ORIGO PARTNERS PLC
REPORT AND FINANCIAL STATEMENTS
YEAR ENDED 31 DECEMBER 2018
CONTENTS
Page
I.
DIRECTORS’ REPORT
Chairman’s letter 4
Directors’ report 4
II.
INDEPENDENT AUDITOR’S REPORT 14
III. AUDITED FINANCIAL STATEMENTS
Consolidated statement of comprehensive income 16
Consolidated statement of financial position 22
Consolidated statement of changes in equity 23
Consolidated statement of cash flows 25
Notes to the financial statements 26
2
Chairman’s Letter
Dear Shareholders,
Origo’s net asset value as at year end 2018 was about $6.3 million1 or about $0.018 per share as
compared to about $14.2 million or about $0.039 per share as at year end 2017. The primary reasons
for this decline in net asset value were: (i) write offs of the Company’s investments in Celadon, Gobi
Coal, Staur Aqua, Fram, Six Waves, and Unipower; (ii) realized losses from the Company’s sale of its
investments in Kincora Copper and Niutech; and, (iii) the costs of administering the Company,
including ongoing running costs and extraordinary costs such as termination payments and legal fees.
Write offs comprised about $6.7 million and realised losses about $300,000 of the $7.9 million loss. The
Company’s projected recurring running costs are about $700,000 with the remainder representing
legal fees in several jurisdictions, termination payments, and other one-off expenses.
To give the year end 2018 $6.3 million NAV number context, the Company’s purported NAV reached
its apogee in late 2011 upon the completion of the $60 million preference share capital raise and the
$32.5 million ordinary share capital raise. The Company appears to have raised in total about $276
million as of the end of 2011 and at that point gave its investments a “fair value” of about $250 million.
At year-end 2014, when the former board entered into an “Asset Realisation Support Agreement”
with the former advisor, the Company purported to have a net asset value of about $118 million (with
the preference shares treated as equity – as they are now). As of the last set of accounts the former
board of directors signed, the Company showed a net asset value of about $82 million. In the first set
of accounts issued under the aegis of the current Board a year ago, the Company’s net asset value
was written down to about $14.2 million and now the net asset value has been reduced to about
$6.5 million. I will return to the subject of “where did the money go?” later in this letter under the rubric
of “Origo’s Catastrophic Destruction of Shareholder Value.”
More Recent Developments
Since Origo issued its last set of audited accounts, the board has terminated its contract with the
investment advisor, Origo Advisors Ltd.(“OAL”), for cause, sold Kincora Copper and Niutech for cash,
fenced with the Company’s former directors in an effort to recover the Company’s records, and
retained lawyers in several jurisdictions to analyse legal issues in connection with the dissipation of
shareholder value referred to above.
The Termination of Origo Advisors Limited
The Board terminated its “advisor,” OAL, for cause this past March. OAL is a company incorporated
in the British Virgin Islands (“BVI”) that is, or was at various times, apparently owned by Christopher A.
Rynning and K. Niklas Ponnert, two of the original promoters of Origo Partners Plc and its predecessor
companies, and perhaps others over the years. I say apparently because OAL is a BVI company, and
BVI is a secrecy jurisdiction so ultimate ownership is opaque. In addition, Rynning has claimed in
connection with recent Norwegian media reporting relating to the Origo situation (Rynning is, or was,
a Norwegian national) that contrary to what is represented in say footnote 27 to the 2016 accounts
he did not have an ownership interest in OAL during at least part of the time period in question.
It is probably close to impossible to get to the bottom of the ultimate ownership of OAL because
Rynning and Ponnert appear to have owned their interests in OAL through other offshore vehicles, in
the case of Rynning through something called “Amalie International Holdings Limited” a BVI
company, and in the case of Ponnert through something called “Paracelcus Holdings Ltd. (501070),”
which appears to be a Hong Kong company.
Leaving aside the issue of who had what interest in OAL when, it appears though, based on the work
of our administrator’s accountants, that the Company paid out in total over $20 million in cash or
shares to OAL for advisory and management services, director fees and the purchase of Ascend
1 Because the functional currency of Origo is the United States dollar all currency references in this report are to USD.
3
Chairman’s Letter (continued)
Ventures, a company that held some investments that Rynning seems to have made prior to the
formation of Origo. In excess of $20 million or anything close to it is obviously a lot of money given
that Origo shareholders will see a destruction of at least 95% of their investment. Another way to look
at this number is that it represents approximately 7.2% of the $276 million in capital the Company
raised. Again, that is a lot of money in the context of the Company’s dismal results.
When the current Board took office in late 2017, OAL was acting under a 2014 contract to provide
advisory services to the Company in connection with its portfolio (the “2014 Advisory Agreement”).
The beneficiaries of the 2014 Advisory Agreement seem certainly to have been Ponnert with the
interest of Rynning, as noted above, subject to question. Ponnert also sat on the Origo Board while
Rynning had resigned his Origo board position at the end of 2014 – though Rynning continued to use
an Origo business card to bill Origo for several years of “expenses” from 2015 into 2018: (i) that do not
appear to have been incurred on behalf of Origo; (ii) which Ponnert seems to have permitted; and,
(iii) which Rynning has never reimbursed, notwithstanding that this matter has been brought to his
attention. The amount of money at issue is not exceedingly large, about $37,000 in total, but one has
to wonder about a lot of things including the company’s internal controls when this is permitted (or
neglected) over a period of about four years.
The 2014 Advisory Agreement was entered into concurrent with the shareholder vote in November
2014 for a “realisation strategy” for the disposal of the Company’s assets. The professed purpose of
the 2014 Advisory Agreement was to provide “asset realisation support services” so the Company
could “realise its portfolio of assets and distribute net realisation proceeds to its shareholders.” The
2014 Advisory Agreement had a four-year term and provided for total fixed fees of $6.5 million over
that period plus incentive fees that kicked in once $90 million had been raised from investment
disposals.
The 2014 contract was obviously defective for reasons I outlined a year ago in my 2017 Chairman’s
letter. If the portfolio really were worth $91 million or more the $6.5 million fixed fee would seem quite
generous (7.2% of assets) but it is obvious now that the portfolio has not for a long time been worth
anything close to $91 million. And in my opinion even in 2014 it should have been obvious that the
assets were not worth anywhere close to that amount especially given that at year end 2014,
the market valued the company at about $34 million. This fact should have set off an alarm bell to
the Board that the assets were likely substantially overvalued.
Another feature of management compensation is also noteworthy – the Company did not generate
sufficient cash to pay the advisory fee so OAL advanced credit to the Company for unpaid fees at
an 8% interest rate, and thus OAL received about $360,000 in addition to the contractual amount.
The 2014 Advisory Agreement’s incentives were, therefore, doubly perverse – first a way out of the
money hurdle (and therefore no incentive to realise anything) and second a large interest rate on
unpaid fees (and therefore an incentive to not even realise sufficient cash to pay the management
fee). In a more sensible world, you would think a manager charged with selling assets would be
punished not rewarded for failing to sell sufficient assets to meet his fees under a “realisation contract.”
Just why the former Board approved this contract and the former Nominated Adviser issued a “Fair
and Reasonable” opinion in respect of it is anyone’s guess.
The current Board renegotiated the 2014 Advisory Agreement in early 2018 and eliminated the fixed
fee in favour of compensation based on the return of cash to shareholders. The advisor ended up
receiving nothing under the 2018 contract, first, because the advisor was terminated for cause and,
second, because no cash has yet been returned to shareholders – each factor an independent
ground for not paying the advisor anything.
4
Portfolio Developments During 2018
As at year end 2017, Origo’s portfolio of investments with a substantial cost basis were composed of
the following assets with the following fair values from the year end accounts for that year and the
next:
Asset
Domicile
Purchased Cost ($m)
2017 Fair
Value ($m)
2018 Fair Value ($m)
(* sale proceeds
up to 31/12/2018)
Celadon Mining Ltd.
China Rice Ltd.
BVI
BVI
2011
2010
13.1
28.0
4.47
nil
Fram Exploration AS
Norway
2010
1.223
0.133
Gobi Coal & Energy Ltd.
BVI
2009
14.96
1.013
Kincora Copper
Vancouver
2010
8.571
1.607
1.129
nil
nil
0.275
*1.519
nil
Moly World Ltd.
Niutech Ltd.
BVI
BVI
2011
2010
10
nil
4.819
8.555
*5.697
Staur Aqua AS
Norway
2007
4.567
0.734
Unipower Battery Ltd.
Cayman
2010
13.5
nil
nil
nil
Celadon Mining
Origo’s 2016 Annual Report valued Celadon at over $20 million and described it thus:
Celadon is a China focused coking coal mining and development company. Through its
Chinese subsidiaries Celadon owns three coal mines and a substantial exploration area
in . . . Heilongjiang Province . . . [and] Chang Tan West which has total reserves and
resources of approximately 1.05 billion tonnes in Inner Mongolia Province, northwest
China.
Origo paid about $13.1 million for an 8.9% stake in Celadon, a privately held company domiciled in
BVI. Celadon owns some sort of rights to mine thermal coal in northern China. Celadon has never
released cash to its shareholders and has not produced an audited balance sheet in at least the
time this Board has been in place.
Origo bought its interest in Celadon from another portfolio investor and has no contractual rights to
influence the company or protect its investment. This Board meets and communicates with the
controlling shareholder periodically. Origo also receives quarterly reports from Celadon’s controlling
shareholder. These reports seem to indicate that the company is endeavouring to sell itself for a
substantial premium to Origo’s carrying value.
In November 2017, when the Celadon asset was being carried at $9.8 million, OAL presented this
Board with the following “exit strategy and monetization plan” for the Celadon asset:
In 2015, OAL together with [Celadon’s] management, agreed to a) formalize the
realization strategy, i.e., a sale of the company’s assets and distribution of proceeds to
5
Chairman’s Letter (continued)
shareholders; and b) implemented a strategic sale process. . . . Celadon’s management
anticipates that indicative terms may be concluded over the next coming months, which
would likely represent the best available estimate of the fair value of the position
for FY2017. Subject to the absence of any external shocks, we see limited down/upside
(+/- 20%) for today’s mark [i.e., $9.8 million].”
This statement like a lot of what OAL represented seems unduly optimistic2. If the agreement referred
to was in writing, we have never seen it, and the controlling shareholder does not seem in the habit
of soliciting shareholder advice on how to run Celadon. Celadon’s controlling shareholder now says
he has entered into an agreement to sell Celadon’s asset to an unidentified buyer contingent on
that unidentified buyer obtaining financing. This arrangement appears to have been the status quo
for some time and besides what the controlling shareholder states in the quarterly reports Origo has
no real insight, and limited confidence, in completion.
There appear to be permitting issues, possible third-party legal claims in the event a sale is completed,
issues regarding whether the unidentified buyer will obtain the requisite financing to complete any
transaction, and issues regarding whether and when cash would be released from the BVI holding
company in the event of an asset sale. Given these uncertainties, Origo has decided to write this
investment down further to $1.129 million.
China Rice
As at year end 2016, Origo valued its China Rice investment at $31.4 million and the Annual Report
described it thus:
China Rice and its subsidiaries form one of China’s leading privately held rice processing
and distribution groups with an annual production capacity of approximately 300,000
tons. The Company maintains a strong resource and procurement base in the north
eastern province of Jilin, one of China’s largest rice producing belts.
In November 2017, OAL represented the following to the new Origo Board:
OAL and the company’s controlling shareholder agreed to explore the prospect for a
trade sale. The parties then worked in tandem to implement a strategic sale process,
which focused on selected domestic players with an interest in the sector. The process
resulted in an [sic.] LOI [letter of intent] being entered into with a large stated [sic.] owned
enterprise (SEO) in 2016 with two other potential buyers still being in the mix. The lead
player is a state-owned grain company HuNan Grain Group. . . . The other interested party
is XiaMen. . .. The equity and debt positions are currently carried at a small premium to
cost (total value of US$31.4 million) based on a peer-analysis Net/Book value, reflecting
the standard approach of Chinese SEO’s when valuing/acquiring local companies. The
valuation model is benchmarked against the indicative terms of a potential sale derived
from discussions with relevant parties.
Although we asked, this Board never saw clear evidence that any meaningful letter of intent had
ever been entered into between China Rice and a third-party buyer, which, according to the above,
OAL says “resulted” in 2016. And, certainly in retrospect, it seems odd that any third-party buyer would
have been interested in purchasing the assets of a company that most likely had already been
pledged to secure the personal debts of the China Rice promoter.
2 Note for example Origo’s 23 November 2016 RNS announcement, which stated: “68 per cent of the portfolio by fair value is
now either listed or subject to indicative, non-binding terms of mergers or disposal.” Given that the Company’s portfolio “by
fair value” then totalled about $105 million the unwary reader of this RNS announcement might have thought based on this
representation that about $71 million of the Company’s portfolio was liquid and saleable and might even be distributed to
shareholders. We have never seen evidence supporting this 68% figure and can only wonder why the Origo Board and
Nomad permitted this RNS to be released.
6
The facts are that in 2010, Origo had paid about $28 million for a 32% equity interest and some
convertible debt in a BVI company called “China Rice Ltd.” The BVI company owned no assets in
China but instead owned equity in a Hong Kong company called “Winrich International Industrial
Ltd.,” which in turned owned equity in “Jilin Dechun Grain,” which owned operating assets and
inventory in Jilin Province, China3.
The promoter pledged the assets of Jilin Dechun Grain to the large Chinese state-owned bank ICBC
in order to secure personal debts that had nothing to do with the rice business in which Origo had
invested. He defaulted on those debts. ICBC seized the collateral and transferred it to “Great Wall,”
a state-owned entity that apparently functions to take bad debt off of the balance sheets of state-
owned banks like ICBC.
A person affiliated with OAL, one Shen Lin, supposedly sat on the board of directors of Jilin Dechun
Grains throughout but he does not seem to have noticed that the company’s assets had been seized.
In fact, this development was first noticed by a third-party professional in connection with the year
end 2017 audit in May 2018. Our Beijing lawyers further confirmed that the PRC maintains a public
data base of this sort of information, which is available online to anyone who can both read Mandarin
and cares to take a look. Another reason the promoter’s fraud might not have been discovered is
that Jilin Dechun Grains had never been audited by a recognised auditing firm, and the only financial
statement we ever saw was a single sheet of paper prepared by someone without a recognisable
name. When we questioned OAL about why the company had not been properly audited (this was
before the fraud was discovered) we were told that this is the way business is done in China.
We met with the promoter about a year ago and listened to his far-fetched scheme to recover China
Rice’s assets (predicated on his earnest hope that someone would finance this scheme). He promised
that our interests would be protected since, as he put it, we are all one family. Unfortunately, the
promoter had no money and, family or not, we were unwilling to finance him a second time. You
have to give the promoter credit though – he had recently been incarcerated for something
apparently separate from our issues and therefore his movement inside China was limited; because
of the criminal issue he was barred from using public transport, such as an airplane or train, so he had
to drive many hours from Jilin Province to the Beijing meeting.
Regardless, we were not interested in providing further financing and given the facts it is hard to
imagine someone else would finance this sort of situation. But, in any event, our interests in the
company had been wiped out: we were not even a creditor to Jilin Dechun Grains because the
counterparty to our debt was the BVI company, China Rice Ltd. We retained lawyers in the PRC and
elsewhere and one of our large shareholders active in China generously provided the services of a
Chinese asset recovery specialist gratis.
The unanimous view of two sets of lawyers and the asset recovery specialist was that the situation
was hopeless because of the way the investment had been structured – i.e., Origo owned nothing in
the PRC and therefore had no standing in any legal proceeding in the PRC to assert any claims
against anyone in connection with the China Rice debacle. Origo did not even have a claim for
fraud against the promoter because Origo had no legal relationship with the promoter. The Origo
Board has therefore maintained its nil valuation of this asset.
