ZOL.L Regulatory News (ZOL)

13 Mar 2008 09:13

Crosby Capital Partners Inc13 March 2008 13 March 2008 Crosby Capital Partners Inc. (the 'Company' and together with its subsidiaries the 'Group' or 'Crosby') Preliminary Results - Year Ended 31 December 2007 Summary Financials • Turnover 2007: US$41.3 million (2006: US$8.9 million) • Loss Attributable to Shareholders 2007: US$33.9 million (2006: US$57.2 million) • Shareholder Equity 2007: US$64.2 million (2006: US$96.6 million) • Loss Per Share (basic) 2007: US$0.14 (2006: (US$0.24)) • Assets Under Management 2007: US$2.5 billion (2006:US$1.2 billion) Financial Highlights • Significant, over four-fold, increase in turnover driven by an exceptional performance at Crosby Wealth Management and first-time contributions from Crosby Forsyth and the Crosby Active Opportunities Fund. • Accompanied by substantial falls in both mark-to-market losses and compensation-related expenses, leading to a US$23 million decrease in the loss attributable to shareholders. • As a result of the increase in turnover and monetisation of completed deals, Crosby was cashflow positive during 2007 and closed the year with a debt-free balance sheet. • Assets under management ("AUM") doubled to US$2.5 billion through a combination of organic and acquisition-led growth. Business Highlights • In September 2007, Crosby was appointed as the investment manager for the fund-of-fund product range previously managed by Forsyth Partners. At 31 December 2007, AUM stood at approximately US$900 million. In March 2008, the business was rebranded Crosby Forsyth. • In February 2008 (after the end of the reporting period), Crosby took a 25% founding partnership stake in the newly-formed alternative asset management group SW1 Capital LP. SW1 brings together a group of well-known, successful individuals with a record of building investment banking and asset management businesses. • In April 2007, the US$130 million Crosby-led public-to-private acquisition of ASX-listed Orchard Petroleum was successfully completed. • Over the course of the year, as the Merchant Banking team completed new deals, and actively monetised already completed deals, Crosby's balance sheet became more diversified and the influence of IB Daiwa Corporation ("IB Daiwa") on the Group's financial results declined. • 2007 at IB Daiwa saw a number of positive developments as the company restructured its balance sheet to enable it to raise finance to develop its asset portfolio and reposition itself as a 'natural resource asset trading company'. The year culminated in December when IB Daiwa was removed from JASDAQ's 'Kanri Post' to resume normal trading. • Since Crosby was admitted to AIM in May 2004, both the merchant banking and asset management businesses have matured and, following the progress seen in the last twelve months, now exist as separate, independent businesses. • Consequently, it has been decided to restructure Crosby and its parent company, Techpacific Capital Limited ("Techpacific"). • Crosby will become a focused, independent asset management business whilst Techpacific will take on merchant banking as its main operating focus. • Subject to shareholder approval, Crosby Capital Partners Inc. will be renamed Crosby Asset Management Inc. and Techpacific Capital Limited will be renamed Crosby Capital Limited. Chairman's Report The loss attributable to shareholders in 2007 was US$33.9 million, which (thoughstill far from satisfactory) represents a significant improvement over the lossof US$57.2 million in 2006. Encouragingly, turnover increased from US$8.9million to US$41.3 million. This increase, along with substantial falls in bothmark-to-market losses and compensation-related operating expenses, accountedmainly for the improvement. The increase in turnover was driven by an exceptional performance at CrosbyWealth Management ("CWM"), and first-time contributions from the Crosby ActiveOpportunities Fund ("CAOF") and the newly acquired Forsyth fund-of-funds andratings and research business. Assets under management ("AUM") grewsubstantially from US$1.2 billion to US$2.5 billion. With this organic andacquisition-led growth and diversification, Crosby's asset management businesshas now achieved sufficient critical mass to constitute an important business inits own right. The strategic development of Crosby's business mix was taken a stage further inFebruary 2008 when Crosby Asset Management (Holdings) Ltd. became a 25% foundingpartner in SW1 Capital LP ("SW1"), a newly formed partnership that has beenestablished to take advantage of long-term strategic changes now occurring inthe asset management industry. The merchant banking team continued to be very busy in 2007, both in sourcingnew deals and working to maximise the value of, and monetise, Crosby's existingholdings. In the latter respect, it was pleasing to see the year close with IBDaiwa's release from the "Kanri Post" to resume normal trading on JASDAQ, andalso to see Crosby continue to be cash flow positive - thanks largely to themonetisation of its stake in Indago Petroleum. I am also encouraged by the diversification during 2007 in the merchant bankingteam's deal flow. During the year, the team has handled deals ranging from thepublic-to-private takeover of Orchard Petroleum to the acquisition of theinvestment management contracts of Forsyth Partners and advisory work withPocketmail. This demonstrates again that their core skill-set is identifyingundervalued assets and structuring transactions to unlock the value, rather thana particular industry focus. Since Crosby was admitted to the AIM market of the London Stock Exchange in May2004, both the merchant banking and asset management businesses have matured.The monetisation of assets acquired via past deals provided the cash to investduring 2007 in the Forsyth business. That, along with the growth in CWM andCAOF, provided the scale and credibility that paved the way for Crosby toacquire its partnership stake in SW1 Capital. In the light of these developments, I believe that it is now appropriate torestructure Crosby's business. The restructuring will effectively result inCrosby becoming a pure asset management company while Techpacific CapitalLimited ("Techpacific" - Crosby's parent company) concentrates on merchantbanking as its main operating focus. The changes will also create a clearerdistinction between the activities of Crosby and Techpacific. The ChiefExecutive Officers Report provides more details on the restructuring. As part of the restructuring it is proposed, subject to approval at the AGM on 1May 2008, that the Company change its name to Crosby Asset Management Inc.