TIDMIRIS
RNS Number : 8106O
DCG IRIS Limited
25 September 2013
DCG IRIS LIMITED
ANNUAL REPORTS AND ACCOUNTS
The Company has today, in accordance with DTR 6.3.5, released
its Annual Financial Report for the period from 24 April 2012 to 31
May 2013. The Report will shortly be available from the Company's
website www.dexioncapital.com.
SUMMARY INFORMATION
Principal Activity
DCG IRIS Limited (the "Company") is a Guernsey authorised
closed-ended investment company listed on the London Stock
Exchange. Trading in the Company's Shares commenced on 27 June
2012.
Investment Objective and Investment Policy
The Company's investment objective is to seek to achieve
positive returns through investing in insurance-linked contracts
and assets carrying exposure to risks related to insured event
risks.
The Company pursues its investment objective by principally
investing its assets (to the extent not retained in cash) in CS
IRIS Low Volatility Plus Fund Limited (the "Master Fund") which
invests in a broadly diversified portfolio of insurance-linked
contracts, securities and derivatives as well as various types of
investments related to insurance risks over the long-term.
The Company may not borrow or incur leverage for investment
purposes although as well as holding cash and investing in cash
equivalents it may borrow for cash management and short term
purposes. The borrowings of the Company are limited to ten per
cent. of the Company's gross assets at the time of drawdown.
Shareholder Information
The Net Asset Value (the "NAV") of the Company and the NAV per
Share for each class of Ordinary Shares are published monthly and
are calculated by the Administrator (or such other person as the
Directors may appoint for such purpose from time to time) as at the
NAV Calculation Date.
Weekly NAV estimates are also published by the Company and these
are based primarily upon information obtained by the Administrator
from the Master Fund Manager in relation to the portfolio
valuations of the Master Fund, in each case with adjustments to
account for the ongoing costs of the Company.
The NAV per Share for each class of Ordinary Shares in the
capital of the Company is published in a Regulated Information
Service ("RIS") on both a weekly and a monthly basis, approximately
19 Business Days (but not later than 20 Business Days) after the
end of each month in the case of the monthly NAV and approximately
three Business Days (but not later than five Business Days)
following the end of the previous week in the case of a weekly
NAV.
FINANCIAL HIGHLIGHTS
31 May 2013
----------------------- -----------
Total Net Assets GBP60.2m
NAV per Share 99.79p
Mid-Market Share price 100.63p
Premium to NAV 0.84%
----------------------- -----------
As at 24 September 2013, the premium had moved to 0.75%. The
estimated NAV per Share and Mid-Market Share price stood at 99.88p
and 100.63p respectively.
CHAIRMAN'S STATEMENT
I have pleasure in presenting this annual report for the period
24 April 2012 to 31 May 2013 on behalf of the Board of DCG IRIS
Limited (the 'Company').
On 27 June 2012, the Company announced it had successfully
raised gross proceeds of approximately GBP40.1 million by means of
a placing of Shares. These Shares were admitted to listing on the
premium listing segment of the Official List and admitted to
trading on the main market for listed securities of the London
Stock Exchange. Subsequently, a further GBP21.5 million has been
raised from three equity issues, and net assets are currently in
excess of GBP60 million.
During this period, the Company has declared and paid dividends
totalling 3.50 pence per Ordinary Share to Ordinary
Shareholders.
During the period under review the Company issued event reports
relating to Hurricane Issac, Superstorm Sandy, Oklahoma Tornado and
European Floods; however, due to the investments of the Master Fund
at the time of each event, the Company's portfolio is not expected
to attract material detrimental impact.
The total return of the Company for the period was +4.94% and
the Shares traded at an average premium to their NAV of +1.36% from
date of admission, 27 June 2012 to 31 May 2013.
The Directors announced on 18 July 2013 that, in accordance with
the Company's articles of incorporation and commitments given in
the prospectus dated 12 November 2012, the Company would propose an
ordinary resolution for the continuation of the Company (the
"Continuation Vote") and offer investors a redemption opportunity
for the entire issued share capital of the Company (the "Redemption
Offer"), before conducting a further placing of sterling
shares.
The Continuation Vote and the Redemption Offer were required
because the NAV of the Company as at 30 June 2013 was less than
GBP150 million. On 9 August 2013, the Company sent a circular to
its shareholders (the "Shareholders") to convene the required
extraordinary general meeting ("EGM") to approve, amongst other
things, the Continuation Vote and to set out full details of the
Redemption Offer. On 2 September 2013, the Company announced that
no redemption requests had been tendered. On 5 September 2013, the
EGM was held and the Continuation Vote was passed, along with the
adoption of the new articles and related party transactions.
The Directors and Investment Manager continue to believe that
the Company offers a unique and attractive proposition for
investing in insurance-linked strategies. Since its launch in June
2012, the Company has delivered an annualised NAV total return to
12 July 2013 of 5.02% and dividends of 3.50 pence per Sterling
Share.
The Directors and Investment Manager are aware that the majority
of investors wish to see the Company grow in size. Accordingly, the
Company is currently undertaking a placing of Sterling Shares, to
close on or around 21 October 2013.
On behalf of the Board, I look forward to writing to
Shareholders again at the time of the Company's results for its
interim period to 30 November 2013.
Talmai Morgan
Chairman
24 September 2013
INVESTMENT MANAGER'S REPORT
Investment Review
We report that the NAV of the Company's Shares (in GBP terms)
increased by 4.94% net of fees and expenses over the period from
inception to 31 May 2013. During this period, the Company has
declared and paid dividends totalling 3.50 pence per Ordinary Share
to Ordinary Shareholders.
The following provides the review of the performance of the
Master Fund by the Master Fund Manager to 31 May 2013. References
to the allocated investments are, where the context requires, to
those of CS IRIS Low Volatility Plus Fund Limited (the "Master
Fund") of which the Company is a Feeder Fund.
31 May 2013 marks the end of a successful year for the Master
Fund. The Master Fund which was launched in January 2012 started
this financial year with USD 211 million assets under management
and has grown steadily to close the year at just under USD 619
million. This past year has been spent principally on further
ramping up the fund with a view to building a globally balanced
portfolio. This has been helped greatly by this year's steady
inflows. The fund return for the 2012/13 financial year was +5.82%
(USD class, net, including performance of S Shares) which is in
line with expectations.
As investors will no doubt be aware, this was the first US wind
season that the Master Fund has been through. The financial year
began with the US renewal in June 2012. The Master Fund was facing
a softening premium environment in the Industry Loss Warranty
market. Therefore we chose to deploy new capacity in the US through
the traditional market in private transactions. After an active
tornado season and a relatively quiet US hurricane season,
Superstorm Sandy made landfall in late October 2012 justifying the
view on the loss potential in the North East, which we believe is
usually underestimated. The final Property Claim Services loss
estimate with respect to Sandy stands at USD 18.75 billion. The
impact of Sandy is discussed later in this report. Over the course
of the US Wind season and in the lead up to the January 2013
renewal, we chose to invest free cash in carefully selected cat
bonds that were purchased from the secondary market, as well as
some new issuances.
In the lead up to the 1 January renewals the Master Fund had
large inflows and as a consequence was running slightly elevated
free cash levels. The Master Fund went into the 1 January renewal
in the wake of Superstorm Sandy which caused some delays in the
traditional market, as insurers and reinsurers sought to come to
terms with their losses from this event. Credit Suisse AG ("Credit
Suisse") used the uncertainty caused by Sandy to deploy most of the
US wind and quake capacity early in the year and took advantage of
favourable market conditions from a premium perspective. The late
January renewal as a consequence of the delay ran into the April
renewal in Japan. As previously discussed in the monthly reports,
the April renewal in Japan was very successful for the Master Fund.
Since the fund was underweight Japan going into the renewal, our
new lines in Japan brought this risk bucket in line with the long
term target allocation for the region.
Towards the end of the financial year we saw declining spreads
in the primary cat bond market. It was Credit Suisse's view that
cat bonds were under-priced on a risk adjusted basis relative to
other instruments due to a large influx of capital. As a
consequence the Master Fund strategically traded out of cat bond
positions starting in Q1 2013 to lock in mark-to-market profits and
redeployed the capacity in the traditional and ILW markets in the
June renewal. April and May of 2013 also saw severe tornado
activity in the US with several twisters touching down in Oklahoma.
While these events caused widespread devastation and tragic loss to
human life and property, we do not expect them to have any impact
on the fund.
Loss Events Impacting the Fund
This financial year saw two events have a negative impact on
fund performance. The first was a total loss on a small
diversifying crop position linked to the severe drought in the US.
As investors may remember, the US suffered one of the worst
droughts in 40 years. As a consequence, we took a combined write
down of -0.79% (as a percentage of NAV) on one of our crop
positions in August and September of 2012. The other event was
Superstorm Sandy that made landfall in late October. We took a
conservative view of the loss position in the fund with respect to
Sandy. Given the remaining valuation uncertainty combined with the
fact that the Master Fund was growing at the time, working with our
independent reserving actuary, we instituted side-pockets with
respect to positions that might be impacted by development of the
loss numbers from the event. When the side-pocket was instituted it
represented 4.9% of the overall NAV of the fund. At fiscal year
end, this side-pocket was much smaller (approximately 0.7% of fund
NAV) with most of the positions having being moved back in the main
fund without any losses at the end of January 2013. In total, the
negative impact from Superstorm Sandy on the Master Fund is
currently estimated at only 0.24%. As of 30 August 2013, the side
pocket was merged with the Master Fund's main portfolio.
General Market Overview
Overall 2012/13 has been a successful year for the Master Fund
with the fund showing significant growth. This growth has been well
managed and the fund has been able to systematically build a
global, geographically diversified portfolio in line with the
increase in Assets under Management. Going into the new financial
year we are cautiously optimistic about the year ahead. Credit
Suisse see the large inflow of capital in the cat bond space
depressing pricing in the sector on a risk adjusted basis. We
believe private transactions in the traditional market offer some
of the best value for investors in the Master Fund. In the absence
of a market turning insurance event we expect to see this trend
continue. However given our market relationships and prior
experience we believe that we are well positioned to take advantage
of these trends. We look forward to the new financial year and
remain optimistic about our ability to meet target returns.
Analysis of Significant Investments
The Company's sole investment is in CS IRIS Low Volatility Plus
Fund Limited and equates to 99.7% (including subscriptions paid in
advance) of the Company's NAV. 74% of the net assets of CS IRIS Low
Volatility Plus Fund Limited comprises collateral held on insurance
products.
Whilst it is generally considered best practice to disclose the
full portfolio of an investment company, the composition of the
Master Fund's investment portfolio is the subject of
confidentiality provisions with the Master Fund.
Dexion Capital (Guernsey) Limited
24 September 2013
BOARD MEMBERS
Since incorporation on 24 April 2012 the members of the Board
have been as listed below:
Talmai Morgan, (60), (appointed 24 April 2012) (Chairman)
qualified as a barrister in 1976. He moved to Guernsey in 1988
where he worked for Barings and then for the Bank of Bermuda as
Managing Director of Bermuda Trust (Guernsey) Limited. From January
1999 to June 2004, he was Director of Fiduciary Services and
Enforcement at the Guernsey Financial Services Commission
(Guernsey's financial regulatory agency) where he was responsible
for the design and subsequent implementation of Guernsey's law
relating to the regulation of fiduciaries, administration
businesses and company directors. He was also involved in
international working groups of the Financial Action Task Force and
the Offshore Group of Banking Supervisors. From July 2004 to May
2005, he was Chief Executive of Guernsey Finance which is the
official body for the promotion of the Guernsey finance
industry.
