TCA.L Regulatory News (TCA)

Terra Capital plc/ Market: AIM/ Epic: TCA/ Sector: Equity Investment Instruments

27 June 2018

Terra Capital Plc ('Terra' or 'the Fund')

Annual Results for the Year Ended 31 December 2017

Terra Capital Plc, the AIM quoted investment company focussed on investing in value opportunities globally, primarily in frontier markets, announces annual results for the year ended 31 December 2017.

The Fund undertakes its activities in line with its strategy to provide high absolute returns by investing in under-evaluated companies which present significant deep value opportunities. Due to market inefficiencies, the Fund and its Investment Manager, Terra Partners Asset Management Limited, believe that frontier markets provide many such prospects.

For more information, please visit www.terracapitalplc.com or contact:

Galileo Fund Services Limited (Administrator)

Frazer Pickering

+44 1624 692600

Panmure Gordon (UK) Limited (Nominated adviser and corporate broker)

Paul Fincham or Jonathan Becher

+44 20 7886 2500

Terra Capital plc.

Ian Dungate, Director

+44 1624 692600

NOTES:

Terra Capital plc is an AIM quoted investment trust focussed on generating high absolute returns while ensuring volatility is kept to a minimum. The fund predominantly invests in under-researched and under-valued companies. The Fund Manager targets companies that are trading at less than their intrinsic worth and so, aside from any potential growth prospects, provide scope for capital appreciation as a result of a reversion towards underlying value. Investments are also made in companies which are viewed as fair value but offer opportunities for growth at a reasonable price. Due to inherent market inefficiencies, the Investment Manager believes many such 'value' opportunities can be found in Frontier Markets and utilises in-house teams of analysts on the ground in areas of interest to investigate suitable opportunities rather than rely on third party research.

Chairman's statement

Our year end net asset value per share stood at $1.149 against $1.016 for 2016. This represents an increase for the year of 13.1%.

In accordance with the policy adopted following the extraordinary general meeting held in January 2015, as a result of the average discount at which shares traded during 2017, a tender offer was made to purchase up to ten percent. of the shares in issue at 31 December 2017.The tender was effected on 12 March 2018 and was taken up in full. As a result of the tender offer it was determined that no dividend be paid in respect of 2017.

The Investment Manager has continued to maintain a diverse portfolio of undervalued assets throughout 2017 and equity exposure at December 31 2016 stood at 81.4% as cash was held in anticipation of the tender offer.

In addition to the tender offer, as part of the restructuring proposals approved by shareholders in January 2015, Shareholders approved a proposal whereby in June 2018 they would be offered an opportunity to realise all or part of their investment in the Company at a price equal to the then prevailing net asset value (less costs associated with the opportunity). As detailed in the RNS announcement made by the Company on 19 April 2018, following consultation with Shareholders who between them hold in excess of 60 per cent. of the issued share capital of the Company, it has become clear to the Board that such Shareholders would accept the Realisation Opportunity and as such the Company would no longer be a viable proposition.

In the light of the above consultations the Board determined, subject to the formal approval of Shareholders to be given in General Meeting, to dispense with the Realisation Opportunity, and instead cease all new investments and seek to realise, in an orderly fashion, the Company's portfolio of investments and return the net proceeds generated to Shareholders as soon as is practicable. The Board, having consulted with its advisers, believe an orderly realisation of the portfolio of investments is preferable to an immediate liquidation as it is likely to achieve greater returns to Shareholders.

The proposal outlined above constitutes a change to the investment policy of the Company and as such is subject to approval by Shareholders. Accordingly a circular containing details of the proposed change of investment policy was sent to Shareholders on 15 June 2018 containing a notice of General Meeting to be held on 10 July 2018 at which Shareholders will be asked to approve the proposed change of investment policy

 Further details can be found on the Company's website www.terracapitalplc.com under News and Reporting "Company Reports".

Sincerely yours,

Dirk Van den Broeck

Chairman

26 June 2018

Report of Terra Partners Asset Management Limited, the Investment Manager

The NAV of Terra Capital plc (the "Fund") increased to $1.149 at December 31, 2017 from $1.016 as of December 31, 2016 with a net total return of 13.1% for the year.

The Fund's investment level (equity, fixed income and hedging) decreased from 86.3% at December 31st, 2016 to 81.7% at December 31, 2017. The Fund retained an excess of cash in order to fund the take-up of the tender offer that was anticipated to occur in early 2018.

Specific Areas of Investment

Americas

The allocation to the Americas decreased from 25.2% to 21.0% during the year and was tied with Europe as the Fund's largest regional allocation. During the year the Fund did not add any new positions and liquidated its positions in Scotia Group (Jamaica) and Terra Argentine Fund (Argentina).