("CAM"). Johnny Chan, currently the Group Managing Director responsible forAsset Management in Asia, has been elected to the Board. Johnny has relinquishedhis role as Chief Executive of our parent company, Techpacific, and become anon-executive director on that board. Additionally, Ilyas Khan, the GroupManaging Director responsible for our Merchant Banking businesses, has become anon-executive on the Board and has assumed the role of Chairman and ChiefExecutive at Techpacific. The Board and I wholeheartedly recommend these changes to our shareholders. I would like to pay tribute to Crosby's executive team in both Europe and Asiafor another year of unrelenting hard work which has placed the Company in a goodposition to reward the patience of our shareholders in 2008. Robert OwenChairman Chief Executive Officer's Report Review There have been significant changes to Crosby's business mix and the compositionof its investment portfolio during the past fifteen months. Buoyant marketconditions in the first nine months of the year helped the Crosby WealthManagement ("CWM") business produce an exceptional performance - assets undermanagement ("AUM") increased by 64% whilst turnover more than quadrupled toapproximately US$28.9 million. This, together with our acquisition of US$1billion of fund-of-fund investment management contracts and the hiring of keystaff from Forsyth Partners in September of 2007, and the recent acquisition ofa 25% founding partnership stake in the alternative asset management group SW1Capital ("SW1"), has resulted in asset management becoming much more meaningfulto the firm. Alongside these developments in our asset management business, 2007 also sawchanges in our portfolio. The most significant of these developments was that IBDaiwa ("IBD") become a far smaller proportion of the Company's portfolio ofmerchant banking assets. Additionally, in March 2007, Crosby acquired a 22.23%interest in Orchard Petroleum and, in mid-year, the Merchant Banking Groupcompleted a partial monetisation of our holding in Indago Petroleum. To reflect the increasing importance of asset management as a source of bothstable cashflow and significant new business opportunities in its own right, andto create a simplified, transparent, easily-understood business model, it hasbeen decided to restructure the business activities of Crosby and its parentcompany Techpacific Capital Limited ("Techpacific"). As part of therestructuring Crosby will become a focused, stand-alone asset managementbusiness whilst Techpacific will assume merchant banking as its main operatingfocus. Subject to shareholder approval at the AGMs, Crosby Capital PartnersInc. will be renamed Crosby Asset Management Inc. and Techpacific CapitalLimited will be renamed Crosby Capital Limited. Asset Management On the asset management front, it is particularly pleasing to see that both CWMand the Crosby Active Opportunity Fund ("CAOF") performed well in 2007. Duringthe period, CWM increased revenues from US$6.4 million to US$28.9 million andAUM increased by 25%. Despite the challenging market conditions, CAOF providedinvestors with a net return of 19.54% for the full year. Overall, AUM of theGroup more than doubled to US$2.5 billion. The outstanding performance at CWM must be seen in the context of the globalbull markets. With the recent downturn in the markets and increased volatility,it is prudent to anticipate a slowdown in this activity for 2008 but, as wecontinue to recruit new relationship managers in Asia, we remain positive forfurther overall growth in AUM during 2008. At CAOF, although AUM growth slowed during the year, the investment performance,with a net return of 19.54% and with positive return months outnumberingnegative return months by a ratio of 3:1, was particularly notable given thevolatility in the markets in the final few months of the year. With thisperformance, CAOF is beginning to build a solid track record from which the AUMcan be increased, and there is the capacity within the markets and strategiescovered by CAOF's investment mandate to build AUM without affecting the returns. In September 2007, we successfully concluded negotiations with theAdministrators of Forsyth Partners Limited and Forsyth Partners (Europe) Limited(together "Forsyth"). As a result, Crosby was appointed as the investmentmanager of Forsyth range of fund-of-funds. Concurrently, Crosby hired Forsyth'sUK-based investment management, research, distribution and administration teams,and, separately, certain of the non-UK distribution staff. I am very pleased to report that since the acquisition, despite the declines inthe markets and the uncertainty caused by Forsyth's being placed inadministration, AUM only fell by approximately US$100mn to stand over US$900million at year-end. Moreover, a major part of the decline in AUM is due tofalls in the market value of the various funds (in line with markets generally)rather than client redemptions, thus signifying the renewed confidence of ourclients and distributing partners in the new management of the Forsyth funds. Forsyth was placed in Administration as a result of an over-ambitious expansionin its distribution network that resulted in a high fixed cost base and aninefficient operating infrastructure. These problems masked some fundamentalstrengths within the business and its product range. Since September, we haveworked to reduce the cost base and increase the proportion of variable costs,use IT to streamline and re-engineer the operating infrastructure, restructurethe product mix, and refocus the sales effort. We anticipate that the benefitsof these changes will begin to be seen in the second quarter of 2008. In March2008 the operations were rebranded Crosby Forsyth (the funds themselves have notbeen renamed). The Crosby Forsyth business itself has helped to provide Crosby with both acritical mass in AUM and some very attractive, established relationships withinthe asset management industry. These factors helped us to gain traction in ournew initiative SW1. In February 2008, Crosby announced that it had a 25% founding partnershipinterest in SW1. Crosby's involvement with, and stake in SW1, is an excitingdevelopment at a time when the asset management industry is undergoing radicalchange. The increasing institutional interest in alternative investment productsthat span the full range, from pure alpha to pure beta generation, together