TIDMQWIL
RNS Number : 8550S
Queen's Walk Investment Limited
17 September 2010
Queen's Walk Investment Limited
Financial Results Announcement for the
First Quarter Ended 30 June 2010
Queen's Walk Investment Limited reports EUR2.8 million profit for quarter ended 30
June 2010
Queen's Walk Investment Limited (the "Company"), a Guernsey-incorporated
investment company, has reported a net profit of EUR2.8 million, or EUR0.10 per
ordinary share1 for the quarter ended 30 June 2010, compared to a net profit of
EUR3.0 million, or EUR0.11 per ordinary share for the quarter ended 31 March 2010.
This represents the fourth consecutive quarter the Company has recorded a
profit.
The Company's net asset value ("NAV") at quarter end was EUR3.75 per
share2 compared to EUR3.73 per share at the previous quarter end. This figure
takes into account net fair value write-downs in the quarter of EUR0.4 million,
compared to EUR0.1 million of write-ups for the quarter ended 31 March 2010.
The investment portfolio generated EUR6.7 million in the quarter compared with an
estimate of EUR4.0 million and EUR6.3 million received in the previous quarter. The
Company realised additional cash proceeds of EUR10.5 million from asset sales.
The Board of Directors of the Company has declared an interim dividend of EUR0.145
per share for the quarter ended 30 June 20103.
Successful completion of EUR27 million offer of ordinary shares and bonus issue of
preference shares
On 15 September 2010, the Company's shareholders approved a 1 for 2 placing and
open offer of ordinary shares at EUR2.00 per share. In conjunction with the
placing and open offer, the Company has issued a bonus 8% seven year preference
share, denominated in GBP, to qualifying shareholders. The Company intends to
use the proceeds of the offer to invest in European real estate bonds.
Accordingly, the Company intends to change its name to Real Estate Credit
Investments Ltd to reflect this change in investment policy4.
Company is well positioned for a period of growth
The EUR26.6 million capital raising should allow the Company to enter a new phase
of growth by taking advantage of dislocations in prices of real estate debt. The
Company has been generating strong returns in investment grade securities since
2008. The Company believes that combining investment experience with higher cash
reserves of EUR305 million should enable QWIL to generate returns that translate
into gains in NAV.
During the first quarter, growth of the Company's Real Estate Debt Portfolio has
been gathering momentum. As of 30 June it represented 31% of assets, up from 15%
three months earlier. New bond purchases have doubled quarter-on-quarter with 23
investments made in the three months up to 30 June. The bond portfolio has
generated fair value gains of EUR2.2 million in the quarter and currently has a
weighted average portfolio yield of 14.5%.
Tom Chandos, Chairman of Queen's Walk Investment Limited, said: "The Company is
entering a stage in its life whereby its priority shifts to growth after the
successful stabilisation strategy of the past two years. Through their support
of our EUR27 million equity issue our investors have signalled their clear support
for our growth strategy."
First Quarter Highlights
· Quarterly dividend of EUR0.145 per share; total paid or declared dividends of
EUR2.595 per share since the IPO
· Real estate bond portfolio comprises approximately 31% of investment
portfolio by value across 46 bond positions
· Sales of SME loan portfolios accretive to NAV
· Estimated cash flows of EUR3.5 million next quarter
Conference Call & Further Information
A conference call to review the Company's financial results for the first
quarter ended 30 June 2010 will take place at 10.30am London time on 17
September 2010. The conference call can be accessed by dialing + 44 (0)20 7153
8942, ten minutes prior to the scheduled start of the call. Please reference
Queen's Walk Investment Limited. A results presentation will be available on
the Queen's Walk website (www.queenswalkinv.com).
A webcast of the conference call will also be available on a listen-only basis
at www.queenswalkinv.com. Please allow extra time prior to the call to visit the
site and download the necessary software required to listen to the internet
broadcast. A replay of the webcast will be available for three months following
the call.
For further information please contact:
Public Relations: Caroline Villiers +44 (0)20 7920 2321
James Wallis +44 (0) 20 7920 2329
Investor Relations: Natalie Withers +44 (0)20 7968 7348
Notes:
1. Calculations per share based on weighted average number of Ordinary
Shares outstanding as shown in the financial statements for the quarter ended 30
June 2010
2. Calculations per share are based on the number of Ordinary Shares
outstanding at the end of each respective period
3. The amount of the dividend has been set to take into account income
generated by the Company's investment portfolio in the period ending 30th June
and also the income expected to be generated by the Company's investment
portfolio up to the date of the Company's extraordinary general meeting on 15
September 2010
4. Name change subject to Guernsey regulatory approval
5. Expected balance of EUR30 million at 30 September 2010 includes proceeds of
capital raising
About the Company
Queen's Walk Investment Limited is a Guernsey-incorporated investment company
listed on the London Stock Exchange. The Company's investment objective is to
provide Ordinary Shareholders with a levered exposure to a portfolio of real
estate credit investments and a diversified and amortising portfolio of Residual
Income Positions, and to provide Preference Shareholders with stable returns in
the form of quarterly dividends. The Company intends to focus on secured
residential and commercial debt in the UK and Western Europe by exploiting
opportunities in publically traded securities and real estate loans. In making
these investments the Company uses the expertise and knowledge of its Investment
Manger, Cheyne Capital Management Limited. The Company has adopted a long term
strategic approach to investing and focuses on identifying value.
This announcement includes statements that are, or may be deemed to be,
"forward-looking statements". These forward-looking statements can be identified
by the use of forward-looking terminology, including the terms "believes",
"forecasts", "estimates", "anticipates", "expects", "intends", "considers",
"may", "will" or "should". By their nature, forward-looking statements involve
risks and uncertainties and readers are cautioned that any such forward-looking
statements are not guarantees of future performance. The Company's actual
results and performance may differ materially from the impression created by the
forward-looking statements and should not be relied upon. The Company undertakes
no obligation to publicly update or revise forward-looking statements, except as
may be required by applicable law and regulation (including the Listing Rules).
Financial Highlights
+-----------------+-----------+---------+-----------+-----------+-----------+-----------+
| | Revenue | Fair | Total | Revenue | Fair | Total |
| | | value | Quarter | | value | Quarter |
| | | gains | ended | | gains | ended |
| | | and | 31 | | and | 30 June |
| | | losses | March | | losses | 2010 |
| | | | 2010 | | | |
+-----------------+-----------+---------+-----------+-----------+-----------+-----------+
| Operating | 3,747,279 | | 3,747,279 | 4,133,097 | | 4,133,097 |
| Income | | | | | | |
+-----------------+-----------+---------+-----------+-----------+-----------+-----------+
| Gains and | | 115,472 | 115,472 | | (392,035) | (392,035) |
| losses on fair | | | | | | |
| value through | | | | | | |
| profit or loss | | | | | | |
| financial | | | | | | |
| instruments | | | | | | |
+-----------------+-----------+---------+-----------+-----------+-----------+-----------+
| | 3,747,279 | 115,472 | 3,862,751 | 4,133,097 | (392,035) | 3,741,062 |
+-----------------+-----------+---------+-----------+-----------+-----------+-----------+
| | | | | | | |
+-----------------+-----------+---------+-----------+-----------+-----------+-----------+
| Operating | (769,041) | | (769,041) | (967,369) | | (967,369) |
| Expenses | | | | | | |
+-----------------+-----------+---------+-----------+-----------+-----------+-----------+
| Finance Costs | (67,217) | | (67,217) | (3,492) | | (3,492) |
+-----------------+-----------+---------+-----------+-----------+-----------+-----------+
| Net profit / | 2,911,021 | 115,472 | 3,026,493 | 3,162,236 | (392,035) | 2,770,201 |
| (loss) | | | | | | |
+-----------------+-----------+---------+-----------+-----------+-----------+-----------+
| | | |
+-----------------+---------------------------------+-----------------------------------+
| Total Assets | 111,336,170 | 104,672,202 |
+-----------------+---------------------------------+-----------------------------------+
| Total | 12,006,329 | 4,703,733 |
| Liabilities | | |
+-----------------+---------------------------------+-----------------------------------+
| Equity Capital | 99,329,841 | 99,968,469 |
+-----------------+---------------------------------+-----------------------------------+
| NAV per share | 3.73 | 3.75 |
+-----------------+---------------------------------+-----------------------------------+
| Shares | 26,644,657 | 26,644,657 |
| Outstanding | | |
+-----------------+-----------+---------+-----------+-----------+-----------+-----------+
Investment Portfolio
A breakdown of the Company's investment portfolio as at 31 March 2010 and 30
June 2010 by jurisdiction (by reference to underlying asset originator) is set
out below. The Real Estate Debt Portfolio is included in the charts and is also
detailed in the next section. Percentages for each asset class are in relation
to the value of the Company's investment portfolio, as at the relevant date
excluding cash and hedges.
+--------------------+----------------------------+
| Queen's Walk Portfolio Breakdown by |
| Jurisdiction as at 31 March 2010 |
| |
+-------------------------------------------------+
| Portugal | 36.0% |
+--------------------+----------------------------+
| Germany | 24.3% |
+--------------------+----------------------------+
| UK | 17.0% |
+--------------------+----------------------------+
| Holland | 12.2% |
+--------------------+----------------------------+
| Italy | 9.7% |
+--------------------+----------------------------+
| France | 0.7% |
+--------------------+----------------------------+
| Switzerland | 0.1% |
+--------------------+----------------------------+
| Total (EURmm) | 92.5 |
+--------------------+----------------------------+
+--------------------+----------------------------+
| Queen's Walk Portfolio Breakdown by |
| Jurisdiction as at 30 June 2010 |
| |
+-------------------------------------------------+
| Portugal | 33.3% |
+--------------------+----------------------------+
| UK | 27.5% |
+--------------------+----------------------------+
| Germany | 15.5% |
+--------------------+----------------------------+
| Holland | 12.4% |
+--------------------+----------------------------+
| Italy | 7.9% |
+--------------------+----------------------------+
| France | 3.3% |
+--------------------+----------------------------+
| Switzerland | 0.1% |
+--------------------+----------------------------+
| Total (EURmm) | 92.3 |
+--------------------+----------------------------+
A breakdown of the Company's investment portfolio by asset type (by reference to
underlying asset collateral) is set out below. Percentages for each asset class
are in relation to the value of the Company's investment portfolio, excluding
cash and hedges.