Europe

The Fund's exposure to Europe increased from 20.1% to 21.1% and was tied with Americas as the largest regional allocation. During the year the Fund did not add any new positions and liquidated its positions in X5 Retail (Russia), BNL Portfolio Immobiliare (Italy), and Silvano Fashion Group (Estonia).

Asia

The Fund's exposure to Asia decreased from 14.6% to 12.0%. During the year the Fund did not add any new positions and liquidated its positions in Ardent Leisure Group (Australia), Emperador (Philippines), Lotte Chilsung Beverage (Korea), Kumho Petro (Korea), Shinyoung Securities (Korea) and Bank of Georgia (Georgia).

Middle East

The Fund's exposure to the Middle East decreased from 16.0% to 14.7%. During the year the Fund added new positions in Amanat Holdings (UAE), BBK (Bahrian), NBK (Kuwait), and Mezzan Holdings (Kuwait) and liquidated its positions in Doha Bank (Qatar), Air Arabia (UAE), Abu Dhabi Commercial Bank (UAE), Amanat Holdings (UAEf), and Mezzan Holdings (Kuwait).

Africa

The allocation to Africa increased from 9.2% to 12.9%. During the year the Fund added new positions in African Oxygen (South Africa) and KCB Group (Kenya) and liquidated its positions in UAC of Nigeria (Nigeria), Onelogix (South Africa), Cooperative Bank (Kenya), and Holdsport (HSP)

Fund Details

The following pages detail the Fund's holdings including changes from the prior year. The numbers provided are based on the Investment Manager's internal calculations.

Respectfully submitted,

Terra Partners Asset Management Limited

Portomaso Tower Suite 8/5A

Portomaso Ave

St. Julian's Malta STJ4011

Telephone +356-2371-7000

Regulated by Malta Financial Services Authority, Reg No. C56353

Investing Policy 

Investment Objective and Policy - Adopted at the Extraordinary General Meeting held on 26 January 2015.

The Company's investment objective is to provide capital appreciation to Shareholders. To achieve this objective, the Company may invest up to 100 per cent of its assets in investments that, for the purposes of the Company's investment policy, are categorised as "Frontier Market Investing". The Investment Manager believes that such markets provide opportunities to take advantage of market inefficiencies. The Company may also invest up to 30 per cent of its assets in a variety of instruments that do not meet the Company's definition of Frontier Market Investing and any such assets will be invested using the same approach applied to investing in Frontier Markets.

"Frontier Market Investing", shall mean:

1. An investment made into a "Frontier Market" which, at the time of the investment, is defined for the purposes of the Company's investment policy as:

1.1 Any country that is not included in all of the following indices, or their successors (the "Indices"):

· MSCI World Index: A stock market index of 1,612 'world' stocks maintained by MSCI Inc., formerly Morgan Stanley Capital International, and is used as a common benchmark for 'world' or 'global' stock funds. The index includes a collection of stocks of all the developed markets in the world, as defined by MSCI.

· MSCI Emerging Markets Index: An index created by Morgan Stanley Capital International (MSCI) designed to measure equity market performance in global emerging markets.

· S&P Developed BMI Index: A comprehensive benchmark index that includes stocks from 25 developed markets and which is a member of the S&P Global BMI series.

· S&P Emerging Markets BMI Index: An index that captures all companies domiciled in the emerging markets within the S&P Global BMI with a float-adjusted market capitalization of at least USD 100 million and a minimum annual trading liquidity of USD 50 million. The index is segmented by country/region, size (large, mid and small), style (value and growth), and GICS (sectors/industry groups).

1.2 Any country included in any of the Indices but which the Investment Manager believes is undergoing macroeconomic deterioration or political turbulence, a state often signalled by a departure of institutional fund flows or impositions of currency controls, or annual inflation of 15 per cent or more; or

1.3 Any country that the Investment Manager believes is characterised by rules, laws or other barriers which either (a) hinder capital flows; (b) limit or prevent the dissemination of public information concerning securities; or (c) limit otherwise make access to the country difficult; or (d) other technical methods which create difficulties in trading, clearing; or (e) in which access to timely information or market liquidity is in the process of serious deterioration, or

1.4 Any country whose market accounts for less than 3 per cent of the MSCI Emerging Markets Index; or

1.5 Any country that had been upgraded to Emerging Market status by either of S&P or MSCI at any time during the two years prior to the Company making its investment.

2 An investment in any security of a company that the Investment Manager believes, at the time of investing, derives a substantial amount of its income from goods produced or sold, investments made, or services provided in a Frontier Market (as defined above);

Provided that if, following investment by the Company, an investment subsequently fails to fall within one of the categories of Frontier Market Investing as outlined above, the allocation to such market will continue to be viewed as having been made in the market as it was originally categorised.

