16 Oct 2008 13:13
For immediate release: 16 October 2008
CREON CORPORATION Plc UNAUDITED INTERIM RESULTSFOR THE SIX MONTHS ENDED 31 JULY 2008 AND ISSUE OF EQUITY
Creon Corporation Plc (AIM: CRO), today announces:
- its unaudited interim results for the six months ended 31 July 2008;
- the successful subscription to 4,000,000 new Ordinary Shares at 3 pence per Ordinary Share;
- the agreement - subject to approval by shareholders at a General Meeting - that each new Ordinary Share issued through the subscription is to be issued with a warrant that will entitle the holder to subscribe for one new Ordinary Share at 1.5 pence each.
Details of the proposed date for the General Meeting will set out in the Circular to be issued shortly.
Ends
For further information please contact:
Creon Corporation Plc Jonathan Freeman +44 (0)20 7752 0215Daniel Stewart & Company Plc Oliver Rigby +44 (0)20 7776 6550GTH Media Relations Toby Hall +44 (0)20 7153 8039 Christian Pickel +44 (0)20 7153 8036Director's Report
We present these interim results to shareholders showing the financial performance of the Group for the six months ended 31 July 2008.
During the period under review, Creon's business of providing mezzanine finance to UK residential property developers has been severely adversely affected by the well reported problems within the UK property sector. The combined effect of very low house sale volumes and a sharp and continuing decline in house prices, which has gathered momentum during the course of 2008, has resulted in our remaining loan portfolio suffering from significant problems and repayment delays. We took the view in the summer of 2007 that we should reduce our levels of mezzanine finance exposure to the UK residential property market because of the uncertain outlook. We did not foresee the scale of the decline in the UK property sector but our action has meant that Creon's exposure to this sector is not as much as it might have been.
We reported in our annual report for the period to 31 January 2008 that we had re-appraised Creon's business model and had reached the conclusion that there were unlikely to be sufficiently attractive property related projects over the short to medium term to enable the Company to fully invest its cash resources. We therefore sought out a new investment opportunity to utilise available resources and announced on 1 July 2008 the acquisition of Pinnacle Plus Limited ("Pinnacle") for a total consideration of ‚£0.77 million (inclusive of approximately ‚£120,000 of acquisition costs) with up to an additional ‚£0.5 million deferred consideration, to be satisfied by the issue of ordinary shares in Creon. This acquisition was approved by Creon's shareholders at the Company's AGM and the transaction completed on 1 August 2008. Creon has provided approximately ‚£0.4 million of finance to Pinnacle since its first loan to Pinnacle in April 2008.
It was envisaged at the time of Creon's first loan to Pinnacle that Creon would be able to provide sufficient working capital to Pinnacle to enable it to continue with its sustained growth plans. Pinnacle's working capital requirement was expected to be financed from the repayment of certain of Creon's existing property mezzanine loans. However, the significant deterioration in the UK property market has meant that the mezzanine loans have not been repaid as was expected and, as a result, Creon was not in a position to continue to provide Pinnacle with the working capital as envisaged. We therefore sold our ownership of Pinnacle to Felbright Limited, a company principally owned by the management of Pinnacle, for ‚£1 and converted the loans of ‚£403,000 already provided by Creon to Pinnacle into ‚£400,000 of preference shares which are redeemable by Pinnacle within five years and which earn interest of 7% per annum. In addition we agreed to the novation to Creon of the loans, and interest accrued, provided by certain third parties to Pinnacle which had been previously guaranteed by Creon. The total of these loans and accrued interest, as of 31 October 2008, will total ‚£329,598. We have entered into discussions with these third parties about the most appropriate way of achieving repayment of these loans and expect to be able to announce proposals shortly. Whilst it is very disappointing to have to dispose of Pinnacle we believe that this is in the best interests of our shareholders as it preserves some value in the investment we have put into Pinnacle whilst removing the need to provide further funding at a time when there is such unprecedented uncertainty in the market place. The completions of both the acquisition and subsequent disposal of Pinnacle occurred after the end of the period under review.
Mezzanine Loans
At the beginning of this financial year, Creon had five loans outstanding totalling ‚£2.2 million. During the period under review, one of the loans was repaid and we advanced one further mezzanine loan totalling ‚£250,000. In relation to the loan that was repaid we received payment partly in cash with the remainder being made up by taking possession of two properties. We have taken the view that, in the current economic environment, we should not be accruing any further income on loans which are over due for re-payment and we have also written off the majority of the income already accrued on these loans. The result of this is that we have written off through the income statement a total of ‚£1,915,000 of loans and previously accrued income. This is included within `Administrative Expenses' in the income statement provided with this report. We have let both the properties and intend that they will be sold in due course. Therefore at the period end the Group had five mezzanine loans outstanding. We have re-valued these mezzanine loans (including accrued fees where appropriate) to ‚£578,000.
Financial Results
We are disappointed to report that for the period under review the Group has incurred a loss before tax of ‚£1.948 million (loss of ‚£.068 million for same period 2007). This loss is the result of the reduction in the size of our loan portfolio and the non-performance of some of the loans. Our net assets as at 31 July 2008 stood at a total of ‚£1.014million. The net assets of the Company have fallen since the period end as a result of additional creditors and the novation of the loans from Pinnacle. As of 1 October 2008 Creon's net assets stood at approximately ‚£0.5 million.
