![](/cdn/assets/images/search/clock.png)
We could not find any results for:
Make sure your spelling is correct or try broadening your search.
Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
---|---|---|---|---|---|
Vision OP China | LSE:VOC | London | Ordinary Share | GG00B28DJ748 | ORD NPV |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 0.115 | 0.00 | 01:00:00 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
0 | 0 | N/A | 0 |
TIDMVOC
RNS Number : 9839X
Vision Opportunity China Fund Ltd
23 February 2012
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART INTO THE UNITED STATES, CANADA, AUSTRALIA, SOUTH AFRICA OR JAPAN
23 February 2012
Vision Opportunity China Fund Limited (the "Company" or "VOC")
Full Year Results for the year ended 30 September 2011
Vision Opportunity China Fund Limited (AIM: VOC.L), the closed-ended fund traded on AIM that invests in companies with operations principally within Greater China, today announces results for the year ended 30 September 2011.
Financial Summary
-- Net Asset Value (NAV) of US$18.50 million as at 30 September 2011 -- NAV per share of US$0.283 as at 30 September 2011
-- As at 17 February 2012(1) , unaudited NAV of US$14.80 million and unaudited NAV per share of US$0.227
Change of Investment Strategy
-- Following the recommendation of the Board, and approval from the Company's shareholders at the extraordinary general meeting on 12 August 2011, a new investment policy was adopted by the Company.
-- The Company is now seeking to realise its outstanding investment portfolio in an orderly manner.
-- The principle objective of the Company is now to return the maximum amount of cash to Shareholders at the earliest possible opportunity, however the timing and quantum of such distributions are uncertain.
Returns of Capital to Date
-- The Company bought back 900,000 of its own ordinary shares through the market in December 2010 at a price of US$1.60 per share.
-- On 30 August 2011, the Company returned US$20 million (US$0.3063 or GBP0.1850 per ordinary share) of its capital accumulated from realisations to shareholders.
Reduced Expenses
-- The Board is endeavoring to minimise the Company's operating costs.
-- Ruiping Wang will not stand for re-election at the AGM and the remaining Board members have agreed to reduced fees.
Chris Fish, Chairman of the Company, commented:
"The US-listed Chinese market continues to experience challenging conditions and we continue to expect an uncertain environment moving forwards. The Company and Investment Manager are committed to the new strategy, as agreed by shareholders, to seek to realise the remaining investments in the portfolio and return surplus cash to shareholders at the earliest possible opportunity."
1. Accounts refer to NAV as of 10 February 2012. NAV as of 17 February 2012 not available at the of accounts being signed.
For further information, please contact:
Vision Opportunity China Fund Limited
Adam Benowitz Tel: +1 (212) 849 8225
Canaccord Genuity Limited Tel: +44 (0)20 7050 6500
Sue Inglis
Financial Dynamics Tel: +44 (0)20 7269 7132
Ed Gascoigne-Pees / Ed Berry
NOTE TO EDITORS
Vision Opportunity China Fund Limited is a closed-ended fund traded on AIM. VOC primarily invests directly in listed companies with operations principally within Greater China.
Greater China is a collective term for the territories administered by the People's Republic of China, those administered by the Republic of China and Singapore.
Chairman's Statement
Year ended 30 September 2011
The one-year period ending 30 September 2011 has been the second consecutive very difficult year for the Company. Investors in US-listed Chinese companies have not yet regained confidence in this segment of the market and VOC's portfolio has been particularly affected, with the concentrated nature of the Company's portfolio also being a contributing factor. The respective share prices of VOC's portfolio companies have continued to weaken and the trading liquidity of its portfolio companies has remained thin.
Change of Investment Policy
At the recommendation of the Board, the Company's shareholders approved the adoption of a new investment policy at the extraordinary general meeting of the Company held on 12 August 2011. As required by that new investment policy, the Company is seeking to realise its outstanding investment portfolio in an orderly manner.
The Board has been actively monitoring VCA's selling efforts and is content with the progress to date given market conditions and VCA's pursuit of the possibility of a portfolio sale.
Whilst the exact timing of the orderly liquidation of the Company's outstanding investment portfolio is uncertain, it is possible it could be concluded within the next 12 months and therefore the Board has prepared these financial statements on a break-up basis. The portfolio has been included in these financial statements at fair value, in accordance with International Financial Reporting Standards, and assumes that the portfolio is realised in an orderly manner. Fair value assumes that the Company's investments are sold at closing bid prices and there is no discount or premium resulting from the large stakes the Company holds or the illiquid nature of the stocks. The exact timing of disposals by the Company, together with market conditions at the relevant time could result in actual realised amounts differing significantly. By way of illustration, since the year end, the portfolio has declined in value on a fair value basis by approximately 21.5%.
Performance
As at 30 September 2011, the Company had net assets of US$18.50 million which equates to a NAV per ordinary share of US$0.283, a decrease of 86.6% since 30 September 2010 (net asset value of US$2.105 per ordinary share). This performance is very disappointing. The situation has worsened since the year end and the latest reported total net asset value as at 10 February 2012 was US$15.86 million which equated to US$0.243 per ordinary share.
Share Buyback and Return of Capital to Shareholders
In the earlier part of the financial year, the Company bought back 900,000 of its own ordinary shares through the market on 14 December 2010 at a price of US$1.60 per ordinary share. These ordinary shares were subsequently cancelled on 17 December 2010. On 30 August 2011, the Company returned US$20million (US$0.3063 or GBP0.1850 per ordinary share) of its capital to shareholders on the register as at 19 August 2011. These initiatives were designed to return the surplus cash the Company had accumulated from realisations to its shareholders.
Reduction of Expenses
The Board is endeavouring to minimise the Company's operating costs as much as possible. As part of this exercise, Ruiping Wang has kindly agreed to not stand for re-election to the Board at this year's annual general meeting and the remaining Board members have agreed to reduced fees.
Contingent Liability
On 11 June 2010, The Litigation Trust of Astrata Group, Inc. ("Astrata") filed an adversary proceeding in the United States Bankruptcy Court, District of Nevada, naming both Vision Opportunity China L.P. and Vision Opportunity China Fund Limited, among others, as defendants. Astrata alleges that the defendants interfered with its economic advantages and aided and abetted an Astrata corporate officer in breaching fiduciary duties. On 23 January 2012, a hearing took place on the defendants' Motion to Dismiss a Second Amended Complaint. At the hearing, the court allowed certain causes of action against the Company to continue but dismissed the more substantial damage claims related to the loss of certain contracts. The remaining damage claims relate to other lost "key contracts", bankruptcy administrative claims and loss of enterprise value and loss of cash flow. However, neither details of the remaining claims nor any supporting evidence for them have yet been provided. The Company is disputing the merits of the remaining claims and is strenuously defending them.
Looking Forward
As at 10 February 2012, the Company has almost 46.97% of its total net asset value, or US$7.45 million, in cash. As noted earlier, the Company is looking to generate additional liquidity in its portfolio through various means including a private sale of the entire portfolio, a private sale of individual stocks in the portfolio and/or through sales of portfolio securities in the open market and is aggressively looking to reduce the fees and expenses involved in the operations of the Company. The principle objective of the Company is now to return the maximum amount of cash to Shareholders at the earliest possible opportunity but the timing and quantum of such distributions are uncertain.
Christopher Fish
Chairman
Vision Opportunity China Fund Limited
Date: 20 February 2012
Investment Manager's Report
Year ended 30 September 2011
The Company had net assets of US$18.72 million as at 30 September 2011 (US$0.2834 per Ordinary Share), comprised of investments in six portfolio companies valued at US$10.55 million and US$8.4 million in cash and other short term holdings. This level of assets represents a decline of 86.6% from 30 September 2010, when the Company had net assets of US$139.31 million (US$2.105per ordinary share). 17.8% of this decline was due to the return of capital to shareholders and the share buyback programme implemented at the end of 2010. The remainder of the decline is attributable to the performance of the Company's portfolio companies and net expenses of US$4.2 million. The portfolio has become more highly concentrated over the past year with the top two holdings accounting for 97.2% of the portfolio at the end of the period.
As at 10 February 2012, the Company had net assets of US$15.86 million ($0.243 per ordinary share), comprised of investments in six portfolio companies valued at US$7.85 million and US$7.45 million in cash and other short term holdings.
Performance
FY2011 has been the second consecutive disappointing year for shareholders. US-listed Chinese companies have not recovered from their reduced price levels and reductions in liquidity triggered by the widespread allegations of fraud that began over a year ago and continue to date. It is unclear when price levels and liquidity will return to this segment of the market.
In terms of stock market performance, the Company's portfolio companies fell 66.6% during the twelve month period ending 30 September 2011. This underperformance far exceeds that of weighted indices such as the MSCI China Index which fell 25.7%, Bloomberg Chinese Reverse Mergers Index which fell 54.9% and Halter USX China Index which fell 26.0%. This underperformance is attributable to the concentrated, illiquid nature of VOC's portfolio.
The Company's portfolio companies fell 25.0% during the period between 30 September 2011 and 31 January 2012, underperforming weighted indices such as the MSCI China Index which gained 19.7%, Bloomberg Chinese Reverse Mergers Index which gained 10.5% and Halter USX China Index which gained 13.4%.
Portfolio Positions
At the date of this report, the Company's portfolio consists of two major positions, four small positions, cash and other short term holdings.
QKL Stores (QKLS) is the Company's largest holding which represented 61.7% of the Company's portfolio as of 30 September 2011. As of 31 January 2012, QKLS represented 57.5% of the Company's portfolio. QKLS operates a chain of supermarkets and hypermarkets in Northern China. During 2011, QKLS opened 14 new stores, exceeding its guidance of 12 new stores for 2011. It also closed three stores due to the expiration of lease contracts. As at 30 September 2011, QKLS had 53 store locations with an aggregate of approximately 296,600 sq. metres of total store space. This is comprised of 33 supermarkets, 16 hypermarkets and four department stores. As at 31 January 2012, QKLS had 54 store locations with an aggregate of approximately 324,400 sq. metres of total store space. This is comprised of 34 supermarkets, 16 hypermarkets and four department stores. In June, QKLS announced that Mr. Alan Stewart had resigned as its Chief Operating Officer and would be replaced by Ms. Xishuang Fan, who at that time was the Assistant Chief Operating Officer. Mr. Stewart also resigned from his position as director of QKLS. In November 2011, Mr. Tsz Fung Philip Lo was appointed as Chairman of the Audit Committee and as a member of the Compensation Committee and Corporate Governance Committee. In December 2011, QKLS received a letter from Nasdaq indicating that, based upon the closing bid price for the last 30 consecutive business days, QKLS no longer met the requirement set forth in Listing Rule 5550, which requires listed securities to maintain a minimum bid price of US$1.00 per share. QKLS is currently looking at all options available with respect to regaining such compliance. In February 2012, QKLS announced that it had dismissed BDO China Shu Lun Pan Certified Public Accountants LLP and engaged Albert Wong & Co LLP as its new independent registered public accounting firm in order to reduce accounting expenses. When QKLS announced that it had missed its projected earnings last November 2010, the stock declined from US$6 to US$4. The stock continued to decline steadily thereafter finishing at US$1.20 on 30 September 2011. On 15 November 2011, QKLS announced third quarter earnings which had missed its expectations. The stock subsequently traded down to US$0.90 on 31 January 2012.
