TIDMEFR
RNS Number : 5848C
EF Realisation Company Limited
22 January 2018
22 January 2018
FOR IMMEDIATE RELEASE
THE BOARD OF DIRECTORS OF EF REALISATION COMPANY LIMITED
ANNOUNCES THE ANNUAL REPORT AND AUDITED CONSOLIDATED FINANCIAL
STATEMENTS FOR THE PERIODED 30 SEPTEMBER 2017
strategic REPORT
financial highlights and performance summary
Financial highlights
Scheme of Reconstruction
EF Realisation Company Limited was established as a successor
vehicle to Ecofin Water & Power Opportunities plc ("EWPO") to
hold the illiquid assets formerly owned by EWPO. Further to the
Scheme of Reconstruction which was effective in September 2016,
EWPO ceased trading on 21 September 2016. Its two successor
companies are EF Realisation Company Limited (the "Company" or "EF
Realisation") and Ecofin Global Utilities and Infrastructure Trust
plc ("Ecofin Global"). The ordinary shares of the Company and
Ecofin Global were admitted to trading on the London Stock Exchange
on 26 September 2016.
As at 13 September 2016, the value of the pool of assets
attributable to the Company, further to the Scheme of
Reconstruction of EWPO, was GBP47,184,416; these comprised assets
valued at GBP46,071,195, cash of GBP2,358,000 and a provision of
GBP1,244,779. This is the opening value for the Company's equity in
the Statement of Changes in Shareholders' Equity. In turn, on 22
September 2016, the Company issued 52,473,633 Ordinary Shares to
EWPO shareholders at a price of 89.92p per share for gross proceeds
of GBP47,184,416.
The first valuation point for the Company's assets after
admission was as at the close of trading on 30 September 2016.
During the period from 13 September 2016 to 30 September 2016, the
net asset value ("NAV") per share fell from 89.92p to 83.89p as a
result of movement in the fair value of investments.
Share ratio of the Scheme of Reconstruction
Pursuant to the Scheme of Reconstruction, EWPO shareholders
received one share in the Company for every four EWPO shares held
and, for those who did not elect to receive cash in respect of some
or all of their holding of EWPO shares, one share in Ecofin Global
for every one EWPO share held.
Compulsory Redemption Mechanism
EF Realisation monetised various portfolio assets between
February and August 2017 which, in aggregate, comprised
approximately 24% of the NAV as at 30 September 2017. The total net
proceeds raised were approximately GBP4.36 million, made up of
GBP4.26 million in realised proceeds (including GBP0.1 million from
a corporate action involving the Company's holding in Energy Future
Holdings) and GBP0.1 million of investment income (net of
expenses). The Company realised its investment in Menhaden Capital
plc in February 2017 which raised GBP1.2 million, equal to 2.3p per
Ordinary Share. EF Realisation sold a bond holding in Integradoro
de Servicios Petroleros Oro Negro SAPI de CV ("Oro Negro") which
raised approximately GBP0.5m, and it received approximately GBP2.5
million from Eastern Australia Irrigation Limited which had sold
certain of its water entitlements to the Australian Government and
distributed a majority of the proceeds to its shareholders,
including EF Realisation. On 4 September 2017, the Company
announced its intention to implement the Company's first capital
distribution, returning GBP3.0 million to Shareholders of the
approximately GBP4.36 million in total net proceeds; the balance of
the net proceeds from asset realisations was retained for working
capital purposes.
On 18 September 2017, 7,496,024 Ordinary Shares were redeemed at
the then prevailing NAV (less redemption expenses) of 40.07p per
Ordinary Share. This GBP3.0 million return of capital was
implemented pursuant to the Company's compulsory redemption
mechanism, such that one in every seven Ordinary Shares was
redeemed, for cancellation, on a pro rata basis. Fractions of
Ordinary Shares produced by the applicable redemption ratios were
not redeemed and so the number of Ordinary Shares redeemed in
respect of each Shareholder was rounded down to the nearest whole
number of Ordinary Shares.
Market capitalisation
As at 30 September 2017, the market capitalisation of the
Company was GBP11,919,066.
Number of Ordinary Shares
Further to a return of capital to Shareholders by means of a
compulsory share redemption, the number of Ordinary Shares in issue
as at 30 September 2017 was 44,977,609.
Summary
As at As at As at
30 September 30 September 13 September
2017 2016(1) 2016(2)
Net assets (GBP'000) GBP18,193 GBP44,020 GBP47,184
NAV per Ordinary
Share 40.45p 83.89p 89.92p
Ordinary Share price
(bid price) 26.50p 37.00p
Discount to NAV (based
on published NAV) 34.5% 55.9%
(1) (Net asset value and share price per Ordinary Share is based
on the 30 September 2016 valuation point, being the first NAV
released after the Ordinary Shares were admitted to trading on the
London Stock Exchange.)
(2) (As at 13 September 2016, the value of the pool of assets
attributable to the Company, further to the scheme of
reconstruction of EWPO, was GBP47,184,416 or 89.92p per share. This
is recorded as the proceeds from issuance of Ordinary Shares in the
Statement of Changes in Shareholders' Equity. By 30 September 2016,
the first available NAV after the issuance and admission of the
Company's shares to trading, the value of the Company's assets had
decreased to GBP44,019,774 or 83.89p per share. The difference is
reflected within Loss before Taxation recorded in the Statement of
Comprehensive Income.)
Performance Summary
30 September 13 September 13 September
2016 to 2016 to 2016 to
30 September 30 September 30 September
2017 2017 2016
% change % change % change
NAV per share total
return (51.8)% (55.0)% (6.7)%
Ordinary share price
(bid price) total
return (28.4)%
Ongoing charges
The ongoing charges ratio is calculated according to AIC
methodology using the actual costs incurred in the year which are
likely to recur in the foreseeable future and which relate to the
operation of the Company divided by the average net assets during
the period. The ongoing charges ratio for the year ended 30
September 2017 was 1.32%.
Dividend and distribution history
No dividend was declared or paid during the period.
Although it is not expected that the Company will receive any
income during the realisation period, to the extent that it does
receive any income, the Board intends to distribute it to
Shareholders provided the Company has sufficient working
capital.
chairman's statement
Dear Shareholders,
EF Realisation Company Limited was incorporated on 28 June 2016
and this is the first annual report for the Company. The Company's
shares commenced trading on the London Stock Exchange on 26
September 2016. The Company is a successor company to EWPO and was
created to hold, manage and realise in an orderly manner the
illiquid assets of EWPO.
EF Realisation seeks to achieve a balance between monetising its
assets expeditiously and maximising the proceeds from realising
those assets. The Company will make no new investments and will
distribute the proceeds of realisations to Shareholders, subject to
the Company's working capital requirements. An ordinary resolution
to wind up the Company will be put to Shareholders once all the
Company's investments have been realised or distributed and in any
event no later than the second anniversary of the listing of the
Company's shares on the London Stock Exchange, that is, 26
September 2018, unless before then Shareholders approve a special
resolution to extend the life of the Company for a further period
of one year.
Progress in monetising the assets was made during the year to 30
September 2017. Net proceeds totalling GBP4.36 million were
realised, representing approximately 24% of the NAV as at the
period end and at values which, in aggregate, exceeded the values
for those assets in the Company's opening NAV by 23.9%. As a result
of these monetisations, the Company undertook a one-for-seven
compulsory share redemption in September 2017 and returned GBP3.0
million to Shareholders.
The Company's NAV per share declined by 51.8% during the year
under review. This was wholly attributable to a fall in the share
price of Lonestar Resources US Inc. ("Lonestar") which accounted
for 70.9% of the Company's net assets at 30 September 2016, the
beginning of the period under review. Lonestar is listed in the US
on the NASDAQ exchange and its share price fell from US$10.20 at
the beginning of the year to US$3.51 on 30 September 2017. All the
other investments in EF Realisation are unlisted and valued by the
Directors at their estimated realisation values and, with one
exception, changes in these valuations have been small. The
exception is an upgrade to the valuation of the Company's minority
shareholding in Eastern Australia Irrigation Limited following that
company's sale of water rights to the Australian Government
authorities in August 2017 and the expectations for the amount of
proceeds that can now be realised from the sale of its farms.
Lonestar spent much of the past year strengthening its balance
sheet and growing in scale, by drilling and proving up its reserves
and by low cost complementary and accretive acquisitions. Lonestar
now has to deliver on its operational and financial targets for
2018 and, providing these targets are achieved and the oil price
environment is supportive, the Directors look forward to an
improvement in Lonestar's share price. For each of the Company's
other material assets, a strategy is in place to monetise the asset
and the Directors expect the Investment Manager's continued efforts
will allow the realisation process to be completed by the second
anniversary of the Company's listing, that is, by 26 September
2018.
Over the year under review, the bid price of the Company's
shares fell by 28.4%. The discount at which the shares traded to
the Company's NAV narrowed, therefore, from 55.9% to 34.5%. The
Directors attribute the high discount immediately after the
Company's shares were listed to the fact that the shares were not
purchased by long-term investors but, instead, were issued as part
of a reorganisation of EWPO to numerous investors who sold their
shares once EF Realisation was listed. The illiquidity of the
Company's portfolio and lack of familiarity with the valuation
methodologies used in valuing the Company's investments also
contributed to the discount. Once the early selling pressure
subsided and as Shareholders have grown more familiar with the
valuation techniques employed by the Company, the discount has
varied since admission between 20% and 39%, which is similar to the
range for discounts of shares of investment companies or investment
trusts whose main holdings are illiquid.
From the end of the Company's financial year on 30 September
2017 to 17 January 2018, the latest available NAV before the
publication of this report, the Company's NAV and share price
increased by 20.6% and 47.2%, respectively, reflecting the
improvement in Lonestar's share price during that period; the
discount as at 17 January 2018 was 20.0%.
The Directors remain committed to fulfilling the Company's
realisation strategy and ensuring the proceeds are returned to
Shareholders without any unnecessary delay.
Martin Nègre
Chairman
22 January 2018
executive sUMMARY
This Executive Summary is designed to provide information about
the Company's business and results for the period ended 30
September 2017. It should be read in conjunction with the
Chairman's Statement and the Investment Manager's Report which give
a detailed review of the investments, a summary of realisation
activities for the period, and an outlook for future
realisations.
Corporate summary
The Company was incorporated in Guernsey on 28 June 2016, with
registered number 62195, as a non-cellular company with liability
limited by shares. The Company has been registered with the
Guernsey Financial Services Commission ("GFSC") as a registered
closed-ended collective investment scheme pursuant to The
Protection of Investors (Bailiwick of Guernsey) Law, 1987, as
amended, and the Registered Collective Investment Scheme Rules
("RCIS Rules") 2015.
The Company has a wholly owned subsidiary called EFR Guernsey
Holding Limited, which holds an equity investment in Lonestar.
The Company is regulated by the GFSC and is a member of the
Association of Investment Companies ("AIC").
The Company's share capital is denominated in Sterling and each
Ordinary Share carries equal voting rights.
The Company's Ordinary Shares were admitted to trading on the
London Stock Exchange (Specialist Fund Segment) on 26 September
2016. As at 30 September 2017, the Company's issued share capital
comprised 44,977,609 Ordinary Shares.
The Company is categorised as an internally managed non-European
Union ("EU") alternative investment fund for the purposes of the
Alternative Investment Fund Managers Directive. As such, the Board
retains overall responsibility for portfolio management and risk
management of the Company.
The Company has appointed Ecofin Limited as investment manager
(the "Investment Manager") and in such capacity the Investment
Manager has, subject to the overall supervision of the Board,
responsibility for the management of the Company's investment
portfolio and day to day management of the strategy to realise the
Company's investments (the "Realisation Strategy"). The Board
actively and continuously supervises the Investment Manager in the
performance of its function.
Significant events during the period ended 30 September 2017
On 18 September 2017, following various asset realisations,
7,496,024 Ordinary Shares were redeemed and cancelled as part of
the Company's compulsory redemption mechanism at a redemption price
of 40.07p per Ordinary Share after allowing for the costs of
redemption of GBP9,000, returning capital of GBP3.0 million to
Shareholders.
Refer to 'Financial Highlights' section for detail of portfolio
assets realised during the period and note 11 for detail regarding
the redemption mechanism.
Investment objective
The Company's investment objective is to conduct an orderly
realisation of the assets of the Company, to be effected in a
manner that seeks to achieve a balance between returning cash to
Shareholders promptly and maximising the value of the investment
portfolio.
Investment policy
The Board and the Investment Manager believe that the portfolio
may take in the region of 6 to 9 months from the date of this
report to be fully realised. The mechanics and timing of any
distributions effected to return capital to Shareholders will be
set out in redemption announcement(s) and/or circular(s) to be sent
to Shareholders at the relevant time(s).
The Company will not make any new investments save that:
(a) available cash may be used to fund, where necessary, capital
calls in relation to existing investments where the Directors
believe it is necessary to preserve the value of that investment;
and/or
(b) available cash may be invested in liquid cash-equivalent
securities, including cash funds, and bank cash deposits, pending
its return to Shareholders.
The investment policy involves a continual evaluation of the
business prospects of each investment in the portfolio and the
disposal options for each asset in order to assess the most
appropriate realisation timing and strategy to be pursued in
relation to each investment. The Board meets regularly to review
progress in implementing the investment objective and the
Realisation Strategy and the current position of the holdings in
the portfolio.
Further information on the current status of the Realisation
Strategy can be found in the Investment Manager's report which is
incorporated within this Annual Financial Report.
Key performance indicators ("KPIs")
The Board seeks to achieve a balance between returning cash to
Shareholders promptly and maximizing the value of the investment
portfolio. In order to achieve this, the Board is in ongoing
discussions with the Investment Manager in respect of each
investment. In order to measure the success of the Company in
meeting its objectives and to evaluate the performance of the
Investment Manager, the Directors take into account the following
key performance indicators:
Realisations at NAV
The Board monitors the ability of the Company to realise the
value of each investment at its estimated recoverable amount, as
included in the NAV (as at the latest practical date to the
realisation date), whilst placing due consideration on the timing
of the realisation of each investment.
Please refer to the Financial Highlights and Performance Summary
for realisations of investments during the period.
Total return including distributions
The Board reviews at each regular meeting the performance of the
Company's investment portfolio and NAV, as well as the total
return, including distributions, earned by Shareholders.
Please refer to the Financial Highlights and Performance Summary
for NAV total return analysis and detail of the Company's first
capital distribution. Please refer to note 11 for further details
regarding the compulsory redemption mechanism.
Principal risks and uncertainties
The Directors, with the assistance of the Investment Manager,
have carried out a robust assessment of the principal risks facing
the Company. In carrying out this assessment, the Board has also
considered the currency uncertainty arising from the UK referendum
on leaving the European Union. The principal risks identified are
summarised below along with, where appropriate, the steps taken by
the Board to monitor and mitigate such risks. The specific
financial risks associated with foreign currencies, interest rates,
market prices, liquidity and credit - which may or may not be
material to the Company - are described in note 8 to the financial
statements.
The principal risks faced by the Company can be divided into
various areas as follows:
-- Performance, market and liquidity, any of which may affect the Realisation Strategy
-- Lonestar specific risk
-- Portfolio concentration
-- Operational
-- Financial
Performance, market and liquidity, any of which may affect the
Realisation Strategy
The performance of the Company depends on the decisions taken by
the Investment Manager within the parameters and constraints
imposed by the Company's investment policy and restrictions. As the
Company has investments in securities which are listed on
recognised stock exchanges - but which are illiquid - and in
unquoted securities, it is regularly exposed to performance, market
and liquidity risk and the value of the Company's portfolio can
fluctuate, particularly over the short-term, in response to
developments in financial markets. Further, the Company's assets
may not be realised at their estimated net realisable values, as
reflected in the Company's NAV, due to company or market related
factors or the illiquid nature of the investments, and it is
possible that the Company may not be able to realise some assets at
any value or within 6 to 9 months from the date of this Annual
Financial Report in accordance with the investment objective. This
may lead to volatility in the market price of shares in the
Company.
The Directors assess these risk factors, and the implementation
and results of the Realisation Strategy, regularly at Board and
other meetings with the Investment Manager. The Board examines the
sources of investment performance, liquidity and currency
exposures. It also monitors liquidity risk on an ongoing basis to
ensure that the Company maintains sufficient working capital to
meet the Company's ongoing requirements over the expected remaining
life of the Company.
As a realisation vehicle with an intended life at inception of
two years, the Board adopted a methodology for the calculation of
the Company's NAV which was designed to reflect the realisable
value of the portfolio, net of taxes and other expenses, were the
investments in the portfolio to be realised within the expected
life of the Company but in an orderly fashion in the prevailing
market. The Board regularly reviews this methodology, which is
detailed in the Company's prospectus, and the application of the
methodology, to determine with the Investment Manager whether or
not any changes should be adopted and to assess the Investment
Manager's progress toward realising the assets of the Company at
the valuations resulting from applying this methodology.
Lonestar specific risk
Lonestar accounted for 44.6% of the Company's net assets at 30
September 2017 (70.9% of the Company's net assets at 30 September
2016). The Company owned at that time approximately 17.0% of
Lonestar's common shares which is a public company whose shares are
listed on the NASDAQ Exchange in the US. Lonestar acquires and
develops shale reserves in Texas in the United States, sells the
oil, gas and gas liquids produced and is exposed to the commodity
price, operating, environmental and other risks associated with the
oil and gas industry. The Directors monitor closely the investment
in Lonestar and two representatives of the Investment Manager are
directors of Lonestar. The Directors believe that the risks to the
Company from its holding in Lonestar are mitigated by the risk
procedures followed by Lonestar, Lonestar's insurance and the fact
that Lonestar and its operating subsidiaries are separately
incorporated. The Company values Lonestar in its NAV and financial
statements at its trailing five-day volume weighted average share
price as reported to the NASDAQ Exchange less the estimated costs
(taxes and other expenses) that may be associated with the
realisation of the investment and adjusted for factors likely to
affect the amount that could be realised including the size of the
holding relative to observable liquidity. The Board believes that
this valuation approach provides the best representation of the
realisable value of the Company's investment in Lonestar, taking
into consideration the history of activity of the Lonestar shares
and their lack of liquidity relative to the size of the Company's
holding.
Portfolio concentration
As at 30 September 2017, the Company's investment portfolio
included debt and equity securities in the United States,
Australia, United Kingdom and Mexico. The Company is exposed to
concentration of geographical risk and may, from time to time, have
significant exposure to portfolio companies from certain business
sectors, specifically oil and gas and water rights which made up
44.6% and 42.3% of the NAV as at 30 September 2017, respectively.
Greater concentration of investments in any one geographical and/or
industry sector may result in greater volatility in the value of
the Company's investments, and consequently its NAV, and may
materially and adversely affect the performance of the Company and
returns to Shareholders.
As part of the Realisation Strategy, the number of investments
held by the Company is expected to reduce over time and, as a
consequence, concentration risk will increase and the aggregate
return on the remaining investment portfolio will become
increasingly exposed to the performance, favourable or
unfavourable, of the remaining individual investments. To a large
extent, this is unavoidable in view of the Company's Realisation
Strategy.
