27 July 2012

 

TERRA CATALYST FUND

 

ANNUAL REPORT AND FINANCIAL STATEMENTS

 

NOTICE OF ANNUAL GENERAL MEETING

 

Terra Catalyst Fund ("the Company") (AIM:TCF) today announces the release of its Annual Report and Financial Statements for the year ended 31 March 2012 ("the Financial Statements").  The full text of the Financial Statements is set out below.

 

The Board wish to draw shareholders attention to a separate letter from the Chairman (the "Chairman's Letter"), full text of which is included below. In addition to the ordinary business being proposed at the AGM (resolution numbers 1 to 6 of the Notice of AGM), the Chairman's Letter outlines proposals relating to (i) the change to the Company's investing policy, (ii) the introduction of an in specie exchange facility and (iii) a change to the terms of the investment management agreement. 

 

An electronic copy of the Financial Statements and Chairman's Letter is available on the Company's website at www.terracatalystfund.com*.  Printed copies of the Financial Statements and Chairman's Letter will be posted to shareholders in the week beginning 30 July 2012 and will also be available, free of charge, for one month from the date of posting from the Company's investment manager, Laxey Partners Ltd, 4^th Floor, Derby House, 64 Athol Street, Douglas, Isle of Man IM1 1JD.

 

The Annual General Meeting of the Company will be held at Hotel Mercure Paris Terminus Nord, 12 Boulevard de Danain, Ile de France, 75010 Paris, France on 25 September 2012.  Notice of the Annual General Meeting, together with a form of proxy for use at the meeting will also be sent to shareholders week beginning 30 July 2012 at which time an electronic copy will be available on the Company's website.

 

 

*Neither the content of Terra Catalyst Fund's website nor the contents of any website accessible from hyperlinks on that website (or any other website) is incorporated into, or forms part of, this Announcement.

 

ENQUIRIES TO:

Terra Catalyst Fund

Mike Haxby, Director

www.terracatalystfund.com 

 

Tel: +44 (0)1624 690 900

Fairfax I.S. PLC

James King/ Stuart Gledhill

Tel: +44 (0)207 598 5368

 

NOTE TO EDITORS

Terra Catalyst Fund

Terra Catalyst Fund is a closed-ended Cayman Islands registered, exempted company established to invest in listed property companies and funds in Europe, with the objective of seeking to identify undervalued securities and actively seeking to close the valuation gap between the value at which the security is trading and its intrinsic value.

 

CHAIRMAN'S LETTER

 

Dear Shareholders

 

Notice of Annual General Meeting
PROPOSALS RELATING TO THE FUTURE OF THE COMPANY

 

1.  Introduction

 

I am writing to provide details of the Company's fourth annual general meeting which is to be held at 1p.m. on 25 September 2012 at Hotel Mercure Paris Terminus Nord, 12 Boulevard de Danain, Ile de France, 75010 Paris, France (the "AGM"). The audited Annual Report and Financial Statements of the Company for the year ended 31 March 2012, together with the reports of the Directors, Laxey Partners Limited (the "Investment Manager") and the auditors thereon is enclosed. The notice of AGM ("Notice of AGM") is also separately enclosed.

 

In addition to the ordinary business being proposed at the AGM (resolution numbers 1 to 6 of the Notice of AGM), the purpose of this document is to explain proposals relating to the future of the Company, further details of which are set out at paragraphs 2 to 6 below.

 

2.  PROPOSED CHANGE OF INVESTING POLICY

 

Investment Objective and Policy

 

In the Company's Admission Document published in February 2008 (the "Admission Document"), the Board committed to propose at the annual general meeting of the Company to be held in 2013 an ordinary resolution that the Company continue as presently constituted. In this regard, I have consulted, together with the Investment Manager, Shareholders, including the Investment Manager, holding over 67% of the Company's ordinary shares ("Ordinary Shares").  While there are many different views concerning the future of the Company, the consensus is that no further investments should be made.

 

Accordingly, the Directors are proposing to Shareholders that the formal investment objective and investment policy of the Company be changed permanently as follows:

 

"The Company's investment objective and policy is to seek realisation of its portfolio of investments in the ordinary course of business and, subject to retaining sufficient cash to meet operating costs and liabilities, to return the net proceeds of all such realisations to Shareholders on a periodic basis, following which the Company will be wound-up. The Company will make no new investments except follow on investments required to protect the interests of the Company."

 

Consequently, paragraph (b) of resolution no. 7 set out in the Notice of AGM (the "Realisation Resolution") will propose this change to the Company's investment objective and investment policy.

 

It should be noted that, if the Realisation Resolution is passed, this will not result in any immediate or accelerated sale of the Company's portfolio of investments (the "Portfolio").  Investments will only be realised when, in the opinion of the Directors and Investment Manager, an appropriate opportunity presents itself. The Company expects that the most likely exit for any investments in the Portfolio will be a corporate solution which results in a total realisation and exit from the relevant position. 

 

If the Realisation Resolution is passed, the Board intends that subject to retaining sufficient cash to meet operating costs and liabilities, the net proceeds of all realisations will be returned to Shareholders in the most efficient manner possible.

 

Discount Control Policy

 

The Admission Document disclosed the Company's policy towards controlling the discount at which the applicable quoted price of the Ordinary Shares may trade relative to the prevailing Net Asset Value per Ordinary Share. If the Realisation Resolution is passed, the Board intends that the Company will cease to buy back Ordinary Shares in the market.

 

Distribution Policy

 

On 1 August 2011, the Board announced the introduction of a distribution policy whereby distributions of 2 pence per Ordinary Share would be made at six monthly intervals in order to permit a regular return of cash to Shareholders (the "Distribution Policy"). If the Realisation Resolution is passed, the Distribution Policy will be discontinued.

 

3.  In specie exchange facility

 

Conditionally upon the Realisation Resolution being approved by Shareholders at the AGM and subject as set out below, any existing Shareholder who holds five per cent. of the issued Ordinary Shares at the relevant time (or such lower percentage as the Directors in their sole discretion shall determine) will have the right, at any time following the AGM, to request the Company to exchange all, but not part, of such Shareholder's Ordinary Shares with the consideration arising being satisfied by an in specie transfer of Portfolio securities and cash adjusted to reflect the Net Asset Value on the date of exchange ("Exchange"). The date of Exchange shall, except where the Directors determine otherwise, be a Net Asset Value calculation date. The acceptance of any such Exchange request shall be at the sole discretion of the Directors, and will, amongst other things, be dependent upon the Company complying with all applicable laws in relation to any such Exchange. If such a request is accepted, the requesting Shareholder will receive a pro rata in specie transfer of Portfolio securities which may be adjusted in any way that the Directors, in their sole discretion, determine to protect the value of the Portfolio as a whole and to achieve fairness as between Shareholders. Where an Exchange request is accepted, the Company will seek to satisfy such a request within 180 days of receipt of the request. All Ordinary Shares received by the Company pursuant to an Exchange will be cancelled.

 

Shareholders should note that entitlement to participate in the Exchange is limited to Shareholders who currently hold Ordinary Shares (that is they are on the register of members as at 5pm Thursday 26 July 2012) and at the relevant time hold five per cent. of the issued Ordinary Shares or such lower percentage as the Directors in their sole discretion shall determine.

 

Any Shareholder whose request for an Exchange is accepted, shall be subject to pay a fee, in cash, to the Company, equal to 2 per cent. of the applicable Net Asset Value of the Ordinary Shares to be repurchased by the Company (calculated by reference to the first net asset value following receipt of the Shareholder's request). Such Shareholder shall also be liable to pay for any associated costs of transferring Portfolio securities, including any relevant stamp duty. In addition, agreement by the Directors to any in specie transfer will be subject to the relevant Shareholder entering into a form of lock-up agreement, approved by the Directors. Under the terms of the lock-up agreement the relevant Shareholder would, inter alia, agree not to dispose of any of the in specie securities received for a minimum lock-up period of one year, unless the Company has completely sold its position in the relevant Portfolio securities. In the event that the Company intends to undertake a block trade of any Portfolio securities, as far as is possible, this opportunity will be made available to any Shareholder who has received the same securities through an Exchange, provided that this does not have an adverse impact on the Company.

 

As at 27 July 2012, the Investment Manager held 19,550,870 Ordinary Shares, equivalent to 20.396% of the Ordinary Shares in issue. The Investment Manager has informed the Board that it expects to request an Exchange in respect of all of the Ordinary Shares that it holds and that it will participate and support any corporate solution which results in an exit from Portfolio securities held by the Company.  The Investment Manager would not, however, participate if the Company's exit is by way of sales of the relevant securities through the market until the Company had completely exited its position in the relevant securities.

 

Paragraph (a) of the Realisation Resolution to be tabled at the AGM will propose a change to the Company's current articles of incorporation to enable the implementation of the Exchange facility.

 

4.  INVESTMENT MANAGEMENT AGREEMENT

In the event that the Realisation Resolution is passed with the effect that the Company becomes a realisation vehicle, the investment management agreement (the "Investment Management Agreement") dated 19 February 2008 entered into between the Company and the Investment Manager will be amended and restated to reflect the following changes:

 

Investment Management Fee

 

Period from 25 September 2012 to 25 September 2013 (the "Initial Period")

 

During the Initial Period, the Investment Manager will receive a monthly management fee equal to one twelfth of 2% of the Net Asset Value. 