+--------------------+----------------------------+
| Queen's Walk Portfolio Breakdown by Asset Type |
| as at 31 March 2010 |
| |
+-------------------------------------------------+
| Prime | 46.8% |
+--------------------+----------------------------+
| SME | 30.3% |
+--------------------+----------------------------+
| Real Estate Debt | 15.3% |
+--------------------+----------------------------+
| SubPrime | 5.8% |
+--------------------+----------------------------+
| NearPrime | 1.8% |
+--------------------+----------------------------+
| Total (EURmm) | 92.5 |
+--------------------+----------------------------+
+--------------------+----------------------------+
| Queen's Walk Portfolio Breakdown by Asset Type |
| as at 30 June 2010 |
| |
+-------------------------------------------------+
| Prime | 42.2% |
+--------------------+----------------------------+
| Real Estate Debt | 30.9% |
+--------------------+----------------------------+
| SME | 18.7% |
+--------------------+----------------------------+
| SubPrime | 5.8% |
+--------------------+----------------------------+
| NearPrime | 1.8% |
+--------------------+----------------------------+
| Total (EURmm) | 92.3 |
+--------------------+----------------------------+
N.B. 'Prime' indicates that the underlying pool of loans comprises mortgages
made to borrowers with good credit records and whose incomes were verified at
the time of the origination.
Real Estate Debt Portfolio (6)
The Real Estate Debt portfolio is gathering momentum in size and performance and
is expected to comprise more than 50% of the Company's assets by the end of the
calendar year. As of 30 June it represented 31% of the investment portfolio, up
from 15% three months earlier.
New bond purchases have doubled quarter on quarter with 23 investments in the
quarter totalling EUR12.5 million made in the quarter ended 30 June, up from 11 in
the previous quarter. New purchases were spread evenly across mezzanine, UK RMBS
bonds and CMBS bonds. The average purchase price was 56.2 cents.
The Real Estate Debt Portfolio recorded cash flows of EUR0.2 million in the
quarter ended 30 June 2010, compared with EUR0.2 million in the previous quarter.
Performance of the Real Estate Debt Portfolio has been strong with fair value
gains of EUR2.2 million in the recent quarter.
As at 30 June 2010, the Real Estate Debt portfolio held 46 bonds at a cost value
of EUR25.8 million and a nominal value of EUR45.9 (7) million. As at 31 August
2010, the portfolio held 51 bonds at a cost value of EUR27.9 million and a nominal
value of EUR50.2 million (7). The following tables detail the bonds held by the
Company as at 31 August 2010 (8). The weighted average yield of the portfolio is
approx 14.5%.
Percentage of Portfolio by Cost Price (as at 31 August 2010)
+---------+-------------+-------------+------------+------------+---------+---------+
| Rating | UK | European | UK | European | SME | Total |
| by Type |Residential |Residential |Commercial |Commercial | | |
+---------+-------------+-------------+------------+------------+---------+---------+
| AAA | 12.3% | 0.0% | 3.3% | 4.1% | 0.0% | 19.6% |
+---------+-------------+-------------+------------+------------+---------+---------+
| AA | 11.1% | 0.4% | 3.0% | 5.9% | 0.0% | 20.3% |
+---------+-------------+-------------+------------+------------+---------+---------+
| A | 10.9% | 0.0% | 8.0% | 7.1% | 0.0% | 25.9% |
+---------+-------------+-------------+------------+------------+---------+---------+
| BBB | 3.8% | 0.0% | 4.9% | 5.7% | 2.6% | 17.1% |
+---------+-------------+-------------+------------+------------+---------+---------+
| BB and | 1.6% | 0.0% | 2.2% | 13.3% | 0.0% | 17.0% |
| Below | | | | | | |
+---------+-------------+-------------+------------+------------+---------+---------+
| Total | 39.6% | 0.4% | 21.4% | 36.1% | 2.6% | 100.0% |
| (9) | | | | | | |
+---------+-------------+-------------+------------+------------+---------+---------+
European Mortgage Portfolio
(6) The Real Estate Debt portfolio includes one bond collateralised by SME loans
accounting for 2.6% of the portfolio
(7) Nominal shown is original notional using pool factor and FX rate at the time
of purchase
(8) The tables include the bonds purchased at their cost using FX rates at the
time of purchase
(9) The total value for each column or row may not sum to the total due to
rounding differences
The Company's European mortgage residual income positions performed
satisfactorily, generating cash flow of EUR2.9 million for the quarter ended 30
June 2010, compared to EUR1.8 million in the previous quarter. Write-downs in this
portfolio totalled EUR2.9 million of which EUR2.2 million was in the Sestante
mortgage portfolio.
In relation to the Sestante mortgage portfolio, the write-downs are a result of
an increase in the discount rate from 15% to 20%.
Write-downs in the Portuguese portfolio stem from the Company's decision to
slightly increase its assumption regarding losses suffered on defaulted loans.
However the current lower Euribor rate has had a positive effect on the
Portuguese mortgage portfolio, with fewer mortgage borrowers falling into
arrears than in previous quarters. The lower level of arrears translated into
lower defaults in the portfolio for the quarter.
The Company is closely following developments regarding fiscal deficits in
Southern Europe and widening credit spreads. The Company believes that the
wider spreads should have no direct impact on its mortgage portfolios because
the majority of its mortgage loans are indexed to short term Euribor rates. The
key risk to asset value remains an increase in unemployment and consequent
mortgage defaults as a result of government austerity measures.
SME Portfolio Investments
Cash flows in the quarter ended 30 June 2010 totalled EUR1.8 million, compared
with EUR1.7 million in the previous quarter. However, the Company recorded
fair-value write-downs of EUR2.7 million in the quarter in anticipation of higher
default rates in the Smart 2006-1 (Eirles 236-B) portfolio.
During the quarter the Company sold the Gate 06-1 and Gate 05-2 SME portfolios
at levels that were accretive to NAV. Following those sales the SME portfolio as
a whole made up 18.7% of the Company's investments as at 30 June, down from
30.3% on 31 March 2010.
The performance of the Amstel 06-01 investment has exceeded expectations with
both more positive default rates and greater cash flows than previously
estimated. Amstel represents 62% of the SME portfolio by value as at 30 June
2010.
As highlighted previously the Company expects default rates in this portfolio to
remain volatile. The average default rate for the SME portfolio rose to 2.1%,
from 0.6% in the previous quarter. The Smart 06-1 asset recorded a substantial
increase in default rates from 0.7% to 4.1% with the majority of defaults
occurring in Spain.
The table below outlines the actual default rates in the SME portfolio and the
intra-period volatility of default rates. The valuations of the SME assets
continue to maintain a conservative bias in our default rate forecast relative
to historical averages.
+---------+--------------+--------------+--------------+---------+
| | Dec | March | Jun |Average |
| | 2009 | 2010 | 2010 |Default |
| | Default | Default | Default |Rate in |
| | Rate | Rate | Rate | the |
| |(annualised) |(annualised) |(annualised) | Past |
| | | | | Year |
+---------+--------------+--------------+--------------+---------+
| Amstel | 0.3% | 0.5% | 0.0% | 0.2% |
| 06-1 | | | | |
+---------+--------------+--------------+--------------+---------+
| Smart | 1.3% | 0.7% | 4.1% | 1.8% |
| 06-1 | | | | |
+---------+--------------+--------------+--------------+---------+
| Average | 0.8% | 0.6% | 2.1% | 1.0% |
+---------+--------------+--------------+--------------+---------+
UK Mortgage Portfolio
The UK Mortgage residual income positions recorded cash flows of GBP0.9 million
in the quarter ended 30 June 2010 compared to GBP1.6 million in the previous
quarter.
The Company has increased the valuation of its RMAC assets by EUR0.75 million, as
a result of lower defaults in the first quarter versus our previous assumptions.
The Company maintains conservative forecasts of defaults for the UK mortgage
portfolio. The Company continues to work with mortgage originators to identify
loans that do not satisfy the representations and warranties provided at the
time of the securitisation.
Portfolio Valuation
In accordance with the Company's valuation procedures, the fair value of the
Company's investments is calculated on the basis of observable market data,
market discount rates and the Investment Manager's expectations regarding future
trends. Given re-structurings at many investment banks, there is a lack of
reliable, independent broker marks for assets in the residual income portfolio.
Therefore, the Company has elected to use a model-based approach to value its
residual investments and employs an external valuation agent to review the
underlying pricing assumptions. The Company applies a discount rate to the
loss-adjusted cash flows to calculate the fair value. The Company received
broker marks for all of its bonds.
Changes in the balance sheet value of the residual portfolio between 31 March
2010 and 30 June 2010 (excluding sales) totalled -EUR5.9 million. This comprised
-EUR1.1 million of principal amortisation and fair value losses of -EUR4.8 million.
In relation to the Real Estate Debt portfolio, the balance sheet value increased
by EUR13.7 million. There were EUR12.5 million new purchases, fair value gains of
EUR2.2 million, principal amortisations of -EUR0.1 million and sales of -EUR0.9
million. After giving effect to these balance sheet changes in the quarter
ended 30 June 2010, the NAV of the Company was EUR3.75 per share as at 30 June
2010 (versus EUR3.73per share as at 31 March 2010).
The Company recorded total cash flows of EUR17.2 million in the quarter, of which
EUR6.1 million came from the investment portfolio (excluding hedges). The sale of
the SME portfolios and one bond generated EUR10.5 million and a further EUR0.6
million came from interest rate swap hedges. The table below summarises changes
in balance sheet values of the Company's investment portfolio by asset class:
+-----------+----------+--------+--------+------------------------------+------------------------------+
| | 31 Mar | 30 Jun | Change | Cash | Cash |
| Asset | 2010 | 2010 | to B/S | flows | flows |
| Class | B/S | B/S | Value | Received | Received |
| | Value1,2 | Value2 | Since | in the | in the |
| | (EURmm) | (EURmm) | 31 Mar | Quarter | Quarter |
| | | | 2010 | Ended | Ended 31 |
| | | | (EURmm) | 30 Jun | Mar |
| | | | | 2010 | 20103 |
| | | | | (EURmm) | (EURmm) |
+-----------+----------+--------+--------+------------------------------+------------------------------+
| UK | 8.8 | 9.5 | 0.7 | 1.1 | 2.0 |
| Mortgages | | | | | |
+-----------+----------+--------+--------+------------------------------+------------------------------+
| Euro | 41.6 | 37.1 | -4.5 | 2.9 | 1.8 |
| Mortgages | | | | | |
+-----------+----------+--------+--------+------------------------------+------------------------------+
| SME | 19.4 | 18.4 | -2.1 | 1.8 | 1.7 |
+-----------+----------+--------+--------+------------------------------+------------------------------+
| Real | 14.8 | 28.0 | 13.7 | 0.2 | 0.2 |
| Estate | | | | | |
| Debt | | | | | |
+-----------+----------+--------+--------+------------------------------+------------------------------+
| TOTAL4 | 84.6 | 92.3 | 7.7 | 6.1 | 5.6 |
+-----------+----------+--------+--------+------------------------------+------------------------------+
1. Balance sheet values as at 31 March 2010 are expressed using 30 June 2010
FX rates.
2. The balance sheet value figures for 31 March 2010 and 30 June 2010
include accrued interest.
3. Cash flows for 31 March 2010 are expressed using 30 June 2010 FX rates.
4. The values for each column may not sum to the total due to rounding
differences.