Mr Morgan holds a MA in Economics and Law from Cambridge
University. Mr Morgan is Chairman of the Listed Hedge Fund Forum of
the Association of Investment Companies. In addition to being a
director of the Company, Mr Morgan is a director of a number of
listed investment funds including, among others, NB Private Equity
Partners Limited, BH Global Limited, BH Macro Limited, Real Estate
Credit Investments Limited, Global Fixed Income Strategies Limited,
John Laing Infrastructure Fund Limited, NB Distressed Debt
Investment Fund Limited, Sherborne Investors (Guernsey) A Limited
and Sherborne Investors (Guernsey) B Limited. Mr Morgan is a
resident of Guernsey.
Robin Fuller (58), (appointed 14 May 2012) is an Associate of
the Institute of Financial Services and a Fellow of The Chartered
Institute for Securities and Investment. He became an executive
director of Dexion Capital (Guernsey) Limited in April 2012, having
been a non-executive director since 2004. Prior to becoming an
executive director of Dexion Capital (Guernsey) Limited, he was
Chairman of Dominion Group Limited which he joined in 2006 and
resigned in April 2012. Prior to this, from 2004 to 2006, he was
Managing Director of Management International (Guernsey) Limited, a
subsidiary of Bank of Bermuda Limited (now HSBC Securities Services
(Guernsey) Limited following its acquisition by HSBC). Previously,
Mr Fuller was Managing Director of Rothschild Asset Management (CI)
Limited in Guernsey and a director of Rothschild Asset Management
Limited, London. Mr Fuller joined Rothschild in 1980 and has over
30 years' experience of fund management and fund administration. Mr
Fuller is a resident of Guernsey.
Michael Poulding (61), (appointed 14 May 2012) is a Fellow of
the UK Institute and Faculty of Actuaries. Prior to September 2011,
he was Deputy Director International at the Guernsey Financial
Services Commission with responsibility for actuarial services and
relationships with international bodies including the IAIS
(International Association of Insurance Supervisors), EIOPA (the
European Insurance and Occupational Pensions Authority) and the
European Commission. Prior to joining the Commission in 2001, Mr
Poulding was Chief Actuary of Lloyds TSB Life and Pensions. He
served as president of the Channel Islands Actuarial Association
from October 2009 to October 2011 and is a member of the Groupe
Consultatif's Insurance Committee. He is a member of the Institute
of Directors.
Mr Poulding served as a member of the IAIS Solvency and
Actuarial Issues Subcommittee from 2004 to 2011 and has also sat as
a member of several other IAIS committees. He also played a leading
role in the drafting of the IAIS Captive Guidance Paper which has
served as a global model for captive insurance supervision. Mr
Poulding is a resident of Guernsey.
DIRECTORS' REPORT
The Directors present their report and audited financial
statements for the period from 24 April 2012 to 31 May 2013.
Principal Activity
DCG IRIS Limited was incorporated with limited liability in
Guernsey, Channel Islands as a closed-ended investment company on
24 April 2012. The Company's Shares were listed with a Premium
Listing on the Official List of the UK Listing Authority and
admitted to trading on the Main Market of the London Stock Exchange
on 27 June 2012.
Company Law
These financial statements have been prepared under the
Companies (Guernsey) Law, 2008.
Investment Objective and Investment Policy
The Company's investment objective is to seek to achieve
positive returns through investing in insurance-linked contracts
and assets carrying exposure to risks related to insured event
risks.
The Company pursues its investment objective by principally
investing its assets (to the extent not retained in cash) in CS
IRIS Low Volatility Plus Fund Limited (the "Master Fund") which
invests in a broadly diversified portfolio of insurance-linked
contracts, securities and derivatives as well as various types of
investments related to insurance risks over the long-term. The
Investment Manager of the Master Fund is Credit Suisse AG ("Credit
Suisse").
The Company may not borrow or incur leverage for investment
purposes although as well as holding cash and investing in cash
equivalents it may borrow for cash management and short term
purposes. The borrowings of the Company are limited to 10% of the
Company's gross assets at the time of drawdown.
Investment Restrictions
The Company is subject to the following investment restrictions
which included certain restrictions set out in the Listing Rules of
the Financial Conduct Authority:
-- Neither the Company nor any of its subsidiaries will conduct
any trading activity which is significant in the context of its
group as a whole;
-- The Company will avoid cross-financing between businesses
forming part of its investment portfolio;
-- The Company will avoid the operation of common treasury
functions as between the Company and investee;
-- Not more than 10% in aggregate of the value of the total
assets of the Company will be invested in other listed closed-ended
investment funds other than closed-ended investment funds which
themselves have published investment policies to invest no more
than 15% of their total assets in other listed closed-ended
investment funds; and
-- The Company must, at all times, invest and manage its assets
in a way which is consistent with its object of spreading
investment risk and in accordance with the published investment
policy.
In the event of any material breach of the Company's investment
policy or of the investment restrictions applicable to the Company,
Shareholders will be informed of the actions to be taken by the
Company and/or the Investment Manager (at the time of such breach)
through an announcement via a Regulated Information Service
("RIS").
Principal Risks and Uncertainties
Limited Operating History
The Company is a recently established investment company and
this Annual Report & Accounts demonstrates the performance of
the Company and its investment in respect of the Master Fund for
the period since incorporation to 31 May 2013.
Market Risk
Market risk embodies the potential for both losses and gains and
includes currency risk, interest rate risk and price risk. The
Company's strategy on the management of market risk is driven by
the Company's investment objective. The Company pursues its
investment objective by principally investing its assets (to the
extent not retained in cash) in the Master Fund.
General Capital Markets Risk
In addition to the severity and frequency of certain insurance
events, insurance cash flows will often depend upon prices in the
capital markets, in particular bonds and equities. When the Master
Fund owns investments that are purely linked to certain insurance
events, these dependencies are insignificant. Although the Master
Fund will try to focus on insurance risk and minimise unwanted
capital markets risk, such risk will be present in the Master Fund.
The prices of bonds and equities are obviously outside the control
of Credit Suisse and these capital market risks may negatively
impact the value of the Master Fund.
General Market Disruptions
The Master Fund may incur major losses in the event that
disrupted markets and/or extraordinary events affect markets in a
way that is not consistent with historical pricing relationships.
The risk of loss from the disconnection from historical prices
during a period of market disruption is compounded by the fact that
in disrupted markets many positions become illiquid making it
difficult to close out of positions against which the markets are
moving.
Liquidity Risk
The ultimate responsibilities for liquidity risk management
rests with the Board of Directors which has appropriately reviewed
the funding requirements for the management of the Company's short,
medium and long-term funding needs. The Company maintains adequate
reserves by continuously monitoring forecast and actual cash flows.
The Company may borrow to assist with any unforeseen timing
mismatches. The Company's financial instrument is an investment in
the Master Fund which generally may be illiquid. The Company is
currently required to give 90 days' prior notice to redeem its
holdings in the Master Fund.
Credit Risk
Credit risk refers to the risk that a counterparty will default
on its contractual obligations resulting in financial loss to the
Company. Credit Suisse has a credit policy in place and the
exposure to credit risk is monitored on an ongoing basis by the
Board of Directors of the Master Fund. Credit risk is inherent in
certain of the Insurance-Linked Instruments that are part of the
Master Fund's portfolio. When possible, decisions to invest in
these securities take into account credit ratings, if any, issued
by major rating agencies, such as Moody's, S&P etc. Given that
not all of the securities that comprise the Master Fund's portfolio
are rated, Credit Suisse may be guided by other analysis, internal
or external and will be guided by its internal guidelines for
credit risk management. However, the securities in which the Master
Fund invests do not need to have any particular rating of
creditworthiness.
The Company is exposed to material credit risk in respect of
cash and cash equivalents. All cash is placed with Northern Trust
(Guernsey) Limited ("NTGL"). The Company is subject to credit risk
to the extent that this institution may be unable to return this
cash. NTGL is a wholly owned subsidiary of The Northern Trust
Corporation ("TNTC"). TNTC is publicly traded and a constituent of
S&P 500. TNTC has a credit rating of A+ from Standard &
Poor's and A1 from Moody's. Guernsey representatives of TNTC attend
each quarterly meeting of the directors and those meetings of the
audit committee of the Company where the interim and or annual
financial statements are reviewed and discussed.
Shareholder Information
The NAV of the Company and the NAV per Share for each class of
Ordinary Shares are published monthly and are calculated by the
Administrator (or such other person as the Directors may appoint
for such purpose from time to time) as at the NAV Calculation
Date.
Weekly NAV estimates are also published by the Company and these
are based primarily upon information obtained by the Administrator
from the Master Fund Manager in relation to the portfolio
valuations of the Master Fund, in each case with adjustments to
account for the ongoing costs of the Company.
The NAV per Sterling Share class of Ordinary Shares in the
capital of the Company is published in a RIS on both a weekly and a
monthly basis, approximately 19 Business Days (but not later than
20 Business Days) after the end of each month in the case of the
monthly NAV and approximately three Business Days (but not later
than five Business Days) following the end of the previous week in
the case of a weekly NAV.
Results
The results for the period are set out in the Statement of
Comprehensive Income. The dividend paid per share for the period to
31 May 2013, amounted to 3.5p per share.
Significant Events
On 29 October 2012 Superstorm Sandy made landfall as a
superstorm on the East Coast of the United States. The storm was
classified as a category 1 hurricane with sustained winds of 40-90
miles per hour and impacted an area the size of Western and Central
Europe combined. At its peak, Superstorm Sandy affected 60 million
people in the United States and 8.5 million were without power.
Strong winds and storm surges/flooding caused extensive damage to
municipal infrastructures and personal property from New Jersey to
Connecticut.
The Master Fund follows an insurance-linked investment strategy
and was exposed to the type of catastrophe risk represented by
Superstorm Sandy. As at 30 September 2012 the Fund had a 33.2%
exposure to the risk class "US Northeast Hurricane Risk", the
category under which Superstorm Sandy falls.
In the light of the difficulties in accurately determining the
insured industry loss caused by Superstorm Sandy and the extent of
the insurance and reinsurance claims, the Master Fund Directors
announced on 29 November 2012 that in order to preserve the
interests of all existing and future shareholders in the Master
Fund, the Master Fund Directors implemented side pockets for
investments potentially impacted by Superstorm Sandy ("Side Pocket
Investments"). The Side Pocket Investments were created with a
value date of 31 October 2012.
At that date, the value of illiquid investments exposed to the
risk of a US Northeast Hurricane, corresponded to 4.9% of the NAV
of the Master Fund, and this amount was transferred to a Side
Pocket. Shareholders in the Master Fund received S Shares
representing their pro rata holding in the Side Pocket Investments.
New subscriptions for Master Fund Shares for 1 November 2012 or
later did not receive S Shares and therefore were not exposed to
the Side Pocket Investments.
As at 31 May 2013, the Directors of the Master Fund have decided
that 8 of the 12 investments could be released from the Side
Pocket, corresponding to 75.96% of the side pocket. 4 investments
remained in the side pocket whilst the valuation of these positions
was uncertain until losses from Superstorm Sandy were finalised.
The Side Pocket was finally merged with the Master Fund's main
portfolio as of 30 August 2013.
There were 4 other significant events in the period. The
earthquake in Sichuan province of China on 20 April 2013, the
Oklahoma tornado on 20 May 2013, the floods in Central Europe in
late May and early June 2013 and the earthquake in New Zealand on
21 July 2013. Credit Suisse continues to monitor the impact of
these events but does not expect there to be any significant impact
on the performance of the Company.
Placing Programme
On 13 November 2012, the Company published a prospectus in
relation to the issue of new shares by way of a Placing Programme.
Following publication of the announcement relating to the side
pockets by the Master Fund on 29 November 2012, the Directors
resolved that the issue of Shares pursuant to the Placing Programme
should be by way of Sterling C Shares and not Sterling Shares, so
that the new investors did not have exposure to the Side Pocket
Investments, which would remain part of the assets attributable to
Ordinary Shareholders.