withthe associated demand for a robust, transparent risk management and operatingplatform provides an opportunity for new entrants, such as SW1, to establish acompetitive advantage over existing players. Johnny Chan, Group ManagingDirector with responsibility for our asset management operations in Asia(including Crosby Wealth Management), and I, in lieu of any direct compensationfrom Crosby as it may relate to the Crosby stake in SW1, have also becomepartners in the SW1 venture. The stake in SW1 will complement our existing asset management business and I amvery much looking forward to working with the partners at SW1 to realize thevision of creating a truly next generation asset management business. Merchant Banking 2007 also saw important changes in the composition of the portfolio of merchantbanking assets as the team continued to source new deals, develop andrestructure existing assets and selectively monetise the inventory. In April 2007, the US$130 million Crosby-led public-to-private acquisition ofASX-listed Orchard Petroleum ("Orchard") was successfully completed. The dealhas been structured to provide Crosby with a 22.23% interest in the company oncethe debt financing for the acquisition has been repaid. Since March, substantialprogress has been made at Orchard to consolidate ownership of the assetportfolio and to drill and develop the South Belridge field. Through these twoinitiatives, we expect that the reserve base of Orchard will be increasedsubstantially and that, even in the current market conditions, we will be ableto negotiate a substantial refinancing facility that will evidence the intrinsicvalues at Orchard. The acquisition of our stake in Orchard was complemented by several newpositions and additions to existing positions - in particular, Fermiscan,Pocketmail and White Energy - which, together with the monetisation of certainholdings, resulted in the diversification of the merchant banking assetportfolio away from the oil and gas sector. I was particularly pleased with therealisation of approximately US$23 million via our holding in Indago Petroleum,a position we effectively acquired at zero cost. The effect of IBD on the financial results for 2007, although negative, was lesssevere than in 2006. During the period under review, IBD recorded a mark tomarket loss for Crosby of US$29 million compared with a US$31 million loss inthe previous year. Towards the end of the year, we began to selectively reduceour holding in IBD and at year end we held just over 20% of the company's issuedshare capital, a fall of 4% on a year earlier. I, along with two others fromCrosby's management team, continue to serve on IBD's Board. The most significant development at IBD came late in the year when, on 26December 2007, when JASDAQ announced that IBD would be removed from the 'KanriPost' to resume normal trading. IBD's status on the Kanri Post has proved to bea severe constraint on its progress. With the resumption of normal trading, IBDis now well positioned to develop its business more confidently. It is also pleasing to report that, despite further disappointing drillingresults from IBD's subsidiary Lodore Resources, 2007 saw important progresstowards IBD's goal of building a robust balance sheet and a capital marketsprofile that are essential if IBD is to fulfil its long-term objective ofbecoming a natural resource asset trading company. In August, IBD's IPO of LeedPetroleum ("Leed" - previously Darcy Petroleum) provided Leed with the capitalto develop its asset portfolio whilst enabling IBD to both book an extraordinarygain of US$30 million (and, at the issue price, there remains the potential fora further US$60 million gain) and free resources to pursue new businessopportunities. Leed is proving to be a sound investment for IBD. When IBD purchased Leed inDecember 2005 it had an enterprise value of US$57.5 million. At the IPO offerprice of 47p, Leed had a market capitalisation of US$239 million and the equityvalue of IBD's investment had increased from US$10 million to approximatelyUS$100 million. At the close of the year Leed's stock was trading at 33.5p. In January 2008 (after the period under review), IBD built on these positivedevelopments with the announcement of an investment in 10.3% of the issued sharecapital of Pocketmail - an ASX-listed uranium exploration business. Theinvestment was facilitated through a subscription by a subsidiary of Techpacificto a US$10 million Exchangeable Bond from IBD. The bond can be exchanged intoLeed shares. The Future Over the last few years, whilst the merchant banking business has matured anddeveloped a sustainable business model, the asset management business has grownboth in scale and in scope, and as a source of new business opportunities. Inthe light of these changes and the increasing independence of the twobusinesses, we have decided to restructure Crosby as a focused, stand-aloneasset management business whilst enabling Techpacific to concentrate on merchantbanking as its main operating focus. The restructuring involves four main elements. First, the merchant banking teamwill become employees of Techpacific. Second, Crosby's portfolio of merchantbanking assets will be placed into two new Crosby Special Situation Funds.Crosby will manage the funds. However, to ensure that the value of the assets ismaximised, Crosby will enter into a standard performance-linked advisoryagreement with the merchant banking team at Techpacific. Third, the Boards of Crosby and Techpacific will be rebalanced. At Crosby, IlyasKhan has stepped-down as an executive director to become a non-executive andJohnny Chan, Group Managing Director with responsibility for our assetmanagement operations in Asia (including Crosby Wealth Management), has becomean executive director. At Techpacific, Johnny Chan has relinquished hisexecutive role, as Techpacific's CEO, and has become a non-executive director,Ilyas Khan, currently non-executive Chairman, will become CEO and Chairman, andsubject to regulatory and other approvals, I will take on the role of anon-executive director. Finally, subject to shareholder approval, Crosby Capital Partners Inc. will berenamed Crosby Asset Management Inc. and Techpacific Capital Limited will berenamed Crosby Capital Limited. Undoubtedly the turbulent conditions seen in the financial markets during thelast six months have had a direct impact on activity levels and profit marginswithin both the asset management and merchant banking businesses. However, Iremain firmly of the belief that volatility