TIDMH2O
RNS Number : 0317L
Aqua Resources Fund Limited
30 August 2012
AQUA RESOURCES FUND LIMITED
UNAUDITED RESULTS FOR THE PERIOD ENDED 30 JUNE 2012
30 August 2012
Aqua Resources Fund Limited (the "Company"), the Authorised
Closed-ended investment scheme managed by FourWinds Capital
Management (the "Manager") and established to invest in global
water opportunities, today issues its unaudited results for the
period ended 30 June 2012.
RESULTS AND ACTIVITIES OF THE COMPANY FOR THE SIX MONTHS ENDED
30 JUNE 2012
- At 30 June 2012, the Company had invested approximately 92 per cent. of its net assets.
- At 30 June 2012, the unaudited net asset value ("NAV") per
ordinary share of the Company ("Ordinary Share") was EUR0.72.
- On 17 January 2012, Mr. Andrea Rossi resigned as a Director of the Company.
- On 2 February 2012, Mr. Fergus Dunlop was appointed as an
independent non-executive Director of the Company.
- On 3 February 2012, J.P. Morgan Asset Management Holdings Inc.
announced that it had purchased 9,979,800 Ordinary Shares
representing 13.77 per cent. of the issued Ordinary Shares on 27
January 2012.
- On 20 June 2012, Mr. Jonathan Hooley resigned as a Director of the Company.
- On 20 June 2012, Mr. Charles Parkinson was appointed as an
independent non-executive Director of the Company and Chairman of
the Audit Committee. This appointment became effective on 1 July
2012.
Highlights at the Company's portfolio level
- During the first six months of the year, Ranhill Water
Technologies (Cayman) Limited ("RWT") continued to build on their
strong growth and margin improvements on existing businesses and
projects already experienced in the first half of their financial
year.
- RWT was awarded a new potable water project in Thailand from
an existing client, Amata City Industrial Estate ("Amata Industrial
Estate"), an established key industrial estate in the south of
Bangkok with close to 500 factories in operation. This project is
larger than the existing plant RWT built for Amata Industrial
Estate in the past and is more fully detailed in the Manager's
report.
- During the first six months of the year, FourWinds Capital
Management (the "Manager") developed a strategy alongside
like-minded shareholders of China Hydroelectric Corporation ("CHC")
representing collectively approximately 40.8 per cent. of CHC's
issued share capital, to take some action to replace several
members of CHC's board of directors and stimulate a more active
management of CHC's assets. A formal announcement was made in
August and is more fully detailed in the Manager's report and in
the subsequent events section in Note 8 to the condensed interim
consolidated financial statements.
- Waterleau Group ("Waterleau") continued to expand their
industrial wastewater business and to expand their access into the
food and beverage ("F&B") sector which is enjoying a strong
growth and broadly outperforming most other industrial water
markets.
- In June 2012, In-Pipe Technology Inc. ("In-Pipe"), under the
leadership of the Manager whose representative was elected Chairman
of the In-Pipe's board of directors, achieved break-even and net
income positive for the first time since inception and initiated
the trend towards sustainable break-even, a trend confirmed in
July.
- On 27 March 2012, the Company announced a partial exit from its investment in Bluewater Bio International ("BBI") for which the Company received a total amount of GBP912,147 in cash as part repayment for some of its outstanding loans to BBI and related interest, with the balance of its loans being converted into two new classes of shares in BBI, more fully detailed in the Manager's report.
- BBI also announced that it had signed a technology alliance
agreement with Thames Water further demonstrating the strength of
its technology.
Further enquiries:
Aqua Resources Fund Limited
Hasan Askari, Chairman
FourWinds Capital Management, Investment Manager
Kimberly Tara, Chief Executive Officer
info@fourwindscm.com
Cenkos Securities plc, Corporate Broker
Will Rogers +44 207 397 1920
Dion Di Miceli +44 207 397 1921
HSBC Securities Services (Guernsey) Limited, Administrator
Tel: +44 (0) 1481 707 000
CitigateDeweRogerson, PR Advisor
Kevin Smith / Lindsay Noton +44 207 638 9571
Notes to Editors:
Aqua is a Guernsey-domiciled Authorised Closed-ended investment
scheme pursuant to section 8 of the Protection of Investors
(Bailiwick of Guernsey) Law 1987, as amended and rule 6.02 of the
Authorised closed-ended Investment Schemes Rules 2008.
Aqua's ordinary shares were admitted to listing on the Official
List of the UK Listing Authority and to trading on the main market
for listed securities of the London Stock Exchange plc on 24 July
2008.
Aqua's investment objective is to provide long term capital
appreciation through exposure to a diversified portfolio of
water-related investments. Aqua will invest principally in
businesses that are involved in i) water treatment and recycling
(i.e. wastewater and recycling, water treatment and purification),
ii) water infrastructure (i.e. water distribution) or iii) water
application and conversion (water-to-energy and desalination) with
the objective of capturing the growth opportunities emerging from
the attractive long-term dynamics driving the water industry.
MANAGEMENT AND ADMINISTRATION
Directors: Hasan Askari (Chairman)
Andrea Rossi (up to 17 January 2012)
Jonathan Hooley (up to 20 June 2012)
Fergus Dunlop (from 2 February 2012)
Charles Parkinson (from 1 July 2012)
all of whom are independent non-executive
directors
Registered Office: Arnold House
St. Julian's Avenue
St. Peter Port
Guernsey CI
GY1 3NF
Manager: FourWinds Capital Management
Scotia Centre
PO Box 268GT
George Town
Grand Cayman KY1-1104
Cayman Islands
CORPORATE Broker: Cenkos Securities plc
6,7,8 Tokenhouse Yard
London EC2R 7AS
United Kingdom
SOLICITORS TO THE COMPANY: Herbert Smith LLP
(as to English Law) Exchange House
Primrose Street
London EC2A 2HS
United Kingdom
Advocates to the Company: Mourant Ozannes
(as to Guernsey Law) 1 Le Marchant Street
St. Peter Port
Guernsey CI
GY1 4HP
HSBC Securities Services (Guernsey)
Administrator AND COMPANY SECRETARY: Limited
Arnold House
St. Julian's Avenue
St. Peter Port
Guernsey CI
GY1 3NF
Auditors: PricewaterhouseCoopers CI LLP
Royal Bank Place
1 Glategny Esplanade
St Peter Port
Guernsey CI
GY1 4ND
Registrar: Capita Registrars (Guernsey) Limited
PO Box 627
Longue Hougue House
St. Sampson
Guernsey CI
GY1 4PP
UK Transfer Agent: Capita Registrars Limited
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
United Kingdom
CHAIRMAN'S STATEMENT
FOR THE SIX MONTHS ENDED 30 JUNE 2012
To the Shareholders of Aqua Resources Fund Limited
The Board is pleased to present the Company's Half-Yearly
Management Report.
The strategy of the Company is to focus on fast growing private
water and wastewater treatment businesses that are either already
established globally, or demonstrate potential to grow outside
their core local markets.
As shareholders will be aware from the Chairman's statement in
the annual consolidated financial statements of the Company for the
year ended 31 December 2011 (and the Company's subsequent RNS
announcements), this is a period of considerable flux in the
Company's fortunes. The process of delisting from the Official List
of the UKLA and from trading on the Main Market of the London Stock
Exchange is underway and a circular (the "Circular") setting out
the appropriate resolutions for shareholders' consideration will be
dispatched shortly after the publication of this Report. The Board
is pleased that an existing shareholder, J.P.Morgan Private Equity
Group, is seeking to increase its shareholding in the Company from
approximately 15 per cent. at the time of their proposed tender
offer to a maximum of 29.9 per cent. of the issued shares in the
Company, through a tender offer by the Company to those
shareholders who may wish to exit their investments in the Company,
at a price of 35c per ordinary share of the Company. This price
represents a premium of approximately 20 per cent. to the closing
middle market price of the ordinary shares of the Company on 13
August 2012 (being the day before the announcement of proposed
tender offer), a discount of 65.7 per cent. to the latest published
estimated unaudited NAV per ordinary share on 13 August 2012 (being
the NAV per share of EUR1.02086 for 31 March 2012) and a discount
of 51.8 per cent. to the estimated unaudited NAV per ordinary share
as at 30 June 2011 of EUR0.7155. Your Board was particularly
conscious of its responsibility to provide shareholders who prefer
a stock exchange listing with an option to exit their investment in
the Company in the event of a delisting. In so far as the tender
offer proceeds and is not oversubscribed, we believe this objective
will be met.
A majority of the shareholders voting at the Company's Annual
General Meeting on 29 June 2012 voted against the resolution to
receive and adopt the financial statements of the Company for the
year ended 31 December 2011 and the report of the Directors and the
auditors thereon. The Board understands that the resolution was not
approved due to concerns over the level of annual expenditure of
the Company. The proposals to be included in the Circular have been
structured partly to address these concerns.
Net Asset Value
As at 30 June 2012 the unaudited NAV per Ordinary Share was
EUR0.7155, a decrease of 24.68 per cent. since 31 December
2011.
