FFWD.L Regulatory News (FFWD)

1 Nov 2007 07:30

London Asia Chinese Private Equity01 November 2007 LONDON ASIA CHINESE PRIVATE EQUITY FUND LIMITEDRESULTS FOR THE PERIOD 23 FEBRUARY 2006 TO 31 March 2007 Highlights: • Net assets at 31 March 2007 of £66.5 million, equal to 133.05 pence per share; • Profit for the period of £18.4 million, equal to 36.75p per share; • Company substantially invested in 14 investments; • Investments up 52% on cost; and • 59% of portfolio by value quoted. Suspension In accordance with the AIM Rules, on 27 September 2007 all trading of the Ordinary Shares and Warrants wastemporarily suspended, pending the publication of the Company's audited financial statements. The audited financial statements will be available on the Company's website and will also be posted toShareholders on 1 November 2007. Suspension of the Ordinary Shares and Warrants is expected to be liftedat the opening of trading on 1 November 2007. For further information please visit www.londonasiafunds.com or contact: John West / Andrew Dunn Robert Leighton Simon Littlewood Hugh Field Tavistock Communications Chairman Director Collins Stewart Europe Limited Tel: +44 20 7920 3150 Tel: +44 7918 034 315 Tel: +852 9840 5412 Tel: +44 20 7523 8000 CHAIRMAN'S STATEMENT I am pleased to present the first audited results of the Company for the period ended 31 March 2007. The Company was incorporated on 23 February 2006. On 15 March 2006 the Company raised gross proceeds of £50.0 million(net proceeds of £48.1 million) through the issue of 50 million Ordinary Shares at 100.0 pence each with Warrantsattached on the basis of one Warrant for every five Ordinary Shares issued. The Company's issued securities begantrading on AIM, a market operated by the London Stock Exchange, on 15 March 2006. Results As detailed in the following statements, your company made strong progress during the period from launch to 31 March2007. The Company achieved a net profit for the period ended 31 March 2007 of £18.4 million, representing a profit perOrdinary Share of 36.75 pence. The net asset value at 31 March 2007 was £66.5 million (133.05 pence per OrdinaryShare). During the period the Company built up an investment portfolio of fourteen investments at a cost of £43.5 million. At31 March 2007 the investments had a fair value of £65.9 million, an unrealised gain of 51.6% on cost. Details of theseinvestments are set out in the Investment Consultant's Report. £11.6 million (17.6%) of the investments have beenstated at original cost. Investments with an original cost of £31.9 million have been shown at a fair value of £54.3million. Fair value was determined based on market price where the stock was quoted, latest financing valuation wherefollow on financing was achieved, or a multiple of post tax profits of 8 for those investments not quoted orre-financed. As part of the audit, an independent third party valuation firm was appointed to review the valuationmethod, for those investments not listed on SESDAQ or carried at cost, and report to the auditors. Of the fourteen investments, three were already listed in Singapore at the time we invested, and four floated on theUK's PLUS market post our investment. 58.9% of our investment portfolio (by fair value) is quoted, providingShareholders with visibility as to the value of the assets in the Company. Investment Environment Three of our investments were in listed companies because it is our belief that the market price of these businessesdid not reflect their true potential (and one has been sold since the period end at a considerable profit). In addition, in September 2006 revised regulations governing the transfer of Chinese assets outside China, "Ordinance10", as it is called, came into effect. The Chinese Government subsequently brought in additional measures to regulateinvestment by foreigners in Chinese assets and their listing outside China. The impact of these various rules is torestrict the ability of non-Chinese investors to acquire assets in China, and for Chinese businesses to list outsideChina, with the assumption that permission will only be given in circumstances where the same result cannot be achievedwithout foreign involvement. Many of the tax preferences that foreign invested businesses in China received have alsobeen removed, levelling the playing field between foreign and local investors. This is part of the ChineseGovernment's plans to develop their domestic financial services businesses and expand the range of savings productsoffered to Chinese citizens. These regulations considerably restrict the range of assets that non-Chinese investors, such as the Company, can investin. The Chinese stock market has re-opened, and been one of the best performing markets worldwide, encouraging Chinesebusinesses to raise money and list locally, rather than looking overseas. Foreign incorporated businesses arecurrently excluded from listing on the Chinese markets, so those Chinese businesses that accept foreign rather thanlocal investment risk excluding themselves from the ability to list in China, where valuations for Chinese businessesare generally considerably higher than can be achieved outside China. The Chinese Government has been actively encouraging the creation of venture capital and private equity funds withinChina, often as joint ventures with foreign groups who are faced with restrictions on their ability to get access toChinese deals in the current