TIDMCRV
RNS Number : 9374I
Craven House Capital PLC
29 November 2018
Craven House Capital plc
("Craven House" or the "Company")
Annual Results for year ended 31 May 2018
CRAVEN HOUSE CAPITAL PLC
CHAIRMAN'S STATEMENT
FOR THE YEARED 31 MAY 2018
Dear Shareholder
I am pleased to provide an introduction to the annual report and
financial statements for Craven House Capital Plc for the year ending
31 May 2018.
From a transactional perspective there was limited activity during
the year, which is reflected in the marginal change in NAV during
the period from $25.3m at May 2017 to $24.9m at May 2018. However
the year to May 2018 was a very active period for the Company as
it embarked on the migration of holdings to publicly listed companies
and expansion into North America. Further details of this activity
are outlined in the Investment Manager's report below.
After the end of the reporting period, we announced plans to authorise
the directors to buy-back and cancel up to $5,000,000 of the Company's
common shares. This action is progressing and is now subject of
the required court application. We look forward to updating shareholders
with our progress in the coming weeks. In addition, we intend to
formally evaluate the value and benefit to the Company and our shareholders
of maintaining our listing on the AIM. The rationale for this analysis
is outlined further in the Investment Managers report below.
Finally, I would like to take this opportunity to thank Mr. Richard
Burrows, who stepped down from the board in October following completion
of his two-year term. His guidance and experience were a great benefit
to the Company and his fellow board members.
Mark Pajak
Acting Chairman
CRAVEN HOUSE CAPITAL PLC
INVESTMENT MANAGER'S REPORT
FOR THE YEARED 31 MAY 2018
Statement by the Investment Manager
For the year ending 31 May 2018, Craven House Capital Plc
(referred to as the "Company" or "Craven") reported an increase in
the gross asset value of its holdings from $26.5m to $28.1m, with
decreases in the values of our holdings in Craven House Angola Lda
and Kwikbuild Corporation more than offset by the increase in the
valuation of Qeton Ltd and the valuation of shares in DLC Holdings
Corp following the transfer of Craven's holdings in Ceniako Ltd and
Craven House Industries Ltd. Overall there was a marginal decrease
in NAV during the period from $25.3m at May 2017 to $24.9m; the
result of a net increase in amounts owed by the Company to its
subsidiaries as funds have been passed to the parent for
redeployment (further detailed in note 15 below). Non-related party
creditors increased only slightly during the year from $1.1m to
$1.2m as of May 2018, $800,000 of which (as previously announced)
is in the form of a convertible loan with GEM Investments America
not due until 2022. On a per share basis this equated to a 1.6%
decrease in NAV from $10.11 per share to $9.95 per share.
2018 was the first full year of operations after our
comprehensive restructuring in the year to May 2017. It also marked
the first year of expansion into North America. Additionally 2018
represented the first year in which we embarked on our previously
announced strategy to migrate our holdings in private companies
into holdings in companies listed on a recognised exchange.
All of our investments are held through our 100% owned Irish
subsidiary Craven Industrial Holdings Plc. As was the case in
previous years, investments are held at fair value in accordance
with the IPEVC guidelines. Details of valuation methodologies are
provided in the notes to the accounts. A summary of the Company's
investments is as follows with further information provided in
notes 8 and 14 below;
Investment Value at 31 May Value at 31 May
2018 2017
Shares in Craven Industrial Holdings
Plc $26,993,468 $26,402,875
Comprising:
Shares in DLC Holdings Corp. $11,083,190 -
Shares in Qeton Ltd $1,787,286 $576,079
Shares in Craven House Angola LDA $8,733,274 $9,247,975
Shares in Craven House Capital $2,677,994 -
North America LLC
Shares in Kwikbuild Corporation
Ltd $2,711,724 $4,775,418
Shares in Ceniako Ltd - $3,937,840
Shares in Craven House Industries
Ltd - $5,365,563
Loans made by Craven Industrial
Holdings Plc - $2,500,000
DLC Holdings Corp is a Toronto Stock Exchange listed agricultural
investment company. At present its assets are comprised of a macadamia
processing facility in South Africa and a portfolio of agricultural
ocean front land in Brazil. Management are actively analysing further
investment opportunities in both developed and emerging markets
with a stated desire to diversify across commodities, weather systems
and political jurisdictions. Craven, through its subsidiary holdings,
remains the controlling shareholder in DLC Holdings Corp. We believe
that a listed security whose assets are comprised of unencumbered
freehold land will serve as an excellent inflation hedge and store
of value over the coming years. This is a long term holding for
the Company which we expect will appreciate in value even in times
of financial and political crisis. Shares in DLC Holdings Corp are
valued on a mark-to-market basis. As of 31 May 2018 shares in DLC
were trading at CAD$0.25 per share. As of the date of this report
the shares were trading at CAD$0.15 per share.
CRAVEN HOUSE CAPITAL PLC
INVESTMENT MANAGER'S REPORT - continued
FOR THE YEARED 31 MAY 2018
Qeton Ltd is a joint venture company focusing on the distribution
of mobile phones, tablet computers and accessories into emerging
markets. As of 31 May 2018, this entity had a cash plus receivables
balance of over EUR1,500,000 and had recorded a profit of EUR612,753
in the prior twelve months. As long as the target markets where
Qeton imports its products remain capital constrained this will
prove a lucrative trading opportunity.
Craven House Angola continued to provide local currency financing
to local subsidiaries of US and European companies in the consumer
electronic and energy sectors. Angola remains a challenging operating
environment with strict capital controls which constrain commerce.
Our partners in Angola continue to operate successfully despite
the exogenous forces which have debilitated many of their competitors.
The banking system and access to foreign currency is entirely dependent
on the sale of petroleum for export. Our ability to place loans
under attractive terms is inextricably linked to the shortages of
hard currency. These shortages are the result of falling oil prices
and ill-timed borrowings by the Angolan government to be repaid
to their Chinese creditors in barrels of oil. If the price of oil
increases and the Angolan current account recovers our financing
may no longer be needed. It is our belief that this is likely within
the next twenty-four months and will also coincide with the lifting
of capital controls. If this were to happen we will likely repatriate
our funds in Angola and seek opportunities elsewhere.
Kwikbuild Corporation Ltd saw a reduction in its fair value during
the year. The majority of this reduction resulted from payments
received from a non-performing loan portfolio (as previously announced),
the proceeds of which were passed up to the parent company for redistribution.
Craven House Capital North America is a newly formed subsidiary
which will hold our North American investments. As of the end of
May 2018 its principal investment was in the shares of IIU Inc.
IIU is engaged in the provision of short-term international medical
insurance. We believe the market for medical insurance internationally
is growing and the company is in a position to expand its sales
and marketing efforts into new markets. Craven House believes its
experience in multiple emerging markets will aid the company in
its expansion efforts. Craven House Capital North America is also
actively exploring other opportunities in listed securities and
real estate.
Outlook
We remain engaged in the search for value investments. For the past
several years the search was met by what can only be described as
an equal measure of exasperation and frustration. Investors unfamiliar
with our gloomy view of the investment landscape are well served
to read the investment managers reports from the last four years
in which we outline our inability to comprehend emerging or developed
market valuations in both the private and public markets. In the
last year's report we wrote the following;
"We believe this is the most difficult environment to find value
in the public and private equity and credit markets we have ever
experienced. Asset valuations are at almost incomprehensible levels
while, in our view, global political risk and systemic financial
risk is at at-least a fifty year high. Neither the possibility of
a major market correction nor a destabilising political event is
priced into any market. We believe the current situation is best
characterised as "The Everything Bubble".... We are long-term deep
value investors.... This strategy requires both the willingness
to walk away from most investment opportunities and patience once
capital is deployed. Most importantly, it requires the discipline
to abstain from a market when we cannot understand or justify prevailing
valuations."
Since we penned the above there has been a reluctant and modest
market realisation that perhaps the liquidity driven rise in asset
prices is unsustainable. Argentina's 7.5% century bond we discussed
last year may well prove to be the high water mark for financial
folly. We continue to plan for falling markets. We believe we have
reached an inflection point. Where in the recent past the markets
rise seemed impervious to bad news or geopolitical uncertainty,
we suspect the near future will see markets react violently to anything
less than an ideal economic or political situation. We expect global
investment performance to be driven more by capital flows out of
risk assets than by economic fundamentals. Naturally, we could be
wrong but we are preparing for opportunities created by wild swings
in asset prices as algorithms trigger large scale liquidations which
in turn drive investors towards the perceived safety of liquid sovereign
debt.
As mentioned last year, we are starting to see pockets of value
in corners of the market such as US and UK microcap companies. Companies
with market capitalisations of less than $50 million have been ignored
or CRAVEN HOUSE CAPITAL PLC
INVESTMENT MANAGER'S REPORT - continued
FOR THE YEARED 31 MAY 2018
abandoned by investors. Some have been passed over for good reason
but others have fallen through the cracks caused by the move to
indexation, passive investing and the liquidity driven algorithms
that comprise much of the modern day trading volume. We believe
an activist approach in small companies with very low amounts of
management shareholding could prove lucrative over time.
The Big Picture: Politics and Demographics
As indicated above, we remain concerned that investors and capital
allocators seem content to ignore fundamental shifts in the economic
and geopolitical landscape. The majority of asset managers seem
to have succumbed to the availability heuristic when it comes to
putting funds to work. Like the commuter who regularly runs an early
morning stop sign and thinks it is safer because "there is never
anyone on this road" investors are eager to stick with what is working.
These investors seem not to have noticed that the political order
is changing significantly. Having spent a significant time over
the past year in the US this change seems more stark than when viewed
from the UK or Hong Kong. The popular press and social media seem
content to blame the current geopolitical situation on an outsized
personality driving an unpopular agenda from the White House. Our
sense, having travelled the nation in search of acquisitions, is
that the majority of Americans believe that the post World War II
order no longer benefits them. It is important to understand that
the Breton Woods economic system based on global trade was primarily
a national security policy from the American perspective. The US
government willingly subsidised the growth of allied nations through
trade and aid in order to maintain a Cold War state of equilibrium
and ensure access to essential energy resources. The US government
willingly agreed to fund the costs of trade through security agreements,
naval protection of trade lanes and trading regimes unfavourable
to the US. They did this to deter the communist nuclear threat.
