ZOL.L Regulatory News (ZOL)

11 Aug 2005 13:18

Crosby Capital Partners Inc11 August 2005 CROSBY CAPITAL PARTNERS INC Interim Results for the six months to 30 June 2005 Crosby Capital Partners Inc. (the 'Company' and, together with its subsidiaries, the 'Group' or 'Crosby') announces its interim results for the six months ended 30 June 2005 (the 'Interim Results'). HIGHLIGHTS Crosby Capital Partners is an Asian focused independent merchant banking andasset management group with headquarters in Hong Kong and London. The Group'smerchant banking activities are strongly focused on the oil and gas and naturalresource sectors. Asset Management activities are focused on Chinese and Asianfunds and the newly established Wealth Management business that is also focusedon Asia. Financial • Total gross revenue US$55.4 million (2004: US$11.1 million) • Profit from operations US$46.8 million (2004: US$3.7 million) • Profit attributable to shareholders US$47.1 million (2004: US$5.4 million loss) • Earnings per share 19.98 cents (2004: 2.61 cents loss per share) Merchant Banking Division • Financial Interest in JASDAQ listed company IB Daiwa obtained through warrants over 107 million shares currently exercisable at 30 Yen. • Crosby Executives appointed to form majority of the IB Daiwa Board of Directors. • Bid for Tethyan Copper Company Ltd, an Australian Stock Exchange listed copper exploration company, ongoing. • Since 30 June 2005, completed the acquisition of a direct equity interest in extensive Oil and Gas assets in the Middle East (formerly owned by Novus Petroleum). Asset Management Operations • Funds under management increased by 62% to US$650 million at 30 June 2005 due to steady increase of clients and assets from newly launched Wealth Management Operation. Wealth Management • Wealth Management division became operational in May 2005 securing $250 million of funds under management by 30 June 2005 and contributing US$1.4 million to turnover in the period under review. Chairman's Statement Crosby's interim results for the six months ended 30 June 2005 reflect thecontinued success of the Group's strategy. Total revenues for the first six months of 2005 increased by 400% to US$55.4million compared to US$11.1 million in 2004. Total operating expenditureincreased by 17% to US$8.6 million compared to US$7.3 million for the sameperiod of 2004. There was thus a profit from operations of US$46.8 million inthe period, compared to US$3.7 million in 2004. The Chief Executives Reportprovides a summary of how this was achieved. The main feature of this first half of 2005 was the acquisition of an interestin IB Daiwa, a company listed on the JASDAQ market in Tokyo, which has become avaluable asset with further growth potential. It is also gratifying to reportthat the newly established Wealth Management Business contributed US$1.4 millionof income in just over one full month of operation. I am hopeful that thisbright start augurs well for the longer term in a business that we are very keento expand organically in Asia. With a view to further strengthening the high standards of corporate governancethat your company already practices the Board has established a RemunerationCommittee and a Nominations Committee, both composed of a majority ofnon-executive directors. I am encouraged by the outlook for Crosby. The Group has clear strategies and astrong management team to implement them. Although the Board is not proposing to declare a dividend at this stage, we dointend to recommend such action as soon as it is prudent to do so, followingrealisation of the assets acquired through our Merchant Banking activities. On behalf of the Board, I would like to thank our senior executives and staffmost warmly for their continued energetic and skilled work. I think it is fairto say that such significant and sustained progress in such a short period oftime, and with such a relatively small starting capital, is a remarkableachievement. Robert OwenChairman Chief Executive Officer's Review In the Company's annual report for the year ended 31 December 2004, I commentedthat Crosby was working hard to develop a business concentrating on two keyareas namely, Merchant Banking and Asset Management, both focused primarily onAsia. We made substantial progress with this business approach during 2004 andit gives me great pleasure to report that progress has continued at an evengreater pace during the first 6 months of 2005. As important as the quantity ofearnings, I feel that the quality of our earnings is continually improving as wediversify the sources of income, both regionally and structurally. In our Merchant Banking Division, our operational approach (working alongsideour clients