TIDMVOC
RNS Number : 9839X
Vision Opportunity China Fund Ltd
23 February 2012
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART
INTO THE UNITED STATES, CANADA, AUSTRALIA, SOUTH AFRICA OR
JAPAN
23 February 2012
Vision Opportunity China Fund Limited (the "Company" or
"VOC")
Full Year Results for the year ended 30 September 2011
Vision Opportunity China Fund Limited (AIM: VOC.L), the
closed-ended fund traded on AIM that invests in companies with
operations principally within Greater China, today announces
results for the year ended 30 September 2011.
Financial Summary
-- Net Asset Value (NAV) of US$18.50 million as at 30 September 2011
-- NAV per share of US$0.283 as at 30 September 2011
-- As at 17 February 2012(1) , unaudited NAV of US$14.80 million
and unaudited NAV per share of US$0.227
Change of Investment Strategy
-- Following the recommendation of the Board, and approval from
the Company's shareholders at the extraordinary general meeting on
12 August 2011, a new investment policy was adopted by the
Company.
-- The Company is now seeking to realise its outstanding
investment portfolio in an orderly manner.
-- The principle objective of the Company is now to return the
maximum amount of cash to Shareholders at the earliest possible
opportunity, however the timing and quantum of such distributions
are uncertain.
Returns of Capital to Date
-- The Company bought back 900,000 of its own ordinary shares
through the market in December 2010 at a price of US$1.60 per
share.
-- On 30 August 2011, the Company returned US$20 million
(US$0.3063 or GBP0.1850 per ordinary share) of its capital
accumulated from realisations to shareholders.
Reduced Expenses
-- The Board is endeavoring to minimise the Company's operating costs.
-- Ruiping Wang will not stand for re-election at the AGM and
the remaining Board members have agreed to reduced fees.
Chris Fish, Chairman of the Company, commented:
"The US-listed Chinese market continues to experience
challenging conditions and we continue to expect an uncertain
environment moving forwards. The Company and Investment Manager are
committed to the new strategy, as agreed by shareholders, to seek
to realise the remaining investments in the portfolio and return
surplus cash to shareholders at the earliest possible
opportunity."
1. Accounts refer to NAV as of 10 February 2012. NAV as of 17
February 2012 not available at the of accounts being signed.
For further information, please contact:
Vision Opportunity China Fund Limited
Adam Benowitz Tel: +1 (212) 849 8225
Canaccord Genuity Limited Tel: +44 (0)20 7050 6500
Sue Inglis
Financial Dynamics Tel: +44 (0)20 7269 7132
Ed Gascoigne-Pees / Ed Berry
NOTE TO EDITORS
Vision Opportunity China Fund Limited is a closed-ended fund
traded on AIM. VOC primarily invests directly in listed companies
with operations principally within Greater China.
Greater China is a collective term for the territories
administered by the People's Republic of China, those administered
by the Republic of China and Singapore.
Chairman's Statement
Year ended 30 September 2011
The one-year period ending 30 September 2011 has been the second
consecutive very difficult year for the Company. Investors in
US-listed Chinese companies have not yet regained confidence in
this segment of the market and VOC's portfolio has been
particularly affected, with the concentrated nature of the
Company's portfolio also being a contributing factor. The
respective share prices of VOC's portfolio companies have continued
to weaken and the trading liquidity of its portfolio companies has
remained thin.
Change of Investment Policy
At the recommendation of the Board, the Company's shareholders
approved the adoption of a new investment policy at the
extraordinary general meeting of the Company held on 12 August
2011. As required by that new investment policy, the Company is
seeking to realise its outstanding investment portfolio in an
orderly manner.
The Board has been actively monitoring VCA's selling efforts and
is content with the progress to date given market conditions and
VCA's pursuit of the possibility of a portfolio sale.
Whilst the exact timing of the orderly liquidation of the
Company's outstanding investment portfolio is uncertain, it is
possible it could be concluded within the next 12 months and
therefore the Board has prepared these financial statements on a
break-up basis. The portfolio has been included in these financial
statements at fair value, in accordance with International
Financial Reporting Standards, and assumes that the portfolio is
realised in an orderly manner. Fair value assumes that the
Company's investments are sold at closing bid prices and there is
no discount or premium resulting from the large stakes the Company
holds or the illiquid nature of the stocks. The exact timing of
disposals by the Company, together with market conditions at the
relevant time could result in actual realised amounts differing
significantly. By way of illustration, since the year end, the
portfolio has declined in value on a fair value basis by
approximately 21.5%.
Performance
As at 30 September 2011, the Company had net assets of US$18.50
million which equates to a NAV per ordinary share of US$0.283, a
decrease of 86.6% since 30 September 2010 (net asset value of
US$2.105 per ordinary share). This performance is very
disappointing. The situation has worsened since the year end and
the latest reported total net asset value as at 10 February 2012
was US$15.86 million which equated to US$0.243 per ordinary
share.
Share Buyback and Return of Capital to Shareholders
In the earlier part of the financial year, the Company bought
back 900,000 of its own ordinary shares through the market on 14
December 2010 at a price of US$1.60 per ordinary share. These
ordinary shares were subsequently cancelled on 17 December 2010. On
30 August 2011, the Company returned US$20million (US$0.3063 or
GBP0.1850 per ordinary share) of its capital to shareholders on the
register as at 19 August 2011. These initiatives were designed to
return the surplus cash the Company had accumulated from
realisations to its shareholders.
Reduction of Expenses
The Board is endeavouring to minimise the Company's operating
costs as much as possible. As part of this exercise, Ruiping Wang
has kindly agreed to not stand for re-election to the Board at this
year's annual general meeting and the remaining Board members have
agreed to reduced fees.
Contingent Liability
On 11 June 2010, The Litigation Trust of Astrata Group, Inc.
("Astrata") filed an adversary proceeding in the United States
Bankruptcy Court, District of Nevada, naming both Vision
Opportunity China L.P. and Vision Opportunity China Fund Limited,
among others, as defendants. Astrata alleges that the defendants
interfered with its economic advantages and aided and abetted an
Astrata corporate officer in breaching fiduciary duties. On 23
January 2012, a hearing took place on the defendants' Motion to
Dismiss a Second Amended Complaint. At the hearing, the court
allowed certain causes of action against the Company to continue
but dismissed the more substantial damage claims related to the
loss of certain contracts. The remaining damage claims relate to
other lost "key contracts", bankruptcy administrative claims and
loss of enterprise value and loss of cash flow. However, neither
details of the remaining claims nor any supporting evidence for
them have yet been provided. The Company is disputing the merits of
the remaining claims and is strenuously defending them.
Looking Forward
As at 10 February 2012, the Company has almost 46.97% of its
total net asset value, or US$7.45 million, in cash. As noted
earlier, the Company is looking to generate additional liquidity in
its portfolio through various means including a private sale of the
entire portfolio, a private sale of individual stocks in the
portfolio and/or through sales of portfolio securities in the open
market and is aggressively looking to reduce the fees and expenses
involved in the operations of the Company. The principle objective
of the Company is now to return the maximum amount of cash to
Shareholders at the earliest possible opportunity but the timing
and quantum of such distributions are uncertain.
Christopher Fish
Chairman
Vision Opportunity China Fund Limited
Date: 20 February 2012
Investment Manager's Report
Year ended 30 September 2011
The Company had net assets of US$18.72 million as at 30
September 2011 (US$0.2834 per Ordinary Share), comprised of
investments in six portfolio companies valued at US$10.55 million
and US$8.4 million in cash and other short term holdings. This
level of assets represents a decline of 86.6% from 30 September
2010, when the Company had net assets of US$139.31 million
(US$2.105per ordinary share). 17.8% of this decline was due to the
return of capital to shareholders and the share buyback programme
implemented at the end of 2010. The remainder of the decline is
attributable to the performance of the Company's portfolio
companies and net expenses of US$4.2 million. The portfolio has
become more highly concentrated over the past year with the top two
holdings accounting for 97.2% of the portfolio at the end of the
period.
As at 10 February 2012, the Company had net assets of US$15.86
million ($0.243 per ordinary share), comprised of investments in
six portfolio companies valued at US$7.85 million and US$7.45
million in cash and other short term holdings.
Performance
FY2011 has been the second consecutive disappointing year for
shareholders. US-listed Chinese companies have not recovered from
their reduced price levels and reductions in liquidity triggered by
the widespread allegations of fraud that began over a year ago and
continue to date. It is unclear when price levels and liquidity
will return to this segment of the market.
In terms of stock market performance, the Company's portfolio
companies fell 66.6% during the twelve month period ending 30
September 2011. This underperformance far exceeds that of weighted
indices such as the MSCI China Index which fell 25.7%, Bloomberg
Chinese Reverse Mergers Index which fell 54.9% and Halter USX China
Index which fell 26.0%. This underperformance is attributable to
the concentrated, illiquid nature of VOC's portfolio.
The Company's portfolio companies fell 25.0% during the period
between 30 September 2011 and 31 January 2012, underperforming
weighted indices such as the MSCI China Index which gained 19.7%,
Bloomberg Chinese Reverse Mergers Index which gained 10.5% and
Halter USX China Index which gained 13.4%.
Portfolio Positions
At the date of this report, the Company's portfolio consists of
two major positions, four small positions, cash and other short
term holdings.
QKL Stores (QKLS) is the Company's largest holding which
represented 61.7% of the Company's portfolio as of 30 September
2011. As of 31 January 2012, QKLS represented 57.5% of the
Company's portfolio. QKLS operates a chain of supermarkets and
hypermarkets in Northern China. During 2011, QKLS opened 14 new
stores, exceeding its guidance of 12 new stores for 2011. It also
closed three stores due to the expiration of lease contracts. As at
30 September 2011, QKLS had 53 store locations with an aggregate of
approximately 296,600 sq. metres of total store space. This is
comprised of 33 supermarkets, 16 hypermarkets and four department
stores. As at 31 January 2012, QKLS had 54 store locations with an
aggregate of approximately 324,400 sq. metres of total store space.
This is comprised of 34 supermarkets, 16 hypermarkets and four
department stores. In June, QKLS announced that Mr. Alan Stewart
had resigned as its Chief Operating Officer and would be replaced
by Ms. Xishuang Fan, who at that time was the Assistant Chief
Operating Officer. Mr. Stewart also resigned from his position as
director of QKLS. In November 2011, Mr. Tsz Fung Philip Lo was
appointed as Chairman of the Audit Committee and as a member of the
Compensation Committee and Corporate Governance Committee. In
December 2011, QKLS received a letter from Nasdaq indicating that,
based upon the closing bid price for the last 30 consecutive
business days, QKLS no longer met the requirement set forth in
Listing Rule 5550, which requires listed securities to maintain a
minimum bid price of US$1.00 per share. QKLS is currently looking
at all options available with respect to regaining such compliance.
In February 2012, QKLS announced that it had dismissed BDO China
Shu Lun Pan Certified Public Accountants LLP and engaged Albert
Wong & Co LLP as its new independent registered public
accounting firm in order to reduce accounting expenses. When QKLS
announced that it had missed its projected earnings last November
2010, the stock declined from US$6 to US$4. The stock continued to
decline steadily thereafter finishing at US$1.20 on 30 September
2011. On 15 November 2011, QKLS announced third quarter earnings
which had missed its expectations. The stock subsequently traded
down to US$0.90 on 31 January 2012.
Portfolio Positions
Shengkai Innovations (VALV) is the Company's second largest
holding, representing 35.5% of the Company's portfolio as of 30
September 2011. As of 31 January 2012, VALV represented 41.1% of
the Company's portfolio. VALV is engaged in the business of
designing and manufacturing ceramic industrial valves and valve
components. VALV achieved results for its fiscal year ended 30 June
2011 that were in line with its guidance, reporting revenues of
US$93.5 million and non-GAAP net income (excluding non-cash changes
in the fair value of instruments and share-based compensation
costs) of US$33.5 million. However, VALV reported a 36.0% year over
year decline in revenues for its most recent quarter ended 30
September 2011. Management attributed the poor performance to
damaged relationships with customers due to investigations from
investors and has decided to gradually phase out VALV's less
profitable market segments including the electric power market and
focus on expanding its presence in the more profitable domestic and
foreign oil and chemical industries. Earnings results for the
subsequent two quarters were in line with management's lowered
expectations. On 9 November 2011, VALV reported revenues of US$11.0
million for the quarter ended 30 September 2011, a significant
decrease of 36.0% from the same period a year ago. On 9 February
2012, VALV reported revenues of US$10.3 million for the quarter
ended 31 December 2011, a significant decrease of 54.0% from the
same period a year ago. In August, BDO China Li Xin Da Hua CPA Co.,
Ltd. resigned as VALV's auditors due to the inability of both
parties to agree on audit fees and Albert Wong & Co. was
subsequently appointed as the Company's new auditor. In November,
VALV received a letter from Nasdaq advising that based upon the
closing bid price for the last 30 consecutive trading days, VALV no
longer met the minimum bid price requirement of US$1.00 per share.
In December, VALV's stockholders approved a one-for-two reverse
stock split of VALV's common stock. Over the course of the year,
the common stock trading price of VALV's common stock has steadily
declined, starting at US$6.40 and finishing at US$0.93 on 30
September 2011. As of 31 January 2012, VALV's common stock closed
at US$0.84.
In addition, the Company has a small holding of shares in Wuhan
General Group (WUHN) valued at US$96,344 and small warrant
positions in Keyuan Petrochemicals (KEYP), valued at US$22,732, and
in Tianyin Pharmaceuticals (TPI), valued at US$179,358, accounting
for a combined total of 2.8% of the portfolio.
The Company also continues to hold shares in China Integrated
Energy (CBEH), a vertically integrated producer and distributor of
biodiesel and petroleum-based fuels in China, which were written
down to zero on 30 April 2011 after the NASDAQ halted trading in
its shares. CBEH was at one time the Company's third-largest
holding. Prior to the halt, the Company was able to realise 82.1%,
or US$12.1 million, of the Company's total investment in CBEH.
During the period VOC generated gross proceeds of US$33.0
million from sales of securities. The sale of these positions
resulted in US$5.56 million in realised losses. VOC has fully
exited its positions in China Security & Surveillance
Technology, China Gerui Advanced Materials, China Ceramics, Concord
Medical Services Holdings, Global Education & Technology Group,
and Jingwei International Limited. In addition, VOC
opportunistically reduced its holdings in QKL Stores and Shengkai
Innovations, as liquidity in those stocks emerged.