Portfolio Positions
Shengkai Innovations (VALV) is the Company's second largest holding, representing 35.5% of the Company's portfolio as of 30 September 2011. As of 31 January 2012, VALV represented 41.1% of the Company's portfolio. VALV is engaged in the business of designing and manufacturing ceramic industrial valves and valve components. VALV achieved results for its fiscal year ended 30 June 2011 that were in line with its guidance, reporting revenues of US$93.5 million and non-GAAP net income (excluding non-cash changes in the fair value of instruments and share-based compensation costs) of US$33.5 million. However, VALV reported a 36.0% year over year decline in revenues for its most recent quarter ended 30 September 2011. Management attributed the poor performance to damaged relationships with customers due to investigations from investors and has decided to gradually phase out VALV's less profitable market segments including the electric power market and focus on expanding its presence in the more profitable domestic and foreign oil and chemical industries. Earnings results for the subsequent two quarters were in line with management's lowered expectations. On 9 November 2011, VALV reported revenues of US$11.0 million for the quarter ended 30 September 2011, a significant decrease of 36.0% from the same period a year ago. On 9 February 2012, VALV reported revenues of US$10.3 million for the quarter ended 31 December 2011, a significant decrease of 54.0% from the same period a year ago. In August, BDO China Li Xin Da Hua CPA Co., Ltd. resigned as VALV's auditors due to the inability of both parties to agree on audit fees and Albert Wong & Co. was subsequently appointed as the Company's new auditor. In November, VALV received a letter from Nasdaq advising that based upon the closing bid price for the last 30 consecutive trading days, VALV no longer met the minimum bid price requirement of US$1.00 per share. In December, VALV's stockholders approved a one-for-two reverse stock split of VALV's common stock. Over the course of the year, the common stock trading price of VALV's common stock has steadily declined, starting at US$6.40 and finishing at US$0.93 on 30 September 2011. As of 31 January 2012, VALV's common stock closed at US$0.84.
In addition, the Company has a small holding of shares in Wuhan General Group (WUHN) valued at US$96,344 and small warrant positions in Keyuan Petrochemicals (KEYP), valued at US$22,732, and in Tianyin Pharmaceuticals (TPI), valued at US$179,358, accounting for a combined total of 2.8% of the portfolio.
The Company also continues to hold shares in China Integrated Energy (CBEH), a vertically integrated producer and distributor of biodiesel and petroleum-based fuels in China, which were written down to zero on 30 April 2011 after the NASDAQ halted trading in its shares. CBEH was at one time the Company's third-largest holding. Prior to the halt, the Company was able to realise 82.1%, or US$12.1 million, of the Company's total investment in CBEH.
During the period VOC generated gross proceeds of US$33.0 million from sales of securities. The sale of these positions resulted in US$5.56 million in realised losses. VOC has fully exited its positions in China Security & Surveillance Technology, China Gerui Advanced Materials, China Ceramics, Concord Medical Services Holdings, Global Education & Technology Group, and Jingwei International Limited. In addition, VOC opportunistically reduced its holdings in QKL Stores and Shengkai Innovations, as liquidity in those stocks emerged.
As previously communicated, we are exploring several avenues for generating liquidity in the portfolio including a sale of the entire portfolio, sales of individual holdings and sales in the open market. We look forward to updating you on our progress.
Adam Benowitz
Chief Investment Officer, Senior Managing Director
Vision Capital Advisors
Date: 20 February 2012
DIRECTORS
The Directors are responsible for the determination of the Company's investment objective and policy and have overall responsibility for the Group's activities. The Directors have put in place procedures to ensure that the Group meets current corporate governance requirements. At the date of their annual report, the Board comprises four Directors, all of whom are non-executive and who are entirely independent of the Investment Manager. Christopher Fish, Chairman, age 66 Mr Fish retired as Managing Director of Close International Private Banking in 2004 and as Chairman of Close Private Bank in 2011. He has over 40 years' experience in banking, investment and fiduciary businesses. Mr Fish was a Senior Executive Director and Group Head of Trusts for Rea Brothers (Guernsey) Limited from 1998 until it was acquired by Close Brothers Plc in 1999. Prior to joining Rea Brothers (Guernsey) Limited he worked for six years at Coutts & Co. in various senior roles including Managing Director of Coutts & Co (Cayman) Ltd and Senior Client Partner and Director of Coutts Offshore Businesses. Mr Fish worked from 1989 to 1992 as Chief Executive of Leopold Joseph Holdings (Guernsey) Limited and he worked from 1973 to 1989 in a number of senior positions for The Royal Bank of Canada. He started his banking career in 1963 at Lloyds Bank, where he remained for 10 years. Mr Fish is a director of a number of other investment funds. John Hallam, age 62 Mr Hallam is a Fellow of the Institute of Chartered Accountants in England and Wales and qualified as an accountant in 1971. Previously, he was a Partner at PricewaterhouseCoopers and retired in 1999 after 27 years with the firm in Guernsey and in other countries. Mr Hallam is currently Chairman of Cazenove Absolute Equity Ltd, Dexion Absolute Ltd and Partners Group Global Opportunities Ltd. He is also a director of a number of other financial services companies, some of which are traded on the London Stock Exchange. Mr Hallam served for many years as a member and latterly Chairman of the Guernsey Financial Services Commission, from which he retired in 2006. He is chairman of the Board's audit committee. Dr Christopher Polk, age 43 Dr Polk is a Professor of Finance at the London School of Economics and Political Science ("LSE"). He specialises in the behaviour of security prices and investment strategies and researches a wide range of topics, including stock market efficiency, behavioural finance and corporate investment decisions. He has advised several asset management companies on the effectiveness of their investment strategies. Prior to joining the faculty at LSE, Dr Polk was an Assistant Professor of Finance at Northwestern University's Kellogg School of Management for eight years. From 1990 to 1993 he was a senior consultant for Andersen Consulting before leaving to pursue a PhD. He received a BS in Physics and Economics from Duke University in 1990 and a PhD in Finance from the University of Chicago in 1998. Ruiping Wang, age 48 Mr Wang is currently the Managing Director and Founder of TDR Capital International Ltd and the Chairman of TDR (Tianjin) Fund Management Ltd. Mr. Wang was an Executive Director of Softbank Investment International (Strategic) Limited from October 2003 to December 2005 and before that the General Manager of Softbank China Venture Investment Limited from September 2001. In 2006 and the first half of 2007 he acted as Group Advisor to Softbank. During his time at Softbank Mr Wang was a director of a number of other companies in the group. From 2000 to 2001 he was the Vice President of the Greater China Investment Banking Division of Deutsche Bank. From 1991 to 2001 he was an Associate Director of Standard Chartered (Asia) and was in charge of investment in mainland China. Before joining Standard Chartered (Asia) he was a manager of CITIC Group (1986 to 1991). Mr Wang received an MA in Economics from Nankai University, Tianjin in 1986.
FORMER INVESTMENT POLICY to 12 August 2011
The Company invested in companies whose operations at the time of the initial investment were principally in Greater China with:
o annual revenues between US$10 million and US$300 million; and/or o annual net income between US$1 million and US$30 million.
Subject to Board approval, the Company had the ability to make investments which did not fit either of these criteria (measured on the basis of either financial information published by the Investee Company for its previous financial year or estimates published by the Investee Company in respect of its current financial year) provided that, at the time of the initial investment, the market capitalisation of the relevant Investee Company was not greater than US$750 million.
Investments could be made either:
o directly in Investee Companies; or
o indirectly by investing in an existing listed company whose assets were primarily cash and which might have been used to acquire, through a reverse takeover, an Investee Company and which could maintain its listing following that acquisition.
The Company invests primarily in equities and equity-related securities. The Group had the power to also invest in partnership interests and financial instruments relating to its target investments. However, the Company's investment policy was flexible, enabling it to invest in all types of securities, including (but not limited to) equities, preference shares, convertible securities, warrants and other equity-related securities. In addition, the Company had the power to enter into derivative transactions for the purposes of efficient portfolio management.
The Company had the power to invest in securities which:
o were already listed or traded on a stock market; o were expected to be listed or traded on a stock market concurrently with the investment; or
o were unlisted securities, provided that the Company could not invest more than 20 per cent. of its NAV (measured at the time of investment) in unlisted securities (for this purpose, unlisted securities excluded securities which were capable of being converted into or exchanged for securities which were already listed or traded on a stock market at the option of the holder on not more than 90 days' notice but included any other securities that were not already listed or traded on a stock market or were not expected to be listed or traded on a stock market concurrently with the investment).
The Company had the power to continue to hold an investment in an Investee Company that ceased to be listed if the Investment Manager considered that to be appropriate.
The Company could not invest more than 15 per cent. of its gross assets (measured at the time of the initial investment) in any one company. The Company's portfolio was not managed by reference to any benchmark and, therefore, the composition of its portfolio was not restricted by any minimum or maximum sector weightings.
The Company's initial investment in any one Investee Company was not permitted to exceed 15 per cent. of its gross assets (measured at the time of the initial investment) and the aggregate cost of the Company's investment in any one Investee Company was not permitted to exceed 20 per cent. of its gross assets (measured at the time of investment).
Uninvested or surplus capital or assets could be invested on a temporary basis in cash or cash equivalents, money market instruments, bonds, commercial paper or other debt obligations with banks or other counterparties having a single "A" or higher credit rating as determined by any reputable rating agency selected by the Investment Manager.
The Company did not employ a policy of hedging against fluctuations in exchange rates.
NEW INVESTMENT POLICY from 21 August 2011
On 21 August 2011, the Board decided that its priority was to maximise Shareholder value through the orderly realisation of the Company's investments and to return surplus cash to Shareholders. Following the approval of the new investment policy at an extraordinary general meeting, the Board instructed the Investment Manager to make no further investments other than in cash equivalents.
The Board continues to seek to implement the new investment policy in as effective and efficient a manner as possible. However, the rate at which the Company's assets are realised and the subsequent returns of value will depend, in particular, on the ease and speed with which investments can be realised or whether they can be sold in a bulk sale transaction. The timing and quantum of distributions to Shareholders are uncertain and will, in part, depend on the timing and quantum of the disposal of the assets and the liabilities resulting from the operations and management of the Group.
In the event of any breach of the Company's investment policy, Shareholders will be informed of the actions to be taken by the Investment Manager by an announcement issued through a Regulatory Information Service or a notice sent to Shareholders at their registered addresses in accordance with the Articles.
PERFORMANCE STATISTICS
% change NAV per in NAV per Ordinary Ordinary % change Date Share Share Share Price in Share Price ------------------------ ----------- ------------ ------------- ---------- 28 November 2007 (date US$0.944 - US$1.000 - of Admission) ------------------------ ----------- ------------ ------------- ---------- 31 December 2007 US$0.953 0.95% US$1.050 5.00% ------------------------ ----------- ------------ ------------- ---------- 31 March 2008 US$0.957 0.42% US$1.040 -0.95% ------------------------ ----------- ------------ ------------- ---------- 30 June 2008 US$1.302 36.05% US$1.080 3.85% ------------------------ ----------- ------------ ------------- ---------- 30 September 2008 US$1.219 -6.37% US$1.030 -4.63% ------------------------ ----------- ------------ ------------- ---------- 31 December 2008 US$0.931 -23.63% US$0.800 -22.33% ------------------------ ----------- ------------ ------------- ---------- 31 March 2009 US$0.951 2.15% US$0.780 -2.50% ------------------------ ----------- ------------ ------------- ---------- 30 June 2009 US$1.304 37.12% US$0.760 -2.56% ------------------------ ----------- ------------ ------------- ---------- 30 September 2009 US$2.095 60.07% US$1.220 60.53% ------------------------ ----------- ------------ ------------- ---------- 31 December 2009 US$2.256 7.68% US$1.600 31.15% ------------------------ ----------- ------------ ------------- ---------- 31 March 2010 US$2.752 21.99% US$1.990 24.38% ------------------------ ----------- ------------ ------------- ---------- 30 June 2010 US$2.314 -15.92% US$1.810 -9.05% ------------------------ ----------- ------------ ------------- ---------- 30 September 2010 US$2.105 -9.03% US$1.580 -12.71% ------------------------ ----------- ------------ ------------- ---------- 31 December 2010 US$1.797 -14.63% US$1.525 -3.48% ------------------------ ----------- ------------ ------------- ---------- 31 March 2011 US$1.138 -36.67% US$1.085 -28.85% ------------------------ ----------- ------------ ------------- ---------- 30 June 2011 US$0.709 -37.70% US$0.565 -47.93% ------------------------ ----------- ------------ ------------- ---------- 30 September 2011 US$0.283 -60.09% US$0.230 -59.29% ------------------------ ----------- ------------ ------------- ---------- 31 December 2011 US$0.214 -24.39% US$0.175 -23.92% ------------------------ ----------- ------------ ------------- ----------
Directors' Report
Year ended 30 September 2011
This is the fourth annual report of the Directors of the Company.
The Directors submit their Report together with the Group's Consolidated Statement of Financial Position, the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash Flows and the accompanying related notes for the year ended 30 September 2011, which have been prepared in accordance with International Financial Reporting Standards, in accordance with any relevant enactment for the time being in force, and are in agreement with the accounting records, which have been kept in accordance with Section 238 of the Companies (Guernsey) Law, 2008.