We believe it is important to understand that Americans, both political
and civilian, never believed they benefited economically from the
trading regime of the past six decades. Americans viewed the trade
regime as a way of ensuring peace and prosperity by lifting those
potentially hostile to their interests, out of desperate poverty
and ensuring the flow of vital energy resources.
Outside of North America the consensus opinion has long been that
the US has always enjoyed throwing its weight around militarily,
politically and more recently through financial regulation. Since
the end of the Cold War it was seen as a vulgar and arrogant victory
lap. However, this attitude is changing rapidly. It is not just
the current White House that is re-thinking the benefits of a global
military presence; it is the nation at large. A war weary nation
is drifting rapidly towards a policy of isolationism. Most unusually
it is a view held across the political spectrum. With the US having
achieved energy independence it seems that the outrage of the G7
leaders is not aimed at a single head of state but rather a new
economic and political reality. The US citizenry no longer feels
it is in its interest to fund what they believe is the antiquated
Breton Woods era order. They are especially outraged at the continental
Europeans who many Americans feel are generally hostile ingrates
with short memories. As unpopular as George W. Bush and the Iraq
war has become, many Americans on the right and left are indignant
at how the French and the Germans failed to support the effort and
yet expect the US to fund NATO and provide trade incentives with
the EU that are last vestiges of the Marshall Plan.
There is much talk about the "trade war" with China. It is unpopular
internationally but that does not mean it is not effective. Quite
the opposite, it is easily survivable by the US but catastrophic
to the Chinese who are already struggling with slower growth and
rising internal indebtedness. Importantly our estimation is that
Americans from all walks of life except those who work in finance
and the media believe that China has taken advantage of America
either through the "China price" which bankrupted American industry
or through corporate espionage and intellectual property theft.
There is a groundswell of support for tough policies targeting China
even by those who find the current White House administration lacking
in almost every other way. We believe this will have lasting ramifications
well beyond the current political cycle. This will put further strain
on China's already shaky banking system. It will also result in
slower job growth as US corporations fearful of further tensions
between the countries relocate operations and choose subcontractors
within the NAFTA zone. Even if there is a "truce" in the US China
"trade war" this trend will not reverse anytime soon and the shift
will only intensify.
CRAVEN HOUSE CAPITAL PLC
INVESTMENT MANAGER'S REPORT - continued
FOR THE YEARED 31 MAY 2018
It is not only Europe and China that are rapidly realising the
significance of an American shift in policy. Emerging markets,
especially those who borrow in US dollars, are the first to feel
the pain when the Federal Reserve raises rates. Importantly, it is
the Breton Woods inspired global order that has allowed the growth
in emerging market economies. What is Russia, Angola or Nigeria
without global energy markets? Where is Brazil and Argentina
without international credit and global agricultural markets?
Emerging markets around the world have based their economic system
on the export of raw materials and the importation of the goods
demanded by a rising middle class. The system is currently on an
unstable foundation. America, through the less-than-subtle actions
of the current administration, has put the world on notice that the
current system is about to change. The United States is the only
region in the world that can provide for its energy and food needs
internally and within its immediate sphere (NAFTA) and can produce
enough goods and services to grow the economy. The US is the least
trade dependent major economy in the world. In 2017 only 8.2% of
GDP came from merchandise exports and a third of that was within
NAFTA. We do not believe this inward economic policy shift can be
discounted as the misguided tantrum of an individual who is
temporarily in power. We believe the expectation that international
trade and security relationships will revert to previous
arrangements as soon as the US electoral system rights itself, is
erroneous. From an economic and military security standpoint the US
is on the verge of having global reach yet no significant global
interests. This is a precarious situation for billions of people in
the parts of the world that are entirely dependent on global
security and trade previously guaranteed by the US at no cost.
Investors must take this into account.
As the old adage goes, demographics are destiny. Our analysis of
the demographic data reveals that the US is not only the preeminent
provider of global capital but also the preeminent global consumer.
This is largely because of two large generations at the top and the
bottom of the demographic chart. The baby boomers provide the
capital while the millennials provide the consumer appetite. This
is in stark contrast to the rest of the developed world where the
millennial generation is nowhere near large enough to sustain a
domestic consumption based economy.
Continental Europe and China have a significant demographic
handicap. An older population consumes less thereby creating a
greater need to find export markets for domestic manufacturers.
Robotics can eliminate the stresses of a shrinking workforce but
robots don't buy what they produce. Europe and China have a top-
heavy demographic inverted pyramid combined with export driven
economies and heavily protected domestic markets. The lack of
productive earners in comparison from ageing recipients of
entitlements is exacerbated by increased spending requirements on
security. Europe is dependent on both the security pledges and
market access provided by the US. They cannot afford to shore up
their periphery banks and pay for their own defence. China is an
export driven economy which needs the US market for their
manufactured goods and the foreign capital generated by export
sales. Without either, the Chinese economic and social stability is
under threat. Clearly both Europe and China are right to be
concerned that the US is the only country which has the demographic
and economic capacity to absorb their exports exactly at the point
in time where Americans are less likely to support such
arrangements.
American Baby Boomers financed the last two booms chasing that
magical few percentage points needed to retire in comfort. This
large capital rich demographic has created an unprecedented
investment pool which has been hampered by its own success. The
sheer size of these funds combined with abnormally low rates has
pushed these near retirees further and further out on the risk
curve. Petrified by the losses in '08 and '09 but emboldened by a
belief that central bankers had their backs they chased the returns
across the globe. Unable to match inflation with bank deposits and
government bonds, the boomers and the institutions that manage
their pensions pushed up asset prices across the globe. The
velocity of capital increased as cheap money and a fast approaching
retirement age incentivised the boomers to invest while they still
had earning power. However, by 2022 the majority of boomers will be
in retirement. The home bias and risk aversion will set in
naturally as well as the statutory requirements which force the
liquidation of tax advantaged retirement accounts. This will pull
an extraordinary amount of funds from the capital markets.
CRAVEN HOUSE CAPITAL PLC
INVESTMENT MANAGER'S REPORT - continued
FOR THE YEARED 31 MAY 2018
The dichotomy of an inward focused, self-sufficient US economy
and the soon to be withdrawn investment capital of the baby boomers
presents a very interesting investment opportunity. As mentioned
previously, equity markets in the developed world have moved away
from traditional analysis of individual companies. Capital is
directed either to passive index funds which are designed to
provide the investor with the average return of a particular
grouping or increasingly to algorithmic trading strategies that
base purchases and sales of securities primarily on price action
rather than the underlying performance of a company. We believe
that a great deal of the stock market performance over the past
decade has been driven by fund flows rather than economic or
operational performance. Many small companies are all but
un-investible if they are not represented in an index or lack the
trading volume to attract the algorithms. This will only increase
as the demographics outlined above force capital from equities into
liquid safe havens.
We believe demographic and political shifts will provide
exciting opportunities in North America where a sustainable economy
combined with withdrawal of capital from the equity markets will
offer great value for activist investors interested in taking
influential board level stakes in small profitable companies. We
also believe there will be an opportunity to purchase private
companies at compelling valuations from the retiring baby boomers
who have no natural exit. We believe that a strategy of buying both
public and private companies in North America over the next decade
will provide exceptional returns on capital.
If the change in the traditional trade and security alliances
plays out as we expect, emerging markets will once again be priced
at the appropriate discount to justify the inherent risks involved.
A capital exodus is likely already underway and many of those who
rushed into unfamiliar markets in search of a two hundred basis
point arbitrage opportunity may find themselves with an expensive
education in the effects of foreign capital flows. We are still on
the lookout for compelling opportunities in emerging markets and
believe several such as Mexico, Brazil, Poland and Argentina will
offer up bargains in the near future as foreign investors flee in
large numbers. When valuations are very low we will be buyers of
assets because these countries benefit from positive demographics
and self-sufficiency. For example Argentina, although struggling
with the aftermath of two decades of profligate socialist
government policy, exhibits many of the characteristics of the US.
It is food and energy self sufficient, has no military threat for
thousands of miles, has a young population and ample territory.
Argentina at the bottom of a cycle can be very compelling.
Share Buy Backs
Finally, as announced previously, the Company plans to begin a
program of repurchasing its shares for cancellation. The
prospective resulting capital reduction requires court approval
before any share buyback can be commenced and the matter will be
going through the requisite court procedure during December. At
prevailing prices Craven House shares trade at a steep discount to
their intrinsic value. It is a complicated and involved process to
first gain shareholder approval and then court approval to
repurchase shares and cancel them. This process is ongoing and we
are confident this will happen in due course. Buying back shares
will create long term value for those shareholders who share our
vision and have the patience to wait for opportunities to unfold.
We believe that as existing investments are realised a portion of
the proceeds can be utilised for further external investment and a
portion will be used to retire shares as long as Craven House
shares continue to trade at a discount. We, as the asset manager,
will not be selling any shares and will likely be acquiring more
shares in the market when it is permissible under the rules of the
exchange. We continue to believe in the ability of the Company to
achieve above average long-term returns.
The Value of an AIM Quote
Each year in this letter we actively caution prospective
shareholders and existing shareholders not to purchase Craven House
shares if they expect price appreciation or need liquidity in the
near or medium term. Clearly our strategy, while increasing the
value of the Company, does not resonate with other market
participants. Maintaining an AIM quotation is costly and at times
the restrictions of the AIM rules have prevented the consummation
of what we believe were attractive investments. In particular the
cost prohibitive fees associated with a reverse takeover have
hampered the growth of the Company. As defined by the AIM, a
reverse takeover is in effect the same as a new listing requiring
an admission document and all the associated legal fees of an IPO.
