TIDMCAEL
RNS Number : 1680Y
Cazenove Absolute Equity Limited
27 February 2012
CAZENOVE ABSOLUTE EQUITY LIMITED
YEAR END RESULTS ANNOUNCEMENT
The financial information set out in this announcement does not
constitute the Company's statutory financial statements for the
year ended 31 October 2011. All amounts are based on the 31 October
2011 audited financial statements, approved by the Board of
Directors on 24 February 2012.
The announcement is prepared on the same basis as will be set
out in the annual report and financial statements.
Summary Information
Structure
Cazenove Absolute Equity Limited ("the Company") was
incorporated in Guernsey on 22 September 2006 under the Companies
(Guernsey) Laws 1994 to 1996 (as amended), as a limited liability
closed-ended investment company.
History of the Company
The Company's shares were listed on the Alternative Investment
Market ("AIM") of the London Stock Exchange on 25 October 2006 and
on the Channel Islands Stock Exchange ("CISX") on 27 October 2006.
The Company commenced business on 20 October 2006.
The Board of Directors implemented a 'C' share offer on 11
September 2007.
The Company's shares were delisted from AIM and were
subsequently listed on the official list of the main market of the
London Stock Exchange on 29 November 2007.
The Company's convertible 'C' participating redeemable
preference shares were listed on the official list of the main
market of the London Stock Exchange on 29 November 2007.
The existing convertible 'C' participating redeemable preference
shares were converted to redeemable participating preference shares
and were listed on the main market of the London Stock Exchange on
12 December 2007.
The Company made a new issue of redeemable participating
preference shares on 29 February 2008.
On 16 December 2008, the Company joined The Association of
Investment Companies ("AIC").
During the annual general meeting on 24 June 2011 a continuation
vote was held as a result of the discount floor provision being
triggered at the end of the Company's 31 October 2010 financial
year end. It was resolved that the Company would continue as an
investment company. Also during this annual general meeting, the
authority granted to the Directors to use the Company's Share
Buyback Facility to attempt to close the discount and improve
liquidity in the Company's issued share capital by purchasing in
the market up to 14.99% of shares in issue was renewed.
The Directors have also resolved to introduce a further discount
mechanism where if in any 3 month period the average weekly
discount to NAV at which the shares trade exceeds 5%, the Directors
may in their absolute discretion, propose a tender allowing those
Shareholders at the start of the 3 month period to redeem in
aggregate up to 25% of the issued share capital of the Company at a
tender price equivalent to NAV as at the date of tender less the
costs of the tender offer less 2%. However, if as a result of the
tender offers, share buybacks or otherwise, the Company's aggregate
NAV is below GBP20 million for 3 consecutive calander months, it is
the Directors intention to draw up proposals for the voluntary
liquidation of the Company. The tender offer facility was approved
by Shareholders during the annual general meeting on 24 June
2011.
Significant share repurchases could take Cazenove Capital's
aggregate ownership over the Takeover Code's Mandatory Offer
trigger level of 30%; the Board applied for and received a waiver
of Rule 9 under Rule 37 of the Takeover Code, which was approved by
the Shareholders.
During the year ended 31 October 2010, under the Company's Share
Buyback Facility, the Company re-purchased 5,164,804 shares at a
value of GBP5,565,682. During the year ended 31 October 2011, the
Company re-purchased 2,920,000 shares at a value of GBP3,216,832
and cancelled 2,350,000 shares at a value of GBP2,594,934. The
Company also cancelled 1,450,000 shares which were already held in
Treasury. At 31 October 2011, the Company had 43,137,829
participating shares in issue including 4,284,804 shares held in
Treasury. For additional information refer to note 10.
In accordance with the Tender Offer Facility, on 17 October
2011, the Company purchased and cancelled 12,951,004 participating
shares at a value of GBP16,159,615. For additional information
refer to note 10.
Investment Objective and Policy
The investment objective of the Company is to seek to achieve
consistent absolute returns.
The Company will seek to achieve its investment objective
through a policy of investing in a portfolio of long/short equity
funds ("the Underlying Funds"), and will seek to achieve consistent
returns with low levels of volatility.
The Company was invested in five Underlying Funds each managed
by Cazenove Capital Management Limited. However at the annual
general meeting on 24 June 2011, the Investment Policy was amended
to reflect a focus on alpha strategies managed by Cazenove Capital
Management Limited.
The Company is currently invested in two Underlying Funds, each
managed by Cazenove Capital Management Limited. The Underlying
Funds represent long/short equity strategies, with the flexibility
to exploit a wide range of long/short equity investment
opportunities and are:
-- Cazenove UK Dynamic Absolute Return Fund Limited; and
-- Cazenove Absolute UK Dynamic Fund.
31 October
Financial Highlights 2011 31 October 2010
Net assets GBP50,022,262 GBP68,160,217
Net assets per participating
share 128.75p 124.55p
Management and Administration
Directors Registered Office
John Hallam (Chairman) Trafalgar Court
Paul Le Page Les Banques
Geoffrey Marson St. Peter Port
Andrew Ross Guernsey GY1 3QL
Investment Manager Independent Auditor
Cazenove Capital Management Limited Ernst & Young LLP
12 Moorgate PO Box 9
London EC2R 6DA Royal Chambers
St Julian's Avenue
Corporate Brokers St. Peter Port
Numis Securities Limited Guernsey GY1 4AF
The London Stock Exchange Building
10 Paternoster Square CISX Listing Sponsor
London EC4M 7LT Ogier Corporate Finance Limited
(resigned 1 December 2010)
J.P. Morgan Securities Ltd Whiteley Chambers
125 London Wall Don Street
London EC2Y 5AJ St. Helier
Jersey JE4 9WG
Legal Adviser (Guernsey)
Ogiers CISX Listing Sponsor
Ogier House Northern Trust International Fund
St. Julian's Avenue Administration Services (Guernsey)
St. Peter Port Limited (appointed 1 December 2010)
Guernsey GY1 1WA Trafalgar Court
Les Banques
Administrator, Secretary and Registrar St. Peter Port
Northern Trust International Fund Guernsey GY1 3QL
Administration Services (Guernsey) Limited
Trafalgar Court Legal Adviser (UK)
Les Banques Dechert LLP
St. Peter Port 160 Queen Victoria Street
Guernsey GY1 3QL London EC4V 4QQ
Custodian and Principal Bankers CREST Agent
Northern Trust (Guernsey) Limited Computershare Investor
Services
PO Box 859 (Jersey) Limited
Trafalgar Court Queensway House
Les Banques Hilgrove Street
St. Peter Port St. Helier
Guernsey GY1 3DA Jersey JE1 1ES
Receiving Agent
Computershare Investor Services PLC
The Pavilions
Bridgewater Road
Bristol BS99 1XZ
Chairman's Statement and Annual Management Report
Against an extremely volatile market backdrop, Cazenove Absolute
Equity Limited ("the Company") has performed well in the year to 31
October 2011. The net asset value ("NAV") per share improved by
3.4% and the share price rose 9.5%, compared to total returns from
the FTSE All Share Index of 0.6% and the FTSE World Europe ex UK
Index of -9.3% (in sterling terms) over the period. During 2011,
the Company benefited from the more defensive orientation of the
business cycle hedge funds in the portfolio and also from some
astute stock picking within the alpha strategies, particularly
within the Cazenove UK Dynamic Absolute Return Fund. At the end of
October 2011, the share price stood at 119.9p, compared to 109.5p a
year earlier. Over the same period, the NAV per share rose from
124.55p to 128.75p per share. The discount ended the year at 6.9%,
an improvement on the 12.1% reported in my last annual
statement.
The annualised NAV return since launch has been 5.5% and the
correlation with the All Share Index has been 0.14. Since
inception, the shares have outperformed the All Share Index's
return of 8.9%, with an increase of 19.9%. The NAV has increased by
30.7%.
During the financial year, the Company continued to make use of
its mandate to buy in shares. By the end of March, a further
2,920,000 shares had been purchased through the market, building on
the 5,164,804 shares bought during the previous financial year. In
total, therefore, the Company repurchased shares equivalent to
13.5% of the total outstanding before the buyback programme was
initiated. The Company's price discount to NAV, which was around
12%, seemed to be impacted little by the early share purchases, but
it narrowed more obviously in the period to March 2011 (when the
final amount of shares was bought in) to 6.9%. We believe that this
reflected the underlying performance of your Company and the market
environment, as much as the influence of the buybacks
themselves.
During 2011, the Board gained the approval of Shareholders to
change the structure of the Company and also to undertake a tender
offer for 25% of the shares outstanding. These actions were the
result of a programme of meetings between Shareholders and Cazenove
Capital Management Limited. With regard to the structure of the
Company, the decision was taken to focus the investments on the
alpha hedge fund and UCITS strategies within Cazenove's range of
long short equity funds. As a result of this, the holdings in the
Cazenove UK Equity Absolute Return Fund, Cazenove Leveraged UK
Equity Absolute Return Fund, Cazenove European Equity Absolute
Return Fund and Cazenove European Alpha Absolute Return Fund were
sold over a three month period from August to October. The monies
raised were reinvested in Cazenove Absolute UK Dynamic Fund, the
daily-dealing UCITS fund, or used to fund the tender offer. As a
result of the repostitioning of the Company, it now has a greater
overall weighting in mid- and small-cap UK companies.
The tender offer was undertaken during the first half of
October, 2011, priced at the end-September NAV, less 2% and costs.
25% of shares outstanding (12,951,004) were bought in and
cancelled. The Board may, at its discretion, undertake further
tenders on a quarterly basis, should the price discount to NAV
average more than 5% over a predetermined period. In this context,
having taken account of the average discount prevailing during the
period to 31 January 2012, the board has decided to make, subject
to regulatory approval, a further tender offer for up to 25% of the
outstanding shares at a price based upon the net asset value as at
31 January 2012.
In the opinion of the Directors, the Company, in the normal
course of business, is able to meet its liabilities as they fall
due because it has adequate cash resources and its investments are
sufficiently liquid. Consequently the Company has sufficient
financial resources to continue in operational existence for at
least the next 12 months.
As disclosed in note 1 to the financial statements, the
Company's shares have, for the last 12 months, traded on average at
a discount greater than 5% of its net asset value. In accordance
with the Company's Articles, the Board is therefore obliged to hold
a continuation vote at the next annual general meeting. If the
continuation vote does not receive more than 50% of votes in
favour, the Directors will be required to submit proposals to
Shareholders to wind-up, reorganise or reconstruct the Company. At
31 October 2011, the Company's continuation vote discount floor
provision was triggered, as it had been in the previous year. The
Directors will again put forward a continuation vote at the next
annual general meeting of the Company. As a result of the discount
for the 3 months to 31 January 2012 the Directors have announced
that a further tender offer will be made and that a circular will
be sent to shareholders in due course.
If as a result of the tender offers, share buybacks or
otherwise, the Company's aggregate NAV is below GBP20 million for 3
consecutive calendar months, it is the Directors intention to draw
up proposals for the voluntary liquidation of the Company.
The outcome of the continuation vote and the impact of any
future tender offers represent a material uncertainty which may
cast significant doubt as to the likelihood of the Company
continuing as a going concern. The Directors however are of the
opinion that the Shareholders, reacting positively to the recent
restructuring of the Company, and the tender offer, will vote in
favour of the continuation of the Company and that it is therefore
appropriate for the financial statements to be prepared on a going
concern basis.
The Board is grateful for the support shown by Shareholders and
Cazenove Absolute Equity Limited will continue to strive for
consistent absolute returns with low levels of volatility.