is a source of opportunity and, withthe proposed corporate restructuring and participation in SW1, Crosby isstrategically positioned to capitalise on the opportunities. The restructuringwill create a clear distinction between the operations of Crosby and Techpacificand both companies will benefit from simplified, transparent andeasily-understood business models and I am confident that Crosby AssetManagement Inc. is now well placed to fully benefit from the opportunitiescreated by the volatility in the markets and the radical changes that areoccurring within the asset management industry.That Crosby is now so well positioned is a tribute to the unrelenting hard workand tenacity of our staff and I would like to once again thank all my colleaguesfor yet another year of determined efforts to build long-term value for ourshareholders. Simon FryChief Executive Officer Business Review ASSET MANAGEMENT During 2007, turnover within Crosby's asset management businesses increased fromUS$7.3 million to US$39.3 million and assets under management ("AUM") rose fromUS$1.2 billion to US$2.5 billion. Whilst the financial results were driven by anexceptional performance at Crosby Wealth Management ("CWM"), the growth in AUMwas more broadly based, with the increase in CWM's AUM being complemented by thelaunch of a single-manager hedge fund (the Crosby Active Opportunities Fund -"CAOF") and the acquisition of the investment management contracts of ForsythPartners fund-of-funds business. Crosby Wealth Management 2007 was an exceptional year for CWM. Although assets under management increasedsteadily, both turnover and profits significantly exceeded budget due toincreased client trading within portfolios. To a large extent this increasedtrading activity reflected the buoyant market conditions that prevailed withinthe Asian stock markets during much of 2007. It is, therefore, anticipated thatthere will be a slowdown in activity in 2008, following increased marketuncertainty. In December, Crosby increased its shareholding in CWM from 44.44% to 56.14% CWM's business strategy is to build a comparative advantage relative to thewealth management divisions of the major global investment banks and, in doingso, ensure that CWM remains well positioned to benefit from the long-termsecular increase in wealth throughout the Asia-Pacific region. CWM's comparativeadvantage is based on its ability to deliver value to clients through offeringindependent advice tailored to the individual needs of the client, whilstbenefiting from a competitive cost structure and the operating infrastructure ofa major global bank with an A+ credit rating. Crosby Forsyth In September 2007, Crosby successfully concluded negotiations with theAdministrators of Forsyth Partners Limited and Forsyth Partners (Europe) Limited(together "Forsyth"). As a result, Crosby was appointed as the investmentmanager of the Forsyth range of fund-of-funds. Concurrently, Crosby hiredForsyth's UK-based investment management, research, distribution andadministration teams, and, separately, certain of the non-UK distribution staff. As at 31 December 2007, the Forsyth funds had approximately US$900 million ofassets under management in a broad range of fund-of-fund products coveringequities, bonds and alternative strategies, US$300 million in fund-of-fundsadvisory mandates and a market-leading fund ratings and research business.Between the conclusion of the deal and the end of the year, AUM declined byapproximately 10% through a combination of falls in fund net asset values,broadly in line with the underlying markets, and client redemptions. However,the decline in AUM due to client redemptions was significantly smaller than wasanticipated in September. Since the completion of the transaction, the business has been undergoing asignificant restructuring to re-engineer the cost base, streamline the productrange and refocus the sales effort. In response to these changes, in March 2008,the business was rebranded Crosby Forsyth. Crosby Active Opportunities Fund The Crosby Active Opportunities Fund ("CAOF") was established in December 2006to capitalize on the Group's expertise and network, and complement theactivities of the Merchant Banking team. The fund targets absolute unleveragednet returns in excess of 25% per annum in a broad range of Asian andAustralasian activist and event-driven opportunities. The Fund's investmentphilosophy expands upon the Group's successful track record of identifyingundervalued companies and assets that require pro-active restructuring to unlockintrinsic value. Since CAOF's launch in December 2006, the Fund has made 14 investments,including Leed Petroleum, Orchard Petroleum and Pocketmail. Four of theseinvestments have been fully and profitably exited (including the investment inLeed). The net asset value of the fund as at the end of 2007 was US$1,198.73 pershare, up 19.87% since inception and 19.54% in 2007. SW1 Capital On 27 February 2008 (after the period under review), Crosby announced that ithad taken a 25% founding partnership interest in SW1 Capital LP, ("SW1"). SW1 isa newly formed asset management partnership that brings together a diverse teamof experienced investment banking, asset management and technology professionalswith an extensive track record of developing new business initiatives. SW1 hasbeen established as a response to the significant and continuing changes to thestructure of the asset management industry. The initial focus will be oncompleting a number of transactions, that will create the risk management andoperating infrastructure on which a comprehensive suite of alpha and betagenerating products can be built. SW1 currently has no investments or interests. In addition to their current responsibilities at Crosby, Simon Fry, Crosby CEO,and Johnny Chan, Crosby's Group Managing Director responsible for AssetManagement in Asia, will be joining SW1 as Limited Partners and will have aneconomic interest in the partnership. The partnership interests have beenapproved by the Board and Remuneration Committee of Crosby in lieu of anycompensation the partners may otherwise have received from Crosby in relation toCrosby's revenues, profits and activities due to Crosby's stake in SW1. MERCHANT BANKING In 2007 Crosby's Merchant Banking team continued to use its corporate financeand financial structuring expertise to uncover undervalued assets and developstrategies to monetise the undervaluation. During the year, in addition tosourcing new deals, the Merchant Banking team focused on the monetisation ofpast deals and providing corporate finance advice to Crosby's investeecompanies. Orchard In April 2007, a Crosby-led consortium completed the US$130 million takeover ofASX-listed Orchard Petroleum Ltd. ("Orchard", ASX code: OPL). 