The Company owns investments in four unlisted companies and one
company listed on the New York Stock Exchange. The investments in
the unlisted companies are stated at the Directors' valuation. Your
Board has taken advice from PricewaterhouseCoopers London (part of
the same group as the auditors) on the valuation of the two largest
investments (representing approximately 81.33 per cent. of the NAV
of the Company), and has reviewed the valuations of the Company's
two other unlisted investments. As a result of changes in the
composition of the comparator group of companies and as a result of
changes in the multiples applied, on which the valuations of the
larger holdings are largely based, and of a prudent view of the
recent financial performance of the two smaller unlisted holdings,
together with the decline in the market value of the Company's
listed investment, the NAV of the Company has reduced by
approximately 25 per cent.
Outlook
It would be fair to say that your Board recognises the degree of
uncertainty about the Company's future prospects. Markets are
likely to remain volatile and we do not anticipate any significant
recovery in the economic environment in the short term. This
uncertainty is compounded by the current delisting process.
Nevertheless, the availability of a partial liquidity option (at a
premium to the current prevailing share price albeit at a
significant discount to NAV) for those shareholders who may wish to
exit their investment in the Company, demonstrates the potential in
some of the underlying assets.
The Company has now been in existence for just over four years
and, as announced on 14 August 2012, the Board is asking
shareholders to modify the investment guidelines, constraining
activity to the existing portfolio and seeking opportunities to
realise value. Further details will be contained in the
Circular.
Subsequent transactions and events
There have been no subsequent transactions since 30 June 2012.
On the 16 August 2012 the Administrator informed the Company it
would be terminating the administration agreement. In line with the
administration agreement, the Administrator has given 90 days
notice and the agreement will terminate on the 14 November
2012.
Principal risks & uncertainties
As we stated in the financial statements for the year ended 31
December 2011, the Company expects to face challenges linked to, on
the one hand, the global macroeconomic environment and, on the
other hand, potential microeconomic challenges linked to the
Company's investments if such investments do not achieve the
expected financial and operating results. Such uncertainties arise
from the slower than expected pace of global economic recovery,
political instability in large markets such as the Middle East and
North Africa which are a large source of growth for some of our
portfolio companies, additional government regulations in the water
sector and currency risk.
More specifically, the Company is focused on the following key
risks:
Macroeconomic risks
In addition to the specific risks set out above, the performance
of the Company's underlying investment portfolio is also influenced
by a combination of economic growth, interest rates, the
availability of well-priced debt finance, the number of active
trade and private equity buyers and the general level of merger and
acquisition activity. All of these factors have an impact on the
Company's ability to invest and on the Company's ability to exit
from its underlying portfolio or on the levels of profitability
achieved on exit.
Long-term strategic risks
The Company is subject to the risk that its long-term strategy
and its level of performance fail to meet the expectations of its
shareholders.
The Company regularly reviews its investment strategy in light
of prevailing investor sentiment to ensure the Company remains
attractive to its shareholders. As stated above, the Circular will
shortly be posted to shareholders seeking their approval for
certain proposals including the delisting of the Company's shares
from the Official List of the UKLA and from trading on the London
Stock Exchange, a change of investment objective and policy and
related amendments to the articles of incorporation of the
Company.
Investment risks
The Company operates in a very competitive market. Changes in
the number of market participants, the availability of funds within
the market, the pricing of assets, or in the ability of the Manager
to access deals on a proprietary basis could have a significant
effect on the Company's competitive position and on the
sustainability of returns. The performance of the Company's
portfolio is dependent upon a range of factors. These include but
are not limited to: (i) the quality of the initial investment
decision; (ii) the ability of the investee company to execute
successfully its business strategy; (iii) actual outcomes against
the key assumptions underlying the investee company's financial
projections; and (iv) market sentiment towards the region or asset
class chosen. Any one of these factors could have an impact on the
valuation of an investee company and upon the Company's ability to
make a profitable exit from the investment within the desired
timeframe.
Additionally, over time, market movements can weaken any
diversification achieved at the time of investment. This has
happened in the Company's portfolio, such that the initially
concentrated portfolio of five positions, has over time changed so
that just two of those investments (being RWT and Waterleau)
represent approximately 81.3 per cent. of NAV of the Company. The
Board announced on 14 August 2012 that, to avoid any lingering
expectation of the Company offering investors the diversification
aims set out in the Company's investment objective and policy, it
will propose that shareholders remove the diversification targets
from the Company's investment objective and policy at an
extraordinary general meeting, details of which will be contained
in the Circular.
Operational risks
The Company's investment management, custody of assets and all
administrative systems are provided or arranged for the Company by
the Manager, the Administrator and other service providers.
Therefore, the Company is exposed to a range of operational risks
which can arise from inadequate or failed processes, people and
systems or from external factors affecting these. The Company's
system of internal control mainly comprises the monitoring of the
services provided by the Manager, including the operational
controls established by the Manager to ensure it meets the
Company's business objectives.
As a result of its investment strategy, the Company is exposed
to various risks including market risk, credit risk and liquidity
risk as further explained in Note 7 (page 53) of the notes to the
consolidated financial statements for the year ended 31 December
2011 which is available at http://www.aquaresourcesfund.com.
Additionally, the Company is in the process of consulting with
shareholders regarding its delisting.
Results
The results for the six months ended 30 June 2012 (the "Period")
are set out in the Condensed Interim Consolidated Statement of
Operations.
Dividends
The Board is not proposing a dividend for the Period.
Related parties
As at 30 June 2012, 3,685,000 Ordinary Shares of the Company (31
December 2011: 3,685,000) were owned by the Manager.
Hasan Askari
Chairman
29 August 2012
MANAGER'S REPORT
FOR THE SIX MONTHS ENDED 30 JUNE 2012
Introduction
The Company reports that the unaudited NAV per Ordinary Share at
30 June 2012 was EUR0.7155 (EUR1.0321 at 30 June 2011). At 30 June
2012, the Company had invested approximately 92 per cent. of its
net assets and the balance was invested conservatively in cash,
with no gearing.
The share price at which the Ordinary Shares trade on the London
Stock Exchange ("LSE") started the Period at EUR0.33 (1 January
2012) and closed the Period at EUR0.29 (30 June 2012) which
represents a 12.12 per cent. decrease and a discount to the NAV of
59.47 per cent.
Summary of performance
Twelve Unaudited net assets Ordinary
months attributable to ordinary Unaudited NAV per Share Increase/(decrease) in Net Asset Value period
ending shareholders Ordinary Share price(1) on period
30 June (EUR) (EUR) (EUR) (EUR)
---------- -------------------------- ------------------ ---------- ----------------------------------------------
2010 70,947,897 0.9791 0.58 3,041,538
---------- -------------------------- ------------------ ---------- ----------------------------------------------
2011 74,788,639 1.0321 0.44 3,840,742
---------- -------------------------- ------------------ ---------- ----------------------------------------------
2012 51,847,198 0.7155 0.29 (22,941,441)
---------- -------------------------- ------------------ ---------- ----------------------------------------------
Investment activity during the period
No new investments have been made since 1 January 2012. However,
on 27 March 2012, the Company announced a partial exit from its
investment in BBI. As part of that exit, the Company received a
total amount of GBP912,147 in cash as part repayment for some of
its outstanding loans and related interest to BBI, with the balance
of its loans being converted into two new classes of shares in BBI
as follows:
i. GBP283,011 into a new class of B preferred shares, ranking
pari passu with the newly created A preferred shares (save that
they are redeemable at any time at the discretion of the board of
directors of BBI); and
ii. GBP2,117,984 into a new class of C preferred shares, ranking
behind the A and B preferred shares.
As the result of the overall dilution from the capital increase,
and including the anti-dilution shares received by the Company as
part of the transaction, the ordinary equity interest retained by
the Company declined to 12.12 per cent. of the issued voting
capital of BBI (reduced from approximately 17 per cent. which it
held immediately prior to this transaction) and which ranks behind
the preferred and other classes of shares in the capital of
BBI.
On 19 February 2012, as part of its cost reduction and
improvement of its liquidity position, In-Pipe completed a
transaction with its founding partners, reducing significantly its
monthly debt burden and cash burn. This was accompanied by a small
injection of cash from some existing investors other than the
Company, which has not invested in this subsequent round.
Manager's review
At 30 June 2012, the unaudited NAV per Ordinary Share of the
Company was EUR0.7155, a decrease of 24.68 per cent. from the 31
December 2011 audited NAV of EUR0.9499 per Ordinary Share.
Analysis of movements in NAV for the six months ended 30 June
2012 (in EUR)
Opening NAV as at 1 January 2012 68,831,602
Investment income 532,551
Management fee (733,203)
Performance fee -
Other costs (462,786)
Net change in unrealised appreciation
of investments (16,307,070)
Foreign currency movements (13,896)
Closing NAV as at 30 June 2012 51,847,198
------------------------------------------------- -------- -------------
The Company's investment objective is to provide capital
appreciation through exposure to a diversified portfolio of water
related investments.
The Company gives investors unique access to the steadily
growing private water and wastewater treatment sector by investing
in businesses that are established globally or locally with
potential to grow outside of their core markets, and which have a
successful track record in delivering solutions to their
clients.
We believe that the Company's approach will reward investors
with strong performance in the long-term.
Manager's strategy
The Manager seeks to achieve the investment objective of the
Company by providing shareholders with a pure exposure to the
long-term capital appreciation of water companies through
diversified exposure to a global portfolio of growth capital
water-related investments.
Despite the concentration of the NAV of the portfolio in two
holdings as explained in the Chairman's Statement above, the
portfolio companies continue to be diversified between
technologies, service providers and operators. The portfolio is
actively managed with significant time spent on each investment and
synergies are sought between the different portfolio companies to
extract and deliver superior value.
