Craven House Capital Regulatory News (CRV)

26 November 2012

Craven House Capital Plc

("Craven House" or the "Company")

Final Results for the Year to 31 May 2012

CHAIRMAN'S REPORT

Craven House has experienced significant transformation over the course of the 12 months to 31 May 2012. Building on the strategic partnership formed with Desmond Holdings Ltd ('Desmond') late in 2010, the Company entered into a Management Services Agreement in August 2011, appointing Desmond as the Company's Investment Manager. Together, the Company's Board of Directors and Desmond have guided the Company through a successful restructuring and re-capitalisation period, have reduced overheads and implemented the revised Investing Policy. These efforts have helped to create a year-end position with a number of new investments and a pipeline of exciting new opportunities in hand.

The Company made three new investments and two secondary investments over the course of the year in its target emerging and frontier markets, details of which are provided below. We are pleased with how these investments have performed to date, and in particular with how we have been able to demonstrate our ability to secure investments utilising our shares as acquisition currency; a clearly defined and central aspect of our investment strategy. We were able to execute all share transactions and a circa £722,000 private placement at a share price of 1.25p per ordinary share. The Company's ability to execute transactions at a premium to the current market price underlines the Board's belief in the Company's future growth prospects and its opinion that the Company's shares are presently trading below value.

The clearest indicator of the Company's success in the year has been the significant improvement in our Net Asset Value, the principal metric by which we measure the Company's performance. Craven House started the financial year with net liabilities of circa £200,000; by the end of the period, adjusting to reflect the purchase and sale of investments, currency movements and market values in respect of quoted investments, the Company estimates net asset value at the end of the period had increased to almost £2,300,000, mainly driven by the acquisition of new assets utilising our shares as currency; alongside increasing the balance sheet value of existing investments. This increase places us on a very strong footing as we enter the next financial year allowing us to focus on utilising this asset base to generate cash and target larger acquisitions in the future.

Corporate Restructuring

At the Company's Annual General Meeting on 24 August 2011, shareholders approved changing the name of the Company from AIM Investments Plc to Craven House Capital Plc; named after the foundations on which the headquarters of the British East India Company was built. Craven House seeks to emulate the company that inspires its name, by adopting an old style merchant banking approach; seeking out quality businesses in emerging and frontier markets, owned and operated by talented entrepreneurs.

At the AGM, shareholders also approved the Company's new Investing Policy giving the Company more flexibility in its ability to structure international investments. At Craven House, we strongly believe emerging and frontier markets offer the greatest potential reward for knowledgeable investors who are able to identify compelling investment opportunities. With far fewer sources of capital and many more small and medium sized companies in search of funding, as investors we are able to craft better terms than would otherwise be available in the developing world.

During the period, the Company's Non-Executive Chairman, Sir Bernard Zissman, and Finance Director, Andrew Fletcher stepped down from the Board. Alexandra Eavis has taken up the role of Company Secretary in addition to her directorship, and I am currently serving as Acting Chairman, while the Board is restructured in line with its exclusive frontier and emerging market focus. Consequently, the Board was joined in the period by Mr. Balbir Bindra, a Partner and Head of Asia Banking & Finance at international law firm, Gide Loyrette Nouel, in Hong Kong. Mr. Bindra has extensive experience in international finance law and has represented multinationals, banks, securities houses, hedge funds, private equity groups, multilateral and sovereign lenders, including the World Bank, with interests in Asia, the PRC, Africa and South America.

After adoption of the revised Investing Policy, the Company entered into a Management Services Agreement with Desmond. The management of Desmond, which includes myself, have over 15 years' experience of investing in emerging and frontier markets, and have managed gross assets of over $500million. Desmond has an established network of relationships in emerging and frontier markets, which generate a high volume of prospective investment opportunities, in particular, but not exclusively, in South America, Asia and Sub- Saharan Africa. Desmond's track record, and the access they provide to relationships in the Company's target markets, make Desmond an ideal strategic partner for the Company. The activities of the Investment Manager are overseen by our Non-Executive Board of Directors, two of whom are independent.

Private Placement

On 27 June 2011, the Company closed a private placement of shares, raising approximately £722,000 at 1.25p per ordinary share. 57,726,266 ordinary shares, and 57,726,266 warrants exercisable at any time before 30 June 2014 at an exercise price of 1.5p per share, were issued. A number of value added investors subscribed in the placing and we were happy that an internal target of $1,000,000 (approximately £626,000)was exceeded in this very early stage fundraising round.

