TIDMADAM
RNS Number : 0542C
Adamas Finance Asia Limited
23 June 2016
ADAMAS FINANCE ASIA LIMITED
("ADAM" or the "Company")
Final Results for the year ended 31 December 2015
Highlights of the year
-- Consolidated net asset value at 31 December 2015 of US$115.0
million (31 December 2014: US$118.9 million)
-- Loss for the year of US$3.9 million (2014: US$545,000)
-- Year-end cash of US$3.6 million (2014: US$492,000)
-- Post year-end cash payment of US$755,000 received from BRJ fund
Adamas Finance Asia Chairman, John Croft, commented: "I believe
that while 2015 saw disappointing delays in our planned asset
disposal programme, it also showed how our shift to
income-generating investments, whilst still in its early stages, is
already yielding high rates of return. Progress with new
investments was unavoidably held back, which is frustrating in the
light of our strong deal pipeline. ADAM is underpinned by the
experienced Adamas team in Hong Kong, however, with proven
expertise operating in the Chinese investment sector. I remain
confident that in the long term their investment advice and fund
management skills will yield strong returns for ADAM
shareholders."
Enquiries:
Adamas Finance Asia Limited
John Croft +44 (0) 1825 830587
WH Ireland Limited
Tim Feather +44 (0) 113 394
Liam Gribben 6600
First City Public Relations
(Hong Kong) +852 2854 2666
Allan Piper
Chairman's Statement
The twelve months to 31 December 2015 saw several key moves
towards achieving ADAM's long-term investment strategy, but against
a backdrop of economic slowdown in our Chinese target market,
progress was unfortunately slower than anticipated.
Unable to achieve major disposals from our asset portfolio
during the year, as we had hoped, the Company has recorded a
write-down of US$2.3 million on its valuation, which under the
accounting rules for investment businesses like ADAM is reflected
directly in the income statement. A year earlier, during 2014, the
Company reported an investment gain of US$2.1 million, but for 2015
the write-down led to an increased loss of US$3.9 million,
including operating expenses of US$2.3 million (2014: US$3.3
million). Income for the year, comprising loan interest and
dividend income from our fund investments, was US$0.7 million
(2014: US$0.7 million), and year-end cash and cash equivalents
stood at US$3.6 million.
I will say more about the planned sale of our asset portfolio
later in this statement, but following the alteration to ADAM's
Investing Policy in 2015, the Board continues to anticipate that
cash generated from those sales will eventually be deployed into
funds and direct-lending opportunities that will generate regular
cash distributions. As I have said previously, the objective is to
reposition the Company as cash-generative with no legacy asset
portfolio, so that it can begin to pay dividends to its
shareholders in due course. Our approach will remain to invest in
income-generating credit and investment opportunities that focus on
the growth-financing needs of SMEs, predominantly in Greater China,
where there is a shortage of such funding. The Company intends to
invest in opportunities that provide collateralised lending,
structured finance, and strategic finance, with a focus on
asset-backed structures.
Since the Company has still not substantially implemented this
revised Investing Policy, it will seek the consent of the
Shareholders for it to be extended at the Annual General Meeting of
the Company on 21 July 2016.
Investing in China is not for the faint hearted, but the
performance standards and returns achieved by the ADAM investment
advisory team in Hong Kong, Adamas Asset Management (HK) Limited
("Adamas"), have been consistently high. Not only does the team
bring a deep understanding of Chinese opportunities and the
relationships that go with them, it has also set in place due
diligence and operating procedures, not to mention effective legal
back-ups, as safeguards for when things go intermittently awry.
This often includes taking seats on the boards of investee
companies, and the effectiveness of the Adamas approach is
demonstrated by the IRRs generated which are consistently over 20%.
China is not an easy investment environment, but the Adamas team
has developed the expertise to operate within it, and provably so.
The team has more than US$600 million under management and has
shown a consistent track record in providing credit finance for
well managed and high-growth SMEs in China. Adamas funds have to
date provided finance to 69 SMEs within China. There have been 62
successful exits, and only seven delays in repayments of principal
or interest.
