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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Qannas Investments Limited | LSE:QIL | London | Ordinary Share | KYG7306P1037 | ORD NPV (DI) |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 0.625 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMQIL
RNS Number : 9108D
Qannas Investments Limited
28 June 2019
Qannas Investments Limited
("Qannas" or the "Company")
Audited Financial Statements and Posting of Audited Financial Statements
Qannas (AIM:QIL), the closed-ended investment company listed on the AIM market, is pleased to announce the release of its audited financial statements for the period ending 31 December 2018. Extracts from these statements are enclosed below.
In accordance with AIM Rule 20, the Company confirms that a copy of the annual report and accounts is available on the Company's website www.qannasinvestments.com
For further information please contact:
Qannas Investments Limited Tel: 01534 844 806
Nadia Trehiou
ADCM Ltd. (Investment Manager) Tel: +971 2 639 0099
Mustafa Kheriba
finnCap Ltd Tel: 020 7220 0500
Henrik Persson/William Marle (Corporate Finance)
The notification set out below is provided in accordance with the requirements of the EU Market Abuse Regulation.
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QANNAS INVESTMENTS LIMITED 1.
GENERAL INFORMATION
FOR THE YEARED 31 DECEMBER 2018
===================================== ===
DIRECTORS PRINCIPAL BANKERS
Christopher Ward (Chairman) First Abu Dhabi Bank (formerly First
Gulf Bank)
Main Branch
Richard John Stobart Prosser P.O. Box 6316
Abu Dhabi
Richard Green (resigned 19 September United Arab Emirates
2018)
Mustafa Kheriba
REGISTRAR
Link Asset Services (Jersey) Limited
COMPANY NUMBER (formerly Capita Registrars (Jersey)
Limited)
CT 286543 (registered in Cayman 12 Castle Street
Islands)
St Helier
Jersey JE2 3RT
COMPANY SECRETARY Channel Islands
Walkers Corporate Limited
Cayman Corporate Centre
George Town NOMINATED ADVISOR
Grand Cayman KY1-9008 finnCap Ltd
Cayman Islands 60 New Broad Street
London EC2M 1JJ
England
REGISTERED OFFICE NOMINATED BROKER
Cayman Corporate Centre finnCap Ltd
27 Hospital Road 60 New Broad Street
George Town London EC2M 1JJ
Grand Cayman KY1-9008 England
Cayman Islands
LEGAL ADVISORS
ADMINISTRATOR Appleby
Estera Fund Administrators (Jersey) 13-14 Esplanade
Limited
13-14 Esplanade St Helier
St Helier Jersey JE1 1BD
Jersey JE1 1EE Channel Islands
Channel Islands
Herbert Smith Freehills LLP
Exchange House
AUDITOR Primrose Street
Deloitte LLP London EC2A 2HS
Regency Court England
Glategny Esplanade
GY1 3HW Conyers Dill & Pearman Limited
Guernsey Level 2, Gate Village 4
Dubai International Financial Centre
P.O. Box 506528
INVESTMENT MANAGER Dubai
ADCM Ltd ("ADCM") United Arab Emirates
Codan Trust Company (Cayman) Limited
Cricket Square, Hutchins Drive,
P.O. Box 2681
George Town, Grand Cayman KY1-1111 COMPANY WEBSITE
Cayman Islands www.qannasinvestments.com
QANNAS INVESTMENTS LIMITED 2.
CHAIRMAN'S REPORT
FOR THE YEARED 31 DECEMBER 2018
===================================== ===
It is with great pleasure that I present my seventh annual report on the performance of Qannas Investments Limited ("QIL" or the "Company"). The Board presented a new investment strategy for approval by shareholders at last year's AGM, and I am pleased to announce that this was indeed approved. Hence, QIL's new investment strategy focuses on investing in listed equities in the Gulf Cooperation Council ("GCC") region, with a proportion of funds to be allocated to debt investments and pre-IPO financing with an emphasis on value investing.
As a consequence, the process of divesting existing investments which do not fit the new strategy has continued. During 2018, QIL generated $17.7 million in sale proceeds from these non-core investments, repaid $8 million of outstanding debt and invested $12.8 million in debt instruments generating a 9.8% yield per annum. Details of these transactions are contained in the Investment Manager's Report.
During the year, the NAV of QIL declined marginally to $0.61 per share as of December 2018, from $0.65 per share last year. This decline is a reflection of the subdued market sentiments in the overall global capital markets (including the GCC region), which gave rise to significant falls in Q4 2018.
The market for raising new capital in the London market remains challenging, but we are keeping this under constant review. In the meantime, we will pursue the new investment strategy as best we can within our existing resources, so as to be ready to present a very focused investment portfolio to the market when conditions are in our favour.
QIL has appointed an Anti-Money Laundering officer to comply with the Cayman Islands' latest regulations.
During the year, the Company applied the Quoted Companies Alliance Corporate Governance Code which is discussed in more detail on page 3.
With the adoption of the new investment strategy, which precludes private equity investing, Richard Green retired from the Board at the time of the AGM and we are actively looking for a potential candidate to be hired in his place.
The Board and the investment manager will keep shareholders updated on disposals of investments and deployment of new capital. As QIL continues to evolve and deliver value to shareholders by adapting to the dynamic global environment, I would like to thank shareholders, the board of directors, service providers, and the investment manager for their continued support.
QANNAS INVESTMENTS LIMITED 3. CHAIRMAN'S CORPORATE GOVERNANCE REPORT FOR THE YEARED 31 DECEMBER 2018 ======================================== ===
This Corporate Governance Report has been written to comply with the Quoted Companies Alliance ("QCA") Corporate Governance Code. As Chairman of the Board of Directors, corporate governance is my responsibility.
By following the QCA code, my Board colleagues and I seek to ensure that the Company operates efficiently and effectively and communicates well, to promote confidence and trust in the Company's Board and management. The Board aims to balance the interests and expectations of the Company's shareholders and stakeholders by observing a transparent set of rules, practices and processes. I believe that by adhering to this clear set of guidelines which clarify authority and responsibility, requiring constant measurement and review, the Company is best placed to manage risk and achieve a high level of performance, both of which are pre-requisites to the Company's long-term success.
Corporate Governance Review
In January 2018 the London Stock Exchange's AIM Rule 26 was amended to require all AIM quoted companies to give details of the corporate governance code that they have decided to apply, to explain how they comply with their chosen code, and, if they depart from the chosen code, to explain where and why.
The Board has chosen to apply the QCA's Corporate Governance Code (the "QCA Code") and has carried out a detailed review of the requirements of the QCA Code and AIM Rule 26, with respect to both its governance arrangements and practices, and its reporting. The key changes that have resulted from this review are:
-- Adoption of the QCA Code and implementation of its "comply or explain provisions"; -- An update to this Corporate Governance Report;
-- Updates to the Terms of Reference for each Committee of the Board and Matters Reserved for the Board of Directors;
-- Updates to Directors' biographies to highlight the key skills each individual brings to the Board; and
-- Consideration by the Nomination Committee of the desired make-up of the Board of Directors, and the implementation of a transition and succession plan.
Corporate Governance Code
The QCA Code is based upon the principle that companies need to deliver growth in long-term shareholder value. This requires an efficient, effective and dynamic management framework and should be accompanied by good communication which helps to promote confidence and trust. The QCA Code takes key elements of good governance and is constructed around ten broad principles and a set of disclosures. Companies are asked to provide an explanation of how they are meeting the principles through the prescribed disclosures. Where a company departs from the principles the board is asked to provide a well-reasoned explanation for doing so. The following section of this Corporate Governance Report seeks to provide this:
Principle 1 - Establish a strategy and business model which creates long-term value for shareholders
The Board reviews the Company's strategic goals annually, and has recently proposed a new strategy which was approved by shareholders at the Company's AGM on September 19, 2018.
This strategy centres on investing in listed equities in the Gulf region, with a proportion of the fund to be allocated to provide balance through investments in debt instruments (with the intention of generating a cash return to enable the Company to pay a regular dividend) and in participating in pre-IPO financing rounds. However, the emphasis will continue to be on value investing, leveraging the specialist regional knowledge of the Investment Manager to identify opportunities for exceptional returns. The key challenges of the strategy could be global and GCC economic and capital market environment. These can be addressed through active management of these companies and adapting to the market conditions.
QANNAS INVESTMENTS LIMITED 4. CHAIRMAN'S CORPORATE GOVERNANCE REPORT - continued FOR THE YEARED 31 DECEMBER 2018 ==================================================== ===
Corporate Governance Code - continued
Principle 2 - Seek to understand and meet shareholder needs and expectations
The Board produces a quarterly short-form Investment Management Report which is published on the Company's website and which provides updates on investment and divestment activity. In addition, an Investment Management Report is included in the interim and annual financial statements.
There is regular communication from shareholders to the Investment Manager which is passed on to the Board for their review and action if appropriate. Communication with the Investment Manager, the Company's NOMAD, together with Regulatory News Service announcements and the Company's Annual Report, assist the Board to gauge investor sentiment, set expectations and communicate the Company's intentions.
Principle 3 - Take into account wider stakeholder and social responsibilities and their implications for long-term success
The day-to-day administration of the Company is carried out by Estera Fund Administrators (Jersey) Limited, represented on the Board by Richard Prosser. Members of the Estera team attend all board and other important meetings as observers, and are thus fully aware of the Company's strategic aims and responsibilities. The same goes for the Company's Investment Manager, ADCM, which is part of the Abu Dhabi Financial Group, LLC ("ADFG") group of companies and which is represented on the board by Mustafa Kheriba. Members of the ADCM team also attend all board and other important meetings. The Board believes that the maintenance of good relations with stakeholders is important for the long-term prospects of the Company. The Board receives feedback on the views of stakeholders from its registrar. Through this process the Board seeks to monitor the views of stakeholders and to ensure an effective communication programme.
The Board believes that the Annual General Meeting provides an appropriate forum for investors to communicate with the Board and encourages participation.
Principle 4 - Embed effective risk management, considering both opportunities and threats, throughout the organisation
The Company has a comprehensive Risk Assessment Report, which is reviewed and updated periodically, normally annually. Financial risks are considered by the Board at each Board meeting.
The Board regularly seeks and gains assurance that the risk management and related control systems, as well as disaster recovery plans, are effective within its principal service providers, Estera and ADCM. Each service provider is required to complete an annual Service Provide Questionnaire which assesses the policies and procedures of each appointed service provider and is consideration by the Board.
Key risk and mitigating factors are detailed as follows:
Risk description Mitigation controls
Strategy design risk
The risk that the Board may set Open communication between the
a strategy that is not in line management of the Company and
with shareholder expectations. shareholders.
This may lead to difficulties attracting
investor capital and loss of market Clear and regular correspondence
confidence. with investors of key decision
by way of Regulatory News Service
releases and face to face meetings
at the Annual General Meeting.
The business plan is defined and
any changes communicated by the
Board.
QANNAS INVESTMENTS LIMITED 5.
CHAIRMAN'S CORPORATE GOVERNANCE REPORT - continued
FOR THE YEARED 31 DECEMBER 2018
==================================================== ===
Corporate Governance Code - continued
Principle 4 - Embed effective risk management, considering both opportunities and threats, throughout the organisation - continued
Risk description Mitigation controls
Acquisition risk
There is a risk that acquisitions Acquisitions follow a structured
do not perform as envisaged, which process involving directors and
may result in the loss of investor consultations with the investment
confidence and material write downs manager.
of investments/loans.
All acquisitions involve a thorough
due diligence exercise which may
involve professional advisors,
if considered appropriate.
Each year, the investment manager
undertakes a thorough review of
each investment/loan held and,
in consultation with the directors,
appropriate fair values are recognised.
Macroeconomic risk
This is the risk of an adverse The Company manages this risk
impact on the Company arising from by closely monitoring its investments
an economic downturn. The Company and their underlying performances.
has significant exposure to the
GCC region and any slowdown in
growth in this region could affect
profitability. The Company has
minimal exposure to Europe and
hence does not consider any Brexit
related risk to be significant
at this juncture.
Liquidity risk
The risk of insufficient liquidity The Company is in the process
in the Company to meet its financial of realising existing investments
obligations as they fall due. in an orderly fashion and pursuing
the new investment strategy, as
further detailed in the Chairman's
Report. As disclosed in note 10,
the Company is due to repay the
bank loan payable during 2019.
This repayment will be financed
by way of existing cash reserves
and the continued realisation
of the Company's investments.
Principle 5 - Maintain the Board as a well-functioning, balanced team led by the Chair
The Board currently comprises myself as independent Non-Executive Chairman plus only two other directors, both of whom are Non-Executive Directors (NEDs). A fourth NED is being actively sought to fill the gap left by the resignation of Richard Green. Of the three existing NEDs, Richard Prosser represents Estera and Mustafa Kheriba represents ADCM.
The new appointee will be required to be independent, which will restore an appropriate balance on the Board and the Company will then meet the QCA Code's requirement that at least half of the Directors should be independent NEDs. Nevertheless, all Directors are encouraged to foster an attitude of independence of character and judgement.
The relevant experience, skills and personal qualities that each Director brings to the Board are detailed later in this report. Each Director keeps their skillset up to date by reading relevant publications and attending external training and personal development courses where appropriate.
A strong diverse experience of the Non-Executive Chairman and Non-Executive Directors enrich the Board and Committee deliberations.
Non-Executive Directors are required to attend 4-6 board and board committee meetings per annum and to be available other times as required for face-to-face and telephone board and shareholders meetings; and to consider and approve significant transactions of the Company.
QANNAS INVESTMENTS LIMITED 6. CHAIRMAN'S CORPORATE GOVERNANCE REPORT - continued FOR THE YEARED 31 DECEMBER 2018 ==================================================== ===
Corporate Governance Code - continued
Principle 6 - Ensure that the Directors collectively have all appropriate skills, capabilities and experience
The Board consists of individuals with backgrounds and experience in the financial sector, in investment management and investment activity and with publicly and privately-owned businesses. Collectively, the Board's members have a wide range of experience, personal qualities and capabilities. The Directors regularly attend continued professional development courses relevant to their role. Where appropriate, external advice is obtained on matters that the Board consider to be complex/unusual. The Company Secretary oversees the corporate governance structure of the Company and provides assistance to the Directors where appropriate.
Given the nature and current size of the business, the board believes that the right number of Directors is four, of which two are independent, and aims to recruit a new independent NED as soon as possible to replace Richard Green.
In accordance with the QCA Code Non Executive Directors are only eligible to serve for up to 9 years. Chris Ward and Richard Prosser were appointed on 17 January 2012 and Mustafa Kheriba was appointed on 17 June 2014.
Each Director shall retire at the annual general meeting held in the third calendar year following the year in which he was elected or last re-elected by the Company. Each Director has significant sector, financial and plc experience. Between them, the Directors have many decades of Board experience in the GCC region. Biographies of the Directors can be seen overleaf.
Principle 7 - Evaluate Board performance based on clear and relevant objectives, seeking continuous improvement
The performance and effectiveness of the Board, its committees and individual Directors is reviewed by the Chairman and the Board on an ongoing basis. Training is available should a Director request it, or if the Chairman feels it is necessary. The performance of the Board is measured by the Chairman with reference to the Company's achievement of its strategic goals. A formal process for the Board assessment has been put in place this year. A Board self-assessment questionnaire for the year ended 2018 was created and circulated to the directors of the Company. The report measured how each director believed the Company was operating in 8 key areas. These areas were:
Composition and Quality of the Board;
Overall Strategy, Performance and Risk;
Shareholder View;
Governance;
Board Meetings;
Support and Relations with Suppliers;
Personal Evaluation; and
Chairman Evaluation.
It was noted by the Board when the report for this evaluation was tabled that the Company scored particularly high in the sections: Chairman Evaluation, Governance and Personal Evaluation.