Operational
In common with most other investment companies, the Company has
no executive directors, no executive management and no employees.
The Company delegates key operational tasks to third-party service
providers which are specialists in their fields: the management of
the Company's investment portfolio to the Investment Manager,
Ecofin Limited; the preparation and maintenance of the Company's
financial statements, the maintenance of its corporate records and
the custody of the Company's assets to BNP Paribas Securities
Services SCA, Guernsey Branch. The Board reviews the performance of
these third-party service providers and their risk control
procedures on a regular basis as well as the terms on which they
provide services to the Company.
Financial
The specific financial risks associated with foreign currencies
are described below, and those associated with interest rates and
counterparties - which may or may not be material to the Company -
are described in detail in note 8.
Foreign exchange risk is the risk that the values of the
Company's assets and liabilities are adversely affected by changes
in the values of foreign currencies by reference to the Company's
base currency, Sterling. The vast majority (96%) of the Company's
net assets are denominated in currencies other than Sterling.
Accordingly, fluctuations in exchange rates between Sterling and
the relevant local currencies - principally the US dollar and the
Australian dollar - and the costs of conversion will directly
affect the value of the Company's investments and the ultimate sums
realised by Shareholders.
The Board monitors the Company's exposure to foreign currencies
on a regular basis. During the period ended 30 September 2017, the
Company did not use financial instruments to manage or mitigate the
foreign currency exposure. Please refer to note 8.1c for further
details.
Environmental and social issues
The Company is a closed-ended investment company and so its own
direct environment impact is minimal. The Board notes that the
companies in which the Company invests will have a social and
environmental impact over which the Company has no control. The
Directors, the majority of whom are based in the Channel Islands,
have held all of their meetings in Guernsey and therefore the
Company's greenhouse gas emissions and environmental footprint are
negligible.
Board diversity
The Board has due regard for the benefits of experience and
diversity, including gender, in its membership, and strives to meet
the right balance of individuals who have the knowledge and
skillset to direct the Company. The Board is made up of three male
Directors. All have held the position of Director since
incorporation. Further information about the Board's policy on
diversity is contained within the Directors' and Corporate
Governance Report.
The Company has no employees and therefore there is nothing
further to report in respect of gender representation within the
Company.
Future strategy
The Board believes that the investment policy and strategy
adopted by the Company are appropriate for the Company's
realisation objectives. The Realisation Strategy remains in place
and it is the Board's assessment that the Investment Manager's
resources are appropriate to manage properly the Company's
investment portfolio.
Break-up basis
Under the AIC Code of Corporate Governance ("AIC Code") and
applicable regulations, the Directors are required to determine
whether it is reasonable to assume that the Company is a going
concern from the date of approval of the financial statements.
Given the Board believes that the investments held by the Company
may be fully realised in 9 months from the date of approving the
financial statements, the Board has adopted the break-up basis in
preparing the financial statements. This accords with the
methodology utilised in calculating the Company's NAV on a weekly
basis. Under this basis of accounting, assets are valued at their
estimated net realisable value and provisions are made for
estimated future costs to realise the investments and operating
costs for the Company through to its eventual liquidation.
Viability Statement
Under the AIC Code, the Directors are required to make a
"viability statement" which explains how they have assessed the
prospects for the Company, over what period they have done so, and
why they consider that period to be appropriate, taking into
account the Company's current position and principal risks. In
order to make the assessment, the Board has carried out a robust
review of the principal risks and uncertainties to which the
Company is exposed, and that potentially threaten liquidity and
future performance over the realisation period, and has assessed
the Company's current position and prospects as detailed in the
Chairman's statement and Investment Manager's report.
The Company's prospects are driven by its investment objective,
investment policy and Realisation Strategy. The Board's intention
is to continue with an orderly realisation of its assets with a
view to making significant distributions to Shareholders over the
next 6 to 9 months.
The Directors have concluded that a period of less than one year
from the date of this statement is an appropriate period over which
to assess the prospects of the Company, given the Realisation
Strategy. The Directors have also reviewed the working capital
requirements as forecast by the Investment Manager for the
remaining life of the Company. Taking account of the Company's
current position and principal risks, the Board has a reasonable
expectation that the Company will be able to continue in operation
and meet its liabilities as they fall due over the period of
assessment based on its review of cash flow forecasts.
The Strategic Report was approved by the Board of Directors on
22 January 2018 and signed on its behalf by:
Nick Tostevin Robert Sinclair
Director Audit Committee Chairman
BOARD MEMBERS
All Directors are non-executive.
CHAIRMAN
Martin Nègre
Appointed 20 July 2016
Martin was a director of EWPO until September 2016 and he is
currently a non-executive director of Ecofin Global Utilities and
Infrastructure Trust plc. He was, until June 2001, the chief
executive officer of Northumbrian Water plc, then a subsidiary of
Suez Lyonnaise des Eaux, and Suez Lyonnaise's chief corporate
representative in the UK. Prior to that, he was Suez Lyonnaise's
international director in Paris and then its Asia-Pacific president
in Hong Kong and Singapore. Before that, he spent 21 years with
Alsthom and GEC Alsthom, the Anglo/French engineering company,
where he was a senior executive and the chief executive officer of
the power generation division.
He is chairman of the Ecofin Vista Long-Short Fund and the
Ecofin Global Renewables Infrastructure Fund, funds managed by the
Investment Manager, a non-executive director of Northumbrian Water
Ltd and of Messrs Hottinger & Cie, Paris.
DIRECTORS
Robert Sinclair (independent) - Chairman of the Audit
Committee
Appointed 28 June 2016
Robert is managing director of the Guernsey based company,
Artemis Trustees Limited, and a director of a number of investment
fund management companies and investment funds associated with
Artemis Trustees Limited. Robert is chairman of Schroder Oriental
Income Fund Limited, a director of Picton Property Income Limited
and chairman of its audit committee, a director of Chariot Oil and
Gas Limited and chairman of its audit committee, and a director of
Rainbow Rare Earths Limited and chairman of its audit
committee.
He is a fellow of the Institute of Chartered Accountants in
England & Wales, a member of the Institute of Chartered
Accountants of Scotland and a member of the Society of Trust and
Estate Practitioners. Robert is resident in Guernsey.
Nicholas (Nick) Tostevin (independent) - Chairman of the
Management Engagement Committee
Appointed 28 June 2016
Nick holds the degree of LLB (Hons) (Bachelor of Law). He
qualified as a barrister in 1975 and as an advocate of the Royal
Court of Guernsey in 1976 and practised as such for 33 years until
he retired as the senior partner of a Guernsey law firm. He is a
non-executive director of a number of Guernsey-based investment
funds and insurance companies.
INVESTMENT MANAGER'S REPORT
Summary and Performance
EF Realisation is one of the two successor vehicles to Ecofin
Water & Power Opportunities plc ("EWPO"), a UK investment trust
that was reorganised by means of a scheme of reconstruction. EF
Realisation was created as a Guernsey company to hold the illiquid
and unquoted investments of EWPO and had net assets of
approximately GBP44.0 million at the date of its first published
NAV on 30 September 2016. The Company's shares were admitted to
trading on the London Stock Exchange on 26 September 2016.
The Company's investment objective is the orderly realisation of
its assets for the benefit of its Shareholders. As a consequence,
it cannot make any new investments and the proceeds of any
realisation, subject to the working capital requirements of the
Company, will be distributed to Shareholders. In September 2018, a
resolution will be put to Shareholders to wind up the Company
unless Shareholders have voted before then to extend the life of
the Company.
In the year from 30 September 2016 to 30 September 2017, the
Company's NAV declined from GBP44.0 million to GBP18.2 million, a
fall of 59%. A part of this decline reflects the GBP3.0 million
return of capital to Shareholders on 29 September 2017. Allowing
for the return of capital, the NAV declined by GBP22.8 million or
52%. This decline was attributable to a fall in the share price of
Lonestar Resources US, Inc., the Company's largest investment
which, at the time of the first NAV of the Company, accounted for
approximately 70.9% of the Company's net assets at 30 September
2016 and by the end of the period under review accounted for 44.6%.
The Company incurred operating costs and increased its provision
for operating the Company to the end of its expected life at the
end of September 2018. Against that, the Company made realised
gains of GBP0.74 million and investment income (net expenses) of
GBP0.10 million(2) during the period ended 30 September 2017.
EF Realisation has traded at a discount to its NAV since its
shares began trading on 26 September 2016. In view of the nature of
the Company's investments and the uncertain outlook for their
realisation, a discount was to be expected as investment companies
which invest in private equity typically trade at steep discounts
to their published net asset values. The discount to NAV at which
shares in EF Realisation traded started was 55.9% on 30 September
2016 and finished the period on 30 September, 2017 at 34.5%. The
discount to NAV was 20.0% as at 17 January, 2018.
Asset Realisations and Return of Capital
During the period, the Company made a number of asset
realisations. EF Realisation sold its shares in Menhaden Capital
plc ("Menhaden"), its bondholding issued by Integradora de
Servicios Petroleros Oro Negro SAPI de CV ("Oro Negro"), and it
partially realised its investment in Eastern Australia Irrigation
Ltd ("EAI"). The Company also received a sum from a corporate
action involving Energy Future Holdings and investment income from
WoodFuels which, net of expenses, amounted to GBP0.1 million. The
net proceeds, realised gains and income received are set out below.
In aggregate, the Company raised total net proceeds of
approximately GBP4.36 million (including investment income (net of
expenses) of GBP0.1 million). The combined value of these
investments in the Company's NAV at 13 September 2016 stood at
GBP3.52 million. Including net income associated with these
investments and received during the period, the total gain (as a
percent of their value on 13 September 2016) was 23.9%.
Total realised
gains and
investment
income
Total (net of
of sale expenses)
Value proceeds as a percent
in NAV Investment and investment of value
as at income income in NAV
13 September Date Realised (net (net as at 13
2016 investment gains of expenses)(2) of expenses)(2) September
Investments GBPmillion realised GBPmillion GBPmillion GBPmillion 2016
Menhaden
shareholding 0.99 02/03/2017 0.21 - 1.20 21.2%
Oro Negro
bond 0.41 12/06/2017 0.10 0.08 0.59 43.9%
EAI partial
share
redemption(1) 2.12 22/08/2017 0.34 - 2.46 16.0%
Other
investments - Various 0.09 0.02 0.11 n/a
-------------- ------------ ----------------- ----------------- ---------------
3.52 0.74 0.10 4.36 23.9%
-------------- ------------ ----------------- ----------------- ---------------
1 The value on 13 September 2016 of the portion of the EAI
investment realised on 22 August 2017 is derived from the value
that this portion represented of the total investment on 22 August
2017, the date of the partial realisation. As per, note 7, this
position has been computed in accordance with IFRS, realising the
gain / (loss) on disposal based on sale proceeds less pro-rated
share of initial cost of transaction.
2 Investment income (net of expenses) of GBP0.10m relates to
GBP177,204 investment income received during the period ended 30
September 2017, net GBP75,191 of legal and professional fees
incurred during the period ended 30 September 2017 relating to
various transactions on certain assets held at nil vale.
Menhaden is a UK listed investment trust that specialises in
clean energy and energy efficiency. Its share price recovered in
early 2017, helped by an improvement in its net asset value and a
decision to focus more on listed equities. The Company took
advantage of an increase in the price and trading liquidity of
Menhaden shares and sold its holding of 2 million shares, realising
a 21.2% premium over its initial holding value.
Oro Negro is a Mexican oil services company which supplies and
operates jack-up rigs under contract to the Mexican State oil
company, Petroleos Mexicanos ("Pemex"). Following the downturn in
oil prices, Pemex has sought a number of renegotiations of its
contracts with Oro Negro and other rig suppliers. Oro Negro bonds
have been volatile as these contract negotiations have progressed.
After a period of stability in contract negotiations, EF
Realisation sold its position in the Oro Negro bond. The proceeds
of GBP0.59 million, including investment income (net of expenses),
surpassed the initial holding value of the bond by GBP0.18 million
or 43.9%. EF Realisation continues to hold a position in the equity
of Oro Negro, described below.
Eastern Australia Irrigation Limited ("EAI") is an Australian
based company which owns and operates two farms in Queensland,
whose main crop is cotton, along with various water extraction
rights from the Murray Darling River Basin. During the summer of
2017, Australian Government authorities approached EAI with an
offer to acquire some of its water entitlements. EAI was able to
negotiate the price for the water entitlements to the highest level
ever paid, and in August 2017 it completed the largest ever sale of
water entitlements in the Murray Darling River Basin. EF
Realisation owns 9.6% of EAI's shares and, along with other
holders, supported the sale of the water rights. EAI used the
majority of the sale proceeds to return capital to its
shareholders, and passed GBP2.5 million to EF Realisation. This
represented a gain on that part of the EAI holding of GBP0.34
million or 16.0%. We comment below on the plans to dispose of EAI's
farms.
Finally, EF Realisation received proceeds from various assets
that are held in the NAV at nil value, specifically the investments
in Energy Future Holdings (a competitive generator under bankruptcy
proceedings in Texas, USA) and WoodFuels (which operates in the
market for the provision of pelletised biomass). In total, these
receipts (net of expenses) amounted to GBP0.1 million.
In line with its investment policy, EF Realisation returned
GBP3.0 million of the total realisation proceeds to Shareholders
through a compulsory share redemption. As a result, every
Shareholder received 40.07p per share in return for one in every
seven shares held at the close of business on 15 September 2017
(with fractional amounts rounded down) and retained an interest in
the remainder of their shareholdings (six of every seven shares
held, rounded up). The 40.07p per share reflected the latest
available NAV of the Company prior to the compulsory share
redemption on 31 August, 2017 less estimated transaction expenses
and was above the prevailing share price of 28.5p per share. The
return of capital and reduction in shares in issue was effective on
18 September, 2017 and Shareholders received payment on or shortly
after 29 September, 2017. In total, the compulsory share redemption
returned GBP3.0 million to Shareholders and reduced the number of
shares in issue from 52,473,633 to 44,977,609.
Description of Investments and Realisation Plans
At 30 September, 2017, EF Realisation had seven investments
which were valued at GBP15.8 million plus GBP2.4 million in net
working capital. All the underlying assets within the investment
portfolio were in unquoted securities with the exception of its
investment in Lonestar which is a company quoted on the US NASDAQ
exchange (although EF Realisation holds this interest through an
unquoted wholly-owned subsidiary). The Company's subsidiary values
Lonestar by using a five-day weighted average of its observable
share price adjusted for factors likely to affect the amount that
could be realised including the size of the holding relative to
observable liquidity and an estimate of the costs that are likely
to be incurred in realising the Company's investment. The Company
values its other, unquoted investments based on third-party
valuations or valuation techniques typically used to value such
investments and may also apply a further discount for illiquidity
or deduct estimated expenses to realise any investment. EF
Realisation also provides for estimated running costs of the
Company through to the end of its expected life and estimated
liquidation expenses, on the assumption that the Company is put
into voluntary liquidation at the end of September 2018.
Lonestar
Lonestar is EF Realisation's largest investment and accounted
for 44.6% of the Company's net asset value at 30 September 2017
(70.9% of the Company's net assets at 30 September 2016). Lonestar
produces oil and gas from reserves it owns and is developing in the
Eagle Ford shale basin in southern Texas. Lonestar has its origins
in a private equity investment made by EWPO which was merged in
2012 with a smaller Australian-listed company whose assets were oil
and gas reserves in the United States. In 2016, Lonestar's shares
were de-listed from the Australian Stock Exchange, the company was
re-domiciled as a US company and its shares were listed and began
trading on the US NASDAQ exchange from 5 July 2016.
Throughout the period under review, EF Realisation owned,
through a wholly-owned subsidiary, 4,174,259 ordinary shares of
Lonestar. When EF Realisation's shares were listed on 26 September,
2016, the Company's shareholding in Lonestar represented 52.0% of
Lonestar's issued and outstanding ordinary share capital. Over the
period to 30 September, 2017, Lonestar issued more equity to
strengthen its balance sheet and further its plans to grow and, in
accordance with the Company's investment policies which prohibit EF
Realisation from making new investments, EF Realisation's
shareholding fell from 52.0% to approximately 17.0% of Lonestar's
outstanding ordinary share capital as at 30 September, 2017.
Under an agreement with Lonestar, EF Realisation has the right
to nominate two directors to Lonestar's board, subject to the
approval of Lonestar's shareholders in an annual general meeting,
as long as EF Realisation's ownership of Lonestar's ordinary shares
is in excess of 15%, and one director if its ownership is less than
15% but greater than 10%. EF Realisation's nominated directors to
Lonestar's board of directors are John Murray, chairman of the
Investment Manager and Dr Christopher Rowland, head of special
situations at the Investment Manager.
From EF Realisation's first NAV on 30 September, 2016 to 30
September, 2017, Lonestar's share price fell by 66% in US dollar
terms and by 67% in sterling terms. Over the same period, an equity
index of US Small Capitalisation Exploration & Production
(E&P) companies fell by 29% in US dollar terms. In general,
investors became disenchanted with US E&P companies and no
longer willing to support production growth without a clear
line-of-sight to these companies becoming cash generative. The
underperformance of US E&P shares belied the resilient
performance of crude oil prices (the US West Texas Intermediate
("WTI") crude oil price rose by 7% over the year) and investors'
greater confidence that OPEC and other major oil producing
countries will continue to restrict supply and thereby support
future crude oil prices. During this period, smaller US E&P
companies with higher levels of indebtedness - such as Lonestar -
were amongst the poorest performers.
Notwithstanding a weak share price, Lonestar has made good
progress in its twin aims of strengthening its balance sheet and
attaining a greater scale in its operations, while continuing to
deliver top tier operational performance.
To strengthen its balance sheet, Lonestar undertook a number of
measures. It repurchased 31% of its senior notes at a 47% discount
to par value, thereby reducing outstanding debt by $32 million.
This was initially funded by the issuance of a second lien note
carrying a coupon of 12% but that was subsequently fully repaid.
That left Lonestar with $152 million of senior notes due in April
2019. In December 2016, Lonestar raised $79 million of new equity
by issuing ordinary shares and then in June 2017 it issued a
further $11 million of ordinary shares and $80 million of preferred
shares (to help fund acquisitions of oil and gas reserves).
Finally, over the year under review, Lonestar increased its
borrowing base under its revolver facility from $120 million to
$160 million.
Together these measures have materially strengthened Lonestar's
balance sheet and reduced net debt from $319.5 million at 30 June,
2016 to $288.1 million at 30 September, 2017. The ratio of debt to
EBITDA, which was around 4 times in September 2016, dropped to 3.4
times in Lonestar's results to 30 September, 2017. Moreover,
Lonestar's management is forecasting that this ratio will continue
to fall and will be between 2.7 times and 2.9 times by the end of
2018. Similarly, Lonestar has a comfortable level of liquidity that
it can draw on, should it wish to do so. At 30 September, 2017,
Lonestar had cash and undrawn borrowing capacity under its revolver
of $51.7 million, up from $31.5 million a year earlier.
Subsequent to the Company's year-end, Lonestar has further
strengthened its balance sheet. It issued $250 million of senior
notes due in 2023 and used part of the proceeds to repay fully the
$152 million of senior notes due in 2019. The remainder of the
proceeds was used to pay down Lonestar's revolver, significantly
increasing liquidity available to the Company to approximately $100
million.