The Prospectus provided that C Shares issued pursuant to the
Placing Programme would be converted into Ordinary Shares once the
Directors have determined that at least 80% of the assets
attributable to the C share class have been invested or committed
to be invested in accordance with the investment policy of the
Company. However, in order to ensure that the new investors were
not exposed to the Side Pocket Investments until such time as there
was greater transparency as to any potential loss suffered as a
result of Superstorm Sandy, the Directors resolved that, in
relation to the proposed current issue of Sterling C Shares,
Conversion would only occur once at least 95% of the assets were
invested or committed to be invested in accordance with the
investment policy of the Company.
Pursuant to the Placing Programme, 11,025,000 Sterling C Shares
were issued at an issue price of 100 pence per Sterling C Share and
listed on the Official List and admitted to trading on the main
market of the London Stock Exchange on 20 December 2012. On 8 March
2013, each Sterling C Share was converted to Sterling Shares at a
rate of 0.9956 of a Sterling Share.
Going Concern
The Directors announced on 18 July 2013 that, in accordance with
the Company's articles of incorporation and
commitments given in the prospectus dated 12 November 2012, the
Company proposed a Continuation Vote and made a Redemption Offer to
investors, before conducting a further placing of sterling
shares.
The Continuation Vote and the Redemption Offer were required
because the NAV of the Company as at 30 June 2013 was less than
GBP150 million. On 9 August 2013, the Company sent a circular to
the Shareholders to convene the required EGM to approve, amongst
other things, the Continuation Vote and to set out full details of
the Redemption Offer. On 2 September 2013, the Company announced
that no acceptances of the Redemption Offer had been received. On 5
September 2013, the Company announced the results of the EGM were
that the Shareholders voted in favour of the continuation of the
Company. The Directors have a reasonable expectation that the
Company has and will maintain adequate resources to continue in
operation for the foreseeable future. Accordingly, the Directors
have adopted the going concern basis in the preparation of the
financial statements.
Management Arrangements
The Company has an arrangement with Dexion Capital (Guernsey)
Limited (the "Investment Manager") for the provision of investment
management services. The Investment Manager attends every quarterly
Board meeting and maintains open dialogue with the Directors on an
ongoing basis. No management fees are payable by the Company to the
Investment Manager. Further details are disclosed in Note 9.
Directors' Interests
The Directors, as stated under Corporate Information, all served
during the period under review. The Directors had no beneficial
interest in the Company other than as shown below:
31 May 2013
No of Shares
Talmai Morgan 30,000
Robin Fuller 20,000
Michael Poulding 20,000
----------------- ------
Substantial Interests
Disclosure and Transparency Rules are now comprised in the
Financial Conduct Authority handbook. Such rules require
substantial Shareholders to make relevant holding notifications to
the Company and the UK Financial Conduct Authority. The Company
must then disseminate this information to the wider market.
Corporate Governance
Introduction
The Board recognises the importance of a strong corporate
governance culture that meets the listing requirements. All
Directors contribute to Board discussions and debates. The Board
believes in providing as much transparency for investors as is
reasonably possible and the monthly portfolio report is well
received by investors.
AIC
The Company is a member of the Association of Investment
Companies (the "AIC") and has carefully considered the principles
and recommendations of the AIC Code of Corporate Governance (the
"AIC Code") and has decided to follow the AIC's Corporate
Governance Guide for Investment Companies (the "AIC Guide").
The AIC Code is publicly available on the AIC website.
The AIC Code of Corporate Governance "A Framework of best
practice for Guernsey domiciled member companies" was issued in
February 2013.
On 22 January 2013, the Financial Reporting Council provided the
AIC with an endorsement letter to cover the fifth edition of the
AIC Code. The endorsement confirms that by following the AIC Code
investment company boards should fully meet their obligations in
relation to the UK Corporate Governance Code and paragraph LR 9.8.6
of the Listing Rules. The Company Secretary has undertaken a review
of the corporate governance principles of the Board of the Company.
The Directors confirm compliance with the AIC Code, prior to the
February 2013 update that will be applicable for the accounting
year ended 31 May 2014, without exception.
Guernsey Regulatory Environment
The Guernsey Financial Services Commission's Finance Sector Code
of Corporate Governance (the "Code") comprises Principles and
Guidance, and provides a formal expression of good corporate
practice against which Shareholders, boards and the Commission can
better assess the governance exercised over companies in Guernsey's
finance sector.
The Commission recognises that the different nature, scale and
complexity of business will lead to differing approaches to meeting
the Code.
Companies which report against the Association of Investment
Companies Code of Corporate Governance are also deemed to meet this
Code.
The Board
Disclosure under Principle 5 of the AIC Code
The Board currently consists of three non-executive Directors.
In accordance with Principle 2 of the AIC Code two of the
non-executives (the majority) are independent of the Investment
Adviser and Investment Manager. Mr Fuller is not independent of the
Investment Manager. Mr Morgan, the Chairman and Michael Poulding
met the independence criteria of the AIC Code Principle 1 upon
appointment and have continued to meet this condition throughout
their terms of service. Being non-executive Directors, no Director
has a service contract with the Company.
The Articles of Incorporation provide that one third of the
Directors retire by rotation at each annual general meeting.
However, the Board has adopted a policy whereby each Director will
retire and offer themselves for re-election at the first annual
general meeting.
The Board undertakes a formal annual evaluation of its Directors
and is satisfied that all directors continue to discharge their
obligations as Directors and contribute very effectively to the
work of the Board and its committees. The overall composition and
balance of the Board is kept under review as described below in the
programme of work undertaken by the Nomination Committee. The Board
will continue to manage the orderly succession of non-executive
Directors without compromising the effectiveness and continuity of
the Board and its committees.
The Directors believe that the balance of skills, experience and
knowledge of the Board provides for a solid base in which the
interest of investors will be served to a high standard. The Board
recommends the re-election of each Director, and supporting
biographies, including length of service, are disclosed in this
annual report.
The Board meets at least four times a year and between these
formal meetings there is regular contact with the Company's key
service providers. The attendance of each Director at the quarterly
meetings is disclosed as below.
During the period, a further 20 Board and ad-hoc/committee
meetings were held to deal with matters substantially of an
administrative nature and these were attended by those Directors
available at the time.
The Directors are kept fully informed of investment and
financial controls, and other matters that are relevant to the
business of the Company that should be brought to the attention of
the Directors. The Directors also have access, where necessary in
the furtherance of their duties, to independent professional advice
at the expense of the Company.
As previously mentioned, the Board has a breadth of experience
relevant to the Company, and the Directors believe that any changes
to the Board's composition can be managed without undue disruption.
With any new Director appointment to the Board an induction process
is tailored to ensure that it would be appropriate for the
appointee. Upon any such appointment the new Director would be
available to meet Shareholders upon request.
The attendance record of the Directors is set out below:
Quarterly Board Management
Meetings Audit Engagement Nomination
Committee Committee Committee
------------------------- ------------------------------- ---------- -------------- ---------------
Number of meetings 3 1 1 1
------------------------- ------------------------------- ---------- -------------- ---------------
Meetings attended:
Talmai Morgan (Chairman) 3 1 1 1
Robin Fuller 3 N/A N/A N/A
Michael Poulding 3 1 1 1
------------------------- ------------------------------- ---------- -------------- ---------------
The Board considers agenda items laid out in the notice and
agenda of meeting which are formally circulated to the Board in
advance of the meeting as part of the Board papers. Directors may
request any agenda item to be added that they consider appropriate
for Board discussion. Additionally, each Director is required to
inform the board of any potential or actual conflicts of interest
prior to Board discussion.
The primary focus at Board meetings is a review of investment
performance and associated matters such as asset allocation,
marketing/investor relations, risk management, general
administration and compliance, peer group information and industry
issues.
The Board will evaluate its performance and consider the tenure
and independence of each Director on an annual basis.
To enable this evaluation to take place, the Company Secretary
will circulate a detailed questionnaire plus a separate
questionnaire for the evaluation of the Chairman. The
questionnaires, once completed, are returned to the Company
Secretary who collates responses, prepares a summary and discusses
the Board evaluation with the Chairman prior to circulation to the
remaining Board members. For the evaluation of the Chairman, the
results are discussed with the two Directors who then discuss them
with the Chairman.
Directors' Duties and Responsibilites
The Directors have adopted a set of Reserved Powers, which
establish the key purpose of the Board and detail its major duties.
These duties cover the following areas of responsibility:
-- Statutory obligations and public disclosure;
-- Strategic matters and financial reporting;
-- Oversight of management and personnel matters;
-- The establishment, terms of reference, and reporting
arrangements for all subcommittees acting on behalf of the
authority of the Board;
-- Risk assessment and management, including reporting,
monitoring, governance and control; and
-- Other matters having a material effect on the Company.
These Reserved Powers of the Board have been adopted by the
Directors to demonstrate clearly the seriousness with which the
Board takes its fiduciary responsibilities and as an ongoing means
of measuring and monitoring the effectiveness of its actions. It
also addresses Principle 16 of the AIC Code.
Gender diversity and Lord Davies' review into Woman on
Boards
The Davies Review into Women on Boards recommended that
companies make available a formal statement over their intentions
concerning gender diversity. The Board welcomes the proposals set
out by Lord Davies in his review into Women on Boards. The Board is
encouraged by and welcomes that steps are now being taken to
increase the general pool of suitably qualified candidates to fill
non executive director roles. That said, ensuring that the Company
has the strongest possible leadership at Board level remains a key
priority and appropriate candidates will always be appointed on
merit. The Board reviewed its composition and believes that the
current appointments provide an appropriate range of skills and
experience.
Remuneration Committee
In view of the Company's non-executive and independent nature,
the Board considers that it is not appropriate for there to be a
Remuneration Committee as anticipated by the AIC Code. The Board as
a whole fulfils the functions of the Remuneration Committee and it
has been agreed that Mr Morgan should receive remuneration for
services provided to the Company, including as Chairman of the
Board, at a rate of GBP37,500 per annum with effect from Admission.
Mr Poulding should receive remuneration for services provided to
the Company, including Chairman of the Audit Committee, at a rate
of GBP30,000 per annum. Mr Fuller has elected not to receive a fee
for services provided to the Company for as long as he holds any
position at Dexion Capital (Guernsey) Limited.
Management Engagement Committee
A Management Engagement Committee, with defined terms of
reference and duties, has been established to review and make
recommendations on any proposed amendment to the Management and
Secretarial Agreement and keep under review the performance of the
Investment Manager in its role as Investment Manager to the Company
and the Master Fund Manager in its role as Investment Manager to
the Master Fund. During the period the Management Engagement
Committee has reviewed the services provided by the Investment
Manager and Corporate Broker, as well as the other service
providers and have recommended to the Board that their continuing
appointment is in the best interests of the Shareholders.
The Management Engagement Committee consists of Mr Morgan and Mr
Poulding. Mr Morgan acts as Chairman of the Management Engagement
Committee.
Audit Committee
An Audit Committee has been established consisting of Mr Morgan
and Mr Poulding. Mr Poulding acts as Chairman of the Audit
Committee. The Audit Committee meets formally at least twice a year
for the purpose, amongst other things, of considering the
appointment, independence and remuneration of the auditor and to
review the Company's annual reports and accounts, the half yearly
report and accounts and the interim management statements. As this
is the first year in operation, the Audit Committee only met once
in the financial period, however, a second meeting was held shortly
after the period end to consider the audit planning and processes.
Where non-audit services are to be provided by the auditor, full
consideration of the financial and other implications on the
independence of the auditor arising from any such engagement will
be considered before proceeding. The principal duties of the Audit
Committee are to consider the appointment of external auditors, to
discuss and agree with the external auditors the nature and scope
of the audit, to keep under review the scope, results and cost
effectiveness of the audit and the independence and objectivity of
the auditor, to review the external auditor's letters of engagement
and management letter and to analyse the key procedures adopted by
the Company's service providers.