Principle 8 - Promote a corporate culture that is based on ethical values and behaviour
The Board promotes a corporate culture that is based on sound ethical values and behaviour through their own actions and words, and ensures that these are apparent and understood within both principal service providers, Estera and ADCM. The culture of the service provides is reviewed by the Board on an ongoing basis. Each service provider is required to complete an annual Service Provide Questionnaire which assesses the policies and procedures to ensure alignment with the corporate culture of the Company, a culture of good governance and transparency.
Principle 9 - Maintain governance structures and processes that are fit for purpose and support good decision-making by the Board
The Board's members are well informed, have access to all parts of the business, and are appropriately equipped through their own skills, experience and personality to make good business decisions.
QANNAS INVESTMENTS LIMITED 7. CHAIRMAN'S CORPORATE GOVERNANCE REPORT - continued FOR THE YEARED 31 DECEMBER 2018 ==================================================== ===
Corporate Governance Code - continued
Principle 10 - Communicate how the Company is governed and is performing by maintaining dialogue with shareholders and other relevant stakeholders
This Corporate Governance Report is included within the Corporate Governance section of the Qannas website and is reviewed and updated annually.
Board of Directors
The Directors of the company understand the importance of corporate governance and strongly subscribe to the Company's compliance with high standards of Corporate Governance.
The Board of Directors is chaired by myself as independent Non-Executive Chairman, with Richard Prosser and Mustafa Kheriba as Non-Executive Directors.
A strong diverse experience of the Non-Executive Chairman and Non-Executive Directors enrich the Board and Committee deliberations.
The Company is controlled by the Board of Directors, all NEDs, one of whom is independent and two represent the principal service providers, Estera and ADCM. A fourth NED is being sought who will be independent.
All Directors can take independent advice to assist them in their duties if necessary.
The Board is responsible to shareholders for the proper management of the Company and meets formally at least four times a year to set the overall direction and strategy of the Company, to review the performance of investments and to consider the pipeline of potential new investment opportunities. All key decisions are subject to Board approval.
The Board of Directors is responsible for ensuring that procedures are followed and that all applicable rules and regulations are complied with. The Board is supported by the Administrator and the Company Secretary. The QCA's guidelines state that the role of Company Secretary should not be held by an Executive Director, and Qannas complies with this by outsourcing company secretarial activities to the Company Secretary.
Chris Ward is a Chartered Accountant who, in a career
Chris Ward spanning some forty years, has largely specialised in
Non-Executive corporate finance. He has advised on many transactions
Chairman and capital raisings in a wide variety of sectors and
particularly in the private equity market. Chris was
an equity partner of Deloitte in the UK from 1979 to
2008, when he relocated to Dubai, and held a number of
roles at various times, including Head of Corporate
Finance
Advisory in the UK and Global Head of Corporate Finance.
From September 2008 to May 2011, Chris established and
ran the Financial Advisory Services practice of Deloitte
in the Middle East, as the Chief Executive Officer of
Deloitte Corporate Finance Limited (DFCL), a company
regulated by the Dubai Financial Services Authority.
Chris was also responsible for establishing the private
equity and real estate fund placement business at Deloitte
in the UK. Chris has also served as a member of the Board
of the Corporate Finance Faculty of the Institute of
Chartered Accountants in England & Wales (ICAEW). He
was the Faculty's Chairman from 2004 to 2008 and during
his tenure the Faculty launched the Corporate Finance
qualification. Until his move to Dubai, he was a member
of the Council of the ICAEW. From September 2014 to April
2018, he was a non-executive director of Gems Education
Group and chaired their Investment Committee. Chris is
a graduate in Commerce & Accounting (B.Sc.) from
Southampton
University, and is a holder of the Corporate Finance
qualification (CF). In 2011, he received the award of
'Outstanding Achievement in Corporate Finance' from the
ICAEW.
He brings the following skills to the Board
* Deep understanding of investing and of capital
raising internationally;
* Open-mindedness and pragmatism;
* Experience of operating in highly regulated market;
and
* Decisiveness.
QANNAS INVESTMENTS LIMITED 8.
CHAIRMAN'S CORPORATE GOVERNANCE REPORT -
continued
FOR THE YEARED 31 DECEMBER 2018
================================================= =================================================================
Board of Directors - continued
Richard Prosser is a fellow of the Institute of Chartered
Richard Prosser Accountants in England and Wales, a member of the Society
Non-Executive of Trust and Estate Practitioners and a member of the
Director Institute of Directors. Richard is a group director at
Estera Trust (Jersey) Limited with overall responsibility
for the group's global trust services offering and has
over 35 years' experience in the offshore financial services
industry. Richard is on the board of a number of companies
quoted in London and various other jurisdictions, including
property companies and investment management companies.
He is Chairman of Threadneedle Investments (C.I.) Limited
and Manager of the Threadneedle Property Unit Trust,
with assets worth over GBP1.5 billion, as well as Chairman
of Aberdeen Latin American Income Fund Limited, quoted
in London.
Richard has been listed on the Citywealth Leaders list
since 2011. This annual list aims to highlight the best
of those individuals working in the private wealth management
sector. He has also been listed on ePrivate Client Top
50 Most Influential List for 2017.
Richard brings in the following necessary diverse skills,
experience and expertise to the board;
* Strong financial acumen;
* Leadership;
* Effective management and delegation;
* Understanding of a multi-faceted business operation;
* Decisiveness; and
* Up to date regulatory and compliance knowledge.
Mustafa Kheriba is the Chief Operating Officer of ADFG,
Mustafa Kheriba and Executive Director of the Company's Investment Manager,
Non-Executive ADCM Ltd. Mustafa has extensive experience and an inherent
Director understanding of the UK real estate and private equity
markets as well as pioneer emerging markets such as the
GCC and Eastern Europe.
Mustafa manages the day-to-day operations, business development
and control aspects of ADFG and its subsidiary companies.
He also oversees deal origination, fund raising activities
and directly manages key investments for the company.
He also serves on the boards of Integrated Alternative
Finance, Spadille Ltd., Northacre Plc, Reem Finance,
Shuaa Capital, Integrated Securities, Khaleeji Commercial
bank in addition to being Non-Executive Director at Qannas
Investments Limited. Mustafa is also currently a board
member of Gulf Finance Company in the UAE and KSA, and
board member of ADCorp.
Mustafa previously held senior posts in financial services
and investment companies in the GCC, USA and Canada.
Mustafa has been named among the top 50 MENA Fund Managers
in the 2015 and 2016 annual survey conducted by MENA
FM Magazine. Mustafa holds a BA from the University of
Toronto, and an MBA from Ohio Dominican University with
Magna Cum Laude honors.
Mustafa Kheriba brings to the board:
* Inherent understanding of Private Equity, Public
Equity and Real Estate development experience;
* Global network of significant resources for both deal
pipeline and capital sources;
* Experience of operating in a highly regulated
regional market being on the board of three publicly
listed entities;
* Investment management and operational prowess with 20
+ years experience in the industry; and
* Performance and target driven business acumen.
Board and Committee attendance
The Board met during the year and its committees met in accordance with their terms of reference. The attendance of the Directors at these meetings is detailed below. On the occasions when a Director is unable to attend a meeting, any comments he has arising from the information pack circulated prior to the meeting are provided to the Chairman.
QANNAS INVESTMENTS LIMITED 9. CHAIRMAN'S CORPORATE GOVERNANCE REPORT - continued FOR THE YEARED 31 DECEMBER 2018 ==================================================== ===
Board and Committee attendance - continued
2018 Board Attended Audit and Attended Management Engagement Attended
Meetings Risk Committee and Remuneration
eligible Meetings eligible Committee Meetings
to attend to attend eligible to
attend
Chris Ward 4 4 2 2 1 1
Richard Prosser 4 2 2 0 1 1*
Richard Green 2 2 1 1 0 0
Mustafa Kheriba 4 2 0 0 0 0
* - This meeting was attended by Richard Prosser's alternate director.
The Board does not comply with QCA Code's requirement that the Chairman of the Board of Directors should not sit on any of the Committees to the Board. The Chairman's participation has been necessary due to the small number of Non-Executive Directors available to sit on each Committee.
Committees of the Board
Remuneration and Management Engagement Committee
The Remuneration and Management Engagement Committee operates under terms of reference which are reviewed annually, meeting at least once per year, and comprises myself and Richard Prosser, under my chairmanship. It reviews, inter alia, the performance of the principal service providers. The beneficial interests of the Directors who served during the year and their connected persons in the ordinary share capital of the Company as at 31 December 2018 can be seen in note 3 of the financial statements. Furthermore, the remuneration of each Director can be seen in note 3 of the financial statements. Each Director is only entitled to a basic salary.
The Company does not comply with the QCA's requirement to publish a separate Remuneration and Management Engagement Committee Report as it believes that the information provided within this Corporate Governance Report gives shareholders adequate information on the committee's activities.
During the year the Remuneration and Management Engagement committee met on one occasion to:
-- Monitor and evaluate the Investment Manager's investment performance and compliance with the terms of the Investment Management Agreement;
-- Review the level and method of remuneration, the basis on which the performance fees (if any) are calculated;
-- Review, consider and recommend any amendments to the terms of the appointment and remuneration of providers of other services to the Company; and
-- Consider any points of conflict which may arise between the providers of services to the Company.
The Committee reported formally to the Board on proceedings after each meeting.
Audit and Risk Committee
The Audit and Risk Committee operates under terms of reference which are reviewed annually, and comprises Richard Prosser and myself under the chairmanship of Richard Prosser. It meets at least twice a year and, amongst other duties, reviews accounting policies and financial reporting, and provides a forum through which the external auditors report. It meets at least twice a year with the external auditors. The Board noted that there were no financial reporting issues during the year.
The Company does not comply with the QCA's requirement to publish a separate Audit and Risk Committee Report as it believes that the information provided within this Corporate Governance Report gives shareholders adequate information on the committee's activities.
QANNAS INVESTMENTS LIMITED 10. CHAIRMAN'S CORPORATE GOVERNANCE REPORT - continued FOR THE YEARED 31 DECEMBER 2018 ==================================================== ====
Committees of the Board - continued
During the year the audit committee met on two occasions to:
-- Meet with the Company's external auditors to discuss the audit planning report, key risks and areas of focus and their findings and recommendations arising from the annual audit;
-- Discuss with the Company's external auditors matters such as compliance with accounting standards;
-- Approve the terms of engagement and fees of the Company's external auditors; and
-- Monitor the external auditor's compliance with relevant ethical and professional guidance on the rotation of audit partners, the level of fees paid by the Company and other related requirements.
The Committee reported formally to the Board on proceedings after each meeting on the above.
Nominations Committee
The Nominations Committee operates under terms of reference which are reviewed annually and comprises myself and Richard Prosser under my chairmanship. The Committee has been established for the purpose of identifying and nominating for the approval of the Board candidates to fill Board vacancies as and when they arise.
The Company does not comply with the QCA's requirement to publish a separate Nominations Committee Report as the Committee did not meet in the year of 2018.
Relations with shareholders
The Company's website, www.qannasinvestments.com, contains full details of its activities, press releases and other details, as well as share price details, share trading activities and Regulatory News Service (RNS) announcements. The Board actively promotes the AGM as a forum to present to and meet with investors.
Maintenance of a sound system of internal control
The Company's business is conducted by relatively few individuals (through the outsourced principal service providers) who report to the Board on a regular basis.
Estera is engaged to provide administration and accounting services. Estera is a regulated administration services provider in Jersey. As the Company does not hold an office of its own the majority of services are offered by Estera and the majority of the procedures are addressed at the Administrator level. Estera has comprehensive AML/CFT policies and procedures and a comprehensive compliance monitoring programme is in place. The Board conducts a regulatory, fiduciary, commercial and financial risk assessment on an annual basis. A business continuity and disaster recovery plan covering various aspect of the business including premises requirements, equipment and telecoms is in place and is tested on a regular basis. Estera operates a six eyes policy and checking/signing controls which are subject to internal compliance reviews and external audit in line with regulatory requirements. Estera reports to the Board for any matters of concerns, if any, on a quarterly basis.
ADCM is responsible for managing the Investments of the Company in line with the Admission Document available on the Company's website. ADCM has a professional and experienced team that looks after the Company's portfolio. Investment appraisal processes and asset monitoring procedures are in place and are subject to overall review by the Board. A detailed evaluation of each investment is performed and presented to the board and quarterly updates on all the existing investments and the pipeline are provided to the Board.
Management of liquid resources
The Board is risk averse when investing any surplus cash funds. It considers that a minimum cash balance of US$0.2 million is appropriate - providing adequate protection against unexpected events - for the current size of the business, and seeks to adhere to this wherever possible and practicable.
QANNAS INVESTMENTS LIMITED 11. INVESTMENT MANAGER'S REPORT FOR THE YEARED 31 DECEMBER 2018 ===================================== ====
ADCM Ltd. ("ADCM"), the investment manager of QIL, is pleased to present the Investment Manager's report for the financial year ended 31 December 2018.
Summary
FY 2018 has marked an important event in the journey of QIL with the adoption of a new investment strategy, focusing on investing in listed equities in the GCC region but with a proportion of funds to be allocated to debt investments and Pre-IPO financing. Accordingly, in-line with the new strategy, QIL has divested non-core investments worth $17.7 million during the year and the proceeds, together with the starting cash position of $5.7 million, have been utilized as follows:
-- $12.8 million in new investments with an average yield of 9.8% per annum -- $8 million in repayment of debt -- $2.6 million in interest and other expenses
During FY 2018, QIL's NAV has declined marginally to $36.3 million primarily due to a $1.3 million reduction in the value of the Goldilocks investment which reflected challenging capital markets in the GCC and global markets in the last quarter of FY 2018.
Exits in FY 2018
During 2018, QIL exited the following investments:
-- Project Adriatic: QIL redeemed its loan in CentreVille Hotel in November 2018, realizing EUR9.5 million in proceeds
-- Project Palace: QIL has exited GBP1.5 million of its outstanding interest in Project Palace. QIL also exited from the full portion of its undrawn commitment (GBP3.6 million)
-- Project Beast: QIL received $0.3 million in distributions from ADCM SPEF, mainly from the liquidation proceeds from its limited partnership interests in Lumina Real Estate Fund and Havenvest Private Equity Middle East L.P
-- Project Demeter: QIL's loan to IEEF was repaid, realizing $3.7 million in 2018
New Investments in FY 2018
During 2018, QIL made the following investments:
-- Project Three: QIL invested AED 34 million (approx. $9.3 million) as part of an overall loan of AED 250 million (approx. US$68.1 million) in a consortium debt investment with an annual interest rate of 9.75%
-- Project JODC: QIL invested $3.5 million in a Sukuk investment at a 9.85% profit rate which was issued by Jabal Omar Development Company, one of the largest real estate developers in GCC region
Net Asset Value ("NAV") Summary
As of 31 December 2018, QIL's NAV is $36.3 million or $0.61 per share, including cash of $0.3 million.
QANNAS INVESTMENTS LIMITED 12. INVESTMENT MANAGER'S REPORT - continued FOR THE YEARED 31 DECEMBER 2018 ========================================= ====
Net Asset Value ("NAV") Summary - continued
Net Asset Value Summary In $, m =========================== ============ Investments 31-Dec-18 =========================== ============ Project Beast (ADCM SPEF) $3.6 Goldilocks $8.9 Project Integration $19.0 Project Three $9.2 Project Adriatic (HRC) $4.1 Project Palace $5.7 Project JODC $3.5 Cash $0.3 Liabilities ($19.3) Other Assets $1.3 NAV $36.3 =========================== ============ Shares Outstanding 59.6 NAV per share $0.61 --------------------------- ------------
Investments update
Project Adriatic (HRC)
For the year ending 2018, Hard Rock Café achieved positive EBITDA (EUR 102k) for the first time since inception, a major turnaround from last year's EBITDA loss of EUR 93k.
HRC Sales increased by more than 20% in 2018 compared to the same period in 2017, primarily driven by the additional contribution of merchandise sales from Kotor, Montenegro. Additionally, HRC was able to improve its gross profit margins from 33.5% in 2017 to 43.9% in 2018 as a result of continuous cost optimization.
