TIDMEFR
RNS Number : 7136Q
EF Realisation Company Limited
08 June 2018
8 June 2018
FOR IMMEDIATE RELEASE
THE BOARD OF DIRECTORS OF EF REALISATION COMPANY LIMITED
ANNOUNCES THE INTERIM FINANCIAL REPORT FOR THE SIX MONTHSED 31
MARCH 2018
INTERIM MANAGEMENT REPORT
financial highlights and performance summary
Financial highlights
Market capitalisation
As at 31 March 2018, the market capitalisation of the Company
was GBP15,742,163 (30 September 2017: GBP11,919,066).
Number of Ordinary Shares
As at 31 March 2018, the number of Ordinary Shares in issue was
44,977,609 (30 September 2017: 44,977,609 Ordinary Shares).
Performance summary
As at As at
31 March 30 September
2018 2017 % change
Net assets (GBP'000) GBP19,523 GBP18,193 7.3%
Net asset value ("NAV")
per Ordinary Share 43.41p 40.45p 7.3%
Ordinary Share price (bid
price) 35.00p 26.50p 32.1%
Discount to NAV 19.4% 34.5%
Dividend history
No dividend was declared or paid during the period.
Although it is not expected that the Company will receive any
material income during the realisation period, to the extent that
it does receive income, the Board intends to distribute it to
Shareholders provided the Company has sufficient working
capital.
chairman's statement
Dear Shareholder,
EF Realisation Company Limited ("EF Realisation" or the
"Company") was created to hold, manage and realise a collection of
illiquid assets; it will make no new investments, and it will
return realisation proceeds to Shareholders subject to the Company
retaining adequate working capital. The Company is in its second
year of activity, which began on admission to trading on the London
Stock Exchange on 26 September 2016. The intention on creation of
EF Realisation was to realise the value of all the Company's assets
in the two year period to the end of September 2018 and, although
there can be no guarantees, your Board of Directors believes that
this can be achieved whilst continuing to conduct the realisations
in an orderly manner.
EF Realisation seeks to achieve a balance between monetising its
investments expeditiously and maximising the proceeds from
realising those investments. In its first year of activity, a total
of GBP4.36 million was realised from asset sales and investment
income (net of expenses), representing almost one-quarter of the
portfolio and at values which, in aggregate, exceeded the values
for those assets in the Company's opening NAV by 23.9%. In
September 2017, the Company undertook a one-for-seven compulsory
share redemption and returned GBP3.0 million to Shareholders. No
further asset sales occurred in the six month period under review
although the Board is pleased with progress on monetising the
remaining material investments.
EF Realisation's net asset value per share rose by 7.3% from 30
September 2017 to stand at 43.41 pence per share as at 31 March
2018. EF Realisation's remaining portfolio contains three
significant investments and four investments held at nil value. The
Company's holding in Lonestar Resources US Inc. ("Lonestar")
represented 45% of the portfolio at the start of the interim period
and 52% at 31 March 2018 after a strong performance of Lonestar's
share price during the half-year. Lonestar is listed in the US on
the NASDAQ exchange and its share price rose from US$3.51 on 30
September 2017 to US$4.34 on 31 March 2018, and has continued to
rise after the end of the interim period and at 6 June 2018 stood
at $7.08 per share. All the other investments in EF Realisation's
portfolio are unlisted and valued by the Directors at their
estimated realisation values, and changes in these valuations in
local currency terms have been minimal. The rise in Lonestar's
share price explains the increase in the Company's NAV per share
over the interim period as the Company's other investments and its
US dollar cash holdings declined in value given the 5% depreciation
of the US dollar against sterling and the 7% depreciation of the
Australian dollar against sterling.
Over the half-year, the bid price of the Company's shares rose
by 32.1%. As the increase in the share price exceeded the increase
in the Company's NAV per share, the discount at which the shares
traded to the Company's NAV declined from 34.5% to 19.4%, although
subsequent to the end of the half-year the discount has widened to
23.0%. Notwithstanding the illiquidity of the Company's portfolio,
the discount is now below the typical discount for shares of
investment companies whose main holdings are illiquid. The
Directors attribute the improvement to the progress made in
realising the portfolio's assets and the prospects for completing
the realisation process in the intended timeframe.
Your Board's and Investment Manager's focus is on realising the
carrying values of the three significant remaining investments in
the portfolio. Discussions are underway for each asset which should
enable the Company to accomplish this goal and return the value to
Shareholders in the coming months. Moreover, Lonestar's management
is executing on a business plan that it believes will enhance its
attractiveness to investors and drive an increase in its share
price, which would raise the Company's NAV. Whilst the Investment
Manager continues to manage the four investments held at nil value,
your Board does not expect these to contribute materially, if at
all, to realisation proceeds in the foreseeable future.
Your Board of Directors remains committed to fulfilling the
Company's realisation strategy and ensuring value is returned to
Shareholders without unnecessary delay. Current negotiations for
realising value for each of the three significant assets are
proceeding in a manner that should allow completion before the end
of September 2018, which would mean an extension of the Company's
life would not be required. Of course, the current negotiations
involve third parties and cannot be guaranteed to conclude
satisfactorily.
Unless your Board puts an extraordinary resolution to
Shareholders recommending a one year extension, and Shareholders
approve that extraordinary resolution, an ordinary resolution to
wind up the Company will be put to Shareholders once all the
Company's material investments have been realised. Your Board's
current expectation is that all the material investments will be
realised no later than the second anniversary of the listing of the
Company's shares on the London Stock Exchange, that is, by 26
September 2018, such that the Company is on course to be put into
liquidation on or prior to that date.
At 6 June 2018, the latest date on which EF Realisation's NAV
was calculated prior to the publication of these accounts, the
Company's NAV per share was 63.64p and its share price (bid) was
49.00p.
Martin Nègre
Chairman
8 June 2018
executive sUMMARY
This Executive Summary is designed to provide information about
the Company's business and results for the six month period ended
31 March 2018. It should be read in conjunction with the Chairman's
Statement and the Investment Manager's Report which provide a
detailed review of the investments and an outlook for future
realisations.
Corporate summary
The Company was incorporated in Guernsey on 28 June 2016, with
registered number 62195, as a non-cellular company with liability
limited by shares. The Company is registered with the Guernsey
Financial Services Commission ("GFSC") as a registered closed-ended
collective investment scheme pursuant to The Protection of
Investors (Bailiwick of Guernsey) Law, 1987, as amended, and the
Registered Collective Investment Scheme Rules ("RCIS Rules")
2015.
The Company has a wholly-owned subsidiary called EFR Guernsey
Holding Limited, which holds an equity investment in Lonestar
Resources US Inc. ("Lonestar").
The Company is regulated by the GFSC and complies with the
principles and provisions of The UK Corporate Governance Code 2016
(the "Code"). The GFSC have stated in the "Finance Sector Code of
Corporate Governance" ("GFSC Code") that companies which report
against the Code are deemed to meet the GFSC Code, and need take no
further action.
The Company's share capital is denominated in Sterling and each
Ordinary Share carries equal voting rights.
The Company's Ordinary Shares were admitted to trading on the
London Stock Exchange (Specialist Fund Segment) on 26 September
2016. As at 31 March 2018, the Company's issued share capital
comprised 44,977,609 Ordinary Shares (30 September 2017: 44,977,609
Ordinary Shares).
The Company is categorised as an internally managed non-European
Union ("EU") alternative investment fund for the purposes of the
Alternative Investment Fund Manager Directive. As such, the Board
retains overall responsibility for portfolio management and risk
management of the Company.
The Company has appointed Ecofin Limited (the "Investment
Manager") as investment manager and in such capacity the Investment
Manager has, subject to the overall supervision of the Board,
responsibility for the management of the Company's investment
portfolio and day to day management of the strategy to realise the
Company's investments (the "Realisation Strategy"). The Board
actively and continuously supervises the Investment Manager in the
performance of its functions.
Investment objective
The Company's investment objective is to conduct an orderly
realisation of the assets of the Company, to be effected in a
manner that seeks to achieve a balance between returning cash to
Shareholders promptly and maximising the value of the investment
portfolio.
Investment policy
The Board and the Investment Manager believe that the portfolio
may take in the region of four months from the date of this report
to be fully realised, although this timing is subject to
transactions involving third parties and cannot be guaranteed. The
mechanics and timing of any distributions effected to return
capital to Shareholders will be set out in redemption
announcement(s) and/or circular(s) to be sent to Shareholders at
the relevant time(s).
The Company will not make any new investments save that:
(a) available cash may be used to fund, where necessary, capital
calls in relation to existing investments where the Directors
believe it is necessary to preserve the value of that investment;
and/or
(b) available cash may be invested in liquid cash-equivalent
securities, including cash funds, and bank cash deposits, pending
its return to Shareholders.
The investment policy involves a continual evaluation of the
business prospects of each investment in the portfolio and the
disposal options for each asset in order to assess the most
appropriate realisation timing and strategy to be pursued in
relation to each investment. The Board meets regularly to review
the portfolio and progress in implementing the Realisation
Strategy.
Further information on the current status of the Realisation
Strategy can be found in the Investment Manager's report which is
incorporated within this Interim Financial Report.