and securing a direct equity interest in the underlying transaction)continues to be successful, as evidenced by our holding of a substantial numberof warrants in the Japanese company, IB Daiwa. We have also made furtherpleasing progress in extracting value from the oil assets and interests that weobtained from Novus Petroleum during the course of 2004. In particular, shortlyafter the end of the interim period under review in this report, we completed atransaction that resulted in your company owning a valuable stake in the MiddleEast assets formerly owned by Novus Petroleum. With energy prices currently atrecord high levels, and our acquisitions having been secured, in the main, in avery different environment during early 2004, the Middle East assets aresomething we are very excited about owning. Our Asset Management division, which comprises an institutional Fund Managementbusiness and also our newly established Wealth Management joint venture, hasalso made creditable progress during the first half of the year and the Grouphad over US$650 million under management at the end of June 2005. I will commentmore on this important milestone below. Merchant Banking IB Daiwa On 31 March 2005 Crosby announced that it had acquired a significant interest ina JASDAQ-listed Japanese company, IB Daiwa, (Stock Code 3587). The interest isin the form of warrants to subscribe for 107 million new ordinary shares at aprice of 30 Yen per share at any time during the remainder of 2005 and 31 Yenper share up until July 2006. This holding will give Crosby a 34% stake in theenlarged and fully diluted share capital of IB Daiwa on exercise of all warrantsthat are issued and outstanding. Since the end of 30 June , Crosby has exercised10,000 warrants resulting in the issue of 10 million shares, and our interest inIB Daiwa is therefore now made up of warrants exercisable into 97 million sharesand a direct equity interest of 10 million shares. On 24 June 2005, IB Daiwa shareholders, voting in an AGM, overwhelminglyapproved the appointment of four Crosby executives to the IB Daiwa board ofseven directors. Crosby's senior management team that is now on the board of IBDaiwa is made up of the following people:- Robert Owen (our Chairman), Joey Borromeo (our Group Chief Operating Officer),Johnny Chan (our Group Managing Director based in Hong Kong), and myself - allof which evidences both the importance of the IB Daiwa transaction to Crosby,and our commitment to its success at the highest level. Although unusual in Japan, within the first week of our control at IB Daiwa weannounced the restructuring of the previous IB Daiwa business lines that hadfailed for so long to generate any value for shareholders. IB Daiwa alsoannounced that it intended to bid for 100% of Lodore Resources Inc., an AIMlisted company in which Crosby has a 34% interest. I can also report that IBDaiwa has joined with Crosby in the very exciting Tethyan transaction that weannounced during the period under review. Specifically, IB Daiwa owns asignificant majority of the equity in the bidding vehicle for the takeover ofTethyan Copper Company Ltd. ("Tethyan"). As you may be aware, IB Daiwa is a general trading company that hastraditionally focused on the food and textile sectors. We intend to continuethese business lines on a relatively passive basis to ensure that the transitionto a new IB Daiwa business model, detailed below, is as smooth as possible. It is our intention that after the restructuring of the business is complete,the new IB Daiwa will eventually focus exclusively on Natural Resourcebusinesses, with a view to acquiring substantial equity positions in operatingbusinesses in this sector (for these purposes, Natural Resources can be broadlydefined as Energy-related businesses such as oil, gas, coal etc and Base Metalssuch as copper, uranium, zinc etc.). We do not intend to operate any suchbusinesses that we acquire, at the Crosby or at the IB Daiwa level, but we willuse our analytical and financial structuring skills to develop funding and jointventure partners in Japan to exploit fully the assets that are acquired. In thisway, IB Daiwa will generate value for its shareholders and ultimately thereforevalue for Crosby shareholders. We have long been of the opinion that extremely valuable natural resource assetsare locked up in inefficient capital and ownership structures, predominantly inAsia, and that a unique confluence of circumstance now allows certain of theseassets to be unlocked and exploited by determined and enterprising managementteams that are prepared to use innovative and capital market methods where theseassets are held by publicly listed companies. The exciting new dimension