The funds managed by Adamas target investment in a range of
sectors including agriculture, natural resources, clean energy,
consumer opportunities and health care, among others. This gives
ADAM the opportunity, led by the advice from the Adamas Hong Kong
team, to participate in co-investment opportunities, potentially
also gaining access to additional direct investments. Just before
the year end, in December 2015, the Company announced that Adamas
is planning to launch a new US$500 million joint venture fund in
Hong Kong with Ping An Trust Co. Ltd, an investment subsidiary of
one of China's largest insurance giants, the Ping An Group. The
establishment of the joint venture with Ping An speaks to the high
regard in which Adamas is held.
The two Adamas-managed investment funds into which ADAM was
invested throughout 2015 produced cash returns of US$164,000 for
the year, equating to a 9% annual yield on the Company's US$1.8
million investment, while loan interest received amounted to
US$240,000. It points to the sustainable potential of the Company's
reshaped strategy. ADAM invested US$1 million in the first of the
two funds, the Greater China Credit Fund ("GCCF") on its launch in
August 2013, followed by a further investment of US$3.0 million
first announced in September 2015 but not fully committed until
March 2016, following the year end. Investments totalling
US$800,000 were made into the second fund, the BRJ China Credit
Fund Limited ("BRJ"), during 2014. In addition to dividends
received from BRJ during the year, ADAM after the year end also
received a cash payment of US$755,000 following the sale of a key
investment vehicle out of BRJ and into GCCF, and expects to receive
a further US$84,000 during the third quarter of 2016. ADAM remains
invested in both funds, but following the end of the year, the
Directors were notified that GCCF is closed for further investment,
and decided also not to invest further in BRJ. The Company is
actively seeking similar opportunities for new investment, pending
its planned asset sales.
As of the end of 2015, however, the level of available funding
for new investment remained lower than the Company would wish
following the setbacks to its plans for the disposal of the legacy
assets injected during the Reverse Takeover (RTO) of the Company in
February 2014. A full synopsis of those assets is provided in the
extract from the Directors' Report below, but it is worth
mentioning two of them here, both to identify the kinds of problems
that arise, and to underscore how Adamas works to deal with
challenging situations within the system with a diligent long-term
approach.
The first example is Hong Kong Mining Holdings ("HKMI"), the
owner of a large dolomite magnesium limestone mine in Shanxi
Province, China. HKMH was scheduled for an IPO on the Hong Kong
Stock Exchange, and posted its A1 notice in July 2015. The listing
stalled during the year, before the application was rejected in
January 2016. This has left ADAM in the position of needing to
negotiate an alternative exit, which it is actively pursuing. The
Company has meanwhile written down the value of this asset by
US$1.6 million to US$8.9 million.
The second of the two examples is Global Pharm Holdings Group
Inc. ("Global Pharm"), a company involved in pharmaceuticals, the
cultivation of herbs for Traditional Chinese Medicine ("TCM"), TCM
processing, ginseng distribution and the operating of electronic
ginseng exchanges, including the new GuoFu Exchange in Jilin, in
north-eastern China. ADAM signed a profitable redemption agreement
with Global Pharm in December 2014 under which it was due to
receive a total cash consideration of US$25 million in four
instalments up to April 2015. Global Pharm subsequently delayed on
some of the instalments and ADAM has now received a total of US$5.8
million, leaving an outstanding balance of US$19.2 million, plus
interest. While that is an admittedly large sum, the Adamas team in
Hong Kong remains in close dialogue with Global Pharm, where it
holds a Board seat, and among other steps has accepted a revised
repayment schedule, and agreed during the year that ADAM will
additionally take 0.00375% of Global Pharm's outstanding ordinary
share capital in respect of each payment more than 30 days late.
Transfers will take place on the first business day of each year,
and ADAM, using its special purpose vehicle, Blazer Delight, took
receipt of 223,000 A shares in January 2016 as expected. Global
Pharm is also subject to penalty interest on late payments of 26%
per annum, compounded on a daily basis.
In summary, I believe that while 2015 saw disappointing delays
in our planned asset disposal programme, it also showed how our
shift to income-generating investments, whilst still in its early
stages, is already yielding high rates of return. Progress with new
investments was unavoidably held back, which is frustrating in the
light of our strong deal pipeline. ADAM is underpinned by the
experienced Adamas team in Hong Kong, however, with proven
expertise operating in the Chinese investment sector, and I remain
confident that in the long term their investment advice and fund
management skills will yield strong returns for ADAM
shareholders.