Shareholders' interests
As at 31 March 2018 and 30 September 2017, the Company had been
notified, in accordance with Chapter 5 of the Disclosure Guidance
and Transparency Rules (which covers the acquisition and disposal
of major shareholdings and voting rights), that the following
Shareholders had an interest in greater than 5% of the Company's
issued share capital.
Percentage of total voting rights
31 March 30 September
2018 2017
J.H. Lane Holdings GP, LLC 20.8% -
Asset Value Investors (including
British Empire Trust) 8.50% 8.50%
Dexia Credit Local de France SA 6.08% 6.08%
Janus Henderson Investors 5.06% 5.06%
Weiss Asset Management Less than 5% 20.31%
1607 Capital Partners LLC - 6.81%
Between 1 April 2018 and 8 June 2018, the following additional
notification was received:
Percentage of
total voting
rights
J.H. Lane Holdings GP, LLC 25.3%
Directors' interests
The Board comprises three Directors: Martin Nègre, Robert
Sinclair and Nick Tostevin. The Directors are all non-executive
and, other than Martin Nègre, are independent of the Investment
Manager. Robert Sinclair and Nick Tostevin are also members of the
Audit Committee and Management Engagement Committee. The Company
has not established a separate Remuneration and Nomination
Committee as matters as to the remuneration of the Directors of the
Company will be considered by the Board.
A biography for each Director is shown in the Board Members'
section of this Interim Financial Report. Information on the
Directors' remuneration is detailed in note 4.
As at the date of approval of the Interim Financial Report, the
Directors held the following number of Ordinary Shares in the
Company:
Director Director holdings in
the Company's Ordinary
Shares
Martin Nègre 232,716
------------------------
Robert Sinclair Nil
------------------------
Nick Tostevin Nil
------------------------
Principal risks and uncertainties
The Directors believe that the principal risks faced by the
Company can be divided into various areas as follows:
-- Performance, market and liquidity, any of which may affect the Realisation Strategy
-- Lonestar specific risk
-- Portfolio concentration
-- Operational
-- Financial
Information on these risks and how they are managed is given in
the Annual Financial Report for the period ended 30 September 2017.
In the view of the Board these principal risks and uncertainties
are as applicable to the remaining realisation period of the
financial year as they were in the six months under review.
Break-up basis
Under the Code and applicable regulations, the Directors are
required to determine whether it is reasonable to assume that the
Company is a going concern from the date of approval of the
financial statements. Given the Board believes that the material
investments held by the Company may be fully realised in four
months from the date of approving the financial statements, the
Board has adopted the break-up basis in preparing the financial
statements. This accords with the methodology utilised in
calculating the Company's NAV on a weekly basis. Under this basis
of accounting, assets are valued at their estimated net realisable
value and provisions are made for estimated future costs to realise
the investments and operating costs for the Company through to its
eventual liquidation.
Events after the reporting date
Lonestar's share price increased by 63.1% (in US dollar terms)
between 31 March 2018 and 6 June 2018. The Directors are not aware
of any other developments subsequent to the period-end that might
have a significant effect on the operations of the Company or a
material impact on the unaudited condensed interim financial
statements.
Future strategy
The Board believes that the investment policy and strategy
adopted by the Company are appropriate for the Company's
realisation objectives. The Realisation Strategy remains in place
and it is the Board's assessment that the Investment Manager's
resources are appropriate to manage properly the Company's
investment portfolio.
Related parties
Refer to note 13 for information on related party
transactions.
BOARD MEMBERS
All Directors are non-executive.
CHAIRMAN
Martin Nègre
Appointed 20 July 2016
Martin was a director of Ecofin Water & Power Opportunities
plc ("EWPO"), the predecessor company to EF Realisation Company
Limited, until September 2016. He was, until June 2001, the chief
executive officer of Northumbrian Water plc, then a subsidiary of
Suez Lyonnaise des Eaux, and Suez Lyonnaise's chief corporate
representative in the UK. Prior to that, he was Suez Lyonnaise's
international director in Paris and then its Asia-Pacific president
in Hong Kong and Singapore. Before that, he spent 21 years with
Alsthom and GEC Alsthom, the Anglo/French engineering company,
where he was a senior executive and the chief executive officer of
the power generation division.
He is chairman of the Ecofin Vista Long-Short Fund and the
Ecofin Global Renewables Infrastructure Fund, funds managed by the
Investment Manager, a non-executive director of Ecofin Global
Utilities and Infrastructure Trust plc, which is managed by the
Investment Manager, a non-executive director of Northumbrian Water
Ltd and of Messrs Hottinger & Cie, Paris, and a non-executive
director of EFR Guernsey Holding Limited.
DIRECTORS
Robert Sinclair (independent) - Chairman of the Audit
Committee
Appointed 28 June 2016
Robert is managing director of the Guernsey based company,
Artemis Trustees Limited, and a director of a number of investment
fund management companies and investment funds associated with
Artemis Trustees Limited. Robert is chairman of Schroder Oriental
Income Fund Limited, a director of Picton Property Income Limited
and chairman of its audit committee, a director of Chariot Oil and
Gas Limited and chairman of its audit committee, and a director of
Rainbow Rare Earths Limited and chairman of its audit
committee.
He is a fellow of the Institute of Chartered Accountants in
England & Wales, a member of the Institute of Chartered
Accountants of Scotland and a member of the Society of Trust and
Estate Practitioners. Robert is resident in Guernsey.
Nicholas (Nick) Tostevin (independent) - Chairman of the
Management Engagement Committee
Appointed 28 June 2016
Nick holds the degree of LLB (Hons) (Bachelor of Law). He
qualified as a barrister in 1975 and as an advocate of the Royal
Court of Guernsey in 1976 and practised as such for 33 years until
he retired as the senior partner of a Guernsey law firm. He is a
non-executive director of a number of Guernsey-based investment
funds and insurance companies. Nick is resident in Guernsey.
INVESTMENT MANAGER'S REPORT
Investment objective
EF Realisation Company Limited ("EF Realisation" or the
"Company") is one of two listed successor vehicles to Ecofin Water
& Power Opportunities plc, a UK investment trust which was
reorganised pursuant to a scheme of reconstruction. The Company was
incorporated as a Guernsey company and holds illiquid and unquoted
investments with the investment objective to realise its assets in
an orderly fashion for the benefit of its Shareholders. As a
consequence, it cannot make any new investments and the proceeds of
any realisation, subject to the working capital requirements of the
Company, are distributed to Shareholders. The Company's shares were
admitted to trading on the London Stock Exchange on 26 September
2016. EF Realisation's Board is required to put an ordinary
resolution to Shareholders to wind up the Company on or before 26
September 2018, unless Shareholders have approved an extraordinary
resolution before then to extend the life of the Company.
At the end of the last financial period, the Company undertook a
one-for-seven compulsory share redemption and returned GBP3.0
million to Shareholders, having monetised approximately 24% of the
Company's portfolio in its first year. No further realisations were
made by the Company during this interim period, however the
monetisation process for each of the Company's significant assets
has advanced and the Investment Manager believes that EF
Realisation is on course to complete the realisation of the
Company's assets by the end of September 2018.
Net asset value and share price performance
In the half-year from 30 September 2017 to 31 March 2018, the
net asset value of the Company rose from GBP18.2 million to GBP19.5
million, a rise of 7.3%. The Company's largest investment, a
shareholding in the US NASDAQ-quoted Lonestar Resources US, Inc.
("Lonestar"), accounting for 51.7% of the Company's portfolio at
the end of the period, increased in value by 24%. This was offset,
however, by adverse movements in the sterling value of the
Company's other investments in the US and Australia as the US
dollar and the Australian dollar depreciated against sterling by 5%
and 7%, respectively.
Since admission on 26 September 2016, the Company's shares have
traded at a discount to net asset value which, given the nature of
the Company's investments and the uncertain outlook for their
realisation, was to be expected as investment trusts which invest
in private equity typically trade at steep discounts to their
published net asset values. The discount has narrowed steadily: At
the start of the interim period, the discount (based on the bid
price) was 34.5% and by the end of the period the discount was
19.4%; it has subsequently edged higher and at 6 June 2018 it stood
at 23.0%.
Summary of investments
At 31 March 2018, EF Realisation had three investments which
were valued at an aggregate of GBP17.2 million, a further four
investments held at nil value, and GBP2.3 million in net working
capital. All the Company's investments were in unquoted securities
with the exception of its investment in Lonestar, which is quoted
on the US NASDAQ exchange but with limited trading liquidity. The
Company values Lonestar using a five day, volume-weighted average
of its share price and, in addition, makes allowance for certain
estimated expenses and illiquidity of the shares which the
Company's Directors believe could impact the realisable value of
the Company's investment in Lonestar. The Company values its
unquoted investments based on third-party valuations or valuation
techniques typically used to value such investments and may also
apply a further discount for illiquidity or deduct estimated
expenses to realise any investment in deriving the carrying value
to include in the Company's net asset value.
Lonestar
Lonestar is EF Realisation's largest investment and accounted
for 51.7% of the Company's portfolio at 31 March 2018. Lonestar
owns, develops and produces oil and gas from reserves located in
the Eagle Ford shale basin in southern Texas. As Lonestar is a US
company listed on NASDAQ, it regularly files detailed reports on
its operations and financial statements with the US Securities and
Exchange Commission ("SEC"). These annual and quarterly reports as
well as investor presentations and other information on the company
are available on Lonestar's website
(www.lonestarresources.com).
