RNS Number:2750Z
London Asia Capital PLC
29 June 2007
Strictly embargoed until 0700, 29th June 2007
LONDON ASIA CAPITAL PLC
("London Asia" or "the Company")
PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2006
London Asia Capital plc the Asia focused merchant banking group, today announces
preliminary results for the year ended 31 December 2006.
Jack Wigglesworth, Chairman of London Asia commented: "London Asia has changed
greatly since it first started investing in China five years ago. The evolution
of the business is a continuous process, given that the markets in which we
operate change at such a rapid pace. The Company has grown from a business with
a market cap of just #400,000 and a handful of employees, making small
investments in Chinese businesses; to a fully fledged merchant banking group,
with diverse revenue streams generated by a range of financial services
operations, #36 million worth of assets and offices spread across Asia."
Highlights include:
* Revenue up 139% to #1.8 million (2005: #0.8 million)
* Profit after tax up 66% to #3.1 million (2005: #1.9 million)
* Net assets #33.1 million (2005: #29.2 million)
* Earnings per share 1.3p
* Current market cap a 3.7% discount to net assets, giving a negative
valuation to the Merchant Banking Business
* London Asia Chinese Private Equity Fund, managed by London Asia Capital,
raised #50 million, admitted to AIM and fully invested, with first
realisations
* #4.6 million raised from sale of investments in the period
* 6 companies listed on PLUS by London Asia during the period, taking the
total to 10 companies where we have acted as advisor to their PLUS listing
* Operations expanding across Asia
Mr Wigglesworth added: "Given the significant changes, it is particularly
pleasing that we have announced a record set of results for the year ended 31
December 2006, with a 66% increase in profits to #3.1 million, and a #3.9
million increase in net assets to #33.1 million, equal to 14.7p per share."
For further information please visit www.londonasia.com or contact:
Simon Littlewood John West/Andrew Dunn Jonathan Wright
London Asia Capital plc Tavistock Communications Seymour Pierce
Tel: 020 7231 0282 Tel: 020 7920 3150 Tel: 020 7107 8000
LONDON ASIA CAPITAL PLC
CHAIRMAN'S STATEMENT
London Asia has changed greatly since it first started investing in China five
years ago. The evolution of the business is a continuous process, given that the
markets in which we operate change at such a rapid pace. The Company has grown
from a business with a market cap of just #400,000 and a handful of employees,
making small investments in Chinese businesses; to a fully fledged merchant
banking group, with diverse revenue streams generated by a range of financial
services operations, #36 million worth of assets and offices spread across Asia.
Given the significant changes, it is particularly pleasing that we have
announced a record set of results for the year ended 31 December 2006, with a
66% increase in profits to #3.1 million, and a #3.9 million increase in net
assets to #33.1 million, equal to 14.7p per share.
Highlights include:
* Revenue up 139% to #1.8 million (2005: #0.8 million)
* Profit after tax up 66% to #3.1 million (2005: #1.9 million)
* Net assets #33.1 million (2005: #29.2 million)
* Earnings per share 1.3p
* Current market cap a 3.7% discount to net assets, giving a negative
valuation to the Merchant Banking Business
* London Asia Chinese Private Equity Fund, managed by London Asia Capital,
raised #50 million, admitted to AIM and fully invested, with first
realisations
* #4.6 million raised from sale of investments in the period
* 6 companies listed on PLUS by London Asia during the period, taking the
total to 10 companies where we have acted as advisor to their PLUS listing
* Operations expanding across Asia
Financial Overview
We adopted International Financial Reporting Standards ("IFRS") in the
preparation of the accounts, in order to give a clearer picture of the value of
our assets.
The year saw a record level of income and profits from dividends, corporate
finance fees, profits on disposal of investments, as well as our first fund
management fees. What is particularly pleasing is the increasing level of
recurring income, which reduces the risk to the business of fluctuations in the
capital markets.
There was a major shift in the scale of the Group's activities. The successful
launch of the London Asia Chinese Private Equity Fund ("the Fund") provides us
with regular income as well as potential success fees related to performance.
The annual management fee of 2% equates to approximately #1 million of income
per annum, of which only 9 months is included in these accounts.
We have continued to invest in support staff, deal processors and managers to
cope with a doubling in the size of the investment portfolio and increase in
fund management activity. We have built a substantial presence on the ground to
support and monitor our investee businesses, which enables us to perform our own
due diligence. We believe this is the key to success in China, as there is an
acute shortage of professional services firms, and regulations concerning legal
and accounting standards change constantly, are very different from the West and
vary from region to region.
Our balance sheet continues to strengthen with Net Assets increasing to #33.1
million, including cash and listed investments of #15.6 million at year end.
Since the year end we have completed a number of important transactions which
resulted in a number of new share issues, adding a further #10.9 million to
assets. Gearing is currently at a negligible level and given the strength of our
balance sheet, we will be looking to increase the level of debt in the second
half of the current financial year in order to enhance returns to shareholders.
Reorganisation
The Group has evolved from a pure investment company to one which provides a
range of financial services. In the last year we have altered significantly the
original infrastructure. This was necessary to bring the corporate structure
into line with the changes of the last five years as we have adapted the Group's
business model to keep pace with the rapid development of our core market in
China and increasing regulatory and corporate governance requirements.
