Equity Special Situations Limited
("ESS" or "Company" or "the Group")
Unaudited Interim Results for the Six Months Ended 30 June 2008
Equity Special Situations Limited, (AIM:EQS) the strategic
investment company, announces its unaudited results for the six month period
ended 30 June 2008.
Background
As has been well documented over the course of the last year, stock
market conditions, particularly with regard to available finance for quoted
smaller cap companies, have never been so difficult. The AIM All-Share index
has fallen more than 40 per cent. in the last 12 months and the FTSE Small Cap
index has fallen by more than a third over the same period. What we are
witnessing is any bad news being issued by small companies being severely
punished and any good news not being duly rewarded, with the share prices of
those companies being only maintained, at best. Against this challenging
backdrop, we're pleased to announce our six month results, during which the
aggregate value of our investment portfolio has fallen by less than 3 per
cent. from �51.4 million at 31 December 2007 to �50.0 million at 30 June 2008.
Investment Strategy
Our investment strategy remains that of trying to achieve long term
capital growth for shareholders through the purchase, holding and sale of
significant minority stakes in companies and investment funds. We aim to
exploit special situations and seek out ideas and companies which we believe
will provide a material uplift in valuation to the investment price of ESS. We
often combine an initial investment into a company with the provision of
management and administrative support.
Over the last couple of years, we have focussed on the financial
services sector and have built up significant holdings in companies operating
in the area of wealth management, alternative assets, private banking,
corporate and trustee services and fund management.
Investee Companies
As at 30 June 2008, ESS held investments in 17 companies, up from
14 at the beginning of the period, 13 of which were in publicly quoted
companies and four of which were in unquoted companies. ESS also continues to
hold one rental property via its wholly owned subsidiary, ESS Property
Investments Limited. 13 of the investments are in companies operating in, or
related to, financial services. Important investment additions during the
period include new holdings in Bramdean Alternatives, the quoted fund of
funds, and Conister Financial Group ("CFG"), the offshore private banking
group.
ESS and CFG began discussions in early 2008 to explore ways to
broaden the investment platforms of each business and to seek out potential
synergies between the two parties. This culminated in ESS and CFG taking a 9.9
per cent. shareholding in each other in June 2008. Since then, we have begun
to introduce a number of business opportunities to each other, particularly as
many of the clients of the companies within ESS's portfolio service a large
number of high net worth individuals, many of whom could become clients of
CFG.
At the period end, ESS's largest investment by value remains
Syndicate Asset Management plc ("SAM"), which represented 63 per cent. of the
Group's investments (2007: 66 per cent.) at the period end. Other notable
holdings besides SAM and CFG include STM Group plc, which represents 9 per
cent. (2007: 10 per cent.) of the Group's investments and Noble Investments
(UK) plc which accounts for 5 per cent. (2007: 6 per cent.). ESS remains
committed to supporting those companies in which it has significant holdings
and is pleased to report that the underlying businesses of each of the key
investments are trading well and in line with their own managements'
expectations.
Financial Review
Although we are pleased that the value of our investment portfolio
has fallen by only 3 per cent. during the six month period from �51.4 million
to �50.0 million, we nevertheless recorded a net loss on financial assets of
�6.7 million (2007: �3.5 million gain). The principal contributing factor to
this is ESS's exposure to SAM's share price which, after a strong performance
during the second half of 2007, fell back during the first half of 2008. As a
consequence, almost �4.0 million of ESS's total loss was due to SAM. Other
factors include the general reduction in liquidity in small cap stocks which
has, in turn, widened the available spreads and ultimately led to the drifting
of a number of share prices during the period in the absence of any company
newsflow.
However I'm pleased to report that, since the period end, and
following the recent reporting season in August and September, the share
prices of our biggest investee companies have, on the whole, performed
relatively well on the back of some good operational news.
Expenses of �0.5 million were in line with the same period last
year (2007: �0.5 million), although financing costs were materially higher at
�1.2 million (2007: �0.7 million), reflecting the higher levels of borrowings
when compared to the same period last year. The overall loss for the period
was �8.3 million (2007: �2.3 million profit), resulting in a loss per share of
49.83 pence (2007: 16.36 pence profit).
Cash balances of �4.3 million remain similar to those at the
beginning of the period (�4.5 million) and we have reduced our borrowings by
more than �6.1 million during the period from �31.7 million at 31 December
2007 to �25.6 million at 30 June 2008. Net assets at the period end were �31.1
million.