EF Realisation owns, through a wholly-owned subsidiary,
4,174,259 ordinary shares of Lonestar. At the time of EF
Realisation's listing in September 2016, this represented
approximately 52% of Lonestar's outstanding share capital. As
Lonestar issued equity as part of its steps to improve its balance
sheet and to grow by acquisitions, and as EF Realisation does not
have a mandate to make new investments, EF Realisation's
shareholding was diluted to approximately 17% of Lonestar's
outstanding ordinary shares by 31 March 2018.
Under an agreement with Lonestar, EF Realisation has the right
to nominate two directors to Lonestar's board, subject to the
approval of Lonestar's shareholders in an annual general meeting,
as long as its ownership of Lonestar is in excess of 15%, and one
director if its ownership is less than 15% but greater than 10%. EF
Realisation's nominated directors of Lonestar are John Murray,
chairman of Ecofin Limited, the Investment Manager, and Dr
Christopher Rowland, head of special situations at Ecofin
Limited.
Investor interest improved in the US oil sector over the
half-year to 31 March 2018, with an equity Index of Small
Capitalisation US Exploration & Production (E&P) Companies
("Index") rising by 6% in US dollar terms, in part thanks to an
improvement in oil prices. Over the six month period, the US West
Texas Intermediate (WTI) oil price for immediate delivery rose by
26% and the US WTI oil price for delivery in 12 months' time (which
tends to be the oil price more relevant for US E&P equities)
rose by 16%. OPEC has remained disciplined in restricting its oil
production and the larger US E&P companies have prioritised
cash flow generation over volume growth which, together, has
enabled global oil inventories to return to more normal levels from
a heavily oversupplied position in 2015.
In August 2017, Lonestar set out a plan to increase the
company's production and cash flows, whilst steadily improving its
credit metrics. Lonestar originally forecast for 2018 that its
production would average between 10,000 and 10,700 barrels of oil
equivalent per day and earnings before interest, tax and
depreciation ("EBITDA") would be between $100 million and $110
million. Strong operating results from new wells drilled and
completed thus far in 2018 have enabled Lonestar to increase this
guidance for production and EBITDA. Lonestar now forecasts
production to average between 10,300 and 11,000 barrels of oil
equivalent per day during 2018, an increase of between 59% and 69%
over 2017, and EBITDA of between $110 million and $125 million, an
increase of between 69% and 92% over 2017. Lonestar's ratio of net
debt to EBITDA is forecast to drop from 3.6x at the end of 2017 to
below 3.0x by the end of 2018.
Lonestar's recent acquisitions and its strong operational
performance contributed to an 82% increase in Lonestar's year-end
proved reserves to 73.6 million barrels of oil equivalent. These
proved reserves have been valued by independent specialists at $648
million using oil prices prevailing at the end of 2017; after
deducting net debt and convertible preferred shares, the equity
valuation is $240 million or, on a fully diluted basis (that is,
assuming the convertible preference shares are converted), $8.30
per Lonestar ordinary share. This valuation does not reflect the
favourable well results achieved in 2018 to date or the pick-up in
oil prices since the end of 2017. In addition, Lonestar has a
further 21 million barrels of probable and possible reserves that
are not included in this valuation.
Lonestar's share price has been outperforming the shares of its
quoted US peers. Over the half-year to 31 March 2018, Lonestar's
share price rose from $3.51 per share to $4.34 per share, up 24% in
US dollar terms against the Index's 6% increase, and between 31
March 2018 and 6 June 2018, Lonestar's share price rose further to
$7.08 per share, up 63% in US dollar terms against the Index's 29%
increase. This outperformance can be attributed to Lonestar's
strengthening of its balance sheet, its strong operational results
and the increase in guidance. Lonestar's shares rallied after the
company refinanced its senior notes due April 2019 with a new issue
of senior notes due January 2023 and on the uplift in Lonestar's
production and EBITDA evident in both its Q4 2017 results and its
Q1 2018 results released after the end of EF Realisation's interim
period.
The performance of Lonestar's shares has helped to narrow the
valuation discount to its US quoted peers, but only in part.
Lonestar's management continues to believe that its high quality
assets and strengthened balance sheet are not well reflected in
Lonestar's equity market valuation. Not only is Lonestar's share
price (at $7.08 per share on 6 June 2018) trading at approximately
37% of the value indicated by the independent valuation of its
proved and probable reserves, but Lonestar's shares stand on low
trading multiples compared to its quoted peers that operate in the
Eagle Ford shale basin or are smaller oil focussed US E&P
companies. Lonestar's proved reserves are valued at just $7.6 per
barrel of oil equivalent compared to its quoted peers whose proved
reserves are valued at $11.4 per barrel of oil equivalent.
Moreover, Lonestar's shares currently trade at an enterprise value
equivalent to approximately 4.9 times analysts' estimates of 2018
EBITDA, while quoted peers trade at an average of 6.4 times
EBITDA.
Eastern Australia Irrigation
Eastern Australian Irrigation Limited ("EAI") owns two large
farms in Queensland, Australia, each with access to ample water
rights and extensive associated water storage infrastructure for
irrigating the farms whose main crop is cotton. EF Realisation owns
9.6% of EAI's equity.
In August 2017, EAI sold a part of its water rights back to the
Australian government, which enabled EAI to make a capital return
to its shareholders (including EF Realisation, which in September
2017 used these proceeds to make a capital return to its
Shareholders). After the sale of water rights, EAI launched sale
processes for each of the two farms and these are taking place
against a backdrop of strengthening cotton prices (up to $81 per
pound, some 18% higher than at the start of the half-year under
review), although draught conditions in Queensland have been less
constructive. Once the farm sales are completed, EAI would then go
into voluntary liquidation and remit the farm sales proceeds, net
of debt and other expenses, to EAI shareholders including EF
Realisation.
TRF/Prescott Valley
EF Realisation has a majority interest in 2,724 acre-feet of
water entitlements in the Prescott Valley region of Arizona, near
Phoenix, in the United States. Annually, an independent expert is
engaged to value these water entitlements. EF Realisation uses this
valuation as a basis for valuing its investment in TRF but it
applies a further discount to reflect the illiquidity of the
investment and the expenses that might be incurred by EF
Realisation upon disposal of the investment.
Property developers in the Prescott Valley region must
demonstrate that they have access to 100 years of future water
supply before they are granted permission to develop land. The
water entitlements owned by EF Realisation would enable developers
to demonstrate a future water supply, and 2,724 acre-feet of water
entitlements are sufficient to allow for the development of over
10,000 homes. There is a limited supply of already permitted land
and few alternatives for property developers wanting to acquire
water entitlements on any scale; however, property development
activity stagnated after the global financial crisis and the
subsequent pick-up in activity has not been back to former levels.
Development activity in the region came to a near standstill in
2009-2011 when there were on average just 37 new permits issued for
single family dwellings each year, compared to the peak year of
2006 when 1,146 such permits were issued. There has been a steady
pick-up since 2011 and in 2017 466 such permits were issued and the
annualised run-rate in 2018 has increased further to over 550.
As a consequence, interest from property developers for water
entitlements has grown. In addition, the drought conditions across
much of the US southwest further emphasises the value of these
water rights. Several sales of water entitlements are in the early
stages of negotiation and, while there is no guarantee that any
sale can be concluded at an attractive price, there are signs that
a sale of water entitlements might be accomplished in the coming
months. EF Realisation is negotiating a sale of its investment
although a successful conclusion of this negotiation cannot be
guaranteed.
Nil Value Investments
EF Realisation holds four other investments, each of which it
carries at nil value in its portfolio as the Company sees limited
prospects of realising any value in the foreseeable future. The
Company continues to monitor these investments and engages with the
management teams. At present, however, it seems unlikely that the
outlook for any of these investments will improve sufficiently to
be able to monetise the positions for material sums or to warrant
extending the life of EF Realisation.
Outlook
EF Realisation's intention is to move ahead with an orderly
realisation of its assets by 26 September 2018 with a view to
making significant distributions to Shareholders. The Company is in
active discussions with buyers for each of its material unquoted
assets in order to attempt to realise the carrying values of each
asset and to maximise the value that can be returned to
Shareholders. Furthermore, there is scope for an increase in the
Company's NAV per share based on a continuing improvement in
Lonestar's share price, especially if oil prices remain at the
higher levels experienced in 2018 to-date and Lonestar delivers on
its 2018 plan for increasing production and EBITDA while improving
its credit metrics.
If all goes to plan, EF Realisation will be in a position to
table a resolution to wind up the Company on or before 26 September
2018. Our negotiations for realising the key unquoted investments
involve third parties and inevitably, therefore, uncertainty until
binding documentation is executed, whereas the ability to realise
value from the Lonestar shareholding will be linked to prevailing
oil market and stock market conditions.
Ecofin Limited
Investment Manager
8 June 2018
Directors' Statement of Responsibilities
The Directors are responsible for preparing the Interim
Financial Report in accordance with applicable Guernsey Law and
regulations.
