RNS Number : 6261E
Absolute Capital Mgmt Holdings Ltd
30 September 2008
Absolute Capital Management Holdings ("ACMH" or "the Group")
Interim Results for the period ended 30 June 2008
CHAIRMAN'S STATEMENT
Introduction
In the first six months of 2008, ACMH focussed on generating liquidity in its equity funds' portfolios and transitioning their trading
strategies to European large- and mid-cap equities. In June 2008, the Group successfully de-merged its emerging market credit businesses
operating under the Argo brand through a one for one share distribution.
For the six months to 30 June 2008, the Group generated revenues of EUR6 million (2007: EUR62 million) and operating (loss)/profit of
(EUR1.2 million) (2007: EUR35 million). Total assets under management ('AUM') as at 30 June 2008 were US$884 million (2007: US$3.25bn),
reflecting in part the de-merger of the Argo funds. The Board is not recommending a dividend for the period ending 30 June 2008 (2007:
EUR0.447 per share).
Operating review
With the de-merger of the Argo businesses, ACMH will refocus on its core strengths of managing European long-short equity funds through,
research-driven trading strategies. We have also reduced the scale of the operating structure to correspond with the reduced size of the
ongoing business. In January, we closed ACM Spain's office in Palma de Majorca, Spain and consolidated our operations to our offices in Zug,
Switzerland and Grand Cayman, Cayman Islands. The Group now employs 23 staff, down from 81 at the commencement of the period under review.
Under the restructuring plan approved by fund investors in October 2007, four of the Group's eight equity funds created side pocket
portfolios to hold their illiquid assets and implemented a lock-in period on their more liquid A class portfolios through November 2008.
Since then the Group has completed a comprehensive top-down analysis of the assets in the side pocket portfolios, the results of the
analysis which were presented to the Investor Committee and during the first half of the year. Since then, the Group disposed of a number of
positions in the funds' side pocket portfolios, though this process has not progressed as quickly as hoped for due to poor and deteriorating
market conditions.
Due to a high volume of redemption requests in the Absolute Activist Value Fund, the directors of the fund took the decision to close
the A class portfolio effective 31 October 2008. The Absolute India Fund was closed in February 2008.
In August 2008 the company was served with a lawsuit by the Cascade Fund, LLLP an investor in certain of the Company's equity funds. The
lawsuit, filed in Colorado USA, relates primarily to the company's management of its equity funds and their investment strategies under
former chief investment officer Florian Homm. Whilst intending to defend its interests against the Cascade's claim, the Company is reviewing
broader recovery strategies for fund investors concerning such matters. As previously announced, ACMH has instructed Berwin Leighton Paisner
LLP and PricewaterhouseCoopers to carry out a review of its funds' investment strategies under the management of Florian Homm, focusing in
particular on the funds' illiquid investments. This review is expected to be completed shortly.
In June 2008, the Group appointed Jonathan Treacher as Non-Executive Chairman, and Glenn Kennedy as Chief Executive Officer. We have
also appointed two new investment professionals in the first half of the year including the creation of a new position, Head of Portfolio
Advisory, to oversee the portfolio management, trading and risk management activities.
Outlook
While the performance of certain of our funds' A class portfolios in the first six months of the year has been encouraging, looking
ahead, the Group expects to have substantial redemptions from its funds at the end of their lock-up period and will continue to monitor its
funds' viability and the Group's fund product offering. The Group is also working toward launching new fund structures to accommodate its
refocused large cap trading strategies, and to hold, market and dispose of its funds' remaining illiquid assets after the end of the
restructuring period in November 2008.