The Manager carefully considers the exercise of voting rights in
relation to the Company's portfolio companies and votes or refrains
from voting based on a case by case examination, using its best
commercial and financial judgment for the best long-term interests
of the Company and its shareholders. Typically the Manager will,
when making voting decisions, examine the strategic focus and
operating performance of the relevant portfolio company, its
corporate governance and remuneration framework and its
communications and reporting structures. Furthermore, the Manager
has in place a rigorous process for managing the relationship with
each investee company for the period to anticipated realisation.
This includes regular asset reviews and, in three cases, board
representation by one or two of the Manager's executives.
Portfolio overview
The main contributing factor to the decline of the Company's NAV
during the Period was the unrealised loss on equities resulting
from steep changes in the valuation principles applied by the Board
to the portfolio, specifically the exclusion from the comparable
analysis of direct industry competitors retained in previous
valuations. These changes particularly impacted two investments as
described in Note 2 to the condensed interim consolidated financial
statements. The decline of the Company's NAV during the Period was
also due to the decline in the CHC share price. Nevertheless, this
decline was offset by the cash repayment of GBP912,147 for some of
the Company's outstanding loans to BBI and related interest and by
minor foreign exchange gains on equities.
The Manager considers that the valuations do not reflect the
operational performance of the assets nor the value these
investments could fetch in an exit scenario.
In the particular case of RWT, the comparable analysis was
substantially modified by excluding direct industry competitors to
retain all but one of the usual set of competitors for RWT,
implying a multiple reduced by approximately 28 per cent.
(including private company discount). Consequently, despite the
fact that on a year on year basis RWT has achieved strong
operational performance and sustained operational margins, the
value has been reduced by approximately 40 per cent. (or EUR0.215
per ordinary share) when compared to RWT's valuation retained in
the audited financial statements of the Company for the year ended
31 December 2011. This represents more than 90 per cent. of the
reduction in the net asset value per share during the Period.
In the case of In-Pipe, the valuation principle was
substantially modified to adopt an impairment value (which value
has been reduced by approximately 60 per cent. when compared to
year-end valuation retained in the audited financial statements for
the year ended 31 December 2011) despite the fact that In-Pipe has
achieved operational break even and net profit in June 2012 for the
first time since inception and initiated the trend towards
sustainable break-even.
Ranhill Water Technologies (Cayman) Limited performance
RWT is a fully integrated water and wastewater company with
in-house expertise in design, construction and operations of water
and wastewater plants across a number of Asian countries. It has
operations in Thailand, Malaysia and China. Currently, RWT owns and
operates 4 projects in China with a total treatment capacity of 160
Million Litresper Day ("MLD") as well as 2 Build Own Transfer
("BOT") projects consisting of 5 operating plants in Thailand.
As highlighted above, RWT was awarded a new potable water
project in Thailand from an existing client, Amata Industrial
Estate, who contracted their first project with RWT in 2000.
Recently, this client awarded RWT a new water project to treat and
produce 15MLD of potable water under a 20 year BOT scheme. This
project is to support the growth of water consumption in the
industrial park. Amata Industrial Estate is a very established key
industrial estate in the south of Bangkok with close to 500
factories in operation.
Summary of RWT's financial performance(2) (June year-end):
(in US$ million) 2009 2010 2011
------------------ ------- ------- -------
Revenues $ 13.5 $ 22.5 $ 26.1
------------------ ------- ------- -------
EBITDA $ 4.8 $ 6.0 $ 6.4
------------------ ------- ------- -------
Net Profit(3) $ 4.2 $ 4.9 $ 5.0
------------------ ------- ------- -------
For the first nine months (to 31 March 2012) of fiscal year
ending 30 June 2012, RWT registered unaudited revenues of
approximately US$19.5 million, EBITDA of US$5.6 million and net
profit of US$4.2 million(4) . In comparison, for the first nine
months (to 31 March 2011) of fiscal year ending 30 June 2011, RWT
registered unaudited revenues of approximately US$10.7 million,
EBITDA of US$2.0 million and net profit of US$1.2 million, thus
posting a nine months revenue, EBITDA and net profit growth of
approximately 82% per cent., 186% per cent. and 254% per cent.
respectively over the corresponding period in fiscal year 2011.
The Company owns approximately 45.2 per cent. of RWT.
Investment summary:
Unrealised Total value Valuation
Cost (EUR'000) value (EUR'000) (EUR'000) methodology
---- -------------- ---------------- ----------- ----------------------
Discount to comparable
RWT 11,055 4,632 15,687 multiples
---- -------------- ---------------- ----------- ----------------------
Details on the valuation methodology can be found in Note 2 to
the condensed interim consolidated financial statements.
China Hydroelectric Corporation performance
CHC is an owner, consolidator, developer and operator of small
hydroelectric power projects in the People's Republic of China.
CHC's primary business is to identify and evaluate acquisition and
development opportunities and acquire and in some cases construct,
hydroelectric power projects in China. CHC currently owns
twenty-six operating hydroelectric power stations in China with a
total installed capacity at 30 March 2012 of 547.8 Megawatt ("MW"),
of which it acquired twenty-two operating stations and constructed
four. These projects are located in four provinces: Zhejiang,
Fujian, Yunnan and Sichuan(5) . Hydropower is an important factor
in meeting China's electric power needs, accounting for
approximately 22 per cent. of total nation-wide capacity6.
Summary of CHC's financial performance(7) (December
year-end):
(in US$ millions) 2009 2010 2011
------------------ ------- ----- -------
Revenues $34.3 $63.3 $57.5
------------------ ------- ----- -------
EBITDA $20.8 $36.3 $19.3
------------------ ------- ----- -------
Net Profit ($19.4) $3.7 ($45.4)
------------------ ------- ----- -------
On 16 August 2012, CHC reported its second quarter unaudited
results for the six months ended 30 June 2012. The results
benefited from better hydrological levels than recently observed
and tariff increases in six out of the twenty-six power stations
impacting 21.5 per cent. of CHC's total capacity.
For the six months to 30 June 2012, CHC reported unaudited
revenues of US$56.4 million, EBITDA of US$41.8 million and a net
income of US$8.5 million. At the operating level, the six months
revenue, EBITDA and net income are up by approximately 84 per
cent., 117 per cent. and 221 per cent. respectively, over the
corresponding period in fiscal year 2011. At 30 June 2012, CHC
announced that it has been able to secure a total of US$74.2
million through borrowings from banks and non-financial
institutions, releasing the pressure on its liquidity problems with
working capital deficiency and debt payment obligations.
Furthermore, since 1 January 2012, CHC has benefited from the
favourable effect of above average precipitation on revenue and
cash flow. Furthermore, it has taken steps to reduce costs.
However, there is no assurance that CHC's efforts will be
sufficiently effective to meet all its funding requirements in a
timely fashion.
Despite these improved operating results, the first half trading
was affected by general uncertainty on the liquidity position,
during the period from 1 January 2012 to 30 June 2012, CHC's share
price traded on the New York Stock Exchange declined by
approximately 39 per cent. from US$1.14 per American Depositary
Share ("ADS") at 31 December 2011 to US$0.70 per ADS at 30 June
2012.
As highlighted above, during the first six months of 2012, the
Manager developed a strategy alongside like-minded shareholders of
CHC to take some action with the view to improving the financial
performance of CHC. As a result, the Company's subsidiary, Aqua
Resources Asia Holdings Limited ("ARAHL"), as shareholder of CHC,
acting together with certain other shareholders of CHC representing
collectively approximately 40.8 per cent. of CHC's issued share
capital, sent a joint letter to the CHC board of directors setting
out certain concerns regarding the overall management of CHC and
requiring the convening of an extraordinary general meeting ("CHC
EGM") of CHC to consider certain changes to the CHC Board,
consisting of the removal and replacement of five out of seven of
its existing directors. The replacement directors would each be
representatives of the like-minded shareholders, with an
independent director and the President of CHC remaining. In this
regard, ARAHL is nominating Mr. Jui Kian Lim, an employee of the
Manager's group, to the CHC board. The CHC EGM has been
requisitioned for 28 September 2012, in Beijing, China for
shareholders to consider resolutions connected with the proposals.
As a result of acting with these other shareholders in sending the
joint letter to requisition the CHC EGM, under the United States
Securities Exchange Act, the like-minded shareholders are
considered to form a 'consortium' as they have formed together to
'vote' the shares in a certain way. As such, they were required to
jointly file a Form Schedule 13D with the Securities Exchange
Commission ("SEC", which regulates CHC since it is listed on the
New York Stock Exchange), which form was also filed with the SEC on
21 August 2012.
Investment summary:
Unrealised Total value Valuation
Cost (EUR'000) value (EUR'000) (EUR'000) methodology
---- -------------- ---------------- ----------- ------------
Market
CHC 13,479 (12,385) 1,094 price
---- -------------- ---------------- ----------- ------------
Details on the valuation methodology can be found in Note 2 to
the condensed interim consolidated financial statements.
Waterleau Group performance
Waterleau is a global provider of wastewater treatment, water
treatment, sludge treatment, waste treatment, energy, and air
treatment solutions for industry and municipalities. Its services
include research and development, audits and consultancy, pilot
testing and demonstration tests, feasibility studies, technology
selection, process design, mechanical design, electricity and
instrumentation design, basic engineering, detailed engineering,
and procurement. The company also provides equipment supply, site
supervision, general contracting, construction, erection,
electricity, instrumentation and control, start-up and
commissioning, training, operation and maintenance, project
development, financing, and Build Own (Operate) Transfer ("BO(O)T")
project related services.