Company Outlook - Real Estate Debt to become the flagship investment strategy
The Company's increased focus on real estate debt investments, in particular
mortgage-backed bonds, should deliver investors improved returns and a more
favourable risk/reward profile. The shift towards publicly-traded securities
will also provide greater transparency of asset prices and more liquidity.
Successfully completing the EUR26.6 million capital raising puts the Company in a
position to act quickly in making significant changes to the composition and
risk profile of its portfolio. By the end of the year, the Company is aiming
for real estate debt investments to account for more than 50% of its overall
portfolio.
The Company currently intends to make two thirds of new investments in bonds
backed by commercial real estate debt in the form of CMBS. One third of new
investments are to be made in bonds backed by residential mortgages in the form
of RMBS. Geographically, investments will focus on Northern Europe, including
the UK.
Investments already made over the past two years in mortgage-backed bond markets
continue to perform well and the Company has had success in acquiring these
investments at attractive prices. In recent months the Company has been
purchasing mezzanine debt at a yield to maturity of more than 12%, and we expect
to continue investing in this area.
Structured debt markets continue to be affected by technical imbalances that
play to the Company's advantage. The Company expects these imbalances to be
further compounded by increasing regulatory changes and continued de-leveraging.
These catalysts should slow price appreciation thus providing continued
opportunities for attractive investment opportunities in the short to medium
term.
Unaudited Condensed Consolidated Statement of Comprehensive Income
For the quarter ended 30 June 2010 and quarter ended 31 March 2010
+------------------------------+------+----------------+------------------+
| | | | |
| | | Quarter ended | Quarter ended |
| |Note | 30 June 2010 | 31 March 2010 |
+------------------------------+------+----------------+------------------+
| | | Euro | Euro |
+------------------------------+------+----------------+------------------+
| | | | |
+------------------------------+------+----------------+------------------+
| Interest income | 5 | 4,133,097 | 3,747,279 |
+------------------------------+------+----------------+------------------+
| Gains and losses on fair | 4 | (392,035) | 115,472 |
| value through profit or loss | | | |
| financial instruments | | | |
+------------------------------+------+----------------+------------------+
| | | 3,741,062 | 3,862,751 |
+------------------------------+------+----------------+------------------+
| | | | |
+------------------------------+------+----------------+------------------+
| Operating expenses | 6 | (967,369) | (769,041) |
+------------------------------+------+----------------+------------------+
| Finance costs | 5 | (3,492) | (67,217) |
+------------------------------+------+----------------+------------------+
| Net profit | | 2,770,201 | 3,026,493 |
+------------------------------+------+----------------+------------------+
| | | | |
+------------------------------+------+----------------+------------------+
| Profit per Ordinary Share | | | |
+------------------------------+------+----------------+------------------+
| Basic | 8 | Euro 0.10 | Euro 0.11 |
+------------------------------+------+----------------+------------------+
| Diluted | 8 | Euro 0.10 | Euro 0.11 |
+------------------------------+------+----------------+------------------+
| | | | |
+------------------------------+------+----------------+------------------+
| Weighted average Ordinary | | | |
| Shares outstanding | | Number | Number |
+------------------------------+------+----------------+------------------+
| Basic | 8 | 26,644,657 | 26,644,657 |
+------------------------------+------+----------------+------------------+
| Diluted | 8 | 26,644,657 | 26,644,657 |
+------------------------------+------+----------------+------------------+
All items in the above statement are derived from continuing operations.
All income is attributable to the Ordinary Shareholders of the Company.
Unaudited Condensed Consolidated Statement of Changes in Equity
For the quarter ended 30 June 2010 and quarter ended 31 March 2010
+----------------------------------+------+-----------+-------------+-------------+
| | | | | |
| | | Share | Reserves | TOTAL |
| | | Capital | | |
+----------------------------------+------+-----------+-------------+-------------+
| | Note | Euro | Euro | Euro |
+----------------------------------+------+-----------+-------------+-------------+
| | | | | |
+----------------------------------+------+-----------+-------------+-------------+
| Balance at 31 December 2009 | | - | 98,434,921 | 98,434,921 |
+----------------------------------+------+-----------+-------------+-------------+
| | | | | |
+----------------------------------+------+-----------+-------------+-------------+
| Net profit for the quarter | | - | 3,026,493 | 3,026,493 |
+----------------------------------+------+-----------+-------------+-------------+
| Distribution to the Ordinary | 7 | - | (2,131,573) | (2,131,573) |
| Shareholders of the Company | | | | |
+----------------------------------+------+-----------+-------------+-------------+
| | | | | |
+----------------------------------+------+-----------+-------------+-------------+
| Balance at 31 March 2010 | - | 99,329,841 | 99,329,841 |
+-----------------------------------------+-----------+-------------+-------------+
| | | | | |
+----------------------------------+------+-----------+-------------+-------------+
| Net profit for the quarter | | - | 2,770,201 | 2,770,201 |
+----------------------------------+------+-----------+-------------+-------------+
| Distribution to the Ordinary | 7 | - | (2,131,573) | (2,131,573) |
| Shareholders of the Company | | | | |
+----------------------------------+------+-----------+-------------+-------------+
| | | | | |
+----------------------------------+------+-----------+-------------+-------------+
| Balance at 30 June 2010 | - | 99,968,469 | 99,968,469 |
+----------------------------------+------+-----------+-------------+-------------+
Unaudited Condensed Consolidated Statement of Financial Position
As at 30 June 2010
+-------------------------------------+------+--------------+----------+--------------+
| |Note | 30 June 2010 | | 31 March |
| | | | | 2010 |
+-------------------------------------+------+--------------+----------+--------------+
| | | Euro | | Euro |
+-------------------------------------+------+--------------+----------+--------------+
| Non-current assets | | | | |
+-------------------------------------+------+--------------+----------+--------------+
| Investments at fair value through | 10 | 91,283,779 | | 91,568,184 |
| profit or loss | | | | |
+-------------------------------------+------+--------------+----------+--------------+
| | | 91,283,779 | | 91,568,184 |
+-------------------------------------+------+--------------+----------+--------------+
| Current assets | | | | |
+-------------------------------------+------+--------------+----------+--------------+
| Cash and cash equivalents | | 10,025,291 | | 15,718,951 |
+-------------------------------------+------+--------------+----------+--------------+
| Derivative financial assets - | 10 | 289,006 | | 250,300 |
| options held for trading | | | | |
+-------------------------------------+------+--------------+----------+--------------+
| Derivative financial assets - | 12 | 1,871,502 | | 2,421,883 |
| unrealised gain on interest rate | | | | |
| swap agreements | | | | |
+-------------------------------------+------+--------------+----------+--------------+
| Other assets | 11 | 1,202,624 | | 1,376,852 |
+-------------------------------------+------+--------------+----------+--------------+
| | | 13,388,423 | | 19,767,986 |
+-------------------------------------+------+--------------+----------+--------------+
| | | | | |
+-------------------------------------+------+--------------+----------+--------------+
| Total assets | | 104,672,202 | | 111,336,170 |
+-------------------------------------+------+--------------+----------+--------------+
| | | | | |
+-------------------------------------+------+--------------+----------+--------------+
| Equity and liabilities | | | | |
+-------------------------------------+------+--------------+----------+--------------+
| | | | | |
+-------------------------------------+------+--------------+----------+--------------+
| Equity | | | | |
+-------------------------------------+------+--------------+----------+--------------+
| Reserves | 16 | 99,968,469 | | 99,329,841 |
+-------------------------------------+------+--------------+----------+--------------+
| | | 99,968,469 | | 99,329,841 |
+-------------------------------------+------+--------------+----------+--------------+
| Current liabilities | | | | |
+-------------------------------------+------+--------------+----------+--------------+
| Distribution payable | 7 | 2,131,573 | | 2,131,573 |
+-------------------------------------+------+--------------+----------+--------------+
| Other liabilities | 14 | 2,572,160 | | 1,231,789 |
+-------------------------------------+------+--------------+----------+--------------+
| | | 4,703,733 | | 3,363,362 |
+-------------------------------------+------+--------------+----------+--------------+
| | | | | |
+-------------------------------------+------+--------------+----------+--------------+
| Non-current liabilities | | | | |
+-------------------------------------+------+--------------+----------+--------------+
| Loans | 13 | - | | 8,642,967 |
+-------------------------------------+------+--------------+----------+--------------+
| | | | | |
+-------------------------------------+------+--------------+----------+--------------+
| Total liabilities | | 4,703,733 | | 12,006,329 |
+-------------------------------------+------+--------------+----------+--------------+
| | | | | |
+-------------------------------------+------+--------------+----------+--------------+
| Total equity and liabilities | | 104,672,202 | | 111,336,170 |
+-------------------------------------+------+--------------+----------+--------------+
| | | | | |
+-------------------------------------+------+--------------+----------+--------------+
Unaudited Condensed Consolidated Statement of Cash Flows
For the quarter ended 30 June 2010 and quarter ended 31 March 2010
+--------------------------------------+------+----------+--------------+----------+--------------+
| |Note | | Quarter | | Quarter |
| | | | ended | | ended |
| | | | 30 June 2010 | | 31 March |
| | | | | | 2010 |
+--------------------------------------+------+----------+--------------+----------+--------------+
| | | | Euro | | Euro |
+--------------------------------------+------+----------+--------------+----------+--------------+
| | | | | | |
+--------------------------------------+------+----------+--------------+----------+--------------+
| Net cash inflow from operating | 17 | | 5,007,896 | | 13,726,160 |
| activities | | | | | |
+--------------------------------------+------+----------+--------------+----------+--------------+
| | | | | | |
+--------------------------------------+------+----------+--------------+----------+--------------+
| Financing activities | | | | | |
+--------------------------------------+------+----------+--------------+----------+--------------+
| Net repayment of borrowings from | | | (8,642,967) | | (9,657,598) |
| loans | | | | | |
+--------------------------------------+------+----------+--------------+----------+--------------+
| Dividends paid to shareholders | 7 | | (2,131,573) | | (2,131,573) |
+--------------------------------------+------+----------+--------------+----------+--------------+
| Cash flows from financing activities | | | (10,774,540) | | (11,789,171) |
+--------------------------------------+------+----------+--------------+----------+--------------+
| | | | | | |
+--------------------------------------+------+----------+--------------+----------+--------------+
| Net (decrease)/increase in cash | | | (5,766,644) | | 1,936,989 |
+--------------------------------------+------+----------+--------------+----------+--------------+
| | | | | | |
+--------------------------------------+------+----------+--------------+----------+--------------+
| Reconciliation of net cash flow to | | | | | |
| movement in net cash | | | | | |
+--------------------------------------+------+----------+--------------+----------+--------------+
| Net (decrease)/increase in cash and | | | (5,766,644) | | 1,936,989 |
| cash equivalents | | | | | |
+--------------------------------------+------+----------+--------------+----------+--------------+
| Cash and cash equivalents at start | | | 15,718,951 | | 13,741,922 |
| of period | | | | | |
+--------------------------------------+------+----------+--------------+----------+--------------+
| Effect of exchange rate fluctuations | | | 72,984 | | 40,040 |
| on cash and cash | | | | | |
| equivalents | | | | | |
+--------------------------------------+------+----------+--------------+----------+--------------+
| Cash and cash equivalents at end of | | | 10,025,291 | | 15,718,951 |
| period | | | | | |
+--------------------------------------+------+----------+--------------+----------+--------------+
Notes to the Unaudited Condensed Consolidated Quarterly Report
1. General information
Queen's Walk Investment Limited (the "Company") was registered on 6 September
2005 with registered number 43634 and is domiciled in Guernsey, Channel Islands.