John Hallam
Chairman
February 2012
Investment Manager's Report
The fragility of the economic recovery has become more apparent
during 2011. Growth has slowed in most areas, partly as a result of
policy tightening and partly due to the demand destructive effects
of rising inflation. In addition, Europe has been struggling to
resolve the intensifying debt crisis that is undermining the
stability not just of the so-called peripheral European countries,
but the whole of the Eurozone.
In fact, it has not been surprising to see world growth dip. Our
analysis has always suggested that the post-recession world would
undergo a period of shorter cycles, with upswings of disappointing
magnitude - this being the consequence of reducing debt to more
sustainable levels. While during the first post-recession
mini-cycle, consumers worldwide have been hit by higher inflation,
it is in countries where debt levels are highest that the impact
has generally been the greatest. The surprise, in this context, has
come from the US, where household spending has continued to grow at
a reasonably robust rate. In contrast, in the UK, households have
been hit hard by a combination of rising core inflation, increased
food and energy costs and a hike in VAT, which have pushed up
retail price inflation to over 5.5%. With average earnings growing
only slowly, the squeeze on real spending power has been
intense.
The western world and Europe in particular, would have been
better placed to cope with this first cyclical slowdown had it not
been for the deteriorating situation in the Eurozone. What started
as a crisis focused on three relatively small countries (Ireland,
Greece and Portugal) has escalated to the extent that the longevity
of the Euro, itself, cannot be guaranteed. Of most concern has been
the deteriorating position in Italy, and the French banking
system's high exposure to Italian debt. What has added several
layers of complexity to the problems facing Eurozone economies has
been political intransigence in both the countries faced by rising
government borrowing costs and those required to reach a political
accord before credible institutions can be established that would
help support debtor countries and calm the rising nervousness in
financial markets. As to the eventual outcome of the current
situation, there are as many views as people living within the Euro
area.
In our view, we are not in a situation in which the outcome can
be predicted, partly because it is not simply a reflection of
underlying economic fundamentals, but more of a clash between
almost irreconcilable political architectures and attitudes.
However, whether the Euro survives with its existing membership or
it disintegrates completely, the outlook for most of the peripheral
European economies is very poor - possibly with the exception of
Ireland and Spain. If France is sucked into the morass, then the
whole of Europe will face a very tough period of recovery. In the
near term, it is hard not to agree with predictions that suggest
southern Europe will be in recession in 2012 and that the Eurozone
as a whole will achieve only very modest growth at best.
The UK has undershot most economists' expectations for 2011,
partly because not enough attention was focused on the squeeze on
consumer spending power. Our view a year ago was that this would
prove the predominant influence on growth. Looking ahead to 2012,
households should find that a fall in inflation allows for a modest
rise in real disposable income, and this should allow household
consumption to return to a rising trend. Export markets are likely
to prove mixed. While companies will find the environment on
continental Europe very difficult, a slightly improved situation in
Ireland (a big market for the UK) may be of some help. In addition,
if the US gains momentum, this should also benefit exporters.
Another factor that may give UK growth more impetus in 2012 is
capital spending. While it has not kicked in as strongly during the
recovery as many expected, there are signs that investment outlays
will begin to grow faster in the year ahead. So, for 2012, we are
anticipating a slight gain in overall growth momentum from the 1%
that is likely to be reported for 2011.
Equity markets have held up better during 2011 than many might
have feared or predicted. In absolute terms, UK equities look
fairly valued on the basis of longer-term trends in earnings.
Valued against conventional gilts, equities are very modestly
valued, offering a significantly higher risk premium than is
normally the case. In large part, this is because gilts, alongside
other higher-quality government bond markets, have seen yields fall
to exceptionally low levels. In our view, yields are unsustainably
low, although it will take some de-risking of the international
financial environment before this comes through in performance.
Looking ahead, we would expect equities at least to keep pace with
nominal GDP growth; if problems within Europe are seen to diminish
(certainly the biggest 'if' currently facing financial markets),
then upside could be more significant.
All in all, we have experienced relentlessly choppy markets
since the beginning of August, dictated by the probability that
investors were prepared to ascribe to the Euro crisis being
resolvable. Macro sentiment remains extremely fragile, which is in
contrast to the solid and relatively confident messages our
managers generally encounter in company meetings. Our inclination
is, therefore, to focus on picking those stocks with the best
chance to deliver a respectable earnings result in 2012. Valuations
in some names are still modest - with the smaller-company end
offering greatest value for deliverability and low balance sheet
risk. We continue to be encouraged by the breadth of stock picking
opportunities being reported by the managers of the funds held
within Cazenove Absolute Equity Limited.
Following the AGM in 2011, the Board resolved to introduce a
formal discount control mechanism. If, in any three month period
ending 31 January, 30 April, 31 July and 31 October in each year,
the average weekly discount to NAV at which the shares trade
exceeds 5%, the Board may, in its absolute discretion, propose a
tender offer allowing those Shareholders on the share register at
the start of the relevant three month period to tender up to 25% of
their holding at a tender price equivalent to NAV (as at the date
of the tender) less the costs of the tender offer and less 2%. Any
such tender will also allow a Shareholder to tender in excess of
25% of their holding, such excess tender to be satisfied only to
the extent that other Shareholders tender less than their 25%
entitlement.
Any tender will be subject to the discretion of the Board, which
will take into account various factors when determining whether or
not to propose a tender in respect of the period in which the
average discount limit has been breached. These factors include,
but are not limited to, prevailing market conditions, liquidity of
the underlying fund portfolio, the level of anticipated tender, the
impact of costs of those tendering shares and satisfaction of a
statutory solvency test. With regard to the discount monitoring
period to end-January 2012, the average weekly discount for the
three month period was 5.76%.
Cazenove Capital Management Limited
24 February 2012
Board Members
Directors of the Company
The Directors are responsible for the determination of the
Company's investment objectives and policy and have overall
responsibility for the Company's activities. The Directors bring a
range of expertise in the hedge fund and other financial sectors
and have considerable experience of supervising funds with similar
corporate structures to that of the Company.
The Directors of the Company, all of whom are non-executive, are
listed below:
John Hallam, aged 62 (Chairman), resident in Guernsey, is a
Fellow of the Institute of Chartered Accountants in England and
Wales and qualified as an accountant in 1971. He is a former
partner of PricewaterhouseCoopers having retired in 1999 after 27
years with the firm both in Guernsey and in other countries. He is
currently also chairman of Dexion Absolute Limited and Partners
Group Global Opportunities Ltd as well as being a director of a
number of other financial services companies, some of which are
listed on the London Stock Exchange. He served for many years as a
member of the Guernsey Financial Services Commission from which he
retired in 2006 having been its Chairman for the previous three
years.
Paul Le Page, aged 45, is a Director at Financial Risk
Management ("FRM") and is a director of a number of FRM Hedge Fund
products; he has extensive knowledge of, and experience in the fund
management and hedge fund industry. Prior to joining FRM he was an
Associate Director at Collins Stewart Asset Management from January
1999 to July 2005, where he was responsible for managing the firm's
fund research team, reviewing hedge fund managers and managing
hedge fund portfolios. He joined Collins Stewart in January 1999
after a 12 year career in industrial research and development,
latterly as the Research and Development Director for Dynex
Technologies (Guernsey) Limited until 1998, where the development
of a world leading instrumentation family led to the award of a
grant which he used to fund an MBA from Heriot-Watt University in
1999. He graduated in Electrical & Electronic Engineering from
University College London in 1987.
Geoffrey Marson, aged 49, is Managing Director of Odey Wealth
Management (C.I.) Limited. Prior to that, he was Director, Head of
Investment at Credit Suisse (Guernsey) Limited, where he was in
charge of Portfolio Management with responsibility for asset
allocation and investment strategy. Mr Marson started his banking
career in Frankfurt working for Deutsche Bank. In 1984, he joined
Midland Bank International (subsequently Midland Montagu) where he
spent seven years working mainly in London with periods of
secondment in Sydney and Paris. After leaving Midland, he joined
Nikko Securities and subsequently, Union Discount, where he worked
in the financial futures market in London. In 1993, he moved to
Guernsey to work in private banking with Credit Suisse (Guernsey)
Limited. Mr Marson is an Associate of the Chartered Institute of
Bankers and in 1995, qualified as a Chartered Fellow of the
Securities Institute. He graduated in Economics with Honours from
the University of York in 1984.
Andrew Ross, aged 51,joined Cazenove in 2001 and is Chief
Executive of Cazenove Capital Management Limited, the Investment
Manager. He was previously Chief Executive of HSBC Asset Management
(Europe) Limited between 1998 and 2001. Prior to that Mr Ross was
Managing Director of James Capel Investment Management between 1997
and 1998 and was an investment manager at James Capel Investment
Management between 1985 and 1997. He is a member of the FSA
Practitioners Panel and Deputy Chairman of APCIMS.
Save for Mr Ross, all Directors are independent of the
Investment Manager.
Disclosure of Directorships in Public Companies Listed on
Recognised Exchanges
Company Name Exchange
John Hallam
BH Global Limited London, Bermuda
and Dubai
Dexion Absolute Limited London
HICL Infrastructure Co Limited London
NB Distressed Debt SFM, London
NB Private Equity Partners Limited Amsterdam
& SFM, London
Partners Group Global Opportunities Limited Ireland
Vision Opportunity China Fund Limited AIM
Paul Le Page
Thames River Multi Hedge PCC Limited London
Geoffrey Marson
FRM Diversified Alpha* London
Andrew Ross
None None
Certain Directors maintain additional directorships that are
also listed but not actively traded on various exchanges. Details
may be obtained from the Corporate Secretary.
*Geoffrey Marson resigned from the board as of 5 December
2011
Directors' Report
The Directors present their annual report and audited financial
statements for the year ended 31 October 2011, which have been
properly prepared in accordance with The Companies (Guernsey) Law,
2008.
Cazenove Absolute Equity Limited ("the Company") is a Guernsey
registered closed-ended investment company listed on the main
market of the London Stock Exchange (LSE) and on the Channel Island
Stock Exchange (CISX).
Principal Activity
The principal activity of the Company is investment with the
objective of providing Shareholders with consistent returns with
low levels of volatility by investing in a portfolio of long/short
equity Underlying Funds.
Life of the Company
The Company has been incorporated with an unlimited life, but in
accordance with the Articles of Association, the Directors are
obliged to propose a continuation vote at the subsequent annual
general meeting to be held after the Company's fifth anniversary of
incorporation and every five years after. The Directors have also
resolved to introduce a further discount mechanism where if in any
3 month period the average weekly discount to NAV at which the
shares trade exceeds 5%, the Directors may in their absolute
discretion, propose a tender allowing those Shareholders at the
start of the 3 month period to redeem in aggregate up to 25% of the
issued share capital of the Company at a tender price equivalent to
NAV as at the date of tender less the costs of the tender offer
less 2%. The tender offer facility was approved by Shareholders
during the annual general meeting on 24 June 2011.
Furthermore, if as a result of the tender offers, share buybacks
or otherwise, the Company's aggregate NAV is below GBP20 million
for 3 consecutive calendar months, it is the Directors intention to
draw up proposals for the voluntary liquidation of the Company.
Going Concern
In the opinion of the Directors, the Company, in the normal
course of business, is able to meet its liabilities as they fall
due because it has adequate cash resources and its investments are
sufficiently liquid. Consequently the Company has sufficient
financial resources to continue in operational existence for at
least the next 12 months.