 

Period from 25 September 2013

 

Following the Initial Period, the Investment Manager will receive a management fee equal to (a) a monthly payment of one twelfth of 0.5% of the Net Asset Value less the carrying value of the Company's indirect interest in Spazio Investment NV; and (b) 1.5% of the gross amount of distributions paid to Shareholders.

 

Performance Fee

 

The Board and the Investment Manager have agreed that the performance fee will be cancelled.

 

The Directors, other than Mr. Haxby (the "Independent Directors"), having consulted with the Company's nominated adviser believe that the proposed amendments to the Investment Management Agreement described above are fair and reasonable insofar as Shareholders are concerned.  Mr. Haxby, who is connected with the Investment Manager, has taken no part in the Independent Directors' consideration of the proposed changes to the Investment Management Agreement.

 

Paragraph (c) of the Realisation Resolution to be tabled at the AGM will propose the relevant changes to the Investment Management Agreement.

 

5.  REDUCTION IN OPERATING COSTS

The Board and the Investment Manager will actively seek to reduce the overall operating costs of the Company.

 

6.  Recommendation

Your Directors are unanimously in favour of all the resolutions, including the Realisation Resolution, to be proposed at the AGM, which they consider to be in the best interests of the Shareholders as a whole.  Accordingly, your Directors unanimously recommend that Shareholders vote in favour of all resolutions at the AGM, as they intend to do in respect of their own beneficial shareholdings of, in aggregate, 391,038 Ordinary Shares (representing 0.4% of the current issued ordinary share capital of the Company).

 

Yours faithfully

 

Robert Ware

Chairman

 

 

 

TERRA CATALYST FUND

AUDITED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 MARCH 2012

(WITH REPORT OF THE INDEPENDENT AUDITORS THEREON) 

 

 

Directors' Report

For the year ended 31^st March 2012

 

The Directors have pleasure in presenting their report and audited financial statements of the Company for the year ended 31^st March 2012.

 

The Company

Terra Catalyst Fund (the "Company") was incorporated in the Cayman Islands on 21^st December 2007 and listed on the AIM on 25^th February 2008. The principal activity of the Company is that of a closed-end investment fund.

 

Investment Objective

The investment objective of the Company is to provide an absolute return for its shareholders (in Sterling) primarily through capital growth by investment in property related securities.

 

Results and Distributions

The Net Asset Value per Share of the Company at 31^st March 2012 was 66 pence (31^st March 2011: 87 pence).

 

The Directors announced a capital repayment of 2 pence per share (31^st March 2011: nil) with an ex-date of 14^th December 2011. The total amount of the distribution was £1,917,151.

 

After the period end the Directors announced another capital repayment of 2 pence per share with an ex-date of 13^th June 2012. The total amount of the distribution was £1,917,151.

 

Statement of Directors' Responsibilities

The Directors are responsible for preparing the Directors' Report and the financial statements in accordance with applicable law and regulations.

 

In addition, the Directors have elected to prepare the financial statements in accordance with International Financial Reporting Standards.

 

The financial statements are required to give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.

 

In preparing these financial statements, the Directors are required to:

 

-   select suitable accounting policies and then apply them consistently;

 

-   make judgements and estimates that are reasonable and prudent;

 

-   state whether they have been prepared in accordance with International Financial Reporting Standards; and

 

-   prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

 

The Directors are responsible for keeping proper accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with International Financial Reporting Standards. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.

 

Directors

The Directors who held office during the year and to date were as follows:

 

Robert Thomas Ware (Chairman)

Aled Rhys Jones

Andrew Morrison Shepherd

Johan Fredrik Petter Lantz

Martin Michael Adams

Michael Andrew Haxby

Nicholas Paul James

 

As at 31^st March 2012 the interests of the Directors in the issued share capital of the Company was as follows:

 

Director	Number of Ordinary Shares
Aled Rhys Jones	50,000
Andrew Morrison Shepherd	50,000
Martin Michael Adams	31,038
Michael Andrew Haxby	60,000
Nicholas Paul James	50,000
Robert Thomas Ware	150,000*

 

*Robert Thomas Ware's shares are held in his Self-invested Personal Pension

 

Details of Directors' Remuneration for the year are given in Note 18.

 

Auditors

Our Auditors, KPMG Audit LLC, being eligible, have expressed their willingness to continue in office.

 

For and on behalf of the Board of Directors

 

Michael Andrew Haxby

Director

 

Martin Michael Adams 

Director                                   

 

Investment Manager's Report

For the year ended 31^st March 2012

 

Net Asset Value ("NAV") Performance

 

The NAV of Terra Catalyst Fund Limited ("TCF") at the reporting period end date was 65.5 pence per share and the share price of TCF as at that date was 56.75 pence per share.  The NAV per share declined over the twelve months from 31^st March 2011 by 22.86% after adjusting for the 2 pence distribution made during the period.

 

Just over a year ago, TCF seemed to be in a strong position, with an interesting portfolio of deeply discounted / activist opportunities, was ahead of the EPRA total return index and was making good progress with realising value from investee companies and there was every expectation that this would continue.  But the last 12 months have seen a dramatic turnaround in the external environment in which we operate.  It has been a challenging time for the Eurozone and its real estate markets as the region's banking system has virtually seized up and transaction volumes and investor confidence have collapsed, particularly in peripheral regions. 

 

Against this difficult backdrop, the performance of TCF's underlying investments has fallen back.  In the period from inception to the end of the March 2011, the NAV performance of TCF had been somewhat ahead of the EPRA index.  However, during the current financial year, it is disappointing to note that TCF has significantly underperformed against large cap benchmarks due to the hostile financial environment in which we are now operating.  The spreads between prime and secondary property have widened to near record levels and investor interest in listed property stocks now seems to be almost exclusively confined to a handful of "safe haven" larger capitalisation and lower risk names. 

 

The challenge has been particularly great for the smaller capitalisation stocks which are more likely to have portfolios of property that include some more secondary assets and often in geographies and / or sub-markets that are considered non-core by mainstream institutional investors. TCF has a mandate which inevitably means it will have concentrated positions in these sorts of smaller cap stocks.  The shares in most of our portfolio companies therefore fell significantly in the period under review as discounts across the portfolio widened and NAVs fell.  In particular, TCF has significant exposure to the Italian real estate market through its investment in Spazio Investment NV ("Spazio") where operating conditions are difficult. 

 

A breakdown of the performance of TCF's NAV and share price relative to the EPRA index over the current financial year is given in the table below:

 

Date	EPRA price index	% total return since start of FY**	TCF NAV	% total return since start of FY*	TCF share price	% total return since start of FY*
31st March 2011	1435.8	-	87.50	-	74.5	-
30th September 2011	1215.7	-13.1%	79.93	-8.65%	60.5	-18.8%
31st March 2012	1329.5	-3.8%	65.50	-22.86%	56.8	-23.8%

 

* Calculation includes 2 pence per share distribution made by TCF in December 2011
** Bloomberg calculation

 

The share price of TCF traded at a discount of 13.28% to the NAV per share as at 31^st March 2012. The persistent discount at which the share price has traded at relative to NAV despite buying back around a quarter of the shares in issue at the IPO, has been a source of significant frustration. 

 

Investors should note that the recent NAV performance of TCF has been materially affected by the fact that on 16^th December 2009, the largest single investment, Spazio, was delisted and held at a directors' valuation.  This valuation was initially the weighted average purchase cost price.  Then from 31^st March 2010, Spazio has been held at a price based on an underlying valuation model which at 31^st March 2012 was EUR 3.07 per share (which compares to the externally appraised NAV of the underlying company of EUR 7.88).  The carrying value as at 31^st March 2012, reflected a net write down of 23.0% over the year after adjusting for dividend distributions of EUR 1.38 due to the deterioration in market conditions in Italy.  Since delisting, Spazio has paid out a total of EUR 3.38 per share to Terra European Investment, compared to a bid price of EUR 5.125.

 

An additional measure of value that TCF periodically reports to its investors is the underlying "look through" NAV of the fund.  This number reflects the underlying NAV of TCF's individual holdings rather than the share price or carrying value.  On this basis, the "look through" NAV was 149 pence as at 31^st March 2012 (down from 165 pence a year ago) but a far lower decrease than the NAV of the Company, highlighting that the majority of the fall in NAV last year has been share price driven, not falling asset values.

 

The difference between the reported TCF NAV of 65.5 pence and the underlying "look through" NAV of 149 pence gives a crude indication of the potential latent value in the portfolio as at the period end.  There is significant value within our portfolio, with many positions trading well below a conservative estimate of realisable value yet many smaller capitalised companies remain unloved and unfollowed. As value investors we like to own such assets confident that the market will at some point reflect their true worth. The larger market cap companies have indeed had a good year in the UK and this may be a pre-cursor to more interest in the smaller companies during the rest of the year. 

 

Portfolio Review and Investment Activity

 

As at 31^st March 2012, the fund's key holdings were as follows:

 

TCF Holdings	£m	% Portfolio	% shares held across Laxey funds
Spazio Investment NV	19.7	30%	72.4%
Quintain Estates	8.7	13%	13.1%
Lok n Store Group	4.3	7%	29.0%
Tamar European Ind Fund	4.2	6%	29.8%
NR Nordic and Russian Properties	4.0	6%	16.3%
Capital & Regional	3.9	6%	9.8%
Degi Europa	3.9	6%	2.4%
Assura Group	3.3	5%	6.4%
Sirius Real Estate	2.7	4%	9.6%
ING UK Real Estate Income Trust ZDP	1.0	2%	n/a
Bulgarian Land Development	-	-	15.8%
Other	9.9	15%	Various
Total Investments	65.6	100%
Cash/ (borrowings) & other assets/ (liabs)	(2.8)
Net assets	62.8

 

TCF's holding in each of the above positions is only a part of the total holding in each position held across funds managed by Laxey Partners Ltd ("Laxey" or "Investment Manager"). 

