RNS Number:0134Q
Crosby Capital Partners Inc
13 March 2008
13 March 2008
Crosby Capital Partners Inc.
(the 'Company' and together with its subsidiaries the 'Group' or 'Crosby')
Preliminary Results - Year Ended 31 December 2007
Summary Financials
* Turnover 2007: US$41.3 million (2006: US$8.9 million)
* Loss Attributable to Shareholders 2007: US$33.9 million (2006: US$57.2
million)
* Shareholder Equity 2007: US$64.2 million (2006: US$96.6 million)
* Loss Per Share (basic) 2007: US$0.14 (2006: (US$0.24))
* Assets Under Management 2007: US$2.5 billion (2006:US$1.2 billion)
Financial Highlights
* Significant, over four-fold, increase in turnover driven by an
exceptional performance at Crosby Wealth Management and first-time
contributions from Crosby Forsyth and the Crosby Active Opportunities Fund.
* Accompanied by substantial falls in both mark-to-market losses and
compensation-related expenses, leading to a US$23 million decrease in the
loss attributable to shareholders.
* As a result of the increase in turnover and monetisation of completed
deals, Crosby was cashflow positive during 2007 and closed the year with a
debt-free balance sheet.
* Assets under management ("AUM") doubled to US$2.5 billion through a
combination of organic and acquisition-led growth.
Business Highlights
* In September 2007, Crosby was appointed as the investment manager for
the fund-of-fund product range previously managed by Forsyth Partners. At
31 December 2007, AUM stood at approximately US$900 million. In March 2008,
the business was rebranded Crosby Forsyth.
* In February 2008 (after the end of the reporting period), Crosby took a
25% founding partnership stake in the newly-formed alternative asset
management group SW1 Capital LP. SW1 brings together a group of well-known,
successful individuals with a record of building investment banking and
asset management businesses.
* In April 2007, the US$130 million Crosby-led public-to-private
acquisition of ASX-listed Orchard Petroleum was successfully completed.
* Over the course of the year, as the Merchant Banking team completed new
deals, and actively monetised already completed deals, Crosby's balance
sheet became more diversified and the influence of IB Daiwa Corporation
("IB Daiwa") on the Group's financial results declined.
* 2007 at IB Daiwa saw a number of positive developments as the company
restructured its balance sheet to enable it to raise finance to develop its
asset portfolio and reposition itself as a 'natural resource asset trading
company'. The year culminated in December when IB Daiwa was removed from
JASDAQ's 'Kanri Post' to resume normal trading.
* Since Crosby was admitted to AIM in May 2004, both the merchant banking
and asset management businesses have matured and, following the progress
seen in the last twelve months, now exist as separate, independent
businesses.
* Consequently, it has been decided to restructure Crosby and its parent
company, Techpacific Capital Limited ("Techpacific").
* Crosby will become a focused, independent asset management business
whilst Techpacific will take on merchant banking as its main operating
focus.
* Subject to shareholder approval, Crosby Capital Partners Inc. will be
renamed Crosby Asset Management Inc. and Techpacific Capital Limited will
be renamed Crosby Capital Limited.
Chairman's Report
The loss attributable to shareholders in 2007 was US$33.9 million, which (though
still far from satisfactory) represents a significant improvement over the loss
of US$57.2 million in 2006. Encouragingly, turnover increased from US$8.9
million to US$41.3 million. This increase, along with substantial falls in both
mark-to-market losses and compensation-related operating expenses, accounted
mainly for the improvement.
The increase in turnover was driven by an exceptional performance at Crosby
Wealth Management ("CWM"), and first-time contributions from the Crosby Active
Opportunities Fund ("CAOF") and the newly acquired Forsyth fund-of-funds and
ratings and research business. Assets under management ("AUM") grew
substantially from US$1.2 billion to US$2.5 billion. With this organic and
acquisition-led growth and diversification, Crosby's asset management business
has now achieved sufficient critical mass to constitute an important business in
its own right.
The strategic development of Crosby's business mix was taken a stage further in
February 2008 when Crosby Asset Management (Holdings) Ltd. became a 25% founding
partner in SW1 Capital LP ("SW1"), a newly formed partnership that has been
established to take advantage of long-term strategic changes now occurring in
the asset management industry.
The merchant banking team continued to be very busy in 2007, both in sourcing
new deals and working to maximise the value of, and monetise, Crosby's existing
holdings. In the latter respect, it was pleasing to see the year close with IB
Daiwa's release from the "Kanri Post" to resume normal trading on JASDAQ, and
also to see Crosby continue to be cash flow positive - thanks largely to the
monetisation of its stake in Indago Petroleum.
I am also encouraged by the diversification during 2007 in the merchant banking
team's deal flow. During the year, the team has handled deals ranging from the
public-to-private takeover of Orchard Petroleum to the acquisition of the
investment management contracts of Forsyth Partners and advisory work with
Pocketmail. This demonstrates again that their core skill-set is identifying
undervalued assets and structuring transactions to unlock the value, rather than
a particular industry focus.
Since Crosby was admitted to the AIM market of the London Stock Exchange in May
2004, both the merchant banking and asset management businesses have matured.
The monetisation of assets acquired via past deals provided the cash to invest
during 2007 in the Forsyth business. That, along with the growth in CWM and
CAOF, provided the scale and credibility that paved the way for Crosby to
acquire its partnership stake in SW1 Capital.
In the light of these developments, I believe that it is now appropriate to
restructure Crosby's business. The restructuring will effectively result in
Crosby becoming a pure asset management company while Techpacific Capital
Limited ("Techpacific" - Crosby's parent company) concentrates on merchant
banking as its main operating focus. The changes will also create a clearer
distinction between the activities of Crosby and Techpacific. The Chief
Executive Officers Report provides more details on the restructuring.
As part of the restructuring it is proposed, subject to approval at the AGM on 1
May 2008, that the Company change its name to Crosby Asset Management Inc.
