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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Dexion Trading | LSE:DTL | London | Ordinary Share | GB00B0378141 | ORD NPV |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 133.75 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From May 2019 to May 2024
TIDMDTL
RNS Number : 9120D
Dexion Trading Limited
03 April 2014
Dexion Trading Limited (the 'Company')
ANNUAL FINANCIAL REPORT
The Company has today, in accordance with DTR 6.3.5, released its Annual Financial Report for the year ended 31 December 2013. The Report is available via www.dexiontrading.com and will shortly be submitted to the National Storage Mechanism and will also shortly be available for inspection at www.hemscott.com/nsm.do
CHAIRMAN'S STATEMENT
I present Shareholders with the Annual Report and Accounts of Dexion Trading Limited for the year ended 31 December 2013.
Market Conditions - Overview
Having seen the Company's Net Asset Value performance hover between minus and plus 1%. during much of the year, an improvement in the last quarter of 2013 saw performance in the middle of the pack with respect to the macro-oriented peers and better than most for the full year. Compared to the more diversified Funds of Hedge Funds, the Company underperformed in 2013 but its share price discount to Net Asset Value is the tightest of the listed Fund of Hedge Fund peers following implementation of the new discount control mechanism detailed below.
Results
During the year to 31 December 2013 the Net Asset Value ('NAV') of the Company's GBP Shares rose by 3.33% By comparison the HFRI Fund of Funds Index rose by 8.79% over the year. The annualised return on Shares from inception to 31 December 2013 has been 3.95% with annualised volatility of 5.18%.
New Discount Control Provisions
Shareholders may recall the Company's rolling 12 month discount floor provision was triggered during January 2013.
The Directors wanted to address the on-going Shareholder concerns regarding the discount level at which the Shares had been trading. During May 2013 the Directors determined that where the Company's Shares had traded at an average discount to NAV equal to or in excess of 3% in any calendar quarter, the Company may, at the discretion of the Directors, make a partial redemption offer to Shareholders for up to 30% of the Shares then in issue, excluding Shares held in treasury.
The first discount calculation period ended on 30 September 2013. The resulting average discount at that time was 3.47%. A partial redemption offer was put forward to Shareholders which closed on 6 November 2013. On 7 November 2013 the Company announced that tenders had been received for in excess of 30% of the Shares in issue (excluding any Shares held in Treasury) at 7 November 2013. Accordingly acceptances had to be scaled back.
The second discount calculation period ended on 31 December 2013 and a Second partial redemption offer was made in January 2014. On 10 February 2014 the Company announced that tenders for the second redemption offer had been received for in excess of 30% of the Shares in issue (excluding any Shares held in Treasury) as at 7 February 2014. Accordingly, acceptances had to be scaled back and an announcement made on 10 February 2014 advising that redemption monies were expected to be paid on or by the end of March 2014.
Recommended proposals for a voluntary winding up of the Company
In light of the level of tenders for redemption received but unfulfilled in respect of the second redemption offer, the Directors consider that it is in the best interests of Shareholders that the Company put forward liquidation proposals (the Winding Up Resolution). A circular to Shareholders detailing the Winding Up Resolution and convening the necessary extraordinary general meeting, to be held on 9 April 2014, was published on 19 March 2014.
If the Winding Up Resolution is passed, redemption requests for all of the Company's remaining Investments (comprising shares in Permal Macro Holdings Ltd) will be submitted for a redemption date of 30 April 2014, with the realisation monies expected to be received by the Company by the end of May 2014.
Going Concern
The Directors' Report sets out the summary review of our key risks and mitigations in respect of the Going Concern concept. For the reasons highlighted in that important summary review, I and my fellow Directors believe it is no longer appropriate for the Company to continue to adopt the Going Concern basis for the preparation of the 2013 annual financial statements.
Extraordinary General Meeting
Shareholders are invited to attend the Extraordinary General Meeting of the Company on 9 April 2014 which will be held at 1 Le Truchot, St Peter Port, Guernsey.
I would like to take this opportunity to thank my fellow Directors for their time and commitment to the Board over the years.
Christopher Spencer Chairman
2 April 2014
MANAGER'S REPORT
We report that the NAV of the Company's Shares (in GBP terms) increased by 3.3%, net of fees and expenses, over 2013, compared to a decrease of 1.8% (in U.S. dollar terms) for the HFRX Macro Index.
The following provides the Investment Adviser's overview of the performance (in U.S. dollar terms) of the Portfolio by hedge fund sub-strategy, over the period under review. Performance is shown net of the underlying managers' fees and expenses only. References to the Portfolio are, where the context requires, to the portfolio of Permal Macro Holdings Ltd. ('Permal Macro' or the 'Fund'), of which the Company is a feeder fund.
General
2013 broke the trend of the past few years, finishing with a strong second half. During the year we saw a broad dispersion of returns across markets and sectors, creating an environment that was more conducive for alternative investing. There were a number of potential threats, which in the past could have derailed the recovery, yet each had remarkably little impact on the direction of equity markets.
The U.S. recovery was in full swing and this was largely reflected in the numbers. Through fracking, the U.S. has become one of the lowest manufacturing cost bases of any country in the world and this is feeding through to consumers. Not all data-points have been as strong, but the picture is one of general improvement. With Fed tapering underway, the U.S. is on sounder footing, although concerns continue to linger.
