RNS Number:3126Q
SovGEM Limited
18 March 2008
Press release 18 March 2008
SovGEM Limited
("SovGEM" or "the Company")
Preliminary Results
SovGEM Limited, the emerging market equity finance house, today reports its
Preliminary Results for the year ended 31 December 2007. The Company was
established principally for the purpose of making investments in Chinese and
emerging market, small and mid-cap companies.
Highlights:
* Net Asset Value (NAV) increased 23.4% to 34.4p (2006: 27.9p)
* Three-year track record of consistent NAV growth established, compound
annual growth rate (CAGR) of 39.9% since inception
* Total net assets of �7,844,707 (2006: �6,354,367), an almost tripling of
our initial net asset value of �2,675,000
* Net unrealised gains of �1,937,043 (2006: �1,586,027)
* Total number of investments at year-end: 17 (2006: 15)
* Active year of investment
- Number of new investments: 3 (2006: 9)
- Follow-on investments: 5 (2006: 2)
- Partial disposals: 7 (2006: 4)
- Total disposals: 3 (2006: 1)
* Positive outlook for 2008, despite recent market falls, with all of our
unquoted investments stating that they intend to float this year (subject
to market conditions) and all our OTC Bulletin Board quoted stocks
expecting to graduate to senior exchanges (NYSE, NASDAQ & AMEX) this year
Hugh de Lusignan, Chief Executive Officer and co-founder of SovGEM, said: "We
are delighted to have shown three years of successive NAV growth. Our
China-focused investment strategy has seen a near three-fold increase of our
assets over the last three years.
We are excited about 2008 both in terms of the unlisted investee companies which
may float during the year (subject to market conditions) and those currently
listed on junior markets, such as US Bulletin Board, which are expected to move
up to more senior markets, which should see a positive re-rating of their
valuations."
For further information:
SovGEM Limited
Hugh de Lusignan, Chief Executive Officer Tel: +44 (0) 20 7389 0655
hdelusignan@sovereigngroup.com
NOMAD & Broker
Landsbanki Securities (UK) Limited
Tom Hulme / Sebastian Jones Tel: +44 (0) 20 7426 9000
tom.hulme@landsbanki.com
Media enquiries:
Abchurch Communications Limited
Charlie Jack / Monique Tsang Tel: +44 (0) 20 7398 7712
monique.tsang@abchurch-group.com www.abchurch-group.com
CHAIRMAN AND Chief Executive Officers' Report
Review of 2007
We are delighted to be able to report another year of strong growth from SovGEM.
We have reached a significant milestone with a three-year track record showing a
CAGR of 39.9% since inception (after accounting for all expenses, performance
bonuses or any other costs).
We remain committed to investing in privately owned Chinese companies, and
companies from outside China that are positioned to benefit from Chinese
domestic growth. We expect the Chinese economy to continue to grow strongly in
2008. According to forecasts from the Economist Intelligence Unit, real GDP
growth is expected to slow from 11.4% in 2007 to 9.8% in 2008 and further to 9%
in 2009, as export growth slows. Privately owned SMEs continue to be the prime
generators of growth in the Chinese economy and we expect our investee companies
to continue to grow sales and profits rapidly.
We are therefore happy to continue with our long-term policy of concentrating on
stocks that will benefit from the growth of domestic demand consumption within
China. Very little of our overall exposure is to the Chinese export sector.
While all of our holdings are either valued in US Dollars or Sterling the
majority of our investee companies' earnings are in Renminbi (RMB). We expect
the RMB to continue its long-term appreciation against both the US Dollar and
Sterling, which will be beneficial to reported Net Asset Value (NAV).
Our Directors continue to see very many more opportunities presenting themselves
to us than we could possibly invest in. We are also pleased to note that
valuations for new deals are becoming more realistic and the quality hurdle
continues to rise.
The Company's performance continues to be achieved with no gearing. We decided
not to conclude a debt facility in the second half of 2007. Leverage will only
be introduced once it is clear that markets have stabilised. We would also like
to point out that 63% by value of the portfolio (12 out of 17 holdings) is
quoted and that the majority of these quoted holdings are readily liquid. We
continue to hold no equity position of more than 3% in any investee company.