The Company intends to invest primarily in common equity listed on regulated exchanges; however, as opportunities arise, and depending on market conditions, it may also invest in any of the following instruments:

· preferred and preference shares;

· debt securities;

· factoring and trade loans;

· baskets of non-performing and other distressed loans;

· participation notes or other such instruments (when they act as a proxy for investing directly in a country's securities);

· privately traded funds and shares on non-regulated markets;

· convertible bonds;

· Transferable Rights to buy additional shares directly from the company, either granted to a company's existing shareholders or to new subscribers

· Closed-end funds;

· Investment trusts;

as well as other instruments as such opportunities may arise.

The Company may use derivatives and other instruments such as forward contracts, options, and futures for hedging both market and currency risks, either directly and indirectly (for example, when hedging a currency partially linked to the Euro by hedging the Euro if there are no opportunities to hedge the currency directly, hedging macroeconomic risks related to a specific country's equity by purchasing credit default notes on a country's bond securities, and so on).

The Manager intends to invest principally by performing an in-house "bottom-up" analysis. This means it will first determine whether a stock presents the opportunity for capital appreciation through an examination of its most recent publically available information, such as its balance sheet, income statement, cash flow, business model, and micro-competitive environment and only then examining the general industry and macro-economic environment in which the target company issuing the security operates in. Under certain circumstances, the Investment Manager may perform a "top-down" analysis, meaning that it will first gauge a market's overall macroeconomic growth potential and then endeavour to identify specific instruments likely to allow the Company to take advantage of that market's growth potential.

The Company's principal focus will be on "value" investments - that is, investments that, in the Investment Manager's opinion are trading for less than their true value and which provide an opportunity for capital appreciation through a reversion to their true valuation, in addition to whatever potential growth prospects the investments might have. Some of the Company's investments will be in companies which the Investment Manager believes are fairly valued but which offer an opportunity for growth at a reasonable price. The Investment Manager will be under no obligation to sell an investment once it no longer falls into the category of investment within which it was originally made and will sell investments at its sole discretion and when it deems appropriate.

The Company may invest in instruments which represent interests in financially distressed companies that the Investment Manager believes have an opportunity to provide capital returns upon recovery; it may also make investments in distressed macroeconomic environments and/or take positions for the purpose of activist investing.

Having consulted with Shareholders the Board believe it is in the best interests of Shareholders to realise the Company's portfolio of investments in a timely fashion. Therefore, as set out in the Chairman's Statement a circular containing details of a proposed change of investing policy will be sent to shareholders in the near future. In order to do this the Investment Manager's current fee structure of 1.25 per cent. of NAV per annum and a performance fee linked to NAV increases will be replaced by an incentivised fee equal to 1 per cent. of any distributions made to shareholders. These new fee arrangements will come into effect on 1 July 2018.

Directors' Report

The Directors hereby submit their annual report together with the audited consolidated financial statements of Terra Capital plc (the "Company") for the financial year ended 31 December 2017.

The Company

The Company was incorporated in the Isle of Man as Speymill Macau Property Company to invest in the high quality commercial and residential real estate market in the Macau Special Administrative Region of the People's Republic of China. Following an extraordinary general meeting held on 24 May 2012, the shareholders resolved for the company to change its name to Terra Capital plc and to adopt the current investment policy.

Results and dividends

The results and position of the Company at the year-end are set out on pages 14 to 44 of the annual report.

Directors' interests in the shares of the Company

The interests of the Directors in the share capital of the Company as at 31 December 2017 are set out below:

Worldwide Opportunity Fund ("WWOF") A class, which owns 5,435,555 shares or 7.81% of the Company is managed by Terra Partners Asset Management Limited ("TPAM") which is also the Company's Investment Manager. The principals of TPAM are Filip Montfort and Yarden Mariuma. Mr Montfort holds 1.20% of the shares in issue in WWOF (in addition to his direct holding of 913,393 Ordinary Shares in the Company); Mr Mariuma holds 1.10% in WWOF (and 865,820 Ordinary Shares directly in the company)

*Director Dirk van den Broeck holds the total of 801,395 shares noted above together with his wife, but not jointly.

**Director Peter Bartlett holds the total of 63,000 shares noted above together with his wife, but not jointly.

Director's interests

Ian Dungate is a director of Galileo Fund Services Limited (the "Administrator").

Save as disclosed above, none of the Directors had any interest during the year in any material contract for the provision of services which was significant to the business of the Company.

Corporate governance

Although the Company is not obliged by the listing rules to do so, the Board intends, where appropriate for a Company of its size, to comply with the main provisions of the principles of good governance and code of best practice set out in the UK Corporate Governance Code ('the Code').

Independent Auditors

KPMG Audit LLC, being eligible, have expressed their willingness to continue in office in accordance with Section 12 (2) of the Companies Act 1982.

Responsibilities of the Board

The Directors are responsible for the determination of the Company's investment policy and strategy and have overall responsibility for the Company's activities including the review of the investment activity and performance.

All of the Directors are non-executive.