China has set a more comfortable growth rate of 7.0-7.5%, while November's Third Plenum represented a wide overhaul of many aspects of the Chinese system and surprised with its determination to reform. The goals are all good, although the proposed reform steps are still not deep enough to transform the economy and society, with structural imbalances not far away, although these conditions have opened up a short term China trade window.
2013 was a momentous year in Japan, having seen the Nikkei rise by over 56% and the Japanese yen weaken by 18% against the U.S. dollar and 21% against the euro.
Japan's focus remains reflation and authorities will continue to pursue their aggressive policy to boost economic growth and achieve their 2% target, although whether Prime Minister Abe can maintain momentum remains to be seen and is largely dependent on the success of the third structural 'arrow'.
Europe is now in a tentative recovery phase, although one that still lacks any real momentum or conviction, and while Chancellor Merkel is firmly in the driver's seat, France is teetering on the edge.
Of all the markets, emerging markets had the most difficult time in 2013, beset by weakening currencies, rising inflation, slowing GDP growth, foreign investor outflows and domestic upheaval, and although these are difficult issues to contend with, there are some brighter spots, namely Mexico, South Korea and Taiwan.
2014 has started rather more tentatively, with a broad mix of good and bad data points in both emerging and developing markets, as well as the start of U.S. tapering. Emerging markets, in particular, have struggled to gain traction, wracked by currency crises, slowing economies, and concerns about tapering, which in turn has impacted global markets. Increasingly, however, we are seeing further signs of diverging trends between various markets.
Equity Markets
Most equity markets ended the year in positive territory. The Nikkei led the charge, up 56.7%, as investors bought into Abenomics, while the strengthening U.S. story was reflected in the S&P 500 being up 32.4%. Europe likewise fared strongly, with the MSCI Europe (EUR) up 20.5%. The emerging markets, however, made heavy going of this developing market tailwind, with the IFC Investable Composite down 0.6% for the year, while the Shanghai SE Composite was down 6.8% as investors took fright of disappointing regional data and the slower growth story.
Fixed Income
On the other end of the scale, bond markets had their worst year for many years, with the ten year benchmark rates in the U.S. and U.K. higher on the generally strengthening recovery stories: the U.S. ten year increased 1.27% and the U.K. ten year up 1.19%, while Japan's ten year yield fell by 0.05%. For the first time in a number of years, central banks were following different paths, with the Fed tapering and Bank of Japan printing. At the end of the year the Citigroup High Yield Bond Index was up 7.2%, while the Citigroup Global Investment Grade Index had declined 2.0%.
Foreign Exchange
The euro continued to be a headwind to the eurozone recovery, up 4.3% against the U.S. dollar during the year. Both currencies strengthened significantly against the Japanese yen, with the U.S. dollar up 21.5% and the euro up 27%. Emerging market currencies were generally down, although there was a degree of divergence, with the Korean won up 1% against the U.S. dollar, while other currencies, such as the Brazilian real and Indian rupee, weakening significantly.
Commodities
Commodity markets generally ended the year lower, with the Dow Jones UBS Commodity Index down 9.6% and the S&P GSCI Index down 2.2%, driven by fears over declining global growth, led by China. Further, confusion and fears surrounding Fed tapering resulted in a decreased appetite for risk assets including commodities. WTI crude oil prices ended the year up 7.2%, while Brent prices were largely flat (down 0.3%). Natural gas notably outperformed during the year, climbing over 26% amid unusually cold weather in North America. Precious and base metals fell across the board, with the exception of zinc and palladium, which were largely unchanged. In the agricultural markets, the decline was led by the U.S. grain markets, which fell on the back of larger than expected supply due to favourable growing conditions.
Portfolio review
In 2013, Permal Macro benefited from the continued allocation shift away from Systematic managers towards Discretionary managers, with Discretionary up from 58% to 69%, and Systematic down from 21% to 14%. This shift proved valuable as Discretionary was the best performing strategy in 2013, while Systematic suffered a loss. The Relative Value Arbitrage managers, an 8% allocation, also delivered strong returns, and this helped to offset losses from the Natural Resources managers, the Portfolio's smallest allocation at 5%.
The first five months of the year were profitable for the Company as Discretionary managers, in particular, capitalised successfully on certain themes, namely the economic divergences amongst major developed economies and the different paths adopted by various policymakers. The two major trades were Japan's "reflation trade" and the U.S. recovery. Discretionary managers' nimbleness was evident in May, a challenging month for the markets, when they outperformed largely due to a reduction in exposures and judicious shorting of U.S. treasuries. The following months, however, proved more testing for the Company, as concerns over Fed tapering timings and the ensuing market turbulence caused even the most fundamentally sound themes to unravel. Systematic managers had a particularly trying time over this period due to volatility in the fixed income sector.
As more certainty returned to the markets in the fourth quarter, profitable themes reasserted themselves. Favourable developments included encouraging economic data in the U.S., clarity on Fed tapering, further monetary easing in Japan and a cut in the European Central Bank main refinancing rate. Against this backdrop, the Company ended the year on a strong note with gains widespread across the main asset classes for the Discretionary managers, and Systematic managers also experienced a strong rebound driven by the rally in equity markets and the depreciation of the Japanese yen.