The Directors confirm to the best of their knowledge that:
-- the unaudited condensed interim financial statements
contained within the Interim Financial Report have been prepared in
accordance with IAS 34 - "Interim Financial Reporting" as adopted
by the EU and give a true and fair view of the state of affairs of
the Company as at 31 March 2018, as required by the Financial
Conduct Authority ("FCA") through the Disclosure Guidance and
Transparency Rules ("DTR") 4.2.4R;
-- the Chairman's Statement, Investment Manager's Report,
Executive Summary and notes to the unaudited condensed interim
financial statements, together provide a fair review of the
information required by:
a) DTR 4.2.7R, being an indication of important events that have
occurred during the six months ended 31 March 2018 and their impact
on the set of unaudited condensed interim financial statements; and
a description of the principal risks and uncertainties for the
remaining six months of the year; and
b) DTR 4.2.8R, being related party transactions that have taken
place during the six months ended 31 March 2018 and that have
materially affected the financial position or performance of the
Company during that period; and any changes in the related parties
transactions in the annual report that could have a material impact
on the financial position or financial performance of the Company
in the first six months of the current financial year.
Approved and signed on behalf of the Board,
Martin Nègre Robert Sinclair
Chairman Audit Committee Chairman
8 June 2018
CONDENSED INTERIM STATEMENT OF COMPREHENSIVE INCOME
For the six months ended 31 March 2018
Six months For the period
ended from
31 March 28 June 2016
to
2018 31 March
2017
(Unaudited) (Unaudited)
Notes GBP GBP
------------------------------ --------- --- ------ ------------ ----------------
Income
Net gain/(loss) on financial
assets designated at fair value
through profit or loss 1,417,878 (19,888,595)
Investment income 2,652 162,495
1,420,530 (19,726,100)
-------------------------------------------- ------ ------------ ----------------
Expenses
Operating expenses 3 (345,895) (335,164)
Provision 8 329,636 (111,034)
Foreign exchange (loss)/gain (74,227) 64,937
---------------------------------------------- ------ ------------ ----------------
(90,486) (381,261)
-------------------------------------------- ------ ------------ ----------------
Profit/(loss) before
taxation 1,330,044 (20,107,361)
---------------------------------------------- ------ ------------ ----------------
Taxation - -
------------------------------ --------- --- ------ ------------ ----------------
Profit/(loss) after taxation and
total comprehensive income/(loss) 1,330,044 (20,107,361)
Basic and diluted earnings per
Ordinary Share 10 0.0296 (0.5557)
----------------------------------------- --- ------ ------------ ----------------
The Company has no items of other comprehensive income or loss,
and therefore the profit/(loss) for the period is also the total
comprehensive income/(loss).
All items in the above statement are derived from continuing
operations. No operations were acquired or discontinued during the
period.
The notes form an integral part of these unaudited condensed
interim financial statements.
CONDENSED INTERIM STATEMENT OF FINANCIAL POSITION
As at 31 March 2018
31 March 30 September
2018 2017
(Unaudited) (Audited)
Notes GBP GBP
----------------------------------- ------ ------------- -------------
Current assets
Financial assets designated at
fair value through profit or
loss 6 17,220,062 15,802,184
Cash and cash equivalents 2,860,741 3,293,971
Other receivables and prepayments 5 50,926 21,685
------------- -------------
Total current assets 20,131,729 19,117,840
----------------------------------- ------ ------------- -------------
Total assets 20,131,729 19,117,840
----------------------------------- ------ ------------- -------------
Current liabilities
Other payables 7 (149,714) (132,825)
Provision 8 (459,273) (792,317)
----------------------------------- ------ ------------- -------------
Total current liabilities (608,987) (925,142)
----------------------------------- ------ ------------- -------------
Total liabilities (608,987) (925,142)
----------------------------------- ------ ------------- -------------
Net assets 19,522,742 18,192,698
----------------------------------- ------ ------------- -------------
Capital and reserves
Share capital 9 40,420,947 40,420,947
Retained deficit (20,898,205) (22,228,249)
----------------------------------- ------ ------------- -------------
Equity Shareholders' funds 19,522,742 18,192,698
------ ------------- -------------
Net asset value per share 11 0.4341 0.4045
----------------------------------- ------ ------------- -------------
The unaudited condensed interim financial statements were
approved and authorised for issue by the Board of Directors on 8
June 2018 and signed on its behalf by:
Martin Nègre Robert Sinclair
Chairman Audit Committee Chairman
The notes form an integral part of these unaudited condensed
interim financial statements.
CONDENSED INTERIM STATEMENT OF CHANGES IN SHAREHOLDERS'
EQUITY
For the six months ended 31 March 2018
Retained
Share capital deficit Total
(Unaudited) (Unaudited) (Unaudited)
GBP GBP GBP
------------------------------------ -------------- ------------- -------------
Opening equity Shareholders' funds
at 1 October 2017 40,420,947 (22,228,249) 18,192,698
------------------------------------- -------------- ------------- -------------
Total comprehensive income
for the period - 1,330,044 1,330,044
Closing equity Shareholders' funds
at 31 March 2018 40,420,947 (20,898,205) 19,522,742
------------------------------------- -------------- ------------- -------------
For the period from 28 June 2016 (incorporation) to 30 September
2017
Retained
Share capital deficit Total
(Audited) (Audited) (Audited)
GBP GBP GBP
------------------------------------ -------------- ------------- -------------
Opening equity Shareholders' funds - - -
at 28 June 2016(1)
------------------------------------- -------------- ------------- -------------
Total comprehensive loss for
the period - (25,952,179) (25,952,179)
Transactions with owners, recorded
directly to equity
Proceeds from issuance of
Ordinary Shares 47,184,416 - 47,184,416
Share issue costs (26,885) - (26,885)
Redemption of Ordinary Shares (6,736,584) 3,732,930 (3,003,654)
Ordinary Share redemption
costs - (9,000) (9,000)
-------------------------------------- -------------- ------------- -------------
Closing equity Shareholders' funds
at 30 September 2017 40,420,947 (22,228,249) 18,192,698
------------------------------------- -------------- ------------- -------------
For the period from 28 June 2016 (incorporation) to 31 March
2017
Retained
Share capital deficit Total
(Unaudited) (Unaudited) (Unaudited)
GBP GBP GBP
------------------------------------ -------------- ------------- -------------
Opening equity Shareholders' funds - - -
at 28 June 2016(1)
------------------------------------- -------------- ------------- -------------
Total comprehensive loss for
the period - (20,107,361) (20,107,361)
Transactions with owners, recorded
directly to equity
Proceeds from issuance of
Ordinary Shares 47,184,416 - 47,184,416
Share issue costs (26,885) - (26,885)
Redemption of Ordinary Shares (1) - (1)
-------------------------------------- -------------- ------------- -------------
Closing equity Shareholders' funds
at 31 March 2017 47,157,530 (20,107,361) 27,050,169
------------------------------------- -------------- ------------- -------------
(1) (The Company was incorporated on the 28 June 2016. Ordinary
Shares were issued on the 26 September 2016.)
As at 13 September 2016, the value of the pool of assets
attributable to the Company, further to the Scheme of
Reconstruction of EWPO, was GBP47,184,416. In turn, on 22 September
2016, the Company issued 52,473,633 Ordinary Shares to EWPO
shareholders at a price of 89.92p per share for gross proceeds of
GBP47,184,416. The Company's Ordinary Shares were admitted to
trading on the London Stock Exchange on 26 September 2016.
The first valuation point for the Company's assets after
admission was as at the close of trading on 30 September 2016.
During the period from 13 September 2016 to 30 September 2016, the
NAV per share fell from 89.92p to 83.89p as a result of movement in
the fair value of investments.
On 18 September 2017, as a result of asset sales, 7,496,024
Ordinary Shares were redeemed at a price of 40.07p per Ordinary
Share (after allowing for costs of redemption of GBP9,000). This
GBP3.0 million return of capital, equivalent to 5.7p per Ordinary
Share, was implemented pursuant to the Company's compulsory
redemption mechanism, such that one in every seven Ordinary Shares
was redeemed, for cancellation, on a pro rata basis.
As at 31 March 2018 and 30 September 2017, the Company had
44,977,609 Ordinary Shares in issue (31 March 2017: 52,473,633
Ordinary Shares).
The notes form an integral part of these unaudited condensed
interim financial statements.