As previously communicated, we are exploring several avenues for
generating liquidity in the portfolio including a sale of the
entire portfolio, sales of individual holdings and sales in the
open market. We look forward to updating you on our progress.
Adam Benowitz
Chief Investment Officer, Senior Managing Director
Vision Capital Advisors
Date: 20 February 2012
DIRECTORS
The Directors are responsible for the determination of the Company's
investment objective and policy and have overall responsibility
for the Group's activities. The Directors have put in place procedures
to ensure that the Group meets current corporate governance requirements.
At the date of their annual report, the Board comprises four Directors,
all of whom are non-executive and who are entirely independent
of the Investment Manager.
Christopher Fish, Chairman, age 66
Mr Fish retired as Managing Director of Close International Private
Banking in 2004 and as Chairman of Close Private Bank in 2011.
He has over 40 years' experience in banking, investment and fiduciary
businesses. Mr Fish was a Senior Executive Director and Group Head
of Trusts for Rea Brothers (Guernsey) Limited from 1998 until it
was acquired by Close Brothers Plc in 1999. Prior to joining Rea
Brothers (Guernsey) Limited he worked for six years at Coutts &
Co. in various senior roles including Managing Director of Coutts
& Co (Cayman) Ltd and Senior Client Partner and Director of Coutts
Offshore Businesses. Mr Fish worked from 1989 to 1992 as Chief
Executive of Leopold Joseph Holdings (Guernsey) Limited and he
worked from 1973 to 1989 in a number of senior positions for The
Royal Bank of Canada. He started his banking career in 1963 at
Lloyds Bank, where he remained for 10 years. Mr Fish is a director
of a number of other investment funds.
John Hallam, age 62
Mr Hallam is a Fellow of the Institute of Chartered Accountants
in England and Wales and qualified as an accountant in 1971. Previously,
he was a Partner at PricewaterhouseCoopers and retired in 1999
after 27 years with the firm in Guernsey and in other countries.
Mr Hallam is currently Chairman of Cazenove Absolute Equity Ltd,
Dexion Absolute Ltd and Partners Group Global Opportunities Ltd.
He is also a director of a number of other financial services companies,
some of which are traded on the London Stock Exchange. Mr Hallam
served for many years as a member and latterly Chairman of the
Guernsey Financial Services Commission, from which he retired in
2006. He is chairman of the Board's audit committee.
Dr Christopher Polk, age 43
Dr Polk is a Professor of Finance at the London School of Economics
and Political Science ("LSE"). He specialises in the behaviour
of security prices and investment strategies and researches a wide
range of topics, including stock market efficiency, behavioural
finance and corporate investment decisions. He has advised several
asset management companies on the effectiveness of their investment
strategies. Prior to joining the faculty at LSE, Dr Polk was an
Assistant Professor of Finance at Northwestern University's Kellogg
School of Management for eight years. From 1990 to 1993 he was
a senior consultant for Andersen Consulting before leaving to pursue
a PhD. He received a BS in Physics and Economics from Duke University
in 1990 and a PhD in Finance from the University of Chicago in
1998.
Ruiping Wang, age 48
Mr Wang is currently the Managing Director and Founder of TDR Capital
International Ltd and the Chairman of TDR (Tianjin) Fund Management
Ltd. Mr. Wang was an Executive Director of Softbank Investment
International (Strategic) Limited from October 2003 to December
2005 and before that the General Manager of Softbank China Venture
Investment Limited from September 2001. In 2006 and the first half
of 2007 he acted as Group Advisor to Softbank. During his time
at Softbank Mr Wang was a director of a number of other companies
in the group. From 2000 to 2001 he was the Vice President of the
Greater China Investment Banking Division of Deutsche Bank. From
1991 to 2001 he was an Associate Director of Standard Chartered
(Asia) and was in charge of investment in mainland China. Before
joining Standard Chartered (Asia) he was a manager of CITIC Group
(1986 to 1991). Mr Wang received an MA in Economics from Nankai
University, Tianjin in 1986.
FORMER INVESTMENT POLICY to 12 August 2011
The Company invested in companies whose operations at the time
of the initial investment were principally in Greater China
with:
o annual revenues between US$10 million and US$300 million; and/or
o annual net income between US$1 million and US$30 million.
Subject to Board approval, the Company had the ability to make
investments which did not fit either of these criteria (measured on
the basis of either financial information published by the Investee
Company for its previous financial year or estimates published by
the Investee Company in respect of its current financial year)
provided that, at the time of the initial investment, the market
capitalisation of the relevant Investee Company was not greater
than US$750 million.
Investments could be made either:
o directly in Investee Companies; or
o indirectly by investing in an existing listed company whose
assets were primarily cash and which might have been used to
acquire, through a reverse takeover, an Investee Company and which
could maintain its listing following that acquisition.
The Company invests primarily in equities and equity-related
securities. The Group had the power to also invest in partnership
interests and financial instruments relating to its target
investments. However, the Company's investment policy was flexible,
enabling it to invest in all types of securities, including (but
not limited to) equities, preference shares, convertible
securities, warrants and other equity-related securities. In
addition, the Company had the power to enter into derivative
transactions for the purposes of efficient portfolio
management.
The Company had the power to invest in securities which:
o were already listed or traded on a stock market;
o were expected to be listed or traded on a stock market concurrently with the investment; or
o were unlisted securities, provided that the Company could not
invest more than 20 per cent. of its NAV (measured at the time of
investment) in unlisted securities (for this purpose, unlisted
securities excluded securities which were capable of being
converted into or exchanged for securities which were already
listed or traded on a stock market at the option of the holder on
not more than 90 days' notice but included any other securities
that were not already listed or traded on a stock market or were
not expected to be listed or traded on a stock market concurrently
with the investment).
The Company had the power to continue to hold an investment in
an Investee Company that ceased to be listed if the Investment
Manager considered that to be appropriate.
The Company could not invest more than 15 per cent. of its gross
assets (measured at the time of the initial investment) in any one
company. The Company's portfolio was not managed by reference to
any benchmark and, therefore, the composition of its portfolio was
not restricted by any minimum or maximum sector weightings.
The Company's initial investment in any one Investee Company was
not permitted to exceed 15 per cent. of its gross assets (measured
at the time of the initial investment) and the aggregate cost of
the Company's investment in any one Investee Company was not
permitted to exceed 20 per cent. of its gross assets (measured at
the time of investment).
Uninvested or surplus capital or assets could be invested on a
temporary basis in cash or cash equivalents, money market
instruments, bonds, commercial paper or other debt obligations with
banks or other counterparties having a single "A" or higher credit
rating as determined by any reputable rating agency selected by the
Investment Manager.
The Company did not employ a policy of hedging against
fluctuations in exchange rates.
NEW INVESTMENT POLICY from 21 August 2011
On 21 August 2011, the Board decided that its priority was to
maximise Shareholder value through the orderly realisation of the
Company's investments and to return surplus cash to Shareholders.
Following the approval of the new investment policy at an
extraordinary general meeting, the Board instructed the Investment
Manager to make no further investments other than in cash
equivalents.
The Board continues to seek to implement the new investment
policy in as effective and efficient a manner as possible. However,
the rate at which the Company's assets are realised and the
subsequent returns of value will depend, in particular, on the ease
and speed with which investments can be realised or whether they
can be sold in a bulk sale transaction. The timing and quantum of
distributions to Shareholders are uncertain and will, in part,
depend on the timing and quantum of the disposal of the assets and
the liabilities resulting from the operations and management of the
Group.
In the event of any breach of the Company's investment policy,
Shareholders will be informed of the actions to be taken by the
Investment Manager by an announcement issued through a Regulatory
Information Service or a notice sent to Shareholders at their
registered addresses in accordance with the Articles.
PERFORMANCE STATISTICS
% change
NAV per in NAV per
Ordinary Ordinary % change
Date Share Share Share Price in Share
Price
------------------------ ----------- ------------ ------------- ----------
28 November 2007 (date US$0.944 - US$1.000 -
of Admission)
------------------------ ----------- ------------ ------------- ----------
31 December 2007 US$0.953 0.95% US$1.050 5.00%
------------------------ ----------- ------------ ------------- ----------
31 March 2008 US$0.957 0.42% US$1.040 -0.95%
------------------------ ----------- ------------ ------------- ----------
30 June 2008 US$1.302 36.05% US$1.080 3.85%
------------------------ ----------- ------------ ------------- ----------
30 September 2008 US$1.219 -6.37% US$1.030 -4.63%
------------------------ ----------- ------------ ------------- ----------
31 December 2008 US$0.931 -23.63% US$0.800 -22.33%
------------------------ ----------- ------------ ------------- ----------
31 March 2009 US$0.951 2.15% US$0.780 -2.50%
------------------------ ----------- ------------ ------------- ----------
30 June 2009 US$1.304 37.12% US$0.760 -2.56%
------------------------ ----------- ------------ ------------- ----------
30 September 2009 US$2.095 60.07% US$1.220 60.53%
------------------------ ----------- ------------ ------------- ----------
31 December 2009 US$2.256 7.68% US$1.600 31.15%
------------------------ ----------- ------------ ------------- ----------
31 March 2010 US$2.752 21.99% US$1.990 24.38%
------------------------ ----------- ------------ ------------- ----------
30 June 2010 US$2.314 -15.92% US$1.810 -9.05%
------------------------ ----------- ------------ ------------- ----------
30 September 2010 US$2.105 -9.03% US$1.580 -12.71%
------------------------ ----------- ------------ ------------- ----------
31 December 2010 US$1.797 -14.63% US$1.525 -3.48%
------------------------ ----------- ------------ ------------- ----------
31 March 2011 US$1.138 -36.67% US$1.085 -28.85%
------------------------ ----------- ------------ ------------- ----------
30 June 2011 US$0.709 -37.70% US$0.565 -47.93%
------------------------ ----------- ------------ ------------- ----------
30 September 2011 US$0.283 -60.09% US$0.230 -59.29%
------------------------ ----------- ------------ ------------- ----------
31 December 2011 US$0.214 -24.39% US$0.175 -23.92%
------------------------ ----------- ------------ ------------- ----------
Directors' Report
Year ended 30 September 2011
This is the fourth annual report of the Directors of the
Company.
The Directors submit their Report together with the Group's
Consolidated Statement of Financial Position, the Consolidated
Statement of Comprehensive Income, the Consolidated Statement of
Changes in Equity, the Consolidated Statement of Cash Flows and the
accompanying related notes for the year ended 30 September 2011,
which have been prepared in accordance with International Financial
Reporting Standards, in accordance with any relevant enactment for
the time being in force, and are in agreement with the accounting
records, which have been kept in accordance with Section 238 of the
Companies (Guernsey) Law, 2008.
The Company
The Company is a Guernsey registered, closed-ended investment
company. The Company commenced business on 28 November 2007 when
the Ordinary Shares were admitted to trading on AIM.
Group Structure
The underlying investments of the Group are held by the Limited
Partnership which was registered as a limited partnership in
Guernsey under the Limited Partnership (Guernsey) Law, 1995. The
Company is the limited partner of the Limited Partnership and the
Company's subsidiary, GPCo, is the general partner of the Limited
Partnership.
GPCo was incorporated in Guernsey and is licensed under The
Protection of Investors (Bailiwick of Guernsey) Law 1987, as
amended. GPCo's principal activity is to manage the Limited
Partnership which it does by employing the services of Vision
Capital Advisors under the Investment Management Agreement. GPCo is
responsible for the continuing fees of the Investment Manager.
The Company owns all of the issued A Ordinary Share capital of
GPCo. The A Ordinary Shares give the Company the sole control
rights over GPCo.
Vision Capital Advisors owns all of the issued B Redeemable
Preference Share capital of GPCo. The B Redeemable Preference
Shares give the Investment Manager the sole economic rights to the
performance allocation to which GPCo is entitled under the terms of
the Limited Partnership Agreement and the return on the US$100,000
capital invested by Vision Capital Advisors for the B Redeemable
Preference Shares. The value of the B Redeemable Preference Shares
is classified as a liability in these financial statements.
A C Ordinary Share in GPCo was issued to Vision Capital Advisors
to enable it to comply with certain capital adequacy requirements.
The Share carries no rights to vote at general meetings, no rights
to dividends or other distributions (including on a return of
capital) and only the right to receive GBP10,000 on a liquidation
or winding up of GPCo. The value of the C Ordinary Share is
classified as a liability in these financial statements.
Through its interest as a limited partner in the Limited
Partnership, the Company is entitled to any return on the amount it
invested in the Limited Partnership.
Together the Company, the GPCo and the Limited Partnership form
an integrated fund structure.
Results, Dividends & Returns of Capital
The results for the year are set out in the Consolidated
Statement of Comprehensive Income on page 19.
The Directors do not recommend the payment of a dividend for the
financial year (30 September 2010: US$Nil).
On 14 December 2010, in accordance with the Company's buy-back
programme in relation to its distribution policy in respect of the
year ended 30 September 2010, the Company acquired 900,000 Ordinary
Shares from Shareholders for aggregate proceeds of US$1.44 million.
On 17 December 2010, those Ordinary Shares of the Company that were
being held in treasury were cancelled. Following this cancellation,
as at 30 September 2011, the number of issued Ordinary Shares of
the Company was 65,289,574 (30 September 2010: 66,189,574).
On 17 August 2011, the Company paid to Shareholders a return of
capital amounting to US$20.00 million in aggregate (30 September
2010: US$3.31 million). The remaining amount to be distributed to
Shareholders as at 30 September 2011 was US$Nil (30 September 2010:
US$1.44 million).
Dividend Policy
The Company has never paid any dividends on the Ordinary Shares,
but as the Company's investment Policy is to return surplus cash to
shareholders, cash returns may be made by dividend or other
distribution following the realisation of the Company's
investment.
Distribution Policy
During the prior year the Directors introduced a distribution
policy which aimed to return to Shareholders an amount equivalent
to up to 50%, and not less than 20%, of the Company's relevant net
realisation proceeds achieved in each financial year. This has now
been superseded by the revised Investment Policy.
The Directors have discretion to determine the mechanics to be
used on each occasion an amount is to be returned to Shareholders
in accordance with the distribution policy.
Directors
The Directors who served during the year, all of whom are
non-executive directors, are as listed below. All the Directors,
with the exception of John Hallam (appointed 29 July 2010), were
appointed on 8 November 2007 and Christopher Fish, Ruiping Wang, Dr
Christopher Polk and John Hallam are independent Directors.