The Company
The Company is a Guernsey registered, closed-ended investment company. The Company commenced business on 28 November 2007 when the Ordinary Shares were admitted to trading on AIM.
Group Structure
The underlying investments of the Group are held by the Limited Partnership which was registered as a limited partnership in Guernsey under the Limited Partnership (Guernsey) Law, 1995. The Company is the limited partner of the Limited Partnership and the Company's subsidiary, GPCo, is the general partner of the Limited Partnership.
GPCo was incorporated in Guernsey and is licensed under The Protection of Investors (Bailiwick of Guernsey) Law 1987, as amended. GPCo's principal activity is to manage the Limited Partnership which it does by employing the services of Vision Capital Advisors under the Investment Management Agreement. GPCo is responsible for the continuing fees of the Investment Manager.
The Company owns all of the issued A Ordinary Share capital of GPCo. The A Ordinary Shares give the Company the sole control rights over GPCo.
Vision Capital Advisors owns all of the issued B Redeemable Preference Share capital of GPCo. The B Redeemable Preference Shares give the Investment Manager the sole economic rights to the performance allocation to which GPCo is entitled under the terms of the Limited Partnership Agreement and the return on the US$100,000 capital invested by Vision Capital Advisors for the B Redeemable Preference Shares. The value of the B Redeemable Preference Shares is classified as a liability in these financial statements.
A C Ordinary Share in GPCo was issued to Vision Capital Advisors to enable it to comply with certain capital adequacy requirements. The Share carries no rights to vote at general meetings, no rights to dividends or other distributions (including on a return of capital) and only the right to receive GBP10,000 on a liquidation or winding up of GPCo. The value of the C Ordinary Share is classified as a liability in these financial statements.
Through its interest as a limited partner in the Limited Partnership, the Company is entitled to any return on the amount it invested in the Limited Partnership.
Together the Company, the GPCo and the Limited Partnership form an integrated fund structure.
Results, Dividends & Returns of Capital
The results for the year are set out in the Consolidated Statement of Comprehensive Income on page 19.
The Directors do not recommend the payment of a dividend for the financial year (30 September 2010: US$Nil).
On 14 December 2010, in accordance with the Company's buy-back programme in relation to its distribution policy in respect of the year ended 30 September 2010, the Company acquired 900,000 Ordinary Shares from Shareholders for aggregate proceeds of US$1.44 million. On 17 December 2010, those Ordinary Shares of the Company that were being held in treasury were cancelled. Following this cancellation, as at 30 September 2011, the number of issued Ordinary Shares of the Company was 65,289,574 (30 September 2010: 66,189,574).
On 17 August 2011, the Company paid to Shareholders a return of capital amounting to US$20.00 million in aggregate (30 September 2010: US$3.31 million). The remaining amount to be distributed to Shareholders as at 30 September 2011 was US$Nil (30 September 2010: US$1.44 million).
Dividend Policy
The Company has never paid any dividends on the Ordinary Shares, but as the Company's investment Policy is to return surplus cash to shareholders, cash returns may be made by dividend or other distribution following the realisation of the Company's investment.
Distribution Policy
During the prior year the Directors introduced a distribution policy which aimed to return to Shareholders an amount equivalent to up to 50%, and not less than 20%, of the Company's relevant net realisation proceeds achieved in each financial year. This has now been superseded by the revised Investment Policy.
The Directors have discretion to determine the mechanics to be used on each occasion an amount is to be returned to Shareholders in accordance with the distribution policy.
Directors
The Directors who served during the year, all of whom are non-executive directors, are as listed below. All the Directors, with the exception of John Hallam (appointed 29 July 2010), were appointed on 8 November 2007 and Christopher Fish, Ruiping Wang, Dr Christopher Polk and John Hallam are independent Directors.
Christopher Fish (Chairman)
Dr Christopher Polk
David William Benway (resigned 24 January 2012)
John Hallam
Dr Randolph Cohen (resigned 1 October 2010)
Ruiping Wang
The Investment Manager
The Investment Manager was appointed as investment manager to the Group pursuant to an Investment Management Agreement dated 16 November 2007 between the Investment Manager and the Company.
The Investment Manager is currently responsible for negotiating, completing, monitoring and managing divestments on behalf of the Group. The appointment of the Investment Manager under the Investment Management Agreement continues until 31 March 2012 unless terminated immediately, by either party giving written notice to the other, upon material breach of the Investment Management Agreement by the other party that is not capable of remedy, or, in the case of a remediable breach, if such breach is not remedied within 30 days. The Investment Management Agreement may also be terminated in other prescribed circumstances, including where one party goes into liquidation.
The Administrator
The Administrator has been appointed administrator of the Group pursuant to an administration agreement dated 16 November 2007 between the Administrator and the Company (the "Administration Agreement").
The Administrator provides day-to-day administration and secretarial services to the Company, GPCo and the Limited Partnership. The Administration Agreement is terminable by either party giving not less than 180 days' notice in writing and in certain other circumstances, including material breach of the terms of the agreement by either party.
Custodian & Prime Broker
Jeffries has been appointed as Custodian and Prime Broker to the Company and in that capacity has custody of the Groups' investments. In accordance with U.S. securities laws, the assets of Jefferies' customers are required to be segregated from Jefferies' proprietary assets.
The Limited Partnership pays the Prime Broker commissions and other transaction fees (for the execution of purchases and sales of securities). These fees are payable at the Prime Broker's prevailing rates.
Registrar
The Registrar has been appointed to act as registrar of the Group under a registrar agreement dated 16 November 2007 between the Company and the Registrar (the "Registrar Agreement"). The Registrar Agreement sets out the fees which the Registrar will charge for performing its duties as registrar. The Registrar Agreement may be terminated by either the Company or the Registrar giving not less than 3 months' notice in writing or otherwise in circumstances where the Company or the Registrar goes into liquidation or where either party commits and fails to make good a material breach of the Registrar Agreement. The Registrar Agreement will also terminate if the Registrar ceases to hold a required licence, consent, permit or registration.
Nominated Adviser and Broker
Canaccord has been appointed to act as Nominated Adviser and Broker to the Company under a NOMAD and Broker agreement dated 1 October 2009 between the Company and Canaccord (the "NOMAD and Broker Agreement"). The NOMAD and Broker Agreement is on normal market terms, and under those terms the Company has agreed, inter alia, to consult and discuss with Canaccord all of its announcements and statements and to provide Canaccord with any information which Canaccord reasonably requires to enable it to carry out its obligations as a Nominated Adviser and Broker. The NOMAD and Broker Agreement is terminable by either party on 2 months' written notice and in certain other circumstances.
Corporate Governance
Compliance
As a Guernsey incorporated company, the Company is not required to comply with the provisions of the UK Corporate Governance Code (the "Code") issued by the Financial Reporting Council in June 2010. However, the Directors believe that high standards of corporate governance should be maintained and have therefore adopted those provisions of the Code which the Board believe are relevant to the Company given its status as a non-UK investment company. In respect of the financial year ended 30 September 2011, the Company complied with the Code save with regard to the following provisions:
-- The role of the chief executive: The Board considers that the post of chief executive officer is not relevant for the Company as this role has effectively been delegated to the Investment Manager under the terms of the Investment Management Agreement.
-- The appointment of a Senior Independent Director: Given the size and composition of the Board it is not felt necessary to separate the roles of Chairman and Senior Independent Director. The Board considers that all the independent Directors have different qualities and areas of expertise on which they may lead where issues arise and to whom concerns can be conveyed.
-- Executive directors' remuneration: As the Board has no executive directors, it is not required to comply with the principles of the UK Corporate Governance Code in respect of executive directors' remuneration and does not have a remuneration committee.
-- Establishment of nomination committee: Since all of the Directors are non-executive, the Board does not consider it necessary to establish a nomination committee. The Board as a whole monitors performance and plans for succession of the Board, either through Board meetings or, if appropriate, through the use of an appropriately constituted committee.
-- Internal audit function: The Board has reviewed the need for an internal audit function, as recommended by the Code. Due to the size of the Company and the delegation of day-to-day operations to regulated service providers, an internal audit function is not considered necessary. The Directors will continue to monitor the systems of internal controls in place in order to provide assurance that they operate as intended..
Board Committee
Audit Committee
An audit committee has been appointed and is responsible for reviewing and monitoring internal financial control systems and risk management systems on which the Group is reliant, considering the annual accounts and audit report, considering the appointment and remuneration of the Company's auditors and monitoring and reviewing annually their independence, objectivity, effectiveness and qualifications. The members of the audit committee are John Hallam (Chairman), Dr Christopher Polk and Ruiping Wang. The audit committee has performed reviews of the internal financial control systems and risk management systems during the year. The audit committee is satisfied with the internal financial control systems of the Group. The audit committee will meet at least twice a year. During the year, in accordance with best practice, effective from 24 November 2010 Christopher Fish resigned as a member the audit committee.
Management Engagement Committee
The Board has established a Management Engagement Committee comprising the four independent Directors being Christopher Fish, John Hallam, Dr Christopher Polk and Ruiping Wang. The Management Engagement meets once a year to supervise the Investment Manager and its performance under the Investment Management Agreement. It will also meet on an ad hoc basis to consider decisions where there is a potential conflict between the Group's interests and those of Vision Capital Advisors or other funds it manages. The Management Engagement Committee was formerly known as the Investment Committee.
Remuneration and Nomination Committees
Since all of the Directors are non-executive, the Board does not consider it necessary to establish remuneration and nomination committees.
Independence of Directors
As at 30 September 2011, the Board consisted of five members, all of whom were non-executive. With the exception of Mr Benway all other Directors of the Company were independent. The Board believes that Mr Benway's experience added considerable value to the Company during the year. Mr Benway did not take part in discussing any contractual arrangements between the Board and the Investment Manager due to his interests in the Investment Manager. Mr Benway was employed by the Investment Manager during the year before his resignation from the Investment Manager on 21 July 2011. Mr Benway resigned as a Director of the Company on 24 January 2012.
The Directors recognise the importance of succession planning for company boards and review the composition of the Board annually. However, the Board is of the view that length of service will not necessarily compromise the independence or contribution of Directors of an investment company where continuity and experience can be a benefit to the Board. Furthermore, the Board agrees with the view expressed in the AIC Code of Corporate Governance that long serving Directors should not be prevented from forming part of an independent majority or from acting as Chairman. Consequently no limit has been imposed on the overall length of service of the Directors.
With the exception of Mr Hallam (appointed 29 July 2010), all other Directors were initially appointed to the Board on 8 November 2007 and a third of them will retire, and seek reappointment at each annual general meeting ("AGM"). At the Third AGM, held on 25 January 2011, Mr Benway and Mr Hallam retired by rotation, under the articles of association, and were then re-elected. At the Company's next AGM, Mr Wang will retire by rotation, under the articles of association. Given the Company's desire to reduce costs, Mr Wang has kindly agreed not to seek reappointment.
The Directors believe that the Board has a balance of skills and experience which enable it to provide effective strategic leadership and proper governance of the Company.
The Board has contractually delegated external agencies for the management of the investment portfolio, the custodial services and the day to day accounting and company secretarial requirements.
Meetings and Committees
The table below, details the participation at Board and Committee meetings during the year:
Management Board* Audit Committee** Engagement Committee*** --------------------------------- -------- ------------------- -------------- Christopher Fish (resigned from Audit committee on 24 November 2010) 8 1 1 --------------------------------- -------- ------------------- -------------- David Benway (resigned from 7 N/A N/A 24 January 2012) --------------------------------- -------- ------------------- -------------- Ruiping Wang 4 2 1 --------------------------------- -------- ------------------- -------------- Dr Christopher Polk 5 - 1 --------------------------------- -------- ------------------- -------------- John Hallam 7 2 1 --------------------------------- -------- ------------------- --------------
* 8 Board meetings have been held during the year ended 30 September 2011
** 2 Audit Committee meetings have been held during the year ended 30 September 2011
*** 1 Management Engagement Committee meeting has been held during the year ended 30 September 2011
Directors Interests
No Director and no connected person of any Director has an interest in the Ordinary Shares which, is known to, or could with reasonable diligence be ascertained by) the Directors, whether held directly or through a third party.
