 each. The Group has the right to
syndicate Tranche B of the Construction Facility to other
lenders.
The principal terms of the Construction Facility include, (i) a
grace period for principal and interest during the construction
period of the hotel . S ince being informed that the construction
would be affected by the Covid-19 pandemic, works have continued at
a slower pace and TosCuba is presently in discussions with the
constructor to fix a new delivery date for the hotel. Management
now expects the hotel to open in the second half of 2021 , (ii)
upon expiry of the grace period, accumulated interest will be
repaid, followed by a repayment period of eight years during which
blended payments of principal and interest will be made, (iii)
interest will accrue on amounts outstanding under the Construction
Facility at the rate of 8 per cent.
The first disbursement under the Construction Facility was made
on 23 November 2018. Repayment of the Construction Facility is
secured by an assignment in favour of the lenders of all of the
future income of the Meli ã Trinidad Peninsula Hotel following
start-up of operations. In addition, Tranche B of the Construction
Facility is also secured by a guarantee provided by Cubanacán S.A.,
Corporaciön de Turismo y Comercio Internacional (the Cuban
shareholder of TosCuba) as well as by an assignment in favour of
the Group (in its capacity as Tranche B lender) of all
international tourism proceeds generated by the Meliã Santiago de
Cuba Hotel. The Construction Facility represents a financial asset.
Based on the terms of the loan is not repayable on demand and there
is no expectation that it will be repaid within 12 months since
there is a multi year grace period and a further 8 year payment
period, therefore the immediate expected credit loss is not
considered to be material to the Group.
(ii) In July 2016, the Company arranged and participated in a
EUR24,000,000 (US$26,875,200) syndicated facility provided to Casa
Financiera FINTUR S.A. ("FINTUR"), subsequently amended in May 2019
to include a second tranche in the principal amount of
EUR12,000,000 (US$13,437,600). T he Company had an initial
participation of EUR4,000,000 (US$4,479,000) under the first
tranche and a EUR2,000,000 (US$2,239,600) participation under the
second tranche . The term of the facility was due to expire in June
2021 but, with the closure of all Cuban hotels as a result of the
Covid-19 pandemic, an additional grace period has been granted and
the term has been extended to March 2023. In addition, the amounts
outstanding under the two existing tranches of the facility were
consolidated into a single tranche. The facility has fixed interest
rate of 8%, and under the renegotiated terms interest will
accumulate until 31 December 2020 and then be paid quarterly, and
eight quarterly principal payments will be due beginning in June
2021 and ending in March 2023. This facility is secured by
Euro-denominated off-shore tourism proceeds payable to FINTUR by
certain international hotel operators managing four separate hotels
in Cuba. The loan to FINTUR represents a financial asset. Based on
historical analysis FINTUR has made all payments on time with no
had it defaults since the inception of this facility nor had it
defaulted under with previous loan facilities.
(ii) The loan is not repayable on demand. It has been determined
that there is no significant risk of default over the next 12
months, therefore the expected credit loss is assessed to be
immaterial to the Group.
(iii) In early December 2019, HOMASI (the foreign shareholder of
Miramar) executed a confirming and discounting facility with
Miramar that has a maximum limit of US$7 million for the purpose of
confirming and discounting supplier invoices relating to the
operations of the four hotels owned by the joint venture company.
The facility will be financed in part by a EUR3,500,000 credit line
received by HOMASI from a Spanish bank for this purpose, thus
alleviating the present cash flow position of the Company. The
facility has economic terms (finance cost 3.5%), and the facility
will be secured by the offshore cash flows generated by two of the
Hotels. Management expects that the execution of this facility will
assist in stabilising the operations of the Hotels and minimizing
the impact of the current liquidity difficulties that Cuba is
experiencing. It has been determined that there is no significant
risk of default over the next 12 months, therefore the expected
credit loss is assessed to be immaterial to the Group.
The following table details the expected maturities of the loans
and lending facilities portfolio:
30 Jun 2020 31 Dec
2019
US$ US$
------------ -----------
Up to 30 days 802,523 504,135
Between 31 and 90 days 223,960 802,882
Between 91 and 180 days 223,960 802,882
Between 181 and 365 days 2,338,673 448,119
Over 365 days 13,614,722 10,587,702
------------ -----------
17,203,838 13,145,720
------------ -----------
7. Short-term borrowings
30 Jun 2020 31 Dec 2019
US$ US$
------------ ------------
Short-term finance facility (i) 1,551,727 -
1,551,727 -
------------ ------------
(i) Bank credit line held by HOMASI. (see note 6 for further
details around the economic terms and the nature of the facility
)
8. Equity investments
30 Jun 2020 31 Dec 2019
US$ US$
------------ ------------
Miramar S.A. 86,258,779 127,887,983
Inmobiliaria Monte Barreto
S.A. 81,258,906 86,702,576
TosCuba S.A. 13,000,000 12,750,000
180,517,685 227,340,559
------------ ------------
Immobiliaria
Miramar Monte TosCuba Total
S.A (i) Barreto S.A (ii) US$
US$ S.A US$
US$
------------- ------------- ----------- -------------
Balance at 31 December
2018 154,630,176 76,165,505 8,000,000 238,795,681
Foreign currency translation
reserve (942,865) - - (942,865)
Change in fair value of
equity investments (21,227,468) (438,676) 2,500,000 (19,166,144)
------------- ------------- ----------- -------------
Balance at 30 June 2019 132,459,843 75,726,829 10,500,000 218,686,672
Foreign currency translation
reserve 4,146,305 - - 4,146,305
Change in fair value of
equity investments (8,718,165) 10,975,747 2,250,000 4,507,582
------------- ------------- ----------- -------------
Balance at 31 December
2019 127,887,983 86,702,576 12,750,000 227,340,559
Foreign currency translation
reserve 57,078 - - 57,078
Change in fair value of
equity investments (41,686,282) (5,443,670) 250,000 (46,879,952)
Balance at 30 June 2020 86,258,779 81,258,906 13,000,000 180,517,685
------------- ------------- ----------- -------------
(i) The value of Miramar represents the 50% foreign equity
interest in Miramar S.A. including non-controlling interests.
(ii) The value of TosCuba represents the 50% foreign equity
interest in TosCuba S.A. including non-controlling interests.
Below is a description of the equity investments of the Group
and the key assumptions used to estimate their fair values.