Project Integration
QIL invested $18.7 million in 2014 to acquire a 47% interest in Integrated Financial Group ("IFG"), a UAE-based holding company with two subsidiaries - Integrated Capital and Integrated Securities.
Post the first half of 2017, Shuaa Capital - a leading investment bank in the UAE-acquired Integrated Capital and Integrated Securities.
IFG will be distributing $19 million sale proceeds to QIL, with final payment expected by March 2020. In the period from 1 January 2019 to the date of signing these financial statements, QIL had received $11 million proceeds from IFG. No discounting has been applied as the effect is not considered material.
Project Palace
In Q4 2014, QIL made a commitment of GBP11 million (as part of an overall tranche of GBP50 million) in Palace Preferred Partners L.P., an SPV created for the redevelopment of 1 Palace Street ("1PS") in London.
Of the total commitment of GBP11 million, QIL contributed GBP7.3 million in three tranches with an undrawn commitment of GBP3.6 million.
QIL initially entered into a GBP11 million commitment to Project Palace. In August 2018, the Company exited the remaining undrawn portion of this commitment, being GBP3.5 million. It also disposed of GBP3.8 million of its previously drawn commitment.
QANNAS INVESTMENTS LIMITED 13. INVESTMENT MANAGER'S REPORT - continued FOR THE YEARED 31 DECEMBER 2018 ========================================= ====
Investments update - continued
Project Goldilocks
In Q1 2016, QIL had made an equity investment of $6.6 million (in two tranches of $5.5 million and $1.1 million) in Goldilocks Fund, an investment fund primarily focused on publicly listed equities in the UAE.
In FY 2017, QIL redeemed 25% of its interest in the Goldilocks Fund at a redemption value of $5.8 million.
Project Three
In December 2018, QIL participated in Project Three, a consortium debt investment with an annual interest rate of 9.75% in an independent UAE based Investment Firm for AED 34 million (approx. $9.3 million), part of an overall loan of AED 250 million (approx. US$68.1 million). The debt has 2.5 years of term and had a coverage ratio of 1.9x at the time of issuance.
Project JODC
In November 2018, QIL invested $3.5 million in a Sukuk issued by Jabal Omar Development Company ("JODC"), a leading real estate development company in the Kingdom of Saudi Arabia, as part of a total issuance of $135 million. This was a 5-year, unsecured Sukuk (the "Sukuk") with a profit rate of 9.85% p.a. paid semi-annually. Subsequent to the year end, QIL exited from JODC.
Project Beast
In the year 2018, ADCM SPEF received a $563k distribution from Havenvest and a GBP64k final distribution from Lumina.
Of this, the Company received $251k in 2018 and subsequently $264k in 2019.
NAV of ADCM SPEF (as of 31 December 2018) in $'000
========================================================= ==============
Fund Name Attributed NAV
--------------------------------------------------------- --------------
Havenvest Private Equity Middle East L.P. ("Havenvest") $1,494
TNI Growth Capital Fund, L.P. $1,517
Global Opportunistic Fund II $275
Global Opportunistic Fund I $61
SPE Qannas B $41
Net Current Assets / (Liabilities) $191
NAV $3,579
Corporate Activity
Richard Green, who has served on the Board of the Company since June 2014, resigned from his position as a Non-Executive Director of the Company on 19 September 2018.
In FY 2018, QIL bought back 429,137 ordinary shares at a price of $0.45 per ordinary Share.
In late 2017, the Cayman Islands law was amended to increase the scope of entities that are captured as Relevant Financial Businesses and as such are subject to the Cayman Islands laws and regulations with regards to anti-money laundering and terrorist financing. To comply with the amendments in the Cayman Islands Law, in December 2018, the Company appointed an Anti-Money Laundering Compliance Officer ("AMLCO"), Money Laundering Reporting Officer ("MLRO") and Deputy Money Laundering Reporting Officer ("DMLRO"). The AMLCO's responsibilities is to ensure that measures set out in the Cayman Islands Anti-Money Laundering Regulations are adopted by the Company, and to function as the point of contact with competent authorities for the purpose of the Cayman Islands Anti-Money Laundering Regulations.
QANNAS INVESTMENTS LIMITED 14. DIRECTORS' REPORT FOR THE YEARED 31 DECEMBER 2018 ===================================== ====
The Directors present their report and the audited financial statements of the Company for the year ended 31 December 2018.
Principal activities
The Company's principal activity is that of investing, centred around a theme-based investment approach, which has evolved over the years, starting with a focus on distressed / opportunistic investments in the UAE in 2012 and 2013 and broadening to the acquisition of secondary portfolios of regional PE funds and European real estate investments between 2014 and 2018. At the Annual General Meeting held on 19 September 2018, the Company changed its strategy to centre around investing in listed equities in the GCC region, with a proportion of funds to be allocated in debt instruments and pre-IPO financing. The core philosophy of the Company continues to be value investing with an investment objective to achieve long-term and sustainable attractive returns through a combination of income generation and long-term capital appreciation.
Results and dividends
The Statement of Comprehensive Income for the year is set out on page 22. The Company's Total Comprehensive Loss was $2,217,093 for the year ended 31 December 2018 (2017: $18,295,313). A share buy-back was made during 2018 whereby 429,137 (2017: 8,888,889) participating shares were repurchased for $193,112 (2017: $8,000,000).
Directors
The Directors who held office throughout the year and up to the date of approving the financial statements (unless otherwise indicated) were:
Christopher Ward (Chairman)
Richard John Stobart Prosser
Richard Green (resigned 19 September 2018)
Mustafa Kheriba
Details of the financial interests of Directors are disclosed in note 3 of the financial statements.
Secretary
Conyers Trust Company (Cayman) Limited was company secretary between 1 January 2018 and 30 June 2018. On that date, they were replaced by Walkers Corporate Limited who have continued to act in this role up to the date of approval of the financial statements.
Registered office
The registered office of the Company between 1 January 2018 and 30 June 2018 was Conyers Trust Company (Cayman) Limited, Cricket Square, Hutchins Drive, P.O. Box 2681, George Town, Grand Cayman KY1-1111, Cayman Islands. Since 30 June 2018, and to the date of approval of these financial statements, the registered office has been Cayman Corporate Centre, 27 Hospital Road, George Town, Grand Cayman, KY1-9008, Cayman Islands.
Independent auditor
Deloitte LLP was appointed independent auditor on 12 January 2018 and has expressed its willingness to continue in office.
QANNAS INVESTMENTS LIMITED 15. DIRECTORS' REPORT - continued FOR THE YEARED 31 DECEMBER 2018 ===================================== ====
Responsibilities of the Directors
The Directors are responsible for preparing the annual report and financial statements in accordance with International Financial Reporting Standards as endorsed for use in the European Union ("IFRS"). In preparing these financial statements, the Directors are required to:
-- select suitable accounting policies and then apply them consistently; -- make judgements and estimates that are reasonable and prudent;
-- state where applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and
-- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping accounting records that are sufficient to show and explain the Company's transactions and are such as to disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements prepared by the Company comply with the requirements of the Alternative Investment Market listing rules. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors confirm that they have complied with the above requirements.
Statement of disclosure to auditors
The Directors confirm that:
-- so far as they are aware there is no relevant audit information of which the Company's auditors are unaware; and
-- they have taken all steps they ought to have taken to make themselves aware of any relevant audit information and to establish that the Company's auditors are aware of that information.
By order of the board
Director
Date: ...............................................
QANNAS INVESTMENTS LIMITED 16.
INDEPENT AUDITOR'S REPORT
FOR THE YEARED 31 DECEMBER 2018
===================================== ====
Opinion
===============================================================================
In our opinion the financial statements of Qannas Investments Limited
(the 'company'):
* give a true and fair view of the state of the
company's affairs as at 31 December 2018 and of its
loss for the year then ended; and
* have been properly prepared in accordance with
International Financial Reporting Standards (IFRSs)
as adopted by the European Union.
We have audited the financial statements of Qannas Investments
Limited (the 'company') which comprise:
* the statement of comprehensive income;
* the statement of financial position;
* the statement of changes in equity;
* the statement of cash flows; and
* the related notes 1 to 21.
The financial reporting framework that has been applied in their
preparation is applicable law and IFRSs as adopted by the European
Union.
Basis for opinion
===============================================================================
We conducted our audit in accordance with International Standards
on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities
under those standards are further described in the auditor's responsibilities
for the audit of the financial statements section of our report.
We are independent of the company in accordance with the ethical
requirements that are relevant to our audit of the financial statements
in the UK, including the Financial Reporting Council's (the 'FRC's')
Ethical Standard as applied to listed entities, 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 opinion.
Summary of our audit approach
============================================================================
Key audit matters The key audit matter that we identified in the current
year was:
* Valuation of loans and investments
Within this report, any new key audit matters are
identified with and any key audit matters which are
the same as the prior year identified with.
------------------- =======================================================
Materiality The materiality that we used in the current year
was $711.4k which was determined on the basis of
2% of Net Asset Value ("NAV").
------------------- =======================================================
Scoping We undertook all audit work with no component audit
teams used in the current year.
------------------- =======================================================
Conclusions relating to going concern
We are required by ISAs (UK) to report in respect of We have nothing
the following matters where: to report
-- the directors' use of the going concern basis of in respect
accounting in preparation of the financial statements of these
is not appropriate; or matters.
-- the directors have not disclosed in the financial
statements any identified material uncertainties that
may cast significant doubt about the company'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 financial statements are authorised for issue.
QANNAS INVESTMENTS LIMITED 17.
INDEPENT AUDITOR'S REPORT - continued
FOR THE YEARED 31 DECEMBER 2018
========================================== ====
Key audit matters
===============================================================================
Key audit matters are those matters that, in our professional judgement,
were of most significance in our audit of the financial statements
of the current period and include the most significant assessed
risks of material misstatement (whether or not due to fraud) that
we identified. These matters included 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
financial statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.
In the current year, the loans receivable were changed from being
measured at amortised cost to being measured at fair value through
profit or loss. As such the key audit matter of impairment of loans
receivable was removed, and the valuation of investments key audit
matter was updated to incorporate loans receivable.
Valuation of Loans and Investments
Key audit matter Qannas Investments Limited holds a number of investments
description in unquoted investments and loans which are valued
at fair value through profit or loss under International
Financial Reporting Standards. These investments
total $37.4m (2017: $42.4m) with the loans totalling
$13m (2017: $16.8m).
The fair value of securities and loans that are
not quoted in an active market are determined
using valuation techniques in accordance with
IFRS 13 "Fair Value Measurement" and International
Private Equity and Venture Capital Valuation Guidelines
("IPEV Guidelines").
Palace Preferred Partners L.P ("Palace") is valued
based on the balance on the company's capital
account in the underlying partnership.
The company's investments in ADCM Secondary Private
Equity Fund L.P ("ADCM SPEF"), Goldilocks and
SPE Qannas C Limited are valued based on the net
asset value ("NAV") provided by the respective
fund's manager, as adjusted by the company's investment
manager.
The company's investment into EE F&B Holding Limited
represents an equity holding of $0.3m and a loan
investment of $3.7m and has been valued based
on the discounted value of expected cash flows.
The underlying business owned by the company's
investment in Integrated Financial Group, LLC
("IFG") was sold in the prior period and hence
the company's investment in IFG has been valued
based on the proceeds expected to flow up to the
company.
Finally the fair value of the loan receivable
from Kepler Lending Co. Limited has been determined
based on the outstanding capital and accrued interest.
Due to the complexity and degree of management
judgement involved when determining fair value,
in the absence of quoted market prices and different
valuation methodologies applied across loans and
investments, we considered this a key audit matter.
Relevant accounting policies and critical accounting
estimates are disclosed in note 2, and further
detail on the investments and loans are disclosed
in notes 4, 5 and 17.
================= ==========================================================
QANNAS INVESTMENTS LIMITED 18.
INDEPENT AUDITOR'S REPORT - continued
FOR THE YEARED 31 DECEMBER 2018
========================================== ====
Valuation of Loans and Investments
How the scope In order to test the valuation of the investments
of our audit responded as at 31 December 2018, we assessed the design
to the key audit and implementation of controls relating to the
matter valuation of loans and investments. In addition,
the following procedures were performed:
In respect of Palace:
* confirmed the valuation of Palace, as the valuation
method used within Qannas Investments Limited is the
value of the capital account, as reported by Palace,
and we recalculated this value in line with Qannas
Investments Limited's holding; and
* as this investment is a preferred return, we ensured
that the fair value of the instrument was supported
by the NAV, as such we obtained the draft financial
statements of the underlying entity. This entity is
Palace Preferred Partners' sole investment and we
reconciled the valuation of that investment in
Palace's financial statements to assess whether this
supported the company's investment.
In respect of ADCM-SPEF, SPE Qannas C:
* as these investments are no longer audited, we
confirmed ownership and pricing of their underlying
investments to confirmations from underlying managers,
as well as obtaining audited financial statements for
a number of the underlying investments to support the
company's valuation.
In respect of Goldilocks:
* confirmed ownership and pricing of underlying
investment to confirmations from the investment
manager, and obtained the audited financial
statements of Goldilocks to verify the year-end net
asset value; and
* confirmed the number of units held by Qannas
Investments Limited and the net asset value of
Goldilocks with the Deloitte Abu Dhabi team who are
the auditors of Goldilocks.
In respect of EE F&B Holding Limited:
* agreed the initial equity investment from QIL to
share certificates, and agreed the fair value of the
equity and loan elements to the discounted cash flow
model prepared by the company; and
* challenged the material assumptions made in the
discounted cash flow model including the discount
rate used, the EBITDA multiple for terminal value and
key cash flow assumptions.
In respect of IFG:
* obtained the share purchase agreement relating to the
sale of the underlying business and reconciled the
expected proceeds to be received by the company to
the Company's valuation; and
* confirmed the receipt of sales proceeds to date to
the post year-end bank statements, along with
confirming with the IFG investment manager that the
cash is available for distribution post year-end.
======================== ===================================================================
QANNAS INVESTMENTS LIMITED 19.
INDEPENT AUDITOR'S REPORT - continued
FOR THE YEARED 31 DECEMBER 2018
========================================== ====
Valuation of Loans and Investments
How the scope In respect of loans receivable:
of our audit * obtained and reviewed the loan facility agreements to
responded to understand the key terms and conditions on which the
the key audit loan has been granted by the company;
matter
* reviewed each loan to ensure that the loan had not
breached its covenants and that the borrower had not
defaulted on any loan interest payments due, and
considered other financial information available on
the borrower to assess the entities ability (or
otherwise) to meet future payment commitments; and
* for the new loan to Kepler Lending Co. Limited we
have reviewed the loan agreement, and challenged
whether principal plus interest was a fair proxy for
fair value given the level of collateral and the
performance of the loan.
================= ========================================================================
Key observations We concluded that the valuation of loans and investments
is appropriate.
================= ========================================================================
Our application of materiality
We define materiality as the magnitude of misstatement in the financial
statements that makes it probable that the economic decisions of
a reasonably knowledgeable person would be changed or influenced.
We use materiality both in planning the scope of our audit work
and in evaluating the results of our work.
Based on our professional judgement, we determined materiality
for the financial statements as a whole as follows:
Materiality $0.71m (2017: $1.02m)
----------------------
Basis for determining 2% of preliminary Net Asset Value ("NAV") as
materiality at 31 December 2018 (2017: 3% of NAV).
---------------------- ==================================================
Rationale for As an investment entity that is also AIM listed,
the benchmark shareholders are predominantly focussed on
applied the NAV of Qannas Investments Limited, which
in turn is driven by the value of the underlying
investments.
---------------------- ==================================================
QANNAS INVESTMENTS LIMITED 20.