There were no changes in the interests of the Directors prior to the date of this report.
Internal Controls
The Directors are responsible for overseeing the effectiveness of the internal financial control systems of the Company, which are designed to ensure proper accounting records are maintained, that the financial information on which the business decisions are made and which is issued for publication is reliable, and that the assets of the Company are safeguarded. Such a system of internal financial controls can only provide reasonable and not absolute assurance against misstatement or loss.
In accordance with the guidance published by the Institute of Chartered Accountants in England and Wales ("the Turnbull Report"), the Board has reviewed the Company's internal control procedures. These internal controls are implemented by the Company's three main service providers, the Investment Manager, the Administrator and the Custodian. The Audit Committee contacts each service provider on an annual basis to seek confirmation that each service provider had effective controls in place to control the risks associated with the services that they are contracted to provide to the Group. The Board is satisfied with the internal controls of the Company.
Anti-bribery and Corruption
The Board acknowledge that the Company's international operations may give rise to possible claims of bribery and corruption. At the date of this report the Board had conducted an assessment of the perceived risks to the Company arising from bribery and corruption to identify aspects of its business which may be improved to mitigate such risks. The Board has adopted a zero tolerance policy towards bribery and has reiterated its commitment to carry out business fairly, honestly and openly.
Shareholder Views
The Board regularly monitors the shareholder profile of the Company. All shareholders have the opportunity, and are encouraged, to attend the Company's AGM at which members of the Board are available in person to meet shareholders and answer questions. In addition, the Company's Investment Manager maintains regular contact with major shareholders and report regularly to the Board on shareholder views.
Substantial Shareholdings
As at 30 December 2011, the Company was aware of the following interests in the issued share capital of the Company that exceeded 3% of the issued share capital.
Percentage of Number of Ordinary Total Ordinary Shareholder Shares Held* Shares Issued Held -------------------------------------- -------------------- ---------------- City of London Investment Management Company 18,079,005 27.69% -------------------------------------- -------------------- ---------------- Baillie Gifford & Co 11,093,200 16.99% -------------------------------------- -------------------- ---------------- Tiberius Investments & Capital (Jersey)** 7,187,845 11.01% -------------------------------------- -------------------- ---------------- QVT Financial 6,425,000 9.84% -------------------------------------- -------------------- ---------------- Gramercy Asset Management 3,168,200 4.85% -------------------------------------- -------------------- ---------------- PCT Partners 2.250.000 3.45% -------------------------------------- -------------------- ---------------- Henderson New Star 2,160,908 3.31% -------------------------------------- -------------------- ----------------
* Based on the Shareholder register as at 30 December 2011
** The investment vehicle of the principals of the Investment Manager
Directors Statement
The Directors make the following statement:
-- so far as the Directors are aware, there is no relevant audit information of which the Group's auditors are unaware; and
-- that all steps have been taken by the Directors to make themselves aware of any relevant audit information and to establish that the Group's auditors are aware of that information.
Statement of Directors' responsibilities
The Directors are responsible for preparing the Directors' Report and the financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with International Financial Reporting Standards and applicable law.
The financial statements are required by law to give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.
In preparing these financial statements, the Directors are required to:
-- select suitable accounting policies and then apply them consistently; -- make judgements and estimates that are reasonable and prudent;
-- state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and
-- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.
The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with the Companies (Guernsey) Law, 2008. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the company and to prevent and detect fraud and other irregularities.
Taxation Status
The Income Tax Authority of Guernsey has granted the Company exemption from Guernsey income tax under the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989 and the income of the Company may be distributed or accumulated without deduction of Guernsey income tax. Exemption under the above mentioned Ordinance entails payment by the Company of an annual fee of GBP600. It should be noted, however, that interest and dividend income accruing from the Group's investments may be subject to withholding tax in the country of origin. With effect from 1 January 2008 the standard rate of income tax for most companies in Guernsey is zero per cent. Tax Exempt status continues to exist and the Company has been granted this status for 2011.
The Company has not suffered any withholding tax in the year (30 September 2010: US$Nil).
Going Concern
At the recommendation of Board of Directors, at the extraordinary general meeting of the Company held on 12 August 2011, the Company's shareholders approved the adoption of a new investment policy. As provided by that new investment policy, VOC is seeking to realise its outstanding investment portfolio in an orderly manner. VOC is looking to generate additional liquidity in its portfolio through various means including a private sale of the entire portfolio, a private sale of individual stocks in the portfolio and/or through sales of portfolio securities in the open market. It is the Board's intention for all surplus cash in VOC accumulated from realisations of its investments to be returned to shareholders. Cash will continue to be held for working capital and to provide for contingent liabilities and expenses, including the costs of winding up.
Whilst the exact timing of the orderly liquidation of the Company's outstanding investment portfolio is uncertain, it is possible it could be concluded within the next 12 months and therefore the Board has prepared these financial statements on a break-up basis.
Auditors
The auditors of the Company, KPMG Channel Islands Limited, have expressed their willingness to continue in office and a resolution giving authority to re-appoint them will be proposed at the forthcoming Annual General Meeting.
Director: Christopher Fish
Date: 20 February 2012
On behalf of the Board of Directors
INDEPENDENT AUDITOR'S REPORT TO MEMBERS OF VISION OPPORTUNITY CHINA FUND LIMITED
We have audited the Group financial statements (the "financial statements") of Vision Opportunity China Fund Limited (the "Company" and together with its subsidiaries the "Group") for the year ended 30 September 2011 which comprise the Consolidated Statement of Financial Position, the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash Flows and the related notes. As described in Note 2(a) they have not been prepared on a going concern basis. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards as issued by the IASB.
This report is made solely to the Company's members, as a body, in accordance with section 262 of the Companies (Guernsey) Law, 2008. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to 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.
Respective responsibilities of Directors and auditor
As explained more fully in the Statement of Directors' Responsibilities set out on page 14, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Board of Directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.
Opinion on financial statements
In our opinion the financial statements:
-- give a true and fair view of the state of the Group's affairs as at 30 September 2011 and of its loss for the year then ended;
-- are in accordance with International Financial Reporting Standards as issued by the IASB; and -- comply with the Companies (Guernsey) Law, 2008.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Companies (Guernsey) Law, 2008 requires us to report to you if, in our opinion:
-- the Company has not kept proper accounting records; or -- the financial statements are not in agreement with the accounting records; or
-- we have not received all the information and explanations, which to the best of our knowledge and belief are necessary for the purpose of our audit.
KPMG Channel Islands Limited
Chartered Accountants
Date: 21 February 2012
Consolidated Statement of Financial Position
As at 30 September 2011
Notes 30 September 30 September 2011 2010 ------------------------------- ----- ------------ ------------ US$ US$ Investments: 6 Investment designated as: Fair value through profit or loss 9,787,168 99,696,687 Held for trading 767,629 34,089,070 ------------ ------------ Total investments 10,554,797 133,785,757 ------------ ------------ Current assets: Cash and cash equivalents 7 8,372,118 6,162,090 Other prepayments 8 59,195 52,792 ------------ 8,431,313 6,214,882 ------------ ------------ Total Assets 18,986,110 140,000,639 ------------ ------------ Current liabilities: Other payables 9 368,601 586,206 ------------ ------------ 368,601 586,206 ------------ ------------ Non-current liabilities: C Ordinary Shares of GPCo 11 16,024 - B Redeemable Preference Shares of GPCo 11 100,000 100,000 ------------ ------------ 116,024 100,000 Total Liabilities 484,625 686,206 ------------ ------------ Total net assets 18,501,485 139,314,433 ------------ ------------ Represented by Shareholders' Equity: Share capital 11 39,821,755 61,259,952 Reserves 10 (21,320,270) 78,054,481 ------------ ------------ Total net assets 18,501,485 139,314,433 ------------ ------------ NAV per Ordinary Share 12 0.2834 2.1048 ------------ ------------
The financial statements on pages 17 to 44 were approved at a meeting of the Board of Directors held on
20 February 2012 and signed on its behalf by:
Director: Christopher Fish
The accompanying notes on pages 21 to 44 form an integral part of these financial statements.
Consolidated Statement of Comprehensive Income
For the year ended 30 September 2011
1 October 2010 1 October 2009 to to Notes 30 September 30 September 2011 2010 ----------------------------------------- ------ -------------- -------------- US$ US$ Income Bank interest 8,787 14 Dividend income 65,364 8,804 Movement in net unrealised losses on investments 6 (89,883,513) (9,767,682) Net realised losses on investments 6 (5,558,528) 28,046,269 Net foreign exchange gains/(losses) 232,597 (7,651) -------------- -------------- Net investment income (95,135,293) 18,279,754 -------------- -------------- Expenses Investment Manager's fees 3 1,887,722 3,120,898 Realised movement in value of GPCo invested PPU's redeemed during the year 3 - 6,666,830 Income allocation on B Redeemable Preference Shares of GPCo reimbursement (230,635) - from GPCo Income allocation on B Redeemable Preference Shares of GPCo - 129,342 Administrator's fees 3 218,215 229,252 Directors' fees 4 233,383 179,644 Auditor's remuneration 69,677 79,459 Custodian's fees 3 98,026 107,879 Registrar's fees 3 26,660 18,432 NOMAD & Broker's fees 3 199,973 211,351 Prime Broker's commissions 3 241,364 1,633,937 D&O insurance 129,820 112,995 Annual listing fees 12,463 11,124 Legal costs and other professional fees 507,749 471,126 Transaction costs 450,382 431,417 Marketing fees 72,307 65,425 Purchase and cancellation of Fairfax Option - 660,000 Other expenses 322,352 176,583 -------------- -------------- Total expenses 4,239,458 14,305,694 -------------- -------------- (Loss)/return for the year attributable to Ordinary Shareholders from operations 10 (99,374,751) 3,974,060 -------------- -------------- Total comprehensive (loss)/income for the year (99,374,751) 3,974,060 -------------- -------------- (Deficit)/earnings per Ordinary Share (basic and diluted) 5 (1.5178) 0.0600 -------------- --------------
The results from the current and prior years are derived from continuing operations.
The accompanying notes on pages 21 to 44 form an integral part of these financial statements.
Consolidated Statement of Changes in Equity
For the year ended 30 September 2011
1 October 2010 to 30 September 2011 Revenue Share Capital Total Notes Reserve ----------------------------- ------ ------------- ------------- ------------- US$ US$ US$ Balance brought forward 78,054,481 61,259,952 139,314,433 Repurchase and cancellation of Ordinary shares 11 - (1,440,000) (1,440,000) Capital Distribution - Other 11 - (19,998,197) (19,998,197) Total comprehensive loss for the year 10 (99,374,751) - (99,374,751) Balance carried forward (21,320,270) 39,821,755 18,501,485 ------------- ------------- -------------
For the year ended 30 September 2010
1 October 2009 to 30 September 2010 Revenue Share Capital Total Notes Reserve --------------------------- ------ ----------- ------------- ------------ US$ US$ US$ Balance brought forward 74,080,421 64,569,430 138,649,851 Capital distribution 11 - (3,309,478) (3,309,478) Total comprehensive income for the year 10 3,974,060 - 3,974,060 Balance carried forward 78,054,481 61,259,952 139,314,433 ----------- ------------- ------------
The accompanying notes on pages 21 to 44 form an integral part of these financial statements.
Consolidated Statement of Cash Flows
For the year ended 30 September 2011
1 October 2010 1 October 2009 to to Notes 30 September 30 September 2011 2010 --------------------------------------- ------ -------------- -------------- US$ US$ Cash flows from/(used in) operating activities Bank interest received 8,685 14 Dividends received 65,364 8,804 Operating expenses paid (4,463,364) (32,021,211) Amounts paid on purchases of investments (5,201,963) (33,545,409) Sales proceeds received from disposal of investments 32,990,882 51,948,310 -------------- Net cash from/(used in) operating activities 23,399,604 (13,609,492) -------------- -------------- Cash flows used in financing activities Amounts received on issue of C Ordinary Shares in GPCo 11 16,024 - Amounts paid re buyback of Ordinary Shares 11 (1,440,000) - Amounts paid re capital distribution 11 (19,998,197) (3,309,478) Net cash used in financing activities (21,422,173) (3,309,478) -------------- -------------- Net increase/(decrease) in cash and cash equivalents during the year 1,997,431 (16,918,970) Cash and cash equivalents, start of the year 6,162,090 23,088,711 Effect of exchange rate changes during the year 232,597 (7,651) -------------- -------------- Cash and cash equivalents, end of the year 7 8,372,118 6,162,090 -------------- -------------- Cash and cash equivalents comprise the following amounts: Bank deposits 8,372,118 6,162,090 8,372,118 6,162,090 --------- ---------
The accompanying notes on pages 21 to 44 form an integral part of these financial statements.