Despite a relatively challenging environment for macro strategies, and in particular for the Systematic and Natural Resources managers, the Company delivered positive alpha in 2013, outperforming the HFRX and HFRI macro indices by around 5%. Despite outperforming the indices, the Investment Adviser continues to look for new ways to further enhance returns. Consequently, it has implemented a few new ideas in the Portfolio starting in 2014. Most notably, the Portfolio is now comprised of three main categories of managers: the existing Discretionary and Systematic allocations, and a third strategy termed "Thematic". This Thematic category encompasses high-conviction themes in the macro space that the Investment Adviser is looking to express in a concentrated and liquid manner. These themes will largely be expressed through separate accounts with existing and new managers. Over the years the Investment Adviser has been successful in identifying and capitalising on good macro ideas, such as the bull market in natural resources that started in 2003, the recovery in credit in 2009, and the decline in stock market correlations over the past couple of years. With the Thematic allocation, the Company is looking to play these themes in a more active and focused way.
Performance Attribution by strategy
Discretionary managers (a 68% allocation at 31 December 2013) returned +10.8% for the year against the HFRX Discretionary Thematic Index return of 1.1%. The majority of these managers enjoyed a strong year, benefiting in particular from the 'Japan trade', which was expressed primarily via long the Nikkei and Topix, and short the Japanese yen. The 'long U.S. trade' also proved rewarding and, in particular, long exposure to not only the S&P 500 but also specific sectors, such as U.S. financials. Similarly, well-timed shorts in U.S. treasuries added to returns. In the currency sector, managers' long U.S. dollar bias against sterling at the beginning of the year and a timely reversal thereafter added to returns. The 'emerging market vulnerability' theme, expressed via long the U.S. dollar versus selected emerging market currencies, was lucrative. Managers' constructive, albeit prudent, outlook towards the European recovery expressed through long European peripheral bonds and European stocks, was also profitable.
Systematic managers (a 14% allocation) at year end were down 5.9% for the year against a decline of 1.3% for the HFRX Systematic Diversified Index. 2013 was another challenging year for trend following managers as the amplitude of market moves during the year were largely dampened by central bank activities, in particular, the confusion surrounding Fed tapering. One of the few sustained trends during the year was the rise in equity prices, a positive development that benefited all trend followers. In addition, some managers profited from the decline in precious metals prices. However, these gains were more than offset by losses in the fixed income markets, which saw frequent reversals during the year as fears over tapering ebbed and flowed. Additionally, energy markets proved challenging as sentiment surrounding Chinese growth likewise saw frequent shifts in direction. Performance among the non-trend following managers was more mixed. While currency trading was profitable, with notable gains made from well-timed shorts in commodity currencies and longs in the euro and sterling, fixed income trading was challenging, resulting in losses.
Natural Resources (a 5% allocation) was down 11.1%, while the HFRX Commodity Index was down 1.9% and the HFRX Commodity-Metals Index down 34.2%. The primary driver of underperformance during the year was the Portfolio's overweight exposure to long gold and gold-related equities, particularly small caps. In addition, energy trading proved costly as volatility remained subdued in these markets. Losses were marginally offset by trading in agricultural commodities, as well as short positions in coal.
Relative Value Arbitrage (8% allocation) was up 10.1% for the year against the HFRX Equity Market Neutral Index return of 1.7%. During the year, managers benefited from declining stock correlations. In addition, the markets rewarded stock-pickers as there was a return to fundamentals during the year.
Outlook
Managers' caution towards emerging markets has proven to be beneficial and the consensus view is the impact witnessed on the developed markets appears unwarranted, particularly with the continued U.S. economic recovery. And while some of the recent U.S. economic data has been disappointing, much of this softness appears to be transient and is likely to be due to the unusually cold weather. The growth backdrop seems to remain fairly strong for 2014, particularly in light of a reduced fiscal drag, strengthening corporate demand and a likely rebound in manufacturing PMI and retail sales once the adverse weather in the U.S. subsides.
In Japan, Abenomics has clearly borne fruit, with a rise in inflation and, even more crucially, a rise in inflation expectations. While some questions clearly remain unanswered, particularly relating to structural changes and impact of the imminent sales tax, Prime Minister Abe remains extremely determined to make it work and for companies to deliver on wage increases.
In Europe, the tepid recovery continues to unfold.
Emerging markets, on the other hand, are set to remain under pressure for some time as they are weighed down by a reduction in liquidity - prompted by Fed tapering - and a slowdown in the Chinese economy. The most vulnerable countries are those with high current account deficits that relied for years on abundant foreign capital inflows. These are now reversing as the Fed gradually withdraws from its accommodative policy.
Despite a challenging start to the year, the macro landscape is promising to be a very fruitful one in 2014. In particular, the divergence in policies being implemented by the major central banks is a central theme, particularly the Fed tapers, the Bank of Japan continues to deploy an unprecedented amount of quantitative easing, and the European Central Bank is expected to remain dovish. Managers are also seeking to capitalise on decoupling between emerging and developed markets.