3 Remarkably, OAL (and a fortiori the former board) did not seem to have understood how this transaction had in fact been
structured. In the November 2017 report to this Board OAL erroneously stated that “[t]he BVI company, in turns [sic.] owns a
100% interest in China Rice Industry Co., Ltd (WOFE), i.e., the operating company, based in Jilin province of North-East China.”
This assertion is wrong and critical – there is an intermediary company between the BVI company in which Origo owns shares
and the operating company, Dechun Grains, Winrich International Industrial Ltd., a Hong Kong company. Because of the
existence of this intermediary company China Rice, the BVI company, owns nothing in China and therefore has no standing
to assert any claims in connection with the promoter’s pledge of all of the Dechun Grains’ assets to secure his personal debts.
We are unaware of any operating company in Jilin Province called China Rice Industry Co., Ltd. in which the BVI company
“owns a 100% interest.”
7
Chairman’s Letter (continued)
Fram Exploration
Origo paid about $1.2 million for equity in Fram Exploration, a Norwegian company that purportedly
owned extraction interests in connection with oil and gas assets in the western US states of Colorado
and North Dakota. Fram seems at some point to have been affiliated with the Staur group of
companies based in Trondheim, Norway. As an aside, Rynning seems to have had a small financial
interest in Fram, and after he left Origo, went to work for one of the entities in the Staur Group and
while working for Staur and until our administrator caught this in 2018 used the Origo business card to
fill up on petrol in Trondheim, pay travel expenses, pay for meals and so on.
The Staur Holdings website currently describes Fram as follows:
Using sophisticated analytical and modelling tools to locate commercial oil and gas
reserves others have overlooked, the Company has focused, from a geoscience
perspective, on assets that are undervalued or under-evaluated in regions with stable
political regimes and at attractive fiscal terms. With registered offices in Trondheim and
executive offices Colorado, Fram is an international oil and gas exploration and
production company with assets onshore in Colorado and North Dakota, and is actively
reviewing additional opportunities in other locations.
This certainly sounds promising, “using sophisticated analytical and modelling tools to locate oil and
gas reserves that others have overlooked,” but unfortunately the reality seems to be that Fram is
defunct. None of Origo’s available internal records provides much information about this company,
and in recent years the company does not seem to have published anything. Origo’s 2016 annual
report does not refer to Fram in the “portfolio overview” section though footnote 14 of that report
notes that Origo had paid $1.223 million for this investment and that at year end it had a “fair value”
of $145,000. Fram’s website no longer seems to exist. There was news on the internet about Fram about
a year ago that indicated that it was about to be stricken from the Norwegian companies register
for failure to publish financial statements. Earlier this year, I spoke to the controlling shareholder in the
Staur group of companies, and he said that Fram was defunct and that our shares were worthless.
We have subsequently written the value of the asset down to nil.
Gobi Coal and Energy Ltd.
As at year end 2016, Origo’s annual report described Gobi Coal thus:
Gobi is a privately held coking coal development company with significant high-quality
coal resources in south western Mongolia, positioned to supply growing demand from
China.
In 2009, the Company paid about $15 million for a 10.8%4 interest in Gobi Coal, a BVI registered
company that through wholly-owned Mongolian subsidiaries purports to own mining rights in Mongolia
to mine coal and other minerals. Origo had a board seat on the Gobi Coal board of directors some
years ago, which it lost in unclear circumstances. The company was apparently the victim of a fraud
and the original promoter is in prison, though, perhaps not surprisingly, he maintains his innocence.
The current company management has vigorously claimed that a former OAL principal bears some
responsibility for the fraud, though the OAL principal in question has denied this allegation.
4 The precise percentage ownership of Origo’s interest in Gobi Coal is unclear and has been represented differently at different
times perhaps because it is unclear how many shares Gobi has in issue.
8
In a report prepared for this Board in November 2017, OAL projected the following exit scenario:
Provided that the Company is able to settle the dispute with its domestic shareholder,
recent developments on the asset level in 2H 2017 suggests a potential exit valuation at
a multiple to its current carrying values (i.e., $2.7 million).
After all, Gobi owns the largest, most developed privately held coal asset in the country,
which ranks well in terms of resource size, grade (semi-soft, hard coking coal) and
production potential (up to 10 MT/per annum). Moreover, unlike its peers, the company
has no debt. A benchmarking exercise against its listed Mongolian peer (coal only),
prepared by management in early 2017, indicates a valuation range (EV/resource) of
US$1.7-2.1 MT, suggesting a fair value of Gobi of US$400-500 million.
So, on the one hand, according to OAL nineteen months ago, Gobi had a “fair value” of
$400-500 million (meaning Origo’s stake would be worth about $48 million) but on the other hand,
Gobi Coal has not published audited financial statements in many years and releases such
information as it chooses. The company publishes a newsletter with an unaudited balance sheet that
seems to show a net asset value of about $50 million (mostly mining assets and minimal cash), which
would indicate that as a proportion of NAV Origo’s stake in the company is worth around $5 million.
Gobi Coal appears to be controlled by nominees of Aabar, which a Google search tells us is an arm
of the government of Abu Dhabi. It is unclear how Aabar took control of Gobi Coal, how the current
board took its place and what the Company’s share count is. There are also issues with the
Company’s title to its assets and the practicability of extracting those assets given the demand
situation in China and other issues. A few months ago, we received an offer to purchase Origo’s stake
in Gobi Coal for about its current carrying value, which the board rejected. Origo has many
contractual legal rights in connection with this investment that have been ignored. We have retained
counsel to determine whether to enforce those rights given various practical considerations. Given
the lack of a public market for Gobi’s shares, the absence of audited financial statements, the lack
of transparency over corporate governance and other issues, some of which are identified above,
the Origo Board has decided to write this asset down to $275,000.
Moly World Ltd
At year-end 2016, Origo’s annual report described Moly World thus:
Moly World is the owner of an advanced stage molybdenum exploration project in
Mongolia known as Mandal Moly, which covers an area of 2,360 hectares . . . in northern
Mongolia. The project has a JORC near surface compliant resources of 256,000 tons at
0.126% Mo.
In 2011, Origo paid $10 million for a 20% stake in Moly World, a private BVI company with interests in
a Mongolian company that apparently has the right to mine molybdenum in Mongolia. Molybdenum
is an ingredient in steel, and when the China commodities story was at its apogee this company, or
at least the assets it appeared to own, seemed to have value. The China commodities story is now in
remission and global molybdenum prices seem to be about 25% of what they were at their peak over
a decade ago.
In addition to the global decline in molybdenum prices, the company has had some other problems.
First, the original promoter, an apparently recognised force in Mongolian geological circles, died and
was replaced by his much younger daughter. The Mongolian government then tried to seize the
company’s assets because they allegedly lay in an environmentally protected zone. After a trial and
several appeals, the company prevailed but seems in the process to have run out of cash. Certain
shareholders purport to have injected capital into the company in the form of debt, and therefore
changed the company’s capital structure seemingly to the detriment of equity holders like Origo.
9
Chairman’s Letter (continued)
Origo has contractual rights that preserve its place in the capital structure but, given the structure of
the company, the liquidity of the company’s balance sheet, the location of its assets, and global
molybdenum prices, whether it is practicable to enforce those rights is unclear. There has been no
audit of the company in many years, and the company’s financial statements seem to be prepared
locally according to local accounting standards.
In November 2017, OAL presented the Board with the following exit scenario:
OAL and the Company has [sic.] reinitiated discussions with interested parties. The
preferred approach is to emulate the Kincora strategy: i.e. first seek a market introduction
(through a reversed [sic.] merger), raise a limited amount of institutional funds
(US3-7.5 million) to further develop the assets, before positioning the company for a sale
to a strategic buyer at a more opportune time in the cycle.
OAL has identified potential investors interested in funding a RTO [a reverse takeover
transaction, another name for a reverse merger, where a private company is sold to a
listed company in return for shares in the listed company, an outcome similar to an IPO of
the private company].
This November 2017 report does not identify the “potential investors interested in funding a RTO,” and
this board does not think a listing or “institutional investors” pumping money into Moly is at all a realistic
possibility. The Board’s efforts to generate interest in either Origo’s interest in Moly or the entire
company have so far been unsuccessful. Given these facts, the Board has maintained its nil valuation
of Moly World.
Staur Aqua AS
Staur Aqua AS (a/k/a Aqualyng Holding AS) is a Norwegian company that is part of the Staur Group,
a group of affiliated family-controlled companies based in Trondheim, Norway. The Staur website,
which appears out of date, describes Aqualyng Holding AS as follows:
Aqualyng is [a, the?] global leader in the international desalination market. With a range
of successful, state of the art products and services, the company delivers fresh water-
whenever and wherever needed. In the relatively short span of time since 1998, Aqualyng
have garnered an excellent industry reputation for delivering desalination plants for
production of all qualities of water.
Origo’s 2016 Annual report described Staur Aqua as follows:
Staur is a world-class supplier of desalination technology and desalination plant design.
Origo invested about $4.5 million in this company about twelve years ago in return for ordinary shares
and a class of preference shares. According to a conversation I had with the Staur Group’s controlling
shareholder, Staur Aqua’s primary asset is a partially completed desalinization plant in China. Further,
according to the controlling shareholder, the project is about 85% complete but cannot be finished
until it is connected to the local power grid. That, he tells me, has not happened, and Staur Aqua is
mired in a dispute with Chinese governmental authorities about this issue. Further according to the
promoter, there is a class of preference shares that ranks ahead of Origo’s interests.
10
The promoter noted that given the delays in completing the project, presumably also the possibility
that the project will never be completed under its current ownership, as well as Staur Aqua’s capital
structure, Origo’s ordinary shares are certainly worthless and its preferred interest most likely worthless.
Origo offered to sell its Staur Aqua shares back to the promoter but he declined and said that he was
unaware of anyone interested in buying them. Origo’s Board has thus decided to write down its
investment in Staur Aqua to nil.
Unipower Battery Ltd.
Origo’s 2016 Annual Report valued the Unipower investment at $15.8 million and described it thus:
Unipower is a China based provider of lithium-Ion materials and battery solutions.
Producing high-quality material and battery solutions for the Electric Vehicle (“EV”) and
power storage industries, Unipower is supported by patents, facilities and a technical
management team with more than 20 years of experience.
This sounds good, patents, an experienced management team and so on, but like so many of Origo’s
investments, Unipower is hard to get your hands around. The company would appear to manufacture
a product that is in demand and according to this description also owns valuable intellectual
property. Nonetheless, the company appears worthless. The company had some legal problems that
are incomprehensible, at least to this Board, and those legal problems seems to have led to the
demise of the company.
As for OAL’s perspective, in November 2017 OAL noted that “[A] prospective partner . . . has agreed
in principle to acquire stock in the holding company [though] in Q3, the production line was
disassembled in preparation for a move to a new site. Consequently, there was no production or
sales in 2H of 2017. In the mid-term, this development may be exciting for a number of reasons” etc.
“If a deal can be completed in Q4 [of 2017] it is expected that operations will recommence before
[Chinese New Year, in February 2018] and there will be a potential for liquidity at a premium in
2019/2020.”
Like many representations concerning the Origo portfolio this was apparently, shall we say, over
optimistic. This board never saw any “agreement in principle” that showed that anyone had a
genuine interest in or ability to complete an acquisition of Unipower. We never saw any evidence
that Unipower was in fact a functioning company. It seemed to share office space with Origo in
Beijing, but we never met any Unipower employees or were shown any Unipower manufacturing
facilities. We tried to get a handle on the intellectual property the company purported to own but
were unable to. We had various local people look at the situation, but they too were also unable to
make head or tail of it. We were told that the company owned some sort of a permit that had value
as well as the “patents” noted above, but our local lawyers were unable to get to the bottom of
those issues either.
What we did eventually learn for a fact, however, is that Origo was paying one Yuan “Gerry”
Ge $10,000 a month under the aegis of something called “City Continental Limited” to “introduce
prospective buyers of the Company’s interest in Unipower. . . [and] serve as a Director on the Board
of Unipower. . . .” We met with Mr. Ge and listened to a far-fetched plan to move Unipower’s assets
to some distance province, where for reasons that are unclear, that local province would provide
some sort of financial incentives. Because Origo had paid Mr. Ge a total of $430,000 before we put
a stop to those payments, we asked to see some written evidence of the work he may have done,
for example a list of the “prospective buyers” he had introduced and whatever written reports Mr. Ge
had prepared. Unfortunately, however, we were never provided with any documentation evidencing
work he had done. We decided that continuing to pay $10,000 a month for Mr. Ge was throwing
11
Chairman’s Letter (continued)
good money after bad and terminated the contract with “City Continental Limited.” Our accountants
tell us however that Origo has a receivable from Mr. Ge in the amount of $174,000. We have written
this off as uncollectable and value Origo’s investment in Unipower at nil.
* * * *
In sum, the bulk of the Origo portfolio is worthless. Two of the Company’s assets, Gobi Coal and
Celadon, have a positive value with a wide range of possible outcomes. Moly World is carried at nil
but may have a positive outcome depending on corporate governance issues and global
molybdenum prices.
* * * *
Origo’s Catastrophic Destruction of Shareholder Value
Origo represents a catastrophic destruction of shareholder value. Of the approximately $276 million
that the Company raised, only about $6.3 million remains on the Company balance sheet mostly in
the form of cash and a few investments noted above. No real capital was ever returned to
shareholders. The Company never paid a dividend and besides peculiar share repurchases in 2012
and a few years later totalling a little more than $700,000, never returned capital through a buy back.
The remainder was dissipated in, as best as we can tell, shockingly bad investments, fees paid to OAL
and others, fees paid to former board members, fees paid to the former Nomad, fees paid to lawyers,
fees paid to previous auditors and so on.
Several of us trying to unravel the Origo story have noticed that so much of what the Company did
benefited a privileged few to the detriment of the Company’s shareholders. So, a former director’s
daughter ended up with a board seat and also a consulting contract. The father of an OAL principal
ended up in some business relationship with the Company. An early investor in the Company, a large
London based “hedge fund,” paid the Company for “research.” The Company then rebated much
of this payment to an employee of the hedge fund who also happened to be the then Executive
Chairman’s wife. Non-transparent subsidiary companies were formed where insiders and family
members seem to have had financial interests. Origo made investments in a company, and later its
former CEO went to work for an affiliate of that company. Lawyers, even by London standards, did
shockingly well. The previous Nomad, the lawyers and the former auditors were well paid for work
that had little or no benefit to shareholders. OAL was rewarded with interest accruing at 8% in order
to pay the fees that the Company was unable to pay because OAL had failed to sell assets sufficient
to pay its fees. And so on.
There are many ways to slice and dice the Origo numbers, and, unfortunately, we do not now control
all of the information necessary to forensically dissect the Company. The former board has not been
forthcoming in providing information and a lot of the Company records we have received are a
mess. Our administrator’s accountants have thus used Origo’s published accounts and by working
backward have tried to recreate the Company’s flow of funds. There are, unfortunately, still some
large gaps in our knowledge.
Nonetheless, we think it is possible to roughly show where the money went. On 1 January 2011, Origo
had cash in the bank of $33.4 million. During 2011 the Company raised $92.5 million. In 2016, the
Company also borrowed $2.5 million in order to meet its expenses since by that time it had burned
though most of its cash. So roughly where did that money go?
12
The Company seems to have made net investments of about $70 million, most of which seems to
have been subsequently written off and had expenditures of about $57 million. Of that $57 million,
about $16 million went to pay employees and, beginning in 2015, OAL after the Company in 2014
adopted a fund rather than operating company structure. About $11.5 million went to pay
“professionals,” presumably primarily lawyers. About $4.6 million went to pay directors. About
$3.6 million was paid in fees in connection with the 2011 capital raise. The auditors received about
$1.6 million. The remaining $19 million is hard to put your finger on because it is buried within
accounting categories that are not self-explanatory.