CONDENSED INTERIM STATEMENT OF CASH FLOWS
For the six months ended 31 March 2018
For the period
Six months
ended from
28 June 2016
31 March to
31 March
2018 2017
(Unaudited) (Unaudited)
Note GBP GBP
-------------------------------------------------------------- ----- -------------- ---------------
Cash flow from operating activities
Profit/(loss) before taxation 1,330,044 (20,107,361)
Adjustments to reconcile profit/(loss)
before tax to net cash flows from
operating activities:
* Realised gain on financial assets designated at fair
value through profit or loss - (315,260)
* Unrealised (gain)/loss on financial assets designated
at fair value through profit or loss (1,417,878) 20,203,855
* Net loss/(gain) on foreign exchange translation 74,227 (64,937)
* Investment income (2,652) (162,495)
Proceeds from sale of financial assets
designated at fair value through profit
or loss - 1,315,298
Investment income received 2,652 149,503
Changes in working capital
Increase in other receivables and
prepayments (29,241) (15,438)
Increase in other payables 16,889 88,639
(Decrease)/increase in provisions (333,044) 114,916
-------------------------------------------------------------- ----- -------------- ---------------
Net cash (used)/generated from operating
activities (359,003) 1,206,720
-------------------------------------------------------------- ----- -------------- ---------------
Cash flow from financing activities
Proceeds from Scheme of Reconstruction - 2,358,000
Ordinary Share issue costs paid - (26,885)
Net cash generated from financing
activities - 2,331,115
-------------------------------------------------------------- ----- -------------- ---------------
Net (decrease)/increase in cash and
cash equivalents in the period (359,003) 3,537,835
Cash and cash equivalents at the beginning 3,293,971 -
of the period
Effect of exchange rate fluctuations
on cash and cash equivalents (74,227) 64,936
Cash and cash equivalents at the end
of the period 2,860,741 3,602,771
-------------------------------------------------------------- ----- -------------- ---------------
Supplemental disclosure of non-cash
flow information
Transfer of assets from Scheme of
Reconstruction - (46,071,195)
Issue of Ordinary Shares in specie 9 - 47,184,416
Provision - 1,244,779
-------------------------------------------------------------- ----- -------------- ---------------
Cash proceeds from Scheme of Reconstruction - 2,358,000
-------------------------------------------------------------- ----- -------------- ---------------
The notes form an integral part of these unaudited condensed
interim financial statements.
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
1. General information
The Company was incorporated with limited liability in Guernsey
under The Companies (Guernsey) Law, 2008 (the "Companies Law"), as
amended, on 28 June 2016 with registered number 62195.
The Company is a closed-ended investment company registered with
the GFSC under the RCIS Rules 2015 and The Protection of Investors
(Bailiwick of Guernsey) Law, 1987, as amended. The Company is not
authorised or regulated as a collective investment scheme by the
FCA.
The Company's Ordinary Shares were admitted to trading on the
Specialist Fund Segment of the Main Market of the London Stock
Exchange on 26 September 2016.
The Company's registered address is BNP Paribas House, St
Julian's Avenue, St Peter Port, Guernsey, GY1 1WA.
2. Accounting policies
The Annual Financial Report is prepared in accordance with the
Disclosure Guidance and Transparency Rules of the FCA and with
International Financial Reporting Standards ("IFRS"), which
comprise standards and interpretations approved by the
International Accounting Standards Board, and interpretations
issued by the IFRS and Standing Interpretations Committee as
approved by the International Accounting Standards Committee which
remain in effect. The Interim Financial Report has been prepared in
accordance with International Accounting Standards (IAS) 34 -
Interim Financial Reporting. It has also been prepared using the
same accounting policies applied for the Annual Financial Report
for the period ended 30 September 2017, which was prepared in
accordance with IFRS.
The Directors have adopted the break-up basis in preparing the
unaudited condensed interim financial statements given they believe
that the investments held by the Company may be fully realised and
the Company put into liquidation in four months from the date of
approving these interim financial statements, in line with the
Company's Realisation Strategy. Please refer to note 9 for detail
regarding the compulsory redemption mechanism and liquidation
resolution.
As a result of the application of the break-up basis, the fair
value of each investment has been adjusted as necessary to reflect
any expected taxes and costs of disposal that could be incurred
were the investment to be disposed of as soon as possible but in an
orderly manner. In addition, future foreseeable working capital
requirements and costs expected to be paid on ultimate wind-up of
the Company have been accounted for as part of a provision. Refer
to note 8 for further detail.
There have been no changes in accounting policies during the
period. The accounting policies in respect of financial instruments
are set out below in note 2.4.
The impact of seasonality or cyclicality on operations is not
regarded as significant to the unaudited condensed interim
financial statements.
2.1 Critical accounting estimates
The preparation of unaudited condensed interim financial
statements in conformity with IAS 34 requires the Company to make
estimates and assumptions that affect items reported in the
Condensed Interim Statement of Financial Position and Condensed
Interim Statement of Comprehensive Income and the disclosure of
contingent assets and liabilities at the date of the unaudited
condensed interim financial statements. Although these estimates
are based on management's best knowledge of current facts,
circumstances and, to some extent, future events and actions, the
Company's actual results may ultimately differ from those
estimates, possibly significantly.
Fair value of financial assets designated at fair value through
profit or loss
Investments in unquoted companies are not actively traded, hence
valuations are more uncertain than those of more widely traded
securities. Unquoted investments are valued by using valuation
techniques approved by the Directors and based on International
Private Equity and Venture Capital ("IPEV") valuation guidelines
and IFRS 13 - Fair Value Measurement ("IFRS 13"). Valuation
techniques applied in determining the fair value of financial
assets designated at fair value through profit or loss are subject
to significant estimates and assumptions. Note 2.4 includes details
of the valuation process and valuation techniques applied where an
active market does not exist and note 6 includes a sensitivity
analysis of level 3 holdings as at 31 March 2018.
Provision
Given the Board believes that the investments held by the
Company may be fully realised in four months from the date of
approving the financial statements, the Board has adopted the
break-up basis in preparing the financial statements. Under this
basis of accounting, the Company has recognised a provision. Note
2.5 outlines the judgements made by the Board having liaised with
the Investment Manager in determining the provision.
2.2. Critical accounting judgements
As detailed above, the Directors have used their judgement to
determine that the Company's financial statements should be
prepared on a break-up basis.
The other critical accounting judgement relates to the
application of the investment entity exception in IFRS 10 -
Consolidated Financial Statements ("IFRS 10"). The Board has
considered whether the Company is an investment entity as defined
in IFRS 10.
The Company is deemed to meet the definition of an investment
entity because it satisfies the following conditions which are the
main criteria for an investment entity:
i) The Company has obtained funds for the purpose of providing
investors with investment management services;
ii) The Company's business purpose, which has been communicated
directly to investors, is managing investments solely for returns
from capital appreciation, investment income, or both; and
iii) The performance of investments is measured and evaluated on a fair value basis.
The Board has also considered the typical characteristics of an
investment entity per IFRS 10 in assessing whether it meets the
definition of an investment entity. These include:
-- having exposure to more than one investment;
-- having multiple investors;
-- the majority of investors are not related parties; and
-- having ownership interests in the form of equity.
As the Company satisfies the criteria for an investment entity
and has the typical characteristics of an investment entity, the
Board considers that the Company is an investment entity.
Accordingly the Company's subsidiary, EFR Guernsey Holding Limited,
has not been consolidated but has been fair valued and accounted
for at fair value through profit or loss.
Note 6 provides further disclosure relating to the Company's
interest in EFR Guernsey Holding Limited.
2.3 Segmental reporting
In accordance with IFRS 8 - "Operating Segments", the Board as a
whole has been determined as constituting "the chief operating
decision maker" of the Company. The Directors are of the opinion
that the Company is engaged in one segment of business, being the
investment business.
2.4 Financial instruments
Financial assets
a) Classification
The Company classifies its investments as financial assets
designated at fair value through profit or loss. These financial
instruments are held for investment purposes. Financial assets also
include cash and cash equivalents and other receivables which are
measured at amortised cost using the effective interest rate
method.
Financial assets designated at fair value through profit or
loss
Financial assets designated at fair value through profit or loss
are financial instruments whose performance is evaluated on a fair
value basis in accordance with the Company's documented valuation
methodology and investment strategy. The Company's policy requires
the Investment Manager and the Board to evaluate the information
about these financial assets on a fair value basis together with
other related financial information.
b) Recognition, measurement and derecognition
Purchases and sales of investments are recognised on the trade
date which is the date on which the Company commits to purchase or
sell the investment. Financial assets designated at fair value
through profit or loss are measured initially at fair value.
Transaction costs are expensed as incurred and movements in fair
value are recorded in the Condensed Interim Statement of
Comprehensive Income. Subsequent to initial recognition, all
financial assets designated at fair value through profit or loss
are measured at fair value adjusted to reflect costs of disposal
because the Company's financial statements are prepared on a
break-up basis. Financial assets are derecognised when the rights
to receive cash flows from the investments have expired or the
Company has transferred substantially all risks and rewards of
ownership.
c) Fair value estimation
In accordance with IFRS 13 and IPEV guidelines, fair value is
the price that would be received upon sale of an asset or paid to
transfer a liability in an orderly transaction between market
participants at the measurement date. As the Company is a
realisation vehicle with an intended life of two years from
admission of its shares to trading, fair value of investments is
adjusted to be the realisable value of the investments, net of
taxes and other costs of disposal, were the investments in the
portfolio to be realised as soon as possible but in an orderly
fashion in the current market.
The Company's asset valuation methodology, which was outlined in
the Company's Prospectus and is explained below, was designed to be
consistent with the break-up basis of accounting that would be
adopted for the preparation of the Company's financial statements.
Fair value is measured in accordance with the NAV methodology
adopted by the Board which, in turn, reflects IFRS 13 and the IPEV
guidelines published in December 2015, as appropriate for a Company
with a limited life.