Enquiries:
Absolute Capital Management Tel:
Holdings Limited +41 41 560 9660
Jonathan Treacher
Glenn Kennedy
Panmure Gordon Tel: +44 (0)20 7459 3600
Dominic Morley
Callum Stewart
Cardew Group Tel: +44 (0)20 7930 0777
Tim Robertson
Shan Shan Willenbrock
David Roach
CONSOLIDATED INCOME STATEMENT (unaudited)
for the period ended 30 June 2008
Note Half year to 30.6.08 Half year to 30.6.07 Twelve months to
31.12.07
Continuing operations EUR'000 EUR'000 EUR'000
Subscription fees - 621 1,164
Management fees 4,981 20,633 39,408
Incentive fees 195 38,494 44,927
Redemption fees 835 835 -
Other income - 1,096 2,150
Revenue 6,012 61,680 87,649
Legal and professional (7) (355) (1,870)
expenses
Management and incentive fees (1,656) (8,120) (15,081)
payable
Operational expenses (1,076) (1,769) (4,730)
Employee costs (2,210) (15,732) (24,043)
Foreign exchange loss (250) (98) (155)
Depreciation (31) (68) (146)
Excess of acquirer's interest - 40 40
in net value of
identifiable net assets
Bad debts written off - - (911)
Operating profit excluding 782 35,578 40,753
exceptional items
AIM listing costs - (388) -
Exceptional costs (1,689) - (74,105)
Operating loss/(profit) (907) 35,240 (33,352)
Financial revenue 54 473 772
Unrealised (loss)/gain on (372) 287 (334)
investments
(Loss)/profit on continuing (1,224) 36,000 (32,914)
operations before taxation
Tax on continuing operations 5 - (3,643) (3,539)
(Loss)/profit on continuing (1,224) 32,357 (36,453)
operations after taxation
Discontinued Operations
Profit after taxation from 8 4,256
discontinued operations
Profit after taxation for the 3,032
period
Earnings per share
From continuing and
discontinued operations
(Loss)/Earnings per share 6 EUR 0.04 EUR 0.50 (EUR 0.54)
(basic)
(Loss)/Earnings per share 6 EUR 0.04 EUR 0.47 (EUR 0.51)
(diluted)
From continuing operations
Earnings per share (basic) 6 (EUR 0.02)
Earnings per share (diluted) 6 (EUR 0.02)
CONDENSED CONSOLIDATED BALANCE SHEET (unaudited)
as at 30 June 2008
Note As at As at As at 31.12.2007
30.06. 30.06.
2008 2007
EUR'000 EUR'000 EUR'000
Assets
Non-current assets
Intangible assets - 89,341 20,481
Property, plant and machinery 142 482 346
142 89,823 20,827
Current assets
Investment -
Trade and other receivables 5,269 18,498 7,238
Cash and cash equivalents 3,321 27,802 20,984
8,590 46,300 28,222
Financial assets
Investments at fair value 2,725 3,688 3,061
through profit or loss
Loans and advances receivable 2 222 121
2,727 50,210 31,404
Total assets 11,458 140,033 52,231
Equity and liabilities
Equity
Issued share capital 9 769 688 692
Shares to be issued - 9,250 1,901
Share premium 82,015 96,959 99,955
Revenue reserve (56,801) 32,373 (45,497)
Merger reserve (22,951) (22,951) (22,951)
Other reserves 989 344 581
FX reserve (1) - (807)
4,020 116,664 33,874
Current liabilities
Trade and other payables 5,151 19,341 15,876
Taxation payable 2,287 4,028 2,481
Total current liabilities 7,438 23,369 18,357
Total equity and liabilities 11,458 140,033 52,231
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
for the period ended 30 June 2008 (unaudited)
Share Shares to be issued Share premium Revenue reserve Other Merger Foreign currency
Total
Capit reserv reserves translation reserve
al es EUR'000
EUR'000 EUR'000 EUR'000
EUR'000
EUR' EUR'
EUR'000
000 000
As at 31 December 2007 695 1,901 99,955 (55,577) 581 (22,951) (807)
23,794
Profit for the year - - - 3,032 - - -
3,032
Issue of 4,184,626 shares to 42 - 1,647 - - - -
1,689
vendors of Argo (EUR0.01 each
at EUR0.404)
Issue of 3,500,000 shares to 35 (1,901) 1,866 - - - -
-
vendors of TCA (EUR0.01 each
at EUR0.802)
Discontinued operations - (21,453) (4,256) - - -
(25,709)
Share-based payments - - - - 409 - -
409
Cumulative exchange - - - - - - 806
806
differences translation of
foreign operations
As at 30 June 2008 769 0 82,015 (56,801) 989 (22,951) (1)
4,020
Other reserves' includes reserves in respect of share-based payments made to employees of the Group and others providing similar
services.
The revenue reserve represents the cumulative income statement result for ACMH.
The movement in the share premium account represents the carrying value of the Argo businesses assets distributed as part of the
demerger.
The movement on the revenue reserve represents the income statement result attributed to the Argo businesses for the five and half
months to 13 June 2008, demerger date.