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 privatized company and oncethe acquisition finance has been repaid will own approximately 22.23% of thecompany. Orchard is a fast growing, project rich upstream oil and gas company focusedexclusively on production, exploration, exploitation and development of oil andgas properties in California's San Joaquin & Sacramento Basins. Orchard'shigh-class asset portfolio consists of approximately 70,000 acres in six majorproject areas with the potential to deliver in excess of 300MMboe in reserves.The company has an inventory of 41 wells with 29 of them currently onproduction, 7 being completed for production and 5 other wells at various stagesof appraisal. Further details of Orchard's portfolio and operations can be foundat: www.orchardpetroleum.com. Since the acquisition, Orchard has implemented a targeted drilling programme tomigrate existing reserves from 3P to 2P and 1P, and has worked to consolidateits asset portfolio with the overall objective of securing an updated reserveaudit to facilitate a refinancing of the acquisition debt. Since completion ofthe takeover, the drilling programme has seen a total of 13 wells drilled in theBelridge acreage, with a success rate of 100%, including a new discovery in theMonterey formation, and daily production has increased from 308 boeppd to 523boeppd. In addition to the Belridge acreage, Orchard has acreage at BelgianAnticline, Turk Anticline and SE Lost Hills. The reserve audit was completed inJanuary 2008 and showed a substantial increase in 2P reserves. Fermiscan On 16 February 2007, the Dragon Fund Inc., a fund managed by Crosby AssetManagement and owned by Techpacific Capital Limited, subscribed for 8.5 millionnew ordinary shares in ASX-listed Fermisan Holdings Limited ("Fermiscan", ASXcode: FER) at A$1.50 per 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. Fermiscan has an exclusive, worldwide patent to commercialise a test for breastcancer based on analysing the molecular structure of a person's hair. The testis far less invasive than alternative procedures using mammograms andultra-sound. Fermiscan intends to commercialise the test after the completion ofa 2000 patient trial currently being run in Australia. It is expected that thetrial will be completed in the first half of 2008. White Energy On 10 May 2007, White Energy Company ("White Energy", ASX code: WEC) announcedthat BHP Billiton, the world's largest diversified resources company, plans touse its coal upgrade process for its vast sub-bituminous reserves. Additionally,BHP agreed to provide US$35 million in convertible loan financing that willenable White Energy to accelerate the roll out of its patented coal technologyand to act as White Energy's exclusive global marketing agent for upgradedexport coal produced at its coal technology plants. On 15 October 2007, White Energy issued a A$45 million unsecured convertiblenote. The capital raised will supplement the US$35 million in convertible loanfinancing provided by BHP. Crosby acted as White Energy's financial advisorduring the transaction and, in addition to cash fees of A$900,000, Crosby earned1.25 million options with an exercise price of A$2.50 each. As at 31 December2007, Crosby also has 1,356,296 White Energy shares. White Energy owns the worldwide license to a coal briquetting process thatincreases the energy efficiency of low quality coal. Pocketmail On 8 October 2007, Pocketmail Group Limited ("Pocketmail", ASX code: PKT)announced that it had appointed Crosby as its adviser to assist in itsdevelopment. In consideration, Pocketmail agreed to grant to Crosby 5 millionoptions with an exercise price of A$0.06 per share on or before 30 November 2011and a further 5 million options with an exercise price of A$0.065 per share onor before 1 December 2011. The Crosby Active Opportunities Fund also has astake in Pocketmail. Pocketmail, through its wholly-owned subsidiary Adavale Minerals Pty Ltd,undertakes uranium exploration activities focusing on sedimentary uraniumdeposits. The focus of exploration activities is currently in the Marree Area,South Australia, where a drilling program has shown the existence of widespreadanomalous radioactive zones, mostly at shallow depths. On 14 February 2008, shareholder approval was received for Pocketmail to berenamed Adavale Resources to reflect its uranium exploration focus. Followingthe shareholders meeting, Pocketmail's share capital will be consolidated on a3:1 basis. As a result of the adjustment, Crosby will subsequently own 357,143shares and 2,976,190 options with an exercise price of A$0.21 per share.Indago In March 2007, Indago Petroleum ("Indago", AIM code: IPL) announced that it wasdisposing of 100% of its production and development assets and 50% of itsexploration assets to RAK Petroleum for a total cash consideration of£194,235,267. On completion of the sale, Indago announced a special dividend of60p per share. This resulted in a payment of approximately US$16.8 million ofcash to Crosby in April 2007. Following the disposal and special dividend,Indago became a pure exploration company with sufficient cash to complete itsexploration programme. During the remainder of 2007, Crosby generated a furtherUS$5 million through the monetisation of its holding. IB Daiwa IB Daiwa Corporation ("IB Daiwa", JASDAQ code: 3587) is a JASDAQ listed naturalresource asset trading company. During 2007, IB Daiwa began a significantstrategic shift to diversify its business away from the US oil and gas sectorand to restructure its balance sheet to provide a sound base from which to raisecapital to fund new business opportunities and exploit the opportunities withinits existing portfolio. In the latter respect, the year saw three majordevelopments: in August, IB Daiwa's subsidiary US oil and gas subsidiary LeedPetroleum undertook an IPO on the AIM market of the London Stock Exchange, inSeptember, Bayerische Hypo- und Verinsbank AG ("HVB") provided a US$20 millionloan facility to IB Daiwa to fund Lodore's oil and gas exploration programme,and on 26 December 2007 IB Daiwa was released from the "Kanri Post" on theJASDAQ stock exchange to resume normal trading. Darcy/Leed In February 2007, Darcy raised US$18 million through a placement of new sharesrepresenting 