Summary of Waterleau's financial performance(8) (December
year-end):
(in US$ millions) 2009 2010 2011
------------------ -------- -------- --------
Revenues EUR55.5 EUR63.5 EUR 75.3
------------------ -------- -------- --------
EBITDA EUR6.6 EUR6.6 EUR7.2
------------------ -------- -------- --------
During the first six months to 30 June 2012, Waterleau has
expanded their industrial wastewater business significantly and has
continued to expand their access into the F&B sector which is
enjoying strong growth. Global Water Intelligence recently
published a report stating that worldwide annual capital
expenditure on water technologies in the F&B industry has been
forecast to grow from circa US$3.3 billion in 2011 to around US$6.0
billion by 20209. This would represent a compound annual growth
rate ("CAGR") in the marketplace as a whole of 6.7 per cent. over 9
consecutive years, broadly out-performing most markets. It is,
however, expected that Brazil, Russia, India, China and emerging
markets such as Africa will continue to outpace the market
substantially, providing double-digit CAGRs during the period. The
relatively low cost of Waterleau's solutions, in particular in the
anaerobic segment, is crucial to its success in emerging markets.
An overview of this sector and its potential are detailed in our
market commentary below. The implications for Waterleau are
significant. Meanwhile, in municipal waste water, Waterleau
continues to execute a number of large municipal projects in
emerging markets, in particular in Morocco where it has an
established base with the plant it has built for the Régie Autonome
de Distribution d'Eau et d'Electricité de Marrakech ("RADEEMA"),
treating 110,000m(3)/day of wastewater from the city of Marrakech,
despite the slowdown in the municipal sector due to global
financial market situation and availability of finance for these
kinds of projects. The pipeline for smaller municipal projects has
been stable.
Investment summary:
Unrealised Total value Valuation
Cost (EUR'000) value (EUR'000) (EUR'000) methodology
---------- -------------- ---------------- ----------- ----------------------
Discount to comparable
Waterleau 20,000 6,482 26,482 multiples
---------- -------------- ---------------- ----------- ----------------------
Details on the valuation methodology can be found in Note 2 to
the condensed interim consolidated financial statements.
In-Pipe Technology performance
In-Pipe provides engineered wastewater treatment technology and
services for municipalities in the United States and
internationally. Its technology re-engineers the sewer biofilm to
offer biological nutrient removal, biosolids management, wastewater
recycling, and ultraviolet disinfection services to pre-treat
wastewater in the sewer collection system. The company's solutions
enable customers to achieve environmental compliance, and eliminate
noxious odors and corrosion, as well as lessen the impact of fats,
oils, and grease.
Summary of In-Pipe's financial performance(10) (December
year-end):
(in US$ millions) 2009 2010 2011
------------------ ------ ------ ------
Revenues $1.7 $1.6 $1.8
------------------ ------ ------ ------
EBITDA ($1.5) ($1.6) ($0.8)
------------------ ------ ------ ------
During the first six months to 30 June 2012, In-Pipe has
continued to reduce costs aggressively and restructure the business
which has resulted in reaching break-even for the first time since
inception and posting a net profit in June 2012. During this
period, In-Pipe registered unaudited revenues of approximately US$1
million and an improvement of 70 per cent. of the EBITDA. The
Manager, whose representative has been nominated to become the
Chairman of the board of directors of In-Pipe, is working very
closely with In-Pipe's management with the objective of continuing
this positive trend and of strengthening the value of In-Pipe.
Investment summary:
Unrealised Total value Valuation
Cost (EUR'000) value (EUR'000) (EUR'000) methodology
-------- -------------- ---------------- ----------- ------------
Discount
In-Pipe 3,603 (1,972) 1,972 to cost
-------- -------------- ---------------- ----------- ------------
Details on the valuation methodology can be found in Note 2 to
the condensed interim consolidated financial statements.
Bluewater Bio International performance
BBI is a provider of municipal, industrial, and commercial
wastewater treatment solutions. It offers hybrid bacillus activated
sludge technology, a biological odorless wastewater treatment
process that produces reusable effluent and removes nutrients. The
company also provides plant design, costing, installation,
commissioning, training, and operation and maintenance
services.
Summary of BBI's financial performance (June year-end):
(in US$ millions) 2009 2010 2011
----------------- ------ ------ ----------
not yet
Revenues GBP0.0 GBP0.5 available
----------------- ------ ------ ----------
During the first six months to 30 June 2012, BBI has delivered
and implemented several new plants, namely, Swartruggens in South
Africa and Ashbourne in the UK for its client Severn Trent. They
have also fully integrated FilterClear which they had acquired in
the fall of 2011. Furthermore, they have completed construction of
a demonstration plant in Princeton Meadows in close partnership
with Suez IDI. Finally, BBI is continuing the building phase of its
Tubli project in Bahrain making good progress. For the year ending
30 June 2012, BBI is expected to report increased revenues when
compared to the previous year.
Bluewater Bio International performance
Investment summary:
Realised Unrealised Total value Valuation
Cost (EUR'000) value (EUR'000) value (EUR'000) (EUR'000) methodology
---- -------------- ---------------- ----------------- ----------- ------------
Discount
BBI 9,293 1,128 (5,842) 2,323 to cost
---- -------------- ---------------- ----------------- ----------- ------------
Details on the valuation methodology can be found in Note 2 to
the condensed interim consolidated financial statements.
Performance summary
For the six months ended 30 June 2012, the realised and
unrealised movements of the investment portfolio (including accrued
interest and foreign currency movements) are analysed below.
Net realised loss from foreign currency
transactions (13,062)
Net unrealised gain from foreign currency
transactions 6,811
Net realised loss on investments (7,645)
Change in unrealised depreciation of investments (16,307,070)
Total realised and unrealised gain from
investments and foreign currency (16,293,174)
-------------------------------------------------- -------------
Manager's market commentary and outlook
Despite economic difficulties or political unrest continuing
across the globe, water stocks have undeniably remained a strong
sector in which to invest. This is primarily related to the solid
fundamentals- depleting clean water supplies and the relentless
increase in demand, which are creating challenges only change and
innovation can solve. The empirical performance is clear: Global
Water Intelligence's GWI Water Index outperformed all major stock
indices last month, despite a renewed influx of disastrous economic
news for Europe.
In the Western hemisphere, demand growth in the water technology
sectors is now being driven primarily by industrial water
businesses rather than by municipal businesses. This is due to a
number of reasons; the first is that municipal water businesses
often require large bank loans, which are currently difficult to
obtain given the new, higher capital requirements targeted by
banks, particularly in Europe. Secondly, confidence in Western
government finances continue to deteriorate, and combined with the
fact that municipal water utilities often supply water at lower
than cost, bank exposures to previous leveraged municipal projects
are now no longer considered as safe as they originally were. This
is not necessarily the case in countries where basic water needs
and targets have not been met yet, for instance in North Africa,
the Middle East and Asia, where some of the Company's portfolio
companies are active such as Waterleau, RWT and BBI.
However, in some respects this can be seen as positive for the
industry, since a shift away from municipal to industrial projects
has meant that although deals in the sector have become smaller,
there are more of them and they are generally more profitable than
large municipal projects. Industrial clients also tend to be more
open to trying the innovative technologies that drive progress and
growth, as opposed to simply seeking price competition, which is
fortunate since it drives business towards companies which are
technologically distinguished from their competitors. These
companies can therefore avoid direct price competition, which would
otherwise destroy profitability. Again, the Company's portfolio has
exposure to this kind of technology through Waterleau, In-Pipe, BBI
and RWT.
Innovation is becoming increasingly important in the market not
only due to the fact that it can allow companies to differentiate
their products, but also because it allows increased efficiency.
For example, a company using basic waste water technologies may
find that the cost of capital expenditure or operations has a lower
boundary, that is, the pipes, labour and materials needed can only
allow the company to undercut its rivals to a point below which it
can no longer turn a profit. Innovation, however, changes these
rules - it could mean adding an additional revenue stream in the
form of fertilizer extraction, or it could mean decreasing
maintenance costs, saving energy, reducing capital expenditure
requirements or increasing plant throughput. Any combination of
innovations in these fields can give a company a profitable
advantage over its competition.
The Company's portfolio is directly exposed to two developments
that are currently at the forefront of technology advancement: the
technologies used in the F&B sector, and the trend towards
so-called "water meets waste" technologies.
The F&B market appears to be setting itself up for rapid
expansion in developing economies, as the emerging middle classes
begin to adapt to the freedom of choice provided by their new-found
discretionary incomes. This provides an opportunity for the global
F&B players. Global brands generally manufacture F&B
products locally to their market to reduce costs, particularly
drinks, which have high transportation costs compared to the
product costs. However, this means the companies will need to treat
and process water and waste water locally. This presents a growth
opportunity for the water technology industry.
Two issues that can easily damage a blue chip brand are
inconsistency and contamination. One way in which both of these
risks can be reduced is via investment in advanced production
technologies. Water technology is at the heart of these issues,
since poor water quality can open up a potential gateway for
product contamination while also being a hurdle to product
consistency. Water is again at the forefront of the current ethics
debate, with wide scale water pollution caused by fertilisers,
pesticides and industrial chemicals becoming a global issue. A
single report of pesticide pollutants in a beverage or chemical
anomalies in food can be sufficient to severely damage a brand's
reputation.