Christopher Fish (Chairman)
Dr Christopher Polk
David William Benway (resigned 24 January 2012)
John Hallam
Dr Randolph Cohen (resigned 1 October 2010)
Ruiping Wang
The Investment Manager
The Investment Manager was appointed as investment manager to
the Group pursuant to an Investment Management Agreement dated 16
November 2007 between the Investment Manager and the Company.
The Investment Manager is currently responsible for negotiating,
completing, monitoring and managing divestments on behalf of the
Group. The appointment of the Investment Manager under the
Investment Management Agreement continues until 31 March 2012
unless terminated immediately, by either party giving written
notice to the other, upon material breach of the Investment
Management Agreement by the other party that is not capable of
remedy, or, in the case of a remediable breach, if such breach is
not remedied within 30 days. The Investment Management Agreement
may also be terminated in other prescribed circumstances, including
where one party goes into liquidation.
The Administrator
The Administrator has been appointed administrator of the Group
pursuant to an administration agreement dated 16 November 2007
between the Administrator and the Company (the "Administration
Agreement").
The Administrator provides day-to-day administration and
secretarial services to the Company, GPCo and the Limited
Partnership. The Administration Agreement is terminable by either
party giving not less than 180 days' notice in writing and in
certain other circumstances, including material breach of the terms
of the agreement by either party.
Custodian & Prime Broker
Jeffries has been appointed as Custodian and Prime Broker to the
Company and in that capacity has custody of the Groups'
investments. In accordance with U.S. securities laws, the assets of
Jefferies' customers are required to be segregated from Jefferies'
proprietary assets.
The Limited Partnership pays the Prime Broker commissions and
other transaction fees (for the execution of purchases and sales of
securities). These fees are payable at the Prime Broker's
prevailing rates.
Registrar
The Registrar has been appointed to act as registrar of the
Group under a registrar agreement dated 16 November 2007 between
the Company and the Registrar (the "Registrar Agreement"). The
Registrar Agreement sets out the fees which the Registrar will
charge for performing its duties as registrar. The Registrar
Agreement may be terminated by either the Company or the Registrar
giving not less than 3 months' notice in writing or otherwise in
circumstances where the Company or the Registrar goes into
liquidation or where either party commits and fails to make good a
material breach of the Registrar Agreement. The Registrar Agreement
will also terminate if the Registrar ceases to hold a required
licence, consent, permit or registration.
Nominated Adviser and Broker
Canaccord has been appointed to act as Nominated Adviser and
Broker to the Company under a NOMAD and Broker agreement dated 1
October 2009 between the Company and Canaccord (the "NOMAD and
Broker Agreement"). The NOMAD and Broker Agreement is on normal
market terms, and under those terms the Company has agreed, inter
alia, to consult and discuss with Canaccord all of its
announcements and statements and to provide Canaccord with any
information which Canaccord reasonably requires to enable it to
carry out its obligations as a Nominated Adviser and Broker. The
NOMAD and Broker Agreement is terminable by either party on 2
months' written notice and in certain other circumstances.
Corporate Governance
Compliance
As a Guernsey incorporated company, the Company is not required
to comply with the provisions of the UK Corporate Governance Code
(the "Code") issued by the Financial Reporting Council in June
2010. However, the Directors believe that high standards of
corporate governance should be maintained and have therefore
adopted those provisions of the Code which the Board believe are
relevant to the Company given its status as a non-UK investment
company. In respect of the financial year ended 30 September 2011,
the Company complied with the Code save with regard to the
following provisions:
-- The role of the chief executive: The Board considers that the
post of chief executive officer is not relevant for the Company as
this role has effectively been delegated to the Investment Manager
under the terms of the Investment Management Agreement.
-- The appointment of a Senior Independent Director: Given the
size and composition of the Board it is not felt necessary to
separate the roles of Chairman and Senior Independent Director. The
Board considers that all the independent Directors have different
qualities and areas of expertise on which they may lead where
issues arise and to whom concerns can be conveyed.
-- Executive directors' remuneration: As the Board has no
executive directors, it is not required to comply with the
principles of the UK Corporate Governance Code in respect of
executive directors' remuneration and does not have a remuneration
committee.
-- Establishment of nomination committee: Since all of the
Directors are non-executive, the Board does not consider it
necessary to establish a nomination committee. The Board as a whole
monitors performance and plans for succession of the Board, either
through Board meetings or, if appropriate, through the use of an
appropriately constituted committee.
-- Internal audit function: The Board has reviewed the need for
an internal audit function, as recommended by the Code. Due to the
size of the Company and the delegation of day-to-day operations to
regulated service providers, an internal audit function is not
considered necessary. The Directors will continue to monitor the
systems of internal controls in place in order to provide assurance
that they operate as intended..
Board Committee
Audit Committee
An audit committee has been appointed and is responsible for
reviewing and monitoring internal financial control systems and
risk management systems on which the Group is reliant, considering
the annual accounts and audit report, considering the appointment
and remuneration of the Company's auditors and monitoring and
reviewing annually their independence, objectivity, effectiveness
and qualifications. The members of the audit committee are John
Hallam (Chairman), Dr Christopher Polk and Ruiping Wang. The audit
committee has performed reviews of the internal financial control
systems and risk management systems during the year. The audit
committee is satisfied with the internal financial control systems
of the Group. The audit committee will meet at least twice a year.
During the year, in accordance with best practice, effective from
24 November 2010 Christopher Fish resigned as a member the audit
committee.
Management Engagement Committee
The Board has established a Management Engagement Committee
comprising the four independent Directors being Christopher Fish,
John Hallam, Dr Christopher Polk and Ruiping Wang. The Management
Engagement meets once a year to supervise the Investment Manager
and its performance under the Investment Management Agreement. It
will also meet on an ad hoc basis to consider decisions where there
is a potential conflict between the Group's interests and those of
Vision Capital Advisors or other funds it manages. The Management
Engagement Committee was formerly known as the Investment
Committee.
Remuneration and Nomination Committees
Since all of the Directors are non-executive, the Board does not
consider it necessary to establish remuneration and nomination
committees.
Independence of Directors
As at 30 September 2011, the Board consisted of five members,
all of whom were non-executive. With the exception of Mr Benway all
other Directors of the Company were independent. The Board believes
that Mr Benway's experience added considerable value to the Company
during the year. Mr Benway did not take part in discussing any
contractual arrangements between the Board and the Investment
Manager due to his interests in the Investment Manager. Mr Benway
was employed by the Investment Manager during the year before his
resignation from the Investment Manager on 21 July 2011. Mr Benway
resigned as a Director of the Company on 24 January 2012.
The Directors recognise the importance of succession planning
for company boards and review the composition of the Board
annually. However, the Board is of the view that length of service
will not necessarily compromise the independence or contribution of
Directors of an investment company where continuity and experience
can be a benefit to the Board. Furthermore, the Board agrees with
the view expressed in the AIC Code of Corporate Governance that
long serving Directors should not be prevented from forming part of
an independent majority or from acting as Chairman. Consequently no
limit has been imposed on the overall length of service of the
Directors.
With the exception of Mr Hallam (appointed 29 July 2010), all
other Directors were initially appointed to the Board on 8 November
2007 and a third of them will retire, and seek reappointment at
each annual general meeting ("AGM"). At the Third AGM, held on 25
January 2011, Mr Benway and Mr Hallam retired by rotation, under
the articles of association, and were then re-elected. At the
Company's next AGM, Mr Wang will retire by rotation, under the
articles of association. Given the Company's desire to reduce
costs, Mr Wang has kindly agreed not to seek reappointment.
The Directors believe that the Board has a balance of skills and
experience which enable it to provide effective strategic
leadership and proper governance of the Company.
The Board has contractually delegated external agencies for the
management of the investment portfolio, the custodial services and
the day to day accounting and company secretarial requirements.
Meetings and Committees
The table below, details the participation at Board and
Committee meetings during the year:
Management
Board* Audit Committee** Engagement
Committee***
--------------------------------- -------- ------------------- --------------
Christopher Fish (resigned from
Audit committee on 24 November
2010) 8 1 1
--------------------------------- -------- ------------------- --------------
David Benway (resigned from 7 N/A N/A
24 January 2012)
--------------------------------- -------- ------------------- --------------
Ruiping Wang 4 2 1
--------------------------------- -------- ------------------- --------------
Dr Christopher Polk 5 - 1
--------------------------------- -------- ------------------- --------------
John Hallam 7 2 1
--------------------------------- -------- ------------------- --------------
* 8 Board meetings have been held during the year ended 30
September 2011
** 2 Audit Committee meetings have been held during the year
ended 30 September 2011
*** 1 Management Engagement Committee meeting has been held
during the year ended 30 September 2011
Directors Interests
No Director and no connected person of any Director has an
interest in the Ordinary Shares which, is known to, or could with
reasonable diligence be ascertained by) the Directors, whether held
directly or through a third party.
There were no changes in the interests of the Directors prior to
the date of this report.
Internal Controls
The Directors are responsible for overseeing the effectiveness
of the internal financial control systems of the Company, which are
designed to ensure proper accounting records are maintained, that
the financial information on which the business decisions are made
and which is issued for publication is reliable, and that the
assets of the Company are safeguarded. Such a system of internal
financial controls can only provide reasonable and not absolute
assurance against misstatement or loss.
In accordance with the guidance published by the Institute of
Chartered Accountants in England and Wales ("the Turnbull Report"),
the Board has reviewed the Company's internal control procedures.
These internal controls are implemented by the Company's three main
service providers, the Investment Manager, the Administrator and
the Custodian. The Audit Committee contacts each service provider
on an annual basis to seek confirmation that each service provider
had effective controls in place to control the risks associated
with the services that they are contracted to provide to the Group.
The Board is satisfied with the internal controls of the
Company.
Anti-bribery and Corruption
The Board acknowledge that the Company's international
operations may give rise to possible claims of bribery and
corruption. At the date of this report the Board had conducted an
assessment of the perceived risks to the Company arising from
bribery and corruption to identify aspects of its business which
may be improved to mitigate such risks. The Board has adopted a
zero tolerance policy towards bribery and has reiterated its
commitment to carry out business fairly, honestly and openly.
Shareholder Views
The Board regularly monitors the shareholder profile of the
Company. All shareholders have the opportunity, and are encouraged,
to attend the Company's AGM at which members of the Board are
available in person to meet shareholders and answer questions. In
addition, the Company's Investment Manager maintains regular
contact with major shareholders and report regularly to the Board
on shareholder views.
Substantial Shareholdings
As at 30 December 2011, the Company was aware of the following
interests in the issued share capital of the Company that exceeded
3% of the issued share capital.
Percentage of
Number of Ordinary Total Ordinary
Shareholder Shares Held* Shares Issued
Held
-------------------------------------- -------------------- ----------------
City of London Investment Management
Company 18,079,005 27.69%
-------------------------------------- -------------------- ----------------
Baillie Gifford & Co 11,093,200 16.99%
-------------------------------------- -------------------- ----------------
Tiberius Investments & Capital
(Jersey)** 7,187,845 11.01%
-------------------------------------- -------------------- ----------------
QVT Financial 6,425,000 9.84%
-------------------------------------- -------------------- ----------------
Gramercy Asset Management 3,168,200 4.85%
-------------------------------------- -------------------- ----------------
PCT Partners 2.250.000 3.45%
-------------------------------------- -------------------- ----------------
Henderson New Star 2,160,908 3.31%
-------------------------------------- -------------------- ----------------
* Based on the Shareholder register as at 30 December 2011
** The investment vehicle of the principals of the Investment
Manager
Directors Statement
The Directors make the following statement:
-- so far as the Directors are aware, there is no relevant audit
information of which the Group's auditors are unaware; and
-- that all steps have been taken by the Directors to make
themselves aware of any relevant audit information and to establish
that the Group's auditors are aware of that information.
Statement of Directors' responsibilities
The Directors are responsible for preparing the Directors'
Report and the financial statements in accordance with applicable
law and regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law they have
elected to prepare the financial statements in accordance with
International Financial Reporting Standards and applicable law.
The financial statements are required by law to give a true and
fair view of the state of affairs of the Company and of the profit
or loss of the Company for that period.
In preparing these financial statements, the Directors are
required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and estimates that are reasonable and prudent;
-- state whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the financial statements; 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 comply with the Companies (Guernsey) Law,
2008. They have general responsibility for taking such steps as are
reasonably open to them to safeguard the assets of the company and
to prevent and detect fraud and other irregularities.
Taxation Status
The Income Tax Authority of Guernsey has granted the Company
exemption from Guernsey income tax under the Income Tax (Exempt
Bodies) (Guernsey) Ordinance, 1989 and the income of the Company
may be distributed or accumulated without deduction of Guernsey
income tax. Exemption under the above mentioned Ordinance entails
payment by the Company of an annual fee of GBP600. It should be
noted, however, that interest and dividend income accruing from the
Group's investments may be subject to withholding tax in the
country of origin. With effect from 1 January 2008 the standard
rate of income tax for most companies in Guernsey is zero per cent.
Tax Exempt status continues to exist and the Company has been
granted this status for 2011.
The Company has not suffered any withholding tax in the year (30
September 2010: US$Nil).
Going Concern
At the recommendation of Board of Directors, at the
extraordinary general meeting of the Company held on 12 August
2011, the Company's shareholders approved the adoption of a new
investment policy. As provided by that new investment policy, VOC
is seeking to realise its outstanding investment portfolio in an
orderly manner. VOC is looking to generate additional liquidity in
its portfolio through various means including a private sale of the
entire portfolio, a private sale of individual stocks in the
portfolio and/or through sales of portfolio securities in the open
market. It is the Board's intention for all surplus cash in VOC
accumulated from realisations of its investments to be returned to
shareholders. Cash will continue to be held for working capital and
to provide for contingent liabilities and expenses, including the
costs of winding up.
Whilst the exact timing of the orderly liquidation of the
Company's outstanding investment portfolio is uncertain, it is
possible it could be concluded within the next 12 months and
therefore the Board has prepared these financial statements on a
break-up basis.
Auditors
The auditors of the Company, KPMG Channel Islands Limited, have
expressed their willingness to continue in office and a resolution
giving authority to re-appoint them will be proposed at the
forthcoming Annual General Meeting.