Lonestar's strengthened balance sheet coincided with
stabilisation of the WTI crude oil price around $55 per barrel, and
enabled Lonestar to embark on a growth strategy in furtherance of
its aim to increase its scale and attract the attention of US
institutional investors. Lonestar stepped up its drilling and well
completion activities - bringing on-stream 9 net wells in 2017, up
from 5 net wells in 2016 - and plans to increase that to around 15
net wells in 2018. Moreover, Lonestar has taken advantage of an
asset market that has seen some high quality assets come to the
market at attractive valuations by making both transformational and
bolt-on acquisitions.
Of particular note, Lonestar announced on 30 May, 2017 that it
had entered into definitive agreements to acquire oil and gas
properties in the Eagle Ford shale basin for a total purchase price
of $116.6 million. The acquisitions were funded primarily by the
issue of convertible preference shares and ordinary shares
mentioned above, and Lonestar also drew on its revolver. The
acquisitions increased Lonestar's Eagle Ford shale holdings by 59%
to 57,330 net acres. On a pro forma basis, they increased the
company's Q1 2017 net production by 39% to 7,318 barrels of oil
equivalent (BOE) per day and its 2016 earnings before interest,
taxes, depreciation and amortisation (EBITDA) by 33% to $75.3
million. Also on a pro-forma basis, as at 31 December, 2016 proved
reserves increased by 70% to 76.3 million BOE, and the PV-10 of
Lonestar's proved reserves (an assessment of the future cash flows,
discounted at a rate of 10% per annum, undertaken according to SEC
regulated procedures) increased by 68% to $642 million. Proved
reserves were acquired at $3.7 per barrel of oil and at a 55%
discount to their PV-10 value.
Lonestar is now forecasting oil and gas production in 2018 of
between 10,000 and 10,700 BOE per day and EBITDA in 2018 of between
$100 and $110 million. This would be an increase of between 61% and
73% in production volumes and an increase of between 68% and 85% in
EBITDA above the annualised volume and EBITDA levels of the first
nine months of 2017.
Since its NASDAQ listing, Lonestar has consistently traded at a
valuation discount to its US peers. We attribute this to a number
of factors in addition to uncertainty about the outlook for oil and
gas prices which has created an unfavourable backdrop for investors
in US E&P companies; namely, concerns about the financial
viability of smaller US E&P companies and their ability to
access capital markets on favourable terms in the current
environment. More specifically for Lonestar, its valuation discount
can be attributed to the lack of familiarity amongst US
institutional investors about its strategy, the perceived
uncertainty about management's ability to deliver on production and
EBITDA targets whilst its ratio of net debt to EBITDA continues to
improve, and the relative illiquidity of its shares.
Lonestar's shares currently trade at an enterprise value
equivalent to approximately 4.7 times forecast 2018 EBITDA, while
its peers which operate in the Eagle Ford shale basin or are
smaller oil-focussed companies trade at an average of 6.3 times.
Lonestar's under-valuation is even more pronounced when calculated
on the basis of its proved reserves. On this basis, Lonestar's
enterprise value is currently equivalent to $6.6 per barrel of
proved reserves while its peers trade at an average value of $13.3
per barrel.
As US institutional investors come to appreciate Lonestar's
strategy, its management's ability to deliver on its targets, and
the multi-year extension to the maturity of its senior notes, our
expectation is that Lonestar will achieve a scale that matters to
prospective investors and this will enhance the attractiveness of
its shares, especially if this occurs against a backdrop of stable
or improving oil prices.
As Lonestar is a US company listed on NASDAQ, it regularly files
detailed reports on its operations and financial statements with
the US Securities and Exchange Commission (SEC). These annual and
quarterly reports as well as investor presentations and other
information on the company are available on its website
(http://www.lonestarresources.com).
Eastern Australia Irrigation
Eastern Australian Irrigation Limited ("EAI") owns two large
farms in Queensland, Australia, whose principal assets include
rights to extract water from the Murray-Darling River Basin and
associated water storage infrastructure for irrigating the farms,
whose main crop is cotton. The Company owns 9.6% of EAI's
equity.
EAI was approached by Australian Government authorities to sell
part of its water irrigation rights during the summer of 2017.
After negotiations, a A$79 million sale of water rights was agreed
in August 2017 at the highest price ever paid for water per
megalitre from the Murray-Darling River Basin. Proceeds from the
sale were used in part to pay down EAI debt, in part for ongoing
working capital requirements, and in part to return capital to EAI
shareholders, including EF Realisation. As a result, EF Realisation
received approximately GBP2.5 million from EAI (which formed part
of EF Realisation's return of capital to its Shareholders,
described above).
EAI was in the process of selling its farms prior to the sale of
water rights. Proceeds received for the sale of water rights were
attractive compared to the offers received in the farm sale process
so the farm sale process was suspended in order to complete
negotiations with the Australian Government authorities over the
sale of water rights. EAI has now resumed the farm sale process
with the intention of using sale proceeds to repay debt and redeem
its shares. Having sold some of the water rights, the effective
size of the irrigable land that can be used for cotton farming has
been reduced by approximately one-third and it is expected that
this, and the decision to sell the farms separately rather than as
a package as last summer, will make the farms attractive to a
broader range of potential buyers. Cotton prices are supported by
low crop harvests in cotton growing regions outside Australia and,
at the time of writing, local rainfall on EAI's farms has prevented
a return of drought conditions. However, until binding bids are
received for the farms, the timing for EF Realisation to redeem or
sell its shareholding in EAI and the proceeds from such a
redemption or sale are uncertain.
EF Realisation carries its remaining investment in EAI at a
conservative estimate of the proceeds that would be received
assuming EAI's farms are sold and its shares are redeemed. In
particular, the implied valuation of the farms is less than the
value of the farms used to secure EAI's loan from the Commonwealth
Bank of Australia, a valuation point that has been a floor for
proceeds in farm sales.
TRF/Prescott Valley
EF Realisation has a majority interest in 2,724 acre-feet of
water entitlements in the Prescott Valley region of Arizona, near
Phoenix, in the United States, however restrictions in the
operating agreements limit EF Realisation's control and influence
over management of the asset. An independent expert makes an annual
valuation of these water entitlements on the basis of estimated
future cash flows discounted at the estimated cost of capital given
the perceived risk profile (a "DCF" valuation). EF Realisation uses
a third party NAV as a basis for valuing its investment in this
asset but it applies a further discount to reflect the illiquidity
of the investment and the expenses that might be incurred by EF
Realisation to dispose of the investment.
Property developers in the Prescott Valley region must
demonstrate that they have access to 100 years of future water
supply before they can be granted permission to develop land. The
water entitlements owned by EF Realisation would enable developers
to demonstrate a future water supply and 2,724 acre-feet of water
entitlements would be sufficient to allow for the development of
approximately 10,000 homes.
Development activity in the Prescott Valley region came to a
near standstill after the global financial crisis, significantly
reducing the demand for water entitlements, and there was a barren
period during which no sales of water entitlements occurred. As a
measure of the downturn in building activity, the number of new
single dwelling housing permits granted fell to less than 50 per
year in 2009-2011, having exceeded 1,000 permits per year in
2004-2005. Fortunately, property development activity has now
picked up and is running at approximately 500 permits per year,
which is stimulating interest from property developers for water
entitlements. Several sales of water entitlements are in the early
stages of negotiation and, while there is no guarantee that any
sale can be concluded at an attractive price, there are signs that
a significant sale of water entitlements might be able to be
achieved in the first half of 2018 which would then enable some
cash to be distributed to EF Realisation. However, the scale of
water entitlements in this investment is so large that disposals of
all the water entitlements is likely to take many years. As a
result, EF Realisation is exploring a secondary market sale of this
investment.
Other Investments
EF Realisation holds shares in Oro Negro (having disposed of its
bond interest, as described above), interests in the debt and
equity of Energy Future Holdings Limited ("EFH"), the holding
company for the leveraged buyout, in 2007, of the Texas-based
utility TXU Energy which filed for bankruptcy in 2014, and a
shareholding in Bluewater Bio Holdings Limited, a UK water
treatment company. In addition, the Company is party to an
introductory fee arrangement with an established US wood pellet
producer. EF Realisation carries all of these investments in its
NAV at nil value.
In our expectation, the shares in Oro Negro and the introductory
fee arrangement with an established US wood pellet producer are the
only assets which have potential to be of material value. However,
Oro Negro needs to undertake a restructuring of its bonds so it and
certain of its subsidiaries have been put into bankruptcy
proceedings in order to provide a period of stability during which
an orderly financial restructuring can be negotiated. There is no
clear timetable for Oro Negro to complete its financial
restructuring and, until then, the value of the Oro Negro shares
held by EF Realisation is difficult to determine or realise. The
introductory fee arrangement with an established US wood pellet
producer is conditional on that group entering into export sales
contracts with certain non-US parties and, while contract
negotiations are ongoing, there can be no guarantee that any such
contracts will be concluded in any specific timeframe.
Outlook
EF Realisation has made a start on disposing of its assets and
has realised GBP4.36 million (including investment income (net of
expenses)) for assets that were carried in its opening NAV at
GBP3.52 million. The Company has returned GBP3.0 million of this
sum to Shareholders. The Company continues actively to look for
buyers of its assets in order to realise their carrying values and
to maximise the cash returned to Shareholders. In so doing, the
Company would hope to close the discount between the Company's NAV
and its share price.
For certain of the more significant assets, the environment for
selling the Company's investments is encouraging. Lonestar has a
clear plan that its management is focused on delivering - involving
hitting production and EBITDA targets for 2018 while improving debt
ratios - and the recent stability in the oil price around higher
levels than seen last summer has created a more positive backdrop
for the sector than has been seen since oil prices dropped at the
end of 2014. In our opinion, there is scope for a significant
increase in the Company's NAV if Lonestar's management executes its
business plan and Lonestar's shares close the valuation discount to
its peers. Eastern Australia Irrigation Limited's process of
selling its farms is well underway and indications are of greater
activity in the Prescott Valley property market such that the TRF
investment may see some of its underlying water entitlements sold.
All of this bodes well for EF Realisation continuing to realise its
investments and return cash to Shareholders.
Investment Manager
22 January 2018
DIRECTORS' AND CORPORATE GOVERNANCE REPORT
The Directors present the Annual Financial Report of the Company
for the period ended 30 September 2017. The results for the period
are set out in these accounts.
Principal activity
The principal activity of the Company is to effect an orderly
realisation of the assets of the Company in accordance with the
Investment Policy, as detailed in the Executive Summary.
Disclosure of information to the auditor
The Directors who held office at the date of approval of this
Directors' Report confirm that, so far as they are each aware,
there is no relevant audit information of which the Company's
auditors are unaware and that they have taken the steps that they
ought to have taken as Directors to make themselves aware of any
relevant audit information and to establish that the Company's
auditors are aware of that information.
Directors' interests
Information for each Director is detailed in the 'Board Members'
section and details of Directors' remuneration and interests in
shares can be found detailed in the Directors' Remuneration
Report.
Financial risk management objectives and policies
The Board is responsible for the Company's system of risk
management and internal control and meets regularly to assess the
effectiveness of such controls in managing and mitigating risk.
The key financial risks that the Directors believe the Company
is exposed to are market risk and liquidity risk. Please refer to
note 8 for financial risk management disclosure and policies and
procedures in place to monitor and mitigate these risks.
The Administrator and Investment Manager have established
internal control frameworks to provide reasonable but not absolute
assurance on the effectiveness of the internal controls operated on
behalf of their clients. The effectiveness of these controls is
assessed by their respective compliance and risk departments on an
on-going basis and by periodic review by external parties. The
Administrator's compliance team present an assessment of their
review to the Board in line with the compliance monitoring program
on a quarterly basis.
The Board has reviewed the effectiveness of the Company's system
of risk management and internal control for the period ended 30
September 2017 and to the date of approval of this Annual Financial
Report.
Fair, balanced and understandable
In assessing the overall fairness, balance and understandability
of the Annual Financial Report, the Board has performed a
comprehensive review to ensure consistency and overall balance.
Borrowing limits
The Company does not have any external borrowings and has no
intention to incur external borrowings, although the Directors may,
if they feel it is in the best interests of the Company, borrow
funds for working capital purposes.
Greenhouse gas emissions
Please refer to "Environmental and social issues" section for
disclosure regarding greenhouse gas emissions.
Acquisition of own shares
On 12 September 2017, the Company obtained general authority to
purchase in the market up to 14.99% of the Ordinary Shares in
issue. This authority expires on 7 March 2018, the date of the
Company's next AGM. During the period ended 30 September 2017, the
Company did not purchase any shares in the market.
The Directors will seek a renewal of this authority from
Shareholders at the Company's AGM on 7 March 2018.
Shareholders' interests
As at 30 September 2017, the Company had been notified, in
accordance with Chapter 5 of the Disclosure Guidance and
Transparency Rules (which covers the acquisition and disposal of
major shareholdings and voting rights), that the following
Shareholders had an interest of greater than 5% in the Company's
issued stated capital.
Percentage
of total
voting rights
(%)
Weiss Asset Management 20.31%
Asset Value Investors (including
British Empire Trust) 8.50%
1607 Capital Partners LLC 6.81%
Dexia Credit Local de France
SA 6.08%
Janus Henderson Investors 5.06%
Between 30 September 2017 and 22 January 2018, the following
additional notifications were received:
Percentage
of total
voting rights
(%)
J.H. Lane Holdings GP, LLC 15.40%
Weiss Asset Management 11.22%
1607 Capital Partners LLC 0.00%
Independent Auditor
Ernst & Young LLP have indicated their willingness to
continue in office as auditor and a resolution proposing their
re-appointment and to authorise the Directors to determine their
remuneration will be proposed at the forthcoming AGM.
Events after the Reporting Date
The Directors are not aware of any developments that might have
a significant effect on the operations of the Company subsequent to
the period end not already disclosed in this report or note 16 of
the attached financial statements.
Corporate Governance Statement
a) Corporate Governance Codes
The Disclosure Guidance and Transparency Rules ("DTR") of the UK
Listing Authority, require listed companies to disclose how they
have applied the principles and complied with the provisions of the
UK Corporate Governance Code ("UK Code") as issued by the Financial
Reporting Council ("FRC").
The AIC Code provides specific corporate governance guidelines
to investment companies. The Board considers that reporting against
the principles and recommendations of the AIC Code and by reference
to the AIC Guide (which incorporates the UK Code) will enable
Shareholders to make a comprehensive assessment of the Company's
governance principles. As the Company has elected to apply the AIC
Code, the Company has indirectly voluntarily opted to apply
specific provisions of the UK Code.
Corporate Governance Codes
The FRC has confirmed that AIC member companies which report
against the AIC Code and who follow the AIC Guide will be meeting
obligations in relation to the UK Code, paragraph 9.8.6 of the
Listing Rules and associated disclosure requirements of the
DTR.
The Company has delegated to third parties certain
administrative and other functions, thus not all of the provisions
of the AIC Code are directly applicable to the Company. The Company
has no employees.
Copies of the AIC Code, the AIC Guide and the UK Code can be
found on the respective organisations' websites, www.theaic.co.uk
and www.frc.org.uk, respectively.
b) Statement of compliance
The AIC Code comprises 21 principles and the Directors believe
that during the period under review they have complied with all the
recommendations of the AIC Code and the relevant provisions of the
UK Code insofar as they apply to the Company's business except as
set out below.
-- The Chairman should be independent;
-- The Board should have a policy on tenure; and
-- The Board should establish separate Remuneration and Nomination Committees.
In addition to his role as Chairman of the Company, Martin Nègre
is also a member of the board of directors of other funds managed
by the Investment Manager and therefore he does not qualify as an
independent director for the purposes of the AIC Code. However, the
Board believes that Mr Nègre brings considerable experience,
expertise and knowledge of the investment portfolio to the Board,
which will be significant in assessing, inter alia, the most
appropriate Realisation Strategy to be pursued in relation to each
investment. Mr Nègre will not sit on the Audit Committee or the
Management Engagement Committee. Furthermore, the Board does not
consider any advantages in nominating a senior independent director
as it believes that Robert Sinclair, in his capacity as Chairman of
the Audit Committee, acts as an appropriate channel of
communication for Shareholders in the event that a Shareholder's
contact with the Chairman of the Company fails to satisfactorily
resolve a concern.
In view of the expected two year life span of the Company, the
Board does not believe that a policy on tenure would be
appropriate.
The Company has not established separate Remuneration and
Nomination Committees as the Board considers its size to be such
that these would be unnecessarily burdensome. Relevant matters,
such as the remuneration of Directors of the Company, are
considered by the Board.
For the reasons set out in the AIC Guide, and as explained in
the UK Code, the Board agrees these provisions are not relevant to
the Company:
-- The role of the Chief Executive;
-- Executive Directors' remuneration;
-- The need for an internal audit function;
Specifically, the Company is an externally managed investment
company with all of the Company's day-to-day management and
administrative functions being outsourced to third parties. The
Company has no Chief Executive, no executive directors, and no
internal operations. The Company has not, therefore, reported
further in respect of these provisions.
The Company complies with the corporate governance statement
requirements pursuant to the DTRs by virtue of the information
included in the Corporate Governance section of the Annual
Financial Report.
c) The Board
Directors
The Board currently consists of three non-executive directors,
all of whom were appointed on 28 June 2016 with the exception of
Martin Nègre who was appointed on the 20 July 2016. The Directors
are:
-- Martin Nègre (Non-executive Chairman)
-- Robert Sinclair (Independent non-executive Director)
-- Nick Tostevin (Independent non-executive Director)
Please refer to 'Board Members' section for biographies of each
Director which demonstrate their professional knowledge and breadth
of investment, accounting, banking, legal and professional
experience.
The Board is chaired by Martin Nègre who is responsible for the
leadership of the Board and ensuring its effectiveness in all
aspects of its role.
Directors' Duties and Responsibilities
The Board has overall responsibility for the Company's
activities, including the review of investment activity and
performance. The Board meets on a regular basis to review progress
on implementing the Realisation Strategy and the current holdings
in the investment portfolio.
The Board is responsible for the safeguarding of the assets of
the Company and for taking reasonable steps for the prevention and
detection of fraud and other irregularities. The Investment
Manager, together with the Company Secretary, also ensures that all
Directors receive, in a timely manner, all relevant management,
regulatory and financial information relating to the Company.
Directors unable to attend a Board meeting are provided with the
Board papers and can discuss issues arising in the meeting with the
Chairman or another Director.
Individual Directors may, at the expense of the Company, seek
independent professional advice on any matter that concerns them in
the furtherance of their duties.
Board and Committees
The Board has established two committees, the Audit Committee
and the Management Engagement Committee. Each committee operates
within clearly defined terms of reference and duties. The terms of
reference for each Committee have been approved by the Board and
are available on the Company's website. The Board considers that it
is not necessary to establish a separate Remuneration or Nomination
Committee and matters as to the remuneration of the Directors of
the Company will be considered by the Board.