Investment Activity & Performance

During the period, Craven House made investments in the following companies;

·; Mongolia Growth Group (YAK:CN), a real estate and financial services conglomerate operating in Mongolia and listed on the Canadian National Stock Exchange;

Craven House participated in a private placing of shares in YAK in June 2011. At the period end the share price of YAK was 14% higher than the subscription price secured by the Company. Craven House's shareholding represented 0.1% of the total issued share capital of YAK.

YAK has demonstrated significant growth over the course of the year, benefiting from the appreciation of commercial real estate in Mongolia. They are also the part owner of a well capitalised insurance company in Mongolia.

·; Farm Lands of Africa Inc. (FLAF:OTC US), a green-field agribusiness operating in West Africa, which controls over 100,000 hectares of land and is listed on the OTC Markets in New York.

The Company made two significant investments in FLAF over the course of the year. In August 2011, Craven House participated in a private placement of FLAF shares, investing $1,000,000. In May 2012, Craven House invested a further $800,000 by acquiring shares from certain existing shareholders.

FLAF continues to make encouraging progress in its West African operations, and has recently announced the acquisition of another farming business operating in Guinea, the management of which have operational experience of varied arable farming in India, with rice being a particular area of expertise. Negotiations continue with a major development finance institution operating in the area with regards to the provision of a multi-million dollar debt facility. If secured, this will allow FLA to accelerate its activities, enabling it to cultivate 70,000 hectares of maize, soybeans and rice within a 5-year period. Additional projects to grow and process eucalyptus to produce wood pulp, and rehabilitate existing palm oil plantations and processing facilities, are under development.

At the year end, Craven House's shareholding represented 7.8% of the total issued share capital of FLAF and FLAF's share price was $4.00 per share. This was 59% higher than the average investment price paid by Craven House of $2.51 per share. However, given the illiquid nature of these public company shares, Craven House's investment in FLAF is currently held at book value of $1.51 per share; the value of the most recent investment in FLAF. Following FLAF's recently announced merger, it is likely that the Company's holding in FLAF will be increased as a result of the triggering of certain investor protection mechanisms and anti-dilution clauses that were attached to the original investment. Calculations are still being finalised at the current time.

·; Pressfit Holdings Plc ('Pressfit') is a UK private holding company with subsidiaries manufacturing specialist stainless steel pipe fittings in China.

Over the course of the year, Craven House has acquired a stake which now represents 36.9% ownership of Pressfit, through investments totalling circa £1.5m. A further 3% of the shares in Pressfit are available to the Company in the event that an outstanding convertible loan is exercised.

Pressfit has made excellent progress over the course of the year, signing distribution agreements with suppliers in the UK and Denmark. In addition, Pressfit has successfully obtained certification to distribute into the US.

With its product portfolio and distribution base now well established, management will focus its efforts on securing meaningful orders and revenue over the course of the next financial year.

During the period, Craven House exited an investment in Shenzhen Cadro (Catic Group) Hydraulic Equipment Co. Limited, yielding a 6% return on the original investment over the course of one year. Due to market conditions, this company was unable to achieve a satisfactory valuation to warrant its planned IPO, so returned the initial convertible loan plus interest. The Company used these funds to pay down debt.

Working Capital

The operating costs in the first half of the period were elevated as a result of the restructure and repayment of all outstanding legacy liabilities. In the second half of the period, these costs significantly reduced with on-going monthly operating costs of approximately £15,000, including all management fees.

Immediate working capital needs will be met by cash in the bank, and the continued support of the Company's major shareholder and Investment Manager, Desmond, in the form of both extension of existing loan facilities and new working capital loans where required. Going forward, the Directors aim to generate cash from yield-based investments; or full / partial exits of the Company's more liquid investments (if required). Making additional investments in cash generative businesses is the Company's main priority over the next year with the initial aim of meeting the Company's operating costs, and over time enabling the Company to pay a dividend. The Company may also seek to execute an additional capital raise when market conditions are suitable for such fundraising activity.

Post Balance Sheet Events

On 24 September 2012, the Company purchased 490 shares in Ceniako Limited ("Ceniako"), representing 49% of Ceniako's total issued share capital, from the owner of Ceniako. The shares were purchased at a price of approximately €2,040 per share, amounting to a total consideration of €1,000,000. This purchase was conditional upon the owner of Ceniako subscribing for 62,891,520 new ordinary shares of 0.1 pence each in the Company ("Ordinary Shares") for 1.25p per share, raising funds for the Company of circa €1,000,000.