The Board of Directors delegates to the Investment Manager through the Investment Management Agreement the responsibility for the management of the Company's assets in accordance with the Company's investment policy.

The Company has no executives or employees.

The Articles of Association require that all Directors submit themselves for election by shareholders at the first opportunity following their appointment and shall not remain in office longer than three years since their last election or re-election without submitting themselves for re-election.

The Board meets formally at least 4 times a year and between these meetings there is regular contact with the Investment Manager. Other meetings are arranged as necessary. The Board considers that it meets sufficiently regularly to discharge its duties effectively. The Board ensures that at all times it conducts its business with the interests of all shareholders in mind and in accord with Directors' duties.

Audit Committee

All Audit Committee responsibilities are performed by the Board, with specified terms of reference.

The principal terms of reference are to appoint auditors, to set their fees, to review the scope and results of the audit, to consider the independence of the auditors, to review the internal financial and non-financial controls, to approve the contents of the draft interim and annual reports to shareholders and to review the accounting policies. In addition, the Board reviews the quality of the services of all the service providers to the Company and reviews the Company's compliance with financial reporting and regulatory requirements.

The Company's internal financial controls and risk management systems have been reviewed with the Investment Manager and Advisors. The audit report is considered by the Board and discussed with the Auditors prior to approving and signing the Financial Statements.

Realisation Policy

The Board have agreed to cease all new investments and seek to realise, in an orderly fashion, the Company's portfolio of investments and return net proceeds generated to Shareholders as soon as is practicable. The Board believes this orderly realisation of the portfolio of investments is preferable to an immediate liquidation as it is likely to achieve greater returns to Shareholders. In order to do this the Investment Manager's current fee structure of 1.25 per cent. of NAV per annum and a performance fee linked to NAV increases will be replaced by an incentivised fee equal to 1 per cent. of any distributions made to shareholders. These new fee arrangements will come into effect on 1 July 2018.

On behalf of the Board

Dirk Van den Broeck

Chairman

26 June 2018

Statement of Directors' Responsibilities in Respect of the Directors' Report and the Financial Statements

The Directors are responsible for preparing the Consolidated Annual Report and the Group and Parent Company financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare Group and Parent Company financial statements for each financial year. As required by the AIM Rules of the London Stock Exchange they are required to prepare the Group financial statements in accordance with International Financial Reporting Standards as adopted by the EU (IFRSs as adopted by the EU), and applicable law and have elected to prepare the Parent Company financial statements on the same basis.

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Parent Company and of their profit or loss for that period. In preparing each of the Group and Parent Company financial statements, the Directors are required to:

· select suitable accounting policies and then apply them consistently;

· make judgements and estimates that are reasonable, relevant and reliable;

· state whether they have been prepared in accordance with IFRSs as adopted by the EU;

· assess the Group and Parent Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and

· use the going concern basis of accounting unless they either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so. The financial statements have been prepared on a non-going concern basis.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Parent Company's transactions and disclose with reasonable accuracy at any time the financial position of the Parent Company and enable them to ensure that its financial statements comply with the Companies Acts 1931-2004. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Directors' Report that complies with that law and those regulations.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

On behalf of the Board

Dirk Van den Broeck

Chairman

Report of the Independent Auditors, KPMG Audit LLC, to the members of Terra Capital plc

1 Our opinion is unmodified

We have audited the financial statements of Terra Capital plc ("the Company") for the year ended 31 December 2017 which comprise the Consolidated and Parent Company Income Statements, the Consolidated and Parent Company Statements of Comprehensive Income, the Consolidated and Parent Company Balance Sheets, the Consolidated and Parent Company Statements of Changes in Equity and the Consolidated and Parent Company Statements of Cash Flows, and the related notes, including the accounting policies in note 3.

In our opinion the financial statements:

· give a true and fair view of the state of the Group's and of the Parent Company's affairs as at 31 December 2017 and of the Group's profit for the year then ended;

· have been properly prepared in accordance with International Financial Reporting Standards as adopted by the European Union; and

· have been properly prepared in accordance with the requirements of the Companies Acts 1931-2004.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) ("ISAs (UK)") and applicable law. Our responsibilities are described below. We have fulfilled our ethical responsibilities under, and are independent of the Group in accordance with, UK ethical requirements including the FRC Ethical Standard. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion.

2 Key audit matters: our assessment of risks of material misstatement

Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the financial statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In arriving at our audit opinion above, the key audit matters, in decreasing order of audit significance, were as follows (unchanged from 2016):

3 Our application of materiality and an overview of the scope of our audit

Materiality for the Group and Parent Company financial statements as a whole was set at US$705,000 (2016: US$707,800), determined with reference to a benchmark of Group net assets, of which it represents 1% (2016: 1%).