Given that one of the Class Tests states that any transaction
larger than 100% of the market capitalisation constitutes a reverse
takeover, this has hampered our ability to transact using our
shares as acquisition capital. With Craven House shares trading at
such a significant discount, we have been forced to abandon
transactions and missed opportunities to create shareholder
value.
CRAVEN HOUSE CAPITAL PLC
INVESTMENT MANAGER'S REPORT - continued
FOR THE YEARED 31 MAY 2018
This combined with a general lack of market interest in what we
do has called into question the value of remaining an AIM quoted
company. Most of our larger shareholders are not concerned with the
market price of the shares. They share our long term view that the
price is not indicative of the value of the Company. The price of
our shares often swings up or down more than twenty percent on a
trade as little as a few hundred or thousands of dollars. Foreign
investors complain regularly that they cannot purchase AIM shares
through their brokers. Annual costs to remain a listed company are
at least $200,000, which may be better utilised as investment
capital. We have previously been able to raise capital at a premium
to the prevailing share price and use our shares as acquisition
currency. This is no longer the case. In liaison with the board we
therefore intend to formally evaluate the question of remaining an
AIM quoted company. Any future decision on maintaining the AIM
listing will be put to a shareholder vote in due course. Desmond
Holdings will abstain from any future voting on the matter and will
continue with whatever shareholders believe is the best way
forward. Our intention is to hold our shares in Craven House
indefinitely regardless of its status as a quoted company. In many
ways relinquishing the quote would allow for a more dynamic company
and the ability to share more with our shareholders without the
restrictions associated with an AIM listing. We do, however,
realise there are a number of smaller shareholders and the
quotation may be important part of their investment requirements.
As such we will defer to
other shareholders which way they believe is best for the
Company.
Desmond Holdings Ltd
Investment Manager to Craven House Capital Plc
CRAVEN HOUSE CAPITAL PLC
STRATEGIC REPORT
FOR THE YEARED 31 MAY 2018
The directors present the Strategic Report of Craven House
Capital plc for the year ended 31 May 2018.
Principal activity
The Company's Investing Policy is to invest in or acquire a
portfolio of companies, partnerships, joint ventures, businesses or
other assets globally in any geographic jurisdiction. The Company
will invest in both developed and developing markets and may from
time to time invest in special situations including distressed
equity and debt. The investments or acquisitions may be funded
wholly by cash, the issue of new shares or debt, or a mix thereof,
as the Board deems appropriate. The Company's equity interest in a
proposed investment may range from a minority position to 100%
ownership; the proposed investments may be either quoted or
unquoted, although will likely be unquoted in the majority of
cases. It is anticipated that the investments will be held for the
medium-to-long term but the Board will place no minimum or maximum
limit on the length of time that any investment may be held. The
Company intends to deliver Shareholder returns through capital
growth with a medium term objective of implementing a dividend
policy.
Key performance indicators considered by the Company
The Company focuses on the key performance areas as outlined in
its Investing Policy and concentrates on the Net Asset Value of
investments, calculated on a per share basis. The Company's
Investment Manager, Desmond Holdings Ltd, submits regular
management reports to the Board of Directors, which includes a
calculation of the Company's Net Asset Value. During the year NAV
per share decreased by 1.6% from $10.11 per share in May 2017 to
$9.95 per share in May 2018. The slight decrease in NAV per share
was the result of increases in gross assets being offset by
increases in payables and long-term creditors.
Review of the Business in the year
A comprehensive review of the Company's performance and business
activities is included in the Investment Manager's Report above.
Craven House continued to seek to acquire businesses in emerging
and developed markets utilising its AIM quoted shares as
acquisition currency. We also continue to target businesses with
distressed shareholders in need of rapid liquidity. In April 2018,
the Company successfully completed the transfer of its
shareholdings in Ceniako Ltd and Craven House Industries Ltd to DLC
Holdings Corp, a company listed on the Toronto Stock Exchange.
Craven House also incorporated a new subsidiary, Craven House
Capital North America LLC, to act as a holding company for the
anticipated increased level of investment activity in North
America. The Company also successfully completed the acquisition of
a profitable insurance broker in May 2018. The status of the
underlying investments of Craven Industrial Holdings Plc are
disclosed in further detail in note 8 and note 14 below.
Position of the Company's business at the end of the year
The Company's NAV decreased slightly from $25.3 million to $24.9
million during the year. Total liabilities relative to assets
remain low; creditors external to the Company totaled $1.6m at the
year end, $800,000 of which is in the form of a convertible loan
not due until 2022. The Company maintains minimal cash reserves as
excess cash is deployed for investment at the subsidiary level.
Sufficient cash is available to the Company from its subsidiaries
to ensure it is able to meets its liabilities as they fall due. The
Company has no employees; the majority of overhead expenditure
relates to regulatory, accounting and audit costs.
Principal risks and uncertainties facing the business
The principal risks to the business continue to be the inherent
instability in some of the markets in which we operate. Our
strategy is directly exposed to swings in currencies, political and
economic instability. Our continued focus on emerging markets and
distressed sellers in developed markets expose the Company to these
type of risks. These are risks that the Company actively seek as
they provide the opportunity to acquire assets at a discount to
their intrinsic value utilising our share capital at a premium to
market prices.
Corporate governance
The directors place a high degree of importance on ensuring that
high standards of Corporate Governance are maintained and have
therefore chosen to apply the framework as provided by the Quoted
Companies Alliance Corporate Governance Code (2018) (the 'QCA
Code'). Further details are available on the Company's website.
Mr M J Pajak - Director of behalf of the Board Date
CRAVEN HOUSE CAPITAL PLC
REPORT OF THE DIRECTORS
FOR THE YEARED 31 MAY 2018
The directors present their annual report with the audited
financial statements of the Company for the year ended 31 May
2018.
DIVIDS
No dividends have been distributed during the year ended 31 May
2018. A fair review of the business and disclosure of the Company's
activities and principal risks and uncertainties are included in
the Investment Manager's Report and the Strategic Report.
EVENTS SINCE THE OF THE YEAR
Information relating to events since the end of the year is
given in the note 16 to the financial statements.
DIRECTORS
The directors who held office during the year were;
Mr R Burrows (resigned October 2018)
Mr M J Pajak
Mr B S Bindra
Mr C P Morrison
Directors' remuneration and details of service contracts are
given in note 3 to the financial statements.
POLITICAL AND CHARITABLE CONTRIBUTIONS
No charitable or political donations were made during the
year.
FINANCIAL RISK MANAGEMENT POLICIES
Information on the use of financial instruments by the Company
and its management of financial risk is disclosed in note 14 to the
financial statements.
FUTURE DEVELOPMENTS
In the coming year the Company will continue to execute its
ongoing investment strategy by seeking transformative acquisition
targets. Details of post year end transactions are disclosed in
note 16.
SIGNIFICANT SHAREHOLDERS
Shareholders with holdings of more than 3% of the Company as of
the date of this report are as follows;
Vidacos Nominees Ltd - 12.6%
Chase Nominees Ltd - 12.3%
WB Nominees Ltd - 12.3%
Mr. Martin Brink - 9.6%
Desmond Holdings Ltd - 9.4%*
Xenod Tour Oikod Epeix Afon - 8.2%
Ferlim Nominees 3.6%
Platform Securities Ltd - 3.2%
HSBC Client Holdings Nominee (UK) - 3.2%
*Connected to Mark Pajak, Non-Executive Director and Acting
Chairman
DIRECTOR SHAREHOLDINGS
Shareholdings in the Company by directors as of the date of this
report are as follows;
Mr B S Bindra - 9,536 ordinary shares of $1.00
Mr C P Morrison - 2,452 ordinary shares of $1.00
CRAVEN HOUSE CAPITAL PLC
REPORT OF THE DIRECTORS - continued
FOR THE YEARED 31 MAY 2018
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors are responsible for preparing the Strategic
Report, the Report of the Directors and the financial statements in
accordance with applicable law and regulations.
Company law requires the directors to prepare financial
statements for each financial year. Under that law the directors
have elected to prepare the financial statements in accordance with
International Financial Reporting Standards (IFRSs) as adopted by
the European Union and applicable law. Under company law the
directors must not approve the financial statements unless they are
satisfied that they give a true and fair view of the state of
affairs of the Company, and of the profit or loss for that period.
In preparing these financial statements, the directors are required
to:
- select suitable accounting policies and then apply them consistently;
- make judgements and accounting 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.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the financial statements comply with the Companies Act 2006. 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 are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation in the United Kingdom governing the
preparation and dissemination of the accounts and the other
information included in annual reports may differ from legislation
in other jurisdictions.
STATEMENT AS TO DISCLOSURE OF INFORMATION TO AUDITORS
So far as the directors are aware, there is no relevant audit
information (as defined by Section 418 of the Companies Act 2006)
of which the Company's auditors are unaware, and each director has
taken all the steps that he or she ought to have taken as a
director in order to make himself or herself aware of any relevant
audit information and to establish that the Company's auditors are
aware of that information.
AUDITOR
The auditor, Grant Thornton, resigned during the year and RBK
Business Advisers, Chartered Accountants & Statutory Audit Firm
("RBK") were appointed. RBK will be proposed for re-appointment in
accordance with Section 489 of the Companies Act 2006 at the
forthcoming Annual General Meeting.
Mr M J Pajak - Director of behalf of the Board Date
INDEPENT AUDITOR'S REPORT TO THE MEMBERS OF
CRAVEN HOUSE CAPITAL PLC
Opinion
We have audited the financial statements of Craven House Capital
plc (the 'company') for the year ended 31 May 2018 which comprise
the statement of comprehensive income, the statement of financial
position, the statement of changes in equity, the statement of
cash flows and notes to the financial statements, 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 (IFRSs) as adopted
by the European Union.
In our opinion, the financial statements:
* give a true and fair view of the state of the
company's affairs as at 31 May 2018 and of its loss
for the year then ended;
* have been properly prepared in accordance with IFRSs
as adopted by the European Union; and
* have been prepared in accordance with the
requirements of the Companies Act 2006.