that wecan bring to this strategy by way of IB Daiwa is the Japanese capital markets,which, second only to the United States in size, offer depth and liquidity sothat our ideas can be converted more effectively into tangible results. Webelieve that domestic Japanese investors will place a high value on the uniquestrategy that we bring to their market, and I am looking forward to sharing ourongoing results with you over the course of the next few reporting periods. Early evidence of this can be seen by the movement of IB Daiwa's own shareprice, which, since Crosby became involved with IB Daiwa, has increased withvery high volumes, from 18 Yen (US$0.16) on 31 March 2005 to 242 Yen (US$2.19)on 30 June 2005. Crosby's interest in IB Daiwa had an intrinsic value of US$205 million at 30June 2005. We expect the share price of IB Daiwa to continue to displayrelatively high volatility in the short to medium term, and, in line with Crosby's policy to value such interests as prudently as possible, we have recognisedonly US$41 million in these interim figures. In addition to the transactions already announced at IB Daiwa it is currentlyworking on further, and potentially more substantial deals, details of which weare hopeful of being able to announce in the current financial year. As mentioned above, the approach we have taken at building value at IB Daiwa,and the focus on natural resources is unique in Japan and we are optimistic thatour efforts will enable IB Daiwa to create substantial value for its ownshareholders, and ultimately therefore for our shareholders at Crosby. Tethyan Copper On 24 May 2005 Crosby announced that it was leading a consortium of investors ina A$101 million offer for Australian Stock Exchange listed copper explorerTethyan at A$0.64 per share. The offer has been made through a special purposevehicle in which IB Daiwa holds the majority interest. The bid is conditional,amongst other things, obtaining acceptances from holders of 90% of the shares inissue. At the time of writing, the bid period has been extended from 15 August2005 to 15 September 2005. As these types of deals are, by their very nature,complex, and governed by regulations that restrict the amount of informationthat can be released into the general market, we feel compelled to highlight thefact that a final result is unlikely to become apparent during this currentfiscal year. However, as we have also mentioned in our bidding documentation(which is publicly available via the Australian Stock Exchange Website atwww.asx.com), the value of the assets held by Tethyan have been valued by themanagement of Tethyan as possibly being worth many hundreds of millions ofdollars, if not indeed, ultimately billions of dollars, and we intend to expendour energy to the fullest extent possible in pursuing this bid, with a viewcreating value for our shareholders. There can be no guarantee or certainty thatour efforts will result in any revenue or value for Crosby, but as of the timeof publishing this report, no other counter bidder has emerged, which isobviously good news for Crosby. As of the time of this interim report, Crosby has an interest in 1,231,330shares of Tethyan, with a market value of US$0.7 million. Oil and Gas Assets In June 2004 Crosby acquired interests in various oil and gas assets owned byNovus Petroleum. These assets were located in the United States of America, theMiddle East and Pakistan. There has been further progress during the last sixmonths in extracting value from these assets: •Towards the end of 2004 an agreement was reached to sell the US interests to Lodore Resources ("Lodore") in an all-share transaction which valued Crosby's subsequent interest in Lodore at US$82.4 million of which US$38.4 million was recognised in the financial statements for the year ended 31 December 2004. On 30 June 2005 IB Daiwa approached Crosby indicating their intention to acquire 100% of the issued and to be issued share capital of Lodore. IB Daiwa has offered consideration of 1.599 IB Daiwa shares for every 10 Lodore shares. Based on the closing price at 30 June 2005 this offer values our interest in Lodore at US$75 million of which, after taking a prudent view and applying a discount to the market value, Crosby's interests in Lodore are currently valued on our balance sheet at US$35.4 million •Lodore announced in May 2005 that it had acquired an option over deep gas exploration prospects in onshore Louisiana owned by Pel-Tex Oil Company. An independent consulting geologist report was conducted to assess the relative merits of the prospects. Based on the results of this report, a sophisticated Monte Carlo analysis concluded that an investment of US$30 million into