The NAV methodology adopted by the Board:
-- Uses the most widely recognised form of valuation applied by
market participants as a basis for the valuation of each asset
(quoted active market trading prices for listed investments, NAV
valuations for funds, or payments on liquidation);
-- Adjusts this valuation to account for illiquidity or
volatility considerations (the Company's investment in Lonestar,
for example, is valued on a per share basis using the trailing
five-day volume weighted average traded share price adjusted for
factors likely to affect the amount that could be realised
including the size of the holding relative to observable liquidity
which the Board believes is a more reasonable estimate of the value
under the break-up basis); and
-- Deducts estimated taxes and other material expenses that
would fall due in managing each investment or on a disposal to
derive a measurement of net realisable value for each
investment.
d) Valuation process
The Directors are in ongoing communications with the Investment
Manager to discuss valuation methodologies and techniques applied
in assessing fair value. The Directors analyse the investment
portfolio in terms of fair value hierarchy and consider the impact
of general market and credit conditions and/or events which may
impact the valuation of the investment portfolio.
The Investment Manager is responsible for carrying out the fair
market valuation of the unlisted investments of the Company and
these are presented to the Board for their approval and adoption.
The valuation principles used in such methodology are based on IFRS
13 and IPEV guidelines and the following valuation
methodologies:
i. investments in funds are valued at their net asset value,
adjusted as necessary to reflect the fair value of the underlying
investments held and any taxes and other expenses estimated to fall
due were the investment to be disposed of as soon as possible but
in an orderly manner;
ii. investments in bonds are valued at prices quoted by the brokers, where available; and
iii. where a value is indicated by a material arm's length
transaction with a third party in the shares of an investment or a
comparable investment, this value may be considered representative
of fair value adjusted as necessary to reflect any taxes and other
expenses estimated to fall due were the investment to be disposed
of as soon as possible but in an orderly manner.
However, if the Board considers that the basis of valuation is
inappropriate for any particular reason, or generally, it may adopt
such other valuation procedures as it considers reasonable in the
circumstances.
Financial liabilities
Financial liabilities include trade payables and other payables
which are held at amortised cost using the effective interest rate
method. Financial liabilities are recognised initially at fair
value, net of transaction costs incurred and are subsequently
carried at amortised cost using the effective interest rate method.
Financial liabilities are derecognised when the obligation
specified in the contract is discharged, cancelled or expires.
2.5 Provision
As the Company's financial statements are prepared on a break-up
basis, the Board, in liaison with the Investment Manager, has
recognised a provision. This provision includes amounts to cover
estimated liquidation costs (which will be incurred on wind-up of
the Company) and the working capital requirements of the Company
for a forward-looking period until the Company is expected to be
placed into liquidation. These operational costs include Directors'
fees, fees for third party service providers, professional fees,
and other sundry operational expenses incurred as part of the
ongoing activities of the Company.
3. Operating expenses
Six months For the period
ended from
28 June 2016
31 March to
2018 31 March 2017
(Unaudited) (Unaudited)
GBP GBP
Legal and professional fees 141,940 143,861
Administration fees 51,264 53,746
Directors' fees 37,500 38,683
Company secretarial fees 33,914 27,884
Audit fees 22,438 15,033
Non-audit fees - interim review
services - 15,000
Registrar fees 9,480 13,224
Broker fees 12,500 12,917
Sundry expenses 31,824 7,276
Custody fees 5,035 5,139
Transaction fees - 2,401
Total operating expenses 345,895 335,164
------------------------------------------- ------------- ---------------
Investment Manager fee
On 22 August 2016, the Company signed an Investment Management
Agreement with the Investment Manager. Under the Investment
Management Agreement the Investment Manager has, subject to the
overall supervision of the Board, responsibility for the day to day
management of the Company's Realisation Strategy. The Investment
Manager also has responsibility for advising the Company in
relation to the strategic management of the Company's investment
portfolio and monitoring the Company's funding requirements.
The Investment Manager is not entitled to any annual base
management fee but is eligible to receive a performance fee of 15%
of all Company distributable proceeds over the Performance Fee
Initial Value (as defined below), subject to a compounding 10%
hurdle (the "Performance Fee"). The Performance Fee is subject to a
cap of 4% of the Company distributable proceeds (as detailed below)
and will only be payable to the Investment Manager once
Shareholders have received cash distributions of an amount equal to
the Performance Fee Initial Value plus the hurdle.
The Performance Fee Initial Value is the aggregate of the
initial value of each asset (excluding Texas Energy Future Holdings
Investments, the WoodFuels Investment, Oro Negro Equity and
Bluewater Bio Holdings Limited (the "Nil Value Assets")) calculated
as the higher of: (i) the original cost price to EWPO; or (ii) the
holding value as at 26 September 2016 (the aggregate of all such
valuations being the Performance Fee Initial Value). The Company
distributable proceeds equals the amount distributed or available
for distribution to Shareholders and any performance fee payable to
the Investment Manager. The Investment Manager is not entitled to a
Performance Fee in respect of the Nil Value Assets.
No Performance Fee or Investment Manager fees were paid or
payable to the Investment Manager during the period (31 March 2017:
GBPnil), however, the Investment Manager is entitled to be
compensated for out-of-pocket expenses and certain work for the
Company, for example the production of a Key Investor Document.
Administration fee
On 22 August 2016, the Company signed an agreement with BNP
Paribas Securities Services S.C.A., Guernsey Branch, (the
"Administrator") to provide fund administration and company
secretarial services to the Company. Under the administration
agreement, the Administrator is entitled to a minimum annual fixed
fee for fund administration services and company secretarial
services. These fees are paid monthly in arrears. Ad hoc other
administration services are chargeable on a time cost basis, and
the Company reimburses the Administrator for any out of pocket
expenses. Administration and company secretarial service fees
payable as at 31 March 2018 were GBP17,523 (30 September 2017:
GBP17,523) and GBP11,116 (30 September 2017: GBP6,949),
respectively.
Broker fee
On 22 September 2016, the Company signed a Financial Advisory
Agreement with Winterflood Securities Limited (the "Financial
Adviser"), to provide corporate brokering and financial adviser
services to the Company. Under the agreement, the Financial Adviser
is entitled to a fee payable by the Company of GBP25,000 per annum
payable half-yearly in arrears. Broker fees payable as at 31 March
2018 were GBP12,500 (30 September 2017: GBP12,500).
Custody fee
On 22 August 2016, the Company signed a Global Custody Agreement
between the Company and the Administrator, whereby the Company
appointed the Administrator to carry out custodian services. In its
role as custodian, the Administrator is entitled to a minimum fixed
fee payable monthly by the Company in arrears, and to transaction
fees. Custody fees payable as at 31 March 2018 were GBP1,666 (30
September 2017: GBP1,666).
4. Directors' fees and interests
The Directors of the Company receive GBP22,500 each per annum
for their services. The Chairman of the Company and Chairman of the
Audit Committee receive an additional GBP5,000 and GBP2,500,
respectively, for their services. Directors' fees payable as at 31
March 2018 were GBP18,750 (30 September 2017: GBP18,750).
As at the date of approval of these financial statements, Martin
Nègre held 232,716 Ordinary Shares in the Company. No other
Director holds shares in the Company.
No other remuneration or compensation was paid or is payable in
respect of any of the Directors.
5. Other receivables and prepayments
31 March 30 September
2018 2017
(Unaudited) (Audited)
GBP GBP
Prepayments 24,022 4,754
Intercompany balances - EFR Guernsey
Holding Limited 26,904 16,931
Total other receivables and prepayments 50,926 21,685
--------------------------------------------------- ------------- -------------
The intercompany balance was provided to cover administration
and company secretarial operating expenses, paid by the Company on
behalf of EFR Guernsey Holding Limited, for the period from 22
August 2016 to 31 March 2018 (30 September 2017: period from 22
August 2016 to 30 September 2017). The Directors believe that these
balances are fully recoverable.
6. Financial assets designated at fair value through profit or
loss
31 March 30 September
2018 2017
(Unaudited) (Audited)
GBP GBP
--------------- --------------- --------------- ------------- -------------
Financial assets designated at fair value
through profit or loss 17,220,062 15,802,184
------------------------------------------------- ------------- -------------
As at 31 March 2018, the Company held 100% of the issued share
capital of EFR Guernsey Holding Limited (referred to as the "EFR
Guernsey equity interest"), one debt security and a number of
equity investments in companies. The fair value of the EFR Guernsey
equity interest is based primarily on the share price of
Lonestar.
Fair value hierarchy
IFRS 13 requires an analysis of investments valued at fair value
based on the reliability and significance of information used to
measure their fair value. The Company categorises its financial
assets according to the fair value hierarchy detailed in IFRS 13
which reflects the significance of the inputs used in determining
their fair values:
Level 1: Investments valued using quoted market prices,
unadjusted, in active markets for identical assets are included in
Level 1. As at 31 March 2018 and 30 September 2017 the Company held
no Level 1 investments.
Level 2: Investments that are valued using observable inputs,
i.e. quoted market prices, dealer quotations or alternative pricing
sources supported by observable inputs, are classified as Level 2.
Level 2 investments include the Company's investment, via EFR
Guernsey Holding Limited, in Lonestar.
Level 3: Investments classified as Level 3 have unobservable
inputs and these include the Company's unquoted investments
(equity, equity-related and debt instruments of unquoted
companies). Level 3 investments include Eastern Australia
Irrigation Ltd, TRF Feeder Fund (Cayman) LP, TRF LLC, Bluewater Bio
Holdings Ltd (held at nil value), Energy Future Holdings (equity
and bond; held at nil value), Oro Negro (equity; held at nil value)
and the WoodFuels investment (held at nil value). These types of
securities are generally subject to higher valuation uncertainties
and liquidity risks than securities listed or traded on a regulated
market.