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.
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
SME 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 going concern
We have nothing to report in respect of the following matters in
relation to which the ISAs (UK) require us to report to you where:
* the directors' use of the going concern basis of
accounting in the preparation of the financial
statements is not appropriate; or
* the directors have not disclosed in the financial
statements any identified material uncertainties that
may cast significant doubt about the company's
ability to continue to adopt the going concern basis
of accounting for a period of at least twelve months
from the date when the financial statements are
authorised for issue.
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) we
identified, including 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 forming our opinion thereon, and we do not provide
a separate opinion on these matters.
Key audit Description How the scope of our
matters of risk audit addressed the
risk
Investment The Our audit work included
valuation company's but was not restricted
For the assessment to:
financial year of the
ended 31 May valuation * We reviewed the high level controls in operation in
2018, of relation to investment valuations;
investments investments
measured measured
at fair value at fair
amounted value
to $26,993,468 requires
which significant
represents 95% judgement.
of total
assets.
------------ ----------------------------------------------------------
INDEPENT AUDITOR'S REPORT TO THE MEMBERS OF
CRAVEN HOUSE CAPITAL PLC - continued
Key audit Description How the scope of our
matters of risk audit addressed the
risk
Investment
valuation
(continued) * We considered if the company's valuation policy is in
There is a line with The International Private Equity and
The risk that Venture Capital Valuation (IPEV) guidelines and IFRS;
valuation the
of application
investments of an
is inappropriate * We reviewed and assessed the reasonableness of the
considered valuation assumptions applied in the investment managers'
a key methodology valuation memo for the financial year ended 31 May
audit and/or the 2018;
matter as use of
investments inappropriate
represent assumptions
significant could result * For investments valued on a net assets basis, we
balances on in the reviewed the relevant financial statements and
the valuation of material assets and liabilities were selected for
statement investments substantive testing; and
of being
financial materially
position. misstated as
at 31 May * For listed investments, we obtained the share price
2018. from an independent third party and recalculated the
valuation as at 31 May 2018.
-------------- ----------------------------------------------------------------------
Investment Our audit work included
ownership but was not restricted
and to:
existence There is a
risk that * We reviewed the predecessor auditor's work papers to
The the company verify the opening balances;
ownership does not
and own the
existence rights to the
of investments * Shareholder registers were reviewed to confirm the
investments or that shares were held by the company;
are the
considered investments
a key audit do not
matter as exist at the * Shareholder and purchase agreements were reviewed to
investments year ended establish ownership;
represent 31 May 2018.
95% of
total
assets * Certificates of incorporation were reviewed for
on the investments acquired during the financial year; and
statement
of
financial
position. * Confirmations from independent third parties were
reviewed where relevant and available.
-------------- ----------------------------------------------------------------------
This is not a complete list of all risks identified by our audit.
INDEPENT AUDITOR'S REPORT TO THE MEMBERS OF
CRAVEN HOUSE CAPITAL PLC - continued
Our application of materiality
In planning and performing our audit we applied the concept of materiality.
An item is considered material if it could reasonably be expected
to change the economic decisions of a user of the financial statements.
We used the concept of materiality to both focus our testing and evaluate
the impact of misstatements identified.
Based on our professional judgement, we determined overall materiality
for the company's financial statements as a whole to be $269,900.
In determining this, we considered a range of benchmarks with specific
focus on the financial assets at the statement of financial position
date. This materiality level represents 1% of financial assets.
We report to the Audit Committee all identified unadjusted errors
in excess of $13,500 which is set at 5% of planning materiality. Errors
below that threshold would also be reported if, in our opinion as
auditor, disclosure was required on qualitative grounds.
An overview of the scope of our audit
Our audit was scoped by obtaining an understanding of the company
and its environment, including controls and assessing the risks of
material misstatements.
We carried out a full scope audit of the company's financial statements.
This included specific audit procedures where the extent of our audit
work was based on our assessment of the risks of material misstatement.
All audit work to respond to the risks of material misstatement were
performed directly by the audit engagement team. We set out the key
audit matters that had the greatest impact on our audit strategy and
scope within the key audit matters section below.
Other information
The other information comprises the information included in the Chairman's
Statement, the Investment Manager's Report, the Strategic Report and
the Report of the Directors. 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 our 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 this other information, we are required
to report that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the
audit:
* the information given in the Strategic Report and the
Report of the Directors for the financial year for
which the financial statements are prepared is
consistent with the financial statements; and
* the Strategic Report and the Report of the Directors
have been prepared in accordance with applicable
legal requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the company and
its environment obtained in the course of the audit, we have not identified
material misstatements in the Strategic Report or the Report of the
Directors.
We have nothing to report in respect of the following matters in relation
to which the Companies Act 2006 requires us to report to you if, in
our opinion:
* adequate accounting records have not been kept, or
returns adequate for our audit have not been received
from branches not visited by us; or
* the financial statements are not in agreement with
the accounting records and returns; or
* certain disclosures of directors' remuneration
specified by law are not made; or
* we have not received all the information and
explanations we require for our audit.
INDEPENT AUDITOR'S REPORT TO THE MEMBERS OF
CRAVEN HOUSE CAPITAL PLC - continued
Responsibilities of directors
As explained more fully in the Statement of Directors' Responsibilities
set out on page 11, 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 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.
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.
Use of our report
This report is made solely to the company's members, as a body, in
accordance with Chapter 3 of Part 16 of the Companies Act 2006. 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.
Brendan Mullally
Senior Statutory Auditor
for and on behalf of RBK Business Advisers
Chartered Accountants & Statutory Audit Firm
Boole House
Beech Hill Road
Clonskeagh
Dublin 4
D04 A563
Ireland
Date:
CRAVEN HOUSE CAPITAL PLC
INCOME STATEMENT
FOR THE YEARED 31 MAY 2018
2018 2017
$'000 $'000
CONTINUING OPERATIONS
Changes in fair value 590 3,354
Other operating income 3 -
Administrative expenses (988) (535)
OPERATING (LOSS)/PROFIT (395) 2,819
Finance costs 4 - (11)
Other gains 5 - 240
------------ --------
(LOSS)/PROFIT BEFORE INCOME
TAX 5 (395) 3,048
Income tax 6 - -
------------ --------
(LOSS)/PROFIT FOR THE YEAR (395) 3,048
============ ========
(Loss)/profit per share expressed
in cents per share:
Basic and diluted 7 (15.80) 135.98
The notes on pages 21 to 39 form part of the financial
statements.
CRAVEN HOUSE CAPITAL PLC
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 31 MAY 2018
2018 2017
$'000 $'000
(LOSS)/PROFIT FOR THE YEAR (395) 3,048
Items that will be reclassified
subsequently to profit or loss
Foreign exchange difference
arising on change in presentation
currency - 184
TOTAL COMPREHENSIVE INCOME
RECOGNISED (395) 3,232
============ ============
The notes on pages 21 to 39 form part of the financial
statements.
CRAVEN HOUSE CAPITAL PLC Company Number 05123368
STATEMENT OF FINANCIAL POSITION
AS AT 31 MAY 2018
2018 2017
Notes $'000 $'000
ASSETS
NON-CURRENT ASSETS
Investments at fair
value through
profit or loss 8 26,993 26,403
--------- ---------
26,993 26,403
--------- ---------
CURRENT ASSETS
Trade and other receivables 9 924 75
Cash and cash equivalents 10 213 11
--------- ---------
1,137 86
--------- ---------
TOTAL ASSETS 28,130 26,489
========= =========
EQUITY
SHAREHOLDERS' EQUITY
Called up share capital 11 12,594 12,594
Share premium 25,128 25,128
Accumulated deficit (12,857) (12,462)
--------- ---------
TOTAL EQUITY 24,865 25,260
--------- ---------
LIABILITIES
CURRENT LIABILITIES
Trade and other payables 12 2,465 1,229
NON-CURRENT LIABILITIES
Loans and borrowings 13 800 -
TOTAL LIABILITIES 3,265 1,229
--------- ---------
TOTAL EQUITY AND LIABILITIES 28,130 26,489
========= =========
Approved and authorised for issue by the Board on
......................2018 and signed on its behalf by:
.................................................................
Mr M J Pajak - Director
The notes on pages 21 to 39 form part of the financial
statements.
CRAVEN HOUSE CAPITAL PLC
STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31 MAY 2018
Called
up share Share Accumulated
capital premium Reserves deficit Total
$'000 $'000 $'000 $'000 $'000
Balance at 1 June
2016 13,445 15,706 (184) (18,157) 10,810
Changes in equity
Issue of share capital 1,033 11,685 - - 12,718
-------------- -------------- --------------- -------------- ----------
Transactions with
owners 14,478 27,391 (184) (18,157) 23,528
-------------- -------------- --------------- -------------- ----------
Profit for the year - - - 3,048 3,048
Foreign exchange
difference arising
on change in functional
currency (1,884) (2,263) 184 2,647 (1,316)
-------------- -------------- --------------- -------------- ----------
Balance at 31 May
2017 12,594 25,128 - (12,462) 25,260
Changes in equity
Issue of share capital - - - - -
-------------- -------------- --------------- -------------- ----------
Transactions with
owners 12,594 25,128 - (12,462) 25,260
-------------- -------------- --------------- -------------- ----------
Loss for the year - - - (395) (395)
Balance at 31 May
2018 12,594 25,128 - (12,857) 24,865
-------------- -------------- --------------- -------------- ----------
The notes on pages 21 to 39 form part of the financial statements.
