ZOL.L Regulatory News (ZOL)

9 Aug 2007 13:12

Crosby Capital Partners Inc09 August 2007 Crosby Capital Partners Inc. ("Crosby" or "the Company") Interim Results - Six months ended 30 June 2007 London, 9 August 2007: Crosby Capital Partners (AIM: CSB), a leadingindependent, deal-focused, Asia-oriented merchant banking and asset managementgroup, today announces its interim results for the six months ended 30 June2007. Financial Highlights •Turnover - US$12.4 million (2006: US$3.8 million) •Loss attributable to shareholders - US$26.3 million (2006: Profit of US$ 70.3 million) •Shareholder equity - US$71.2 million (2006: US$223.1 million) •Loss per share - US$10.82 cents (2006: Earnings per share of US$28.97 cents) •Assets under management - over US$1.5 billion (At 30 June 2006: US$1 billion) •Cash flow positive with cash and cash equivalents increasing by US$4.3 million to US$14.2 million during the six months ended 30 June 2007 The results for the six months ended 30 June 2007 were significantly influencedby a fall during the period in the share price of IB Daiwa Corporation ("IBDaiwa") from 76 yen to 50 yen, which generated an unrealised mark to market lossof US$23.9 million. Operational Highlights Crosby Wealth Management ("CWM") - revenue and net profits at CWM weresignificantly ahead of budget and assets under management grew by approximately40% over the six months under review. Crosby Active Opportunities Fund ("CAOF") - CAOF recorded a net return ofapproximately 16% for the first six months of the year and succeeded inattracting further subscriptions. On 1 May 2007, Crosby invested US$5 millioninto CAOF. Leed Petroleum PLC ("Leed") - it is scheduled that on 15 August 2007 (after theclose of the period of review), Leed (formerly Darcy Energy Holdings UK, Ltd.),part of the IB Daiwa group in which Crosby owns 24.02%, will be admitted to theAIM market of the London Stock Exchange with a market capitalisation ofapproximately US$239 million and raising US$100 million of new capital. At theoffer price, IB Daiwa's initial equity investment of US$10 million is valued atUS$100 million. Orchard Petroleum Inc, ("Orchard") - During the first quarter, the MerchantBanking team completed the US$130 million takeover of Orchard. The acquisitionwas financed by a combination of senior debt and convertible preference sharesprovided by a small group of investors including the Crosby Active OpportunitiesFund. Crosby has earned a significant stake in the privatised company and oncethe acquisition finance has been repaid, will own approximately 24% of theequity of Orchard Petroleum. Indago Petroleum Limited ("Indago") - on 14 March 2007, Indago announced that,subject to shareholder approval, it would be disposing of a portfolio of oil andgas assets and paying a special dividend of 60 pence per share. The specialdividend resulted in a net cash inflow of US$17.4 million to Crosby. Fermiscan Holdings Limited ("Fermiscan") - on 16 February 2007, the Dragon FundInc., a fund managed by Crosby Asset Management and owned by Techpacific CapitalLimited, subscribed for 8.5 million new ordinary shares in Fermiscan at A$1.50per share. On 26 April 2007, Crosby announced that it had signed a memorandum ofunderstanding covering the commercialisation of Fermiscan's test for breastcancer in the Japanese market. Contact: Crosby Capital Steve Fletcher, Chief Operating Officer +44 20 7590 2800 Dawnay, Day Corporate Finance David Rae / Edward Gay +44 20 7509 4570 Copies of the interim report are available for collection from Crosby's London offices at 243 Knightsbridge, London, SW7 1DN and electronic copies can be obtained from the Company's website www.crosby.com. Chairman's Report There was considerable progress during the first half of the year in all areasof Crosby's business. Despite the financial results being significantlyinfluenced by a fall in the share price of IB Daiwa ("IBD") from 76 yen to 50yen, which generated an unrealised loss of US$23.9 million, the underlyingperformance of our major business lines was satisfactory. Crosby was cash flowpositive during this period with cash and cash equivalents increasing by US$4.3million to US$14.2 million. This was largely the result of the partialmonetisation of our investment in Indago Petroleum Limited ("Indago") throughthe net receipt of US$17.4 million as a result of a special dividend. The performance of Crosby Wealth Management ("CWM") was particularlyencouraging. CWM's assets under management increased by 40% and both revenue andprofits were significantly ahead of budget. At IBD, despite share priceweakness, there was continued progress in developing the company as a naturalresource asset trading company. The IPO and deconsolidation of IB Daiwa'ssubsidiary Leed Petroleum (formerly Darcy Energy), which occurred after theclose of the reporting period, are important steps towards securing IB Daiwa'slong term development. The transaction will provide Leed with the capital tofully exploit the potential of its asset portfolio whilst enabling IB Daiwa topursue new business opportunities and book a US$30 million gain on itsinvestment. The developments at CWM and IB Daiwa provide clear illustrations of Crosby'slong-term approach: at CWM we are successfully building a business from thestart-up phase that contributes to the strategic development of the assetmanagement business as a source of stable, high quality earnings, and at IBDaiwa we are working patiently with IB Daiwa's management to restructure thecompany and monetise our investment. A more comprehensive business review of thefirst six months of 2007 is provided later in the Interim Report. As usual the progress seen during the first half is a testimony to thehard-work, skill and creativity of the executives and staff that make up theCrosby team. I would like to thank them on behalf of Crosby's shareholders fortheir efforts. Robert OwenChairman Chief Executives Officer's Review & Outlook It has been good to see Crosby's business continue to move forward on severalfronts during the first six months of 2007. Our involvement with Fermiscan Holdings Limited ("Fermiscan") and the growth inthe Asset Management businesses reflect the continued drive to diversify theindustry sectors in which we're involved and build a high quality, stable incomestream that complements the income derived from the deal-making side of thebusiness. It also emphasises that the primary skill-set of Crosby's people isthe identification of relative value and pricing anomalies rather thanforecasting market movements or specialisation in a particular sector orindustry. Overall it is very pleasing however, to see the rewards from some of ourprevious work being realised. The special dividend from Indago ensured thatCrosby was cash-flow positive during the first half of the year and takes us astep closer to the full monetisation of the asset, and the successful takeoverof Orchard has provided us with a 23.75% stake in the profits of the transactiononce certain of the acquisition financing has been repaid. Our stake in IB Daiwa remains unchanged at 24.02% and as such continues to be animportant investment for the firm. The IPO of IB Daiwa's subsidiary Darcy, nowrenamed Leed Petroleum plc, has not only provided the funding to further developLeed's asset portfolio but also confirms that there has been a considerableincrease in the value of the Leed business during IB Daiwa's ownership - when IBDaiwa purchased Leed in December 2005 it had an enterprise value of US$57.5million