Monte Barreto
The Group holds the full foreign equity interest of 49% in the
Cuban joint venture company Immobiliaria Monte Barreto S.A,
incorporated in 1996 for the construction and subsequent operation
of the Miramar Trade Center. The Miramar Trade Center is a
six-building complex comprising approximately 80,000 square meters
of constructed area of which approximately 56,000 square meters is
net rentable area.
The Group is the sole foreign investor in Monte Barreto and
holds its 49% interest in the joint venture company through its
wholly-owned subsidiary CEIBA MTC Properties Inc. ("CEIBA MTC"),
incorporated in Panama. The remaining 51% interest in Monte Barreto
is held by the Cuban partner in the joint venture company.
The incorporation and operations of Monte Barreto are governed
by a deed of incorporation (including an association agreement and
corporate by-laws) dated 7 March 1996 between CEIBA MTC and the
Cuban shareholder. Under the Monte Barreto deed of incorporation,
Monte Barreto was incorporated for an initial term of 50 years
expiring in 2046. All decisions at shareholder meetings require the
unanimous agreement of the Cuban and foreign shareholders.
Key assumptions used in the estimated fair value of Monte
Barreto:
The fair value of the equity investment in Monte Barreto is
determined by the Board of CEIBA taking into consideration various
factors, including estimated future cash flows from the investment,
estimated replacement costs, transactions in the private market and
other available market evidence to arrive at an appropriate value.
The Group also engages an independent valuation firm to perform an
independent valuation of the property owned by the joint
venture.
The Investment Manager and the Board may also take into account
additional relevant information that impacts the fair value of the
equity investment that has not been considered in the valuation of
the underlying property of the joint venture. One such fair value
consideration is cash held by the joint venture in excess of its
working capital needs ("Excess Cash"). As the valuation of the
underlying property only assumes a level of working capital to
allow for day to day operations, the existence of any Excess Cash
needs to be included as an additional component of the fair value
of the joint venture company.
In the case of Monte Barreto, the amount of cash required for
working capital needs is estimated as the sum of: (i) 30% of tenant
deposits, (ii) taxes payable, (iii) dividends declared and payable,
(iv) a reserve for employee bonuses, and (v) 2 months of estimated
operating expenses. The sum of these amounts is deducted from the
balance of cash and cash equivalents of the joint venture with the
remaining balance, if any, being considered Excess Cash. At 30 June
2020, the amount of Excess Cash that is included in the fair value
of Monte Barreto stated in these interim condensed consolidated
financial statements is US$5,259,906 (31 December 2019:
US$1,197,575).
Cash flows have been estimated up to 2046 when the joint venture
expires. The key assumptions used in the discounted cash flow model
are the following:
30 Jun 2020 31 Dec 2019
Discount rate (after tax) (i) 10.48% 9.75%
Occupancy year 1 98% 100%
Average occupancy year 2 to 8 97.5% 98.9%
Occupancy year 8 and subsequent periods 97.5% 97.5%
Average rental rates per square meter per US$27.17 US$28.28
month - year 1 to 7
Annual increase in rental rates subsequent
to year 7 (ii) 3.0% 3.0%
Capital investments as percentage of rental
revenue 2% 2%
(i) The effective tax rate is estimated to be 18% (31 December 2019: 18%).
(ii) The increase in rental rates in subsequent periods is
in-line with the estimated rate of long-term inflation.
Miramar
HOMASI is the foreign shareholder (incorporated in Spain) that
owns a 50% share equity interest in the Cuban joint venture company
Miramar S.A.. The remaining share equity interest in Miramar is
held by the Cuban shareholder in the joint venture (as to 50%). All
decisions at shareholder meetings require the unanimous agreement
of the Cuban and foreign shareholders.
In November 2018, Miramar was merged with Cubacan, the Cuban
joint venture company that previously owned the Varadero Hotels. As
a result of the merger, the four hotels are now owned by Miramar as
the remaining joint venture company. Subsequent to the merger
CUBANACAN contributed to Miramar the extension and granting of the
surface rights for the four hotels to 2042.
At 30 June 2020 and 31 December 2019 the Group holds 65% of the
share equity of HOMASI, representing a 32.5% interest in Miramar.
The remaining 35% interest in HOMASI is held by Meliã Hotels
International S.A., representing a 17.5% interest in Miramar, and
has been accounted for as a non-controlling interest in these
interim condensed consolidated financial statements .
Key assumptions used in the estimated fair value of Miramar:
The fair value of the equity investment in Miramar is determined
by the Board of CEIBA taking into consideration various factors,
including estimated future cash flows from the investment,
estimated replacement costs, transactions in the private market and
other available market evidence to arrive at an appropriate value.
The Group also engages an independent valuation firm to perform
independent valuations of the properties held by the joint
venture.
The Board may also take into account additional relevant
information that impacts the fair value of the equity investment
that has not been considered in the valuations of the underlying
properties of the joint venture. One such fair value consideration
is cash held by the joint venture in excess of its working capital
needs. As the valuations of the underlying properties only assume a
level of working capital to allow for day to day operations, the
existence of any Excess Cash needs to be included as an additional
component of the fair value of the joint venture company.
In the case of Miramar, the amount of cash required for working
capital needs is estimated as the sum of: (i) taxes payable, (ii)
dividends declared and payable, (iii) trade payables greater than
90 days outstanding, and (iv) 2 months of estimated operating
expenses. The sum of these amounts is deducted from the balance of
cash and cash equivalents of the joint venture with the remaining
balance, if any, being considered Excess Cash. At 30 June 2020, the
amount of Excess Cash that is included in the fair value of Miramar
stated in these interim condensed consolidated financial statements
is US$14,158,779 (31 December 2019: US$20,187,983).