CRAVEN HOUSE CAPITAL PLC
STATEMENT OF CASH FLOWS
FOR THE YEARED 31 MAY 2018
2018 2017
Notes $'000 $'000
Cash flows from operating activities
(Loss)/profit before income tax (395) 3,048
Adjustments for non-cash items
Finance costs - 11
Fair value movement arising on investments (590) (3,354)
(Increase)/decrease in trade and
other receivables (849) 311
Increase in trade and other payables 1,236 484
Satisfaction of debt by way of share
issue - (240)
Increase in loans and borrowings 800 -
Foreign exchange - (1,350)
Net cash generated by/(used in)
operating activities 202 (1,090)
Cash flows from investing activities
Equity investment - (10,245)
Acquisition of investments (2,500) (131)
Proceeds from disposal of investments - 563
Proceeds from loan advances repaid 2,500 734
--------- -----------
Net cash used in investing activities - (9,079)
Cash flows from financing activities
Proceeds from issue of share capital - 10,245
Repayment of convertible loans - (160)
Net cash from financing activities - 10,085
Net increase/(decrease) in cash
and cash equivalents 202 (84)
Cash and cash equivalents at the
beginning
of the year 10 11 95
Cash and cash equivalents at the
end of the year 10 213 11
========= ===========
The notes on pages 21 to 39 form part of the financial statements.
CRAVEN HOUSE CAPITAL PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARED 31 MAY 2018
1. ACCOUNTING POLICIES
Basis of preparation
These financial statements have been prepared in accordance with International
Financial Reporting Standards and IFRIC interpretations and with those
parts of the Companies Act 2006 applicable to companies reporting under
IFRS as adopted by the EU.
Craven House Capital plc is a public company incorporated in the United
Kingdom under the Companies Act 2006. The address of the registered office
is given on the company information page. The Company is listed on the
AIM Market of the London Stock Exchange (ticker: CRV).
The directors have considered the definition of an investment entity in
IFRS 10 as well as the associated application guidance. The directors
consider that the Company has met the definition of an investment entity.
The significant judgments and assumptions made by the directors in determining
that the Company is an investment entity are that; it has obtained funds
from investors (its shareholders) and is providing those investors with
investment management services; it commits to its investors that its business
purpose is to invest funds solely for returns from capital appreciation,
investment income, or both; and it measures and evaluates the performance
of substantially all of its investments on a fair value basis.
The main accounting implications for the preparation of the accounts as
an investment entity are that the accounts are not prepared on a consolidated
basis. Instead the Company's investments in its subsidiaries are accounted
for at fair value through its profit and loss account.
The financial statements have been prepared under the historical cost
convention, except to the extent varied below for fair value adjustments
required by accounting standards, and in accordance with applicable International
Financial Reporting Standards (IFRS) as adopted for use by the European
Union. The principal accounting policies are set out below.
The financial statements are presented in US dollars which is the Company's
functional currency. Amounts are rounded to the nearest thousand, unless
otherwise stated.
Going concern
The Company's business activities, together with the factors likely to
affect its future development, performance and position are set out in
the Investment Manager's Report. The financial statements include the
Company's objectives, policies and processes for managing its capital;
its financial risk management objectives; details of its financial instruments;
and its exposures to credit risk and liquidity risk. The Company has considerable
financial resources. As a consequence, the directors believe that the
Company is well placed to manage its business risks successfully. The
directors have a reasonable expectation that the Company has adequate
resources to continue in operational existence for the foreseeable future.
Thus they continue to adopt the going concern basis of accounting in preparing
the annual financial statements.
The Company maintains minimal cash reserves as excess cash is deployed
for investment at the subsidiary level. There are some restrictions on
the ability of certain subsidiaries to freely transfer funds to the Company.
Capital controls in the respective jurisdictions mean that transfers to
the Company from Craven House Angola LDA and the subsidiaries of Kwikbuild
Corporation Ltd in South Africa mean that transfers must be authorised
by the respective central banks in these locations. However, in addition
to the cash on the Company's balance sheet, sufficient cash is freely
available to the Company from its subsidiaries (in the form of inter-company
loans or dividends) to ensure it is able to meet its liabilities as they
fall due and the restrictions described do not ultimately place any risks
to the operations / going concern status of the Company.
There are currently no commitments to provide support to any subsidiary,
however the Company may elect to provide capital to its subsidiaries at
any time to further its stated Investing Policy.
CRAVEN HOUSE CAPITAL PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 MAY 2018
1. ACCOUNTING POLICIES - continued
The Company has applied for the first time certain amendments to
the standards
Amendments to IAS 12 Recognition of Deferred Tax Assets for
Unrealised Losses (effective for annual periods beginning on or
after 1 January 2017, endorsed by the European Union on 6 November
2017).
Amendments to IAS 7 Disclosure Initiatives (effective for annual
periods beginning on or after 1 January 2017, endorsed by the
European Union on 6 November 2017).
None of these amendments have had an effect on the Company's
financial position and performance.
The following new and revised standards and interpretations have
not been adopted by the Company, whether endorsed by the European
Union or not
IFRS 15 Revenue from Contracts with Customers (effective for
annual periods beginning on or after 1 January 2018, endorsed by
the European Union on 22 September 2016).
IFRS 9 Financial Instruments and subsequent amendments
(effective for annual periods beginning on or after 1 January 2018,
endorsed by the European Union on 22 November 2016).
Amendments to IFRS 2 Classification and Measurement of
Share-Based Payment Transactions (effective for annual periods
beginning on or after 1 January 2018, endorsed by the European
Union on 26 February 2018).
Annual improvements to IFRS Standards 2014-2016 Cycle (effective
for annual periods beginning on or after 1 January 2018, endorsed
by the European Union on 7 February 2018).
IFRIC 22 Foreign Currency Transactions and Advance Consideration
(effective for annual periods beginning on or after 1 January 2018,
endorsed by the European Union on 28 March 2018).
IFRIC 23 Uncertainty Over Income Tax Treatments (effective for
annual periods beginning on or after 1 January 2019, not yet
endorsed by the European Union).
Annual improvements to IFRS Standards 2015-2017 Cycle (effective
for annual periods beginning on or after 1 January 2019, not yet
endorsed by the European Union).
The Company has not assessed the impact of the adoption of these
standards and interpretations on its financial statements on
initial adoption.
Financial assets
Purchases or sales of financial assets are recognised at the
date of the transaction. Where appropriate criteria are met, the
Company makes use of the option of designating fixed asset
investments upon initial recognition as financial assets at fair
value through profit or loss. These criteria include that the fixed
asset investment should meet the Company's published Investing
Policy and form part of the Company's managed portfolio or similar
investments. Such financial assets are carried at fair value and
movements in fair value are recognised through profit and loss. For
quoted securities, fair value is either the bid price or the last
traded price, depending on the convention of the exchange on which
the investment is quoted.
Measurement
Financial assets at fair value through profit or loss are
initially recognised at fair value. Transaction costs are expensed
through profit and loss. Subsequent to initial recognition, all
financial assets at fair value through profit or loss are measured
at fair value in accordance with International Private Equity and
Venture Capital Valuation ("IPEVCV") guidelines, as the Company's
business is to invest in financial assets with a view to profiting
from their total return in the form of capital growth and income.
Gains and losses arising from changes in the fair value of the
financial assets at fair value through profit or loss are presented
in the period in which they arise.
CRAVEN HOUSE CAPITAL PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 MAY 2018
1. ACCOUNTING POLICIES - continued
Valuation of investments
A number of the Company's assets are measured at fair value for
financial reporting purposes. The Investment Manager determines the
appropriate valuation techniques and inputs for fair value
measurements.
In estimating the fair value of an asset, the Investment Manager
uses market-observable data to the extent it is available. The
Investment Manager reports its findings to the Board of Directors
of the Company every quarter to explain the cause of fluctuations
in the fair value of the assets.
Information about the valuation techniques and inputs used in
determining the fair value of various assets and liabilities are
disclosed in notes 8 and 14.
Financial instruments that are measured subsequent to initial
recognition at fair value are grouped into Levels 1 to 3 based on
the degree to which the fair value is observable:
Level 1 fair value measurements are those derived from quoted
prices (unadjusted) in active markets for identical assets or
liabilities;
Level 2 fair value measurements for those derived from inputs
other than quoted prices included within Level 1 that are
observable for the assets or liability, either directly or
indirectly; and
Level 3 fair value measurements are those derived from inputs
that are not based on observable market data.
a) Quoted investments
Where investments are quoted on recognised stock markets and an
active market in the shares exists, the company values those
investments at closing mid-market price on the reporting date.
Where an active market does not exist those quoted investments are
valued by the application of an appropriate valuation methodology
as if the relevant investment was unquoted.
b) Unquoted investments
In estimating the fair value for an unquoted investment, the
Company applies a methodology that is appropriate in light of the
nature, facts and circumstances of the investment and its
materiality in the context of the total investment portfolio using
reasonable data, market inputs, assumptions and estimates. Any
changes in the above data, market inputs, assumptions and estimates
will affect the fair value of an investment.
Financial liabilities and equity
Financial liabilities are recognised when the Company becomes
party to the contractual provisions of the financial instrument and
are measured initially at fair value adjusted for transaction
costs. Financial liabilities are measured subsequently at amortised
cost using the effective interest method.
An equity instrument is any contract that evidences a residual
interest in the assets of the Company after deducting all its
liabilities.
In accordance with IFRIC 19, when a financial liability is
extinguished by the issue of equity, the equity instrument issued
is measured at fair value and any difference between the financial
liability extinguished and the measurement of the equity instrument
is recognised in profit and loss
CRAVEN HOUSE CAPITAL PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 MAY 2018
1. ACCOUNTING POLICIES - continued
Revenue recognition
Revenue recognition depends on the type of revenue
concerned:
-- Management fees are recognised as they are earned;
-- Interest income is recognised as finance income using the
effective interest rate model; and
-- Investments are held at fair value and are revalued
continually with any net change in fair value recognised in profit
or loss.
The above policies on revenue recognition result in both
deferred and accrued income.
Taxation
The tax expense represents the sum of the tax currently payable
and deferred tax at rates substantively enacted at the statement of
financial position date.
Current tax
The tax currently payable is based on taxable profit for the
year. Taxable profit differs from net profit as reported in the
income statement because it excludes items of income or expense
that are taxable or deductible in other years and it further
excludes items that are never taxable or deductible. The Company's
liability for current tax is calculated using tax rates that have
enacted by the statement of financial position date.