As outlined in the Interim Statement issued in September 2006, a number of
events occurred in China which meant it was imperative for us to review our
business model and alter our corporate structure. In short these were: the
implementation of Ordinance 10 by the Chinese Government in September 2006,
which has placed additional restrictions both on foreign investment into Chinese
businesses, and on the ability of Chinese businesses to restructure and list
outside China; and the fact that stock markets in China have re-opened and are
booming.
Confidence among domestic Chinese retail and institutional investors is growing
and more funds are being diverted from personal savings into the capital
markets. The Chinese Government is actively encouraging the creation of
financial services businesses within China to meet the funding needs of Chinese
companies, aided by the strong cash flows generated by China's huge trade
surpluses, China's high level of savings, and profits which Chinese
entrepreneurs are generating. Thus Chinese businesses are increasingly choosing
to take money from China based investors and list within China, rather than look
overseas.
Following a review of our business in conjunction with our professional
advisors, the Board implemented a plan reorganising the business, which puts us
in a stronger position to capitalise on the changes in our market, meet
regulatory requirements and enable investors to better value the business:
* The business has been split into two core divisions; an Investment
Division and the Merchant Banking Business.
* The Investment Division operates with minimal overheads, and focuses on
realising the value in our existing portfolio, as well as making new
investments when opportunities arise and capital is available. For the year
ended 31 December 2006, this division had net assets of #30.8 million and
made profits of #2.1 million. London Asia Investments Ltd ("LAIL"), a Hong
Kong incorporated company, is being used as the main holding company for the
Investment Division, given the favourable tax treatment for Hong Kong based
holding companies, its proximity to China and the presence on the ground of
a team in Hong Kong. LAIL is currently 20% owned by management, including
10% by parties associated with Simon Littlewood and his connected persons.
In order to enable the Group to consolidate all the assets going forward,
and remove any conflict of interest and related party issues that might
arise from the transfer in of assets to a company part owned by Board
directors, a resolution is proposed at the Annual General Meeting to acquire
the minority holding, with the acquisition price based on the net asset
value at the time of acquisition. A similar resolution is being proposed to
acquire a 10% minority holding in London Asia Capital Ltd, a Mauritius
incorporated holding company, from parties associated with Simon Littlewood
and his connected persons. In view of the interests of Simon Littlewood and
his connected persons, the proposed acquisitions constitute substantial
property transactions under section 320 of the Companies Act 1985, and
accordingly, are conditional on the approval of shareholders at the AGM.
* The Merchant Banking Business has the bulk of the Group's staff. It
provides a range of advisory and fee based financial services to clients and
our investee companies. For the year ended 31 December 2006, this division
had net assets of #2.4 million and made profits of #1 million. The Merchant
Banking Business needs to rapidly expand, both in China and elsewhere, to
obtain the necessary level of personnel, capital and licences to meet
regulatory requirements and the needs of our clients, take advantage of the
opportunities in the market, and continue to develop the Group's brand. The
Board believes that if the Group does not continue to expand, it risks being
left behind in its market place, which is rapidly consolidating with the
smaller players being squeezed out by the increasing number of larger
players entering the market.
The last two months have seen significant steps forward in the development of
this business, with the establishment of four new associated companies covering
property investment, securities trading, and various financial services in
China. The range of licences acquired over the last few weeks will open up new
opportunities for the Group, and considerably extend the range of revenue
generating services the Group can offer in China.
The Board has determined that it is not in shareholders' interests at this point
for London Asia to commit all the capital needed to fund the expansion of the
Merchant Banking Business. This decision was reached following a review of the
projections for the Merchant Banking Business, the level of risk involved,
current and on-going capital requirements, the value of the existing London Asia
investment portfolio relative to our current market value, and the investment
opportunities available to the Company going forward. The Board has determined
that a strategy of working through joint ventures and associated companies, with
partners who can provide capital, management and personnel, as well as contacts,
business networks and experience, will enable the business to expand much more
rapidly and profitably, with much less strain on London Asia's management and
capital resources.
Given that the Merchant Banking Business is a services business, it is vitally
important to retain and incentivise staff, which is the core asset of the
business. We have previously attempted to do this through share options, but
with changes to accounting policies, such a policy if continued has the
potential to cause large fluctuations in our P&L depending on movements in the
Company's share price, which would cause distortions to our results and not
reflect the Group's financial performance. Whilst we intend to continue to
operate our policy of paying staff very low basic salaries topped up with profit
and project-based bonuses and incentives, which aligns the total package for
staff with the success of the business and reduces fixed overheads, this policy
does not work for new businesses, where it could take a considerable amount of
business development and time before the business turns profitable. The Board
has therefore proposed a series of resolutions at the upcoming Annual General
Meeting, which will allow the management team, including members of the Board,
to invest and participate alongside the Group in founding and financing a series
of new and proposed ventures. The management team will be investing on similar
terms to the Group. Management currently have minimal shareholdings in the
Company, and the Group has in the last nine months suffered significant staff
losses, including most of the original founders, causing substantial delays in
many projects and lost opportunities. The effect of the proposed resolutions
will be to tie in the management and align their interests with those of the
Group, and therefore shareholders, and we strongly recommend that shareholders
vote for these resolutions.
Movements in the Market
The Chinese Government continues to implement various measures to check the
volatility and growth of asset prices and the economy, with variable success.
The recent strength of the Chinese stock market, continuing strong investment
into Chinese assets and relentless growth of the Chinese economy has raised
questions as to the impact on London Asia.
The Chinese stock markets are bouncing back from a long period of
underperformance, a closure of the market to new listings, and significant
reforms of the market, all of which have encouraged retail investors in China to
begin to transfer their high level of savings into stock market investments.