Audit Committee
The Board has delegated certain responsibilities and functions
to the Audit Committee which consists of Robert Sinclair (Audit
Committee Chairman) and Nick Tostevin. The Audit Committee meets at
least twice a year. The members of the Audit Committee consider
that they collectively have the requisite skills and experience to
fulfil the responsibilities of the Audit Committee.
The report on the role and activities of this Committee and its
relationship with the external auditors is set out in the Audit
Committee Report.
Management Engagement Committee
The Company's Management Engagement Committee comprises Nick
Tostevin (Management Engagement Committee Chairman) and Robert
Sinclair. The Management Engagement Committee meets at least once a
year and its main function is to review and make recommendations on
any proposed amendment to the Investment Management Agreement and
keep under review the performance of the Investment Manager and all
other service providers. In September 2017, the Management
Engagement Committee formally reviewed the performance of the
Investment Manager and other key service providers to the Company.
During this review, no material weaknesses were identified. Overall
the Management Engagement Committee confirmed its satisfaction with
the services and advice received.
Attendance at meetings of the Board and its committees for the
period ended 30 September 2017
Inaugural Quarterly Ad-hoc Audit Management
Board Board Board Committee Engagement
and Committee Meetings Meetings Meetings Committee
Meetings
------------------- --------------- ---------- ---------- ----------- ------------
Number of
meetings 2 3 8 3 1
------------------- --------------- ---------- ---------- ----------- ------------
Martin Nègre 1 3 6 3(*) 1(*)
------------------- --------------- ---------- ---------- ----------- ------------
Robert Sinclair 2 3 7 3 1
------------------- --------------- ---------- ---------- ----------- ------------
Nick Tostevin 2 3 8 3 1
------------------- --------------- ---------- ---------- ----------- ------------
(*) attended with permission from the Audit Committee and
Management Engagement Committee but did not vote in the
meeting.
The Committees report to the Board, as part of a separate agenda
item, on the activity of the Committees and matters of particular
relevance to the Board in the conduct of their work.
Directors' retirement and rotation
The AIC Guide states that all non-executive Directors should be
submitted for election by Shareholders at the first AGM after their
appointment and to re-election thereafter at intervals of no more
than three years. Non-executive directors serving more than nine
years should be subject to annual re-election. Nomination for
re-election should not be assumed but be based on disclosed
procedures and continued satisfactory performance. The Articles of
Association state that at each AGM of the Company, all Directors
shall retire from office and may offer himself for election or
re-election by the members. All Directors will stand for
reappointment at the forthcoming AGM to be held on 7 March
2018.
The Board considers that there is a balance of skills and
experience on the Board and each of the Directors contributes
effectively.
Board independence, composition and tenure
The Directors, apart from Martin Nègre, are considered to be
independent. Martin Nègre is also a member of the board of other
funds managed by the Investment Manager and is therefore not
regarded as independent.
There are no factors which compromise the Chairman's or other
Directors' independence, other than stated above, and the Board
believes that they all contribute to the affairs of the Company in
an appropriate manner. The Company Secretary, BNP Paribas
Securities Services S.C.A., Guernsey Branch through its
representative, acts as Secretary to the Board and Committees and
in doing so it: assists the Chairman in ensuring that all Directors
have full and timely access to all relevant documentation;
organised the induction of the new Directors; and is responsible
for ensuring that the correct procedures are followed and advises
the Board on corporate governance matters.
The Board is made up of three male Directors. The Board supports
the recommendations of the Davies Report (available at www.gov.uk)
and believes in and values the importance of diversity, including
gender, to the effective functioning of the Board. The Board,
however, does not consider it appropriate or in the interests of
the Company and its Shareholders to set prescriptive targets for
gender or other diversity on the Board.
In view of the limited expected lifespan of the Company, the
Board does not consider that length of service necessarily
compromises the independence or effectiveness of a Director and,
accordingly, does not have a formal policy requiring that Directors
stand down after a fixed period.
The Company is committed to ensuring that any vacancies arising
are filled by the most qualified candidates who have complementary
skills or who possess the skills and experience which fill any gaps
in the Board's knowledge or experience. The Board considers that,
due to its size, it would be unnecessarily burdensome to establish
a separate Nomination or Remuneration Committee. The Board as a
whole nominates candidates for the Board and, subject to there
being no conflicts of interest, all Directors are entitled to vote
on candidates for the appointment of any new Directors.
Directors' remuneration and annual evaluation of the Board and
that of its Audit Committee, Management Engagement Committee and
individual Directors
An annual evaluation of the Chairman and each individual
Director, Audit Committee, Management Engagement Committee and
Directors is undertaken considering the balance of skills,
experience, independence and knowledge, its diversity, including
gender, how the Board works together as a unit, and other factors
relevant to its effectiveness. This was conducted by way of an
internal review by individual questionnaire. The Directors also met
without the Chairman present in order to review the Chairman's
performance. It was concluded that each member's performance was
satisfactory and the Board and Committees have a good balance of
skills and experience with each Director making significant
contributions in their roles and the Chairman continuing to display
effective leadership.
Details of the remuneration arrangements for the Board and Audit
Committee can be found in the Directors' Remuneration Report and in
note 5 of the financial statements. Note that Mr Nègre is also the
sole director of EFR Guernsey Holding Limited, which is the
Company's wholly owned subsidiary, holding Lonestar shares, for
which he receives no remuneration.
Directors' professional development
When the Directors were appointed to the Board, they were
provided with all relevant information regarding the Company and
their duties and responsibilities as a Director. They also spent
time with representatives of the Investment Manager in order to
learn more about their processes and procedures. No Directors
(other than those appointed at inception or shortly thereafter)
were appointed during the period.
Directors and newly appointed Directors, if applicable, are
expected to take responsibility for identifying their training
needs and to take steps to ensure that they are adequately informed
about the Company and their responsibilities.
The Board is confident that its members have the knowledge,
ability and experience to perform the functions required of a
director of the Company.
d) Board meetings and relationship with the Investment Manager
Relationship with the Investment Manager
The Board has delegated various duties to external parties
including the management of the investment portfolio, the custodial
services (including the safeguarding of assets), the registration
services and the day-to-day company secretarial, administration and
accounting services. Each of these contracts was entered into after
full and proper consideration by the Board of the quality and cost
of services offered, including the control systems in operation in
so far as they relate to the affairs of the Company.
The Board receives and considers reports regularly from the
Investment Manager, with ad hoc reports and information supplied to
the Board as required. The Investment Manager has systems in place
to monitor cash flow and the liquidity of the Company. The
Investment Manager and the Administrator also ensure that all
Directors receive, in a timely manner, all relevant management,
regulatory and financial information. Representatives of the
Investment Manager and Administrator attend each Board meetings as
required, enabling the Directors to probe further on matters of
concern.
The Directors have access to the advice and services of the
corporate Company Secretary through its appointed representative
who is responsible to the Board for ensuring that Board procedures
are followed and that applicable rules and regulations are complied
with. The Board, the Investment Manager and the Administrator
operate in a supportive, co-operative and open environment and the
Board actively and continuously supervises both the Investment
Manager and Administrator in the performance of their respective
functions.
Primary focus
The Board meets regularly and a representative of the Investment
Manager is in attendance at all times to review the performance of
the Company's investments.
The Chairman, with assistance from the Investment Manager, is
responsible for ensuring that relevant financial information,
including investment portfolio analysis and financial plans,
including budgets and forecasts, are available to the Board and
discussed at Board meetings. The Chairman encourages open debate to
foster a supportive and co-operative approach for all
participants.
The Board applies its primary focus on the following:
- investment performance, and adherence to the investment
objectives and the Realisation Strategy;
- financial risk management and review of operating cash flows,
including cash flow forecasts and budgets of the Company; and
- management of the key risks to which the Company is exposed as
set out in the Strategic Report.
At each regular meeting the Board reviews key investment and
financial data, share price and NAV performance, Shareholder
communication strategies and any relevant industry issues.
Overall strategy
The Board meets regularly to discuss all matters relevant to the
Realisation Strategy of the Company.
Considering the Company's investment objectives and policy, the
Board believes that the overall Realisation Strategy of the Company
remains appropriate.
Monitoring and evaluation of performance of and contractual
arrangements with service providers
The Management Engagement Committee is responsible for reviewing
on a regular basis the performance of the Investment Manager and
the Company's other third party service providers, their
anti-bribery and corruption policies to ensure that they comply
with the Bribery Act 2010 and the Prevention of Corruption
(Bailiwick of Guernsey) Law, 2003. The Management Engagement
Committee must also ensure these providers' continued
competitiveness and effectiveness and that performance is
satisfactory and in accordance with the terms and conditions of
their respective appointments.
As part of the Committee's evaluation, it will also review on an
annual basis the contractual arrangements with the Investment
Manager and other major service suppliers.
During their review, no material weaknesses were identified and
the Management Engagement Committee confirmed its satisfaction with
the services and advice received.
The Directors have adopted a procedure whereby they are required
to report any potential acts of bribery and corruption in respect
of the Company to BNP Paribas Securities Services S.C.A., Guernsey
Branch as the designated manager for Guernsey Financial Services
Commission purposes.
e) Shareholder communications
Shareholder profile and communication
Shareholder relations and communications are a high priority for
the Board.
The Company's Investment Manager meets with Shareholders and
relays information and views to the Board regularly. Where
appropriate, the Chairman and other Directors are available for
discussion about governance and strategy with major Shareholders,
and the Chairman ensures communication of Shareholders' views to
the Board. The Board also receives feedback on the views of
Shareholders from its Financial Adviser, and Shareholders are
welcome to contact the Directors. Shareholders wishing to
communicate with the Chairman, or any Director, may do so by
writing to the Company, for the attention of the Company Secretary,
at the Registered Office.
The Investment Manager prepares portfolio updates for release to
the markets; these are prepared on an ad hoc basis, as and when
there is material information or news to provide about portfolio
developments and the Realisation Strategy. Another method of
communication with Shareholders is through the Half-Year and Annual
Financial Reports which aim to give Shareholders a clear and
transparent understanding of the Company's objectives, Realisation
Strategy and results. This information is supplemented by the
publication of the weekly NAVs of the Company's Ordinary Shares on
the London Stock Exchange Regulatory Information Service.
The Investment Manager's website - www.ecofin.co.uk - is
regularly updated with investor information and provides further
information about the Company, including the Company's Financial
Reports and announcements. The maintenance and integrity of the
relevant section of this website is the responsibility of the
Directors. Legislation in Guernsey governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions. Uncertainty regarding legal requirements is
compounded as information published on the internet is accessible
in many countries with different legal requirements relating to the
preparation and dissemination of financial statements.
The Board believes that the AGM provides an appropriate forum
for investors to communicate with the Board, and encourages
participation. The AGM will be attended by at least the Chairman of
the Audit Committee. There is an opportunity for individual
Shareholders to question the Directors at the AGM. It is the
intention of the Board that the Notice of the AGM and related
papers will be sent to Shareholders at least 20 working days before
that meeting.
The Directors welcome the views of all Shareholders and place
considerable importance upon them.
Other communications
All substantive communications regarding any major corporate
issues are discussed by the Board taking into account
representations from the Investment Manager, the auditor, legal
advisers, Financial Adviser and the Company Secretary.
Alternative Investment Fund Manager Directive ("AIFMD")
The Company (which is a non-EU Alternative Investment Fund
("AIF") for the purposes of the AIFMD and related regimes in EEA
member states) is a self-managed fund and therefore acts as the
Alternative Investment Fund Manager ("AIFM") of the Company.
In 2016, the Company registered with the Guernsey Financial
Services Commission, being the Company's competent regulatory
authority, as a non-EU AIF, and the AIFM has registered with the UK
Financial Conduct Authority, under their relevant national private
placement regime ("NPPRs"). As the Company is non-EU domiciled, no
depositary has been appointed in line with the AIFM Directive,
however BNP Paribas Securities Services S.C.A., Guernsey Branch has
been appointed to act as custodian.
Information relating to the current risk profile of the Company
and the risk management systems employed by the Company to manage
those risks, as required under paragraph 4(c) of Article 23 of the
AIFMD, are set out in note 8 - Financial Risk Management. Please
refer to the 'Executive Summary' for the Board's assessment of the
principal risks and uncertainties facing the Company.
AIFM remuneration
The total fees paid to the Board by the Company are disclosed
within the Directors' Remuneration Report and disclosed in note
5.
Article 22(2)(e) and 22(2)(f) of the AIFM Directive is not
deemed applicable as the AIFM has no staff. No other remuneration
costs have been incurred with the exception of those costs incurred
by the Board as referenced above.
This Directors' and Corporate Governance Report was approved by
the Board of Directors on 22 January 2018 and signed on its behalf
by:
Nick Tostevin Robert Sinclair
Director Audit Committee Chairman
REPORT OF THE AUDIT COMMITTEE
Report of the Audit Committee
The Board has appointed an Audit Committee which operates within
clearly defined Terms of Reference.
The Audit Committee consists of Robert Sinclair (Audit Committee
Chairman) and Nick Tostevin. The Audit Committee's members have
recent and relevant industry and financial experience, and the
Audit Committee Chairman is a Fellow of the Institute of Chartered
Accountants in England and Wales, a member of the Institute of
Chartered Accountants of Scotland and a member of the Society of
Trust and Estate Practitioners. Biographical information pertaining
to the members of the Audit Committee can be found in the section
of this Annual Financial Report entitled "Board Members".
Role of the Audit Committee
The main role and responsibilities of the Audit Committee are to
protect the interests of the Company's Shareholders regarding the
integrity of the Half-Yearly Financial Report and the Annual
Financial Report of the Company. It also manages the Company's
relationship with the external Auditor.
The Audit Committee's main functions are:
- to consider and make recommendations to the Board in relation
to the appointment, re-appointment and removal of the external
Auditors and to negotiate their remuneration and terms of
engagement on audit and non-audit work;
- to meet regularly with the external Auditor in order to review
their proposed audit programme of work and the subsequent Audit
Report and to assess the effectiveness of the audit process and the
level of fees paid in respect of audit and non-audit work;
- to annually assess the external Auditor's independence,
objectivity, effectiveness, resources and expertise;
- to review and monitor the fairness and balance of the
financial statements of the Company including its half-year
financial statements and annual financial reports to Shareholders;
and
- to advise the Board on whether the Committee believes the
annual report and accounts, taken as a whole, is fair, balanced and
understandable and provides the information necessary for
Shareholders to assess the Company's performance, position,
business model and strategy.
Internal controls
The Board is ultimately responsible for establishing and
maintaining the Company's system of internal financial and
operating control and for maintaining and reviewing its
effectiveness. The Company's business risk assessment continues to
be the core element of its risk management process and it
establishes the Company's system of internal financial and
reporting control. The business risk assessment is prepared and
maintained by the Board, with input from the Administrator and
Investment Manager, which initially identifies the risks facing the
Company and then collectively assesses the likelihood of each risk,
the impact of those risks and the strength of the controls
operating over each risk. The system of internal financial and
operating control is designed to manage rather than to eliminate
the risk of failure to achieve business objectives and by their
nature can only provide reasonable and not absolute assurance
against misstatement and loss.
These controls aim to ensure that assets of the Company are
safeguarded, proper accounting records are maintained and the
financial information for publication is reliable. The Board
confirms that there is an ongoing process for identifying,
evaluating and managing the principal risks faced by the
Company.
This process has been in place for the period under review and
up to the date of approval of this Annual Financial Report and
financial statements, and it is reviewed by the Board in accordance
with the 'Internal Controls: Guidance on Risk Management, Internal
Control and Related Financial and Business Reporting'.
The Board has delegated the day to day responsibilities for the
management of the Company's investment portfolio, the provision of
custody services and administration, registrar and corporate
secretarial functions including the independent calculation of the
Company's NAV and the production of the Annual Financial Report and
financial statements which are independently audited. Formal
contractual agreements have been put in place between the Company
and providers of these services.
The Company delegates its day to day administrative operations
to third-party providers which are monitored by the Audit Committee
and which report on their policies and procedures to the Board.
Accordingly, the Audit Committee believes an internal audit
function is not required. As the Company does not have any
employees it does not have a "whistle blowing" policy in place, but
its third party service providers do.
The Directors have reviewed the BNP Paribas Securities Services
ISAE 3402 report on Fund Administration and Middle Office
Outsourcing (a description of controls in operation, their design
and operating effectiveness) for the year to 30 September 2017, and
are pleased to note that no significant issues were identified.
The Company's risk exposure and the effectiveness of its risk
management and internal control systems are reviewed by the Audit
Committee annually by the Board. The Board believes that the
Company has adequate and effective systems in place to identify,
mitigate and manage the risks to which it is exposed.
In the period ended 30 September 2017, the Audit Committee met
on three occasions and the members' attendance record can be found
in the Corporate Governance Statement.
Significant risks in relation to the financial statements
The Audit Committee views the valuation of the Company's
investments as a significant risk. The Company's investment
portfolio consists of holdings in unquoted investments, which are
valued using different valuation techniques to arrive at the
estimated realisable value, and a listed investment, which is
valued based on a five-day volume weighted average of its
observable share price adjusted for factors likely to affect the
amount that could be realised including the size of the holding
relative to observable liquidity and an estimate of the costs that
are likely to be incurred in realising the Company's
investment.
Valuation is therefore considered a significant risk and is
monitored by the Board, the Audit Committee and the Investment
Manager. The Audit Committee receives and reviews reports on the
processes for the valuation of investments. Following discussion
with the Investment Manager, the Audit Committee was able to gain
assurances as to the appropriateness and robustness of the
judgements made and methodologies applied and that an appropriate
accounting treatment has been adopted in accordance with IFRS
13.
External audit process
The Company's external Auditor, Ernst & Young LLP (the
"Auditor"), was appointed on the 23 June 2016.
The Audit Committee met with the Auditor prior to the
commencement of the audit and agreed an audit plan that would adopt
a risk based approach. The Audit Committee and the Auditor agreed
that a significant portion of the Audit effort would include an
examination of the procedures in place at the Administrator and at
the Investment Manager in respect of the valuation of the Company
investments and the underlying portfolio assets, respectively.
Upon completion of the audit, the Audit Committee discussed with
the Auditor the effectiveness of the audit and considered the
Auditor's independence from the Company since their appointment and
throughout the audit process.
For the period ended 30 September 2017, the Audit Committee was
satisfied that there had been appropriate focus and challenge on
the significant and other key areas of audit risk, and assessed the
quality of the audit process to be good.
During the period ended 30 September 2017, in addition to the
audit of the Company's Annual Financial Report, the auditor
provided non-audit services in respect of the review of the
Company's Half-Yearly Financial Report for the period ended 31
March 2017. No other non-audit services were provided during the
period ended 30 September 2017.
The Audit Committee has discussed the report provided by the
Auditors and the Audit Committee is satisfied as to the
independence of the Auditor.
The Committee has reviewed Ernst & Young's independence
policies and procedures and considers that they are fit for
purpose.
The fees for the audit services were GBP45,000 (period-end
audit) and fees for non-audit services were GBP15,000 for review of
the Company's Half-Yearly Report for the period ended 31 March
2017.