John Croft
Chairman
EXTRACT FROM THE DIRECTORS' REPORT
Principal Activities
The Company was incorporated with limited liability under the
laws of the British Virgin Islands ("BVI"). The Company's shares
were admitted to the AIM Market ("AIM") of the London Stock
Exchange on 19 October 2009 and on the Quotation Board of the Open
Market of the Frankfurt Stock Exchange on 6 December 2012. Formerly
known as China Private Equity Investment Holdings Limited, the
Company changed its name to Adamas Finance Asia Limited on 18
February 2014 immediately following a reverse takeover (RTO).
Results and Dividends
The loss on ordinary activities of the Group for the year ended
31 December 2015 after taxation was US$3.9 million (2014: loss
US$0.5 million).
The increased losses reflect fair value movements (net
unrealised losses) in the portfolio of US$2.3 million, operating
expenses of US$2.3 million offset by dividend and net interest
income of US$0.7 million.
The Directors are not recommending the payment of a dividend for
the year.
Review of the Business
The Group's audited net asset value as at 31 December 2015 stood
at US$115.0 million (2014: US$118.9 million) equivalent to US$0.60
per share (2014: US$0.62). The increased loss for the year largely
reflected a net decrease in fair value on financial assets of
US$2.3 million.
Administrative expenses fell to US$2.3 million (2014: US$3.3
million). The main reason for this decrease was the reduction in
the level of professional fees which in 2014 included all the costs
associated with the RTO that took place at the beginning of that
year.
The Company's portfolio of investments reduced in value to
US$110.6 million (2014: US$117.6 million). Set out below is a
summary of the status of largest components of the portfolio.
Current portfolio
The principal assets held by the Company are:
Principal Assets Effective Instrument type Valuation
equity as at
interest 31 December
2015
US$ million
Changtai Jinhongbang
Real Estate Development Structured equity
Co. Ltd 15.00% and loan 50.9
Global Pharm Holdings Redeemable convertible
Group Inc. - bond 19.2
Fortel Technology
Holdings Limited 33.60% Structured equity 11.3
Hong Kong Mining
Holdings Limited 10.95% Structured equity 8.9
Meize Energy Industrial Redeemable convertible
Holdings Ltd 7.9% preference shares 8.3
98.6
Changtai Jinhongbang Real Estate Development Co. Limited
("CJRE")
CJRE is a luxury resort and residential development project in
Fujian Province, Eastern China. A highway linking the resort
directly with the regional centre of Xiamen has now been opened.
There is also a plan to develop the surrounding area of the
residential and resort development into a sports and recreation
theme park. This should increase the marketability of the
development. In the meantime, our investment management team
continues to seek buyers for our stake in the project.
Global Pharm Holdings Group Inc. ("Global Pharm")
Global Pharm is a pharmaceutical company involved in
pharmaceuticals, the cultivation of herbs for Traditional Chinese
Medicine ("TCM"), TCM processing and distribution and the operating
of electronic ginseng exchanges. As announced on 18 December 2014,
the Company agreed the redemption of the redeemable convertible
bond in Global Pharm. However, as further announced previously,
Global Pharm did not meet the original redemption payment plan. A
formal redemption agreement was signed with the company on 16
October 2015 whereby Global Pharm agreed to make monthly
repayments. If Global Pharm defaults on any of the monthly
payments, Global Pharm will transfer 0.005% of its outstanding
ordinary shares to Adamas as collateral for each payment default,
with a cap of 0.1%. Global Pharm subsequently failed to make the
US$750,000 monthly payments due in September, October and November
2015 (total: US$2.25 million). Global Pharm paid US$375,000 in
December 2015. At the balance sheet date a total of US$5.8 million
had been received, leaving an outstanding balance of US$19.2
million, plus interest.
Fortel Technology Holdings Limited ("Fortel")
Fortel's consolidated sales dropped slightly in 2015 due to a
decrease in e-commerce revenue. However, net profit increased due
to the rapid growth of the company's IT Solutions business which
engages in the implementation of RFID tracking system for clients.
The company is planning to list its Chinese subsidiary on the NEEQ
exchange in mainland China in 2016, and to facilitate this the
Directors of the Company are considering exchanging its current
equity holding for a loan which will generate regular income.