Cash flows have been estimated for a ten-year period. Cash flows
from year 11 onward are equal to the capitalised amount of the cash
flows at year 10. The key assumptions used in the discounted cash
flow model are the following:
30 Jun 2020 31 Dec 2019
Meliã Habana
Discount rate (after tax) (i) 15.3% 12.5%
Average occupancy years 1 to 10 65.5% 70.8%
Average daily rate per room - year 1 US$122.25 US$137.75
Average increase in average daily rate
per room - year 2 to 6 6.9% 7.5%
Increase in average daily rate per room
subsequent to year 6 (ii) 3% 3%
Capital investments as percentage of total
revenue 7% 7%
30 Jun 2020 31 Dec 2019
Meliã Las Americas
Discount rate (after tax) (iii) 14.7% 12.25%
Average occupancy year 1 to 3 61% 78%
Occupancy year 4 and subsequent periods 80% 79.5%
Average daily rate per room - year 1 US$146.12 US$145.48
Average increase in average daily rate
per room - year 2 to 6 3.7% 3.8 %
Increase in average daily rate per room
subsequent to year 6 (ii) 3% 3%
Capital investments as percentage of total
revenue 7% 7%
30 Jun 2020 31 Dec 2019
------------ ------------
Meliã Varadero
Discount rate (after tax) (iii) 14.7% 12.25%
Average occupancy year 1 to 5 75% 80.2%
Occupancy year 6 and subsequent periods 80% 80.4%
Average daily rate per room - year 1 US$91.33 US$104.57
Average increase in average daily rate
per room - year 2 to 6 7% 4%
Increase in average daily rate per room
subsequent to year 6 (ii) 3% 3%
Capital investments as percentage of total
revenue 7% 7%
30 Jun 2020 31 Dec 2019
------------ ------------
Sol Palmeras
Discount rate (after tax) (iii) 14.7% 12.25%
Average occupancy year 1 to 5 75% 79%
Occupancy year 6 and subsequent periods 80% 80%
Average daily rate per room - year 1 US$82.36 US$95.12
Increase in average daily rate per room
- year 2 13% 5%
Average increase in average daily rate
per room - year 3 to 6 6% 4%
Increase in average daily rate per room
subsequent to year 6 (ii) 3% 3%
Capital investments as percentage of total
revenue 7% 7%
(i) The effective tax rate is estimated to be 19% (31 December 2019: 19%).
(ii) The increase in the average daily rate per guest in
subsequent periods is in-line with the estimated rate of long-term
inflation.
(iii) The effective tax rate is estimated to be 21% (31 December 2019: 21%).
Sensitivity to changes in the estimated rental rates / average
daily rates
The following table details the change in fair values of the
equity investments, which have been estimated under the discounted
cash flow method, when applying rental rates / average daily rates
between 5% lower and 5% higher than the rates used in these interim
condensed consolidated financial statements .
The following table details the fair values of the equity
investments at 30 June 2020 when applying lower and higher rental
rates / average daily rates:
Financial
statements -5% +5%
US$ US$ US$
------------ ----------- -----------
Monte Barreto 81,258,906 77,228,302 85,289,510
Miramar 86,258,779 83,184,059 89,309,834
The following table details the fair values of the equity
investments at 31 December 2019 when applying lower and higher
rental rates / average daily rates:
Financial
statements -5% +5%
US$ US$ US$
------------ ------------ ------------
Monte Barreto 86,702,576 82,380,413 91,328,282
Miramar 127,887,983 124,636,618 131,139,349
Sensitivity to changes in the occupancy rates
The following tables detail the change in fair values of the
equity investments, which have been estimated under the discounted
cash flow method, when applying occupancy rates between 5% lower
and 5% higher than the rates used in these interim condensed
consolidated financial statements .
The following table details the fair values of the equity
investments at 30 June 2020 when applying lower and higher
occupancy rates:
Financial
statements -5% +5%
US$ US$ US$
------------ ----------- -----------
Monte Barreto (i) 81,258,906 77,184,772 82,101,566
Miramar 86,258,779 83,111,413 89,369,910
(i) In the case of Monte Barreto, only a constant occupancy rate
of 100% is shown under the increase of 5% as projected occupancy is
already above or equal to 95%.
The following table details the fair values of the equity
investments at 31 December 2019 when applying lower and higher
occupancy rates:
Financial
statements -5% +5%
US$ US$ US$
------------ ------------ ------------
Monte Barreto 86,702,576 82,279,267 91,123,299
Miramar 127,887,983 121,797,791 133,978,176
(i) In the case of Monte Barreto, only a constant occupancy rate
of 100% is shown under the increase of 5% as projected occupancy is
already above or equal to 95%.
Sensitivity to changes in the discount and capitalisation
rates
The following tables detail the change in fair values of the
equity investments, which have been estimated under the discounted
cash flow method, when applying both discount and capitalisation
rates between 1% lower and 1% higher than the rates used in these
interim condensed consolidated financial statements .
The following table details the fair values of the equity
investments at 30 June 2020 when applying lower and higher discount
and capitalization rates:
Financial
statements -1% +1%
US$ US$ US$
------------ ----------- -----------
Monte Barreto 81,258,906 91,548,664 73,310,573
Miramar 86,258,779 93,405,723 80,214,743
The following table details the fair values of the equity
investments at 31 December 2019 when applying lower and higher
discount and capitalization rates:
Financial
statements -1% +1%
US$ US$ US$
------------ ------------ ------------
Monte Barreto 86,702,576 98,365,774 77,753,412
Miramar 127,887,983 139,993,689 117,974,292
Sensitivity to changes in the estimation of Excess Cash
The fair values of the equity investments have been estimated
using the discounted cash flow method and adjusted for the Excess
Cash held by the joint venture companies. Within the calculation of
Excess Cash, it is estimated that the joint ventures will maintain
a sufficient cash balance for working capital purposes equal to the
equivalent of two months operating expenses.
The following table details the changes in fair values of the
equity investments at 30 June 2020 if the number of months of
operating expenses used in the calculation is increased by an
additional 1 to 3 months in comparison to the calculation used in
these interim condensed consolidated financial statements .
Financial
statements + 1 month + 2 months + 3 months
US$ US$ US$ US$
------------ ------------ ------------- -------------
Monte Barreto 81,258,906 81,020,684 80,782,463 80,554,241
Miramar 86,258,779 84,178,854 82,098,929 80,019,004
The following table details the changes in fair values of the
equity investments at 31 December 2019 if the number of months of
operating expenses used in the calculation is increased by an
additional 1 to 3 months in comparison to the calculation used in
these interim condensed consolidated financial statements.
Financial
statements + 1 month + 2 months + 3 months
US$ US$ US$ US$
------------ ------------ ------------- -------------
Monte Barreto 86,702,576 86,464,354 86,226,132 85,987,911
Miramar 127,887,983 125,617,753 123,347,522 121,077,292
A reduction in the number of months of operating expenses used
in the calculation would increase the changes in fair values of the
equity investments at 30 June 2020 and 31 December 2019, however
this is considered unlikely and therefore the related sensitivities
have not been shown.