and at the IPO offer price Leed has a market capitalisation of US$239million. At the offer price, this has resulted in an increase in the equityvalue of IB Daiwa's investment from US$10 million to approximately US$100million. As a result, IB Daiwa has booked an extraordinary gain ofapproximately US$30 million, and, at the issue price, there remains thepotential for a further US$60 million gain. We continue to work very closelywith the management of IB Daiwa to help them strengthen their balance sheet andcapital markets presence, and, thus, to enable them to fully develop theirexisting businesses whilst pursuing new business opportunities. At the sametime, we are supporting their efforts to achieve a return from the Kanri Post toa normal JASDAQ listing. Looking forward to the second half of the year, I remain optimistic that we willcontinue to monetise our investment portfolio, actively initiate new deals andcontinue to build our asset management businesses. Simon FryChief Executive Officer BUSINESS REVIEW Merchant Banking Orchard The Crosby led takeover of Orchard by Eskdale Petroleum Pty Limited ("Eskdale")was completed in March 2007. At the offer price, Orchard had a marketcapitalisation of approximately US$130 million. In addition to the US$50 millionbank financing provided by Commonwealth Bank of Australia, Eskdale funded itsacquisition through the issue of preference shares to parties including CAOF.Inreturn for the initial acquisition work and for structuring, leading andexecuting the takeover on behalf of a small group of investors, including theCrosby Active Opportunities Fund, Crosby will own 23.75% of the bid vehicleafter repayment of the acquisition financing. On 23 May 2007, Orchard entered into a Property Exchange Agreement withLivingstone Petroleum Ltd (LPL AU) in respect of certain interests in oil andgas leases in Sacramento and San Joaquin Basin, California. The agreementconsolidates Orchard's interests on projects with established production andrelatively low risk development prospects, and provides Orchard with criticalmass within its operations in the Sacramento Basin, increasing efficiencieswithin this project. The second half of 2007 will see Orchard continuing its drilling programme tomigrate existing reserves from 3P to 2P and 1P, and pursuing furtherconsolidation of its asset portfolio. Fermiscan Fermiscan has the exclusive worldwide patent to commercialise a breast cancertest which is based on analysing the molecular structure of a person's hair todetect cancer. The test is far less invasive than alternative procedures such asmammograms, ultra sounds and biopsies, and is suitable for women from a widerange of ages, whilst the mammogram is generally regarded as only being suitablefor women above the age of 40. Trial results to date have demonstrated that the test has the potential tobecome a reliable non-invasive screening alternative in the detection of breastcancer. Subject to a positive outcome to this trial, Fermiscan will begincommercialisation in Australia and in licensee countries towards the end of theyear. On 26 April 2007, Crosby announced that it had signed a memorandum ofunderstanding covering the commercialisation of Fermiscan's test for breastcancer in the Japanese market. The completion of the Japan feasibility study isscheduled for the second half of the year, after which, subject to Crosby andFermiscan reaching satisfactory commercial agreement, Crosby will be theJapanese licensee for a period of 10 years (with an option to extend). The number of annual screening mammograms in Japan is estimated at 14 millionand Fermiscan and Crosby estimate that the target population of women in Japansuitable for the test is at least 38 million. With the many benefits that thetest offers over mammograms and other more invasive procedures the marketpotential is significant. Crosby is the fund manager of the Dragon Fund Inc., a fund owned by TechpacificCapital Limited, which subscribed for 8.5 million new ordinary shares inFermiscan at A$1.50 per share in February 2007. Marathon In July 2006, Crosby led a cash offer for ASX-listed uranium miner MarathonResources Ltd. (Marathon", MTN AU) at A$0.68 per share, a premium of 23.6% tothe previous day's close. On 9 March 2007, the offer was increased to A$3.52 pershare, a 6.7% premium to the previous day's closing price. At A$3.52, Marathonhad a market capitalisation of approximately US$161 million. This revised offerwas allowed to expire on 4 July 2007 at which time the Marathon stock priceclosed at A$6.68 per share. Asset Management During the first six months of 2007, assets under management ("AuM") increasedby 32% to over US$1.5 billion and turnover rose to US$12.2 million (comparedwith US$3.5 million in the same period during the previous year). The continuedgrowth in the Asset Management business was driven by an exceptional performanceat CWM where AuM grew by 40%, and both turnover and pre-tax profit significantlyoutperformed budget. CAOF returned a net 16.3% in the first half of the year and closed the periodwith approximately US$90 million of AuM. Since CAOF's inception in December2006, it has made five investments and has successfully exited one of theseinvestments and realized gains from the partial sale of another. The net assetvalue of CAOF as at 30 June 2007, after adjusting for all fees and expenses, wasUS$1,166.11 per share, up 16.6% since inception. Investment Portfolio The Group's investment portfolio largely consists of its equity stakes derivedfrom Merchant Banking transactions. The group's largest listed positions are a24.02% equity holding in JASDAQ-listed IB Daiwa (3587 JP), a 6.23% equityholding in AIM-quoted Indago (IPL LN) and a 1.73% equity holding in ASX-listedWhite Energy Company Limited ("White Energy", WEC AU). Further details of theinvestment portfolio can be found in Note 14 to the interim financialinformation. IB Daiwa DarcyIn February 2007, Darcy raised US$18 million by issuing news shares thatrepresented 13.4% of the then enlarged share capital. This fundraising providedcapital to develop the Grand Isle acquisition and to pursue further growthopportunities. Also in February 2007, the B4 well at East Cameron Block 318commenced production following the discovery of commercial quantities of gas.InApril, May and June 2007, Darcy acquired additional production, development andexploration assets including 100% working interests in certain Sorrento Domeleases in onshore Louisiana and Eugene Island exploration leases offshore fromLouisiana in the Gulf of Mexico. Following these acquisitions, Darcy's auditedreserves increased to 36 bcfe, 95 bcfe and 320 bcfe on a 1P, 2P and 3P basisrespectively. Since IB Daiwa's acquisition of Darcy in December 2005, the 1P, 2Pand 3P reserves have increased by 175%, 290% and 680% respectively. These acquisitions provide Darcy with additional acreage for development andexploration, an increase in producing assets and a base from which to expand itsoperational capabilities. To raise capital to fully exploit Darcy's newlyacquired assets and to enable Darcy to further develop its existing portfolio,whilst pursuing new business opportunities, IB Daiwa announced on 25 June 2007that Darcy had commenced procedures for an initial public offering of Darcy onAIM. Following the period under review, to facilitate its initial publicoffering, Darcy changed its name to Leed Petroleum ("Leed") on 24 July 2007 andeffected a capital reorganisation on 3 August 2007. Leed (LDP LN) is