("CAM"). Johnny Chan, currently the Group Managing Director responsible for
Asset Management in Asia, has been elected to the Board. Johnny has relinquished
his role as Chief Executive of our parent company, Techpacific, and become a
non-executive director on that board. Additionally, Ilyas Khan, the Group
Managing Director responsible for our Merchant Banking businesses, has become a
non-executive on the Board and has assumed the role of Chairman and Chief
Executive at Techpacific.
The Board and I wholeheartedly recommend these changes to our shareholders.
I would like to pay tribute to Crosby's executive team in both Europe and Asia
for another year of unrelenting hard work which has placed the Company in a good
position to reward the patience of our shareholders in 2008.
Robert Owen
Chairman
Chief Executive Officer's Report
Review
There have been significant changes to Crosby's business mix and the composition
of its investment portfolio during the past fifteen months. Buoyant market
conditions in the first nine months of the year helped the Crosby Wealth
Management ("CWM") business produce an exceptional performance - assets under
management ("AUM") increased by 64% whilst turnover more than quadrupled to
approximately US$28.9 million. This, together with our acquisition of US$1
billion of fund-of-fund investment management contracts and the hiring of key
staff from Forsyth Partners in September of 2007, and the recent acquisition of
a 25% founding partnership stake in the alternative asset management group SW1
Capital ("SW1"), has resulted in asset management becoming much more meaningful
to the firm.
Alongside these developments in our asset management business, 2007 also saw
changes in our portfolio. The most significant of these developments was that IB
Daiwa ("IBD") become a far smaller proportion of the Company's portfolio of
merchant banking assets. Additionally, in March 2007, Crosby acquired a 22.23%
interest in Orchard Petroleum and, in mid-year, the Merchant Banking Group
completed a partial monetisation of our holding in Indago Petroleum.
To reflect the increasing importance of asset management as a source of both
stable cashflow and significant new business opportunities in its own right, and
to create a simplified, transparent, easily-understood business model, it has
been decided to restructure the business activities of Crosby and its parent
company Techpacific Capital Limited ("Techpacific"). As part of the
restructuring Crosby will become a focused, stand-alone asset management
business whilst Techpacific will assume merchant banking as its main operating
focus. Subject to shareholder approval at the AGMs, Crosby Capital Partners
Inc. will be renamed Crosby Asset Management Inc. and Techpacific Capital
Limited will be renamed Crosby Capital Limited.
Asset Management
On the asset management front, it is particularly pleasing to see that both CWM
and the Crosby Active Opportunity Fund ("CAOF") performed well in 2007. During
the period, CWM increased revenues from US$6.4 million to US$28.9 million and
AUM increased by 25%. Despite the challenging market conditions, CAOF provided
investors with a net return of 19.54% for the full year. Overall, AUM of the
Group more than doubled to US$2.5 billion.
The outstanding performance at CWM must be seen in the context of the global
bull markets. With the recent downturn in the markets and increased volatility,
it is prudent to anticipate a slowdown in this activity for 2008 but, as we
continue to recruit new relationship managers in Asia, we remain positive for
further overall growth in AUM during 2008.
At CAOF, although AUM growth slowed during the year, the investment performance,
with a net return of 19.54% and with positive return months outnumbering
negative return months by a ratio of 3:1, was particularly notable given the
volatility in the markets in the final few months of the year. With this
performance, CAOF is beginning to build a solid track record from which the AUM
can be increased, and there is the capacity within the markets and strategies
covered by CAOF's investment mandate to build AUM without affecting the returns.
In September 2007, we successfully concluded negotiations with the
Administrators of Forsyth Partners Limited and Forsyth Partners (Europe) Limited
(together "Forsyth"). As a result, Crosby was appointed as the investment
manager of Forsyth range of fund-of-funds. Concurrently, Crosby hired Forsyth's
UK-based investment management, research, distribution and administration teams,
and, separately, certain of the non-UK distribution staff.
I am very pleased to report that since the acquisition, despite the declines in
the markets and the uncertainty caused by Forsyth's being placed in
administration, AUM only fell by approximately US$100mn to stand over US$900
million at year-end. Moreover, a major part of the decline in AUM is due to
falls in the market value of the various funds (in line with markets generally)
rather than client redemptions, thus signifying the renewed confidence of our
clients and distributing partners in the new management of the Forsyth funds.
Forsyth was placed in Administration as a result of an over-ambitious expansion
in its distribution network that resulted in a high fixed cost base and an
inefficient operating infrastructure. These problems masked some fundamental
strengths within the business and its product range. Since September, we have
worked to reduce the cost base and increase the proportion of variable costs,
use IT to streamline and re-engineer the operating infrastructure, restructure
the product mix, and refocus the sales effort. We anticipate that the benefits
of these changes will begin to be seen in the second quarter of 2008. In March
2008 the operations were rebranded Crosby Forsyth (the funds themselves have not
been renamed).
The Crosby Forsyth business itself has helped to provide Crosby with both a
critical mass in AUM and some very attractive, established relationships within
the asset management industry. These factors helped us to gain traction in our
new initiative SW1.
In February 2008, Crosby announced that it had a 25% founding partnership
interest in SW1. Crosby's involvement with, and stake in SW1, is an exciting
development at a time when the asset management industry is undergoing radical
change. The increasing institutional interest in alternative investment products
that span the full range, from pure alpha to pure beta generation, together with
the associated demand for a robust, transparent risk management and operating
platform provides an opportunity for new entrants, such as SW1, to establish a
competitive advantage over existing players. Johnny Chan, Group Managing
Director with responsibility for our asset management operations in Asia
(including Crosby Wealth Management), and I, in lieu of any direct compensation
from Crosby as it may relate to the Crosby stake in SW1, have also become
partners in the SW1 venture.
The stake in SW1 will complement our existing asset management business and I am
very much looking forward to working with the partners at SW1 to realize the
vision of creating a truly next generation asset management business.
Merchant Banking
2007 also saw important changes in the composition of the portfolio of merchant
banking assets as the team continued to source new deals, develop and
restructure existing assets and selectively monetise the inventory.