drilling 8 of the prospects might result in an overall probability of success greater than 90%, with the prospects valued at US$630 million. This provides the possibility of further upside from Crosby's holding in Lodore when Lodore raise the necessary financing to exploit the Pel-Tex prospects This is one of the reasons why IB Daiwa has made its offer for Lodore. •Since 30 June 2005, Crosby used its option to acquire a 49% stake in the Novus Middle East assets in a co-investment with Meridian Capital, which resulted in the acquisition of 100% of the assets, which comprise interests in four concessions in Oman and one in the UAE. Under the arrangements Meridian Capital provided the cash consideration of US$65 million to acquire 65% of the assets and is committed to provide a further US$20 million to support the exploration and development programme. After other minority shareholdings are deducted Crosby will retain an 11% interest in the assets. In summary, without committing any of its own balance sheet or resources, Crosby has retained what we believe will be a very valuable interest in these particular oil and gas assets. As of 31 December 2004 these interests were valued on our balance sheet at US$100,000 and no further value has yet been recognised. The new venture is involved in an extensive development programme, the results of which will become apparent during the next 4 or 5 months. We intend to revisit the value of this shareholding at the end of the current financial year. I am especially pleased with the closing of this particular transaction as, by providing the opportunity for Crosby to receive significant income in the future with no initial cost and for no future financial outlay, it is yet another example that our unique approach to the merchant banking business is robust and working well. •Crosby continues to hold a 52.9% interest in JS Energy Limited, a company that in turn holds 100% of the Pakistani oil and gas assets previously owned by Novus. These assets are valued at US$10 million on our balance sheet. We do not expect any significant movement in the value of this asset in the short to medium term. Asset Management The first half of 2005 has seen further progress for the Asset Management sideof our business. The Institutional Fund Management arm continues to manage overUS$400 million and generated US$0.6 million (2004 US$0.4 million) in fundmanagement fees during the period under review. As previously reported, Crosby initiated its Wealth Management business, headedby Mr Paul Giles, an experienced private banker in Asia, in April 2004. Sincethat time a capital raising exercise was completed, an infrastructure andcustodian services partnership was established with a major Swiss bank,regulatory licences were obtained and a high calibre investment relationshipteam was recruited. The business finally became operational in May this year.Between May 2005 and 30 June 2005, the business has contributed US$1.4 millionof revenue and had gathered just over US$250 million of assets under management. Following on from its first two months of operations, Crosby Wealth Managementcontinues to perform well and to attract new assets to manage and as of the timeof the publication of this report, Crosby Wealth Management has accumulated overUS$350 million of assets under management, bringing the total assets managedwithin the Group to over US$750 million. The early success of the Wealth Management business is a source of encouragementthat our Asset Management Business can achieve significant growth in the AsianMarkets on which it concentrates. Outlook I am clearly very pleased to be able to follow up the announcement of our fullyear results of 2004 and our annual report which was published in March, withinterims that we believe are impressive by any measure, even more so as wecontinue to be extremely prudent in our accounting treatment of the value of theassets that your company owns. I feel obliged to temper this statement by reminding our shareholders that theresults which we are now seeing are the product of much hard work and effortthat was put into place over a protracted period of time, and the nature of ourbusiness means that earnings can be volatile. However, the speed with which ourMerchant Banking division continues to mature into a business that can generatevery high returns is noteworthy, as is the fact that, compared to the similarperiod last year, the Merchant Banking team has significantly diversified itsincome sources both regionally and structurally. The combination of this and theorganic growth illustrated in the Wealth Management business add substantiallyto the quality of our earnings at the Group level. In