Hong Kong Mining Holdings Limited ("HKMH")
HKMH is a resources company whose primary asset is a large
dolomite magnesium limestone mine in the province of Shanxi, China.
HKMH was preparing for an IPO in Hong Kong through the Chapter 18
waiver for mining companies. We were unfortunately notified by the
Hong Kong Stock Exchange that the listing was unsuccessful. The
primary reason was that the regulators were not comfortable with
HKMH's revenue projections. This has left the company in a
difficult position as access to funds for expanding its business
are no longer available through this process, and consequently we
have taken a write down of US$1.6 million on this asset.
Meize Energy Industries Holding Limited ("Meize")
Meize is a wind blade manufacturer based in Beijing with
operations in Inner Mongolia and Ningxia. Sales for 2015 grew 74%
year on year due to a strong order book and a revival in demand
from Chinese wind turbine manufacturers. It is carrying a strong
order book into 2016. The company is planning for a listing on the
NEEQ exchange in mainland China in 2017. Two state-owned entities
are looking to invest equity into the company. Adamas is working to
sell part of its stake to these two entities and convert the rest
into a two year loan with interest to the company.
John Croft
Chairman
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2015
2015 2014
US$'000 US$'000
Realised gain on disposal
of investments - 238
Fair value changes on financial
assets at fair value through
profit or loss (2,265) 1,889
Administrative expenses (2,306) (3,330)
Operating loss (4,571) (1,203)
Finance income 467 424
Finance expense (216) (119)
Dividend income 404 324
Other income - 29
Loss before taxation (3,916) (545)
Taxation - -
Loss for the year (3,916) (545)
Other comprehensive expense:
Items that will or may be
reclassified to profit or
loss:
Exchange differences arising
on translation of foreign
operations - (44)
Total comprehensive expense
for the year (3,916) (589)
Loss per share
Basic 2.02 0.34
cents cents
Diluted 2.02 0.34
cents cents
Consolidated Statement of Changes in Equity
For the year ended 31 December 2015
Share
based Foreign
Share payment translation Accumulated
capital reserve reserve losses Total
US$'000 US$'000 US$'000 US$'000 US$'000
Group balance
at 1 January
2014 35,572 31 44 (10,172) 25,475
Loss for the
year - - - (545) (545)
Other comprehensive
income
Exchange differences
arising on translation
of foreign operations - - (44) - (44)
--------- --------- ------------- ------------ ----------
Total comprehensive
expense for the
year - - (44) (545) (589)
--------- --------- ------------- ------------ ----------
Issue of shares 93,956 - - - 93,956
--------- --------- ------------- ------------ ----------
Share-based payments - 11 - - 11
--------- --------- ------------- ------------ ----------
Group balance
at 31 December
2014 and 1 January
2015 129,528 42 - (10,717) 118,853
Loss for the
year - - - (3,916) (3,916)
Other comprehensive
income
- - - - -
Exchange differences
arising on translation
of foreign operations
--------- --------- ------------- ------------ ----------
Total comprehensive
expense for the
year - - - (3,916) (3,916)
--------- --------- ------------- ------------ ----------
Issue of shares 15 - - - 15
--------- --------- ------------- ------------ ----------
Share-based payments - (41) - 41 -
--------- --------- ------------- ------------ ----------
Group balance
at 31 December
2015 129,543 1 - (14,592) 114,952
--------- --------- ------------- ------------ ----------
Consolidated Statement of Financial Position
As at 31 December 2015
2015 2014
US$'000 US$'000
Assets
Unquoted financial assets
at fair value through
profit or loss 110,593 117,576
Loans and other receivables 3,496 3,380
Cash and cash equivalents 3,644 492
Total assets 117,733 121,448
Liabilities
Loan payables and interest
payables 2,518 2,411
Other payables and accruals 263 184
Total liabilities 2,781 2,595
Net assets 114,952 118,853
Equity and reserves
Share capital 129,543 129,528
Share based payment
reserve 1 42
Accumulated losses (14,592) (10,717)
Total equity and reserves
attributable to owners
of the parent 114,952 118,853
Consolidated Cash Flow Statement
For the year ended 31 December 2015
2015 2014
US$'000 US$'000
Cash flows from operating activities
Loss before taxation (3,916) (545)
Adjustments for :
Depreciation - 19
Dividend income (404) (324)
Finance income (467) (424)
Finance expense 216 119
Loss on fixed asset disposal - 56