The Origo story is a dismal one with lots of blame to go around beginning with the Board, who are
ultimately responsible for what happens inside a public company, the manager/advisor for obvious
reasons, the previous Nomad and the previous auditors. In light of the facts set forth above, we will
solicit the views of our shareholders on how they wish to proceed and provide further details in due
course.
Very truly yours,
John D. Chapman
Chairman
Origo Partners Plc
Date: 27 June 2019
13
Directors’ Report
The Directors present their report together with the audited financial statements for the year ended
31 December 2018.
Results and dividends
The result of the Group for the year is set out on page 22 and shows a loss for the year of US$8,036,000
(2017: US$82,984,000). The performance, and the share capital structure of the Group, neither justifies
nor allows the payment of a dividend at the current time. The Directors are therefore not able to
recommend the payment of a dividend for 2018 (2017: US$nil). The retained loss of the year of
US$8,036,000 (2017: US$82,984,000) has been transferred to reserves.
Principal activities, review of business and future developments
On 20 November 2014, the Company’s Investing Policy changed from that of a closed-ended,
permanent capital vehicle to that of a realisation company with the mandate to return the net
proceeds of realisations to shareholders over a 4 year period. However, investments will only be
realised when the Independent Directors believe the terms are appropriate. A detailed review of the
business of the Company is covered in the Chairman’s Report.
Directors
At 31 December 2018
Mr John Chapman (appointed October 2017)
Mr Peter Philip Scales (appointed October 2017)
Mr Hiroshi Funaki (appointed September 2017)
Mr. Niklas Ponnert (resigned April 2018)
Ms. Shonaid Jemmett-Page (resigned October 2017)
Mr. Lionel de Saint-Exupery (resigned October 2017)
Options
Ordinary
shares
4,500,000
2,691,009*
560,000
560,000
* 400,000 Shares are held in Niklas Ponnert’s name, 691,385 Shares are held through Paracelsus Holdings Ltd, and
1,599,624 Shares are held jointly with the EBT pursuant to the Company’s Joint Share Ownership Plan.
Directors’ responsibilities in respect of the financial statements
The Directors are responsible for the preparation of the financial statements. The Directors have
elected to prepare the financial statements in accordance with applicable law and International
Financial Reporting Standards as adopted by the European Union. In preparing these financial
statements, the Directors are required to:
•
select suitable accounting policies and then apply them on a consistent basis;
• make judgments and estimates that are reasonable and prudent;
•
•
state whether International Financial Reporting 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 reliable accounting records which correctly explain the
transactions of the Company, and which enable the financial position of the Company to be
determined with reasonable accuracy. They are also responsible for safeguarding the assets of the
14
Company and hence for taking reasonable steps for the prevention and detection of fraud and other
irregularities.
Corporate Governance Statement
The Board of Origo Partners Plc has adopted the Quoted Companies Alliance 2018 Corporate
Governance Code (the “QCA Code”). The Company is committed to the highest standards of
corporate governance, ethical practices and regulatory compliance. In particular, the Board is
committed to ensuring that the Company is governed in a manner to allow efficient and effective
decision making, with robust risk management procedures.
The Company is reliant upon its service providers for many of its operations and as such will maintain
an ongoing and rigorous review of these providers. The Company’s compliance with the QCA Code
is reported on the Company’s website (www.origoplc.com), and on pages 57 to 61 of this report. The
Company will provide annual updates on changes to compliance with the QCA Code.
Going concern
The Board has concluded that the Company and the Group is considered to be a going concern
and as a result of this the consolidated financial statements for the year ended 31 December 2018
have been prepared on a going concern basis. Notably, previous disputes with Brooks Macdonald
Asset Management (International) Limited have been settled and the share capital of the Company
has been reorganised so that the redemption of the Redeemable Preference Shares (previously
Convertible Preference Shares) will be settled with the proceeds of realisations as and when they
occur.
Auditor and disclosure of information to auditor
As far as each Director is aware, there is no relevant audit information of which the Company’s auditor
is unaware.
Financial statements are published on the Group’s website in accordance with legislation in the Isle
of Man governing the preparation and dissemination of financial statements, which may vary from
legislation in other jurisdictions. The maintenance and integrity of the Group’s website is the
responsibility of the Directors. The Directors’ responsibility also extends to the ongoing integrity of the
financial statements contained therein.
Each of the Directors has taken all the steps they ought to have taken individually as a Director in
order to make themselves aware of any relevant audit information and to establish that the
Company’s auditors are aware of that information.
Auditor
Following a tender process, BDO Limited resigned as auditors and the Board appointed Lubbock Fine,
who, being eligible, have expressed their willingness to continue in office in accordance with the Isle
of Man Companies Act 2006.
By Order of the Board
Director:
Date: 27 June 2019
15
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF ORIGO PARTNERS PLC
(incorporated in the Isle of Man with limited liability)
QUALIFIED OPINION
We have audited the consolidated financial statements of Origo Partners Plc (the ‘Company’) and
its subsidiaries (the ‘Group’) for the year ended 31 December 2018, which comprise the Consolidated
Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the
Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash Flows, and the
related notes, including a summary of significant accounting policies. The financial reporting
framework that has been applied in their preparation is applicable law and International Financial
Reporting Standards as adopted by the European Union.
In our opinion, except for the possible effects of the matter described in the Basis for Qualified Opinion
section of our report, the accompanying consolidated financial statements present fairly, in all
material respects, the financial position of the Group as at 31 December 2018 and of its consolidated
financial performance and its consolidated cash flows for the year then ended in accordance with
International Financial Reporting Standards as adopted by the European Union.
BASIS FOR QUALIFIED OPINION
During the year, the Group’s Statement of Changes of Comprehensive Income includes the following:
Realised (losses)/gains on disposal of investments
Unrealised losses on investments
Bad debt provision
Income tax credit
2018
(US$ ‘000)
(292)
(5,843)
(1,222)
499
2017
(US$ ‘000)
423
(74,440)
(3,386)
819
We were unable to obtain sufficient appropriate audit evidence as to whether any of these profits or
losses should have been recognised in periods prior to the year ended 31 December 2018 or
31 December 2017. Consequently, we were unable to determine whether any adjustments were
required to the losses made in the year ended 31 December 2018 or 31 December 2017 or the
respective Consolidated Statement of Financial Position amounts as 31 December 2017:
Investments at fair value through profit or loss
Loans
Trade and other receivables
Current tax liabilities
Accumulated loss
31 December
2017
(US$ ‘000)
17,045
734
881
(499)
(191,613)
We conducted our audit in accordance with International Standards on Auditing (ISAs). Our
responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit
of the Consolidated Financial Statements section of our report. We are independent of the Group in
accordance with the ethical requirements that are relevant to our audit of the consolidated financial
statements in the United Kingdom, and we have fulfilled our other ethical responsibilities in
accordance with these requirements. We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our qualified opinion.
16
CONCLUSIONS RELATING TO GOING CONCERN
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require
us to report to you where:
•
•
the directors’ use of the going concern basis of accounting in the preparation of the
consolidated financial statements is not appropriate; or
the directors have not disclosed in the consolidated financial statements any identified material
uncertainties that may cast significant doubt about the Group’s ability to continue to adopt the
going concern basis of accounting for a period of at least twelve months from the date when
the consolidated financial statements are authorised for issue.
KEY AUDIT MATTERS
Key audit matters are those matters that, in our professional judgement, were of most significance in
our audit of the consolidated financial statements of the current period and include the most
significant assessed risks of material misstatement (whether or not due to fraud) we identified,
including those which had the greatest effect on: the overall audit strategy, the allocation of
resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the consolidated financial statements as
a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these
matters.
Key audit matter
How our audit addressed the key audit matter
Valuation of investments (Note 12)
The Group holds unquoted investments with a
fair value at 31 December 2018 of $3,527k.
Obtaining an understanding of the processes
and controls around investment valuation
These are held at fair value and are revalued
Unquoted
by management.
annually
investments have no readily available market
price and so are valued in accordance with
International Private Equity and Venture Capital
Valuation Guidelines by using measurement of
value such as multiples, discounted cash flow
and industry valuation benchmarks.
Due to the significance of these balances to the
financial statements this represents a key audit
matter
Evaluating the appropriateness of the valuation
approach and methodology applied by
management.
Challenging key assumptions and inputs into
the valuation models used
17
INDEPENDENT AUDITOR’S REPORT (continued)
Key audit matter
How our audit addressed the key audit matter
Opening balances and comparatives
The prior year financial statements were not
audited by ourselves.
This represents a key audit matter due to
difficulties in being able to obtain sufficient
audit evidence in respect of these opening
balances and comparatives. In particular,
whether further provisions were necessary
against investments at fair value through profit
or loss of $17,045k, loans due within one year of
$384k, trade and other receivables of $881k
and current tax liabilities of $499k, given the
provisions made in the current year.
Going concern
Given the recurring losses made by the Group,
the going concern assumption represents a key
audit matter.
Reviewing key working papers relating to the
prior year’s balances.
Ultimately we were unable to obtain sufficient
audit evidence in this area and our audit report
was modified accordingly.
Evaluating management’s assessment around
the going concern assumption evaluating and
challenging
these
assumptions made.
reasonableness of
the
OUR APPLICATION OF MATERIALITY
The scope and focus of our audit was influenced by our assessment and application of materiality.
We apply the concept of materiality both in planning and performing our audit, and in evaluating
the effect of misstatements on our audit and on the consolidated financial statements.
We define financial statements materiality as the magnitude by which misstatements, including
omissions, could influence the economic decisions taken on the basis of the consolidated financial
statements by reasonable users.
We also determine a level of performance materiality, which we use to determine the extent of testing
needed to reduce to an appropriately low level the probability that the aggregate of uncorrected
and undetected misstatements exceeds materiality for the consolidated financial statements as a
whole.
• Overall materiality – We determine materiality for the consolidated financial statements as a
whole to be $136,000. This was based on the key performance indicator, being 2% of gross assets.
We believe gross asset values are the most appropriate bench mark due to the minimal income
statement activity during the year and existence of key balance sheet items.
•
Performance materiality – On the basis of our risk assessment, together with our assessment of
the company’s control environment, our judgement is that performance materiality for the
consolidated financial statements should be 55% of materiality, amounting to $£75,000.
AN OVERVIEW OF THE SCOPE OF OUR AUDIT
As part of designing our audit, we determined materiality and assessed the risks of material
misstatement in the consolidated financial statements. In particular, we looked at where the directors
made subjective judgements, for example in respect of significant accounting estimates that involved
making assumptions and considering future events that are inherently uncertain.
18
We tailored the scope of our audit to ensure that we performed sufficient work to be able to give an
opinion on the financial statements as a whole, taking into account an understanding of the structure
of the Group, its activities, the accounting processes and controls, and the industry in which they
operate. Our planned audit testing was directed accordingly and was focused on areas where we
assessed there to be the highest risk of material misstatement. During the audit, we reassessed and
re-valuated audit risks and tailored our approach accordingly.
The audit testing included substantive testing on significant transactions, balances and disclosures,
the extent of which was based on various factors such as our overall assessment of the control
environment, the effectiveness of controls and management of specific risk.
We communicated with those charged with governance regarding, among other matters, the
planned scope and timing of the audit and significant findings, including any significant deficiencies
in internal control that we identify during the audit.
OTHER INFORMATION
The directors are responsible for the other information. The other information comprises the information
included in the Annual Report, other than the consolidated financial statements and our Auditors’
Report thereon. Our opinion on the consolidated financial statements does not cover the other
information and, except to the extent otherwise explicitly stated in our report, we do not express any
form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the
other information and, in doing so, consider whether the other information is materially inconsistent
with the consolidated financial statements or our knowledge obtained in the audit or otherwise
appears to be materially misstated. If we identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a material misstatement in the
consolidated financial statements or a material misstatement of the other information. If, based on
the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact.
We have nothing to report in this regard.
MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION
We have nothing to report in respect of the following matters in relation to which the Companies Act
2006 requires us to report to you if, in our opinion:
•
•
•
adequate accounting records have not been kept by the Company, or returns adequate for
our audit have not been received from branches not visited by us; or
the financial statements are not in agreement with the accounting records and returns; or
certain disclosures of Directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
RESPONSIBILITIES OF DIRECTORS
The directors are responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with International Financial Reporting Standards as adopted by the
European Union, and for such internal control as the directors determine is necessary to enable the
preparation of consolidated financial statements that are free from material misstatement, whether
due to fraud or error.
19
INDEPENDENT AUDITOR’S REPORT (continued)
In preparing the consolidated financial statements, the directors are responsible for assessing the
Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the directors either intend to
liquidate the Group or to cease operations, or have no realistic alternative but to do so.
The directors are also responsible for overseeing the Group’s financial reporting process. The audit
committee of the Company (the “Audit Committee”) assists the directors in discharging their
responsibility in this regard.
AUDITORS’ RESPONSIBILITIES FOR THE AUDIT OF THE GROUP FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance about whether the consolidated financial
statements as a whole are free from material misstatement, whether due to fraud or error, and to
issue an Auditors’ Report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with ISAs, we exercise professional judgment and maintain
professional scepticism throughout the audit. We also:
•
Identify and assess the risks of material misstatement of the financial statements, whether due to
fraud or error, design and perform audit procedures responsive to those risks, and obtain audit
evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not
detecting a material misstatement resulting from fraud is higher than for one resulting from error,
as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override
of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion of the effectiveness of the Group’s internal control.
•
•
•
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by the director.
Conclude on the appropriateness of the director’s use of the going concern basis of accounting
and, based on the audit evidence obtained, whether a material uncertainty exists related to
events or conditions that may cast significant doubt on the Group’s ability to continue as a going
concern. If we conclude that a material uncertainty exists, we are required to draw attention in
our Auditors’ Report to the related disclosures in the financial statements or, if such disclosures
are inadequate, to modify our opinion. Our conclusions are based on the audit evidence
obtained up to the date of our Auditors’ Report. However future events or conditions may cause
the Group to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial statements, including
the disclosures, and whether the financial statements represent the underlying transactions and
events in a manner that achieves fair presentation.
We communicate with those charged with governance regarding, among other matters, the
planned scope and timing of the audit and significant audit findings, including any significant
deficiencies in internal control that we identify during our audit.
20
USE OF OUR REPORT
This report is made solely to the Company’s members, as a body, in accordance with our
engagement letter dated 2 October 2018. Our audit work has been undertaken so that we might
state to the Company’s members those matters we are required to state to them in an Auditors’
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.
Lubbock Fine
Chartered Accountants & Statutory Auditors
3rd Floor Paternoster House
65 St Paul’s Churchyard
London
EC4M 8AB
Date: 27 June 2019
21
Consolidated statement of comprehensive income
For the year ended 31 December 2018
2018 2017
Notes US$’000 US$’000
Investment loss: 2
Realised gains/(losses) on disposal of investments (292) 423
Unrealised losses on investments (5,843) (74,440)
Income from loans – –
(6,135) (74,017)
Consulting services payable 3 – (1,390)
Other income 139 29
Other administrative expenses 4 (1,644) (1,470)
Bad debt provision 5 (1,222) (3,386)
Share-based payments 25 – (21)
Foreign exchange (loss)/gains (11) 50
Net loss before finance costs and taxation (8,873) (80,205)
Finance costs 7 338 (3,598)
Loss before tax (8,535) (83,803)
Income tax credit 8 499 819
Loss after tax (8,036) (82,984)
Other comprehensive income
Other comprehensive income to be reclassified to profit or
loss in subsequent periods:
Exchange differences on translating foreign operations 146 6
Net other comprehensive income to be reclassified to profit or
loss in subsequent periods 146 6
Tax on other comprehensive income – –
Other comprehensive income net of tax 146 6
Total comprehensive loss after tax (7,890) (82,978)
Loss after tax
Attributable to:
– Owners of the parent (8,036) (82,984)
– Non-controlling interests – –
(8,036) (82,984)
Total comprehensive loss
Attributable to:
– Owners of the parent (7,890) (82,978)
– Non-controlling interests – –
(7,890) (82,978)
Basic loss per ordinary share 9 (0.45) cents (11.70) cents
Diluted loss per ordinary share 9 (0.45) cents (11.70) cents
Basic loss per redeemable zero dividend preference share 9 (42.10) cents (279.57) cents
Diluted loss per redeemable zero dividend preference share 9 (42.10) cents (279.57) cents
The accompanying notes form an integral part of these consolidated financial statements.