London Asia does not currently have any investment in shares listed on the
Chinese stock markets, which are still largely restricted to foreign investors,
so does not have any direct exposure to movements in the market either up or
down. Institutions meeting the requirements of China's QFII scheme can invest in
the A shares market, of which just over 50 have been approved to date. London
Asia does not meet these requirements, which broadly require five years of fund
management experience and US$5 billion of assets under management.
The increase in stock market valuations does not directly impact on the
valuation of most private businesses in China, given the immense difficulty they
face in obtaining a listing in China, which is impossible for most Chinese
businesses to achieve in a sensible time frame. Investing in those businesses
that do meet the requirements for listing in China offers an attractive upside,
given the valuation differential between private and listed businesses, but the
listing process is lengthy, and typically investors pre IPO will be locked in
and unable to sell their shares for at least a year.
Of more direct relevance to the valuation of private businesses is the amount of
private equity available from both local and foreign investors. The flood of
foreign money has been stemmed by various regulatory changes in China, with many
of those investors now forced to buy into existing transactions given limited
access to new transactions, which has been very good in terms of follow on
funding for the Fund's and our own existing portfolio. Through some of the
licences and operations recently acquired, we are able to gain considerably more
access to direct investment into Chinese businesses than we were previously as a
foreign entity.
There is an increasing amount of Chinese money from individuals, institutions
and government related entities going into private equity investment in China.
Given their relative inexperience and small size or localised presence, we have
not yet seen this push up buy-in prices, but it has created more opportunities
to exit.
We anticipate continued volatility in asset prices in China, and regard the
current market in China as an opportunity to sell and refinance assets, rather
than aggressively acquire new investments.
Board and Management
As part of the restructuring, there have been a number of staff changes. We have
increased the number of professionally qualified staff in our Hong Kong,
Singapore and China offices. We have significantly reduced our presence in
London, and removed a number of staff across the Group whose skill sets did not
match the revised business model. Robert Spriddell left the Board last month to
focus on his other interests. On behalf of shareholders I would like to thank
Robert and our former staff for their contributions to the Group. Victor Ng also
stepped down from the Board earlier this year to allow him to focus on the
operational side of the business. He has been instrumental in much of the recent
expansion.
Outlook
Since the year end, London Asia has invested over #10.9 million in four new
companies in which it holds 40% stakes, the combined capital of which is over
#27 million. The investments were made via the issue of 97.9 million London Asia
shares at an average price of just over 11p, as the cash was not available to
make the investments. The new businesses have already begun making investments
off their own balance sheets, with #8.8 million invested by them to date. The
significant expansion of assets and operations that these investments provide us
with, which should feed through to enhanced profits for the Group, more than
outweigh the less than 1p dilution to net assets per share from the share issue.
There are a number of existing and new projects which we hope to develop in the
second half of this year. Based on the initial marketing of the Energy and
Environment Fund, a number of potential investors have been identified. The
Energy and Environment sector is a major focus of our operations, given the
experience of our team in the sector which goes back over 10 years, the strong
network we have in the sector generating substantial deal flow, and the cross
border nature of the industry, which plays to our strengths. Through the Fund,
London Asia Zhongying, and our own balance sheet, we have already invested over
#100 million in the sector in a wide range of projects from clean coal, to
water, wind, ethanol and oil field services.
We have created an Islamic finance division and intend to expand our Islamic
operations considerably in the near future, both in Asia and the Middle East,
building on the solid base of our existing business to offer products and
investment opportunities to Islamic investors, who have demonstrated a high
level of interest in investing in Asia.
We will continue to expand our geographical presence, to cover those markets
where Chinese businesses are active. We are assisting many of our portfolio
companies and clients in expanding beyond China into the rest of Asia, the
Middle East, and Eastern Europe. These expansions will be primarily by joint
ventures, to minimise the cost to the Group and leveraging our partners'
resources. We recently announced an investment in a financial services business
in Indonesia, and are currently looking at a number of potential opportunities
in India, given the rapidly rising trade and connections between China and
India.
With the Fund fully invested, several new staff, capital and resources from our
recent expansion, we anticipate a very active second half of the year.
Jack Wigglesworth
Chairman
29 June 2007
LONDON ASIA CAPITAL PLC
CHIEF EXECUTIVE'S STATEMENT
We have had another busy year, with #63.1 million invested in 22 transactions by
the Fund and the Group since we reported to you this time last year, equal to
one new investment every two and a half weeks. We currently have stakes in over
40 Asian focused businesses. We sold #4.6m worth of investments in 2006, and
listed six companies on PLUS as corporate adviser.
Our headcount and geographical coverage has increased considerably, both within
and outside China, as we expand the range and scope of our operations. We
anticipate the rate of expansion to increase going forward, as we move beyond
our traditional market of China, and take on more funds under management.
Investment Division
The Investment Division recorded a strong year, with profits of #2.1 million and
growth in assets of #3.8 million to #33.6 million, equal to 14.9p per share.
As a result of the surge in funds raised for private equity investment in China
in the last two years, and restrictions on foreign investment into Chinese
businesses, there is considerable surplus capital from foreign investors
pursuing a declining number of deals meeting Ordinance 10 requirements, which is
pushing up the value of our existing holdings. Much of our effort has therefore
been focused on realising the value of the existing portfolio, rather than
making new investments, with only #2.4 million of new investments off our own
balance sheet in 2006.
