ZOL.L Regulatory News (ZOL)

16 Mar 2006 08:34

Crosby Capital Partners Inc16 March 2006 Crosby Capital Partners Inc. (the "Company" and, together with its subsidiaries, the "Group" or "Crosby") Preliminary Results - Year ended 31 December 2005 16 March 2006 Crosby Capital Partners is a leading independent, deal-focused, Asia-orientedmerchant banking and asset management group. Highlights 2005 •Total income - US$151 million (2004: US$55 million) • Profit attributable to shareholders - US$112 million (2004: US$34 million) • Shareholder equity - US$151 million (2004: US$50 million) •Earnings per share (basic) US$0.47 (2004: US$0.15) •Assets under management - US$ 1.06 billion (2004: US$400 million) •Special dividend of US$0.05 per share paid in October 2005 (2004: Nil) Simon Fry, CEO, commented: "In 2005 Crosby Capital Partners recorded a three-fold increase in profits andshareholder equity - with no increase in liabilities. This sterling performance,achieved through the continuing single-minded focus, determination, ingenuityand skill of our people, underpinned a total return to shareholders ofapproximately 300%. Crosby's strategy and credibility are now firmlyestablished, and we have a clear objective: to provide our shareholders withexceptional risk-adjusted return over the medium term. I firmly believe that ourcurrent portfolio of deals, as well as our pipeline of new deals will enable usto build on the successes of 2004 and 2005 to deliver further exceptional gainsto shareholders in coming years." Robert Owen, Chairman, commented: "With profit attributable to shareholders of US$112 million and shareholders'equity more than tripling to US$151 million, 2005 was another very encouragingyear for Crosby Capital Partners. This strong operating performance wasreflected in Crosby's share price: CSB.LN was one of the top ten performingshares on AIM and is now a constituent of the FTSE AIM 100 index. It has alwaysbeen Crosby's policy to value its investments at fair value, but on aconservative basis. In the current year a significant proportion of thoseinvestments have been converted into listed securities, and as a consequence ofthe requirements under IFRS, Crosby is obliged to mark to market listedsecurities it holds without making adjustments for such factors as liquidity. Asa result of this new accounting requirement, profit attributable to shareholdersis somewhat greater than would have been the case using last year's valuationmethodology. On the other hand, we have continued to apply a conservativeapproach to the valuation of our unlisted securities, including our IB Daiwawarrants." For further information on Crosby please contact: Simon Fry, Chief Executive Officer on +44 (0)207 590 2800, or Cara Kiewel, Head of Corporate Communications and Investor Relations on +44 (0)207 590 2808 Chief Executive Officer's Report Overview Following on from Crosby's success in 2004, I am very pleased to be able tocomment on an even better performance in 2005. A three-fold increase in bothprofits and shareholders' equity - with no increase in liabilities - has led toa strong share price performance, resulting in a total return to investors ofapproximately 300%. Our strategy and Crosby's credibility are now firmlyestablished, and we have a clear objective: to provide our shareholders with anexceptional risk-adjusted total-return over the medium term. Merchant banking activities were the main driver of the increase in pre-taxprofits. In particular, whilst we continued to harvest profits from the NovusPetroleum transaction which was initiated in 2003, significant returns were alsogenerated from the interest we acquired in March 2005 in JASDAQ-listed IB DaiwaCorporation. The Crosby initiated restructuring of IB Daiwa as a 'pure-play'natural resource company (with a particular focus on US oil and gas) has createda company with truly exciting prospects for even further growth. I believe thatIB Daiwa is now very well positioned to deliver another significant contributionto Crosby's performance in the coming year. Consequently, on a fully dilutedbasis and assuming we exercise all of our warrants, we continue to hold (throughtwo subsidiaries) a 28% interest in IB Daiwa. Whilst the success of our merchant banking deals is firmly based on thecommitment, expertise, imagination and sheer hard work of our staff, the Firmalso benefits from a business model that makes Crosby distinct from theinvestment banks, hedge funds and private equity firms with whom we are oftencompared. At Crosby we focus on identifying undervalued assets within sectorsthat are either under-researched or out of favour, and whose value is obscuredby complex and inefficient capital, management or ownership structures. We thenwork with funding and operating partners to proactively realise, and share in,the inherent under-valuation we have identified. When working together withthese partners, Crosby's return from a deal is usually based on some form ofcarried interest or direct equity participation in the restructured assets, and,once a deal has been completed, income and profits from the carried interests orequity