As disclosed in note 1 to the financial statements, the
Company's shares have, for the last 12 months, traded on average at
a discount greater than 5% of its net asset value. In accordance
with the Company's Articles, the Board is therefore obliged to hold
a continuation vote at the next annual general meeting. If the
continuation vote does not receive more than 50% of votes in
favour, the Directors will be required to submit proposals to
Shareholders to wind-up, reorganise or reconstruct the Company. At
31 October 2011, the Company's continuation vote discount floor
provision was triggered, as it had been in the previous year. The
Directors will again put forward a continuation vote at the next
annual general meeting of the Company. As a result of the discount
for the 3 months to 31 January 2012 the Directors have announced
that a further tender offer will be made and that a circular will
be sent to shareholders in due course.
The outcome of the continuation vote and the impact of any
future tender offers represent a material uncertainty which may
cast significant doubt as to the likelihood of the Company
continuing as a going concern. The Directors however are of the
opinion that the Shareholders, reacting positively to the recent
restructuring of the Company, and the tender offer, will vote in
favour of the continuation of the Company and that it is therefore
appropriate for the financial statements to be prepared on a going
concern basis.
Results
The results for the year are set out in the Statement of
Comprehensive Income. The Directors do not propose an income
distribution for the year (31 October 2010: nil).
Performance Distribution Facility
The Company has been established with a feature which, subject
to a Shareholder making an election and at the Directors'
discretion, may allow a Shareholder to benefit from an annual
capital distribution representing, as closely as possible,
one-third of the increase in the net asset value per share during
the relevant financial year. If it is considered to be in the
interests of Shareholders, distributions would be made by way of a
partial redemption of each Shareholder's holding of shares. No such
capital distribution is proposed for the current year, given the
tender offer(s).
Directors
Directors during the year and as at the date of this report are
set out on the Management and Administration page.
Directors' Interests
As at 31 October 2011, the Directors of the Company held the
following shares in the Company:
John Hallam 20,000 redeemable participating preference
shares
Andrew Ross 66,000 redeemable participating preference
shares
Statement of Directors' Responsibilities
The Directors are responsible for preparing the financial
statements for the year ended 31 October 2011 which give a true and
fair view of the state of affairs of the Company as at the end of
the year and of the returns achieved by the Company for that year.
In preparing those financial statements the Directors are required
to:
- select suitable accounting policies and then apply them
consistently;
- make judgments and estimates that are reasonable and
prudent;
- state whether applicable accounting standards have been
followed, and
- 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 proper accounting
records which disclose with reasonable accuracy at any time the
financial position of the Company and to enable them to ensure that
the financial statements have been properly prepared in accordance
with The Companies (Guernsey) Law, 2008 and International Financial
Reporting Standards (IFRS) as adopted by the European Union (EU).
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 Cazenove
Absolute Equity Limited website. Legislation in Guernsey governing
the preparation and dissemination of financial information may
differ from legislation in other jurisdictions.
So far as each of the Directors is aware, there is no relevant
audit information of which the Company's auditor is unaware, and
each has taken all the steps he ought to have taken as a Director
to make himself aware of any relevant information and to establish
that the Company's auditor is aware of that information.
The Board reviews the share discount on a regular basis and
reviews all discount management options available to them.
Share Capital
The share capital of the Company in issue as at 31 October 2011
was 38,853,025 shares (31 October 2010: 54,724,029 shares) which
together with 4,284,804 shares (31 October 2010: 5,164,806 shares)
held in Treasury results in a total issued share capital of
43,137,829 participating shares (31 October 2010: 59,888,833) at
that date.
Tender Offer
The Directors have also resolved to introduce a further discount
mechanism where if in any 3 month period the average weekly
discount to NAV at which the shares trade exceeds 5%, the Directors
may in their absolute discretion, propose a tender allowing those
Shareholders at the start of the 3 month period to redeem in
aggregate up to 25% of the issued share capital of the Company at a
tender price equivalent to NAV as at the date of tender less the
costs of the tender offer less 2%. The tender offer facility was
approved by Shareholders during the annual general meeting on 24
June 2011.
Furthermore, if as a result of the tender offers, share buybacks
or otherwise, the Company's aggregate NAV is below GBP20 million
for 3 consecutive calendar months, it is the Directors intention to
draw up proposals for the voluntary liquidation of the Company.
During an extraordinary general meeting held on 30 September
2011, Shareholders approved the proposed Tender Offer. Under the
Tender Offer Facility the Company purchased and cancelled
12,951,004 participating shares at a value of GBP16,159,615. For
additional information refer to note 10.
During a Board Meeting held on 16 February 2012, the Board
approved a further tender offer and a circular will be sent to
shareholders in due course.
Share Buy Back Policy
The Board will undertake share buy-backs so long as they believe
that it is in the best interests of Shareholders as a whole to do
so.
The Directors have authority to buy-back up to 14.99% of the
Company's shares in issue immediately following Admission and will
seek annual renewal of this authority from Shareholders. Any
buy-back of shares is made subject to Guernsey law and within
guidelines established from time to time by the Board (which will
take into account the income and cash flow requirements of the
Company) and the making and timing of any buy-backs is at the
absolute discretion of the Board.
The Board may elect, subject to compliance with the applicable
laws in Guernsey, to hold shares purchased under the Company's
buy-back programme in Treasury, if it considers it to be in the
best interests of Shareholders. The Articles permit the Company to
hold up to 10% of its total number of shares in issue in Treasury
in accordance with Guernsey Law. The Company will be able to sell
shares held in Treasury, subject to compliance with all applicable
laws and regulations, and such sale will not be subject to any
pre-emption rights in favour of existing Shareholders.
During the year ended 31 October 2011 under the Company's Share
Buyback Facility, the Company re-purchased 2,920,000 shares at a
value of GBP3,216,832 and cancelled 2,350,000 shares at a value of
GBP2,594,934. The Company also cancelled 1,450,000 shares which
were held in Treasury. For additional information refer to note
10.
Performance Measurement
The Board hold quarterly meetings in order to consider the
original objectives set, and whether the investment policies are
still appropriate. As a consequence of these meetings the Board
proposed a revised investment policy to the Shareholders which was
approved at the annual general meeting held on 24 June 2011. The
last meeting was held on 13 December 2011.
Corporate Governance
The Company joined The Association of Investment Companies
("AIC") on 16 December 2008 and reports against the Principles and
recommendations set out in the AIC Code of Corporate
Governance.
Currently, the UK Listing Authority requires all overseas
companies with a "Premium listing" (which includes the Company) to
"comply or explain" against the UK Corporate Governance Code.
The Board of the Company has considered the principles and
recommendations of the AIC by reference to the AIC Corporate
Governance Guide for Investment Companies (AIC Guide). The AIC
Code, as explained by the AIC Guide, addresses all the principles
set out in the UK Corporate Governance Code, as well as setting out
additional principles and recommendations on issues that are of
specific relevance to the Company.
The Board considers that reporting against the principles and
recommendations of the AIC Code, and by reference to the AIC Guide
(which incorporates the UK Corporate Governance Code), will provide
better information to Shareholders.
The Company has complied with the recommendations of the AIC
Code and the relevant provisions of the UK Corporate Governance
Code, except as set out below.
The UK Corporate Governance Code includes provisions relating
to:
-- the role of the chief executive
-- executive directors' remuneration
-- the need for an internal audit function
For the reasons set out in the AIC Guide, and as explained in
the UK Corporate Governance Code, the Board considers these
provisions are not relevant to the position of the Company, being
an externally managed investment company. The Company has therefore
not reported further in respect of these provisions.
The obligations under the EU Company Reporting Directive which
are implemented by Disclosure and Transparency Rule 7.2, apply to
all issuers of equities from 6 April 2010. Under this rule, a
company must:
(i) make a corporate governance statement in its annual report
and accounts based on the code to which it is subject, or with
which it voluntarily complies; and
(i) describe its internal control and risk management arrangements.
Details of compliance are noted below. There have been no
instances of non-compliance noted, other than those noted
above.
Composition and Independence of the Board
The Board currently consists of four Directors, all of whom are
independent except for Andrew Ross who is the chief executive of
the Investment Manager. John Hallam is the Chairman of the Board.
The Board believes it has a good balance of skills and experience
to ensure it operates effectively.
The Company has no employees and there is no requirement for a
chief executive.
The Board has engaged external companies to undertake the
investment management, administrative and custodial activities of
the Company. Documented contractual arrangements are in place with
these companies which define areas where the Board has delegated
responsibility to them. The Board regularly reviews the performance
of external companies. Refer to the Management Committee disclosure
for additional information.
The Company holds a minimum of 4 board meetings per year to
discuss general management, structure, finance, corporate
governance, marketing, risk management, compliance, asset
allocation, contracts and performance.
The quarterly board meetings are the principal source of regular
information for the Board enabling it to determine policy and to
monitor performance, compliance and controls but these meetings are
supplemented by communication and discussions through the year. A
representative from the Investment Manager and Administrator
attends each board meeting enabling the Board to fully discuss and
review the Company's operation and performance. Each Director has
direct access to the Investment Manager and Company Secretary and
may at the expense of the Company seek independent professional
advice on any matter.
Attendance at the regular board and audit committee meetings
during the year was as follows:
Board meetings Audit committee
Quarterly Ad-hoc meetings
Number of meetings held 4 4 3
---------- ------- ----------------
John Hallam 4 3 3
Paul Le Page 4 3 3
Geoffrey Marson 4 4 2
Andrew Ross 2 0 not a member
There are no service contracts between any of the Directors and
the Company. Each Director, other than Mr Ross, serves on the
Management Engagement Committee and the Audit Committee. As all of
the Directors are non-executive and independent, a separate
Remuneration Committee and Nomination Committee have not been
appointed. The Board is satisfied that the Management Engagement
Committee and Audit Committee contain members with sufficient
recent and relevant financial experience.
Management Committee
The Management Engagement Committee is responsible for the
review of the terms of the Investment Management Agreement between
the Company and the Investment Manager, and to ensure that the
terms are competitive, fair and reasonable for the Shareholders.
This includes the review of performance of the Investment Manager
relative to the agreed benchmark, performance of key service
providers, the level of effectiveness of any marketing support
provided and any other topics referred to it by the Board. Geoffrey
Marson is the Chairman of the Management Engagement Committee. The
last meeting was held on 24 February 2012.
Audit Committee
The Audit Committee is responsible for the review of the annual
and the interim reports, the nature and scope of the external audit
and the findings therefrom, and the terms of appointment of the
Auditors of the Company, including their remuneration and the
provision of any non-audit services by them. The audit committee
may meet representatives of the Investment Manager and its
compliance officer who report as to the proper conduct of business
in accordance with the regulatory environment in which both the
Company and the Investment Manager operate. The Company's Auditors
may also attend this committee at the committee's request and
report on their work procedures and their findings in relation to
the Company's statutory audit. Paul le Page is the Chairman of the
Audit Committee.
Nomination Committee
The Board as a whole fulfils the function of a Nomination
Committee. Any proposal for a new Director will be discussed and
approved by the Board. The Board will determine whether in future
an external search consultancy or open advertising is used in the
appointments of non-executive Directors.
Remuneration Committee
The Board does not have a separate Remuneration Committee
because this function is carried out as part of the regular Board
business. It was not necessary for this Company to appoint a
Remuneration Committee as there were no executive Directors and a
Remuneration Report is contained in the annual report. Directors'
remuneration is considered on an annual basis.