INDEPENT AUDITOR'S REPORT - continued
FOR THE YEARED 31 DECEMBER 2018
========================================== ====
Our application of materiality
We agreed with the Board of Directors that we would report to them all audit differences in excess of $0.035m, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Board of Directors on disclosure matters that we identified when assessing the overall presentation of the financial statements. An overview of the scope of our audit ====================================================================== Our audit was scoped by obtaining a further understanding of the company and its environment, the investment manager, including relevant controls, and assessing the risks of material misstatement, alongside the consideration in the company's new strategy. We liaised with both the administrator and the investment manager to obtain sufficient and appropriate audit evidence. Other information ============================================================================ The directors are responsible for the other information. We have The other information comprises the information included nothing in the annual report including the Chairman's Report, the to report Investment Manager's Report, and the Director's Report, in respect other than the financial statements and our auditor's report of these thereon. matters. Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the 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 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. Responsibilities of directors ====================================================================== As explained more fully in the directors' responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the company'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 company or to cease operations, or have no realistic alternative but to do so. QANNAS INVESTMENTS LIMITED 21. INDEPENT AUDITOR'S REPORT - continued FOR THE YEARED 31 DECEMBER 2018 ========================================== ==== Auditor's responsibilities for the audit of the financial statements ======================================================================================================= Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's 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 financial statements. A further description of our responsibilities for the audit of the financial statements is located on the FRC's website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report. Use of our report ======================================================================================================= This report is made solely to the company's members, as a body. Our audit work has been undertaken for compliance with the AIM Listing Rules (Part 1.19) and so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.
David Becker
For and on behalf of Deloitte LLP
Statutory Auditor
St Peter Port, Guernsey
June 2019
QANNAS INVESTMENTS LIMITED 22.
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 31 DECEMBER 2018
===================================== ====
Notes 2018 2017
Restated*
$ $
Income
Movement in management and performance
fee rebate receivable 16 383,667 (3,426,058)
Investment income - 1,107,502
Interest income on loans receivable 785,568 899,949
Realised gain on disposal of investments 4 - 1,099,838
Realised gain on repayment of loan
receivable 5 701,855 -
1,871,090 (318,769)
Expenditure
Secretarial and administration fees (153,480) (134,353)
Directors' remuneration 3 (67,068) (85,290)
Insurance expense (6,870) (7,719)
Investment manager fees 16 (646,663) (1,038,624)
Movement in performance fees 16 504,074 277,707
Legal and professional fees (174,210) (284,793)
Audit fees (116,605) (51,678)
Sundry expenses (6,447) (3,565)
Bank charges (1,999) (440)
Realised loss on disposal of investments 4 (734,314) -
(1,403,582) (1,328,755)
------------ -------------
Net profit / (loss) 467,508 (1,647,524)
Net movement on changes in fair value
of investments 4 (620,589) (16,469,906)
Net movement on changes in fair value
of loans receivable 5 (521,481) 1,494,445
Impairment losses arising on loan interest
receivable 7 (147,538) (238,992)
Finance costs
Loan interest payable (1,421,795) (1,671,765)
(Loss) / gain on foreign exchange (27,928) 235,804
Finance income
Interest income - cash and cash equivalents 54,730 2,625
------------ -------------
Loss for the year before taxation (2,217,093) (18,295,313)
Taxation provision for the year 14 - -
------------ -------------
Loss for the year after taxation (2,217,093) (18,295,313)
Other comprehensive income - -
Total comprehensive loss for the year (2,217,093) (18,295,313)
============ =============
Loss per share
Basic and diluted EPS on (loss) for
the year 13 (0.04) (0.28)
============ =============
* - Details of the restatement to the 2017 comparatives can be seen in note 2
The notes on pages 26 to 55 form part of these audited financial statements
QANNAS INVESTMENTS LIMITED 23.
STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2018
================================= ====
31.12.18 31.12.17
Restated*
Notes $ $ $ $
Assets
Non-current assets
Investments at fair
value
through profit and loss 4 28,536,890 32,209,713
Loans receivable at
fair value through profit
and loss 5 12,965,277 3,713,576
------------- -------------
Total non-current assets 41,502,167 35,923,289
Current assets
Investments at fair
value
through profit and loss 4 12,449,911 10,181,714
Loans receivable at
fair value through profit
and loss 5 - 13,110,632
Property investments 6 - -
Trade and other receivables 7 1,348,687 1,978,874
Cash and cash equivalents 8 256,920 5,715,713
------------- -------------
Total current assets 14,055,518 30,986,933
Total assets 55,557,685 66,910,222
============ ===========
Equity and liabilities
Equity
Management shares 11 2 2
Participating shares 11 59,605,907 59,799,019
12,
Retained earnings 18 (23,346,350) (21,129,257)
------------- -------------
Total equity 36,259,559 38,669,764
Liabilities
Current liabilities
Trade and other payables 9 1,860,702 776,883
Loans payable 10 17,427,652 8,000,000
------------- -------------
Total current liabilities 19,288,354 8,776,883
Non-current liabilities
Trade and other payables 9 9,772 2,259,631
Loans payable 10 - 17,203,944
------------- -------------
9,772 19,463,575
Total liabilities and
equity 55,557,685 66,910,222
============ ===========
Net asset value per Participating
share $0.61 $0.65
============ ===========
* - Details of the restatement can be seen in note 2.
The notes on pages 26 to 55 form part of these audited financial statements
The financial statements were approved and authorised for issue by the Board of Directors of Qannas Investments
Limited on ........................................ and signed on their behalf by:
........................................
Director
QANNAS INVESTMENTS LIMITED 24.
STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31 DECEMBER 2018
===================================== ====
Management Participating Retained
share capital share capital earnings Total
$ $ $ $
At 1 January 2017 2 67,799,019 (2,833,944) 64,965,077
Purchase of participating shares
under tender offer (note 11) - (8,000,000) - (8,000,000)
Total comprehensive loss - - (18,295,313) (18,295,313)
At 31 December 2017 2 59,799,019 (21,129,257) 38,669,764
-------------- -------------- ------------- --------------
At 1 January 2018 2 59,799,019 (21,129,257) 38,669,764
Purchase of participating shares
(note 11) - (193,112) - (193,112)
Total comprehensive loss - - (2,217,093) (2,217,093)
At 31 December 2018 2 59,605,907 (23,346,350) 36,259,559
============== ============== ============= ==============
The notes on pages 26 to 55 form part of these audited financial statements
QANNAS INVESTMENTS LIMITED 25.
STATEMENT OF CASH FLOWS
FOR THE YEARED 31 DECEMBER 2018
===================================== ====
2018 2017
$ $
Operating activities
Loss for the year before taxation (2,217,093) (18,295,313)
Net movement on changes in fair value
of investments 620,589 15,431,602
Realised loss / (gain) on disposal of
investments 734,314 (1,099,838)
Realised gain on repayment of loans receivable (701,855) -
Interest income (840,298) (902,574)
Loan interest payable 1,421,795 1,671,765
Net movement on changes in fair value
of loans receivable 521,481 (1,592,875)
Impairment losses arising on loan interest
receivable 147,538 337,422
Loss / (gain) on foreign exchange 27,928 (235,804)
Decrease in trade receivables 70,441 4,467,328
Decrease in trade payables (1,030,112) (404,348)
Net cash flow from operating activities (1,245,272) (622,635)
------------ -------------
Investing activities
Interest received - cash and cash equivalents 54,730 2,625
Interest received - loans receivable 1,524,534 182,240
Issue of loans receivable (9,251,701) (133,912)
Repayment of loans receivable 12,950,230 1,204,759
Purchase of investments (3,500,000) (3,896,899)
Proceeds from disposal of investments 3,298,636 5,847,054
Capital distributions received from investments 251,087 14,402,547
Proceeds from disposal of property investments - 779,560
Net cash flow from investing activities 5,327,516 18,387,974
------------ -------------
Financing activities
Repayment of bank loan (8,000,000) (4,500,000)
Loan interest paid (1,334,015) (1,365,135)
Purchase of own participating shares (193,112) (8,000,000)
Net cash flow from financing activities (9,527,127) (13,865,135)
------------ -------------
Net (decrease) / increase in cash and
cash equivalents (5,444,883) 3,900,204
Effect of foreign exchange movements (13,910) 196,498
Cash and cash equivalents at 1 January 5,715,713 1,619,011
Cash and cash equivalents at 31 December 256,920 5,715,713
============ =============
The notes on pages 26 to 55 form part of these audited financial statements
QANNAS INVESTMENTS LIMITED 26. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARED 31 DECEMBER 2018 ===================================== ==== 1. GENERAL INFORMATION
The Company is an exempt closed-ended investment company listed on London's Alternative Investment Market ("AIM"), with an unlimited life, incorporated in the Cayman Islands. The registered office of the Company is Cayman Corporate Centre, 27 Hospital Road, George Town, Grand Cayman, KY1-9008, Cayman Islands.
The Company's principal activity is that of investing, centred around a theme-based investment approach, which has evolved over the years, starting with a focus on distressed / opportunistic investments in the UAE in 2012 and 2013 and broadening to the acquisition of secondary portfolios of regional PE funds and European real estate investments between 2014 and 2018. At the Annual General Meeting held on 19 September 2018, the Company changed its strategy to centre around investing in listed equities in the GCC region, with a proportion of funds to be allocated in debt instruments and pre-IPO financing. The core philosophy of the Company continues to be value investing with an investment objective to achieve long-term and sustainable attractive returns through a combination of income generation and long-term capital appreciation.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of preparation
The financial statements have been prepared under the historical cost convention, except for the revaluation of certain financial instruments and investments which are included at fair value, and in accordance with applicable International Financial Reporting Standards as endorsed for use in the European Union ("IFRS") and, where applicable, takes guidance from the Association of Investment Companies Statement of Recommended Practice ("AIC SORP"). The principal accounting policies are set out below.
In the current period, the Company has applied IFRS 9 Financial Instruments (as revised in July 2014) and the related consequential amendments to other IFRSs for the first time. IFRS 9 introduces new requirements for 1) the classification and measurement of financial assets and financial liabilities, 2) impairment of financial assets and 3) general hedge accounting. Details of these new requirements as well as their impact on the Company's financial statements are described below.
Non consolidation
The Company fulfils the definition of an investment entity under IFRS 10 ("Consolidated Financial Statements") and as a result does not consolidate investments in subsidiaries but instead measures its investment at fair value through profit and loss. It also carries its loans receivables at fair value through profit or loss. IFRS 10 defines an investment entity as one that obtains funds from investors for the purpose of providing investors with investment management services, commits to its investors that its purpose is to invest funds solely for returns from capital appreciation, investment income or both and measures and evaluates the performance of substantially all its investments on a fair value basis. The Company considers its meets the definition on the basis it has more than one investment, has more than one investor, including investors that are not related parties and has ownership interests in the form of equity or other similar interests.
Impact of transition to IFRS 9 / Restatement of comparatives
a) Classification and measurement of financial assets
The date of initial application (i.e. the date on which the Company has assessed its existing financial assets and financial liabilities in terms of the requirements of IFRS 9) is 1 January 2018. Accordingly, the Company has applied the requirements of IFRS 9 to instruments that have not been derecognised as at 1 January 2018 and has not applied the requirements to instruments that had already been derecognised as at 1 January 2018. Comparative amounts have not been restated.
All recognised financial assets that are within the scope of IFRS 9 are required to be subsequently measured at amortised cost or fair value on the basis of the entity's business model for managing the financial assets and the contractual cash flow characteristics of the financial assets.
With effect from 1 January 2018, and a result of the impact analysis performed by management on the adoption of IFRS 9, the Company reclassified loans receivable, previously measured at amortised cost, to loans receivable at fair value through profit and loss.
QANNAS INVESTMENTS LIMITED 27. NOTES TO THE FINANCIAL STATEMENTS - continued FOR THE YEARED 31 DECEMBER 2018 =============================================== ==== 2. SIGNIFICANT ACCOUNTING POLICIES - continued
Impact of transition to IFRS 9 / Restatement of comparatives - continued
a) Classification and measurement of financial assets - continued
The change in accounting policy has been treated as a correction of a prior period error, which reflects the requirement to subsequently measure all financial asset investments (including debt investments) at fair value when an entity meets the definition of an investment entity under IFRS 10 ("Consolidated Financial Statements") (as referred to above).
As the amortised cost previously recognised was equivalent to fair value, there was no quantitative impact of this change on the prior year. As such, a third balance sheet has not been presented as required under IAS 8. ("Accounting policies, changes in accounting estimates and errors") Note (c) below tabulates the change in classification of the Company's financial assets upon application of IFRS 9 / restatement of comparatives.
As noted in the previous paragraph, financial assets classified as loans and receivables under IAS 39 that were measured at amortised cost are now measured at fair value through profit or loss under IFRS 9 as they are considered to represent part of the Company's investment portfolio and hence are more appropriately classified at fair value.
b) Impairment of financial assets
In relation to the impairment of financial assets, IFRS 9 requires an expected credit loss model as opposed to an incurred credit loss model under IAS 39. The expected credit loss model requires the Company to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition of the financial assets. In other words, it is no longer necessary for a credit event to have occurred before credit losses are recognised.
As at 1 January 2018, the Directors of the Company reviewed and assessed the Company's existing financial assets for impairment using reasonable and supportable information that is available without undue cost or effort in accordance with the requirements of IFRS 9 to determine the credit risk of the respective items at the date they were initially recognised.
No additional credit loss as at 1 January 2018 has been recognised against retained earnings as a result.
c) Disclosures in relation to the initial application of IFRS 9 / restatement of comparatives
The table below illustrates the classification and measurement of financial assets and financial liabilities.
Loans and receivables Fair value
through profit
and loss
$ $
Closing balance 31 December 16,824,208 -
2017 (as previously reported)
Reclassification of loans receivable (16,824,208) 16,824,208
As restated - 16,824,208
---------------------- ----------------
The change in measurement category of the different financial assets has had no impact on their respective carrying amounts on their initial application / correction of a policy error.
d) Financial impact of initial application of IFRS 9
The application of IFRS 9 has no impact on initial application.
QANNAS INVESTMENTS LIMITED 28. NOTES TO THE FINANCIAL STATEMENTS - continued FOR THE YEARED 31 DECEMBER 2018 =============================================== ==== 2. SIGNIFICANT ACCOUNTING POLICIES - continued
Basis of measurement
Financial assets
All recognised financial assets are subsequently measured in their entirety at either amortised cost or fair value, depending on the classification of the financial assets.
a) Classification of financial assets
Financial assets that are considered to be part of the Company's core investment operations are held at fair value through profit and loss as they are managed on a fair value basis.
Other financial assets that are not part of the core investment operations are measured at amortised cost so long as the below criteria is met: -
-- The financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and
-- The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
By default, all other financial assets are subsequently measured at FVTPL.
(i) Amortised cost and effective interest method
At initial recognition financial assets are measured at fair value plus transaction costs that are directly attributable to the acquisition of the financial asset. The amortised cost of a financial asset is the financial amount at which the financial asset is measured at initial recognition minus the principal repayments, plus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount, adjusted for any loss allowance. The gross carrying amount of a financial asset is the amortised costs of a financial asset before adjusting for any loss allowance.
Interest income is recognised using the effective interest method for debt instruments measured subsequently at amortised cost. Interest income is calculated by applying the effective interest rate to the gross carrying amount of a financial asset. For financial assets that have subsequently become credit impaired, interest income is recognised by applying the effective interest rate to the amortised cost of the financial asset.
For purchased or originated credit impaired financial assets, the Company recognises interest income by applying the credit adjusted effective interest rate to the amortised cost of the financial asset from initial recognition. The calculation does not revert to the gross basis even if the credit risk of the financial asset subsequently improves so that the financial asset is no longer credit impaired.
Interest income is recognised in profit or loss and is included in the 'interest income' line item.