Subscription
In order to continue to operate and to pay creditors as they fall due it is necessary for Creon to raise further funding. The directors have therefore been in negotiation with a number of potential investors in an effort to raise further capital. However, a combination of the steep decline in the property sector and the condition of the equity markets in general have meant that the Company has only been able to raise funds on the basis of its net assets.
We have today announced that the Company has succeeded in raising a total of ‚£ 120,000 through the issue of 4,000,000 new ordinary shares of 1 pence each in the capital of the Company ("Ordinary Shares") at a price of 3 pence per Ordinary Share. This price represents a 25% discount to the current net asset value per share of the Company. In addition to the issue of the new Ordinary Shares we have also agreed that each new Ordinary Share issued through this subscription will also be issued with a warrant that will entitle the holder to subscribe for one new Ordinary Share at 1.5 pence each. The award of this warrant will be subject to approval by shareholders at a General Meeting which is expected to be called shortly. If the existing shareholders do not approve the resolution relating to the issue of these warrants then the Company will instead provide a debt instrument to the subscribers equivalent to 50% of the value of their subscription shares at the subscription price. This instrument would not be secured but would accrue interest at 5% above the Bank of England base rate.
Application has been made for the new Ordinary Shares to be admitted to trading on AIM. Admission of the Ordinary Shares is expected to take place on 21 October 2008 ("Admission").
Following Admission, Creon's issued ordinary share capital will comprise 16,041,491 Ordinary Shares. All of the Ordinary Shares carry voting rights and this will be the figure which may be used by shareholders in the Company as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change to their interest in, the share capital of the Company.
We are continuing our discussions with other potential investors and hope to be in a position to be able to raise further funds in the near future, if required.
Outlook
Given the continued uncertainty within the UK residential property sector the Directors believe that it is in the best interests of the Company to continue to diversify its portfolio of investments away from mezzanine finance to UK property developers for the foreseeable future. The Directors anticipate that it may not be possible to realise any of its existing loan portfolio in the current financial year and believe that certain parts of the existing mezzanine loan portfolio may require further financial support in order to secure a successful repayment. The Directors are also investigating other suitable investment opportunities, both within the property market and in other industry sectors that are presenting themselves and which may come to fruition during 2009. It is anticipated that the financing of such investments will come at least in part from the realisation of some of the existing mezzanine loans but that further new equity funding is also likely to be required.
Jonathan FreemanJames Barder15 October 2008 Creon Corporation Plc CONSOLIDATED UNAUDITED INTERIM RESULTS FOR THE PERIOD FROM 1 FEBRUARY 2008 to 31 JULY 2008
Consolidated unaudited interim income statement
Note 6 months 12 months 6 months ended ended ended 31.7.08 31.1.08 31.7.07 ‚£000 ‚£000 ‚£000 Turnover 2 43 402 215 Cost of Sales 20 (146) (87) Gross profit 63 256 128 Administrative expenses 3 (2007) (436) (208) Loss on ordinary activities before (1944) (180) (80)interest Financial income 5 4 27 14 Financial expense 5 (8) - (2) Loss on ordinary activities before tax (1948) (153) (68) Tax on profit/(loss) on ordinary 6 - 31 -activities Loss on ordinary activities after (1948) (122) (68)taxation Loss per share 4 (19.41)p (1.22)p (0.67)p
Consolidated unaudited interim balance sheet
Note As at As at As at 31.7.08 31.1.08 31.7.07 ‚£000 ‚£000 ‚£000 Non CurrentAssets Investment properties 7 250 - - Current Assets Corporation Tax recoverable 31 - - Loans and accrued interest 990 2611 3264 Debtors 47 34 - Cash at bank 11 482 433 Total Assets 1329 3127 3697 Liabilities: amounts falling due within 8 (65) (165) (230)one year financial liabilities (250) - (450) Total Liabilities (315) (165) (680) Capital and Reserves Called up equity share capital 9 100 100 100 Share premium 2775 2775 2775 Profit and loss account (1861) 87 142 Total Equity- attributable to the 1014 2962 3017shareholders of the parent Total Liabilitiesand equity 1329 3127 3697
Unaudited consolidated cash flow statement
6 months 12 months 6 months Ended Ended Ended 31.7.08 31.1.08 31.7.07 ‚£000 ‚£000 ‚£000 Operating profit/(loss) (1944) (180) (80) Decrease/(increase) in Debtors 271 (132) (83) Increase/(decrease) in Creditors (100) (1) 15 Loan provisions 1406 250 - Returns on investment and servicing of finance Interest received 4 27 14 Interest paid (8) Taxation 3 (52) - Mezzanine finance loans advanced (286) (1049) (825) Pinnacle loan advance (403) Mezzanine finance loans repaid 336 677 - Net cash outflow before financing (721) (460) (959) Financing New Loan advanced 250 - - Increase in cash in the period (471) (460) (959) Cash and equivalents at beginning of 482 942 942the period Cash and equivalents at end of the 11 482 (17)period Unaudited Statement of Changes in Equity Share Share Retained Total capital premium earnings equity ‚£ 000 ‚£ 000 ‚£ 000 ‚£ 000 Balance at 31 July 2007 100 2775 210 3085 Loss for the period ended - - (123) (123)31.1.08 Balance at 31 January 2008 100 2775 87 2962
Loss for the period ended 31.7.08 - - (1948) (1948)
Balance at 31 July 2008 100 2775 (1861) 1014 Notes to the interim results1) General information
Creon Corporation Plc is a limited liability company, which was incorporated in England on 27.8.04, and was admitted to AIM on 25.11.04. Creon Corporation acquired a subsidiary Creon Estates Ltd on 1.2.08. The sole intra-group transaction has been eliminated in preparing the consolidated accounts.