environment. There is substantial liquidity within China, as a result of the profitsgenerated by Chinese businesses, the booming economy and stock market, money raised for the big Chinese banks fromtheir stock market listings, and foreign direct investment. With the Company substantially invested and holding a portfolio of Chinese assets, we see the new rules and currentinvestment environment as being beneficial to our business. Those businesses already listed outside China orrestructured under the old regulations are likely to have increased value, as there are fewer opportunities for foreigninvestors to invest in new Chinese deals. Therefore, investors are forced to look at existing deals that fall outsidethe new regulations. The increasing liquidity within China pushes up the value of Chinese assets, which should feedthrough to the value of our portfolio businesses. Suspension In accordance with the AIM Rules, on 27 September 2007 all trading of the Ordinary Shares and Warrants was temporarilysuspended, pending the publication of the Company's audited financial statements. The delay in the publication of the financial statements arose from unforeseen requirements resulting from the auditprocess. The independent Directors initiated a review of the implementation of certain contractual and operationalprocedures and the Board is committed to ensuring that issues that impacted the publication of this year's auditedfinancial statements will not affect future reporting deadlines. The audited financial statements will be available on the Company's website and will also be posted to Shareholders on1 November 2007. Suspension of the Ordinary Shares and Warrants will be lifted on 1 November 2007. Outlook The current financial year has started well. Since the period end one more investment has been made, at a cost of £2.7million, and the investment in Devotion Energy Group was sold in May 2007 for £2.6 million, a realised gain of £1.6million. Given the significant discount to published net assets that the Company's share price is currently trading at, and thechanged investment environment since the Company was launched, the Board does not feel it is in Shareholders' interestsat this point to expand the Company via the issue of new shares. The Company is focusing on realising the value of theportfolio through trade sales, IPOs and follow on financings. Since the period end, we have assisted two of ourportfolio businesses to raise a total of US$80 million in follow-on funding. The Board will take a view at the timethat it realises investments as to whether to reinvest, return cash to shareholders, buy back shares, or take someother action, dependent on the circumstances and likely returns for Shareholders. With the basis of the valuation ofthe portfolio now established and endorsed, we hope to be able to provide more regular and timely updates goingforward. I would like to take the opportunity to thank the former Chairman John Manser, Chris Hill and Duncan Baxter, alloriginal directors at the time of the float of the Company who have now left the Board, for their contribution to thesuccess of the Company. Having been a visitor to China for thirty years I see no end in sight to China's re-emergence as a powerful tradingnation, and increasing allocation of global funds to Asia as international investors weigh up the relative growthprospects and risks. We look forward to continuing to realise value for Shareholders. R Leighton 31 October 2007 INVESTMENT CONSULTANT'S REPORT 1. Overview The Company had a successful first year of operation and fully committed the £48 million raised at IPO within its firstyear of operation. There has already been one complete exit and several other businesses have achieved a listing on theUK's PLUS market since our investment, as a result of which 59% of the investment portfolio is currently quoted, givingtransparency as to the portfolio value. The investment portfolio is showing a 52% increase over cost, a considerable achievement given that the bulk of theinvestment was made in the second half of the year. The bulk of the funds have been invested in the energy and environment sector, where the Investment Consultant hasparticular expertise, and where we believe there are significant opportunities. The remainder is invested in theconsumer sector, which is benefiting strongly from the increasing wealth of Chinese and the development of the economyfrom an agricultural to a manufacturing and consumer led economy. 2. The Investment Environment Since the Company was launched, there have been a number of macro factors influencing the investment strategy andperformance of the Company: • The implementation in September 2006 and since of a range of measures designed to restrict investment by foreign funds in Chinese businesses and assets, and list Chinese businesses overseas. The Chinese Government continues to discourage foreign private equity investment, other than in specific types of transactions where the investor is bringing more than just cash, such as expertise or technology that is not readily available in China; • The re-opening of China's stock market, and surge in its valuations and liquidity. With the number of retail brokerage accounts surging past the 100 million level, a slug of the estimated US$1.3 trillion of personal savings is being diverted into the Chinese Stock Market, causing surging liquidity and valuations to levels considerably