We agreed to report to the Audit Committee any corrected or uncorrected identified misstatements exceeding US$35,250 for both the Group and Parent Company financial statements, in addition to other identified misstatements that warranted reporting on qualitative grounds.

The Group's one subsidiary was subjected to full scope audit for Group purposes by the Group team and subject to the same materiality level as the Group and Parent Company audits.

4 The financial statements have been prepared on a non - going concern basis

As the Groups' objective is the orderly realisation of its assets with a view to returning capital to shareholders thereafter, the financial statements have been prepared on a non-going concern basis.

5 We have nothing to report on the other information in the Consolidated Annual Report

The Directors are responsible for the other information presented in the Consolidated Annual Report, together with the financial statements. Our opinion on the financial statements does not cover the other information and we do not express an audit opinion or any form of assurance conclusion thereon.

Our responsibility is to read the other information and, in doing so, consider whether, based on our financial statements audit work, the information therein is materially misstated or inconsistent with the financial statements or our audit knowledge.

Based solely on that work we have not identified material misstatements in the other information;

6 We have nothing to report on the other matters on which we are required to report by exception

Under the Companies Acts 1931-2004, we are required to report to you if, in our opinion:

· proper books of account have not been kept by the Parent Company and proper returns adequate for our audit have not been received from branches not visited by us; or

· the Parent Company financial statements are not in agreement with the accounting records and returns; or

· certain disclosures of directors' remuneration specified by law are not made; or

· we have not received all the information and explanations we require for our audit.

We have nothing to report in these respects.

7 Respective responsibilities

Directors' responsibilities

As explained more fully in their statement set out on page 9, the Directors are responsible for: the preparation of the financial statements including being satisfied that they give a true and fair view; such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; assessing the Group and Parent Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of accounting unless they either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so.

Auditor's responsibilities

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue our opinion in an auditor's report. Reasonable assurance is a high level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.

A fuller description of our responsibilities is provided on the FRC's website at www.frc.org.uk/auditorsresponsibilities.

8 The purpose of our audit work and to whom we owe our responsibilities

This report is made solely to the Company's members, as a body, in accordance with Section 15 of the Companies Act 1982. 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 for the opinions we have formed.

KPMG Audit LLC

Chartered Accountants

Heritage Court

41 Athol Street

Douglas

Isle of Man, IM99 1HN

26 June 2018

Consolidated Income Statement

The Directors consider all activities to derive from discontinued activities, following the decision to commence the orderly realisation of assets and return of capital to shareholders.

Consolidated Statement of Comprehensive Income

Company Income Statement

Company Statement of Comprehensive Income

Consolidated Balance Sheet

Approved by the Board of Directors on 26 June 2018

Ian Dungate Dirk Van den Broeck

Director Director

Company Balance Sheet

The profit made by the Company for the year ended 31 December 2017 was US$7,914,000 (year ended 31 December 2016, profit US$10,021,000).

Approved by the Board of Directors on 26 June 2018

Ian Dungate Dirk Van den Broeck

Director Director

Consolidated Statement of Changes in Equity

Company Statement of Changes in Equity

Consolidated Statement of Cash Flows

Company Statement of Cash Flows

Notes to the Consolidated Financial Statements

1 The Company

Terra Capital plc (formerly Speymill Macau Property Company plc) (the "Company") was incorporated and registered in the Isle of Man under the Isle of Man Companies Acts 1931 to 2004 on 31 October 2006 as a public company with registered number 118202C.

The annual report of the Company as at and for the year ended 31 December 2017 comprises the Company and its subsidiaries (together referred to as the "Group").

The Board have agreed to cease all new investments and seek to realise, in an orderly fashion, the Company's portfolio of investments and return net proceeds generated to Shareholders as soon as is practicable.

2 Basis of preparation

2.1 Statement of compliance

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU.

The consolidated financial statements were authorised for issue by the Board of Directors on 26 June 2018.

2.2 Basis of preparation

These consolidated financial statements have been prepared in accordance with IFRS as adopted by the EU. The financial statements have been prepared under the historic cost convention, as modified by the revaluation of financial assets held at fair value through profit or loss.

As the Group's objective is the orderly realisation of its assets with a view to returning capital to the shareholders thereafter, these financial statements have not been prepared on a going concern basis. During the realisation period the Group expects to trade in an orderly fashion and, in the Directors' opinion, the valuation bases applied to the assets and liabilities (as disclosed elsewhere within the accounting policies) are such that there would be no material adjustments to the financial statements if they had been prepared on a going concern basis. The costs of liquidation are expected to be minimal.

2.3 Functional and presentation currency

These consolidated financial statements are presented in United States Dollars (US$), which is the Company's presentation currency. The functional currency of Terra Capital Cayman a subsidiary company is the United States Dollar. This subsidiary holds the investment portfolio. The United States Dollar is the currency of the primary economic environment in which the Company operates ("the functional currency").