22
Consolidated statement of financial position
At 31 December 2018
2018 2017
Assets Notes US$’000 US$’000
Non-current assets
Property, plant and equipment 10 5 20
Investments at fair value through profit or loss 12 – –
Loans 13 – 350
5 370
Current assets
Investments at fair value through profit or loss 12 3,527 17,045
Loans due within one year 13 – 384
Trade and other receivables 14 27 881
Cash and cash equivalents 15 3,883 1,199
7,437 19,509
Total assets 7,442 19,879
Current liabilities
Short-term borrowing 18 – 2,500
Trade and other payables 16 382 1,381
Financial guarantee contracts 17 435 435
Current tax liabilities – 499
817 4,815
Non-current liabilities
Provision 19 103 103
Deferred income tax liability 8 247 796
350 899
Total liabilities 1,167 5,714
Net assets 6,275 14,165
Equity attributable to owners of the parent
Issued capital 21 56 56
Share premium 150,414 150,414
Share-based payment reserve 5,048 5,048
Accumulated losses (199,649) (191,613)
Translation reserve (1,338) (1,484)
Other reserve 22 51,744 51,744
6,275 14,165
Non-controlling interests – –
Total equity 6,275 14,165
Total equity and liabilities 7,442 19,879
The consolidated financial statements were approved by the Board of Directors and authorised for
issue. They were signed on its behalf by:
Philip Peter Scales
Director
27 June 2019
The accompanying notes form an integral part of these consolidated financial statements.
23
Consolidated statement of changes in equity
For the year ended 31 December 2018
Attributable to equity holders of the parent
––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––
Share-
Accu-
based
Share payment mulated
losses
reserve
US$’000
US$’000
Issued
capital premium
US$’000
US$’000
Trans-
lation
reserve
US$’000
Equity
com-
ponent
of CZDP
US$’000
Notes
25
25
20
At 1 January 2017
Loss for the year
Other comprehensive
income
Total comprehensive
income/(loss)
Share-based payment
expense
Lapsed of share-based
payment
Disposal of subsidiaries
Capitalisation of RZDP
At 31 December 2017
Loss for the year
Other comprehensive
income
Total comprehensive
income/(loss)
At 31 December 2018
56
150,414
5,048
(109,567)
(1,490)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(82,984)
–
(82,984)
–
–
938
–
–
6
6
–
–
–
–
56
150,414
5,048
(191,613)
(1,484)
–
–
–
–
–
–
–
–
–
(8,036)
–
(8,036)
–
146
146
56
150,414
5,048
(199,649)
(1,338)
–
–
–
–
–
–
–
–
–
–
–
–
–
Other
reserve
US$’000
Total
US$’000
Non-
controlling
interests
US$’000
Total
equity
US$’000
1,056
45,517
492
46,009
–
–
–
–
–
–
50,688
51,744
–
–
–
51,744
(82,984)
6
(82,978)
–
–
938
50,688
14,165
(8,036)
146
(7,890)
6,275
–
–
–
–
–
(492)
–
–
–
–
–
–
(82,984)
6
(82,978)
–
–
446
50,688
14,165
(8,036)
146
(7,890)
6,275
The following describes the nature and purpose of each reserve within parent’s equity:
Reserve
Share premium
Share-based payment reserve
Accumulated losses
Translation reserve
Equity component of CZDP
Other reserve
Description and purpose
Amounts subscribed for share capital in excess of nominal value.
Equity created to recognise share-based payment expense.
Cumulative net gains and losses recognised in profit or loss.
Equity created to
differences.
Difference between the proceeds of the convertible zero
dividend preference shares (“CZDP”) issued and the fair value of
the liability component of CZDP.
Own shares acquired, EBT (as defined in Note 25) shares and
capital redemption and capitalisation of redeemable zero
dividend preference shares (“RZDP”).
recognise foreign currency translation
The accompanying notes form an integral part of these consolidated financial statements.
24
Consolidated statement of cash flows
For the year ended 31 December 2018
2018 2017
Notes US$’000 US$’000
Loss before tax (8,535) (83,803)
Adjustments for:
Depreciation and amortisation 4 16 14
Share-based payments 25 – 21
Provision for bad debts 5 1,222 3,386
Realised (gains)/losses on disposal of investments 2 292 (423)
Unrealised losses on investments at FVTPL* 2 5,843 50,526
Unrealised losses on loans 2 – 23,914
Foreign exchange gains 14 (50)
Interest expenses – 3,554
Operating loss before changes in working capital and provisions (1,148) (2,861)
Proceeds from disposals of investments at FVTPL* 12 7,383 4,954
Movement in loans 13 734 –
Current and deferred tax (550) –
Decrease/(Increase) in trade and other receivables (371) (345)
(Decrease)/increase in trade and other payables (999) (2,395)
Net cash inflow/(outflow) from operations 5,049 (647)
Investing activities
Disposal of property, plant and equipment – –
Net cash inflow from investing activities – –
Financing activities
Repayment of borrowing 18 (2,500) –
Net cash outflow from financing activities (2,500) –
Net (decrease)/increase in cash and cash equivalents 2,549 (647)
Effect of exchange rate changes on cash and cash equivalents 135 60
Cash and cash equivalents at beginning of year 1,199 1,786
Cash and cash equivalents at end of year 15 3,883 1,199
* FVTPL refers to fair value through profit or loss
** CZDP refers to convertible zero dividend preference shares
The accompanying notes form an integral part of these consolidated financial statements.
25
Notes to the financial statements
1. Accounting policies
1.1 Corporate information
The Company is a limited liability company incorporated and domiciled in the Isle of Man whose
shares are publicly traded on the Alternative Investment Market (“AIM”) of the London Stock
Exchange. The registered office is located at IOMA House, Hope Street, Douglas, Isle of Man IM1 1AP.
The principal activity of the Group is that of an Investment vehicle. The Group currently holds
investments in companies including unquoted interests, and illiquid publicly traded equity interests,
based or principally active in China and Mongolia. On 20 November 2014, the Company’s
shareholders voted to amend the Company’s investing policy to that of a realisation vehicle.
1.2. Basis of preparation
The Financial Statements have been prepared in accordance with International Financial Reporting
Standards as adopted by the European Union (“IFRS”). These comprise standards and interpretations
approved by the International Accounting Standards Board (“IASB”), together with interpretations of
the International Accounting Standards and Standing Interpretations Committee approved by the
International Accounting Standards Committee that remain in effect, to the extent that IFRS have
been adopted by the EU.
The comparative information is for the year from 1 January 2017 to 31 December 2017.
1.3. Functional and presentation currency
The consolidated financial statements are presented in United States dollar, which is also the parent
company’s functional currency. For each group entity the Group determines functional currency and
items included in the financial statements of each entity are measured using that functional currency.
1.4. Use of judgements and estimates
In preparing these consolidated financial statements, management has made judgements and
estimates that affect the application of the Group’s accounting policies and the reported amounts
of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are
recognised prospectively.
The following is a list of accounting policies which cover areas that the directors consider require
estimates and judgements which have a significant risk of causing a material adjustment to the
carrying amount of assets and liabilities within the next financial year:
(a) Fair value of unquoted equity instruments
The Group has estimated the value of each of its unquoted equity instruments by using their
judgement to select the most appropriate valuation methodology for each investment based on the
recommendations of the International Private Equity and Venture Capital Valuation Guidelines (the
“Guidelines”). For more information on estimation, refer to Note 12. Valuation methodologies mainly
include multiples, discounted cash flow, industry valuation benchmarks, available market prices and
so on, which may apply individually or in combination. Key assumptions and judgements of each
methodology concerning the future and other key sources of estimation uncertainty will have a
significant risk of causing a material adjustment to the fair value of the instruments within the next
financial year.
26
(b) Assessment of the Company as investment entity
Entities that meet the definition of an investment entity within IFRS 10 are required to account for most
investments in controlled entities as held at fair value through profit or loss. Subsidiaries that provide
investment related services or engage in permitted investment related activities with investees
continue to be consolidated unless they are also investment entities. The directors have concluded
that the Company meets the definition of an investment entity.
(c) Assessment of the subsidiaries as investment entities
The Company controls the voting rights and ownership interests in its subsidiaries as stated in Note 11
for which the countries of incorporation for those subsidiaries are included in the same note.
Per IFRS 10, there is a requirement for the Board to assess whether each subsidiary is itself an investment
entity. The Board has performed the assessments and has concluded that the subsidiaries stated in
Note 11 are operating subsidiaries of the Group for the reasons below:
(I)
(II)
Each subsidiary has its own board of directors;
The subsidiaries provide services to the Group (including administrative services to the Board of
the Group, buying / selling securities as well as managing the portfolios on a fair value basis);
and
(III)
The subsidiaries are remunerated for these services.
Furthermore, each subsidiary stated in Note 13 is itself not deemed to be an investment entity investing
solely for capital appreciation and investment income and therefore the subsidiaries are
consolidated.
(d) Share-based payments
The Group has applied the requirements of IFRS 2 “Share-based payment” in these consolidated
financial statements.
The Group has issued share options, which are equity-settled share-based payments, to an ex director,
certain ex-employees and to its advisors for services provided in respect of the admission of the
Company to trading on the AIM of the London Stock Exchange. Equity-settled share-based payments
to directors and employees are measured at the fair value of equity instruments awarded at the date
of grant. Equity-settled share-based payments to non-employees are measured at the fair value of
goods or services rendered at the date when the goods or services are received. Where equity
investments are granted subject to vesting conditions, equity-settled share-based payments are
expensed to the profit or loss on a straight-line basis over the vesting period, based on the Group’s
estimate of the number of shares that will eventually vest. Fair value is measured by use of the
Binominal option pricing model.
The Group has also granted upper share rights/contingent share awards, which are cash-settled
share-based payments, to an ex director and certain ex-employees under the Company’s JSOS (as
defined in Note 25). The cost of cash-settled share-based payments is measured initially at fair value
at the grant date using the Binominal Tree model. This fair value is expensed over the period until the
vesting date with recognition of a corresponding liability. The liability is remeasured to fair value at
each reporting date up to and including the settlement date, with changes in fair value recognised
in expense.
When estimating the value of the share options, the upper share rights and contingent share awards,
significant assumptions such as the expected life of the share options and the upper share rights, and
expected volatility of the shares have been applied based on management’s best estimates.
27
Notes to the financial statements (continued)
1.5 Summary of significant accounting policies
The accounting policies which follow set out those policies which apply in preparing the Financial
Statements for the period 1 January 2018 to 31 December 2018.
Standards and amendments are effective for the period beginning 1 January 2018 or later
The Company has applied IFRS 9 from 1 January 2018. No restatement of comparative information
was required from the adoption of this new accounting standard. IFRS 9 sets out requirements for
recognizing and measuring financial assets, financial liabilities and some contracts to buy or sell non-
financial items. This standard replaces IAS 39 Financial Instruments: Recognition and Measurement.
As a result of the adoption of IFRS 9, the Company has adopted consequential amendments to IAS:
•
•
impairment of financial assets to be presented in a separate line item in the statement of
comprehensive income; and
separate presentation in the statement of comprehensive income of interest revenue
calculated using the effective interest method. Previously the Company disclosed this amount
in the notes to the Financial Statements.
Additionally, the Company has adopted consequential amendments to IFRS 7 Financial Instruments:
Disclosures, which are applied to disclosures about 2019 but have not generally been applied to
comparative information.
Under IAS 39, cash and cash equivalents and receivables were classified as loans and receivables.
Under IFRS 9 these are classified as measured at amortised cost. Under IAS 39, equity instruments were
classified as at fair value through profit or loss on initial recognition. Under IFRS 9 these are classified
as mandatorily at fair value through profit or loss. Financial liabilities, other than derivative financial
instruments, remain classified as measured at amortised cost. There was no change to the carrying
amount of any financial instruments as a result of this change in classification.
IFRS 9 replaces the ‘incurred loss’ model in IAS 39 with an ‘expected credit loss’ (ECL) model. The new
impairment model applies to financial assets measured at amortised cost and debt investments at
fair value through other comprehensive income, but not to investments in equity instruments. Under
IFRS 9, credit losses are recognised earlier than under IAS 39. The Fund’s assets do not have a history
of credit risk or expected future recoverability issues, therefore under the expected credit loss model
there is no impairment to be recognised and hence no change to the carrying values of the Fund’s
assets as a result of this change in impairment model.
The adoption of IFRS 9 had no material impact on the net assets attributable to holders of shares or
the Company.
Financial instruments
i) Recognition and initial measurement
The Company initially recognises financial assets and financial liabilities at fair value through profit or
loss (“FVTPL”) on the trade date, which is the date on which the Company becomes a party to the
contractual provisions of the instrument. Other financial assets and financial liabilities are recognised
on the date on which they are originated.
A financial asset or financial liability is measured initially at fair value plus, for an item not at FVTPL,
transaction costs that are directly attributable to its acquisition or issue.
28
ii) Classification and subsequent measurement
Classification of financial assets
On initial recognition, the Company classifies financial assets as measured at amortised cost or FVTPL.
A financial asset is measured at amortised cost if it meets both the following conditions and is not
designated as at FVTPL.
•
•
it is held within a business model whose objective is to hold assets to collect contractual cash
flows; and
its contractual terms give rise on specified dates to cash flows that are solely payment of
principal and interest (“SPPI”).
All other financial assets of the Fund are measured at FVTPL.
Business model assessment
In making an assessment of the objective of the business model in which a financial asset is held, the
Company considers all of the relevant information about how the business is managed, including:
•
•
•
•
the documented investment strategy and the execution of this strategy in practice. This includes
expected cash outflows or realising cash flows through the sale of assets;
how the performance of the portfolio is evaluated and reported to the Company’s
management;
the risks that affect the performance of the business model (and the financial assets held within
that business model) and how those risks are managed; and
the frequency, volume and timing of sales of financial assets and expectations about the future
sales activity.
Transfers of financial assets to third parties in transactions that do not qualify for derecognition are
not considered sales for this purpose, consistent with the Company’s continuing recognition of the
assets.
The Company has determined that it has two business models.
•
•
Held-to-collect business model: this includes cash and cash equivalents and receivables. These
financial assets are held to collect contractual cash flow.
Other business model: this includes equity investments. These financial assets are managed and
their performance is evaluated, on a fair value basis, with frequent sales taking place.
Assessment whether contractual cash flows are SPPI
For the purposes of this assessment, ‘principal’ is defined as the fair value of the financial asset on
initial recognition. ‘Interest’ is defined as consideration for the time value of money and for the credit
risk associated with the principal amount outstanding during a particular period of time and for other
basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as a profit margin.
In assessing whether the contractual cash flows are SPPI, the Company considers the contractual
terms of the instrument. This includes assessing whether the financial asset contains a contractual term
29
Notes to the financial statements (continued)
that could change the timing or amount of contractual cash flows such that it would not meet this
condition. In making this assessment, the Company considers:
•
•
•
•
contingent events that would change the amount or timing of cash flows;
prepayment and extension features;
terms that limit the Company’s claim to cash flows from specified assets (e.g. non-recourse
features); and
features that modify consideration of the time value of money (e.g. periodical reset of interest
rates).