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
1. The Company:
The Company is a Guernsey Registered, closed-ended investment company and is subject to the Registered Collective Investment Scheme Rules 2008. The Company commenced business on 28 November 2007 when the Ordinary Shares were admitted to trading on AIM. The registered office of the Company is Sarnia House, Le Truchot, St Peter Port, Guernsey, GY1 4NA.
The Company's former and new investment policy is disclosed on pages 6 and 7.
The underlying investments of the Group are held by the Limited Partnership which was registered as a limited partnership in Guernsey under the Limited Partnership (Guernsey) Law, 1995. The Company is the limited partner of the Limited Partnership and the Company's subsidiary, GPCo, is the general partner of the Limited Partnership.
GPCo was incorporated in Guernsey and is licensed under The Protection of Investors (Bailiwick of Guernsey) Law 1987, as amended. GPCo's principal activity is to manage the Limited Partnership which it does by employing the services of Vision Capital Advisors under the Investment Management Agreement. GPCo is responsible for the continuing fees of the Investment Manager.
The Company owns all of the issued A Ordinary Share capital of GPCo. The A Ordinary Shares give the Company the sole control rights over GPCo.
Vision Capital Advisors owns all of the issued B Redeemable Preference Share capital of GPCo. The B Redeemable Preference Shares give the Investment Manager the sole economic rights to the performance allocation to which GPCo is entitled under the terms of the Limited Partnership and the return on the US$100,000 capital invested by Vision Capital Advisors for the B Redeemable Preference Shares.
Through its interest as a limited partner in the Limited Partnership, the Company is entitled to a return on the amount invested in the Limited Partnership to enable the Group to make investments.
The Company, the GPCo and the Limited Partnership together form an integrated fund structure and consequently the Company has consolidated its interests in GPCo and the Limited Partnership.
The C Ordinary Share of the GPCo issued to the Investment Manager entitles the Investment Manager to GBP10,000 (or equivalent) on liquidation or winding up of the Company and to no other rights.
2. Principal Accounting Policies:
The following accounting policies have been applied consistently in dealing with items which are considered material in relation to the Group's financial statements:
(a) Basis of Preparation:
(i) General
The financial statements give a true and fair view, they have been prepared in accordance with International Financial Reporting Standards ("IFRS") and are in compliance with the Companies (Guernsey) Law, 2008 and the AIM Rules of the UK Listing Authority.
The financial statements of the Group have been prepared under the historical cost convention modified by the revaluation of investments and assets at fair value through profit or loss, in accordance with IFRS.
These financial statements have been prepared on a break up basis as the Company may go into voluntary liquidation during the next 12 months. The only impact of adopting the break-up basis compared to the going concern basis on the financial statements is the provision of liquidation costs, because in the Directors opinion the Company's investments are being carried at the best estimate of their realisable value as at the year end.
(ii) Functional and Presentation Currency
These consolidated financial statements are presented in US Dollars. The Directors consider the US Dollar to be the currency that most faithfully represents the economic effects of the underlying transactions, events and conditions.
2. Principal Accounting Policies, continued:
(a) Basis of Preparation, continued:
(ii) Functional and Presentation Currency, continued
Foreign currency transactions of the Company, the Limited Partnership and the GPCo are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. The Group's foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Consolidated Statement of Comprehensive Income. Translation differences on non-monetary financial assets and liabilities such as equities at fair value through profit or loss are recognised in the Consolidated Statement of Comprehensive Income.
(iii) Judgements and estimates
The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results could differ from such estimates.
The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimate was revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.
The most critical judgements, apart from those involving estimates, that management has made in the process of applying the Group's accounting policies and that have the most significant effect on the amounts recognised in the financial statements are the functional currency of the Group (see note 2(a)(ii)) and the fair value of investments classified to be at fair value through profit or loss (see note 2(e)(ii) and 2(e)(iv)). The valuation methods/techniques used by the Group in valuing financial instruments involve critical judgements to be made and therefore the actual realisable value of financial instruments could differ significantly from the value disclosed in these financial statements.
(iv) IFRS
New standards and interpretations adopted
The Group has adopted the following new and amended standards and interpretations, which are applicable to the Group's operations, for the accounting period commencing 1 July 2010:
Improvements to IFRSs 2009 - various standards (effective 1 January 2010)
Amendments to IFRS 1 - Limited Exemption from Comparative IFRS 7 Disclosures for First-time Adopters (effective 1 July 2010)
Improvements to IFRSs 2010 - various standards (effective 1 July 2010)
Significant new standards and interpretations not yet adopted
A number of new standards, amendments to standards and interpretations are not yet effective for the current year, and have not been applied in preparing these financial statements. None of these will have a significant effect on the financial statements of the Company, with the exception of the following:
-- IFRS 10, 11, 12: IASB consolidation standards, In May 2011, the IASB released three new standards covering consolidation and amended current existing standards in particular IAS 27 and IAS 28. All consolidation standards have an effective date of 1 January 2013 with early adoption permitted, provided all 3 standards are early adopted
-- IFRS 13: Fair value measurements, In May 2011, the IASB released IFRS 13 replacing the fair value measurement guidance spread throughout various IFRS's with a single source. The standard defines fair value, establishes a framework for measurement and sets out disclosures requirements. The standard does not create any new requirements to measure assets and liabilities at fair value. This standard will not have a significant impact on the Company, however, the application of the exit price concept may affect some consideration in valuation models for unquoted equity investments.
2. Principal Accounting Policies, continued:
(a) Basis of Preparation, continued:
(iv) IFRS, continued
Significant new standards and interpretations not yet adopted, continued
Other new standards and interpretations not yet adopted
IFRS 9 Financial Instruments (effective 1 January 2015)
IAS 24 - Related Party Disclosures (Revised 2009) (effective 1 January 2011)
The Directors believe that other pronouncements, which are in issue but not yet operative or adopted by the Company, will not have a material impact on the financial statements of the Group.
(b) Basis of Consolidation:
The consolidated financial statements comprise the results of the Company, the GPCo and the Limited Partnership. Control is achieved where the Company has the power to govern the financial and operating policies of the subsidiary entities so as to benefit the Company.
(c) Income:
Bank interest and loan interest are included in the financial statements on an accruals basis. Dividend income is included in the financial statements when the right to receive payment is established.
(d) Financial Instruments:
Financial assets and financial liabilities are recognised in the Consolidated Statement of Financial Position when the Group becomes a party to the contractual provisions of the instrument.
(i) Financial Assets
The classification of financial assets at initial recognition depends on the purpose for which the financial assets were acquired and their characteristics.
The Group's financial assets are categorised as financial assets at fair value through profit or loss. Unless otherwise indicated the carrying amounts of the Group's financial assets approximate to their fair values. Gains and losses arising from changes in the fair value of financial assets classified as fair value through profit or loss are recognised in the Consolidated Statement of Comprehensive Income.
A financial asset (in whole or in part) is derecognised either:
-- when the Group has transferred substantially all the risk and rewards of ownership;
-- when it has not retained substantially all the risk and rewards and when it no longer has control over the asset or a portion of the asset; or
-- when the contractual right to receive cash flow has expired.
(ii) Financial Liabilities
The classification of financial liabilities at initial recognition depends on the purpose for which the financial liability was issued and its characteristics.
All financial liabilities are initially recognised at fair value net of transaction costs incurred. All purchases of financial liabilities are recorded on trade date, being the date on which the Group becomes party to the contractual requirements of the financial liability. Unless otherwise indicated the carrying amounts of the Group's financial liabilities approximate to their fair values.
Financial liabilities measured at amortised cost include trade payables and other short-term monetary liabilities, which are initially recognised at fair value and subsequently carried at amortised cost using the effective interest rate method.
A financial liability (in whole or in part) is derecognised when the Group has extinguished its contractual obligations, it expires or is cancelled. Any gain or loss on derecognition is taken to the Consolidated Statement of Comprehensive Income.
2. Principal Accounting Policies, continued:
(e) Investments:
The Group's investments comprise of equities and warrants (for listed equities).
(i) Classification
Equities have been designated as fair value through profit or loss in accordance with IAS 39 (Revised) "Financial Instruments: Recognition and Measurement".
Warrant investments meet the definition of "Derivatives" under IAS 39 and have been designated as held for trading in accordance with IAS 39 (Revised) "Financial Instruments: Recognition and Measurement". They are accounted for as fair value through profit or loss.
Investments designated as fair value through profit or loss at inception are those that are managed and their performance evaluated on a fair value basis in accordance with the Group's documented investment strategy. The Group's policy is for the Investment Manager and the Board of Directors to evaluate the information about these investments on a fair value basis together with other related financial information.
(ii) Measurement
Equities and warrants are initially recognised at fair value. Transaction costs are expensed in the Consolidated Statement of Comprehensive Income. Subsequent to initial recognition, equities and warrants are measured at fair value. Realised gains and losses on disposal of investments, where the disposal proceeds are higher/lower than the book cost of the investment are presented in the Consolidated Statement of Comprehensive Income in the period in which they arise. Unrealised gains and losses arising on the fair value of investments are presented in the Consolidated Statement of Comprehensive Income in the period in which they arise. Dividend income, if any, from equity investments at fair value through profit or loss is recognised in the Consolidated Statement of Comprehensive Income within dividend income when the Group's right to receive payments is established.
For new investments, that are subject to restrictions, made by the Group, the Company's valuation policy requires a calculation of the discount of the purchase price to the current market price of equivalent freely tradable public securities. This discount is then applied to the closing bid for the equivalent freely tradable public securities, with a minimum of a 20% discount used at the onset. This discount is then amortised to zero over the period of time until the expected date of registration or the Group is in a position to sell the securities under Rule 144: Selling Restricted and Control Securities. The discount is not amortised below 10%, however, until the security is able to be sold without restrictions.
Warrant values are calculated using the Black-Scholes model. However, this value is then subject to a further 50% discount of the "time value".
Volatility estimates are those for similar companies, companies with operations in Greater China that are listed on major exchanges and have market caps between US$0 million and US$50 million averaged with companies in the US that are listed on major exchanges and have market caps between US$50 million and US$250 million. This volatility was 78.7% for the year ended 30 September 2011 (30 September 2010: 81%).
(iii) Recognition/derecognition
All regular way purchases and sales of investments are recognised on trade date - the date on which the Group commits to purchase or sell the investment. Investments are derecognised when the rights to receive cash flows from the investments have expired or the Group has transferred substantially all risks and rewards of ownership.
All financial assets are initially recognised at fair value.
Gains and losses on securities sold are determined on the basis of identified cost, and are included in the Consolidated Statement of Comprehensive Income. Unrealised gains and losses arising on revaluation are also included in the Consolidated Statement of Comprehensive Income.
2. Principal Accounting Policies, continued:
(e) Investments, continued:
(iv) Fair value estimation
Quoted investments at fair value through profit or loss are valued at the bid price on the relevant stock exchange, discounted, where necessary, to reflect restrictions on resales.
Unquoted investments at fair value through profit or loss are valued in accordance with valuation techniques that make maximum use of observable market inputs such as the market value of similar securities, interest rates and volatility.
The fair value of convertible preference shares has been determined using the market value of the related common stock in which those shares are to be converted given that there is no market for the convertible preference shares held by the Company and as per its investment strategy the Company generally expects to realise the value in convertible preference shares by converting those shares into the common shares and then selling the common shares. The convertible preference shares are considered to be freely convertible into the common shares as there are no restrictions or conditions attached to the conversion.