We are committed to taking a positive stance with our investee companies and so
have never sold short any of our investee companies.
The outlook for 2008 for your company is, we believe, positive. All of our
unquoted investments have stated that they intend to float this year (subject to
market conditions) and all our OTC Bulletin Board quoted stocks have indicated
that they intend to graduate to senior exchanges (NASDAQ, NYSE or AMEX) this
year.
During 2008 we anticipate that a secondary junior equity market may emerge in
China to enable the domestic listing of Chinese private companies with a
three-year or longer track record of profits and growth. If this does occur, we
will ensure that our model is flexible enough so that we do not miss out on
opportunities as they present themselves.
With the Olympics in Beijing this year and the World Expo in Shanghai in 2010,
the world's eyes will be on China. We expect this increased attention will focus
investors' eyes on those companies which deliver superior returns.
Current Trading
Recent market turmoil has seriously affected valuations of small-cap,
high-growth stocks (and indeed very many large-cap stocks too), which in turn
has impacted on our net asset value since the year-end. This has occurred
despite the extremely strong financial performance of our investee companies
which have to date reported fiscal 2007 results. These results are summarised
below in our review of our top holdings. We remain of the view that valuations
will recover when the current liquidity crisis subsides. Equally we believe that
our portfolio which concentrates on strong domestic demand growth in China will
prove resilient to the global economic downturn which is being priced into the
market.
The ratings of high-growth, privately owned Chinese companies quoted in both the
US and the UK are at historically very low levels and bear no relationship
whatsoever to the valuations that are placed on companies quoted on the Chinese
domestic exchanges. At the time of writing, the average prospective price
earnings valuations of stocks we have invested in are considerably less than 10
times, despite forecast earnings growth rates that often exceed 25%. We believe
that the operational performance and growth prospects of our investee companies
will not be materially affected by the current global market turmoil. Please see
details in the review below.
At the close of business on Friday 14 March 2008 our best estimate of NAV was
27.4p per share.
Garth Milne & Hugh de Lusignan
Chairman & CEO
REVIEW OF TOP QUOTED HOLDINGS
Unquoted companies represent 37% of SovGEM's holdings at 14 March 2008, the
following listed companies represented 63% of the quoted portfolio.
Harbin Electric (NASDAQ: HRBN) 16.9% of Funds Under Management (FUM)
On 11 March 2008 the linear motor and automotive motor manufacturer Harbin
announced its financial results for the year to 31 December 2007. Highlights
included total revenues of $65.4m, an increase of 61% compared to 2006 ($40.6m).
Gross profit margin increased from 48.6% to 49.6%. Operating profit increased
69% year-on-year to $23.7m (2006: $14m).
Forecast revenues, according to independent research house Dutton Associates,
are $118.4m (62% growth) for 2008 and $220.5m (85% growth) for 2009. Earnings
per share (EPS) for 2008 is forecast to be $1.66 fully diluted (2007: $0.91)
growth of 82%. For 2009 EPS estimates are for $2.94, a further growth of 77%.
The forecast price earnings ratio (P/E) for year-end 2008 is 9.3x and for 2009
5.3x.
The company's own guidance is that they expect sales in 2010 to exceed $340m.
Sinoenergy Corporation (OTC BB:SNEN) 7.1% of FUM
SNEN, a manufacturer of compressed natural gas (CNG) vehicles and gas station
equipment and a designer, developer and operator of CNG filling stations in the
People's Republic of China, announced its first quarter results for the fiscal
year 2008 on 15 February 2008. Highlights of the quarter included net revenue
increasing 235% year-on-year to $8.8m. Operating income was $2.7m, a 176%
increase year-on-year. Net income increased 107.8% to $2.3m or $0.06 per
diluted share.
Westminster Securities is forecasting 131% and 40% growth in SNEN's revenues (to
$35.3m) and net income (to $7.7m), respectively, for the 12-month period ending
30 June 2008. There are no independent forecasts for fiscal year to 30 September
2008.