2.4 Use of estimates and judgements

The preparation of the consolidated financial statements in conformity with IFRSs as adopted by the EU requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.

Certain investments are in illiquid/inactive markets and classified as Level 2 in the IFRS 7 fair value Hierarchy (see note 7). The pricing for these investments is based on last traded price and is a key estimate in the preparation of the financial statements.

3. Significant accounting policies

The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, and have been applied consistently by Group entities.

The accompanying financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU. The Fund's accounting principles are summarised below, all of which have been applied consistently throughout the year.

Certain comparatives have been restated in order to ensure consistent presentation with the current year figures. The presentation of the balance sheets has been changed to show assets and liabilities in order of liquidity.

3.1 Basis of consolidation

Subsidiaries

Subsidiaries are those enterprises controlled by the Company. Control exists where the Company has the power, directly or indirectly, to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control effectively commences until the date that control effectively ceases.

Transactions eliminated on consolidation

Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in full in preparing the consolidated financial statements.

3.2 Foreign currency

The individual financial statements of each group entity are presented in the currency of the primary economic environment in which the entity operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each group entity are expressed in United States Dollars, which is the presentation currency for the consolidated financial statements.

In preparing the financial statements of the individual entities, transactions in currencies other than the entity's functional currency (foreign currencies) are recognised at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences are recognised in profit or loss in the period in which they arise.

For the purpose of presenting consolidated financial statements, the assets and liabilities of the subsidiaries are expressed in United States Dollars using exchange rates prevailing at the end of the reporting period. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity (attributed to non-controlling interests as appropriate).

3.3 Financial instruments

(i) Non-derivative financial assets

IFRS13 has been adopted from 1 January 2013. It establishes a single source of guidance for measuring fair value and requires disclosures about fair value measurements. Fair value under IFRS13 is an exit price regardless of whether that price is directly observable or estimated using another valuation technique.

"Fair value" is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Fund has access at that date. The fair value of a liability reflects its non-performance risk.

When available, the Fund measures the fair value of an instrument using quoted prices in an active market for that instrument. A market is regarded as active if quoted prices are readily and regularly available and represent actual and regularly occurring market transactions on an arm's length basis.

The fair value of financial assets and liabilities traded in active markets (such as publicly traded derivatives and trading securities) are based on quoted market prices at the close of trading on the year end date. The fair value of financial assets and liabilities traded in relatively illiquid/inactive markets is based on the last traded price.

Investments are designated at fair value through profit or loss on initial recognition. The Group invests in quoted equities and debt securities for which fair value is based on quoted market prices. The Group also had one investment in a limited partnership, which was valued at the audited net asset value, this was sold during the year.

The Group derecognises a financial asset when its contractual rights expire or it is transferred.

(ii) Non-derivative financial liabilities

Purchases and sales of investments are recognised on trade date - the date on which the Group commits to purchase or sell the asset. Investments are initially recorded at fair value, and transaction costs for all financial assets and financial liabilities carried at fair value through profit and loss are expensed as incurred.

Gains and losses arising from changes in the fair value of the financial assets and liabilities are included in the income statement in the year in which they arise.

The Group initially recognises financial liabilities on the date at which the Group becomes a party to the contractual provisions of the instrument.

The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire.

The Group has the following non-derivative financial liabilities: amounts due to broker for investment purchases falling due after the balance sheet date and other payables.

 (iii) Share capital

Ordinary Shares

Ordinary Shares are classified as equity. Incremental costs directly attributable to the issue of Ordinary Shares and share options are recognised as a deduction from equity, net of any tax effects.

3.4 Revenue recognition

Interest income and dividend income

Interest income is recognised on a time-proportionate basis using the effective interest rate method. Dividend income is recognised when the right to receive payment is established.

Foreign currency gains and losses are reported on a net basis and are recognised in profit or loss.

3.5 Impairment

Financial assets

A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably.

Losses are recognised in profit or loss and reflected in an allowance account against receivables. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.

Non-financial assets

The carrying amounts of the Group's non-financial assets, other than investment property are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset's recoverable amount is estimated. For goodwill, the recoverable amount is estimated each year at the same time. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell.

An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

3.6 Income tax expense

Income tax expense comprises current tax. Income tax expense is recognised in the consolidated income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

3.7 Earnings per share

The Group presents basic and diluted earnings per share (EPS) data for its Ordinary Shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of Ordinary Shares outstanding during the period, adjusted for own shares held. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of Ordinary Shares outstanding, adjusted for own shares held, for the effects of all dilutive potential Ordinary Shares.

3.8 Dividends

Dividends are recognised as a liability in the period in which they are declared and approved.

3.9 Segment reporting

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group's other components. The operating result of the single operating segment is reviewed regularly by the Group's Board of Directors to make decisions about resources to be allocated and assess its performance.