The Company commenced its operations on 8 December 2005. The Company is an
authorised closed-ended investment company with limited liability formed under
The Companies (Guernsey) Law, 2008 and its Ordinary Shares have a premium
listing on the London Stock Exchange. The registered office of the Company is
Dorey Court, Admiral Park, St Peter Port, Guernsey, GY1 3BG, Channel Islands.
"Group" is defined as the Company and its subsidiary. At 30 June 2010, the
Company's only subsidiary was Trebuchet Finance Limited.
The Group's investment objective is to preserve capital and provide stable
returns to Shareholders in the form of quarterly dividends. It seeks to achieve
this by investing primarily in a diversified portfolio of tranches of
asset-backed securities ("ABS") where the Investment Manager considers that the
coupon or cash flows on the tranche are attractive relative to the underlying
credit. These are and will be, in most cases, below investment grade or unrated
and do or will, in many cases, represent the residual income positions typically
retained by the originator of a securitisation transaction as the "equity" or
"first loss" position.
The Group's investment management activities are managed by its Investment
Manager, Cheyne Capital Management (UK) LLP (the "Investment Manager"), an
investment management firm authorised and regulated by the Financial Services
Authority. The Group has entered into an Investment Management Agreement (the
"Investment Management Agreement") under which the Investment Manager manages
its day-to-day investment operations, subject to the supervision of the
Company's Board of Directors. The Group has no direct employees. For its
services, the Investment Manager receives a monthly management fee (which
includes a reimbursement of expenses) and a quarterly performance-related fee.
The Group has no ownership interest in the Investment Manager. The Company is
administered by Kleinwort Benson (Channel Islands) Fund Services Limited (the
"Administrator"). State Street Fund Services (Ireland) Limited provide certain
administration services to the Group in its capacity as Sub-Administrator.
2. Significant accounting policies
Statement of compliance
The condensed consolidated quarterly report has been prepared using accounting
policies consistent with International Financial Reporting Standards ("IFRS").
The same accounting policies, presentation and methods of computation are
followed in this report as applied in the Company's latest annual audited
financial statements for the year ended 31 March 2010.
This quarterly report does not comply fully with the requirements of IAS 34
"Interim Reporting". Under IAS 34 the financial information is required to
provide i) a statement of financial position as of the end of the current
interim period and a comparative statement of financial position as of the end
of the immediately preceding financial year; (ii) a statement of comprehensive
income for the period and cumulatively for the period to date and the comparable
periods in the prior year; (iii) a statement of changes in equity cumulatively
for the current financial year to date, with a comparative statement for the
comparable year-to-date period of the immediately preceding financial year; and
(iv) a statement of cash flows cumulatively for the current financial year to
date, with a comparative statement for the comparable year-to-date period of the
immediately preceding financial year. The Group has complied with some of the
requirements in providing the comparative statement of financial position as at
31 March 2010, being the balance sheet of the immediately preceding financial
year, and the current quarter information being the cumulative for the period 30
June 2010. The Group has only shown the current quarter information with
comparative information for the previous financial quarter and hence not
complied with the requirements to provide financial information for the
comparable period in the prior year as the previous financial quarter is
considered by the Directors to be a more appropriate comparative period for the
activities of the Group.
Basis of preparation
The quarterly report of the Group is prepared on the historical cost basis
modified by the following assets and liabilities which are stated at their fair
value: derivative financial instruments, financial instruments held for trading
and financial instruments classified or designated as fair value through profit
or loss.
The majority of the Group's investments are financial instruments that are
classified as fair value through profit or loss. Where bid prices are not
available from a third party in a liquid market, the fair value of the financial
instrument is estimated by reference to market information, which includes but
is not limited to broker marks, prices on comparable assets and a pricing model
that incorporates discounted cash flow techniques.
These pricing models apply assumptions regarding asset-specific factors and
economic conditions generally, including delinquency rates, severity rates,
prepayment rates, default rates, maturity profiles, interest rates and other
factors that may be relevant to each financial asset. Where such pricing models
are used, assumptions are reviewed and updated on the basis of actual
performance data as it is received and on the basis of market conditions as at
the Statement of Financial Position date. See Note 2 - Fair value and Interest
income and note 3 - Critical accounting judgements and key sources of estimation
uncertainty for further information regarding assumptions and critical
judgements.
The Directors believe it is appropriate to adopt the going concern basis in
preparing the condensed consolidated quarterly report as, after due
consideration, the Directors consider that the Group has adequate resources to
continue in operational existence for the foreseeable future. On 6 April 2010,
the Company paid back the remaining EUR 8,642,967 and all interest due,
terminating any further liabilities under the loan facility. In addition, the
Directors note the cash resources currently available (Euro 10.0m), of which
some will be used to pay the proposed dividend, which are sufficient to cover
normal operational costs and current liabilities for the foreseeable future.
The condensed consolidated quarterly report is presented in Euro because that is
the currency of the primary economic environment in which the Group operates.
The functional currency of the Group is also considered to be Euro.
Basis of consolidation
Subsidiaries are entities controlled by the Company (Note 9). The financial
statements of subsidiaries are included in the consolidated financial statements
from the date that control commences until the date that control ceases. At 30
June 2010, the Group is made up of the Company and its only subsidiary,
Trebuchet Finance Limited. In accordance with the Standing Interpretations
Committee Interpretation 12 "Consolidation-Special Purpose Entities" ("SIC 12"),
the Company consolidates only entities over which control is indicated by
activities, decision making, benefits and residual risks of ownership. In
accordance with SIC 12 the Company does not consolidate an SPE in which it holds
less than a substantial interest in the residual income position. Where it holds
more than a substantial interest, it does not consolidate the SPE where the
residual income position represents only a small part of the gross assets of the
SPE and the Company was neither involved in the establishment of the SPE or the
origination of the assets owned by the SPE, on the basis that the Company is not
exposed to the majority of the risks and benefits of the assets owned by the
SPE, provided control is not otherwise indicated by the Company's activities,
decision making, benefits and residual risks or ownership.
Trebuchet Finance Limited, the Company's only subsidiary, is an SPE over which
the Company exercises control and its financial statements are therefore
included in the consolidated financial statements of the Group. The Company
does not consolidate any of the SPEs in which it holds a residual income
position as it is not exposed to the majority of the risks and benefits of the
assets owned by the relevant SPEs and does not control any of them.
Investments
Investments in residual interests and investment grade bonds are recognised
initially at their acquisition cost (being fair value at acquisition date) as
debt securities. Thereafter they are re-measured at fair value and are
designated as fair value through profit or loss investments in accordance with
the Amendment to International Accounting Standard 39 ("IAS 39") Financial
Instruments: Recognition and Measurement-The Fair Value Option, as the Group is
an investment Group whose business is investing in financial assets with a view
to profiting from their total return in the form of interest and changes in fair
value.
Financial assets classified as at fair value through profit or loss are
recognised/derecognised by the Group on the date it commits to purchase/sell the
investments in regular way trades.
Cash and cash equivalents
Cash and cash equivalents includes amounts held in interest bearing accounts and
overdraft facilities.
Derivative financial instruments
Derivative financial instruments used by the Group to hedge its exposure to
foreign exchange and interest rate risks arising from operational, financing and
investment activities that do not qualify for hedge accounting are accounted for
as trading instruments. Derivative financial instruments are recognised
initially at fair value. Subsequent to initial recognition, derivative financial
instruments are stated at fair value. The gain or loss on remeasurement to fair
value is recognised immediately in the Consolidated Statement of Comprehensive
Income.
The fair value of interest rate swaps is the estimated amount that the Group
would receive or pay to terminate the swap at the Statement of Financial
Position date, taking into account current interest rates and the current
creditworthiness of the swap counterparties.
The fair value of options is their quoted market price at the date of the
Consolidated Statement of Financial Position. Broker marks are obtained for
these positions. The change in value is recorded in net gains/(losses) in the
Consolidated Statement of Comprehensive Income. Realised gains and losses are
recognised on the maturity or sale of the option.
Fair value
All financial assets carried at fair value are initially recognised at fair
value and subsequently re-measured at fair value based on bid prices, where such
bids are available from a third party in a liquid market. If bid prices are
unavailable, the fair value of the financial asset is estimated by reference to
market information which includes but is not limited to broker marks, prices on
comparable assets and using pricing models incorporating discounted cash flow
techniques. These pricing models apply assumptions regarding asset-specific
factors and economic conditions generally, including delinquency rates, severity
rates, prepayment rates, default rates, maturity profiles, interest rates and
other factors that may be relevant to each financial asset. The objective of a
fair value measurement is the price at which an orderly transaction would take
place between market participants on the measurement date; it is not a forced
liquidation or distressed sale. Where the Group has considered all available
information and there is evidence that the transaction was forced, it will not
use a transaction price as being determinative of fair value.
Where a forced sale price is not used the Group will estimate the fair value
with reference to other market data as described above. With regard to residual
income positions, historical performance and observable market data is analysed
to determine the average level of these factors and their volatility over time.
These assumptions are typically derived by reference to the historical
delinquencies, defaults, recoveries and prepayments actually realised by the
originator of the underlying assets and any empirical data available that may be
available in respect of any of these factors for the particular asset class.
Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported within
assets and liabilities when there is a legally enforceable right to set off the
recognised amounts and there is an intention to settle on a net basis, or
realise the asset and settle the liability simultaneously.
Derecognition of a financial asset
A financial asset is derecognised only if substantially all of the asset's risks
and rewards of ownership are transferred or control is transferred in the event
that not substantially all of the asset's risks and rewards of ownership are
transferred. However, if substantially all of the risks and rewards are
retained, the asset is not derecognised. Control is transferred if the
transferee has the practical ability to sell the asset unilaterally without
needing to impose additional restrictions on the transfer.
Interest-bearing loans and borrowings
Interest-bearing borrowings are recognised initially at fair value less
attributable transaction costs. Subsequent to initial recognition,
interest-bearing borrowings are stated at amortised cost with any difference
between cost and redemption value being recognised in the Consolidated Statement
of Comprehensive Income using the effective interest rate method. Financing
costs associated with the issuance of financings are recognised in the
Consolidated Statement of Comprehensive Income using the effective interest rate
method.