In April 2007, the US$130 million Crosby-led public-to-private acquisition of
ASX-listed Orchard Petroleum ("Orchard") was successfully completed. The deal
has been structured to provide Crosby with a 22.23% interest in the company once
the debt financing for the acquisition has been repaid. Since March, substantial
progress has been made at Orchard to consolidate ownership of the asset
portfolio and to drill and develop the South Belridge field. Through these two
initiatives, we expect that the reserve base of Orchard will be increased
substantially and that, even in the current market conditions, we will be able
to negotiate a substantial refinancing facility that will evidence the intrinsic
values at Orchard.
The acquisition of our stake in Orchard was complemented by several new
positions and additions to existing positions - in particular, Fermiscan,
Pocketmail and White Energy - which, together with the monetisation of certain
holdings, resulted in the diversification of the merchant banking asset
portfolio away from the oil and gas sector. I was particularly pleased with the
realisation of approximately US$23 million via our holding in Indago Petroleum,
a position we effectively acquired at zero cost.
The effect of IBD on the financial results for 2007, although negative, was less
severe than in 2006. During the period under review, IBD recorded a mark to
market loss for Crosby of US$29 million compared with a US$31 million loss in
the previous year. Towards the end of the year, we began to selectively reduce
our holding in IBD and at year end we held just over 20% of the company's issued
share capital, a fall of 4% on a year earlier. I, along with two others from
Crosby's management team, continue to serve on IBD's Board.
The most significant development at IBD came late in the year when, on 26
December 2007, when JASDAQ announced that IBD would be removed from the 'Kanri
Post' to resume normal trading. IBD's status on the Kanri Post has proved to be
a severe constraint on its progress. With the resumption of normal trading, IBD
is now well positioned to develop its business more confidently.
It is also pleasing to report that, despite further disappointing drilling
results from IBD's subsidiary Lodore Resources, 2007 saw important progress
towards IBD's goal of building a robust balance sheet and a capital markets
profile that are essential if IBD is to fulfil its long-term objective of
becoming a natural resource asset trading company. In August, IBD's IPO of Leed
Petroleum ("Leed" - previously Darcy Petroleum) provided Leed with the capital
to develop its asset portfolio whilst enabling IBD to both book an extraordinary
gain of US$30 million (and, at the issue price, there remains the potential for
a further US$60 million gain) and free resources to pursue new business
opportunities.
Leed is proving to be a sound investment for IBD. When IBD purchased Leed in
December 2005 it had an enterprise value of US$57.5 million. At the IPO offer
price of 47p, Leed had a market capitalisation of US$239 million and the equity
value of IBD's investment had increased from US$10 million to approximately
US$100 million. At the close of the year Leed's stock was trading at 33.5p.
In January 2008 (after the period under review), IBD built on these positive
developments with the announcement of an investment in 10.3% of the issued share
capital of Pocketmail - an ASX-listed uranium exploration business. The
investment was facilitated through a subscription by a subsidiary of Techpacific
to a US$10 million Exchangeable Bond from IBD. The bond can be exchanged into
Leed shares.
The Future
Over the last few years, whilst the merchant banking business has matured and
developed a sustainable business model, the asset management business has grown
both in scale and in scope, and as a source of new business opportunities. In
the light of these changes and the increasing independence of the two
businesses, we have decided to restructure Crosby as a focused, stand-alone
asset management business whilst enabling Techpacific to concentrate on merchant
banking as its main operating focus.
The restructuring involves four main elements. First, the merchant banking team
will become employees of Techpacific. Second, Crosby's portfolio of merchant
banking assets will be placed into two new Crosby Special Situation Funds.
Crosby will manage the funds. However, to ensure that the value of the assets is
maximised, Crosby will enter into a standard performance-linked advisory
agreement with the merchant banking team at Techpacific.
Third, the Boards of Crosby and Techpacific will be rebalanced. At Crosby, Ilyas
Khan has stepped-down as an executive director to become a non-executive and
Johnny Chan, Group Managing Director with responsibility for our asset
management operations in Asia (including Crosby Wealth Management), has become
an executive director. At Techpacific, Johnny Chan has relinquished his
executive role, as Techpacific's CEO, and has become a non-executive director,
Ilyas Khan, currently non-executive Chairman, will become CEO and Chairman, and
subject to regulatory and other approvals, I will take on the role of a
non-executive director.
Finally, subject to shareholder approval, Crosby Capital Partners Inc. will be
renamed Crosby Asset Management Inc. and Techpacific Capital Limited will be
renamed Crosby Capital Limited.
Undoubtedly the turbulent conditions seen in the financial markets during the
last six months have had a direct impact on activity levels and profit margins
within both the asset management and merchant banking businesses. However, I
remain firmly of the belief that volatility is a source of opportunity and, with
the proposed corporate restructuring and participation in SW1, Crosby is
strategically positioned to capitalise on the opportunities. The restructuring
will create a clear distinction between the operations of Crosby and Techpacific
and both companies will benefit from simplified, transparent and
easily-understood business models and I am confident that Crosby Asset
Management Inc. is now well placed to fully benefit from the opportunities
created by the volatility in the markets and the radical changes that are
occurring within the asset management industry.
That Crosby is now so well positioned is a tribute to the unrelenting hard work
and tenacity of our staff and I would like to once again thank all my colleagues
for yet another year of determined efforts to build long-term value for our
shareholders.
Simon Fry
Chief Executive Officer
Business Review
ASSET MANAGEMENT
During 2007, turnover within Crosby's asset management businesses increased from
US$7.3 million to US$39.3 million and assets under management ("AUM") rose from
US$1.2 billion to US$2.5 billion. Whilst the financial results were driven by an
exceptional performance at Crosby Wealth Management ("CWM"), the growth in AUM
was more broadly based, with the increase in CWM's AUM being complemented by the
launch of a single-manager hedge fund (the Crosby Active Opportunities Fund -
"CAOF") and the acquisition of the investment management contracts of Forsyth
Partners fund-of-funds business.