Ceniako is a Cypriot holding company, whose sole asset, held indirectly through a 100% owned Brazilian subsidiary, is 1,967 hectares of productive agricultural land with significant development potential. Situated directly on the Atlantic coast of Brazil, between Salvador and Rio de Janeiro, the property features over two kilometres of beachfront in addition to productive cattle pastures and cropland. 

Change to the Company's Investing Policy

The focus on emerging and frontier markets has resulted in a number of investments which are showing positive returns, and this will remain the primary focus of the Company. However, the directors and the Company's Investment Manager have seen a number of potential opportunities to invest in special situations in developed economies where businesses have been affected by the recent economic turmoil and assets are now available to be acquired for shares at attractive prices. Whilst the Company will continue to prioritise investments in emerging and frontier markets, the Directors believe that it would be sensible to amend the Company's investing policy to allow such special situations to be considered. The proposed changes will be set out in the AGM circular.

Outlook

The Board and the Investment Manager share a common view; The world economy is clearly slowing down and fiscal cliffs look like a real possibility not only in the US but also throughout Europe as debt levels continue to rise and tax revenues fall. Central banks continue along their chosen path of unsterilized money creation, ostensibly based on the theory that more money will stimulate struggling economies, enabling them to outgrow their debt burden. However, despite these monetary easings, we believe it will not be possible in the long run to avoid default on sovereign and corporate debt, the likely result of which will be a combination of inflation, negative real interest rates and a rise in speculative investment. In our view, the Company's focus on hard and real assets and frontier markets (as well as special situations that are now arising in developed markets), is likely to offer the best returns in the coming period.

We are delighted with the progress that has been made by the Company over the past year. We have successfully restructured our operations to place the Company on a very firm footing from which to implement our strategy. We have proved the viability of this strategy by securing very attractive investments in our target sectors and markets, on excellent terms, utilising our shares as currency. Several of the companies we have invested in (or their associates) are now shareholders in Craven House in their own right.

In the coming months, we will continue to seek out high quality businesses and management teams, in which we can establish solid, long-term positions. In particular, we will seek to secure stakes or outright ownership of mature, cash-flowing businesses. The resulting cash flows will be used by Craven House to execute further investments. In addition, we value the patience and support of our shareholders and our objective is to provide them with above market returns with an emphasis on capital appreciation and a medium term objective of implementing a dividend policy.

Mark Pajak

Acting Chairman

For further information please contact:

Copies of the Company's Annual Report and Accounts for the year ended 31 May 2012 are being posted to shareholders today, together with the notice of the Company's forthcoming Annual General Meeting.

The Annual Report and Accounts may be viewed in its entirety on, or downloaded from, the Company's website www.cravenhousecapital.com 

INCOME STATEMENT

FOR THE YEAR ENDED 31 MAY 2012

STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 MAY 2012

STATEMENT OF FINANCIAL POSITION

31 MAY 2012

STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 MAY 2012

STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 MAY 2012

NOTES TO THE STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 MAY 2012

2. CASH AND CASH EQUIVALENTS

The amounts disclosed on the statement of cash flow in respect of cash and cash equivalents are in respect of these statement of financial position amounts:

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 MAY 2012

1. ACCOUNTING POLICIES

Basis of preparation

These financial statements have been prepared in accordance with International Financial Reporting Standards and IFRIC interpretations and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

Craven House Capital plc is a company incorporated in the United Kingdom under the Companies Act. The address of the registered office is given on the company information page. The Company is listed on the AIM Market of the London Stock Exchange (code: CRV).

The financial statements have been prepared under the historical cost convention, except to the extent varied below for fair value adjustments required by accounting standards, and in accordance with applicable International Financial Reporting Standards (IFRS) as adopted for use by the European Union. The principal accounting policies are set out below.

These financial statements are presented in pounds sterling, rounded to the nearest £.'000. Pounds sterling is the currency of the primary economic environment in which the company operates.

The accounting policies adopted by the Company are consistent with those of the previous financial year.

As at the date of approval of these financial statements some standards and interpretations were in issue but not yet effective. The directors expect that the adoption of these standards and interpretations in future accounting periods will not have a material impact on the company's results.

2. SEGMENTAL REPORTING

The operating segment has been determined and reviewed by the directors to be used to make strategic decisions. The directors consider there to be a single business segment being that of investing activities, therefore only one reportable segment.

3. EMPLOYEES AND DIRECTORS

The average monthly number of employees during the year was as follows:

Directors' remuneration was split as follows:

The highest paid director received emoluments and benefits as follows

The directors are the key management of the Company.

There were no directors (2011: none) to whom retirement benefits were accruing under money purchase schemes.