(ii) Financial assets at fair value through profit or loss
Financial assets that are considered part of the Company's investment operations or do not meet the criteria for being measured at amortised cost (see (i) above) are measured at FVTPL with any fair value gains or losses recognised in profit or loss to the extent they are not part of a designated hedging relationship. The net gain or loss recognised in profit or loss includes any dividend or interest earned on the financial assets. Fair value is determined in the manner described as follows:
QANNAS INVESTMENTS LIMITED 29. NOTES TO THE FINANCIAL STATEMENTS - continued FOR THE YEARED 31 DECEMBER 2018 =============================================== ==== 2. SIGNIFICANT ACCOUNTING POLICIES - continued
Basis of measurement - continued
Financial assets - continued
(ii) Financial assets at fair value through profit or loss - continued
Investments are recognised and de-recognised on the trade date; the date on which the Company commits to purchase or sell an investment. Investments are initially recognised at cost. Transaction costs are expensed as incurred in the Statement of Comprehensive Income. Investments are de-recognised when the rights to receive cash flows from the investments have expired or the Company has transferred substantially all risks and rewards of ownership.
Subsequent to initial recognition, investments are measured at their fair value. Gains and losses arising from changes in the fair value are presented in the Statement of Comprehensive Income in the period in which they arise.
Dividend income is recognised in the Statement of Comprehensive Income when the Company's right to receive payments is established.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
The fair value of financial assets and liabilities traded in active markets (such as publicly traded securities) are based on quoted market prices at the close of trading on the reporting date. The Company utilises the last traded market price for both financial assets and financial liabilities where the last traded price falls within the bid-ask spread. In circumstances where the last traded price is not within the bid-ask spread, the Directors will determine the point within the bid-ask spread that is most representative of fair value.
The fair value of financial assets and liabilities that are not traded in an active market is determined using valuation techniques. The Company uses a variety of methods and makes assumptions that are based on market conditions existing at each reporting date. Valuation techniques used include the use of comparable recent arm's length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants making the maximum use of market inputs and relying as little as possible on entity-specific inputs.
The Company's investments in underlying funds are ordinarily valued using the values (whether final or estimated) as advised to the Investment Manager by the managers, general partners or administrators of the relevant underlying fund. The valuation date of such investments may not always be coterminous with the valuation dates of the Company and in such cases the valuation of the investments as at the last valuation date is used. The net asset value reported by the administrator may be unaudited and, in some cases, the notified asset values are based upon estimates. The Company or the Investment Manager may depart from this policy where it is considered such valuation is inappropriate and may, at its discretion, permit any other method of valuation to be used if it considers that such method of valuation better reflects value generally or in particular markets or market conditions and is in accordance with good accounting practice. In the event that a price or valuation estimate accepted by the Company or by the Investment Manager in relation to an underlying fund subsequently proves to be incorrect or varies from the final published price by an immaterial amount, no retrospective adjustment to any previously announced Net Asset Value or Net Asset Value per Share will be made.
QANNAS INVESTMENTS LIMITED 30. NOTES TO THE FINANCIAL STATEMENTS - continued FOR THE YEARED 31 DECEMBER 2018 =============================================== ==== 2. SIGNIFICANT ACCOUNTING POLICIES - continued
Basis of measurement - continued
Financial assets - continued
b) Impairment of financial assets
The Company recognises lifetime expected credit losses for trade receivables at each reporting date. The expected credit losses on these financial assets are estimated using a provision matrix based on the Company's historical credit loss experience, adjusted for any factors that are specific to the debtors, general economic conditions and an assessment of both the current as well as the forecast direction of conditions at the reporting date, including time value of money where appropriate.
Cash and cash equivalents
Cash and cash equivalents comprises deposits held on call with banks.
Trade and other receivables
Trade and other receivables are initially recognised at fair value and subsequently carried at amortised cost; their carrying values are a reasonable approximation of fair value.
Trade receivables include the contractual amounts for the settlement of trades and other obligations due to the Company.
Financial liabilities
All financial liabilities are subsequently measured at amortised cost using the effective interest method.
Trade and other payables
Trade and other payables are initially recognised at fair value and subsequently carried at amortised cost; their carrying values are a reasonable approximation of fair value.
Trade and other payables represent contractual amounts and obligations due by the Company.
Loans payable
Loans payable are measured initially at cost. Subsequent to initial recognition, they are measured at amortised cost using the effective interest rate method. These financial liabilities are recognised when the Company enters into a loan agreement and are de-recognised when the loan agreement is terminated.
The effective interest rate method is a method of calculating the amortised cost of a financial liability and of allocating the interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts over the expected life of the financial instrument, in order that the present value of the future cash flows, including fees or transaction costs, is equal to the carrying amount of the financial instrument.
Finance costs associated with loans payable have been spread on an effective interest rate basis over the life of the loan.
Functional and presentational currency
The performance of the Company is measured and reported to the investors in US dollars. The Board of Directors considers the US dollar as the currency that most faithfully represents the economic effects of the underlying transactions, events and conditions. The financial statements are presented in US dollars, which is the Company's functional and presentation currency.
QANNAS INVESTMENTS LIMITED 31. NOTES TO THE FINANCIAL STATEMENTS - continued FOR THE YEARED 31 DECEMBER 2018 =============================================== ==== 2. SIGNIFICANT ACCOUNTING POLICIES - continued
Use of estimates and judgements
The preparation of the financial statements in conformity with IFRS and applicable law requires the Directors to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates with the most significant effects on the carrying amounts of the assets and liabilities in the financial statements are outlined below:
(i) Valuation of unquoted investments - The fair value of these is determined via valuation techniques. For further details of the judgements and assumptions made see notes 4 and 17;
(ii) Valuation of loans receivable - Loans receivable are held at fair value through profit and loss. The fair value is determined via valuation techniques. For further details of the judgements and assumptions made see notes 5 and 17; and
(iii) Classification as an investment entity - The Directors' have reviewed the definition of an investment entity and are satisfied the Company qualifies as such and hence does not consolidate. See the following page for details of the consideration.
Foreign currencies
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign currency assets and liabilities are translated into the functional currency using the exchange rate prevailing at the Statement of Financial Position date.
Foreign exchange gains and losses arising from translation are included in the Statement of Comprehensive Income. Foreign exchange gains and losses relating to cash and cash equivalents are presented in the Statement of Comprehensive Income. Foreign exchange gains and losses relating to the financial assets and liabilities carried at fair value through profit or loss are presented in the Statement of Comprehensive Income within 'net movement on changes in fair value of investments'.
Shares in issue
Management Shares are not redeemable, do not participate in the net income or dividends of the Company and are recorded at $1.00 per share.
Participating shares in issue are not redeemable at the shareholder's option.
Participating shares which are acquired by the Company are recognised at cost and deducted from equity. No gain or loss is recognised in the Statement of Comprehensive Income on the purchase, sale, issue or cancellation of the Company's own equity instruments.
Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable in the normal course of business. The Company recognises revenue when the amount of revenue can be reliably measured and when it is probable that the future economic benefits will flow into the Company.
Taxation
The Company is tax resident in Jersey, on the basis that board meetings and strategic decisions are undertaken in Jersey. Provision has been made in these financial statements for Jersey income tax at the rate of 0%.
Expenditure and transaction costs
All items of expenditure, including the performance and management fees, are recognised on an accruals basis.
The Company receives rebates for performance and management fees in respect of certain investments. These are included in the Statement of Comprehensive Income on an accruals basis.
QANNAS INVESTMENTS LIMITED 32. NOTES TO THE FINANCIAL STATEMENTS - continued FOR THE YEARED 31 DECEMBER 2018 =============================================== ==== 2. SIGNIFICANT ACCOUNTING POLICIES - continued
Distributions payable
The payment of dividends will depend on the availability of distributable reserves, cash resources and the working capital requirements of the Company. Dividends paid are included in the Company financial statements in the period in which the related dividends are declared.
Going concern
The Directors, after making due enquiries, continue to adopt the going concern basis in preparing the financial statements which assumes that the Company will continue in operation for the foreseeable future. The Company is in the process of realising existing investments in an orderly fashion and pursuing the new investment strategy, as further detailed in the Chairman's Report. As disclosed in note 10, the Company is due to repay the bank loan payable during 2019. This repayment will be financed by way of existing cash reserves and the continued realisation of the Company's investments.
The Company as at June 2019 currently has $6.9m cash and cash equivalent in order to pay its $5m loan repayment which is due on 30 June 2019 (having already settled approximately $500,000 of trade and other payables), after which the balance of the company's bank borrowings will total $10m.
In Q3 and Q4 of 2019 the Company intends to realise its investments in IFG, PPP and ADCM SPEF and the Directors are confident that the realisation of these investments will be sufficient to repay the balance of the bank loan by December 2019. Whilst the investments in PPP and ADCM SPEF are illiquid, the investment in IFG (with a residual balance of $8m net of post year end distributions) is considered liquid with the distributions controlled by the parent company of the Company Investment Manager acting as manager to IFG.
Should the projected realisations not occur in the timeframes expected, the Company will look to liquidate a further element of its holding in Goldilocks Investment Company Limited.
Segmental reporting
The Company is operated as one segment by the Board of Directors (which is considered to be the Chief Operating Decision Maker).
Operating segments are reported in a manner consistent with the internal reporting used by the Chief Operating Decision Maker. The Board of Directors is responsible for allocating resources and assessing performance of the operating segments that have been identified as the Board of Directors.
The Directors make the strategic resource allocations on behalf of the Company. The Company has determined the operating segments based on the reports reviewed by the Board of Directors, which are used to make strategic decisions.
The Board of Directors is responsible for the Company's entire portfolio and considers the business to have a single operating segment. The Board of Directors asset allocation decisions are based on a single, integrated investment strategy, and the Company's performance is evaluated on an overall basis.
The Company trades in a diversified portfolio of securities with the objective of generating value for shareholders.
The internal reporting provided to the Board of Directors for the Company's assets, liabilities and performance is prepared on a consistent basis with the measurement and recognition principles of IFRS.
There were no changes in the reportable segments during the year.
Restatement of prior period comparatives
As detailed earlier in this note, with the adoption of IFRS 9, the Company reclassified loans receivable held at amortised cost to fair value through profit or loss. There was no numerical impact on the prior year as the fair value at 31 December 2017 is equivalent to the amortised cost position at 31 December 2017. However, a number of presentational / terminology changes have been applied to reflect this change.
QANNAS INVESTMENTS LIMITED 33. NOTES TO THE FINANCIAL STATEMENTS - continued FOR THE YEARED 31 DECEMBER 2018 =============================================== ==== 2. SIGNIFICANT ACCOUNTING POLICIES - continued
Adoption of new and revised standards
The Directors have assessed the impact, or potential impact, of all new accounting requirements. In the opinion of the Directors, there are no mandatory new accounting requirements applicable in the current year that have any material effect on the reported performance, financial position, or disclosures of the Company, other than IFRS 9 Financial Instruments, which is detailed earlier in this note.
IFRS 15 Revenue from Contracts with Customers, establishes a five-step model that applies to revenue arising from contracts with customers and provides a more structured approach to measuring and recognising revenue. The Company has two principal revenue streams in the form of management fee and performance fee rebates, and loan interest. As part of the assessment process, the five-step model has been applied to each material revenue stream. It is considered that the application of the five-step model to material revenue streams does not result in any change to either the timing of when revenue is recognised or to the value of the amounts recognised in the financial statements when compared to the way in which revenue was previously recognised under IAS 18 Revenue. The Company has not recognised any performance or carried interest fees in these results but will do so when they meet the criteria outlined in IFRS 15. There has been no material impact as a result of the adoption of IFRS 15 to either the current or prior year.
The Company has not adopted any new accounting requirements that are not mandatory.
Amendments adopted early by the Company
There were no standards, amendments and interpretations which are effective for the financial year beginning on 1 January 2018 that were material to the Company, other than IFRS 9 which is detailed earlier in this note.
New standards and interpretations not yet adopted
A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after 1 January 2019, and have not been adopted in preparing these financial statements. None of these are expected to have a significant effect on the financial statements of the Company.
3. DIRECTORS' REMUNERATION AND INTERESTS
The remuneration of the individual Directors who served in the year to 31 December 2018 was:
31.12.18 31.12.17
$ $
Richard John Stobart Prosser 26,876 26,210
Christopher Ward 32,416 32,277
Richard Green 7,776 26,803
Mustafa Kheriba - -
67,068 85,290
========= =========
Mustafa Kheriba is a representative from the Investment Manager, who sits on the Board, and therefore does not receive any form of director remuneration.
Directors' interests in the shares of the Company, including family interest, at 31 December 2018 were:
Share Nominal % Held
Participating
Richard John Stobart Prosser shares nil 0.00%
Participating
Christopher Ward shares 100,000 0.17%
Participating
Mustafa Kheriba shares 461,153 0.77%
QANNAS INVESTMENTS LIMITED 34.
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2018
=============================================== ====
4. INVESTMENTS AT FAIR VALUE THROUGH PROFIT AND LOSS
31.12.18 31.12.17
$ $
Fair value brought forward 42,391,427 74,114,197
Additions 3,500,000 3,896,899
Disposals (3,298,636) (5,847,054)
Realised (losses) / gains (734,314) 1,099,838
Capital distributions (251,087) (14,402,547)
Net movement on changes in fair value
of investments (620,589) (16,469,906)
Fair value at 31 December 40,986,801 42,391,427
============ =============
Investments comprise:
31.12.18 31.12.17
Fair Value Fair Value
$ $
Non-current assets
ADCM Secondary Private Equity Fund
L.P. ("ADCM SPEF") 3,579,885 4,439,078
SPE Qannas C Limited - -
EE F&B Holding Limited 326,917 1
Palace Preferred Partners
L.P. 5,661,520 8,743,938
Integrated Financial
Group, LLC 18,968,568 19,026,696
28,536,890 32,209,713
----------- -----------
Current assets
Goldilocks Fund 8,896,152 10,181,714
Jabal Omar Development Sukuk 3,553,759 -
9.85% 15-Nov-2023
----------- -----------
12,449,911 10,181,714
----------- -----------
Total 40,986,801 42,391,427
=========== ================
The investments in Goldilocks Fund and Jabal Omark Development Sukuk are classified as current assets as it is anticipated they will be disposed of within the short term. As further detailed in note 21, the investment in Jabal Omark Development Sukuk was disposed of in February 2019.
In 2017, the Company elected to write down the holdings by ADCM SPEF and SPE Qannas C Limited in Abraaj exposed funds to $nil. This followed the Investment Manager's observations that it will be challenging to find a willing buyer for the holdings in Abraaj due to uncertainty over the General Partner and the funds' underlying assets. Furthermore, as these funds are in liquidation phase, and as there is no further incentive for the General Partner, the Investment Manager believes that the liquidation of underlying assets could be at a steep discount and could take significant time to realize. The Investment Manager considers the position is unchanged at 31 December 2018.
QANNAS INVESTMENTS LIMITED 35. NOTES TO THE FINANCIAL STATEMENTS - continued FOR THE YEARED 31 DECEMBER 2018 =============================================== ==== 4. INVESTMENTS AT FAIR VALUE THROUGH PROFIT AND LOSS - continued
The fair values of the investments are based on the latest available net asset value reports and / or financial information available for the underlying companies. Further details can be seen in note 17.
Investments at 31 December 2018 comprise:
Class of No. of Percentage Book
Shares Shares Holding Cost
Held
$
SPE Qannas C Limited Preference 8,039,559 74.3% 7,930,886
ADCM Secondary Private
Equity Fund L.P. - - 96.5% 18,025,471
EE F&B Holding Limited Ordinary 1,000 100% 1,006,904
Palace Preferred Partners
L.P. - - 17.43% 3,460,840
Goldilocks Investment
Company Limited (formally
Goldilocks Fund) Units 3,541,004 4% 4,094,938
Integrated Financial
Group, LLC Ordinary 73,908 47.4% 18,667,177
Jabal Omar Development Preference 3,500,000 0.03% 3,500,000
56,686,216
===========
During the year, the Company was party to the following investment transactions: -
-- The Company exited a portion of the investment in Palace Preferred Partners L.P., resulting in the receipt of proceeds of $3,298,636 (GBP2,334,656). This resulted in a realised loss of $734,314;
-- The Company acquired a $3,500,000 sukuk in Jabal Omar Development;
-- The Company received capital distributions amounting to $251,087 from ADCM Secondary Private Equity Fund L.P.; and
-- The Company also entered into an agreement to transfer its entire right, title and interest for the remaining outstanding commitment of GBP3,652,816 in Palace Preferred Partners L.P.. No proceeds were received in respect of this as the Company had not made any advancements in respect of this element of the commitment.