previous reports I have stated that we will be strategically acquisitive atthe Crosby level with a focus on the more stable and consistent income generatedwithin the Asset Management business. Whilst we have not yet identified asuitable acquisition, we will continue to pursue this strategy and to evaluatenew opportunities in the Asset Management sector as they arise. We will however,remain very selective to ensure an optimal fit with our current business linesand continue to develop our business organically in the interim. In closing, I would like to add that deal flow remains strong, and the MerchantBanking team are working on a number of transactions that are interesting andhave the potential to be very profitable. Unfortunately these transactions aretoo early in their development to comment upon at this time. Simon FryChief Executive Officer Consolidated Income StatementFor the six month period ended 30 June 2005 Unaudited Unaudited Audited six months six months year ended ended ended 30 June 30 June 31 December 2005 2004 2004 Note US$'000 US$'000 US$'000Continuingoperations Turnover 3,296 10,921 11,149Other revenue 52,107 156 44,048 -------- --------- ---------Total revenue 55,403 11,077 55,197 Administrativeexpenses (6,526) (3,610) (7,737)Distributionexpenses (80) (3) (24)Otheroperatingexpenses (1,999) (3,719) (3,153) -------- --------- ---------Profit fromoperations 46,798 3,745 44,283 Amortizationof goodwill - (82) (149)Write off ofgoodwill - (5,463) (5,468)Negativegoodwillreleased - - 64Share ofassociatesprofits/(losses) 188 (10) 9 -------- --------- ---------Profit/(loss)beforetaxation 46,986 (1,810) 38,739 Taxation - - - -------- --------- --------- Profit/(loss)after taxation 46,986 (1,810) 38,739 Minorityinterests 77 (3,630) (4,720) -------- --------- ---------Profit/(loss)attributableto equityholders of theparent company 47,063 (5,440) 34,019 -------- --------- --------- ======== ========= ========= Earnings/(loss)per share 5 - Basic 19.98 cents (2.61 cents) 15.33 cents ======== ========= ========= - Diluted 19.00 cents (2.61 cents) 15.33 cents ======== ========= ========= Consolidated Balance SheetAs at 30 June 2005 Unaudited Audited Unaudited 30 June 31 December 2004 30 June 2005 2004 Note US$'000 US$'000 US$'000ASSETS AND LIABILITIES Non-current assetsProperty, plant and equipment 629 501 572Interests in associates 468 284 96Available-for-sale 199 225 225investmentsIntangible assets 562 560 (350)------------------------ --------- --------- ----------- 1,858 1,570 543Current assetsAmounts due from parent andrelated companies 179 268 238Trade and other receivables 9,371 1,338 1,282Financial assets at fair 87,810 49,227 7,000valuethrough profit or lossCash and cash equivalents 7,167 5,367 6,222------------------------ --------- -------- --------- 104,527 56,200 14,742 Total assets 106,385 57,770 15,285------------------------ --------- -------- --------- Current liabilitiesAmounts due to parent and (12) (11) (11)related companiesTrade and other payables (3,026) (1,913) (954) Provision for taxation (58) (59) (58)------------------------ ---------- --------- --------- (3,096) (1,983) (1,023) Net current assets 101,431 54,217 13,719 Total assets less currentliabilities and net assets 103,289 55,787 14,262------------------------ --------- ---------- --------- EQUITY Share capital 5 2,356 2,356 2,350Reserves 94,914 47,335 8,087------------------------ --------- ----------- ---------Equity attributable to equityholders of the parent company 97,270 49,691 10,437Minority interests 6,019 6,096 3,825------------------------ --------- ----------- ---------Total equity 103,289 55,787 14,262------------------------ --------- ----------- --------- Consolidated Cash Flow StatementFor the six month period ended 30 June 2005 Unaudited six months ended 30 June 2005 2004 US$'000 US$'000 Net cash outflow from operating activities (4,518) (2,726) Net cash inflow from investing activities 6,317 520 Net cash inflow from financing activities - 1,411 Net increase / (decrease) in cash and cash 1,799 (795)equivalents Cash and cash equivalents as at 5,367 7,0181 January Effect of exchange rate fluctuations 1 (1) Cash and cash equivalents as at 30 June 7,167 6,222 Notes to Interim Report For the six month period ended 30 June 2005 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 interim financial statements have been preparedin accordance with IFRS and with the applicable disclosure provisions of theRules Governing the Listing of Securities on the Alternative Investment Marketof The London Stock Exchange. The interim financial statements are prepared on the historical cost basisexcept for certain financial instruments. The interim financial statements are unaudited and have not been reviewed and donot constitute statutory accounts in accordance with section 240 of theCompanies Act 1985. 