The company's own guidance for revenues and profits was issued in February 2008.
Revenues of $24.7m for the latest 12 months ending 31 December 2007 were
reported. Forecast revenues for fiscal year 2007 (to end September 2007) were in
a range of $53-56m, and for fiscal year 2009 in a range of $83-85m. Operating
income was reported at $7.0m for 12-month period ending December 2007. Forecast
operating income is in a range of $14-15m fiscal year 2008 and $24-26 fiscal
year 2009.
On 14 January 2008 SNEN announced that it was applying for listing approval on
the NASDAQ stock exchange.
American Oriental Bioengineering (NYSE:AOB) 6.8% of FUM
On 6 March 2008 AOB, a leading Chinese manufacturer and distributor of
pharmaceutical and neutraceutical products, reported results for the fiscal year
ended 31 December 2007. Revenue increased 45.7% to $160.5m in 2007 (2006:
$110.2m). 2007 net income increased 48.3% to $43.3m (2006: $29.2m) or $0.61
(2006: $0.46) per ordinary share.
Broker Brean Murray Carret forecast that EPS will be $0.75 for 2008 (growth of
25%) and $1.09 for 2009 (growth of 45.3%). Revenues of $228.6m are expected in
2008 (growth of 45.6%) and in 2009 revenues are forecast to be $311.1m (growth
of 36%).
Therefore, at the current market price of $7.82 AOB is on a prospective P/E of
10.4x for 2008 and 7.2x for 2009.
HaiKe Chemical (AIM:HAIK) 5.2% of FUM
HaiKe is a petrochemical refining and speciality chemicals business based in the
PRC. Full-year numbers for fiscal year 2007 are expected to be announced in
early April 2008.
House broker Hanson Westhouse is forecasting 2007 turnover of $313.8m (an
increase of 22.9% over 2006: $254.7m). Turnover is forecast to accelerate to
$564.1m in 2008 (an increase of 79.8%). EPS forecasts are 13.8p for 2007 and
28.4p for 2008 (2006: 4.6p). At the current share price of 90p the forecast 2008
P/E is 3.2x.
ReneSola (AIM:SOLA & NYSE:SOL) 4.5% of FUM
ReneSola, a leading Chinese manufacturer of solar wafers, has announced that its
profits are due to be released on 19 March 2008.
Broker Goldman Sachs forecasts for fiscal year 2007 are for revenues of $261.4m
(an increase of 197.9% from 2006: $87.6m). Earnings are forecast to be $0.39 for
2007 (growth of 21.8% over 2006: $0.32) and $0.64 for full year 2008 (growth of
64.1%). The implied P/E for 2008 is therefore 7.4x at the current share price of
208p.
ReneSola raised $130m in a placing of 10m American Depositary Shares (ADS) on
the NYSE at a price of $13 per ADS. Trading began on 4 February 2008. The
current US price of ReneSola ADS is $9.48.
All prices shown are as of close of business on 14 March 2008. Independent
forecasts have been used to calculate prospective valuations for indicative
purposes. These are clearly subject to change, and brokers' forecasts may have
been revised without our knowledge.
INCOME STATEMENT
Year ended 31 December 2007
Note Year ended Year ended
31 Dec 31 Dec
2007 2006
� �
Revenue - -
Gain on sale of non current assets 807,073 1,496,525
Gains in fair value of assets held at fair value through profit or - 324,341
loss
Losses in fair value of assets held at fair value through profit or (110,819) (133,790)
loss
Administrative expenses (623,649) (695,877)
Operating profit 72,605 991,199
Finance income 13,079 19,403
Investment income 7,005 2,692
Results for the year before taxation 92,689 1,013,294
Tax expense, net - -
Net results for the year 92,689 1,013,294
Total and continuing
Basic and diluted earnings per share 3 0.41 pence 4.44 pence
The accompanying notes and accounting policies form an integral part of these
financial statements.