Discretionary Macro Manager Positioning
Fixed Income
In the U.S., managers continue to favour short exposure to U.S. government bonds in light of the continued U.S. economic recovery, though this exposure has become far more tactical in light of recent market action. They are short the U.K., where the economic backdrop is also strong. In Europe, they continue to be long across the euro curve. Certain managers are also long European peripheral bonds given improving economic data in this region.
Currencies
Managers are long the U.S. dollar and sterling given favourable growth dynamics in each country. In particular, long U.S. dollar against the Japanese yen remains a prominent position for the majority of the Fund's managers. They also typically hold long exposure to the U.S. dollar against various emerging market and commodity currencies, in particular the Canadian dollar, given the pressures on emerging markets and the deteriorating outlook for commodities.
Equities
Managers generally retain their conviction in the U.S. recovery story and the Japan reflation trade and consequently are maintaining their long positioning in U.S. and Japanese stock indices.
Commodities
Whilst light, exposure is generally expressed through short gold positions.
Analysis of significant investments
The ten largest holdings of the Portfolio as at 31 December 2013 are set out below. These investments were held via Permal Macro.
Hot Features
Premium
% of
Market % of issued
value Company's share
Name of Investment Strategy (GBP) net assets capital(1)
------------------------------- --------------- ---------- ---------- ----------
Caxton Global Investments
Limited Discretionary 9,917,068 10.62 0.23
Moore Global Investments
Limited Discretionary 5,944,544 6.37 0.14
Tudor BVI Global Fund
Limited Discretionary 5,601,497 6.00 0.09
Permal Fixed Income Special
Opportunities Limited Discretionary 4,791,642 5.13 0.97
Permal Global Opportunities
Limited Discretionary 3,662,806 3.92 1.90
Permal FAM Limited Discretionary 3,267,737 3.50 2.76
Permal Ash Macro Limited Discretionary 3,154,277 3.38 2.40
Gavea Fund Limited Discretionary 2,968,452 3.18 0.30
Moore Macro Managers Fund
Limited Discretionary 2,805,252 3.00 0.08
A.R.T. International Investors Relative Value
(BVI) Limited Arbitrage 2,775,826 2.97 0.25
------------------------------- --------------- ---------- ---------- ----------
44,889,101 48.07
----------------------------------------------- ---------- ---------- ----------
1) Percentages of issued share capital are based on estimates provided by underlying managers as of 31 December 2013.
Note: The total of the top 10 largest investments at 31 December 2012 was 41.90%. of the Portfolio's net assets and no holding was larger than 9.61%. Source: Dexion Capital plc calculation based on Permal data.
The above table forms an integral part of the financial statements. Refer to Note 4b)i). (See full Annual Report and Accounts)
Whilst it is generally considered best practice to disclose the full portfolio of an investment company, the composition of the Permal Macro's investment portfolio is the subject of confidentiality provisions with Permal Macro.
Dexion Capital (Guernsey) Limited
2 April 2014
STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE FINANCIAL STATEMENTS
The Directors are responsible for preparing the Directors' Report and the financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with International Financial Reporting Standards (IFRS) and applicable law.
The financial statements are required by law to give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.
In preparing these financial statements, the Directors are required to:
- select suitable accounting policies and apply them consistently; - make judgements and estimates that are reasonable and prudent;
- state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and
- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. As explained in note 2b) of the financial statements, the Directors do not believe that it is appropriate to prepare the financial statements on a going concern basis.
The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with the Companies (Guernsey) Law, 2008. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.
Under applicable laws and regulations the Directors are also responsible for preparing this Directors' report and Corporate Governance Statement .
Directors' Responsibility Statement
The Directors confirm that they have complied with the above requirements in preparing the financial statements and that to the best of our knowledge and belief:
(a) This management report (comprising the Chairman's Statement, Manager's Report and Directors' Report) includes a fair review of the development and performance of the business and the position of the Company together with a description of the principal risks and uncertainties that the Company faces; and
(b) The financial statements, prepared in accordance with International Financial Reporting Standards, give a true and fair view of the assets, liabilities, financial position and profit of the Company.