Crosby Wealth Management
2007 was an exceptional year for CWM. Although assets under management increased
steadily, both turnover and profits significantly exceeded budget due to
increased client trading within portfolios. To a large extent this increased
trading activity reflected the buoyant market conditions that prevailed within
the Asian stock markets during much of 2007. It is, therefore, anticipated that
there will be a slowdown in activity in 2008, following increased market
uncertainty.
In December, Crosby increased its shareholding in CWM from 44.44% to 56.14%
CWM's business strategy is to build a comparative advantage relative to the
wealth management divisions of the major global investment banks and, in doing
so, ensure that CWM remains well positioned to benefit from the long-term
secular increase in wealth throughout the Asia-Pacific region. CWM's comparative
advantage is based on its ability to deliver value to clients through offering
independent advice tailored to the individual needs of the client, whilst
benefiting from a competitive cost structure and the operating infrastructure of
a major global bank with an A+ credit rating.
Crosby Forsyth
In September 2007, Crosby successfully concluded negotiations with the
Administrators of Forsyth Partners Limited and Forsyth Partners (Europe) Limited
(together "Forsyth"). As a result, Crosby was appointed as the investment
manager of the Forsyth range of fund-of-funds. Concurrently, Crosby hired
Forsyth's UK-based investment management, research, distribution and
administration teams, and, separately, certain of the non-UK distribution staff.
As at 31 December 2007, the Forsyth funds had approximately US$900 million of
assets under management in a broad range of fund-of-fund products covering
equities, bonds and alternative strategies, US$300 million in fund-of-funds
advisory mandates and a market-leading fund ratings and research business.
Between the conclusion of the deal and the end of the year, AUM declined by
approximately 10% through a combination of falls in fund net asset values,
broadly in line with the underlying markets, and client redemptions. However,
the decline in AUM due to client redemptions was significantly smaller than was
anticipated in September.
Since the completion of the transaction, the business has been undergoing a
significant restructuring to re-engineer the cost base, streamline the product
range and refocus the sales effort. In response to these changes, in March 2008,
the business was rebranded Crosby Forsyth.
Crosby Active Opportunities Fund
The Crosby Active Opportunities Fund ("CAOF") was established in December 2006
to capitalize on the Group's expertise and network, and complement the
activities of the Merchant Banking team. The fund targets absolute unleveraged
net returns in excess of 25% per annum in a broad range of Asian and
Australasian activist and event-driven opportunities. The Fund's investment
philosophy expands upon the Group's successful track record of identifying
undervalued companies and assets that require pro-active restructuring to unlock
intrinsic value.
Since CAOF's launch in December 2006, the Fund has made 14 investments,
including Leed Petroleum, Orchard Petroleum and Pocketmail. Four of these
investments have been fully and profitably exited (including the investment in
Leed). The net asset value of the fund as at the end of 2007 was US$1,198.73 per
share, up 19.87% since inception and 19.54% in 2007.
SW1 Capital
On 27 February 2008 (after the period under review), Crosby announced that it
had taken a 25% founding partnership interest in SW1 Capital LP, ("SW1"). SW1 is
a newly formed asset management partnership that brings together a diverse team
of experienced investment banking, asset management and technology professionals
with an extensive track record of developing new business initiatives. SW1 has
been established as a response to the significant and continuing changes to the
structure of the asset management industry. The initial focus will be on
completing a number of transactions, that will create the risk management and
operating infrastructure on which a comprehensive suite of alpha and beta
generating products can be built. SW1 currently has no investments or interests.
In addition to their current responsibilities at Crosby, Simon Fry, Crosby CEO,
and Johnny Chan, Crosby's Group Managing Director responsible for Asset
Management in Asia, will be joining SW1 as Limited Partners and will have an
economic interest in the partnership. The partnership interests have been
approved by the Board and Remuneration Committee of Crosby in lieu of any
compensation the partners may otherwise have received from Crosby in relation to
Crosby's revenues, profits and activities due to Crosby's stake in SW1.
MERCHANT BANKING
In 2007 Crosby's Merchant Banking team continued to use its corporate finance
and financial structuring expertise to uncover undervalued assets and develop
strategies to monetise the undervaluation. During the year, in addition to
sourcing new deals, the Merchant Banking team focused on the monetisation of
past deals and providing corporate finance advice to Crosby's investee
companies.
Orchard
In April 2007, a Crosby-led consortium completed the US$130 million takeover of
ASX-listed Orchard Petroleum Ltd. ("Orchard", ASX code: OPL). The acquisition
was financed by a combination of senior debt and convertible preference shares
provided by a small group of investors including the Crosby Active Opportunities
Fund. Crosby has earned a significant stake in the privatized company and once
the acquisition finance has been repaid will own approximately 22.23% of the
company.
Orchard is a fast growing, project rich upstream oil and gas company focused
exclusively on production, exploration, exploitation and development of oil and
gas properties in California's San Joaquin & Sacramento Basins. Orchard's
high-class asset portfolio consists of approximately 70,000 acres in six major
project areas with the potential to deliver in excess of 300MMboe in reserves.
The company has an inventory of 41 wells with 29 of them currently on
production, 7 being completed for production and 5 other wells at various stages
of appraisal. Further details of Orchard's portfolio and operations can be found
at: www.orchardpetroleum.com.
Since the acquisition, Orchard has implemented a targeted drilling programme to
migrate existing reserves from 3P to 2P and 1P, and has worked to consolidate
its asset portfolio with the overall objective of securing an updated reserve
audit to facilitate a refinancing of the acquisition debt. Since completion of
the takeover, the drilling programme has seen a total of 13 wells drilled in the
Belridge acreage, with a success rate of 100%, including a new discovery in the
Monterey formation, and daily production has increased from 308 boeppd to 523
boeppd. In addition to the Belridge acreage, Orchard has acreage at Belgian
Anticline, Turk Anticline and SE Lost Hills. The reserve audit was completed in
January 2008 and showed a substantial increase in 2P reserves.