to beadmitted to AIM on 15 August 2007 having raised approximately US$100 million ofnew capital. At the offer price, Leed has a market capitalisation ofapproximately US$239 million. Following Leed's admission to AIM, IB Daiwa'sshareholding in Leed will be 41.7%. At the offer price, IB Daiwa's initialequity investment of US$10.2 million has increased by approximately 880% toUS$100 million. As a consequence of the transaction, IB Daiwa will book a gainon deemed disposal of about US$30 million. Lodore Given the delays in certain exploration projects and cost-over-runs, andconstraints faced by Lodore Delaware Petroleum LLC "(Lodore") raising financing,Lodore has found it necessary to seek to farm out certain high priorityprospects whilst opting out of certain lower priority projects. Under thesecircumstances, Lodore decided to take a prudent approach and provide against theexploration costs for certain projects and, consistent with this approach IBDaiwa decided to write down Lodore-related goodwill. This resulted in IB Daiwaissuing a further revision to its financial forecast for the year ended 31 March2007. Lodore continues to make progress in completing its current drilling programme. At the Endeavor prospect, drilling progress has been delayed due to threeseparate well control events caused by high pressure kicks which necessitatedthe drilling of sidetracks. The costs related to these events are largelycovered by insurance. IB Daiwa announced on 19 June 2007 that the current planwas to drill the third sidetrack back to a depth of approximately 18,000 feetwhere a further string of expandable liner would be set and then the welldrilled on to beyond the depth where the last high pressure kick wasexperienced. Drilling and testing of the three deepest zones at Plum Deep, the first well atPadre Island, were completed during the six months under review and it wasdetermined that the zones were non-commercial. The testing of the shallowestzone is scheduled for the second half of the year. Drilling at North West Kaplan is scheduled to commence following the completionof drilling at Endeavor. Indago In March 2007, Indago announced that it had agreed, subject to shareholderapproval, to dispose of 100% of its production and development assets andapproximately 50% of its exploration assets. Following the completion of thesale, Indago also announced that, subject to shareholder approval, it woulddeclare a special dividend of 60 pence per share and consolidate its shares on a5 for 1 basis. The net effect of this is that, net of minority interests andrelated financing, Crosby received approximately US$17.4 million of cash inApril 2007, whilst still retaining further upside through owning the stilllisted shares of Indago (post share consolidation). Indago still holds theremaining exploration assets plus sufficient cash to undertake its explorationprogramme. At 30 June 2007, the quoted market price of Indago was £1.035 pershare. White Energy On 10 May 2007, White Energy announced that BHP Billiton, the world's largestdiversified resources company, plans to use its coal upgrade process for itsvast sub-bituminous reserves. Additionally, BHP agreed to provide US$35 millionin convertible loan financing that will enable White Energy to accelerate theroll out of its patented coal technology and to act as White Energy's exclusiveglobal marketing agent for upgraded export coal produced at its coal technologyplants. White Energy owns the worldwide license to a coal briquetting processthat increases the energy efficiency of low quality coal. At 30 June 2007, thequoted market price of White Energy was A$2.9 per share. INDEPENDENT REVIEW REPORT TO CROSBY CAPITAL PARTNERS INC. INTRODUCTION We have been instructed by the Company to review the financial information forthe six months ended 30 June 2007 which comprises the consolidated incomestatement, consolidated balance sheet, consolidated statement of changes inequity, condensed consolidated cash flow statement and the related notes 1 to 21. We have read the other information contained in the interim report whichcomprises only the Highlights, the Chairman's Report, the Chief ExecutiveOfficer's Review & Outlook, and the Business Review and considered whether itcontains any apparent misstatements or material inconsistencies with thefinancial information. This report is made solely to the Company in accordance with guidance containedin APB Bulletin 1999/4 "Review of Interim Financial Information". Our reviewwork has been undertaken so that we might state to the Company those matters weare required to state to them in a review report and for no other purpose. Tothe fullest extent permitted by law, we do not accept or assume responsibilityto anyone other than the Company for our review work, for this report, or forthe conclusions we have formed. DIRECTORS' RESPONSIBILITIES The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the directors. The directorsare responsible for preparing the interim report and ensuring that theaccounting policies and presentation applied to the interim figures should beconsistent with those applied in preparing the preceding annual accounts exceptwhere any changes, and the reasons for them, are disclosed. The interim report has been prepared in accordance with International AccountingStandard 34 "Interim Financial Reporting". REVIEW WORK PERFORMED We conducted our review in accordance with guidance contained in Bulletin 1999/4"Review of Interim Financial Information" issued by the Auditing Practices Boardfor use in the United Kingdom. A review consists principally of making enquiriesof management and applying analytical procedures to the financial informationand underlying financial data and, based thereon, assessing whether theaccounting policies and presentation have been consistently applied unlessotherwise disclosed. A review excludes audit procedures such as tests ofcontrols and verification of assets, liabilities and transactions. It issubstantially less in scope than an audit performed in accordance withInternational Standards on Auditing (UK and Ireland) and therefore provides alower level of assurance than an audit. Accordingly, we do not express an auditopinion on the financial information. REVIEW CONCLUSION On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 June 2007. GRANT THORNTON UK LLPCHARTERED ACCOUNTANTSBIRMINGHAM 9 August 2007 Consolidated Income Statement Unaudited Unaudited Audited six months ended six months ended year ended 30 June 30 June 31 December 2007 2006 2006 Notes US$'000 US$'000 US$'000 Restated (Note 16) Continuing operations Turnover/Revenue 5 12,357 3,807 8,899(Loss)/gain onfinancial assetsat fair valuethrough profitor loss 14 (6,028) 80,896 (25,572)Loss on financialliabilities atfair value throughprofit or loss 16 (443) (413) (846)Other income 6 316 1,775 2,570Administrative expenses (17,669) (17,669) (35,822)Distribution expenses (88) (42) (14)Other operating expenses (4,571) (2,174) (4,949) --------- --------- ---------(Loss)/profitfrom operations 7 (16,126) 66,180 (55,734)Finance costs - (545) (163)Excess of fairvalue over cost ofacquired subsidiary - 959 959Share of profit/(loss)of a jointlycontrolled entity 30 5 (25)Share of (losses)/profits of associates (80) (129) 59 --------- --------- ---------(Loss)/profitbefore taxation (16,176) 66,470 (54,904)Taxation expense 9 (937) (97) (176) --------- --------- ---------(Loss)/profitfor the period (17,113) 66,373 (55,080) --------- --------- --------- Attributable