Directors' and Officers' liability insurance cover is maintained
by the Company on behalf of Directors.
Board Performance
The Board undertakes a formal annual evaluation of its own
performance and that of its committees and individual Directors. In
order to review its effectiveness, the Board carries out a process
of formal self-appraisal. The Directors consider how the Board
functions as a whole taking balance of skills, experience and
length of service into consideration and also reviews the
individual performance of its members.
The Chairman reviews the Directors performance, contribution and
commitment to the Company. The independent Directors review the
Chairman's performance.
Retirement by Rotation
In accordance with the Company's Articles of Association, at
each annual general meeting an independent Director, who is subject
to retirement by rotation, shall retire from office if they:
(i) were last appointed or reappointed three years or more prior to the meeting;
(ii) were last appointed or reappointed at the third immediately
preceding annual general meeting; or
(iii) at the time of the meeting will have served more than
eight years as a non-executive Director of the Company.
As Andrew Ross is an employee of Cazenove Capital Management he
is deemed to be a non independent Director and therefore stands for
re-election at each annual general meeting.
The Company will offer induction training to new Directors about
the Company, its managers, their legal responsibilities and
investment company industry matters. As part of the annual process
the Chairman reviews the training requirements of the
Directors.
Internal Control
The Board is responsible for establishing and maintaining the
Company's system of internal controls and for maintaining and
reviewing its effectiveness. The system of internal controls is
designed to manage rather than eliminate the risk of failure to
achieve specific business objectives and as such can only provide
reasonable, but not absolute assurance against material
misstatement or loss. These controls aim to ensure that assets of
the Company are safeguarded, proper accounting records are
maintained and the financial information for publication is
reliable. The Board uses a formal risk assessment matrix to
identify and monitor business risks. The formal risk assessment
matrix is reviewed quarterly.
The Board considers on an ongoing basis the process for
identifying, evaluating and managing any significant risks faced by
the Company. The process includes reviewing reports from the
Company Secretary on risk control and compliance, in conjunction
with the Investment Manager's regular reports which cover
investment performance.
The Board has contractually delegated to external parties
various functions as listed below. The duties of investment
management, administration and custody are segregated. Each of the
contracts entered into with the parties was entered into after full
and proper consideration by the Board of the quality and cost of
services offered, including the control systems in operation as far
as they relate to the affairs of the Company.
-- Investment Management is provided by Cazenove Capital
Management Limited
-- Brokerage services are provided by Numis Securities Limited
and JP Morgan Securities Ltd
-- Sponsorship, administration and company secretarial duties
are performed by Northern Trust International Fund Administration
Services (Guernsey) Limited, a company licensed and regulated by
the Guernsey Financial Services Commission
-- Custody of assets is undertaken by Northern Trust (Guernsey)
Limited, a company authorised and regulated by the Guernsey
Financial Services Commission
-- CREST agency functions are performed by Computershare
Investor Services (Jersey) Limited, a company licensed and
regulated by the Jersey Financial Services Commission
-- Corporate Finance services are provided by Numis Securities
Limited
The Management Engagement Committee conducts an annual service
provider review to evaluatuate the services provided by these
companies. In addition, the Board keeps a risk matrix which
monitors business, operational, financial and compliance risks for
the Company as a whole.
As with most investment companies the Company does not have an
internal audit function. All of the Company's management functions
are delegated to the Investment Manager and Administrator, which
have their own internal audit and risk assessment functions.
Meeting with Shareholders
The Directors are available to enter into dialogue with
Shareholders and are contactable via the Company Secretary. All
Shareholders have the opportunity to attend and vote at the annual
general meeting. The Board stays abreast of Shareholders' views via
regular updates from the Company's broker and the Investment
Manager.
Auditor
A resolution for the re-appointment of Ernst & Young LLP
will be proposed at the next annual general meeting.
Significant Shareholdings
Shareholders with holdings of more than 3% of the issued
redeemable participating preference shares of the Company at 15
February 2012 were as follows:
Percentage of
Number of shares share capital
Chase Nominees Limited* 11,395,501 29.33%
BNP Paribas Arbitrage SNC 4,763,356 12.26%
Vidacos Nominees Limited 4,620,728 11.89%
The Bank of New York (Nominees)
Limited 3,642,635 9.38%
Pershing Nominees Limited 2,902,237 7.47%
Hargreaves Lansdown (Nominees)
Limited 1,531,336 3.94%
HSBC Global Custody Nominees
(UK) Limited 1,522,965 3.92%
Nortrust Nominees Limited 1,513,924 3.90%
*10,496,026 shares held for Cazenove Capital Management
John Hallam Paul Le Page
24 February 2012
Responsibility Statement
We confirm that to the best of our knowledge:
(a) the annual financial report includes information detailed in
the Chairman's Statement and Annual Management Report, Investment
Manager's Report and Notes to the Financial Statements, which
include a fair review of the development and performance of the
business and the position of the Company together with a
description of the principal risk and uncertainties that the
Company faces as required by DTR 4.1.8 and DTR 4.1.11; and
(b) the financial statements for the year ended 31 October 2011,
have been prepared in accordance with International Financial
Reporting Standards (IFRS) as adopted by the EU and give a true and
fair view of the assets, liabilities, financial position and profit
or loss of the Company.
By order of the Board,
John Hallam Paul Le Page
24 February 2012
Directors' Remuneration Report
Introduction
An ordinary resolution for the approval of the annual
remuneration report will be put to the Shareholders at the annual
general meeting to be held in 2012.
Remuneration Policy
All Directors are non-executive and a Remuneration Committee has
not been established. The Board as a whole considers matters
relating to the Directors' remuneration. No advice or services were
provided by any external person in respect of its consideration of
the Directors' remuneration.
The Company's policy is that the fees payable to the Directors
should reflect the time spent by the Directors on the Company's
affairs and the responsibilities borne by the Directors and be
sufficient to attract, retain and motivate directors of a quality
required to run the Company successfully. The Chairman of the Board
is paid a higher fee in recognition of his additional
responsibilities. The policy is to review fee rates periodically,
although such a review will not necessarily result in any changes
to the rates, and account is taken of fees paid to directors of
comparable companies.
There are no long term incentive schemes provided by the Company
and no performance fees are paid to Directors.
No Director has a service contract with the Company but each of
the Directors is appointed by a letter of appointment which sets
out the main terms of their appointment. Directors hold office
until they retire by rotation or cease to be a Director in
accordance with the Articles of Incorporation, by operation of law
or until they resign.
Remuneration
The Directors of the Company are remunerated for their services
at such a rate as the Directors determine provided that the
aggregate amount of such fees does not exceed GBP200,000 (31
October 2010: GBP200,000) per annum.
Directors are remunerated in the form of fees, payable quarterly
in arrears, to the Director personally. No Directors have been paid
additional remuneration outside their normal Directors' fees and
expenses.
The Directors, other than the Chairman, are entitled to
remuneration for their services of GBP17,500 (31 October 2010:
GBP17,500) per annum, Mr. Ross has waived his right to a fee. The
Chairman is entitled to receive GBP23,500 (31 October 2010:
GBP23,500) per annum.
There were no increase in Directors fees (31 October 2010:
Chairman and the Directors' fees increased by GBP3,500 and GBP2,500
respectively) during the year.
For the years ended 31 October 2011 and 31 October 2010
Directors' fees were as follows:
2011 2010
GBP GBP
John Hallam 23,500 23,500
Paul Le Page 17,500 17,500
Geoffrey Marson 17,500 17,500
Andrew Ross - -
Signed on behalf of the Board by:
John Hallam
Paul Le Page
24 February 2012
Independent Auditors Report to the members of Cazenove Absolute
Equity Limited
We have audited the financial statements of Cazenove Absolute
Equity Limited for the year ended 31 October 2011 which comprise
Statement of Financial Position, the Statement of Comprehensive
Income, the Statement of Cash Flows, the Statement of Changes in
Equity and the related notes 1 to 15. 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.
This report is made solely to the company's members, as a body,
in accordance with Section 262 of the Companies (Guernsey) Law,
2008. 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.
Respective responsibilities of directors and auditor
As explained more fully in the Directors' Responsibilities
Statement, the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true
and fair view. Our responsibility is to audit and express an
opinion on the financial statements in accordance with applicable
law and International Standards on Auditing (UK and Ireland). Those
standards require us to comply with the Auditing Practices Board's
Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free from
material misstatement, whether caused by fraud or error. This
includes an assessment of: whether the accounting policies are
appropriate to the company's circumstances and have been
consistently applied and adequately disclosed; the reasonableness
of significant accounting estimates made by the directors; and the
overall presentation of the financial statements. In addition, we
read all the financial and non-financial information in the Annual
Report to identify material inconsistencies with the audited
financial statements. If we become aware of any apparent material
misstatements or inconsistencies we consider the implications for
our report.
Opinion on financial statements
In our opinion the financial statements:
-- Give a true and fair view of the state of the company's
affairs as at 31 October 2011 and of its profit 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 (Guernsey) Law, 2008.
Emphasis of Matter - Going Concern
In forming our opinion on the financial statements, which is not
modified, we have considered the adequacy of the disclosure made in
note 1 to the financial statements concerning the Company's ability
to continue as a going concern. The matters explained in note 1 to
the financial statements indicate the existence of a material
uncertainty which may cast significant doubt about the likelihood
of the Company continuing as a going concern. The financial
statements do not include the adjustments that would result if the
Company were not to continue as a going concern.
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the Companies (Guernsey) Law, 2008 we are required to
report to you if, in our opinion:
-- Proper accounting records have not been kept; or
-- The financial statements are not in agreement with the accounting records; or
-- We have not received all the information and explanations we require for our audit.
Under the Listing Rules we are required to review the part of
the Corporate Governance Statement relating to the company's
compliance with the nine provisions of the UK Corporate Governance
Code specified for our review.
Michael Bane
For and on behalf of
Ernst & Young LLP
Guernsey
24 February 2012
Notes: The maintenance and integrity of the Cazenove Absolute
Equity Limited web site is the responsibility of the Directors; the
work carried out by the auditors does not involve consideration of
these matters and accordingly, the auditors accept no
responsibility for any changes that may have occurred to the
financial information since it was initially presented on the web
site.
Legislation in Guernsey governing the preparation and
dissemination of financial information may differ from legislation
in other jurisdictions.
Portfolio Statement
As at 31 October 2011
31.10.11 31.10.10
Fair value % of net % of net
Holding GBP assets Assets
Unlisted
Cazenove UK Dynamic Absolute
Return Fund Limited 10,863 23,296,564 46.57 30.80
Cazenove Absolute UK Dynamic
Fund 20,118,446 23,619,056 47.22 -
Cazenove European Equity Absolute
Return Fund Limited* - - - 28.82
Cazenove UK Equity Absolute
Return Fund Limited* - - - 14.39
Cazenove Leveraged UK Equity
Absolute Return Fund Limited* - - - 16.64
Cazenove European Alpha Absolute
Return Fund Limited* - - - 6.81
Total investments 46,915,620 93.79 97.46
Net current assets 3,106,642 6.21 2.54
------------ ---------- ---------
50,022,262
Net assets 50,022,262 100.00 100.00
============ ========== =========
* The holdings in the Cazenove UK Equity Absolute Return Fund,
Cazenove Leveraged UK Equity Absolute Return Fund, Cazenove
European Equity Absolute Return Fund and Cazenove European Alpha
Absolute Return Fund were sold over a three month period from
August to October 2011. The monies raised were reinvested in
Cazenove Absolute UK Dynamic Fund, the daily-dealing UCITS fund, or
used to fund the tender offer.