Reclassifications
Financial assets are not reclassified subsequent to their initial recognition unless the Company were
to change its business model for managing financial assets, in which case all affected financial assets
would be reclassified on the first day of the first reporting period following the change in the business
model.
Subsequent measurement of financial assets
Financial assets at FVTPL
These assets are subsequently measured at fair value. Net gains and losses, including foreign
exchange gains and losses, are recognised in the statement of comprehensive income.
Equity investments and derivative financial instruments are included in this category.
Financial assets at amortised cost (2017: loans and receivables)
These assets are subsequently measured at amortised cost using the effective interest method. Interest
income is recognised in ‘interest income calculated using the effective interest method’, foreign
exchange gains and losses are recognised in ‘net foreign exchange loss’ and impairment is
recognised in ‘impairment losses on financial instruments’ in the statement of comprehensive income.
Any gain or loss on derecognition is also recognised in profit or loss.
Cash and cash equivalents, receivables and balances due from brokers are included in this category.
Financial liabilities – Classification, subsequent measurement and gains and losses
Financial liabilities are classified as measured at amortised cost or FVTPL.
A financial liability is classified as at FVTPL if it is classified as held-for-trading, it is a derivative or it is
designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and
net gains and losses, including any interest expense, are recognised in profit or loss.
Other financial liabilities are subsequently measured at amortised cost using the effective interest
method. Interest expense and foreign exchange gains and losses are recognised in profit or loss. Any
gain or loss on derecognition is also recognised in profit or loss.
Financial liabilities at amortised cost:
•
This includes trade and other payables.
30
Financial guarantee contracts:
Financial guarantee contracts issued by the Group are those contracts that require a payment to
be made to reimburse the holder for a loss it incurs because the specified debtor fails to make a
payment when due in accordance with the terms of a debt instrument. Financial guarantee contracts
are recognised initially as a liability at fair value, adjusted for transaction costs that are directly
attributable to the issuance of the guarantee. Subsequently, the liability is measured at the higher of
the best estimate of the expenditure required to settle the present obligation at the reporting date
and the amount recognised less cumulative amortisation.
Redeemable zero dividend preference shares:
On initial recognition, redeemable zero dividend preference shares are recognised at the fair value,
which are determined using the prevailing market interest of similar non-convertible debts, net of issue
costs incurred. In subsequent periods, redeemable zero dividend preference shares are carried at
amortised cost using the effective interest method.
iii) Amortised cost measurement
The ‘amortised cost’ of a financial asset or financial liability is the amount at which the financial asset
or financial liability is measured on initial recognition minus the principal repayments, plus or minus
the cumulative amortisation using the effective interest method of any difference between that initial
amount and the maturity amount and, for financial assets, adjusted for any loss allowance.
Equity instrument
Financial instruments shall reclassify a financial liability as equity from the date when there is no
existence of a contractual obligation to deliver cash or another financial assets by the issuer. The
equity instruments are recorded at the fair value of the equity instruments issued. The difference
between the carrying amount of the financial liability extinguished and the fair value of the equity
instruments issued shall be recognised in profit or loss. The equity instruments issued shall be recognised
initially and measured at the date the financial liability is extinguished.
Basis of consolidation
The consolidated financial statements comprise the financial statements of the Company and its
subsidiaries as at 31 December 2018. Control is achieved when the Group is exposed, or has rights, to
variable returns from its involvement with the investee and has the ability to affect those returns through
its power over the investee. Specifically, the Group controls an investee if, and only if, the Group has:
•
•
•
Power over the investee (i.e. existing rights that give the current ability to direct relevant activities
of the investee);
Exposure, or rights, to variable returns from its involvement with the investee; and
The ability to use its power over the investee to affect its returns.
Generally, there is a presumption that a majority of voting rights results in control. To support this
presumption and when the Group has less than a majority of the voting or similar rights of an investee,
the Group considers all relevant facts and circumstances in assessing whether it has power over an
investee, including:
•
•
•
The contractual arrangement(s) with the other vote holders of the investee;
Rights arising from other contractual arrangements; and
The Group’s voting rights and potential voting rights.
31
Notes to the financial statements (continued)
The Group does not consolidate its subsidiaries other than those that solely provide it with services
that relate to its investment activities. Subsidiaries that provide services to the Group are fully
consolidated from the date of acquisition, being the date on which the Group obtains control, and
continue to be consolidated until the date when such control ceases. The financial statements of the
subsidiaries are prepared for the same reporting period as the parent company, using consistent
accounting policies. All intra-group balances, transactions, unrealised gains and losses resulting from
intra-group transactions and dividends are eliminated in full.
Profit or loss and each component of other comprehensive income are attributed to the equity
holders of the parent of the Group and to the non-controlling interests, even if this results in the
non-controlling interests having a deficit balance.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an
equity transaction.
Subsequent to acquisition, the carrying amount of non-controlling interests that represent present
ownership interests in the subsidiary is the amount of those interests at initial recognition plus such
non-controlling interest’s share of subsequent changes in equity. Total comprehensive income is
attributed to such non-controlling interests even if this results in those non-controlling interests having
a deficit balance.
Non-controlling interests represent the portion of profit or loss and net assets that is not held by the
Group and are presented separately in the consolidated statement of comprehensive income and
within equity in the consolidated statement of financial position, separately from parent shareholders’
equity.
Associates
Associates are all entities over which the Group has significant influence but not control, generally
accompanying a shareholding of between 20% and 50% of the voting rights. The Group elects to
measure investments in associates at fair value through profit or loss as, in the opinion of the directors,
the Company meets the definition of venture capital organisation. This treatment is permitted under
IAS 28 “Investments in Associates and Joint Ventures”.
Foreign currencies
Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates
prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at year-end exchange rates of monetary
assets and liabilities denominated in foreign currencies are recognised in the statement of
comprehensive income.
Non-monetary financial assets and liabilities that are carried at historic cost are translated using the
exchange rate as at the date of initial transactions and are not re-measured. Translation differences
on non-monetary financial assets and liabilities, such as equities held at fair value through profit or
loss, are recognised in profit or loss as part of the fair value gain or loss.
32
Group companies
The results and financial position of all group entities, none of which has the currency of a
hyperinflationary economy, that have a functional currency different from the presentation currency
are translated into the presentation currency as follows:
(I)
(II)
assets and liabilities for each statement of financial position are translated at the closing rate
at the date of that statement of financial position;
income and expenses for each statement of comprehensive income are translated at average
exchange rates (unless this average is not a reasonable approximation of the cumulative effect
of the rates prevailing on the transaction dates, in which case income and expenses are
translated at the date of the transaction); and
(III)
all resulting exchange differences are recognised in the statement of comprehensive income
as other comprehensive income.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets
and liabilities of the foreign entity and translated at the closing rate.
Cash and bank and borrowings
Cash and bank is defined as cash in hand, demand deposits, time deposit and short-term, highly
liquid investments that are readily convertible into known amounts of cash. They are subject to an
insignificant risk of changes in value, and have a short maturity, generally less than three months, less
bank overdrafts which are repayable on demand and form an integral part of the Group’s cash
management. For the purpose of the consolidated statement of financial position, cash and bank
balances comprise cash on hand and at banks, including term deposits, which are not restricted as
to use.
Borrowings are financial liabilities at amortised cost and are initially measured at fair value, net of
directly attributable costs incurred. It is subsequently measured at amortised cost, using the effective
interest method. The related interest expense is recognised in profit or loss.
Share-based payments
Ex employees (including former senior executives) of the Group received remuneration in the form of
share-based payment transactions (i.e. share options), whereby employees render services as
consideration for equity instruments (“equity-settled transactions”). Certain ex director, executives
and key employees of the Group were granted share appreciation rights (including upper share rights
and contingent share awards), which can only be settled in cash (“cash-settled transactions”).
Advisors received equity-settled options in relation to the Company’s admission to trading on the AIM
of the London Stock Exchange.
The cost of these options with ex employees are measured by reference to the fair value of the equity
instruments awarded at the date of grant, whereas those with non-employees are measured at the
fair value of goods or services received at the date when the goods or services have been received.
The fair value is determined by using binominal tree model, further details of which are given in
Note 27.
33
Notes to the financial statements (continued)
Equity-settled transactions
The cost of equity-settled transactions (share options) is recognised, together with a corresponding
increase in equity, over the period in which the performance and/or service conditions are fulfilled,
ending on the date on which the relevant ex employees become fully entitled to the award (the
“vesting date”). The cumulative expense recognised for equity-settled transactions at each reporting
date until the vesting date reflects the extent to which the vesting period has expired and the Group’s
best estimate of the number of equity instruments that will ultimately vest. Movements in the liability
(other than cash payments) are recognised in profit or loss.
No expense is recognised for awards that do not ultimately vest, except for awards where vesting is
conditional upon a market or non-vesting condition, which are treated as vesting irrespective of
whether or not the market condition is satisfied, provided that all other performance and/or service
conditions are satisfied.
The dilutive effect of outstanding options is reflected as additional share dilution in the computation
of earnings per share.
Cash-settled transactions
The cost of cash-settled transactions (upper share rights and contingent share awards) is measured
initially at fair value at the grant date using binominal tree model, further details of which are given
in Note 25. This fair value is expensed over the period until the vesting date with recognition of a
corresponding liability. The liability is remeasured to fair value at each reporting date up to and
including the settlement date, with changes in fair value recognised in expense.
Taxes
Current Income Tax
Current tax assets and liabilities for the current and prior periods are measured at the amount
expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used
to compute the amount are those that are enacted or substantively enacted at the reporting date.
Current income tax relating to items recognised directly in equity is recognised in equity and not in
the statement of comprehensive income. Management periodically evaluates positions taken in the
tax returns with respect to situations in which applicable tax regulations are subject to interpretation
and establishes provisions where appropriate.
Deferred Tax
Deferred tax is provided using the liability method on temporary differences at the reporting date
between the tax bases of assets and liabilities and their carrying amounts for financial reporting
purposes.
Deferred tax liabilities are recognised for all taxable temporary differences, except:
where the deferred tax liability arises from goodwill or the initial recognition of an asset or liability
in a transaction that is not a business combination and, at the time of the transaction, affects
neither the accounting profit nor taxable profit or loss; and
in respect of taxable temporary differences associated with investments in subsidiaries and
associates where the timing of the reversal of the temporary differences can be controlled and
it is probable that the temporary differences will not reverse in the foreseeable future.
(I)
(II)
34
Deferred tax assets are recognised for all deductible temporary differences, carry forward of unused
tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available
against which the deductible temporary differences, and the carry forward of unused tax credits and
unused tax losses can be utilised, except:
(I)
(II)
where the deferred tax asset relating to the deductible temporary difference arises from the
initial recognition of an asset or liability in a transaction that is not a business combination and,
at the time of the transaction, affects neither the accounting profit nor taxable profit or loss;
and
in respect of deductible temporary differences associated with investments in subsidiaries and
associates, deferred tax assets are recognised only to the extent that it is probable that the
temporary differences will reverse in the foreseeable future and taxable profit will be available
against which the temporary differences can be utilised.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the
extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of
the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each
reporting date and are recognised to the extent that it has become probable that future taxable
profit will allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the
period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have
been enacted or substantively enacted at the reporting date.
Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off
current tax assets against current tax liabilities and the deferred taxes relate to the same taxable
entity and the same taxation authority.
Income taxes are recognised in the profit or loss or directly in equity except when a tax exemption
has been granted.
Investment income/loss
Investment income/loss derived from the investment activities is equivalent to “revenue” for the
purposes of IAS 1. Investment income/loss is analysed into the following components:
•
•
•
Realised gains/losses on the disposal of investments are the difference between the fair value
of the consideration received less any directly attributable costs, on the sale of equity and the
repayment of loans and receivables, and its carrying value at the start of the accounting
period.
Unrealised gains/losses on the revaluation of investments are the movement in the carrying
value of investments measured at fair value between the start and end of the accounting
period and the impairment of amortised cost loans.
Income/loss from loans is recognised on a time proportion basis as it accrues by reference to
the principal outstanding and the effective interest rate applicable.
Provisions and contingent liabilities
Provisions are recognised for liabilities of uncertain timing or amount when the Group has a legal or
constructive obligation arising as a result of a past event, which will probably result in an outflow of
economic benefits that can be reasonably estimated.
35
Notes to the financial statements (continued)
Where it is not probable that an outflow of economic benefits will be required, or the amount cannot
be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of an
outflow of economic benefits is remote. Possible obligations, the existence of which will only be
confirmed by the occurrence or non-occurrence of one or more future events, are also disclosed as
contingent liabilities unless the probability of an outflow of economic benefits is remote.
New standards and interpretations not applied
IASB and IFRIC have issued and endorsed the following standards and interpretations, applicable to
the Company, which are not yet effective for the year ended 31 December 2018 and have therefore
not been applied in preparing these Financial Statements.
New/Revised International Financial Reporting Standards
Annual Improvements to IFRS Standards 2015–2017 Cycle – various standards
Amendments to References to Conceptual Framework in IFRS Standards
Effective date
for annual periods
beginning on or after
1 January 2019
1 January 2019
The Directors do not anticipate that the initial adoption of the above standards, amendments and
interpretations will have a material impact in future periods.
2. Investment loss
2018 2017
US$’000 US$’000
Realised gains/(losses) on disposal of investments (292) 423
– Investments at FVTPL (292) 882
– Loans at FVTPL – –
– Subsidiary – (459)
Unrealised losses on investments (5,843) (74,440)
– Investments at FVTPL (5,843) (50,526)
– Loans at FVTPL – (23,761)
– Loans at amortised cost – (153)
Income from loans – –
–––––––– ––––––––
Total (6,135) (74,017)
–––––––– ––––––––
3. Consulting services payable
2018 2017
US$’000 US$’000
Consulting services payable – (1,390)
–––––––– ––––––––
Total – (1,390)
–––––––– ––––––––
36
4. Other administrative expenses
2018 2017
US$’000 US$’000
Recurring expenses: (826) (659)
– Directors fees (205) (152)
– Audit fees (62) (120)
– Depreciation expenses (15) (13)
– Amortisation expenses (1) (1)
– Other (543) (373)
Non-recurring expenses* (818) (811)
–––––––– ––––––––
Total (1,644) (1,470)
–––––––– ––––––––
* Non recurring expenses include professional fees of an ad-hoc nature and previous advisor fees.
5. Bad debt provision
2018 2017
US$’000 US$’000
Loans with Staur Aqua (734) –
Loans with Unipower (182) (3,113)
Other receivables (306) (273)
–––––––– ––––––––
Total (1,222) (3,386)
–––––––– ––––––––
6. Directors’ remuneration
2018 2017
US$’000 US$’000
Directors’ emoluments (205) (152)
Share-based payment expenses – (9)
–––––––– ––––––––
(205) (161)
–––––––– ––––––––
Directors’ remuneration for the year 2018 and the number of options held were as follows:
Director Share-based 2018
Salaries* fee payment** Total Number
Name US$’000 US$’000 US$’000 US$’000 of options
Mr. Niklas Ponnert*** – – – – –
Mr. Lionel de Saint-Exupery*** – – – – –
Ms. Shonaid Jemmett Page*** – – – – –
Mr. Hiroshi Funaki*** – 75 – 75 –
Mr. Philip Peter Scales*** – 50 – 50 –
Mr. John Chapman*** – 80 – 80 –
–––––––––– –––––––––– –––––––––– –––––––––– ––––––––––
– 205 – 205 –
–––––––––– –––––––––– –––––––––– –––––––––– ––––––––––
37
Notes to the financial statements (continued)
Directors’ remuneration for the year 2017 and the number of options held were as follows:
Director Share-based 2017
Salaries* fee payment** Total Number
Name US$’000 US$’000 US$’000 US$’000 of options
Mr. Niklas Ponnert*** – – 9 9 4,500,000
Mr. Lionel de Saint-Exupery*** – 59 – 59 –
Ms. Shonaid Jemmett Page*** – 59 – 59 –
Mr. Hiroshi Funaki*** – 16 – 16 –
Mr. Philip Peter Scales*** – 9 – 9 –
Mr. John Chapman*** – 9 – 9 –
–––––––––– –––––––––– –––––––––– –––––––––– ––––––––––
– 152 9 161 4,500,000
–––––––––– –––––––––– –––––––––– –––––––––– ––––––––––
*
Short term employee benefits.