Deferred tax
Deferred tax is recognised in respect of all timing differences
that have originated but not reversed at the statement of financial
position date where transactions or events that result in an
obligation to pay more tax in the future or a right to pay less tax
in the future have occurred at the statement of financial position
date. Timing differences between the Company's taxable profits and
its results as stated in the financial information that arises from
the inclusion of gains and losses in tax assessments in periods
different from those in which they are recognised in the financial
information. A deferred tax asset is only recognised for an unused
tax loss carried forward if it is considered probable that there
will be sufficient future taxable profits against which the loss
can be utilised.
Foreign currencies
In preparing the financial statements of the Company,
transactions in currencies other than the entity's functional
currency are recorded at the rates of exchange prevailing at the
dates of the transactions. At each statement of financial position
date, monetary items denominated in foreign currencies are
retranslated at the rates prevailing at the date when the fair
value was determined. Non-monetary items that are measured in terms
of historical cost in a foreign currency are not retranslated.
Exchange differences are recognised in profit or loss in the
period in which they arise except for exchange differences on
monetary items receivable from or payable to a foreign operation
for which settlement is neither planned nor likely to occur; which
form part of the net investment in a foreign operation and which
are recognised in the foreign currency translation reserve.
For the purposes of presenting US dollar financial statements,
the assets and liabilities of the Company's foreign operations are
expressed using exchange rates prevailing at the statement of
financial position date. Income and expense items are translated at
the average exchange rate for the period, unless exchange rates
fluctuated significantly during that period, in which case the
exchange rates at the dates of the transactions are used. Exchange
differences arising, if any, are classified as equity and
recognised in a foreign currency translation reserve.
CRAVEN HOUSE CAPITAL PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 MAY 2018
1. ACCOUNTING POLICIES - continued
Segment reporting
Operating segments are reported in a manner consistent with the
internal reporting provided to the directors. The directors, who
are responsible for allocating resources and assessing performance
of the operating segments, have been identified as the senior
management that make strategic decisions.
Critical accounting estimates and judgements
Preparation of financial statements in conformity with IFRS
requires management to make judgements, estimates and assumptions
that affect the application of accounting policies and the reported
amounts of assets, liabilities, income and expenses. The estimates
and associated assumptions are based on historical experience and
various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis of making
judgements about carrying values of assets and liabilities that are
not readily apparent from other sources. Further information
regarding the assumptions relied upon and sensitivity analysis
around these assumptions is provided in note 14 below.
In particular, significant areas of estimation, uncertainty and
critical judgements in applying accounting policies that have the
most significant effect on the amount recognised in the financial
statements relate to the valuation of investments.
The Company has made a number of investments in the form of
equity instruments in private companies operating in emerging
markets. The investee companies are generally at a key stage in
their development and operating in an environment of uncertainty in
capital markets. Should planned development prove successful, the
value of the Company's investment is likely to increase, although
there can be no guarantee that this will be the case. Should
planned development prove unsuccessful, there is a material risk
that the Company's investments may be impaired. The carrying
amounts of investments are therefore highly sensitive to the
assumption that the strategies of these investee companies will be
successfully executed.
The directors have also determined that the Company meets IFRS
10's definition of an investment company and that the functional
currency is appropriate given that underlying transactions, events
and conditions that are most likely to impact on the Company's
performance are more closely linked to the US dollar than GB
sterling.
CRAVEN HOUSE CAPITAL PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 MAY 2018
2. SEGMENTAL REPORTING
The operating segment has been determined and reviewed by the
directors to be used to make strategic decisions. The directors
consider there to be a single business segment being that of
investing activities, therefore there is only one reportable
segment.
3. EMPLOYEES AND DIRECTORS
2018 2017
$'000 $'000
Wages and salaries - directors' remuneration 114 104
====== ======
The average monthly number of employees (including directors)
during the year was as follows:
2018 2017
Directors 4 4
===== =====
The Company has no employees other than the directors.
Directors' remuneration is analysed as follows;
2018 2017
$'000 $'000
Fees:
Mr R Burrows* 50 33
Mr M J Pajak 58 63
------ ------
108 96
------ ------
Share based payments:
Mr B S Bindra 3 3
Mr C P Morrison 3 5
6 8
------ ------
Total 114 104
====== ======
*2017 remuneration previously reported as share-based
payment
The service contracts of the directors who served during the
year are as follows:
Basic annual fee
Mr R Burrows $50,000
Mr M J Pajak GBP43,000
Mr B S Bindra $6,000**
Mr C P Morrison $6,000**
** Payable in new ordinary shares of the company at $1.00 per
share
Desmond Holdings Ltd is the Company's Investment Manager. The
directors are the key management of the Company. There were no
directors (2017: none) to whom retirement benefits were accruing
under money purchase schemes.
CRAVEN HOUSE CAPITAL PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 MAY 2018
4. FINANCE COSTS
2018 2017
$'000 $'000
Loan interest - 11
-------- ------
- 11
======== ======
5. (LOSS)/PROFIT BEFORE INCOME TAX
The (loss)/profit before income tax is stated after charging /
(crediting):
2018 2017 (restated)
$'000 $'000
Rental charges 48 40
Fees payable to the Company's auditor
for the audit of the Company's annual
accounts 29 25
Foreign exchange losses/(gains) 61 (1,350)
Other gains arising on the satisfaction
of debt by way of issue of ordinary
share capital (restated) - (240)
====== ================
CRAVEN HOUSE CAPITAL PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 MAY 2018
6. INCOME TAX
Analysis of charge in the year
2018 2017
$'000 $'000
Current tax: - -
Deferred tax - -
Tax on (loss)/profit on ordinary - -
activities
====== ======
2018 2017
$'000 $'000
(Loss)/profit on ordinary activities
before tax (395) 3,048
====== ======
Analysis of charge in the year
2018 2017
$'000 $'000
(Loss)/profit on ordinary activities
multiplied by the Company's rate
of corporation tax in the UK of
19% (2017: 20%) (75) 610
Effects of:
Losses carried forward/(utilised) 75 (610)
------- ------
Current tax charge for the year - -
as above
======= ======
At 31 May 2018, the Company had UK tax losses of $3,258,487
(2017: $2,207,836) available to be carried forward and utilised
against future taxable profits. A deferred tax asset of $619,113
(2017: $441,567) has not been recognised due to uncertainties over
the timing of when taxable profits will arise.
7. EARNINGS PER SHARE
Basic earnings per share is calculated by dividing the earnings
attributable to ordinary shareholders by the weighted average
number of ordinary shares outstanding during the period.
Diluted earnings per share has not been disclosed as the
inclusion of the unexercised warrants described in note 11 would be
non-dilutive.
CRAVEN HOUSE CAPITAL PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 MAY 2018
7. EARNINGS PER SHARE - continued
Reconciliations are set out below.
2018
Earnings Weighted average Per-share amount
$'000 number of shares cents
Basic EPS
Earning attributable
to ordinary shareholders (395) 2,499,039 (15.80)
2017
Earnings Weighted average Per-share amount
$'000 number of shares cents
Basic EPS
Earning attributable
to ordinary shareholders 3,048 2,241,518 135.98
8. INVESTMENTS
Investments at fair value through profit or loss
The Company adopted the valuation methodology prescribed in the
IPEVCV guidelines to value its investments at fair value through
profit and loss.
The Company had the following holdings at 31 May 2018:
Principal Place Ownership
Subsidiary Name Holding of Business Interest
Craven Industrial Holdings
Plc Direct Ireland 100%
DLC Holdings Corp. Indirect Canada 68%
Qeton Ltd Indirect Ireland 50%
Craven House Angola
LDA Indirect Angola 100%
Craven House Capital
North America LLC Indirect USA 100%
Kwikbuild Corporation
Ltd Indirect Isle of Man 97%
CRAVEN HOUSE CAPITAL PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 MAY 2018
8. INVESTMENTS -continued
Investments at fair value through profit or loss
Quoted equity Unquoted
investments equity investments
$'000 $'000 Total
$'000
At 1 June 2016 - 8,119 8,119
Additions - 16,531 16,531
Disposals - (1,601) (1,601)
Fair value movement - 3,354 3,354
-------------- -------------------- ----------
At 31 May 2017 - 26,403 26,403
-------------- -------------------- ----------
Additions 9,033 2,500 11,533
Disposals - (11,533) (11,533)
Fair value movement 2,050 (1,460) 590
-------------- -------------------- ----------
At 31 May 2018 11,083 15,910 26,993
-------------- -------------------- ----------
Additions and disposals include the non-cash transfer of the Company's
holdings in Craven House Industries Ltd and Ceniako Ltd to Toronto
Stock Exchange listed entity, DLC Holdings Corp., for a combined
consideration of $9,033,471.
Also included within additions and disposals is a loan of $2,500,000
which was repaid to the Company during the year, the proceeds of
which, through the Company's US subsidiary, were used to acquire
the entire share capital of IIU Inc.
CRAVEN HOUSE CAPITAL PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 MAY 2018
8. INVESTMENTS - continued
Following a corporate restructuring undertaken during 2016,
investments and loans were transferred from Craven House Capital
Plc to its wholly owned subsidiary, Craven Industrial Holdings Plc.
The revaluation outlined above therefore represents the valuation
applied to the resulting investments held by Craven Industrial
Holdings Plc or its subsidiaries as at 31 May 2018 and are
described in further detail below.
Unquoted investments at 31 May 2018 have been measured on a
Level 3 basis as no observable market data was available.
Shares in Craven Industrial Holdings Plc are valued at
$26,993,468 representing a 100% holding. These have been valued
based on the underlying investments within Craven Industrial
Holdings Plc as at 31 May 2018. The value of Craven Industrial
Holdings Plc is segmented across its principal investments as
follows:
Shares in DLC Holdings Corp. are valued at $11,083,190
representing 13,676,700 common shares and 43,785,206 preferred
shares, which are freely convertible into common shares. Shares in
DLC Holdings Corp. are quoted on the Toronto Stock Exchange and
were valued at $CAD 0.25 per share as at 31 May 2018.