Level 3 fair values are determined by the Directors using
valuation methodologies in accordance with the IPEV Guidelines and
as detailed in note 2.4. Significant inputs include investment
cost, the value of the most recent capital raising, and the
adjusted net asset value of funds. The carrying values and the
methodologies for their calculation are reviewed regularly by the
Board, in conjunction with the Investment Manager, and approved by
the Board in the Board meetings.
31 March
2018
Level 1 Level 2 Level 3 Total
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
GBP GBP GBP GBP
Debt instruments - - - -
Equity instruments - 10,085,982 7,134,080 17,220,062
----------------------------------- -------------- ------------- ------------- -------------
Total financial assets designated
at fair value through profit
or loss - 10,085,982 7,134,080 17,220,062
----------------------------------- -------------- ------------- ------------- -------------
30 September
2017
Level 1 Level 2 Level 3 Total
(Audited) (Audited) (Audited) (Audited)
GBP GBP GBP GBP
Debt instruments - - - -
Equity instruments - 8,113,517 7,688,667 15,802,184
----------------------------------- ------------ ----------- ----------- -------------
Total financial assets designated
at fair value through profit
or loss - 8,113,517 7,688,667 15,802,184
----------------------------------- ------------ ----------- ----------- -------------
Financial assets designated at fair value through profit or loss
reconciliation
The following table shows a reconciliation of all movements in
the fair value of financial assets categorised within Level 1 to 3
between the beginning and the end of the reporting period.
During the six months ended 31 March 2018, there were no
reclassifications between levels of the fair value hierarchy.
Level 1 Level 2 Level 3 Total
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
GBP GBP GBP GBP
----------------------------------- -------------- ------------- ------------- -------------
Opening valuation on 1 October
2017 - 8,113,517 7,688,667 15,802,184
----------------------------------- -------------- ------------- ------------- -------------
Movements in the period:
Sales - proceeds during the - - - -
period
Realised gain/(loss) on financial
assets designated at fair - - - -
value through profit or loss
Unrealised gain/(loss) on
financial assets designated
at fair value through profit
or loss - 1,972,465 (554,587) 1,417,878
Closing valuation on 31 March
2018 - 10,085,982 7,134,080 17,220,062
Total unrealised gain/(loss)
on financial assets for the
period ended 31 March 2018 - 1,972,465 (554,587) 1,417,878
----------------------------------- -------------- ------------- ------------- -------------
During the period ended 30 September 2017, there were no
reclassifications between levels of the fair value hierarchy.
Level 1 Level 2 Level 3 Total
(Audited) (Audited) (Audited) (Audited)
GBP GBP GBP GBP
------------------------------------- ----------- ------------- ------------ -------------
Opening valuation on 28 June - - - -
2016
------------------------------------- ----------- ------------- ------------ -------------
Movements in the period:
Transfers during the period
from EWPO Scheme of Reconstruction 409,861 35,520,648 10,140,686 46,071,195
Sales - proceeds during the
period (514,646) (1,200,000) (2,552,251) (4,266,897)
Realised gain on financial
assets designated at fair
value through profit or loss 104,785 210,000 35,674 350,459
Unrealised gain/(loss) on
financial assets designated
at fair value through profit
or loss - (26,417,131) 64,558 (26,352,573)
Closing valuation on 30 September
2017 - 8,113,517 7,688,667 15,802,184
Total unrealised gain / (loss)
on financial assets for the
period ended 30 September
2017 - (26,417,131) 64,558 (26,352,573)
------------------------------------- ----------- ------------- ------------ -------------
Sensitivity of Level 3 holdings to unobservable inputs
At 31 March 2018, the Company's Level 3 investments accounted
for 36.5% (30 September 2017: 42.3%) of its net assets. Investments
accounting for a majority of these Level 3 assets were in funds
managed by a third-party manager which values the funds at an
independent expert's estimate of fair value. The Directors value
these investments at net asset value, adjusted as necessary to
recognise the illiquidity of the investments and any expected costs
associated with their sale. Direct investments in the equity of
unquoted companies accounted for a minority of these Level 3 assets
at 31 March 2018 and 30 September 2017. The Directors valued these
investments according to the valuation methodology outlined in note
2.4.
The Directors may consider adjustments to these valuations. The
range of possible adjustments could be large, depending on the
circumstances. The Directors would consider the recommendation of
the Investment Manager. The valuation methodologies applied for the
Level 3 assets are based on independent experts' and Directors'
assessments of fair value, indicative bids for the investments, and
last transactions in the equity or comparable equity. The
unobservable inputs used are discounts applied for illiquidity
which range from 0% to 100%. For the purposes of sensitivity
analysis, a 25 percentage point adjustment in the discount for the
Level 3 assets could be considered reasonable. A 25 percentage
point adjustment in the discount for the Level 3 assets would
result in a movement, up or down, in the Company's net assets of
9.1% (30 September 2017: 10.6%).
Please refer to note 2.4 for detail regarding valuation
methodologies used.
EFR Guernsey Holding Limited equity interest
The Company holds a 100% equity interest in EFR Guernsey Holding
Limited, a company incorporated in Guernsey on the 21 June 2016,
which holds an equity investment in Lonestar. Ordinary shares in
EFR Guernsey Holding Limited have no par value and are redeemable.
The Board does not expect that EFR Guernsey Holding Limited will
pay significant, or any, dividends although it reserves the right
to do so.
As at 31 March 2018 and 30 September 2017, given that the
Company had a less than 20% economic interest in the ordinary
equity of Lonestar, less than 20% of the votes that can be cast in
a general meeting, and controlled only two of Lonestar's ten member
board, the Directors determined that EFR Guernsey Holdings Limited
and the Company did not have significant influence over Lonestar's
strategic, operating and financial policies.
As at 31 March 2018, EFR Guernsey Holding Limited held 4,174,259
shares in Lonestar. Lonestar operates in the United States and
constitutes 51.7% (30 September 2017: 44.6%) of the Company's net
assets (included as a Level 2 asset in the table above).
The Lonestar investment is valued in the Company's NAV and
financial statements at its trailing five-day volume weighted
average share price as reported to the NASDAQ Exchange, adjusted as
necessary for any expected costs associated with its sale and for
factors likely to affect the amount that could be realised
including the size of the holding relative to observable
liquidity.
7. Other payables
31 March 30 September
2018 2017
GBP GBP
Audit fees 22,438 45,000
Printing fees 27,325 20,278
Directors' fees 18,750 18,750
Sundry other payables 33,832 5,735
Broker fees 12,500 12,500
Administration fees 17,523 17,523
Registrar fees 4,564 4,424
Company Secretarial fees 11,116 6,949
Custody fees 1,666 1,666
Total other payables 149,714 132,825
---------------------------- --------- -------------
8. Provision
The Company's net assets at 30 September 2016 included a
provision of GBP1,244,779, further to EWPO's Scheme of
Reconstruction. This provision was made up of GBP732,092 in
relation to a future funding commitment and GBP512,687 in relation
to forward looking operating costs. During the period ended 30
September 2017, the future funding commitment provision of
GBP732,092 in relation to one investment was reversed due to
changes in conditions. In addition the provision for forward
looking costs increased by GBP279,630, from GBP512,687 to
GBP792,317, as the forward looking period was extended from six
months to the expected remaining life of the Company. These changes
were recognised in the Statement of Comprehensive Income during the
period ended 30 September 2017.
During the six months ended 31 March 2018, the provision for
forward looking costs was reduced by GBP333,044, from GBP792,317 to
GBP459,273, to reflect the shorter expected remaining life of the
Company. This change in the provision, including an unrealised
foreign exchange gain of GBP3,408, was recognised in the Condensed
Interim Statement of Comprehensive Income during the period ended
31 March 2018.
The provision as at 31 March 2018 may differ from the actual
amount incurred on ultimate wind-up of the Company.
9. Share capital
Authorised
The authorised share capital of the Company is represented by an
unlimited number of redeemable Ordinary Shares at no par value.
Allotted, called up and fully-paid
Ordinary Shares Number of Share
shares capital
GBP
-------------------------------- ------------ ----------------- -------------
Total issued share capital
as at 1 October 2017 44,977,609 40,420,947
---------------------------------------------- ----------------- -------------
Total issued share capital
as at 31 March 2018 44,977,609 40,420,947
---------------------------------------------- ------------- -------------
Ordinary Shares Number of Share
shares capital
GBP
--------------------------------- ----------- ------------------ -------------
Total issued share capital
as at 28 June 2016 - -
--------------------------------- ----------- ------------------ -------------
Ordinary Shares issued during
the period 52,473,634 47,184,416
Ordinary Share issue costs - (26,885)
Ordinary Shares redeemed during
the period (7,496,025) (6,736,584)
Total issued share capital
as at 30 September 2017 44,977,609 40,420,947
--------------------------------------------------- ------------- -------------
Ordinary Shares
On incorporation, the Company issued one Ordinary Share at a
price of GBP1 to Ecofin Limited. On 22 September 2016, the Company,
pursuant to the Scheme of Reconstruction under section 110 of the
Insolvency Act 1986 (as amended) of EWPO, issued a further
52,473,633 Ordinary Shares at a price of GBP0.8992 per Ordinary
Share, equivalent to gross proceeds of GBP47,184,416 (net proceeds
of GBP47,157,531). The costs and expenses of the initial placing of
Ordinary Shares attributable to the Company pursuant to the Scheme
of Reconstruction were paid for by EWPO, with the exception of
listing fees of GBP26,885 which were paid for by the Company. On 23
September 2016, the Company redeemed the one Ordinary Share that
was issued to Ecofin Limited for a consideration of GBP1. The newly
issued 52,473,633 Ordinary Shares were admitted to trading on the
Specialist Fund Segment of the Main Market of the London Stock
Exchange with effect from 26 September 2016. On 15 September 2017,
7,496,024 Ordinary Shares were redeemed at a price of 40.07p per
Ordinary Share (after allowing for costs of redemption of
GBP9,000). Further detail on the Compulsory redemption mechanism is
provided below. As at 31 March 2018, the Company had 44,977,609
Ordinary Shares in issue (30 September 2017: 44,977,609 Ordinary
Shares).