to:Equity holdersof the Company (26,309) 70,259 (57,207)Minority interests 9,196 (3,886) 2,127 --------- --------- ---------(Loss)/profitfor the period (17,113) 66,373 (55,080) --------- --------- --------- Dividend - - - --------- --------- --------- (Loss)/earnings per share US cents US cents US centsfor (loss)/profit attributableto equity holders of the Company during the period - Basic 10 (10.82) 28.97 (23.58) -------- --------- ---------- Diluted 10 N/A 28.06 N/A -------- --------- --------- Consolidated Balance Sheet Unaudited Unaudited Audited 30 June 30 June 31 December 2007 2006 2006 Notes US$'000 US$'000 US$'000 Restated (Note 16)ASSETS Non-current assets Property, plant and equipment 11 606 582 493Interests in associates 578 467 654Interest in a jointly controlledentity 45 94 135Available-for-sale investments 5,228 225 198Intangible assets 12 488 569 488 --------- -------- --------- 6,945 1,937 1,968Current assetsAmounts due from parent and 89 22 1,217related companiesTrade and other receivables 13 4,827 2,517 4,234Financial assets at fair value 14 59,159 239,875 127,542through profit or lossCash and cash equivalents 14,249 18,896 9,987 --------- -------- --------- 78,324 261,310 142,980 --------- -------- ---------Total assets 85,269 263,247 144,948 --------- -------- --------- LIABILITIES Current liabilitiesAmounts due to parent and (100) (26) (121)related companiesTrade and other payables 15 (7,515) (10,188) (10,802)Deferred income - (12) -Provision for taxation (999) (96) (99)Financial liabilities at fair valuethrough profit or loss 16 - (8,753) (9,186)Other loans - (5,021) - --------- -------- ---------Total liabilities (8,614) (24,096) (20,208) --------- -------- --------- EQUITY Share capital 17 2,433 2,427 2,427 Reserves 68,797 220,713 94,161 --------- -------- ---------Equity attributable to equityholders of the Company 71,230 223,140 96,588 Minority interests 5,425 16,011 28,152 --------- -------- --------- Total equity 76,655 239,151 124,740 --------- -------- ---------Total equity and liabilities 85,269 263,247 144,948 --------- -------- --------- Consolidated Statement of Changes in Equity Equity attributable to equity holders of the Company Share Share Capital Employee Foreign Investment capital premium reserve share-based exchange revaluation compensation reserve reserve reserve US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 At 1 January2007 2,427 5,915 23,455 1,976 72 (2) Issue of new 6 321 - (77) - - shares uponexercise ofshare optionsEmployee - - - 452 - - share-basedcompensation(Loss)/profitfor the period - - - - - - Dividend paidto minorityshareholders - - - - - - Gain onrevaluation - - - - - 31 Disposal of asubsidiaryundertaking(Note 20) - - - - - - Exchangedifference onconsolidation - - - - 218 - ------ ------ ------- -------- ------ ------- At 30 June 2007 2,433 6,236 23,455 2,351 290 29 ------ ------ ------- -------- ------ ------- Equity attributable to equity holders of the Company (cont'd) Profit Minority Total and loss Interest Equity account US$'000 US$'000 US$'000 At 1 January2007 62,745 28,152 124,740 Issue of new - - 250 shares uponexercise ofshare optionsEmployee - 2 454 share-basedcompensation(Loss)/profitfor the period (26,309) 9,196 (17,113) Dividend paidto minorityshareholders - (19,339) (19,339) Gain onrevaluation - - 31 Disposal of asubsidiaryundertaking(Note 20) - (12,586) (12,586) Exchangedifference onconsolidation - - 218 ------ ------- -------- At 30 June 2007 36,436 5,425 76,655 ------ ------- -------- Consolidated Statement of Changes in Equity Share Share Capital Employee Foreign Investment capital premium reserve share-based exchange revaluation compensation reserve reserve reserve US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 At 1 January2006 2,394 4,321 23,455 918 (193) (2) Issue of new 33 1,594 - (385) - - shares uponexercise ofshare optionsEmployee - - - 681 - - share-basedcompensation(Loss)/profitfor the period - - - - - - Effect on share repurchase ofa subsidiary - - - - - - Capital contributionfrom minorityshareholders - - - - - - Exchangedifference onconsolidation - - - - 113 - ------ ------ ------- -------- ------ ------- At 30 June 2006 2,427 5,915 23,455 1,214 (80) (2) ------ ------ ------- -------- ------ ------- Equity attributable to equity holders of the Company (cont'd) Profit Minority Total and loss Interest Equity account US$'000 US$'000 US$'000 At 1 January2006 119,952 19,892 170,737 Issue of new - - 1,242 shares uponexercise ofshareoptionsEmployee - - 681 share-basedcompensation(Loss)/profitfor the period 70,259 (3,886) 66,373 Effect on sharerepurchase of a subsidiary - (125) (125) Capitalcontributionfrom minorityshareholders - 130 130 Exchangedifference onconsolidation - - 113 ------- ------- -------- At 30 June 2007 190,211 16,011 239,151 ------- ------- -------- Condensed Consolidated Cash Flow Statement Unaudited Unaudited Audited six months six months year ended ended ended 31 December 30 June 30 June 2006 2007 2006 Note US$'000 US$'000 US$'000 Net cash inflow/(outflow) fromoperating activities 35,021 8,446 (6,687) Net cash (outflow)/inflow frominvesting activities 20 (17,204) (413) 321 Net cash (outflow)/inflow fromfinancing activities (13,564) 412 5,908 ---------- ---------- --------- Net increase/(decrease) in cashand 4,253 8,445 (458)cash equivalents Cash and cash equivalents as at 9,987 10,443 10,443start of period Effect of exchange rate 9 8 2fluctuations ---------- ---------- ---------Cash and cash equivalents as atend of period 14,249 18,896 9,987 ---------- ---------- --------- 1. Basis of preparation The Company acts as the holding company of the Group. The Group is principallyengaged in the business of merchant banking and asset management. The address ofthe Company's registered office is Cricket Square, Hutchins Drive, P. O. Box2681, Grand Cayman, KY1 -1111, Cayman Islands. The Company's shares are listedon the AIM market of the London Stock Exchange. 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 information complies with theapplicable disclosure provisions of the Rules Governing the Listing ofSecurities on the AIM Market of The London Stock Exchange. The interim financial information has been prepared on the historical cost basisexcept for certain financial instruments which are measured at fair value. It should be noted that accounting estimates and assumptions are used inpreparation of the interim financial information. Although these estimates arebased on management's best knowledge and judgement of current events andactions, actual results may ultimately differ from those estimates. The areasinvolving a higher degree of judgement or complexity, or areas where assumptionsand estimates are significant to the interim financial information, are set outin Note 3 to the interim financial information. The interim financial information contained in this report does not constitutestatutory accounts within the meaning of Section 240 of the Companies Act 1985.The full accounts for the year ended 31 December 2006 received an unqualifiedreport from the auditors and did not contain a statement under Section 237(2) or(3) of the Companies Act 1985. The interim financial information is unaudited but has been reviewed by theCompany's Auditors. A copy of the Auditor's review report is included withinthis interim financial information. 