Fair value changes on unquoted
financial assets at fair value
through profit or loss 2,265 (1,965)
Fair value changes on quoted financial
assets at fair value through profit
or loss - 76
Realised gain on disposal of investments - (238)
Share-based expenses 11
Decrease in other receivables 431 38
Increase / (Decrease) in other
payables and accruals 79 (625)
-------- --------
Net cash used in operating activities (1,796) (3,802)
-------- --------
Cash flows from investing activities
Dividend income received 324 275
Sale proceeds of quoted financial
assets at fair value through profit
or loss - 846
Purchase of unquoted financial
assets at fair value through profit
or loss (440) (4,436)
Loans granted (655) (2,938)
Proceeds from repayment of loan 5,813 -
granted
-------- --------
Net cash used in investing activities 5,042 (6,253)
-------- --------
Cash flows from financing activities
Finance expense paid (109) (108)
Loans borrowed - 2,400
Net proceeds from issue of shares 15 7,231
Net cash generated from financing
activities (94) 9,523
-------- --------
Net increase / (decrease) in cash
and cash equivalents 3,152 (532)
Cash and cash equivalents at the
beginning of the year 492 1,024
Cash and cash equivalents at the
end of the year 3,644 492
======== ========
Notes
1. Board Approval and 2015 Annual Report and Financial Statements
The financial information included in this report has been
extracted from the Group Financial Statements for the year ended 31
December 2015 which were approved by the Board of Directors on 22
June 2016. The Group Financial Statements have been prepared in
accordance with the accounting policies set out therein and in
accordance with International Financial Reporting Standards as
issued by the International Accounting Standards Board.
The auditors have reported on the 2015 Financial Statements and
their report is unqualified. The information included does not
constitute the Company's statutory accounts. The full financial
statements will be included in the Group's annual report.
The annual report will be posted to shareholders on 27 June 2016
and be available from the Company's website at
www.adamasfinance.com from 27 June 2016.
2. Unquoted Financial Assets at Fair Value Through Profit and Loss
Group
US$'000
Balance as at 1 January 2014 22,637
Fair value changes through
profit or loss 1,965
Additions 92,974
Disposals -
------------
Balance as at 1 January 2015 117,576
Fair value changes through
profit or loss (2,265)
Additions 1,097
Disposals (5,815)
Balance as at 31 December 2015 110,593
------------
The Group adopted the recent investment methodology prescribed
in the IPEVCV guidelines to value its investments at fair value
through profit and loss.
3. Loss per Share
The calculation of the basic and diluted loss per share
attributable to the ordinary equity holders of the Group is based
on the following:
2015 2014
US$'000 US$'000
Numerator
Basic/Diluted: Net loss (3,916) (545)
-------- --------
No. of No. of
shares shares
'000 '000
Denominator
Weighted average
Basic: shares 191,963 159,663
Effect of diluted
securities:
Share options 150 225
Warrant - 465
-------- --------
Adjusted weighted
Diluted: average shares 192,113 160,353
-------- --------
For the year ended 31 December 2015 and 2014, the share options
are anti-dilutive and therefore the weighted average shares in
issue are 191,963,000 and 160,128,000 respectively.
4. Events After the Reporting Period
Update on interest in Fortel Technology Holding Limited ("Fortel
BVI")
On 19 May 2016, the Company entered into an indicative
non-binding term sheet to transfer its 33.6% equity stake in Fortel
BVI into a loan receivable at a value of US$11.3 million (the
'Proposed Transfer'). Under the terms of the Proposed Transfer,
US$11.3 million equivalent of loans receivable by a wholly owned
subsidiary of Fortel BVI will be novated to CPE TMT Holdings
("CPE"), a wholly owned subsidiary of the Company. The loan would
be repayable within three years, can be repaid to CPE at any time
within that term in whole or part and will bear interest 3.0% for
the first 12 months and 8.0% thereafter until maturity. The amount
of the loan to be novated to CPE would be secured by a pledge of
the 33.6% equity stake in Fortel BVI to be transferred and
supported by an irrevocable and unconditional guarantee to CPE to
be provided by a substantial shareholder in Fortel BVI.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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