The loan due to First Abu Dhabi Bank is secured by way of a charge over the Company's investments in ADCM Secondary Private Equity Fund L.P., SPE Qannas C Limited, Palace Preferred Partners L.P., EE F&B Holding Limited and Integrated Financial Group LLC. See note 10 for further details, including covenants.
QANNAS INVESTMENTS LIMITED 36.
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2018
=============================================== ====
5. LOANS RECEIVABLE AT FAIR VALUE THROUGH PROFIT AND LOSS
31.12.18 31.12.17
$ $
Brought forward 16,824,208 16,220,609
Additions 9,251,701 133,912
Loan interest (repaid) / capitalised (340,776) 180,001
Repayments (12,950,230) (1,204,759)
Gain on repayment 701,855 -
Net movement on changes in fair value
of loans receivable (521,481) 1,494,445
12,965,277 16,824,208
============= ============
At 31 December 2017, $13,110,632 of the total loans of $16,824,208 were due for repayment within 12 months and hence were classified as current assets. These loans were subsequently repaid in full during the year ended 31 December 2018.
At 31 December 2018, loans receivable, which are all considered non-current as they are not expected to be repaid within 12 months of the year end, comprise: -
Interest Maturity Carrying Carrying
rate date value value
CCY $
EE F&B Holding Limited 4% Not defined EUR3,480,170 3,713,576
Kepler Lending Co.
Limited 9.75% 2021 AED34,000,000 9,251,701
Belcafe Limited N / N / A - -
A
12,965,277
===========
Loan interest of $785,568 (2017: $899,949) was accrued in respect of the year ended 31 December 2018, of which $65,147 remained outstanding at 31 December 2018 (2017: $624,894).
During the year ended 31 December 2018, the following loan transactions occurred: -
-- The loan receivable from Capital Hotel d.o.o. was repaid, resulting in proceeds of $9,931,555 (EUR8,759,530) being received. It was originally intended the loan would be converted into equity and hence on repayment there was a gain of $701,855 over carrying value, which has been recognised in the Statement of Comprehensive Income. Loan interest outstanding and accrued on the loan was also repaid in full;
-- The loans receivable from Integrated Eastern European Fund, Lucice Montenegro d.o.o. and Arqutino EAD, and associated capitalised and accrued loan interest, were repaid in full; and
-- The Company subscribed a term interest certificate to Kepler Lending Co. Limited, for $9,251,701 (AED34,000,000).
The loans receivable are unsecured, except for the loan receivable from Kepler Lending Co. Limited which is secured by way of 37,719,359 units in Goldilocks Fund. EE F&B Holding Limited owns the Master Franchise rights to operate Hard Rock Cafes in Podgorica, Montenegro, Sofia, Bulgaria and Belgrade, Serbia.
QANNAS INVESTMENTS LIMITED 37.
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2018
=============================================== ====
6. PROPERTY INVESTMENTS
31.12.18 31.12.17
$ $
Fair value brought forward - 779,560
Disposals - (779,560)
Fair value at 31 December - -
=========== ==========
This represented the deposit paid by the Company to acquire 2 premium units in the development Marina 101 at Dubai Marina and were disposed of during 2017 for $779,560, which was equivalent to their fair value at 31 December 2016.
7. TRADE AND OTHER RECEIVABLES
31.12.18 31.12.17
$ $
Current
Sundry debtors 34 34
Management fee rebate receivable (see note
16) 392,045 404,229
Performance fee rebate receivable (see
note 16) 880,134 931,903
Loan interest and income receivable 65,147 624,894
Prepayments 11,327 17,814
1,348,687 1,978,874
========== ==========
The performance fee rebate receivable will become due at the time of completion of the liquidation of the funds of Goldilocks Investment Company Limited.
Following a review by the investment manager $147,538 (2017: $238,992) of loan interest receivable in relation to EE F&B Holding Limited is considered impaired and has been reflected in the Statement of Comprehensive Income accordingly. The provision at 31 December 2018 amounts to $386,530 (2017: $238,992).
The Directors consider that the carrying amount of trade and other receivables approximates to their fair value.
8. CASH AND CASH EQUIVALENTS
31.12.18 31.12.17
$ $
First Abu Dhabi Bank 256,920 5,660,640
Royal Bank of Scotland International - 55,073
----------
256,920 5,715,713
========= ==========
QANNAS INVESTMENTS LIMITED 38.
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2018
=============================================== ====
9. TRADE AND OTHER PAYABLES
31.12.18 31.12.17
$ $
Non-current
Performance fees 9,772 2,259,631
========== ==========
Current
Secretarial, administration and accountancy
fees 36,288 60,249
Director fees 13,968 41,823
Investment manager fees 349,959 466,952
Performance fees 1,374,759 -
Legal and professional fees 27,100 36,397
Audit fees 57,106 33,728
Sundry expenses 1,521 1,805
Loan interest payable - 135,928
Participating shares 1 1
----------
1,860,702 776,883
========== ==========
The performance fee payable has been allocated between current and non-current in line with the classification of the respective investment / loan to which it relates.
The Directors consider that the carrying amount of trade and other payables approximates to their fair value.
10. LOANS PAYABLE
31.12.18 31.12.17
$ $
Loan Capital
Brought forward 25,500,000 30,000,000
Repayments in the year (8,000,000) (4,500,000)
------------ ------------
Carried forward 17,500,000 25,500,000
Issue Costs
Brought forward (296,056) (603,607)
Amortised during the year 223,708 307,551
------------ ------------
(72,348) (296,056)
17,427,652 25,203,944
============ ============
The Company has a loan facility with First Abu Dhabi Bank for up to $30,000,000. The loan facility was refinanced in November 2016 and now bears interest at the rate of US LIBOR + 3.5% per annum (previously US LIBOR + 2.5% per annum) and is repayable in quarterly instalments commencing 30 June 2017, with a final repayment date of 31 December 2019. As such at 31 December 2018, the entire balance is classified within current liabilities. At 31 December 2017, $8,000,000 was repayable within one year and hence included within current liabilities, with the remaining $17,203,944 included in non-current liabilities. There have been no breaches on loan covenants at 31 December 2018 and although there was a breach in 2018, the bank were informed and elected to take no action. Loan covenants comprise the requirement for the Company to inform First Abu Dhabi Bank before making distributions to investors, the Company ensuring the value of securitised investments exceed 175% of the loan value and, in June 2019, the Company was required to notarise a share pledge in respect of its investment in IFG.
The loan is secured by way of a pledge with First Abu Dhabi Bank in respect of the receivable accounts held by the Company and by way of a charge over the Company's investment in ADCM Second Private Equity Fund L.P., SPE Qannas C Limited, Palace Preferred Partners L.P. and Integrated Financial Group LLC. Details of the Company's repayment plan can be seen in the Going Concern disclosure (note 2).
The loan is measured at its net proceeds with the issue costs being spread at a constant rate using the effective interest rate over the life of the loan.
QANNAS INVESTMENTS LIMITED 39.
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2018
=============================================== ====
11. SHARE CAPITAL
31.12.18 31.12.17
Management shares
Authorised:
2 ordinary non-participating
shares of no par value 2 2
=============== ===============
$ $
Issued and fully paid:
2 shares of $1 each 2 2
=============== ===============
Participating shares
Authorised:
Unlimited participating shares
of no par value
=============== ===============
$ $
Issued and fully paid:
79,331,354 (2017: 79,331,354)
participating shares of
no par value at various issue
prices 76,638,587 76,638,587
=============== ===============
Treasury shares:
19,820,779 (2017: 19,391,642)
participating shares of no par
value redeemed at various prices (17,032,680) (16,839,568)
=============== ===============
In addition to the above, the Company has two further share classes - redeemable 'B' and redeemable 'C'. Both of these share classes have an unlimited number of participating shares of no par value authorised for issue. At 31 December 2018 and 31 December 2017 no redeemable 'B' shares and redeemable 'C' shares were in issue.
Management shares
The Management Shares carry no right to receive any dividends, whether by way of finance costs, return of capital or otherwise, other than the return (on a winding up) of the issue price paid on such shares, are non-redeemable and are recorded at $1.00 per share.
Participating shares
Participating Shares carry the right to receive a dividend out of the income of the Company in such amounts and at such times that the Directors shall determine, and to receive a dividend on a return of capital of the assets of the Company on a winding up, in proportion to the number of shares held. Participating shares in issue are redeemable at the option of the Company.
During the year, the Company repurchased 429,137 $1 participating shares at a price of $0.45 per share. These shares are held as treasury shares and as such are not entitled to any dividends paid by the Company or any rights to vote at meetings of the Company.
In the prior year, the Company redeemed 8,888,889 $1 participating shares at a price of $0.90 per share. These shares are held as treasury shares and as such are not entitled to any dividends paid by the Company or any rights to vote at meetings of the Company.
QANNAS INVESTMENTS LIMITED 40. NOTES TO THE FINANCIAL STATEMENTS - continued FOR THE YEARED 31 DECEMBER 2018 =============================================== ==== 11. SHARE CAPITAL - continued
B Shares
This class of share has no rights to receive dividends, to receive notice of or vote at general meetings of the Company or to receive amounts available for distribution on a winding up, for the purpose of a reorganisation or otherwise or upon any distribution of capital.
C Shares
The Directors are authorised to issue C Shares of different classes which are convertible into Participating Shares. If the shares were converted into Participating Shares, then these shares would rank equal to, and hold the same rights attaching to, Participating Shares currently in issue at the date of conversion.
This class of share will be entitled to receive such dividends as the Directors may resolve to pay to such shares out of the assets attributable to this class of share. This class of share carries no right to attend or vote at any general meeting of the Company. The capital and assets of the Company on a winding up or on a return of capital attributable to this class of share shall be divided amongst the shareholders of this class of share according to their holding.
12. RETAINED EARNINGS - UNREALISED AND REALISED SPLIT
Retained earnings at 31 December 2018 comprise the following revenue items, split between realised and unrealised income: -
Unrealised Realised Total
$ $ $
Balance at 1 January 2018 (11,324,463) (9,804,794) (21,129,257)
Income 383,667 701,855 1,085,522
Expenditure - (1,403,582) (1,403,582)
Net movement in changes in fair
value of investments (620,589) - (620,589)
Impairment losses arising on
loan interest receivable - (147,538) (147,538)
Loan interest payable - (1,421,795) (1,421,795)
Net movement in changes in fair
value of loans receivable (521,481) - (521,481)
Loss on foreign exchange - (27,928) (27,928)
Interest income - cash and cash
equivalents - 54,730 54,730
Interest income - loans receivable - 785,568 785,568
------------- ------------- -------------
Balance at 31 December 2018 (12,082,866) (11,263,484) (23,346,350)
============= ============= =============
The retained earnings are distributable to the investors at the discretion of the Directors if, in their opinion, the profits of the Company justify such payments. The Directors consider the future requirements of the Company when making such distributions. There are currently no restrictions on distributions for the Company save for prior notification of any distribution to being provided to First Abu Dhabi Bank.
13. LOSS PER SHARE
Loss per share is calculated by dividing the loss attributable to the participating shareholders of the Company by the weighted average number of participating shares in issue during the year, excluding the average number of participating shares purchased by the Company and held as treasury shares.
On 24 October 2018, the Company repurchased 429,137 participating shares which are held in equity as treasury shares. The average number of shares in issue during the year ended 31 December 2018 was 59,859,767 (2017: 65,279,303).
QANNAS INVESTMENTS LIMITED 41.
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2018
=============================================== ====
13. LOSS PER SHARE - continued
31.12.18 31.12.17
Total loss for the year after taxation
($) (2,217,093) (18,295,313)
Weighted average number of participating
shares in issue 59,859,767 65,279,303
Basic and diluted earnings per share
($ per share) (0.04) (0.28)
============ =============
The Company has not issued any shares or other instruments that are considered to have dilutive potential and hence basic and diluted earnings per share are the same.
14. TAXATION
The Company is tax resident in Jersey, on the basis that board meetings and strategic decisions are undertaken in Jersey. Provision has been made in these financial statements for Jersey income tax at the rate of 0%.
15. DISTRIBUTIONS
Distributions of $nil (2017: $nil) were paid during the year.
16. INVESTMENT MANAGER AND PERFORMANCE FEES
The Investment Manager is entitled to a quarterly management fee equal to 0.4375% of the net asset value of the company at each quarter end (being 31 March, 30 June, 30 September and 31 December). $646,663 (2017: $1,038,624) was recognised during 2018.
In addition to the management fee, the Investment Manager is entitled to a fee based upon the performance of the investments (the "Performance Fee"). The movement in the performance fee payable at the year end was ($504,074) (2017 : ($277,707). The calculation for this fee changed in 2014 following the acquisition of interests in ADCM SPEF and SPE Qannas C Limited.
Performance Fee calculation to 27 March 2014
Up until 27 March 2014, the Performance Fee was payable once the Company had made aggregate distributions in cash to the shareholders, in accordance with the following methodology:
The Company firstly had to make distributions to shareholders equivalent to:
i) their gross share subscription price paid (the "contributed capital"); and
ii) a premium of "simple" interest of 7% per annum on the contributed capital (the "preferred return").
When the thresholds had been met then:
i) on the event of any further cash distributions to shareholders the Investment Manager was entitled to an equal amount until they have received payments which in total are equivalent to 20% of the amounts distributed to the shareholders in excess of the contributed capital.
ii) when the 20% has been achieved, the Investment Manager is entitled to 20% of any further cash distributions.
The above calculation was replaced by a new method of calculation that was applied from 27 March 2014.
QANNAS INVESTMENTS LIMITED 42. NOTES TO THE FINANCIAL STATEMENTS - continued FOR THE YEARED 31 DECEMBER 2018 =============================================== ==== 16. INVESTMENT MANAGER AND PERFORMANCE FEES - continued
Performance Fee calculation since 27 March 2014
Under the new method of calculation, the Investment Manager is entitled to be paid a performance fee in respect of each asset in the Company's portfolio from time to time. Performance fees payable at 31 December 2018 amounted to $1,384,531 (2017: $2,259,631).
On the disposal by the Company of the whole or part of its interest in any Asset, the Investment Manager shall be entitled to a Performance Fee equal to 15 percent of the amount by which the net disposal proceeds (after deducting the costs incurred and any taxes payable in connection with such disposal) together with the net proceeds of any previous disposal of interests in such Asset (together, the "Total Proceeds") are greater than the cost (including any fees and expenses) of acquiring the Asset (the "Acquisition Cost").
For the unquoted investments of ADCM SPEF and SPE Qannas C Limited, acquired in March 2014, each of their underlying fund investments will be considered as separate Assets. As such the Acquisition Cost in respect of each underlying fund investment shall be deemed to be such proportion of the ADCM SPEF and SPE Qannas C Limited consideration (after being adjusted for the net receivables from ADCM SPEF and SPE Qannas C Limited investors (on an individual basis)) as is attributable to such ADCM SPEF and SPE Qannas C Limited Assets. Similarly, the date of acquisition of any ADCM SPEF and SPE Qannas C Limited asset shall be deemed to be the effective date of 27 March 2014 relating to ADCM SPEF and SPE Qannas C Limited.
Any Performance Fee payable by the Company to the Investment Manager shall be reduced to the extent required to ensure that, in respect of the Asset to which the Performance Fee relates, an amount equal to a simple 7 per cent per annum return on the Acquisition Cost of such Asset from the date of its acquisition to the date on which the Total Proceeds first exceed the Acquisition Cost has been retained by the Company before the payment of any Performance Fee to the Investment Manager.
Any Performance Fee payable by the Company to the Investment Manager shall be paid to the Investment Manager within 10 days of the receipt by the Company of the relevant disposal proceeds.