 

During the financial year under review, TCF received significant cash inflows from a number of its investee companies.  The biggest such inflow was from Spazio, which distributed a total of EUR 1.38 per share or EUR 10.6m (TCF's share). 

 

In addition to these inflows of EUR 0.37 per share or EUR 6.9m (TCF's share) was received from Carpathian and EUR 0.315 per share or EUR 11.7m (TCF's share) was received from NR Nordic & Russian properties as the liquidation of these positions proceeded according to plan and largely reached their conclusions.

 

As was stated in previous reports, a part of the cash inflows received during the year were used to pay down fund level gearing, part were used to fund distributions to shareholders and part were reinvested.  No material cash reinvestments have taken place since the interim reporting date of 30^th September 2011.

 

During the reporting period, TCF also progressed its activist strategy in Sirius Real Estate and Tamar European Industrial Fund.  Sirius Real Estate announced a board restructuring and internalisation which represents a significant step on the path to realising value from the underlying portfolio and Tamar announced a revised management contract which now includes a significant incentive based on cash returns to shareholders over the next two and a half years. Tamar has now sold over 75% of its Nordic portfolio at prices close to net asset value.

 

Shortly after period end, Quintain made a major market announcement in respect of a JV partner in its Greenwich development project which we see as a "game changer" in terms of realising value from the main assets over the medium term.  On the date of the announcement, the share price jumped over 20% and we would expect to see a further reduction in the 60%+ discount between share price and net asset value once the market is ready to take a fresh look at smaller capitalisation stocks.

 

During the year, the distribution from Spazio was somewhat delayed as a result of the receipt of a tax claim against Spazio by the Italian tax authorities in relation to the injection of the Telecom Italia assets into the underlying Italian fund back in 2006.  The claim was judged at the time by the directors of Spazio as being highly unlikely to succeed and was ultimately withdrawn following several court hearings and the cash was released for the investors.  Whilst this incident did not result in any loss to TCF, it did illustrate the difficult business environment that Spazio faces in Italy. In particular, there are currently elevated levels of activity amongst the Italian tax authorities and the active pursuit of possible tax claims is considered a high priority in response to the Italian government deficit crisis.

 

At the time of writing, Spazio is handling two further Italian tax issues.  The directors of Spazio, based on advice from their Italian tax lawyers, do not currently believe that the issues are substantiated, and so should not lead to a net loss to the company and have therefore not made any provision in the accounts.  However, the fiscal environment in Italy is difficult and the amount of the tax issues relative to the current carrying value of EUR 3.07 per share in the above table is material, so the details of the tax issues are explained in the discussion note on Spazio below.

 

Hedging and Gearing

 

The Investment Manager may mitigate against certain country, currency and other market risks by applying hedges where deemed appropriate.  Hedges against foreign currency exposure for that part of the portfolio whose underlying assets are based in continental Europe were, and continue to be applied.

 

As at 31^st March 2012, there were no other hedges or short positions in place other than for foreign currency exposure.

TCF had a fund level net debt position at financial year end of approximately 3% of net assets.  Shortly after year end, cash inflows from various investments including a significant cash receipt from NR Nordic and Russian Properties has eliminated this net debt position and turned it into a modest net cash balance.

 

Share buybacks and dividends

 

During the period under review, TCF bought back 3,113,328 shares.  All these shares were subsequently cancelled.

 

In total TCF has bought back 27,543,328 shares since inception.  This is equal to approximately 24% of the shares outstanding at the date of the IPO.  As at 31^st March 2012 there were a total of 95,857,542 shares outstanding.

 

On 1^st August 2011, TCF announced its intention to pay a cash distribution to shareholders of 4 pence per annum, payable to equal six monthly instalments of 2 pence.  The first interim distribution of 2 pence was paid to shareholders in December 2011 and a further 2 pence was paid to shareholders in June 2012.

 

Outlook

 

Capital Market conditions across most markets in Europe are challenging but in the smaller capitalised sector we have found some exceptional bargains.  We believe there may well be a bounce in some of these smaller companies over the next twelve months that will help us realise good value from the portfolio.

 

Review of Selected Major Holdings

 

Spazio Investment ("Spazio")

 

This externally-managed previously AIM listed property fund specialises in Italian industrial real estate.  Spazio owned a portfolio of Italian industrial properties (EUR 427m at December 2011) of which around 41% comprised 171 Telecom Italia exchange buildings.  The external manager is Prelios RE (formerly known as Pirelli Real Estate).  TCF currently has a 33.1% economic interest in Spazio.

 

Since the start of 2009, being the year in which funds under the management of Laxey Partners bid for Spazio, up to the end of March 2012, Spazio has sold a total of EUR 251.4m of properties.  These comprised EUR 237.5m of income producing properties which were sold at a weighted average discount of 8.0% to the externally appraised OMV at the start of the year in which the asset was sold.  Total cash returns paid by Spazio since the bid in 2009 up to the end of March 2012, comprise EUR 77.5m or EUR 3.38 per share compared to a takeover price of EUR 5.125 per share.

 

The March 2012 portfolio value of Spazio was EUR 400.8m and the portfolio net loan to value ratio was 52%.  The externally appraised NAV of Spazio was EUR 7.88 compared to a carrying value in the portfolio of TCF of EUR 3.07 per share.  During the year, the Directors of TCF wrote down the carrying value of Spazio by approximately 23.0% (after adjusting for dividend distributions) to reflect the worsening economic conditions in Italy.

 

At the time of writing, Spazio was in compliance with all its debt covenants.  The LTV ratio measured on the main "Jumbo Loan" was calculated at the end of March 2012 to be 62% compared to a covenant of 65%. The initial term of the debt is until September 2013 but is renewable for 3 years at the option of Spazio, subject to the fund meeting certain conditions including compliance with its debt covenants.  At the moment Spazio meets these loan extension conditions for the main "Jumbo Loan" but not the "Portogruaro Loan" which is against the EUR 82m Eastgate Park development and requires a much higher lease up than is currently in place to trigger the extension option.  Under the current debt terms there would in any case be a "cash trap" in place during the debt extension period which could restrict the ability of the fund to make distributions to shareholders.

 

Spazio continued to have some success in its sales with EUR 73.0m of sales in 2011 at an average discount (for the EUR 68.0m of investment properties) to the appraised OMV as at 31^st December 2010 of 11.3%.  Progress continued into H1 2012 with EUR 28.8m of sales at an average discount (for the EUR 28.6m of investment properties) of 9.7% to the appraised OMV as at 31^st December 2011.  Due to the collapse in transaction volumes in Italy, the sales pipeline for H2 2012 is looking very weak at this stage and the rate of sales is now expected to fall to very low levels until market conditions show material improvement.

 

A major renegotiation of the terms of the various contracts around the Spazio fund was completed in December 2011.  These contracts included the SGR, the Prelios corporate manager and the Celtic Italy agency contract.  The overall impact of these renegotiations will be a significant annualised operating cost saving for Spazio.

 

In March 2012, the Italian courts dismissed a tax claim against Spazio in respect of the injection of the Telecom Italia assets into the company back in 2005.  This allowed the release of certain distributions from Spazio which had been placed in pledge accounts pending the outcome of this case.  The directors of Spazio had received legal advice that the relevant claim was unlikely to succeed and so had not made any provision for it.  There was therefore no effect on the NAV of Spazio as a result of the formal dismissal of the claim.

 

At the time of writing, Spazio is dealing with two other potentially significant Italian tax issues.

 

One of the tax issues relates to a retrospective one-off tax charge in relation to certain classes of unitholders of Italian Real Estate Funds which had formerly been classified by the Italian authorities as tax transparent entities.  The Spazio directors have been advised that the maximum liability to Spazio of this charge, if due, would be EUR 0.64 per share (compared to the EUR 3.07 per share carrying value of Spazio and the EUR 7.88 per share externally appraised NAV).  However, the directors of Spazio, based on advice from their tax advisors, believe that the Spazio structure qualifies for an exemption from this "substitute tax" and so have made the decision not to pay the tax. 

 

The other issue (for an amount which has still not been fixed but, based on advice from Spazio's tax lawyers, could reasonably be expected at this stage to be approximately EUR 0.81 per share) relates to a claim by the Italian tax authorities that Spazio's Dutch holding company Spazio NV was liable to Italian corporation tax for the years 2006, 2007 and 2008 due to irregularities in the execution of certain services provided to the company by the relevant external service providers.  The directors of Spazio do not believe that the stated grounds for taxing Spazio as an Italian company are valid and that Spazio already falls within the Dutch tax system.

 

Shareholders should note that the issues can only affect the carrying value of Spazio and the directors of Spazio currently believe that the crystallisation of losses arising from these issues are possible but not probable.  TCF will inform the shareholders if there are material changes in respect of the status of either of these tax issues. 

 

Funds under the management of Laxey Partners had a total holding of 72.4% in Spazio as at end March 2012.

 

Quintain Estates and Development plc ("Quintain")

 

Quintain is a significant UK based commercial property developer and fund manager.  The company's two major development assets comprise large parcels of land around Wembley stadium in North West London and around the O2 centre on Greenwich Peninsula just across the river from Canary Wharf. 