4. NET FINANCE INCOME

5. LOSS BEFORE INCOME TAX

The loss before income tax is stated after charging/(crediting):

6. INCOME TAX

Analysis of charge in the year

Current tax:

Analysis of charge in the year

Rate of corporation tax in the UK of 20% (2011:21%)

7. EARNINGS PER SHARE

Basic loss per share is calculated by dividing the loss attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period.

Diluted loss per share has not been disclosed as the inclusion of unexercised warrants would be anti-dilutive.

2012

2011

8. PROPERTY, PLANT AND EQUIPMENT

10. TRADE AND OTHER RECEIVABLES

11. CASH AND CASH EQUIVALENTS

12. CALLED UP SHARE CAPITAL

The deferred shares carry no entitlement to receive notice of any general meeting, to attend, speak or vote at such general meeting. Holders are not entitled to receive dividends, and on a winding up of the Company holders of deferred shares are entitled to a return of capital only after the holder of each Ordinary share has received a return of capital together with a payment of £1 million per share. The deferred shares may be cancelled at any time for no consideration by way of a reduction in capital.

On 28 June 2011, the Company announced it had raised £721,578 from the subscription of 57,726,266 new ordinary shares at 1.25p per share, and 57,726,266 fully transferable warrants, exercisable and 1.5p per share at any time before 30 June 2014.

On 17 August 2011, the Company allotted 24,500,000 new ordinary shares and 24,500,000 fully transferable warrants (exercisable and 1.5p per share at any time before 30 June 2014), to Farm Lands of Guinea Inc. (subsequently renamed Farm Lands of Africa Inc.) for a consideration of $500,000 (£306,250).

On 7 September 2011, the Company issued 1,900,000 new ordinary shares to new incoming director, Balbir Bindra, as an advance payment for the first year of service as Non-Executive Director of the Company. The Company also issued 1,000,000 new ordinary shares to departing Chairman, Sir Bernard Zissman, in lieu of serving a notice period.

On 5 January 2012, the Company allotted 10,961,305 new ordinary shares to an existing shareholder of Pressfit Holdings Plc for a consideration of £137,016.

On 17 May 2012, the Company allotted 40,094,624 new ordinary shares to certain existing shareholders of Farm Lands of Africa Inc. for a consideration of $801,893 (£501,183).

On 31 May 2012, the Company allotted 103,963,626 new ordinary shares to various existing shareholders of Pressfit Holdings Plc for a consideration of £1,299,545.

13. TRADE AND OTHER PAYABLES

Terms and debt repayment schedule

Other loans of £593,000 comprise advances made by Desmond totalling £526,000 and loans made by Wise Star Capital Investment Limited, both being Hong Kong investment companies. The loans were provided to enable the Company to make qualifying investments under its Investing Policy and to provide working capital for the Company.

The terms of the loans provided by Desmond are as follows:

a) Investment facility

Non-interest bearing loan facility of up to £700,000. The Company may only make drawdowns in order to enter into investment agreements companies introduced by Desmond should they comply with the Company's Investing Policy.

The Company paid Desmond a fee of £120,000 for providing the facility, such fee being satisfied by the issue on 13 December 2010 of 58,480,300 ordinary shares in the Company for a total consideration of £120,000. Amounts drawn down under the facility are repayable within 12 months of the date of drawdown, subject to periodic extension by Desmond.

b) Working capital loans

Interest-bearing loans to provide financial support to enable the Company to meet its reasonable working capital requirements. The facility will remain in place for at least 12 months from the date of approval of the financial statements. Desmond has agreed that it will not seek repayment of outstanding balances in respect of both facilities unless the Company is in a position to make the repayment. See note 3 on page 18.

The loan provided by Wise Star Capital Investment Limited includes interest payable at a rate of 6% per annum. The loan was provided for 12 months dated 1st September 2011; however this loan has since been extended by a further 12 months.

15. FINANCIAL INSTRUMENTS

Financial risk management objectives and policies

Management has adopted certain policies on financial risk management with the objective of:

i. ensuring that appropriate funding strategies are adopted to meet the Company's short-term and long-term funding requirements taking into consideration the cost of funding, gearing levels and cash flow projections;

ii. ensuring that appropriate strategies are also adopted to manage related interest and currency risk funding; and

iii. ensuring that credit risks on receivables are properly managed.

Financial instrument by category

The accounting policies for financial instruments have been applied to the line items below:

Financial assets at fair value through profit or loss

Financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 2 based on the degree to which the fair value is observable:

Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities; and

Level 2 fair value measurements for those derived from inputs other than quoted prices included within Level 1 that are observable for the assets or liability, either directly or indirectly.