Significant Portfolio Movements(1)
For the year ended 31 October 2011
Cost
Holding Purchases GBP
20,118,446 Cazenove Absolute UK Dynamic Fund 24,000,000
Total purchase costs 24,000,000
============
Proceeds
Holding Sales GBP
Cazenove European Equity Absolute Return
12,364 Fund Limited 18,712,803
6,526 Cazenove UK Equity Absolute Return Fund Limited 10,071,026
Cazenove Leveraged UK Equity Absolute Return
8,522 Fund Limited 11,917,917
Cazenove European Alpha Absolute Return Fund
3,255 Limited 4,469,885
Total sale proceeds 45,171,631
============
(1)Significant portfolio movements disclose all the purchases
and sales for the year.
Statement of Comprehensive Income
For the year ended 31 October 2011
01.11.10 to 01.11.09 to
31.10.11 31.10.10
Notes GBP GBP
Investment income
Net gains/(losses) on financial
assets at fair value through
profit and loss 4 1,656,340 (4,294,387)
Total Investment Income 1,656,340 (4,294,387)
------------ ------------
Expenses
Directors' fees 5(a) (58,500) (58,500)
Administration fees 5(c) (36,000) (36,000)
Investment management fees 5(b) (25,000) (25,000)
Custodian fees 5(d) (14,000) (14,000)
Brokerage fees 5(e) (25,000) (9,358)
Audit fees (16,975) (16,125)
Share costs 10 (169,781) (180,564)
Other expenses (72,592) (87,395)
Total operating expenses (417,848) (426,942)
------------ ------------
Net profit/(loss) 1,238,492 (4,721,329)
============ ============
Basic and diluted earnings/(loss)
per participating share 7 2.40p (7.96p)
============ ============
Earnings per founder share 0.00p 0.00p
============ ============
All of the Company's income and expenses are included in the net
profit/(loss) and therefore the profit/(loss) for the year is also
the Company's total comprehensive income, as defined by IAS 1
(Revised).
All items in the above statement derive from continuing
operations.
Statement of Financial Position
As at 31 October 2011
31.10.11 31.10.10
Notes GBP GBP
ASSETS
Non-current assets
Financial assets at fair value
through profit or loss 4 46,915,620 66,430,911
Current assets
Cash and cash equivalents 8 3,127,644 1,758,886
Prepayments 18,997 6,821
Total assets 50,062,261 68,196,618
============= ============
LIABILITIES
Current liability
Payables 9 39,999 36,401
Total liability 39,999 36,401
------------- ------------
EQUITY
Share capital account 10 6,511,746 6,664,756
Treasury shares 1(i),10 (6,187,580) (5,565,682)
Reserves 11 49,698,096 67,061,143
------------- ------------
Total equity 50,022,262 68,160,217
------------- ------------
Total equity and liability 50,062,261 68,196,618
============= ============
Number of participating shares
in issue 10 38,853,025 54,724,029
============= ============
Net assets attributable to holders
of participating shares (per share) 128.75p 124.55p
============= ============
Founder share capital (per share) 100.00p 100.00p
============= ============
The financial statements were approved on 24 February 2012 and
signed on behalf of the Board of Directors by:
John Hallam Paul Le Page
Statement of Changes in Equity
For the year ended 31 October 2011
Founder Share capital Treasury
Notes share capital account Reserves shares Total equity
GBP GBP GBP GBP GBP
Balance as
at
1 November
2010 2 6,664,754 67,061,143 (5,565,682) 68,160,217
Cancellation
of shares 10 - (23,500) (2,571,434) 2,594,934 -
Share buyback 10 - - - (621,898) (621,898)
Share buyback
and cancelled 10 - - - (2,594,934) (2,594,934)
Tender offer 10 - (129,510) (16,030,105) - (16,159,615)
Net profit - - 1,238,492 - 1,238,492
--------------- -------------- ------------- ---------------- ----------------------
Balance as at
31 October 2011 2 6,511,744 49,698,096 (6,187,580) 50,022,262
=============== ============== ============= ================ ======================
Balance as at
1 November 2009 2 6,664,754 71,782,472 - 78,447,228
Share buyback 10 - - - (5,565,682) (5,565,682)
Net loss - - (4,721,329) - (4,721,329)
---------- ------------ ------------ ----------------
Balance as at
31 October 2010 2 6,664,754 67,061,143 (5,565,682) 68,160,217
========== ============ ============ ================
Statement of Cash Flows
For the year ended 31 October 2011
01.11.09
01.11.10 to to
31.10.11 31.10.10
GBP GBP
Operating activities
Interest paid - (107)
Operating expenses paid (426,426) (428,315)
------------
Cash outflows from operating activities (426,426) (428,422)
------------- ------------
Investing activities
Purchase of financial assets at fair
value through profit or loss (24,000,000) (1,150,000)
Sale of financial assets at fair value
through profit or loss 45,171,631 8,675,859
Cash inflows from investing activities 21,171,631 7,525,859
------------- ------------
Financing activities
Tender offer (16,159,615) -
Repurchase of shares into Treasury (3,216,832) (5,565,682)
Cash outflows from financing activities (19,376,447) (5,565,682)
------------- ------------
Increase in net cash and cash equivalents 1,368,758 1,531,755
Net cash and cash equivalents at beginning
of the year 1,758,886 227,131
Net cash and cash equivalents at end
of the year 3,127,644 1,758,886
============= ============
Notes the Financial Statements
1. SIGNIFICANT ACCOUNTING POLICIES
The following accounting policies have been applied consistently
in dealing with items which are considered to be material in
relation to the Company's financial statements:
(a) Statement of compliance
The financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRS) as adopted by
the European Union, the Listing Rules of the London Stock Exchange
and applicable legal and regulatory requirements of Guernsey Law.
They reflect the following policies:
(b) Basis of preparation
The financial statements are presented in Sterling which is also
the functional currency of the Company. The financial statements
have been prepared on a historical cost basis except for financial
assets and financial liabilities at fair value through profit or
loss which are measured at fair value.
(c) Going concern
In the opinion of the Directors, the Company, in the normal
course of business, is able to meet its liabilities as they fall
due because it has adequate cash resources and its investments are
sufficiently liquid. Consequently the Company has sufficient
financial resources to continue in operational existence for at
least the next 12 months.
As a listed closed-ended Company, it is possible that the
Company's shares may trade at a discount to their net asset value
per share. In order to manage this discount risk, the Company's
Articles incorporate discount management provisions which require a
continuation vote to be proposed if, in the 12 months preceding the
Company's financial year end, the participating shares of the
Company have traded on average at a discount in excess of 5% of the
net asset value. If the resolution for the continuation of the
Company is not passed, the Directors are required to put proposals
to Shareholders to wind-up, reorganise or reconstruct the
Company.
The Directors have also resolved to introduce a further discount
mechanism where if in any 3 month period the average weekly
discount to NAV at which the shares trade exceeds 5%, the Directors
may in their absolute discretion, propose a tender allowing those
Shareholders at the start of the 3 month period to redeem in
aggregate up to 25% of the issued share capital of the Company at a
tender price equivalent to NAV as at the date of tender less the
costs of the tender offer less 2%. Furthermore, if as a result of
the tender offers, share buybacks or otherwise, the Company's
aggregate NAV is below GBP20 million for 3 consecutive calendar
months, it is the Directors intention to draw up proposals for the
voluntary liquidation of the Company. The Directors estimate it
will cost approximately GBP150,000 to liquidate the Company which
is equivalent to 0.3% of the current GBP50 million NAV.
At 31 October 2011, the Company's continuation vote discount
floor provision was triggered, as it had been in the previous year.
The Directors will again put forward a continuation vote at the
next annual general meeting of the Company. As a result of the
discount for the 3 months to 31 January 2012 the Directors have
announced that a further tender offer will be made and that a
circular will be sent to shareholders in due course.
The outcome of the continuation vote and the impact of any
future tender offers represent a material uncertainty which may
cast significant doubt as to the likelihood of the Company
continuing as a going concern. The Directors however are of the
opinion that the Shareholders, reacting positively to the recent
restructuring of the Company, and the tender offer, will vote in
favour of the continuation of the Company and that it is therefore
appropriate for the financial statements to be prepared on a going
concern basis. The Directors are also of the opinion that the
discount management mechanisms will be effective in reducing the
discount to below the tender offer trigger level. If the resolution
is not passed for the continuation of the Company, or if the
Company's aggregate NAV were to fall to below GBP20 million for 3
consecutive months over the next 12 months, it might have been
appropriate for these financial statements to be prepared on a
break up basis. No adjustments would be required to the carrying
amounts of the investments or other net assets, but a provision
would be required for the costs of winding up the Company. The
financial statements do not include any adjustments that might have
been necessary if the financial statements had been prepared on a
break up basis.
(d) Standards, interpretations and amendments to published
statements not yet effective
At the date of authorisation of these financial statements, the
following standards, interpretations and amendments to existing
standards which have not been applied to these financial statements
were issued but not yet effective:
- IAS 24 (amendments) - Related Party disclosures (effective date - 1st January 2011)
- IFRS 9 - Financial instruments: Classification and Measurement
(effective date - 1st January 2013)
- IFRS 10 - Consolidated Financial Statements (effective date - 1st January 2013)
- IFRS 11 - Joint arrangements (effective date - 1st January 2013)
- IFRS 12 - Disclosure of interest in other entities (effective date - 1st January 2013)
- IFRS 13 - Fair value measurement (effective date - 1st January 2013)
- IFRIC 14 (amendments) - Prepayments of a minimum funding
requirement (effective date - 1st January 2011)
The Board anticipate that the adoption of these standards and
interpretations in a future period will not have a material impact
on the financial statements of the Company, other than IFRS 9 and
IFRS 13. The Company is currently evaluating the potential effect
of these standards.
Annual improvements to IFRS's were issued by the IASB on 6th May
2010 and contain minor amendments to standards for periods
beginning on or after 1st January 2011. No material changes to
accounting policies are expected as a result of these changes.
(e) Financial instruments
The carrying amounts of investments, receivables, cash and cash
equivalents and payables approximate their fair values.
Disclosures about financial instruments to which the Company is
a party are provided in notes 4 and 12.
(f) Financial assets at fair value through profit or loss
('investments')
All investments are classified as 'at fair value through profit
or loss'. Financial assets are classified as at fair value through
profit or loss when the financial asset is either held for trading
or is designated as at fair value through profit or loss.
The Company's investments consist of shares in funds which may
be bought and sold at regular intervals at dealing prices based on
their net asset values. Investments are designated as at fair value
through profit or loss at the time of purchase because they are
managed and their performance is evaluated on a fair value basis in
accordance with the Company's investment strategy as documented in
the Prospectus, and information thereon is evaluated by the
management of the Company on a fair value basis. Subsequent to
initial recognition, these investments are valued at fair value,
being the respective dealing prices.
Differences between the fair values of investments and their
costs at the statement of financial position date result in
unrealised gains and losses which are recognised in the Statement
of Comprehensive Income.
Realised gains and losses on investments sold, calculated by
reference to the sale proceeds and the average cost attributable to
the proportion of the investment sold, are shown in note 4 and
recognised in the Statement of Comprehensive Income in the period
in which they arise.
Investments are recognised in the Company's Statement of
Financial Position upon purchase and derecognised when sold.
Purchases and sales of investments are accounted for on a trade
date basis, which is the date the Company commits to purchase or
sell the investment.