TosCuba
At 30 June 2020 the Group owned an 80% interest in Mosaico B.V.,
which in turn had an indirect 50% share equity interest in TosCuba
S.A., a Cuban joint venture company that is developing a 400 room
4-star hotel at Playa Maria Aguilar near the city of Trinidad,
Cuba. Construction of the hotel began in December 2018 and is
expected to be completed by the end of 2021. The Group has made
capital contributions of US$8,000,000 (31 December 2019:
US$8,000,000).
In 2019, TosCuba was awarded US$10,000,000 under the Spanish
Cuban Debt Conversion Programme, a Spanish-Cuba initiative aimed at
promoting Spanish private sector investments in Cuba under which
outstanding bilateral debts owed to Spain by Cuba may be settled
through awards granted to investment projects in Cuba from a
special countervalue fund created for this purpose. Under these
awards, local currency invoices relating to services and materials
received in Cuba in the course of constructing the projects will be
paid from the countervalue fund on behalf of the joint ventures. As
of 30 June 2020, TosCuba has received the total cash grants under
the programme in the amount of US$10,000,000. The 50% interest of
the Group in amounts received under the programme by TosCuba (i.e.
US$5,000,000) has been recorded as a change in the fair value in
the investment in TosCuba.
Dividend income from equity investments
Dividend income from the equity investments above during the
period is as follows:
6 months 6 months
30 Jun 2020 30 Jun 2019
US$ US$
------------- -------------
Monte Barreto 573,963 3,417,591
Miramar 6,310,596 9,037,327
6,884,559 12,454,918
------------- -------------
9. Accounts payable and accrued expenses
30 Jun 2020 31 Dec 2019
US$ US$
------------ ------------
Due to shareholders 5,421 5,399
Due to Meliã Hotels International
SA 178,862 354,581
Accrued professional fees 136,609 586,981
Management fees payable (see note
12) 1,669,446 1,041,950
Accrued Directors fees 32,377 1,617
Other accrued expenses 169,430 57,116
Other accounts payable 18,405 18,569
------------ ------------
2,210,550 2,066,213
------------ ------------
The future maturity profile of accounts payable and accrued
expenses based on contractual undiscounted payments:
30 Jun 2020 31 Dec
2019
US$ US$
------------ ----------
Up to 30 days 272,951 409,709
Between 31 and 90 days (2,586) 1,115,552
Between 91 and 180 days 1,859,939 535,553
Between 181 and 365 days 80,246 5,399
----------
2,210,550 2,066,213
------------ ----------
10. Net asset value
Net asset value
The net asset value attributable to the shareholders of the
Group ("NAV") is calculated as follows:
30 Jun 2020 31 Dec 2019
US$ US$
------------- -------------
Total assets 218,543,082 262,015,519
Total liabilities (7,095,610) (5,899,546)
Less: non-controlling interests (33,948,936) (49,381,639)
------------- -------------
NAV 177,498,536 206,734,334
Number of ordinary shares
issued 137,671,576 137,671,576
NAV per share 1.29 1.50
11. Reportable operating segments
IFRS 8 requires the Group to report on where primary business
activities are engaged and where the Group earns revenue, incurs
expenses and where operating results are reviewed by chief
operating decision maker about resources allocated to the segment
and assess its performance and for which discrete financial
information is available. The primary segment reporting format of
the Group is determined to be business segments as the Group's
business segments are distinguishable by distinct financial
information provided to and reviewed by the chief operating
decision maker in allocating resources arising from the products or
services engaged by the Group. No geographical information is
reported since all investment activities are located in Cuba. The
operating businesses are organised and managed separately through
different companies. For management purposes, the Group is
currently organised into three business segments:
-- Commercial property: Activities concerning the Group's
interests in commercial real estate investments in Cuba.
-- Tourism / Leisure: Activities concerning the Group's
interests in hotel investments in Cuba and operations of a travel
agency that provides services to international clients for travel
to Cuba.
-- Other: Includes interest from loans and lending facilities,
the Group entered into a construction finance agreement with
TosCuba for the purpose of extending to TosCuba part of the funding
necessary for the construction of the Meliã Trinidad Peninsula
Hotel and also includes a facility provided to FINTUR (see note 6
for further details).
Management monitors the operating results of its business units
separately for the purpose of making decisions about resource
allocation and performance assessment. Segment performance is
evaluated based on operating income or loss and is measured
consistently with operating income or loss in the interim condensed
consolidated financial statements . The Board has applied
judgements by aggregating its operating segments according to the
nature of the underlying investments. Such judgment considers the
nature of operations, types of customers and an expectation that
operating segments within a reportable segment have similar
long-term economic characteristics.
30 June 2020
US$
-------------------------------------------------------
Commercial Tourism Other Total
property / Leisure
Total assets 84,719,775 107,853,494 25,969,813 218,543,082
Total liabilities (2,364,949) (4,730,661), - (7,095,610)
------------ ------------- ----------- -------------
Total net assets 82,354,826 103,122,833 25,969,813 211,447,472
Dividend income 573,963 6,310,596 - 6,884,559
Other income - 704,287 608 704,895
Change in fair value of
equity investments (5,443,670) (41,436,282) - (46,879,952)
Allocated expenses (293,790) (1,947,452) (114) (2,241,356)
Foreign exchange gain - - (394,798) (394,798)
------------ ------------- ----------- -------------
Net income/(loss) (5,163,497) (36,368,851) (394,304) (41,926,652)
Other comprehensive loss - 334,802 - 334,802
Total comprehensive income/(loss) (5,163,497) (36,034,049) (394,304) (41,591,850)
31 December 2019
US$
-------------------------------------------------------
Commercial Tourism Other Total
property / Leisure
Total assets 91,969,762 149,273,530 20,772,227 262,015,519
Total liabilities (2,345,827) (3,553,719) - (5,899,546)
------------ ------------- ----------- -------------
Total net assets 89,623,935 145,719,811 20,772,227 256,115,973
6 months ended 30 June 2019
US$
-------------------------------------------------------
Dividend income 3,417,591 9,037,327 - 12,454,918
Other income - 7,321 322,147 329,468
Change in fair value of
equity investments (438,676) (18,727,468) - (19,166,144)
Allocated expenses (783,496) (1,515,151) (41,100) (2,339,747)
Foreign exchange gain - - (283,319) (283,319)
------------ ------------- ----------- -------------
Net income/(loss) 2,195,419 (11,197,971) (2,272) (9,004,824)
Other comprehensive income - (725,749) - (725,749)
Total comprehensive income 2,195,419 (11,923,720) (2,272) (9,730,573)
12. Related parties disclosures
Compensation of Directors
Each Director receives a fee of GBP35,0 00 (US$43,257) per annum
with the Chairman receiving GBP 40,000 (US$49,436). The Chairman of
the Audit Committee also receives an annual fee of GBP40,000
(US$49,436). The Chairman and Directors are also reimbursed for
other expenses properly incurred by them in attending meetings and
other business of the Group. No other compensation or
post-employment benefits are provided to Directors. Total Director
fees, including the fees of the Chairman, for the period ended 30
June 2020 were US$112,846 (30 June 2019: US$ 124,200).