By order of the Board
Christopher Spencer Carol Goodwin Director Director 2 April 2014
STATEMENT OF FINANCIAL POSITION (Audited)
As at As at
31 December 31 December
2013 2012
GBP000 GBP000
---------------------------------------------- ------------ ------------
Assets
Current assets
Financial assets at fair value through profit
or loss 93,178 128,932
Cash and cash equivalents - 117
Management fee rebate receivable 298 -
Other receivables 17 3
Total assets 93,493 129,052
---------------------------------------------- ------------ ------------
Liabilities
Current liabilities
Bank overdraft 9 -
Provision for wind up costs 55 -
Accounts payable and accrued expenses 110 48
Total liabilities 174 48
---------------------------------------------- ------------ ------------
Net assets 93,319 129,004
---------------------------------------------- ------------ ------------
Represented by:
Shareholders' equity and reserves
Share premium 47,026 86,683
Other reserves 46,293 42,321
---------------------------------------------- ------------ ------------
Total Shareholders' equity 93,319 129,004
---------------------------------------------- ------------ ------------
Net assets per Share 139.61p 135.10p
---------------------------------------------- ------------ ------------
STATEMENT OF COMPREHENSIVE INCOME (Audited)
For the For the
year ended year ended
31 December 31 December
2013 2012
GBP000 GBP000
---------------------------------------------- ------------ ------------
Income
Net gains on financial assets at fair value
through profit or loss 3,870 1,405
Management fee rebates 618 -
---------------------------------------------- ------------ ------------
Net income 4,488 1,405
---------------------------------------------- ------------ ------------
Expenses
Directors' remuneration and expenses (87) (86)
Secretarial fees (29) (26)
Fund administration fee (39) (39)
Custodian fee (39) (39)
Audit fee and audit related fee (29) (27)
Legal fees (47) (24)
Other professional fees (60) (90)
Wind up costs (55) -
Other operating expenses (131) (141)
---------------------------------------------- ------------ ------------
Total operating expenses before finance costs (516) (472)
---------------------------------------------- ------------ ------------
Finance costs
Interest expense - (3)
---------------------------------------------- ------------ ------------
Total comprehensive income 3,972 930
---------------------------------------------- ------------ ------------
Basic and Diluted return/(loss) per Share 4.27p 0.97p
---------------------------------------------- ------------ ------------
All items derive from continuing activities
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (Audited)
FOR THE YEAR ENDED 31 DECEMBER 2013
Share Other
Premium Reserves Total
GBP000 GBP000 GBP000
----------------------------------------- -------- --------- --------
Balance at 1 January 2013 86,683 42,321 129,004
----------------------------------------- -------- --------- --------
Total comprehensive income for the year
Total return for the year - 3,972 3,972
----------------------------------------- -------- --------- --------
Transactions with Shareholders, recorded
directly in equity Redemption of Shares (39,617) - (39,617)
Costs relating to redemption of Shares (40) - (40)
----------------------------------------- -------- --------- --------
Balance as at 31 December 2013 47,026 46,293 93,319
----------------------------------------- -------- --------- --------
Share Other
FOR THE YEAR ENDED 31 DECEMBER 2012 Premium Reserves Total
GBP000 GBP000 GBP000
----------------------------------------- -------- --------- --------
Balance at 1 January 2012 86,683 43,173 129,856
----------------------------------------- -------- --------- --------
Total comprehensive income for the year
Total return for the year - 930 930
----------------------------------------- -------- --------- --------
Transactions with Shareholders, recorded
directly in equity Purchases of own
Shares for cancellation - (1,782) (1,782)
----------------------------------------- -------- --------- --------
Balance as at 31 December 2012 86,683 42,321 129,004
----------------------------------------- -------- --------- --------
STATEMENT OF CASH FLOWS (Audited)
For the For the
year ended year ended
31 December 31 December
2013 2012
GBP000 GBP000
----------------------------------------------------- ------------ ------------
Cash flows from operating activities
Total comprehensive income for the year 3,972 930
Adjustments for:
Net gains on financial assets held at fair value
through profit or loss (3,870) (1,405)
(Increase)/decrease in other receivables (312) 8
Increase / (decrease) in accounts payable and
accrued expenses 117 (5)
Net cash flows used in operating activities (93) (472)
----------------------------------------------------- ------------ ------------
Cash flows from investing activities
Investments acquired (320) -
Proceeds from sale of investments 39,944 3,000
----------------------------------------------------- ------------ ------------
Net cash flows from investing activities (39,624) 3,000
----------------------------------------------------- ------------ ------------
Cash flows from financing activities
Redemption of Shares (39,617) -
Costs relating to redemption of Shares (40) -
Purchase of own Shares for cancellation - (1,782)
----------------------------------------------------- ------------ ------------
Net cash flows used in financing activities (39,657) (1,782)
----------------------------------------------------- ------------ ------------
Net (decrease)/increase in cash and cash equivalents (126) 746
----------------------------------------------------- ------------ ------------
Cash and cash equivalents at the beginning of
the year 117 (629)
----------------------------------------------------- ------------ ------------
Cash and cash equivalents at the end of the
year (9) 117
----------------------------------------------------- ------------ ------------
Analysis of cash and cash equivalents at the
end of the year
Cash at bank - 117
Bank overdraft (9) -
----------------------------------------------------- ------------ ------------
(9) 117
----------------------------------------------------- ------------ ------------
Cash flows from operating activities include:
Interest expense for financial liabilities that
are not fair value through profit or loss - (3)
----------------------------------------------------- ------------ ------------
Significant accounting policies
Basis of preparation
Going concern
After making enquiries and given the nature of the Company and its investments, the Directors announced on 10 February 2014 that they considered it in the best interests of Shareholders that the Company put forward winding up proposals. A circular to Shareholders detailing the proposals and convening the necessary extraordinary general meeting was published on 19 March 2014. The Extraordinary General Meeting is due to be held on 9 April 2014. As a result the Directors have concluded it is no longer appropriate to continue to adopt the going concern basis in preparing the financial statements and the financial statements have been prepared on a non-going concern basis.