Foreign currency transactions
Transactions in foreign currencies are translated at the foreign exchange rate
ruling at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies at the Consolidated Statement of Financial
Position date are translated to Euro at the foreign exchange rate ruling at that
date. Foreign exchange differences arising on translation are recognised in the
Consolidated Statement of Comprehensive Income. Non-monetary assets and
liabilities that are measured in terms of historical cost in a foreign currency
are translated using the exchange rate at the date of transaction. Non-monetary
assets and liabilities denominated in foreign currencies that are stated at fair
value are translated to Euro at foreign exchange rates ruling at the dates the
fair value was determined.
Interest income
Interest income is accrued over the projected lives of the investments using the
effective interest method as defined under International Accounting Standard 39.
Where the Group adjusts its expected cash flow projections to take account of
any change in underlying assumptions, such adjustments are recognised in the
Consolidated Statement of Comprehensive Income by reflecting changes in a
revised amortised cost value of the investment and applying the original
effective interest rate to this revised amortised cost value for the purposes of
calculating future income.
Taxation
The Company is a tax-exempt Guernsey limited Company. Accordingly, no provision
for income taxes is made. Trebuchet Finance Limited is a "qualifying Company"
within the meaning of Section 110 of the Irish Taxes Consolidation Act 1997 and
accordingly its taxable profits are subject to tax at a rate of 25 per cent.
Payments under the Participation Note are paid gross to the Company and the
income portion of such payments is deductible by Trebuchet Finance Limited.
Consequently, Trebuchet Finance Limited has a minimal amount of taxable income.
The activities of Trebuchet Finance Limited are exempt for Irish Value Added Tax
(VAT) purposes under the Irish VAT Act of 1972.
Other receivables
Other receivables do not carry any interest and are short-term in nature and are
accordingly stated at their nominal value as reduced by appropriate allowances
for estimated irrecoverable amounts.
Financial liabilities and equity
Financial liabilities and equity are classified according to the substance of
the contractual arrangements entered into. An equity instrument is any contract
that evidences a residual interest in the assets of the Group after deducting
all of its liabilities. Financial liabilities and equity are recorded at the
proceeds received, net of issue costs.
Other accruals and payables
Other accruals and payables are not interest-bearing and are stated at their
accrued value.
Segment information
For management purposes, the Group is organised into two main operating
segments, which invest in 1) Investment Grade Bonds and 2) in Residual Bonds.
Each segment engages in separate business activities and the results of each
segment are regularly reviewed by the Board of Directors who have assumed the
role of Chief Operating Decision Maker for performance assessment purposes.
3. Critical accounting judgements and key sources of estimation uncertainty
In the process of applying the Group's accounting policies (described in Note 2
above), the Group has determined that the following judgements and estimates
have the most significant effect on the amounts recognised in the financial
statements:
Income recognition of residual income positions and bonds
The Group invests primarily in a diversified portfolio of residual income
positions, being the subordinated tranches of asset-backed securities ("ABS")
and bonds. The Group follows a policy of accounting for such investments and
bonds at fair value through profit or loss and has elected to recognise income
on an effective interest rate ("EIR") method in accordance with paragraph 30 of
IAS 18 "Revenue".
ABS are securities that are typically backed by consumer finance receivables
(such as mortgage loans) and commercial loans and receivables (including
commercial mortgage loans and loans to small-and-medium sized enterprises).
Residual income positions are typically unrated or rated below investment grade
and are often referred to as the "equity" or "first loss" position of a
securitisation transaction.
Unlike a more conventional debt instrument and the more senior tranches of ABS
(which generally hold the rights to fixed levels of income), the cash flow
profile of a residual income position does not generally include a contractually
established schedule of fixed payments divided between interest and principal.
Instead, the cash flows generally vary over time, and the periodic cash flows
associated with a residual income position may include a significant element of
principal repayment as well as income payments.
Where the cash payments generated by residual income positions do not typically
follow the pattern of a standard cash-pay debt instrument (in that there is not
a constant level of income in each period followed by a repayment of the
principal amount at maturity), a given cash payment received in respect of a
residual income position can generally be considered to represent a combination
of the return on the investment and the repayment of some of the capital
initially invested.
As a result, the stream of expected cash flows associated with a particular
residual income position may have an uneven payout profile, in that the cash
payment expected in one period (and the proportion of that payment that
represents principal repayment versus interest income) may vary significantly
from the cash payments expected in other periods.
The amortised value of a residual income position at any given measurement date
after the Group's initial acquisition of the asset reflects repayments of
principal in accordance with the effective interest method.
This revised amortised value (adjusted to account for the accrual of interest
and principal paydowns) is subject to further adjustment on the basis of market
conditions and other factors that are likely to affect the fair value of the
asset. Where actual performance data or expectations regarding defaults,
delinquencies and prepayments received in respect of a given asset is notably
different from the default, delinquency and prepayment assumptions incorporated
in the pricing model for the asset, the assumptions are revised to reflect this
data and the pricing model is updated accordingly. In addition to the actual
performance data observed in respect of a particular asset, market factors are
also taken into account within the model.
Broker marks (where available) and any other available indicators are assessed
to determine whether or not the market is attributing higher or lower default,
delinquency or prepayment expectations to similar assets in determining whether
or not the assumptions incorporated in the pricing model remain reasonable.
Interest income is recorded based on the original EIR calculated on acquisition
for each individual residual income position and bond. Where there is a carry
value reduction driven by lower cashflow expectations, interest income will be
reduced as it reflects the reduced cashflow expectations.
Valuation of investments
The market for subordinated asset-backed securities, including residual income
positions is illiquid and regular traded prices are generally not available for
such investments. There is no active secondary market in residual income
positions and, further, there is no industry standard agreed methodology to
value residual income positions.
In accordance with the Group's accounting policies, fair value of financial
assets is based on quoted bid prices where such bids are available from a third
party in a liquid market. At 30 June 2010 bid prices were not available for any
of the Group's residual portfolio investments. There is very limited
information available in relation to transactions in comparable investments. As
quoted bid prices are unavailable, the fair value of the investments is
estimated by reference to market information, which includes but is not limited
to broker marks, prices of comparable assets, estimated fair value from the
previous period updated for current period cash flows and a pricing model, that
incorporates discounted cash flow techniques as required by IAS 39. The Group
may use all or a combination of the prices from these sources in estimating the
fair value of the investments. Broker marks are estimates of values provided by
market participants who are typically the originators of the investments.
Broker marks are not binding prices and there is no guarantee that the Group
could transact at these prices in the current market. Due to the current market
conditions, the Group has relied on pricing models to fair value its investments
as broker marks become less reliable or unobtainable.
The assumptions upon which the pricing models are based are described in Note 2
(Fair Value). Any change to assumptions surrounding the pricing models may
result in changes to the fair values being attributed to the investments. Where
the fair value of the investment is written down due to changes in assumptions
and expected cash flows, the change in the fair value is taken to the
Consolidated Statement of Comprehensive Income following the reassessment of the
cash flows discounted at the current market rate estimated for the investment.
The fair value of the Group's investments is set out in Note 10. Given the
number of individual investments and the number of individual parameters that
make up each pricing model, the Group believes that it would be impractical to
disclose the effects of changes to each assumption in respect of each individual
investment and this would not provide meaningful additional disclosure. However,
general assumptions used in the pricing models are disclosed with sensitivities
in the Group's annual report and consolidated financial statements.
4. (Losses)/gains on financial instruments
The following table details the gains and losses, excluding interest income and
finance costs, earned by the Group from financial assets and liabilities during
the period:
+--------------------------------------+-+-------------+----------+--------------+
| | | Quarter | | Quarter |
| | | ended | | ended |
| | | 30 June | | 31 March |
| | | 2010 | | 2010 |
+--------------------------------------+-+-------------+----------+--------------+
| | | Euro | | Euro |
+--------------------------------------+-+-------------+----------+--------------+
| Net realised gains/(losses): | | | | |
+--------------------------------------+-+-------------+----------+--------------+
| Net realised gains on asset backed | 1,800,731 | | 427,673 |
| securities and bonds | | | |
+----------------------------------------+-------------+----------+--------------+
| Net realised (losses)/gains on | | (210,707) | | 586,482 |
| foreign exchange instruments | | | | |
+--------------------------------------+-+-------------+----------+--------------+
| Net realised gains on interest rate | | - | | 29,674 |
| swap agreements | | | | |
+--------------------------------------+-+-------------+----------+--------------+
| Net realised gains | | 1,590,024 | | 1,043,829 |
+--------------------------------------+-+-------------+----------+--------------+
| | | | | |
+--------------------------------------+-+-------------+----------+--------------+
| Movement in net unrealised | | | | |
| gains/(losses): | | | | |
+--------------------------------------+-+-------------+----------+--------------+
| Net unrealised losses on investments | | (1,158,368) | | (625,179) |
| at fair value through profit or loss | | | | |
+--------------------------------------+-+-------------+----------+--------------+
| Net unrealised losses on interest | | (550,381) | | (249,618) |
| rate swap agreements | | | | |
+--------------------------------------+-+-------------+----------+--------------+
| Net unrealised losses on options | | (346,294) | | (93,600) |
+--------------------------------------+-+-------------+----------+--------------+
| Net unrealised gains on foreign bank | | 72,984 | | 40,040 |
| balances | | | | |
+--------------------------------------+-+-------------+----------+--------------+
| Net unrealised losses | | (1,982,059) | | (928,357) |
+--------------------------------------+-+-------------+----------+--------------+
| | | | | |
+--------------------------------------+-+-------------+----------+--------------+
| Net realised and unrealised | | (392,035) | | 115,472 |
| (losses)/gains | | | | |
+--------------------------------------+-+-------------+----------+--------------+
5. Interest income and finance costs
The following table details interest income and finance costs from financial
assets and liabilities during the period ended:
+---------------------------------------+----------+-------------+----------+--------------+
| | | Quarter | | Quarter |
| | | ended | | ended |
| | | 30 June | | 31 March |
| | | 2010 | | 2010 |
+---------------------------------------+----------+-------------+----------+--------------+
| | | Euro | | Euro |
+---------------------------------------+----------+-------------+----------+--------------+
| Interest income | | | | |
+---------------------------------------+----------+-------------+----------+--------------+
| Investments designated at fair value | | 4,131,935 | | 3,744,976 |
| through profit or loss upon initial | | | | |
| recognition | | | | |
+---------------------------------------+----------+-------------+----------+--------------+
| Loans and receivables (including cash | | 1,162 | | 2,303 |
| and cash equivalents) | | | | |
+---------------------------------------+----------+-------------+----------+--------------+
| Total interest income | | 4,133,097 | | 3,747,279 |
+---------------------------------------+----------+-------------+----------+--------------+
+---------------------------------------+----------+-------------+----------+--------------+
| Finance Costs | | | | |
+---------------------------------------+----------+-------------+----------+--------------+
| Liabilities held at amortised cost: | | | | |
+---------------------------------------+----------+-------------+----------+--------------+
| Interest on loan | | 3,492 | | 67,217 |
+---------------------------------------+----------+-------------+----------+--------------+
| Total finance costs | | 3,492 | | 67,217 |
+---------------------------------------+----------+-------------+----------+--------------+
6. Operating expenses
+---------------------------------------+------+------------+----------+--------------+
| |Note | Quarter | | Quarter |
| | | ended | | ended |
| | | 30 June | | 31 March |
| | | 2010 | | 2010 |
+---------------------------------------+------+------------+----------+--------------+
| | | Euro | | Euro |
+---------------------------------------+------+------------+----------+--------------+
| | | | | |
+---------------------------------------+------+------------+----------+--------------+
| Investment management, custodian and | | | | |
| administration fees | | | | |
+---------------------------------------+------+------------+----------+--------------+
| Investment management fee | 18 | 441,481 | | 432,494 |
+---------------------------------------+------+------------+----------+--------------+
| Administration fee | 18 | 50,499 | | 48,125 |
+---------------------------------------+------+------------+----------+--------------+
| Custodian fee | 18 | 9,110 | | 9,210 |
+---------------------------------------+------+------------+----------+--------------+
| | | 501,090 | | 489,829 |
+---------------------------------------+------+------------+----------+--------------+
| Other operating expenses | | | | |
+---------------------------------------+------+------------+----------+--------------+
| Audit fees | | 42,383 | | 42,850 |
+---------------------------------------+------+------------+----------+--------------+
| Directors' fees payable to Directors | | 59,838 | | 60,048 |
| of Queen's Walk Investment Limited | | | | |
+---------------------------------------+------+------------+----------+--------------+
| Directors' fees payable to Directors | | 6,233 | | 6,255 |
| of Trebuchet Finance Limited | | | | |
+---------------------------------------+------+------------+----------+--------------+
| Legal fees | | 174,520 | | 76,442 |
+---------------------------------------+------+------------+----------+--------------+
| Pricing expenses | | 48,747 | | (43,140) |
+---------------------------------------+------+------------+----------+--------------+
| Other expenses | | 134,558 | | 136,757 |
+---------------------------------------+------+------------+----------+--------------+
| | | 466,279 | | 279,212 |
+---------------------------------------+------+------------+----------+--------------+
| | | | | |
+---------------------------------------+------+------------+----------+--------------+
| Total operating expenses | | 967,369 | | 769,041 |
+---------------------------------------+------+------------+----------+--------------+
The Group has no employees.