positions that we hold are often far more substantial than the fee-basedincome generated by more traditional investment banking activities. Crosby's approach also means that our deals often spend up to eighteen months in'gestation', and we tend to avoid transactions where we are in anything lessthan a controlling position. Again, this is in direct contrast to the majorityof hedge funds and private equity firms. When evaluating any particularopportunity, we are able to be more flexible in both our internal resourceallocation and in our time frame for generating returns than many of ourcompetitors. Our approach provides us with the ability to work with the mostappropriate funding and operating partners for any given deal, and ensures thatCrosby's interests are aligned with those of our partners. Thus Crosby canprovide both the professional expertise and financial resources to executelarge, complex financial transactions comparable to those handled by top-tierglobal investment banks, whilst retaining the responsiveness, independence andfocus of a smaller firm. In this respect it is worth noting that our own experience as a smaller listedcompany provides us with a useful perspective when assessing other listedcompanies that trade, in market capitalisation terms, between US$100 million andUS$1 billion. We understand and appreciate the disparity that often existsbetween the actual operations and assets of a company versus the informationthat is used by investors and analysts in general to evaluate the share price.Taking advantage of the situation when the disparity is large, and when anacquisition can be structured efficiently, can lead to significant profits. 2005 also saw important progress in our asset management businesses: revenueincreased from just under US$1 million in 2004 to US$5.5 million in 2005 andassets under management rose from US$400 million at the start of the year toover US$1 billion at year end. The Crosby Wealth Management ("CWM") business wasthe dominant factor behind this growth. Since the launch of Crosby WealthManagement in May 2005, the business has steadily built its client base and bythe end of the year CWM's assets under management stood at just over US$650million. Our current focus on Asia and natural resources has led us into deals thatinvolve parties who span the globe from London across the Middle East and Asiato North and South America, and with each venture, we increase recognition ofthe Crosby proposition and expand our sources of business opportunities. 2005 has been a busy year for Crosby. A more complete outline of the year'sactivities can be found on our website, www.crosby.com, and I encourage you toread the 'Highlights and Business Review' posted on the site. Outlook Our various undertakings and achievements during the year have provided theGroup with a high level of credibility with investors and partners, and supplythe foundations on which to build the business even further. I remain veryconfident that 2006 and 2007 will be eventful and successful years. Our currentportfolio is well positioned to deliver further significant gains as itcontinues to mature and our pipeline of new (as yet non-public) deals continuesto grow. I look forward to being able to report to you on these projects as theyprogress. Of the deals that are currently in the public domain I believe themost exciting prospect for 2006 is the potential for the IB Daiwa stock price tofundamentally re-rate. At IB Daiwa, not only is the restructuring of the operating business now largelycomplete but the company also owns both producing oil and gas assets, which willcontribute substantial real earnings to the bottom line in the current financialyear, and an exciting portfolio of exploration and drilling prospects. Inaddition to the existing production, with the completion of the farm-outs inDecember '05 and March '06, this year's main drilling programmes are now fullyfunded and drilling is already underway. As the earnings begin to flow throughto IB Daiwa's accounts and the value of these both proven and development assetsis confirmed and understood, I believe that they should be reflected more fullyin their stock price. As the new business continues to develop positively andthe operational restructuring is completed, I believe the prospect of IB Daiwa'sbeing released from the category of companies under special supervision byJasdaq (known as the Kanri Post) will be enhanced. If this were to happen, Ibelieve the market reaction would be strongly positive. I am also confident thatthe ability of IB Daiwa to develop its business with partners in Japan would besubstantially improved. At Tethyan, recent developments have confirmed our opinion that the assetsconcerned are significantly under-valued by the market. I continue to believe wehave the skills to unlock a proportion of that value for the benefit of both IBDaiwa and Crosby shareholders. Even in the event that we are unsuccessful inthis acquisition, I am confident that the experience and new relationships inthe copper and base metals industry which we have gained in connection with thistransaction will help to