Director: Christopher Fish
Date: 20 February 2012
On behalf of the Board of Directors
INDEPENDENT AUDITOR'S REPORT TO MEMBERS OF VISION OPPORTUNITY
CHINA FUND LIMITED
We have audited the Group financial statements (the "financial
statements") of Vision Opportunity China Fund Limited (the
"Company" and together with its subsidiaries the "Group") for the
year ended 30 September 2011 which comprise the Consolidated
Statement of Financial Position, the Consolidated Statement of
Comprehensive Income, the Consolidated Statement of Changes in
Equity, the Consolidated Statement of Cash Flows and the related
notes. As described in Note 2(a) they have not been prepared on a
going concern basis. The financial reporting framework that has
been applied in their preparation is applicable law and
International Financial Reporting Standards as issued by the
IASB.
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 Statement of Directors'
Responsibilities set out on page 14, 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 (APB'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 Group's circumstances and have been consistently
applied and adequately disclosed; the reasonableness of significant
accounting estimates made by the Board of 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 Group's affairs
as at 30 September 2011 and of its loss for the year then
ended;
-- are in accordance with International Financial Reporting Standards as issued by the IASB; and
-- comply with the Companies (Guernsey) Law, 2008.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters
where the Companies (Guernsey) Law, 2008 requires us to report to
you if, in our opinion:
-- the Company has not kept proper accounting records; or
-- the financial statements are not in agreement with the accounting records; or
-- we have not received all the information and explanations,
which to the best of our knowledge and belief are necessary for the
purpose of our audit.
KPMG Channel Islands Limited
Chartered Accountants
Date: 21 February 2012
Consolidated Statement of Financial Position
As at 30 September 2011
Notes 30 September 30 September
2011 2010
------------------------------- ----- ------------ ------------
US$ US$
Investments: 6
Investment designated as:
Fair value through profit or
loss 9,787,168 99,696,687
Held for trading 767,629 34,089,070
------------ ------------
Total investments 10,554,797 133,785,757
------------ ------------
Current assets:
Cash and cash equivalents 7 8,372,118 6,162,090
Other prepayments 8 59,195 52,792
------------
8,431,313 6,214,882
------------ ------------
Total Assets 18,986,110 140,000,639
------------ ------------
Current liabilities:
Other payables 9 368,601 586,206
------------ ------------
368,601 586,206
------------ ------------
Non-current liabilities:
C Ordinary Shares of GPCo 11 16,024 -
B Redeemable Preference Shares
of GPCo 11 100,000 100,000
------------ ------------
116,024 100,000
Total Liabilities 484,625 686,206
------------ ------------
Total net assets 18,501,485 139,314,433
------------ ------------
Represented by Shareholders'
Equity:
Share capital 11 39,821,755 61,259,952
Reserves 10 (21,320,270) 78,054,481
------------ ------------
Total net assets 18,501,485 139,314,433
------------ ------------
NAV per Ordinary Share 12 0.2834 2.1048
------------ ------------
The financial statements on pages 17 to 44 were approved at a
meeting of the Board of Directors held on
20 February 2012 and signed on its behalf by:
Director: Christopher Fish
The accompanying notes on pages 21 to 44 form an integral part
of these financial statements.
Consolidated Statement of Comprehensive Income
For the year ended 30 September 2011
1 October 2010 1 October 2009
to to
Notes 30 September 30 September
2011 2010
----------------------------------------- ------ -------------- --------------
US$ US$
Income
Bank interest 8,787 14
Dividend income 65,364 8,804
Movement in net unrealised losses
on investments 6 (89,883,513) (9,767,682)
Net realised losses on investments 6 (5,558,528) 28,046,269
Net foreign exchange gains/(losses) 232,597 (7,651)
-------------- --------------
Net investment income (95,135,293) 18,279,754
-------------- --------------
Expenses
Investment Manager's fees 3 1,887,722 3,120,898
Realised movement in value of
GPCo invested PPU's redeemed
during the year 3 - 6,666,830
Income allocation on B Redeemable
Preference Shares of GPCo reimbursement (230,635) -
from GPCo
Income allocation on B Redeemable
Preference Shares of GPCo - 129,342
Administrator's fees 3 218,215 229,252
Directors' fees 4 233,383 179,644
Auditor's remuneration 69,677 79,459
Custodian's fees 3 98,026 107,879
Registrar's fees 3 26,660 18,432
NOMAD & Broker's fees 3 199,973 211,351
Prime Broker's commissions 3 241,364 1,633,937
D&O insurance 129,820 112,995
Annual listing fees 12,463 11,124
Legal costs and other professional
fees 507,749 471,126
Transaction costs 450,382 431,417
Marketing fees 72,307 65,425
Purchase and cancellation of
Fairfax Option - 660,000
Other expenses 322,352 176,583
-------------- --------------
Total expenses 4,239,458 14,305,694
-------------- --------------
(Loss)/return for the year attributable
to Ordinary Shareholders from
operations 10 (99,374,751) 3,974,060
-------------- --------------
Total comprehensive (loss)/income
for the year (99,374,751) 3,974,060
-------------- --------------
(Deficit)/earnings per Ordinary
Share (basic and diluted) 5 (1.5178) 0.0600
-------------- --------------
The results from the current and prior years are derived from
continuing operations.
The accompanying notes on pages 21 to 44 form an integral part
of these financial statements.
Consolidated Statement of Changes in Equity
For the year ended 30 September 2011
1 October 2010 to 30 September
2011
Revenue Share Capital Total
Notes Reserve
----------------------------- ------ ------------- ------------- -------------
US$ US$ US$
Balance brought forward 78,054,481 61,259,952 139,314,433
Repurchase and cancellation
of Ordinary shares 11 - (1,440,000) (1,440,000)
Capital Distribution
- Other 11 - (19,998,197) (19,998,197)
Total comprehensive loss for
the year 10 (99,374,751) - (99,374,751)
Balance carried forward (21,320,270) 39,821,755 18,501,485
------------- ------------- -------------
For the year ended 30 September 2010
1 October 2009 to 30 September
2010
Revenue Share Capital Total
Notes Reserve
--------------------------- ------ ----------- ------------- ------------
US$ US$ US$
Balance brought forward 74,080,421 64,569,430 138,649,851
Capital distribution 11 - (3,309,478) (3,309,478)
Total comprehensive income
for the year 10 3,974,060 - 3,974,060
Balance carried forward 78,054,481 61,259,952 139,314,433
----------- ------------- ------------
The accompanying notes on pages 21 to 44 form an integral part
of these financial statements.
Consolidated Statement of Cash Flows
For the year ended 30 September 2011
1 October 2010 1 October 2009
to to
Notes 30 September 30 September
2011 2010
--------------------------------------- ------ -------------- --------------
US$ US$
Cash flows from/(used in) operating
activities
Bank interest received 8,685 14
Dividends received 65,364 8,804
Operating expenses paid (4,463,364) (32,021,211)
Amounts paid on purchases of
investments (5,201,963) (33,545,409)
Sales proceeds received from
disposal of investments 32,990,882 51,948,310
--------------
Net cash from/(used in) operating
activities 23,399,604 (13,609,492)
-------------- --------------
Cash flows used in financing
activities
Amounts received on issue of
C Ordinary Shares in GPCo 11 16,024 -
Amounts paid re buyback of Ordinary
Shares 11 (1,440,000) -
Amounts paid re capital distribution 11 (19,998,197) (3,309,478)
Net cash used in financing activities (21,422,173) (3,309,478)
-------------- --------------
Net increase/(decrease) in cash
and cash equivalents during
the year 1,997,431 (16,918,970)
Cash and cash equivalents, start
of the year 6,162,090 23,088,711
Effect of exchange rate changes
during the year 232,597 (7,651)
-------------- --------------
Cash and cash equivalents, end
of the year 7 8,372,118 6,162,090
-------------- --------------
Cash and cash equivalents comprise
the following amounts:
Bank deposits 8,372,118 6,162,090
8,372,118 6,162,090
--------- ---------
The accompanying notes on pages 21 to 44 form an integral part
of these financial statements.
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
1. The Company:
The Company is a Guernsey Registered, closed-ended investment
company and is subject to the Registered Collective Investment
Scheme Rules 2008. The Company commenced business on 28 November
2007 when the Ordinary Shares were admitted to trading on AIM. The
registered office of the Company is Sarnia House, Le Truchot, St
Peter Port, Guernsey, GY1 4NA.
The Company's former and new investment policy is disclosed on
pages 6 and 7.
The underlying investments of the Group are held by the Limited
Partnership which was registered as a limited partnership in
Guernsey under the Limited Partnership (Guernsey) Law, 1995. The
Company is the limited partner of the Limited Partnership and the
Company's subsidiary, GPCo, is the general partner of the Limited
Partnership.
GPCo was incorporated in Guernsey and is licensed under The
Protection of Investors (Bailiwick of Guernsey) Law 1987, as
amended. GPCo's principal activity is to manage the Limited
Partnership which it does by employing the services of Vision
Capital Advisors under the Investment Management Agreement. GPCo is
responsible for the continuing fees of the Investment Manager.
The Company owns all of the issued A Ordinary Share capital of
GPCo. The A Ordinary Shares give the Company the sole control
rights over GPCo.
Vision Capital Advisors owns all of the issued B Redeemable
Preference Share capital of GPCo. The B Redeemable Preference
Shares give the Investment Manager the sole economic rights to the
performance allocation to which GPCo is entitled under the terms of
the Limited Partnership and the return on the US$100,000 capital
invested by Vision Capital Advisors for the B Redeemable Preference
Shares.
Through its interest as a limited partner in the Limited
Partnership, the Company is entitled to a return on the amount
invested in the Limited Partnership to enable the Group to make
investments.
The Company, the GPCo and the Limited Partnership together form
an integrated fund structure and consequently the Company has
consolidated its interests in GPCo and the Limited Partnership.
The C Ordinary Share of the GPCo issued to the Investment
Manager entitles the Investment Manager to GBP10,000 (or
equivalent) on liquidation or winding up of the Company and to no
other rights.
2. Principal Accounting Policies:
The following accounting policies have been applied consistently
in dealing with items which are considered material in relation to
the Group's financial statements:
(a) Basis of Preparation:
(i) General
The financial statements give a true and fair view, they have
been prepared in accordance with International Financial Reporting
Standards ("IFRS") and are in compliance with the Companies
(Guernsey) Law, 2008 and the AIM Rules of the UK Listing
Authority.
The financial statements of the Group have been prepared under
the historical cost convention modified by the revaluation of
investments and assets at fair value through profit or loss, in
accordance with IFRS.
These financial statements have been prepared on a break up
basis as the Company may go into voluntary liquidation during the
next 12 months. The only impact of adopting the break-up basis
compared to the going concern basis on the financial statements is
the provision of liquidation costs, because in the Directors
opinion the Company's investments are being carried at the best
estimate of their realisable value as at the year end.
(ii) Functional and Presentation Currency
These consolidated financial statements are presented in US
Dollars. The Directors consider the US Dollar to be the currency
that most faithfully represents the economic effects of the
underlying transactions, events and conditions.
2. Principal Accounting Policies, continued:
(a) Basis of Preparation, continued:
(ii) Functional and Presentation Currency, continued
Foreign currency transactions of the Company, the Limited
Partnership and the GPCo are translated into the functional
currency using the exchange rates prevailing at the dates of the
transactions. The Group's foreign exchange gains and losses
resulting from the settlement of such transactions and from the
translation at period-end exchange rates of monetary assets and
liabilities denominated in foreign currencies are recognised in the
Consolidated Statement of Comprehensive Income. Translation
differences on non-monetary financial assets and liabilities such
as equities at fair value through profit or loss are recognised in
the Consolidated Statement of Comprehensive Income.
(iii) Judgements and estimates
The preparation of financial statements in conformity with IFRS
requires management to make judgements, estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. The estimates and associated
assumptions are based on historical experience and other factors
that are considered to be relevant. Actual results could differ
from such estimates.
The estimates and underlying assumptions are reviewed on an
on-going basis. Revisions to accounting estimates are recognised in
the period in which the estimate was 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.
The most critical judgements, apart from those involving
estimates, that management has made in the process of applying the
Group's accounting policies and that have the most significant
effect on the amounts recognised in the financial statements are
the functional currency of the Group (see note 2(a)(ii)) and the
fair value of investments classified to be at fair value through
profit or loss (see note 2(e)(ii) and 2(e)(iv)). The valuation
methods/techniques used by the Group in valuing financial
instruments involve critical judgements to be made and therefore
the actual realisable value of financial instruments could differ
significantly from the value disclosed in these financial
statements.
(iv) IFRS
New standards and interpretations adopted
The Group has adopted the following new and amended standards
and interpretations, which are applicable to the Group's
operations, for the accounting period commencing 1 July 2010:
Improvements to IFRSs 2009 - various standards (effective 1
January 2010)
Amendments to IFRS 1 - Limited Exemption from Comparative IFRS 7
Disclosures for First-time Adopters (effective 1 July 2010)
Improvements to IFRSs 2010 - various standards (effective 1 July
2010)
Significant new standards and interpretations not yet
adopted
A number of new standards, amendments to standards and
interpretations are not yet effective for the current year, and
have not been applied in preparing these financial statements. None
of these will have a significant effect on the financial statements
of the Company, with the exception of the following:
-- IFRS 10, 11, 12: IASB consolidation standards, In May 2011,
the IASB released three new standards covering consolidation and
amended current existing standards in particular IAS 27 and IAS 28.
All consolidation standards have an effective date of 1 January
2013 with early adoption permitted, provided all 3 standards are
early adopted
-- IFRS 13: Fair value measurements, In May 2011, the IASB
released IFRS 13 replacing the fair value measurement guidance
spread throughout various IFRS's with a single source. The standard
defines fair value, establishes a framework for measurement and
sets out disclosures requirements. The standard does not create any
new requirements to measure assets and liabilities at fair value.
This standard will not have a significant impact on the Company,
however, the application of the exit price concept may affect some
consideration in valuation models for unquoted equity
investments.
2. Principal Accounting Policies, continued:
(a) Basis of Preparation, continued:
(iv) IFRS, continued
Significant new standards and interpretations not yet adopted,
continued
Other new standards and interpretations not yet adopted
IFRS 9 Financial Instruments (effective 1 January 2015)
IAS 24 - Related Party Disclosures (Revised 2009) (effective 1
January 2011)
The Directors believe that other pronouncements, which are in
issue but not yet operative or adopted by the Company, will not
have a material impact on the financial statements of the
Group.
(b) Basis of Consolidation:
The consolidated financial statements comprise the results of
the Company, the GPCo and the Limited Partnership. Control is
achieved where the Company has the power to govern the financial
and operating policies of the subsidiary entities so as to benefit
the Company.