 

Together with stakes in its own funds and JVs, Quintain has gross assets of over £1 billion.  However, some on balance sheet debt plus the huge discount of up to 70% that the company's shares have traded at in recent years has resulted in a market capitalisation of around £200m at the end of 2011.

 

Whilst Quintain has quite a long track record as a listed company (it was floated in the early 1990s) and a strong reputation as a developer, it became increasingly over-leveraged as the 2004 to 2007 bull market progressed and also overly exposed to non-income producing development assets.  It also lost focus with numerous non-core acquisitions and ventures into new business areas during this time.  The consequence of this was a collapse in the company's share price during the financial crisis and a rescue rights issue in 2009. 

 

Since then, Quintain has embarked on a significant restructuring of the business.  A new chairman was appointed at the time of the rescue rights issue and in the period since TCF has been a shareholder, there has been a more comprehensive overhaul of senior management and an attempt to refocus the business on core activities and reduce debt.

 

In June 2012, Quintain announced a major deal with a JV partner in respect of their Greenwich development site.  This deal effectively allows Quintain to extract cash equal to around two thirds of the current circa £250m carrying value of the project over the next 6 years based on conservative project build-out assumptions.  It also provides financing for the development of the site to proceed without obliging Quintain to put further capital into the project.  Quintain will retain a 40% equity stake in the JV project company and also earn potentially significant project management fees.  Laxey believes that this deal is a "game changer" for Quintain and expects it to create significant value for the company over time.

 

Despite the significant restructuring that has taken place and encouraging progress on the Wembley development, the shares of the company have continued to trade at less than 40 pence compared to a net asset value of 110 pence per share (as at 31^st March 2012).  Laxey believes that this share price excessively discounts the challenges that Quintain

faces and is reflective of the fact that UK commercial property developers are completely out of favour with the broader equity market. 

 

Laxey continues to expect a significant rerating of the shares in due course as the restructuring plan progresses and as the current excessive aversion of UK investors to London development assets subsides.

 

Funds under management of Laxey Partners declared a shareholding of 13.1% at the end of March 2012.

 

Tamar European Industrial Fund ("TEIF")

 

Tamar European Industrial Fund (formerly known as Kenmore European Industrial Fund) launched onto the AIM market in 2006 and acquired a portfolio of secondary industrial properties across continental Europe with a particular focus on France, Benelux and Scandinavia.  As at 31^st December 2011, it owned a portfolio of investment properties with a valuation of £207m.

 

On 3^rd June 2011, after Laxey Partners significantly increased its shareholding, the company announced that "the Board does not believe that the portfolio in its current form is best placed to allow the Company to achieve its investment objective".  At the same time, the company also announced its intention to conduct an orderly disposal of the Scandinavian part of the portfolio (around £100m).

 

In December 2011 TEIF also announced a new management contract (agreed with the external manager after consultation with major shareholders) which incentivises the manager to sell assets and return cash to shareholders over the next 2.5 years.  The declining base management fee will ensure that it will be very hard for the manager to earn adequate fee income by prolonging the life of the vehicle beyond this date.

 

At the time of writing, TEIF has announced the sales of approximately 75% of its Nordic portfolio at prices on average at around valuation.  In addition, some selected assets have been sold in other geographies and these additional sales are expected to continue going forward.

 

Funds under the management of Laxey Partners had a total holding of 29.8% in TEIF as at end March 2012.

 

Lok n Store ("Lok")

 

Lok n Store is the fourth largest UK self storage company after Big Yellow, Safestore and Access self storage.  It has a £80m portfolio (31^st July 2011) comprising 21 freehold and leasehold operating sites and 4 development sites around the South East.  The company has been listed since 2000, although a concert party comprising the original founders and their families control around 34% of the share capital which has restricted the free float.

 

Despite being a profitable and viable platform, Lok has never achieved the scale of operations of its two larger listed competitors.  This has resulted in a much smaller market capitalisation (under £30m), a low level of share liquidity and a persistent discount to net asset value over many years.  This situation would appear unlikely to change whilst Lok remains a listed company unless the company achieves a very dramatic increase in scale.

 

TCF has had a small stake in Lok since 2009 but significantly increased its holding in the late summer of 2010 when funds under the management of Laxey Partners declared a 29.0% stake acquired at an average price of over 60% discount to net asset value.

 

Since April 2011, Laxey has had board representation at the company and has sought to work with the existing management team to address the persistent discount that the shares have been trading at.  Unfortunately, engagement with this issue proved to be slower than initially hoped at senior management level which resulted in Laxey funds, along with several other significant shareholders, voting against the re-election of the CEO at the November 2011 AGM.  In the event, around 44% of the voting shareholders voted against the CEO which was not quite enough to prevent his re-election.

 

Laxey believes that there are significant opportunities for Lok to participate in wider industry consolidation which may deliver the kind of dramatic growth that the company needs to achieve adequate scale as a listed company.  Laxey will continue to encourage management to investigate such opportunities more thoroughly or to find some other way of closing the persistent share price discount relative to NAV.

 

Funds under the management of Laxey Partners had a total holding of 29.0% in Lok as at end March 2012.

 

Sirius Real Estate ("Sirius")

 

Sirius is the owner of 38 business parks in Germany with total lettable area of 1.15m sq metres and a portfolio value of EUR 486m (31^st March 2012).  Each park typically comprises a mixture of industrial, logistics and office space, is multi-let and intensively managed by Sirius Facilities, now a wholly owned subsidiary of Sirius Real Estate.

 

Sirius was one of the very last of the AIM property funds and completed its IPO in May 2007, a few months before a major turning point in global markets.  Like many of the AIM funds, there were fundamental conflicts of interest between the external manager and the investors from the very beginning which meant Sirius failed to navigate the downturn satisfactorily and the share price collapsed.

 

Laxey Partners, along with several other major shareholders, engaged closely with the company and pushed the board for the exercise of a break clause in the external management contract in May 2011.  It was fortunate for all shareholders that this clause was exercised, because the contract had been deliberately structured in such a way that there were very few other opportunities to remove the external manager, and shareholders would have had to wait several years before the next break option. 

 

Following this the board was reconstituted and in January 2012 the Sirius Facilities management company was internalised, allowing the company to get full control over its activities and ensuring a proper alignment of interests with shareholders going forward. 

 

It is now the intention of major shareholders to conduct a realisation of value from the business, and a variety of strategic options are being considered by the board in order to optimise the outcome for shareholders.

 

Funds under management of Laxey Partners declared a shareholding of 9.6% at the end of March 2012.

 

Corporate Governance Statement

 

The Company's shares are quoted on the Alternative Investment Market (AIM) of the London Stock Exchange. As an AIM quoted company, the Company is not required to follow the provisions of the Combined Code as set out in the UK Financial Services Authority Listing Rules. However, the Board is committed to high standards of corporate governance and a summary of the main elements of corporate governance are described below:

 

Board of Directors

 

The composition of the Board is set out on page 1. The Board meets regularly and is provided with relevant information on financial, business and corporate matters prior to meetings.

 

The following committees deal with specific aspects of the Company's affairs:

 

Audit Committee

 

The Audit Committee comprises the independent non-executive Chairman, and two other independent Directors. The committee overviews the adequacy of the Company's internal controls, accounting policies and financial reporting and provides a forum through which the Company's external auditors report to the Company.

 

The Audit Committee comprise Martin Adams (Chairman), Robert Ware and Johan Lantz.

 

Remuneration Committee

 

The Remuneration Committee operates under the chairmanship of Johan Lantz, an independent non-executive Director, and is responsible for setting the remuneration of Directors. The Remuneration Committee comprises Johan Lantz, Robert Ware and Martin Adams.

 

Nomination Committee

 

The Nomination Committee operates under the chairmanship of Robert Ware, the independent non-executive Chairman and is responsible for making recommendations regarding the composition of the Company's board. The Nomination Committee comprises Robert Ware, Martin Adams and Johan Lantz.

 

Management and Engagement Committee

 

The Management and Engagement committee operates under the chairmanship of Robert Ware, the independent non-executive Chairman, and is responsible for the supervision of the Investment Manager and its performance under the Investment Management Agreement. The Management and Engagement Committee comprises Robert Ware, Martin Adams and Johan Lantz.

 

Internal Control

 

The Directors are responsible for establishing and maintaining the Company's system of internal control. This system of internal control is designed to safeguard the Company's assets and to ensure proper accounting records are maintained and that financial information produced by the Company is reliable. There are inherent limitations in any system of internal control and such a system can provide only reasonable, but not absolute, assurances against material misstatement or loss. The Directors, through the Audit Committee have reviewed the effectiveness of the Company's system of internal control.

 

Report of the Independent Auditors, KPMG Audit LLC,

To the Members of Terra Catalyst Fund

 

We have audited the accompanying financial statements of Terra Catalyst Fund for the year ended 31^st March 2012, which comprise the Statement of Comprehensive Income, the Statement of Financial Position, the Statement of Changes in Equity, the Statement of Cash Flows and related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs).

 

The report is made solely to the Company's members, as a body. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or the opinion we have formed.

 

Respective responsibilities of Directors and Auditor

As explained more fully in the Statement of Directors' Responsibilities set out on page 2, the Directors are responsible for the preparation of financial statements that give a true and fair view.  Our responsibility is to audit, and express an opinion on, the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors.

 

Scope of the audit of the financial statements

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Company's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements.