7. Dividends
The third interim dividend for the year ended 31 March 2010 of Euro 0.08 per
share was declared on 11 March 2010 and an amount of Euro 2,131,573 was paid on
16 April 2010.
The fourth interim dividend for the year ended 31 March 2010 of Euro 0.08 per
share was declared on 9 June 2010 and an amount of Euro 2,131,573 was paid on 22
July 2010.
A dividend of Euro 0.145 per share has been declared by the Directors for the
quarter ended 30 June 2010 on 3 September 2010. The amount of the dividend has
been set to take into account income generated by the Company's investment
portfolio in the period ending 30 June 2010 and also the income expected to be
generated by the Company's investment portfolio up to the date of the Company's
extraordinary general meeting on 15 September 2010 (see note 20). The liability
in respect of the first interim dividend has not yet been recognised in the
Consolidated Statement of Financial Position of the Group for the quarter ended
30 June 2010 since the dividend had neither been declared nor approved at the
quarter end date.
The Group's objective is to provide Shareholders with stable returns in the form
of quarterly dividends. The Group's dividend policy is to make dividend
distributions from its distributable net income subject to retaining a portion
of such income as a reserve for payment in subsequent periods.
8. Profit per Ordinary Share
+---------------------------------+-----+--------------+----------+--------------+
| | | Quarter | | Quarter |
| | | ended | | ended |
| | | 30 June 2010 | | 31 March |
| | | | | 2010 |
+---------------------------------+-----+--------------+----------+--------------+
| | | Euro | | Euro |
+---------------------------------+-----+--------------+----------+--------------+
| The calculation of the basic | | | | |
| and diluted earnings per | | | | |
| ordinary share is based on the | | | | |
| following data: | | | | |
+---------------------------------+-----+--------------+----------+--------------+
| Profit for the purposes of | | 2,770,201 | | 3,026,493 |
| basic earnings per ordinary | | | | |
| share being net loss | | | | |
| attributable to equity holders | | | | |
+---------------------------------+-----+--------------+----------+--------------+
| | | | | |
+---------------------------------+-----+--------------+----------+--------------+
| Weighted average number of | | 26,644,657 | | 26,644,657 |
| Ordinary Shares for the | | | | |
| purposes of basic earnings per | | | | |
| share | | | | |
+---------------------------------+-----+--------------+----------+--------------+
| | | | | |
+---------------------------------+-----+--------------+----------+--------------+
| Effect of dilutive potential | | | | |
| Ordinary Shares: | | | | |
+---------------------------------+-----+--------------+----------+--------------+
| Share options | | - | | - |
+---------------------------------+-----+--------------+----------+--------------+
| Weighted average number of | | 26,644,657 | | 26,644,657 |
| Ordinary Shares for the | | | | |
| purposes of diluted earnings | | | | |
| per share | | | | |
+---------------------------------+-----+--------------+----------+--------------+
There is no dilution as at 30 June 2010 or 31 March 2010, as the share price was
below the option price for the period.
9. Subsidiary
Trebuchet Finance Limited was incorporated in Ireland on 19 May 2005 and,
pursuant to the Articles of Association of Trebuchet Finance Limited, the Group
has the right to appoint a majority of the Board of Directors of Trebuchet
Finance Limited. Two of the Directors of the Group have been appointed Directors
of Trebuchet Finance Limited. To ensure that the Group will be able to maintain
a majority of the Board of Directors of Trebuchet Finance Limited in the future,
the Group has been allotted a single share in Trebuchet Finance Limited carrying
the right to appoint a majority of the Board of Directors. Trebuchet Finance
Limited was established for the sole purpose of acquiring and holding interests
in certain assets.
10. Investments
The following is a summary of the Group's investments:
+---------------------------------------+-+-------------+----------+--------------+
| | | 30 June | | 31 March |
| | | 2010 | | 2010 |
+---------------------------------------+-+-------------+----------+--------------+
| | | Euro | | Euro |
+---------------------------------------+-+-------------+----------+--------------+
| Asset-backed securities and bonds at | 91,283,779 | | 91,568,184 |
| fair value through profit or loss | | | |
+-----------------------------------------+-------------+----------+--------------+
| Options purchased held for trading | | 354,178 | | 301,610 |
+---------------------------------------+-+-------------+----------+--------------+
| Options written held for trading | | (65,172) | | (51,310) |
+---------------------------------------+-+-------------+----------+--------------+
| | | 91,572,785 | | 91,818,484 |
+---------------------------------------+-+-------------+----------+--------------+
+---------------------------------------+-+---------------+----------+---------------+
| Asset-backed securities and bonds | | | | |
+---------------------------------------+-+---------------+----------+---------------+
| Opening cost | | 238,331,927 | | 247,777,893 |
+---------------------------------------+-+---------------+----------+---------------+
| Purchases | | 11,655,205 | | 6,524,973 |
+---------------------------------------+-+---------------+----------+---------------+
| Sales proceeds | | (9,600,000) | | (14,166,837) |
+---------------------------------------+-+---------------+----------+---------------+
| Realised gain on sales | | 1,800,731 | | 427,673 |
+---------------------------------------+-+---------------+----------+---------------+
| Principal payups | | 1,226,457 | | 1,298,460 |
+---------------------------------------+-+---------------+----------+---------------+
| Principal paydowns | | (4,208,430) | | (3,530,235) |
+---------------------------------------+-+---------------+----------+---------------+
| Closing cost | | 239,205,890 | | 238,331,927 |
+---------------------------------------+-+---------------+----------+---------------+
| Unrealised losses | | (147,922,111) | | (146,763,743) |
+---------------------------------------+-+---------------+----------+---------------+
| Asset-backed securities and bonds at | | 91,283,779 | | 91,568,184 |
| fair value | | | | |
+---------------------------------------+-+---------------+----------+---------------+
Concentration of credit risk
The Group is subject to concentration of credit risk in that the four largest
structures within the asset backed securities portfolio comprise approximately
38% (31 March 2010: 48%) of the total assets. The concentration of credit risk
is substantially unchanged compared to the prior quarter. Two of the structures,
comprising approximately 16% (31 March 2010: 21%) of its asset-backed securities
portfolio have had a temporary suspension in cash flows from these structures as
a result of prepayment rate triggers being breached.
The following options contracts were open as at 30 June 2010:
+--------------+------------+----------------------+----------+------------+-------------+----------------+
| Counterparty |Expiration | Description | | Notional | Strike | Unrealised |
| | | | | Amount | price | Gains/(Losses) |
| | | | Currency | | | Euro |
+--------------+------------+----------------------+----------+------------+-------------+----------------+
| Goldman | 31 Dec | EUR Call GBP Put | Euro | 10,000,000 | 0.9315 | (1,085,080) |
| Sachs | 2011* | | | | | |
+--------------+------------+----------------------+----------+------------+-------------+----------------+
| JP | 31 Dec | EUR Call GBP Put | Euro | 10,000,000 | 1.300 | (9,990) |
| Morgan | 2010 | | | | | |
+--------------+------------+----------------------+----------+------------+-------------+----------------+
| JP | 31 Dec | EUR Call GBP Put | Euro | 14,000,000 | 0.9315 | (337,752) |
| Morgan | 2011 | | | | | |
+--------------+------------+----------------------+----------+------------+-------------+----------------+
| Goldman | 31 Dec | EUR Call GBP Put | Euro | 10,000,000 | 1.300 | 160,320 |
| Sachs | 2010 | (Written option) | | | | |
+--------------+------------+----------------------+----------+------------+-------------+----------------+
| JP | 31 Dec | EUR Call GBP Put | Euro | 10,000,000 | 1.300 | 174,840 |
| Morgan | 2010 | (Written option) | | | | |
+--------------+------------+----------------------+----------+------------+-------------+----------------+
| JP | 31 Dec | EUR Call GBP Put | Euro | 14,000,000 | 0.9315 | 29,668 |
| Morgan | 2011 | (Written option) | | | | |
+--------------+------------+----------------------+----------+------------+-------------+----------------+
| | | | | | | (1,067,994) |
+--------------+------------+----------------------+----------+------------+-------------+----------------+
The following options contracts were open as at 31 March 2010:
+--------------+------------+----------------------+----------+------------+-------------+------------+
| Counterparty | Expiration | Description | | Notional | Strike | Unrealised |
| | | | | Amount | price | Gains/ |
| | | | | | | (Losses) |
| | | | Currency | | | Euro |
+--------------+------------+----------------------+----------+------------+-------------+------------+
| Goldman | 31 Dec | EUR Call GBP Put | Euro | 10,000,000 | 0.9315 | (840,390) |
| Sachs | 2011* | | | | | |
+--------------+------------+----------------------+----------+------------+-------------+------------+
| Goldman | 29 Dec | EUR Call GBP Put | Euro | 10,000,000 | 1.300 | 118,690 |
| Sachs | 2010 | (Written option) | | | | |
+--------------+------------+----------------------+----------+------------+-------------+------------+
| | | | | | | (721,700) |
+--------------+------------+----------------------+----------+------------+-------------+------------+
* On 6 April 2010, the Group extended the maturity to 31 December 2011.