2. Principal accounting policiesThe interim report has been prepared in accordance with IFRS, includingInternational Accounting Standard 34 "Interim Financial Reporting". The principal accounting policies and methods of computation adopted to preparethe interim financial information are consistent with those detailed in the 2006annual report published by the Company on 14 March 2007. 3. Critical accounting estimates and judgements Estimates and judgements are continually evaluated and are based on historicalexperience and other factors, including expectations of future events that arebelieved to be reasonable under the circumstances. (i) Critical accounting estimates and assumptions The Group makes estimates and assumptions concerning the future. The resultingaccounting estimates will, by definition, seldom equal the related actualresults. The estimates and assumptions that have a significant risk of causing amaterial adjustment to the carrying amounts of assets and liabilities within thenext accounting period are discussed below: Fair values of financial instruments Financial instruments such as financial assets and liabilities at fair valuethrough profit or loss and available-for-sale investments are initially measuredat fair value. Certain financial instruments are remeasured at fair value atsubsequent reporting dates. The best evidence of fair value is quoted prices inan active market, where quoted prices are not available for a particularfinancial instrument, the Group uses the market values determined by theinternal or external valuation models to estimate the fair value. The use ofmethodologies, models and assumptions in pricing and valuing these financialassets and liabilities requires varying degrees of judgement by management,which may result in different fair values and results. The assumptions withregard to the fair value of financial assets and liabilities at fair valuethrough profit or loss, detailed in Notes 14 and 16 to the interim financialinformation, are those that have the most significant risk of causing a materialadjustment to the carrying amounts of assets and liabilities within the nextaccounting period. The only significant assets at fair value through profit or loss not valued atquoted market prices are as follows: •Investments in Sunov Petroleum (Pakistan) Limited (US$5.1 million),which was valued on the basis of the conversion value of a convertible noteissued by that company;•Investments in ESK Limited to which no value has yet been ascribedfor accounting purposes on the basis the asset it owns is the entire issuedshare capital of Orchard Petroleum Limited, the recent acquisition of which wasfully funded by debt and preference shares. Valuations of share options granted The fair value of share options granted was calculated using the Binomial optionpricing model which requires the input of highly subjective assumptions,including the volatility of share price. Because changes in subjective inputassumptions can materially affect the fair value estimate, it is in the opinionof directors that the existing model will not always necessarily provide areliable single measure of the fair value of the share options. Impairment of assets The Group conducts impairment reviews of assets when events or changes incircumstances indicate that their carrying amounts may not be recoverableannually in accordance with the relevant accounting standards. An impairmentloss is recognised when the carrying amount of an asset is lower than thegreater of its net selling price or the value in use. In determining the valuein use, management assesses the present value of the estimated future cash flowsexpected to arise from the continuing use of the asset and from its disposal atthe end of its useful life. Estimates and judgments are applied in determiningthese future cash flows and the discount rate. Impairment of receivables Management determines impairment of receivables on a regular basis. Aconsiderable amount of judgement is required in assessing the ultimaterealisation of these receivables, including the current creditworthiness and thepast collection history of each debtor. If the financial conditions of debtorsof the Group were to deteriorate, resulting in an impairment of their ability tomake payments, additional impairment may be required. Current taxation and deferred taxation The Group is subject to income taxes in various jurisdictions. Significantjudgement is required in determining the amount of the provision for taxationand the timing of payment of the related taxation. Where the final tax outcomeis different from the amounts that were initially recorded, such differenceswill impact the income tax and deferred tax provisions in the periods in whichsuch determination are made. Deferred tax assets relating to certain tax losses will be recognised whenmanagement considers it is probable that future taxable profit will be availableagainst which the temporary differences or tax losses can be utilised. Where theexpectation is different from the original estimate, such difference willimpact, where applicable and appropriate, the recognition of deferred tax assetsand taxation in the periods in which such estimate is changed. (ii) Critical judgements in applying the Group's accounting policiesManagement in applying the accounting policies considers that the mostsignificant judgement they have had to make is the designation of financialassets and liabilities at fair value through profit or loss which affect theamount recognised in the financial statements. 4. Segment Information a) Primary reporting format - business segment: Merchant banking ------------------------------------------------- Unaudited Unaudited Audited six months six months year ended ended ended 31 December 30 June 30 June 2006 2007 2006 US$'000 US$'000 US$'000 Turnover/Revenue 133 273 1,545 --------- -------- -------- Segmentresults (18,314) 73,473 (45,168) Unallocated - - - loss from operations --------- -------- -------- Asset Management ------------------------------------------------- Unaudited Unaudited Audited six months six months year ended ended ended 31 December 30 June 30 June 2006 2007 2006 US$'000 US$'000 US$'000 Turnover/Revenue 12,224 3,534 7,354 --------- -------- -------- Segmentresults 4,489 (1,804) (1,401) Unallocated - - - loss from operations --------- -------- -------- Unallocated ------------------------------------------------- Unaudited Unaudited Audited six months six months year ended ended ended 31 December 30 June 30 June 2006 2007 2006 US$'000 US$'000 US$'000 Turnover/Revenue - - - --------- -------- -------- Segmentresults - - - Unallocated (2,301) (5,489) (9,165) loss from operations --------- -------- -------- Consolidated ------------------------------------------------- Unaudited Unaudited Audited six months six months year ended ended ended 31 December 30 June 30 June 2006 2007 2006 US$'000 US$'000 US$'000 Turnover/Revenue 12,357 3,807 8,899 --------- -------- -------- Segmentresults (13,825) 71,669 (46,569) Unallocated (2,301) (5,489) (9,165) loss from operations --------- -------- -------- (Loss)/ profit (16,126) 66,180 (55,734)from operations Finance costs - (545) (163) Excess of fairvalue over cost of acquiredsubsidiary - 959 959 Share ofprofit/(loss) of a jointlycontrolled 30 5 (25) entity Share of(losses)/ profits of (80) (129) 59 associates --------- -------- -------- (Loss)/profitbefore taxation (16,176) 66,470 (54,904) Taxationexpense (937) (97) (176) --------- -------- -------- (Loss)/profit for the period (17,113) 66,373 (55,080) --------- -------- -------- 4. Segment Information (Cont'd) Primary reporting format - business