higher than could be achieved for similar assets outside China. The Chinese Government has on several occasions recently publicly announced that it would like to see fewer listings of Chinese businesses overseas and more listings locally; • The emergence of private equity firms within China, often backed by provincial or national Government. Whilst there are considerable numbers of businesses in China that fall outside the various regulations, or have agenuine commercial reason for seeking overseas funds or listings, the cumulative effect of these various changes hasbeen to: • Restrict the number of deals that are available to foreign financial investors, as Chinese businesses seek to list locally, raise funds locally, or are prevented by the regulations from accepting foreign cash; • The consequent shortage of deal flow, coupled with a surge in foreign funds raised for investment in China, has pushed up the valuations of Chinese private businesses which are suitable for foreign investment, with more money chasing fewer deals. Given the above, the market for our existing investments is very strong, as there is continued oversupply of cash andshortage of deals that foreign investors can invest in. We are seeking next round financing for a number of ourportfolio businesses, similar to the US$80 million raised recently for our investee companies, Asia Water Technology andChina New Energy, the last of which was done at a multiple of the value we invested at last year. Conversely, competition for new deals to invest in is cut-throat. The smart money has switched to investing in Chinesebusinesses just prior to an IPO in China, taking advantage of the high valuations and liquidity in China. The Companyas currently structured faces restrictions doing this. More recently, the Chinese Government has begun implementing measures to allow Chinese citizens to invest some of theircapital in stocks listed on the Hong Kong Stock Exchange ("HKSE"). Whilst the details are yet to be finalised, with arecent announcement indicating that the total amount to be invested will be limited to US$100 billion, the effect hasbeen to create a renewed surge in valuations on the HKSE, with the market up considerably since the announcement. We arelooking at ways that we can take advantage of this to list some of our investments in Hong Kong, though this is onlysuitable for part of the portfolio as investors in the Hong Kong market tend to be focused on larger deals than theCompany typically invests in. The recent collapse in confidence in the value of a range of financial assets in the US and Europe has not so far had asignificant effect on Chinese assets, as they tend to be less geared and there are considerable levels of cash in theregion. If anything, we are seeing increasing allocation of assets away from Europe and the US towards Asia. 3. Outlook With the Company substantially invested, and continued enthusiasm for Chinese assets, we look forward to a busy yearrealising the potential of the investment portfolio. S Littlewood and V Ng31 October 2007 The financial information set out in this announcement does not constitute the Company's statutoryfinancial statements for the period ended 31 March 2007. The results for the period ended 31 March 2007are audited. INCOME STATEMENT for the period from 23 February 2006 to 31 March 2007 23 February 2006 to 31 March 2007 Note £'000 IncomeNet unrealised change in fair value of investments 4 22,428Other income 1,516 ------------Total income 23,944 ------------ExpensesProvision for performance fee (3,345)Investment Consultant's fees (1,009)Introductory fees (832)Administration fees (131)Directors' fees (93)Audit fees (29)Custodian fees (18)Other expenses (113) ------------Total expenses (5,570) ------------Profit for the period 18,374 ------------ Earnings per share - basic and fully-diluted 3 36.75p All the items in the above statement are derived from continuing operations. BALANCE SHEET as at 31 March 2007 Note 31 March 2007 £'000Non-current assetsInvestments at fair value through profit and loss 4 65,905 ----------Current assetsFinancial asset at fair value through profit and loss 5 335Other receivables and prepayments 54Cash and cash equivalents 12,321 ---------- 12,710 ----------Total assets 78,615 ----------Current liabilitiesPayables and accruals 6 (12,092) ----------Net assets 66,523 ---------- Capital and reserves attributable to equity holders of the CompanyCalled-up share capital 500Warrant reserve 2,293Distributable reserves 63,730 ----------Total equity shareholders' funds 66,523 ---------- Net Asset Value per Ordinary Share - basic 7 133.05pNet Asset Value per Ordinary Share - fully diluted 7 130.87p STATEMENT OF CHANGES IN EQUITY for the period from 23 February 2006 to 31 March 2007 Share Share Warrant Distributable capital premium reserve reserve Total £'000 £'000 £'000 £'000 £'000Gross proceeds of placing 500 47,207 2,293 - 50,000Issue costs - (1,851) - - (1,851)Cancellation of share premium - (45,356) - 45,356 -Profit for the period - - - 18,374 18,374 ---------- ---------- ---------- ---------- ----------Balance at 31 March 2007 500 - 2,293 63,730 66,523 ---------- ---------- ---------- ---------- ---------- STATEMENT OF CASH FLOW for the period from 23 February 2006 to 31 March 2007 23 February 2006 to 31 March 2007 Note £'000Operating activitiesBank interest received 1,486Investment Consultant's fees paid (1,009)Introductory fees