4. Financial risk management

Overview

The Group has exposure to the following risks from its use of financial instruments:

· credit risk

· liquidity risk

· market risk (including foreign exchange risk)

· operational risk

This note presents information about the Group's exposure to each of the above risks, the Group's objectives, policies and processes for measuring and managing risk, and the Group's management of capital. Further quantitative disclosures are included throughout these consolidated financial statements.

Risk management framework

The Board of Directors has overall responsibility for the establishment and oversight of the Group's risk management framework.

The Group's risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group's activities. The Group aims to develop a disciplined and constructive control environment.

The Group Audit Committee oversees how management monitors compliance with the Group's risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Group.

Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group's financial assets.

Cash and cash equivalents

The Group limits its exposure to credit risk by investing only with counterparties that have high credit ratings. Management actively monitors credit ratings and does not expect any counterparty to fail to meet its obligations.

Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset.

The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation. The Group manages liquidity risk by maintaining adequate reserves and banking facilities, by continuously monitoring forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities.

Market risk (including foreign exchange risk)

The Group's strategy for the management of investment risk is driven by the Group's investment objective. The main objective of the Group is to achieve capital appreciation while attempting to reduce risk primarily by applying a disciplined and diversified value investing philosophy.

All investments present a risk of loss of capital through movements in market prices. The Investment Manager moderates this risk through a careful selection of securities within specified limits. The Investment Manager reviews the position on a day to day basis and the Directors review the position at Board meetings.

The Group's market price risk is managed through the diversification of the investment portfolio.

The Group operates internationally and is exposed to foreign exchange risk (see note 20). Foreign exchange risk arises in respect of those recognised monetary financial assets and liabilities, income and expenses that are not in the functional currency of the Group.

Operational risk

Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Group's processes, service providers, technology and infrastructure, and from external factors other than credit, market and liquidity risks such as those arising from legal and regulatory requirements and generally accepted standards of corporate behaviour. Operational risks arise from all of the Group's operations.

The Group's objective is to manage operational risk so as to balance the avoidance of financial losses and damage to the Group's reputation with overall cost effectiveness. The Group has developed standards for the management of operational risk in the following areas:

· requirements for appropriate segregation of duties

· requirements for the reconciliation and monitoring of transactions

· compliance with regulatory and other legal requirements

· documentation of controls and procedures

· requirements for the periodic assessment of operational risks faced, and the adequacy of controls and procedures to address the risks identified

· ethical and business standards

Capital management 

The Board's policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business.

The capital structure of the Group consists of the equity of the Group (comprising issued capital as detailed in note 16, reserves and retained earnings). The Board reviews the capital structure of the Group on a semi-annual basis.

The Board of Directors monitors the net asset value per share, which the Group defines as the total shareholders' equity divided by the total number of shares in issue. The Board of Directors also monitors the level of dividends to ordinary shareholders.

5 Investment in subsidiaries and intercompany balances.

At the end of the year, the Company owned a controlling interest in the following subsidiaries:

The Company owns 100% of Terra Capital Cayman, which is a Cayman Islands incorporated entity. Investment in subsidiary is stated at fair value. Intercompany loans from the Company to Terra Capital Cayman are stated at cost. They are repayable on demand and bear interest at the US Prime rate per annum.

6 Segment reporting

No additional disclosure is included in relation to segment reporting as the Group's activities are limited to one business segment, being investing in accordance with the Company's investment objective.

7 Fair value hierarchy

IFRS 7 requires the Company to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:

• Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).

• Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2).

• Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).

US$55,309,000 (2016: US$49,328,000) of the Company's investments are classed as level 1 investments and

US$2,240,000 (2016: US$8,815,000) of the Company's investments are classed as level 2 investments.

8 Financial assets at fair value through profit or loss

Group

31 December 2017: Financial assets at fair value through profit or loss; principally quoted equity securities:

*Level 2 investments: stated at last traded price.

31 December 2016: Financial assets at fair value through profit or loss; principally quoted equity securities:

31 December 2016: Financial assets at fair value through profit or loss; principally quoted equity securities: (continued)

9 Net finance income

10 Net asset value per share

The consolidated net asset value per share as at 31 December 2017 is US$1.149 based on 61,469,312 Ordinary Shares in issue as at that date (2016: US$1.02 based on 68,299,236 shares) excluding shares held in treasury .

11 Related party transactions

Balances and transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Group and other related parties are disclosed below.

Parties are considered to be related if one party has the ability to control the other party or to exercise significant influence over the party making financial or operational decisions.

Directors of the Company

Ian Dungate is a director of the administrator.

Details of director's remuneration is set out in Note 18.

The Investment Manager

Following the EGM held on 24 May 2012, the Company appointed Terra Partners Asset Management ("TPAM") as its Investment Manager. The level of fees payable to the investment manager were adjusted following resolutions passed at an Extraordinary General Meeting held on 26 January 2015.