Transactions with other related parties
Transactions and balances between the Group and the joint
venture companies included within the equity investments of the
Group are detailed in notes 5, 6, 7, 8 and 9.
CPC and GrandSlam Limited, wholly-owned subsidiaries of the
Group, lease office space totalling 319 square meters from Monte
Barreto, a commercial property investment in which the Group holds
a 49% interest. The rental charges paid under the GrandSlam lease
is accounted for in operational costs and for the period ended 30
June 2020 amounted to US$10,259 (30 June 2019: US$12,099) with an
average rental charge per square meter at 30 June 2020 of US$37.67
(30 June 2019: US$37.67) plus an administration fee of US$9.75 per
square meter. GrandSlam Limited received a 50% discount on the
rental charges in May and June 2020 due to Covid 19.
Transactions with Investment Manager
From 2019, Aberdeen Standard Fund Managers Limited ("ASFML")
reimburses CPC for its lease payments. (See note 14)
Under the terms of the Management Agreement, ASFML is entitled,
with effect from 1 November 2018, to receive an annual management
fee equivalent to 1.5 per cent. of net asset value. The annual
management fee payable by the Group to ASFML will be lowered by the
(annual) running costs of the Havana operations of CEIBA Property
Corporation Limited, a subsidiary of the Group. The management fees
earned by the Investment Manager for the period ended 30 June 2020
were US$1,510,822 (30 June 2019: US$1,512,149). In connection with
the Management Agreement, ASFML paid the Group US$5,000,000 with
the purpose of compensating the Group for the costs related to the
initial public offering and the listing of its shares on the
Specialist Fund Segment as well as for releasing and making
available the Group's internal management team to ASFML. In the
event that the Management Agreement is terminated prior to the
fifth anniversary of its coming into effect, the Group must pay
ASFML a prorated amount of the US$5,000,000 based on the amount of
time remaining in the five year period. As such, this payment has
been recorded as a deferred liability and is being amortised over
the five year period. The amount amortised each period is accounted
for as a reduction of the management fee. At 30 June 2020, the
amount of the payment recorded as a deferred liability is
US$3,333,333 (31 December 2019 US$3,833,333): with US$1,000,000
being the current portion and US$2,333,333 (31 December 2019
US$2,833,333) being the non-current portion ASFML is a wholly-owned
subsidiary of Standard Life Aberdeen plc which has an interest in
9,747,852 shares of the stated capital (31 December 2019:
9,747,852).
For the period ended 30 June 2020, the amount of the payment
amortised and recorded as a reduction of the management fee was
US$500,000 (30 June 2019: US$500,000):
30 Jun 2020 30 Jun 2019
US$ US$
------------
Management fees earned 1,510,822 1,512,149
Amortisation of deferred liability (500,000) (500,000)
------------ ------------
Management fee expense 1,010,822 1,012,149
------------ ------------
Interests of Directors and Executives in the stated capital
At 30 June 2020 John Herring, a Director of CEIBA, had an
indirect interest of 40,000 shares (31 December 2019: 40,000
shares).
At 30 June 2020 Peter Cornell, a Director of CEIBA, had an
indirect interest of 100,000 shares (31 December 2019: 100,000
shares).
At 30 June 2020 Trevor Bowen a Director of CEIBA, had an
indirect interest of 43,600 shares (31 December 2019: 43,600
shares).
At 30 June 2020 Colin Kingsnorth, a Director of the CEIBA, was a
director and shareholder of Laxey Partners Limited ("Laxey"). Laxey
holds 23,736,481 shares (31 December 2019: 23,736,481 shares).
Funds managed by Laxey hold 7,242,835 shares ( 31 December 2019 :
7,242,835 shares).
At 30 June 2020 Sebastiaan A.C. Berger, Portfolio manager and
Chief Executive Officer of CEIBA, had an interest of 3,273,081 s
hares (31 December 2019: 3,273,081 shares).
At 30 June 2020 Cameron Young, Chief Operating Officer of CEIBA,
had an indirect interest of 4,129,672 shares (31 December 2019:
4,129,672 shares).
At 30 June 2020 Paul S. Austin, Chief Financial Officer of
CEIBA, had an interest of 144,000 shares (31 December 2019:
144,000).
13. Basic and diluted earnings (loss) per share
The earnings (loss) per share has been calculated on a
weighted-average basis and is derived by dividing the net income
for the period attributable to shareholders by the weighted-average
number of shares in issue.
6 Months 6 Months
30 Jun 2020 30 Jun 2019
US$ US$
------------- -------------
Weighted average of ordinary shares in
issue 137,671,576 137,671,576
Net loss for the period attributable to
the shareholders (29,453,418) (5,137,375)
Basic and diluted loss per share (0.21) (0.04)
14. Commitments and contingencies
Lease commitments
The Group has operating leases for office building space. These
have a contractual life of one year with mutual acceptance required
through issuing a notice of extension in order for lease renewal to
be undertaken annually. There are no restrictions placed upon the
lessee by entering into these leases. The annual lease payments of
GrandSlam in place at 30 June 2020 were US$24,500 (30 June 2019:
US$24,500).
The rental charges paid under the GrandSlam lease is accounted
for in operational costs and for the period ended 30 June 2020
amounted to US$10,259 (30 June 2019: US$ 12,099).
TosCuba Construction Facility
In April 2018, the Group entered into the TosCuba Construction
Facility for the purpose of extending to TosCuba part of the
funding necessary for the construction of the Meliã Trinidad
Peninsula Hotel. The Construction Facility is in the maximum
principal amount of US$45,000,000, divided into two separate
tranches of US$22,500,000 each, US$13,614,722 (31 December 2019:
US$9,915,549) of which has been advanced as at 30 June 2020. The
Group has the right to syndicate Tranche B of the Construction
Facility to other lenders (see note 6).