 

Opinion on the financial statements

In our opinion the financial statements give a true and fair view, in accordance with IFRSs, of the state of the Company's affairs as at 31^st March 2012 and of its loss for the year then ended.

 

 

KPMG Audit LLC

Chartered Accountants

Heritage Court

41 Athol Street

Douglas

Isle of Man IM99 1HN

 

2012

 

 

 

Portfolio Statement

 

	2012	2012	2011	2011
	Market value	% of Total net assets	Market value	% of Total net assets
	GBP		GBP
Investment funds - long	8,520,637	13.57	10,988,767	12.69
Investment funds - short	-	-	-	-
Equities - long	56,931,115	90.62	89,537,800	103.42
Equity swaps - long	-	-	81,330	0.09
Investment funds swaps - long	(61,558)	(0.10)	-	-
Receivable on currency forwards	65,686	0.10	-	-
Payable on currency forwards	-	-	(684,115)	(0.79)
Total investments	65,455,880	104.19	99,923,782	115.42
Other assets less liabilities	(2,631,026)	(4.19)	(13,350,877)	(15.42)
Total net assets	62,824,854	100.00	86,572,905	100.00

 

 

 

Analysis of investments by currency
	2012	2011
	% of	% of
	investments	investments
British pound	40.83	26.64
Euro	57.48	73.25
Other	1.69	0.11
	100.00	100.00

 

 

Analysis of investments by country of incorporation
	2012	2011
	% of investments	% of investments
United Kingdom	51.45	49.34
Netherlands	31.73	39.16
Guernsey	0.67	0.06
Jersey	2.89	1.68
Other Europe	13.26	9.76
	100.00	100.00

 

 

Statement of Comprehensive Income

For the year ended 31^st March 2012

 

		2012	2011
	Note	GBP	GBP
Income
Distributions on long equity securities and investment funds		12,056,970	6,317,441
Interest
- Cash balances		58,110	378,345
- Derivatives		1,973	33,561
Net realised  gains/(losses) on financial assets and liabilities
at fair value through profit or loss
- Cash balances		107,919	(26,287)
- Equities and Funds		(818,850)	1,103,330
- Derivatives		1,098,249	(171,204)
- Forwards		1,555,889	424,702
Net unrealised (losses) / gains on financial assets and liabilities
other than currency forwards at fair value through profit or loss
- Cash balances		(22,419)	23,514
- Equities and Funds		(32,822,689)	9,280,349
- Derivatives		(142,888)	390,682
Net unrealised gains/(losses) on currency forwards
at fair value through profit or loss		749,801	(882,016)
Total net investment (expense)/income		(18,177,935)	16,872,417
Expenses
Dividends payable on short positions		-	42,910
Investment management fee	4	364,151	1,513,314
Administration fees	5	141,381	171,089
Audit fees		24,043	20,000
Directors' fees and expenses	18	187,500	220,576
Other expenses		312,541	335,982
Interest expense
- Cash balances		296,389	435,369
- Derivatives		14,707	18,758
Total expenses		1,340,712	2,757,998
(Loss)/profit for the year		(19,518,647)	14,114,419
Other comprehensive income		-	-
Total comprehensive (loss)/income for the year		(19,518,647)	14,114,419
(Loss)/earnings per ordinary share
Basic and fully diluted	12	(GBP0.20)	GBP 0.14

 

 

The notes are an integral part of the financial statements.

 

Statement of Financial Position

As at 31^st March 2012

 

		2012	2011
	Note	GBP	GBP
Current Assets
Cash at bank and brokers	15	5,772,738	2,247,477
Cash held as margin at brokers		1,770	14,189
Equities - long at fair value through profit or loss	6	56,931,115	89,537,800
Equities - long swaps at fair value through profit or loss	6, 13.6	-	81,330
Investment funds - long at fair value through profit or loss	6	8,520,637	10,988,767
Amounts receivable on currency forwards	13.6	65,686	-
Other debtors and accrued income	9	43,362	9,071
Total Assets		71,335,308	102,878,634
Equity
Share capital	7	958,576	989,709
Share premium	8	98,252,523	102,450,794
Retained losses	8	(36,386,245)	(16,867,598)
Total Equity		62,824,854	86,572,905
Liabilities
Overdrawn balances at brokers	15	8,224,511	14,268,294
Investment funds - long swaps at fair value through profit or loss	6, 13.6	61,558	-
Amounts payable on currency forwards	13.6	-	684,115
Amounts due for outstanding purchase settlements		53,191	40,417
Other creditors and accrued expenses		171,194	1,312,903
Total liabilities		8,510,454	16,305,729
Total liabilities and equity		71,335,308	102,878,634
Net asset value per ordinary share	11	0.66	0.87

 

The notes are an integral part of the financial statements.

 

Statement of Changes in Equity

For the year ended 31^st March 2012

                                                                       

	Share Capital	Share Premium	Retained losses	Total
	GBP	GBP	GBP	GBP
Balance at 1st April 2010	1,060,709	106,870,508	(30,982,017)	76,949,200
Total comprehensive income
Profit for the year	-	-	14,114,419	14,114,419
Other comprehensive income	-	-	-	-
Transaction with owners recorded directly
in equity:
Contributions by and distributions
to owners
Repurchase of shares	(71,000)	(4,419,714)	-	(4,490,714)
Balance at 31st March 2011	989,709	102,450,794	(16,867,598)	86,572,905
	Share	Share	Retained
	Capital	Premium	losses	Total
	GBP	GBP	GBP	GBP
Balance at 1st April 2011	989,709	102,450,794	(16,867,598)	86,572,905
Total comprehensive income
Loss for the year	-	-	(19,518,647)	(19,518,647)
Other comprehensive income	-	-	-	-
Transaction with owners recorded directly
in equity:
Contributions by and distributions to owners
Distribution	-	(1,917,151)	-	(1,917,151)
Repurchase of shares	(31,133)	(2,281,120)	-	(2,312,253)
Balance at 31st March 2012	958,576	98,252,523	(36,386,245)	62,824,854

 

 

The notes are an integral part of the financial statements.

 

Statement of Cash Flows

For the year ended 31^st March 2012

 

	Note	2012	2011
		GBP	GBP
Cash flows from operating activities:
Distributions received		12,022,770	6,317,441
Interest received		60,083	899,557
Prepaid expenses		(91)	(9,072)
Dividends paid on short positions		-	(85,691)
Management fee paid		(1,505,873)	(1,316,907)
Administration fee paid		(144,594)	(169,471)
Other expenses paid		(518,088)	(562,506)
Interest paid		(313,866)	(446,538)
Decrease in loan receivable		-	2,615,160
Decrease in cash held as margin		12,419	736,794
Purchase of investments		(23,728,768)	(41,108,407)
Proceeds from sales of investments		27,914,456	24,419,866
Net cash flow from operating activities	14	13,798,448	(8,709,774)
Cash flows from financing activities:
Distribution paid		(1,917,151)	-
Repurchase of shares		(2,312,253)	(4,490,714)
Net cash flow from financing activities		(4,229,404)	(4,490,714)
Increase/(decrease) in cash and cash equivalents		9,569,044	(13,200,488)
Opening cash and cash equivalents		(12,020,817)	1,179,671
Closing cash and cash equivalents	15	(2,451,773)	(12,020,817)

 

 

The notes are an integral part of the financial statements.

 

Notes to the financial statements

For the year ended 31^st March 2012

 

1.  General

 

The Company was incorporated in the Cayman Islands on 21^st December 2007 and its shares were admitted to the Alternative Investment Market of the London Stock Exchange plc, on 25^th February 2008.

 

2.  Accounting policies

 

(a)  Basis of preparation

 

The financial statements of the Company have been prepared in accordance with the historical cost convention as modified by the revaluation of investments. The principal accounting policies which have been applied are set out below. Such policies are in accordance with and comply with International Financial Reporting Standards ("IFRS").

 

The Company has adopted the Pound Sterling (GBP) as its measurement and reporting currency in which shares are issued.

 

(b)  Financial assets and liabilities

 

Classification

 

The Company classifies its investments in equities and investment funds, and related derivatives, and futures as financial assets or financial liabilities at fair value through profit or loss. These financial assets and financial liabilities are classified as held for trading or designated by the Board of Directors at fair value through profit or loss at inception.

 

Financial assets or financial liabilities held for trading are those acquired or incurred principally for the purposes of selling or repurchasing in the short term. Derivatives are also categorised as financial assets or financial liabilities held for trading. The Company does not classify any derivatives as hedges in a hedging relationship.

 

The Company makes short sales in which a borrowed security is sold in anticipation of a decline in the market value of that security, or it may use short sales for various arbitrage transactions. Short sales are classified as financial liabilities at fair value through profit or loss.

 

Recognition/derecognition

 

Purchases and sales of investments are accounted for on the date the securities are purchased or sold. Investments are derecognised when the rights to receive cash flows from the investments have expired or the Company has transferred substantially all risks and rewards of ownership. The computation of the cost of sale of securities is made on the first in first out basis. Realised and unrealised gains and losses are recognised in the profit or loss, and are shown net of all broker charges.

 

Measurement

 

Financial assets and financial liabilities at fair value through profit or loss are initially recognised at fair value. Transaction costs are expensed in the Statement of Comprehensive Income. Subsequent to initial recognition, all financial assets and financial liabilities at fair value through profit or loss are measured at fair value. Gains and losses arising from changes in the fair value of the 'financial assets or financial liabilities at fair value through profit or loss' category are presented in the Statement of Comprehensive Income  in the period in which they arise.