(c) Income:
Bank interest and loan interest are included in the financial
statements on an accruals basis. Dividend income is included in the
financial statements when the right to receive payment is
established.
(d) Financial Instruments:
Financial assets and financial liabilities are recognised in the
Consolidated Statement of Financial Position when the Group becomes
a party to the contractual provisions of the instrument.
(i) Financial Assets
The classification of financial assets at initial recognition
depends on the purpose for which the financial assets were acquired
and their characteristics.
The Group's financial assets are categorised as financial assets
at fair value through profit or loss. Unless otherwise indicated
the carrying amounts of the Group's financial assets approximate to
their fair values. Gains and losses arising from changes in the
fair value of financial assets classified as fair value through
profit or loss are recognised in the Consolidated Statement of
Comprehensive Income.
A financial asset (in whole or in part) is derecognised
either:
-- when the Group has transferred substantially all the risk and rewards of ownership;
-- when it has not retained substantially all the risk and
rewards and when it no longer has control over the asset or a
portion of the asset; or
-- when the contractual right to receive cash flow has expired.
(ii) Financial Liabilities
The classification of financial liabilities at initial
recognition depends on the purpose for which the financial
liability was issued and its characteristics.
All financial liabilities are initially recognised at fair value
net of transaction costs incurred. All purchases of financial
liabilities are recorded on trade date, being the date on which the
Group becomes party to the contractual requirements of the
financial liability. Unless otherwise indicated the carrying
amounts of the Group's financial liabilities approximate to their
fair values.
Financial liabilities measured at amortised cost include trade
payables and other short-term monetary liabilities, which are
initially recognised at fair value and subsequently carried at
amortised cost using the effective interest rate method.
A financial liability (in whole or in part) is derecognised when
the Group has extinguished its contractual obligations, it expires
or is cancelled. Any gain or loss on derecognition is taken to the
Consolidated Statement of Comprehensive Income.
2. Principal Accounting Policies, continued:
(e) Investments:
The Group's investments comprise of equities and warrants (for
listed equities).
(i) Classification
Equities have been designated as fair value through profit or
loss in accordance with IAS 39 (Revised) "Financial Instruments:
Recognition and Measurement".
Warrant investments meet the definition of "Derivatives" under
IAS 39 and have been designated as held for trading in accordance
with IAS 39 (Revised) "Financial Instruments: Recognition and
Measurement". They are accounted for as fair value through profit
or loss.
Investments designated as fair value through profit or loss at
inception are those that are managed and their performance
evaluated on a fair value basis in accordance with the Group's
documented investment strategy. The Group's policy is for the
Investment Manager and the Board of Directors to evaluate the
information about these investments on a fair value basis together
with other related financial information.
(ii) Measurement
Equities and warrants are initially recognised at fair value.
Transaction costs are expensed in the Consolidated Statement of
Comprehensive Income. Subsequent to initial recognition, equities
and warrants are measured at fair value. Realised gains and losses
on disposal of investments, where the disposal proceeds are
higher/lower than the book cost of the investment are presented in
the Consolidated Statement of Comprehensive Income in the period in
which they arise. Unrealised gains and losses arising on the fair
value of investments are presented in the Consolidated Statement of
Comprehensive Income in the period in which they arise. Dividend
income, if any, from equity investments at fair value through
profit or loss is recognised in the Consolidated Statement of
Comprehensive Income within dividend income when the Group's right
to receive payments is established.
For new investments, that are subject to restrictions, made by
the Group, the Company's valuation policy requires a calculation of
the discount of the purchase price to the current market price of
equivalent freely tradable public securities. This discount is then
applied to the closing bid for the equivalent freely tradable
public securities, with a minimum of a 20% discount used at the
onset. This discount is then amortised to zero over the period of
time until the expected date of registration or the Group is in a
position to sell the securities under Rule 144: Selling Restricted
and Control Securities. The discount is not amortised below 10%,
however, until the security is able to be sold without
restrictions.
Warrant values are calculated using the Black-Scholes model.
However, this value is then subject to a further 50% discount of
the "time value".
Volatility estimates are those for similar companies, companies
with operations in Greater China that are listed on major exchanges
and have market caps between US$0 million and US$50 million
averaged with companies in the US that are listed on major
exchanges and have market caps between US$50 million and US$250
million. This volatility was 78.7% for the year ended 30 September
2011 (30 September 2010: 81%).
(iii) Recognition/derecognition
All regular way purchases and sales of investments are
recognised on trade date - the date on which the Group commits to
purchase or sell the investment. Investments are derecognised when
the rights to receive cash flows from the investments have expired
or the Group has transferred substantially all risks and rewards of
ownership.
All financial assets are initially recognised at fair value.
Gains and losses on securities sold are determined on the basis
of identified cost, and are included in the Consolidated Statement
of Comprehensive Income. Unrealised gains and losses arising on
revaluation are also included in the Consolidated Statement of
Comprehensive Income.
2. Principal Accounting Policies, continued:
(e) Investments, continued:
(iv) Fair value estimation
Quoted investments at fair value through profit or loss are
valued at the bid price on the relevant stock exchange, discounted,
where necessary, to reflect restrictions on resales.
Unquoted investments at fair value through profit or loss are
valued in accordance with valuation techniques that make maximum
use of observable market inputs such as the market value of similar
securities, interest rates and volatility.
The fair value of convertible preference shares has been
determined using the market value of the related common stock in
which those shares are to be converted given that there is no
market for the convertible preference shares held by the Company
and as per its investment strategy the Company generally expects to
realise the value in convertible preference shares by converting
those shares into the common shares and then selling the common
shares. The convertible preference shares are considered to be
freely convertible into the common shares as there are no
restrictions or conditions attached to the conversion.
Private warrants and options exercisable into common, ordinary
or preferred shares of a class which is listed on US, UK or other
securities exchange (including NASDAQ and the OTCBB), or traded on
the Pink Sheets, AIM or the Official List of the London Stock
Exchange are valued using the Black-Scholes model. Observable
market inputs to the model such as interest rates and volatility
are used where possible. The time value of the Black-Scholes model
is discounted by 50% as a liquidity adjustment. The Company also
holds options to make additional investments in investee companies
by predetermined dates, generally within 1 year following the
investment, on predetermined terms. Exercise of these warrants is
required in order for the underlying associated warrants included
in the package to become vested ("J warrants").The values of J and
associated warrants are calculated as follows: The Black-Scholes
value is calculated as above. This value is added to the stock
price in the evaluation of the J warrant in the Black-Scholes
framework as described above. This value represents the value of
the package of warrants.
(f) Expenses:
Expenses are accounted for on an accruals basis. All expenses of
the Group are borne by the Limited Partnership.
(g) Cash and Cash Equivalents:
Cash and cash equivalents are defined as cash in hand, demand
deposits and highly liquid investments readily convertible to known
amounts of cash and subject to insignificant risk of changes in
value. For the purposes of the Consolidated Statement of Cash
Flows, cash and cash equivalents consist of cash in hand,
short-term deposits in bank and overdrafts.
(h) Other Prepayments and Other Payables:
Other prepayments are stated at amortised cost less any
provision for doubtful debts. Other payables are stated at
amortised cost.
(i) Treasury Shares:
Where the Company purchases its own Ordinary Shares, the
consideration paid, including any directly attributable incremental
costs is deducted from equity attributable to the Company's equity
holders until the Shares are cancelled, reissued or disposed of.
Where such Ordinary Shares are subsequently sold or reissued, any
consideration received, net of any directly attributable
incremental transaction costs, is included in equity attributable
to the Company's equity holders.
2. Principal Accounting Policies, continued:
(j) Segmental Reporting:
The Group has adopted IFRS8 Operating Segments as of 1 October
2009, which requires a "management approach", under which segment
information is presented on the same basis as that used for
internal reporting purposes.
The Board has considered the requirements of IFRS8. The Board,
as a whole, has been determined as constituting the chief operating
decision maker ("CODM") of the Group.
The Board is charged with setting the Group's investment
strategy in accordance with the Prospectus. They have delegated the
day to day Investment Management of the Group to the Investment
Manager, under the terms set out in the Investment Management
Agreement, but the Board retains the responsibility to ensure that
adequate resources of the Group are directed in accordance with
their decisions. The Board therefore retains full responsibility
for the allocation decisions made on an ongoing basis. Pursuant to
the terms of the Investment Management Agreement the Investment
Manager is obliged to comply with the investment strategy detailed
in the Prospectus. This strategy sets out guidelines for proposed
investments and the procedures that the Investment Manager is
required to follow in dealing with the Group's assets. These
guidelines and procedures are regularly reviewed and can be altered
by the Board if it considers it appropriate to do so.
The key measure of performance used by the Board in its capacity
of CODM, is to assess the Group's performance and to allocate
resources based on the total return of each individual investment
within the Group's portfolio, as opposed to geographic regions. As
a result, the Board is of the view that the Group is engaged in a
single segment of business, being investment in a diversified
portfolio of equities and equity-related securities principally in
Greater China. Therefore, no reconciliation is required between the
measure of gains or losses used by the Board and that contained in
these consolidated financial statements.
Information on realised gains and losses derived from sales of
investments are disclosed in Note 13 to the financial
statements.
The Company has no assets classified as non-current assets. The
Company has no single investment that accounts for more than 34.48%
(30 September 2010: 40.64%) of the Company's net assets.
As disclosed in the Directors' Report on page 14, the Company is
not aware of any individual investor owning more than 27.69% (30
September 2010: 21.65%) of the issued capital of the Company.
3. Related Parties & Material Contracts:
The Company is responsible for the continuing fees of GPCo, the
Administrator, the Custodian, the Prime Broker, the NOMAD &
Broker and the Registrar in accordance with the Limited
Partnership, Administration, Custodian, the Prime Broker, NOMAD
& Broker and Registrar agreements, respectively.
The Investment Manager is a related party of the Group.
Limited Partnership Agreement
Pursuant to the provisions of the Limited Partnership Agreement
dated 22 November 2007, GPCo's compensation consists of all
expenses incurred in relation to the constitution, administration
and business of the Limited Partnership, without limitation or
exception.
The GPCo is responsible for the continuing fees of the
Investment Manager in accordance with the Investment Management
Agreement.
Investment Management Agreement
Pursuant to the Investment Management Agreement, GPCo pays a
management fee to the Investment Manager of 0.5% of the final
month-end NAV of the previous quarter, paid quarterly in advance.
The Investment Management Agreement will terminate with effect from
31 March 2012 unless the Company and the Investment Manager agree
to extend it in writing.
As at 30 September 2011, the management fee creditor was US$Nil
(30 September 2010: US$Nil).
The Investment Manager is also entitled to a performance
allocation, through its interest in GPCo, in respect of a
performance period if two conditions are met, namely (i) the
performance hurdle test is met; and (ii) the High Watermark is
exceeded.
The performance hurdle test will be met in a performance period
if the Adjusted Closing NAV per Ordinary Share exceeds the Hurdle
NAV at the end of such period. The Hurdle NAV is the greater of (a)
the Opening NAV per Ordinary Share and (b) the High Watermark,
increased over the relevant performance period by a rate equal to
10% per annum.
The High Watermark will be exceeded if the Adjusted Closing NAV
per Ordinary Share at the end of the relevant performance period is
higher than the High Watermark.
The performance allocation is based on "NAV Increase per
Ordinary Share" which is the amount by which the Adjusted Closing
NAV per Ordinary Share exceeds either (i) the Opening NAV per
Ordinary Share, or (ii) in the case where the High Watermark
exceeds the Hurdle NAV, the High Watermark.
The performance allocation is an amount equal to 20% of the NAV
increase per Ordinary Share multiplied by the time weighted average
of the total number of Ordinary Shares in issue for the relevant
period. Vision Capital Advisors will not be entitled to any such
part of the performance allocation to which it would otherwise be
entitled if allocating such part of the performance allocation
would have caused the performance hurdle test or High Watermark
test to not be met.
The first performance period began on Admission and ended on 30
September 2008. Each subsequent performance period is a period of
one financial year commencing on 1 October.
The Investment Manager has agreed to treat a portion of its
performance allocation as invested each year. The portion of the
performance allocation which is represented by realised gains, less
expenses, from investments will be distributable in cash by the
Limited Partnership to GPCo in arrears at the end of each
performance period (the "Cash Performance Allocation"). Any amount
of the performance allocation which is not represented by realised
gains (or which the Investment Manager via GPCo otherwise elects
not to receive in cash as part of the Cash Performance Allocation)
will be treated as invested by GPCo at the end of each performance
period in Performance Partnership Units ("PPUs") in the Limited
Partnership. PPUs will accrue a preferred share of the profits and
losses of the Limited Partnership on the basis of fluctuations in
the market price of Ordinary Shares from the date of their
allocation to GPCo until the date PPUs are redeemed, such that
GPCo's return on its PPUs will track the return of an investor in
Ordinary Shares over the same period (ignoring dealing costs).
GPCo is entitled to receive a priority distribution from the
Limited Partnership equivalent to the Cash Performance Allocation
and the return on the PPUs. GPCo's entitlement to the Cash
Performance Allocation and the return on the PPUs will be payable
to the Investment Manager as the owner of 100% of the B Redeemable
Preference Shares in GPCo.
3. Related Parties & Material Contracts, continued:
Investment Management Agreement, continued
At the end of each performance period, the Administrator will
calculate the proposed performance allocation and the split between
the Cash Performance Allocation payable and the amount which will
be automatically treated as invested in PPUs (to be reviewed and
agreed by the Board) and, if cash is available, GPCo will pay a
dividend on the non-voting B Redeemable Preference Shares or permit
certain of them to be redeemed to pay the Cash Performance
Allocation to the Investment Manager. If cash is not available or,
if Vision Capital Advisors elects, the Cash Performance Allocation
may be satisfied by the issue of further PPUs to Vision Capital
Advisors. For the financial year ended 30 September 2011, the
performance allocation High Watermark was US$2.1048 per Ordinary
Share (30 September 2010: US$2.1048).
As at 30 September 2011, the Cash Performance Allocation
creditor was US$Nil (30 September 2010: US$Nil) and the amount
which would be automatically treated as invested PPUs, upon
crystalisation, is US$Nil (30 September 2010: US$Nil).
Administration Agreement
Praxis Fund Services Limited has been appointed as Administrator
to the Group under an administration agreement dated 16 November
2007 (the "Administration Agreement"). The Administrator provides
day-to-day administration and secretarial services to the
Group.