generate opportunities for Crosby going forward. Asoften happens, one deal begets another. I expect to see further significant progress within our Wealth Managementoperations in the coming year as we continue to grow the client base in Asia andexpand coverage into the Middle East and Europe. At the corporate level, we continue to proactively seek out the rightopportunity for expansion, whether by acquisition, joint venture or incubationin areas that complement the earnings in our core merchant banking business witha more consistent revenue stream. Crosby's profitability stems from our ability to source and harvest deals thatreflect a fundamental mis-pricing of the underlying real asset value. The Firm'sdeal flow has relatively little exposure to changes in interest rates, equitymarkets, commodity prices or credit risk. In other words, Crosby does notgenerate revenue from taking directional bets on market movements (includingeither volatility or correlation trades). Rather, our focus is on findingopportunities to restructure assets and, in the process, on managing theliquidity, legal and regulatory risks inherent in complex capital structures.There is some correlation between the number of deals we can generate and thegeneral level of economic activity. However, I believe that until the world hasglobal consistency and transparency in accounting, legal, regulatory andmanagement regimes we will remain able to source deals in almost any economicenvironment. There are various possible approaches to developing a valuation for Crosby. Oneadopted more commonly is to calculate the net asset value of each deal withinthe merchant banking portfolio, to ascribe a value to our asset management andcorporate finance businesses and then to add an option premium based on theability of the management team to source new deals and their ability to extractexceptional value from existing ones. Such an assessment is inevitably inexact, due to our inability (for obviousreasons) to comment on much of our pipeline of new deals. However, the successof the Firm over the last two years in identifying value, and being able tomonetise that value for the benefit of shareholders, when placed alongside theprevious proven deal-making ability over many years of the Firm's senior staff,does provide a certain track record on which to base this premium. I feel confident that, as we continue to implement our strategy and the marketbecomes more familiar with our techniques and approach to doing business, thisparticular part of the equation will become easier to assess. Crosby is all about people and I would like to express my sincere thanks to thestaff for their dedication and hard work throughout the year and to ourshareholders for their continued support and for their belief in the strategythat we have adopted. Consolidated Income Statement For the year ended 31 December 2005 Continuing Operation Note 2005 2004 US$'000 US$'000 Turnover 7,370 11,149Gain on financial assets held at fair 142,650 41,774value through profit or lossOther income 728 2,274 -------------------------- ------ ---------- ---------Total income 150,748 55,197 Administrative expenses (19,474) (7,737)Distribution expenses (152) (24)Other operating expenses (5,917) (3,153) -------------------------- --------- ------ ---------Profit from operations 125,205 44,283 Amortisation of goodwill - (149)Write off of goodwill - (5,468)Negative goodwill released - 64Share of profits of jointly controlled 26 -entityShare of profits of associates 246 9 -------------------------- --------- ------ ---------Profit before taxation 125,477 38,739 --- ---Taxation expense 2 (149) - -------------------------- --------- ------ ---------Profit for the year 125,328 38,739 -------------------------- --------- ------ --------- Attributable to: Equity holders of the Company 111,532 34,019 --------Minority interests 13,796 4,720 -------------------------- --------- ------ ---------Profit for the year 125,328 38,739 -------------------------- --------- ------ --------- Dividend Interim dividend paid 11,967 - -------------------------- --------- ------ --------- US cents US cents Dividend per share 5.00 - -------------------------- --------- ------ --------- Earnings per share for profit US cents US centsattributable tothe equity holders of the Companyduring the year - Basic 3 47.07 15.33 - Diluted 45.10 15.33 Consolidated Balance SheetAs at 31 December 2005 2005 2004 US$'000 US$'000 ASSETS Non-current assetsProperty, plant and equipment 590 501Interests in associates 520 284Interests in a jointly controlled 59 -entityAvailable-for-sale investments 209 225Intangible assets 562 560 ------------------------ ---------- ---------- 1,940 1,570 ------------------------ ---------- ---------- Current assetsAmounts due from parent and 783 268related companiesTrade and other receivables 10,337 1,338Financial assets held at fair 148,936 49,227value through profit or lossCash and cash equivalents 10,443 5,367 ------------------------ ---------- ---------- 170,499 56,200 ------------------------ ---------- ----------Total assets 172,439 57,770------------------------ ---------- ---------- LIABILITIES Current liabilitiesAmount due to a related company - (11)Trade and other payables (1,595) (1,831)Deferred income (25) (82)Provision for taxation (82) (59) ----------------------- ---------- ----------Total liabilities (1,702) (1,983) ----------------------- ---------- ---------- EQUITY Share capital 2,394 2,356 Reserves 148,451 47,335 ----------------------- ---------- ----------Equity attributable to equity 150,845 49,691holders of the Company Minority interests 19,892 6,096 ----------------------- ---------- ----------Total equity 170,737 55,787----------------------- ---------- ----------Total equity and liabilities 172,439 57,770 ----------------------- ---------- ---------- Consolidated Statement of Changes in EquityFor the year ended 31 December 2005 Equity attributable to equity holders of the Company ----------------------------------- Share Share Capital Employee Foreign Investment Profit Minority Total capital premium reserve share-based exchange revaluation and Loss equity compensation reserve reserve Account reserve interests US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 At 1 January 1 16,000 4,589 - (109) - (13,632) 16 6,8652004 Capitalisation - 700 - - - - - - 700of amount duefrom parentcompanyAdjustment on 1,999 (16,700) 18,851 - - - - - 4,150reverseacquisitionIssue of new 356 4,279 - - - - - - 4,635sharesIssue costs - (469) - - - - - - (469)Exchange - - - - (193) - - - (193)difference onconsolidationAcquisition of - - - - - - - 118 118subsidiariesDisposal of - - - - - - - 1,242 1,242subsidiaryProfit for the - -- - - - - 34,019 4,720 38,739year ------ ------ ------- ------- ------- ------- ------ ------- ------At 31 December 2,356 3,810 23,440 - (302) - 20,387 6,096 55,7872004 and1 January 2005Issue of new 38 511 - (145) - - - 404shares uponexercise ofshare optionsExchange - - - - 109 - - - 109difference onconsolidationDeficit on - - - - - (2) - - (2)revaluationEmployee share - - - 1,063 - - - - 1,063basedcompensationDisposal of - - 15 - - - - - 15subsidiaryDividend - - - - - - (11,967) - (11,967)Profit for the - - - - - - 111,532 13,796 125,328year ------ ------ ------- ------- ------- ------- ------ ------- ------At 31 December 2,394 4,321 23,455 918 (193) (2) 119,952 19,892 170,7372005 ------ ------ ------- ------- ------- ------- ------ ------- ------ The capital reserve movement of US$18.85 million in 2004 arose on the reverseacquisition of Crosby Capital Partners Limited (formerly known as Crosby CapitalPartners (Holdings) Limited). The capital reserve brought forward arose on agroup reorganisation during the year ended 31 December 2000. Consolidated Cash Flow StatementFor the year ended 31 December 2005 2005 2004 US$'000 US$'000 Operating activitiesProfit before taxation 125,477 38,739Adjustments for:Share of profits of a jointly controlled entity (26) -Share of profits of associates (246) (9)Interest income (269) (47)Corporate finance advisory fee received in kind - (7,000)Gain on financial assets held at fair value (142,650) (41,774)through profit or lossLoss on financial assets held at fair value - 32through profit or lossEmployee share based compensation 1,063 -Depreciation of property, plant and equipment 299 213Gain on disposal of property, plant and (5) (22)equipmentLoss on disposal of subsidiaries, net (14) (1,740)Amortisation of goodwill - 149Write off of goodwill - 5,468Negative goodwill released - (64)Bad debts recovery (149) (48)Provision for doubtful debts 646 86Exchange loss/(gain), net 220 (184) --------- -------- Operating cashflow before working capital (15,653) (6,201)changes Increase in trade and other receivables (214) (432)(Increase)/decrease in trade and other payables (883) 738(Decrease)/increase in deferred income (57) 57Increase in amounts due from parent and related (674) (49)companiesIncrease in amount due from a jointly controlled (34) -entityIncrease/(decrease) in amounts due to associates 8 (10) -------- ---------Cash used from operations (17,507) (5,897)Tax paid (106) - -------- ---------Net cash outflow used in operating activities (17,613) (5,897) -------- --------- Consolidated Cash Flow Statement (Continued)For the year ended 31 December 2005 2005 2004 US$'000 US$'000 Investing activitiesInterest received 268 46Purchases of property, plant and equipment (419) (441)Reverse acquisition expenses - (476)Cash acquired on reverse acquisition - 1,832Acquisition of financial assets held at fair (16,971) (486)value through profit or lossAcquisition of available for sale investments (185) (225)Acquisition of intellectual property (2) (206)Proceeds from sale of property, plant and 36 38equipmentProceeds from sale of financial assets held 51,206 -at fair value through profit or lossProceeds from sale of available for sale 200 -investmentsNet proceeds from disposal of subsidiaries - 10Net repayment from/(advance to) related 46 (29)companiesNet (advance to)/repayment from other (593) 11receivables ---------- ----------Net cash inflow from investing activities 33,586 74 Financing activitiesDividend paid to shareholders (11,967) -Repayment of finance lease obligations - (9)Issue