11. Other assets
+--------------------------------+------+-------------+-+--------------+
| | | 30 June | | 31 March |
| | | 2010 | | 2010 |
+--------------------------------+------+-------------+-+--------------+
| | | Euro | | Euro |
+--------------------------------+------+-------------+-+--------------+
| Interest receivable on | | 1,002,747 | | 877,917 |
| investment portfolio | | | | |
+--------------------------------+------+-------------+-+--------------+
| Lehman claim* | | - | | 328,230 |
+--------------------------------+------+-------------+-+--------------+
| Interest receivable on cash | | 199,877 | | 170,705 |
| and cash equivalents | | | | |
+--------------------------------+------+-------------+-+--------------+
| | | 1,202,624 | | 1,376,852 |
+--------------------------------+------+-------------+-+--------------+
* The Lehman claim was sold on 30 March 2010 for Euro 328,230.
The Directors consider that the carrying amount of other assets approximates
their fair value.
12. Derivative contracts
The following interest rate and balance guaranteed interest rate swaps were
unsettled at 30 June 2010.
+--------------------+--------------+-----------------+------------------+
| Termination Date | | Initial | Unrealised Gain |
| | Counterparty | Notional | Euro |
| | | Amount (GBP) | |
+--------------------+--------------+-----------------+------------------+
| 25 January, 2013 | Goldman | 451,431 | 23,097 |
| | Sachs | | |
+--------------------+--------------+-----------------+------------------+
| 15 October, 2011 | Goldman | 5,500,000 | 142,489 |
| | Sachs | | |
+--------------------+--------------+-----------------+------------------+
| 15 November, 2011 | Goldman | 1,300,000 | 32,894 |
| | Sachs | | |
+--------------------+--------------+-----------------+------------------+
| 25 January, 2013 | Goldman | 1,226,713 | 82,234 |
| | Sachs | | |
+--------------------+--------------+-----------------+------------------+
| 15 October, 2011 | Goldman | 3,000,000 | 88,811 |
| | Sachs | | |
+--------------------+--------------+-----------------+------------------+
| 12 September, 2011 | Goldman | 1,700,000 | 43,844 |
| | Sachs | | |
+--------------------+--------------+-----------------+------------------+
| 27 March, 2011 | Goldman | 17,348,100 | 475,268 |
| | Sachs | | |
+--------------------+--------------+-----------------+------------------+
| 15 February, 2011 | Goldman | 9,001,820 | 231,289 |
| | Sachs | | |
+--------------------+--------------+-----------------+------------------+
| 15 January, 2011 | Goldman | 26,886,484 | 751,576 |
| | Sachs | | |
+--------------------+--------------+-----------------+------------------+
| | | | 1,871,502 |
+--------------------+--------------+-----------------+------------------+
The following interest rate and balanced guaranteed interest rate swaps were
unsettled at 31 March 2010:
+--------------------+--------------+-----------------+------------------+
| Termination Date | Counterparty | Initial | Unrealised Gain |
| | | Notional | Euro |
| | | Amount (GBP) | |
+--------------------+--------------+-----------------+------------------+
| 25 January, 2013 | Goldman | 451,431 | 21,760 |
| | Sachs | | |
+--------------------+--------------+-----------------+------------------+
| 15 October, 2011 | Goldman | 5,500,000 | 163,068 |
| | Sachs | | |
+--------------------+--------------+-----------------+------------------+
| 15 November, 2011 | Goldman | 1,300,000 | 37,473 |
| | Sachs | | |
+--------------------+--------------+-----------------+------------------+
| 25 January, 2013 | Goldman | 1,226,713 | 65,943 |
| | Sachs | | |
+--------------------+--------------+-----------------+------------------+
| 15 October, 2011 | Goldman | 3,000,000 | 88,536 |
| | Sachs | | |
+--------------------+--------------+-----------------+------------------+
| 12 September, 2011 | Goldman | 1,700,000 | 45,234 |
| | Sachs | | |
+--------------------+--------------+-----------------+------------------+
| 27 March, 2011 | Goldman | 17,348,100 | 642,940 |
| | Sachs | | |
+--------------------+--------------+-----------------+------------------+
| 15 February, 2011 | Goldman | 9,700,584 | 330,394 |
| | Sachs | | |
+--------------------+--------------+-----------------+------------------+
| 15 January, 2011 | Goldman | 27,568,395 | 1,026,535 |
| | Sachs | | |
+--------------------+--------------+-----------------+------------------+
| | | | 2,421,883 |
+--------------------+--------------+-----------------+------------------+
13. Loans
+-------------------------------------+----------+---------------+----------+--------------+
| | | 30 June 2010 | | 31 March |
| | | | | 2010 |
+-------------------------------------+----------+---------------+----------+--------------+
| | | Euro | | Euro |
+-------------------------------------+----------+---------------+----------+--------------+
| Loans | | - | | 8,642,967 |
+-------------------------------------+----------+---------------+----------+--------------+
| | | - | | 8,642,967 |
+-------------------------------------+----------+---------------+----------+--------------+
On 6 April 2010 the Company repaid the remaining EUR 8,642,967 together with all
interest due, terminating any further liabilities under the loan facility.
14. Other liabilities
+-------------------------------------+----------+--------------+-+--------------+
| | | 30 June 2010 | | 31 March |
| | | | | 2010 |
+-------------------------------------+----------+--------------+-+--------------+
| | | Euro | | Euro |
+-------------------------------------+----------+--------------+-+--------------+
| | | | | |
+-------------------------------------+----------+--------------+-+--------------+
| Interest payable | | - | | 42,778 |
+-------------------------------------+----------+--------------+-+--------------+
| Due to related parties - Investment | | 143,997 | | 147,854 |
| Manager (Note 18) | | | | |
+-------------------------------------+----------+--------------+-+--------------+
| Payable for investments purchased | | 1,318,977 | | - |
+-------------------------------------+----------+--------------+-+--------------+
| Accrued expenses | | 1,109,186 | | 1,041,157 |
+-------------------------------------+----------+--------------+-+--------------+
| | | 2,572,160 | | 1,231,789 |
+-------------------------------------+----------+--------------+-+--------------+
Other liabilities principally comprise amounts outstanding in respect of
interest payable and ongoing costs. The Directors consider the carrying amount
of other liabilities approximates their fair value.
15. Share capital
The capital structure of the Company consists of cash and cash equivalents, a
bank loan and equity attributable to equity holders, comprising issued share
capital and reserves, as disclosed on the Consolidated Statement of Financial
Position.
The Company does not have any externally imposed capital requirements. At 30
June 2010 the Company had capital of Euro 99,968,469 (31 March 2010: Euro
99,329,841).
The investment objective of the Company is to provide stable returns to
Shareholders in the form of quarterly dividends. It seeks to achieve this by
investment in a diversified portfolio of tranches of asset-backed securities.
Where appropriate, the Company may utilise leverage for the purpose of financing
its portfolio and enhancing returns to Shareholders. The Company intends to
reduce exposure to interest rate and currency fluctuations through the use of
currency and interest rate hedging arrangements for the purposes of efficient
portfolio management.
The Company aims to deliver its objective by investing available cash whilst
maintaining sufficient liquidity to meet on-going expenses and dividend
payments.
Authorised Share Capital
+-------------------------+------------+----------+----------+------------+-----------+
| | 30 June | 30 June | | 31 March | 31 March |
| | 2010 | 2010 | | 2010 | 2010 |
+-------------------------+------------+----------+----------+------------+-----------+
| | Number of | Euro | | Number of | Euro |
| | Ordinary | | | Ordinary | |
| | Shares | | | Shares | |
+-------------------------+------------+----------+----------+------------+-----------+
| Ordinary shares of no | Unlimited | - | | Unlimited | - |
| par value each | | | | | |
+-------------------------+------------+----------+----------+------------+-----------+
+-------------------------+------------+----------+----------+------------+-----------+
| Issued and fully paid | | | | | |
+-------------------------+------------+----------+----------+------------+-----------+
| Balance at beginning of | 26,644,657 | - | | 26,644,657 | - |
| period | | | | | |
+-------------------------+------------+----------+----------+------------+-----------+
| Ordinary shares bought | - | - | | - | - |
| back during the quarter | | | | | |
+-------------------------+------------+----------+----------+------------+-----------+
| Balance at end of | 26,644,657 | | | 26,644,657 | - |
| period | | | | | |
+-------------------------+------------+----------+----------+------------+-----------+
Between 31 March 2010 and 30 June 2010 the Company did not purchase and cancel
any of its Ordinary Shares through its buyback programme.