At the balance sheet date all of the Company's financial assets fell into both Level 1 and Level 2.

Carrying values of all financial assets and liabilities approximate to fair values.

Credit risk

The Company's credit risk is primarily attributable to other receivables. Management has a credit policy in place and the exposure to credit risks is monitored on an ongoing basis. In respect of other receivables, individual credit evaluations are performed whenever necessary. The Company's maximum exposure to credit risk is represented by the total financial assets held by the Company.

Interest rate risk

The Company currently operates with positive cash and cash equivalents as a result of issuing share capital in anticipation of future funding requirements. As the Company has no borrowings from the bank and the amount of deposits in the bank are not significant, the exposure to interest rate risk is not significant to the company. The effect of a 10% increase or fall in interest rates obtainable on cash and on short-term deposits would be to increase or decrease the Company's profit by less than £1,000 (2011: Less than £1,000).

Liquidity risk

The Company manages its liquidity requirements by the use of both short-term and long-term cash flow forecasts. The Company's policy to ensure facilities are available as required is to issue equity share capital in accordance with agreed settlement terms with vendors or professional firms, and all are due within one year.

Price risks

The Company's securities are susceptible to price risk arising from uncertainties about future value of its investments. This price risk is the risk that the fair value of future cash flows will fluctuate because of changes in market prices, whether those changes are caused by factors specific to the individual investment or financial instrument or its holder or factors affecting all similar financial instruments or investment traded in the market.

During the year under review, the Company did not hedge against movements in the value of its investments. A 10% increase/decrease in the fair value of investments would result in an £80,000 (2011: £50,000) increase/decrease in the net asset value.

While investments in companies whose business operations are based in emerging markets may offer the opportunity for significant capital gains, such investments also involve a degree of business and financial risk, in particular for quoted investments.

Generally, the Company is prepared to hold unquoted investments for a middle to long time frame, in particular if an admission to trading on a stock exchange has not yet been planned. Sale of securities in unquoted investments may result in discount to the book value.

Currency risks

As investments may be made in foreign currencies (primarily US$), the Company is exposed to the risk of unrealised losses on retranslation into the reporting currency at reporting dates and to realised losses on realisations of investments denominated in foreign currencies. There is no systematic hedging in foreign currencies against such possible losses on translation/realisation.

Otherwise the Company operates primarily within its local currency.

Capital management

The Company's financial strategy is to utilise its resources to further grow its portfolio. The Company keeps investors and the market informed of its progress with its portfolio through regular announcements and raises additional equity finance at appropriate times.

The Company regularly reviews and manages its capital structure for the portfolio companies to maintain a balance between the higher shareholder returns that might be possible with certain levels of borrowing for the portfolio and the advantages and security afforded by a sound capital position, and makes adjustments to the capital structure of the portfolio in the light of changes in economic conditions. Although the Company has utilised loans from shareholders to acquire investments, it is the Company's policy as far as possible to finance its investing activities with equity and not to have gearing in its portfolio.

At the balance sheet date the capital structure of the Company consisted of borrowings disclosed in note 14, cash and cash equivalents and equity comprising issued capital and reserves.

16. RELATED PARTY DISCLOSURES

During the year, the Company entered into the following transactions with related parties and connected parties:

Loans from Desmond Holdings

At the year end the Company owed £526,000 to Desmond, shareholder in the Company. Details are set out in note 14.

Management fees payable to Desmond Holdings

At the year end, included in accruals, is an amount of £52,500 payable to Desmond in respect of management services provided in the year.

Directors and key management

Amounts payable in the year to directors (who also comprise key management) are set out in the Directors' Remuneration section of the Chairman's Report. At 31 May 2012 the following amounts were payable to directors:

All key management personnel are directors and appropriate disclosure with respect to them is made in note 3 of the financial statements. There are no other contracts of significance in which any director has or had during the year a material interest.

17. EVENTS AFTER THE REPORTING PERIOD

On 24 September 2012, the Company acquired 49% of Ceniako Ltd ("Ceniako") for €1,000,000. Ceniako is a Cypriot holding company whose sole asset, held indirectly through a wholly owned Brazilian subsidiary, is just under 2000 hectares of beachfront productive arable land with development potential. Ceniako also subscribed for 62,891,520 new ordinary shares of 0.1p each in the Company for 1.25p per share.

On 2 October 2012, Mark Pajak, Acting Chairman of Craven House Capital, became Non-Executive Chairman of investee company, Pressfit Holdings Plc.

INCOME STATEMENT SUMMARIES

FOR THE YEAR ENDED 31 MAY 2012