During the period, we successfully raised more than �8.6 million
(before expenses) in two placings through the issue of, in aggregate,
4,423,007 new ordinary shares of 1 pence each ("Ordinary Shares"). We warmly
welcome our new shareholders to the Group. The effect of the loss for the year
and the additional shares issued during the period has resulted in a NAV of
150.96 pence at the period end, down 20 per cent. from 190.02 pence at the
beginning of the year and similar to the 151.99 pence achieved at the same
time last year.
Current trading and outlook
Since the period end, it has become clear that, as expected, there
are significant synergies between ESS and CFG and, as a consequence, ESS has
extended its strategic relationship with CFG through each party increasing its
shareholding in the other. In early September, ESS issued a further 2,206,090
Ordinary Shares to CFG in return for ESS receiving new shares in CFG. As a
result, ESS currently holds 19.9 per cent. of CFG and both parties are working
closely in order to extract some significant value for the respective
shareholders in the future.
We anticipate that the difficult stock market conditions for
smaller companies will remain for the foreseeable future; however, we are
pleased to report that our current unaudited NAV has improved since the period
end and we would anticipate further increases during the remainder of the
year. We therefore remain cautiously optimistic about the future.
Peter Griffin
Director
CONSOLIDATED INCOME STATEMENT
FOR THE SIX MONTHS ENDED 30 JUNE 2008
For the six month period For the six month period For the year ended
ended 30 June 2008 ended 30 June 2007 31 December 2007
(unaudited) (unaudited) (audited)
Note Revenue Capital Total Revenue Capital Total Revenue Capital Total
� � � � � � � � �
INCOME
Rental income 3,503 - 33,503 - - - 20,120 - 20,120
Interest income 29,471 - 29,471 41,771 - 41,771 138,845 - 138,845
Dividends
receivable 31,611 31,611 - - - 63,664 63,664
Net (loss)/gains
on financial assets
at fair value
through profit or loss - (6,702,057) (6,702,057) - 3,485,908 3,485,908 10,914,924 10,914,924
Unrealised gain
on foreign
exchange 13,396 - 13,396 - - - - - -
TOTAL NET
INCOME 107,981 (6,702,057) (6,594,076) 41,771 3,485,908 3,527,679 222,629 10,914,924 11,137,553
EXPENSES
Administration
fees 85,775 - 85,775 60,176 - 60,176 127,551 - 127,551
Professional
fees 126,344 - 126,344 146,953 - 146,953 147,037 9,959 156,996
Consultancy
fees - 223,751 223,751 - 294,515 294,515 - 1,300,375 1,300,375
Audit fee 8,000 - 8,000 3,750 - 3,750 16,550 - 16,550
Commissions 47,559 - 47,559 19,894 - 19,894 79,883 - 79,883
Registration
and regulatory
expenses 8,010 - 8,010 6,935 - 6,935 47,270 - 47,270
Other operating
expenses 4,998 - 4,998 8,711 - 8,711 5,935 - 5,935
TOTAL OPERATING
EXPENSES 280,686 223,751 504,437 246,419 294,515 540,934 424,226 1,310,334 1,734,560
OPERATING
(LOSS)/PROFIT (172,705) (6,925,808) (7,098,513) (204,648) 3,191,393 2,986,745 (201,597) 9,604,590 9,402,993
Finance costs (1,172,122) - (1,172,122) (668,550) - (668,550) (1,900,457) - (1,900,457)
(LOSS)/PROFIT
BEFORE TAX (1,344,827) (6,925,808) (8,270,635) (873,198) 3,191,393 2,318,195 (2,102,054) 9,604,590 7,502,536
Taxation - - - - - - - - -
(LOSS)/PROFIT
AFTER TAX (1,344,827) (6,925,808) (8,270,635) (873,198) 3,191,393 2,318,195 (2,102,054) 9,604,590 7,502,536
Basic earnings
per share
(pence per share) 2 (49.83) 16.36 52.96
All items in the above statement derive from continuing operations.
All income is attributable to the equity holders of the parent company. There are no minority interests.