Term and termination

The Investment Management Agreement may be terminated by either party giving to the other not less than 12 months' notice expiring on or at any time after the third anniversary of the commencement date of the agreement or otherwise, in circumstances, inter alia, where one of the parties has a receiver appointed over its assets or if an order is made or an effective resolution passed for the winding-up of one of the parties.

Management fee

The Investment Manager shall be entitled to receive a management fee equal to 1.25 per cent. per annum of the aggregate Net Asset Value of the Company during the relevant fee payment period, calculated on the first day of each month, accrued on a daily basis and payable monthly in arrears (or pro rata for lesser periods).

Performance fee

The Manager is also entitled to receive a performance fee equal to 12 per cent. of the increase (if any) in the Net Asset Value per Share (with dividends and other distributions added back and ignoring any accrued performance fee) as at each semi-annual performance fee calculation period above the Net Asset Value as at the commencement of each such semi-annual performance fee calculation period, provided that any performance fee shall be payable only to the extent that the Net Asset Value of the Share exceeds the Net Asset Value immediately following the settlement of the Tender Offer or, if a performance fee has been paid, the Net Asset Value per Share when a performance fee was last paid. The performance fee shall be calculated on 30 June and 31 December in each year and paid following such calculation.

Expenses

In addition, the Company shall be responsible for the payment of all out-of-pocket expenses reasonably incurred by the Manager in the proper performance of the Investment Management Agreement up to a maximum of US$75,000 per annum.

Worldwide Opportunity Fund ("WWOF") A class, which owns 5,435,555 shares or 7.81% of the Company is managed by Terra Partners Asset Management Limited ("TPAM") which is also the Company's Investment Manager. The principals of TPAM are Filip Montfort and Yarden Mariuma. Mr Montfort holds 1.30% of the shares in issue in WWOF (in addition to his direct holding of 863,393 Ordinary Shares in the Company); Mr Mariuma holds 1.20% in WWOF (and 865,820 Ordinary Shares directly in the company)

The Administrator

The Administrator shall be paid by the Company a fixed fee of US$100,000 per annum, payable quarterly in arrears.

For the preparation of the financial statements the Administrator shall be paid by the Company US$3,000 per set.

In the event that the Administrator provides secretarial services to the Company, the Administrator shall be paid an annual fee of US$8,000. The Administrator shall be entitled to additional fees for such general secretarial services based on time and charges where the number of board meetings or general meetings exceeds for per annum. The Administrator shall be entitled to an attendance fee of US$750 per day or part thereof where the Administrator attends a board meeting or general meeting which is not held in the Isle of Man.

12 Charges and fees

12.1 Nominated adviser and broker fees

As nominated adviser and broker to the Company for the purposes of the AIM rules, the Nominated Adviser and Broker is entitled to receive an annual fee of £60,000 payable quarterly in advance.

Total advisory fees payable to the Nominated Adviser and Broker for the year ended 31 December 2017 amounted to US$78,159 (2016: US$81,644) with US$ Nil due at 31 December 2017 (2016 US$ Nil).

12.2 Administrator and Registrar fees

Administration fees payable for the year ended 31 December 2017 amounted to US$120,000 (31 December 2016: US$121,500) and Crest fees US$8,000 (2016: US$8,979) with administration fees of US$31,500 still due at 31 December 2017 (31 December 2016: US$31,500).

12.3 Audit and professional fees

Audit fees for the year ended 31 December 2017 amounted to US$30,000 (31 December 2016: US$32,036).

Professional fees for the year ended 31 December 2017 amounted to US$66,098 (31 December 2016: US$52,333).

12.4 Manager's fees

Management fees payable for the year ended 31 December 2016 amounted to US$852,946 (2016: US$580,894, including a rebate from Terra Argentina Fund) and the amount accrued but not paid at the period end was $147,410 (31 December 2016: $73,085).

Performance fees payable for the year ended 31 December 2017 amounted to US$1,043,631 (2016: US$711,673).

Performance fees accrued but not paid for the year ended 31 December 2017 amounted to US$534,790 (31 December 2016: US$711,673)

13 Trade and other receivables

14 Cash and cash equivalents

Cash and cash equivalents comprise cash in hand and deposits held with banks and amounts held by brokers. All cash and bank balances are available for operational use in the Group and Parent Company.

15 Basic and diluted earnings per share

Basic earnings per share is calculated by dividing the profit attributable to owners of the Company by the weighted-average number of Ordinary Shares in issue during the year.

16 Share capital

8,956,423 (31 December 2016: Nil) shares held in Treasury were cancelled in the year. As a result of the tender offer 6,829,924 Ordinary shares were repurchased by the Company and retained in Treasury at the year end. The Ordinary shares held in Treasury have no voting rights and are not entitled to dividends.

17 Trade and other payables