There is no difference to the primary statements if they were to be prepared on a going concern basis with the exception of the inclusion of a provision of GBP55,000 in the Statement of Financial Position and Statement of Profit or Loss and Other Comprehensive Income. This provision represents the estimated expenses to be incurred in relation to the proposed winding up of the Company. No termination fee will be payable in respect of the final redemption in Permal Macro.
Financial Risk Management
The Investment Manager provides services to the Company, co-ordinates access to domestic and international financial markets, monitors and manages risks relating to the operations of the Company through internal risk reports which analyse exposures by degree and magnitude of risks.
The techniques and instruments utilised for the purposes of efficient portfolio management are those which are reasonably believed by the Investment Manager to be economically appropriate to the efficient management of the Company. The Company's financial instruments include investments designated as fair value through profit or loss, cash and currency hedging instruments. The main risks arising from the Company's financial instruments are market price risk, interest rate risk, currency risk, liquidity risk and credit risk.
a) Capital risk management
The Company manages its capital to ensure that it is able to continue as a going concern while maximising the return to equity holders through the optimisation of equity balance. The capital structure of the Company consists of Shareholders' equity which comprises issued share capital, and other reserves. To maintain or adjust the capital structure, the Company may return capital to Shareholders or issue new Shares. There are no regulatory requirements to return capital to Shareholders. However, there are opportunities to reduce capital at the discretion of the Directors through the quarterly redemptions. (Refer to Note 7, Share Capital). The Company adheres to the Listing Rules of the UK Listing Authority.
b) Market risk
Market risk embodies the potential for both losses and gains and includes currency risk, interest rate risk and price risk.
The Company's strategy on the management of investment risk is driven by the Company's investment objective. The Company's investment objective is detailed in the Directors' Report (see full Annual Report and Accounts). The Company's main investment guidelines and restrictions are:
- The Company invests all or substantially all of its assets in Class A GBP shares issued by Permal Macro. The investment policy of Permal Macro is to diversify its investment risk.
- No more than 20% of the value of Permal's gross assets may be lent to or invested in the securities of any one issuer (including the issuer's subsidiaries and affiliate) or may be exposed to the creditworthiness or solvency of any one counterparty (including that counterparty's subsidiaries or affiliates).
- Gross assets in excess of 20% and up to 40% of the value of Permal Macro may be invested in any one Underlying
Fund or may be allocated to any one Portfolio Manager to manage on a discretionary basis, provided that each such Underlying Fund or Portfolio Manager operates on the principle of risk spreading. Permal Asset Management will monitor the investment portfolio of the Underlying Funds and Portfolio Managers with which Permal Macro has invested more than 20% of the value of its gross assets to ensure that, in the aggregate, the restrictions quoted above are not breached.
- Permal Macro may not invest in aggregate more than 20% of the value of its gross assets in other funds whose
principal investment objectives include investing in other funds.
- Permal Macro may not take or seek to take legal or management control of the issuer of any of its underlying
investments.
- Permal Macro may not invest more than 10% in aggregate, of the value of its gross assets directly in physical
commodities.
- Permal Macro has the power to borrow and may do so not only to meet redemptions (which would otherwise result
in Permal Macro prematurely liquidating investments), but also as part of its investment philosophy. Such borrowing, in the aggregate, will not exceed 20% of the net assets of Permal Macro.
i) Market price risk management
Market price risk arises mainly from uncertainty about future prices of financial instruments held. It represents the potential for both loss and gain that might be suffered through holding market positions in the face of price movements. The Company's investment portfolio is exposed to market price fluctuations which are monitored by the Investment Adviser in pursuance of its investment objective and policies.
Details of the Company's exposure in underlying investments held via Permal Macro as at 31 December 2013 are disclosed in summary form in the Manager's Report (See full Annual Report and Accounts).
Price sensitivity analysis
The Company's only investment is in Permal Macro. Therefore, market price risk is managed indirectly through diversification of the investment portfolio in Permal Macro.
The Investment Adviser provides a Portfolio & Risk analysis for Permal Macro that is included within the Board report process. The analysis provides data on a Value at Risk measurement of 99% on a best fit or 'proxy' data that aligns with the investment strategy of the portfolio. Performance data is approximated reasonably by using Extreme Value Theory. The Investment Adviser also analyses the time-varying market factor sensitivities of Permal Macro.
The following details the Company's sensitivity to a 10% increase and decrease in the market prices, with 10% being the sensitivity rate used when reporting price risk internally to key management personnel and representing management assessment of the possible change in market prices. At 31 December 2013 if the market prices had been 10% higher with all other variables held constant, the increase in the net assets attributable to equity shareholders for the year would have been GBP9,317,792 (2012: GBP12,893,179); an equal change in the opposite direction would have decreased the net assets attributable to equity shareholders.
Actual trading results may differ from the above sensitivity analysis and those differences may be material.
ii) Interest rate risk management
Interest rate risk represents the uncertainty of investment return due to changes in the market rates of interest. Substantially all of the Company's assets are non-interest bearing equity investments and its exposure to interest rate changes is minimal. Interest receivable on bank deposits and interest payable on bank overdraft positions will be affected by fluctuations in interest rates. All cash balances and bank overdrafts are at variable rates. Increases in interest rates will increase the borrowing costs of the Company should the overdraft facility be used. The rate of interest in respect of the overdraft facility is fixed at Royal Bank of Canada (Channel Islands) Limited base rate plus 1%. Credit monies are sufficient to provide liquidity for ongoing expenses of the Company.