CONSOLIDATED BALANCE SHEET
30 JUNE 2008
30 June 2008 30 June 2007 31 December 2007
Note (unaudited) (unaudited) (audited)
ASSETS
Non-current assets
Investment Property 338,673 - 286,168
Financial assets at fair
value through profit or loss 49,651,044 40,322,990 51,159,648
Total non-current assets 49,989,717 40,322,990 51,445,816
Current assets
Cash and cash
equivalents 4,268,508 6,940,685 4,453,469
Loans receivable 2,549,658 455,645 2,774,622
Other debtors and
receivables - - 105,958
6,818,166 7,396,330 7,334,049
TOTAL ASSETS 56,807,883 47,719,320 58,779,865
CURRENT LIABILITIES
Loans and overdrafts 11,336,689 1,270,918 10,615,837
Liabilities under
investment contracts 14,225,350 24,870,502 21,127,678
Other creditors and accruals 97,140 44,091 115,108
TOTAL LIABILITIES 25,659,179 26,185,511 31,858,623
NET ASSETS 31,148,704 21,533,809 26,921,242
EQUITY
Share capital 4 206,334 141,676 141,676
Share premium account 20,578,903 8,145,464 8,145,464
Capital reserve
- Realised (2,714,361) (497,285) (2,311,790)
- Unrealised 17,042,049 15,357,376 23,565,286
Share option reserve 242,676 39,584 242,676
Retained earnings (4,206,897) (1,653,006) (2,862,070)
TOTAL EQUITY �31,148,704 �21,533,809 �26,921,242
Net asset value per
share (pence per share) 3 150.96 151.99 190.02
APPROVED BY THE BOARD OF DIRECTORS
P F Griffin M T Cahill
Director Director
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED 30 JUNE 2008
Capital Capital Share
Share Share reserve - reserve - option Retained
capital premium realised unrealised reserve earnings Total
� � � � � � �
As at 1 January 2008 141,676 8,145,464 (2,311,790) 23,565,286 242,676 (2,862,070) 26,921,242
Profit/(loss) for the year - - (402,571) (6,523,237) - (1,344,827) (8,270,635)
Total recognised income
and expenses for
the period - - (402,571) (6,523,237) - (1,344,827) (8,270,635)
-
Issue of new shares 64,658 13,013,439 - - - - 13,078,097
Share Issue cost - (580,000) - - - - (580,000)
As at 30 June 2008 206,334 20,578,903 (2,714,361) 17,042,049 242,676 (4,206,897) 31,148,704
For the period ended
30 June 2007
Capital Capital Share
Share Share reserve - reserve - option Retained
capital premium realised unrealised reserve earnings Total
� � � � � � �
As at 1 January 2007 141,676 8,145,464 (454,423) 12,103,329 19,792 (760,016) 19,195,822
Profit/(loss) for the year - - (42,862) 3,254,047 - (892,990) 2,318,195
Total recognised income
and expenses for
the period - - (42,862) 3,254,047 - (892,990) 2,318,195
-
Share based payments - - - - 19,792 - 19,792
As at 30 June 2007 141,676 8,145,464 (497,285) 15,357,376 39,584 (1,653,006) 21,533,809
For the year ended 31 December 2007
Capital Capital Share
Share Share reserve - reserve - option Retained
capital premium realised unrealised reserve earnings Total
� � � � � � �
As at 1 January 2007 141,676 8,145,464 (454,423) 12,103,329 19,792 (760,016) 19,195,822
Profit/(loss) for the year - - (1,822,306) 11,426,896 - (2,102,054) 7,502,536
Total recognised income
and expenses for
the year - - (1,822,306) 11,426,896 - (2,102,054) 7,502,536
Transfer to realised
reserves on disposal
of investments - - (35,061) 35,061 - - -
Share based payments - - - - 222,884 - 222,884
As at 31 December 2007 141,676 8,145,464 (2,311,790) 23,565,286 242,676 (2,862,070) 26,921,242
INTERIM CONSOLIDATED CASH FLOW STATEMENT
FOR THE SIX MONTHS ENDED 30 JUNE 2008
Six month Six month
period ended period ended Year ended
30 June 2008 30 June 2007 31 December 2007
(unaudited) (unaudited) (audited)
Net cash outflow from
operating activities (1,480,588) (1,522,369) (3,214,623)
Investing activities:
Purchase of securities (7,087,702) (13,469,876) (35,994,453)
Purchase of investment property - - (286,168)
Proceeds from disposals
of listed securities 1,841,744 1,789,835 20,522,500
Loans receivable repaid 224,964 - -
Loans receivable advanced - (123,771) (1,208,729)
Net cash outflow from
financial investment (5,020,994) (11,803,812) (16,966,850)
Financing:
Loans payable received 720,852 - 16,301,997