16. Reserves
+-----------------------------+--------------+----------+--------------+----------+-------------+
| | Quarter ended 30 June 2010 |
+-----------------------------+-----------------------------------------------------------------+
| | Accumulated | | Capital | | Total |
| | Reserves | | Reserves | | Reserves |
+-----------------------------+--------------+----------+--------------+----------+-------------+
| | Euro | | Euro | | Euro |
+-----------------------------+--------------+----------+--------------+----------+-------------+
| | | | | | |
+-----------------------------+--------------+----------+--------------+----------+-------------+
| Balance at start of period | 91,657,341 | | 7,672,500 | | 99,329,841 |
+-----------------------------+--------------+----------+--------------+----------+-------------+
| Net profit for the period | 2,770,201 | | - | | 2,770,201 |
+-----------------------------+--------------+----------+--------------+----------+-------------+
| Distribution to the | (2,131,573) | | - | | (2,131,573) |
| Ordinary Shareholders of | | | | | |
| the Company | | | | | |
+-----------------------------+--------------+----------+--------------+----------+-------------+
| Balance at end of period | 92,295,969 | | 7,672,500 | | 99,968,469 |
+-----------------------------+--------------+----------+--------------+----------+-------------+
+-----------------------------+--------------+----------+--------------+----------+-------------+
| | Quarter ended 31 March 2010 |
+-----------------------------+-----------------------------------------------------------------+
| | Accumulated | | Capital | | Total |
| | Reserves | | Reserves | | Reserves |
+-----------------------------+--------------+----------+--------------+----------+-------------+
| | Euro | | Euro | | Euro |
+-----------------------------+--------------+----------+--------------+----------+-------------+
| | | | | | |
+-----------------------------+--------------+----------+--------------+----------+-------------+
| Balance at start of period | 90,762,421 | | 7,672,500 | | 98,434,921 |
+-----------------------------+--------------+----------+--------------+----------+-------------+
| Net profit for the period | 3,026,493 | | - | | 3,026,493 |
+-----------------------------+--------------+----------+--------------+----------+-------------+
| Distribution to the | (2,131,573) | - | - | | (2,131,573) |
| Ordinary Shareholders of | | | | | |
| the Company | | | | | |
+-----------------------------+--------------+----------+--------------+----------+-------------+
| Balance at end of period | 91,657,341 | | 7,672,500 | | 99,329,841 |
+-----------------------------+--------------+----------+--------------+----------+-------------+
17. Notes to Statement of Cash Flows
+--------------------------------------------+--------------+----------+--------------+
| | Quarter | | Quarter |
| | ended | | ended |
| | 30 June 2010 | | 31 March |
| | | | 2010 |
+--------------------------------------------+--------------+----------+--------------+
| | Euro | | Euro |
+--------------------------------------------+--------------+----------+--------------+
| | | | |
+--------------------------------------------+--------------+----------+--------------+
| Net profit | 2,770,201 | | 3,026,493 |
+--------------------------------------------+--------------+----------+--------------+
| Adjustments for: | | | |
+--------------------------------------------+--------------+----------+--------------+
| Net realised gains on sale of asset backed | (1,800,731) | | (427,673) |
| securities and bonds | | | |
+--------------------------------------------+--------------+----------+--------------+
| Movement in net unrealised losses on | 1,158,368 | | 625,179 |
| investments at fair value through profit | | | |
| or loss | | | |
+--------------------------------------------+--------------+----------+--------------+
| Unrealised losses on interest rate swap | 550,381 | | 249,618 |
| agreements | | | |
+--------------------------------------------+--------------+----------+--------------+
| Unrealised losses on options | 346,294 | | 93,600 |
+--------------------------------------------+--------------+----------+--------------+
| Unrealised gains on foreign bank balances | (72,984) | | (40,040) |
+--------------------------------------------+--------------+----------+--------------+
| | 2,951,529 | | 3,527,177 |
+--------------------------------------------+--------------+----------+--------------+
| | | | |
+--------------------------------------------+--------------+----------+--------------+
| Purchases of bonds | (10,336,228) | | (6,524,973) |
+--------------------------------------------+--------------+----------+--------------+
| Sales proceeds from asset backed | 9,600,000 | | 14,166,837 |
| securities | | | |
+--------------------------------------------+--------------+----------+--------------+
| Purchase of options | (645,000) | | - |
+--------------------------------------------+--------------+----------+--------------+
| Options Written | 260,000 | | - |
+--------------------------------------------+--------------+----------+--------------+
| Principal payups | (1,226,457) | | (1,298,460) |
+--------------------------------------------+--------------+----------+--------------+
| Principal paydowns | 4,208,430 | | 3,530,235 |
+--------------------------------------------+--------------+----------+--------------+
| | 1,860,745 | | 9,873,639 |
+--------------------------------------------+--------------+----------+--------------+
| | | | |
+--------------------------------------------+--------------+----------+--------------+
| Decrease in receivables | 174,228 | | 226,809 |
+--------------------------------------------+--------------+----------+--------------+
| Increase in payables | 21,394 | | 98,535 |
+--------------------------------------------+--------------+----------+--------------+
| | 195,622 | | 325,344 |
+--------------------------------------------+--------------+----------+--------------+
| Net cash inflow from operating activities | 5,007,896 | | 13,726,160 |
+--------------------------------------------+--------------+----------+--------------+
Purchases and sales of investments are considered to be operating activities of
the Group, given its purpose, rather than investing activities. Cash and cash
equivalents includes amounts held in interest bearing accounts and overdraft
facilities.
18. Material agreements and related party transactions
Investment Manager
The Company and Trebuchet Finance Limited are parties to an Investment
Management Agreement with the Investment Manager, dated 8 December 2005,
pursuant to which both the Company and Trebuchet Finance Limited has appointed
the Investment Manager to manage their respective assets on a day-to-day basis
in accordance with their respective investment objectives and policies, subject
to the overall supervision and direction of their respective Boards of
Directors.
The Group pays the Investment Manager a Management Fee and Incentive Fee (see
Note 6). During the quarter ended 30 June 2010, the Management Fee totalled Euro
441,481 (31 March 2010: Euro 432,494), of which Euro 143,997 (31 March 2010:
Euro 147,854) was outstanding at the period end. There was no Incentive Fee
charged during the quarter ended 30 June 2010 or the quarter ended 31 March
2010.
Management Fee
Under the terms of the Investment Management Agreement, the Investment Manager
is entitled to receive from the Group an annual Management Fee of 1.75 per cent
of the net asset value of the Group other than to the extent that such value is
comprised of any investment where the underlying asset portfolio is managed by
the Investment Manager (as is the case with Cheyne Finance plc, Cheyne High
Grade ABS CDO Ltd. and Cheyne CLO Investments I Limited). The Management Fee is
calculated and payable monthly in arrears.
Incentive Fee
Under the terms of the Investment Management Agreement, the Investment Manager
is entitled to receive an incentive compensation fee in respect of each
incentive period that is paid quarterly in arrears. An incentive period will
comprise each successive quarter, except the first such period was the period
from admission to the London Stock Exchange to 31 March 2006. The Incentive Fee
for each incentive period is an amount equivalent to 25 per cent of the amount
by which A exceeds (B ´ C) where:
+--------+--------------+
| A = | The |
| | Group's |
| | consolidated |
| | net income |
| | taking into |
| | account any |
| | realised or |
| | unrealised |
| | losses (but |
| | only to the |
| | extent they |
| | have not |
| | been |
| | deducted in |
| | a prior |
| | incentive |
| | period) and |
| | excluding |
| | any gains |
| | from the |
| | revaluation |
| | of |
| | investments, |
| | as shown in |
| | the Group's |
| | latest |
| | consolidated |
| | management |
| | accounts for |
| | the relevant |
| | quarter, |
| | before |
| | payment of |
| | any |
| | Incentive |
| | Fee; |
+--------+--------------+
| B = | An |
| | amount |
| | equal |
| | to a |
| | simple |
| | interest |
| | rate |
| | equal to |
| | two per |
| | cent per |
| | quarter, |
| | subject |
| | to the |
| | reset |
| | mechanic |
| | described |
| | below |
| | (the |
| | "Hurdle |
| | Rate"); |
| | and |
+--------+--------------+
| C = | The |
| | weighted |
| | average |
| | number |
| | of |
| | Shares |
| | outstanding |
| | during the |
| | relevant |
| | quarter |
| | multiplied |
| | by the |
| | weighted |
| | average |
| | offer price |
| | of such |
| | Shares. |
+--------+--------------+
For the purposes of calculating the Incentive Fee, the Hurdle Rate was reset on
1 April 2010, and will be reset on each 1 April thereafter to equal the greater
of (i) a simple interest rate equal two per cent per quarter, or (ii) one
quarter of the sum of the then-prevailing yield per annum on ten-year German
Bunds and 300 basis points. While the Group will not pay a Management Fee in
respect of that portion of its portfolio that is comprised of investments where
the Investment Manager receives fees for its management of the underlying asset
portfolio, the income from such investments are included in the consolidated net
income of the Group for the purpose of calculating the Incentive Fee.
There was no Incentive Fee charged during the quarter ended 31 June 2010 or
during the quarter ended 31 March 2010.
Administration Fee
Under the terms of the Administration Agreement, the Administrator is entitled
to receive from the Group an administration fee of 0.125 per cent of the gross
asset value of the Group up to Euro 80,000,000 and 0.0325 per cent of the gross
asset value of the Group greater than Euro 80,000,000. State Street Fund
Services (Ireland) Limited, the sub-administrator, is paid by the Administrator.
Custodian Fee
Under the terms of the Custodian Agreement, the Custodian is entitled to receive
from the Group a custodian fee of 0.03 per cent of the gross asset value of the
Group up to Euro 80,000,000 and 0.02 per cent of the gross asset value of the
Group greater than Euro 80,000,000, plus additional fees in relation to
transaction fees, statutory reporting, corporate secretarial fees and other out
of pocket expenses.
Investment Manager Options
In recognition of the work performed by the Investment Manager in raising
capital for the Group, the Group granted to Cheyne Global Services Limited on 8
December 2005 options representing the right to acquire 2,250,000 Shares, being
10 per cent of the number of Offer Shares (that is, excluding the Shares issued
to Cheyne ABS Opportunities Fund LP and the Shares issued to the Directors), at
an exercise price per share equal to the Offer Price (Euro 10). The Investment
Manager Options are fully vested and immediately exercisable on the date of
admission to the London Stock Exchange and will remain exercisable until the
10th anniversary of that date. The Group may grant further Investment Manager
Options in connection with any future offering of Shares. Such options, if any,
will represent the right to acquire Shares equal to not more than 10 per cent of
the number of Shares being offered in respect of that future offering and will
have an exercise price equal to the offer price for that offering.
The aggregate fair value of the options granted at the time of the Initial
Public Offering using a Black-Scholes valuation model was Euro 7,672,500
(reflecting a valuation of Euro 3.41 per option). This amount has been treated
as a cost of the Initial Public Offering. As at 30 June 2010, these options were
out of the money as the share price was below the Offer Price of Euro 10.
Controlling Party
Cheyne ABS Opportunities Fund, a Company that is managed by Cheyne Asset
Management (UK) LLP, has a controlling interest in the Company.
19. Significant Events during the period
On 6 April 2010 the Company repaid the remaining EUR 8,642,967 together with all
interest due, terminating any further liabilities under the loan facility.
On 28 May 2010, the Company sold the Gate 06-1 SME portfolio at a price that
exceeded the 31 March 2010 valuation.
20. Events after the Reporting Period
On 17 August 2010, the Company published a prospectus and circular relating to a
Placing and Open Offer. The Company is proposing, subject to the consent of
Ordinary Shareholders to change its investment policy with the result that the
Company's primary focus for new investments will be Real Estate Debt Investments
and undertaking a Placing and Open Offer of New Ordinary Shares to raise capital
to invest in accordance with the proposed investment policy.
On 15 September 2010, the Company's shareholders approved a 1 for 2 placing and
open offer of ordinary shares at EUR 2.00 per share. In conjunction with the
placing and open offer, the Company has issued a bonus 8% seven year preference
share, denominated in GBP, to qualifying shareholders. The Company intends to
use the proceeds of the offer to invest in European real estate bonds.
Accordingly, the Company intends to change its name (subject to Guernsey
regulatory approval) to Real Estate Credit Investments Ltd to reflect this
change in investment policy.
Other than the above, there have been no events subsequent to 30 June 2010 which
require adjustment to or disclosure in the quarterly report or the notes
thereto.
21. Comparative figures
The comparative figures are for the quarter ended 31 March 2010.
22. Unaudited Financial Statements
The financial statements contained in this report are unaudited.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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