BALANCE SHEET
As at 31 December 2007
Note 2007 2006
� �
Assets
Non current assets
Long term financial assets 7,725,974 5,423,678
Current assets
Trade and other receivables 23,063 23,017
Cash and cash equivalents 320,659 1,185,289
343,722 1,208,306
Total Assets 8,069,696 6,631,984
Equity
Equity attributable to shareholders of SovGEM Limited
Share capital 4 228 228
Reserve in respect of share options 4 54,435 29,343
Share premium account 4 2,868,171 2,868,171
Revaluation reserve 4 3,543,378 2,170,819
Retained earnings 4 1,378,495 1,285,806
Total equity 7,844,707 6,354,367
Liabilities
Current
Trade and other payables 224,989 277,617
Total liabilities 224,989 277,617
Total equity and liabilities 8,069,696 6,631,984
Signed on behalf of the board of directors
Peter St George
Director
The accompanying notes and accounting policies form an integral part of these
financial statements.
STATEMENT OF RECOGNISED INCOME AND EXPENSE
Year ended 31 December 2007
Year ended Year ended
31 Dec 31 Dec
2007 2006
� �
Profit for the financial year 92,689 1,013,294
Gain on revaluation of available for sale financial assets - 1,937,043 1,586,028
taken direct to equity
Derecognition of unrealised gains on disposals (564,484) (462,006)
Total recognised income and expense attributable to equity holders 1,465,248 2,137,316
STATEMENT OF CASH FLOWS
Year ended 31 December 2007
Year ended Year ended
31 Dec 31 Dec
2007 2006
� �
Profit after tax 92,689 1,013,294
Adjustments for:
Gain on sale of non current assets (807,073) (1,496,525)
Movements in fair value assets held at fair value 110,819 (190,551)
Income received from investing activities (20,084) (22,095)
(Increase) / Decrease in receivables (46) 92,494
(Decrease) / Increase in payables (52,628) 200,905
Share based payments 25,092 25,889
Net cash decrease from operating activities (651,231) (376,589)
Investing activities
Interest received 13,080 19,403
Investment income 7,005 2,692
Purchase of investments (2,046,246) (2,522,349)
Proceeds from sale of investments 1,812,762 2,523,073
Net cash used in investing activities (213,399) 22,819
Net decrease in cash and cash equivalents (864,630) (353,770)
Cash and cash equivalents at beginning of period 1,185,289 1,539,059
Cash and cash equivalents at end of period 320,659 1,185,289
The accompanying notes and accounting policies form an integral part of these
financial statements.
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2007
1. PRELIMINARY STATEMENT
This preliminary statement was approved by the directors on 17 March 2008.
The financial information set out above does not constitute the company's
statutory financial statements for the year ended 31 December 2007 but is
derived from those financial statements. The comparative figures are those of
the financial statements for the period ended 31 December 2006. The report of
the auditors was unqualified. The statutory financial statements for the year
ended 31 December 2007 will be delivered to the Registrar of Companies following
the Company's Annual General Meeting.
The financial information contained in this Preliminary Statement does not
constitute statutory accounts.
2. SEGMENT REPORTING
The Company's internal organisation and management structure and its system of
financial reporting are based neither on investment type nor business segments,
but rather on an individual investment basis, on the underlying requirement that
the company has exposure to China. The Company is focused on investing in
companies that are involved in servicing the Chinese market. Although the
domicile of the investee companies has been in many jurisdictions across the
world, it is their involvement with China that is important and not their
domicile. Equally, the Company does not seek to specialise in any particular
industry or sector, but seeks to identify high growth companies servicing
Chinese domestic demand. The Directors consider that the Company has only one
business segment, and to identify industry sectors or investment types would be
an artificial analysis and not reflect the actuality of the Company's activity.
However, set out below is an analysis of the investments:
2007 2006
� �
Total assets
Listed investments 5,326,593 3,135,730
Unlisted investments 2,098,951 1,831,667
Warrants and Options 50,092 324,342
Convertible debt 250,338 131,939
7,725,974 5,423,678
2007 2006
� �
Gain on sale of non current assets
Listed investments 690,002 1,496,525
Unlisted investments - -
Warrants and Options 117,071 -
Convertible debt - -
807,073 1,496,525
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2007
3. EARNINGS PER SHARE
The basic earnings per share is based on the profit attributable to ordinary
shareholders divided by the weighted average number of shares in issue during
the year.