Private warrants and options exercisable into common, ordinary or preferred shares of a class which is listed on US, UK or other securities exchange (including NASDAQ and the OTCBB), or traded on the Pink Sheets, AIM or the Official List of the London Stock Exchange are valued using the Black-Scholes model. Observable market inputs to the model such as interest rates and volatility are used where possible. The time value of the Black-Scholes model is discounted by 50% as a liquidity adjustment. The Company also holds options to make additional investments in investee companies by predetermined dates, generally within 1 year following the investment, on predetermined terms. Exercise of these warrants is required in order for the underlying associated warrants included in the package to become vested ("J warrants").The values of J and associated warrants are calculated as follows: The Black-Scholes value is calculated as above. This value is added to the stock price in the evaluation of the J warrant in the Black-Scholes framework as described above. This value represents the value of the package of warrants.
(f) Expenses:
Expenses are accounted for on an accruals basis. All expenses of the Group are borne by the Limited Partnership.
(g) Cash and Cash Equivalents:
Cash and cash equivalents are defined as cash in hand, demand deposits and highly liquid investments readily convertible to known amounts of cash and subject to insignificant risk of changes in value. For the purposes of the Consolidated Statement of Cash Flows, cash and cash equivalents consist of cash in hand, short-term deposits in bank and overdrafts.
(h) Other Prepayments and Other Payables:
Other prepayments are stated at amortised cost less any provision for doubtful debts. Other payables are stated at amortised cost.
(i) Treasury Shares:
Where the Company purchases its own Ordinary Shares, the consideration paid, including any directly attributable incremental costs is deducted from equity attributable to the Company's equity holders until the Shares are cancelled, reissued or disposed of. Where such Ordinary Shares are subsequently sold or reissued, any consideration received, net of any directly attributable incremental transaction costs, is included in equity attributable to the Company's equity holders.
2. Principal Accounting Policies, continued:
(j) Segmental Reporting:
The Group has adopted IFRS8 Operating Segments as of 1 October 2009, which requires a "management approach", under which segment information is presented on the same basis as that used for internal reporting purposes.
The Board has considered the requirements of IFRS8. The Board, as a whole, has been determined as constituting the chief operating decision maker ("CODM") of the Group.
The Board is charged with setting the Group's investment strategy in accordance with the Prospectus. They have delegated the day to day Investment Management of the Group to the Investment Manager, under the terms set out in the Investment Management Agreement, but the Board retains the responsibility to ensure that adequate resources of the Group are directed in accordance with their decisions. The Board therefore retains full responsibility for the allocation decisions made on an ongoing basis. Pursuant to the terms of the Investment Management Agreement the Investment Manager is obliged to comply with the investment strategy detailed in the Prospectus. This strategy sets out guidelines for proposed investments and the procedures that the Investment Manager is required to follow in dealing with the Group's assets. These guidelines and procedures are regularly reviewed and can be altered by the Board if it considers it appropriate to do so.
The key measure of performance used by the Board in its capacity of CODM, is to assess the Group's performance and to allocate resources based on the total return of each individual investment within the Group's portfolio, as opposed to geographic regions. As a result, the Board is of the view that the Group is engaged in a single segment of business, being investment in a diversified portfolio of equities and equity-related securities principally in Greater China. Therefore, no reconciliation is required between the measure of gains or losses used by the Board and that contained in these consolidated financial statements.
Information on realised gains and losses derived from sales of investments are disclosed in Note 13 to the financial statements.
The Company has no assets classified as non-current assets. The Company has no single investment that accounts for more than 34.48% (30 September 2010: 40.64%) of the Company's net assets.
As disclosed in the Directors' Report on page 14, the Company is not aware of any individual investor owning more than 27.69% (30 September 2010: 21.65%) of the issued capital of the Company.
3. Related Parties & Material Contracts:
The Company is responsible for the continuing fees of GPCo, the Administrator, the Custodian, the Prime Broker, the NOMAD & Broker and the Registrar in accordance with the Limited Partnership, Administration, Custodian, the Prime Broker, NOMAD & Broker and Registrar agreements, respectively.
The Investment Manager is a related party of the Group.
Limited Partnership Agreement
Pursuant to the provisions of the Limited Partnership Agreement dated 22 November 2007, GPCo's compensation consists of all expenses incurred in relation to the constitution, administration and business of the Limited Partnership, without limitation or exception.
The GPCo is responsible for the continuing fees of the Investment Manager in accordance with the Investment Management Agreement.
Investment Management Agreement
Pursuant to the Investment Management Agreement, GPCo pays a management fee to the Investment Manager of 0.5% of the final month-end NAV of the previous quarter, paid quarterly in advance. The Investment Management Agreement will terminate with effect from 31 March 2012 unless the Company and the Investment Manager agree to extend it in writing.
As at 30 September 2011, the management fee creditor was US$Nil (30 September 2010: US$Nil).
The Investment Manager is also entitled to a performance allocation, through its interest in GPCo, in respect of a performance period if two conditions are met, namely (i) the performance hurdle test is met; and (ii) the High Watermark is exceeded.
The performance hurdle test will be met in a performance period if the Adjusted Closing NAV per Ordinary Share exceeds the Hurdle NAV at the end of such period. The Hurdle NAV is the greater of (a) the Opening NAV per Ordinary Share and (b) the High Watermark, increased over the relevant performance period by a rate equal to 10% per annum.
The High Watermark will be exceeded if the Adjusted Closing NAV per Ordinary Share at the end of the relevant performance period is higher than the High Watermark.
The performance allocation is based on "NAV Increase per Ordinary Share" which is the amount by which the Adjusted Closing NAV per Ordinary Share exceeds either (i) the Opening NAV per Ordinary Share, or (ii) in the case where the High Watermark exceeds the Hurdle NAV, the High Watermark.
The performance allocation is an amount equal to 20% of the NAV increase per Ordinary Share multiplied by the time weighted average of the total number of Ordinary Shares in issue for the relevant period. Vision Capital Advisors will not be entitled to any such part of the performance allocation to which it would otherwise be entitled if allocating such part of the performance allocation would have caused the performance hurdle test or High Watermark test to not be met.
The first performance period began on Admission and ended on 30 September 2008. Each subsequent performance period is a period of one financial year commencing on 1 October.
The Investment Manager has agreed to treat a portion of its performance allocation as invested each year. The portion of the performance allocation which is represented by realised gains, less expenses, from investments will be distributable in cash by the Limited Partnership to GPCo in arrears at the end of each performance period (the "Cash Performance Allocation"). Any amount of the performance allocation which is not represented by realised gains (or which the Investment Manager via GPCo otherwise elects not to receive in cash as part of the Cash Performance Allocation) will be treated as invested by GPCo at the end of each performance period in Performance Partnership Units ("PPUs") in the Limited Partnership. PPUs will accrue a preferred share of the profits and losses of the Limited Partnership on the basis of fluctuations in the market price of Ordinary Shares from the date of their allocation to GPCo until the date PPUs are redeemed, such that GPCo's return on its PPUs will track the return of an investor in Ordinary Shares over the same period (ignoring dealing costs).
GPCo is entitled to receive a priority distribution from the Limited Partnership equivalent to the Cash Performance Allocation and the return on the PPUs. GPCo's entitlement to the Cash Performance Allocation and the return on the PPUs will be payable to the Investment Manager as the owner of 100% of the B Redeemable Preference Shares in GPCo.
3. Related Parties & Material Contracts, continued:
Investment Management Agreement, continued
At the end of each performance period, the Administrator will calculate the proposed performance allocation and the split between the Cash Performance Allocation payable and the amount which will be automatically treated as invested in PPUs (to be reviewed and agreed by the Board) and, if cash is available, GPCo will pay a dividend on the non-voting B Redeemable Preference Shares or permit certain of them to be redeemed to pay the Cash Performance Allocation to the Investment Manager. If cash is not available or, if Vision Capital Advisors elects, the Cash Performance Allocation may be satisfied by the issue of further PPUs to Vision Capital Advisors. For the financial year ended 30 September 2011, the performance allocation High Watermark was US$2.1048 per Ordinary Share (30 September 2010: US$2.1048).
As at 30 September 2011, the Cash Performance Allocation creditor was US$Nil (30 September 2010: US$Nil) and the amount which would be automatically treated as invested PPUs, upon crystalisation, is US$Nil (30 September 2010: US$Nil).
Administration Agreement
Praxis Fund Services Limited has been appointed as Administrator to the Group under an administration agreement dated 16 November 2007 (the "Administration Agreement"). The Administrator provides day-to-day administration and secretarial services to the Group.
The Administration Agreement may be terminated by either party on not less than 180 days' written notice, or earlier upon certain breaches of the Administration Agreement or the insolvency or receivership of either party or if the Administrator ceases to be qualified to act as such.
Pursuant to the provisions of the Administration Agreement, the Administrator is entitled to receive the following administration fees from the Group:
-- Accounting and NAV calculation - a fee based upon 0.10% of NAV subject to a minimum of GBP4,500 per month;
-- Company Secretarial & US Shareholder Reporting- time based fee; and -- GPCo - time based fee subject to a minimum of GBP10,000 per annum.
As at 30 September 2011, the administration fee creditor was US$15,201 (30 September 2010: US$24,490).
Registrar Agreement
Pursuant to the provisions of the registrar agreement between the Registrar and the Group, dated 16 November 2007, the Registrar is entitled to an annual maintenance fee of GBP2 per Shareholder account, subject to an annual minimum of GBP5,000 per annum, together with a per deal fee per Shareholder transaction. In addition, the Registrar is also entitled to an investor relations fee of GBP2,720 per annum and a compliance fee of GBP750 per annum.
As at 30 September 2011, the registrar fee creditor was US$3,827 (30 September 2010: US$3,860).
Custodian & Prime Broker Agreement
Jefferies & Company Inc. has been appointed as custodian to the Group and in that capacity currently has custody of all of the Group's investments. In accordance with US securities laws, the assets of the Custodian's customers are required to be segregated from the Custodian's proprietary assets.
As at 30 September 2011, the custodian fee creditor was US$2,872 (30 September 2010: US$Nil).
Jefferies & Company Inc. has also been appointed as prime broker to the Limited Partnership. The Limited Partnership pays the Prime Broker commissions and other transaction fees (for the execution of purchases and sales of securities). These fees are payable at the Prime Broker's prevailing rates.
As at 30 September 2011, the Limited Partnership had amounts due to the Prime Broker of US$Nil (30 September 2010: US$9,812).
3. Related Parties & Material Contracts, continued:
NOMAD & Broker Agreement
Canaccord is the NOMAD & Broker to the Company under a nominated adviser and Broker agreement dated 1 October 2009 between the Company and Canaccord (the "NOMAD & Broker Agreement"). The NOMAD & Broker Agreement is on normal market terms, and under those terms the Company has agreed, inter alia, to consult and discuss with Canaccord all of its announcements and statements and to provide Canaccord with any information which Canaccord reasonably requires to enable it to carry out its obligations as a NOMAD and Broker. The NOMAD & Broker Agreement is terminable by either party on 2 months' written notice and in certain other circumstances.
As at 30 September 2011, the fees paid in advance to Canaccord were US$Nil (30 September 2010: US$123,110).
Co-investments with the Master Fund
The Master Fund is a related party as a result of also being managed by the Investment Adviser. As at 30 September 2011, the Group held investments in the two underlying investment companies noted below, which the Master Fund also held an interest in:
-- China Integrated Energy Inc
-- Wuhan General Group (China) Inc
The Limited Partnership, collectively with the Master Fund, does not hold an aggregated controlling interest in any of the above co-investments.
Directors Interests
As at 30 September 2011, the Directors, who held office during the year, had no interests in Ordinary Shares. There were no changes in the interests of the Directors prior to the date of this report.
Mr Benway (a former Director of the Company), was employed by Vision Capital Advisors during the year before his resignation on 21 July 2011.
No Director and no connected person of any Director has an interest in the Ordinary Shares which, is known to, (or could with reasonable diligence be ascertained by) the Directors, whether held directly or through a third party.
Additionally, as at 30 September 2011, Carl Kleidman and Lisa Snow, employees of Vision Capital Advisors, held a collective 85,000 (30 September 2010: Carl Kleidman and Jonathan Shane, employees of Vision Capital Advisors, held a collective 535,000) Ordinary Shares that carry certain restrictions.