The Company's investment in Permal Macro is not directly exposed to interest rate risk. However, the Company may be indirectly exposed through the underlying portfolio held by Permal Macro.
As at 31 December 2013, all of the Company's assets and liabilities were non-interest bearing with the exception of bank overdraft (see table below).
Non-interest
1 - 3 months bearing
GBP000 GBP000 Total GBP000
============================================ ============= ============ ===================
Assets
Financial assets at fair value through
profit or loss:
Investment in Fund of Hedge Funds - 93,178 93,178
Loans and receivables:
Management fee rebate receivable - 298 298
Other receivables - 17 17
============================================ ============= ============ ===================
Total assets - 93,493 93,493
============================================ ============= ============ ===================
Liabilities
Financial liabilities measured at amortised
cost:
Bank overdraft (9) - (9)
Accounts payable and accrued expenses - (165) (165)
============================================ ============= ============ ===================
Total liabilities (9) (165) (174)
============================================ ============= ============ ===================
Total interest sensitivity gap (9) - -
============================================ ============= ============ ===================
As at 31 December 2012, all of the Company's assets and liabilities were non-interest bearing with the exception of cash and cash equivalents (see table below).
Non-interest
1 - 3 months bearing
GBP000 GBP000 Total GBP000
============================================ ============= ============ ===================
Assets
Financial assets at fair value through
profit or loss:
Investment in Fund of Hedge Funds - 128,932 128,932
Loans and receivables:
Cash and cash equivalents 117 - 117
Other receivables - 3 3
============================================ ============= ============ ===================
Total assets 117 128,935 129,052
============================================ ============= ============ ===================
Liabilities
Financial liabilities measured at amortised
cost:
Accounts payable and accrued expenses - 48 48
============================================ ============= ============ ===================
Total liabilities - 48 48
============================================ ============= ============ ===================
Total interest sensitivity gap 117 - -
============================================ ============= ============ ===================
Interest rate sensitivity analysis
Cash and cash equivalents will be affected by movements in interest rates. However there will be no material impact on the Statement of Comprehensive Income or Statement of Changes in Shareholder's Equity from movements in interest rates due to the immateriality of the bank balances at year end. At year end the Company's cash balance represented an overdraft of GBP9,335 (31 December 2012: GBP117,064).
iii) Currency risk management
The Company's investment in Permal Macro is predominantly in pounds sterling; therefore, the effect of currency fluctuation is minimal. Permal Macro's investments comprises predominantly of US dollar denominated investments. Whilst Permal Macro will (subject to the availability of appropriate foreign exchange and credit lines) engage in currency hedging in an attempt to reduce the impact on its Class A GBP shares of currency fluctuations, volatility of returns may result from such currency exposure. Any uninvested monies such as working capital requirements are monitored by the Investment Manager.
The Company had no significant exposure to currency risk at 31 December 2013 and 31 December 2012.
Liquidity risk management
The ultimate responsibilities for liquidity risk management rests with the Board of Directors which has appropriately reviewed the funding requirements for the management of the Company's short, medium and long-term funding needs. The Company maintains adequate reserves by continuously monitoring forecast and actual cash flows and maintains an overdraft facility as described in Note 15 to assist with any unforeseen timing mismatches. The facility was cancelled on 28 February 2014 in anticipation of the winding up of the Company.
The Company's financial instrument is an investment in Permal Macro which generally may be illiquid. The Company is currently required to give 20 days prior notice of redemption to redeem its holdings in Permal Macro.
However, if the Winding Up Resolution is passed on 9 April 2014 redemption requests for all of the Company's holdings in Permal Macro will be submitted for a redemption date of 30 April 2014, with the realisation monies expected to be received by the Company in full by the end of May 2014.
Residual contractual maturities of financial Less than More than liabilities 1 month 1 month Total 31 December 2013 GBP000 GBP000 GBP000 ============================================= =================== =============================== ====== Accounts payable and accrued expenses 110 55 165 31 December 2012 Accounts payable and accrued expenses 48 - 48 -------------------------------------------------------- -------- ------------------------------- ------
d) Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company. The carrying amounts of financial assets best represent the maximum credit risk exposure at the reporting date. Investments made by Permal Macro may not be regulated by the rules of any stock exchange or investment exchange or other regulatory body or authority. The counterparties to such investments may have no obligation to make markets in such investments and may have the ability to apply essentially discretionary margin and credit requirements. As a result, the Company will be subject to the risk of bankruptcy of, or the inability or refusal to perform with respect to such investments by the counterparties with which the Company deals. The diversity of the portfolio assists with the mitigation of such risk.
The Company is exposed to material credit risk in respect of cash and cash equivalents not withstanding that the Company was in an overdraft position as at 31 December 2013. All cash is placed with Royal Bank of Canada (Channel Islands) Limited ('RBC'). The Company is subject to credit risk to the extent that this institution may be unable to return this cash. RBC is a wholly owned subsidiary of the Royal Bank of Canada Group ('RBCG'). RBCG is publicly traded and a constituent of S&P 500. RBCG has a credit rating of AA- from Standard & Poor's.