** Share-based payment refers to expenses arising from the Company’s share option scheme (Note 25).
*** Mr. Lionel de Saint-Exupery and Ms. Shonaid Jemmett Page resigned as non-executive directors of the Company
in October 2017. Mr. Hiroshi Funaki was appointed as director of the Company in September 2017, and Mr. Philip
Peter Scales and Mr. John Chapman were appointed as directors of the Company in October 2017. Mr. Niklas
Ponnert resigned as executive director of the Company in April 2018.
7. Finance costs
2018 2017
US$’000 US$’000
Interest expenses of redeemable/convertible zero dividend
preference shares – (3,219)
Interest expenses of borrowing 335 (335)
Bank charges 3 (44)
–––––––– ––––––––
338 (3,598)
–––––––– ––––––––
8. Income tax
As the Company is not in receipt of income from Manx land, certain related business or property and
does not hold a Manx banking licence, it is taxed at the standard rate of 0% on the Isle of Man. The
Company is resident for tax purposes in the Isle of Man and subject to corporate income tax at the
standard rate of 0% and as such no provision for tax in the Isle of Man has been made.
2018 2017
US$’000 US$’000
Current tax
Current year* 499 –
Deferred tax
Deferred income tax – 819
–––––––– ––––––––
Total income tax credit in the consolidated statement of
comprehensive income 499 819
–––––––– ––––––––
* The current year tax credit represents a reversal of a 2011 audit adjustment relating to Six Waves investment.
38
The income tax for the year can be reconciled per the consolidated statement of comprehensive
income as follows:
2018 2017
US$’000 US$’000
Loss before tax (8,535) (83,803)
–––––––– ––––––––
Loss before tax multiplied by rate of corporate income tax in the Isle
of Man of 0% (2017: 0%) – –
Deferred tax
Effects of:
Deferred tax on unrealised gains on investments – 819
Release of current taxation provision 499 –
–––––––– ––––––––
Total income tax credit in the consolidated statement of
comprehensive income 499 819
–––––––– ––––––––
Deferred income tax liability:
2018 2017
US$’000 US$’000
Deferred income tax liability** 247 796
–––––––– ––––––––
Total deferred income tax liability 247 796
–––––––– ––––––––
** As at 31 December 2018, the deferred income tax liability US$247,000 (2017: US$796,000) relates to fair value gain of
Niutech Environment Technology Corporation (“Niutech”), estimated in accordance with the relevant tax laws and
regulations in the People’s Republic of China (“PRC”) based on a tax rate of 10%.
9. Loss per share (“LPS”)
2018 2017
Numerator US$’000 US$’000
Loss for the year attributable to ordinary shareholders of the parent
as used in the calculation of basic loss per share (1,578) (41,071)
–––––––– ––––––––
Loss for the year attributable to redeemable zero dividend preference
shareholders of the parent as used in the calculation of basic
loss per share (6,312) (41,913)
–––––––– ––––––––
Loss for the year attributable to ordinary shareholders of the parent
as used in the calculation of diluted loss per share (1,578) (41,071)
–––––––– ––––––––
Loss for the year attributable to redeemable zero dividend preference
shareholders of the parent as used in the calculation of diluted
loss per share (6,312) (41,913)
–––––––– ––––––––
39
Notes to the financial statements (continued)
2018 2017
Number of Number of
Denominator Shares shares
Weighted average number of ordinary shares for basic LPS 351,035,389 351,035,389
––––––––––––– –––––––––––––
Effect of dilution*:
Share options – –
––––––––––––– –––––––––––––
Weighted average number of ordinary shares adjusted for the
effect of dilution 351,035,389 351,035,389
––––––––––––– –––––––––––––
Weighted average number of redeemable zero dividend
preference shares for basic LPS before and after adjusted for
the effect of dilution 14,991,781 14,991,781
––––––––––––– –––––––––––––
Basic LPS of ordinary shares (0.45) cents (11.70) cents
––––––––––––– –––––––––––––
Diluted LPS of ordinary shares (0.45) cents (11.70) cents
––––––––––––– –––––––––––––
Basic LPS of redeemable zero dividend preference shares (42.10) cents (279.57) cents
––––––––––––– –––––––––––––
Diluted LPS of redeemable zero dividend preference shares (42.10) cents (279.57) cents
––––––––––––– –––––––––––––
* Diluted loss per share for the years ended 31 December 2018 and 31 December 2017 is the same as the basic loss
per share, as the Company’s outstanding share options and convertible zero dividend preference shares had an
anti-dilutive effect on the basic loss per share for the years ended 31 December 2018 and 31 December 2017.
10. Property, plant and equipment
Vehicles
US$’000
Cost
At 1 January 2018 85
––––––––
Disposal –
––––––––
At 31 December 2018 85
––––––––
Accumulated depreciation
At 1 January 2017 52
––––––––
Charge for the year 2017 13
Disposal –
––––––––
At 31 December 2017 65
––––––––
Charge for the year 2018 15
––––––––
At 31 December 2018 80
––––––––
Net book value
At 31 December 2017 20
––––––––
At 31 December 2018 5
––––––––
40
11. Investments in subsidiaries
The principal subsidiaries of the Group are as follows:
Proportion of Proportion of
ownership ownership
interest at interest at
Name Country of 31 December 31 December
incorporation 2018 2017
Ascend Ventures Ltd Malaysia 100% 100%
Origo Resource Partners Ltd Guernsey 100% 100%
PHI International Holding Ltd Bermuda 100% 100%
PHI International (Bermuda) Holding Ltd* Bermuda 100% 100%
Ascend (Beijing) Consulting Ltd** China 100% 100%
China Cleantech Partners, L.P. (“CCP Fund”)*** Cayman Islands – 100%
* Owned by Origo Resource Partners Ltd
** Owned by Ascend Ventures Ltd
*** Closed April 2018
12. Investments at fair value through profit or loss
As at 31 December 2018
Fair value Proportion of
Country of hierarchy ownership Cost Fair value
Name incorporation level interest US$’000 US$’000
Niutech (Note b) British Virgin Islands 3 3.7% 2,654 2,120
Celadon Mining Ltd British Virgin Islands 3 8.9% 13,069 1,129
Kincora (Notes c and d) Canada 3 30.9% 8,571 –
Six Waves Inc British Virgin Islands 3 1.1% 240 –
Gobi Coal & Energy Ltd
(Note c) British Virgin Islands 3 7.5% 14,960 275
Marula Mines Ltd South Africa 3 0.9% 250 –
Fram Exploration AS Norway 3 0.6% 1,223 –
Staur Aqua AS Norway 3 9.2% 719 –
Unipower (Note d) Cayman Islands 3 16.5% 4,301 –
China Rice (Note d) British Virgin Islands 3 32.1% 13,000 –
Moly World Ltd (Note d) British Virgin Islands 3 20.0% 10,000 –
Other quoted investments
(Note c) 1 593 3
–––––––––
3,527
–––––––––
The shares held in China Rice and Unipower are all convertible preference shares whilst the remaining
investments held in the other entities are all ordinary equity shares. The ‘proportion of ownership
interest’ represents the percentage of the shares held by the Group in all share classes.
41
Notes to the financial statements (continued)
As at 31 December 2017
Fair value Proportion of
Country of hierarchy ownership Cost Fair value
Name incorporation level interest US$’000 US$’000
Niutech (Note b) British Virgin Islands 3 11.8% 4,819 8,555
Celadon Mining Ltd British Virgin Islands 3 8.9% 13,069 4,477
Kincora (Notes c and d) Canada 3 30.9% 8,571 1,607
Six Waves Inc British Virgin Islands 3 1.1% 240 1,065
Gobi Coal & Energy Ltd
(Note c) British Virgin Islands 3 7.5% 14,960 1,013
Marula Mines Ltd South Africa 3 0.9% 250 162
Fram Exploration AS Norway 3 0.6% 1,223 133
Staur Aqua AS Norway 3 9.2% 719 –
Unipower (Note d) Cayman Islands 3 16.5% 4,301 –
China Rice (Note d) British Virgin Islands 3 32.1% 13,000 –
Moly World Ltd (Note d) British Virgin Islands 3 20.0% 10,000 –
Other quoted investments
(Note c) 1 593 33
–––––––––
17,045
–––––––––
The shares held in China Rice and Unipower are all convertible preference shares whilst the remaining
investments held in the other entities are all ordinary equity shares. The ‘proportion of ownership
interest’ represents the percentage of the shares held by the Group in all share classes.
Notes
a.
b.
c.
d.
There are no significant restrictions that will have an impact on ability to transfer these investments.
The Company holds 95.3% interest in Niutech Energy Ltd, by which Niutech is indirectly held.
Investments held partially by China Commodities Absolute Return Ltd, one of the subsidiaries of the Group, in
2015. During the year 2016, the investments had been transferred and held by the Company.
These investments are associates of the Group measured at fair value through profit or loss.
In accordance with IFRS 13 “Fair Value Measurement”, investments recognised at fair value are
required to be analysed between those whose fair value is based on:
a)
b)
c)
Quoted prices in active markets for identical assets or liabilities (Level 1);
Those involving inputs other than quoted prices included in level 1 that are observable for the asset or liability,
either directly (as prices) or indirectly (derived from prices) (Level 2); and
Those with inputs for the asset or liability that are not based on observable market data (unobservable inputs)
(Level 3).
For assets and liabilities that are recognised in the consolidated financial statements on a recurring
basis, the Group determines whether transfers have occurred between levels in the hierarchy by
re-assessing categorisation (based on the lowest level input that is significant to the fair value
measurement as a whole) at the end of each reporting period. In 2017, the Group transferred an
investment with fair value of approximately US$1,607,000 as at 31 December 2017 from Level 1 to
Level 3, primarily related to an equity security traded in active markets while there have been no
transfers between levels during the year of 2018.
42
The following table provides an analysis of investments carried at fair value by level of fair value
hierarchy:
2018
Level 1 Level 2 Level 3 Total
US$’000 US$’000 US$’000 US$’000
Investments at fair value through profit or loss
– Listed equity investments 3 – 2,120 2,123
– Unlisted equity investments – – 1,404 1,404
–––––––– –––––––– –––––––– ––––––––
3 – 3,524 3,527
–––––––– –––––––– –––––––– ––––––––
2017
Level 1 Level 2 Level 3 Total
US$’000 US$’000 US$’000 US$’000
Investments at fair value through profit or loss
– Listed equity investments 33 – 10,162 10,195
– Unlisted equity investments – – 6,850 6,850
–––––––– –––––––– –––––––– ––––––––
33 – 17,012 17,045
–––––––– –––––––– –––––––– ––––––––
Changes in investments at fair value through profit or loss based on Level 3:
2018 2017
US$’000 US$’000
Opening balance 17,012 66,995
Proceeds from disposals of investments (7,378) (4,918)
Realised gain/(losses) on disposals of investments (292) 918
Bank charges – (11)
Transaction costs – (402)
Transfer from Level 1 – 1,607
Net exchange difference – 1,832
Movement in unrealised losses on investments
– In profit or loss (5,818) (49,009)
–––––––– ––––––––
Closing balance 3,524 17,012
–––––––– ––––––––
The fair value decrease on investments categorised within Level 3 of US$5,818,000 (2017:
US$47,177,000) was recorded in the consolidated statement of comprehensive income.
43
Notes to the financial statements (continued)
Description of significant unobservable inputs to valuation:
As at 31 December 2018
Valuation
technique
Multiples method
Consensus pricing
method
Valuation
technique
Consensus pricing
method
Multiples method
Consensus pricing
method
Multiples method
Significant
unobservable
inputs
Discount for lack
of marketability
Range
80%
Offered quote
$275,348
Significant
unobservable
inputs
Offered quote
Range
USD 1,607,000
Discount for lack
of marketability
20% – 30%
Share price volatility
80%
Offered quote
USD 162,000
Discount for lack
of marketability
30%
Celadon Mining Ltd
Gobi Coal & Energy Ltd
As at 31 December 2017
Investments in quoted equity
shares – Kincora
Investments in unquoted equity
shares – Celadon Mining Ltd, Gobi
Coal & Energy Ltd and Fram
Exploration AS
Investments in unquoted equity
shares – Marula Mines Ltd
Investments in unquoted equity
shares – Six Waves Inc
13. Loans
The Group has entered into convertible credit agreements and has the right to convert the
outstanding principal balance of relevant loans into borrower’s shares according to certain
conversion conditions, and loan agreements with certain investee companies as set forth in the table
below.
As at 31 December 2018:
Loans Loans
Loan Loan due within due after
rates principal one year one year Fair value
Borrower % US$’000 US$’000 US$’000 US$’000
Convertible credit agreements*
Staur Aqua AS 0-15 3,848 – – –
–––––––– –––––––– –––––––– –––––––– ––––––––
– – –
–––––––– –––––––– ––––––––
The convertible loan issued to Staur Aqua was fully impaired in 2018.
44
As at 31 December 2017:
Loans Loans
Loan Loan due within due after
rates principal one year one year Fair value
Borrower % US$’000 US$’000 US$’000 US$’000
Convertible credit agreements*
Staur Aqua AS 0-15 3,848 384 350 734
–––––––– –––––––– –––––––– –––––––– ––––––––
384 350 734
–––––––– –––––––– ––––––––
* Loans in relation to convertible credit agreements are measured at fair value. Loans in relation to loan agreements
are measured at amortised cost using the effective interest rate method less any identified impairment losses.
Convertible loans issued to China Rice of US$15,000,000 and Unipower of US$9,000,000 were fully
impaired in 2017.
Statement of changes in loans (and changes in convertible credit agreements based on Level 3):
Opening balance
Written off
Converted into ordinary shares
Net exchange difference
Movement in realised and unrealised losses on investments
2018
US$’000
734
(734)
–
–
2017
US$’000
24,640
–
–
8
– In profit or loss
(23,914)
––––––––– –––––––––
734
Closing balance
––––––––– –––––––––
–
–
The fair value decrease on convertible credit agreements categorised within Level 3 of US$734,000
(2017: US$23,914,000) was recorded in the consolidated statement of comprehensive income.
14. Trade and other receivables
Trade debtors
Other debtors
Loan interest receivables
Prepayment
Total
15. Cash and cash equivalents
Current account
Total cash and cash equivalents
2018
US$’000
–
22
–
5
––––––––
27
––––––––
2018
US$’000
3,883
––––––––
3,883
––––––––
2017
US$’000
278
596
–
7
––––––––
881
––––––––
2017
US$’000
1,199
––––––––
1,199
––––––––
45
Notes to the financial statements (continued)
16. Trade and other payables
Trade payables
Other payables
Total
17. Financial guarantee contracts
Financial guarantee contracts*
Total
2018
US$’000
–
382
––––––––
382
––––––––
2018
US$’000
435
––––––––
435
––––––––
2017
US$’000
–
1,381
––––––––
1,381
––––––––
2017
US$’000
435
––––––––
435
––––––––
* In July 2013, the Group entered into a guarantee agreement with IRCA Holdings Ltd and ABSA Bank Limited to
guarantee the repayment of loan facilities of up to Rand 6,769,000 extended by ABSA Bank Limited to IRCA Holdings
Ltd, which has applied for liquidation, so the Group recognised it as a liability. The payment request related to this
provision is expected at any time requested by ABSA Bank.