Adam Benowitz and Randolph Cohen (a former Director of the Company), the principals of VCA, together beneficially hold 7,187,845 Ordinary Shares in the Company.
4. Directors' Fees:
Each of the Directors has entered into an agreement with the Company providing for them to act as a non-executive Director of the Company. Their annual fees, excluding all reasonable expenses incurred in the course of their duties which will be reimbursed by the Company and are included in other expense, are as follows:
30 September 30 September 2011 2010 Annual Fee Annual Fee ------------- ------------- US$ US$ Christopher Fish (Chairman) 70,000 70,000 David Benway (resigned 24 January - - 2012) Ruiping Wang 50,000 50,000 Dr Christopher Polk 50,000 50,000 John Hallam* 55,000 9,644
* as chairman of the Audit Committee Mr Hallam's fee includes a further US$5,000 per annum.
Mr Benway was not entitled to any Directors' fees for the year. As at 30 September 2011, the Directors' fees creditor was US$Nil (30 September 2010: US$Nil).
For the year ended 30 September 2011, Directors' fees were US$233,383 (30 September 2010: US$179,644).
5. Basic & diluted earnings per Ordinary Share:
Basic and diluted earnings per Ordinary Share is based on the loss for the year of US$99,374,751 (30 September 2010: US$3,974,060 return)and on a weighted average of 65,474,506 (30 September 2010: 66,189,574) Ordinary Shares in issue.
6. Investments: 1 October 2010 1 October 2009 Fair Value Through Profit or Loss to to Investments: 30 September 30 September 2011 2010 --------------- --------------- US$ US$ Listed equity securities (freely tradeable) 4,180,905 28,717,222 Listed equity securities (restricted) 5,606,263 70,979,465 --------------- 9,787,168 99,696,687 --------------- --------------- Opening fair value 99,696,687 97,385,577 Purchases 5,201,963 33,459,101 Sales - proceeds (32,990,882) (51,411,514) Sales - realised (losses)/gains on disposals (5,558,528) 28,046,269 Movement in net unrealised losses (56,562,072) (7,782,746) --------------- --------------- Closing fair value at 30 September 9,787,168 99,696,687 --------------- --------------- Closing book cost at 30 September 21,094,831 54,442,278 Closing net unrealised (losses)/gains (11,307,663) 45,254,409 --------------- --------------- Closing fair value at 30 September 9,787,168 99,696,687 --------------- --------------- 6. Investments, continued: 1 October 2010 1 October 2009 to to Held for Trading Investments: 30 September 30 September 2011 2010 --------------- --------------- US$ US$ Unlisted investments - warrants 787,629 34,089,070 --------------- --------------- Opening fair value 34,089,070 35,987,698 Purchases - 86,308 Movement in net unrealised losses (33,321,441) (1,984,936) --------------- --------------- Closing fair value at 30 September 767,629 34,089,070 --------------- --------------- Closing book cost at 30 September 93,486 93,486 Closing net unrealised gains 674,143 33,995,584 --------------- --------------- Closing fair value at 30 September 767,629 34,089,070 --------------- --------------- 1 October 2010 1 October 2009 to to Total Investments: 30 September 30 September 2011 2010 --------------- --------------- US$ US$ Listed equity securities (freely tradeable) 4,180,905 28,717,222 Listed equity securities (restricted) 5,606,263 70,979,465 Warrants 767,629 34,089,070 --------------- --------------- 10,554,797 133,785,757 --------------- --------------- Opening fair value 133,785,757 133,373,275 Purchases 5,201,963 33,545,409 Sales - proceeds (32,990,882) (51,411,514) Sales - realised (losses)/gains on disposals (5,558,528) 28,046,269 Movement in net unrealised losses (89,883,513) (9,767,682) --------------- --------------- Closing fair value at 30 September 10,554,797 133,785,757 --------------- --------------- Closing book cost at 30 September 21,188,317 54,535,764 Closing net unrealised (losses)/gains (10,633,520) 79,249,993 --------------- --------------- Closing fair value at 30 September 10,554,797 133,785,757 --------------- --------------- 7. Cash and Cash Equivalents: 30 September 30 September 2011 2010 ------------- ------------- US$ US$ Cash at bank 8,372,118 6,162,090 8,372,118 6,162,090 ------------- ------------- 8. Other Prepayments: 30 September 30 September 2011 2010 ------------- ------------- US$ US$ Prepayments 59,195 52,792 ------------- ------------- 59,195 52,792 ------------- -------------
The Directors consider that the carrying amount of other receivables approximates fair value.
9. Other Payables: 30 September 30 September 2011 2010 ------------- ------------- US$ US$ Income allocation on B Redeemable Preference Shares - 129,342 Income allocation on B Redeemable Preference Shares from GPCo (101,293) - Administrator's fee 15,201 24,490 Registrar's fee 3,827 3,860 NOMAD & Broker's fees - 123,110 Prime Broker fees 2,872 9,812 Legal costs & other professional fees 325,444 201,363 Consultants fees 5,387 - Audit fee 74,803 85,810 Travel & marketing 4,790 116 Sundry payables 37,570 8,303 ------------- ------------- 368,601 586,206 ------------- -------------
The Directors consider that the carrying amount of other payables approximates fair value.
10. Revenue reserve:
1 October 2010 1 October 2009 to to 30 September 30 September 2011 2010 -------------- -------------- US$ US$ Opening revenue reserve 78,054,481 74,080,421 Total comprehensive (loss)/income for the year (99,374,751) 3,974,060 -------------- -------------- Closing revenue reserve (21,320,270) 78,054,481 -------------- --------------
11. Share Capital:
30 September 2011 & 30 September 2010 ------------- Authorised Share Capital: US$ Unlimited shares of no par value that may be issued as Ordinary Shares - ------------- 1 October 2010 1 October 2009 to to 30 September 30 September 2011 2010 -------------- -------------- Allotted, Issued and Fully Paid: No. No. Brought forward 66,189,574 66,189,574 Ordinary Shares held in treasury cancelled (900,000) - -------------- -------------- Carried forward 65,289,574 66,189,574 -------------- --------------
11. Share Capital, continued:
1 October 2010 1 October 2009 to to 30 September 30 September 2011 2010 -------------- -------------- Share Capital: US$ US$ Share capital brought forward 61,259,952 64,569,430 Repurchase and cancellation of Ordinary Shares held in treasury of during the year (1,440,000) (3,309,478) Capital distribution (19,998,197) - Share capital carried forward 39,821,755 61,259,952 -------------- --------------
On 14 December 2010, in accordance with the Company's buy-back programme in relation to it's distribution policy in respect of the year ended 30 September 2010, the Company acquired 900,000 Ordinary Shares from Shareholders for an aggregate price of US$1.44 million. On 17 December 2010, those Ordinary Shares of the Company that were being held in treasury were cancelled. Following the cancellation, as at 30 September 2011, the number of issued Ordinary Shares of the Company was 65,289,574.
On 17 August 2011, in accordance with the Company's distribution policy, the Company paid to Shareholders (on the register as at close of business on 19 August 2011) a return of capital of 30 cents per Ordinary Share, amounting to US$20.0million in aggregrate.
The repurchase of Ordinary Shares by the Company was funded from the Company's cash resources.
The Company's authorised capital structure comprises an unlimited number of shares of no par value.
Ordinary Shareholders have the following rights:
(i) Dividends
During the year Shareholders (other than the Company itself where it holds its own Ordinary Shares as treasury Ordinary Shares) are entitled to receive, and participate in, any dividends or other distributions out of the profit of the Company available for dividend and resolved to be distributed in respect of any accounting period or other income or right to participate therein.
(ii) Winding up
On a winding up, Shareholders (other than the Company itself where it holds its own Ordinary Shares as treasury Ordinary Shares) shall be entitled to the surplus assets remaining after payment of all the creditors of the Company.
(iii) Voting
Shareholders (other than the Company itself where it holds its own Ordinary Shares as treasury Ordinary Shares) shall have the right to receive notice of and to attend and vote at general meetings of the Company and each Shareholder being present in person or by proxy or by a duly authorised representative (if a corporation) at a meeting shall upon a show of hands have one vote and upon a poll each such holder present in person or by proxy or by a duly authorised representative (if a corporation) shall have one vote in respect of every Ordinary Share held by him.
11. Share Capital, continued:
B Redeemable Preference Shares
Proceeds from the issue of B Redeemable Preference Shares in the GPCo are classified as debt in these financial statements in accordance with IFRS and have the following special rights:
a) At any time the B Redeemable Preference Shareholders of the GPCo shall be entitled on liquidation of the Company to a sum equal to any undistributed vested performance allocation, due from the Limited Partnership, plus any amounts due to the Company under the Limited Partnership Agreement allocated between such Shareholders pro rata to the number of B Redeemable Preference Shares they hold at the date of distribution in priority to any other distributions on the A Ordinary Shares of the GPCo.
b) Subject to the provisions of the Law, on each annual NAV publication date, of the Limited Partnership, an amount equal to any undistributed vested performance allocation, in the Limited Partnership, shall become distributable to the B Redeemable Preference Shareholders of the GPCo.
c) Should the Company be unable to pay a dividend equal to any undistributed vested performance allocation, due from the Limited Partnership, in accordance with (b) above, the Company shall pay a maximum dividend it is permitted to pay to the B Redeemable Preference Shareholders of the GPCo and the remainder of the undistributed vested performance allocation shall be dealt with in accordance with (d) below.
d) In relation to any remaining undistributed vested performance allocation, any B Redeemable Preference Shareholders of the GPCo may deliver an election in writing to the GPCo (the "Election") requesting that the GPCo redeems one of the B Redeemable Preference Shares held by the B Redeemable Preference Shareholder for a cash payment representing the Shareholder's share of the greater of (i) the undistributed vested performance allocation at that time and (ii) the maximum amount payable by the GPCo under the Law, such share to be calculated on the basis of the proportion calculated by dividing the number of B Redeemable Preference Shares held by such a Shareholder prior to any redemptions by that Shareholder pursuant under this section by the number of B Redeemable Preference Shares in issue prior to any redemptions pursuant under this clause by any Shareholder. Subject to the provisions of the Law, the GPCo shall then redeem such B Redeemable Preference Shares accordingly within two business days of receipt of the election and shall within one month thereafter give notice in writing of such redemption to The Guernsey Registry.
e) The B Redeemable Preference Shares of the GPCo shall have no voting rights, save where any undistributed vested performance allocation remains outstanding for more than 5 business days when each B Redeemable Preference Share in the GPCo shall carry 10 votes at any general meeting of the GPCo.
f) The B Redeemable Preference Shareholders of the GPCo have the sole economic rights to the performance allocation to which the Company is entitled under the terms of the limited partnership agreement and the return on the US$100,000 capital invested by the B Redeemable Preference Shareholders of the GPCo for the B Redeemable Preference Shares in the GPCo. The value of the B Redeemable Preference Shares is classified as a liability in these financial statements.
C Ordinary Share
A C Ordinary Share in GPCo was issued to VCA to enable it to comply with certain capital adequacy requirements. The Share carries no rights to vote at general meetings, no rights to dividends or other distributions (including on a return of capital) and only the right to receive GBP10,000 on a liquidation or winding up of GPCo. The value of the C Ordinary Share is classified as a liability in these financial statements.
12. NAV per Ordinary Share:
The NAV per Ordinary Share is based on the net assets attributable to Ordinary Shareholders of US$18,501,485 (30 September 2010: US$139,314,433) and on the Ordinary Shares at the year end in issue of 65,289,574 (30 September 2010: 66,189,574).
13. Financial Instruments:
(a) Significant accounting policies:
Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of its financial assets and financial liabilities are disclosed in note 2 to these financial statements.
(b) Categories of financial instruments:
Financial instruments comprise equities, warrants, cash and cash equivalents, receivables and payables. The warrants are derivative instruments and have been classified as held for trading and are accounted for as fair value through profit or loss. All other financial instruments have been classified as fair value through profit or loss. A financial asset is classified as fair value through profit or loss if it is classified as held for trading or is designated as such upon initial recognition. Financial assets are designated at fair value through profit or loss if the Group manages such investments and makes purchase and sale decisions based on their fair value in accordance with the Group's documented risk management or investment strategy. Upon initial recognition, attributable transaction costs are recognised in the Consolidated Statement of Comprehensive Income. Financial assets at fair value through profit or loss are measured at fair value, and changes therein are recognised in the Consolidated Statement of Comprehensive Income.