paid (636)Administration fees paid (100)Directors' fee paid (63)Other expenses paid (150) ----------Net cash outflow from operating activities 8 (472) Investing activitiesPurchase of fair value through profit or loss investments (35,021)Loan to investee company 5 (335) ----------Net cash outflow from investing activities (35,356) ----------Financing activitiesIssue of Ordinary Shares and Warrants 50,000Issue costs (1,851) ----------Net cash inflow from financing activities 48,149 ---------- ----------Net increase in cash and cash equivalents 12,321 ---------- NOTES TO THE RESULTS for the period from 23 February 2006 to 31 March 2007 1. General informationThe Company is a closed-ended investment company domiciled and incorporated as a limited liability company under thelaws of Guernsey. The Company's objective is to provide Shareholders with capital growth from investing in a portfolio of companies whosebusiness operations are based in China. The Company invests as sole or lead investor in profitable, well-managedbusinesses whose business operations are based in China, and which the Executive Directors and Investment Consultantbelieve could generate significant growth in profits from the investment of additional capital. The Company's investment activities are managed by London Asia Capital (S) PTE Limited, with the administrationdelegated to Elysium Fund Management Limited. The Company's Ordinary Shares and Warrants are traded on AIM, a market operated by the London Stock Exchange. 2. Critical Accounting Estimates and JudgementsThe Board of Directors and the Investment Consultant makes estimates and assumptions concerning the future. Theresulting accounting estimates will, by definition, seldom equal the related actual results. The estimates andassumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets andliabilities within the next financial year are outlined below: Fair value of unquoted and PLUS quoted securities The fair value of unquoted securities that are not quoted in active markets is determined by using valuation techniquesin accordance with the International Private Equity and Venture Capital Guidelines. The valuations used to determinefair values are validated and periodically reviewed by experienced personnel. The valuations are based on a mixture of: - third party financing (if available); - PE ratios; - cost, where the investment has been made during the period and no further information has been available to indicate that cost is not an appropriate valuation; and - bid prices of PLUS quoted investments to support any of the three techniques mentioned above. Functional currency The Board of Directors considers Sterling to be the currency that most faithfully represents the economic effect of theunderlying transactions, events and conditions 3. Earnings per Ordinary ShareThe earnings per share is based on profit for the period of £18,374,000 and on a weighted average number of 50 millionOrdinary Shares in issue during the period. The average price of the Ordinary Shares during the period, of 112.25p, was less than the exercise price of the Warrants(120.0p). Therefore, there was no dilution in the return per Ordinary Share. 4. Investments at Fair Value Through Profit and Loss 23 February 2006 to 31 March 2007 £'000Designated at fair value through profit and loss:Opening valuation -Purchases at cost 43,477Net unrealised change in fair value of investments 22,428 ---------------Closing valuation 65,905 --------------- Closing book cost 43,477Closing unrealised gain 22,428 ---------------Closing valuation 65,905 --------------- The results include an amount of £7,312,000 recognised in the Income Statement relating to a change in fairvalue using a price earnings multiple of comparable companies. As part of the audit, an independent third party valuation firm was appointed to review the valuation method,for those investments not listed on SESDAQ or carried at cost, and report to the auditors. 5. Financial Asset at Fair Value Through Profit and LossOn 3 January 2007 the Company paid Devotion Energy Group S$1 million (£333,444). This unsecured loan bearsinterest at 18.0% in Singapore Dollars and was repaid in full on 30 April 2007. 6. Payables and Accruals 31 March 2007 £'000Investments awaiting settlement 8,456Provision for performance fee 3,345Introductory fees payable 196Other creditors and accruals 95 --------------- 12,092 --------------- 7. Net asset value per Ordinary ShareBasic The basic net asset value per Ordinary Share is based on the net assets attributable to equity shareholders of£66,523,000 and on 50 million Ordinary Shares in issue at the end of the period. Fully-diluted The 31 March 2007 price of the Ordinary Shares, of 120.5p, was above the exercise price of the Warrants (exercise priceof 120.0p). Therefore, the fully-diluted net asset value per share is based on net assets of £78,523,000 and on 60million Ordinary Shares. 8. Reconciliation of Net Profit Before Investment Result to Net Cash Outflow from Operating Activities. 23 February 2006 to 31 March 2007 £'000Net profit for the period 18,374Unrealised gain on revaluation of investments (22,428)Movement in receivables and prepayments (54)Movement in payables and accruals (excluding investments awaiting settlement) 3,636 ---------------Net cash outflow from operating activities (472) --------------- This information is provided by RNS The company news service from the London Stock Exchange