18. Short-term/Long-term borrowing
Current liabilities
Short-term borrowing*
Non-current liabilities
Long-term borrowing*
Total borrowing
2018
US$’000
–
–
––––––––
–
––––––––
2017
US$’000
2,500
–
––––––––
2,500
––––––––
* On 2 December 2016, the Company entered into an unsecured loan agreement with an independent third party for
an unsecured loan US$2,500,000 (the “Facility”). The Facility carries a rate of return (payable at repayment) of the
higher of 12% per annum (calculated on a non-compounding basis) and US$1,250,000 (accrued on a day to day
basis).
The proceeds of the Facility will be applied in accordance with article 13.1.1 of the Company’s articles
of association (“Articles”).
The borrowing was repaid in full in April 2018.
46
19. Provision
Upper share rights/contingent share awards*
Total
Opening balance
Movement in upper share rights/contingent share awards *
Total
2018
US$’000
103
––––––––
103
––––––––
2018
US$’000
103
–
––––––––
103
––––––––
2017
US$’000
103
––––––––
103
––––––––
2017
US$’000
82
21
––––––––
103
––––––––
* The provision relates to the fair value of upper share rights and contingent share awards granted to certain directors,
executives and ex-employees under the Company’s joint share ownership scheme. Further details about the upper
share rights and contingent share awards are included in Note 25. The provision is expected to be utilised in the next
8 years provided the upper share rights are exercised.
20. Redeemable/convertible zero dividend preference shares
Balance at 1 January 2017
Interest expense on redeemable zero
dividend preference shares
Capitalisation of redeemable zero
dividend preference shares
Balance at 31 December 2017
Balance at 31 December 2018
Number of
shares
57,000,000
––––––––––
Liability
component
US$’000
47,469
––––––––
Equity
component
US$’000
–
––––––––
Other
reserve
US$’000
–
––––––––
–
3,219
–
–
–
––––––––––
57,000,000
––––––––––
––––––––––
57,000,000
(50,688)
––––––––
–
––––––––
––––––––
–
–
––––––––
–
––––––––
––––––––
–
50,688
––––––––
50,688
––––––––
––––––––
50,688
In September 2017, the Company restructured the terms of its existing convertible zero dividend
preference shares, where the conversion feature has been removed, which were revised as
redeemable zero dividend preference shares. The principal terms of restructure includes: i) removal
of redemption of at least 12 million convertible zero dividend preference shares and/or maturity date;
ii) reset of the accreted principal amount per preference shares to US$1.0526 each; iii) no rate of
return on the outstanding amount will begin to accrete until 1 January 2018 and, iv) in respect of
each preference share still in issue on 1 January 2018, its principal amount of US$1.0526 shall be subject
to the accretion of a rate of return equal to 4 per cent per annum from (and including) 1 January
2018 to (and including) the date on which such amount is redeemed, with such return accruing on
a simple and not compound basis. Due to the revised terms, the convertible zero dividend preference
shares were regarded as an extinguishment and redeemable zero dividend preference shares were
therefore recognised.
On 27 September 2017, the rights attaching to the redeemable zero dividend preference shares and
the ordinary shares changed so that they rank alongside each other, and the redeemable zero
dividend preference shareholders receive distributions when ordinary shareholders do. Post 27
September 2017, the redeemable zero dividend preference shares are accounted for as an equity
instrument in accordance with the accounting policies disclosed in Note 1.5.
47
Notes to the financial statements (continued)
All future distributions to ordinary and redeemable zero dividend preference shareholders are on the
following basis (pro rata within the respective classes of shares):
•
•
in respect of the first US$15 million of distributions, 80 percent (i.e. US$12 million) to the
redeemable zero dividend preference shareholders and 20 percent (i.e. US$3 million) to the
ordinary shareholders;
in respect of distributions in excess of the first US$15 million: until such time as all redeemable
zero dividend preference shares have been redeemed in full, 44 percent to the redeemable
zero dividend preference shareholders and 56 percent to the ordinary shareholders; thereafter,
100 percent to the ordinary shareholders.
The redeemable zero dividend preference shares are now subject to the distribution in accordance
with articles 4.10 to 4.12 of the Articles. In summary, the distributions will be made, at such reasonable
time as the Board shall decide, when:
(i)
(j)
the Company has available funds, which is the aggregate amount of the Company’s net cash
less working capital requirements for the following 12 months and;
the Company would be able to comply with the solvency test under the Companies Act 2006
(“Solvency Test”) immediately after distribution.
21. Issued capital
Authorised
Ordinary shares of £ 0.0001 each
Issued and fully paid
Ordinary shares of £ 0.0001 each
At beginning and end of the year
Redeemable zero dividend
preference shares of no par value
At 1 January
Capitalisation of redeemable zero
dividend preference shares (note 22)
At 31 December
22. Other reserve
2018
2017
Number
of shares
500,000,000
–––––––––––
Number
of shares
£’000
50
––––––––
US$’000
Number
of shares
500,000,000
–––––––––––
Number
of shares
£’000
50
––––––––
US$’000
358,746,814
–––––––––––
56
––––––––
358,746,814
–––––––––––
56
––––––––
–––––––––––
57,000,000
–––––––––––
–
–––––––––––
57,000,000
–––––––––––
––––––––
–
––––––––
–
––––––––
–
––––––––
–––––––––––
–
–––––––––––
57,000,000
–––––––––––
57,000,000
–––––––––––
––––––––
–
––––––––
–
––––––––
–
––––––––
This mainly comprised of 57,000,000 (US$50,688,000) redeemable zero dividend preference shares at
no par value capitalised in September 2017.
48
23. Note to the consolidated statement of cash flows
(a) Major non-cash transaction
During the year ended 31 December 2018, interest expenses of (US$335,000) (2017: US$3,554,000)
related to interest on borrowings and redeemable zero dividend preference shares.
(b) Reconciliation of liabilities arising from financing activities:
Borrowing
US$’000
At 1 January 2018 2,500
–––––––––
Changes include in financing cash flows:
Interest expenses paid –
Other changes:
Repayment of loan (2,500)
–––––––––
At 31 December 2018 –
–––––––––
24. Financial instruments – Risk management
The Group are exposed through their operations to one or more of the following risks:
–
–
–
–
–
–
Fair value risk
Cash flow interest rate risk
Currency risk
Liquidity risk
Concentration risk
Price risk
The policy for managing these risks is set by the board. The policy for each of the above risks is
described in more detail below:
Fair value risk
The Group’s financial assets are predominantly investments in unquoted companies, and the fair
value of each investment depends upon a combination of market factors and the performance of
the underlying asset. The Group does not hedge the market risk inherent in the portfolio but manages
asset performance risk on an asset-specific basis by continuously monitoring each asset’s
performance and charging the change of each asset’s fair value to the consolidated statement of
comprehensive income as necessary.
Cash flow interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate
because of changes in market interest rates. The Group’s exposure to the risk of changes in market
interest rates is relatively small as the Group’s outstanding debt is fixed rate. Meanwhile, the interest
income is not material in the context of the total portfolio return as a whole.
49
Notes to the financial statements (continued)
Currency risk
Some of the Group’s assets, liabilities, income and expenses are effectively denominated in currencies
other than US Dollars (the Group’s presentation and functional currency). Fluctuations in the
exchanges rates between these currencies and US Dollars will have an effect on the reported value
of those items.
The following table demonstrates the sensitivity of the Group’s loss before tax due to a change in the
fair value of monetary assets and liabilities resulting from a reasonably possible change in the US dollar,
with all other variables held constant.
Effect on Effect on
Appreciation/ loss before net asset
(depreciation) tax value
in US$ US$’000 US$’000
2018 +10% 69 69
-10% (69) (69)
2017 +10% 701 701
-10% (701) (701)
The assumed movement for currency rate sensitivity analysis is based on the currently observable
market environment.
The Group’s assets and liabilities that are effectively denominated in currencies other than the
functional currency, US Dollars, are:
GBP NOK RMB HKD CAD ZAR Total
2018 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000
Cash and bank balances 126 – 1 66 – – 193
Investments at FVTPL* – – – – – – –
Loans – – – – – – –
Trade and other receivables – – (4) – – – (4)
––––––– ––––––– ––––––– ––––––– ––––––– ––––––– –––––––
Total Assets 126 – (3) 66 – – 189
––––––– ––––––– ––––––– ––––––– ––––––– ––––––– –––––––
Trade and other payables – – – – – – –
Financial guarantee contracts – – – – – (435) (435)
Provision (103) – – – – – (103)
––––––– ––––––– ––––––– ––––––– ––––––– ––––––– –––––––
Total Liabilities (103) – – – – (435) (538)
––––––– ––––––– ––––––– ––––––– ––––––– ––––––– –––––––
50
GBP NOK RMB HKD CAD ZAR Total
2017 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000
Cash and bank balances 62 – 3 49 – – 114
Investments at FVTPL* 4,484 133 – – 1,635 – 6,252
Loans – 734 – – – – 734
Trade and other receivables – – 488 – – – 488
––––––– ––––––– ––––––– ––––––– ––––––– ––––––– –––––––
Total Assets 4,546 867 491 49 1,635 – 7,588
––––––– ––––––– ––––––– ––––––– ––––––– ––––––– –––––––
Trade and other payables – – (42) – – – (42)
Financial guarantee contracts – – – – – (435) (435)
Provision (103) – – – – – (103)
––––––– ––––––– ––––––– ––––––– ––––––– ––––––– –––––––
Total Liabilities (103) – (42) – – (435) (580)
––––––– ––––––– ––––––– ––––––– ––––––– ––––––– –––––––
Liquidity risk
The table below analyses the Group’s financial liabilities into relevant maturity groupings based on
the remaining period at the end of reporting period to the contractual maturity date or, if earlier, the
expected date on which the financial liabilities will be settled. The amounts in the table are the
contractual undiscounted cash flows.
Carrying Less than 1-3 3-12 over
Liabilities amount 1 month months months 12 months Total
31 December 2018 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000
Other payables 382 382 – – – 382
Upper share rights/contingent
share awards 103 – – – 103 103
Short-term borrowing – – – – – –
–––––––– –––––––– –––––––– –––––––– –––––––– ––––––––
Total 485 382 – – 103 485
–––––––– –––––––– –––––––– –––––––– –––––––– ––––––––
Financial guarantees issued
Maximum amount
guaranteed
435 – – 435 – 435
–––––––– –––––––– –––––––– –––––––– –––––––– ––––––––
Carrying Less than 1-3 3-12 over
Liabilities amount 1 month months months 12 months Total
31 December 2017 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000
Other payables 1,880 1,545 – – 1,250 2,795
Upper share rights/contingent
share awards 103 – – – 103 103
Short-term borrowing 2,500 – – – 2,500 2,500
–––––––– –––––––– –––––––– –––––––– –––––––– ––––––––
Total 4,483 1,545 – – 3,853 5,398
–––––––– –––––––– –––––––– –––––––– –––––––– ––––––––
Financial guarantees issued
Maximum amount
guaranteed 435 – – 435 – 435
–––––––– –––––––– –––––––– –––––––– –––––––– ––––––––
51
Notes to the financial statements (continued)
Concentration risk
The main concentration risk for Origo is that the largest investments are concentrated in China for
the amount of US$3,249,000 (2017: US$14,097,000), 86% (2017: 79%) out of the total portfolio value of
US$3,527,000 (2017: US$17,779,000).
Price risk
Price risk may affect the value of listed and unlisted investments as a result of changes in market prices
(other than arising from interest rate risk or currency risk), whether caused by factors specific to an
individual investment, its issuer or factors affecting all instruments traded in the market.
As the majority of financial instruments are carried at fair value, with fair value changes recognised
in the consolidated statement of comprehensive income, all changes in market conditions will directly
affect reported portfolio returns.
Price risk is managed by constructing a diversified portfolio of instruments traded on various markets
and hedging where appropriate.
The following table details the sensitivity to a 10% variation in equity prices. The sensitivity analysis
includes all equity investments held at fair value through profit or loss and adjusts their valuation at
the year-end for a 10% change in value.
Increase in price
Decrease in price
2018
US$’000
353
(353)
2017
US$’000
1,705
(1,705)
The sensitivity to equity and fund investments has not increased during the year due to net investments
and investment portfolio loss in the year.
25. Share-based payments
The Group has a number of share schemes that allow an ex-director, certain ex-employees and its
advisors to acquire shares in the Company, as detailed in Note 1.4(d).
The total cost recognised in the consolidated statement of comprehensive income is shown below:
2018 2017
US$’000 US$’000
Equity-settled option – –
Upper share rights/contingent share awards – (21)
–––––––– ––––––––
Total – (21)
–––––––– ––––––––
52
The following table illustrates the number (“No.”) and weighted average exercise prices (“WAEP”) of,
and movements in, share options during the years ended 31 December 2018 and 31 December 2017.
2018 2018 2017 2017
No. WAEP No. WAEP
Outstanding at 1 January 13,500,000 29.22p 13,500,000 29.22p
–––––––––– –––––––––– –––––––––– ––––––––––
Granted during the year – – – –
Forfeited during the year – – – –
Exercised during the year – – – –
Expired during the year 3,500,000 – – –
–––––––––– –––––––––– –––––––––– ––––––––––
Outstanding at 31 December 10,000,000 32.37p 13,500,000 29.22p
–––––––––– –––––––––– –––––––––– ––––––––––
Exercisable at 31 December 10,000,000 32.37p 13,500,000 29.22p
–––––––––– –––––––––– –––––––––– ––––––––––
The weighted average remaining contractual life for the share options outstanding as at
31 December 2018 was 2.94 years (31 December 2017: 1.56 years).
The range of exercise prices for options outstanding at the end of the year was 31 pence to
59.85 pence (31 December 2017: 20 pence to 59.85 pence).
Outstanding options include 500,000 and 9,500,000 equity-settled options granted on 6 February 2009
and 2 February 2012 respectively to certain directors and employees of the Company. The Company
did not enter into any share-based transactions with parties other than employees during the years
from 2007 to 2018, except as described above.
During the year 2018, there were no options granted, forfeited or exercised.
The following table illustrates the number (“No.”) and weighted average exercise prices (“WAEP”) of,
and movements in upper share rights and contingent share awards during the years ended 31
December 2018 and 31 December 2017.
2018 2018 2017 2017
No. WAEP No. WAEP
Outstanding at 1 January 7,711,425 9.48p 7,711,425 9.48p
–––––––––– –––––––––– –––––––––– ––––––––––
Granted during the year – – – –
Forfeited during the year – – – –
Exercised during the year – – – –
Expired during the year – – – –
–––––––––– –––––––––– –––––––––– ––––––––––
Outstanding at the end of the year 7,711,425 9.48p 7,711,425 9.48p
–––––––––– –––––––––– –––––––––– ––––––––––
Exercisable at the end of the year 7,711,425 9.48p 7,711,425 9.48p
–––––––––– –––––––––– –––––––––– ––––––––––
* The weighted average share price at the date of exercise of these options was 9.48 pence.
The weighted average remaining contractual life for the share options outstanding as at
31 December 2018 was 2.53 years (2017: 3.51 years). The range of exercise prices for options
outstanding at the end of the year was zero to 15.5 pence (2017: zero to 15.5 pence).
On 16 October 2009, 4,847,099 of upper share rights were granted to certain director, executives and
key employees under the Company’s joint share ownership scheme (“JSOS”). 50% of upper share
rights vested 12 months from the date of grant and 50% of upper share rights vested 24 months from
the date of grant. The fair value of the upper share rights is estimated at the end of each reporting
53
Notes to the financial statements (continued)
period using the binomial tree option pricing model. The contractual life of each upper share rights
granted is 10 years.
On 20 July 2012, 1,120,000 of contingent share awards were granted to certain directors, executives
and key employees under the Company’s JSOS, which vested 197 days from the date of grant. The
contractual life of each contingent share award granted is 10 years.
On 30 December 2014, 2,423,358 of share awards were granted to certain key employees under the
Company’s JSOS, which vested immediately at the date of grant. The contractual life of each share
offer granted is 10 years.