Fermiscan
On 16 February 2007, the Dragon Fund Inc., a fund managed by Crosby Asset
Management and owned by Techpacific Capital Limited, subscribed for 8.5 million
new ordinary shares in ASX-listed Fermisan Holdings Limited ("Fermiscan", ASX
code: FER) at A$1.50 per share.
On 26 April 2007, Crosby announced that it had signed a memorandum of
understanding covering the commercialisation of Fermiscan's test for breast
cancer in the Japanese market.
Fermiscan has an exclusive, worldwide patent to commercialise a test for breast
cancer based on analysing the molecular structure of a person's hair. The test
is far less invasive than alternative procedures using mammograms and
ultra-sound. Fermiscan intends to commercialise the test after the completion of
a 2000 patient trial currently being run in Australia. It is expected that the
trial will be completed in the first half of 2008.
White Energy
On 10 May 2007, White Energy Company ("White Energy", ASX code: WEC) announced
that BHP Billiton, the world's largest diversified resources company, plans to
use its coal upgrade process for its vast sub-bituminous reserves. Additionally,
BHP agreed to provide US$35 million in convertible loan financing that will
enable White Energy to accelerate the roll out of its patented coal technology
and to act as White Energy's exclusive global marketing agent for upgraded
export coal produced at its coal technology plants.
On 15 October 2007, White Energy issued a A$45 million unsecured convertible
note. The capital raised will supplement the US$35 million in convertible loan
financing provided by BHP. Crosby acted as White Energy's financial advisor
during the transaction and, in addition to cash fees of A$900,000, Crosby earned
1.25 million options with an exercise price of A$2.50 each. As at 31 December
2007, Crosby also has 1,356,296 White Energy shares.
White Energy owns the worldwide license to a coal briquetting process that
increases the energy efficiency of low quality coal.
Pocketmail
On 8 October 2007, Pocketmail Group Limited ("Pocketmail", ASX code: PKT)
announced that it had appointed Crosby as its adviser to assist in its
development. In consideration, Pocketmail agreed to grant to Crosby 5 million
options with an exercise price of A$0.06 per share on or before 30 November 2011
and a further 5 million options with an exercise price of A$0.065 per share on
or before 1 December 2011. The Crosby Active Opportunities Fund also has a
stake in Pocketmail.
Pocketmail, through its wholly-owned subsidiary Adavale Minerals Pty Ltd,
undertakes uranium exploration activities focusing on sedimentary uranium
deposits. The focus of exploration activities is currently in the Marree Area,
South Australia, where a drilling program has shown the existence of widespread
anomalous radioactive zones, mostly at shallow depths.
On 14 February 2008, shareholder approval was received for Pocketmail to be
renamed Adavale Resources to reflect its uranium exploration focus. Following
the shareholders meeting, Pocketmail's share capital will be consolidated on a
3:1 basis. As a result of the adjustment, Crosby will subsequently own 357,143
shares and 2,976,190 options with an exercise price of A$0.21 per share.
Indago
In March 2007, Indago Petroleum ("Indago", AIM code: IPL) announced that it was
disposing of 100% of its production and development assets and 50% of its
exploration assets to RAK Petroleum for a total cash consideration of
�194,235,267. On completion of the sale, Indago announced a special dividend of
60p per share. This resulted in a payment of approximately US$16.8 million of
cash to Crosby in April 2007. Following the disposal and special dividend,
Indago became a pure exploration company with sufficient cash to complete its
exploration programme. During the remainder of 2007, Crosby generated a further
US$5 million through the monetisation of its holding.
IB Daiwa
IB Daiwa Corporation ("IB Daiwa", JASDAQ code: 3587) is a JASDAQ listed natural
resource asset trading company. During 2007, IB Daiwa began a significant
strategic shift to diversify its business away from the US oil and gas sector
and to restructure its balance sheet to provide a sound base from which to raise
capital to fund new business opportunities and exploit the opportunities within
its existing portfolio. In the latter respect, the year saw three major
developments: in August, IB Daiwa's subsidiary US oil and gas subsidiary Leed
Petroleum undertook an IPO on the AIM market of the London Stock Exchange, in
September, Bayerische Hypo- und Verinsbank AG ("HVB") provided a US$20 million
loan facility to IB Daiwa to fund Lodore's oil and gas exploration programme,
and on 26 December 2007 IB Daiwa was released from the "Kanri Post" on the
JASDAQ stock exchange to resume normal trading.
Darcy/Leed
In February 2007, Darcy raised US$18 million through a placement of new shares
representing 13.4% of the then enlarged share capital. The fundraising provided
capital to expand and develop Darcy's asset portfolio.
On 25 June 2007, IB Daiwa announced that Darcy had commenced procedures for the
initial public offering of Darcy on the AIM market of the London Stock Exchange.
On 24 July 2007, Darcy changed its name to Leed Petroleum ("Leed") and was
admitted to AIM on 15 August 2007 (AIM code: LDP). The IPO raised approximately
US$100 million of new capital. At the offer price of 47p, Leed had a market
capitalisation of approximately US$239 million. Following Leed's admission to
AIM IB Daiwa has a 41.7% shareholding in Leed. At the offer price, IB Daiwa's
initial equity investment of US$10.2 million increased by approximately 880% to
US$100 million. As a result, IB Daiwa booked a gain on deemed disposal of about
US$32 million.
Leed commenced drilling of the Eugene Island A-6 development well on 16
September 2007 and penetrated the sandstone of the primary target at a measured
depth of 15,112 feet by early January 2008. Based on the competent person report
at Leed's admission to AIM, the primary zone is estimated to have 2P reserves of
824,000 barrels of oil and 4.8 billion cubic feet of gas. Based on current
evaluation of the logs, Leed estimates that the post-drill reserve estimate for
the primary zone exceeds this by one third. After production, Leed's independent
reserve auditor is expected to move a substantial portion of the pre-drill
estimated 2P reserves into the 1P category.
Leed was also awarded additional leases at Main Pass and Ship Shoal in January
2008.
Lodore
During 2007, Lodore had a single producing well - Kami - operating onshore in
Louisiana in the US. Having produced steadily throughout the year, Kami saw
increased water production in the latter part of the year that reduced
production volumes. Remedial work is currently being undertaken.