 

Valuation of financial instruments

 

IFRS 7 establishes a hierarchal disclosure framework which prioritizes and ranks the level of market price observability used in measuring investments at fair value. Market price observability is impacted by a number of factors, including the type of investment and the characteristics specific to the investment. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.

 

Investments measured and reported at fair value are classified and disclosed in one of the following categories:

 

Level I - Quoted prices are available in active markets for identical investments as of the reporting date.  The type of investments included in Level I are publicly traded equity securities and are valued at the closing bid price on a national securities exchange on the valuation date. Securities sold, not yet purchased that are listed or dealt on a national securities exchange are valued at the closing offer price on the valuation date.  As required by IFRS 7, the Company does not adjust the quoted price for these investments even in situations, if any, where the Company holds a large position and a sale could reasonably impact the quoted price. 

 

Level II - Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, are valued at prices for similar assets or liabilities in markets that are not active, or determined through the use of models or other valuation methodologies.  Investments which are generally included in this category are publicly traded equity securities with restrictions and derivative contracts.

 

Level III - Pricing inputs are unobservable and include situations where there is little, if any, market activity for the investment.  Fair value for these investments is determined using valuation methodologies that consider a range of factors, including but not limited to the price at which the investment was acquired, the nature of the investment, local market conditions, trading values on public exchanges for comparable securities, current and projected operating performance and financing transactions subsequent to the acquisition of the investment. The inputs into the determination of fair value require significant management judgment. Due to the inherent uncertainty of these estimates, these values may differ materially from the values that would have been used had a ready market for these investments existed. Investments that are included in this category generally are privately held debt and equity securities.

 

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment.

 

Unrealised gains and losses resulting from recording securities and derivative financial instruments at fair value are included in net unrealised appreciation/(depreciation) in the Statement of Comprehensive Income.

 

The Company may hold the following derivative instruments:

 

Equity swaps and Investment fund swaps

Under an Equity swap the Company contracts with the broker to receive/pay successive changes in the market value of an agreed notional principle amount of an underlying security in return for an interest payment/receipt. The contracts are marked to market using closing bid/offer prices for long positions and ask price for short positions at regular intervals and a transfer made from/to the broker for the realised gains/losses.

 

The unrealised gains/losses in the equity swap at the year end is included within investments. Realised and movement in unrealised gains and losses are recorded in the Statement of Comprehensive Income.

 

Futures

A futures contract is an exchange-traded agreement to buy or sell a standard amount of a specified commodity or index at a fixed price on an agreed future date. Initial margin deposits are recognised as assets due from the broker. Futures contracts are valued at the closing price of the relevant index at year end. Any change in the valuation of the contract is recognised as an unrealised gain or loss. Realised gains and losses are recorded when the contract is closed.

 

Forward currency contracts

A forward currency contract is a contract to purchase or sell a specified amount of foreign currency at an agreed future date at an exchange rate determined on the date the contract is made. The contracts are valued at the forward rate at the close of business at year end and the Company's equity therein, representing unrealised gains or losses on the contracts, is included in the net current assets. Realised gains and losses are recorded when the contract is closed.

 

(c) Income

 

Dividend income is recognised in the Statement of Comprehensive Income when the relevant investment is first listed ex-dividend and is shown net of withholding taxes. Other income is recognised on a receivable basis.

 

(d) Short dividend expense

 

Dividends payable on equities sold short are recognised when the relevant investment is first listed ex-dividend.

 

(e) Taxation

 

Under current laws of the Cayman Islands, there are no income, estate, transfer, sales or other Cayman taxes payable by the Company.

 

(f) Fair values

 

The Company's financial instruments are investments, cash, accrued income, broker receivables, forward currency contracts, accrued expenses, broker payables and other derivatives. The value of these financial instruments in the financial statements approximates to their fair value.

 

(g) Cash and cash equivalents

 

Cash and cash equivalents comprise cash balances held at banks together with bank overdrafts. The banks overdrafts are repayable on demand and form an integral part of the Company's cash management.

 

(h) Accrued expenses

 

Accrued expenses are recognised at fair value and subsequently stated at amortised cost using the effective interest rate method.

 

(i) Translation of foreign currencies

 

Foreign currency transactions during the year are translated into Pounds Sterling at the rates of exchange ruling at the dates of the transactions. Assets and liabilities denominated in foreign currencies are translated into Pounds Sterling at the rates of exchange ruling at the balance sheet date. Exchange differences are included in the Statement of Comprehensive Income.

 

(j) Future changes in accounting policies

 

IASB (International Accounting Standards Board) and IFRIC (International Financial Reporting Interpretations) have issued the following standards and interpretations with an effective date after the date of these financial statements:

 

		Effective Date (period commencing)
IAS 1	Presentation of Financial Statements - Amendments to revise the way other comprehensive income is presented (June 2011)	01-Jul-12
IAS 27	Consolidated and Separate Financial Statements - Reissued as IAS 27 Separate Financial Statements (as amended in May 2011)	01-Jan-13
IAS 32	Financial Instruments Presentation - Amendments to application guidance on the offsetting of financial assets and financial liabilities (December 2011)	01-Jan-14
IFRS 7	Financial Instruments: Disclosures - Amendments enhancing disclosures about transfers of financial assets (October 2010)	01-Jul-11
IFRS 7	Financial Instruments: Disclosures - Amendments enhancing disclosures about transfers of financial assets and financial liabilities (December 2011)	01-Jan-13
IFRS 7	Financial Instruments: Disclosures - Amendments requiring disclosures about the initial applicable of IFRS 9 (December 2011)	01-Jan-15
IFRS 9	Financial Instruments - Classification and measurement of financial assets (as amended in December 2011)	01-Jan-15
IFRS 9	Financial Instruments - Accounting for financial liabilities and derecognition (as amended in December 2011)	01-Jan-15
IFRS 10	Consolidated Financial Statements (May 2011)	01-Jan-13
IFRS 12	Disclosure of Interests in Other Entities (May 2011)	01-Jan-13
IFRS 13	Fair Value Measurement (May 2011)	01-Jan-13

 

 

The Directors do not anticipate that the adoption of the other standards and interpretations will have a material impact on the Company's financial statements in the period of initial application.

 

3.  Critical accounting estimates and assumptions

 

The preparation of financial statements in conformity with IFRS requires the Directors to make estimates and assumptions that affect the reported amounts in the financial statements. The Directors believe that the estimates utilised in preparing its financial statements are reasonable and prudent, however, actual results could differ from these estimates.  The most significant estimates and judgements that are required to be made are in respect of the valuation of investments for which no reliable market price is available (see note 6).

 

4.  Investment Management fee

 

The Investment Manager is paid an annual fee of 0.5% of the Net Asset Value, paid monthly in arrears, which is determined based on the Net Asset Value before any deduction is made for accrued Performance Fees.

 

In the event that closing Adjusted NAV per share for the relevant financial period (as further adjusted to add back the aggregate value of the management fee paid during the relevant financial period) is greater than the opening adjusted NAV per share for the relevant financial period, the Investment Manager shall be entitled to receive an additional one-off payment equal to the amount needed to put the Investment Manager in the position it would have been in had the monthly management fees been paid on the basis of one twelfth of 2% of the monthly Net Asset Value.

 

Investment Management Fees payable during the year were GBP 364,151 (2011: GBP 1,513,314) of which GBP 26,997 (2011: GBP 1,168,719) was outstanding at the year end. The amount of GBP 1,505,873 in the Statement of Cash Flows includes the payment of the previous year's additional fee, being GBP 1,134,991.

 

In addition, the Company pays an annual performance fee per Share to the Investment Manager equivalent to 20% of the excess of the Net Asset Value adjusted to add back the value of any dividends or other distributions (including buy-backs) paid during the year over a hurdle rate of 8% per annum (non compounded). There was no performance fee payable for the year.

 

The Investment Management Agreement between the Company and the Investment Manager may be terminated subject to twelve months' notice by either party.

 

5.         Administration fee

 

The Company pays a fee to the Administrator at the rate of 0.18% per annum of the Net Asset Value of the Company. The fee is calculated and paid on a monthly basis.

 

The agreement between the Company and the Administrator may be terminated subject to three months' notice by either party.

 

6.         Investments

 

	2012	2011
	GBP	GBP
Long positions:
Market value	65,390,194	100,607,897
Cost	96,715,239	99,048,695

 

The Company's accounting policy on fair value measurement is disclosed in note 2.b. All securities owned and sold are categorised as Level I for valuation purpose, except for those noted below under Level III and all investments in derivatives which are categorised as Level II for valuation purposes. The changes in the investments classified as Level III are as follows:

 

	2012	2011
	GBP	GBP
Balance at 1st April	39,395,499	51,531,019
Purchases	-	405,510
Sales	-	-
Return of Capital	(7,807,396)	(12,618,348)
Realised gains	581,633	-
Movement in unrealised (losses)/gains	(12,469,945)	77,318
Balance at 31st March	19,699,791	39,395,499
Cost of investments held at year end	21,642,457	28,868,220

 

Investment categorised as Level III comprise Spazio Investment NV ("Spazio").

 

The Company has an interest in 7,698,848 shares of Spazio valued at £19,699,791, or 27.62% of the Total Assets of the Company as at 31^st March 2012. The Directors with the advice of the Investment Manager, has resolved to carry the investment at its current estimated realisable value, being EUR3.07 per share (2011: EUR5.78 per share) which has been derived based on an underlying valuation model which is reviewed and updated regularly.