Shares in Qeton Ltd are valued at $1,787,286 representing a 50%
holding. This shareholding has been valued on an earnings multiple
basis which the directors consider represents the best indication
of the fair value at the year end. Qeton Ltd. generated EBITDA
earnings of EUR612,753 during the year to 31 May 2018. Shares in
Qeton Ltd have been valued at 5x EBITDA earnings. Qeton Ltd has no
debt and no material liabilities.
Shares in Craven House Angola LDA are valued at $8,733,274
representing a 100% holding. This shareholding has been valued on
the net assets of Craven House Angola LDA, which the directors
consider represents the best indication of the fair value at the
year end. The vast majority of the net assets of Craven House
Angola LDA comprise principal and accrued interest on loan
facilities made to companies operating in Angola. As of 31 May 2018
all of these loans are performing according to their contractual
terms and have therefore been valued at face value plus accrued
interest. Craven House Angola LDA has no debt and no material
liabilities.
Shares in Craven House Capital North America LLC are valued at
$2,677,994 representing a 100% holding. This shareholding has been
valued on the net assets of Craven House Capital North America LLC,
which the directors consider represents the best indication of the
fair value at the year end. The vast majority of the assets of
Craven House Capital North America LLC comprise shares in IIU, Inc
(acquired in May 2018 and valued on a 'price-of-recent-investment'
basis). Excluding amounts owed to the Company, Craven House Capital
North America LLC has no debt and no material liabilities.
Shares in Kwikbuild Corporation Ltd are valued at $2,711,724
representing a 97% shareholding. This valuation is based on the
value of the net assets of KwikBuild Corporation Ltd, which the
directors believe represent the best indication of the fair value
at the year-end. The vast majority of the net assets of Kwikbuild
Corporation Ltd comprise shares in its wholly owned South African
subsidiary, which are valued on a net asset basis. The South
African subsidiary's assets comprise loan facilities, which are
performing according to their contractual terms and real-estate
holdings valued on market-comparables. Kwikbuild Corporation Ltd
has no debt and no material liabilities.
CRAVEN HOUSE CAPITAL PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 MAY 2018
9. TRADE AND OTHER RECEIVABLES
2018 2017
$'000 $'000
Current:
Amounts owed by connected parties 900 61
Prepayments and accrued income 24 14
------ ------
924 75
====== ======
Amounts owed by connected parties are interest free and repayable on
demand.
10. CASH AND CASH EQUIVALENTS 2018 2017
$'000 $'000
Cash in bank 213 11
====== ======
The amounts disclosed in the statement of cash flows in respect of cash
and cash equivalents are in respect of the following statement of financial
position amounts:
Year ended 31 May 2018
31.5.18 1.6.17
$'000 $'000
Cash and cash equivalents 213 11
Year ended 31 May 2017
31.5.17 1.6.16
$'000 $'000
Cash and cash equivalents 11 95
======== =======
11. CALLED UP SHARE CAPITAL
Allotted, called up
and fully paid
Equity shares Nominal 2018 2017
Number: Class: Value: $'000 $'000
2,499,039 Ordinary $1.00 2,437 2,437
77,979,412 Deferred GBP0.09 9,234 9,234
77,979,412 Deferred GBP0.009 923 923
----------- --------
12,594 12,594
=========== ========
CRAVEN HOUSE CAPITAL PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 MAY 2018
11. CALLED UP SHARE CAPITAL - continued
The aggregate nominal values of the ordinary and deferred shares
include exchange differences arising from the translation of shares
at historic rates and the translation at the rate prevailing at the
date of the change in functional currency.
The deferred shares carry no entitlement to receive notice of
any general meeting, to attend, speak or vote at such general
meeting. Holders are not entitled to receive dividends and, on a
winding up of the Company, holders of deferred shares are entitled
to a return of capital only after the holder of each Ordinary share
has received a return of capital together with a payment of GBP1
million per share. The deferred shares may be cancelled at any time
for no consideration by way of a reduction in capital.
In the year ended 31 May 2018, the Company extended the time
scale of 78,632 fully transferable exercisable warrants which were
originally issued in the year ended 31 May 2012. At the date of
issue, the warrants could be exercised on or before 30 June 2014,
this period has now been extended to 30 June 2020. The warrants are
exercisable at a price of $15.00 per share.
12. TRADE AND OTHER PAYABLES
2018 2017
$'000 $'000
Current:
Trade payables 445 959
Amounts owed to connected parties 1,688 -
Accruals and deferred income 332 270
2,465 1,229
====== ======
Amounts owed to connected parties are interest free and
repayable on demand.
13. LOANS AND BORROWINGS
2018 2017
$'000 $'000
Non-current:
Other loans 800 -
========== ==========
During the year the Company entered into a $800,000 convertible
loan note by way of settlement of a supplier's outstanding fees in
the sum of GBP600,000. The note holder, GEM Investments America,
has the right to convert the note at any time prior to
maturity.
The loan note bears no interest and has a five year term.
CRAVEN HOUSE CAPITAL PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 MAY 2018
14. FINANCIAL INSTRUMENTS
Financial risk management objectives and policies
Management has adopted certain policies on financial risk management
with the objective of:
i. ensuring that appropriate funding strategies are adopted to meet
the Company's short-term and long-term funding requirements taking
into consideration the cost of funding, gearing levels and cash
flow projections;
ii. ensuring that appropriate strategies are also adopted to manage
related interest and currency risk funding; and
iii. ensuring that credit risks on receivables are properly managed.
Financial instrument by category
The accounting policies for financial instruments have been applied
to the line items below:
Financial assets at fair value through profit or loss
Financial instruments that are measured subsequent to initial recognition
at fair value are grouped into Levels 1 to 3 based on the degree
to which the fair value is observable:
Level 1 fair value measurements are those derived from quoted prices
(unadjusted) in active markets for identical assets or liabilities;
Level 2 fair value measurements for those derived from inputs other
than quoted prices included within Level 1 that are observable for
the assets or liability, either directly or indirectly; and
Level 3 fair value measurements are those derived from inputs that
are not based on observable market data.
CRAVEN HOUSE CAPITAL PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 MAY 2018
14. FINANCIAL INSTRUMENTS - continued
Unquoted equity investments held at fair value through profit or
loss are valued in accordance with the IPEVCV guidelines as follows;
2018 2017
Investment valuation methodology $'000 $'000
Quoted prices (unadjusted) 11,083 -
(level 1)
Present value of future
cash flows (level 2) - 2,500
Earnings multiple basis
(level 3) 1,787
Net Assets (level 3) 14,123 23,903
26,993 26,403
======= =======
IFRS 13 and IFRS 7 requires the directors to consider the impact
of changing one or more of the inputs used as part of the valuation
process to reasonable possible alternative assumptions.
In relation to the Level 1 investment listed above, a 10% change
in the share price of DLC Holdings Corp. would result in a decrease
or increase in the valuation of this investment of $1,108,319.
Shares in DLC Holdings Corp. are quoted in Canadian Dollars; a
10% fluctuation in the exchange rate between the US Dollar and
the Canadian Dollar would result in a decrease or increase in the
valuation of this investment of $1,007,563.
The Level 3 valuations listed above include inputs based on non-observable
market data as outlined in note 8 above. The Investment Manager
has derived a fair value for these investments based on the value
of the underlying net assets of the respective investments and
/ or has considered prospective enterprise values for these investments
from the perspective of a market participant.
The directors have considered a number of reasonable possible alternative
assumptions regarding the value of the Level 3 investments. IFRS
13 requires an entity to disclose quantitative information about
the significant unobservable inputs used.
A summary of the unobservable inputs, judgements and estimates
made in relation to the Level 3 investments is as follows:
The valuation the Company's shareholding in Qeton Ltd is estimated
on an earnings multiple basis. The Investment Manager has applied
a 5x multiple of EBITDA earnings. This is judged to be a conservative
and reasonable multiple. A 10% change in EBITDA earnings would
result in a decrease or increase in the valuation of this investment
of $178,729. Whilst foreign exchange fluctuations might impact
Qeton Ltd's sales volumes, its sales and cost of sales are tied
to US Dollars.
The valuation of Craven House Angola LDA is based on its net asset
value as of 31 May 2018. These net assets almost exclusively comprise
a portfolio of loan facilities. These loans have performed in accordance
with their agreed, contractual terms and the respective borrowers'
creditworthiness continues to be satisfactory. Therefore the Investment
Manager has judged that outstanding principal of these loans and
any accrued interest is a reasonable basis for valuation of the
net assets of Craven House Angola LDA. The loans are either in
US Dollars or are at pre-determined exchange rates tied to the
US Dollar. It has been assumed that these loans continue to perform
in accordance with their contractual terms and that losses associated
with any unforeseen event of default are recovered from the security
associated with the respective loans.
The valuation of Craven House North America LLC is based on its
net asset value as of 31 May 2018. 89% of the net assets of Craven
House Capital North America LLC are based on the value of the shares
of IIU, Inc., which were acquired during May 2018. There has been
no material changed to IIU, Inc's underlying business since acquisition
and therefore a 'price of recent investment' basis is judged to
be an appropriate valuation methodology.
CRAVEN HOUSE CAPITAL PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 MAY 2018
14. FINANCIAL INSTRUMENTS - continued
Shares in KwikBuild Corporation Ltd are valued based on net asset
value as of 31 May 2018. Over 95% of these net assets comprise the
value of its shares in its wholly-owned South African subsidiary
which are also valued on a net asset basis. 35% of the subsidiary's
net assets comprise real-estate assets, which have been valued based
on market comparables; A 10% fluctuation on the value of these real
estate assets would result in a decrease or increase in the valuation
of Kwikbuild Corporation of $95,453. The remaining assets of the
subsidiary comprise a loan facility. The loan (denominated in US
Dollars) has performed in accordance with its agreed, contractual
terms and the borrowers' creditworthiness continues to be satisfactory.