Appointment and independence
The Committee considers the reappointment of the external
auditor, including the rotation of the audit engagement partner,
annually. The external auditor is required to rotate the audit
engagement partner responsible for the Company audit every five
years. The current lead audit engagement partner has been in place
for one year.
The Committee reviews the objectivity and effectiveness of the
audit process on an annual basis and considers whether the Company
should put the audit engagement out to tender. Having considered
the need to tender the position for the current year, the Committee
has provided the Board with its recommendation to the Shareholders
on the reappointment of Ernst & Young LLP as external auditor
for the year ending 30 September 2018, in part because it is the
Committee's belief that the investments held by the Company may be
fully realised by this date.
Accordingly, a resolution proposing the reappointment of Ernst
& Young LLP as the Company's Auditor will be put to the
Shareholders at the AGM. There are no contractual obligations
restricting the Committee's choice of external auditor and we do
not indemnify our external auditor.
The Committee continues to consider the audit tendering
provisions outlined in the revised UK Code.
For and on behalf of the Audit Committee
Robert Sinclair
Audit Committee Chairman
22 January 2018
Directors' Statement of Responsibilities
The Directors are responsible for preparing the Annual Financial
Report and financial statements in accordance with applicable
Guernsey law and International Financial Reporting Standards as
adopted by the EU ("IFRS's").
Guernsey law requires the Directors to prepare financial
statements for each financial year which give a true and fair view
of the state of affairs of the Company and of the profit or loss
for the period. They are also responsible for ensuring that the
Annual Financial Report, financial statements, and Company comply
with the provisions of the Disclosure Guidance and Transparency
Rules of the UK Listing Authority which, with regard to corporate
governance, require the Company to disclose how it has applied the
principles, and complied with the provisions of the corporate
governance code applicable to the Company.
In preparing those financial statements, the Directors are
required to:
-- select suitable accounting policies and apply them consistently;
-- make judgements and estimates that are reasonable and prudent;
-- state whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the financial statements;
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business;
-- confirm that there is no relevant audit information of which
the Company's Auditor is unaware; and
-- confirm that they have taken all reasonable steps which they
ought to have taken as Directors to make themselves aware of any
relevant audit information and to establish that the Company's
Auditor is aware of that information.
The Directors are responsible for keeping proper accounting
records, which disclose with reasonable accuracy at any time the
financial position of the Company and to enable them to ensure that
the financial statements comply with the Companies (Guernsey) Law,
2008, as amended ("Companies Law") and IFRS. They are also
responsible for safeguarding the assets of the Company and hence
for taking reasonable steps for the prevention and detection of
fraud and other irregularities.
The Directors confirm to the best of their knowledge that:
-- the financial statements, which have been prepared in
accordance with IFRS, give a true and fair view of the assets,
liabilities, financial position and loss of the Company;
-- the Strategic Report and the Investment Manager's Report
include a fair review of the information required by DTR 4.1.8
(indication of important events up to 30 September 2017 and a
description of principal risks and uncertainties);
-- the Strategic Report and the Investment Manager's Report
include a fair review of the information required by DTR 4.1.9 and
4.1.10 (analysis of the development and performance of the Company
and position at period end aided by the use of key performance
indicators; and where appropriate information relating to
environmental factors);
-- the Strategic Report, the Investment Manager's Report and the
notes to the financial statements include a fair review of the
information required by DTR 4.1.11 (disclosure of important events
that have occurred post period end; future developments; financial
risk management objectives and policies and the Company's exposure
to price, credit, liquidly and cash flow risk); and
-- the Annual Financial Report and financial statements, taken
as a whole, are fair, balanced and understandable and provide the
information necessary for Shareholders to assess the Company's
performance, position, business model and strategy.
Approved and signed on behalf of the Board,
Nick Tostevin Robert Sinclair
Director Audit Committee Chairman
22 January 2018
DIRECTORS' REMUNERATION REPORT
Annual Remuneration Statement
This report has been prepared to the relevant rules of the
Listing Rules of the Financial Conduct Authority and the AIC Code
and describes how the Board has applied the principles relating to
Directors' remuneration.
An ordinary resolution to ratify this report will be proposed at
the AGM on 7 March 2018.
Changes to the Board
There were no changes to the Board during the period ended 30
September 2017. In accordance with best practice under the AIC Code
and the Articles, all Directors will stand for reappointment at the
forthcoming AGM to be held on 7 March 2018.
Table of Directors Remuneration
Component Directors Annual Purpose of reward
Rate (GBP)
----------- ------------------ ------------ ---------------------
Annual Martin Nègre GBP22,500 For commitments
fee Robert Sinclair GBP22,500 as non-executive
Nick Tostevin GBP22,500 Directors
----------- ------------------ ------------ ---------------------
Additional Martin Nègre GBP5,000 For additional
fee (Chairman of the responsibilities
Board) GBP2,500 and time commitment
Robert Sinclair
(Chairman of the
Audit Committee)
----------- ------------------ ------------ ---------------------
Expenses Ad hoc Reimbursement of
expenses paid
----------- ------------------ ------------ ---------------------
During the period ended 30 September 2017, the Company incurred
Director fees of GBP76,183, of which GBP18,750 was payable at
period end.
No other remuneration or compensation was paid or is payable by
the Company during the period to any of the Directors. There has
been no change to the Company's remuneration policy as detailed
below.
The Company has no employees. Accordingly, there are no
differences in policy on the remuneration of Directors and the
remuneration of employees.
No Director is entitled to receive any remuneration which is
performance-related.
Remuneration policy
The determination of the Directors' fees is a matter for the
Board. The Board considers the remuneration policy annually to
ensure that it remains appropriately positioned. Members of the
Committee review the fees paid to the boards of directors of
similar companies. No Director is to be involved in decisions
relating to his or her own remuneration.
The Company's policy is for the Directors to be remunerated in
the form of fees, payable quarterly in arrears. No Director has any
entitlement to a pension, and the Company has not awarded any share
options or long-term performance incentives to any of the
Directors.
Directors are authorised to claim reasonable expenses from the
Company in relation to the performance of their duties.
The Company's policy is that the fees payable to the Directors
should reflect the time spent by the Board on the Company's affairs
and the responsibilities borne by the Directors and should be
sufficient to enable high calibre candidates to be recruited. The
policy is for the Chairman of the Board and Chairman of the Audit
Committee to be paid a higher fee than the other Directors in
recognition of their more onerous roles and more time spent. The
Board may amend the level of remuneration paid within the limits of
the Company's Articles of Association.
The Company's Articles of Incorporation limits the aggregate
fees payable to the Board of Directors to a total of GBP200,000 per
annum.
Service contracts and policy on payment of loss of office
Directors are appointed with the expectation that they are
initially appointed until the following AGM when it is required
that they be re-elected by Shareholders. All Directors have served
since incorporation of the Company on 28 June 2016, with the
exception of Martin Nègre who was appointed on the 20 July
2016.
Directors have agreed letters of appointment with the Company.
No Director has a service contract with the Company and Directors'
appointments may be terminated at any time by one month's written
notice with no compensation payable at termination upon leaving
office for whatever reason. Directors' appointments are reviewed
during the annual board evaluation, which took place in December
2017.
In accordance with best practice and the AIC Code, all Directors
will stand for reappointment at the forthcoming AGM to be held on 7
March 2018. The names and biographies of the Directors holding
office at the date of this report are listed in the 'Board Members'
section.
Copies of the Directors' letters of appointment are available
for inspection by Shareholders at the Company's Registered Office,
and will be available at the AGM. The dates of their letters of
appointments are shown below.
Dates of letters of appointment
Director Date of letter
of appointment
-------------- ----------------
Martin 20 July 2016
Nègre
-------------- ----------------
Robert 28 June 2016
Sinclair
-------------- ----------------
Nick Tostevin 28 June 2016
-------------- ----------------
Directors' interests
As at the date of approval of the financial statements,
Directors held the following number of Ordinary Shares in the
Company:
Director Ordinary Shares
held
--------------- ----------------
Martin
Nègre 232,716
--------------- ----------------
Robert Nil
Sinclair
--------------- ----------------
Nick Tostevin Nil
--------------- ----------------
Statement of consideration of Shareholder views
An ordinary resolution to ratify the Directors' remuneration
report will be proposed at the AGM on 7 March 2018.
Robert Sinclair
Audit Committee Chairman
22 January 2018
independent AUDITOR'S report to THE MEMBERS OF EF REALISATION
COMPANY LIMITED
Opinion
We have audited the financial statements of EF Realisation
Company Limited (the 'Company') for the period ended 30 September
2017, which comprise the Statement of Comprehensive Income, the
Statement of Financial Position, the Statement of Changes in
Shareholders' Equity, the Statement of Cash Flows and the related
notes 1 to 17, including a summary of significant accounting
policies. The financial reporting framework that has been applied
in their preparation is applicable law and International Financial
Reporting Standards as adopted by the European Union ('IFRS'). The
financial statements have been prepared on the break-up basis.
-- In our opinion, the financial statements:
-- give a true and fair view of the state of the Company's
affairs as at 30 September 2017 and of its loss for the period then
ended;
-- have been properly prepared in accordance with IFRS; and
-- have been properly prepared in accordance with the
requirements of the Companies (Guernsey) Law, 2008.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) ('ISAs (UK)') and applicable law. Our
responsibilities under those standards are further described in the
"Auditor's responsibilities for the audit of the financial
statements" section of our report below. We are independent of the
Company in accordance with the ethical requirements that are
relevant to our audit of the financial statements in the UK,
including the FRC's Ethical Standard as applied to listed entities,
and we have fulfilled our other ethical responsibilities in
accordance with these requirements.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to principal risks, going concern and
viability statement
We have nothing to report in respect of the following
information in the annual report, in relation to which the ISAs(UK)
require us to report to you whether we have anything material to
add or draw attention to:
-- the disclosures in the annual report that describe the
principal risks and explain how they are being managed or
mitigated;
-- the directors' confirmation in the annual report that they
have carried out a robust assessment of the principal risks facing
the entity, including those that would threaten its business model,
future performance, solvency or liquidity;
-- the directors' statement in the annual report and in the
financial statements about whether they considered it appropriate
to adopt the going concern basis of accounting in preparing them,
and their identification of any material uncertainties to the
entity's ability to continue to do so over a period of at least
twelve months from the date of approval of the financial
statements;
-- whether the directors' statement in relation to going concern
required under the Listing Rules is materially inconsistent with
our knowledge obtained in the audit; or
-- the directors' explanation set out in the annual report as to
how they have assessed the prospects of the entity, over what
period they have done so and why they consider that period to be
appropriate, and their statement as to whether they have a
reasonable expectation that the entity will be able to continue in
operation and meet its liabilities as they fall due over the period
of their assessment, including any related disclosures drawing
attention to any necessary qualifications or assumptions.
Overview of our audit approach
Key audit
matters * Valuation of investments (at fair value and applying
the break up basis of accounting).
------------ ------------------------------------------------------------
Audit scope
* We performed an audit of the complete financial
information of the Company for the period ended 30
September 2017.
------------ ------------------------------------------------------------
Materiality
* Overall Company materiality of GBP364,000 which
represents approximately 2% of total equity.
------------ ------------------------------------------------------------
Key audit matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had
the greatest effect on: the overall audit strategy, the allocation
of resources in the audit; and directing the efforts of the
engagement team. These matters were addressed in the context of our
audit of the financial statements as a whole, and in our opinion
thereon, and we do not provide a separate opinion on these
matters.
Risk Our response to the risk Key observations
communicated
to the
Audit
Committee
------------------------- ------------------------------------------------------------- -----------------
Valuation of We confirmed
investments (at * We documented our understanding of the Company's that there
fair value and processes, methodologies and policies for valuing were no
applying the investments and performed walkthrough tests to matters
break up basis confirm our understanding thereof; identified
of accounting) during
(2017: Investments our audit
GBP15.8 million) * We assessed whether the methodologies used by work on
Refer to the management to value the investments were in the valuation
Audit Committee accordance with methods usually used by market of investments
Report; Accounting participants for these types of assets and whether that we
policies; and they were in accordance with IFRS and International wanted
Note 7 of the Private Equity and Venture Capital Association to bring
Financial Statements (IPEVCA) guidelines; to the
Risk that the attention
fair value of of the
investments might * We agreed the proposed values in the investment audit
be misstated valuation report provided by the Investment Manager committee.
due to application to those presented in the financial statements;
of inappropriate
methodologies
or inputs to * We used our knowledge of the market, including
the valuations information from independent databases of
and/or inappropriate transactions in comparable investments, and
judgmental factors information provided by management about recently
due to the lack concluded transactions and current offers to assess
of observable and corroborate the discount factors used by
market data. management;
This includes
the risk that
costs to sell * We agreed the significant inputs used by management,
and other adjustments particularly recent public market transaction data
to reflect the and net asset values of holdings in investment funds,
break up basis to independently sourced information;
of accounting
are not appropriately
and accurately * We assessed whether management's assumptions about
reflected in costs of realisation and other factors affecting the
the carrying carrying amount as a result of applying the break up
amounts of investments. basis of accounting were appropriate and properly
The valuation calculated;
is subjective,
with a high level
of judgement * We assessed whether management had properly taken
and estimation account of the tax effects of disposing of
linked to the investments; and
determination
of the values
with limited * We tested the mathematical accuracy of management's
market information calculations.
available.
Valuation of
investments is
the key driver
of the Company's
net asset value
and total return.
Incorrect valuation
could have a
significant impact
on the net asset
value of the
Company and therefore
the return generated
for shareholders.
------------------------- ------------------------------------------------------------- -----------------
An overview of the scope of our audit
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and
our allocation of performance materiality determine our audit
scope. Taken together, this enables us to form an opinion on the
financial statements.
Our application of materiality
We apply the concept of materiality in planning and performing
the audit, in evaluating the effect of identified misstatements on
the audit and in forming our audit opinion.
Materiality
Materiality is the magnitude of omissions or misstatements that,
individually or in the aggregate, could reasonably be expected to
influence the economic decisions of the users of the financial
statements. Materiality provides a basis for determining the nature
and extent of our audit procedures.
We determined materiality for the Company to be GBP364,000,
which is approximately 2% of total equity. We believe that total
equity provides us with an appropriate basis for audit materiality
as it is a key published performance measure and is a key metric
used by management in assessing and reporting on overall
performance.
Performance materiality
Performance materiality is the application of materiality at the
individual account or balance level. It is set at an amount to
reduce to an appropriately low level the probability that the
aggregate of uncorrected and undetected misstatements exceeds
materiality.
On the basis of our risk assessments, together with our
assessment of the Company's overall control environment, our
judgement was that performance materiality was 75% of our planning
materiality, namely GBP273,000. We have set performance materiality
at this percentage because we have considered the likelihood of
misstatements to be low. We have considered both quantitative and
qualitative factors when determining the expected level of detected
misstatements and setting the performance materiality at this
level.
Reporting threshold
The reporting threshold is an amount below which identified
misstatements are considered as being clearly trivial.
We agreed with the Audit Committee that we would report to them
all uncorrected audit differences in excess of GBP18,000, which is
set at 5% of planning materiality, as well as differences below
that threshold that, in our view, warranted reporting on
qualitative grounds.
We evaluate any uncorrected misstatements against both the
quantitative measures of materiality discussed above and in light
of other relevant qualitative considerations in forming our
opinion.
Other information
The other information comprises the information included in the
annual report and the 'Useful Information for Shareholders' and
'Company Information' sections, other than the financial statements
and our auditor's report thereon. The directors are responsible for
the other information.
Our opinion on the financial statements does not cover the other
information and, except to the extent otherwise explicitly stated
in this report, we do not express any form of assurance conclusion
thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit or otherwise appears to be materially misstated. If we
identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a
material misstatement in the financial statements or a material
misstatement of the other information. If, based on the work we
have performed, we conclude that there is a material misstatement
of the other information, we are required to report that fact.
We have nothing to report in this regard.
In this context, we also have nothing to report in regard to our
responsibility to specifically address the following items in the
other information and to report as uncorrected material
misstatements of the other information where we conclude that those
items meet the following conditions:
-- Fair, balanced and understandable - the statement given; or
the explanation as to why the annual report does not include a
statement; by the directors that they consider the annual report
and financial statements taken as a whole is fair, balanced and
understandable and provides the information necessary for
shareholders to assess the Company's performance, business model
and strategy, is materially inconsistent with our knowledge
obtained in the audit; or
-- Audit committee reporting - the section describing the work
of the audit committee does not appropriately address matters
communicated by us to the audit committee / the explanation as to
why the annual report does not include a section describing the
work of the audit committee is materially inconsistent with our
knowledge obtained in the audit; or
-- Directors' statement of compliance with the UK Corporate
Governance Code - the parts of the directors' statement relating to
the Company's compliance with the UK Corporate Governance Code
containing provisions specified for review by the auditor in
accordance with Listing Rule 9.8.10R(2) do not properly disclose a
departure from a relevant provision of the UK Corporate Governance
Code.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in
relation to which the Companies (Guernsey) Law, 2008 requires us to
report to you if, in our opinion:
-- proper accounting records have not been kept by the company; or
-- the financial statements are not in agreement with the
company's accounting records and returns; or
-- we have not received all the information and explanations we require for our audit.
Responsibilities of directors
As explained more fully in the directors' responsibilities
statement, the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true
and fair view, and for such internal control as the directors
determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the Company's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the Company or the parent
company or to cease operations, or have no realistic alternative
but to do so.
Auditor's responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
This report is made solely to the company's members, as a body,
in accordance with Section 262 of the Companies (Guernsey) Law,
2008. Our audit work has been undertaken so that we might state to
the company's members those matters we are required to state to
them in an auditor's report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company and the company's
members as a body, for our audit work, for this report, or for the
opinions we have formed.
A further description of our responsibilities for the audit of
the financial statements is located on the Financial Reporting
Council's website at
https://www.frc.org.uk/auditorsresponsibilities. This description
forms part of our auditor's report.
Michael Bane
for and on behalf of Ernst & Young LLP
Guernsey, Channel Islands
22 January 2018
Notes:
1. The maintenance and integrity of the section of Ecofin
Limited's website dedicated to EF Realisation Company Limited is
the responsibility of the directors; the work carried out by the
auditors does not involve consideration of these matters and,
accordingly, the auditors accept no responsibility for any changes
that may have occurred to the financial statements since they were
initially presented on the web site.
2. Legislation in Guernsey governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
STATEMENT OF COMPREHENSIVE INCOME
For the period from 28 June 2016 (incorporation) to 30 September
2017
For the
period
from
28 June
2016 to
30 September
2017
Notes GBP
---------------------------------------------------------------------------------------------------------- ------ --------------
Income
Investment income 177,204
Foreign exchange gain 4,483
Reversal of provision
relating to future funding
commitment 10 732,092
----------------------------------------------------------------------------------------------------------- ------ --------------
913,779
---------------------------------------------------------------------------------------------------------- ------ --------------
Expenses
Net loss on financial
assets designated at fair
value through profit or
loss (26,002,114)
Operating expenses 4 (584,214)
Provision 10 (279,630)
------------------------------------------------------------------------------------------------------------ ------ --------------
(26,865,958)
---------------------------------------------------------------------------------------------------------- ------ --------------
Loss before taxation (25,952,179)
------------------------------------------------------------------------------------------------------------ ------ --------------
Taxation -
---------------------------------------------------------------------------------------------------------- ------ --------------
Loss after taxation and
total comprehensive loss (25,952,179)
----------------------------------------------------------------------------------------------------------- ------ --------------
Basic and diluted loss per
Ordinary Share (from inception) 12 (0.6187)
------------------------------------------------------------------------------------------------------------ ------ --------------
Basic and diluted loss
per Ordinary Share (from
first NAV) 12 (0.5032)
----------------------------------------------------------------------------------------------------------- ------ --------------
The Company has no items of other comprehensive income or loss,
and therefore the loss for the period is also the total
comprehensive loss.