The Terms of Reference for the Audit Committee provide that the
external auditors should not audit their own firm's consultancy
work nor make management decisions on behalf of the Company. The
Terms of Reference also disclose the type of non audit services
work the current appointed external auditor may not undertake
without prior consent of the Audit Committee and/or the Board of
Directors. Other professional fees disclosed in the Statement of
Comprehensive Income, includes fees of GBP5,500 for services
provided in relation to the issue of C Shares, GBP60,000 in respect
of the listing of the Company's Shares on the London Stock Exchange
and GBP49,800 in respect of the Prospectus which was paid out of
the placing fee. KPMG received a fee of GBP8,500 for the interim
review and will receive GBP20,000 for their annual audit. The Audit
Committee reviews all non audit services carried out to ensure the
auditor's independence is safeguarded.
Having reviewed the annual report and accounts in detail and
considered all matters brought to the attention of the Board during
the period, the Audit Committee members consider that, taken as a
whole, the report and accounts provide a fair, balanced and
understandable representation of the Company's affairs.
Nomination Committee
A Nomination Committee has been established which consists of Mr
Morgan and Mr Poulding. Mr Morgan acts as Chairman of the
Nomination Committee. The Nomination Committee meets not less than
once a year and the principal duties of the Nomination Committee
are to: (i) identify individuals qualified to become Board members
and select the director nominees for election at general meetings
of the Shareholders or for appointment to fill vacancies; (ii)
determine director nominees for each committee of the Board; and
(iii) consider the appropriate composition of the Board and its
committees. In addition, the chairmanship of the Audit Committee
and each Director's performance is reviewed annually by the
Chairman and the chairmanship of the Nomination Committee and the
Management Engagement Committee and the performance of the Chairman
is assessed by the remaining Directors.
The Directors have agreed the appointment of another Director
when the Company reaches over GBP100 million in net assets.
Terms of Reference
All Terms of Reference for Committees are available from the
Company Secretary upon request.
Internal Controls
The Board is ultimately responsible for the Company's system of
internal control and for reviewing its effectiveness. The Board
confirms that there is an ongoing process for identifying,
evaluating and managing the significant risks faced by the Company.
The Directors conduct at least annually a review of the Company's
system of internal control, covering all controls, including
financial, operational, compliance and risk management. financial,
operational, compliance and risk management.
As there is a delegation of daily operational activity as
described below, the Audit Committee and Board have determined that
there is no requirement for a direct internal audit function. The
internal control systems are designed to meet the Company's
particular needs and the risks to which it is exposed.
Accordingly, the internal control systems are designed to manage
rather than eliminate the risk of failure to achieve business
objectives and by their nature can only provide reasonable and not
absolute assurance against misstatement and loss.
The Board has delegated the management of the Company's
investment portfolio and the administration, registrar and
corporate secretarial functions including the independent
calculation of the Company's NAV and the production of the Annual
Report and Financial Statements which are independently audited.
Whilst the Board delegates responsibility, it retains
accountability for the functions it delegates and is responsible
for the systems of internal control. Formal contractual agreements
have been put in place between the Company and providers of these
services.
On an ongoing basis board reports are provided at each quarterly
board meeting from the Administrator, Investment Manager and
Company Secretary; and a representative from the Investment Manager
of the Master Fund is asked to attend these meetings.
As part of the overall risk management process, at each
quarterly meeting the Directors receive, consider and assess a risk
matrix detailing all key risks that are graded by probability and
impact.
Corporate Responsibility
The Company is not an operating company. It considers the
ongoing concerns of investors not only by open and regular dialogue
with and through the Investment Manager but also by direct
discussions with Shareholders.
As previously referred, all daily operations are delegated. The
Company itself does not maintain premises, or have any
employees.
Relations with Shareholders - AIC Code Principle 19
The Investment Manager and the Company's Broker maintain a
regular dialogue with institutional Shareholders,
the feedback from which is reported to the Board. In addition,
Board members will be available to respond to Shareholders'
questions at the Annual General Meeting. Directors are available
for meetings with Shareholders upon request via the Company
Secretary.
The Board monitors the trading activity and Shareholder profile
on a regular basis. Shareholder sentiment is also ascertained by
the careful monitoring of the discount/premium at which each class
of Shares is traded in the market against the NAV per Share when
compared to the discounts/premiums experienced by the Company's
peer group.
The Company reports formally to Shareholders twice a year and a
proxy voting card for the AGM will be sent to Shareholders with the
Annual Report and Accounts. Results of Extraordinary and Annual
General Meetings are announced by the Company on the day of the
relevant meeting. Additionally, the Interim Management Statements
and the current information provided to eligible Shareholders on an
ongoing basis through the Company's website and newsletter assist
in keeping Shareholders informed. The Company Secretary and
Registrar monitor the voting of the shareholders and proxy voting
is taken into consideration when votes are cast at the Annual
General Meeting. Shareholders may contact the Directors via the
Company Secretary.
Disclosure of information to auditors
So far as each of the Directors is aware, there is no relevant
audit information of which the company's auditor is unaware, and
each Director has taken all steps he ought to have taken as a
Director to make himself or herself aware of any relevant
information and to establish that the company's auditor is aware of
that information.
Auditors
A resolution for the re-appointment of KPMG Channel Islands
Limited will be proposed at the forthcoming Annual General
Meeting.
By order of the Board
Talmai Morgan Michael Poulding
Chairman Director
24 September 2013
STATEMENT OF DIRECTORS' RESPONSIBLITIES IN RESPECT OF THE
FINANCIAL STATEMENTS
The Directors are responsible for preparing the Director's
Report and the financial statements in accordance with the
applicable law and regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law they elected to
prepare the financial statements in accordance with International
Financial Reporting Standards (IFRS).
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.
Under applicable laws and regulations the Directors are also
responsible for preparing this Director's report and Corporate
Governance Statement that comply with Company Law and
regulations.
Directors' Responsibility Statement
The Directors confirm that they have complied with the above
requirements in preparing the financial statements and that to the
best of our knowledge and belief:
(a) The Management Report (comprising the Chairman's Statement,
The Investment Manager's Report and the Directors' Report) includes
a fair review of the development and performance of the business
and the position of the Company together with a description of the
principal risks and uncertainties that the Company faces; and
(b) The financial statements, prepared in accordance with
International Financial Reporting Standards, give a true and fair
view of the assets, liabilities, financial position and profit of
the Company.
Signed on behalf of the Board by:
Talmai Morgan Michael Poulding
Chairman Director
24 September 2013
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF DCG IRIS
LIMITED
We have audited the financial statements of DCG IRIS Limited
("the Company") for the period from 24 April 2012 (date of
incorporation) to 31 May 2013 which comprise the Statement of
Financial Position, Statement of Comprehensive Income, Statement of
Changes in Shareholders' Equity, Statement of Cash Flows and the
related notes. 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 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 it 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, 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 Company'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 Company's
affairs as at 31 May 2013 and of its result for the period from 24
April 2012 (date of incorporation) to 31 May 2013;
-- 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.
Under the Listing Rules we are required to review part of the
Corporate Governance Statement relating to the Company's compliance
with the nine provisions of the UK Corporate Governance specified
for our review. We have nothing to report with respect to this
review.
Steven D. Stormonth
For and on behalf of KPMG Channel Islands Limited
Chartered Accountants and Recognised Auditors
24 September 2013
STATEMENT OF FINANCIAL POSITION
AS AT 31 MAY 2013
As at 31 May
Note 2013
GBP000
Assets
Current assets
Financial assets at fair value through
profit or loss 3a 51,029
Cash and cash equivalents 167
Subscriptions paid in
advance 3a 9,025
Other receivables 14
Total assets 60,235
---------------------------------------- ----- -------------
Liabilities
Current liabilities
Accounts payable and accrued expenses 6 59
Total liabilities 59
---------------------------------------- ----- -------------
Net assets 60,176
---------------------------------------- ----- -------------
Represented by:
Shareholders' equity
and reserves
Share capital 7 59,546
Other reserves 630
Total Shareholders' equity 60,176
---------------------------------------- ----- -------------
Net assets per
Share 8 99.79p
---------------------------------------- ----- -------------
There are no comparative figures as this is the Company's first
financial period of operation.
The financial statements were approved by the Board of Directors
on 24 September 2013.
Talmai Morgan Michael Poulding
Chairman Director
STATEMENT OF COMPREHENSIVE INCOME
FOR THE PERIOD FROM 24 APRIL 2012 (DATE OF INCORPORATION) TO 31
MAY 2013
For the period
from 24 April 2012
(date of incorporation)
to
Note 31 May 2013
GBP000
Income
Net changes in fair value on financial
assets at fair value through profit
or loss 3b 2,454
Net income 2,454
---------------------------------------- ----- -------------------
Expenses
Directors' remuneration
and expenses 9a (73)
Administration
fee 9f (46)
Audit fee and interim
review (29)
Other professional
fees (55)
Other operating
expenses (79)
Total operating
expenses (282)
---------------------------------------- ----- -------------------
Total comprehensive income 2,172
---------------------------------------- ----- -------------------
Basic and diluted return
per Share 11 4.90p
---------------------------------------- ----- -------------------
There are no comparative figures as this is the Company's first
financial period of operation.
All items derive from continuing activities.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM 24 APRIL 2012 (DATE OF INCORPORATION) TO 31
MAY 2013
Share Other
Capital Reserves Total
GBP000 GBP000 GBP000
Balance as at 24 April
2012 - - -
------------------------------------------- -------- --------- --------
Total comprehensive income
for the period
Total comprehensive income
for the period - 2,172 2,172
--------
Transactions with Shareholders, recorded
directly in equity
Shares issued 60,450 - 60,450
Share issue costs (904) - (904)
Distributions
paid - (1,542) (1,542)
Balance as at 31 May
2013 59,546 630 60,176
------------------------------------------- -------- --------- --------
There are no comparative figures as this is the Company's first
financial period of operation.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM 24 APRIL 2012 (DATE OF INCORPORATION) TO 31
MAY 2013
For the period
from 24 April
2012
(date of incorporation)
to
31 May 2013
GBP000
Cash flows from operating
activities
Total return for
the period 2,172
Adjustments for:
Net gains on financial assets held at fair
value through profit or loss (2,454)
Increase in debtors (14)
Increase in creditors 59
Net cash used in operating
activities (237)
--------------------------------------------- ------------------------
Purchase of financial assets at fair value
through profit and loss (60,736)
Proceeds from sale of investments 3,136
Net cash outflows from investing
activities (57,600)
--------------------------------------------- ------------------------
Cash inflows from financing
activities
Proceeds from issue of ordinary
shares 60,450
Share issue costs (904)
Distributions paid (1,542)
Net cash inflows used in financing
activities 58,004
--------------------------------------------- ------------------------
Net increase in cash and cash equivalents 167
--------------------------------------------- ------------------------
Cash and cash equivalents at the beginning
of the period -
---------------------------------------------
Cash and cash equivalents at the
end of the period 167
--------------------------------------------- ------------------------
Analysis of cash and cash equivalents
at the end of the period
Cash at bank 167
--------------------------------------------- ------------------------
There are no comparative figures as this is the Company's first
financial period of operation.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD FROM 24 APRIL 2012 (DATE OF INCORPORATION) TO 31
MAY 2013
1. General information
DCG IRIS Limited (the "Company") was incorporated with limited
liability in Guernsey, Channel Islands as a closed-ended investment
company on 24 April 2012. The Company's Shares were listed with a
Premium Listing on the Official List of the UK Listing Authority
and admitted to trading on the Main Market of the London Stock
Exchange on 27 June 2012.