The investments made by the Company are not necessarily
regulated by the rules of any stock exchange or investment exchange
or other regulatory body or authority. In valuing the investments,
the Administrator relies on the net asset value of the Underlying
Funds as supplied by the various managers or administrators. The
Directors believe that such net asset values represent fair value
because subscriptions and redemptions in the Underlying Funds occur
at these prices at the statement of financial position date.
(g) Critical accounting judgements and key sources of estimation
uncertainty
The preparation of financial statements in conformity with IFRS
requires the use of judgements, estimates and assumptions that
affect the application of policies and the reported amounts of
assets and 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. Actual results may differ
from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that period, or in the period of the revision and future
periods if the revision affects both current and future periods.
Where such judgements are made they are discussed below.
Valuation of investments in unquoted securities
For the purposes of calculation of the net asset value and the
net asset value per share, investments in the Underlying Funds are
valued at the values provided by their administrators. The
administrators provide prices as at each month end. As at 31
October 2011, investments presented in the Statement of Financial
Position amounting to GBP46,915,620 (31 October 2010:
GBP66,430,911) were valued in this manner.
The Directors monitor this approach to valuation to ensure that
it represents fair value for the portfolio and is in compliance
with IFRS.
(h) Foreign currency translation
Transactions in currencies other than the functional currency
are recorded using the exchange rate prevailing at the transaction
date. Foreign exchange gains and losses resulting from the
settlement of such transactions and those from the translation at
year end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognised in the Statement
of Comprehensive Income.
(i) Income
All income is accounted for on an accruals basis and is
recognised in the Statement of Comprehensive Income.
(j) Expenses
All expenses are recognised in the Statement of Comprehensive
Income on an accruals basis.
(k) Cash and cash equivalents
Cash comprises cash in hand, overdrafts and demand deposits.
Cash equivalents are short-term, highly liquid investments that are
readily convertible to known amounts of cash and which are subject
to insignificant changes in value.
(l) Treasury shares
Treasury shares are the Company's own equity instruments which
have been acquired by the company and are deducted from equity and
accounted for at amounts equal to the consideration paid, including
any directly attributable incremental costs. The treasury shares
may subsequently be cancelled or reissued to investors. No gain or
loss is recognised in the Statement of Comprehensive Income on the
purchase, sale, issuance or cancellation of the Company's own
equity instruments. Voting rights related to Treasury shares are
nullified and no dividends are allocated to them respectively.
2. TAXATION
The Company is exempt from taxation in Guernsey under The Income
Tax (Exempt Bodies) (Guernsey) (Amendment) Ordinance 1989 and has
paid an annual exemption fee of GBP600.
3. DISTRIBUTIONS TO PARTICIPATING SHAREHOLDERS
The Directors do not expect income (net of expenses) to be
significant and do not currently expect to declare any dividends.
In the event that net income is significant, the Directors may
consider the distribution of net income in the form of dividends.
To the extent that any dividends are paid, they will be paid in
accordance with any applicable Guernsey laws and the regulations of
the UK listing authority.
The Company has been established with a feature which, subject
to a Shareholder making an election and at the Directors'
discretion, may allow a Shareholder to benefit from an annual
capital distribution representing, as closely as possible,
one-third of the increase in the net asset value per share during
the relevant financial year. If it is considered to be in the
interests of Shareholders, distributions would be made by way of a
partial redemption of each Shareholder's holding of shares. No such
capital distribution is proposed for the current year, given the
tender offer.
4. FINANCIAL INSTRUMENTS
The following table analyses the carrying amounts of the
financial assets and financial liabilities by category as defined
in IAS 39 and by statement of financial position heading.
Designated
as fair value
through profit Other financial
or loss instruments Total
GBP GBP GBP
31 October 2011
Financial assets
Financial assets at fair
value
through profit or loss 46,915,620 - 46,915,620
Cash and cash equivalents - 3,127,644 3,127,644
46,915,620 3,127,644 50,043,264
---------------- ---------------- -----------
Financial liabilities
Payables - 39,999 39,999
- 39,999 39,999
---------------- ---------------- -----------
Designated
as fair value
through profit Other financial
or loss instruments Total
GBP GBP GBP
31 October 2010
Financial assets
Financial assets at fair
value
through profit or loss 66,430,911 - 66,430,911
Cash and cash equivalents - 1,758,886 1,758,886
66,430,911 1,758,886 68,189,797
---------------- ---------------- -----------
Financial liabilities
Payables - 36,401 36,401
- 36,401 36,401
---------------- ---------------- -----------
The movement in cost and fair value of financial assets at fair
value through profit or loss is shown below:
01.11.10 to 01.11.09 to
31.10.11 31.10.10
GBP GBP
Cost of investments
Balance at 1 November 55,617,414 61,672,071
Purchases at cost 24,000,000 1,150,000
Sales at cost (45,171,631) (8,675,859)
Realised gain on sales 4,101,887 1,471,202
Balance at 31 October 38,547,670 55,617,414
------------- ------------
Unrealised gain on revaluation
Balance at 1 November 10,813,497 16,579,086
Movement in unrealised gains (2,445,547) (5,765,589)
Balance at 31 October 8,367,950 10,813,497
------------- ------------
Fair value 46,915,620 66,430,911
5. RELATED PARTY TRANSACTIONS
Parties are considered to be related if one party has the
ability to control the other party or exercise significant
influence over the other party in making financial or operating
decisions.
(a) Directors
The Directors are responsible for the determination of the
investment policy of the Company and have overall responsibility
for the Company's activities.
The Directors, other than the Chairman, were entitled to
remuneration for their services of GBP17,500 per annum (31 October
2010: GBP17,500). Mr Ross has waived his right to a fee. The
Chairman was entitled to receive GBP23,500 per annum (31 October
2010: GBP23,500).
During the year ended 31 October 2011, Directors' fees of
GBP58,500 (31 October 2010: GBP58,500) were charged to the Company
and GBP4,875 (31 October 2010: GBP4,875) was payable at the year
end.
All Directors are non-executive. Mr Ross is a Director and the
Chief Executive of Cazenove Capital Management Limited, the
Investment Manager.
As at 31 October 2011, the Directors held the following
interests either directly or beneficially:
Mr Hallam - 20,000 (31 October 2010: 20,000) redeemable participating preference shares.
Mr Ross - 66,000 (31 October 2010: 66,000) redeemable participating preference shares.
(b) Investment Management
The Company's Investment Manager is Cazenove Capital Management
Limited ("the Investment Manager"). The Investment Manager is
entitled to an annual management fee, payable monthly in arrears,
of GBP25,000 (31 October 2010: GBP25,000). The Investment Manager
is also entitled to reimbursement of certain expenses incurred by
it in connection with its duties. During the year ended 31 October
2011 investment management fees of GBP25,000 (31 October 2010:
GBP25,000) were charged to the Company and GBP4,177 (31 October
2010: GBP2,123) remained payable at the year end.
The Underlying Funds pay the Investment Manager a periodic
management fee in arrears at rates ranging from 1.25% to 1.75% per
annum of the net asset value. Total management fees charged and
payable by the Underlying Funds for their period of ownership by
the Company, to Cazenove Capital Management Limited were as
follows:
01.11.10 01.11.10 16.08.11 01.11.10 01.11.09
to to to to to
Charged during the
year 31.07.11 30.09.11 31.10.11 31.10.11 31.10.10
European Equity
Fund - EUR1,910,800 - EUR7,145,701
Absolute UK Dynamic
Fund - - GBP511,059 - -
UK Dynamic Fund - - - GBP-------1,332,882 GBP2,200,991
UK Equity Fund - GBP401,559 - - GBP865,376
Leveraged UK Fund - GBP345,596 - - GBP951,336
European Alpha Fund EUR899,888 - - - EUR1,616,966
% of Underlying % of Underlying
Payable at year Fund held as Fund held as
end 31.10.11 at 31.10.11 31.10.10 at 31.10.10
European Equity
Fund - 0% EUR308,039 7.65%
Absolute UK Dynamic
Fund GBP415,136 11.38% - -
UK Dynamic Fund GBP243,792 23.43% GBP97,761 26.88%
UK Equity Fund - 0% GBP49,762 20.55%
Leveraged UK Fund - 0% GBP40,392 41.00%
European Alpha
Fund - 0% EUR104,327 7.51%
A performance fee equal to 20% of the increase in the net asset
value per share (after adding back any distributions made)
outstanding in respect of each performance period less any loss
carry forward per share, is also payable by the Underlying Funds to
Cazenove Capital Management Limited annually, except for Cazenove
European Alpha Absolute Return Fund Limited, which is paid
semi-annually. Total performance fees charged and payable by the
Underlying Funds to Cazenove Capital Management Limited were as
follows:
01.11.10 01.11.10 16.08.10 01.11.09
to to to 01.11.10 to to
Charged during the
year 31.07.11 30.09.11 31.10.11 31.10.11 31.10.10
Absolute UK Dynamic
Fund - - GBP401,144 - -
UK Dynamic Fund - - - GBP2,667,850 -
UK Equity Fund - - - - GBP203
Leveraged UK Fund - - - - GBP8,605
European Alpha Fund EUR49,695 - - - EUR297,645
Payable at year end 31.10.11 31.10.10
European Equity Fund - EUR15,798
Absolute UK Dynamic
Fund - -
UK Dynamic Fund GBP2,668,241 -
Leveraged UK Fund - GBP9,418
European Alpha Fund - EUR323,536
As at 31 October 2011 Cazenove Capital Management held
10,863,821 shares in the Company as a discretionary Fund Manager,
through Chase Nominees Limited (31 October 2010: 16,271,320
shares), representing 27.96% (31 October 2010: 29.73%) of the
Issued Capital. No other related parties held a notifiable interest
in the Company under the UK Takeover Code.
(c) Administrator
The Company's Administrator is Northern Trust International Fund
Administration Services (Guernsey) Limited ("the Administrator").
In consideration for the services provided by the Administrator
under the Administration, Secretarial and Registrar Agreement the
Administrator is entitled to receive from the Company a fee of
GBP36,000 per annum (31 October 2010: GBP36,000). The Administrator
is also entitled to be paid or reimbursed for all reasonable out of
pocket expenses incurred by it in providing administrative services
to the Company as set out in the Administration, Secretarial and
Registrar Agreement. During the year ended 31 October 2011
administration fees of GBP36,000 (31 October 2010: GBP36,000) were
charged to the Company and GBP2,983 (31 October 2010: GBP11,983)
remained payable at the year end.
(d) Custody
The Company's Custodian is Northern Trust (Guernsey) Limited
("the Custodian"). In consideration for the services provided by
the Custodian under the Custodian Agreement, the Custodian is
entitled to receive such fees as agreed with the Company from time
to time. Initially the Custodian will be entitled to a fee of
GBP14,000 per annum (31 October 2010: GBP14,000). The Custodian is
also entitled to reimbursement of certain expenses incurred by it
in connection with its duties. During the year ended 31 October
2011 custodian fees of GBP14,000 (31 October 2010: GBP14,000) were
charged to the Company and GBP11,114 (31 October 2010: GBP4,717)
remained payable at the year end.