The F&B industry is reliant on the use of high volumes of
water, and hence, when combined with the trend of global water
scarcity, it provides the perfect foundation to add value by
optimising the use of water in operations. Similarly, any
opportunities for F&B businesses to increase production
efficiency are likely to prove beneficial and allow these companies
to price their products more competitively. The primary ways in
which efficiencies can be achieved in the F&B industry are via
reduction of water usage though increasing operational efficiency,
reduction in waste water treatment costs, or via energy and
resource recovery.
Whether resulting from fermentation, soaking, cleaning, rinsing
or coagulation, the organic content of F&B industrial effluents
is usually high due to the organic ingredients used in the process.
This makes it a prime target to apply anaerobic digestion, which
can produce alternative energy by using this organic matter as a
feedstock, while simultaneously reducing the BOD(11) of the
resultant waste stream, and also forming the initial stages of a
full secondary and tertiary treatment cycle to enable water
reuse.
As part of increasing energy efficiency, water utilities
globally are looking at increasing their renewable energy
generation as a substitute for drawing that energy from the grid.
Such sources primarily include energy in the form of biogas derived
from sludge processing, and from time to time, a wind turbine on a
waste water treatment site. Increasing biogas production per tonne
of sludge has been a focus of a number of technology companies in
the water treatment space. Such technologies include either
advanced mechanical, thermal or more energy efficient biological
treatment to improve biogas production by sometimes up to 25 per
cent.
Recently, water utilities have started to realise that they have
very valuable assets with biogas generation from organic waste.
Every large waste water treatment site that has anaerobic digestion
(a source of biogas production) as part of the water treatment
process, usually has all the energy generation equipment required
to produce energy from biogas, or sometimes even to clean it for
injection into the grid (particularly in Continental Europe).
Waterleau has diligently noted the opportunities presented in
these markets, and has been steadily growing and building a proven
track record in anaerobic waste water treatment (amongst other
applications). With more than 200 plants built by Waterleau in this
field, it is one of the world's key players. Entering these new
high-growth markets is not easy and Waterleau's established track
record in this field is very valuable.
Exit opportunities for portfolio companies in the sector are
looking increasingly optimistic as demonstrated in the table
below.
Seller Target Buyer Value EV/EBITDA
------------------------- --------------------- ------------ ------- ----------
Norit Clean Process Tech. Pentair $716m 14.4x
------------------------- --------------------- ------------ ------- ----------
Publicly traded company Nalco Ecolab $8.2bn 12.0x
------------------------- --------------------- ------------ ------- ----------
ITT Corporation Xylem IPO $4.5bn 11.0x
------------------------- --------------------- ------------ ------- ----------
Apollo Management(1) Rexnord Corporation IPO $4.0bn 10.5x
------------------------- --------------------- ------------ ------- ----------
Tyco International(2) Tyco Flow Control Pentair $4.9bn 11.3x
------------------------- --------------------- ------------ ------- ----------
Doughty Hanson(1,2) Norit NV Cabot Corp $1.1bn 12.0x
------------------------- --------------------- ------------ ------- ----------
1) All new money (i.e. seller receives
no proceeds - capital raise) 2) Deal pending
Since mid-2011, M&A deals in the water sector have picked up
significant interest, including deals at the larger end of the
spectrum. It is worth noting the EBITDA multiples of all of the
transactions below are above 10 times, indicating strong market
confidence despite the current economic environment(12) and which
bodes well for the portfolio as a whole.
FourWinds Capital Management
29 August 2012
DIRECTORS' RESPONSIBILITY STATEMENT
FOR THE SIX MONTHS ENDED 30 JUNE 2012
To the best of the knowledge of the Directors:
The Highlights, the Chairman's Statement and the Manager's
Report comprise the Half-Yearly Management Report.
This Half-Yearly Management Report and Unaudited Condensed
Interim Consolidated Financial Statements gives a true and fair
view of the assets, liabilities, financial position and profit of
the Company and has been prepared in accordance with the accounting
principles generally accepted in the US.
The Half-Yearly Management Report includes a fair review of the
information required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being
an indication of important events that have occurred in the first
six months of the financial year and their impact on the condensed
set of financial statements; and a description of the principal
risks and uncertainties for the remaining six months of the year;
and
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being
related party transactions that have taken place in the first six
months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period; and any changes in the related party transactions
described in the last annual report that could do so.
Signed on behalf of the Board of Directors by:
Hasan Askari Charles Parkinson
Director Director
29 August 2012
CONDENSED INTERIM CONSOLIDATED STATEMENT OF ASSETS AND
LIABILITIES
at 30 JUNE 2012
Audited
Unaudited 31 December
30 June 2012 2011
Notes EUR EUR
Assets
Cash and cash equivalents 3,858,396 4,078,716
Investments at fair value (cost 2012: EUR57,432,537
and 2011: EUR57,529,286) 2 47,558,864 63,991,141
Interest receivable 50,000 643,739
Receivable from the Manager 462,243 279,213
Prepaid expenses 36,633 13,863
Total assets 51,966,136 69,006,672
-------------- -------------
Liabilities
Other payables 3 118,938 175,070
Total liabilities 118,938 175,070
-------------- -------------
NET ASSETS 51,847,198 68,831,602
============== =============
Net Assets consist of:
Ordinary Shares (no par value, authorised
to issue unlimited number of Ordinary Shares,
of which 72,464,340 (2011: 72,464,340)
were issued
and outstanding) 4 70,030,004 70,030,004
Retained earnings (18,182,806) (1,198,402)
51,847,198 68,831,602
============== =============
Net asset value per Ordinary Share 0.7155 0.9499
============== =============
CONDENSED INTERIM CONSOLIDATED SCHEDULE OF INVESTMENTS
at 30 june 2012
Quantity/ Fair Value % of
Investments Notional EUR NAV
INVESTMENTS AT FAIR VALUE
Bonds
Belgium (cost: EUR20,000,000)
Waterleau Group N.V. Convertible Loan EUR20,000,000 26,482,342 51.08
Total investments in bonds (cost: EUR20,000,000) 26,482,342 51.08
----------- ------
Equities in Unlisted Companies
Belgium (cost: EUR277)
Waterleau Group N.V. 1 367 -
Cayman Islands (cost: EUR20,351,156)
Bluewater Bio International (Note 2) 49,170,112 540,554 1.04
Bluewater Bio International Class B Senior Preferred (Note 2) 283,011 210,142 0.41
Bluewater Bio International Class C Junior Preferred (Note 2) 2,117,984 1,572,648 3.03
Ranhill Water Technologies (Cayman) Limited 14,880,000 15,686,877 30.26
United States of America (cost: EUR3,602,651)
In-Pipe Technology Company Inc. 474,834 1,972,231 3.80
Total investments in unlisted companies (cost: EUR23,954,084) 19,982,819 38.54
----------- ------
Equities in Listed Companies
China (cost: EUR13,478,451)
China Hydroelectric Corporation - American Depository Shares 1,980,537 1,093,702 2.11
Total investments in listed companies (cost: EUR13,478,451) 1,093,702 2.11
----------- ------
Warrants
Cayman Islands (cost: EUR1)
Bluewater Bio International - Warrant 02/11/2016 (Note 2) 1 - -
Bluewater Bio International - Part 2 Warrant 31/03/2013 (Note 2) 1 1 -
United States of America (cost: EUR1)
In-Pipe Technology Company Inc. - Warrants 05/08/2016 (Note 2) 74,225 - -
Total investments in warrants (cost: EUR2) 1 -
----------- ------
Total investments at fair value (cost: EUR57,432,537) 47,558,864 91.73
=========== ======
CONSOLIDATED SCHEDULE OF INVESTMENTS
at 31 DECEMBER 2011
Quantity/ Fair Value % of
Investments Notional EUR NAV
INVESTMENTS AT FAIR VALUE
Bonds
Belgium (cost: EUR20,000,000)
Waterleau Group N.V. Convertible Loan EUR20,000,000 26,520,207 38.53
Cayman Islands (cost: EUR2,979,301)
Bluewater Bio International Convertible Loans GBP2,500,000 2,758,201 4.01
Total investments in bonds (cost: EUR22,979,301) 29,278,408 42.54
----------- ------
Equities in Unlisted Companies
Belgium (cost: EUR277)
Waterleau Group N.V. 1 367 -
Cayman Islands (cost: EUR17,468,604)
Bluewater Bio International (Note 2) 49,170,112 2,282,585 3.32
Ranhill Water Technologies (Cayman) Limited 14,880,000 25,920,200 37.66
United States of America (cost: EUR3,602,651)
In-Pipe Technology Company Inc. 474,834 4,771,731 6.96
Total investments in unlisted companies (cost: EUR21,071,532) 32,974,883 47.91
----------- ------
Equities in Listed Companies
China (cost: EUR13,478,451)
China Hydroelectric Corporation - American Depository Shares 1,980,537 1,737,849 2.52
Total investments in listed companies (cost: EUR13,478,451) 1,737,849 2.52
----------- ------
Warrants
Cayman Islands (cost: EUR1)
Bluewater Bio International - Warrant 02/11/2016 (Note 2) 1 - -
Bluewater Bio International - Part 2 Warrant 31/03/2013 (Note 2) 1 1 -
United States of America (cost: EUR1)
In-Pipe Technology Company Inc. - Warrants 05/08/2016 74,225 - -