2007 saw further delays and cost over-runs in Lodore's high risk/high impact
deep gas drilling programme. At the Endeavor prospect, drilling encountered
challenging conditions with progress being delayed on three separate occasions
due to well control events caused by high pressure kicks which necessitated the
drilling of sidetracks. The costs related to these events were largely covered
by insurance. On 26 November 2007, IB Daiwa announced that drilling had reached
a true vertical depth of 19,003 feet and that, as the well had not reached its
primary target of the Planulina sandstone, the joint venture partners had agreed
to deepen the well to 20,000 feet. However, drilling has been suspended while
the JV seeks new insurance coverage. At the date of this report, new insurance
coverage had not been obtained and drilling remained suspended.
In the remainder of Lodore's drilling programme, the delays at Endeavor had a
knock-on effect at North West Kaplan as, subject to Lodore obtaining financing,
drilling is now scheduled to commence in the first quarter of 2008, whilst
drilling at Manzano has also been delayed due to availability of rigs. The
Manzano well was spudded in February 2008. Lodore has rights in the deep target
zones (below a true vertical depth of 10,500 feet). If commercial hydrocarbons
are encountered in the shallow section, the well will be completed in these
shallow zones for an extended production test; if no commercial hydrocarbons are
encountered above 10,500 feet, the well will be deepened to approximately 15,100
feet (true vertical depth) to test the deeper primary target. Subject to the
availability of finance Lodore will elect to participate in the deeper zones
based on the drilling results from the shallower zones.
New business initiative
After release from the Kanri post, IB Daiwa made progress on its strategy to
diversify its portfolio into other natural resources areas through the
subscription and purchase of 21,333,334 shares of Adavale Resources Limited
(formerly known as Pocketmail Group Limited) in January 2008, representing a
11.6% stake in Adavale.
Consolidated Income Statement
For the year ended 31 December 2007
Continuing Operations Notes 2007 2006
US$'000 US$'000
Turnover/Revenue 41,341 8,899
Loss on financial assets at fair value through
profit or loss (13,727) (25,572)
Loss on financial liabilities at fair value
through (443) (846)
profit or loss
Other income 1,030 2,570
Administrative expenses (37,495) (35,822)
Distribution expenses (221) (14)
Other operating expenses (8,791) (4,949)
----------- -----------
Loss from operations (18,306) (55,734)
Finance costs (37) (163)
Amortisation of intangible assets (123) -
Excess of fair value over cost of acquired
subsidiary 409 959
Share of loss of a jointly controlled entity - (25)
Share of (losses)/profits of associates (119) 59
----------- -----------
Loss before taxation (18,176) (54,904)
Taxation expense 3 (2,439) (176)
----------- -----------
Loss for the year (20,615) (55,080)
----------- -----------
Attributable to:
Equity holders of the Company (33,911) (57,207)
Minority interests 13,296 2,127
----------- -----------
Loss for the year (20,615) (55,080)
----------- -----------
Loss per share for loss attributable to
the equity holders of the Company
during the year 4 US cents US cents
- Basic (13.94) (23.58)
- Diluted (13.94) (23.58)
Consolidated Balance Sheet
As at 31 December 2007
2007 2006
US$'000 US$'000
ASSETS
Non-current assets
Property, plant and equipment 1,009 493
Interests in associates 314 654
Interest in a jointly controlled entity 81 135
Available-for-sale investments 5,523 198
Loan receivable 463 -
Intangible assets 8,718 488
---------- ----------
16,108 1,968
---------- ----------
Current assets
Amounts due from parent and related companies 169 1,217
Trade and other receivables 8,120 4,234
Tax recoverable 75 -
Financial assets at fair value through profit or loss 43,638 127,542
Cash and cash equivalents 20,766 9,987
---------- ----------
72,768 142,980
---------- ----------
Total assets 88,876 144,948
---------- ----------
LIABILITIES
Current liabilities
Amount due to parent company - (121)
Trade and other payables (13,977) (10,802)
Provision for taxation (2,425) (99)
Financial liabilities at fair value through profit or
loss - (9,186)
---------- ----------
Total liabilities (16,402) (20,208)
---------- ----------
EQUITY
Share capital 2,433 2,427
Reserves 61,772 94,161
---------- ----------
Equity attributable to equity holders
of the Company 64,205 96,588
Minority interests 8,269 28,152
---------- ----------
Total equity 72,474 124,740
---------- ----------
Total equity and liabilities 88,876 144,948
---------- ----------
Consolidated Statement of Changes in Equity
For the year ended 31 December 2007
Equity attributable to equity holders of the Company
--------------------------------------------------------------
Share Share Capital Employee Foreign Investment Profit
capital premium reserve share - exchange revaluation and loss
US$'000 US$'000 US$'000 based reserve reserve account
compen- US$'000 US$'000 US$'000
sation
reserve
US$'000
At 1 January
2006 2,394 4,321 23,455 918 (193) (2) 119,952
Issue of new
shares upon
exercise of
share options 33 1,594 - (385) - - -
Issue of
redeemable
preference
shares in a
subsidiary - - - - - - -
Exchange
difference on
consolidation - - - - 265 - -
Repurchase of
shares of a
subsidiary - - - - - - -
Employee
share-based
compensation - - - 1,722 - - -
Transfer to
financial
assets at fair
value through
profit or loss - - - - - - -
Effect on
disposal of
shares of a
subsidiary to
staff - - - (279) - - -
Capital
contribution
from minority
shareholder - - - - - - -
Other movement - - - - - - -
(
Loss)/Profit
for the year - - - - - - (57,207)
--------------------------------------------------------------------------------
At 31 December
2006 and
1 January
2007 2,427 5,915 23,455 1,976 72 (2) 62,745
Issue of new
shares upon
exercise of
share options 6 321 - (77) - - -
Exchange
differences on
consolidation - - - - 93 - -
Surplus on
revaluation - - - - - 157 -