LAC Zhongying, our largest investment, is fully invested, with a number of
investments in the energy and environment and financial services sectors in
China. We are working with the management team to realise the value of the
assets. Zhongying is the largest (by registered capital) specialized commercial
Credit Guarantee Company with foreign investment approved to date by China's
State Council. Zhongying has provided over #33 million of credit guarantees to
several environmental and renewable energy projects in China.
China Financial Services Ltd ("CFS") is working on a number of potential
acquisitions, taking advantage of the resurgence of China's stock market and the
increased level of interest from retail investors in investing in financial
products. It is seeking to acquire a number of financial services licences in
China to allow it to launch funds and savings products targeted at the Chinese
retail market, where there is huge scope to expand given the over US$1 trillion
of personal savings.
3 of our portfolio companies listed on PLUS during the year, and one on
Malaysia's MESDAQ Stock Market. This provides greater transparency as to their
value. Excluding Zhongying and CFS, 83% of our portfolio is now listed, with the
unlisted element of the portfolio valued at #2.1 million, only 6% of net assets.
We own a significant stake in UK AIM listed Europasia Education plc ("EPE"),
where fellow director George Allnutt and I sit on the Board and in whose share
capital we are interested. EPE has focused on investment in education
businesses. Its core assets are stakes in two profitable Chinese education
businesses listed on PLUS. EPE's share price has collapsed, and it is trading at
what we believe, based on the share price of the PLUS listed investments, is a
significant discount to the value of the underlying assets. We have entered into
negotiations to acquire the stakes in the PLUS listed investments from EPE,
which would enable us to pick up assets at a discount and release resources to
enable EPE to pursue a different strategy, enhancing our stake in there also.
Given the cross Board seats, directors Jack Wigglesworth and David Brewer will
be responsible for negotiations on behalf of the Company. In addition, in view
of the interests of George Allnutt and myself, the proposed acquisitions
constitute substantial property transactions under section 320 of the Companies
Act 1985, and, accordingly, are conditional on the approval of shareholders at
the AGM.
Merchant Banking Division
The Group has three main advisory activities:
* Corporate Finance;
* Fund Management;
* Structured, debt and specialist products.
Corporate Finance Activities
During the year London Asia Corporate Finance was corporate adviser for the fund
raisings and PLUS listings of China Biotech Healthcare, China Biofoods, China
New Energy, Changfa Alumina, China MobileNet and the Dalian Business Institute.
We currently act as corporate advisor to 9 PLUS listings, making us the number
one advisor for Chinese businesses listing on PLUS. As well as one-off fees for
the listings, our advisory role generates recurring fee income.
Fund Management
In March 2006 we raised and listed on AIM the #50 million London Asia Chinese
Private Equity Fund, which focuses on investment in China. The Fund was fully
invested within a year of its launch, and has already seen its first successful
exits and re-investment of proceeds.
The Fund took considerably more resources than originally anticipated, primarily
due to the high level of documentation and procedural requirements for an AIM
listed fund, and accounts for a large part of the increase in overheads in the
year, as additional staff were brought in. With those staff now in place, and
the Fund fully invested, we are in a position to launch other funds to utilise
the strong deal flow we are generating from our offices across the region.
We have previously announced three further proposed fund launches for Vietnam,
Mongolia, and the Energy and Environment ("E&E") sector. We have decided to
postpone the launch of the Vietnam fund, given the massive oversupply of funding
following the launch of a huge number of funds for investment in what is a
relatively small, under-developed economy. The Mongolia Fund is now ready for
launch, with identified deal flow and a strong local partner. We are however,
initially focussing our efforts on the launch of the E&E Fund, where we have
already generated significant investor interest from the initial roadshow
earlier this year, signed up deal flow, and there is a team in place to run it.
Structured, debt and specialist products
This division focuses on a range of advisory, debt based and trading activities,
and is where we see much of the revenue growth of the business in the near
future given the strong trading environment. Much of the expansion of this
division has come since the year end, through the creation of four new
associated companies, and the hiring of a number of additional staff in our Hong
Kong, Singapore and China offices.
The divisions' activities include:
* Trading of listed stock
Through our newly formed 40% owned Hong Kong based securities business, Yellow
River Securities. Yellow River makes short term investments in Asian businesses
going to IPO, and in undervalued or overlooked existing listed businesses,
including those Asian businesses listed in the UK, that could benefit from the
financial skills and contacts that the Yellow River and London Asia management
teams can bring.
* Debt products
The Group continues to acquire stakes in a variety of licenced financial
services businesses providing debt related products, an area we intend to expand
on considerably given the fragmented state of the industry. Acquisitions to date
include:
* Mortgage Company - China Exchange Ltd ("CEL"), in which the Group holds
40%, has a stake in a mortgage and pawn broking company, authorized to provide
its services nationwide. China's mortgage industry is growing at an estimated
40% per annum, as increasing numbers of Chinese opt for private ownership of
property. Pawnshops are widely used by small and medium sized enterprises
("SME's") in China as a source of finance, given the difficulties they face in
securing adequate funding from the banking sector.
* Credit Guarantee Company - CEL has acquired an 80% stake in SYGC, which
provides credit guarantee services, mainly targeted at SMEs.
* Property investment and trading
London Asia Capital Land ("LACL"), incorporated in Hong Kong, focuses on
transactions in the property sector, primarily distressed assets. Transactions
are identified through London Asia's network in China, including Zhong Nan
Auction House, and the Group's relationships with China Synergy, the Beijing
headquartered real estate brokerage, and China Real Estate Services Ltd
("CRES"), the Beijing headquartered real estate chain in which the Fund has a
stake. CRES recently re-branded its 30 high street offices in northern China as
"London Asia Homes".