The Company invests substantially all of its capital through a
"master-feeder" structure in CS IRIS Low Volatility Plus Fund
Limited (the "Master Fund") which is an open-ended investment
company incorporated under the laws of Guernsey on 28 October 2011
for an unlimited period and is a Qualifying Investor Fund
authorised under The Collective Investment Schemes (Qualifying
Professional Investor Funds) (Class Q) Rules 1998, issued by the
Guernsey Financial Services Commission pursuant to the 1997 Law
(Protection of Investors, Bailiwick of Guernsey). The Company
invests in the Class D Sterling Share Class and Class D Sterling S
Share Class of the Master Fund.
The Company's investment objective is to seek to achieve
positive returns through investing in insurance linked contracts
and assets carrying exposure to risks related to insured event
risks.
The Company pursues its investment objective by principally
investing its assets (to the extent not retained in cash) in the
Master Fund which invests in a broadly diversified portfolio of
insurance-linked contracts, securities and derivatives as well as
various types of investments related to insurance risks over the
long-term.
The Company may hold cash and invest in cash equivalents and may
also borrow for cash management and short-term purposes.
The Investment Manager of the Company is Dexion Capital
(Guernsey) Limited (the "Investment Manager"). The Investment
Manager of the Master Fund is Credit Suisse AG ("Credit
Suisse").
2. Significant accounting policies
a) Statement of Compliance
The financial statements for the period from incorporation on 24
April 2012 to 31 May 2013, have been prepared in accordance with
International Financial Reporting Standards (IFRS) issued by the
International Accounting Standards Board (IASB) and are in
compliance with the Companies (Guernsey) Law, 2008.
The following new standards, new interpretations and amendments
to standards and interpretations have been issued but are not
effective for the period ended 31 May 2013 and have not been early
adopted:
-- IFRS 7, 'Financial Instruments: Disclosures', The standard
includes new disclosures regarding the gross amounts of any
financial assets and financial liabilities which have been offset
in the Statement of Financial Position. These disclosures are
applicable to annual reporting periods beginning on or after 1
January 2013. Adoption is not expected to have a significant impact
on the Company's Financial Statements.
-- IFRS 9, 'Financial instruments', was updated in October 2010.
The standard addresses the classification and measurement of
financial assets. IFRS 9 divides all financial assets that are
currently in the scope of IAS 39 into two classifications - those
measured at amortised cost and those measured at fair value. The
standard is not applicable until 1 January 2015 but is available
for early adoption. IFRS 9 requires that the effects of changes in
credit risk of liabilities designated as at fair value through
profit or loss are presented in other comprehensive income unless
such treatment would create or enlarge an accounting mismatch in
profit or loss, in which case all gains or losses on that liability
are presented in profit or loss. Other requirements of IFRS 9
relating to classification and measurement of financial liabilities
are unchanged from IAS 39. Its adoption is not expected to have a
significant impact on the Company's financial statements because
the majority of the Company's financial assets are designated as at
fair value through profit or loss and there are
presently no financial liabilities designated as at fair value
through profit or loss.
-- IFRS 10, 'Consolidated financial statements' establishes
principles for the presentation and preparation of consolidated
financial statements when an entity controls one or more other
entities. The standard requires a parent entity (an entity that
controls one or more other entities) to present consolidated
financial statements; it defines the principle of control, and
establishes control as the basis for consolidation; and it sets out
how to apply the principle of control to identify whether an
investor controls an investee and therefore must consolidate the
investee and the accounting requirements for the preparation of
Consolidated Financial Statements. IFRS 10 is applicable to annual
reporting periods beginning on or after 1 January 2013. Adoption is
not expected to have a significant impact on the Company's
Financial Statements.
-- IFRS 11, 'Joint arrangements' describes the accounting for
'joint arrangements' over which two or more parties have joint
control. IFRS 11 focuses on the nature of the rights and
obligations of the arrangement. A joint arrangement can be either a
joint venture or a joint operation. Joint ventures are to be equity
accounted as the IASB eliminated the option of proportionate
consolidation. A joint operation will recognise its share of
assets, liabilities, revenues and expenses and/or its share of
those items, if any. IFRS 11 is applicable to annual reporting
periods beginning on or after 1 January 2013. Adoption will not
have a significant impact on the Company's Financial
Statements.
-- IFRS 12, 'Disclosure of interest in other entities' contains
the disclosure requirements for entities that have interests in
subsidiaries, joint arrangements (i.e. joint operations or joint
ventures), associates and/or unconsolidated structured entities.
Interests are widely defined as contractual and non-contractual
involvement that exposes an entity to variability of returns from
the performance of the other entity.
The required disclosures aim to provide information in order to
enable users to evaluate the nature of, and risks associated with,
an entity's interests in other entities and the effects of those
interests on the entity's financial position, financial performance
and cash flows. IFRS 12 is applicable to annual reporting periods
beginning on or after 1 January 2013. Adoption will not have a
significant impact on the Company's Financial Statements.
-- IFRS 13, 'Fair value measurement', was issued in May 2011.
The standard explains how to measure fair value for financial
reporting and introduces significantly enhanced disclosure about
fair values. It does not address or change the requirements on when
fair values should be used. IFRS 13 has been issued to provide a
single source of guidance for all fair value measurements and to
clarify the definition of fair value. The standard is applicable
for accounting periods commencing on or after 1 January 2013. Its
adoption from 1 June 2013 is not expected to have a significant
impact on the Company's financial statements.
b) Basis of preparation
The financial statements are prepared in pounds sterling (GBP),
which is the Company's functional and presentation currency,
rounded to the nearest thousand pounds. They are prepared on a fair
value basis for financial assets at fair value through profit or
loss. Other financial assets and financial liabilities are stated
at amortised cost.
On 18 July 2013, in accordance with the Company's articles of
incorporation and commitments given in the prospectus dated 12
November 2012, the Company proposed a Continuation Vote of the
Company and offered investors a Redemption Offer.
The Continuation Vote and the Redemption Offer were required
because the NAV of the Company as at 30 June 2013 was less than
GBP150 million. On the 9 August 2013, the Company sent a circular
to its Shareholders to convene the required EGM to approve, amongst
other things, the Continuation Vote and to set out full details of
the Redemption Offer. On 2 September 2013, the Company announced
that no acceptances of the Redemption Offer had been received. On 5
September 2013, the Company announced the results of the EGM were
that the Shareholders voted in favour of the continuation of the
Company.
After making sufficient and appropriate enquiries of key service
providers and after consideration of the results of the Redemption
Offer, the Directors have a reasonable expectation that the Company
has and will maintain adequate resources to continue in operation
for the foreseeable future. Accordingly, the Directors have adopted
the going concern basis in the preparation of the financial
statements.
The following accounting policies have been applied consistently
in dealing with items which are considered material in relation to
the Company's financial statements:
c) Critical accounting judgements and key sources of estimation
uncertainty
The preparation of the financial statements in conformity with
IFRS requires management to make judgements, estimates and
assumptions that affect the application of policies and the
reported amounts of assets and liabilities, income and expense.
The estimates and associated assumptions are based on historical
experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the
basis of making the judgements about carrying values of assets and
liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates. The main use of
accounting estimates and assumptions occurs in the calculation of
sensitivity analysis and the fair value hierarchy in note 12.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that period, or in the period of revision and future periods
if the revision affects both current and future periods.
d) Revenue recognition
Interest income is recognised in the Statement of Comprehensive
Income as it accrues using the effective interest method. Dividend
income is recognised when the right to receive payment is
established.
e) Expenses
All expenses are accounted for on an accruals basis.
f) Financial instruments
i) Classification
In accordance with IAS 39 Financial Instruments: Recognition and
Measurement, the Company has designated all its investments upon
initial recognition as financial assets at fair value through
profit or loss. These include financial assets that are not held
for trading purposes and which may be sold and represent a group of
financial assets which is managed and its performance is evaluated
on a fair value basis, in accordance with a documented investment
strategy, and information about the Company is provided internally
on that basis to the entity's key management personnel. These are
exclusively investments in the Master Fund.
Financial assets that are classified as loans and receivables
include other receivables and cash and cash equivalents. Financial
liabilities at amortised cost include accounts payable and accrued
expenses. The table in Note 3 details the categories of financial
assets and liabilities held by the Company as at 31 May 2013.
ii) Recognition
The Company recognises financial assets and financial
liabilities on the date it becomes a party to the contractual
provisions of the instrument.
Regular purchases and sales of investments are recognised on the
trade date, being the date on which the Company commits to purchase
or sell the investment. From this date any gains and losses arising
from changes in fair value of the financial assets or financial
liabilities are recorded.
iii) Measurement
Financial instruments are measured initially at fair value
(transaction price). Transaction costs on financial assets and
financial liabilities at fair value through profit or loss are
expensed immediately. Subsequent to initial recognition, all
instruments classified as fair value through profit or loss are
measured at fair value with changes in their fair value recognised
in the Statement of Comprehensive Income within net changes in fair
value on financial assets at fair value through profit or loss, in
the period in which they arise.
Financial assets classified as loans and receivables are carried
at amortised cost using the effective interest method less
impairment losses, if any.
iv) Fair value measurement principles
The investment in the Master Fund is measured at fair value. The
NAV of the Master Fund, which is established based on IFRS
requirements, is used as a measure of fair value as this is the
price at which the Company may redeem its investment. The
redemption terms of the Master Fund is 90 days.
The fair value of investments by the Master Fund in underlying
financial instruments, for which a quoted market price is not
available on a recognised stock exchange or from a broker/dealer
for non-exchange traded financial instruments, are estimated using
valuation techniques, including use of recent arm's length market
transactions, reference to the current fair value of another
instrument that is substantially the same, discounted cash flow
techniques, option pricing models or any other valuation technique
that provides a reliable estimate of prices obtained in actual
market transactions.
Where discounted cash flow techniques are used by the Master
Fund, estimated future cash flows are discounted using market rates
at the reporting date applicable for an instrument with similar
terms and conditions. Where other pricing models are used, inputs
are based on maximum observable market data at the reporting
date.
The fair value of derivatives that are not exchange-traded is
estimated at the amount that the Master Fund would receive or pay
to terminate the contract at the reporting date taking into account
current market conditions (volatility, appropriate yield curve) and
the current creditworthiness of the counterparties.
v) Realised and unrealised gains and losses
Realised gains and losses arising on disposal of investments are
calculated by reference to the proceeds received on disposal and
the average cost attributable to those investments, and are
recognised in the Statement of Comprehensive Income. Unrealised
gains and losses on investments are recognised in the Statement of
Comprehensive Income.
vi) Impairment
Financial assets that are stated at cost or amortised cost are
reviewed at each reporting date to determine whether there is
objective evidence of impairment. If any such indication exists, an
impairment loss is recognised in the Statement of Comprehensive
Income as the difference between the asset's carrying amount and
the present value of estimated future cash flows discounted at the
financial asset's effective interest rate.
If in a subsequent period the amount of an impairment loss
recognised on a financial asset carried at amortised cost decreases
and the decrease can be linked objectively to an event occurring
after the write-down, the write-down is reversed through the
Unaudited Statement of Comprehensive Income.
vii) Derecognition
The Company derecognises a financial asset when the contractual
rights to the cash flows from the financial asset expire, or it
transfers the financial asset and the transfer qualifies for
derecognition in accordance with IAS 39. A financial liability is
derecognised when the obligation specified in the contract is
discharged, cancelled or expired.
g) Foreign currency transactions
The financial statements of the Company are presented in the
currency of the primary economic environment in which the Company
operates (its 'functional currency'). The Directors have considered
the currency in which the original capital was raised,
distributions will be made and ultimately the currency in which
capital would be returned in a liquidation. The Directors have also
considered the currency to which the underlying investments of the
Master Fund are exposed. On balance, the Directors believe that
pounds sterling (GBP) best represents the functional currency. For
the purpose of the financial statements, the results and financial
position of the Company are expressed in pounds sterling, which is
the presentation currency of the Company. Transactions denominated
in foreign currencies are translated into pounds sterling at the
rate of exchange ruling on the date of the transaction. Financial
assets and liabilities denominated in foreign currencies at the
reporting date are translated into pounds sterling at the exchange
rate prevailing at that date. Realised and unrealised gains or
losses on currency translation are recognised in the Statement of
Comprehensive Income. Foreign currency differences relating to
investments at fair value through profit or loss are included in
gains and losses on investments (Note 3).
h) Cash and cash equivalents
Cash comprises cash in hand and demand deposits. Cash
equivalents, which can include bank overdrafts, are short-term,
highly liquid investments that are readily convertible to known
amounts of cash and which are subject to insignificant changes in
value. Cash, deposits with banks and bank overdrafts are stated at
their principal amount.
i) Share issue costs
Share issue costs are fully written off against the share
capital account in the period of the share issue.
j) Treasury Shares
Where the Company purchases its own share capital, the
consideration paid, which includes any directly attributable costs,
is recognised as a deduction from Shareholders' equity through the
other reserves, which is a distributable reserve.