 

Spazio has carried out some detailed analysis on two separate outstanding matters regarding the taxation of the company.  At this stage, after having obtained advice from their Italian tax and legal advisors, the directors of Spazio have concluded it not necessary to make any provision for either of these tax issues and therefore no provision has been made in the carrying value of the position in the Company's accounts.  However, the external environment in relation to tax disputes in Italy has become increasingly uncertain:

 

1. Substitute tax

 

This relates to a retrospective change in the Italian tax regime with respect to the taxation of Italian real estate funds.  A new law was introduced in July 2011 and then subsequently clarified by an additional regulation in December 2011 and a statement in February 2012 regarding certain tax exemption conditions.  In summary, the new legislation requires the payment of a one-off 5% of the average 2010 NAV "substitute tax" for certain classes of unitholders of Italian real estate funds and is to be applied retrospectively. After having obtained advice from their Italian tax and legal advisors, the directors of Spazio concluded that the holding company structure of the Spazio real estate fund means that the fund qualifies for an exemption from this "substitute tax" under the best available interpretation of the legislation.  On 26th June 2012, the board of Spazio decided not to pay the tax which, if it had been due, would have amounted to a charge at the Spazio level of approximately EUR 14.6m (equivalent to EUR 0.64 per share, compared to the Company's carrying value of its interest in Spazio of EUR 3.07 per share). The effect for the Company of Spazio making the payment would have been the equivalent of 4.3 pence per share.

 

2.Guardia di finanza fiscal audit

 

This relates to an ongoing investigation by the Italian tax authorities into the tax residency of Spazio during the years 2006, 2007 and 2008.  The Italian authorities are currently investigating whether the way certain services were provided to Spazio by the relevant service providers during the years in question has caused Spazio to be liable to taxation as an Italian corporation. Whilst the outcome of this investigation has yet to be determined, if the Italian tax authorities conclude that Spazio is indeed liable for these taxes, the directors of Spazio believe that a reasonable estimate of the total tax liability (including penalties) would amount to approximately EUR 18.6 million (equivalent to EUR 0.81 per share, compared to the Company's carrying value of Spazio of EUR 3.07 per share). This would have been the equivalent for the Company of 5.4 pence per share. The directors of Spazio, together with their Italian tax lawyers, have reviewed the details of the allegations made by the Italian Guardia di Finanza fiscal audit and do not accept that the analysis presented is correct.  After having obtained advice from their Italian tax advisors, the directors of Spazio have concluded that the crystallisation of such a liability is considered possible rather than probable.

 

Additionally, Spazio had been in discussions with the Italian tax authorities about a third matter in relation to the injection of the Telecom Italia assets into the Spazio Italian Real Estate fund in 2005 and 2006 which was resolved in favour of Spazio in March 2012.  As a result of this resolution, the claim was withdrawn by the Italian tax authorities and no tax was payable by Spazio.

 

The aggregate of realised gains/losses and movement in unrealised gains/losses for the year resulting from this investment recorded in the Statement of Comprehensive Income amounted to a loss of £11,888,312 (2011: gain of £77,318).

 

 

7.  Share capital

 

Authorised Share Capital
	2012	2012	2011	2011
	Number	GBP	Number	GBP
Ordinary shares of GBP0.01 each	1,000,000,000	10,000,000	1,000,000,000	10,000,000
		10,000,000		10,000,000
	2012	2012	2011	2011
	Number	GBP	Number	GBP
Issued share capital
At 1st April	98,970,870	989,709	106,070,870	1,060,709
Issued during year	-	-	-	-
Repurchased during year	(3,113,328)	(31,133)	(7,100,000)	(71,000)
	95,857,542	958,576	98,970,870	989,709

 

8.  Reserves

	2012	2011
	GBP	GBP
Share Premium
At 1st April	102,450,794	106,870,508
Relating to issue of shares	-	-
Relating to repurchase of shares	(2,281,120)	(4,419,714)
Relating to distribution	(1,917,151)
Relating to share issue costs	-	-
At 31st March	98,252,523	102,450,794
Retained losses
At 1st April	(16,867,598)	(30,982,017)
Total comprehensive (loss)/income for the year	(19,518,647)	14,114,419
At 31st March	(36,386,245)	(16,867,598)

 

9.  Other debtors and accrued income

 

	2012	2011
	GBP	GBP
Dividends receivable	34,200	-
Prepaid consulting fees	9,162	9,071
	43,362	9,071

 

 

10.  Other creditors and accrued expenses

 

	2012	2011
	GBP	GBP
Interest payable	11,738	14,508
Administration fee payable	10,189	13,402
Accounting fees payable	7,000	1,081
Audit fee payable	16,043	20,000
Corporate secretarial fees payable	2,000	1,998
Directors' fees payable	46,875	46,875
Investment management fee payable	26,997	1,168,719
Other items payable	50,352	46,320
	171,194	1,312,903

 

11.  Net asset value per ordinary share

                                                                                                                                    

	2012	2012	2011	2011
	Total	Per Share	Total	Per Share
	GBP	GBP	GBP	GBP
Net asset value	62,824,854	0.66	86,572,905	0.87

 

12.  Basic and diluted gain per ordinary share

 

The basic and fully diluted loss per ordinary share is based on the loss for the year of GBP 19,518,647 (2011: gain of GBP 14,114,419) and the weighted average number of ordinary shares in issue during the year of 96,874,225 (2011: 103,113,336).

 

13.  Risk Profile

 

            The Company's activities expose it to a variety of financial risks: market price risk, currency risk, interest rate risk, credit risk and liquidity risk. The Company's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Company's financial performance. The Company uses derivative financial instruments to moderate certain risk exposures.

 

13.1  Market price risk

Market price risk is the risk that the market price of a financial instrument will fluctuate due to changes in factors specific to the security or its issuer, factors affecting all securities traded in the market, foreign exchange rates or market interest rates.

 

The Company trades in financial instruments, taking positions in traded and over-the-counter instruments, including derivatives, and some unlisted instruments. The Company primarily invests in property (up to a maximum of 30% of the Company's gross asset value) and property related securities. The Company may hold large positions in a concentrated number of portfolio companies and there is no limit on the amount of the Company's assets which may be invested in any one investment. The Company may from time to time enter into financial securities contracts either to buy or to sell derivatives as part of this strategy. All securities investments present a risk of loss of capital. The Investment Manager manages this risk through a selection of securities and other financial instruments within specified limits. The Investment Manager, when it is considered appropriate, intends both to enhance returns and to reduce risk through the selective utilisation of various appropriate hedging strategies.

 

Market exposures to different classes of investment are shown on the Statement of Financial Position.

 

Short sales made by the Company involve certain risk and special considerations. Possible losses from short sales may be unlimited, whereas losses from purchases cannot exceed the total amount invested.

 

If the fair value of the Company's investment portfolio had increased/decreased in value by 5% as at 31^st March 2012 the effect on net assets would have been an increase/decrease of GBP 3,269,510 (2011: GBP 5,030,395).

 

13.2  Interest rate risk

The majority of the Company's financial assets and liabilities are non-interest bearing. As a result, the Company is not subject to the significant amounts of risk due to fluctuation in the prevailing levels of market interest rates. Any excess cash and cash equivalents are invested at short-term market interest rates. Overdrawn balances at brokers are also subject to short-term market interest rates.

 

Cash balances and overdrawn balances at brokers are due on demand. A sensitivity analysis regarding interest rate risk has not been given as the Company is not subject to significant interest rate risk.

 

13.3  Credit risk

The Company assumes exposure to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when due. The Company is exposed to credit risk in relation to its cash balances, investments and debtor balances as stated in the Statement of Financial Position.

 

All transactions in listed securities are traded on a delivery versus payment basis. The trade will fail if either party fails to meet its obligation. Credit risk on a derivative instrument is limited to the amount of initial margin paid plus any variation margin.

 

The Company mitigates credit risk through using only reputable banks and brokers. The credit worthiness of the banks and brokers are monitored by the Investment Manager.

 

13.4  Liquidity Risk

Liquidity risk may arise from the potential inability to sell a financial instrument without undue delay at a price close to its market value. The Company's policy in managing liquidity risk is to have sufficient liquid assets to meet its liabilities as they fall due, without incurring undue losses.

 

The Company may, from time to time, invest in derivative contracts traded over the counter, which are not traded in an organised market and may be illiquid.

 

The table below analyses the Company's financial liabilities and net settled derivative financial liabilities into relevant maturity groupings based on the remaining period at the end of the financial year to the contractual maturity date. The amounts in the table are the contractual undiscounted cash flows.

 

	Less than		No Stated
	1 month	1-12 months	maturity	Total
	GBP	GBP	GBP	GBP
As at 31st March 2012
Financial liabilities at fair
value through profit or loss	-	-	61,558	61,558
Amounts payable on
currency forwards	-	-	-	-
Overdrawn balances at brokers	8,224,511	-	-	8,224,511
Amounts due for
outstanding purchase settlements	53,191	-	-	53,191
Other creditors and accrued expenses	171,194	-	-	171,194
Total financial liabilities	8,448,896	-	61,558	8,510,454

 

	Less than		No Stated
	1 month	1-12 months	maturity	Total
	GBP	GBP	GBP	GBP
As at 31st March 2011
Financial liabilities at fair
value through profit or loss	-	-	-	-
Amounts payable on
currency forwards	684,115	-	-	684,115
Overdrawn balances at brokers	14,268,294	-	-	14,268,294
Amounts due for
outstanding purchase settlements	40,417	-	-	40,417
Other creditors and accrued expenses	1,312,903	-	-	1,312,903
Total financial liabilities	16,305,729	-	-	16,305,729

 

13.5  Currency risk

 

The Company holds assets denominated in currencies other than its functional currency, the Pound Sterling. It is therefore exposed to currency risk, as the value of the securities denominated in other currencies will fluctuate due to changes in exchange rates. The Company's policy is to attempt to hedge currency risk via currency forward contracts. The following table summaries the Company's exposure to foreign currencies as a percentage of net assets.