segment (Cont'd): Merchant banking ------------------------------------------------- Unaudited Unaudited Audited six months six months year ended ended ended 31 December 30 June 30 June 2006 2007 2006 US$'000 US$'000 US$'000 Segment assets 68,136 252,381 136,602 Unallocated assets - - - ------- -------- ------- Total assets 68,136 252,381 136,602 ------- -------- ------- Segment liabilities 3,864 16,877 16,487 Unallocated liabilities - - - ------- -------- ------- Total liabilities 3,864 16,877 16,487 ------- -------- ------- Other informationCapital expenditure 14 16 67 Depreciation 34 33 66 Impairment of goodwill - - - Impairment ofreceivables - - 222 ------- -------- ------- Asset Management ------------------------------------------------- Unaudited Unaudited Audited six months six months year ended ended ended 31 December 30 June 30 June 2006 2007 2006 US$'000 US$'000 US$'000 Segment assets 11,390 4,909 4,882Unallocated assets - - - ------- ------- ------Total assets 11,390 4,909 4,882 ------- ------- ------ Segment liabilities 2,182 1,425 354Unallocated liabilities - - - ------- ------- ------Total liabilities 2,182 1,425 354 ------- ------- ------ Other informationCapital expenditure 13 9 4Depreciation 30 36 60Impairment of goodwill - - 238Impairment ofreceivables - - - ------- ------- ------ Unallocated ------------------------------------------------- Unaudited Unaudited Audited six months six months year ended ended ended 31 December 30 June 30 June 2006 2007 2006 US$'000 US$'000 US$'000 Segment assets - - - Unallocated assets 5,743 5,957 3,464 ------ ------ ------- Total assets 5,743 5,957 3,464 ------ ------ ------- Segment liabilities - - - Unallocated 2,568 5,794 3,367 liabilities ------ ------ ------- Total liabilities 2,568 5,794 3,367 ------ ------ ------- Other informationCapital expenditure 258 128 139 Depreciation 107 92 172 Impairment of - - - goodwillImpairment of - - - receivables ------ ------ ------- Consolidated ------------------------------------------------- Unaudited Unaudited Audited six months six months year ended ended ended 31 December 30 June 30 June 2006 2007 2006 US$'000 US$'000 US$'000 Segment assets 79,526 257,290 141,484Unallocated assets 5,743 5,957 3,464 -------- ------- -------Total assets 85,269 263,247 144,948 -------- ------- ------- Segment liabilities 6,046 18,302 16,841Unallocated 2,568 5,794 3,367liabilities --------- ------- -------Total liabilities 8,614 24,096 20,208 ---------- ------- ------- Other informationCapital expenditure 285 153 210Depreciation 171 161 298Impairment of - - 238goodwillImpairment of - - 222receivables --------- ------- ------- Notes:i) Merchant Banking - provision of corporate finance and other advisory services and the changes in fair value of financial assets and liabilities through profit or loss arising from the Group's merchant banking activities. ii) Asset Management - provision of fund management, asset management and wealth management services iii) Unallocated - primarily items related to corporate offices b) Secondary reporting format -geographical segment: The Group's activities are mainly operated or carried out in Asia. 5. Turnover/Revenue Unaudited Unaudited Audited six months six months year ended ended ended 31 December 30 June 30 June 2006 2007 2006 US$'000 US$'000 US$'000 --------- ---------- ----------- Corporate finance and other 133 273 1,545advisory feesFund management fee income 942 439 916Wealth management servicesfee 11,282 3,095 6,438 --------- ---------- ----------- 12,357 3,807 8,899 --------- ---------- ----------- 6. Other income Unaudited Unaudited Audited six months six months year ended ended ended 31 December 30 June 30 June 2006 2007 2006 US$'000 US$'000 US$'000 --------- ---------- ----------- Bad debts recovery 66 22 22Bank interest income 242 190 479Gain on disposal ofinvestments - 75 404Management and consultancyfee income 1 30 56Fee on redemption andarrangement of loans - 1,300 1,300Other interest income - 144 144Others 7 14 165 --------- ---------- ----------- 316 1,775 2,570 --------- ---------- ----------- 7. (Loss)/profit from operations Unaudited Unaudited Audited six months six months year ended ended ended 30 June 30 June 31 December 2006 2007 2006 US$'000 US$'000 US$'000 --------- --------- ----------- (Loss)/profit from operations isarrived at after charging:Auditors' remuneration 101 63 123Depreciation 171 161 298Operating lease charges inrespect of 514 282 707rented premisesForeign exchange losses,net 182 111 306 --------- --------- ----------- 8. Employee remuneration (including directors' remuneration) Unaudited Unaudited Audited six months six months year ended ended ended 30 June 30 June 31 December 2006 2007 2006 US$'000 US$'000 US$'000 --------- ---------- ----------- Fees 50 26 56Salaries, allowances andbenefits in kind 4,676 4,043 8,364Commissions paid andpayable 4,276 1,393 2,758Bonus paid and payable 6,166 9,919 19,491Share-based compensation 454 681 1,722Pensions - definedcontribution scheme 50 35 75Social security costs 106 94 193 --------- ---------- ----------- 15,778 16,191 32,659 --------- ---------- ----------- 9. Taxation expense Unaudited Unaudited Audited six months six months year ended ended ended 30 June 30 June 31 December 2006 2007 2006 US$'000 US$'000 US$'000 --------- ---------- ----------- Current tax- United Kingdom 19 97 96- Overseas 918 - 80 --------- ---------- ----------- 937 97 176 --------- ---------- ----------- United Kingdom and overseas income tax for the period have been calculated atthe rates prevailing in the relevant jurisdictions. The Group has significant unrelieved tax losses, the utilisation of which isuncertain and consequently no deferred tax asset has been recognised. (30 June2006: US$Nil; 31 December 2006: US$Nil). 10. (Loss)/earnings per share Unaudited Unaudited Audited six months six months year ended ended ended 30 June 30 June 31 December 2006 2007 2006 Number of Number of Number of shares shares shares ----------- ----------- ------------ Weighted averagenumber of shares forcalculating basic(loss)/earnings pershare 243,195,442 242,491,298 242,583,904Effect of dilutivepotential ordinaryshares: 4,644,815 7,908,456 5,561,810Share options ----------- ----------- ------------Weighted averagenumber of shares forcalculating diluted(loss)/earnings pershare 247,840,257 250,399,754 248,145,714 ----------- ----------- ------------ The calculation of the basic earnings per share for the six months ended 30 June2007 is based on the loss attributable to equity holders of the Company ofUS$26,309,000 (30 June 2006: profit attributable to equity holders of theCompany of US$70,259,000; 31 December 2006: loss attributable to equity holdersof the Company of US$57,207,000) and the weighted average number of ordinaryshares of 243,195,442 (30 June 2006: 242,491,298; 31 December 2006:242,583,904). No diluted earnings per share is shown for the six months ended 30 June 2007 andfor the year ended 31 December 2006, as the outstanding share options wereanti-dilutive. The calculation of diluted earnings per share for the six months ended 30 June2006 is based on the profit attributable to equity holders of the Company ofUS$70,259,000 and the weighted average number of ordinary shares in issue duringthe period after adjusting for the number of dilutive potential ordinary sharesgranted under the Company's share option scheme of 250,399,754. None of thedilutive shares relate to interest or similar expense recognisable in the incomestatement for the period. 