All items in the above statement are prepared on a break-up
basis. No operations were acquired or discontinued during the
period.
The notes form an integral part of these financial
statements.
STATEMENT OF FINANCIAL POSITION
As at 30 September 2017
30 September
2017
Notes GBP
----------------------------------- ------ -------------
Current assets
Financial assets designated
at fair value through profit
or loss 7 15,802,184
Cash and cash equivalents 3,293,971
Other receivables and prepayments 6 21,685
Total current assets 19,117,840
----------------------------------- ------ -------------
Total assets 19,117,840
----------------------------------- ------ -------------
Current liabilities
Other payables 9 (132,825)
Provision 10 (792,317)
----------------------------------- ------ -------------
Total current liabilities (925,142)
----------------------------------- ------ -------------
Total liabilities (925,142)
----------------------------------- ------ -------------
Net assets 18,192,698
----------------------------------- ------ -------------
Capital and reserves
Share capital 11 40,420,947
Retained deficit (22,228,249)
----------------------------------- ------ -------------
Equity Shareholders' funds 18,192,698
----------------------------------- ------ -------------
Net asset value per share 13 0.4045
----------------------------------- ------ -------------
The financial statements were approved and authorised for issue
by the Board of Directors on 22 January 2018 and signed on its
behalf by:
Nick Tostevin Robert Sinclair
Director Audit Committee Chairman
The notes form an integral part of these financial
statements.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the period from 28 June 2016 (incorporation) to 30 September
2017
Share Retained
capital deficit Total
Note GBP GBP GBP
------------------------------ ----- ------------ ------------- -------------
Opening equity Shareholders' - - -
funds at 28 June 2016(1)
------------------------------ ----- ------------ ------------- -------------
Total comprehensive
loss for the period - (25,952,179) (25,952,179)
Transactions with owners,
recorded directly to
equity
Proceeds from issuance
of Ordinary Shares 11 47,184,416 - 47,184,416
Ordinary Share issue
costs 11 (26,885) - (26,885)
Redemption of Ordinary
Shares 11 (6,736,584) 3,732,930 (3,003,654)
Ordinary Share redemption
costs 11 - (9,000) (9,000)
------------------------------ ----- ------------ ------------- -------------
Closing equity Shareholders'
funds at 30 September
2017 40,420,947 (22,228,249) 18,192,698
------------------------------ ----- ------------ ------------- -------------
(1) (The Company was incorporated on the 28 June 2016. Ordinary
Shares were issued on the 26 September 2016.)
As at 13 September 2016, the value of the pool of assets
attributable to the Company, further to the Scheme of
Reconstruction of EWPO, was GBP47,184,416. In turn, on 22 September
2016, the Company issued 52,473,633 Ordinary Shares to EWPO
shareholders at a price of 89.92p per share for gross proceeds of
GBP47,184,416. The Company's Ordinary Shares were admitted to
trading on the London Stock Exchange on 26 September 2016.
The first valuation point for the Company's assets after
admission was as at the close of trading on 30 September 2016.
During the period from 13 September 2016 to 30 September 2016, the
NAV per share fell from 89.92p to 83.89p as a result of movement in
the fair value of investments.
On 18 September 2017, 7,496,024 Ordinary Shares were redeemed at
a price of 40.07p per Ordinary Share (after allowing for costs of
redemption of GBP9,000). This GBP3.0 million return of capital,
equivalent to 5.7p per Ordinary Share, was implemented pursuant to
the Company's compulsory redemption mechanism, such that one in
every seven Ordinary Shares was redeemed, for cancellation, on a
pro rata basis. As at 30 September 2017, the Company had 44,977,609
Ordinary Shares in issue.
The notes form an integral part of these financial
statements.
STATEMENT OF CASH FLOWS
For the period from 28 June 2016 (incorporation) to 30 September
2017
For the
period
from
28 June
2016 to
30 September
2017
Notes GBP
------------------------------------------------------------- ------ --------------
Cash inflow from operating
activities
Loss before taxation (25,952,179)
Adjustments to reconcile
profit before tax to net
cash flows from operating
activities:
* Realised gain on financial assets designated at fair
value through profit or loss 7 (350,459)
* Unrealised loss on financial assets designated at
fair value through profit or loss 7 26,352,573
* Net gain on foreign exchange translation (4,483)
* Ordinary Share redemption costs payable 11 (9,000)
* Investment income (177,204)
Proceeds from sale of financial
assets designated at fair
value through profit or loss 7 4,266,897
Investment income received 177,204
Changes in working capital
Increase in other receivables
and prepayments 6 (21,685)
Increase in other payables 9 132,825
Decrease in provision (452,462)
------------------------------------------------------------- ------ --------------
Net cash from operating activities 3,962,027
------------------------------------------------------------- ------ --------------
Cash used in financing activities
Proceeds from Scheme of Reconstruction 2,358,000
Ordinary Share issue costs
paid 11 (26,885)
Ordinary Shares redeemed 11 (3,003,654)
Net cash used in financing
activities (672,539)
------------------------------------------------------------- ------ --------------
Net increase in cash and
cash equivalents in the period 3,289,488
------------------------------------------------------------- ------ --------------
Cash and cash equivalents -
at the beginning of the period
------------------------------------------------------------- ------ --------------
Effect of exchange rate fluctuations
on cash and cash equivalents 4,483
Cash and cash equivalents
at the end of the period 3,293,971
------------------------------------------------------------- ------ --------------
Supplemental disclosure of
non-cash flow information
Transfer of assets from Scheme
of Reconstruction (46,071,195)
Issue of Ordinary Shares
in specie 11 47,184,416
Provision 1,244,779
------------------------------------------------------------- ------ --------------
Cash proceeds from Scheme
of Reconstruction 2,358,000
------------------------------------------------------------- ------ --------------
The notes form an integral part of these financial
statements.
NOTES TO THE FINANCIAL STATEMENTS
1. General information
The Company was incorporated with limited liability in Guernsey
under the Companies Law on 28 June 2016 with registered number
62195.
The Company is a closed-ended investment company registered with
the Guernsey Financial Services Commission under the Registered
Collective Investment Schemes Rules 2015 and the Protection of
Investors (Bailiwick of Guernsey) Law, 1987, as amended. The
Company is not authorised or regulated as a collective investment
scheme by the Financial Conduct Authority.
The Company's Ordinary Shares were admitted to trading on the
Specialist Fund Segment of the Main Market of the London Stock
Exchange on 26 September 2016.
The Company's registered address is BNP Paribas House, St
Julian's Avenue, St Peter Port, Guernsey, GY1 1WA.
2. Accounting policies
The principal accounting policies applied in the preparation of
these financial statements are set out below. These policies have
been consistently applied throughout the period presented.
2.1. Basis of preparation
(a) Statement of compliance
The financial statements have been prepared in accordance with
International Financial Reporting Standards as adopted by the EU
("IFRS") which comprise standards and interpretations approved by
the International Accounting Standards Board ("IASB"), and
interpretations issued by the International Financial Reporting
Standards Interpretations Committee ("IFRIC") as approved by the
International Accounting Standards Committee ("IASC") which remain
in effect. The financial statements give a true and fair view of
the Company's affairs and comply with the requirements of the
Companies Law.
The financial statements have been prepared under a break-up
basis. The Directors deem it appropriate to adopt a break-up basis
in preparing the financial statements given the fact they believe
that the investments held by the Company may be fully realised and
the Company put into liquidation in the next 9 months from the date
of approving the financial statements in line with the Company's
Realisation Strategy. Please refer to note 11 for detail regarding
the compulsory redemption mechanism and liquidation resolution.
As a result of the application of the break-up basis, the fair
value of each investment has been adjusted as necessary to reflect
any taxes and costs of disposal that would fall due were the
investment to be disposed of as soon as possible but in an orderly
manner (the recoverable amount). In addition, future foreseeable
working capital requirements and costs expected to be paid on
ultimate wind-up of the Company have been accounted for as part of
a provision. Refer to note 10 for further detail.
(b) Basis of measurement
These financial statements have been prepared on a historical
cost basis adjusted to take account of the revaluation of financial
assets designated at fair value through profit or loss.
(c) Functional and presentation currency
The Company's functional currency is Sterling, which is the
currency of the primary economic environment in which its shares
trade. The financial statements are presented in Sterling.
(d) Critical accounting estimates and assumptions
The preparation of the financial statements in conformity with
IFRS requires the Company to make estimates and assumptions that
affect items reported in the Statement of Financial Position and
Statement of Comprehensive Income and the disclosure of contingent
assets and liabilities at the date of the financial statements.
Although these estimates are based on management's best knowledge
of current facts, circumstances and, to some extent, future events
and actions, the Company's actual results may ultimately differ
from those estimates, possibly significantly.
Fair value of financial assets designated at fair value through
profit or loss
Investments in unquoted companies are not actively traded, hence
valuations are more uncertain than those of more widely traded
securities. Unquoted investments are valued by using valuation
techniques approved by the Directors and based on International
Private Equity and Venture Capital ("IPEV") valuation guidelines
and IFRS 13 - Fair Value Measurement ("IFRS 13"). Valuation
techniques applied in determining the fair value of financial
assets designated at fair value through profit or loss are subject
to significant estimates and assumptions. Note 2.3 includes details
of the valuation process and valuation techniques applied where an
active market does not exist and note 7 includes sensitivity
analysis of level 3 holdings as at 30 September 2017.
Provision
Given the Board believes that the investments held by the
Company may be fully realised in 9 months from the date of
approving the financial statements, the Board has adopted the
break-up basis in preparing the financial statements.
Under this basis of accounting, the Company has recognised a
provision. Note 2.8 outlines the judgements made by the Board
having liaised with the Investment Manager in determining the
provision.
(e) Critical accounting judgements
As explained in note 2.1(a) the Directors have used their
judgement to determine that the Company's financial statements
should be prepared on a break-up basis.
The other critical accounting judgement relates to the
application of the investment entity exception in IFRS10 -
Consolidated Financial Statements ("IFRS 10"). The Board has
considered whether the Company is an investment Entity as defined
in IFRS 10.
The Company is deemed to meet the definition of an Investment
Entity because it satisfies the following conditions which are the
main criteria for an Investment Entity:
i) The Company has obtained funds for the purpose of providing
investors with investment management services;
ii) The Company's business purpose, which has been communicated
directly to investors, is managing investments solely for returns
from capital appreciation, investment income, or both; and
iii) The performance of investments is measured and evaluated on a fair value basis.
The Board has also considered the typical characteristics of an
investment entity per IFRS 10 in assessing whether it meets the
definition of an Investment Entity. These include:
-- having exposure to more than one investment;
-- having multiple investors;
-- the majority of investors are not related parties; and
-- having ownership interests in the form of equity.
As the Company satisfies the criteria for an Investment Entity
and has the typical characteristics of an Investment Entity, the
Board considers that the Company is an Investment Entity.
Accordingly the Company's subsidiary, EFR Guernsey Holding Limited,
has not been consolidated but has been fair valued and accounted
for at fair value through profit or loss.
Notes 7 and 8 provide further disclosures relating to the
Company's interest in EFR Guernsey Holding Limited.
(f) New standards, amendments and interpretations
New standards, amendments and interpretations to existing
standards that become effective in future accounting periods and
have not been adopted by the Company;
Effective
for annual
International Financial Reporting Standards periods beginning
(IFRS) on or after
----------------------------------------------------------- -------------------
1 January
* IFRS 9 - Financial Instruments ("IFRS 9") 2018
1 January
* IFRS 15 - Revenue from Contracts with Customers 2018
("IFRS 15")
1 January
* Amendment to IAS 7 - Statement of Cash Flows - 2017
amendments as a result of the Disclosure initiative
("IAS 7")
IFRS 9 replaces IAS 39 - Financial Instruments: Recognition and
Measurement
IFRS 9 introduces a new approach to the classification of
financial assets which is driven by the business model in which the
asset is held and their cash flow characteristics. A new business
model was introduced which does allow certain financial assets to
be categorised as "fair value through other comprehensive income"
in certain circumstances. IFRS 9 carries forward the derecognition
requirements of financial assets and liabilities from IAS 39.
The Company classifies its investments at fair value through
profit or loss so the Board does not anticipate a significant
impact on implementation; in any case, the Board believes that the
Company will be wound up before the end of the first accounting
period during which this standard is effective.
IFRS 15 - Revenue from Contracts with Customers
The new IFRS 15 standard requires entities to recognise revenue
to depict the transfer of promised goods or services to customers
in an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services.
The Directors believe that the application of IFRS 15 will not
be applicable as the Company does not have any revenue as defined
by IFRS 15.
Amendment to IAS 7 - Statement of Cash Flows - amendments as a
result of the Disclosure initiative
IAS 7 introduces an additional disclosure that will enable users
of financial statements to evaluate changes in liabilities arising
from financing activities. This amendment is subject to endorsement
by the EU.
The Directors believe that the application of the amendment to
IAS 7 will not impact the financial statements.
2.2 Foreign currency translations
Foreign exchange gains and losses resulting from the settlement
of transactions in foreign currencies and from the translation of
monetary assets and liabilities at period-end exchange rates to
Sterling are recognised in the Statement of Comprehensive Income as
foreign exchange gains/losses.
Non-monetary items such as financial assets designated at fair
value through profit or loss measured at fair value in a foreign
currency, are translated using exchange rates at the Statement of
Financial Position date when the fair value was determined. Effects
of exchange rate changes on non-monetary items measured at fair
value on a foreign currency are recorded as part of the fair value
gain or loss.
2.3 Financial instruments
Financial assets
a) Classification
The Company classifies its investments as financial assets
designated at fair value through profit or loss. These financial
instruments are held for investment purposes. Financial assets also
include cash and cash equivalents and other receivables which are
measured at amortised cost using the effective interest rate
method.
Financial assets designated at fair value through profit or
loss
Financial assets designated at fair value through profit or loss
are financial instruments whose performance is evaluated on a fair
value basis in accordance with the Company's documented valuation
methodology and investment strategy. The Company's policy requires
the Investment Manager and the Board to evaluate the information
about these financial assets on a fair value basis together with
other related financial information.
b) Recognition, measurement and derecognition
Purchases and sales of investments are recognised on the trade
date which is the date on which the Company commits to purchase or
sell the investment. Financial assets designated at fair value
through profit or loss are measured initially at fair value.
Transaction costs are expensed as incurred and movements in fair
value are recorded in the Statement of Comprehensive Income.
Subsequent to initial recognition, all financial assets designated
at fair value through profit or loss are measured at fair value
adjusted to reflect costs of disposal because the Company's
financial statements are prepared on a break-up basis. Financial
assets are derecognised when the rights to receive cash flows from
the investments have expired or the Company has transferred
substantially all risks and rewards of ownership.
c) Fair value estimation
In accordance with IFRS 13 and IPEV guidelines, fair value is
the amount deemed to be the price that would be received upon sale
of an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. As
the Company is a realisation vehicle with an intended life of two
years from admission of its shares to trading, fair value of
investments is adjusted to be the realisable value of the
investments, net of taxes and other costs of disposal, were the
investments in the portfolio to be realised as soon as possible but
in an orderly fashion in the current market.
The Company's asset valuation methodology, which was outlined in
the Company's Prospectus and is explained below, was designed to be
consistent with the break-up basis of accounting that would be
adopted for the preparation of the Company's financial statements.
Fair value is measured by the Directors in accordance with the NAV
methodology adopted by the Board which, in turn, reflects IFRS 13
and the IPEV guidelines published in December 2015, as appropriate
for a Company with a limited life.
The valuation methodology adopted by the Board:
-- Uses the most widely recognised form of valuation applied by
market participants as a basis for the valuation of each asset
(quoted active market trading prices for listed investments, NAV
valuations for funds, or payments on liquidation);
-- Adjusts this valuation to account for illiquidity or
volatility considerations (the Company's investment in Lonestar,
for example, is valued on a per share basis using the trailing
five-day volume weighted average traded share price adjusted for
factors likely to affect the amount that could be realised
including the size of the holding relative to observable liquidity
which the Board believes is a more reasonable estimate of the value
under the break-up basis); and
-- Deducts estimated taxes and other material expenses that
would fall due in managing each investment or on a disposal to
derive a net realisable value measure for each investment.
d) Valuation process
The Directors are in ongoing communications with the Investment
Manager to discuss valuation methodologies and techniques applied
in assessing fair value. The Directors analyse the investment
portfolio in terms of fair value hierarchy and consider the impact
of general market and credit conditions and/or events which may
impact the valuation of the investment portfolio.
For listed investments, fair value is based on recent bid prices
adjusted as necessary to reflect any taxes and other material
expenses estimated to fall due were the investment to be disposed
of as soon as possible but in an orderly manner, in line with the
break-up basis of accounting.
The Investment Manager is responsible for carrying out the fair
market valuation of the unlisted investments of the Company and
these are presented to the Directors for their approval and
adoption. The valuation principles used in such methodology are
based on IFRS 13 and IPEV guidelines and the following valuation
methodologies:
i. investments in funds are valued at their net asset value,
adjusted as necessary to reflect the fair value of the underlying
investments held and any taxes and other expenses estimated to fall
due were the investment to be disposed of as soon as possible but
in an orderly manner;
ii. investments in bonds are valued at prices quoted by the brokers; and
iii. where a value is indicated by a material arm's length
transaction with a third party in the shares of an investment or a
comparable investment, this value may be considered representative
of fair value adjusted as necessary to reflect any taxes and other
expenses estimated to fall due were the investment to be disposed
of as soon as possible but in an orderly manner.
However, if the Board considers that the basis of valuation is
inappropriate for any particular reason, or generally, it may adopt
such other valuation procedures as it considers reasonable in the
circumstances.
Financial liabilities
Financial liabilities include trade payables and other payables
which are held at amortised cost using the effective interest rate
method. Financial liabilities are recognised initially at fair
value, net of transaction costs incurred and are subsequently
carried at amortised cost using the effective interest rate method.
Financial liabilities are derecognised when the obligation
specified in the contract is discharged, cancelled or expires.
2.4 Investment income, interest income and expenses
Interest income and expenses are recognised in the Statement of
Comprehensive Income on an accruals basis using the effective
interest rate method.
2.5 Operating expenses
Operating expenses are recognised on an accruals basis and are
recognised in the Statement of Comprehensive Income.
2.6 Cash and cash equivalents
Cash includes cash at bank and cash equivalents are short term,
highly liquid investments with original maturities of three months
or less that are readily convertible to known amounts of cash and
are subject to an insignificant risk of change in value aside from
movement in foreign exchange rates.