Total investments in warrants (cost: EUR2) 1 -
----------- ------
Total investments at fair value (cost: EUR57,529,286) 63,991,141 92.97
=========== ======
CONDENSED INTERIM CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED 30 JUNE 2012
Unaudited Unaudited
30 June 2012 30 June 2011
Notes EUR EUR
Investment Income
Interest income 532,551 215,000
Other income - 597
-------------- --------------
Total investment income 532,551 215,597
-------------- --------------
Operating Expenses
Administrator fees 59,863 59,589
Audit fees 36,779 15,827
Fees for non-audit services - -
Professional fees 29,353 43,986
Brokerage fees 61,488 40,610
Directors' fees 53,517 47,557
Directors' expenses 4,867 8,900
Due diligence expenses 5 53,329 27,830
Management fees 733,202 876,694
Marketing expense 5 16,214 -
Miscellaneous expenses 147,377 95,183
-------------- --------------
Total operating expense 1,195,989 1,216,176
-------------- --------------
Net investment loss (663,438) (1,000,579)
-------------- --------------
Realised and unrealised gain/(loss) from
investments and foreign currency
Net realised loss from foreign currency
transactions (13,062) (34,605)
Net unrealised gain from foreign currency
transactions 6,811 13,556
Net realised loss on investments (7,645) -
Change in unrealised depreciation of investments (16,307,070) (5,725,476)
-------------- --------------
(16,320,966) (5,746,525)
-------------- --------------
Net decrease in net assets resulting from
operations (16,984,404) (6,747,104)
============== ==============
Net investment loss per Ordinary Share
(annualised):
Basic & diluted (0.0092) (0.0138)
Net loss per Ordinary Share (annualised):
Basic & diluted (0.2344) (0.0931)
Weighted average number of Ordinary Shares
outstanding:
Basic & diluted 72,464,340 72,464,340
CONDENSED INTERIM CONSOLIDATED STATEMENT OF CHANGES IN NET
ASSETS
FOR THE SIX MONTHS ENDED 30 JUNE 2012
Unaudited Unaudited
30 June 2012 30 June 2011
Notes EUR EUR
Movement in net assets resulting from
operations
Net investment loss (663,438) (1,000,579)
Net realised loss from foreign currency
transactions (13,062) (34,605)
Net unrealised gain from foreign currency
transactions 6,811 13,556
Net realised loss on investments (7,645) -
Net change in unrealised depreciation
of investments (16,307,070) (5,725,476)
-------------- --------------
Net decrease in net assets resulting from
operations (16,984,404) (6,747,104)
-------------- --------------
Share capital transactions
Issuance of capital - -
Redemption of capital - -
-------------- --------------
Net increase in net assets resulting from
share capital transactions - -
-------------- --------------
Net decrease in net assets resulting from
operations (16,984,404) (6,747,104)
Net assets at beginning of the period 68,831,602 81,535,743
Net assets at end of the period 51,847,198 74,788,639
============== ==============
Net asset value per Ordinary Share 0.7155 1.0321
-------------- --------------
Number of Ordinary Shares issued and outstanding
at end of the period 4 72,464,340 72,464,340
============== ==============
CONDENSED INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED 30 JUNE 2012
Unaudited Unaudited
30 June 2012 30 June 2011
EUR EUR
Cash flows from operating activities
Decrease in net assets resulting from
operations (16,984,404) (6,747,104)
Adjustment to reconcile decrease in net
assets resulting from operations to net
cash used in operating activities:
Net realised loss on investments 7,645 -
Net change in unrealised depreciation
of investments 16,307,070 5,725,476
Decrease/(increase) in interest receivable 593,739 (50,000)
Increase in receivable from the Manager (183,030) -
Increase in prepaid expenses (22,770) (472,101)
Decrease in other payables (56,132) (30,261)
Purchase of investments (2,882,554) (1,725,935)
Sale of investments 3,000,116 -
-------------- --------------
Net cash used in operating activities (220,320) (3,299,925)
-------------- --------------
Net decrease in cash (220,320) (3,299,925)
Cash and cash equivalents at beginning
of the period 4,078,716 8,181,382
-------------- --------------
Cash and cash equivalents at end of the
period 3,858,396 4,881,457
============== ==============
CONDENSED INTERIM CONSOLIDATED FINANCIAL HIGHLIGHTS
FOR THE SIX MONTHS ENDED 30 JUNE 2012
Unaudited Unaudited
30 June 2012 30 June 2011
Per share data(13)
Net asset value at beginning of the period 0.9499 1.1252
Net investment loss (0.0092) (0.0138)
Net realised and unrealised foreign currency
loss (0.0001) (0.0007)
Net realised loss on investments (0.0001) -
Net change in unrealised depreciation
of investments (0.2250) (0.0786)
-------------- --------------
Net decrease in net assets resulting from
operations (0.2344) (0.0931)
-------------- --------------
Net asset value at end of the period 0.7155 1.0321
============== ==============
Ratios/supplemental data
Net asset value per share at end of the
period 0.7155 1.0321
-------------- --------------
Total return (24.68%) (8.27%)
============== ==============
Number of Ordinary Shares outstanding
at end of the period 72,464,340 72,464,340
Weighted average number of Ordinary Shares 72,464,340 72,464,340
Net assets at end of the period (in EUR) 51,847,198 74,788,639
Average net assets(14) (in EUR) 62,911,391 77,878,370
Ratio of operating expenses to average
net assets(15) (3.80%) (3.12%)
Ratio of net investment loss to average
net assets(15) (2.11%) (2.57%)
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS
For the SIX MONTHS ENDED 30 jUNE 2012
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Basis of Presentation
These Unaudited Condensed Interim Consolidated Financial
Statements ("Interim Financial Statements") have been prepared in
accordance with accounting principles generally acceptable in the
US.
The Company modified its policies and principles related to the
valuations of certain investments in preparing these Interim
Financial Statements versus those used for the 2011 Annual Report
and Audited Consolidated Financial Statements (see below).
The Company's Interim Financial Statements are presented in Euro
which is the functional and the reporting currency of the
Company.
b) Basis of Consolidation
Under the Accounting Standard Codification ("ASC") Topic 810,
"Consolidation" ("ASC 810"), consolidation by an investment company
of a non-investment company investee is not appropriate within the
scope of Topic 946 Financial Services - "Investment Companies". An
exception to this general principle occurs if the investment
company has an investment in an operating company that provides
services to the investment company. The condensed interim
consolidated financial statements consolidate the financial
statements of the three wholly owned subsidiaries of the
Company;
-- Aqua Resources (In-Pipe) Holdings Limited ("ARIHL"), a
Guernsey limited company formed in August 2009;
-- Aqua Resources Asia Holdings Limited, an exempt company
incorporated in the Cayman Islands formed in October 2008; and
-- Cooperative Aqua Netherlands Holdings UA, a Dutch
co-operative company formed on 22 March 2010.
ARAHL wholly owns a subsidiary, Robinson Investments Limited,
which is an exempt company incorporated in the Cayman Islands
formed in October 2008 and Cooperative Aqua Netherlands Holdings UA
wholly owns a subsidiary, Aqua Netherlands Holdings BV, which is a
Dutch special purpose vehicle formed on 26 March 2010. All
intercompany accounts are eliminated on consolidation.
Segment Reporting
The Directors are of the opinion that the Company is engaged in
a single segment of business, being water related investment
opportunities.
2. INVESTMENTS
The following tables show an analysis of assets and liabilities
recorded at fair value, between those whose fair value is based on
quoted market prices (Level 1), those involving valuation
techniques where model inputs are observable in the market (Level
2) and those where the valuation technique involves the use of
non-market observable inputs (Level 3).
Quoted prices
in active
markets for Other market-based
identical observable Unobservable
Assets at fair value as assets inputs inputs
of 30 June 2012 Total (Level 1) (Level 2) (Level 3)
Class EUR EUR EUR EUR
Equities- Listed companies 1,093,702 1,093,702 - -
Equities- Unlisted companies 19,982,819 - - 19,982,819
Convertible bonds 26,482,342 - - 26,482,342
Warrants 1 - - 1
Total 47,558,864 1,093,702 - 46,465,162
=========== ============== =================== =============
Quoted prices
in active markets Other market-based
for identical observable Unobservable
Assets at fair value as assets inputs inputs
of 31 December 2011 Total (Level 1) (Level 2) (Level 3)
Class EUR EUR EUR EUR
Equities- Listed companies 1,737,849 1,737,849 - -
Equities- Unlisted companies 32,974,882 - - 32,974,882
Convertible bonds 29,278,409 - - 29,278,409
Warrants 1 - - 1
Total 63,991,141 1,737,849 - 62,253,292
=========== =================== =================== =============
Transfers in or out of level 3
The ASU requires entities to discuss the reasons for these
transfers and to disclose the transfers on a gross basis. Transfers
into level 3 must be separately disclosed from transfers out of
level 3. The ASU also requires that entities disclose their policy
for determining when transfers between levels are recognised and
provides the following examples of policies;
i. the actual date of the event of change in circumstances that cause the transfer
ii. the beginning of the reporting period
iii. the end of the reporting period
The Company is using the policy of recognising transfers at the
beginning of the reporting period.