2007 2006
� �
Net results for the year 92,689 1,013,294
Weighted average of ordinary shares of 0.001p in issue 22,775,000 22,775,000
Net asset value per share 35.43p 27.91p
Earnings per share - basic and diluted 0.41p 4.44p
The options in issue are currently "out of the money" and as such do not have a
dilutive effect on the earnings per share.
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2007
4. STATEMENT OF MOVEMENT OF RESERVES
Share Share Revaluation Reserve in Retained Total
capital premium reserve respect of earnings equity
account share options
� � � � � �
As at 1 January 2006 228 2,868,171 1,046,797 3,454 272,512 4,191,162
Available for sale
securities
- Unrealised gain on - - 1,586,028 - - 1,586,028
revaluation of available
for sale financial
assets - taken direct to
equity
- Derecognition of - - (462,006) - - (462,006)
unrealised gains on
disposals
Net income recognised - - 1,124,022 - - 1,124,022
directly in equity
Net results for the year - - - - 1,013,294 1,013,294
ended 31 December 2006
Total recognised income - - 1,124,022 - 1,013,294 2,137,316
and expense for the
period
Employee share based - - 25,889 - 25,889
transactions
As at 31 December 2006 228 2,868,171 2,170,819 29,343 1,285,806 6,354,367
As at 1 January 2007 228 2,868,171 2,170,819 29,343 1,285,806 6,354,367
Available for sale
securities
- Unrealised gain on - - 1,937,043 - - 1,937,043
revaluation of available
for sale financial assets
- taken direct to equity
- Derecognition of - - (564,484) - - (564,484)
unrealised gains on
disposals
Net income recognised - - 1,372,559 - - 1,372,559
directly in equity
Net results for the year - - - - 92,689 92,689
ended 31 December 2007
Total recognised income - - 1,372,559 - 92,689 1,465,248
and expense for the period
Employee share based - - - 25,092 - 25,092
transactions
As at 31 December 2007 228 2,868,171 3,543,378 54,435 1,378,495 7,844,707
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2007
5. RESTATEMENT OF FINANCIAL INFORMATION UNDER INTERNATIONAL FINANCIAL REPORTING
STANDARDS (IFRS)
Adoption of IFRS did not result in any changes or restatement of the net result
or equity previously reported. There have been no restatements from the
adoption of IFRS as the company adopted Financial Reporting Standard 26
Financial Instruments: Recognition and Measurement under UK GAAP in 2006, which
shares the same principles as IAS 39 Financial Instruments: Recognition and
Measurement.
As part of the adoption of IFRS the following items are now included in the
calculation of operating profit:
* Gain on sale of non current assets
* Gains in fair value of assets held at fair value through profit or loss
* Losses in fair value of assets held at fair value through profit or loss
In the prior year these items were shown below operating profit on the face of
the Income Statement. There has been no impact on the reported net results for
the prior year.
UK GAAP IFRS
Year ended Year ended
31 Dec 31 Dec
2006 2006
� �
Revenue - -
Gain on sale of non current assets - 1,496,525
Gains in fair value of assets held at fair value through profit or loss - 324,341
Losses in fair value of assets held at fair value through profit or - (133,790)
loss
Administrative expenses (695,877) (695,877)
Operating (loss)/profit (695,877) 991,199
Gain on sale of non current assets 1,496,525 -
Gains in fair value of assets held at fair value through profit or loss 324,341 -
Losses in fair value of assets held at fair value through profit or (133,790) -
loss
Finance income 19,403 19,403
Investment income 2,692 2,692
Results for the year before taxation 1,013,294 1,013,294
Tax expense, net - -
Net results for the year 1,013,294 1,013,294
This information is provided by RNS
The company news service from the London Stock Exchange
END
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