2.7 Segmental reporting
In accordance with IFRS 8 - "Operating Segments", the Board as a
whole has been determined as constituting "the chief operating
decision maker" of the Company. The Directors are of the opinion
that the Company is engaged in one segment of business, being the
investment business.
2.8 Provision
As the Company's financial statements are prepared on a break-up
basis, the Board, in liaison with the Investment Manager, has
recognised a provision. This provision was included in the pool of
assets attributable to the Company, further to the Scheme of
Reconstruction of EWPO, and included amounts to cover estimated
liquidation costs (which will be incurred on wind-up of the
Company) and the working capital requirements of the Company for a
forward-looking period. These operational costs include Directors'
fees, fees for third party service providers, professional fees,
and other sundry operational expenses incurred as part of the
ongoing activities of the Company.
Initially, the forward-looking period was for six months. During
the year under review, the forward-looking period was extended to
cover the expected remaining life of the Company and therefore the
amount included in the provision for working capital requirements
was increased to cover all estimated operational costs expected to
be incurred until 26 September 2018. This provision is based on
underlying agreements, historical financial information from the
Company to date, and quotes from third party service providers.
Refer to note 10 for further detail.
2.9 Share capital
Ordinary Shares are classified as equity in accordance with IAS
32 - "Financial Instruments: Presentation" as these instruments
include no contractual obligation to deliver cash and the
redemption mechanism is not mandatory. Costs directly attributable
to the issue of new Ordinary Shares are shown in equity as a
deduction from the proceeds.
3. Taxation
The Company has applied for and been granted exemption from
liability to income tax in Guernsey under the Income Tax (Exempt
Bodies) (Guernsey) Ordinance, 1989 as amended by the Director of
Income Tax in Guernsey for the current period. Exemption must be
applied for annually and will be granted, subject to the payment of
an annual fee, which is currently fixed at GBP1,200 per applicant,
provided the Company qualifies under the applicable legislation for
exemption. It is the intention of the Directors to conduct the
affairs of the Company so as to ensure that it continues to qualify
for exempt company status for the purposes of Guernsey
taxation.
4. Operating expenses
For the
period
from
28 June
2016 to
30 September
2017
GBP
Legal and professional
fees 124,547
Administration fees 104,871
Directors' fees 76,183
Company secretariat fees 52,938
Audit fees 45,000
Non-audit fees - interim
review services 15,000
Registrar fees 23,493
Broker fees 25,308
Sundry expenses 83,779
Custody fees 10,207
Printing fees 20,483
Transaction fees 2,405
Total operating expenses 584,214
----------------------------- --------------
Investment Manager fee
On 22 August 2016, the Company signed an Investment Management
Agreement with the Investment Manager. Under the Investment
Management Agreement the Investment Manager has, subject to the
overall supervision of the Board, responsibility for the day to day
management of the Company's Realisation Strategy. The Investment
Manager also has responsibility for advising the Company in
relation to the strategic management of the Company's investment
portfolio and monitoring the Company's funding requirements.
The Investment Manager is not entitled to any annual base
management fee but is eligible to receive a performance fee of 15%
of all Company distributable proceeds over the Performance Fee
Initial Value (as defined below), subject to a compounding 10%
hurdle (the "Performance Fee"). The Performance Fee is subject to a
cap of 4% of the Company distributable proceeds (as detailed below)
and will only be payable to the Investment Manager once
Shareholders have received cash distributions of an amount equal to
the Performance Fee Initial Value plus the hurdle.
The Performance Fee Initial Value will be the aggregate of the
initial value of each asset (excluding Texas Energy Future Holdings
Investments, the WoodFuels Investment and Bluewater Bio Holdings
Limited (the "Nil Value Assets" at the time of EWPO's
reconstruction) calculated as the higher of: (i) the original cost
price to EWPO; or (ii) the holding value as at 26 September 2016
(the aggregate of all such valuations being the performance fee
initial value). The Company distributable proceeds equals the
amount distributed or available for distribution to Shareholders
and any performance fee payable to the Investment Manager. The
Investment Manager is not entitled to a Performance Fee in respect
of the Nil Value Assets.
No fees were paid or payable to the Investment Manager during
the period.
Administration fee
On 22 August 2016, the Company signed an agreement with BNP
Paribas Securities Services S.C.A., Guernsey Branch, (the
"Administrator") to provide fund administrative and company
secretarial services to the Company. Under the administration
agreement, the Administrator is entitled to a minimum annual fixed
fee for fund administration services and company secretarial
services. These fees are paid monthly in arrears. Ad hoc other
administration services are chargeable on a time cost basis, and
the Company reimburses the Administrator for any out of pocket
expenses. Administration and company secretarial service fees
payable as at 30 September 2017 were GBP17,523 and GBP6,949,
respectively.
Broker fee
On 22 September 2016, the Company signed a Financial Advisory
Agreement with Winterflood Securities Limited (the "Financial
Adviser"), to provide corporate brokering and financial adviser
services to the Company. Under the agreement, the Financial Adviser
is entitled to a fee payable by the Company of GBP25,000 per annum
payable half-yearly in arrears. Broker fees payable as at 30
September 2017 were GBP12,500.
Custody fee
On 22 August 2016, the Company signed a Global Custody Agreement
between the Company and the Administrator, whereby the Company
appointed the Administrator to carry out custodian services. In its
role as custodian, the Administrator is entitled to a minimum fixed
fee payable monthly by the Company in arrears, and to transaction
fees. Custody fees payable as at 30 September 2017 were
GBP1,666.
5. Directors' fees and interests
The Directors of the Company are remunerated for their services
with a fee of GBP22,500 each per annum. The Chairman of the Company
and Chairman of the Audit Committee receive an additional GBP5,000
and GBP2,500, respectively, for their services. Directors' fees
payable as at 30 September 2017 were GBP18,750.
As at the date of approval of these financial statements, Martin
Nègre held 232,716 Ordinary Shares in the Company. No other
Director holds shares in the Company.
No pension contributions were payable in respect of any of the
Directors.
6. Other receivables and prepayments
30 September
2017
GBP
Intercompany balances - EFR Guernsey
Holding Limited 16,931
Prepayments 4,754
Total other receivables
and prepayments 21,685
----------------------------------------- -------------
The intercompany balance was provided to fund administration and
company secretarial operating expenses, paid on behalf of EFR
Guernsey Holding Limited, by the Company, for the period from 22
August 2016 to 30 September 2017. The Directors believe that these
balances are fully recoverable.
7. Financial assets designated at fair value through profit or
loss
30 September
2017
GBP
Financial assets designated
at fair value through
profit or loss 15,802,184
-------------------------------- -------------
The investments of the Company were transferred from EWPO
pursuant to the Scheme of Reconstruction in accordance with the EF
Realisation Transfer Agreement. As at 30 September 2017, the
Company held 100% of the issued share capital of EFR Guernsey
Holding Limited (referred to as the "EFR Guernsey equity interest")
and a portfolio of one debt security and equity investments in
companies. The fair value of the EFR Guernsey equity interest is
based primarily on the share price of Lonestar.
Fair value hierarchy
IFRS 13 requires an analysis of investments valued at fair value
based on the reliability and significance of information used to
measure their fair value. The Company categorises its financial
assets according to the following fair value hierarchy detailed in
IFRS 13, that reflects the significance of the inputs used in
determining their fair values:
Level 1: Investments valued using quoted market prices,
unadjusted, in active markets for identical assets are included in
Level 1. As at 30 September the Company held no Level 1
investments.
Level 2: Investments that are valued using observable inputs,
i.e. quoted market prices, dealer quotations or alternative pricing
sources supported by observable inputs, are classified as Level 2.
Level 2 investments include the Company's investment, via EFR
Guernsey Holding Limited, in Lonestar.
Level 3: Investments classified as Level 3 have unobservable
inputs and these include the Company's unquoted investments
(equity, equity-related and debt instruments of unquoted
companies). Level 3 investments include Bluewater Bio Holdings Ltd
(held at nil value), Eastern Australia Irrigation Ltd, Energy
Future Holdings (equity and bond; held at nil value), Oro Negro
(equity; held at nil value), TRF Feeder Fund (Cayman) LP, TRF LLC
and the WoodFuels investment (held at nil value). These types of
securities are generally subject to higher valuation uncertainties
and liquidity risks than securities listed or traded on a regulated
market.
Level 3 fair values are determined by the Directors using
valuation methodologies in accordance with the IPEV Guidelines and
as detailed in note 2.3. Significant inputs include investment
cost, the value of the most recent capital raising, and the
adjusted net asset value of funds. Carrying values are reviewed and
assessed regularly by the Board, in conjunction with the Investment
Manager, and approved in the Audit Committee meetings.
30 September
Level Level Level 2017
1 2 3 Total
GBP GBP GBP GBP
Debt instruments - - - -
Equity instruments - 8,113,517 7,688,667 15,802,184
------------------------ ------- ---------- ---------- -------------
Total financial
assets designated
at fair value through
profit or loss - 8,113,517 7,688,667 15,802,184
------------------------ ------- ---------- ---------- -------------
Financial assets designated at fair value through profit or loss
reconciliation
The following table shows a reconciliation of all movements in
the fair value of financial assets categorised within Level 1 to 3
between the beginning and the end of the reporting period.
30 September
Level Level Level 2017
1 2 3 Total
GBP GBP GBP GBP
---------------------------- ---------- ------------- ------------ -------------
Opening valuation - - - -
---------------------------- ---------- ------------- ------------ -------------
Movements in the period:
Transfers during the
period from EWPO Scheme
of Reconstruction 409,861 35,520,648 10,140,686 46,071,195
Sales - proceeds during
the period (514,646) (1,200,000) (2,552,251) (4,266,897)
Realised gain on financial
assets designated
at fair value through
profit or loss 104,785 210,000 35,674 350,459
Unrealised gain /
(loss) on financial
assets designated
at fair value through
profit or loss - (26,417,131) 64,558 (26,352,573)
Closing valuation - 8,113,517 7,688,667 15,802,184
Total unrealised gains
/ (loss) on financial
assets for the period
ended 30 September
2017 - (26,417,131) 64,558 (26,352,573)
---------------------------- ---------- ------------- ------------ -------------
During the period ended 30 September 2017, there were no
reclassifications between levels of the fair value hierarchy.
Sensitivity of Level 3 holdings to unobservable inputs
At 30 September 2017, the Company's Level 3 investments
accounted for 42.3% of its net assets. Investments accounting for a
majority of these Level 3 assets were in funds managed by a
third-party manager which values the funds at an independent
expert's estimate of fair value. The Directors value these
investments at net asset value, adjusted as necessary to recognise
the illiquidity of the investments and any expected costs
associated with their sale. Direct investments in the equity,
equity-related or fixed-income securities of unquoted companies
accounted for a minority of these Level 3 assets at 30 September
2017. The Directors valued these investments according to the
valuation methodology.
The Directors may consider adjustments to these valuations. The
range of possible adjustments could be large, depending on the
circumstances. The Directors would consider the recommendation of
the Investment Manager. The valuation methodologies applied for the
Level 3 assets are based on independent experts' and Directors'
assessments of fair value, indicative bids for the investments, and
last transactions in the equity or comparable equity. The
unobservable inputs used are discounts applied for illiquidity
which range from 0% to 100%. For the purposes of sensitivity
analysis, a 25 percentage point adjustment in the discount for the
Level 3 assets could be considered reasonable. A 25 percentage
point adjustment in the discount for the Level 3 assets would
result in a movement, up or down, in the Company's net assets of
10.6%.
Please refer to note 2.3 for detail regarding valuation
methodologies used.
EFR Guernsey Holding Limited equity interest
The Company holds a 100% equity interest in EFR Guernsey Holding
Limited, a company incorporated in Guernsey on the 21 June 2016,
which holds an equity investment in Lonestar. Ordinary shares in
EFR Guernsey Holding Limited have no par value and are redeemable.
The Board does not expect income from EFR Guernsey Holding Limited
to exceed significantly the anticipated annual running costs of EFR
Guernsey Holding Limited and therefore does not expect that EFR
Guernsey Holding Limited will pay significant, or any, dividends
although it reserves the right to do so.
On 22 December 2016, Lonestar raised $79 million by issuing new
ordinary shares. EF Realisation did not participate in this equity
issue and as a result its interest in Lonestar's ordinary shares
was diluted from 52.0% to 19.1%.
On 30 May 2017, Lonestar announced that it had entered into
definitive agreements with unaffiliated parties to acquire oil and
gas properties in the Eagle Ford shale play in Texas, USA. The
financing of this transaction diluted the Company's interest in
Lonestar from 19.1% to 17.0%, reducing the Company's influence over
Lonestar's strategic, operating and financial policies.
As at 30 September 2017, the Directors determined that as the
Company had a less than 20% economic interest in Lonestar and
controlled only two of Lonestar's nine member board, it did not
have significant influence over Lonestar's strategic, operating and
financial policies.
As at 30 September 2017, EFR Guernsey Holding Limited held
4,174,259 shares in Lonestar. Lonestar operates in the United
States and constitutes 44.6% of the Company's net assets (included
as a Level 2 asset in the table below).
The Lonestar investment is valued in the Company's NAV and
financial statements at its trailing five-day volume weighted
average share price as reported to the NASDAQ Exchange, adjusted as
necessary for any expected costs associated with its sale and
adjusted for factors likely to affect the amount that could be
realised including the size of the holding relative to observable
liquidity.
8. Financial risk management
The Board sets out its investment objectives and policies in the
Strategic Report. The Board and the Company's Investment Manager
consider and review the principal risks inherent in managing the
Company's assets and these are detailed below.
The Company's activities expose it to a variety of financial
risks: market risk (including price risk, interest rate risk and
foreign exchange risk), credit risk and liquidity risk.
8.1a Price risk
The Company's investment portfolio is subject to fluctuations,
volatility and the vagaries of market prices. As at 30 September
2017, the Company's investments consisted of a portfolio of equity
investments and debt securities in companies which operate in the
United States, Australia, the UK and Mexico. As the Company has an
investment in in a security which is listed on recognised stock
exchange - but which is illiquid - and in unquoted securities, it
is regularly exposed to market risk and the value of the Company's
portfolio can fluctuate, particularly over the short-term, in
response to developments in financial markets.
The performance of the EFR Guernsey Holding Limited equity
interest is substantially driven by the market price of Lonestar.
Lonestar is a public company whose shares are listed on the NASDAQ
Exchange in the US. Lonestar acquires and develops shale reserves
in Texas in the United States, sells the oil, gas and gas liquids
produced and is exposed to the commodity price, operating,
environmental and other risks associated with the oil and gas
industry. The Company values Lonestar in its NAV and financial
statements at its trailing 5-day volume weighted average share
price as reported to the NASDAQ Exchange less the estimated costs
(taxes and other expenses) that may be associated with the
realisation of the investment and adjusted for factors likely to
affect the amount that could be realised including the size of the
holding relative to observable liquidity. The Board believes that
this valuation approach provides the best representation of the
realisable value of Lonestar, taking into consideration the history
of activity of the Lonestar shares and their illiquidity.
Investments that are not traded in an active market, as detailed
in note 7, are subject to significant judgements, estimates or
assumptions when determining their fair value. The valuation
provided at period end is only an estimate of value and is not a
precise measure of realisable value. Ultimate realisation of the
market value of an asset depends to a great extent on economic and
other conditions beyond the control of the Company, and valuations
do not necessarily represent the price at which an investment can
be sold or that the assets comprising the investment portfolio are
saleable readily or otherwise. As a result the estimated fair
values may differ from the values that would have been realised had
a ready market existed and the difference could be material.
Any significant event which affects a specific industry sector
in which the investment portfolio has a significant holding could
materially and adversely affect the performance of the Company. The
Board and Investment Manager actively monitor market prices and
performance of investments throughout the financial period and meet
regularly in order to consider the Realisation Strategy. Please
refer to the Investment Manager report for further detail regarding
the Company's investment portfolio.
8.1b Interest rate risk
Interest rate risk is the risk that the fair value of financial
instruments and related income from these financial instruments and
cash and cash equivalents will fluctuate due to changes in market
interest rates. The Company is only exposed to interest rate risk
through the fair value of investment in a fixed interest security
and cash and cash equivalents. Any reasonable change in interest
rates will have an immaterial impact and therefore no sensitivity
analysis has been provided.
8.1c Foreign currency risk
Foreign currency risk is the risk that the values of the
Company's assets and liabilities are adversely affected by changes
in the values of foreign currencies by reference to the Company's
functional currency. The value of the Company's assets and the
total return earned by the Company's Shareholders can be
significantly affected by foreign exchange movements as most of the
Company's assets are denominated in currencies other than Sterling,
the Company's functional currency.
The Investment Manager monitors the Company's exposure to
foreign currencies and reports to the Board on a regular basis. The
Investment Manager measures the risk to the Company of the foreign
currency exposure by considering the effect on the Company's NAV of
a movement in the exchange rate to which the Company's assets,
liabilities, income and expenses are exposed.
Although the Company does not pursue a policy of hedging
currency exposure on its investments, it may do so from time to
time, depending on market conditions. The Company may enter into
currency hedging transactions for the purposes of efficient
portfolio management, including matching the currency of expected
liabilities. During the period ended 30 September 2017, the Company
did not use financial instruments to manage or mitigate the foreign
currency exposure.
The following table sets out the Company's total foreign
currency exposure and the net exposure to foreign currencies of the
Company assets and liabilities as at 30 September 2017:
Currency exposure 2017
Total net
assets
attributable
to ordinary
Shareholders
GBP
------------------- --------------
United States
Dollar 14,319,810
---------------------- --------------
Australian
Dollar 3,055,773
---------------------- --------------
The following analysis demonstrates the impact of a 10% movement
in the exchange rate of Sterling against the United States Dollar
and Australian Dollar on the net assets attributable to ordinary
Shareholders, with all other variables held constant.
Effect on
net assets
attributable
Change in exchange to ordinary
rate Shareholders
30 September 2017 Increase/(decrease) Increase/(decrease)
GBP
----------------------- --------------------- --------------------
Sterling versus (1,431,981)
United States Dollar 10% / (10%)(1) / 1,431,981
------------------------ --------------------- --------------------
Sterling versus (305,577)
Australian Dollar 10% / (10%)(1) / 305,577
------------------------ --------------------- --------------------
(1) 10% has been assessed at 30 September 2017 as a reasonably
possible movement in currency rate sensitivity over the period. It
is not intended to illustrate a remote, worst case or stress test
scenario.
As at 30 September 2017, the Company was exposed to foreign
currency risk exposure on its investment position in EFR Guernsey
Holding Limited equity interest holding. EFR Guernsey Holding
Limited does not use financial instruments to manage or mitigate
foreign currency exposure.
8.2 Credit risk
Credit risk is the risk that a counterparty to a financial
instrument will fail to discharge an obligation or commitment that
it has entered into with the Company. The Board, with input from
the Investment Manager, monitors the credit quality of all
counterparties on a periodic basis to mitigate credit risk. The
Company's credit risk exposure as at the Statement of Financial
Position date was GBP3,293,971, represented by cash and cash
equivalents. As at 30 September 2017, there were no items past due
or impaired.