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
for the period ended 30 June 2008 (unaudited)
Half year to Half year to Year to
30.06.2008 30.06.2007 31.12.2007
EUR'000 EUR'000 EUR'000
Net cash inflows from operating (4,452) 31,161 43,405
activities
Cash flows from investing
activities
Interest income received 165 473 772
Purchase of subsidiaries - (11,490) (8,362)
Purchase of property, plant and 144 - (9,593)
equipment
Disposal of property, plant and - - 146
equipments
Repayment of loans - 3,085 -
Financial investments (6,190) (124) (182)
Taxation paid - (118) -
Net cash inflow / (outflow) (5,881) (8,173) (17,219)
from investing activities
Cash flows from financing
activities
Issue of share capital - 1,515 1,515
Dividends paid - (29,907) (38,967)
Net cash (outflow) from - (28,392) (37,452)
financing activities
Net (decrease)/increase in cash (10,333) (5,404) (11,266)
and cash equivalents
Cash and cash equivalents as 20,984 33,206 33,206
beginning of year
Net cash outflow on (6,909)
discontinued operations
Exchange (losses)/gains on cash (421) (956)
and cash equivalents
Cash and cash equivalents as at 3,321 27,802 20,984
end of year
NOTES TO THE FINANCIAL STATEMENTS
for the period ended 30 June 2008
1. CORPORATE INFORMATION
The company is incorporated as an exempt company with limited liability in the Cayman Islands. The company is domiciled in
the Cayman Islands. Its principal activity is that of provision of investment management and advisory services to mutual
funds.
The functional currency of Group undertakings is Euros. The Group has 23 employees (2007: 80 employees).
Group subsidiaries Country of incorporation
Absolute Capital Management (UK) Limited United Kingdom
Absolute Capital Management Holding Switzerland AG Switzerland
Absolute Capital Management (Spain) S.L. Spain
ACM Equity Limited Cayman Islands
ACM Advisory AG Switzerland
Absolute General Partner Limited Cayman Islands
TCA Group Cayman Islands
2. BASIS OF PREPARATION
The condensed financial statements have been prepared in accordance with the International Accounting Standards (IAS 34),
Interim Financial Reporting.
The interim results for the six-month periods ended 30 June 2008 and 30 June 2007 are unaudited. Results for the year ended
31
December 2007 are audited.
The accounting policies are consistent with those followed in the preparation of the Group's annual financial statements for
the
year ended 31 December 2007.
Subsidiaries are consolidated from the date that control was transferred into the Group and cease to be consolidated from the
date
that control is transferred from the Group.
It is possible the Group may not have adequate resources to defend and/or settle any successful claims that may arise from
the
former management's fund investment strategies. The financial statements have been prepared on the assumption that the Group
continues to be a going concern.
3. SEGMENTAL ANALYSIS
The Group operates as a single asset management business, and the directors do not consider the different sources of revenue
and
geographic regions within the business as separate business segments within the meaning of IAS 14 Segment Reporting.
4. SHARE-BASED PAYMENTS
There were 2.5 million options to acquire ordinary shares outstanding at the end of the period. The fair value of options
granted is
recognised as an expense with a corresponding increase in equity. The fair value is calculated at grant date using an options
pricing model with this cost then being recognised over the option period. A non-cash charge of EUR 0.3m (2006: EUR 0.3m) has
been
recognised in the six-month period ending 30 June 2008.
5. TAXATION
The Company is registered as an exempt company in the Cayman Islands and consequently no tax is payable in the Cayman
Islands. Taxation of up to 6.4% will be levied on Company profits of the branch office in the Swiss Canton of Zug. Taxation
rates
applicable to the Singaporean, Cypriot, Spanish and UK subsidiaries range from 0% to 30%.
6. (LOSS)/EARNINGS PER SHARE
(Loss)/earnings per share is calculated by dividing the net (loss)/profit for the year by the weighted average number of
shares
outstanding during the year.
Number of shares Number of shares Number of shares
30.06.2008 30.06.2007 31.12.2007
'000 '000 '000
Weighted average of ordinary 76,932 64,940 67,102
shares for basic earnings per
share
Effect of dilution: share - 4,120 1,020
options
Effect of dilution: shares to - - 3,500
be issued
Weighted average number of 76,932 96,060 71,662
ordinary shares for diluted
earnings per share
7. BUSINESS COMBINATIONS
Discontinued Operations - Argo Businesses
As a result of a shareholder vote at an EGM on 13 June 2008, the Group effected the distribution of the Argo businesses to
shareholders, to be managed and owned as an independent entity under Argo Group Limited, a new entity formed during the
period.