When such Shares are subsequently sold or reissued, any
consideration received, net of any directly attributable
incremental transaction costs and the related income tax effects,
is recognised as an increase in equity and the resulting surplus or
deficit on the transaction is transferred to/from the other
reserve. Where the Company cancels treasury shares, no further
adjustment is required to the share capital account at the time of
cancellation. Shares held in treasury are excluded from
calculations when determining NAV per share and earnings per
share.
k) Operating Segments
The Board has considered the requirements of IFRS 8 'Operating
Segments', and is of the view that the Company is engaged in a
single segment of business, being an investment strategy tied to
insured event risks. The Board, as a whole, has been determined as
constituting the chief operating decision maker of the Company.
The key measure of performance used by the Board to assess the
Company's performance and to allocate resources is the total return
on the Company's NAV, as calculated under IFRS, and therefore no
reconciliation is required between the measure of profit or loss
used by the Board and that contained in these unaudited financial
statements.
The Board of Directors is charged with setting the Company's
investment strategy in accordance with the investment policy. They
have delegated the day to day implementation of this strategy to
its Investment Manager but retain responsibility to ensure that
adequate resources of the Company are directed in accordance with
their decisions. The investment decisions of the Investment Manager
are reviewed on a regular basis to ensure compliance with the
policies and legal responsibilities of the Board. The Investment
Manager has been given full authority to act on behalf of the
Company, including the authority to purchase and sell securities
and other investments on behalf of the Company and to carry out
other actions as appropriate to give effect thereto. Whilst the
Investment Manager may make the investment decisions on a day to
day basis regarding the allocation of funds to different
investments, any changes to the investment strategy or major
allocation decisions have to be approved by the Board, even though
they may be proposed by the Investment Manager. The Board therefore
retains full responsibility as to the major decisions made on an
ongoing basis. The Investment Manager will always act under the
terms of the Prospectus which cannot be significantly changed
without the approval of the Board of Directors or, where necessary,
Shareholders.
3. Financial Instruments
a) Categories of financial instruments
As at 31 May 2013
Carrying amount % of
GBP000 net assets
Financial assets and liabilities
at fair value
through profit or loss:
Classified as fair value through
profit or loss:
Investment in the Master
Fund 51,029 84.80%
Loans and Receivables: 9,206 15.30%
Financial liabilities measured
at amortised cost: (59) (0.10%)
60,176 100.00%
------------------------------------------ ---------------- -----------
Loans and Receivables presented above represent cash and cash
equivalents and other receivables including subscriptions paid in
advance, which represent subscriptions into the Master Fund, as
detailed in the Statement of Financial Position.
Financial liabilities measured at amortised cost presented above
represent distributions payable, accounts payable and accrued
expenses as detailed in the Statement of Financial Position.
b) Net changes in fair value on financial assets at fair value
through profit or loss
For the period
from 24 April 2012
(date of incorporation)
to
31 May 2013
GBP000
----------------------------------------- ------------------------
Realised gains on
investments 197
Movement in unrealised gains on
investments 2,257
------------------------
Net changes in fair value on financial
assets at fair value through profit or
loss 2,454
------------------------------------------ ------------------------
4. Financial Risk Management
The Investment Manager provides investment management services
to the Company and monitors and manages risks relating to the
operations of the Company through internal risk reports which
analyse exposures by degree and magnitude of risks.
The Company's financial instruments include investments
designated as fair value through profit or loss and cash and cash
equivalents. The main risks arising from the Company's financial
instruments are market price risk, interest rate risk, currency
risk, liquidity risk and credit risk. The techniques and
instruments utilised for the purposes of efficient portfolio
management are those which are reasonably believed by the
Investment Manager to be economically appropriate to the efficient
management of the Company.
a) Capital risk management
The Company manages its capital to ensure that it is able to
continue as a going concern while following the Company's stated
investment policy. The capital structure of the Company consists of
Shareholders' equity, which comprises share capital and other
reserves. To maintain or adjust the capital structure, the Company
may return capital to Shareholders or issue new Shares. There are
no regulatory or any other externally imposed requirements to
return capital to Shareholders.
i) Share buybacks
The Directors have the authority to purchase up to 14.99% of the
Company's Shares of each class in issue immediately following
Admission at a price not exceeding: (i) 5% above the average of the
mid-market values of Shares of the relevant class for the five
Business Days before the purchase is made; or (ii) the higher of
the last independent trade or the highest current independent bid
for Shares of the relevant class.
Any buy back of Shares is made subject to Guernsey law and
within guidelines established from time to time by the Board (which
will take into account the income and cash flow requirements of the
Company) and the making and timing of any buy backs is at the
absolute discretion of the Board.
The Board may elect, subject to compliance with the applicable
laws in Guernsey, to hold Shares purchased under the Company's buy
back programme in Treasury, if it considers it to be in the best
interests of shareholders. The Articles permit the Company to hold
up to 10% of its total number of Shares in issue in Treasury in
accordance with Guernsey Law. The Company will be able to sell
shares held in Treasury, subject to compliance with all applicable
laws and regulations, and such sale will not be subject to any
pre-emption rights in favour of existing shareholders.
b) Market risk
Market risk embodies the potential for both losses and gains and
includes currency risk, interest rate risk and price risk. The
Company's strategy on the management of market risk is driven by
the Company's investment objective. The Company pursues its
investment objective by principally investing its assets (to the
extent not retained in cash) in the Master Fund.
The investment objective of the Master Fund is to achieve
positive returns through an investment strategy related to insured
event risks. The Master Fund's market risk is managed by the Master
Fund Investment Manager in accordance with its own policies and
procedures.
Credit Suisse's strategies will be subject to some dimension of
market risk: directional price movements, deviations from
historical pricing relationships, changes in the regulatory
environment, changes in market volatility, weather, seismic or
other insured events, international political events, "flights to
quality" events and "credit squeezes". The Master Fund may
materially under-perform other investment funds with substantially
similar investment objectives and approaches.
The Master Fund may invest through Over-the-Counter Insurance
Contracts. Over-the-Counter Insurance Contracts are prone to sudden
and unexpected losses.
In addition, the unpredictable nature of such losses makes it
difficult to determine whether a particular Over-the-Counter
Insurance Contract Instrument is properly priced in the ordinary
course of trading.
The valuation models used in the insurance-linked markets
attempt to value fundamentally unpredictable events (such as
earthquakes or hurricanes), as opposed to traditional financial
models which may interpolate securities values based on different
market parameters.
Due to the long-term or open-end nature of reinsurance and
insurance risks, the strategy of the Master Fund Investment Manager
is to enter into financial transactions where the longevity of the
underlying risks is capped at a final duration date or even
terminate these contracts before the final maturity. The main
strategy is to create a diversified portfolio of insurance risks,
which are quantifiable and can be modelled by scientific and
mathematical models and techniques. The Master Fund Investment
Manager seeks to achieve a portfolio that is geographically
diversified by uncorrelated risks.
In order to manage the risks arising from Superstorm Sandy, the
Directors of the Master Fund decided to implement side pockets for
investments of the Master Fund that were potentially impacted by
the superstorm for the value date of 31 October 2012. This ensured
that future value developments on illiquid investments potentially
impacted by Superstorm Sandy only accrued to Shareholders of the
Master Fund that were invested at the time of the event and the
Shareholders of the Master Fund would only be able to redeem the
non-side pocketed part of their holding. Shareholders of the Master
Fund at 31 October 2012 were issued S Shares, and the assets in the
main portfolio of the Master Fund were reduced by an amount
corresponding to the illiquid investments and the NAV for the
Participating Shares of the Master Fund were reduced accordingly.
During the period 4.65% of the value of the Company's investment in
the Master Fund was transferred into Class D Sterling S Shares (the
"side pocket"), of which 3.90% was later transferred back. At the
period end, the holding in the side pocket of the Master Fund
corresponded to 0.75% of the value of the Company's investment in
the Master Fund. Subscriptions for 1 November 2012 or later, in the
Master Fund, were not affected by the side pocket creation. The
Side Pocket was finally merged with the Master Fund's main
portfolio as of 30 August 2013 and the total impact of Superstorm
Sandy was -0.24% of the NAV as of 31 October 2012.
i) Market price risk management
Price risk is the risk that the value of the instrument will
fluctuate as a result of changes in market prices, whether caused
by factors specific to an individual investment, its issuer or all
factors affecting all instruments traded in the market.
As the majority of the Company's financial instruments are
carried at fair value with fair value changes recognised in the
Statement of Total Return, all changes in market conditions will
directly affect the NAV of the Company.
Price risk is mitigated by Credit Suisse by constructing a
diversified portfolio of insurance risks. In addition, price risk
may be hedged using derivative financial instruments such as
options or futures.
The Master Fund price risk is managed on a daily basis by Credit
Suisse in accordance with the policies and procedures in place. The
Master Fund's overall price risks, including the impact of the
creation of the side pockets for its investments potentially
impacted by Superstorm Sandy, are monitored on a quarterly basis by
the Company's Board of Directors.
Price sensitivity analysis
The Company's only investment is in the Master Fund. Therefore,
market price risk is managed indirectly through diversification of
the investment portfolio in the Master Fund.
The following details the Company's sensitivity to a 100bps
increase and decrease in the market prices, with 100bps being the
sensitivity rate used when reporting price risk internally to key
management personnel and representing management assessment of the
possible change in market prices.
At 31 May 2013 if the market prices had been 100bps higher with
all other variables held constant, the increase in the net assets
attributable to equity Shareholders would have been GBP510,291. An
equal change in the opposite direction would have decreased the net
assets attributable to equity Shareholders.
Actual trading results may differ from the above sensitivity
analysis and those differences may be material.
ii) Interest rate risk management
Interest rate risk represents the uncertainty of investment
return due to changes in the market rates of interest.
Substantially all of the Company's assets is a non-interest bearing
equity investment and its exposure to interest rate changes is
minimal.
Interest receivable on bank deposits and interest payable on
bank overdraft positions will be affected by fluctuations in
interest rates. All cash balances are at variable rates.
The majority of the Master Fund's financial assets are interest
bearing. The majority of the Master Fund's liabilities are
non-interest bearing. Most of the interest-bearing assets mature in
more than one year and less than five years. As a result, the
Master Fund is subject to a high exposure to fair value interest
rate risk due to fluctuations in the prevailing levels of market
interest rates. The Master Fund's interest rate risk is managed on
a daily basis by the Master Fund Investment Manager in accordance
with policies and procedures in place. The Master Fund's overall
interest rate risk is monitored on a quarterly basis by the Board
of Directors of the Master Fund.
As at 31 May 2013, all of the Company's assets and liabilities
were non-interest bearing with the exception of cash and cash
equivalents (see table below).