of shares 404 4,415Expenses in connection with shares issue - (225)Advanced payment received from other payables 650 - Net cash (outflow) / inflow used in financing (10,913) 4,181activities Net increase/(decrease) in cash and cash 5,060 (1,642)equivalentsCash and cash equivalents as at 1 January 5,367 7,018Effect of exchange rate fluctuations 16 (9) ---------- ----------Cash and cash equivalents as at 31 December 10,443 5,367 ========== ========== Notes to the Consolidated Financial Statements 1. BASIS OF PREPARATION The Company was incorporated in the Cayman Islands, which does not prescribe theadoption of any particular accounting framework. The Board has therefore adoptedInternational Financial Reporting Standards (IFRS) adopted by the InternationalAccounting Standards Board. The Company's shares are listed on The AlternativeInvestment Market of London Stock Exchange. The consolidated financial statements have been prepared in accordance withInternational Financial Reporting Standards ("IFRS") and the InternationalFinancial Reporting Standards as issued by the International AccountingStandards Board. The financial statements are prepared under historical costconvention except for certain financial instruments. The measurement bases arefully described in the accounting policies detailed in the Group's annual reportand financial statements. It should be noted that accounting estimates and assumptions are used inpreparation of the financial statements. Although these estimates are based onmanagement's best knowledge of current events and actions, actual results mayultimately differ from those estimates. In the current year, the Company has adopted, for the first time, IFRS 2, sharebased payments. 2. TAXATION EXPENSE 2005 2004 US$'000 US$'000 Current tax - United Kingdom 143 - tax - overseas tax 6 - ------------------------ ----------- ----------- 149 ------------------------ ----------- ----------- United Kingdom and overseas income tax for the year have been calculated at therates prevailing in the relevant jurisdictions. A reconciliation of the tax expense applicable to profit before taxation usingthe statutory rates for the countries in which the Company and its subsidiariesare domiciled to the tax credit or expenses at the effective tax rates, and areconciliation of the statutory tax rates to the effective tax rates, are asfollows : 2005 2004 US$'000 % % US$'000 % Profit before taxation 125,477 38,739 -------------------- ------ ------ --------- ------- Tax at the domestic 21,958 17.5 6,779 17.5income tax ratesEffect of different tax 56 0.04 (8,247) (21.29)rates of subsidiariesoperating in otherregionsTax effect of share of (4) - - -results of a jointlycontrolled entityTax effect of share of (43) (0.03) (1) -results of associatesTax effect of prior (184) (0.15) (15) (0.04)year's tax lossesutilised this yearIncome not subject to tax (21,848) (17.41) (485) (1.25) Expenses not deductible 143 0.11 915 2.36for taxTax effect of 14 0.01 18 0.05unrecognised temporarydifferenceTax effect of 57 0.05 1,036 2.67unrecognised tax losses -------------------- ------ ------ --------- -------Current tax charge for 149 0.12 - - -the year -------------------- ------ ------ --------- ------- 3. EARNINGS PER SHARE Number of sharesWeighted average number of shares for calculating basic 236,935,616earnings per share Effect of dilutive potentialordinary shares:Share options 10,385,642 ----------------- -------- -------- -------- --------Weighted average number of shares for calculating diluted 247,321,258earnings per share ----------------- -------------- -------- -------- (a) Basic earnings per share The calculation of basic earnings per share is based on the profit attributableto equity holders of the Company of US$111,532,204 (2004: US$34,018,712) and theweighted average number of ordinary shares of 236,935,616 (2004: 221,957,377) inissue during the year. (b) Diluted earnings per share The calculation of diluted earnings per share is based on the profitattributable to equity holders of the Company of US$111,532,204 (2004:US$34,018,712) and the weighted average number of ordinary shares in issueduring the year after adjusting for the number of dilutive potential ordinaryshares granted under the Company's share option scheme of 247,321,258 (2004:221,957,377). None of the dilutive shares relate to interest or similar expenserecognizable in profit and loss for 2005. 4. PUBLICATION OF NON-STATUTORY ACCOUNTS The financial information set out in this preliminary announcement does notconstitute statutory accounts. The consolidated balance sheet at 31 December 2005 and the consolidated incomestatement, consolidated statement of changes in equity, consolidated cash flowstatement and enclosed notes for the year then ended have been extracted fromthe Group's 2005 statutory financial statements upon which the auditors opinionis unqualified. 5. COPIES OF THIS ANNOUNCEMENT Copies of this announcement are available for collection from the Company'soffices at 243 Knightsbridge, London SW7 1DN. This information is provided by RNS The company news service from the London Stock Exchange