(e) Corporate Brokers
Numis Securities Limited ("the Broker"), will act on behalf of
the Company in relation to the provision of advisory and corporate
broking services ("Broking Services"), including the purchase of
ordinary shares in the Company on a principal to principal basis
("Buyback Services"). For the Broking Services, the Broker is
entitled to receive an annual retainer of GBP25,000 in respect of
the first 12 months accruing on a per diem basis in equal
installments semi-annually in advance. The Broker is also entitled
to the reimbursement of certain expenses incurred by it in
connection with its duties. For the Buyback Services, the Broker is
entitled to receive the amount equal to the aggregate purchase
price of any shares purchased at a fee of 0.5%, including any stamp
duties or other relevant transfer taxes arising from the
transaction. During the year ended 31 October 2011, brokerage fees
of GBP25,000 (31 October 2010: GBP9,358) were charged to the
Company and GBP3,142 (31 October 2010: GBP3,142) was prepaid at
year end. Fees related to Buyback Services amounted to GBP6,446 (31
October 2010: GBP8,845).
On 2 September 2011, the Company entered into a repurchase
agreement with the Broker, wherein the Broker acted on behalf of
the Company in relation to the tender offer. The fees charged
during the year, in connection with the tender offer, amounted to
GBP75,000 which were effectively absorbed by those existing
Shareholders tendering shares as a consequence of the discount at
which shares were repurchased. In addition, the Broker is also
entitled to reimbursement of certain expenses incurred by it in
connection with its duties up to a maximum of GBP5,000.
6. OPERATING SEGMENTS
The Board has considered the requirements of IFRS 8 "Operating
Segments", and is of the view that the Company is engaged in a
single economic and geographic segment of business, being
investment in hedge funds focused in the United Kingdom and
continental Europe.
The Board, as a whole, has been determined as constituting the
chief operating decision maker of the Company. The key measure of
performance used by the Board to assess the Company's performance
and to allocate resources is the total return on the Company's net
asset value, as calculated under IFRS, and therefore no
reconciliation is required between the measure of profit or loss
used by the Board and that contained in these financial
statements.
The Company's investments and the equivalent percentages of the
total value to the Company are reported in the Portfolio Statement.
Information on realised and unrealised gains and losses on the sale
and change in fair value of the investments are disclosed in note
4.
7. BASIC AND DILUTED EARNINGS PER PARTICIPATING SHARE
The earnings per participating share for the year has been
calculated on a weighted average basis and is arrived at by
dividing the net profit or loss for the year by the weighted
average number of participating shares in issue. The weighted
average number of participating shares is 51,696,969 (31 October
2010: 59,315,168).
8. CASH AND CASH EQUIVALENTS
All cash balances attract interest at variable rates.
An uncommitted borrowing facility was made available to the
Company by its bank, Northern Trust (Guernsey) Limited. The
aggregate amount outstanding under this facility could not exceed
10% of the Company's adjusted total of capital and reserves. The
repayment of all monies at any time owing by the Company to the
bank was secured by way of a 'security agreement relating to the
portfolio' as security against the loan. During the year this
facility was withdrawn as, due to the restructuring of the Company,
it no longer meets the diversification requirements of the bank's
credit facility.
9. PAYABLES
31.10.11 31.10.10
GBP GBP
Administration fee payable 2,983 11,983
Audit fee payable 16,850 11,194
Directors' fees payable 4,875 4,875
Custodian fee payable 11,114 4,717
Investment management fee
payable 4,177 2,123
Other accruals - 1,509
---------
39,999 36,401
========= =========
10. SHARE CAPITAL ACCOUNT
Authorised share capital 31.10.11 31.10.10
GBP GBP
2 founder shares of GBP1
par value 2 2
250,000,000 unclassified shares of
GBP0.01 par value 2,500,000 2,500,000
----------
2,500,002 2,500,002
========== ==========
The Company is a closed-ended investment company with an
unlimited life, but in accordance with the Articles of Association,
the Directors are obliged to propose a continuation vote at the
subsequent annual general meeting to be held after the Company's
fifth anniversary of incorporation and every five years after. The
participating shares are not puttable instruments because, although
a redemption facility exists, the Board has an unconditional right
to refuse redemption of the shares. They are not, therefore,
required to be classified as debt under IAS 32.
Shares in Shares
Issued share capital issue in Total Share Treasury
(3(rd) party) Treasury shares capital shares
GBP GBP
31 October 2011
Founder shares 2 - 2 2 -
-------------- ------------ ------------- ------------- ----------------
Equity shares
Participating shares
Balances at 1 November
2010 54,724,029 5,164,804 59,888,833 6,664,754 (5,565,682)
Share buybacks
held in Treasury (570,000) 570,000 - - (621,898)
Cancellation of
shares (2,350,000) (1,450,000) (3,800,000) (23,500) 2,594,934
Share buyback and
cancelled - - - - (2,594,934)
Tender offer (12,951,004) - (12,951,004) (129,510) -
-------------- ------------ ------------- ------------- ----------------
Balances at 31
October 2011 38,853,025 4,284,804 43,137,829 6,511,744 (6,187,580)
-------------- ------------ ------------- ------------- ----------------
Total balances
at 31 October 2011 38,853,027 4,284,804 43,137,831 GBP6,511,746 (GBP6,187,580)
============== ============ ============= ============= ================
Shares Shares
Issued share capital in issue in Total Share Treasury
(3(rd)
party) Treasury shares capital shares
GBP GBP
31 October 2010
Founder shares 2 - 2 2 -
------------ ---------- ------------- ------------- ----------------
Equity shares
Participating shares
Balances at 1 November
2009 59,888,833 - 59,888,833 6,664,754 -
Share buybacks held
in Treasury (5,164,804) 5,164,804 - - (5,565,682)
------------ ---------- ------------- ------------- ----------------
Balances at 31 October
2010 54,724,029 5,164,804 59,888,833 6,664,754 (5,565,682)
------------ ---------- ------------- ------------- ----------------
Total balances at
31 October 2010 54,724,031 5,164,804 59,888,835 GBP6,664,756 (GBP5,565,682)
============ ========== ============= ============= ================
Participating shares
Participating shares carry the right to receive notice of,
attend and vote as a Member of any general meeting of the Company.
Participating shares are redeemable at the option of the Company in
the limited circumstances as provided in the Company's Articles of
Association. They are entitled to any dividends declared by the
Company and on winding up have the rights to any surplus assets
after the distribution of paid up capital to the holders of
participating shares and founder shares.
Founder shares
Founder shares shall only be issued at par value. Founder shares
do not carry a general right to dividends nor do they have the
right to vote as a Member at any general meeting of the Company
except on a modification of class rights issue. In winding up, they
rank only for a return of the nominal paid up capital after the
return of the nominal capital paid up on the participating shares.
They have no right to participate in any of the surplus assets of
the Company. The unclassified shares may be issued by the Board as
participating shares.
Share buyback
During the year, in accordance with the Share Buyback Facility
discussed in note 13, the Company purchased its own participating
shares in the market to attempt to close the discount to net asset
value at which the participating shares are trading and improve the
liquidity of its issued share capital.
During the year under the Share Buyback Facility, the Company
purchased its own shares and held in Treasury as follows:
Date Price per
Shares share Total Percentage of issued
GBP GBP share capital
5 November
2010 570,000 1.09 621,898 0.95%
======== ======== =====================
Bought back and cancelled shares:
Date Price per Percentage of
Shares share Total issued
GBP GBP share capital
10 November
2010 400,000 1.09 434,869 0.67%
18 November
2010 350,000 1.09 382,264 0.58%
7 December
2010 100,000 1.09 109,470 0.17%
24 December
2010 500,000 1.07 536,071 0.83%
29 March 2011 1,000,000 1.13 1,132,260 1.67%
2,350,000 2,594,934 3.92%
=========== =========== ==============
Total 2,920,000 3,216,832 4.87%
=========== =========== ==============
During the year to 31 October 2010 under the Share Buyback
Facility, the Company purchased its own shares and held in Treasury
as follows:
Date Price per Percentage of
Shares share Total issued
GBP GBP share capital
18 August 2010 625,936 1.06 661,684 1.05%
25 August 2010 100,000 1.06 106,213 0.17%
27 August 2010 1,438,868 1.06 1,528,252 2.40%
22 September
2010 200,000 1.08 216,433 0.33%
23 September
2010 250,000 1.08 270,541 0.42%
30 September
2010 150,000 1.08 162,325 0.25%
1 October 2010 235,000 1.09 256,151 0.39%
7 October 2010 430,000 1.09 468,647 0.72%
13 October 2010 1,235,000 1.09 1,346,840 2.06%
29 October 2010 500,000 1.10 548,596 0.83%
----------- ----------- --------------
5,164,804 5,565,682 8.62%
=========== =========== ==============
Tender offer
In accordance with the Tender Offer Facility which was approved
by the Shareholders at the annual general meeting held on 24 June
2011, the Company purchased its own participating shares in the
market to attempt to close the discount to net asset value at which
the participating shares are trading and improve the liquidity of
its issued share capital.
During the period under the Tender Offer Facility, the Company
purchased and cancelled its own shares as follows:
Date Price per
Shares share Total
GBP GBP
17 October 2011 12,951,004 1.25 16,159,615
Where the Company purchases its own shares, the consideration
paid, which includes any directly attributable costs, is recognised
as a deduction from equity Shareholders' funds through the share
capital account. When such shares are subsequently sold or reissued
to the market, any consideration received, net of any directly
attributable incremental transaction costs, is recognised as an
increase in equity shareholders' funds through the share capital
account. Where the Company cancels treasury shares, no further
adjustment is required to the share capital at the time of
cancellation. Shares held in Treasury are excluded from
calculations when determining NAV per share.
Because significant share repurchases could take the Investment
Manager's aggregate ownership over the Takeover Code's Mandatory
Offer trigger level of 30 percent, the Board has applied to the
Takeover Panel for a waiver of Rule 9 under Rule 37. A proposal was
put to Shareholders regarding the waiver at an extraordinary
general meeting of the Company on 24 June 2011 and this has now
been approved.
Share costs of GBP169,781 (31 October 2010: GBP180,564) were
incurred for the Continuation vote, Whitewash and Tender Offer and
represent expenses for legal, advisory and other professional fees.
Fees paid to Numis, Herbert Smith and Ogier, in relation to the
tender offer amounted to GBP75,000, GBP58,783 and GBP15,502
respectively (31 October 2010: GBPnil). Whitewash fees paid to J.P.
Morgan Cazenove and Ernst & Young LLP amounted to GBPnil (31
October 2010: GBP85,564 and GBP40,000 respectively). Included in
other expenses are non audit fees of GBP7,558 (31 October 2010:
GBP8,329) also paid to Ernst & Young LLP.
11. RESERVES
31.10.11 31.10.10
GBP GBP
Distributable reserves at 1 November 67,061,143 71,782,472
Cancellation of shares (2,571,434) -
Tender offer (16,030,105) -
Net profit/(loss) for the
year 1,238,492 (4,721,329)
------------- ------------
49,698,096 67,061,143
============= ============
No distributions were made from this reserve account during the
year.
12. FINANCIAL INSTRUMENTS AND RISK PROFILE
The investment objective of the Company is to seek to achieve
consistent absolute returns by investing in two Underlying
Funds.
The Company's financial instruments comprise financial assets at
fair value through profit or loss, cash and cash equivalents and
certain receivables and payables.
The main risks arising from the Company's financial instruments
are market risk (market price risk, foreign currency risk and
interest rate risk), credit risk and liquidity risk.
Market risk
The Company's investments are subject to market fluctuations and
the risk inherent in the purchase, holding or selling of securities
and there can be no assurance that appreciation or maintenance in
the value of those investments will occur.