The assets that were distributed to shareholders represented 100% of the share capital of the following entities, known
collectively as "the Argo Businesses":
Argo Capital Management (Asia) Pte. Limited
Argo Capital Management Limited
Argo Capital Management (Cyprus) Limited
Argo Capital Management Property Limited
North Asset Management SARL (Luxembourg)
North Asset Management SARL (Romania)
Argo Group Limited
Argo Investor Services Limited
At the date of this report and in the opinion of the Directors, the carrying value of the Argo businesses assets distributed
are
detailed below:
Demerger of Argo Group Total
EUR'000
Carrying value of net assets discontinued At 13.6.2008
Current assets
Cash and cash equivalents 6,909
Investments 6,190
Trade and other receivables 7,027
Non-current assets
Property, plant and machinery 234
Intangible assets 2,515
Loans and advances receivable 258
Current liabilities
Trade and other payables 4,320
Taxation payable 250
Net assets 18,564
Intangible assets 7,145
Carrying Value 25,709
Distribution 25,709
25,709
Net cash outflow on disposal
Consideration received in cash and cash equivalents 0
Less: cash and cash equivalent balanced disposed of 6,909
6,909
8. ANALYSIS OF PROFIT FROM DISCONTINUED OPERATIONS
The Combined results of the discontinued operations (the Argo businesses) included the income statement set out below.
Period ended 13.06.08
EUR*000
Management fees 8,504
Other income 121
Revenue 10,868
Legal and professional expenses (102)
Management and incentive fees payable (79)
Operational expenses (1,003)
Employee costs (5,530)
Foreign exchange gain/ (loss) 41
Depreciation (30)
Operating profit excluding exceptional items 4,166
Operating profit 4,166
Financial revenue 111
Profit on ordinary activities before taxation 4,277
Taxation (21)
Profit for the period after taxation attributable to 4,256
members of the company
9. SHARE CAPITAL
30.06.2008 30.06.2007 31.12.2007
Authorised
Ordinary shares of EUR0.01 each 500,000,000 500,000,0000 500,000,000
Issued and fully paid
Opening balance 69,246,994 54,125,000 54,125,000
Issued during the period 7,684,626 14,737,500 15,121,994
Closing ordinary shares of 76,931,620 68,625,000 69,246,994
EUR0.01 each
During the period, the company issued 7,684,626 fully paid ordinary shares of EUR 0.01 each.
10. DIVIDEND
The Directors have not proposed a dividend for the period.
11. POSSIBLE AND ACTUAL CLAIMS RELATING TO FORMER MANAGEMENT'S FUND
INVESTMENT STRATEGIES
In November 2007, Berwin Leighton Paisner ("BLP") was instructed by the Company to undertake a review of the activity
relating
to illiquid investments by funds managed by ACMH during the period when investment strategy was under the control of
Florian
Homm (the former chief investment officer of ACMH). BLP have instructed PricewaterhouseCoopers ("PwC") to assist them by
carrying out a forensic investigation. As at the date of this report, BLP's investigation is not yet complete.
Dependent on the conclusions of such reviews and the resultant reports, it is possible that adversely affected parties may
consider and/or commence litigation against the Company, or that the Company may commence litigation against third parties.
It
is not possible to quantify the possible claims which may arise against the Company and these financial statements have
been
prepared on the assumption that no such claims other than those described below will arise.
On 3 July 2008 the Company announced that it had received reports that a lawsuit naming it, its subsidiary Absolute General
Partner Limited and certain former executives had been filed in the United States District Court for the District of
Colorado by the
Cascade Fund, LLLP on behalf of itself and other similarly situated persons. The Company accepted service of the lawsuit on
13
August 2008. The Cascade Fund, LLLP is an investor in the Absolute Return Europe Fund Limited and the Absolute East West
Fund Limited. The lawsuit alleges that the Company's equity funds' offering memoranda contained misrepresentations
concerning
their investment restrictions, investment objectives and policies, that the Company's equity funds' net asset values were
misrepresented, and that the Company's former Chief Investment Officer Florian Homm was party to a fraudulent scheme
involving the equity funds' purchase of penny stocks promoted by Todd Ficeto and Hunter World Markets, Inc. in which Homm
held a secret 50% ownership interest, among other allegations. The Cascade Fund, LLLP claims compensatory damages of an
unspecified amount on its own behalf and on behalf of other members of the class for all damages sustained as a result of
the
allegations together with costs, from the Company. No provision has been made for this claim as the Company. Whilst
intending
to defend its interests opposite the Cascade's claim, the Company is reviewing broader recovery strategies for fund
investors
concerning such matters.
12. GOING CONCERN
In the event that significant legal claims against the Company arise as result of the matters referred to in Note 11 above
or related
matters, the Company may not have adequate resources to defend these claims or settle any successful claims which may arise.
In
such circumstances, the company would cease to be a going concern. Consistent with the assumptions in Note 11 that
no further claims will arise, the financial statements have been prepared on the assumption that the company continues to be
a
going concern.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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