* Insurance broker
LAL has acquired a 51% stake in Jin Lian Ann Insurance Broker ("JLAI"),
headquartered in Beijing, China, operating nationwide through 30 branches,
focusing on corporate clients.
* Auction house
LAL has acquired a 51% stake in Zhong Nan Auction House ("ZNAH"), based in
Guangdong Province, China. Its business includes the auction of items
confiscated by the Guangdong municipal government, distressed property and items
with no identifiable ownership.
* Operation of trading platforms and exchanges in Asia
CEL has acquired a 40% stake in Xi'an Private Equity Exchange ("XPEE"), the
leading private equity exchange in Northwest China. The tough requirements and
long waiting list for companies to list on China's main stock exchanges has
meant that assets and equity exchanges have prospered to serve the needs of
companies that do not meet the criteria for the two major domestic exchanges,
and for the sale of assets and projects, particularly state owned. XPEE also
provides a range of investment banking and related services, including venture
capital and share custodian services. XPEE manages funds for wealthy individuals
and companies, providing short term financing to enterprises. It also advises on
financing, equity trading services, listings on local and foreign stock
exchanges, and project finance.
Outlook
We increasingly see the importance of the Energy and Environment sector for the
whole region. The opportunities in this sector span across all the Group's
operations, playing to our strengths. China's surging economy and
industrialisation has created pressures on the environment, which the Government
has recognised is a threat to both further economic development and social
wellbeing, so is encouraging investment in the sector. We have already made
significant investments in the sector, and are continuing to add to our existing
team as we roll out the E&E Fund.
I would like to take this opportunity to thank all of our staff, consultants,
partners and the employees of the businesses we have invested in for making 2006
a record year for the Group.
Simon Littlewood
Chief Executive
29 June 2007
LONDON ASIA CAPITAL PLC
FINANCIAL REVIEW
2006 was a record year for the Group with strong performance across all areas of
the business resulting in a 66% increase in profits to #3.1 million and growth
of net assets to #33.1 million.
Impact of IFRS
The results for the year ended 31 December 2006 have been prepared in accordance
with International Financial Reporting Standards ("IFRS") with the 2005 results
also restated under IFRS. AIM listed companies are required to comply with IFRS
for periods commencing on or after 1 January 2007. However in order to provide
more relevant information to shareholders as to the value of our investment
portfolio, the Board chose to prepare the 2006 results, and restate the 2005
results, under IFRS one year ahead of schedule.
The transition to IFRS has resulted in a number of fundamental changes to our
reported profits, balance sheet position and presentation of financial
information, most notably from the application of IAS 39, Financial Instruments:
Recognition and Measurement, and IFRS 2: Share-based Payment:
* Under IAS 39 our investments are shown at fair value with gains and
losses arising from changes in fair value included in net profit. Where our
investments are listed, fair value is determined by reference to quoted
market prices. Unlisted investments are valued in accordance with generally
accepted pricing models including discounted cash flow analysis, price
earnings multiples of comparable companies or recent market transactions. In
2006 we reported an unrealised profit on the revaluation of investments of
#2.5 million (2005: #1.2 million). As expected, this can result in a
significant degree of volatility in reported earnings depending on the
performance of our investment portfolio.
* The Group has historically used share options to remunerate and
incentivise employees and consultants. IFRS 2 requires the value of the
share options granted to be recognised as an expense and spread over the
vesting period of the options granted. As the majority of share options
granted had already vested by the start of the 2006 financial year, the
impact on the 2006 results was a charge of only #15,000 (2005: #462,000).
The impact on future profits from options already in issue is unlikely to be
significant.
The table below provides a reconciliation of profit reported under UK GAAP to
IFRS:
2006 2005 %
#'000 #'000 change
Profit for the year under IFRS 3,128 1,883 66%
IFRS adjustments:
Increase in value of investments disposed of (266) (895)
Unrealised profits on revaluation of (2,491) (1,236)
investments
Impairment of investments - (263)
Share based payment charge 15 462
Profit on sale of investments over book cost 832 895
Amortisation of goodwill (15) (4)
------ ------
Profit for the year before share based
payment charge under UK GAAP
1,203 842 43%
------ ------ ------
Trading performance
Profit before tax for the year increased by 66% to #3.1 million (2005: #1.9
million) under IFRS. On a UK GAAP basis, profit before tax increased by 43% to
#1.2 million (2005: #0.8 million) before the impact of share options. Basic
earnings per share was 1.3 pence (2005: 1.0 pence) and fully diluted earnings
per share was 1.2 pence (2005: 0.9 pence). Without the fair value and share
option adjustments, basic and fully diluted earnings per share were 0.53 and
0.46 pence respectively (2005: 0.49 and 0.42 pence respectively).
Excluding the impact of IFRS, the main driver of the increased profits has been
the significant growth in revenue of 139% to #1.8 million (2005: #0.8 million).