FINTUR Facility
Since 2002, the Company has arranged and participated in
numerous secured finance facilities extended to FINTUR, the Cuban
government financial institution for Cuba's tourism sector. These
facilities act as a medium-term investment and treasury management
tool for the Group.
The facilities are fully secured by offshore tourism proceeds
from numerous internationally managed hotels.
The Group has a successful 19-year track record of arranging and
participating in over EUR150,000,000 of facilities extended to
FINTUR, with no defaults occurring during this period.
The Company has a EUR4,000,000 participation in Tranche A as
well as a EUR2,000,000 participation in Tranche B of the most
recent facility executed in March 2016 and amended in 2019. The
total four-year facility is a EUR36 million with an 8 per cent.
interest rate. The facility was operating successfully without
delay or default in March 2020, at which time all Cuban hotels were
ordered to be closed as a result of the Covid-19 pandemic. The
Company subsequently granted a further grace period to FINTUR and
consolidated all amounts outstanding under the two existing
tranches into a new Tranche C. As at 30 June 2020, the principal
amount of EUR1,750,000 (US$1,989,792) was outstanding under the
Company's participation in Tranche C of the facility
15. Financial risk management
Introduction
The Group is exposed to financial risks that are managed through
a process of identification, measurement and monitoring and subject
to risk limits and other controls. The objective of the Group is,
consequently, to achieve an appropriate balance between risk and
benefits, and to minimise potential adverse effects arising from
its financial activity.
The main risks arising from the Group's financial instruments
are market risk, credit risk and liquidity risks. Management
reviews policies for managing each of these risks and they are
summarised below. These policies have remained unchanged since the
beginning of the period to which these interim condensed
consolidated financial statements relate.
Market risk
Market risk is the risk that the fair value of future cash flows
of financial instruments will fluctuate due to changes in market
variables. Market price risk comprises two types of risks: foreign
currency risk and interest rate risk. The Group is not materially
exposed to market price risk.
(i) Foreign currency risk
Currency risk is the risk that the value of a financial
instrument denominated in a currency other than the functional
currency will fluctuate due to changes in foreign exchange
rates.
The statement of comprehensive income and the net value of
assets can be affected by currency translation movements as certain
assets and income are denominated in currencies other than US$.
Management has identified the following three main areas of
foreign currency risk:
-- Movements in rates affecting the value of loans and advances denominated in Euros;
-- Movements in rates affecting the value of cash and cash equivalents denominated in Euros; and
-- Movements in rates affecting any interest income received
from loans and advances denominated in Euros.
15. Financial risk management (continued)
Market price risk (continued)
(i) Foreign currency risk (continued)
The sensitivity of the income (loss) to a variation of the
exchange rate (EUR/US$) in relation to Euro denominated assets is
the following:
Effect of the
variation in the
foreign exchange
rate
% Income (loss) Income (loss)
30 Jun 2020 30 Jun 2019
US$ US$
------------------ --------------- ---------------
+15 1,368,760 2,461,484
+20 1,825,014 3,281,979
-15 (1,368,760) (2,461,484)
-20 (1,825,014) (3,281,979)
(ii) Interest rate risk
Interest rate risk is the risk that the fair value of future
cash flows may fluctuate due to changes in market interest
rates.
At any time that it is not fully invested in equities, surplus
funds may be invested in fixed-rate and floating-rate securities
both in Euro and in currencies other than Euro. Although these are
generally short-term in nature, any change to the interest rates
relevant for particular securities may result in either income
increasing or decreasing, or management being unable to secure
similar returns on the expiry of contracts or the sale of
securities. In addition, changes to prevailing rates or changes in
expectations of future rates may result in an increase or decrease
in the value of securities held. In general, if interest rates
rise, income potential also rises but the value of fixed rate
securities may decline. A decline in interest rates will in general
have the opposite effect.
The only interest-bearing financial instruments held by the
Group are fixed rate assets measured at amortised cost, the Group
has no material interest rate risk and therefore no sensitivity
analysis has been presented.
The interest rate risk profile of the Group's consolidated
financial assets was as follows:
Fixed Non-interest
Total rate bearing
US$ US$ US$
----------- ---------- ------------
30 June 2020
Equity investments (US$) 180,517,685 - 180,517,685
Loans and lending facilities
(EUR) 3,589,116 3,589,116 -
Loans and lending facilities
(US$) 13,614,722 13,614,722 -
Accounts receivable and accrued
income (US$) 10,552,525 - 10,552,525
Accounts receivable and accrued
income (EUR) 113,099 - 113,099
Cash at bank (EUR) 7,691,045 - 7,691,045
Cash at bank (US$) 264,750 - 264,750
Cash at bank (GBP) 1,643,227 - 1,643,227
Cash on hand (EUR) 680 - 680
Cash on hand (US$) 661 - 661
Cash on hand (CUC) 4,952 - 4,952
15. Financial risk management (continued)
Market price risk (continued)
(ii) Interest rate risk (continued)
Fixed Non-interest
Total rate bearing
US$ US$ US$
----------- --------- ------------
31 December 2019
Equity investments (US$) 227,340,559 - 227,340,559
Loans and lending facilities
(EUR) 3,230,171 3,230,171 -
Loans and lending facilities
(US$) 9,915,549 9,915,549 -
Accounts receivable and accrued
income (US$) 7,736,695 - 7,736,695
Accounts receivable and accrued
income (EUR) 121,621 - 121,621
Cash at bank (EUR) 11,230,891 - 11,230,891
Cash at bank (US$) 1,191,898 - 1,191,898
Cash at bank (GBP) 663,606 - 663,606
Cash on hand (EUR) 996 - 996
Cash on hand (US$) 1,724 - 1,724
Cash on hand (CUC) 13,463 - 13,463
Credit risk
Credit risk is the risk that one party to a financial instrument
will cause a financial loss for the other party by failing to
discharge an obligation, expected credit losses are measured using
probability of default, exposure at default and loss given default.
Management consider both historical analysis and forward looking
information in determining an expected credit loss. Refer to note 6
for the assessment expected credit loss for loans and lending
facilities.