Employee
share-based
compensation - - - 1,028 - - -
Deemed
disposal of a
subsidiary - - - - - - -
Dividend paid
to minority
shareholders - - - - - - -
Additional
investment in
a subsidiary - - - - - - -
(Loss)/Profit
for the year - - - - - - (33,911)
--------------------------------------------------------------------------------
At 31 December
2007 2,433 6,236 23,455 2,927 165 155 28,834
--------------------------------------------------------------------------------
Consolidated Statement of Changes in Equity (Continued)
For the year ended 31 December 2007
Minority Total
interests equity
US$'000 US$'000
At 1 January
2006 19,892 170,737
Issue of new
shares upon
exercise of
share options - 1,242
Issue of
redeemable
preference
shares in a
subsidiary 10,461 10,461
Exchange
difference on
consolidation - 265
Repurchase of
shares of a
subsidiary (125) (125)
Employee
share-based
compensation - 1,722
Transfer to
financial
assets at fair
value through
profit or loss (5,141) (5,141)
Effect on
disposal of
shares of a
subsidiary to
staff 281 2
Capital
contribution
from minority
shareholder 437 437
Other movement 220 220
(
Loss)/Profit
for the year 2,127 (55,080)
-------------------------------------------
At 31 December
2006 and
1 January
2007 28,152 124,740
Issue of new
shares upon
exercise of
share options - 250
Exchange
differences on
consolidation - 93
Surplus on
revaluation - 157
Employee
share-based
compensation 13 1,041
Deemed
disposal of a
subsidiary (12,586) (12,586)
Dividend paid
to minority
shareholders (19,356) (19,356)
Additional
investment in
a subsidiary (1,250) (1,250)
(Loss)/Profit
for the year 13,296 (20,615)
--------------------------------------------
At 31 December
2007 8,269 72,474
--------------------------------------------
Consolidated Cash Flow Statement
For the year ended 31 December 2007
2007 2006
US$'000 US$'000
Operating activities
Loss before taxation (18,176) (54,904)
Adjustments for:
Share of loss of a jointly controlled entity - 25
Share of losses/(profits) of associates 119 (59)
Interest income (608) (623)
Finance costs 37 163
Corporate finance advisory fee received in kind (954) (1,545)
Loss on financial assets at fair value through profit or
loss 13,727 25,572
Loss on financial liabilities at fair value through profit
or loss 443 846
Employee share-based compensation 1,041 1,722
Depreciation of property, plant and equipment 439 298
Gain on disposal of an associate (236) (75)
Loss / (gain) on deemed disposal of a subsidiary 449 (329)
Amortisation and impairment of intangible assets 123 238
Excess of fair value over cost of acquired subsidiary (409) (959)
Impairment of available-for-sale investments - 28
Bad debts recovery (67) (22)
Impairment of receivables - 222
Exchange loss, net 153 306
---------------------
Operating cashflow before working capital changes (3,919) (29,096)
Acquisition of financial assets at fair value through
profit or loss (2,833) (21,588)
Proceeds from sale of financial assets at fair value
through profit or loss 13,212 34,731
Dividend received from financial assets at fair value
through profit or loss 42,154 -
Repayment of financial liability at fair value through
profit or loss (9,629) -
Increase in trade and other receivables (6,048) (539)
Increase in trade and other payables 15,192 10,262
Decrease in deferred income - (25)
Decrease/(increase) in amounts due from parent company and
related company 1,395 (129)
Increase in amount due to parent company - 124
Decrease/(increase) in amount due from a jointly
controlled 54 (101)
entity
Increase in amounts due from associates (2) -
Decrease in amounts due to associates (2) (2)
---------------------
Cash generated/(used) from operations 49,574 (6,363)
Tax paid (264) (174)
Tax refund 76 13
Interest paid (37) (163)
---------------------
Net cash inflow/(outflow) used in operating activities 49,349 (6,687)
---------------------
Consolidated Cash Flow Statement (Continued)
For the year ended 31 December 2007
2007 2006
US$'000 US$'000
Investing activities
Interest received 603 621
Purchases of property, plant and equipment (815) (194)
Acquisition of additional interest in a subsidiary (421) (8)
Acquisition of available-for-sale investments (5,175) (17)
Acquisition of the Forsyth business (7,320) -
Acquisition of intellectual property - (8)
Proceeds from sale of property, plant and equipment 2 -
Proceeds from sale of available-for-sale investments 6 -
Cash at date of deemed disposal of a subsidiary (12,250) -
Net proceeds from disposal of of subsidiaries 275 22
Net repayment from/(advance to) staff 91 (95)
---------- ----------
Net cash (outflow)/inflow from investing activities (25,004) 321
---------- ----------
Financing activities
Dividend paid to minority shareholders (13,832) -
Issue of shares 250 1,242
Repayment of other loan - (10,960)
Drawdown of other loan - 5,000
Issue of redeemable preference shares by a subsidiary - 10,790
Capital injection from minority shareholders - 130
Repurchase of subsidary's own shares of a subsidary - (294)
---------- ----------
Net cash (outflow)/inflow used in financing activities (13,582) 5,908
---------- ----------
Net increase/(decrease) in cash and cash equivalents 10,763 (458)
Cash and cash equivalents as at 1 January 9,987 10,443
Effect of exchange rate fluctuations 16 2
---------- ----------
Cash and cash equivalents as at 31 December 20,766 9,987
========== ==========
Notes to the Consolidated Financial Information
1. Basis of preparation
The Company was incorporated in the Cayman Islands, which does not prescribe the
adoption of any particular accounting framework. The Board has therefore adopted
International Financial Reporting Standards ("IFRS") issued by the International
Accounting Standards Board. The Company's shares are listed on the AIM of the
London Stock Exchange
The financial statements are prepared under historical cost convention except
for certain financial instruments which are measured at fair value. The
measurement bases are fully described in the accounting policies detailed in the
Group's annual report and financial statements.