 

At 31^st March 2012 the Company's exposure to foreign currency, on a look through basis, was as follows:

 

	2012	2011
	Weighted %	Weighted %
UK	42.55%	22.94%
Sweden	-	0.55%
Romania	-	0.01%
Czech Republic	-	0.02%
Bulgaria	-	0.08%
Poland	1.75%	0.01%
Europe	(1.09%)	24.69%
Norway	-	1.25%
Serbia	-	-
	43.21%	49.55%

 

13.6  Not stated in Statement of Financial Position

 

Furthermore, the Company enters into investment transactions which attract risks not stated in the Statement of Financial Position. Market risks not stated in the Statement of Financial Position exist when the maximum potential loss on a particular investment is greater than the value of such investment as reflected in the Statement of Financial Position. Credit risk not stated in the Statement of Financial Position exists, among other situations, when the collateral received by the Company from the counterparty to an agreement with the Company proves to be insufficient to cover the Company's losses resulting from a default by the counterparty of its obligation to perform under the terms of the agreement.

 

Transactions in the following instruments represent risk not stated in the Statement of Financial Position associated with the Company's portfolio:

 

Short investments

 

The Company sells borrowed securities which are subsequently repurchased and delivered to the lender. The risk not reflected in the Statement of Financial Position associated with this form of trading is that if the market value of the security sold short increases, the Company may realise losses from the repurchase of the securities, which exceed the liability on the Statement of Financial Position.

 

Equity swaps

 

Under an equity swap the Company contracts with a broker to receive/pay successive changes in the market value of an agreed notional principal amount of an underlying security. Risk not reflected in the Statement of Financial Position associated with this form of trading is that as the market value of the security changes the Company may realise losses relative to the contractual amounts of the swaps. The Company portfolio contains equity swaps and investment fund swaps.

 

At 31^st March the Company held open equity swaps as set out below:

 

	2012	2012	2011	2011
	Contractual	Unrealised	Contractual	Unrealised
	amount	loss	amount	gain
	GBP	GBP	GBP	GBP
Equities - long	256,817	(61,558)	2,498,639	81,330
		(61,558)		81,330

 

Forward currency contracts

 

The Company enters into forward currency contracts in order to hedge against foreign currency exchange risk and/or for speculative purposes. The amount of the contract represents the extent of the Company's participation in these financial instruments. Market risks associated with forward contracts arise due to the possible movements in foreign exchange rates underlying these instruments. Other market and credit risks include the possibility that there may be an illiquid market for the contracts, that the change in value of the contract may not directly correlate with the changes in the value of the underlying currencies or that the counterparty defaults on its obligation to perform under the terms of the contract.

 

At 31^st March 2012 the Company held net open forward contracts as set out below:

 

Purchase	Contractual	Sale	Contractual	Unrealised
currency	amount	currency	amount	gain GBP
GBP	47,244,020	EUR	(56,600,000)	65,686
				65,686

 

At 31^st March 2011 the Company held net open forward contracts as set out below:

 

Purchase	Contractual	Sale	Contractual	Unrealised
currency	amount	currency	amount	loss GBP
GBP	52,424,400	EUR	(60,000,000)	(684,115)
				(684,115)

 

 

14. Reconciliation of gain for the year to net cash inflow/(outflow) from operating activities

 

	2012	2011
	GBP	GBP
Total comprehensive (loss)/income for the year	(19,518,647)	14,114,419
Net realized gain on financial assets	(1,943,207)	(1,330,541)
Net unrealised loss/(gain) on financial assets	32,238,195	(8,812,529)
(Increase)/decrease in revenue debtors and accrued income	(34,291)	478,579
(Decrease)/increase in revenue creditors and accrued expenses	(1,141,709)	176,885
Decrease in loans receivable	-	2,615,160
Increase in cash held as margin	12,419	736,794
Purchase of investments	(23,728,768)	(41,108,407)
Sale of investments	27,914,456	24,419,866
Net cash inflow/(outflow) from operating activities	13,798,448	(8,709,774)

 

15.  Cash and cash equivalents

 

	2012	2011
	GBP	GBP
At 1st April	(12,020,817)	1,179,671
(Decrease)/increase in cash and cash equivalents	9,569,044	(13,200,488)
At 31st March	(2,451,773)	(12,020,817)
Cash at bank	5,772,738	2,247,477
Overdrawn balances at brokers	(8,224,511)	(14,268,294)
	(2,451,773)	(12,020,817)

 

16.  Prime brokerage agreements

 

Under the terms of the Company's prime brokerage agreement, the prime broker holds a first fixed charge over the Company's assets and cash held with the prime broker as security for the payment and performance by the Company of its obligations to the prime broker.

 

17.  Related parties

 

The Company and the Investment Manager are related by virtue of the existence of a material contract as referred to in note 4. As at 31^st March 2012, the Investment Manager owned 19,550,870 shares (2011: 16,550,870 shares) in the Company. Fees payable to the Investment Manager in respect of the year were GBP364,151 (2011: GBP1,513,314) of which GBP26,997 (2011: GBP1,168,719) was outstanding at the year end.

 

Michael Haxby, a Director of the Company, is also a Director of the Investment Manager and of member companies of the Spazio group.With effect from 1st April 2012, Mr Haxby receives a fee from Terra European Investments of €12,000 per year.

 

Colin Kingsnorth, a Director and an ultimate beneficial owner of the Investment Manager is also a director of Spazio.

 

Nicholas James, a Director of the Company, is also a director of Spazio. Andrew Shepherd, a Director of the Company, was a director of Spazio until his resignation on 8^th March 2012.

 

Celtic Italy s.r.l ("Celtic") is a related party as Andrew Shepherd, Rhys Jones and Nicholas James all received remuneration from the Celtic group of companies during the past twelve months.  In addition, Andrew Shepherd, Rhys Jones and subsidiary companies of the Laxey group are significant shareholders in Celtic Property Developments SA, the holding company for the Celtic group of companies.

 

Celtic is indirectly providing services to the Company, and other Laxey managed funds, as part of the management of the Spazio investment portfolio. Celtic receives fees and incentive payments from the Spazio group companies as remuneration for these services. These payments are as follows:

 

Fees paid by Spazio Investment NV group of companies to Celtic during the period 1^st April 2011 to 31^st March 2012:

 

Consultancy fees in respect of realisation of properties	EUR 1,837,145 (2011: EUR 2,090,337)
Property agency fees	EUR 1,546,134 (2011: EUR 991,595)

 

The Company held a 33.6% interest in Spazio as at 31^st March 2012 (2011: 33.6%).

 

Incentive payments made by Terra European Investments BV to Celtic from 1^st April 2011 to 31^st March 2012:

 

EUR 3,000,000 (2011: EUR 1,000,000)

 

The Company held a 46.28% economic stake in Terra European Investments BV, as at 31^st March 2012 (2011: 46.28%).

 

Independent advice was taken regarding the agreements between Spazio and Celtic and between Terra European Investments and Celtic. Following this advice and consultation with the Company's Nominated Advisor in February 2010, the Company's Independent Directors have deemed the relationships to be fair and reasonable.

 

18. Directors' Remuneration

 

Details of Directors remuneration earned in respect of the financial year by each Director of the Company acting in such capacity during the financial year are as follows:

 

	2012	2011
	GBP	GBP
Robert Ware	65,000	65,000
Martin Adams	35,000	35,000
Nicholas James	17,500	31,056
Rhys Jones	17,500	30,625
Andrew Morrison Shepard	17,500	30,625
Johan Lantz	35,000	28,270
Michael Haxby*	-	-
	187,500	220,576

 

*Michael Haxby has waived the right to receive Directors fees from the Company while he is a director of the Investment Manager.

 

With effect from 1^st January 2011, Nicholas James, Rhys Jones and Andrew Shepherd agreed to reduce their fees by 50%, from £35,000 per year to £17,500 per year.

 

The fees detailed above are the only remuneration paid to the Directors of the Company.

 

19.  Gearing

 

Gearing, or leverage, is the percentage of borrowing compared to the percentage of assets. Pursuant to the Company's articles of association, this borrowing may not exceed 200% of the Net Asset Value.

 

20.  Subsequent Events

 

In preparing these financial statements, the Company has evaluated events that have occurred from 1^st April 2012 through 27 July 2012 (the date that the annual statements were issued/available to be issued) and except as already included in the notes to financial statements, it has determined that no events have occurred that would require recognition or additional disclosures in these financial statements.

 

Supplementary Information

 

Reconciliation of Net Asset Value to Total Equity per Statement of Financial Position as at 31st March 2012

 

	2012	2011
	GBP	GBP
Net Assets as at 31st March	64,364,905	85,290,847
Revaluation of Spazio Investment NV 2012: from EUR 3.31 to EUR 3.07
(2011: from EUR 5.59 to EUR 5.78 per share)	(1,540,051)	1,282,058
Total Equity per Statement of Financial Position	62,824,854	86,572,905