The Company's financial assets which were exposed to credit risk via investment in Permal Macro were concentrated as follows:
As at As at
31 December 31 December
2013 2012
GBP000 GBP000
=========================== ============ ============
Cash and cash equivalents - 117
Management fee rebate 298 -
=========================== ============ ============
Investment in Permal Macro 93,178 128,932
=========================== ============ ============
93,476 129,049
=========================== ============ ============
Related Parties and Significant Agreements
Related Parties
Directors' Remuneration and Expenses
The annual Directors' fees comprise GBP32,000 paid to Mr Spencer, the Chairman, GBP28,000 to Ms Goodwin as Chairman of the Audit Committee and GBP26,000 to Mr Niven. Mr Bowie has waived his right to his fee of GBP26,000. Directors' fees payable at 31 December 2013 were GBP21,677 (2012: GBP Nil).
Any additional remuneration where Directors are involved in duties beyond those normally expected as part of a Director's
appointment will be disclosed in the Directors' Report of the financial statements in respect of that financial year.
a) Manager
Permal Macro paid the Investment Adviser an annual fee (payable monthly in arrears) of 2.0 per cent. of the value of the Total Assets attributable to its class A shares in Permal Macro held by the Company (together with certain other operational costs and expenses) until 30 June 2013. The Investment Adviser had agreed to rebate half of that fee to the Manager in complete discharge of the Company's obligation to pay fees to the Manager pursuant to the Investment Management Agreement out of which 0.5 per cent. will be available as a trail commission to Qualifying Investors. With effect from 1 July 2013 the annual fee payable to the Investment Adviser was reduced from 2.0 per cent. to 1.0 per cent.. Out of this fee the Investment Adviser will rebate 40 basis points to the Manager.
During the year ended 31 December 2013, Permal Macro paid a total annual fee amounting to the equivalent of GBP1,947,844 (31 December 2012: GBP2,545,306) to the Investment Adviser and part of this fee (the equivalent of GBP910,466, 31 December 2012: GBP1,272,653) was paid by the Investment Adviser to the Manager. The reduction in the annual fee payable has resulted in the payment of a 1.0 per cent. rebate to the Company. In the period 1 July 2013 to 31 December 2013 a rebate of GBP618,364 was payable, (31 December 2012 GBPNil) with GBP298,334 being outstanding as at 31 December 2013 (31 December 2012 GBPNil)
The Manager is responsible for discharging all the fees of the Investment Consultant.
The Investment Management Agreement may be terminated by either party giving to the other not less than 9 months' notice, or otherwise in circumstances where, amongst other things, one of the parties has a receiver appointed of its assets or if an order is made or an effective resolution passed for the winding up of one of the parties or if, following a continuation vote not being passed or if a resolution for the winding-up of the Company is passed.
Under the Investment Advisory Agreement, the Company pays a nominal fee to the Investment Adviser save where the Company's investment in Permal Macro is redeemed otherwise than on at least nine months' notice in which case a termination fee equal to the fee which would otherwise have been payable if due notice had been given in respect of the Company's investment in Permal Macro which is then being redeemed (as at the Valuation Date immediately preceding redemption) is payable by the Company to the Investment Adviser. Such termination fee is not payable where redemptions are made to fund any quarterly redemption offers which the Company may make. The Investment Adviser has confirmed that no termination fee will be payable if the Winding Up Resolution is passed on 9 April 2014 resulting in the Company submitting a redemption request for its entire holding in Permal Macro.
To date, Dexion Capital (Guernsey) Limited has purchased 2,786,000 Shares in the Company and has sold these Shares pursuant to a sale and repurchase-like agreement (structured as an accreting strike option) under which it is entitled to purchase the Shares at any time. The repurchase consideration (exclusive of interest and charges) is equal to the disposal consideration. Dexion Capital (Guernsey) Limited will retain no voting rights in the Shares. However, all of the risk and reward of beneficial ownership of the Shares remains with Dexion Capital (Guernsey) Limited.
b) Investment Adviser
As at 31 December 2013 Permal Asset Management, an affiliate of the Company's Investment Adviser, owns 373,279 Shares in the Company (31 December 2012: 3,435,000).
c) Secretary
Dexion Capital (Guernsey) Limited (the 'Secretary') performs secretarial duties for which it was remunerated at an annual fee of GBP22,000. The Secretary is also remunerated for additional meetings held over and above those quoted within the minimum fee.
Significant Agreements
a) Administrator
RBC Offshore Fund Managers Limited (the 'Administrator'), performs administrative duties for which it was remunerated at a rate of 0.03% of the Net Asset Value of the Company subject to a minimum of GBP30,000 per annum.
b) Custodian
Royal Bank of Canada (Channel Islands) Limited (the 'Custodian'), is remunerated at an annual rate of 0.03% of the Net Asset Value of the Company subject to a minimum of GBP10,000 per annum.
Enquiries:
Carol Kilby:
Dexion Capital (Guernsey) Limited
Tel: +44 (0) 1481 743943
This information is provided by RNS
The company news service from the London Stock Exchange
END
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