As a result of the above mentioned change in Performance Fee structure, the Performance Fee accrual was reduced by $1,149,109.69 during 2014. The Investment Manager also returned 1,197,945 participating shares for an aggregate price of $1 which were issued under original agreement to the Investment Manager in lieu of management fee before 27 March 2014.
Rebates
In order to prevent the double-charging of Management and Performance Fees, ADCM Ltd (in its capacity as Investment Manager to ADCM SPEF) and ADCM SPEF GP Limited (in its capacity as general partner of ADCM SPEF) entered into an agreement with the Company, such that they shall rebate to the Company any Management Fee or Performance Fee that they receive from ADCM SPEF, which is attributable to the Company's percentage ownership of ADCM SPEF.
In order to prevent the double-charging of Performance Fees, ADCM Ltd (in its capacity as Investment Manager to SPE Qannas C Limited) entered into an agreement with the Company, such that they shall rebate to the Company any Performance Fee that they receive from SPE Qannas C Limited.
The timing of receipt of the Performance Fee rebate is uncertain and is dependent on the realisation of the underlying investments held by ADCM SPEF and SPE Qannas C Limited. As such, the Performance Fee rebate has been classified as a current asset within the Statement of Financial Position.
The Company has accrued Management Fee rebate income in respect of ADCM SPEF of $120,859 at 31 December 2018 (2017: $297,828). The Company has accrued Performance Fee rebate income in respect of ADCM SPEF and SPE Qannas C Ltd of $nil at 31 December 2018 (2017: $nil). These are settled when investments are sold and are based on the fair value gains realised on the disposal.
Abu Dhabi Financial Group, the investment manager of Goldilocks Fund, provide a rebate to the company in respect of Management and Performance Fees it charges to Goldilocks Fund. At 31 December, $271,186 (2017: $106,401) was due in respect of Management Fees and $880,134 (2017: $931,903) in respect of Performance Fees. These are included in trade and other receivables and are considered a current asset, in line with the investment itself.
QANNAS INVESTMENTS LIMITED 43. NOTES TO THE FINANCIAL STATEMENTS - continued FOR THE YEARED 31 DECEMBER 2018 =============================================== ==== 16. INVESTMENT MANAGER AND PERFORMANCE FEES - continued
A reconciliation of the rebate recognised in the statement of comprehensive income can be seen below:
31.12.18 31.12.17
$ $
Opening performance fee rebate receivable
(note 7) (931,903) (4,663,572)
Opening management fee rebate receivable
(note 7) (404,229) (98,618)
Management fee rebate received in the 447,620 -
year
Closing performance fee rebate receivable
(note 7) 880,134 931,903
Closing management fee rebate receivable
(note 7) 392,045 404,229
383,667 (3,426,058)
========== ============
17. FINANCIAL RISK MANAGEMENT
The Company's activities expose it to a variety of financial risks: market risk (including price risk, interest rate risk and foreign currency risk), credit risk and liquidity risk. The Company's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Company's financial performance.
The management of these risks is performed by the Board of Directors. The policies for managing each of these risks are summarised below.
Management of market risk
Price risk
The Company is exposed to market price risk in respect of its portfolio of investments via equity securities price risk. The risk arises from investments held by the Company for which prices in the future are uncertain. Where non-monetary financial instruments are denominated in currencies other than the US dollar, the price initially expressed in foreign currency and then converted into US dollar will also fluctuate because of changes in foreign exchange rates (further details on the foreign exchange risk can be seen later in this note).
The Company mitigates price risk by having established investment appraisal processes and asset monitoring procedures which are subject to overall review by the board. The Company also manages the risk by appropriate diversification of its assets.
Details of the Company's financial assets are given in notes 4, 5, 6, 7 and 8.
Price risk sensitivity
The table below summarises the impact on the Company's profit before taxation for the year and on equity of a 10% increase / decrease in the price of investments that are based on a recent / year end price. The sensitivity is based on the effect of the market volatility in the current climate and previous experience with regards to the Company's quoted investment. Ten percent has been selected as the Directors consider this to be a reasonably foreseeable change which is consistent with previous years to measure price risk sensitivity.
31.12.18 31.12.17
$ $
Impact of a 10% price change
Investments at fair value through profit
and loss 3,141,848 3,024,671
Loans receivable at fair value through
profit and loss 1,296,528 1,682,421
----------- ----------
Total 4,438,376 4,707,092
=========== ==========
Interest rate risk
The Company's interest rate risk principally arises from borrowings in the form of the loan payable (see note 10) and receivables in the form of loans receivable (see note 5).
QANNAS INVESTMENTS LIMITED 44. NOTES TO THE FINANCIAL STATEMENTS - continued FOR THE YEARED 31 DECEMBER 2018 =============================================== ==== 17. FINANCIAL RISK MANAGEMENT - continued
Management of market risk - continued
The Company relies on receipt of investment income and realised gains on investments to meet interest obligations due on the Loan Payable. The loan payable bears interest at 3.5% plus US LIBOR. The board has, in consultation with the Investment Manager, reviewed the terms of the loan and are satisfied that the risk of significant movements in US LIBOR over the term of the loan is low. Through cash flow projections and the structuring of the Company, the Board of Directors believe the Company will have sufficient cash available to meet its obligations as they fall due and therefore, there is no material interest rate risk.
The Loans receivable carry fixed rates of interest and so there is no risk arising from movement in interest rates on income receivable by the Company.
Foreign exchange risk
The Company operates internationally and is exposed to foreign exchange risk arising from various currency exposures.
Foreign exchange risk is the risk that the fair value of future transactions, recognised monetary and non-monetary assets and liabilities denominated in other currencies fluctuate due to changes in foreign exchange rates. Trade payables are settled within short time periods (under 12 months) in order to minimise the fluctuation between expected and actual expenditure.
The Company's investments in financial instruments are valued in US dollars. The Company holds cash deposits denominated in currencies other than US dollars, the functional and presentational currency. Some of the Company's payables are transacted in currencies other than US dollars.
The significant currency assets of the Company are held in AED, USD, GBP and EUR. The Board considers that its exposure to foreign exchange risk is limited. The AED is 'pegged' to USD and the Investment Manager monitors EUR and GBP currency movements and proposes any action deemed appropriate.
The table below summarises the Company's assets and liabilities, monetary and non-monetary, which are denominated in a currency other than the US dollar.
(amounts in US 31.12.18 31.12.17
dollars)
EUR GBP AED EUR GBP AED
Assets
Monetary assets 17,665 4,996 - 9,726 9,793 137
Non-monetary
assets 4,040,493 5,664,026 28,286,803 17,449,102 8,750,360 1,387
Liabilities
Monetary liabilities - - - - - -
Non-monetary
liabilities - 135,559 - - 173,713 -
The below table summarises the sensitivity of the Company's monetary and non-monetary assets and liabilities to changes in foreign exchange movements at 31 December. The analysis is based on the assumptions that the relevant foreign exchange rate increased / decreased by the percentage disclosed in the table below, with all other variables held constant. This represents the Directors' best estimate of a reasonable possible shift in the foreign exchange rates, having regard to historical volatility of those rates.
QANNAS INVESTMENTS LIMITED 45. NOTES TO THE FINANCIAL STATEMENTS - continued FOR THE YEARED 31 DECEMBER 2018 =============================================== ==== 17. FINANCIAL RISK MANAGEMENT - continued
Management of market risk - continued
Foreign exchange risk - continued
Reasonable Reasonable
possible possible
Currency rate 31.12.18 rate 31.12.17
shift (2018) shift (2017)
$ $
Euros (EUR)
Monetary + / - 5% 883 + / - 5% 486
Non-monetary + / - 5% 202,025 + / - 5% 872,455
Pounds Sterling (GBP)
Monetary + / - 5% 250 + / - 5% 490
Non-monetary + / - 5% 276,423 + / - 5% 437,518
As disclosed above, the AED is 'pegged' to the USD and so no sensitivity analysis has been prepared for AED denominated amounts.
Credit risk
For the Company, credit risk arises from cash and cash equivalents and contractual cash flows of debt investments as well as credit exposures arising on outstanding trade and other receivables.
The maximum exposure to credit risk on the Company's financial assets is represented by their carrying amount, as detailed in notes 4 to 8.
The Company's trade and other receivables are subject to the expected credit loss model:
Cash and cash equivalents
While cash and cash equivalents are also subject to the impairment requirements of IFRS 9, the identified impairment loss was immaterial. The credit quality (in accordance with Fitch) of cash and cash equivalents can be seen below:
31.12.18 31.12.17
$ $
Cash and cash equivalents
AA- 256,920 5,660,640
A - 55,073
256,920 5,715,713
========= ==========
The Company seeks to limit the level of credit risk on the cash balances by only depositing surplus liquid funds with counterparty banks with high credit ratings (at least A grade in accordance with Fitch). The Company does not hold any derivative financial instruments.
Trade and other receivables
The group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade and other receivables.
To measure the expected credit losses, trade and other receivables have been grouped based on shared credit risk characteristics and the days past due.
QANNAS INVESTMENTS LIMITED 46. NOTES TO THE FINANCIAL STATEMENTS - continued FOR THE YEARED 31 DECEMBER 2018 =============================================== ==== 17. FINANCIAL RISK MANAGEMENT - continued
Credit risk - continued
Trade and other receivables - continued
The expected loss rates are based on the payment profiles over a period of 36 month before 31 December 2018 or 1 January 2018 respectively and the corresponding historical credit losses experienced within this period. The historical loss rates are adjusted to reflect current and forward-looking information on macroeconomic factors affecting the ability of counterparties to settle the receivables.
On that basis, the periodic review of loss allowance on the loan interest receivable from EE F&B Holding Limited was determined as $386,530 at 31 December 2018 and $238,992 at 31 December 2017. This arises on loan interest and income receivable, with the movement in provision of $147,538 recognised in the Statement of Comprehensive Income during the year ended 31 December 2018. Such loss allowance has been recognised before the transition of IFRS 9.
Trade and other receivables are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, amongst others, the failure of a counterparty to engage in a repayment plan with the Company, and a failure to make contractual payments in a reasonable time frame.
Impairment losses on trade and other receivables are presented as impairment within loss for the year. Subsequent recoveries of amounts previously written off are credited against the same line item.
In the prior year, the impairment of trade and other receivables was assessed based on the incurred loss model. Individual receivables which were known to be uncollectible were written off by reducing the carrying amount directly. The other receivables were assessed collectively to determine whether there was objective evidence that an impairment had been incurred but not yet been identified. For these receivables the estimated impairment losses were recognised in a separate provision for impairment. Receivables for which an impairment provision was recognised were written off against the provision when there was no expectation of recovering additional cash.
Loans receivable
The Company mitigates credit risk on loans receivable by only entering into agreements which have sufficient security held against the loans or where the operating strength of the counterparty is considered sufficient to support the amounts outstanding.
Credit risk is determined on initial recognition of each loan and re-assessed at each reporting date. The risk assessment is undertaken by the Investment Manager.
The Board of the Directors reviews the position of the counterparty prior to entering into any loan arrangement and the Investment Manager provides subsequent quarterly updates. The Investment Manager's review includes review of financial information in respect of the counterparty. Further disclosure in respect of loans receivable and relevant collateral can be seen in note 5. The Investment Manager is responsible for evaluating and proposing loan proposals, as well as monitoring their recoverability and taking action on any doubtful amounts.
Loans receivable are held at fair value through profit and loss and the above factors are considered when assessing the year end fair value assessment.
QANNAS INVESTMENTS LIMITED 47. NOTES TO THE FINANCIAL STATEMENTS - continued FOR THE YEARED 31 DECEMBER 2018 =============================================== ==== 17. FINANCIAL RISK MANAGEMENT - continued
Credit risk - continued
Other assets
The credit risk associated with trading and portfolio investments is considered minimal.
Further, Goldilocks Fund is managed by ADCM Altus. The Investment Manager's review includes review of external ratings, where available, and financial information in respect of the counterparty. Further disclosure in respect of Goldilocks Fund can be seen in note 4.
The Company does not consider that any changes in fair value of financial assets in the year to be attributable to credit risk.
No aged analysis of financial assets is presented as no financial assets are past due at the reporting date.
The maximum exposure to credit risk before any credit enhancements at 31 December is the carrying amount of the financial assets as set out below:
31.12.18 31.12.17
$ $
Loans receivable at fair value through
profit or loss 12,965,277 16,824,208
Trade and other receivables 1,348,687 1,978,874
Cash and cash equivalents 256,920 5,715,713
14,570,884 24,518,795
=========== ===========
Liquidity risk
The Company seeks to manage liquidity risk to ensure that sufficient liquidity is available to meet foreseeable needs and to invest cash assets safely and profitably. The Company deems there is sufficient liquidity for the foreseeable future. The Company has a strong relationship with various financial institutions and has utilised these relationships to borrow funds when necessary. The Board of Directors is comfortable that the Company has sufficient resources to meet the requirements of the Company.
During 2014 the Company entered into a facility for $30 million from First Abu Dhabi Bank and drew down the full loan during the prior year. The loan was refinanced in November 2016 and is now due for repayment quarterly (see note 10).
This repayment will be financed by way of existing cash reserves and the continued realisation of the Company's investments. The Company as at June 2019 currently has $6.9m cash and cash equivalent in order to pay its $5m loan repayment which is due on 30 June 2019 (having already settled approximately $500,000 of trade and other payables), after which the balance of the company's bank borrowings will total $10m. In Q3 and Q4 of 2019 the Company intends to realise its investments in IFG, PPP and ADCM SPEF and the Directors are confident that the realisation of these investments will be sufficient to repay the balance of the bank loan by December 2019. Whilst the investments in PPP and ADCM SPEF are illiquid, the investment in IFG (with a residual balance of $8m net of post year end distributions) is considered liquid with the distributions controlled by the parent company of the Company Investment Manager acting as manager to IFG. Should the projected realisations not occur in the timeframes expected, the Company will look to liquidate a further element of its holding in Goldilocks Investment Company Limited.
QANNAS INVESTMENTS LIMITED 48. NOTES TO THE FINANCIAL STATEMENTS - continued FOR THE YEARED 31 DECEMBER 2018 =============================================== ==== 17. FINANCIAL RISK MANAGEMENT - continued
Liquidity risk - continued
The table below analyses the Company's financial liabilities into relevant maturity groupings based on the remaining period at the statement of financial position date. The amounts in the table are the undiscounted cash flows.
Less than 1 to 3 3 to 6 6 to 12 More than
1 month months months months 12 months
$ $ $ $ $
Trade and other
payables 1,860,702 - - - 9,772
Loans payable - 2,500,000 2,500,000 12,500,000 -
---------- ---------- ---------- ----------- -----------
1,860,702 2,500,000 2,500,000 12,500,000 9,772
========== ========== ========== =========== ===========
Capital risk management
The Company manages its capital to ensure that it will be able to continue as a going concern while maximising the return to stakeholders.
The capital of the Company is represented by the share capital of the Company less retained losses. The Company has sufficient assets to cover the Company's liabilities at the Statement of Financial Position date and for the foreseeable future. As such at 31 December 2018 the Company had $35,452,206 of capital (2017: $38,669,764).
To maintain or adjust the capital structure, the Company may propose dividend payment to the shareholders, buy back shares or issue new shares.
Concentration risk
The Company aims to mitigate concentration risk through investing in companies that operate in a variety of different markets.
Fair value measurements recognised in the Statement of Comprehensive Income
IFRS 13 requires the disclosure of fair value measurements by level of the following fair value measurement hierarchy:
-- Quoted prices (unadjusted) in active markets for identical assets (level 1);
-- Inputs other than quoted prices included within level 1 that are observable for the asset, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2); or
-- Inputs for the asset that are not based on observable market data (that is, unobservable inputs) (level 3).
The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3.
The following table shows an analysis of the fair values of the financial instrument recognised in the Statement of Financial Position by level of the fair value hierarchy:
Level 1 Level 2 Level Total
3
$ $ $ $
2018
Investments and loans receivable 3,553,759 8,896,152 41,502,167 53,952,078
2017
Investments and loans receivable - 10,181,714 49,033,921 59,215,635
QANNAS INVESTMENTS LIMITED 49.