The table below provides an analysis of our reported revenue and profits:
2006 2005
#'000 #'000
Fee income 1,537 186
Dividends 133 501
Interest received on convertible loan notes 80 3
Rental income 77 76
1,827 766
Revenue by division:
Merchant banking 1,537 186
Investment 290 580
------ ------
1,827 766
------ ------
Profit by division:
Merchant banking 988 119
Investment 2,137 1,790
------ ------
Profit before tax under IFRS 3,125 1,909
------ ------
Fee income grew significantly from #0.2 million in 2005 to #1.5 million in 2006
as a result of the growth in our merchant banking activities (fund management
and corporate finance). The Group receives a management fee of 2% of the net
asset value of the London Asia Chinese Private Equity Fund ("the Fund"). This
currently amounts to approximately #1m of income per annum, with #0.8 million
booked in 2006. The Group is also entitled to a success fee of 20% of the
increase in value over a predefined hurdle rate, payable when the assets are
realised, providing a significant opportunity for future revenue growth. In
addition to the fees we receive from the Fund, there has also been a significant
growth in our corporate advisory services. We currently advise 9 companies
listed on PLUS, providing the Group with both recurring and one-off fees for our
services.
During the year we received a dividend of #133,000 (2005: #85,000) from Asia
Power. Following record 2006 profits the dividend payout has increased by 22%,
although with the strengthening of Sterling relative to the Singapore Dollar, we
expect to receive approximately #140,000 which will be accounted for in our 2007
results. Dividends received in 2005 included #416,000 from CFS. As noted in the
Chief Executive's Statement, CFS is working on a number of potential
acquisitions and, consequently, no dividends were paid in 2006 as it seeks to
build up its cash resources to take advantage of future acquisition
opportunities.
Excluding the impact of the 2005 CFS dividend, revenue increased by 453% from
#0.3 million to #1.8 million, a significant achievement over the 12 month
period.
We also generated a profit over book cost of #832,000 (2005: #895,000) from the
realisation of part of our investment portfolio.
As expected, overheads increased in line with the growth and expansion of our
business by 81% from #0.9 million to #1.5 million, significantly lower than the
139% increase in revenue (453% excluding the CFS dividend). The bulk of the
increase relates to increased staff and due diligence costs to support the fund
management operations, and the expansion of our merchant banking activities. In
2006 we completed 22 transactions as well as incurring time and costs on a
number of other deals that did not pass final due diligence, were rejected by
the Fund Board, or for which funds were not available. We increased our presence
in a number of new cities in China to improve our access to deal flow and have
recruited additional professionally qualified staff to strengthen our corporate
advisory team. The growth in our operating infrastructure is critical to the
future success of the Group to ensure that we are well placed to take advantage
of future opportunities as well as dealing with the complex and changing
regulatory environment that we operate in. We continue to monitor our overheads
closely and, as part of the recent restructuring, we have removed staff and
costs across the business that did not fit with our revised strategy.
Balance sheet position
Our balance sheet position strengthened with net assets of #33.1 million, equal
to 14.7 pence per share. The table below provides an analysis of the Group's net
asset position:
2006 2005
#'000 #'000
Unlisted investments 19,221 20,721
Cash 5,391 2,600
Listed investments 10,200 5,120
Other net assets/(liabilities) (1,670) 808
------- ------
33,142 29,249
------ ------
Although our investments are shown at fair value we have adopted a relatively
conservative approach in determining fair values of unlisted investments. Where
necessary, we have impaired certain investments and reflected others at cost. We
continue to show our investment in LAC Zhongying at the original cost of #12.5
million given its short trading history. Cash and listed investments comprise
#15.6 million, approximately half of our net assets. The acquisitions of the
last few weeks have added a further #10.9 million to assets.
Board of Directors
29 June 2007
LONDON ASIA CAPITAL PLC
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2006
2006 2005
#'000 #'000
Revenue 1,827 766
Administrative expenses (1,544) (855)
------- ------
Operating profit/(loss) 283 (89)
Interest income 135 257
Increase in value of investments disposed of 266 895
Unrealised profits on revaluation of investments 2,491 1,236
Share based payment charge (15) (462)
Foreign exchange (losses)/gains (18) 86
Finance costs (17) (14)
------- ------
Profit before taxation 3,125 1,909
Taxation 3 (26)
------- ------
Profit for the year 3,128 1,883
------- ------
Attributable to:
Equity holders of the parent 2,933 1,780
Minority interest 195 103
------- ------
3,128 1,883
------- ------
Earnings per share Pence Pence
Basic 1.3 1.0
------- ------
Diluted 1.2 0.9
------- ------
LONDON ASIA CAPITAL PLC
BALANCE SHEETS AS AT 31 DECEMBER 2006
2006 2005 2006 2005
#'000 #'000 #'000 #'000
Group Group Company Company
Non-current assets
Goodwill 319 319 - -
Property, plant and equipment 22 15 4 4
Investment in subsidiaries - - 680 621
Investments 28,546 24,563 11,930 13,724
------- ------ ------ ------
28,887 24,897 12,614 14,349
------- ------ ------ ------
Current assets
Investments 875 1,278 123 144
Trade and other receivables 1,208 1,093 11,484 11,761
Cash and cash equivalents 5,391 2,600 2,379 1,223
------- ------ ------ ------
7,474 4,971 13,986 13,128
------- ------ ------ ------
Total assets 36,361 29,868 26,600 27,477
------- ------ ------ ------
Current liabilities
Trade and other payables (3,089) (424) (2,229) (195)
Current tax liabilities (20) (26) - -
------- ------ ------ ------
(3,109) (450) (2,229) (195)
------- ------ ------ ------
Net current assets 4,365 4,521 11,757 12,933
------- ------ ------ ------