Maximum exposure to credit risk
The table below shows the maximum exposure to credit risk for
each component of the consolidated statement of financial position
as well as future loan commitments, irrespective of guarantees
received:
30 Jun 2020 31 Dec 2019
US$ US$
------------ ------------
Loans and lending facilities 17,203,838 13,145,720
Future loan commitments (TosCuba Construction
Facility) (i) 26,885,278 30,584,451
Accounts receivable and accrued income 10,665,624 2,142,673
Cash and cash equivalents 9,605,315 13,102,578
------------ ------------
Total maximum exposure to credit risk 64,360,055 58,975,422
------------ ------------
(i) The TosCuba Construction Facility is secured by future
income of the hotel under construction and 50% of the principal
construction amount is further secured by a guarantee given by
Cubanacán S.A, Corporación de Turismo y Comercio Internacional, the
Cuban shareholder of TosCuba S.A, backed by income from another
hotel in Cuba.
The Group holds its cash and cash equivalents at financial
institutions located in the countries listed below. Also included
in the following table are the credit ratings of the corresponding
financial institutions, as determined by Moody's:
Credit 30 Jun 2020 31 Dec
2019
Rating US$ US$
-------- ------------ -----------
Cash at bank
Cuba Caa2 263,392 1,083,763
Guernsey A2 1,727,723 725,110
Spain Ba3 4,495,109 2,678,694
Spain A2 18,873 18,913
Spain Baa2 3,093,925 8,579,915
9,599,022 13,086,395
------------ -----------
Cash on hand
Spain - 100
Cuba 6,293 16,083
6,293 16,183
------------ -----------
Total cash and cash equivalents 9,605,315 13,102,578
------------ -----------
At 30 June 2020 and 31 December 2019, all cash and short-term
deposits that are held with counter-parties have been assessed for
probability of default, as a result no loss allowance has been
recognised based on 12-month expected credit losses as any such
impairment would be wholly insignificant to the Group.
Guarantees received
The amount and type of guarantees required depends on an
assessment of the credit risk of the counter-party. The Group has
neither financial nor non-financial assets obtained as property on
executed guarantees. See note 6 regarding guarantees obtained for
loans and lending facilities.
Liquidity risk
Liquidity risk is the risk that the Group will encounter in
realising its non-cash assets or otherwise raising funds to meet
financial commitments. Assets principally consist of unlisted
securities and loans, which are not readily realisable. If the
Group, for whatever reason, wished to dispose of these assets
quickly, the realisation values may be lower than those at which
the relevant assets are held in the consolidated statement of
financial position. (For maturities of financial assets and
liabilities refer to note 5, 6, 7 and 9).
Although the Group has a number of liabilities (see note 9 -
Accounts payable and accrued expenses, note 7 short term financing
and note 14 commitments and contingencies), Management assesses the
liquidity risk of the Group to be low because the Group has a
sufficient amount of cash and cash equivalents and has sufficient
cash inflows from dividend income to meet current liabilities.
The Group also has entered into the Construction Facility for
the purpose of extending to TosCuba part of the funding necessary
for the construction of the Meliã Trinidad Playa Hotel (see note
6). The Construction Facility is in the maximum principal amount of
US$45,000,000 of which US$17,018,406 (31 December 2019:
US$10,928,702) was disbursed as at 30 June 2020 of which the
participation of the Group was US$13,614,722 (31 December 2019:
US$9,915,549). It is assumed that the principal amount will be
required to be disbursed under the Construction Facility by the
Company will be approximately US$40,500,000. The Group has the
right to syndicate Tranche B of the Construction Facility to other
lenders.
The principal of the Construction Facility is to be disbursed on
a monthly basis on the percentage of construction completed in each
preceding month. It is anticipated that the full amount of the
Construction Facility will be disbursed by the end of 2021. The
Group currently does not have sufficient cash and cash equivalents
to cover the full disbursement of the Construction Facility.
Therefore, the disbursement of the Construction Facility will be
financed in part by the future operating income of the Group. If
future operating income is not sufficient to allow for the
disbursement of the Construction Facility, the Group may syndicate
a portion of the facility to other lenders or seek short-term
financing to cover any shortfall.
The estimated timing of future ash outflows under the TosCuba
Construction Facility are as follows:
30 Jun 2020 31 Dec 2019
US$ US$
------------ ------------
Between 31 and 90 days 1,829,678 1,151,827
Between 91 and 180 days 4,500,000 1,317,800
Between 181 and 1 year 17,555,600 2,400,000
Between 1 and 1 1/2 years 3,000,000 25,714,823
------------ ------------
26,885,278 30,584,450
------------ ------------
16. Fair value disclosures
Key sources of estimation uncertainty
Determining fair values
The determination of fair values for investment and financial
assets and liabilities for which there is no observable market
price requires the use of valuation techniques.For financial
instruments that trade infrequently and have little price
transparency, fair value is less objective, and requires varying
degrees of judgement depending on liquidity, concentration,
uncertainty of market factors, pricing assumptions and other risks
affecting the specific instrument.
Our valuation has been prepared in a period of significant
market instability as a result of the Covid-19 pandemic. The impact
on the Cuban tourism sector has been dramatic with almost no
international tourist arriving for the past few months, and the
Cuban economy in general is certainly suffering as a result. As it
is not possible to ascertain with any certainty when the tourism
sector and the economy will recover to anywhere near previous
levels , there is a high degree of uncertainty as to the valuation
of the subject property.
When valuing a hotel, the level of uncertainty attached to an
opinion of value is directly related to the projections of income
and expense. We have diligently prepared our projections of income
and expense and consider that they are reasonable when compared to
other hotels in the marketplace. In that regard, we consider the
level of uncertainty attached to our opinion of value to be
low.
The Group measures fair values using the following fair value
hierarchy that reflects the significance of the inputs used in
making the measurements:
-- Level 1: Quoted price (unadjusted) in an active market for an identical instrument.
-- Level 2: Valuation techniques based on observable inputs,
either directly (i.e. as prices) or indirectly (i.e. derived from
prices). This category includes instruments valued using: quoted
prices in active markets for similar instruments; quoted prices for
identical or similar instruments in markets that are considered
less than active; or other valuation techniques for which all
significant inputs are directly or indirectly observable from
market data.
-- Level 3: Valuation techniques using significant unobservable
inputs. This category includes all instruments for which the
valuation technique includes inputs not based on observable data
and the unobservable inputs have a significant effect on the
instrument's valuation. This category includes instruments that are
valued based on quoted prices for similar instruments for which
significant unobservable adjustments or assumptions are required to
reflect differences between the instruments.
Fair values of financial assets and financial liabilities that
are traded in active markets are based on quoted prices or dealer
price quotations. The Group does not currently have any financial
assets or financial liabilities trading in active markets.