Short term financing received - 15,089,540 2,233,892
Loans payable repaid (6,902,328) (350,315) -
Short term financing repaid - (571,412) -
Issue of own shares 12,498,097 - -
Net cash inflow from financing 6,316,621 14,167,813 18,535,889
(Decrease)/increase in cash
resources for the year/period �(184,961) �841,632 (1,645,584)
Net decrease in cash
and cash equivalents (184,961) 841,632 (1,645,584)
-
Cash and cash equivalents
at 1 January 2008 4,453,469 6,099,053 6,099,053
Cash and cash equivalents
at 30 June 2008 �4,268,508 �6,940,685 �4,453,469
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2008
1. ACCOUNTING POLICIES
(a) CONVENTION
These unaudited interim financial statements have adopted the same
accounting policies, presentation and methods of
computation as the last audited financial statements which were
prepared in accordance with International Financial
Reporting Standards ("IFRS") issued by the International Accounting
Standards Board ("IASB"), interpretations issued by the International
Financial Reporting Interpretations Committee of the IASB ("IFRIC") and
applicable legal and regulatory requirements of Guernsey Law.
2. EARNINGS PER SHARE
The calculation of basic and diluted earnings per share is as
follows;
30 June 2008 30 June 2007 31 December 2007
Earnings
Earnings for the purpose of basic
and diluted earnings
per share being net profit
attributable to equity holders of
the parent (8,270,635) 2,318,195 7,502,536
Number of shares
Weighted average number of
ordinary shares for the 16,597,184 14,167,604 14,167,604
purposes of basic
earnings per share
Effect of dilutive potential
of share options - - 8,427
Weighted average number
of ordinary shares for the
purposes of diluted
earnings per share 16,597,184 14,167,604 14,176,031
3. NET ASSET VALUE PER SHARE
The calculation of net asset value is based on the consolidated net
assets of �31,148,704 and on the ordinary shares in issue of 20,633,386 at the
balance sheet date.
4. SHARE CAPITAL
30 June 2008 30 June 2007 31 December 2007
Authorised
50,000,000 ordinary
shares of �0.01 each �500,000 �500,000 �500,000
Allotted and fully paid:
Brought forward 141,676 141,676 141,676
Issue of new shares
during period/year 64,658 - -
20,633,386
(30 June and 31 December 2007: 14,167,604
ordinary shares of �0.01 each � 206,334 � 141,676 � 141,676
The Company has one class of ordinary shares which carry no right
to fixed income.
On 22 February 2008 the Company issued 2,307,693 new ordinary
shares of 1 pence each at a premium of 194 pence per share, raising proceeds
of approximately �4.5 million. The shares issued rank pari-passu with the
existing shares in issue.
On 21 April 2008 the Company issued 2,115,384 new ordinary shares
of 1 pence each at a premium of 194 pence per share, raising proceeds of
approximately �4.1 million. The shares issued rank pari-passu with the
existing shares in issue.
On 23 June 2008 the Company agreed to acquire a 9.9% interest in Conister
Financial Group plc, for a consideration of approximately �4.5 million. This
consideration was satisfied by the issue of 2,042,705 new ordinary shares of 1
pence each in the Company at a premium of 217 pence per share. The shares
issued rank pari-passu with the existing shares in issue.
5. EVENTS AFTER THE BALANCE SHEET DATE
On 1 July 2008, David Pinckney stepped down as chairman of the ESS
Advisory Panel.
On 8th September 2008 the Company acquired 7,101,798 new ordinary
shares in Conister Financial Group Plc ("CFG")("the Investment"), through the
issue to CFG of 2,206,090 new shares at 235p per share, ranking pari passu
with existing shares.
The report is available to view and download from the Company's website at
www.equityspecialsituations.com
Further information:
Equity Special Situations Limited
Peter Griffin +44 (0)1481 751000
Jonathan Freeman +44 (0)1600 750432
Evolution Securities Limited
Jeremy Ellis/Chris Clarke +44 (0)20 7071 4300
GTH Communications
Toby Hall/Christian Pickel +44 (0)20 7153 8035
END
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