Non-current liabilities
Bank loans (110) (169) (110) (169)
------- ------ ------ ------
Total liabilities (3,219) (619) (2,339) (364)
------- ------ ------ ------
Net assets 33,142 29,249 24,261 27,113
------- ------ ------ ------
Equity
Share capital 11,381 11,066 11,381 11,066
Share premium 21,330 20,903 21,330 20,903
Share options reserve 477 462 477 462
Translation reserve 2 (6) - -
Retained loss (374) (3,307) (8,927) (5,318)
------- ------ ------ -------
Equity attributable to equity
holders of the parent
32,816 29,118 24,261 27,113
Minority interest 326 131 - -
------- ------ ------ ------
Total equity 33,142 29,249 24,261 27,113
------- ------ ------ ------
LONDON ASIA CAPITAL PLC
STATEMENT OF RECOGNISED INCOME AND EXPENSE
FOR THE YEAR ENDED 31 DECEMBER 2006
Group Group Company Company
2006 2005 2006 2005
#'000 #'000 #'000 #'000
Exchange differences on translation 8 (6) - -
of foreign operations
Profit/(loss) for the year 3,128 1,883 (3,609) 1,014
------- ------ ------- ------
Total recognised income and expense 3,136 1,877 (3,609) 1,014
for the year
Attributable to:
Equity holders of the parent 2,941 1,774
Minority interests 195 103
------- ------
3,136 1,877
------- ------
CASH FLOW STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2006
Group Group Company Company
2006 2005 2006 2005
#'000 #'000 #'000 #'000
Net cash from/(used in) operating 848 (718) (487) (3,456)
activities ------- ------ ------ ------
Investing activities
Interest received 135 257 57 247
Proceeds on disposal of 4,596 1,699 2,034 70
investments
Purchase of property, plant and (12) (13) (2) -
equipment
Acquisition of subsidiary net of - (50) - -
cash
Purchase of investments (2,868) (12,642) (1,129) (9,035)
------- -------- ------- ------
Net cash from/(used in) investing 1,851 (10,749) 959 (8,718)
activities ------- -------- ------- ------
Financing activities
Proceeds on issue of shares 151 11,185 742 11,185
Repayment of bank loans (59) (2) (59) (75)
------- -------- ------- ------
Net cash from financing activities 92 11,183 683 11,110
------- -------- ------- ------
Net increase/(decrease) in cash 2,791 (284) 1,156 (1,064)
and cash equivalents
Cash and cash equivalents at 2,600 2,884 1,223 2,287
beginning of year ------- -------- ------- ------
Cash and cash equivalents at end 5,391 2,600 2,379 1,223
of year ------- -------- ------- ------
Notes to the financial statements for the year ended 31 December 2006
1. Basis of preparation
The financial information set out above does not constitute the Group's
statutory accounts, within the meaning of Section 240 of the Companies Act 1985,
for the year ended 31 December 2006 or 2005, but is derived from those accounts.
Statutory accounts for the year ended 31 December 2005 have been filed with the
Registrar of Companies. The statutory accounts for 2006 will be delivered to the
Registrar of Companies following the Company's Annual General Meeting. The
auditors have reported on the 2005 accounts; their report was unqualified and
did not contain a statement under Section 237(2) or (3) of the Companies Act
1985. When published, the Company's Annual Report and Accounts for 2006 will be
sent to shareholders and will be made available to the public at the Company's
registered office.
The financial statements have been prepared in accordance with International
Financial Reporting Standards ("IFRS") for the first time. The financial
statements have also been prepared in accordance with IFRS adopted by the
European Union and therefore the group financial statements comply with Article
4 of the EU IAS Regulation. The transition date to IFRS for the Company was 1
January 2005.
2. Significant accounting policies
Financial instruments
Financial instruments are recognised in the Group's balance sheet when the Group
becomes a party to the contractual provisions of the instrument.
Investments
Investments are recognised and derecognised on a trade date where a purchase or
sale of an investment is under a contract whose terms require delivery of the
investment within the timeframe established by the market concerned, and are
initially measured at fair value, net of transaction costs except for those
financial assets classified as assets at fair value through profit and loss
which are initially measured at fair value.
Investments are classified as assets at fair value through profit and loss and
are measured at subsequent reporting dates at fair value. Gains and losses
arising from changes in fair value are included in net profit or loss for the
period.
The fair values of quoted investments in active markets are based on current bid
prices. If the market for a financial asset is not active, or the asset is an
unlisted security, fair values are established by using valuation techniques.
These include the use of recent arm's length transactions, discounted cash flow
analysis and the valuation techniques commonly used by market participants.
Trade receivables
Trade receivables are measured at initial recognition at fair value, and are
subsequently measured at amortised cost using the effective interest rate
method. Appropriate allowances for estimated irrecoverable amounts are
recognised in profit or loss when there is objective evidence that the asset is
impaired. The allowance recognised is measured as the difference between the
asset's carrying amount and the present value of estimated future cash flows
discounted at the effective interest rate computed at initial recognition.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits, and other
short-term highly liquid investments that are readily convertible to a known
amount of cash and are subject to an insignificant risk of changes in value and
have an original maturity of three months or less.
Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the
substance of the contractual arrangements entered into. An equity instrument is
any contract that evidences a residual interest in the assets of the Group after
deducting all of its liabilities.
Trade payables
Trade payables are initially measured at fair value, and are subsequently
measured at amortised cost, using the effective interest rate method.