2. Principal accounting policies The interim report has been prepared in accordance with IFRS, including IAS 34 "Interim Financial Reporting". The same principal accounting policies and methods of computation are followedas the annual report published by the Company on 18 March 2005, except for theimpact of the share-based employee remuneration, which has resulted in a chargeof US$431,000 to the income statement. The policy adopted is as detailed below: All share-based payment arrangements are recognised in the consolidatedfinancial statements. The Group operates equity-settled share-based remunerationplans for remuneration of its employees. All employee services received in exchange for the grant of any share-basedremuneration are measured at their fair values. These are indirectly determinedby reference to the fair value of the share options awarded. Their value isappraised at the grant date and excludes the impact of any non-market vestingconditions (for example, profitability and sales growth targets). All share-based remuneration is ultimately recognised as an expense in profit orloss with a corresponding credit to additional paid-in capital, net of deferredtax where applicable. If vesting periods or other vesting conditions apply, theexpense is allocated over the vesting period, based on the best availableestimate of the number of share options expected to vest. Non-market vestingconditions are included in assumptions about the number of options that areexpected to become exercisable. Estimates are subsequently revised, if there isany indication that the number of share options expected to vest differs fromprevious estimates. No adjustment is made to the expense recognised in priorperiods if fewer share options ultimately are exercised than originallyestimated. Upon exercise of share options, the proceeds received net of any directlyattributable transaction costs up to the nominal value of the shares issued areallocated to share capital with any excess being recorded as additional paid-incapital. 3. Segment Information As defined under International Accounting Standard 14, the only materialbusiness segment the Group has is that of investment banking as asset managementcontributes less than 10% of Group total revenue. 4. Taxation No income tax has been provided for the six months ended 30 June 2005 (30 June2004: US$Nil; 31 December 2004: US$Nil) as neither the Group nor any of itsassociated companies derived any profit that is subject to income tax. No recognition of the potential deferred tax assets relating to tax losses ofthe Group has been made as the recoverability of the potential tax assets isuncertain (30 June 2004: US$Nil; 31 December 2004: US$Nil). 5. Earnings/(loss) per share The calculation of the basic earnings/(loss) per share for the six months ended30 June 2005 is based on the profit attributable to equity holders of the parentcompany of US$47,063,000 (30 June 2004: loss attributable to equity holders ofthe parent company of US$5,440,000; 31 December 2004: profit attributable toequity holders of the parent company of US$34,019,000) and the weighted averagenumber of shares of 235,600,000 (30 June 2004: 208,461,539; 31 December 2004:221,957,377). The diluted earnings/(loss) per share for the six months ended 30 June 2005 isbased on the profit attributable to equity holders of the parent company ofUS$47,063,000 (30 June 2004: loss attributable to equity holders of the parentcompany of US$5,440,000; 31 December 2004: profit attributable to equity holdersof the parent company of US$34,019,000) and the weighted average number ofshares of 247,702,297 (30 June 2004: 208,461,539; 31 December 2004:221,957,377). 6. Share capital Number of ordinary shares Value US$ US$Authorised 5,000,000,000 50,000,000(par value of US$0.01 each)---------------------------- ------------ ------------- Issued and fully paid(par value of US$0.01 each)---------------------------- ------------ -------------At 31 December 2004 and 235,600,000 2,356,00030 June 2005---------------------------- ------------ ------------- Copies of this interim results statement will be available for collection fromthe Company's offices at 1st Floor, 243 Knightsbridge, London SW7 1DN For further information, please contact: Crosby Capital Partners IncSimon Fry Tel: +44 (0) 20 7590 2800Ilyas Khanwww.crosby.com Fishburn HedgesAndy Berry Tel: +44 (0) 20 7839 4321 Panmure Gordon & CoRichard Swindells Tel: +44 (0) 20 7459 3600 www.panmure.com This information is provided by RNS The company news service from the London Stock Exchange