11. Property, plant and equipment Unaudited Unaudited Audited 30 June 30 June 31 December 2007 2006 2006 US$'000 US$'000 US$'000 Net book amount at 1 January 493 590 590Additions 285 153 210Disposals (1) - (9)Depreciation for the period/year (171) (161) (298) ---------- ---------- ---------- Net book amount at 30 June / 31 December 606 582 493 ---------- ---------- ---------- 12. Intangible assets Unaudited Unaudited Audited 30 June 30 June 31 December 2007 2006 2006 US$'000 US$'000 US$'000 Net book amount at 1 January 488 562 562Acquisition of trademark - 7 8Additional investment in a subsidiary - - 156Impairment - - (238) ---------- ---------- ---------- Net book amount at 30 June / 31 December 488 569 488 ---------- ---------- ---------- 13. Trade and other receivables Unaudited Unaudited Audited 30 June 30 June 31 December 2007 2006 2006 US$'000 US$'000 US$'000 Trade receivables -gross 3,408 1,369 931Less: provision for impairment ofreceivables (157) (22) (222) ---------- ---------- ----------Trade receivables - net 3,251 1,347 709Other receivables 555 404 2,577Deposits and prepayments 1,021 766 948 ---------- ---------- ----------Total 4,827 2,517 4,234 ---------- ---------- ---------- The fair value of trade and other receivables is considered by the directors notto be materially different from the carrying amounts. The Group allows a credit period ranging from 15 to 45 days to its assetmanagement clients, where applicable. At 30 June 2007, included in trade and other receivables are trade receivablesof US$3,251,000 (30 June 2006: US$1,347,000; 31 December 2006: US$709,000) agedas follows: Unaudited Unaudited Audited 30 June 30 June 31 December 2006 2006 2006 US$'000 US$'000 US$'000 0 - 30 days 2,829 315 63031 - 60 days 422 759 7961 - 90 days - 35 -Over 90 days - 238 - ---------- ----------- ---------- 3,251 1,347 709 ---------- ----------- ---------- 14. Financial assets at fair value through profit or loss Unaudited Unaudited Audited 30 June 30 June 31 December 2007 2006 2006 Notes US$'000 US$'000 US$'000 Restated Held for trading Listed securities:- Equity securities - (1) 5,528 8,224 15,063Australia- Equity securities - Japan (2) 41,533 188,543 65,388- Equity securities - United (3) 6,891 31,893 39,084Kingdom -------- ---------- ----------Fair value of listed 53,952 228,660 119,535securities Unlisted securities:- Equity securities - - 273 2,800Australia- Equity securities - BritishVirgin Islands (4)&(5) 5,107 - 5,107- Equity securities - - 10,842 -Mauritius -------- ---------- ----------Fair value of unlisted 5,107 11,115 7,907securities -------- ---------- ----------Sub-total 59,059 239,775 127,442 -------- ---------- ---------- Designated as financial assetsat fair value through profitor loss on initialrecognitionUnlisted securities:- Equity securities - United 100 100 100Kingdom -------- ---------- ---------- Total 59,159 239,875 127,542 -------- ---------- ---------- The movement in financial assets at fair value through profit or loss is asfollows:- Unaudited Unaudited Audited six months six months year ended ended ended 30 June 30 June 31 December 2007 2006 2006 US$'000 US$'000 US$'000 Restated At 1 January 127,542 157,276 157,276Additions 252 42,253 30,994Transfer from disposal of asubsidiary undertaking(Note 20) 320 - -Disposal of a subsidiaryundertaking (Note 20) (15,540) - -Other disposals (5,347) (40,550) (30,015)Transfer from minorityinterests - - (5,141)Dividend received (42,040) - -(Loss)/gain on financialassets at fair valuethrough profit or loss (6,028) 80,896 (25,572) ------------- ----------- ----------At 30 June/ 31 December 59,159 239,875 127,542 ------------- ----------- ---------- Notes: 1. At 30 June 2007, the Group held a total of 2,136,296 shares in WhiteEnergy Company Limited ("White Energy"), listed on the Australian Stock Exchangeand representing 1.73% of its issued share capital, through its 100% ownedsubsidiary, Crosby Investment Holdings Limited, which are valued at US$5,259,000, arrived at on the basis of their quoted market price at 30 June 2007 of A$2.9per share. The Group acquired 2,036,296 shares from the exercise of optionsduring the six months ended 30 June 2007. 2. At 30 June 2007, the Group held a total of 102,425,000 shares of IB DaiwaCorporation, a JASDAQ listed Japanese company and representing 24.02% of itsissued share capital, through its 100% owned subsidiaries, Crosby CapitalPartners Limited and Sunov Crosby (Holdings) Limited ("SCH"), which are valuedat US$41,533,000, arrived at on the basis of their quoted market price at 30June 2007 of Y50 per share. 3. At 30 June 2007, the Group held 3,322,374 shares of Indago PetroleumLimited ("Indago"), a company listed on the AIM market of the London StockExchange and representing 6.23% of its issued share capital, through its 100%subsidiary SCH. The shares held by the Group are valued at US$6,891,000 arrivedat on the basis of their quoted market price at 30 June 2007 of £1.035 per share. The holding of shares in Indago were distributed from SCH's 56.6% subsidiary,Silk Route Petroleum Limited ("Silk Route"), in June 2007. Indago paid a specialdividend of 60 pence per share in April 2007 resulting in a total dividendreceived by Silk Route of approximately US$42,040,000. Silk Route used the cashreceived from the dividend from Indago to settle its share of the originalfinancing for the purchase of the underlying assets of Indago in the amount ofUS$9,629,000 and then, from the balance of the proceeds, paid its own cashdividend of which the share of SCH was approximately US$17,471,000. Once SilkRoute had settled its share of the acquisition financing the existing pledgeover its Indago shares was released. Following this release, Silk Route sold550,000 Indago shares realising proceeds of US$1,157,000 which were alsodistributed to its shareholders. As further explained in Note 16, theconsolidated balance sheet as at 30 June 2006 has been restated to separatelypresent a financial liability at fair value through profit and loss. Thisreclassification has no overall impact on the results or cashflows for the sixmonths ended 30 June 2006 other than presenting the change in the value of thefinancial liability separately. 4. At 30 June 2007, the Group, through its 100% owned subsidiary SCH, owns38.98% of Sunov Petroleum (Pakistan) Limited ("SPP") which is classified as afinancial asset at fair value through profit or loss, which in turn owns 100% ofEastern Petroleum Limited ("EP"). EP, a company incorporated in Mauritius inturn owns 100% of the issued share capital of Spud Energy Pty Limited ("Spud"),a company registered in Australia, which owns a 40% interest in the BolanConcession and a 7.9% interest in the Badar Mining Lease, both gas fieldslocated onshore in Pakistan. At 30 June 2007, the investment in SPP is valued atUS$5,107,000 based on the conversion value of a US$2,500,000 convertible noteissued by SPP on 30 September 2006 which is convertible into equity at itsoption. The conversion value is based on a pre-money valuation of Spud of US$13,100,000. This valuation has been supported by an independent valuation of theGroup's expected discounted cashflows. On conversion of the US$2,500,000convertible note, the shareholding of SCH in SPP will be further reduced to32.7%. 