Investments in unlisted securities are generally more illiquid
than listed securities and there may be no ready market for such
securities at an appropriate price or even at all. Furthermore, the
net asset values for such unlisted securities tend to be published
on a less frequent basis than for listed securities.
The Investment Manager of the Underlying Funds continues to
monitor and oversee the profile of the portfolio on a regular basis
to ensure risks are managed.
Strategies of the Underlying Funds
The Company's Investment Manager currently classifies the
strategies of the Cazenove UK Dynamic Absolute Return Fund and
Cazenove Absolute UK Dynamic Fund as alpha enhancing and more
directional. These Underlying Fund's managers aim to deliver
consistent, absolute returns irrespective of market conditions with
lower market volatility in the medium to long term. The approach
will consider the macro and business cycle factors. However, the
key strategy will be a bottom up approach in identifying under
valued stocks with an investment angle. Each stock held will have a
valuation target.
Market price risk
Market price risk arises mainly from the uncertainty about
future prices of the financial instruments held by the Company. It
represents the potential loss the Company may suffer through
holding market positions in the face of price movements.
The Company's investment portfolio is exposed to market price
fluctuations which are monitored by the Manager in pursuance of the
investment objectives and policies.
Market price sensitivity analysis
The sensitivity analysis below has been determined based on
exposure to equity price risks at the reporting date.
If the net asset values of the Underlying Funds had been 10% (31
October 2010: 10%) higher/lower, net profit and reserves figures
increase/decrease by GBP4,691,562 (31 October 2010: GBP6,643,091).
The 10% (31 October 2010: 10%) price movement is the Directors'
best estimate of a reasonably possible price movement during the
year.
Foreign currency risk
Foreign currency risk arises from fluctuations in the value of
foreign currency. It represents the potential loss the Company may
suffer through holding foreign currency assets in the face of
foreign exchange movements.
The Underlying Fund portfolio investment in equity funds which
in turn invest in equities denominated in currencies other than
Sterling. The Underlying Funds use forward foreign exchange
contracts to manage but not eliminate the risk associated with
holding assets in foreign currency.
Foreign currency sensitivity
If the exchange rate of Sterling weakens by 5% against the
currencies in which the Underlying Funds invest, with the
assumption that all other variables are held constant, the
Company's net assets would decrease by GBP150,704 (31 October 2010:
GBP904,674). The same amount but with reverse effect will happen if
Sterling strengthens by 5%.
The 5% movement in exchange rate represents the Directors'
assessment, based on the foreign exchange rate movements over the
relevant year, of the reasonably possible change in foreign
exchange rates.
Interest rate risk
Interest rate risk represents the uncertainty of investment
return due to changes in the market rates of interest. Interest
receivable on bank deposits or payable on bank overdraft will be
affected by fluctuations in interest rates. All cash balances are
at variable rates. Increases in interest rates will also increase
the borrowing costs of the Company should the borrowing facility be
used.
Interest rate/risk profile of financial assets and
liabilities:
Weighted
average Less than
interest No fixed
rate 1 month 1-3 months date Total
GBP GBP GBP GBP
31 October 2011
Assets
Non-interest
bearing - - - 46,915,620 46,915,620
Cash and cash
equivalents 0.00% - 3,127,644 - 3,127,644
- 3,127,644 46,915,620 50,043,264
---------- ----------- ----------- -----------
Liabilities
Non-interest
bearing - 23,149 16,850 39,999
- 23,149 16,850 39,999
---------- ----------- ----------- -----------
Weighted
average Less than
interest No fixed
rate 1 month 1-3 months date Total
GBP GBP GBP GBP
31 October 2010
Assets
Non-interest
bearing - - - 66,430,911 66,430,911
Cash and cash
equivalents 0.00% - 1,758,886 - 1,758,886
- 1,758,886 66,430,911 68,189,797
---------- ----------- ----------- -----------
Liabilities
Non-interest
bearing - - 25,207 11,194 36,401
- 25,207 11,194 36,401
---------- ----------- ----------- -----------
Interest rate sensitivity
Cash and cash equivalents and receivables will be affected by
movements in interest rates. However, no material impact on the
Statement of Comprehensive Income nor Statement of Financial
Position is expected due to the immateriality of these items as of
the year end (31 October 2010: no material impact).
Credit risk
Credit risk is the risk that an issuer or counterparty will be
unable or unwilling to meet a commitment that it has entered into
within the Company.
The Company is exposed to material credit risk in respect of
cash and cash equivalents and debtors. All cash is placed with
Northern Trust (Guernsey) Limited ("NTGL"). The Company is subject
to credit risk to the extent that this institution may be unable to
return this cash. NTGL is a wholly owned subsidiary of The Northern
Trust Corporation ("TNTC"). TNTC is publicly traded and a
constituent of S&P 500. TNTC has a credit rating of AA- from
Standard & Poor's and A1 from Moody's.
The credit risk associated with debtors is limited to interest
on bank balances. Credit risk is mitigated by the Company's policy
to transact only with leading commercial and investment banks. It
is the opinion of the Directors that the carrying amounts of these
financial assets represent the maximum credit risk exposure at the
statement of financial position date.
Liquidity risk
Liquidity risk is the risk that the Company will encounter in
realising assets or otherwise raising funds to meet financial
commitments.
Dealings in the Cazenove UK Dynamic Absolute Return Fund are
done on a monthly basis. Requests for redemption must be received
not less than thirty days prior to the relevant dealing day.
Settlement period is usually two weeks after the dealings. The
Directors of this Underlying Fund may at their absolute discretion
refuse to accept a redemption request in respect of shares of a
class held for a period of less than three months. They may also
refuse a redemption request for shares in a particular class where
the relevant request is in excess of 10% of the total net asset
value of such class of shares on any dealing day. Furthermore, the
Company has a borrowing facility to meet financial commitments.
Dealings in the Cazenove Absolute UK Dynamic Fund are done on a
daily basis. There is no gate provision on this Underlying
Fund.
The table below shows the Company's liquidity analysis for its
financial liabilities. The table has been drawn up based on the
undiscounted gross cash flows on those financial liabilities that
require gross settlement.
Less than More than
Payables 3 months 3-12 months 12 months Total
GBP GBP GBP GBP
31 October 2011 23,149 16,850 - 39,999
31 October 2010 25,207 11,194 - 36,401
Fair value
The following table shows financial instruments recognised at
fair value, analysed between those whose fair value is based
on:
- Quoted prices in active markets for identical assets or liabilities (Level 1);
- Those involving inputs other than quoted prices included in
Level 1 that are observable for the asset or liability, either
directly (as prices) or indirectly (derived from prices) (Level 2);
and
- Those with inputs for the asset or liability that are not
based on observable market data (unobservable inputs) (Level
3).
31 October 2011
Security type Total Level 1 Level 2 Level 3
GBP GBP GBP
Financial assets at
fair value through
profit and loss 46,915,620 - 46,915,620 -
46,915,620 - 46,915,620 -
=========== ======== =========== ========
31 October 2010
Security type Total Level 1 Level 2 Level 3
GBP GBP GBP
Financial assets at
fair value through
profit and loss 66,430,911 - 66,430,911 -
66,430,911 - 66,430,911 -
=========== ======== =========== ========
The level within which the financial assets are classified is
determined based on the lowest level of significant input to the
fair value measurement.
The Underlying Funds held by the Company are not quoted in
active markets.
Assets classified in Level 2 are hedge funds fair-valued using
the official month-end net asset value of each Underlying Fund as
supplied by each fund's managers or administrators.
There were no movements between levels during the year.
13. CAPITAL MANAGEMENT
The fair value of the Company's financial assets and financial
liabilities approximates their carrying amounts as at the statement
of financial position date. Redeemable participating preference
shares are considered to be capital.
The Company's objectives when managing capital are to safeguard
the Company's ability to continue as a going concern in order to
provide returns for shareholders and benefits for other
stakeholders and to maintain an optimal capital structure to reduce
the cost of capital.
The Company had the ability to borrow the lower of 10% of its
net asset value or GBP7.5 million for short-term or temporary
purposes as is necessary for the settlement of transactions, to
facilitate redemption (where applicable) and annual capital
distributions (see below) or to meet ongoing expenses. The
Directors had put in place a loan facility with Northern Trust
(Guernsey) Limited for this purpose. During the year this facility
was withdrawn as, due to the restructuring of the Company, it no
longer meets the diversification requirements of the bank's credit
facility. The Company does not have any structural gearing. The
Company is indirectly exposed to gearing to the extent that
investee funds are themselves geared. Cash (if any) will be held in
G8 currency-denominated accounts.
The gearing ratio below is calculated as total liabilities
divided by total equity.
31.10.11 31.10.10
GBP GBP
Total assets 50,062,261 68,196,618
Less: total liabilities (36,929) (36,401)
Total equity 50,025,332 68,160,217
----------- -----------
Gearing ratio 0.07% 0.05%
=========== ===========
At the Directors' discretion and subject to the Shareholders'
approval, the Company can make an annual capital distribution of
one third of the increase in its net asset value by way of partial
redemption. Any such distribution will only be made if the
Directors, in their discretion, consider prior to any distribution
being made it to be in the interest of Shareholders and only to
holders of participating shares who have made the relevant
election, having given consideration to the prevailing price of the
participating shares, the net asset value per participating share
and the response of the holders of participating shares.
Shareholders should have no expectation that a distribution will be
made and there can be no guarantee that the Directors will
determine to make a distribution in respect of any year.
The Company has a Share Buyback Facility whereby, at the
discretion of the Directors and subject to the Shareholders'
approval, it can purchase its own participating shares in the
market with a view to addressing any imbalance between the supply
of and demand for shares in the market and to assist in narrowing
any discount to net asset value at which the participating shares
maybe trading. Purchases will be made in accordance with the
Listing Rules, the CISX Rules and the Companies (Guernsey) Law
2008. Any such purchases would only be made at prices which
represent a discount to the Iast available net asset value per
participating share so as to enhance the net asset value per
participating share for the remaining Shareholders. The Share
Buyback Facility was renewed on 24 June 2011, as part of the
Company's capital management. Purchases made by the Company are
shown in note 10.
The Directors have also resolved to introduce a further discount
mechanism where if in any 3 month period the average weekly
discount to NAV at which the shares trade exceeds 5%, the Directors
may in their absolute discretion, propose a tender allowing those
Shareholders at the start of the 3 month period to redeem in
aggregate up to 25% of the issued share capital of the Company at a
tender price equivalent to NAV as at the date of tender less the
costs of the tender offer less 2%. The tender offer facility was
approved by Shareholders during the annual general meeting on 24
June 2011.
Furthermore, if as a result of the tender offers, share buybacks
or otherwise, the Company's aggregate NAV is below GBP20 million
for 3 consecutive calendar months, it is the Directors intention to
draw up proposals for the voluntary liquidation of the Company.
14. CONTINGENT LIABILITIES
There were no contingent liabilities at the statement of
financial position date.
15. SUBSEQUENT EVENTS
As at 15 February 2012 Cazenove Capital Management held
10,496,026 shares in the Company as a discretionary Fund Manager,
through Chase Nominees Limited, representing 27.01% of the Issued
Capital.
During a Board Meeting held on 16 February 2012, the Board
approved a further tender offer and a circular will be sent to
shareholders in due course.
The Company has today, in accordance with DTR 6.3.5, released
its Annual Financial Report for the year ended 31 October 2011. The
Report will shortly be available on the Company's website
http://www.cazenovecapital.com/investment-funds/absolute-return/absolute-equity/
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR BKODQKBKDDBB
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