Each holder of Ordinary Shares has equal rights and is entitled
to attend and vote at all general meetings that are held by the
Company. Each holder is also entitled to receive payment of a
dividend should the Company declare such a dividend payment. Any
dividends payable by the Company will be distributed to the holders
of the Company's Ordinary Shares, and on the winding-up of the
Company or other return of capital (other than by way of a
repurchase or redemption of shares in accordance with the
provisions of the amended and restated Articles of Incorporation
(the "Articles") and the Companies Law), the Company's surplus
assets, after payment of all creditors, will be distributed among
the holders of the Ordinary Shares.
Although it is not expected that the Company will receive any
income during the realisation period, to the extent that it does
receive income, the Board intends to distribute to Shareholders all
of the income received by the Company, net of reasonable expenses,
during the realisation period (subject to compliance with the
Companies Law). The Board intends to consider with its advisers the
most efficient method of returning capital to Shareholders during
the realisation period as the Company investment portfolio is
realised, including the compulsory redemption mechanism as detailed
below.
No dividends have been declared or paid during the period.
Compulsory redemption mechanism
The Articles provide that the Company may make compulsory
redemptions of Ordinary Shares, with the timing and size of such
redemptions being determined at the sole discretion of the
Directors, reflecting the available cash at the relevant time,
subject to any retention made for working capital. Shares are
redeemed from all Shareholders pro rata to their existing holdings
of Ordinary Shares on the relevant record date for any given
redemption, being a date chosen at the Directors' absolute
discretion, to be in the best interests of Shareholders as a whole
(the "Redemption Date").
No compulsory redemptions were made during the six months ended
31 March 2018 (30 September 2017: 7,496,024 Ordinary Shares were
redeemed, returning GBP3.0 million to Shareholders).
Liquidation resolution
Subject to any extension of the life of the Company granted by
an extraordinary resolution (described below), the Directors shall
convene a general meeting as soon as reasonably practicable after
the realisation of all of the realisable investments held by the
Company, and in any event no later than the second anniversary of
Admission (being 26 September 2018 or such later date as determined
in accordance with the Articles). At such general meeting, the
Directors shall propose an ordinary resolution that the Company
should be voluntarily wound up (the "Liquidation Resolution").
With effect from the passing of the Liquidation Resolution, a
liquidator will be appointed and the Company shall cease to carry
on business except in so far as may be expedient for the beneficial
winding up the Company.
At any time prior to the Liquidation Resolution being proposed,
the Company may by extraordinary resolution extend the deadline for
proposing such liquidation for a period of one year, and thereafter
may extend such deadline for additional periods of one year in each
case by a further extraordinary resolution.
10. Basic and diluted earnings per Ordinary Share
Six months For the period
ended from
28 June 2016
31 March to
31 March
2018 2017
(Unaudited) (Unaudited)
GBP GBP
Total comprehensive profit/(loss)
for the period 1,330,044 (20,107,361)
Weighted average number of Ordinary
Shares during the period 44,977,609 36,182,180
Basic and diluted earnings per Ordinary
Share 0.0296 (0.5557)
No Ordinary Shares were issued or redeemed during the six months
ended 31 March 2018.
The weighted average number of Ordinary Shares during the period
from 28 June 2016 to 31 March 2017 is calculated on the basis that
one Ordinary Share was in issue during the period from
incorporation to 21 September 2016, 52,473,634 Ordinary Shares were
in issue on the 22 September 2016, and 52,473,633 Ordinary Shares
were in issue during the period from 23 September 2016 to 31 March
2017.
11. Net asset value per share
31 March 30 September
2018 2017
GBP GBP
(Unaudited) (Audited)
Net asset value 19,522,742 18,192,698
Number of Ordinary Shares
at period end 44,977,609 44,977,609
Net asset value per Ordinary
Share 0.4341 0.4045
12. Reconciliation of NAV to published NAV
31 March 30 September
2018 2017
NAV per Ordinary NAV per Ordinary
Share Share
(Unaudited) (Audited)
GBP GBP
------------------------------------------ ----------------- -----------------
Published NAV per Ordinary
Share 0.4341 0.3936
-------------------------------------------- ----------------- -----------------
Reversal of provision relating to future
funding commitment - 0.0109
--------------------------------------------- ----------------- -----------------
NAV attributable to Shareholders 0.4341 0.4045
-------------------------------------------- ----------------- -----------------
13. Related party disclosure
The Investment Manager is deemed a related party. Please refer
to note 3 for further detail. No performance fee was payable to the
Investment Manager as at 31 March 2018 (30 September 2017:
GBPnil).
The Directors of the Company are related parties and entitled to
remuneration for their services (please refer to note 4). Martin
Nègre was a director of EWPO until September 2016 and is currently
a non-executive director of funds managed by the Investment
Manager.
EFR Guernsey Holding Limited is deemed a related party. As at 31
March 2018, EFR Guernsey Holding Limited owed GBP26,904 (30
September 2017: GBP16,931) to the Company. Martin Nègre is a
director of EFR Guernsey Holding Limited and has waived his
directorship fees.
14. Events after the reporting date
There were no events which occurred subsequent to the period end
until the date of approval of the unaudited condensed interim
financial statements which would have a material impact on the
unaudited condensed interim financial statements of the Company as
at 31 March 2018, except as set out below:
During the period 31 March 2018 to 6 June 2018, the NAV per
share rose by 46.6% from 43.41p to 63.64p as a result of an
increase in the fair value of Lonestar predominantly and beneficial
movements in foreign currency translation.
15. Controlling party
In the Directors' opinion, the Company has no ultimate
controlling party.
Company information
Board Members Legal Advisers to the Company
Martin Nègre (Chairman) (as to Guernsey law)
Robert Sinclair (Chairman of Carey Olsen
the Audit Committee) P.O. Box 98
Nick Tostevin (Chairman of Carey House
the Management Engagement Committee) Les Banques
St Peter Port
All Directors were appointed Guernsey
on the 28 June 2016 with the GY1 4BZ
exception of Martin Nègre
who was appointed on the 20
July 2016.
Registered Office Custodian
BNP Paribas House BNP Paribas Securities Services
St Julian's Avenue S.C.A., Guernsey Branch
BNP Paribas House
St Julian's Avenue
St Peter Port St Peter Port
Guernsey Guernsey
GY1 1WA GY1 1WA
Registrar Independent Auditor
Link Market Services (Guernsey) Ernst & Young LLP
Limited (formerly Capita Registrars Royal Chambers
(Guernsey) Limited) St Julian's Avenue
Mont Crevelt House St Peter Port
Bulwer Avenue Guernsey
St Sampson GY1 4AF
Guernsey
GY2 4LH
Administrator and Company Secretary Investment Manager
BNP Paribas Securities Services Ecofin Limited
S.C.A., Guernsey Branch Burdett House
BNP Paribas House 15 Buckingham Street
St Julian's Avenue London
St Peter Port WC2N 6DU
Guernsey
GY1 1WA
BNP Paribas Securities Services Ecofin Limited is regulated
S.C.A. Guernsey Branch is regulated by the Financial Conduct Authority
by the Guernsey Financial Services and the Securities and Exchange
Commission. Commission.
Financial Adviser UK Transfer Agent
Link Asset Services (formerly
Capita Registrars Limited
Winterflood Securities Limited (formerly trading as Capita
The Atrium Building Asset Services)
Cannon Bridge House The Registry
25 Dowgate Hill 34 Beckenham Road
London Beckenham
EC4R 2GA Kent
BR3 4TU
Legal Advisers to the Company
(as to English law)
Norton Rose Fulbright LLP
3 More London Riverside
London
SE1 2AQ
Enquiries:
BNP Paribas Securities Services S.C.A., Guernsey Branch 01481
750822
Company Secretary
Sarah Hendry
A copy of the Company's Interim Financial Report will be posted
to the shareholders of the Company. Copies are also available from
the Company Secretary, BNP Paribas Securities Services S.C.A.,
Guernsey Branch at BNP Paribas House, St Julian's Avenue, St Peter
Port, Guernsey, GY1 1WA, or on the Investment Manager's website
www.ecofin.co.uk.
Neither the contents of the Company's website nor the contents
of any website accessible from hyperlinks on the Company's website
(or any other website) is incorporated into, or forms part of, this
announcement.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR DVLBBVQFZBBQ
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June 08, 2018 11:15 ET (15:15 GMT)
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