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2018
=============================================== ====
17. FINANCIAL RISK MANAGEMENT - continued
Fair value measurements recognised in the Statement of Comprehensive Income - continued
Investments whose values are based on quoted market prices in active markets, and are therefore classified within level 1, include active listed equities. The Company does not adjust the quoted price for these instruments.
Financial instruments that trade in markets that are not considered to be active but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs are classified within level 2. As level 2 investments include positions that are not traded in active markets and / or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and / or non-transferability, which are generally based on available market information.
The following table sets out the valuation technique used in determination of fair values within level 2 including the key inputs used.
The valuation of the level 2 investment, Goldilocks Fund, is based upon the net asset value of underlying assets, which comprise publicly listed companies in the UAE, held by the Fund.
Item Valuation approach and inputs used Investments at fair The fair value is determined based on market value through profit values of underlying assets, which comprise and loss - Goldilocks publicly listed companies in the UAE. Fund
Investments classified within level 3 have significant unobservable inputs, as they trade infrequently. Level 3 instruments include corporate debt positions. As observable prices are not available for these securities, the Company has used valuation techniques to derive the fair value. The following table sets out the valuation techniques used in the determination of fair values within level 3 including the key unobservable inputs used and the relationship between unobservable inputs to fair value.
QANNAS INVESTMENTS LIMITED 50. NOTES TO THE FINANCIAL STATEMENTS - continued FOR THE YEARED 31 DECEMBER 2018 =============================================== ==== 17. FINANCIAL RISK MANAGEMENT - continued
Fair value measurements recognised in the Statement of Comprehensive Income - continued
Item and valuation Fair Fair value Key un-observable Input value Input value Relationship
approach value at inputs 31.12.18 31.12.17 between
at unobservable
inputs and
fair value
31.12.18 31.12.17
$ $
Investments
at fair value
through profit
and loss - Value of
ADCM Secondary the underlying
Private Equity investments
Fund L.P. within
the funds
The carrying and the
value of the discount
investments factor
is based on applied An increase
valuations (in 2017 in the value
provided by the value shown in
the General of certain the financial
Partners of underlying reports
the underlying holdings of the underlying
funds. A discount were written fund and
is then applied down due premium
to the valuations to uncertainty / discount
by the Investment surrounding on underlying
Manager to the underlying assets in consider the holdings, the secondary funds the Company further market would can expect details result in to realise of which the year-end if disposed can be NAV provided NAV provided valuation in the short seen in by General by General being higher term. 3,579,885 4,439,078 note 4). Partner Partner and vice-versa. QANNAS INVESTMENTS LIMITED 51. NOTES TO THE FINANCIAL STATEMENTS - continued FOR THE YEARED 31 DECEMBER 2018 =============================================== ==== 17. FINANCIAL RISK MANAGEMENT - continued
Fair value measurements recognised in the Statement of Comprehensive Income - continued
Item and valuation Fair Fair Key un-observable Input Input Relationship
approach value value inputs value value between
at at 31.12.18 31.12.17 unobservable
inputs and
fair value
31.12.18 31.12.17
$ $
Investments - - Value of the NAV NAV provided An increase
at fair value underlying provided by General in the value
through profit investments by General Partner shown in
and loss - SPE within the Partner the financial
Qannas C Limited funds and reports
the discount of the
The carrying factor applied underlying
value of the (in 2017 the fund and
investments value was premium
is based on written down / discount
valuations provided due to on underlying
by the General uncertainty assets in
Partners of surrounding the secondary
the underlying the underlying market would
funds. An assessment holdings, result in
is then undertaken further details the year-end
of whether any of which can valuation
further discount be seen in being higher
is required note 4). and vice-versa.
(as was the
case in 2017
- see note 4)
before a multiple
is applied by
the Investment
Manager to consider
the funds the
Company can
expect to realise
if disposed
in the short
term.
An increase
in the multiple
applied
Investments would result
and loans receivable in a higher
at fair value Multiple Multiple valuation
through profit The discount of 12x of 12x and a decrease
and loss - EE rate and multiple Discount Discount would result
F&B Holding utilised in rate rate in a lower
Limited* 326,917 1 the valuations. of 10% of 10% valuation.
3,713,576 3,713,576
The carrying
value is based
on applying
a multiple to
projected EBITDA
forecasts associated
with the licence
and, due to
the market volatility,
a discount rate
has been applied.
* - This holding is split between a loan receivable element ($3,713,576) and an unquoted investment element ($326,917).
QANNAS INVESTMENTS LIMITED 52. NOTES TO THE FINANCIAL STATEMENTS - continued FOR THE YEARED 31 DECEMBER 2018 =============================================== ==== 17. FINANCIAL RISK MANAGEMENT - continued
Fair value measurements recognised in the Statement of Comprehensive Income - continued
Item and valuation Fair value Fair value Key un-observable Input Input Relationship
approach at at inputs value value between
31.12.18 31.12.17 unobservable
inputs and
fair value
31.12.18 31.12.17
$ $
Investments at
fair value through
profit and loss
- Palace Preferred
Partners LP
The carrying
value of the
investment is
based on the
valuation provided
by the General
Partner of Palace
Preferred Partners An increase
LP. These in the value
valuations of Palace
are based on Preferred
the latest The value Partners
available of the underlying LP investment
report for the investments would result
quarter ending of Palace in the year-end
31-Dec-18 prepared Preferred NAV provided NAV provided valuation
in line with Partners by General by General being higher
IPEV Guidelines. 5,661,520 8,743,938 LP Partner Partner and vice-versa.
Investments at
fair value through
profit and loss
- Integrated An increase
Financial Group in the
liquidation
In 2018, the value would
carrying value increase
of the investment the value
is based on a of the
recent transaction investment,
price. No discount while a
has been applied Share price decrease
as the investment in recent would lower
is currently liquidation the value
in realisation of underlying of the
phase. 18,968,568 19,026,696 investments N / A N / A investment.
Loans receivable 9,251,701 - The value Loan N / A A worsening
at fair value of the underlying principal of the
through profit counterparty's and interest counterparty's
and loss - Kepler net assets rate ability
Lending Co. to repay
Limited the loan
will result
In 2018, the in a reduction
carrying value in the fair
of the loan value.
receivable
is determined
with reference
to the principal
loan outstanding
and accrued
interest
QANNAS INVESTMENTS LIMITED 53.
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2018
=============================================== ====
17. FINANCIAL RISK MANAGEMENT - continued
Fair value measurements recognised in the Statement of Comprehensive Income - continued
Reconciliation of level 3 fair value measurements of financial assets
31.12.18 31.12.17
$ $
Balance brought forward 49,033,921 71,672,647
Purchases 9,251,701 4,210,812
Capital distributions (251,087) (14,402,547)
Disposals (16,589,642) (1,286,435)
Revaluations 57,274 (11,160,556)
Balance at 31 December 41,502,167 49,033,921
============= =============
The Company's policy is to recognise transfers into and out of fair value hierarchy levels as at the date of the event of change in circumstances that cause the transfer.
The following table analyses the Company's financial assets and liabilities by category: -
Assets per statement of financial Amortised Assets at Total
position cost fair value
through profit
and loss $
$ $
31 December 2018
Investments at fair value through
profit and loss - 40,986,801 40,986,801
Loans receivable at fair value
through profit and loss - 12,965,277 12,965,277
Trade and other receivables 1,348,687 - 1,348,687
Cash and cash equivalents 256,920 - 256,920
---------------- ---------------- -----------
Total assets 1,605,607 53,952,078 55,557,685
---------------- ---------------- -----------
31 December 2017
Investments at fair value through
profit and loss - 42,391,427 42,391,427
Loans receivable at fair value
through profit and loss 16,824,208 16,824,208
Trade and other receivables 1,978,874 - 1,978,874
Cash and cash equivalents 5,715,713 - 5,715,713
---------------- ---------------- -----------
Total assets 7,694,587 59,215,635 66,910,222
---------------- ---------------- -----------
Liabilities per statement of financial Liabilities Other financial Total
position at fair value liabilities
through profit
and loss $ $
$
31 December 2018
Trade and other payables - 1,870,474 1,870,474
Loans payable - 17,427,652 17,427,652
---------------- ---------------- -----------
Total liabilities - 19,298,126 19,298,126
---------------- ---------------- -----------
31 December 2017
Trade and other payables - 3,036,514 3,036,514
Loans payable - 25,203,944 25,203,944
---------------- ---------------- -----------
Total liabilities - 28,240,458 28,240,458
---------------- ---------------- -----------
QANNAS INVESTMENTS LIMITED 54.
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2018
=============================================== ====
18. RETAINED EARNINGS
31.12.18 31.12.17
$ $
Balance brought forward (21,129,257) (2,833,944)
Total loss after taxation (2,217,093) (18,295,313)
Balance at 31 December (23,346,350) (21,129,257)
============= =============
Retained earnings represent the cumulative Comprehensive Income net of distributions to owners.
19. RELATED PARTY TRANSACTIONS
Richard John Stobart Prosser, a Director of the Company, is also an officer of Estera Fund Administrators (Jersey) Limited, which acts as administrator. Secretarial and administration fees, director fees and sundry expenses incurred by the Company with Estera Fund Administrator (Jersey) Limited for the year ended 31 December 2018 amounted to $182,121 (2017: $161,195), of which $43,282 (2017: $76,640) was outstanding at 31 December 2018.
Richard John Stobart Prosser, a Director of the Company, was also a director of Palace Investors Holdings Limited up to 22 November 2018, and Mustafa Kheriba, a Director of the Company, is also a director of Palace Real Estate Partners GP Ltd. Estera Fund Administrators (Jersey) Limited, the Company's administrator, also provide administration services to the wider Palace structure. The Company has an investment of $5,661,520 in Palace Preferred Partners LP at 31 December 2018 (2017: $8,743,938). The issue was arranged by a company related to the investment manager and a fee of 0.75% of the capital raised will be paid to the issuer on completion. The value of this will be based on the capital raised, which will be confirmed upon completion.
Mustafa Kheriba, a Director of the Company, is also a director of ADCM Ltd, which acts as Investment Manager to the Company. Investment manager fees incurred by the Company with ADCM Ltd for the year ended 31 December 2018 were $646,663 (2017: $1,038,624), of which $349,959 (2017: $466,952) was outstanding at 31 December 2018. Furthermore, the Investment Manager may be entitled to be paid a performance fee by the Company if certain conditions are met, full details of which can be seen in note 16. Movement in performance fees incurred by the Company with ADCM Ltd for the year ended 31 December 2018 were ($504,074) (2017: ($277,707)). A total of $1,635,071 (2017: $2,259,631) was accrued at 31 December 2018.
ADCM Ltd, the Investment Manager, owns 2 (2017: 2) management shares in the Company.
Mustafa Kheriba, a Director of the Company, is also a director of SPE Qannas C Limited. The Company has an investment of $Nil at 31 December 2018 (2017: $Nil) in SPE Qannas C Limited. Furthermore, the investment manager of the Company also acts as investment manager to SPE Qannas C Limited. No dividends were received from SPE Qannas C Limited during the current or prior year.
Mustafa Kheriba, a Director of the Company, is also a director of ADCM SPEF GP Ltd. ADCM SPEF GP Ltd is the general partner of ADCM SPEF, an investment of the Company. As at 31 December 2018 this was held at fair value of $3,579,885 (2017: $4,439,078). Dividends totalling $nil (2017: $1,107,502) and capital distributions totalling $251,087 (2017: $14,402,547) were received from ADCM SPEF during the year.
Mustafa Kheriba, a Director of the Company, is also a director of EE F&B Holding Limited. The Company has loan of $3,713,576 at 31 December 2018 (2017: $3,713,576) and an investment of $326,917 (2017: $1) in EE F&B Holding Limited. Interest totalling $117,989 (2017: $158,265) was receivable from EE F&B Holding Limited during the year. Accrued interest of $386,530 (2017: $238,992) remained outstanding at the year end.
QANNAS INVESTMENTS LIMITED 55. NOTES TO THE FINANCIAL STATEMENTS - continued FOR THE YEARED 31 DECEMBER 2018 =============================================== ==== 19. RELATED PARTY TRANSACTIONS - continued
The loans receivable from Integrated Eastern European Fund, Lucice Montenegro d.o.o. and Arqutino EAD (the "IEEF") which were repaid during the year ended 31 December 2018 (2017: $3,359,451), were arranged by Integrated Alternative Finance ("IAF"), a wholly owned subsidiary of Abu Dhabi Financial Group (which is the ultimate parent company of ADCM Ltd, the Company's Investment Manager) and regulated by the Dubai Financial Services Authority. Interest of $253,654 (2017: $362,241) was recognised in the Statement of Comprehensive Income of the Company in respect of loans to IEEF.
The Company operated an investment account with IC in the year and originally invested $6,539,918 (AED 24 million), shown as an investment in Goldilocks Fund in note 4. Further, the Company is entitled to management fee and performance fee rebates as detailed in note 16. Abu Dhabi Financial Group, LLC ("ADFG") holds no units in Goldilocks Fund and charges 1.5% management fee and 15% performance fee on Goldilocks through its wholly owned subsidiary, ADCM Altus. Mustafa Kheriba, a Director of the Company, is also a director of ADCM Altus
Integrated Capital owned 787,408 participating shares in the Company as at 31 December 2018 (2017: 787,408). These shares were acquired by ADFG subsequent to the year end.
Shuaa Capital has acted as an arranger and placement agent for an SED 500 million issuance of JODC sukuk in exchange for a fee. Mustafa Kheriba, a Director of the Company, is also a board member of Shuaa Capital. ADFG, the ultimate controlling shareholder of the Company's Investment Manager, has a shareholding in Shuaa Capital.
ADFG, the ultimate controlling shareholder of the Company's Investment Manager, has a 10% shareholding in Integrated Financial Group, LLC. At 31 December 2018, the Company's investment in Integrated Financial Group, LLC was carried at $18,968,568 (2017: $19,026,696). No dividends were received from Integrated Financial Group, LLC during the current or prior year.
The Company redeemed its loan with Capital Hotel d.o.o. during 2018, resulting in the receipt of proceeds of $9,931,555 in 2018 and $839,545 of interest in 2018. The development owned by Capital Hotel d.o.o. is managed by the Company's investment manager.
ADFG owned 11,283,125 participating shares in the Company as at 31 December 2018 (2017: 11,283,125). Subsequent to the year end, ADFG increased the number of participating shares it holds in the Company to 12,070,533.
20. IMMEDIATE HOLDING COMPANY AND ULTIMATE CONTROLLING PARTY
In the Directors' opinion there is no controlling or ultimate controlling party.
21. EVENTS AFTER THE REPORTING PERIOD
In January 2019, Abu Dhabi Financial Group, LLC ("ADFG") acquired 787,408 participating shares in the Company from Integrated Capital PJSC at a price of $0.45 per share. Following this transaction, ADFG held 12,070,533 participating shares in the Company, representing 20.3% of the voting rights.
In February 2019, the Company disposed of its investment in Jabal Omar Sukuk 9.85% 15-Nov-2023, realising proceeds of $3,578,000. The proceeds were subsequently invested in a secured term investment certificate issued by a special purpose vehicle wholly owned by Terra Real Investments LLC. The term investment note is for 5 years and has a fixed profit rate of 8.5% per annum, which will be paid annually.
During the first half of 2019, the Company exited part of its investment in Integrated Financial Group, LLC realising proceeds of $11,014,560.
In April 2019 as part of the Company's cash management strategy, the Company placed 10 million AED on a 3 month fixed term deposit at an interest rate of 6%.
Loan repayments amounting to $2.5 million in respect of the loan payable have been made as at the date of signing this report, with a further $5 million due on 30 June 2019.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
FR UWRNRKRANUAR
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June 28, 2019 12:25 ET (16:25 GMT)
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