The Administration Agreement may be terminated by either party
on not less than 180 days' written notice, or earlier upon certain
breaches of the Administration Agreement or the insolvency or
receivership of either party or if the Administrator ceases to be
qualified to act as such.
Pursuant to the provisions of the Administration Agreement, the
Administrator is entitled to receive the following administration
fees from the Group:
-- Accounting and NAV calculation - a fee based upon 0.10% of
NAV subject to a minimum of GBP4,500 per month;
-- Company Secretarial & US Shareholder Reporting- time based fee; and
-- GPCo - time based fee subject to a minimum of GBP10,000 per annum.
As at 30 September 2011, the administration fee creditor was
US$15,201 (30 September 2010: US$24,490).
Registrar Agreement
Pursuant to the provisions of the registrar agreement between
the Registrar and the Group, dated 16 November 2007, the Registrar
is entitled to an annual maintenance fee of GBP2 per Shareholder
account, subject to an annual minimum of GBP5,000 per annum,
together with a per deal fee per Shareholder transaction. In
addition, the Registrar is also entitled to an investor relations
fee of GBP2,720 per annum and a compliance fee of GBP750 per
annum.
As at 30 September 2011, the registrar fee creditor was US$3,827
(30 September 2010: US$3,860).
Custodian & Prime Broker Agreement
Jefferies & Company Inc. has been appointed as custodian to
the Group and in that capacity currently has custody of all of the
Group's investments. In accordance with US securities laws, the
assets of the Custodian's customers are required to be segregated
from the Custodian's proprietary assets.
As at 30 September 2011, the custodian fee creditor was US$2,872
(30 September 2010: US$Nil).
Jefferies & Company Inc. has also been appointed as prime
broker to the Limited Partnership. The Limited Partnership pays the
Prime Broker commissions and other transaction fees (for the
execution of purchases and sales of securities). These fees are
payable at the Prime Broker's prevailing rates.
As at 30 September 2011, the Limited Partnership had amounts due
to the Prime Broker of US$Nil (30 September 2010: US$9,812).
3. Related Parties & Material Contracts, continued:
NOMAD & Broker Agreement
Canaccord is the NOMAD & Broker to the Company under a
nominated adviser and Broker agreement dated 1 October 2009 between
the Company and Canaccord (the "NOMAD & Broker Agreement"). The
NOMAD & Broker Agreement is on normal market terms, and under
those terms the Company has agreed, inter alia, to consult and
discuss with Canaccord all of its announcements and statements and
to provide Canaccord with any information which Canaccord
reasonably requires to enable it to carry out its obligations as a
NOMAD and Broker. The NOMAD & Broker Agreement is terminable by
either party on 2 months' written notice and in certain other
circumstances.
As at 30 September 2011, the fees paid in advance to Canaccord
were US$Nil (30 September 2010: US$123,110).
Co-investments with the Master Fund
The Master Fund is a related party as a result of also being
managed by the Investment Adviser. As at 30 September 2011, the
Group held investments in the two underlying investment companies
noted below, which the Master Fund also held an interest in:
-- China Integrated Energy Inc
-- Wuhan General Group (China) Inc
The Limited Partnership, collectively with the Master Fund, does
not hold an aggregated controlling interest in any of the above
co-investments.
Directors Interests
As at 30 September 2011, the Directors, who held office during
the year, had no interests in Ordinary Shares. There were no
changes in the interests of the Directors prior to the date of this
report.
Mr Benway (a former Director of the Company), was employed by
Vision Capital Advisors during the year before his resignation on
21 July 2011.
No Director and no connected person of any Director has an
interest in the Ordinary Shares which, is known to, (or could with
reasonable diligence be ascertained by) the Directors, whether held
directly or through a third party.
Additionally, as at 30 September 2011, Carl Kleidman and Lisa
Snow, employees of Vision Capital Advisors, held a collective
85,000 (30 September 2010: Carl Kleidman and Jonathan Shane,
employees of Vision Capital Advisors, held a collective 535,000)
Ordinary Shares that carry certain restrictions.
Adam Benowitz and Randolph Cohen (a former Director of the
Company), the principals of VCA, together beneficially hold
7,187,845 Ordinary Shares in the Company.
4. Directors' Fees:
Each of the Directors has entered into an agreement with the
Company providing for them to act as a non-executive Director of
the Company. Their annual fees, excluding all reasonable expenses
incurred in the course of their duties which will be reimbursed by
the Company and are included in other expense, are as follows:
30 September 30 September
2011 2010
Annual Fee Annual Fee
------------- -------------
US$ US$
Christopher Fish (Chairman) 70,000 70,000
David Benway (resigned 24 January - -
2012)
Ruiping Wang 50,000 50,000
Dr Christopher Polk 50,000 50,000
John Hallam* 55,000 9,644
* as chairman of the Audit Committee Mr Hallam's fee includes a
further US$5,000 per annum.
Mr Benway was not entitled to any Directors' fees for the year.
As at 30 September 2011, the Directors' fees creditor was US$Nil
(30 September 2010: US$Nil).
For the year ended 30 September 2011, Directors' fees were
US$233,383 (30 September 2010: US$179,644).
5. Basic & diluted earnings per Ordinary Share:
Basic and diluted earnings per Ordinary Share is based on the
loss for the year of US$99,374,751 (30 September 2010: US$3,974,060
return)and on a weighted average of 65,474,506 (30 September 2010:
66,189,574) Ordinary Shares in issue.
6. Investments:
1 October 2010 1 October 2009
Fair Value Through Profit or Loss to to
Investments: 30 September 30 September
2011 2010
--------------- ---------------
US$ US$
Listed equity securities (freely
tradeable) 4,180,905 28,717,222
Listed equity securities (restricted) 5,606,263 70,979,465
---------------
9,787,168 99,696,687
--------------- ---------------
Opening fair value 99,696,687 97,385,577
Purchases 5,201,963 33,459,101
Sales - proceeds (32,990,882) (51,411,514)
Sales - realised (losses)/gains
on disposals (5,558,528) 28,046,269
Movement in net unrealised losses (56,562,072) (7,782,746)
--------------- ---------------
Closing fair value at 30 September 9,787,168 99,696,687
--------------- ---------------
Closing book cost at 30 September 21,094,831 54,442,278
Closing net unrealised (losses)/gains (11,307,663) 45,254,409
--------------- ---------------
Closing fair value at 30 September 9,787,168 99,696,687
--------------- ---------------
6. Investments, continued:
1 October 2010 1 October 2009
to to
Held for Trading Investments: 30 September 30 September
2011 2010
--------------- ---------------
US$ US$
Unlisted investments - warrants 787,629 34,089,070
--------------- ---------------
Opening fair value 34,089,070 35,987,698
Purchases - 86,308
Movement in net unrealised losses (33,321,441) (1,984,936)
--------------- ---------------
Closing fair value at 30 September 767,629 34,089,070
--------------- ---------------
Closing book cost at 30 September 93,486 93,486
Closing net unrealised gains 674,143 33,995,584
--------------- ---------------
Closing fair value at 30 September 767,629 34,089,070
--------------- ---------------
1 October 2010 1 October 2009
to to
Total Investments: 30 September 30 September
2011 2010
--------------- ---------------
US$ US$
Listed equity securities (freely
tradeable) 4,180,905 28,717,222
Listed equity securities (restricted) 5,606,263 70,979,465
Warrants 767,629 34,089,070
--------------- ---------------
10,554,797 133,785,757
--------------- ---------------
Opening fair value 133,785,757 133,373,275
Purchases 5,201,963 33,545,409
Sales - proceeds (32,990,882) (51,411,514)
Sales - realised (losses)/gains
on disposals (5,558,528) 28,046,269
Movement in net unrealised losses (89,883,513) (9,767,682)
--------------- ---------------
Closing fair value at 30 September 10,554,797 133,785,757
--------------- ---------------
Closing book cost at 30 September 21,188,317 54,535,764
Closing net unrealised (losses)/gains (10,633,520) 79,249,993
--------------- ---------------
Closing fair value at 30 September 10,554,797 133,785,757
--------------- ---------------
7. Cash and Cash Equivalents:
30 September 30 September
2011 2010
------------- -------------
US$ US$
Cash at bank 8,372,118 6,162,090
8,372,118 6,162,090
------------- -------------
8. Other Prepayments:
30 September 30 September
2011 2010
------------- -------------
US$ US$
Prepayments 59,195 52,792
------------- -------------
59,195 52,792
------------- -------------
The Directors consider that the carrying amount of other
receivables approximates fair value.
9. Other Payables:
30 September 30 September
2011 2010
------------- -------------
US$ US$
Income allocation on B Redeemable
Preference Shares - 129,342
Income allocation on B Redeemable
Preference Shares from GPCo (101,293) -
Administrator's fee 15,201 24,490
Registrar's fee 3,827 3,860
NOMAD & Broker's fees - 123,110
Prime Broker fees 2,872 9,812
Legal costs & other professional
fees 325,444 201,363
Consultants fees 5,387 -
Audit fee 74,803 85,810
Travel & marketing 4,790 116
Sundry payables 37,570 8,303
------------- -------------
368,601 586,206
------------- -------------
The Directors consider that the carrying amount of other
payables approximates fair value.
10. Revenue reserve:
1 October 2010 1 October 2009
to to
30 September 30 September
2011 2010
-------------- --------------
US$ US$
Opening revenue reserve 78,054,481 74,080,421
Total comprehensive (loss)/income
for the year (99,374,751) 3,974,060
-------------- --------------
Closing revenue reserve (21,320,270) 78,054,481
-------------- --------------
11. Share Capital:
30 September
2011
&
30 September
2010
-------------
Authorised Share Capital: US$
Unlimited shares of no par value that may be
issued as Ordinary Shares -
-------------
1 October 2010 1 October 2009
to to
30 September 30 September
2011 2010
-------------- --------------
Allotted, Issued and Fully Paid: No. No.
Brought forward 66,189,574 66,189,574
Ordinary Shares held in treasury
cancelled (900,000) -
-------------- --------------
Carried forward 65,289,574 66,189,574
-------------- --------------
11. Share Capital, continued:
1 October 2010 1 October 2009
to to
30 September 30 September
2011 2010
-------------- --------------
Share Capital: US$ US$
Share capital brought forward 61,259,952 64,569,430
Repurchase and cancellation of
Ordinary Shares held in treasury
of during the year (1,440,000) (3,309,478)
Capital distribution (19,998,197) -
Share capital carried forward 39,821,755 61,259,952
-------------- --------------
On 14 December 2010, in accordance with the Company's buy-back
programme in relation to it's distribution policy in respect of the
year ended 30 September 2010, the Company acquired 900,000 Ordinary
Shares from Shareholders for an aggregate price of US$1.44 million.
On 17 December 2010, those Ordinary Shares of the Company that were
being held in treasury were cancelled. Following the cancellation,
as at 30 September 2011, the number of issued Ordinary Shares of
the Company was 65,289,574.
On 17 August 2011, in accordance with the Company's distribution
policy, the Company paid to Shareholders (on the register as at
close of business on 19 August 2011) a return of capital of 30
cents per Ordinary Share, amounting to US$20.0million in
aggregrate.
The repurchase of Ordinary Shares by the Company was funded from
the Company's cash resources.
The Company's authorised capital structure comprises an
unlimited number of shares of no par value.
Ordinary Shareholders have the following rights:
(i) Dividends
During the year Shareholders (other than the Company itself
where it holds its own Ordinary Shares as treasury Ordinary Shares)
are entitled to receive, and participate in, any dividends or other
distributions out of the profit of the Company available for
dividend and resolved to be distributed in respect of any
accounting period or other income or right to participate
therein.
(ii) Winding up
On a winding up, Shareholders (other than the Company itself
where it holds its own Ordinary Shares as treasury Ordinary Shares)
shall be entitled to the surplus assets remaining after payment of
all the creditors of the Company.
(iii) Voting
Shareholders (other than the Company itself where it holds its
own Ordinary Shares as treasury Ordinary Shares) shall have the
right to receive notice of and to attend and vote at general
meetings of the Company and each Shareholder being present in
person or by proxy or by a duly authorised representative (if a
corporation) at a meeting shall upon a show of hands have one vote
and upon a poll each such holder present in person or by proxy or
by a duly authorised representative (if a corporation) shall have
one vote in respect of every Ordinary Share held by him.
11. Share Capital, continued:
B Redeemable Preference Shares
Proceeds from the issue of B Redeemable Preference Shares in the
GPCo are classified as debt in these financial statements in
accordance with IFRS and have the following special rights:
a) At any time the B Redeemable Preference Shareholders of the
GPCo shall be entitled on liquidation of the Company to a sum equal
to any undistributed vested performance allocation, due from the
Limited Partnership, plus any amounts due to the Company under the
Limited Partnership Agreement allocated between such Shareholders
pro rata to the number of B Redeemable Preference Shares they hold
at the date of distribution in priority to any other distributions
on the A Ordinary Shares of the GPCo.
b) Subject to the provisions of the Law, on each annual NAV
publication date, of the Limited Partnership, an amount equal to
any undistributed vested performance allocation, in the Limited
Partnership, shall become distributable to the B Redeemable
Preference Shareholders of the GPCo.
c) Should the Company be unable to pay a dividend equal to any
undistributed vested performance allocation, due from the Limited
Partnership, in accordance with (b) above, the Company shall pay a
maximum dividend it is permitted to pay to the B Redeemable
Preference Shareholders of the GPCo and the remainder of the
undistributed vested performance allocation shall be dealt with in
accordance with (d) below.
d) In relation to any remaining undistributed vested performance
allocation, any B Redeemable Preference Shareholders of the GPCo
may deliver an election in writing to the GPCo (the "Election")
requesting that the GPCo redeems one of the B Redeemable Preference
Shares held by the B Redeemable Preference Shareholder for a cash
payment representing the Shareholder's share of the greater of (i)
the undistributed vested performance allocation at that time and
(ii) the maximum amount payable by the GPCo under the Law, such
share to be calculated on the basis of the proportion calculated by
dividing the number of B Redeemable Preference Shares held by such
a Shareholder prior to any redemptions by that Shareholder pursuant
under this section by the number of B Redeemable Preference Shares
in issue prior to any redemptions pursuant under this clause by any
Shareholder. Subject to the provisions of the Law, the GPCo shall
then redeem such B Redeemable Preference Shares accordingly within
two business days of receipt of the election and shall within one
month thereafter give notice in writing of such redemption to The
Guernsey Registry.
e) The B Redeemable Preference Shares of the GPCo shall have no
voting rights, save where any undistributed vested performance
allocation remains outstanding for more than 5 business days when
each B Redeemable Preference Share in the GPCo shall carry 10 votes
at any general meeting of the GPCo.
f) The B Redeemable Preference Shareholders of the GPCo have the
sole economic rights to the performance allocation to which the
Company is entitled under the terms of the limited partnership
agreement and the return on the US$100,000 capital invested by the
B Redeemable Preference Shareholders of the GPCo for the B
Redeemable Preference Shares in the GPCo. The value of the B
Redeemable Preference Shares is classified as a liability in these
financial statements.