The financial assets designated at fair value through profit or
loss are held by BNP Paribas Securities Services S.C.A, Guernsey
Branch, the Company's Administrator and custodian, in a segregated
account. In the event of bankruptcy or insolvency of the
Administrator, the Company's rights with respect to the securities
held by the custodian may be delayed or limited. All cash is placed
with BNP Paribas Securities Services S.C.A, a wholly owned
subsidiary of BNP Paribas Securities Services S.A. which is
publicly traded and a constituent of the S&P 500 Index with a
long term credit rating of Aa3 from Standard & Poor's.
8.3 Liquidity risk
Liquidity risk is the risk that the Company will not be able to
settle its liabilities as they fall due. The Company may encounter
difficulties in realising assets in accordance with the Realisation
Strategy or otherwise raising funds to meet financial commitments
as and when these fall due for payment. The liquidity profile of
the Company's investment portfolio is such that Shareholders may
have to wait a considerable time before receiving all of their
distributions pursuant to the Realisation Strategy.
Liquidity risk is monitored on an ongoing basis by the Board and
Investment Manager so as to ensure that the Company maintains
sufficient working capital in cash or near cash form so as to be
able to meet the Company's ongoing requirements to pay accounts
payable and accrued expenses. In addition, the Company's liquidity
management policy involves projecting cash flows and considering
the level of liquid assets necessary to meet these over the
expected lifespan of the Company.
The table below shows the due dates of other payables as at 30
September 2017:
Maturity analysis of financial liabilities
Less than 3 to 12 More than
3 months months 1 year Total
GBP GBP GBP GBP
Financial liabilities
Other payables (132,825) - - (132,825)
Total financial
liabilities (132,825) - - (132,825)
----------------------- ---------- -------- ---------- ----------
In accordance with Article 23(4)(a) and (b) of the AIFMD
Directive, the Board in its capacity as the AIFM has assessed that
the financial assets designated at fair value through profit or
loss held by the Company are not subject to any special liquidity
arrangements and that the AIF has no new arrangements in place for
managing liquidity, other than liquidity policies outlined
above.
Capital risk management
The Board defines capital as financial resources available to
the Company. The Company's capital as at 30 September 2017
comprises its share capital and retained deficit at a total of
GBP18,192,698. The Company's objectives when managing capital are
to:
- safeguard the Company's ability to fulfil its investment objective;
- provide returns for Shareholders; and
- maintain sufficient working capital.
The Board monitors the capital adequacy of the Company on an
ongoing basis and the Company's objectives regarding capital
management have been met. The Company has no imposed capital
requirements.
Given the Company had raised approximately GBP4.36 million, made
up of GBP4.26 million in realised proceeds (including GBP0.1
million from a corporate action involving the Company's holding in
Energy Future Holdings) from the realisation of various portfolio
assets and GBP0.1 million investment income (net of expenses), the
Board determined that GBP3.0m of the proceeds would be returned to
Shareholders on or shortly after the 29 September 2017 via a
compulsory share redemption, as it deemed this to be the most
efficient method of returning capital to Shareholders.
9. Other payables
30 September
2017
GBP
Audit fees 45,000
Printing fees 20,278
Directors' fees 18,750
Administration fees 17,523
Broker fees 12,500
Company Secretariat
fees 6,949
Sundry other payables 5,735
Registrar fees 4,424
Custody fees 1,666
Total other payables 132,825
-------------------------- -------------
10. Provision
The Company's net assets at 30 September 2016 included a
provision of GBP1,244,779, further to EWPO's Scheme of
Reconstruction; this provision has not, therefore, been recognised
in the Statement of Comprehensive Income. This provision was made
up of GBP732,092 in relation to a future funding commitment and
GBP512,687 in relation to forward looking operating costs. During
the year, the future funding commitment provision of GBP732,092 in
relation to one investment was reversed due to changes in
conditions. In addition the provision for forward looking costs
increased by GBP279,630, from GBP512,687 to GBP792,317 as the
forward looking period was extended from 6 months to the expected
remaining life of the Company. These changes were recognised in the
Statement of Comprehensive Income during the period ended 30
September 2017.
The provision as at 30 September 2017, may differ from the
actual amount incurred on ultimate wind-up of the Company.
11. Share capital
Authorised
The authorised share capital of the Company is represented by an
unlimited number of redeemable Ordinary Shares at no par value.
Allotted, called up and fully-paid
Ordinary Shares Number of Share
shares capital
GBP
---------------------------- --- -------------- -------------
Total issued share capital
as at 28 June 2016 - -
---------------------------- --- -------------- -------------
Ordinary Shares issued
during the period 52,473,634 47,184,416
Ordinary Share issue costs - (26,885)
Ordinary Shares redeemed
during the period (7,496,025) (6,736,584)
Total issued share capital
as at 30 September 2017 44,977,609 40,420,947
---------------------------------- ------------- -------------
Ordinary Shares
On incorporation, the Company issued one Ordinary Share at a
price of GBP1 to Ecofin Limited. On 22 September 2016, the Company,
pursuant to the Scheme of Reconstruction under section 110 of the
Insolvency Act 1986 (as amended) of EWPO, issued a further
52,473,633 Ordinary Shares at a price of GBP0.8992 per Ordinary
Share, raising gross proceeds of GBP47,184,416 (net proceeds of
GBP47,157,531). The newly issued 52,473,633 Ordinary Shares were
admitted to trading on the Specialist Fund Segment of the Main
Market of the London Stock Exchange with effect from 26 September
2016. The costs and expenses of the initial placing of Ordinary
Shares attributable to the Company pursuant to the Scheme of
Reconstruction were paid for by EWPO, with the exception of listing
fees of GBP26,885 which were paid for by the Company. On 23
September 2016, the Company redeemed the one Ordinary Share that
was issued to Ecofin Limited for a consideration of GBP1.
On 15 September 2017, 7,496,024 Ordinary Shares were redeemed at
a price of 40.07p per Ordinary Share (after allowing for costs of
redemption of GBP9,000). This GBP3.0 million return of capital,
equivalent to 5.7p per Ordinary Share, was implemented pursuant to
the Company's compulsory redemption mechanism, such that one in
every seven Ordinary Shares was redeemed, for cancellation, on a
pro rata basis. As at 30 September 2017, the Company had 44,977,609
Ordinary Shares in issue.
Each holder of Ordinary Shares has equal rights and is entitled
to attend and vote at all general meetings that are held by the
Company. Each holder is also entitled to receive payment of a
dividend should the Company declare such a dividend payment. Any
dividends payable by the Company will be distributed to the holders
of the Company's Ordinary Shares, and on the winding-up of the
Company or other return of capital (other than by way of a
repurchase or redemption of shares in accordance with the
provisions of the amended and restated Articles of Incorporation
(the "Articles") and the Companies Law), the Company's surplus
assets, after payment of all creditors, will be distributed among
the holders of the Ordinary Shares.
Although it is not expected that the Company will receive any
income during the realisation period, to the extent that it does
receive income, the Board intends to distribute to Shareholders all
of the income received by the Company, net of reasonable expenses,
during the realisation period (subject to compliance with the
Companies Law). The Board intends to consider with its advisers the
most efficient method of returning capital to Shareholders during
the realisation period as the Company investment portfolio is
realised, including the compulsory redemption mechanism as detailed
below.
No dividends have been declared or paid during the period.
Compulsory redemption mechanism
The Board may operate the compulsory redemption mechanism set
out below as the Company's investments are realised, however it
will seek to adopt the most efficient method of returning capital
to Shareholders at the time which may include a tender offer and/or
other capital return schemes.
The Articles provide that the Company may make compulsory
redemptions of Ordinary Shares, with the timing and size of such
redemptions being determined at the sole discretion of the
Directors, reflecting the available cash at the relevant time,
subject to any retention made for working capital. Shares will be
redeemed from all Shareholders pro rata to their existing holdings
of Ordinary Shares on the relevant record date for any given
redemption being a date chosen at the Directors' absolute
discretion, as determined by the Directors to be in the best
interests of Shareholders as a whole (the "Redemption Date").
When the Directors exercise their discretion to redeem
compulsorily a given percentage of the Ordinary Shares in issue,
the Directors will make a redemption announcement in advance of the
relevant Redemption Date. The redemption announcement will include
the following details:
-- the aggregate amount to be distributed to Shareholders;
-- the Redemption Date;
-- the percentage of the Ordinary Shares to be redeemed (pro
rata as between Shareholders on the redemption record date being
the close of business on the relevant Redemption Date or as
otherwise set out in the relevant redemption announcement (the
"Redemption Record Date"));
-- the Redemption Price per Ordinary Share (being the price per
Ordinary Share at which Ordinary Shares will be redeemed on a
particular Redemption Date as determined by the Directors (the
"Redemption Price")); and
-- any additional information that the Board deems necessary in
connection with the redemption.
Redemptions of Ordinary Shares will become effective on each
Redemption Date. In determining the timing of any Redemption Date,
the Directors will take into account the amount of cash available
for payment of redemption proceeds and the costs associated with
such redemption and the working capital requirements of the
Company. The Ordinary Shares redeemed will be the relevant
percentage (being a percentage of the shares to be redeemed by the
Company on a given Redemption Date as determined by the Directors
in their ultimate discretion), of the Ordinary Shares registered in
the names of Shareholders on the Redemption Record Date.
Shareholders will receive the Redemption Price per Ordinary Share
in respect of each of their Ordinary Shares redeemed
compulsorily.
Please refer to 'Financial Highlights' section for details of
implementation of the Company's first compulsory redemption
mechanism.
Liquidation resolution
Subject to any extension of the period of time granted by
special resolution of the Company (described below), the Directors
shall convene a general meeting as soon as reasonably practicable
after the realisation of all of the realisable investments held by
the Company as decided by the Board in their discretion, and in any
event no later than the second anniversary of Admission (or such
later date as determined in accordance with the Articles). At such
general meeting, the Directors shall propose an ordinary resolution
that the Company should be voluntarily wound up (the Liquidation
Resolution).
Every Shareholder present in person or by proxy voting in favour
of the Liquidation Resolution shall have such number of votes as
are required for the Liquidation Resolution to be duly passed.
With effect from the passing of the Liquidation Resolution, a
liquidator will be appointed and the Company shall cease to carry
on business except in so far as may be expedient for the beneficial
winding up the Company. At any time prior to the general meeting at
which the Liquidation Resolution is to be proposed, the Company may
by special resolution extend the deadline for proposing such
liquidation period for a period of one year and thereafter may
extend such deadline for additional periods of one year in each
case by a further special resolution.
12. Basic and diluted loss per Ordinary Share
For the
period
from
28 June
2016 to
30 September
2017
GBP
Total comprehensive loss
for the period (25,952,179)
Weighted average number of
Ordinary Shares during the
period 41,946,334
Basic and diluted loss per
Ordinary Share (0.6187)
The weighted average number of Ordinary Shares during the period
is calculated on the basis that one Ordinary Share was in issue
during the period from incorporation to 21 September 2016,
52,473,634 Ordinary Shares were in issue on the 22 September 2016,
and 52,473,633 Ordinary Shares were in issue during the period from
23 September 2016 to 18 September 2017 and 44,977,609 Ordinary
Shares were in issue during the period 18 September 2017 to 30
September 2017.
Using the weighted average number of Ordinary Shares in issue
for the period 30 September 2016, being the first NAV date, to 30
September 2017 (51,572,472), the basic and diluted loss per
Ordinary Share for the period was GBP(0.5032).
13. Net asset value per share
30 September
2017
GBP
Net asset
value 18,192,698
Number of Ordinary
Shares at period end 44,977,609
Net asset value per
Ordinary Share 0.4045
14. Related party disclosure
The Investment Manager is deemed a related party. Please refer
to note 5 for further detail. No investment manager performance fee
was payable as at 30 September 2017.
The Directors, who are related parties, are entitled to
remuneration for their services. Please refer to note 5 for further
detail. Martin Nègre was a director of EWPO until September 2016
and is currently a non-executive director of funds managed by the
Investment Manager. Please refer to 'Board Members' section for
further details.
For Director fees payable as at 30 September 2017, please refer
to note 9.
EFR Guernsey Holding Limited is deemed a related party. As at 30
September 2017, EFR Guernsey Holding Limited owed GBP16,931 to the
Company.
15. Reconciliation of NAV to published NAV
30 September
2017
NAV per
share
GBP
Published NAV 0.3936
------------------------------------------------- -------------
Reversal of provision relating to future
funding commitment and fair value adjustment 0.0109
NAV attributable
to Shareholders 0.4045
------------------------------------------------- -------------
16. Material events after the reporting date
There were no events which occurred subsequent to the period end
until the date of approval of the financial statements which would
have a material impact on the financial statements of the Company
as at 30 September 2017, except as set out below:
During the period 30 September 2017 to 17 January 2018, the NAV
per share rose from 40.45p to 48.77p as a result of an increase in
the fair value of Lonestar and despite adverse movements in foreign
currency translation.
17. Controlling party
In the Directors' opinion, the Company has no ultimate
controlling party.
USEFUL INFORMATION FOR SHAREHOLDERS
Alternative performance measures disclosure
In accordance with ESMA Guidelines on Alternative Performance
Measures ("APMs") the Board has considered what APMs are included
in the Annual Financial Report and financial statements which
require further clarification. An APM is defined as a financial
measure of historical or future financial performance, financial
position, or cash flows, other than a financial measure defined or
specified in the applicable financial reporting framework. APMs
included in the financial statements, which are unaudited and
outside the scope of IFRS, are deemed to be as follows:
NAV total return
The NAV total return measures how the NAV per share has
performed over a period of time, taking into account both capital
returns and dividends paid to shareholders. The Company quotes NAV
total return as a percentage change from the period from 13
September to 30 September 2016, being the period from Scheme of
Reconstruction of EWPO and first valuation point; 13 September 2016
to 30 September 2017, being the period from Scheme of
Reconstruction of EWPO and period end date; and 30 September 2016
to 30 September 2017, being the period from first NAV point to
period end date.
No dividends were paid to Shareholders during the period from 13
September to 30 September 2017. Please refer to 'Financial
Highlights and Performance Summary' section for NAV total return
percentages over periods referred to above.
NAV to market price discount
The NAV per share is the value of all the company's assets, less
any liabilities it has, divided by the number of Ordinary Shares.
However, because the Company shares are traded on the London Stock
Exchange's Specialist Fund Segment, the share price may be higher
or lower than the NAV. The difference is known as a discount or
premium. The Company's discount to NAV is calculated by expressing
the difference between the period end Ordinary Share price (bid
price) and the period end NAV per share as a percentage of the NAV
per share.
At 30 September 2017, EF Realisation's Ordinary Shares traded at
26.50p. The shares traded at 34.5% discount to the NAV per share of
40.45p.
Ongoing charges
The ongoing charges ratio for the year ended 30 September 2017
was 1.32%. The AIC's methodology for calculating an ongoing charges
ratio uses the annualised ongoing charges (GBP394,974) divided by
the average NAV during the period (GBP29,981,041).
Calculating ongoing charges
The ongoing charges are based on actual costs incurred in the
year excluding any non-recurring fees in accordance with the AIC
methodology. Expense items have been excluded in the calculation of
the ongoing charges figure when they are not deemed to meet the
following AIC definition:
"Ongoing charges are those expenses of a type which are likely
to recur in the foreseeable future, whether charged to capital or
revenue, and which relate to the operation of the investment
company as a collective fund, excluding the costs of
acquisition/disposal of investments, financing charges and
gains/losses arising on investments. Ongoing charges are based on
costs incurred in the year as being the best estimate of future
costs."
Please refer below for ongoing charges reconciliation:
GBP
Total operating expenses for the
year: 584,214
-------------------------------------------- ----------
Expenses excluded from the calculation
of ongoing charges figures, in accordance
with the definition set out above:
Legal and professional fees (122,447)
Sundry expenses (64,388)
Transaction fees (2,405)
Total ongoing charges for the year 394,974
-------------------------------------------- ----------
Calculating an average NAV
The AIC's methodology for calculating average NAV for the
purposes of the ongoing charges figure is to use the average of NAV
at each NAV calculation date. On this basis, the average NAV figure
has been calculated using the monthly NAVs over the year ended 30
September 2017.
Company information
Legal advisers to the
Board members Company
Martin Nègre (Chairman) (as to Guernsey law)
Robert Sinclair (Chairman Carey Olsen
of the Audit Committee) P.O. Box 98
Nick Tostevin (Chairman Carey House
of the Management Engagement Les Banques
Committee) St Peter Port
Guernsey
All Directors were appointed GY1 4BZ
on the 28 June 2016
with the exception of
Martin Nègre who
was appointed on the
20 July 2016.
Registered Office Custodian
BNP Paribas Securities
BNP Paribas House Services S.C.A., Guernsey
St Julian's Avenue Branch
BNP Paribas House
St Julian's Avenue
St Peter Port St Peter Port
Guernsey Guernsey
GY1 1WA GY1 1WA
Registrar Independent Auditor
Link Market Services Ernst & Young LLP
(Guernsey) Limited (formerly Royal Chambers
Capita Registrars (Guernsey) St Julian's Avenue
Limited) St Peter Port
Mont Crevelt House Guernsey
Bulwer Avenue GY1 4AF
St. Sampson
Guernsey
GY2 4LH
Administrator and Company
Secretary Investment Manager
BNP Paribas Securities
Services S.C.A., Guernsey Ecofin Limited
Branch Burdett House
BNP Paribas House 15 Buckingham Street
St Julian's Avenue London
St Peter Port WC2N 6DU
Guernsey
GY1 1WA
BNP Paribas Securities Ecofin Limited is regulated
Services S.C.A. Guernsey by the Financial Conduct
Branch is regulated Authority and the Securities
by the Guernsey Financial and Exchange Commission.
Services Commission.
Financial Adviser UK Transfer Agent
Link Asset Services
Winterflood Securities (formerly Capita Registrars
Limited Limited (trading as
The Atrium Building Capita Asset Services)
Cannon Bridge House The Registry
25 Dowgate Hill 34 Beckenham Road
London Beckenham
EC4R 2GA Kent
BR3 4TU
Legal advisers to the
Company
(as to English law)
Norton Rose Fulbright
LLP
3 More London Riverside
London
SE1 2AQ
Enquiries:
BNP Paribas Securities Services S.C.A., Guernsey Branch 01481
750822
Company Secretary
Sarah Hendry
A copy of the Company's Annual Report and Audited Consolidated
Financial Statements will be posted to the shareholders of the
Company. Copies are also available from the Company Secretary, BNP
Paribas Securities Services S.C.A., Guernsey Branch at BNP Paribas
House, St Julian's Avenue, St Peter Port, Guernsey, GY1 1WA, or on
the Investment Manager's website www.ecofin.co.uk.
Neither the contents of the relevant sections of the Investment
Manager's website nor the contents of any website accessible from
hyperlinks on the Investment Manager's website (or any other
website) is incorporated into, or forms part of, this
announcement.
This information is provided by RNS
The company news service from the London Stock Exchange
END
ACSFKBDKOBKDADB
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