The interim financial statements for the Group have been prepared as at 31 July 2008 and for the period of six months then ended, and have neither been audited nor reviewed pursuant to guidance issued by the Auditing Practises Board.
The comparative figures are shown with consistency to the figures of the current reported period.
The Company's functional currency is sterling as their operations are primarily based in the United Kingdom, and these interim, unaudited, financial statements are presented in sterling.
2) Accounting policies
In accordance with the rules of the Alternative Investment Market the financial information
presented in this report has been prepared using accounting policies that are expected to be applied in the preparation of the financial statements for the year ending 31 January 2009. The principal accounting policies are set out below.
These policies are consistent with the recognition and measurement principles of International Financial Reporting Standards ("IFRIC") and International Financial Reporting Interpretations Committee ("FRIC") interpretations as endorsed for use in the European Union that are expected to be applicable for the year ended 31January 2009. There were no adjustments identified on transition from UK GAAP to IFRS for the half year period to 31 July 2007 and the full year end to 31 January 2008.
The financial information for the six months ended 31 July 2008 and for the six months ended 31 July 2007 is unaudited.
The financial information presented for the Group does not constitute "statutory accounts" within the meaning of Section 240 of the Companies Act 1985.
The information of the year ended 31 January 2008 has been extracted from the financial statements of the statutory accounts of Creon Corporation Plc which were prepared under UK Generally Accepted Accounting Principles ("UK GAAP") and have been delivered to the Registrar of Companies. The auditors have reported on those financial statements; their report was unqualified, did not include references to which the auditors drew attention by way of emphasis without qualifying their report and did not contain any statements under either Section 237(2) or Section 237(3) of the Companies Act 1985.
The auditors have not reported on the financial statements for the half year period to 31 July 2007 and for the year ended 31 January 2008 as disclosed under IFRS.
Turnover
Turnover represents property rents received and accrued and actual interest on mezzanine finance loans.
Foreign currency transactions
Foreign currency transactions are translated into the functional currency using the exchange rate prevailing at the date of the transaction. Any foreign exchange gains and losses resulting from the settlement of such transactions, and from translation at period end of any monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.
Segmental analysis
The company has only one major business segment, that of advancing mezzanine finance loans, and carries out all of its operations in the United Kingdom. Therefore the directors do not consider it necessary to prepare a segmental analysis.
Investment properties
Investment properties are those properties that are held either to earn rental income or for capital appreciation or both.
Investment properties are measured initially at cost, including related transaction costs. After initial recognition at cost, investment properties are carried at their fair valuation based on professional valuation made as of each reporting date. Properties are treated as acquired at the point when the Group assumes the significant risk and returns of ownership and as disposed when these are transferred to the buyer.
The difference between the fair value of an investment property at the reporting date and its carrying amount prior to re-measurement is included in the income statement as a valuation gain or loss.
3) Administrative expenses
Administrative expenses include ‚£1.915 million of write offs relating to loans and interest previously accrued thereon (2007: nil)
4) Earnings per Share
The loss per share for the period was 19.41 pence. The calculation of earnings per share is based on the loss of ‚£1,948,095 for the period and the weighted average number of shares in issue (10,036.110).
5) Financial Revenues
Finance income consists of interest received on bank deposits. Finance expense comprises interest on a new bank loan of ‚£250,000.
6) Taxation
The Company is subject to UK corporation tax and is recovering all such tax paid in the past against last year's operating loss. No allowance has been made for tax credits on current year losses.
7) Non current Assets
Non current assets comprise two residential properties accepted as part of amezzanine loan repayment. The properties are currently let on assured shortholdtenancies.8) Creditors As at As at As at 31.7.08 ‚£ 31.1.08 31.7.07 '000 ‚£'000 ‚£'000 Trade creditors and Accruals 65 165 181 Corporation Tax - - 49 65 165 230
All creditors are due within one year.
9) Share Capital As at As at As at 31.7.08 31.1.08 31.7.07 ‚£000 ‚£000 ‚£000 Authorised 50,000,000 ordinary shares of ‚£ 500 500 5000.01 each Allotted, called up and fully paid 10,036,110ordinary shares of ‚£ 100 100 1000.01 each
10) Preparation of the Interim Report
This report was approved by the Directors on 15 October 2008.
The interim report is being sent to shareholders as soon practicably possible.
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