The carrying amount of the liability relating to the upper share rights and the contingent share award
as at 31 December 2018 is US$103,000 (2017: US$103,000) and the credit expense recognised as share-
based payments during the year is US$nil (2017: US$21,000).
26. Related party transactions
Identification of related parties
The Group has a related party relationship with its subsidiaries, associates and key management
personnel. The Company receives and pays certain debtors and creditors on behalf of its subsidiaries
and the amounts are recharged to the entities. Transactions between the Company and its
subsidiaries have been eliminated on consolidation.
Transactions with key management personnel
The Group’s key management personnel are the executive and non-executive directors as identified
in the director’s report (Note 6).
Service receiving transactions
The following table provides the total amount of significant transactions and outstanding balances
which have been entered into with related parties during the years ended 31 December 2018 and
31 December 2017.
2018 2017
US$’000 US$’000
Amounts due to related parties*
Key management personnel:
Hiroshi Funaki*** (19) (8)
Philip Peter Scales*** (13) (9)
John Chapman*** (35) (9)
Other:
Origo Advisors Ltd** – (760)
Amounts due from related parties*
Origo Advisors Ltd** – 278
Transactions
Origo Advisors Ltd**
– Consulting services payable – (1,390)
––––––––
––––––––
54
As at 31 December 2018 and 31 December 2017, the Group is committed to pay Origo Advisors Ltd
for consulting services fee as below:
2018 2017
US$’000 US$’000
Within 1 year – 1,000
After 1 year but within 5 years – –
–––––––– ––––––––
Total – 1,000
––––––––
––––––––
*
The amount due to Origo Advisors Ltd is unsecured, has no fixed terms of repayment, and bears interest at 8 percent
per annum. The other amounts are unsecured, non-interest bearing and have no fixed terms of repayment.
** Origo Advisors Ltd is controlled by entities whose ultimate beneficiaries include Niklas Ponnert (director of the
Company who resigned in April 2018) and Chris A Rynning (former director of the Company). The transactions were
mutually agreed by both parties at a fixed sum or charged based on cost incurred. The agreement was signed for
four years up to 31 December 2018. A new Asset Realisation Support Agreement was signed in May 2018 to waive
the fixed sum of US$1 million for 2018.
*** Mr. Hiroshi Funaki was appointed as director of the Company in September 2017, and Mr. Philip Peter Scales and
Mr. John Chapman were appointed as directors of the Company in October 2017.
27. Capital management
The primary objectives of the Group’s capital management are to safeguard the Group’s ability to
continue as a going concern and to maintain healthy capital ratios in order to support its business
and maximise shareholders’ value.
The Group manages and makes appropriate adjustments to its capital structure on an ongoing basis
in light of changes in economic conditions and the risk characteristic of the underlying assets. To
maintain or adjust the capital structure, the Group may adjust dividend payments to shareholders,
return capital to shareholders and/or issue new shares. The Group is not subject to any externally
imposed capital requirements. No changes were made in the objectives, policies or processes during
the years ended 31 December 2018 and 31 December 2017.
The Group monitors capital using a gearing ratio, which is net debt divided by capital plus net debt.
Net debt includes total liabilities less cash and bank balances. Capital includes equity attributable to
equity holders of the parent company. The gearing ratios as at the reporting dates were as follows:
2018 2017
US$’000 US$’000
Total liabilities 1,167 5,714
Less: Cash and bank balances (3,883) (1,199)
–––––––– ––––––––
Net debt (2,716) 4,515
–––––––– ––––––––
Equity attributable to equity holders of the parent 6,275 14,165
–––––––– ––––––––
Capital 6,275 14,165
–––––––– ––––––––
Capital and net debt 3,559 18,680
–––––––– ––––––––
Gearing ratio (76%) 24%
–––––––– ––––––––
55
Notes to the financial statements (continued)
28. Summary of financial assets and financial liabilities by category
2018 2017
US$’000 US$’000
Financial assets
Cash 3,883 1,199
Financial assets at amortised cost 28 874
Fair value through profit or loss – designated 3,527 17,779
–––––––– ––––––––
7,438 19,852
–––––––– ––––––––
Financial liabilities
Financial liabilities measured at amortised cost 485 3,984
Financial guarantee contracts 435 435
–––––––– ––––––––
920 4,419
–––––––– ––––––––
29. Commitments and contingencies
There were no material contracted commitments or contingent assets or liabilities at 31 December
2018 (31 December 2017: none) that have not been disclosed in the consolidated financial
statements.
30. Comparative figures
Certain comparative figures have been reclassified to conform the current year’s presentation. During
the year the company applied IFRS 9 for the first time. This change resulted in a re-designation of the
amounts held within financial assets but had no impact on their carrying value.
31. Subsequent events
(a)
(b)
In January 2019, the Company announced that it had sold its remaining interest in Niutech, the
operating company of Niutech Energy Ltd., to Chinese institutional and other investors, for
approximately USD 2.1 million and has received 90 per cent of the sale proceeds with the
remainder due upon the fulfillment of certain conditions. The sale price was at a discount of
20% to book value, partially reflecting depreciation of the RMB as against the US dollar since
the last reporting period.
In March 2019, the Company terminated its investment advisor, Origo Advisers Ltd, with
immediate effect for cause. The board will continue to monitor the company’s portfolio with a
view to liquidating the company’s remaining assets and returning excess capital to
shareholders. The board is considering whether completion of this process is most effectively
accomplished by the board directly or by retaining a new advisor.
56
Statement of Compliance with the QCA Corporate Governance Code
(This disclosure was last reviewed and updated on 27 June 2019)
Introduction
The Board of Origo Partners Plc (the “Company”) has adopted the 2018 QCA Corporate Governance
Code (the “QCA Code”). The Board intends to take appropriate measures to ensure that the
Company complies with the QCA Code.
Principle 1 – Establish a strategy and business model which promote long-term value for shareholders
The Company is now in realisation mode and entered in to an amended Asset Realisation Agreement
with the Company’s investment consultant Origo Advisers Limited on 20 April 2018. This Agreement
was terminated for cause in March 2019.
The Company holds a portfolio of unquoted interests and illiquid, publicly traded, equity interests, in
companies principally based or active in China and Mongolia (“Portfolio”).
The Company shall, through an orderly realisation program, seek to divest the entire Portfolio over a
period of no longer than 4 years (“Realisation Period”) at such time and under such conditions as the
Independent Directors may determine in order to maximize value on behalf of Shareholders. The
4 year period ended on 20 November 2018. Shareholders will be asked to either approve an extension
to the Realisation Period or consider alternative proposals at the 2019 Annual General Meeting.
The Company’s realisation policy will not result in any immediate or accelerated sales; investments
will only be realised when, in the opinion of the Independent Directors, appropriate terms can be
agreed.
During the Realisation Period, the Company shall maintain the ability at its discretion, to pursue
follow-on investments in the existing Portfolio companies in order to maximize value and/or facilitate
future divestments.
All divestments, and any follow-on investments relating to a Portfolio company, above a cumulative
threshold of US$500,000, will be considered and approved by the Independent Directors.
Net proceeds of divestments shall, pursuant to the Company’s Articles of Association, be distributed
to shareholders at such time as determined by the Board of Directors, at its absolute discretion, for
the purpose of maximizing returns to shareholders while maintaining sufficient liquidity for working
capital and provisions for follow-on investments.
Principle 2 – Seek to understand and meet shareholder needs and expectations
Although the Company is in realisation mode the Directors actively seek to build a relationship with
its shareholders and continue to manage shareholder’s expectations. The Company remains
committed to listening and communicating openly with its shareholders to ensure that its strategy
and performance are clearly understood. Meetings are held with shareholders, typically following the
issuing of results.
For shareholders the AGM is the main forum for dialogue with the Board and Directors are available
to answer questions raised by shareholders. The results of the AGM are subsequently published on the
Company’s website.
There are also periodic class meetings held which is another forum for dialogue with the Directors,
the results of these class meetings are also published on the Company’s website. The Directors are
the main point of contact for the shareholders.
57
Statement of Compliance with the QCA Corporate Governance Code
(continued)
Principle 3 – Take into account wider stakeholder and social responsibilities and their implications for
long-term success.
This principle now has limited applicability, given that the investment policy of the Company is to
realise its portfolio and to return the net proceeds to shareholders. The Board has oversight,
accountability and contact with key resources and relationships.
The group’s stakeholders include shareholders, members of staff of the investment advisor, auditors,
regulators and industry bodies.
Engaging with stakeholders strengthens relationships and helps with business decisions in order to
deliver the investment policy.
Principle 4 – Embed effective risk management, considering both opportunities and threats,
throughout the organisation.
The Company’s investment activities expose it to various types of risks, which are associated with the
financial instruments and markets in which it invests. The Board needs to ensure that the Company’s
risk management framework identifies and addresses all relevant risks.
The Board is responsible for reviewing and evaluating risk and considers the risks to the business at
regular board meetings.
The Group is exposed through their operations to one or more of the following risks:
•
•
•
•
•
•
•
•
Country risk
Fair value risk
Cash flow interest rate risk
Currency risk
Credit risk
Liquidity risk
Concentration risk
Price risk
The policy for managing these risks is set by the board and is available to view on the Company’s
website.
The Board has overall responsibility for the Company’s systems of internal controls, for reviewing their
effectiveness and ensuring efficient day to day operations. These controls aim to ensure that assets
of the Company are safeguarded, proper accounting records are maintained and the financial
information used within the business and for publication are reliable.
Following their appointment in 2017, the new board appointed FIM Capital Limited as Administrator
in order to improve the levels of corporate governance, accounting and day to day management
of the Company.
58
Principle 5 – Maintain the board as a well-functioning, balanced team led by the chair.
The Origo board was reconstituted in late 2017 with the appointment of three new directors and the
resignations of two of the incumbent directors. In September 2017, Hiroshi Funaki joined the Origo
board as a nominee of Origo’s largest ordinary shareholder. On 31 October 2017, John Chapman
joined the Origo board as a nominee of our largest preference shareholder. Also, on 31 October 2017,
Philip Scales joined the board as an independent director. John Chapman was elected the
Company’s Chairman. In April 2018, Niklas Ponnert an employee of the investment adviser resigned
from the Board.
In the period since the new board was appointed, the primary focus has been to establish more
robust controls over company assets, strengthen the Company’s capital position by repaying debt,
reduce costs, renegotiate the advisory agreement, clarify the assets owned and begin to accelerate
the realization of company assets in order to be able to return cash to shareholders.
The Board now comprises three non- executive directors, John Chapman (Chairman), Hiroshi Funaki
and Philip Scales and all three have an effective and an appropriate balance of skills and experience
for a company of this size.
The Board holds regular meetings, a minimum of at least 4 times per annum, either formally in person
or informally by telephone and ad hoc meetings are held as required. For the year ended
31 December 2018 fifteen board meetings took place. Fourteen meetings were attended by all
directors and one was attended by a majority of directors.
Principle 6 – Ensure that between them the directors have the necessary up-to-date experience, skills
and capabilities.
The Board currently consists of three Non- Executive Directors. The Board is satisfied that between the
Directors it has an effective and appropriate balance of skills and experience, reflecting a broad
range of commercial and professional skills across geographies and industries that is necessary to
ensure the Company is equipped to deliver is investment objective. Additionally, each Director has
experience with public companies.
John Chapman is an experienced investment company director with significant experience in
managing and advising investment companies in many emerging and developed markets.
Mr. Chapman is a member of the New York State Bar and holds the Chartered Financial Analyst (CFA)
credential.
Hiroshi Funaki worked at Edmond de Rothschild Securities from 2000 to 2015 where he led the
Investment Companies team, focusing on Emerging Markets and Alternative Assets. Prior to that, he
was Head of Research at Robert Fleming Securities, also specialising in closed-end funds. He currently
acts as a consultant to a number of emerging market investors. He has a BA in Mathematics and
Philosophy from Oxford University.
Philip Scales has over 40 years’ experience working in offshore corporate, trust, and third party
administration. For 18 years, he was Managing Director of Barings Isle of Man (subsequently to
become Northern Trust) where he specialised in establishing offshore fund structures, latterly in the
closed-ended arena (both listed and unlisted entities). Mr. Scales subsequently co-founded FIM
Capital Limited where he is Deputy Chairman. He is a Fellow of the Institute of Chartered Secretaries
and Administrators and holds a number of directorships of listed companies and collective investment
schemes.
FIM Capital Limited (“FIM”) is the Fund’s administrator, registrar and registered agent, and provide
specialist fund administration services to a variety of closed ended funds and collective investment
schemes. Many of the closed ended schemes are quoted on the London Stock Exchange. FIM
59
Statement of Compliance with the QCA Corporate Governance Code
(continued)
Capital Limited act as secretary to the Company and are available to advise and support the Board
on corporate governance and secretarial matters.
Legal firms in London and China have been appointed to specifically provide advice to the Board
on all matters relating to the sale of the portfolio of assets.
Principle 7 – Evaluate board performance based on clear and relevant objectives, seeking continuous
improvement.
The Directors intend to carry out board evaluations by the end of 2019 and annually thereafter.
Principle 8 – Promote a corporate culture that is based on ethical values and behaviours.
It is the board who set the standard/culture within the organisation and they ensure that there are
appropriate codes of practice in place.
Principle 9 – Maintain governance structures and processes that are fit for purpose and support good
decision-making by the board.
The Board has joint authority and decision-making powers for all aspects of the Company’s activities.
The Board has adopted appropriate delegations of authority that set out matters that are reserved
to the Board.
The Non-Executive Chairman is responsible for the effectiveness of the Board together with the
responsibility to oversee the company’s corporate governance practices.
The responsibility for the Company’s day-to-day operations has been delegated by the Board to FIM.
There are no separate committees as the board does not feel these are necessary given the size of
the Board, the Company and the investment objective of realising all assets matters normally
considered by a committee are considered by the Board as a whole.
Whilst there has been no formal adoption of matters reserved for the Board, the Directors review and
approve the following:
•
•
•
•
•
•
•
Strategy and management
Policies and procedures
Financial reporting and controls
Capital structure
Contracts
Shareholder documents/Press announcements
Adherence to Corporate Governance and best practice procedures
Principle 10 – Communicate how the Company is governed and is performing by maintaining a
dialogue with shareholders and other relevant stakeholders.
There are no additional committees and the board does not feel it is necessary at this time due to
the size of the company and the fact that it is in realisation mode.
If a significant proportion of votes (e.g. 20% of independent votes) have been cast against a resolution
at any general meeting, the Company will include, on a timely basis, an explanation of what actions
60
it intends to take to understand the reasons behind that vote result, and, where appropriate, any
different action it has taken, or will take, as a result of the vote.
The results of votes taken at meetings are published on the Company’s website. Historical annual
reports and notices are also published on the website.
COMMITTEES
As detailed in Principle 5 there are no Board committees (and therefore no committee reports) and
this will be highlighted in future Reports and Accounts.
The Company will monitor and review the need to form Committees to support the function of the
Board.
61
Directors, Advisors and Other Information
Directors
John Chapman, Non-Executive Chairman
(appointed in October 2017)
Hiroshi Funaki, Non-Executive Director
(appointed in September 2017)
Philip Peter Scales, Non-Executive Director
(appointed in October 2017)
Niklas Ponnert, Director
(resigned in April 2018)
Shonaid Jemmett-Page, Non-Executive Director
(resigned in October 2017)
Lionel de Saint-Exupery, Non-Executive Director
(resigned in October 2017)
Country of incorporation of
parent company
Isle of Man
Company number
005681V
Auditor
Nominated adviser and broker
UK legal advisers
Lubbock Fine
Paternoster House
65 St Paul’s Churchyard
London EC4M 8AB
Arden Partners Plc
125 Old Broad Street,
London EC2N 1AR
Travers Smith LLP
10 Snow Hill,
London EC1A 2AL
62
sterling 172796