Non-interest
1-3 months bearing Total
GBP000 GBP000 GBP000
--------------------------------------- ----------- ------------- -------
Assets
Financial assets at fair value
through profit or loss:
Investment in the Master Fund - 51,029 51,029
Cash and cash equivalents 167 - 167
Subscriptions paid in advance - 9,025 9,025
Other receivables - 14 14
--------------------------------------- ----------- ------------- -------
Total assets 167 60,068 60,235
--------------------------------------- ----------- ------------- -------
Liabilities
Financial liabilities measured
at amortised cost:
Accounts payable and accrued expenses - (59) (59)
Total liabilities - (59) (59)
--------------------------------------- ----------- ------------- -------
Total interest sensitivity
gap 167 - 167
--------------------------------------- ----------- ------------- -------
Interest rate sensitivity analysis
Cash and cash equivalents will be affected by movements in
interest rates. However there will be no material impact on the
Statement of Comprehensive Income or Statement of Changes in
Shareholder's Equity from movements in interest rates due to the
immateriality of the bank balances at period end. At period end the
Company's cash balance was GBP166,869.
iii) Currency risk management
The Master Fund's investments comprise predominantly US Dollar
denominated investments. Whilst the Master Fund will (subject to
the availability of appropriate foreign exchange and credit lines)
engage in currency hedging in an attempt to reduce the impact on
its Class D Sterling Shares of currency fluctuations, volatility of
returns may result from such currency exposure. The Master Fund
intends to engage in currency hedging to reduce the impact on its
Class D Sterling S Shares.
The Company's investment in the Master Fund is denominated in
pounds sterling; therefore no additional currency risk arises as a
result. Any uninvested monies, such as working capital
requirements, are monitored by the Investment Manager.
Except as disclosed above, the Company had no significant
exposure to currency risk at 31 May 2013.
c) Liquidity risk management
The ultimate responsibilities for liquidity risk management
rests with the Board of Directors which has appropriately reviewed
the funding requirements for the management of the Company's short,
medium and long-term funding needs. The Company maintains adequate
reserves by continuously monitoring forecast and actual cash flows.
The Company may borrow as described in Note 14 to assist with any
unforeseen timing mismatches, in accordance with the
Prospectus.
The Company's principal investment in financial instruments is
an investment in the Master Fund, which generally may be illiquid.
The Company is currently required to give 90 days' prior notice to
redeem its holdings in the Master Fund.
Some of the investments made by the Master Fund may not be
readily realisable and their marketability may be restricted and it
may be difficult for the Master Fund to sell or realise its
investments in whole or in parts.
As disclosed earlier, the Master Fund had created a side pocket
in connection with Superstorm Sandy. On 31 October 2012, 4.65% of
the Company's investment in the Master Fund was transferred into
the side pocket, of which 3.90% was transferred back on 1 February
2013 with the value date of 31 January 2013. At the period end, the
holding in the side pocket represented 0.75% of the Company's
investment in the Master Fund. The Company's holdings in the side
pocket were not redeemable at the option of the Company. The Board
of Directors of the Company continued to monitor the impact of the
illiquid side pocket on the liquidity of the Company. The Side
Pocket was finally merged with the Master Fund's main portfolio as
of 30 August 2013 and the total impact of Superstorm Sandy was
-0.24% of the NAV as of 31 October 2012.
Shareholders have no right to have their shares redeemed or
repurchased by the Company. Shareholders wishing to release their
investment in the Company are therefore required to dispose of
their shares on the market.
Residual contractual maturities of financial
liabilities
1-3 months Total
31 May 2013 GBP000 GBP000
---------------------------------------------- ----------- -------
Accounts payable and accrued
expenses 59 59
---------------------------------------------- ----------- -------
d) Credit risk
Credit risk refers to the risk that a counterparty will default
on its contractual obligations resulting in financial loss to the
Company. Credit Suisse has a credit policy in place and the
exposure to credit risk is monitored on an ongoing basis by the
Board of Directors of the Master Fund.
Credit risk is inherent in certain of the Insurance-Linked
Instruments that are part of the Master Fund's portfolio. When
possible, decisions to invest in these securities take into account
credit ratings, if any, issued by major rating agencies, such as
Moody's, S&P etc. 41% of the Master Fund's portfolio is rated
BB or greater by S&P.
Given that not all of the securities that comprise the Master
Fund's portfolio are rated, Credit Suisse may be guided by other
analysis, internal or external, and by its internal guidelines for
credit risk management. However, the securities in which the Master
Fund invests do not need to have any particular rating of
creditworthiness.
The Company is exposed to material credit risk in respect of
cash and cash equivalents. All cash is placed with Northern Trust
(Guernsey) Limited ("NTGL"). The Company is subject to credit risk
to the extent that this institution may be unable to return this
cash. NTGL is a wholly owned subsidiary of The Northern Trust
Corporation ("TNTC"). TNTC is publicly traded and a constituent of
S&P 500. TNTC has a credit rating of A+ from Standard &
Poor's and A1 from Moody's.
The Company's financial assets which were mainly exposed to
credit risk via the investment in the Master Fund were concentrated
as follows:
As at May 2013
GBP000
Cash and cash equivalents 167
Subscriptions paid in advance 9,025
Investment in the Master Fund 51,029
60,221
------------------------------- ---------------
5. Operating segments
Information on realised gains and losses derived from sales of
investments are disclosed in Note 3b) of the financial statements.
The Company is domiciled in Guernsey. Substantially all of the
Company's income is from its investment in the Master Fund, which
is incorporated in Guernsey.
The Company has no assets classified as non-current assets. The
investment in the Master Fund as at 31 May 2013 represents an
effective holding of 12.51% of the Master Fund. The Company,
indirectly, has a highly diversified portfolio of investments via
the Master Fund.
The Company also has a diversified Shareholder base. As at 31
May 2013, registered shareholders with holdings greater than 10% in
the Company were:
% of issued
Shareholder Shares share capital
Nortrust Nominees Limited 12,607,790 20.91%
Ericsson Pensionsstiftelse
(A) 10,967,000 18.19%
HSBC Global Custody Nominee
(UK) 10,455,257 17.34%
Credit Suisse Asset Management Investment
Limited 10,000,000 16.58%
6. Accounts payable and accrued expenses
As at 31 May 2013
GBP000
-------------------------- ------------------
Audit fee 20
Directors' remuneration 11
Administration fee 8
Other professional fees 4
Other operating expenses 16
59
-------------------------- ------------------
7. Share capital
As at 31 May 2013
GBP000
Authorised
Unlimited number of Shares at no par value -
Issued at no par value
60,299,440 Sterling Shares -
-------------------------------------------- ------------------
Reconciliation of number of Shares
As at 31 May 2013
No. of Shares
------------------
Shares at the beginning of the
period -
Issue of Shares 60,299,440
Total Shares in issue at the end of the
period 60,299,440
--------------------------------------------- ------------------
Share capital account
As at 31 May 2013
Share Capital
GBP000
------------------
Share Capital at the beginning of the
period -
Issued Share Capital 60,450
Share issue costs (904)
Total Share Capital at the end of the
period 59,546
--------------------------------------------- ------------------
The Share Capital of the Company consists of an unlimited number
of Shares with or without par value which, upon issue, the
Directors may designate as: (a) Shares; (b) B Shares; or (c) C
Shares, in each case of such classes and denominated in such
currencies as the Directors may determine.
As at 31 May 2013, one Sterling share class has been issued,
being the ordinary Shares of the Company. No Shares have been
issued in the B Class.
Pursuant to the Placing Programme, 11,025,000 Sterling C Shares
were issued at an issue price of 100 pence per Sterling C Share and
listed on the Official List and admitted to trading on the main
market of the London Stock Exchange on 20 December 2012. On 8 March
2013, each Sterling C Share was converted to Sterling Shares at a
rate of 0.9956 of a Sterling Share.
The rights attaching to the Shares are as follows:
a) the holders of Shares shall confer the right to all dividends
in accordance with the Articles of Incorporation of the
Company.
b) the Shareholders present in person or by proxy or (being a
corporation) present by a duly authorised
representative at a general meeting has, on a show of hands, one
vote and, on a poll, one vote for every Share held.
c) B Shares and, save in certain limited circumstances, C Shares
will not carry the right to attend and receive notice of any
general meetings of the Company, nor will they carry the right to
vote at such meetings.
d) the capital and surplus assets of the Company remaining after
payment of all creditors shall, on winding-up or on a return (other
than by way of purchase or redemption of own Shares) after
conversion, be divided amongst the Shareholders on the basis of the
capital attributable to the Shares at the date of winding up or
other return of capital.
8. Net asset value
The NAV of each Share of 99.79 pence is determined by dividing
the net assets of the Company attributed to the Shares of
GBP60,175,183 by the number of Shares in issue at 31 May 2013 of
60,299,440.
9. Related parties and significant agreements
Related parties
a) Directors' Remuneration & Expenses
The Directors of the Company are remunerated for their services
at such a rate as the Directors determine provided that the
aggregate amount of such fees does not exceed GBP300,000 per
annum.
The annual Directors' fees comprise GBP37,500 payable to Mr
Morgan, the Chairman and GBP30,000 to Mr Poulding as Chairman of
the Audit Committee. Mr Fuller has waived his right to a fee.
During the period ended 31 May 2013, Directors fees of GBP72,837
were charged to the Company, of which GBP11,281 remained payable at
the end of the period.
Any additional remuneration where Directors are involved in
duties beyond those normally expected as part of a Directors'
appointment will be disclosed in the Directors' Report of the
financial statements in respect of that financial period/year.
b) Investment Manager
No management or performance fees are payable by the Company to
the Investment Manager. The Master Fund pays a monthly management
fee equal to one-twelfth of 1.1% of the NAV of the Class D Sterling
Share Class and Class D Sterling S Class in respect of the Master
Fund Shares held by the Company. This is shared between the
Investment Manager and the Master Fund Manager.
During the period ended 31 May 2013, the Investment Manager
received a fee of GBP79,833 as its share of the monthly management
fee paid by the Master Fund.
Robin Fuller, a director of the Company, is also an employee of
the Investment Manager.
c) Secretary
Dexion Capital (Guernsey) Limited ("the Secretary") performs
secretarial duties for which it was remunerated at an annual fee of
GBP25,000. During the period ended 31 May 2013, secretarial fees of
GBP23,269 were charged to the Company, of which GBP4,245 remained
payable at the end of the period.
d) Placing Agent
For its services as the Company's placing agent pursuant to a
placing agreement dated 31 May 2012 in connection with the initial
public offering ("IPO") of shares in June 2012, Dexion Capital plc
(the "Placing Agent") was entitled to receive a fee of 1.5% of the
gross proceeds of the IPO. The Placing Agent was responsible for
all of the costs of the issue out of such fee. The placing agent
received a fee of GBP602,234 under this agreement.
For its services as the Company's placing agent pursuant to a
second placing agreement dated 12 November 2012, the Company will
pay Dexion a commission in respect of each placing based on the
gross issue proceeds of each placing, out of which the Placing
Agent has agreed to pay for all the costs of the Placing Programme.
As at 31 May 2013, commissions of GBP302,067 had been paid in
connection with the second placing agreement.
The commissions payable under the second placing agreement
constitute a smaller related party transaction for the purposes of
Listing Rule 11.1.10 of the UK Listing Authority ('UKLA') because
the Placing Agent is a member of the Investment Manager's group and
is therefore a related party for the purposes of the Listing Rules
of the UKLA.
On 20 May 2013 and 5 September 2013, independent Shareholders
approved related party transactions to permit Ericsson
Pensionsstiftelse (A) ('Ericsson') to participate in placings.
Independent Shareholder approval was required because Ericsson was
a substantial shareholder and therefore a related party for the
purposes of Listing Rules of the UKLA.