13.4% of the then enlarged share capital. The fundraising providedcapital to expand and develop Darcy's asset portfolio. On 25 June 2007, IB Daiwa announced that Darcy had commenced procedures for theinitial public offering of Darcy on the AIM market of the London Stock Exchange.On 24 July 2007, Darcy changed its name to Leed Petroleum ("Leed") and wasadmitted to AIM on 15 August 2007 (AIM code: LDP). The IPO raised approximatelyUS$100 million of new capital. At the offer price of 47p, Leed had a marketcapitalisation of approximately US$239 million. Following Leed's admission toAIM IB Daiwa has a 41.7% shareholding in Leed. At the offer price, IB Daiwa'sinitial equity investment of US$10.2 million increased by approximately 880% toUS$100 million. As a result, IB Daiwa booked a gain on deemed disposal of aboutUS$32 million. Leed commenced drilling of the Eugene Island A-6 development well on 16September 2007 and penetrated the sandstone of the primary target at a measureddepth of 15,112 feet by early January 2008. Based on the competent person reportat Leed's admission to AIM, the primary zone is estimated to have 2P reserves of824,000 barrels of oil and 4.8 billion cubic feet of gas. Based on currentevaluation of the logs, Leed estimates that the post-drill reserve estimate forthe primary zone exceeds this by one third. After production, Leed's independentreserve auditor is expected to move a substantial portion of the pre-drillestimated 2P reserves into the 1P category. Leed was also awarded additional leases at Main Pass and Ship Shoal in January2008. Lodore During 2007, Lodore had a single producing well - Kami - operating onshore inLouisiana in the US. Having produced steadily throughout the year, Kami sawincreased water production in the latter part of the year that reducedproduction volumes. Remedial work is currently being undertaken. 2007 saw further delays and cost over-runs in Lodore's high risk/high impactdeep gas drilling programme. At the Endeavor prospect, drilling encounteredchallenging conditions with progress being delayed on three separate occasionsdue to well control events caused by high pressure kicks which necessitated thedrilling of sidetracks. The costs related to these events were largely coveredby insurance. On 26 November 2007, IB Daiwa announced that drilling had reacheda true vertical depth of 19,003 feet and that, as the well had not reached itsprimary target of the Planulina sandstone, the joint venture partners had agreedto deepen the well to 20,000 feet. However, drilling has been suspended whilethe JV seeks new insurance coverage. At the date of this report, new insurancecoverage had not been obtained and drilling remained suspended. In the remainder of Lodore's drilling programme, the delays at Endeavor had aknock-on effect at North West Kaplan as, subject to Lodore obtaining financing,drilling is now scheduled to commence in the first quarter of 2008, whilstdrilling at Manzano has also been delayed due to availability of rigs. TheManzano well was spudded in February 2008. Lodore has rights in the deep targetzones (below a true vertical depth of 10,500 feet). If commercial hydrocarbonsare encountered in the shallow section, the well will be completed in theseshallow zones for an extended production test; if no commercial hydrocarbons areencountered above 10,500 feet, the well will be deepened to approximately 15,100feet (true vertical depth) to test the deeper primary target. Subject to theavailability of finance Lodore will elect to participate in the deeper zonesbased on the drilling results from the shallower zones. New business initiative After release from the Kanri post, IB Daiwa made progress on its strategy todiversify its portfolio into other natural resources areas through thesubscription and purchase of 21,333,334 shares of Adavale Resources Limited(formerly known as Pocketmail Group Limited) in January 2008, representing a11.6% stake in Adavale. Consolidated Income StatementFor the year ended 31 December 2007 Continuing Operations Notes 2007 2006 US$'000 US$'000 Turnover/Revenue 41,341 8,899Loss on financial assets at fair value throughprofit or loss (13,727) (25,572)Loss on financial liabilities at fair valuethrough (443) (846)profit or lossOther income 1,030 2,570Administrative expenses (37,495) (35,822)Distribution expenses (221) (14)Other operating expenses (8,791) (4,949) ----------- -----------Loss from operations (18,306) (55,734) Finance costs (37) (163)Amortisation of intangible assets (123) -Excess of fair value over cost of acquiredsubsidiary 409 959Share of loss of a jointly controlled entity - (25)Share of (losses)/profits of associates (119) 59 ----------- -----------Loss before taxation (18,176) (54,904) Taxation expense 3 (2,439) (176) ----------- -----------Loss for the year (20,615) (55,080) ----------- ----------- Attributable to:Equity holders of the Company (33,911) (57,207)Minority interests 13,296 2,127 ----------- -----------Loss for the year (20,615) (55,080) ----------- ----------- Loss per share for loss attributable to the equity holders of the Company during the year 4 US cents US cents- Basic (13.94) (23.58)- Diluted (13.94) (23.58) Consolidated Balance SheetAs at 31 December 2007 2007 2006 US$'000 US$'000 ASSETS Non-current assetsProperty, plant and equipment 1,009 493Interests in associates 314 654Interest in a jointly controlled entity 81 135Available-for-sale investments 5,523 198Loan receivable 463 -Intangible assets 8,718 488 ---------- ---------- 16,108 1,968 ---------- ---------- Current assetsAmounts due from parent and related companies 169 1,217Trade and other receivables 8,120 4,234Tax recoverable 75 -Financial assets at fair value through profit or loss 43,638 127,542Cash and cash equivalents 20,766 9,987 ---------- ---------- 72,768 142,980 ---------- ----------Total assets 88,876 144,948 ---------- ---------- LIABILITIES Current liabilitiesAmount due to parent company - (121)Trade and other payables (13,977) (10,802)Provision for taxation (2,425) (99)Financial liabilities at fair value through profit orloss - (9,186) ---------- ----------Total liabilities (16,402) (20,208) ---------- ---------- EQUITY Share capital 2,433 2,427Reserves 61,772 94,161 ---------- ----------Equity attributable to equity holdersof the Company 64,205 96,588Minority interests 8,269 28,152 ---------- ----------Total equity 72,474 124,740 ---------- ----------Total equity and liabilities 88,876 144,948 ---------- ---------- Consolidated Statement of Changes in EquityFor the