For all other financial instruments, the Group determines fair
values using valuation techniques. Valuation techniques include net
present value and discounted cash flow models, comparison to
similar instruments for which market observable prices exist and
other valuation models. Assumptions and inputs used in valuation
techniques include risk-free and benchmark interest rates and
foreign currency exchange rates. The objective of valuation
techniques is to arrive at a fair value determination that reflects
the price of the financial instrument at the reporting date that
would have been determined by market participants acting at arm's
length.
For certain instruments, the Group uses proprietary valuation
models, which usually are developed from recognised valuation
models. Some or all of the significant inputs into these models may
not be observable in the market, and are derived from market prices
or rates or are estimated based on assumptions. Examples of
instruments involving significant unobservable inputs include the
equity investments of the Group in Cuban joint venture companies.
Valuation models that employ significant unobservable inputs
require a higher degree of management judgement and estimation in
the determination of fair value. Management judgement and
estimation are usually required for selection of the appropriate
valuation model to be used, determination of expected future cash
flows on the financial instrument being valued, selection of
appropriate discount rates and an estimate of the amount of cash
required for working capital needs of the joint ventures in order
to determine if they hold any Excess Cash.
The table below analyses financial instruments measured at fair
value at the end of the reporting period by the level in the fair
value hierarchy into which the fair value measurement is
categorised:
30 June 2020
US$
Level 1 Level 2 Level 3 Total
--------- --------- ------------ ------------
Financial assets at
fair value through
profit or loss
Equity investments - - 180,517,685 180,517,685
- - 180,517,685 180,517,685
---------- ---------- ------------------- ------------ ------------
31 December 2019
US$
Level 1 Level 2 Level 3 Total
--------- --------- ------------ ------------
Financial assets at
fair value through
profit or loss
Equity investments - - 227,340,559 227,340,559
- - 227,340,559 227,340,559
---------- ---------- ------------------- ------------ ------------
The following table shows a reconciliation from the beginning
balances to the ending balances for fair value measurements in
Level 3 of the fair value hierarchy:
30 Jun 2020 31 Dec 2019
Unlisted private equity investments US$ US$
------------- -------------
Initial balance 227,340,559 238,795,681
Total losses recognised in
income or loss (46,879,952) (14,658,562)
Foreign currency translation
reserve 57,078 3,203,440
Acquisitions and capital contributions - -
Final balance 180,517,685 227,340,559
------------- -------------
Total losses for the year/period
included in income or loss
relating to assets and liabilities
held at the end of the reporting
year/period (46,879,952) (14,658,562)
------------- -------------
(46,879,952) (14,658,562)
------------- -------------
17. Classifications of financial assets and liabilities
The table below provides a reconciliation of the line items in
the Group's consolidated statement of financial position to the
categories of financial instruments.
30 June 2020
US$
Cash and
Fair value Financial Financial
through assets liabilities Total
profit or at amortised at amortised carrying
Note loss cost cost amount
------------ -------------- -------------- ------------
Cash and cash equivalents 4 - 9,605,315 - 9,605,315
Accounts receivable
and accrued income 5 - 10,665,624 - 10,665,624
Loans and lending
facilities 6 - 17,203,838 - 17,203,838
Equity investments 8 180,517,685 - - 180,517,685
180,517,685 37,474,777 - 217,992,462
------------ -------------- -------------- ------------
Accounts payable 9 - - 2,210,550 2,210,550
Short-term borrowings 7 - - 1,551,727 1,551,727
- - 3,762,277 3,762,277
------------ -------------- -------------- ------------
31 December 2019
US$
Cash and
Fair value Financial Financial
through assets liabilities Total
profit or at amortised at amortised carrying
Note loss cost cost amount
------------ -------------- -------------- ------------
Cash and cash equivalents 4 - 13,102,578 - 13,102,578
Accounts receivable
and accrued income 5 - 7,858,316 - 7,858,316
Loans and lending
facilities 6 - 13,145,720 - 13,145,720
Equity investments 8 227,340,559 - - 227,340,559
227,340,559 34,106,614 - 261,447,173
------------ -------------- -------------- ------------
Accounts payable 9 - - 2,066,213 2,066,213
- - 2,066,213 2,066,213
------------ -------------- -------------- ------------
There were no reclassifications of financial assets during the
six month period for 30 June 2020 (31 December 2019: nil).
18. Dividend per share
Dividends per share are calculated by dividing the dividends
paid by the number of shares in issue on the dividend record
date.There have been no dividend declarations in 2020.
19. Events after the reporting period
There were no significant events after the reporting period.
ALTERNATIVE PERFORMANCE MEASURES
Alternative performance measures are numerical measures of the
Company's current, historical or future performance, financial
position or cash flows, other than financial measures defined or
specified in the applicable financial framework. The Directors
assess the Company's performance against a range of criteria which
are viewed as particularly relevant for closed-end investment
companies.
NAV Per Share
The net asset value ('NAV') is the value of the investment
company's assets, less any liabilities it has. The NAV per share is
the NAV divided by the number of shares in issue.
The NAV per share was US$1.29 / 104.3p as at 30 June 2020.
NAV Total Return
NAV total return involves investing any dividends paid by the
Company back into the NAV of the Company on the date on which that
share price was declared ex-dividend.
The table below provides information relating to the NAV of the
Company on the dividend reinvestment dates during the period ended
30 June 2020 and 30 June 2019.
NAV at 31 December 2019 206,734,334
Net comprehensive income for the
period(1) (29,235,798)
--------------
IFRS NAV 30 June 2020 177,498,536
Non-IFRS adjustment 3,333,333
--------------
Non-IFRS NAV at 30 June 2020 180,831,869
--------------
(1) Net comprehensive income for the period includes a net loss
on changes in the fair value of equity investments of (US$
46,879,952).
Premium (Discount) to NAV
As at 30 June 2020 , the share price was 64.5p /US$0.80 and the
net asset value per share was 104.3p / US$1.29, the discount was
therefore (38.2%).
For further information, please contact:
Aberdeen Standard Fund Managers Limited Tel: +44 (0)20 7463
Sebastiaan Berger / Evan Bruce-Gardyne / 6000
Christian Pittard
N+1 Singer Tel: +44 (0)20 7496
James Maxwell / James Moat (Corporate Finance) 3000
James Waterlow (Sales)
JTC Fund Solutions (Guernsey) Limited Tel: +44 (0) 1481 702400
***END***
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