C Ordinary Share
A C Ordinary Share in GPCo was issued to VCA to enable it to
comply with certain capital adequacy requirements. The Share
carries no rights to vote at general meetings, no rights to
dividends or other distributions (including on a return of capital)
and only the right to receive GBP10,000 on a liquidation or winding
up of GPCo. The value of the C Ordinary Share is classified as a
liability in these financial statements.
12. NAV per Ordinary Share:
The NAV per Ordinary Share is based on the net assets
attributable to Ordinary Shareholders of US$18,501,485 (30
September 2010: US$139,314,433) and on the Ordinary Shares at the
year end in issue of 65,289,574 (30 September 2010:
66,189,574).
13. Financial Instruments:
(a) Significant accounting policies:
Details of the significant accounting policies and methods
adopted, including the criteria for recognition, the basis of
measurement and the basis on which income and expenses are
recognised, in respect of its financial assets and financial
liabilities are disclosed in note 2 to these financial
statements.
(b) Categories of financial instruments:
Financial instruments comprise equities, warrants, cash and cash
equivalents, receivables and payables. The warrants are derivative
instruments and have been classified as held for trading and are
accounted for as fair value through profit or loss. All other
financial instruments have been classified as fair value through
profit or loss. A financial asset is classified as fair value
through profit or loss if it is classified as held for trading or
is designated as such upon initial recognition. Financial assets
are designated at fair value through profit or loss if the Group
manages such investments and makes purchase and sale decisions
based on their fair value in accordance with the Group's documented
risk management or investment strategy. Upon initial recognition,
attributable transaction costs are recognised in the Consolidated
Statement of Comprehensive Income. Financial assets at fair value
through profit or loss are measured at fair value, and changes
therein are recognised in the Consolidated Statement of
Comprehensive Income.
1 October 2010 1 October 2009
to to
30 September 2011 30 September 2010
Percentage Percentage
of net of net assets
assets attributable
attributable to holders
to holders of Ordinary
of Ordinary Shares
Fair Value Shares Fair Value
-------------------------------------- ------------ -------------- ------------ ---------------
Assets US$ % US$ %
Financial assets at fair
value through profit or
loss:
Listed equity securities
(freely tradeable) 4,180,905 22.60 28,717,222 20.61
Listed equity securities
(restricted) 5,606,263 30.30 70,979,465 50.95
Warrants 767,629 4.14 34,089,070 24.47
------------ -------------- ------------ ---------------
10,554,797 57.04 133,785,757 96.03
Cash and cash equivalents 8,372,118 45.25 6,162,090 4.42
Other prepayments 59,195 0.32 52,792 0.04
------------ -------------- ------------ ---------------
18,986,110 102.61 140,000,639 100.49
------------ -------------- ------------ ---------------
Liabilities
Other payables (368,601) (1.99) (586,206) (0.42)
------------ -------------- ------------ ---------------
(368,601) (1.99) (586,206) (0.42)
C Ordinary Shares of GPCo (16,024) (0.08) - -
B Redeemable Preference
Shares of GPCo (100,000) (0.54) (100,000) (0.07)
------------ -------------- ------------ ---------------
(484,625) (2.61) (686,206) (0.49)
------------ -------------- ------------ ---------------
13. Financial Instruments, continued:
(c) Net gains and losses on financial assets:
1 October 2010 1 October 2009
to to
30 September 2011 30 September 2010
Movement Movement
in net unrealised Net realised in net unrealised Net realised
losses gains on gains gains on
disposals disposals
-------------------------------------- ------------------- -------------- ------------------- --------------
US$ US$ US$ US$
Financial assets at fair
value through profit or
loss:
Listed equity securities
(freely tradeable) (10,049,264) (5,558,528) 5,455,101 5,236,128
Listed equity securities
(restricted) (46,512,809) - (13,237,847) 22,810,141
Warrants (33,321,440) - (1,984,936) -
------------------- -------------- ------------------- --------------
(89,883,513) (5,558,528) (9,767,682) 28,046,269
------------------- -------------- ------------------- --------------
(d) Derivatives:
The following table details the Company's investments in
derivative contracts, by maturity, outstanding:
Warrants
30 September 30 September
2011 2010
Maturity Fair Value Fair Value
---------------------- ------------- -------------
US$ US$
1-2 years 645,402 -
2-3 years - 33,506,497
3-4 years 122,227 -
4-5 years - 582,573
Total 767,629 34,089,070
------------- -------------
A warrant is a derivative financial instrument which gives the
right, but not the obligation to buy a specific amount of a given
stock, at a specified price (strike price) by a specific date. The
fair value of the warrants are included in warrants classified as
financial assets at fair value through profit or loss, as disclosed
in note 13 (b). The warrants are valued using a 50% discount to the
time value of the Black Scholes model as a liquidity adjustment
(see note 2e (iv)).
14. Financial Risk Management:
Strategy in Using Financial Instruments:
The Company's investment objective is to maximise Shareholder
value through the orderly realisation of the Company's investments
and to return surplus cash to Shareholders. The Group's investment
policy is detailed on pages 6 and 7.
The Group's activities expose it to a variety of financial
risks: market risk (including currency risk, interest rate risk and
price risk), credit risk and liquidity risk. The overall risk
management policies employed by the Group focus on the
unpredictability of financial markets and seek to minimise
potential adverse effects on the Group's financial performance to
these risks and are discussed below.
Market Price Risk:
Market price risk results mainly from the uncertainty about
future prices of financial instruments held. It represents the
potential loss the Group may suffer through holding market
positions in the face of price movements and changes in interest
rates or foreign exchange rates, with the maximum risk resulting
from financial instruments being determined by the fair value of
the financial instruments. The Group's investment portfolio is
monitored by the Investment Manager and the Directors in pursuance
of the investment objectives as set out in the Directors'
Report.
Due to the illiquidity of the Group's portfolio, there is little
management can do to mitigate the risk of the underlying portfolio
to market price movements, other than to sell securities as and
when opportunities arise.
The following details the Group's sensitivity to a 10% increase
and decrease in market prices of equities, with 10% being the
sensitivity rate used when reporting price risk internally to key
management personnel and representing management's assessment of
the possible changes in market prices.
At 30 September 2011, the Group's market risk is affected by
four main components: changes in actual market prices, credit risk,
interest rate and foreign currency movements. Credit risk, interest
rate and foreign currency movements are covered below. A 10%
increase in the value of equity investments, with all other
variables held constant, would bring about a 5.29% or US$978,717
(30 September 2010: 7.16% or US$9,969,668) increase in net assets
attributable to equity shareholders due to an increase in the value
of the Group's equity investments at fair value through profit and
loss. If the value of equity investments had been 10% lower, with
all other variables held constant, net assets attributable to
equity shareholders would have fallen by 5.29% or US$978,717 (30
September 2010: 7.16% or US$9,969,668) due to the decrease in value
of the Group's equity investments at fair value through profit and
loss. Warrants by their nature may be more sensitive to changes in
the value of the underlying equity instrument dependent upon a
number of factors including time to expire and whether or not they
are in the money or not. As at 30 September 2011, a 10% increase in
the value of underlying equity prices for derivatives held, with
all other variables held constant, would bring about a 1.09% or
US$202,146 (30 September 2010: 5.19% or US$7,232,020) increase in
net assets attributable to equity shareholders due to the increase
in the value of the Group's warrant investments held for trading. A
10% decrease in the value of underlying equity prices for
derivatives held, with all other variables held constant, would
bring about a 0.96% or US$178,284 (30 September 2010: 4.57% or
US$6,360,810) decrease in net assets attributable to equity
shareholders due to the decrease in the value of the Group's
warrant investments held for trading.
14. Financial Risk Management, continued:
Currency Risk:
Currency risk is the risk that the fair value of future cash
flows of a financial instrument will fluctuate because of changes
in foreign exchange rates.
The Group's assets are denominated principally in US Dollars
however it incurs liabilities and holds small cash balances
denominated in currencies different to the reporting currency.
Accordingly, its net asset value may be affectedfavourably or
unfavourably by fluctuations in exchange rates.
Currency Exposure:
At the reporting date, a proportion of the net assets of the
Group are denominated in currencies other than US Dollars. The
carrying amounts of these assets and liabilities are as
follows:
Monetary Assets Monetary Liabilities Net Exposure
30 September 30 September 30 September
2011 2011 2011
--------------- -------------------- ------------
US$ US$ US$
Sterling 64,286 (213,159) (148,873)
--------------- -------------------- ------------
Monetary Assets Monetary Liabilities Net Exposure
30 September 30 September 30 September
2010 2010 2010
--------------- -------------------- ------------
US$ US$ US$
Sterling 47,314 (321,735) (274,421)
--------------- -------------------- ------------
The Group has a minimal exposure to Sterling currency risk as
detailed above.
The sensitivity analysis below has been determined based on the
sensitivity of the Group's outstanding foreign currency denominated
financial assets and liabilities to a 10% increase/decrease in the
US Dollar against Sterling, translated at the reporting date.
10% is the sensitivity rate used when reporting foreign currency
risk internally to key management personnel and represents
management's assessment of the possible change in foreign exchange
rates.
As at 30 September 2011, if US Dollar had weakened by 10%
against the Sterling, with all other variables held constant, the
net assets attributable to Ordinary Shares would have been
US$14,887 (30 September 2010: US$27,421) lower. Conversely, if US
Dollar had strengthened by 10% against the Sterling, with all other
variables held constant, the net assets attributable to Ordinary
Shares would have been US$14,887 (30 September 2010: US$27,421)
higher.
Interest Rate Risk:
The Group is exposed to risks associated with the effects of
fluctuations in the prevailing levels of market interest rates on
its financial instruments and future cash flows.
The Group is exposed to interest rate risk on cash and cash
equivalents which are invested at short term rates. The Investment
Manager manages the Group's exposure to interest rate risk daily in
accordance with the Group's investment objectives and policies. The
Group's overall exposure to interest rate risk is monitored on a
quarterly basis by the Board of Directors.
Interest Rate Risk, continued:
The table below summarises the Group's exposure to interest rate
risk:
30 September 2011 30 September 2010
Weighted Weighted
average average
effective effective
interest Total interest Total
rate rate
------------------------------ ------------ ----------- ------------ ------------
% US$ % US$
Assets
Floating interest rate
cash at bank 0.21* 8,372,118 0.10* 6,162,090
Non-interest bearing - 10,613,992 - 133,838,549
----------- ------------
Total assets 18,986,110 140,000,639
----------- ------------
Liabilities
Non-interest bearing - (484,625) - (686,206)
----------- ------------
Total liabilities (484,625) (686,206)
----------- ------------
* - as at 30 September 2011, the weighted average effective
interest rate on the Groups cash and cash equivalents was 0.21% (30
September 2010: 0.10%).
The sensitivity analysis below have been determined based on the
Group's exposure to interest rates for interest bearing assets and
liabilities (included in the interest rate exposure table above) at
the reporting date and the stipulated change taking place at the
beginning of the financial period and held constant through the
reporting period in the case of instruments that have floating
rates.
A 200 basis point increase or decrease is used when reporting
interest rate risk internally to key management personnel and
represents management's assessment of the possible change in
interest rates.
If interest rates had been 200 basis points higher throughout
the year, based on assets and liabilities as at 30 September 2011
that are subject to changing interest rates, and all other
variables were held constant, the Group's net assets attributable
to Ordinary Shares for the year ended 30 September 2011 would have
been US$167,442 (30 September 2010: US$123,242) higher due to the
increase in the interest earned on the Group's cash balances.
If interest rates had been 200 basis points lower throughout the
year, based on assets and liabilities as at 30 September 2011 that
are subject to changing interest rates, and all other variables
were held constant, the Group's net assets attributable to Ordinary
Shares for the year ended 30 September 2011 would have been
US$17,435 (30 September 2010: US$6,159) lower due to the decrease
in the interest earned on the Group's cash balances.
Liquidity Risk:
Liquidity risk is the risk that the Group will encounter in
realising assets or otherwise raising funds to meet financial
commitments.
The Group has warrants in certain investee companies. Such
contracts may not be marketable or may have a limited
marketability. Investments in securities of investee companies have
historically suffered and may continue to suffer illiquidity, and
the lack of marketability of an investment may severely reduce its
value. As the Group holds securities which for the purposes of US
securities laws may not be sold or re-sold in or into the US
otherwise than pursuant to an exemption provided by the Securities
Act, it may be unable to secure their registration with the SEC,
which may also severely reduce the returns on such investments.
Liquidity Risk, continued:
Where the Group has significant investments in Investee
Companies which are listed entities and which include restricted
securities purchased directly from an issuer in a private
placement, registration of those securities for public resale is
typically affected under Rule 415 of the Securities Act ("Rule
415"). Recently, the SEC has articulated a more restrictive
interpretation of a company's ability to register its shares under
Rule 415, under which a company which has issued shares may not
register more than 33 per cent. of the shares in public hands under
certain circumstances. As a result, the registration of some of the
Group's securities may be significantly delayed. If not registered,
the Group may only be able to sell such securities after a six
month to one year holding period under Rule 144 of the Securities
Act ("Rule 144") or under other exemptions from the registration
requirements under the Securities Act.
Unless and until registration occurs or applicable holding
periods under Rule 144 have elapsed, there is likely to be an
extremely limited market for any restricted securities held by the
Group, the sale of any such securities may be possible only at
substantial discounts and it may be extremely difficult at times to
value any such investments accurately.
As at the year end the Group held securities of Investee
Companies which were private companies and which were not currently
listed. Until such an Investee Company obtains a listing, such
securities will not publicly trade and such securities may only be
sold in a private transaction, making the purchase or sale of such
securities at desired prices or in desired quantities difficult or
impossible. It will also be extremely difficult to value
investments accurately.
