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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