Impairment of financial assets
Financial assets, other than those assets at fair value through profit and loss,
are assessed for indicators of impairment at each balance sheet date. Financial
assets are impaired where there is objective evidence that as a result of one or
more events that occurred after the initial recognition of the financial asset
the estimated future cash flows of the investment have been impacted. For loans
and receivables the amount of the impairment is the difference between the
asset's carrying amount and the present value of estimated future cash flows,
discounted at the original effective interest rate.
The carrying amount of the financial asset is reduced by the impairment loss
directly for all financial assets with the exception of trade receivables where
the carrying amount is reduced through the use of an allowance account. When a
trade receivable is uncollectible, it is written off against the allowance
account. Subsequent recoveries of amounts previously written off are credited
against the allowance account. Changes in the carrying amount of the allowance
account are recognised in profit or loss.
If, in a subsequent period, the amount of the impairment loss decreases and the
decrease can be related objectively to an event occurring after the impairment
was recognised, the previously recognised impairment loss is reversed through
the income statement to the extent the carrying amount of the investment at the
date the impairment is reversed does not exceed what the amortised cost would
have been had the impairment not been recognised.
Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received,
net of direct issue costs.
Share-based payment
The Group has applied the requirements of IFRS 2: Share-based Payment. In
accordance with the transitional provisions, IFRS 2 has been applied to all
grants of equity instruments after 7 November 2002 that were unvested at 1
January 2005.
The Group issues equity-settled share-based payments to certain employees and
consultants which are measured at fair value at the date of grant. The fair
value determined at the grant date is expensed on a straight-line basis over the
vesting period, based on the Group's estimate of shares that will eventually
vest and adjusted for the effect of non market-based vesting conditions.
Fair value is measured by use of the Black Scholes model. The expected life used
in the model has been adjusted, based on management's best estimate, for the
effects of non-transferability, exercise restrictions, and behavioural
considerations.
3. Earnings per share
2006 2005
#'000 #'000
Earnings
Earnings for the purposes of basic and diluted 2,933 1,780
earnings per share being net profit attributable
to equity holders of the parent
Unrealised profits on revaluation of investments (2,491) (1,236)
Increase in value of investments disposed of (266) (895)
Profit on sale of investments over book cost 832 895
Adjustment to minority share of profits for 168 80
revaluation of investments
Impairment of investments - (267)
Share based payment charge 15 462
------- -------
Earnings for the purposes of adjusted basic and 1,191 819
diluted earnings per share ------- -------
Number of shares
Weighted average number of ordinary shares for 225,328,117 176,619,585
the purposes of basic earnings per share
Effect of dilutive potential ordinary shares:
Share options 13,748,115 12,121,538
Warrants 2,140,420 4,211,354
---------- ---------
Weighted average number of ordinary shares for
the purposes of diluted earnings per share
241,216,652 192,952,477
Earnings per share
Basic (pence) 1.30 1.01
---------- ---------
Diluted (pence) 1.22 0.92
---------- ---------
Adjusted earnings per share
Basic (pence) 0.53 0.46
---------- ---------
Diluted (pence) 0.49 0.42
---------- ---------
4. Dividend
No dividend has been proposed in respect of the year.
5. Transition from UK GAAP to IFRS
The rules for first time adoption of IFRS are set out in IFRS 1: First time
adoption of International Financial Reporting Standards. In preparing the
transition from UK GAAP to IFRS, the Group has utilised two exemptions available
on first time adoption of IFRS in respect of IFRS 3: Business Combinations. The
Group has elected not to apply retrospectively the provisions of IFRS 3 to
acquisitions and translation differences that occurred prior to the Group's
transition at 1 January 2005.
6. Reconciliation of restated IFRS consolidated financial
information to UK GAAP
2005
#'000
Profit for the year
Profit for the year under UK GAAP as previously 842
reported
Impairment of investments under UK GAAP 263
Share based payment charge (462)
Amortisation of goodwill 4
Unrealised profits on revaluation of investments 1,236
-----
Profit for the year under IFRS 1,883
-----
Total equity 31 December 31 December
2005 2004
#'000 #'000
Total equity under UK GAAP as previously reported 26,761 12,604
Amortisation of goodwill 4 -
Unrealised profits on revaluation of investments 2,484 984
------ ------
29,249 13,588
------ ------
Changes in accounting policies
The following notes explain the main differences between UK GAAP and IFRS which
affect the Group's financial statements:
Goodwill
Under IFRS 3: Business Combinations, goodwill has an indefinite life and is only
written down when an impairment test suggests that the carrying value is
overstated. Any previously reported goodwill amortisation charged under UK GAAP
since the transition date of 1 January 2005 is reversed under IFRS and subject
to an impairment review.
Share-based payment
Under IFRS 2: Share-based Payment, the Group is required to recognise the fair
value of options at the date of grant. The fair value is expensed on a
straight-line basis over the vesting period, based on the Group's estimate of
shares that will eventually vest and adjusted for the effect of non market-based
vesting conditions.
Financial instruments
Under IAS 39: Financial instruments, Recognition and Measurement, financial
assets are classified as "at fair value through profit and loss". Gain and
losses are accounted for in the income statement in accordance with the
accounting policy described in the financial statements.
Reclassification of items in the Income Statement
The Group has restated the income statement with the following movements between
category headings in line with new Group IFRS accounting policies.
2006 2005
#'000 #'000
Revenue (832) (895)
Increase in value of investments disposed of 266 895
Unrealised profits on revaluation of investments - 566
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR OKFKQKBKBOAB
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