The Company's policy about the timing of recognising transfers
into the hierarchy levels is the same as the policy for recognising
transfers out and this policy is applied consistently.
The table below shows a reconciliation of beginning to ending
balances for Level 3 investments and the amount of total gains or
losses for the period included in earnings attributable to the
change in unrealised gains or losses relating to assets and
liabilities held at 30 June 2012.
Fair value measurements: A reconciliation of the movement in Level 3 assets
is presented below:
Bonds
Total Equities securities Warrants
EUR EUR EUR EUR
Opening balance 1 January
2012 62,253,292 32,974,882 29,278,409 1
Purchases of investments 2,882,554 2,882,554 - -
Sale of investments (2,401,132) - (2,401,132) -
Realised loss (211,700) - (211,700) -
Change in net appreciation/
(depreciation) (16,057,852) (15,874,617) (183,235) -
Closing balance 30 June
2012 46,465,162 19,982,819 26,482,342 1
============= ============= ============ =========
Total unrealised gains/(losses)
at
30 June 2012* 2,511,076 (3,971,265) 6,482,342 (1)
*The total change in unrealised appreciation (depreciation)
included in the consolidated statement of operations attributable
to level 3 movements still held at 30 June 2012.
The table below shows a reconciliation of beginning to ending
balances for Level 3 investments and the amount of total gains or
losses for the year included in earnings attributable to the change
in unrealised gains or losses relating to assets and liabilities
held at 31 December 2011.
Fair value measurements: A reconciliation of the movement in Level 3 assets
is presented below:
Bonds
Total Equities securities Warrants
EUR EUR EUR EUR
Opening balance 1 January 2011 62,543,677 36,139,685 25,910,809 493,183
Purchases of investments 1,725,936 1,725,936 - -
Change in net unrealised appreciation/(depreciation) (2,016,321) (4,890,739) 3,367,600 (493,182)
Closing balance 31 December
2011 62,253,292 32,974,882 29,278,409 1
============ ============ =========== ==========
Total unrealised gains at 31
December 2011 18,145,628 11,903,440 6,242,189 (1)
Warrants
In November 2011, BBI agreed with the Company to extend the
expiry date of the warrants, previously granted to it in 2010, to 2
November 2016 and to adjust the amount as well as the exercise
price of such warrants. As a result, the Company now holds warrants
to subscribe for a total of 55,366,136 ordinary shares of BBI
expiring in November 2016.
The Company also holds warrants (via its subsidiary ARIHL) to
subscribe for 74,225 of additional shares in In-Pipe, representing
approximately 2 per cent. of the share capital of In-Pipe as at 31
December 2011. These warrants expire in August 2016(16) .
Equity Investments
In determining an investment's placement within the fair value
hierarchy, the Directors take into consideration the following.
Investments whose values are based on quoted market prices in
active markets, and are therefore classified within level 1. These
include listed equities. The Directors do not adjust the quoted
price for such instruments, even in situations where the Company
holds a large position and a sale could reasonably impact the
quoted price.
Investments that trade in markets that are not considered to be
active, but are valued based on quoted market prices, dealer
quotations or alternative pricing sources supported by observable
inputs are classified within level 2. These include less liquid
listed equities. As level 2 investments include positions that are
not traded in active markets and/or are subject to transfer
restrictions, valuations may be adjusted to reflect illiquidity
and/or non-transferability, which are generally based on available
market information.
Investments classified within level 3 have significant
unobservable inputs, as they trade infrequently or not at all.
Level 3 instruments also include private equity investments. When
observable prices are not available for these securities, the
Directors use one or more valuation techniques (e.g., the market
approach or the income approach) for which sufficient and reliable
data is available. For fair value measurements using significant
other observable inputs (level 2) and significant unobservable
inputs (level 3), if there has been a change in the valuation
technique, the reporting entity shall disclose that change and the
reason for making it. Within level 3, the use of the market
approach generally consists of using comparable market
transactions, while the use of the income approach generally
consists of the net present value of estimated future cash flows,
adjusted as appropriate for liquidity, credit, market and/or other
risk factors.
The inputs used by the Directors in estimating the value of
level 3 investments include the original transaction price, recent
transactions in the same or similar instruments, completed or
pending third-party transactions in the underlying investment or
comparable issuers, subsequent rounds of financing,
recapitalisations and other transactions across the capital
structure, offerings in the equity or debt capital markets, and
changes in financial ratios or cash flows. Level 3 investments may
also be adjusted to reflect illiquidity and/or non-transferability,
with the amount of such discount estimated by the Directors in the
absence of market information. The Board has taken an even more
conservative view in considering such illiquidity affecting
minority stakes, and has adopted the recommendations of
PricewaterhouseCoopers, UK, regarding the comparable set of
companies and valuation multiples used. The fair value measurement
of level 3 investments does not include transaction costs that may
have been capitalised as part of the security's cost basis.
Assumptions used by the Directors due to the lack of observable
inputs may significantly impact the resulting fair value and
therefore the Company's results of operations. The actual amounts
realised on a disposal of any investments could differ from their
carrying values, and these differences could be significant.
As at 30 June 2012, the investments held by the Company which
were valued using an estimate of fair value, were as follows:
Ranhill Water Technologies (Cayman) Limited
The Company has valued its holding in RWT using net earnings
derived from (i) RWT's latest audited financial statements for the
year ended 30 June 2011; and (ii) unaudited interim financial
statements for the 9 months ended 31 March 2012, and has applied a
multiple drawn from a peer group of similar but publicly listed
companies. The Board has taken advice from PriceWaterhouseCoopers,
UK on the composition of this peer group and the multiple to be
applied. The composition of the peer group is significantly
different, and the multiple applied to the earnings of RWT in these
interim financial statements, is significantly different from the
corresponding data used in previous financial statements of the
Company. The Board has then applied a discount of 30% to the
valuation to reflect the private, unlisted, nature of RWT. The
Directors are of the opinion that the revised basis of calculation
has produced the fair value of this investment at the period
end.
Waterleau Group
The Company has valued its holding in Waterleau on an
"as-converted" basis (assuming full conversion of the convertible
bonds into ordinary equity), using an EBITDA figure derived from
(i) Waterleau's latest financial statements for the year ended 31
December 2011; (ii) estimated figures for the first half of the
year ending 31 December 2012; and (iii) applying a 20 per cent.
discount to a range of comparable peer group sector relevant
multiples to reflect the relative illiquidity of Waterleau's
shares. At the end of June 2012, Waterleau had a net cash position
which was added to the value obtained from multiplying the EBITDA
to the discounted sector multiple in order to obtain Waterleau's
enterprise value at 30 June 2012. The Directors are of the opinion
that a market participant considering purchasing the investment
would value it using the same valuation methodology excluding the
discount. Accordingly the Directors have decided that this
represented the fair value of this investment at the period
end.
In-Pipe Technology
The Company has valued its holding in In-Pipe by applying an
impairment factor of 50 per cent. to the cost of the investment,
having regard to the losses sustained by In-Pipe during its
start-up phase. This departs from the methodology that was applied
in the financial statements of the Company for the year ended 31
December 2012. The Directors are of the opinion that the value of
this investment, as at the period end, is fairly stated.
Bluewater Bio International
The Company purchased its equity interest in BBI in a number of
tranches during 2009 and subscribed to two loan instruments during
the year 2010.
As part of the Ombu transaction (which is described in more
detail in Note 7 to these Financial Statements) in which two new
investors invested in BBI and which was announced by the Company on
27 March 2012, the Company received a total cash amount of
GBP912,147 by way of partial redemption/repayment of its
outstanding secured loans to BBI, the balance of which has been
converted into two new classes of shares as follows:
i. GBP283,011 into a new class of B preferred shares, ranking
pari passu with the newly created A preferred shares (save that
they are redeemable at any time at the discretion of the board of
directors of BBI); and
ii. GBP2,117,984 into a new class of C preferred shares, ranking
behind the A and B preferred shares.
The residual value of the Company's two loan instruments as at
31 December 2011 (after the repayment of cash) which have since
been converted into these two new classes of shares has been
discounted by 60 per cent. to reflect the illiquid nature of the
new shares. The ordinary equity interest retained by the Company,
which now declined to 12.12 per cent. of the issued voting capital
of BBI (reduced from approximately 17 per cent. which it held
immediately prior to the Ombu transaction) and which ranks behind
the preferred and other classes of shares in the capital of BBI,
has been written down further compared to the value of the ordinary
equity interest as presented in the Company's financial statements
for the year ended 31 December 2011. The Company also holds
warrants in BBI giving it the right to subscribe for additional
ordinary shares (see above) which have been valued at nil. The
Directors are of the opinion that these values represent the fair
values of the Company's investments in BBI.
As at 30 June 2012 the investment held by the Company which is
based on quoted market price (Level 1) was:
China Hydroelectric Corporation
The Company owns approximately 3.67 per cent. of CHC's ordinary
shares (representing 1,980,537 ADS) and the appropriate valuation
of the Company's investment in CHC is based on the closing price on
the New York Stock Exchange on 30 June 2012 of US$0.7 per ADS.
3. OTHER PAYABLES
30 June 2012 31 December
2011
EUR EUR
Administration fees 89,794 60,137
Audit fees 20,000 40,000
Directors' fees - 26,954
Other accrued expenses 9,144 47,979
------------- ------------
118,938 175,070
============= ============
4. SHAREHOLDERS' EQUITY
The authorised share capital of the Company is represented by an
unlimited number of Ordinary Shares of no par value which are
denominated in Euro.