The following table details the maturity profile of the
Company's financial instruments:
Maturity Analysis
At 30 September 2011 less than 1 year No fixed maturity
1-2 years 3-4 years Total
---------------------------------------- ----------------- ----------- ----------- ------------------ -----------
Assets US$ US$ US$ US$ US$
Financial assets at fair value
through profit or loss:
Listed equity securities - - - 9,787,168 9,787,168
Warrants - 645,402 122,227 - 767,629
Cash and cash equivalents 8,372,118 - - - 8,372,118
Other current assets 59,195 - - - 59,195
----------------- ----------- ----------- ------------------ -----------
8,431,313 645,402 122,227 9,787,168 18,986,110
----------------- ----------- ----------- ------------------ -----------
Liabilities
Current (368,601) - - - (368,601)
non-current - - - (116,024) (116,024)
(368,601) - - (116,024) (484,625)
----------------- ----------- ----------- ------------------ -----------
Liquidity Risk, continued:
At 30 September less than No fixed
2010 1 year 2-3 years 4-5 years maturity Total
--------------------------------- ---------------- ----------- ------------- ------------ ------------
Assets US$ US$ US$ US$ US$
Financial assets
at fair value through
profit or loss:
Listed equity securities
(freely tradeable) - - - 28,717,222 28,717,222
Listed equity securities
(restricted) - - - 70,979,465 70,979,465
Warrants - 33,506,497 582,573 - 34,089,070
Cash and cash equivalents 6,162,090 - - - 6,162,090
Other prepayments 52,792 - - - 52,792
---------------- ----------- ------------- ------------ ------------
6,214,882 33,506,497 582,573 99,696,687 140,000,639
---------------- ----------- ------------- ------------ ------------
Liabilities
Current (586,206) - - - (586,206)
non-current - - - (100,000) (100,000)
---------------- ----------- ------------- ------------ ------------
(586,206) - - (100,000) (686,206)
---------------- ----------- ------------- ------------ ------------
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
with the Group. The maximum exposure to credit risk that the Group
faces is equal to the fair value of the cash and cash equivalents
held by the Group. The credit risk on cash and cash equivalents is
partially mitigated as it is held with counterparties that are
regulated entities with credit-ratings assigned by international
credit-rating agencies.
The Group's credit risk exposure is moderated by the careful
selection of securities and other financial instruments by the
Investment Manager. The Group's portfolio and investment strategy
is reviewed continuously by the Investment Manager and on a
quarterly basis by the Board. The credit risk on cash transactions
is partially mitigated as the transactions are through
counterparties that are regulated entities subject to prudential
supervision or with credit-ratings assigned by international
credit-rating agencies.
Concentration Risk:
As the Group's assets are being sold, at times the Group may
hold a relatively small number of investments each representing a
relatively large portion of the Group's net assets. Losses incurred
in such investments could have a materially adverse effect on the
Group's overall financial condition.
Classification of Fair Value Measurements
The Company adopted the amendment to IFRS 7, effective 1 January
2009. This requires the Company to classify fair value measurements
using a fair value hierarchy that reflects the significance of the
inputs used in making the measurements. The fair value hierarchy
has the following levels:
-- Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1);
-- Inputs other than quoted prices included within level 1 that
are observable for the asset or liability, either directly (that
is, as prices) or indirectly (that is, derived from prices) (level
2); and
-- Inputs for the asset or liability that are not based on
observable market data (that is, unobservable inputs) (level
3).
The level in the fair value hierarchy within which the fair
value measurement is categorised in its entirety is determined on
the basis of the lowest level input that is significant to the fair
value measurement in its entirety. For this purpose, the
significance of an input is assessed against the fair value
measurement in its entirety. If a fair value measurement uses
observable inputs that require significant adjustment based on
unobservable inputs, the measurement is a level 3 measurement.
Assessing the significance of a particular input to the fair value
measurement in its entirety requires judgement, considering factors
specific to the asset or liability.
Classification of Fair Value Measurements, continued
The determination of what constitutes "observable" requires
significant judgement by the Company. The Company considers
observable data to be that market data that is readily available,
regularly distributed or updated, reliable and verifiable, not
proprietary, and provided by independent sources that are actively
involved in the relevant market.
The following table analyses within the fair value hierarchy the
Company's financial assets (by class) measured at fair value at 30
September 2011:
Fair Value as at 30 September 2011
Level 1 Level 2 Level 3 Total
----------- ---------- -------- -----------
US$ US$ US$ US$
Financial assets at fair
value through profit or
loss:
Listed equity securities
(freely tradable) 4,180,905 - - 4,180,905
Listed equity securities
(restricted) - 5,606,263 - 5,606,263
Warrants - - 767,629 767,629
----------- ---------- -------- -----------
4,180,905 5,606,263 767,629 10,554,797
----------- ---------- -------- -----------
Fair Value as at 30 September 2010
Level 1 Level 2 Level 3 Total
------------ ----------- ----------- ------------
US$ US$ US$ US$
Financial assets at fair
value through profit or
loss:
Listed equity securities
(freely tradable) 28,717,222 - - 28,717,222
Listed equity securities
(restricted) - 70,979,465 - 70,979,465
Warrants - - 34,089,070 34,089,070
------------ ----------- ----------- ------------
28,717,222 70,979,465 34,089,070 133,785,757
------------ ----------- ----------- ------------
Investments whose values are based on quoted market prices in
active markets, and therefore classified within level 1, include
active listed equities. No adjustments are made to the quoted price
for these instruments.
Financial instruments that trade in markets that are not
considered to be active but are valued based on quoted market
prices, dealer quotations or alternative pricing sources supported
by observable inputs are classified within level 2. As level 2
investments may include positions that are not traded in active
markets and/or are subject to transfer restrictions, valuations may
be adjusted to reflect illiquidity and/or non-transferability,
which are generally based on available market information.
Investments classified within level 3 have significant
unobservable inputs, as they trade infrequently. Level 3
instruments include unquoted equity instruments which the Company
values in accordance with the International Private Equity and
Venture Capital valuation guidelines or any other valuation model
and techniques which can provide a reasonable estimate of fair
value of the investment involved. The Company considers liquidity,
credit and other market risk factors.
The table below provides a reconciliation from brought forward
to carried forward balances of financial instruments categorised
under level 3:
Held for Trading Investments
at Fair Value based on Level
3:
Warrants Total
--------------- ---------------
US$ US$
Opening Fair value 34,089,070 34,089,070
Movement in net unrealised gains (33,321,441) (33,321,441)
Closing fair value at 30 September 767,629 767,629
--------------- ---------------
The movement in net unrealised gains was an unrealised loss of
US$33,321,441 (30 September 2010: US$1,984,936 unrealised gains)
relating to level 3 investments has been included in the net
unrealised losses on investments in the Consolidated Statement of
Comprehensive Income.
Classification of Fair Value Measurements, continued
Held for Trading Investments
at Fair Value based on Level
3:
Warrants Total
--------------- ---------------
US$ US$
Opening Fair value 35,987,698 35,987,698
Purchases 86,308 86,308
Movement in net unrealised gains (1,984,936) (1,984,936)
Closing fair value at 30 September 34,089,070 34,089,070
--------------- ---------------
15. Dividend:
The Directors do not recommend the payment of a dividend for the
year ended 30 September 2011 (30 September 2010: US$Nil).
16. Distribution:
On 14 December 2010, in accordance with the Company's buy-back
programme in relation to its distribution policy in respect of the
year ended 30 September 2010, the Company acquired 900,000 Ordinary
Shares from Shareholders for an aggregate price of US$1.44 million.
On 17 December 2010, those Ordinary Shares of the Company that were
being held in treasury were cancelled. Following the cancellation,
as at 30 September 2011, the number of issued Ordinary Shares of
the Company was 65,289,574.
On 17 August 2011, the Company paid to Shareholders a return of
capital amounting to US$20 million in aggregate (30 September 2010:
US$3.31 million). The remaining amount to be distributed to
Shareholders as at 30 September 2011 was US$Nil (30 September 2010:
US$1.44 million).
.
17. Taxation:
The Company is exempt from Guernsey income tax under the Income
Tax (Exempt Bodies) (Guernsey) Ordinance, 1989 and is charged an
annual exemption fee of GBP600.
18. Capital Management:
The Company has the ability to borrow up to 25% of net assets in
order to meet ongoing expenses and obligations. Any such borrowing
requires Board approval.
The Company has been granted authority to make market purchases
of up to 14.99% of its own Ordinary Shares. Any such purchases
require Shareholders' approval.
19. Contingent Liability:
In 2010, legal proceedings were brought against the Company, the
Limited Partnership and other defendants in the Nevada courts by
the Trustee of the Litigation Trust of Astrata Group Inc, a former
investee of the Company. At a hearing on 23 January 2012, the court
allowed certain causes of action against the Company and the
Limited Partnership to continue but dismissed the more substantial
damage claims related to the loss of certain contracts. The
remaining damage claims are those related to other lost "key
contracts", bankruptcy administrative claims and loss of enterprise
value and loss of cash flow. However, neither details of the
remaining claims nor any supporting evidence for them, including to
which contracts the claims relate and how the level of purported
damages has been calculated, have yet been provided. The Directors,
on the basis of legal advice taken on the pleaded case, dispute the
merits of the remaining claims and are strenuously defending them
on behalf of the Group.
The alleged value of the claims is now approximately US$35
million, plus punitive and exemplary damages, attorneys' fees and
pre-judgment interest. An amount has not yet been alleged in
relation to the claims for loss of enterprise value and loss of
cash flow. At the time of approving these financial statements, the
outcome of the remaining claims is not known. The legal costs
incurred to date have been expensed. After the year end date, the
Directors have decided to make a provision of US$250,000 against
the future costs of vigorously defending the proceedings and
pursuing counter-claims against the plaintiffs.
20. Post Year End Events:
Post the year end date, there was a significant increase in the
insurance premium for the Group's D&O and professional
indemnity cover. The Group's new cover, obtained on 23 December
2011 cost GBP276,000 per annum (prior year: GBP84,000 per
annum).
On 24 January 2012, Mr Benway resigned as a Director of the
Company.
There were no other significant post year end events that
require disclosure in these financial statements.
DEFINITIONS
Adjusted Closing NAV the NAV at the end of a performance period
per Ordinary Share (for the avoidance of doubt, after deducting
the performance allocation accrued in any previous
performance period) divided by the number of
Ordinary Shares in issue at the time
Administrator Praxis Fund Services Limited
Admission the admission of the Ordinary Shares to trading
on AIM which occurred on 28 November 2007
AIM AIM, a Market operated by the London Stock
Exchange
AIM Rules the AIM Rules for Companies of the London Stock
Exchange
A Ordinary Shares A Ordinary Shares issued by GPCo
B Redeemable Preference B Redeemable Preference Shares issued by GPCo
Shares
Board the board of directors of the Company
Canaccord Canaccord Genuity Limited, the Company's nominated
adviser & broker, with effect from 1 October
2009
Company or VOC Vision Opportunity China Fund Limited
C Ordinary Shares C Ordinary Shares issued by GPCo
Custodian Jefferies & Company Inc.
Directors the directors of the Company
Fairfax Option an option issued to Fairfax I.S. PLC , the
Company's former NOMAD & Broker, in connection
with the Placing and Admission to purchase
up to 2,000,000 of the Ordinary Shares at an
exercise price of US$1.00 per Ordinary Share
GPCo Vision Opportunity China GP Limited
Greater China a collective term referring both to the territories
administered by the PRC (including Hong Kong
and Macau), territories administered by the
Republic of China (Taiwan and some neighbouring
islands) and Singapore
Group the Company, GPCo, the Limited Partnership
and their subsidiary undertakings from time
to time
High Watermark the highest previously recorded Opening NAV
per Ordinary Share as reduced by the sum of
all dividends and distributions paid, made
or declared per Ordinary Share since the date
such highest Opening NAV per Ordinary Share
was established
Hurdle NAV the greater of (a) the Opening NAV per Ordinary
Share and (b) the High Watermark, increased
over the relevant performance period by a rate
equal to 10% per annum
Investee Company a company in which an investment is held
Investment Management the investment management agreement dated 16
Agreement November 2007 between the Company and the Investment
Manager
Investment Manager Vision Capital Advisors, LLC, a limited liability
or Vision Capital Advisors corporation incorporated in Delaware, US and
the investment manager of the Company
Limited Partnership Vision Opportunity China LP
Limited Partnership the agreement between VOC and GPCo establishing
Agreement the Limited Partnership
London Stock Exchange London Stock Exchange plc
Master Fund Vision Opportunity Master Fund, Ltd, a Cayman
Island exempt corporation managed by Vision
Capital Advisors, including any other fund
to which Vision Opportunity Master Fund, Ltd
transfers a portion of its assets and which
will continue to be managed by Vision Capital
Advisors
NAV the net asset value of the Group or of an Ordinary
Share (as the context requires) calculated
in accordance with the investment valuation
policy and the accounting policies of the Group
from time to time
NOMAD & Broker Canaccord
Official List the Official List of the Financial Services
Authority pursuant to Part VI of the Financial
Services and Markets Act 2000, as amended from
time to time
Opening NAV per Ordinary the NAV at the beginning of a performance period
Share (for the avoidance of doubt, after deducting
the performance allocation accrued in any previous
performance period) divided by the number of
Ordinary Shares in issue at the time
Ordinary Shares or ordinary shares of no par value in the share
Shares capital of the Company
Over-The-Counter Bulletin an electronic quotation system in the United
Board or OTCBB States that displays real-time quotes, last-sale
prices, and volume information for many over-the-counter
(OTC) equity securities that are not listed
on the NASDAQ stock exchange or a national
securities exchange
Pink Sheets an electronic system, published by Pink Sheet
LLC, compiled by the National Quotation Bureau
with bid and ask prices of over-the-counter
stocks in the US, including the market makers
who trade such stocks
Placing the placing of the Placing Shares which was
completed on Admission
Placing Shares the 100,000,000 Ordinary Shares allotted and
sold pursuant to the Placing
PRC the People's Republic of China
Prime Broker Jefferies & Company Inc.
Registrar Capita Registrars (Guernsey) Limited
RMB renminbi, the lawful currency of the PRC
Shareholders the shareholders of the Company
Treasury Shares Ordinary Shares held in treasury by the Company
US the United States of America
US$ US dollars, the lawful currency of the US
GBP or Sterling pounds sterling, the lawful currency of the
United Kingdom
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR BXLFLLLFLBBF
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