year ended 31 December 2007 Equity attributable to equity holders of the Company -------------------------------------------------------------- Share Share Capital Employee Foreign Investment Profit capital premium reserve share - exchange revaluation and loss US$'000 US$'000 US$'000 based reserve reserve account compen- US$'000 US$'000 US$'000 sation reserve US$'000 At 1 January2006 2,394 4,321 23,455 918 (193) (2) 119,952 Issue of newshares uponexercise ofshare options 33 1,594 - (385) - - - Issue ofredeemablepreferenceshares in asubsidiary - - - - - - - Exchangedifference onconsolidation - - - - 265 - - Repurchase ofshares of asubsidiary - - - - - - - Employeeshare-basedcompensation - - - 1,722 - - - Transfer tofinancialassets at fairvalue throughprofit or loss - - - - - - - Effect ondisposal ofshares of asubsidiary tostaff - - - (279) - - - Capitalcontributionfrom minorityshareholder - - - - - - - Other movement - - - - - - - (Loss)/Profitfor the year - - - - - - (57,207) -------------------------------------------------------------------------------- At 31 December2006 and1 January2007 2,427 5,915 23,455 1,976 72 (2) 62,745 Issue of newshares uponexercise ofshare options 6 321 - (77) - - - Exchangedifferences onconsolidation - - - - 93 - - Surplus onrevaluation - - - - - 157 - Employeeshare-basedcompensation - - - 1,028 - - - Deemeddisposal of asubsidiary - - - - - - - Dividend paidto minorityshareholders - - - - - - - Additionalinvestment ina subsidiary - - - - - - - (Loss)/Profitfor the year - - - - - - (33,911) -------------------------------------------------------------------------------- At 31 December2007 2,433 6,236 23,455 2,927 165 155 28,834 -------------------------------------------------------------------------------- Consolidated Statement of Changes in Equity (Continued)For the year ended 31 December 2007 Minority Total interests equity US$'000 US$'000 At 1 January2006 19,892 170,737 Issue of newshares uponexercise ofshare options - 1,242 Issue ofredeemablepreferenceshares in asubsidiary 10,461 10,461 Exchangedifference onconsolidation - 265 Repurchase ofshares of asubsidiary (125) (125) Employeeshare-basedcompensation - 1,722 Transfer tofinancialassets at fairvalue throughprofit or loss (5,141) (5,141) Effect ondisposal ofshares of asubsidiary tostaff 281 2 Capitalcontributionfrom minorityshareholder 437 437 Other movement 220 220(Loss)/Profitfor the year 2,127 (55,080) ------------------------------------------- At 31 December2006 and1 January2007 28,152 124,740 Issue of newshares uponexercise ofshare options - 250 Exchangedifferences onconsolidation - 93 Surplus onrevaluation - 157 Employeeshare-basedcompensation 13 1,041 Deemeddisposal of asubsidiary (12,586) (12,586) Dividend paidto minorityshareholders (19,356) (19,356) Additionalinvestment ina subsidiary (1,250) (1,250) (Loss)/Profitfor the year 13,296 (20,615) -------------------------------------------- At 31 December2007 8,269 72,474 -------------------------------------------- Consolidated Cash Flow StatementFor the year ended 31 December 2007 2007 2006 US$'000 US$'000 Operating activitiesLoss before taxation (18,176) (54,904)Adjustments for:Share of loss of a jointly controlled entity - 25Share of losses/(profits) of associates 119 (59)Interest income (608) (623)Finance costs 37 163Corporate finance advisory fee received in kind (954) (1,545)Loss on financial assets at fair value through profit orloss 13,727 25,572Loss on financial liabilities at fair value through profitor loss 443 846Employee share-based compensation 1,041 1,722Depreciation of property, plant and equipment 439 298Gain on disposal of an associate (236) (75)Loss / (gain) on deemed disposal of a subsidiary 449 (329)Amortisation and impairment of intangible assets 123 238Excess of fair value over cost of acquired subsidiary (409) (959)Impairment of available-for-sale investments - 28Bad debts recovery (67) (22)Impairment of receivables - 222Exchange loss, net 153 306 --------------------- Operating cashflow before working capital changes (3,919) (29,096) Acquisition of financial assets at fair value throughprofit or loss (2,833) (21,588)Proceeds from sale of financial assets at fair valuethrough profit or loss 13,212 34,731Dividend received from financial assets at fair valuethrough profit or loss 42,154 -Repayment of financial liability at fair value throughprofit or loss (9,629) -Increase in trade and other receivables (6,048) (539)Increase in trade and other payables 15,192 10,262Decrease in deferred income - (25)Decrease/(increase) in amounts due from parent company andrelated company 1,395 (129)Increase in amount due to parent company - 124Decrease/(increase) in amount due from a jointlycontrolled 54 (101)entityIncrease in amounts due from associates (2) -Decrease in amounts due to associates (2) (2) ---------------------Cash generated/(used) from operations 49,574 (6,363)Tax paid (264) (174)Tax refund 76 13Interest paid (37) (163) ---------------------Net cash inflow/(outflow) used in operating activities 49,349 (6,687) --------------------- Consolidated Cash Flow Statement (Continued)For the year ended 31 December 2007 2007 2006 US$'000 US$'000 Investing activitiesInterest received 603 621Purchases of property, plant and equipment (815) (194)Acquisition of additional interest in a subsidiary (421) (8)Acquisition of available-for-sale investments (5,175) (17)Acquisition of the Forsyth business (7,320) -Acquisition of intellectual property - (8)Proceeds from sale of property, plant and equipment 2 -Proceeds from sale of available-for-sale investments 6 -Cash at date of deemed disposal of a subsidiary (12,250) -Net proceeds from disposal of of subsidiaries 275 22Net repayment from/(advance to) staff 91 (95) ---------- ----------Net cash (outflow)/inflow from investing activities (25,004) 321 ---------- ---------- Financing activitiesDividend paid to minority shareholders (13,832) -Issue of shares 250 1,242Repayment of other loan - (10,960)Drawdown of other loan - 5,000Issue of redeemable preference shares by a subsidiary - 10,790Capital injection from minority shareholders - 130Repurchase of subsidary's own shares of a subsidary - (294) ---------- ----------Net cash (outflow)/inflow used in financing activities (13,582) 5,908 ---------- ---------- Net increase/(decrease) in cash and cash equivalents 10,763 (458)Cash and cash equivalents as at 1 January 9,987 10,443Effect of exchange rate fluctuations 16 2 ---------- ----------Cash and cash equivalents as at 31 December 20,766 9,987 ========== ========== Notes to the Consolidated Financial Information 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") issued by the InternationalAccounting Standards Board. The Company's shares are listed on the AIM of theLondon Stock Exchange The financial statements are prepared under historical cost convention exceptfor certain financial instruments which are measured at fair value. Themeasurement bases are fully described in the accounting policies detailed in theGroup's annual report and 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 and judgement of current events and actions, actualresults may ultimately differ from those estimates. The areas involving a higherdegree of judgement or complexity, or areas where assumptions and estimates aresignificant to the financial statements, are set out in the Group's annualreport and financial statements. The consolidated financial statements incorporate the financial statements ofthe Company and its subsidiaries made up to 31 December each year. Materialintra-group balances and transactions, and any unrealised gains arising fromintra-group transactions, are eliminated on consolidation. Unrealised losses arealso eliminated unless the transaction provides evidence of an impairment of theasset transferred. The principal accounting policies are detailed in the Group's annual report andfinancial statements. 2. Segmental Information a) Primary reporting format - business segment: Merchant banking Asset management Unallocated Consolidated 2007 2006 2007 2006 2007 2006 2007 2006 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 S$'000 Turnover/Revenue 2,046 1,545 39,295 7,354 - - 41,341 8,899-------------------------------------------------------------------------------- Segmentresults (26,917) (45,168) 14,445 (1,401) - - (12,472) (46,569) Unallocatedloss fromoperations - - - - (5,834) (9,165) (5,834) (9,165)-------------------------------------------------------------------------------- Loss fromoperations (18,306) (55,734) Finance costs (37) (163) Amortisationof intangibleassets (123) - Excess of fairvalue overcost ofacquiredsubsidiary 409 959 Share of lossof a jointlycontrolledentity - (25) Share of(losses)/profits ofassociates (119) 59 -----------------Loss beforetaxation (18,176) (54,904) Taxationexpense (2,439) (176) -----------------Loss for theyear (20,615) (55,080) ----------------- Segment assets 50,574 136,602 29,698 4,882 - - 80,272 141,484Unallocatedassets - - - - 8,604 3,464 8,604 3,464--------------------------------------------------------------------------------Total assets 50,574 136,602 29,698 4,882 8,604 3,464 88,876 144,948-------------------------------------------------------------------------------- Segmentliabilities 4,589 16,487 8,102 354 - - 12,691 16,841Unallocatedliabilities - - - - 3,711 3,367 3,711 3,367--------------------------------------------------------------------------------Totalliabilities 4,589 16,487 8,102 354 3,711 3,367 16,402 20,208-------------------------------------------------------------------------------- OtherinformationCapitalexpenditure 39 67 124 4 652 139 815 210Depreciation 73 66 69 60 297 172 439 298Amortisationof intangibleassets - - 123 - - - 123 -Impairment ofgoodwill - - - 238 - - - 238Impairment ofreceivables - 222 - - - - - 222 Notesi) Merchant Banking - provision of corporate finance and other advisory services and the change in fair value of financial assets and liabilities through profit or loss arising from the Group's merchant banking activitiesii) Asset Management - provision of fund management, asset management and wealth management servicesiii) Unallocated - primarily items related to corporate offices b) Secondary reporting format -geographical segment: With regard to the asset management business, the Group defines geographical segment with reference to those revenue-producing assets and transactions that arise from customers domiciled worldwide. Due to the nature of the business, precise segregation of geographical activities is considered not appropriate without making subjective judgements. The Group's remaining activities during the year ended 31 December 2007 are mainly operated or carried out in Asia. 3. Taxation Expense 2007 2006 US$'000 US$'000 Current tax- United Kingdom tax - 96- Overseas tax 2,439 80 ---------------------------- 2,439 176 ---------------------------- 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 the loss 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 : 2007 2006 US$'000 % US$'000 % Loss before taxation (18,176) (54,904)Less: AdjustmentsShare of loss of a jointly controlledentity - 25Share of losses/(profits) of associates 119 (59) -------------------------------------- (18,057) (54,938) -------------------------------------- Tax at the domestic income tax rates (3,160) 17.50 (9,614) 17.50Effect of different tax rates ofsubsidiaries operating in other regions (129) 0.71 (42) 0.08Tax effect of prior year's tax lossesutilised this year (481) 2.66 (173) 0.31Income not subject to tax (133) 0.74 (55) 0.10Expenses not deductible for tax 6,263 (34.69) 9,886 (17.99)Tax effect of unrecognised temporarydifference 11 (0.06) 14 (0.03)Tax effect of unrecognised tax losses 68 (0.37) 160 (0.29) --------------------------------------Current tax charge for the year 2,439 (13.51) 176 (0.32) -------------------------------------- The Group has significant unrelieved tax losses, the utilisation of which isuncertain and consequently no deferred tax asset has been recognised. 4. Loss per Share (a) Basic Basic loss per share is calculated by dividing consolidated loss attributable toequity holders of the Company by the weighted average number of ordinary sharesin issue during the year. 2007 2006 US$'000 US$'000 Loss attributable to equity holders of the Company (33,911) (57,207) --------------------------- 2007 2006Weighted average number of shares for calculatingbasic loss per share 243,235,548 242,583,904 --------------------------- 2007 2006 US cents US cents Basic loss per share (13.94) (23.58) --------------------------- (b) Diluted No diluted loss per share is shown for 2007 and 2006, as the outstanding shareoptions were anti-dilutive. 5. Publication The financial information set out in this preliminary announcement does notconstitute statutory accounts. The consolidated balance sheet at 31 December 2007 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 2007 statutory financial statements upon which the auditors opinionis unqualified. 6. 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