The holders of Ordinary Shares are entitled to:
- receive and participate in any dividends or other
distributions out of the profits of the Company available for
dividend or distribution;
- the right to the surplus assets remaining after payment of all
the creditors of the Company in the case of winding up; and
- the right to receive notice of, and to attend and vote at,
general meetings of the Company and each holder of Ordinary Shares
being present in person or by attorney at a meeting upon a show of
hands has one vote and upon a poll each such holder present in
person or by proxy or by attorney has one vote in respect of each
share held by him.
Under the Company's Articles of Incorporation, the Company may
purchase its own Ordinary Shares in accordance with the Company
(Guernsey) Law, 2008 (the "Guernsey Company Law"). The Company may
hold any Ordinary Shares purchased by it whether out of
distributable profits or the proceeds of a fresh issue of Ordinary
Shares as treasury shares in accordance with the Guernsey Company
Law. Shares held in treasury do not carry the rights as set out
above in respect of Ordinary Shares.
Issued capital
30 June 2012 Number of
Ordinary Shares EUR
Ordinary Shares at 1 January 2012 72,464,340 70,030,004
Ordinary Shares outstanding at 30 June 2012 72,464,340 70,030,004
================ ===========
No shares were issued or repurchased by the Company during the
period.
31 December 2011 Number of
Ordinary Shares EUR
Ordinary Shares at 1 January 2011 72,464,340 70,030,004
Ordinary Shares outstanding at 31 December 2011 72,464,340 70,030,004
================ ===========
No shares were issued or repurchased by the Company during the
year ended 31 December 2011.
5. RELATED PARTIES
At 30 June 2012, the Manager owned 3,685,000 (31 December 2011:
3,685,000) Ordinary Shares of the Company.
At the time of the Company's initial investments in In-Pipe and
Waterleau, Ms. Valerie Daoud Henderson, an employee of the
Manager's group in the role of Head of Europe Environment Group,
became a director of each of those companies.
At the time of the Company's initial investment in RWT, Mr. Jui
Kian Lim, an employee of the Manager's group in the role of Head of
Asia Environment Group, became a director of that company.
At the time of the Company's initial investment in Waterleau,
Ms. Lydia Whyatt, an employee of the Manager's group in the role of
Managing Director, Environment Group, became a director of that
company.
During the period the Company paid EUR53,517 (30 June 2011:
EUR47,557) for directors and officers liability policies for the
Directors.
During the period the Company paid EUR733,202 (30 June 2011:
EUR876,694) in Management Fees and will be reimbursed EUR285,766
(30 June 2011: EURNil) by the Manager for the difference between
the actual base fee and the amount billed during the year ended 31
December 2011.
The following expenses are also paid by the Manager on behalf of
the Company and were reimbursed:
b.
30 June 2012 30 June 2011
EUR EUR
Due diligence expenses 53,329 27,830
Marketing expenses 16,214 -
-------------
Total 69,543 27,830
------------- -------------
A subsidiary of the Manager sublet office space to an investee
company. The sub-lease commenced on 1 September 2010 and ended on
13 April 2012. The annual rent under this agreement was GBP151,900
(approximately EUR176,861). This agreement was completed at arm's
length.
There have been no related party transactions for the purposes
of the UKLA's Listing Rules during the period.
The Directors' interests in the share capital of the Company at
30 June 2012 and 31 December 2011 were:
30 June 2012 Number of Ordinary Shares
Hasan Askari 62,500
31 December 2011 Number of Ordinary Shares
Hasan Askari 62,500
Andrea Rossi 18,750
c.
6. COMPARATIVE FIGURES
Comparative figures used in these Interim Financial Statements
are for the period from 1 January 2011 to 30 June 2011 for the
Condensed Interim Consolidated Statement of Operations, the
Condensed Interim Consolidated Statement of Changes in Net Assets,
the Condensed Interim Consolidated Statement of Cash Flows and the
Condensed Interim Consolidated Financial Highlights. The
comparative figures used for the Condensed Interim Consolidated
Statement of Assets and Liabilities and the Condensed Interim
Consolidated Schedule of Investments are at the year ended 31
December 2011.
7. SIGNIFICANT EVENTS DURING THE PERIOD
On 17 January 2012, Mr. Andrea Rossi resigned as a Director of
the Company. On 2 February 2012, Mr. Fergus Dunlop was appointed as
an independent non-executive director. On 20 June 2012, Mr.
Jonathan Hooley resigned as a non-executive director of the
Company.
On 3 February 2012, J.P. Morgan Asset Management Holdings Inc.
through its J.P. Morgan Specialist Fund, J.P. Morgan Special
Opportunities Fund and J.P. Morgan Private Equity Limited (together
"J.P. Morgan"), announced that it had purchased 9,979,800 Ordinary
Shares representing 13.77 per cent. of the issued Ordinary Shares
on 27 January 2012.
On 27 March 2012, the Company announced that BBI had raised
additional investment in a financing round led by Ombu Group and
Hermes GPE Environmental Innovation Fund LP. The transaction
includes the recapitalisation of BBI by way of a subscription by
the new investors for a new class of A preferred shares in the
capital of BBI, and partial repayment of certain debt held by the
Company and other debt holders in BBI.
As part of the transaction, the Company received a total cash
amount of GBP912,147 by way of partial redemption/repayment of its
outstanding secured loans to BBI, the balance of which has been
converted into two new classes of shares as follows:
i. GBP283,011 into a new class of B preferred shares, ranking
pari passu with the A preferred shares (save that they are
redeemable at any time at the discretion of the board of directors
of BBI);
ii. GBP2,117,984 into a new class of C preferred shares, ranking
behind the A and B preferred shares.
The Company retains an ordinary equity interest in BBI, acquired
in a number of tranches during 2009, which now represents 12.12 per
cent. of the issued voting capital of BBI (reduced from
approximately 17 per cent. which it held immediately prior to this
financing round) and ranks behind the preferred and other classes
of shares in the capital of BBI. The Company also holds warrants in
BBI giving it the right to subscribe for additional ordinary
shares.
8. SUBSEQUENT EVENTS
On 20 June 2012, Mr. Charles Parkinson was appointed as an
independent non-executive director, and Chairman of the Audit
Committee, with effect from 1 July 2012.
On 12 July 2012, J.P. Morgan announced that it had purchased an
additional 1,392,126 shares in the Company bringing its total
ownership to 11,371,926 shares in the Company and representing
15.69 per cent. of the issued Ordinary Shares on 5 July 2012.
On the 16 August 2012 the Administrator informed the Company it
would be terminating the administration agreement. In line with the
administration agreement, the Administrator has given 90 days
notice and the agreement will terminate on the 14 November
2012.
On 21 August 2012, ARAHL as shareholder of CHC, acting together
with certain other shareholders of CHC representing collectively
approximately 40.8 per cent. of CHC's issued share capital, sent a
joint letter to the board of directors of CHC setting out certain
concerns regarding the overall management of CHC and requiring the
convening of an extraordinary general meeting of CHC to consider
certain changes to the CHC board of directors, consisting of the
removal and replacement of five out of seven of its existing
directors. The replacement directors would each be representatives
of the like-minded shareholders, with an independent director and
the President of CHC remaining. In this regard, the ARAHL is
nominating Mr. Jui Kian Lim, an employee of the Manager's group, to
the CHC board. The CHC EGM has been requisitioned for 28 September
2012, in Beijing, China for shareholders to consider resolutions
connected with the proposals. As a result of acting with these
other shareholders in sending the joint letter to requisition the
CHC EGM, under the United States Securities Exchange Act, the
like-minded shareholders are considered to form a 'consortium' as
they have formed together to 'vote' the shares in a certain way. As
such, they were required to jointly file a Form Schedule 13D with
the SEC, which regulates CHC (since it is listed on the New York
Stock Exchange), which form was also filed with the SEC on 21
August 2012.
Footnotes:
(1) Closing share price at 30 June for each Period.
(2) Audited figures for the years ended 30 June 2009, 2010 and
2011.
(3) Net Profit is calculated before currency translation
differences.
(4) Interim figures for the nine months ending 31 March 2012 are
unaudited estimates.
(5) CHC's data.
(6) CHC's data.
(7) Audited figures for the years ended 31 December 2009, 31
December 2010 and 31 December 2011. Source: Capital IQ
(8) Audited figures for the years ended 31 December 2009, 2010
and 2011.
(9) Global Water Intelligence, "Water for Food & Beverage",
April 2012.
(10) Audited figures for the years ended 31 December 2009, 2010
and 2011.
(11) BOD: Biochemical Oxygen Demand is the amount of dissolved
oxygen needed by aerobic biological organisms in a body of water to
break down organic material present in a given water sample at
certain temperature over a specific time period.
(12) Sources: Global Water Intelligence, April 2012 and Wall
Street Journal, 21 June 2012, deals since May 2011.
(13) Basic weighted average per share data
(14) Average net assets calculated using the quarterly net
assets
(15) Ratios based on reporting periods of less than twelve
months have been annualised
(16) The expiry date of the In-Pipe warrants was erroneously
reported to be June 2012 in the 2010 Annual Report as well as in
the 2011 Interim Report.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR ZMGZRDLLGZZM
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