Therefore the Investment Manager has judged that the outstanding
principal of this loan and accrued interest is a reasonable basis
its valuation. It has been assumed that this loan continues to perform
in accordance with its contractual terms and that losses associated
with any unforeseen event of default are recovered from the security
associated with the loan.
The valuation method applied to each equity investment is that which
is considered most appropriate with regard to the stage of development
of the investee business and the IPEVCV guidelines.
All other financial instruments, including cash and cash equivalents,
trade and other receivables, trade and other payables and loans
and borrowings, are measured at amortised cost.
Due to their short-term nature, the carrying values of cash and
cash equivalents, trade and other receivables, trade and other payables
and loans and borrowings approximates their fair value.
Credit risk
The Company's credit risk is primarily attributable to other receivables.
Management has a credit policy in place and the exposure to credit
risks is monitored on an ongoing basis. In respect of other receivables,
individual credit evaluations are performed whenever necessary.
The Company's maximum exposure to credit risk is represented by
loans, both those held as unquoted investments and included in other
receivables, and cash balances. The Company monitors the financial
position of borrowing entities on an ongoing basis and is satisfied
with the quality of the debt. Investment of surplus cash balances
are reviewed on an annual basis by the Company and it is satisfied
with the choice of institution.
Interest rate risk
The Company currently operates with positive cash and cash equivalents
as a result of issuing share capital in anticipation of future funding
requirements. As the Company has no borrowings from the bank and
the amount of deposits in the bank are not significant, the exposure
to interest rate risk is not significant to the Company.
Liquidity risk
The Company manages its liquidity requirements by the use of both
short-term and long-term cash flow forecasts. The Company's policy
to ensure facilities are available as required is to issue equity
share capital in accordance with agreed settlement terms with vendors
or professional firms, and are typically due within one year unless
otherwise stated.
The Company maintains minimal cash reserves as excess cash is deployed
for investment at the subsidiary level. Sufficient cash is available
to the Company from its subsidiaries to ensure it is able to meets
its liabilities as they fall due.
CRAVEN HOUSE CAPITAL PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 MAY 2018
14. FINANCIAL INSTRUMENTS - continued
The table below summarises the maturity profile of the Company's
financial liabilities based on contractual discounted payments.
3 to
On Less than 12 More than
demand 3 months months 12 Months Total
Year ended 31 May
2018 $'000 $'000 $'000 $'000 $'000
Trade payables 445 - - - 445
Other payables 1,688 - 1,688
Accruals and deferred
income 332 - - - 332
Loans and borrowings - - - 800 800
----------
2,465 - - 800 3,265
------- ---------- ------- ---------- ------
Year ended 31 May
2017
Trade payables 959 - - - 959
Accruals and deferred
income 270 - - - 270
1,229 - - - 1,229
------- ---------- ------- ---------- ------
Price risks
The Company's securities are susceptible to price risk arising
from uncertainties about future value of its investments. This
price risk is the risk that the fair value of future cash flows
will fluctuate because of changes in market prices, whether those
changes are caused by factors specific to the individual investment
or financial instrument or its holder or factors affecting all
similar financial instruments or investments traded in the
market.
During the year under review, the Company did not hedge against
movements in the value of its investments. A 10% increase/decrease
in the fair value of investments would result in a $2,699,347
(2017: $2,640,288 increase/decrease in the net asset value).
While investments in companies whose business operations are
based in emerging markets may offer the opportunity for significant
capital gains, such investments also involve a degree of business
and financial risk, in particular for unquoted investments.
Generally, the Company is prepared to hold unquoted investments
for a medium to long time frame, in particular if an admission to
trading on a stock exchange has not yet been planned. Sale of
securities in unquoted investments may result in a discount to the
book value.
Currency risks
The Company is exposed to foreign currency risk on its
investments held at fair value and adverse movements in foreign
exchange rates will reduce the values of these investments. There
is no systematic hedging in foreign currencies against such
possible losses on translation/realisation.
Foreign exchange volatility is significantly reduced following
the transition to US Dollar as the Company's currency exposures are
now more closely matched to its functional and reporting currency.
The Company's exposure to other foreign currency changes is not
deemed to be material as the vast majority of the Company's
underlying investments are US Dollar based.
CRAVEN HOUSE CAPITAL PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 MAY 2018
14. FINANCIAL INSTRUMENTS - continued
Capital management
The Company's financial strategy is to utilise its resources to
further grow its portfolio. The Company keeps investors and the
market informed of its progress with its portfolio through periodic
announcements and raises additional equity finance at appropriate
times. The Company regularly reviews and manages its capital
structure for the portfolio companies to maintain a balance between
the higher shareholder returns that might be possible with certain
levels of borrowing for the portfolio and the advantages and
security afforded by a sound capital position, and makes
adjustments to the capital structure of the portfolio in the light
of changes in economic conditions. Although the Company has
utilised loans from shareholders to acquire investments, it is the
Company's policy as far as possible to finance its investing
activities with equity and not to have gearing in its
portfolio.
At the statement of financial position date the capital
structure of the Company consisted of borrowings disclosed in note
13, cash and cash equivalents and equity comprising issued capital
and reserves.
The table below sets out the Company's classification of each
class of financial assets/liabilities, their fair values (where
appropriate) and under which valuation method they are valued:
Total carrying
amount and
Level Level Level Fair
1 2 3
Note $'000 $'000 $'000 Value
$'000
31 May 2018
Loans and receivables
Trade and other - -
receivables 9 - - 924 924
Cash and cash equivalents 10 213 - - 213
-------- -------- -------- ---------------
213 - 924 1,137
Liabilities at amortised
cost
-------- -------- -------- ---------------
Trade and other
payables 12 - - (2,465) (2,465)
Loans and borrowings 13 - - (800) (800)
-------- -------- -------- ---------------
- - (3,265) (3,265)
-------- -------- -------- ---------------
Fair value through
profit and loss
Investments 8 11,083 - 15,910 26,993
-------- -------- -------- ---------------
11,296 - 13,569 24,865
-------- -------- -------- ---------------
31 May 2017 (Restated)
Loans and receivables
Trade and other
receivables 9 - - 75 75
Cash and cash equivalents 10 11 - - 11
-------- -------- -------- ---------------
11 - 75 86
-------- -------- -------- ---------------
Liabilities at amortised
cost
Trade and other
payables 12 - - (1,229) (1,229)
-------- ------------- -------- ---------------
Fair value through
profit and loss
Investments 8 - 2,500 23,903 26,403
-------- ------------- -------- ---------------
11 2,500 22,749 25,260
-------- ------------- -------- ---------------
CRAVEN HOUSE CAPITAL PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 MAY 2018
15. RELATED PARTY DISCLOSURES
During the year, the Company entered into the following
transactions with related parties:
Loan to Craven Industrial Holdings Plc
During the year, the Company made a number of loans to its
subsidiary Craven Industrial Holdings Plc. At the year end the
outstanding balance was $38,969 (2017: $50,595).
Loan to Craven House Capital North America LLC
During the year, the Company made a number of loans to its
subsidiary Craven House Capital North America LLC. At the year end
the outstanding balance was $793,629 (2017: $Nil).
Loan from Craven House Angola LDA
During the year, the Company received a number of loans from its
subsidiary Craven House Angola LDA. At the year end the outstanding
balance was $896,781 (2017: $Nil).
Loan from Kwikbuild Corporation Ltd
During the year, the Company received a number of loans from its
subsidiary Kwikbuild Corporation Ltd. At the year end the
outstanding balance was $785,294 (2017: $Nil).
All loans are interest free and repayable on demand.
Sales to 7Mobile LDA
During the year, the Company's subsidiary, Qeton Ltd, made sales
totalling EUR1,761,013 to 7Mobile LDA. 7Mobile LDA shares a
director with Craven House Capital Angola LDA. At the year end,
amounts receivable by Qeton Ltd. from 7Mobile LDA were
EUR1,485,747.
Management fees payable to Desmond Holdings Limited
Desmond Holdings Limited, the Investment Manager of the Company,
is related to the Company by virtue of Mr M J Pajak's common
directorship. During the year, the Company incurred management fees
of $244,029 (2017: $215,985) from Desmond Holdings Limited. At the
year end, an amount of $402,400 (2017: $161,089) was due to Desmond
Holdings Limited.
Directors and key management
All key management personnel are directors and appropriate
disclosure with respect to them is made in note 3 of the financial
statements. There are no other contracts of significance in which
any director has or had during the year a material interest.
16. EVENTS AFTER THE REPORTING PERIOD
24 August 2018: The Company passed a resolution to grant the
Company the general and unconditional authority to purchase and
cancel up to $5,000,000 of its own ordinary common shares. This is
currently subject to the approval of a reduction in capital by the
High Court.
14 November 2018: The Company acquired 640,000 common shares of
LM Funding America, Inc. (NASDAQ: LMFA).
The Annual Results for year ended 31 May 2018 will be available
to download from the Company's website at:
http://www.cravenhousecapital.com
This announcement contains inside information for the purposes
of Article 7 of EU Regulation 596/2014.
Ends
For further information please contact:
Craven House Capital Plc Tel: 020 7002 1027
Mark Pajak
www.Cravenhousecapital.com
SI Capital Tel: 01483 413500
Broker
Nick Emerson
www.sicapital.co.uk
SPARK Advisory Partners Limited Tel: 0203 368 3550
Nominated Adviser
Matt Davis/Mark Brady
www.Sparkadvisorypartners.com
About Craven House Capital:
The Company's Investing Policy is to invest in or acquire a
portfolio of companies, partnerships, joint ventures, businesses or
other assets globally in any geographic jurisdiction. The company
will invest in both developed and developing markets providing long
term patient capital and is often involved in special situations,
restructuring, expansion and turn around investments in crisis and
transitioning economies.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR UKSURWVAAUAA
(END) Dow Jones Newswires
November 29, 2018 08:36 ET (13:36 GMT)
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