5. At 30 June 2007, the Group, through its 100% subsidiary, CrosbyInvestment Holdings Limited, owns 12.5% of ESK Limited ("ESK"), a companyincorporated in the British Virgin Islands, which is classified as a financialasset at fair value through profit and loss. Following the repayment of certainof the acquisition finance, the Group's direct equity interest in ESK will beincreased from 12.5% to 23.75% on conversion of one class of the preferenceshares following their redemption. ESK, through its wholly owned subsidiaries,Crosby Orchard Fund Inc. and Eskdale Petroleum Pty Limited, owns 100% of OrchardPetroleum Limited ("Orchard"), an oil and gas company with a portfolio ofinterests in California that was listed on the Australian Stock Exchange. At 30June 2007, the investment in ESK was valued at US$Nil based on the acquisitioncost of Orchard less the third party financing raised to acquire it. 15. Trade and other payables Unaudited Unaudited Audited 30 June 30 June 31 December 2007 2006 2006 US$'000 US$'000 US$'000 Other payables 99 975 81Accrued charges 7,416 9,213 10,721 ----------- ---------- ---------- Total 7,515 10,188 10,802 ----------- ---------- ---------- The Group had no trade payables throughout the periods. The fair value of trade and other payables is considered by the directors not tobe materially different from carrying amounts. 16. Financial liabilities at fair value through profit or loss Unaudited Unaudited Audited six months ended six months ended year ended 30 June 30 June 31 December 2007 2006 2006 US$'000 US$'000 US$'000 Restated Balance at 1 January 9,186 8,340 8,340Change in fair value 443 413 846Repayment (9,629) - - ------------------------ -------- --------- ----------Balance at 30 June/31December - 8,753 9,186 ------------------------ --------- --------- ---------- This financial liability at fair value through profit or loss represents theGroup's share of a loan payable by the founder shareholders of Indago. It isdeemed a financial liability at fair value through profit or loss as the Group'sshare of the loan is limited to the value of the shares it held in Indago andwas therefore a derivative financial liability. The fair value of this derivative financial liability at 30 June 2006 and 31December 2006, was in the Directors' opinion, the Group's share of the originalloan plus accrued interest, as the fair value of the equity interest in Indagoat 30 June 2006 and 31 December 2006 was US$31,893,000 and US$39,084,000respectively, which exceeded the fair value of the loan. In the Interim Report for the six months ended 30 June 2006, this financialliability amounted to US$8,753,000 and was treated as part of the discountagainst the financial assets at fair value through profit or loss. Accordingly,the balance sheet at 30 June 2006 has been restated to present this financialliability separately. This reclassification has no overall impact on the resultsand cashflow for the period ended 30 June 2006 other than presenting the changein the value of the financial liability separately. 17. Share capital Number of Value ordinary shares US$'000Authorised 5,000,000,000 50,000(par value of US$0.01 each) ----------- ------------ Issued and fully paid(par value of US$0.01 each)At 30 June 2006 and 31 December 2006 242,675,000 2,427Issue of shares on exercise of shareoptions 600,000 6 ----------- ------------At 30 June 2007 243,275,000 2,433 ----------- ------------ 18. Material related party transactions (a) During the period, the Group had the following material related partytransactions: Unaudited Unaudited Audited six months six months year ended ended ended 31 December 30 June 30 June 2006 2007 2006 US$'000 US$'000 US$'000 --------- ---------- ----------- Management services feereceived from an investeecompany 90 90 180Management services feepaid to a fellow subsidiary (89) (60) (178)Payment to an investeecompany in respect ofexercise of warrants (17) (17,110) (17,110) --------- ---------- ----------- (b) At the balance sheet date, the Group had the following amounts due fromrelated parties. The amounts due from related parties are interest free,unsecured and have no fixed repayment terms. Unaudited Unaudited Audited six months six months year ended ended ended 31 December 30 June 30 June 2006 2007 2006 US$'000 US$'000 US$'000 --------- ---------- ----------- IB Daiwa - - 866Sunov Petroleum (Pakistan)Limited - - 351Eskdale Petroleum Pty Ltd 50 - - --------- ---------- ----------- 50 - 1,217 --------- ---------- ----------- 19. Contingencies The Group had no material contingent liabilities at 30 June 2007. 20. Disposal of a subsidiary undertaking The only significant disposal of a subsidiary undertaking during the six monthsended 30 June 2007 was in respect of ESK Limited and its subsidiaries ("ESKgroup"). The disposal is a consequence of the Group no longer controlling theESK group together with a reduction in the Group's shareholding from 30% to12.5%. As the underlying investment of ESK group was treated at 31 December 2006as a financial asset at fair value through profit or loss, this disposal onlyresults in a redesignation of the equity interest in ESK group to that samecategory of assets at 30 June 2007. Unaudited 30 June 2007 US$'000 Net assets/(liabilities) disposed of: Trade and other receivables 50,000Financial assets at fair value through profit or loss (Note 14) 15,540Cash and cash equivalents 12,250Amounts due to parent and related companies (743)Trade and other payables (13,692)Other loans (50,000) --------- 13,355 Less: Minority interests (12,586)Transfer to financial assets at fair value through profit or loss(Note 14) (320) --------- 449Total consideration - --------- Loss on disposal (449) --------- An analysis of net outflow of cash and cash equivalents in respectof the disposal of a subsidiary, which is included under net cashoutflow from investing activities, is as follows: Cash consideration -Cash and cash balances disposed of (12,250) ---------Net cash outflow on disposal (12,250) --------- 21. Risk management objectives and policies The Group is exposed to a variety of financial risks, as detailed below, whichare managed through its Executive and Operations Committees in close cooperationwith the Board of Directors: (a) Foreign currency risk The Group's exposure to foreign currencies is limited to its investments inforeign subsidiaries which are financed internally and to financial assets atfair value through profit or loss where the foreign currency risk is managed asan integral part of the investment return. (b) Credit risk Generally, the maximum credit risk exposure of financial assets is the carryingamount of the financial assets as shown on the face of the balance sheet (or inthe detailed analysis provided in the notes to the financial information).Credit risk, therefore, is only disclosed in circumstances where the maximumpotential loss differs significantly from the financial assets's carryingamount. The Group's trade and other receivables are actively monitored to avoidsignificant concentrations of credit risk. (c) Cash flow and fair value interest rate risks Cash flow is managed by means of ensuring sufficient cash and cash equivalentsare held to support the trading activities of the Group. The Group does notenter into any of its major merchant banking transactions unless it has thenecessary funding secured, principally through the realisation of assets heldfor trading or external borrowings. The cash and cash equivalents are investedsuch that the maximum available interest rate is achieved with nominal risk. The Group currently has no financial liabilities with floating interest rates. This information is provided by RNS The company news service from the London Stock Exchange