On 5 September 2013, independent Shareholders approved a related
party transaction to permit the Placing Agent to be able to acquire
Shares as principal under the Placing Programme on an ongoing basis
in its capacity as a market maker for the Company.
e) Shares held by related parties
As at 31 May 2013, Directors of the Company held the following
shares beneficially:
Number of % of issued
sterling shares share capital
Talmai Morgan 30,000 0.05%
Robin Fuller 20,000 0.03%
Michael Poulding 20,000 0.03%
As at 31 May 2013, Dexion Capital (Guernsey) Limited
beneficially held 4,000,000 shares, which is 6.63% of issued share
capital. Dexion Capital plc, held a market making position of
1,535,100 shares, which is 2.55% of the total shares in issue.
Ericsson held 10,967,000 shares, which is 18.19% of the total
shares in issue.
Significant agreements
f) Administrator
Northern Trust International Fund Administration Services
(Guernsey) Limited (the "Administrator") performs administrative
duties for which it was remunerated at a rate of 0.025% per annum
on the first GBP500 million of the net assets of the Company and
0.01% per annum thereafter, subject to a minimum of GBP50,000 per
annum in the first year and GBP75,000 per annum thereafter. During
the period ended 31 May 2013, administration fees of GBP46,438 were
charged to the Company, of which GBP8,767 remained payable at the
end of the period.
10. Taxation
The Company has been granted tax exempt status in Guernsey where
it pays an annual fee of GBP600 under The Income Tax (Exempt
Bodies) (Guernsey) Ordinances 1989.
11. Earnings per Share
The calculation of the return per Share of 4.90 pence is based
on the total return for the period attributable to ordinary
Shareholders of GBP2,171,205 and on the weighted average number of
Ordinary Shares in issue during the period ended 31 May 2013 of
44,282,189. The return per share has been calculated with effect
from the date of issue of the Company's Shares on the market, being
27 June 2012.
12. Fair value measurement
IFRS 7 requires the Company to classify fair value hierarchy
that reflects the significance of the inputs used in making the
measurements. IFRS 7 establishes a fair value hierarchy that
prioritises the inputs to valuation techniques used to measure fair
value.
The hierarchy gives the highest priority to unadjusted quoted
prices in active markets for identical assets or liabilities (Level
1 measurements) and the lowest priority to unobservable inputs
(Level 3 measurements).
The three levels of the fair value hierarchy under IFRS 7 are as
follows:
Level 1 Quoted prices (unadjusted) in active markets for
identical assets or liabilities;
Level 2 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 3 Level 3 Inputs for the asset or liability that are not
based on observable market data (that is, unobservable inputs).
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, that measurement is a Level 3 measurement.
Assessing the significance of a particular input to the fair value
measurement in its entirety requires judgement, as well as/and
considering factors specific to the asset or liability.
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 presents the Company's financial assets and
liabilities by level within the valuation hierarchy as of 31 May
2013.
Assets and Liabilities at Fair Value
Level Level Level
1 2 3 Total
At 31 May 2013 GBP000 GBP000 GBP000 GBP000
---------------------------------- -------- ------- ------- -------
Financial assets and liabilities
at fair value
through profit or loss:
Investment in the Master Fund - 50,646 383 51,029
Total assets - 50,646 383 51,029
---------------------------------- -------- ------- ------- -------
Level 2 is comprised of one investment in the Master Fund Class
D Shares which was fair valued using the NAV as supplied by the
administrator of the Master Fund. The Board believes it could have
redeemed the Company's investment in the Class D Shares at this NAV
per share on 31 May 2013 considering the redemption terms and that
the Master Fund NAV is established based on IFRS requirements.
Level 3 is comprised of one investment in the Master Fund's side
pocket, Class D S Shares. This investment was fair valued using the
NAV, as supplied by the administrator of the Master Fund (see note
4b), which takes into account that the illiquid investments held in
the side pocket may be illiquid for a certain amount of time as the
collateral held there may not be released until there is more
certainty that Superstorm Sandy will have no further impact. As of
30 August 2013 the side pocket was merged with the Master Fund's
main portfolio.
Investments in the Master Fund that are potentially impacted by
Superstorm Sandy have been transferred from Level 2 to Level 3 as
at 31 May 2013.
The following table presents the transfers between levels for
the period from 24 April 2012 to 31 May 2013.
Level 1 Level 2 Level 3 Total
At 31 May 2013 GBP000 GBP000 GBP000 GBP000
-------------------------- --------- -------- -------- -------
Transfers into Level
3
Investment in the Master
Fund - (1,847) 1,847 -
Transfers out of Level
3
Investment in the Master
Fund - 1,464 (1,464) -
Total assets - (383) 383 -
-------------------------- --------- -------- -------- -------
The following table presents the movements in Level 3
Investments for the period from 24 April 2012 to 31 May 2013. Gains
and losses are included in the Statement of Comprehensive
Income.
For the period
from 24 April 2012
(date of incorporation)
to
31 May 2013
Investment in
Master Fund
-------------------------------------------- ------------------------
Opening balance -
Net Transfers 247
Realised gain on investment 111
Unrealised gain on investment 25
Closing balance 383
-------------------------------------------- ------------------------
Total gains for the period included in the
Statement of Comprehensive
Income relating to assets and liabilities
held at the period end 136
-------------------------------------------- ------------------------
In the opinion of the Directors, the NAV of the Master Fund is
representative of the fair value and no adjustments are
required.
13. Ultimate Controlling Party
In the opinion of the Directors on the basis of shareholdings
advised to them, the Company has no ultimate controlling party.
14. Short term borrowing
The Company may not borrow or incur leverage for investment
purposes although it may borrow for efficient cash management and
short term purposes. The borrowings of the Company shall be limited
to ten per cent. of the Company's gross assets at the time of
drawdown. The Company did not have any borrowing facilities in
place at 31 May 2013.
15. Distribution policy
Subject to market conditions and the Master Fund's performance,
the financial position of the Company and the financial outlook, it
is the Directors' intention to declare interim dividends to
Shareholders in October, January, April and July. There are
however, no assurances that these dividends will be paid or that
the Company will pay any dividends.
The Company declared the following dividends for the period from
24 April to 31 May 2013. Note 17 details the dividend proposed and
paid after the period end.
Dividends
Dividend
rate per Net dividend Record Ex-dividend
Period to share payable date date Pay date
30 September 2012 GBP0.0100 GBP401,490 12/10/2012 10/10/2012 05/11/2012
27 November 2012 GBP0.0079 GBP317,177 23/11/2012 21/11/2012 04/02/2013
31 December 2012 GBP0.0046 GBP184,685 11/01/2013 09/01/2013 04/02/2013
31 March 2013 GBP0.0125 GBP639,068 12/04/2013 10/04/2013 13/05/2013
Under Guernsey law, companies can pay dividends in excess of
accounting profit provided they satisfy the solvency test
prescribed under the Companies (Guernsey) Law, 2008. The solvency
test considers whether a company is able to pay its debts when they
fall due; and whether the value of a company's assets is greater
than its liabilities.
16. Ongoing Charges
During the period, the AIC recommended that Ongoing Charges
disclosure should replace the Total Expense Ratio which has
traditionally been calculated by investment companies. The Ongoing
Charges for the period ended 31 May 2013 have been prepared in
accordance with the AIC's recommended methodology and was
0.45%.
17. Subsequent Events
These financial statements were approved for issuance by the
Board on 24 September 2013. Subsequent events have been evaluated
until this date.
On 3 July 2013 the Company declared its second interim dividend
of 0.0125p per ordinary share in respect of the period ending 30
June 2013, payable on 12 August 2013 to ordinary shareholders on
the register on 12 July 2013. The ex-dividend date was 10 July
2013.
On 15 July 2013, pursuant to the Placing Programme 1,170,000 new
Sterling Shares were issued for cash at a price of 100.5p per
Sterling Share. The new Sterling Shares were admitted to the LSE on
19 July 2013 and dealing in these shares also commenced on the same
date.
On 18 July 2013, in accordance with the Company's articles of
incorporation and commitments given in the prospectus dated 12
November 2012, the Company proposed a Continuation Vote of the
Company and offer investors a Redemption Offer, before conducting a
further placing of sterling shares.
The Continuation Vote and the Redemption Offer was required
because the NAV of the Company as at 30 June 2013 was less than
GBP150 million. On the 9 August 2013, the Company sent a circular
to its Shareholders to convene the required EGM to approve, amongst
other things, the Continuation Vote and to set out full details of
the Redemption Offer. On 2 September 2013, the Company announced
that no acceptances of the Redemption Offer had been received. On 5
September 2013, the Company announced the results of the EGM were
that the Shareholders voted in favour of the continuation of the
Company.
On 5 September 2013, the Company also announced that
Shareholders voted in favour of the proposed amendment to the
articles of incorporation for the Directors to propose an ordinary
resolution for the continuation of the Company, if the average of
the three month end NAV's of the Company is less than GBP50
million. The proposed amendment was effective from 10 September
2013.
On 16 September 2013, the Company announced that the Directors
of the Master Fund decided to release the remaining side pocketed
investments and to move all four remaining positions back into the
Master Fund's main portfolio effective as of the valuation point
falling on 30 August 2013.
As at 24 September 2013, the date of this Report, the Company
had 61,469,440 Sterling Shares in issue.
CORPORATE INFORMATION
Directors
Talmai Morgan - Chairman (Appointed 24 April 2012)
Robin Fuller (Appointed 14 May 2012)
Michael Poulding (Appointed 14 May 2012)
Investment Manager and Secretary of the Company
Dexion Capital (Guernsey) Limited
1 Le Truchot
St. Peter Port
Guernsey GY1 1WD
Manager of the Master Fund
Credit Suisse AG
AISE 2
Kalanderplatz 1
8070 Zurich
Switzerland
Administrator of the Company and the Master Fund
Northern Trust International Fund Administration Services
(Guernsey) Limited
P.O. Box 255
Trafalgar Court
Les Banques
St. Peter Port
Guernsey GY1 3QL
Corporate Broker
Dexion Capital plc
1 Tudor Street
London EC4Y 0AH
UK Legal Adviser to the Company
Dickson Minto W.S.
Broadgate Tower
20 Primrose Street
London EC2A 2EW
Guernsey Legal Adviser to the Company
Carey Olsen
PO Box 98
Carey House
Les Banques
St. Peter Port
Guernsey GY1 4BZ
Registrar, Paying Agent and Transfer Agent
Computershare Investor Services (Guernsey) Limited
3rd Floor
NatWest House
Le Truchot
St. Peter Port
Guernsey GY1 1WD
Receiving Agent
Computershare Investor Services PLC
Corporate Actions Projects
Bristol BS99 6AH
Auditors of the Company and the Master Fund
KPMG Channel Islands Limited
PO Box 20
20 New Street
St. Peter Port
Guernsey GY1 4AN
DISCLOSURE OF DIRECTORSHIPS IN PUBLIC COMPANIES LISTED ON
RECOGNISED EXCHANGES (PRINCIPLE 5 OF THE AIC CODE)
Company Name Exchange
Talmai Morgan
BH Global Limited London, Bermuda and Dubai
BH Macro Limited London, Bermuda and Dubai
DCG IRIS Limited London
Global Fixed Income Realisation Limited London and Irish
John Laing Infrastructure Fund Limited London
NB Distressed Debt Investment Fund Limited London
NB Private Equity Partners Limited London, Channel Islands and
Euronext Amsterdam
Real Estate Credit Investments Limited London
Sherborne Investors (Guernsey) A Limited London AIM
Sherborne Investors (Guernsey) B Limited London
Robin Fuller
Blackpoint PCC Limited Luxembourg
DCG IRIS Limited London
ELDeRS Investment Company Limited Channel Islands
Jubilee Absolute Return Master Fund Limited Luxembourg
Jubilee Absolute Return Fund PCC Limited Luxembourg
Nemrod Diversified Holdings Limited Luxembourg
Michael Poulding
DCG IRIS Limited London
This information is provided by RNS
The company news service from the London Stock Exchange
END
ACSLLFVDATISFIV
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