It should be noted that accounting estimates and assumptions are used in
preparation of the financial statements. Although these estimates are based on
management's best knowledge and judgement of current events and actions, actual
results may ultimately differ from those estimates. The areas involving a higher
degree of judgement or complexity, or areas where assumptions and estimates are
significant to the financial statements, are set out in the Group's annual
report and financial statements.
The consolidated financial statements incorporate the financial statements of
the Company and its subsidiaries made up to 31 December each year. Material
intra-group balances and transactions, and any unrealised gains arising from
intra-group transactions, are eliminated on consolidation. Unrealised losses are
also eliminated unless the transaction provides evidence of an impairment of the
asset transferred.
The principal accounting policies are detailed in the Group's annual report and
financial statements.
2. Segmental Information
a) Primary reporting format - business segment:
Merchant banking Asset management Unallocated Consolidated
2007 2006 2007 2006 2007 2006 2007 2006
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 S$'000
Turnover/
Revenue 2,046 1,545 39,295 7,354 - - 41,341 8,899
--------------------------------------------------------------------------------
Segment
results (26,917) (45,168) 14,445 (1,401) - - (12,472) (46,569)
Unallocated
loss from
operations - - - - (5,834) (9,165) (5,834) (9,165)
--------------------------------------------------------------------------------
Loss from
operations (18,306) (55,734)
Finance costs (37) (163)
Amortisation
of intangible
assets (123) -
Excess of fair
value over
cost of
acquired
subsidiary 409 959
Share of loss
of a jointly
controlled
entity - (25)
Share of
(losses)/profi
ts of
associates (119) 59
-----------------
Loss before
taxation (18,176) (54,904)
Taxation
expense (2,439) (176)
-----------------
Loss for the
year (20,615) (55,080)
-----------------
Segment assets 50,574 136,602 29,698 4,882 - - 80,272 141,484
Unallocated
assets - - - - 8,604 3,464 8,604 3,464
--------------------------------------------------------------------------------
Total assets 50,574 136,602 29,698 4,882 8,604 3,464 88,876 144,948
--------------------------------------------------------------------------------
Segment
liabilities 4,589 16,487 8,102 354 - - 12,691 16,841
Unallocated
liabilities - - - - 3,711 3,367 3,711 3,367
--------------------------------------------------------------------------------
Total
liabilities 4,589 16,487 8,102 354 3,711 3,367 16,402 20,208
--------------------------------------------------------------------------------
Other
information
Capital
expenditure 39 67 124 4 652 139 815 210
Depreciation 73 66 69 60 297 172 439 298
Amortisation
of intangible
assets - - 123 - - - 123 -
Impairment of
goodwill - - - 238 - - - 238
Impairment of
receivables - 222 - - - - - 222
Notes
i) Merchant Banking - provision of corporate finance and other advisory
services and the change in fair value of financial assets and
liabilities through profit or loss arising from the Group's merchant
banking activities
ii) Asset Management - provision of fund management, asset management
and wealth management services
iii) Unallocated - primarily items related to corporate offices
b) Secondary reporting format -geographical segment:
With regard to the asset management business, the Group defines
geographical segment with reference to those revenue-producing assets
and transactions that arise from customers domiciled worldwide. Due
to the nature of the business, precise segregation of geographical
activities is considered not appropriate without making subjective
judgements.
The Group's remaining activities during the year ended 31 December
2007 are mainly operated or carried out in Asia.
3. Taxation Expense
2007 2006
US$'000 US$'000
Current tax
- United Kingdom tax - 96
- Overseas tax 2,439 80
----------------------------
2,439 176
----------------------------
United Kingdom and overseas income tax for the year have been calculated at the
rates prevailing in the relevant jurisdictions.
A reconciliation of the tax expense applicable to the loss before taxation using
the statutory rates for the countries in which the Company and its subsidiaries
are domiciled to the tax credit or expenses at the effective tax rates, and a
reconciliation of the statutory tax rates to the effective tax rates, are as
follows :
2007 2006
US$'000 % US$'000 %
Loss before taxation (18,176) (54,904)
Less: Adjustments
Share of loss of a jointly controlled
entity - 25
Share of losses/(profits) of associates 119 (59)
--------------------------------------
(18,057) (54,938)
--------------------------------------
Tax at the domestic income tax rates (3,160) 17.50 (9,614) 17.50
Effect of different tax rates of
subsidiaries operating in other regions (129) 0.71 (42) 0.08
Tax effect of prior year's tax losses
utilised this year (481) 2.66 (173) 0.31
Income not subject to tax (133) 0.74 (55) 0.10
Expenses not deductible for tax 6,263 (34.69) 9,886 (17.99)
Tax effect of unrecognised temporary
difference 11 (0.06) 14 (0.03)
Tax effect of unrecognised tax losses 68 (0.37) 160 (0.29)
--------------------------------------
Current tax charge for the year 2,439 (13.51) 176 (0.32)
--------------------------------------
The Group has significant unrelieved tax losses, the utilisation of which is
uncertain and consequently no deferred tax asset has been recognised.
4. Loss per Share
(a) Basic
Basic loss per share is calculated by dividing consolidated loss attributable to
equity holders of the Company by the weighted average number of ordinary shares
in issue during the year.
2007 2006
US$'000 US$'000
Loss attributable to equity holders of the Company (33,911) (57,207)
---------------------------
2007 2006
Weighted average number of shares for calculating
basic loss per share 243,235,548 242,583,904
---------------------------
2007 2006
US cents US cents
Basic loss per share (13.94) (23.58)
---------------------------
(b) Diluted
No diluted loss per share is shown for 2007 and 2006, as the outstanding share
options were anti-dilutive.
5. Publication
The financial information set out in this preliminary announcement does not
constitute statutory accounts.
The consolidated balance sheet at 31 December 2007 and the consolidated income
statement, consolidated statement of changes in equity, consolidated cash flow
statement and enclosed notes for the year then ended have been extracted from
the Group's 2007 statutory financial statements upon which the auditors opinion
is unqualified.
6. Copies of This Announcement
Copies of this announcement are available for collection from the Company's
offices at 243 Knightsbridge, London SW7 1DN.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR EANDDFEPPEEE
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