1 October 2010 1 October 2009 to to 30 September 2011 30 September 2010 Percentage Percentage of net of net assets assets attributable attributable to holders to holders of Ordinary of Ordinary Shares Fair Value Shares Fair Value -------------------------------------- ------------ -------------- ------------ --------------- Assets US$ % US$ % Financial assets at fair value through profit or loss: Listed equity securities (freely tradeable) 4,180,905 22.60 28,717,222 20.61 Listed equity securities (restricted) 5,606,263 30.30 70,979,465 50.95 Warrants 767,629 4.14 34,089,070 24.47 ------------ -------------- ------------ --------------- 10,554,797 57.04 133,785,757 96.03 Cash and cash equivalents 8,372,118 45.25 6,162,090 4.42 Other prepayments 59,195 0.32 52,792 0.04 ------------ -------------- ------------ --------------- 18,986,110 102.61 140,000,639 100.49 ------------ -------------- ------------ --------------- Liabilities Other payables (368,601) (1.99) (586,206) (0.42) ------------ -------------- ------------ --------------- (368,601) (1.99) (586,206) (0.42) C Ordinary Shares of GPCo (16,024) (0.08) - - B Redeemable Preference Shares of GPCo (100,000) (0.54) (100,000) (0.07) ------------ -------------- ------------ --------------- (484,625) (2.61) (686,206) (0.49) ------------ -------------- ------------ ---------------
13. Financial Instruments, continued:
(c) Net gains and losses on financial assets:
1 October 2010 1 October 2009 to to 30 September 2011 30 September 2010 Movement Movement in net unrealised Net realised in net unrealised Net realised losses gains on gains gains on disposals disposals -------------------------------------- ------------------- -------------- ------------------- -------------- US$ US$ US$ US$ Financial assets at fair value through profit or loss: Listed equity securities (freely tradeable) (10,049,264) (5,558,528) 5,455,101 5,236,128 Listed equity securities (restricted) (46,512,809) - (13,237,847) 22,810,141 Warrants (33,321,440) - (1,984,936) - ------------------- -------------- ------------------- -------------- (89,883,513) (5,558,528) (9,767,682) 28,046,269 ------------------- -------------- ------------------- --------------
(d) Derivatives:
The following table details the Company's investments in derivative contracts, by maturity, outstanding:
Warrants
30 September 30 September 2011 2010 Maturity Fair Value Fair Value ---------------------- ------------- ------------- US$ US$ 1-2 years 645,402 - 2-3 years - 33,506,497 3-4 years 122,227 - 4-5 years - 582,573 Total 767,629 34,089,070 ------------- -------------
A warrant is a derivative financial instrument which gives the right, but not the obligation to buy a specific amount of a given stock, at a specified price (strike price) by a specific date. The fair value of the warrants are included in warrants classified as financial assets at fair value through profit or loss, as disclosed in note 13 (b). The warrants are valued using a 50% discount to the time value of the Black Scholes model as a liquidity adjustment (see note 2e (iv)).
14. Financial Risk Management:
Strategy in Using Financial Instruments:
The Company's investment objective is to maximise Shareholder value through the orderly realisation of the Company's investments and to return surplus cash to Shareholders. The Group's investment policy is detailed on pages 6 and 7.
The Group's activities expose it to a variety of financial risks: market risk (including currency risk, interest rate risk and price risk), credit risk and liquidity risk. The overall risk management policies employed by the Group focus on the unpredictability of financial markets and seek to minimise potential adverse effects on the Group's financial performance to these risks and are discussed below.
Market Price Risk:
Market price risk results mainly from the uncertainty about future prices of financial instruments held. It represents the potential loss the Group may suffer through holding market positions in the face of price movements and changes in interest rates or foreign exchange rates, with the maximum risk resulting from financial instruments being determined by the fair value of the financial instruments. The Group's investment portfolio is monitored by the Investment Manager and the Directors in pursuance of the investment objectives as set out in the Directors' Report.
Due to the illiquidity of the Group's portfolio, there is little management can do to mitigate the risk of the underlying portfolio to market price movements, other than to sell securities as and when opportunities arise.
The following details the Group's sensitivity to a 10% increase and decrease in market prices of equities, with 10% being the sensitivity rate used when reporting price risk internally to key management personnel and representing management's assessment of the possible changes in market prices.
At 30 September 2011, the Group's market risk is affected by four main components: changes in actual market prices, credit risk, interest rate and foreign currency movements. Credit risk, interest rate and foreign currency movements are covered below. A 10% increase in the value of equity investments, with all other variables held constant, would bring about a 5.29% or US$978,717 (30 September 2010: 7.16% or US$9,969,668) increase in net assets attributable to equity shareholders due to an increase in the value of the Group's equity investments at fair value through profit and loss. If the value of equity investments had been 10% lower, with all other variables held constant, net assets attributable to equity shareholders would have fallen by 5.29% or US$978,717 (30 September 2010: 7.16% or US$9,969,668) due to the decrease in value of the Group's equity investments at fair value through profit and loss. Warrants by their nature may be more sensitive to changes in the value of the underlying equity instrument dependent upon a number of factors including time to expire and whether or not they are in the money or not. As at 30 September 2011, a 10% increase in the value of underlying equity prices for derivatives held, with all other variables held constant, would bring about a 1.09% or US$202,146 (30 September 2010: 5.19% or US$7,232,020) increase in net assets attributable to equity shareholders due to the increase in the value of the Group's warrant investments held for trading. A 10% decrease in the value of underlying equity prices for derivatives held, with all other variables held constant, would bring about a 0.96% or US$178,284 (30 September 2010: 4.57% or US$6,360,810) decrease in net assets attributable to equity shareholders due to the decrease in the value of the Group's warrant investments held for trading.
14. Financial Risk Management, continued:
Currency Risk:
Currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates.
The Group's assets are denominated principally in US Dollars however it incurs liabilities and holds small cash balances denominated in currencies different to the reporting currency. Accordingly, its net asset value may be affectedfavourably or unfavourably by fluctuations in exchange rates.
Currency Exposure:
At the reporting date, a proportion of the net assets of the Group are denominated in currencies other than US Dollars. The carrying amounts of these assets and liabilities are as follows:
Monetary Assets Monetary Liabilities Net Exposure 30 September 30 September 30 September 2011 2011 2011 --------------- -------------------- ------------ US$ US$ US$ Sterling 64,286 (213,159) (148,873) --------------- -------------------- ------------ Monetary Assets Monetary Liabilities Net Exposure 30 September 30 September 30 September 2010 2010 2010 --------------- -------------------- ------------ US$ US$ US$ Sterling 47,314 (321,735) (274,421) --------------- -------------------- ------------
The Group has a minimal exposure to Sterling currency risk as detailed above.
The sensitivity analysis below has been determined based on the sensitivity of the Group's outstanding foreign currency denominated financial assets and liabilities to a 10% increase/decrease in the US Dollar against Sterling, translated at the reporting date.
10% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management's assessment of the possible change in foreign exchange rates.
As at 30 September 2011, if US Dollar had weakened by 10% against the Sterling, with all other variables held constant, the net assets attributable to Ordinary Shares would have been US$14,887 (30 September 2010: US$27,421) lower. Conversely, if US Dollar had strengthened by 10% against the Sterling, with all other variables held constant, the net assets attributable to Ordinary Shares would have been US$14,887 (30 September 2010: US$27,421) higher.
Interest Rate Risk:
The Group is exposed to risks associated with the effects of fluctuations in the prevailing levels of market interest rates on its financial instruments and future cash flows.
The Group is exposed to interest rate risk on cash and cash equivalents which are invested at short term rates. The Investment Manager manages the Group's exposure to interest rate risk daily in accordance with the Group's investment objectives and policies. The Group's overall exposure to interest rate risk is monitored on a quarterly basis by the Board of Directors.
Interest Rate Risk, continued:
The table below summarises the Group's exposure to interest rate risk:
30 September 2011 30 September 2010 Weighted Weighted average average effective effective interest Total interest Total rate rate ------------------------------ ------------ ----------- ------------ ------------ % US$ % US$ Assets Floating interest rate cash at bank 0.21* 8,372,118 0.10* 6,162,090 Non-interest bearing - 10,613,992 - 133,838,549 ----------- ------------ Total assets 18,986,110 140,000,639 ----------- ------------ Liabilities Non-interest bearing - (484,625) - (686,206) ----------- ------------ Total liabilities (484,625) (686,206) ----------- ------------
* - as at 30 September 2011, the weighted average effective interest rate on the Groups cash and cash equivalents was 0.21% (30 September 2010: 0.10%).
The sensitivity analysis below have been determined based on the Group's exposure to interest rates for interest bearing assets and liabilities (included in the interest rate exposure table above) at the reporting date and the stipulated change taking place at the beginning of the financial period and held constant through the reporting period in the case of instruments that have floating rates.
A 200 basis point increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management's assessment of the possible change in interest rates.
If interest rates had been 200 basis points higher throughout the year, based on assets and liabilities as at 30 September 2011 that are subject to changing interest rates, and all other variables were held constant, the Group's net assets attributable to Ordinary Shares for the year ended 30 September 2011 would have been US$167,442 (30 September 2010: US$123,242) higher due to the increase in the interest earned on the Group's cash balances.
If interest rates had been 200 basis points lower throughout the year, based on assets and liabilities as at 30 September 2011 that are subject to changing interest rates, and all other variables were held constant, the Group's net assets attributable to Ordinary Shares for the year ended 30 September 2011 would have been US$17,435 (30 September 2010: US$6,159) lower due to the decrease in the interest earned on the Group's cash balances.
Liquidity Risk:
Liquidity risk is the risk that the Group will encounter in realising assets or otherwise raising funds to meet financial commitments.
The Group has warrants in certain investee companies. Such contracts may not be marketable or may have a limited marketability. Investments in securities of investee companies have historically suffered and may continue to suffer illiquidity, and the lack of marketability of an investment may severely reduce its value. As the Group holds securities which for the purposes of US securities laws may not be sold or re-sold in or into the US otherwise than pursuant to an exemption provided by the Securities Act, it may be unable to secure their registration with the SEC, which may also severely reduce the returns on such investments.
Liquidity Risk, continued:
Where the Group has significant investments in Investee Companies which are listed entities and which include restricted securities purchased directly from an issuer in a private placement, registration of those securities for public resale is typically affected under Rule 415 of the Securities Act ("Rule 415"). Recently, the SEC has articulated a more restrictive interpretation of a company's ability to register its shares under Rule 415, under which a company which has issued shares may not register more than 33 per cent. of the shares in public hands under certain circumstances. As a result, the registration of some of the Group's securities may be significantly delayed. If not registered, the Group may only be able to sell such securities after a six month to one year holding period under Rule 144 of the Securities Act ("Rule 144") or under other exemptions from the registration requirements under the Securities Act.
Unless and until registration occurs or applicable holding periods under Rule 144 have elapsed, there is likely to be an extremely limited market for any restricted securities held by the Group, the sale of any such securities may be possible only at substantial discounts and it may be extremely difficult at times to value any such investments accurately.
As at the year end the Group held securities of Investee Companies which were private companies and which were not currently listed. Until such an Investee Company obtains a listing, such securities will not publicly trade and such securities may only be sold in a private transaction, making the purchase or sale of such securities at desired prices or in desired quantities difficult or impossible. It will also be extremely difficult to value investments accurately.
The following table details the maturity profile of the Company's financial instruments:
Maturity Analysis
At 30 September 2011 less than 1 year No fixed maturity 1-2 years 3-4 years Total ---------------------------------------- ----------------- ----------- ----------- ------------------ ----------- Assets US$ US$ US$ US$ US$ Financial assets at fair value through profit or loss: Listed equity securities - - - 9,787,168 9,787,168 Warrants - 645,402 122,227 - 767,629 Cash and cash equivalents 8,372,118 - - - 8,372,118 Other current assets 59,195 - - - 59,195 ----------------- ----------- ----------- ------------------ ----------- 8,431,313 645,402 122,227 9,787,168 18,986,110 ----------------- ----------- ----------- ------------------ ----------- Liabilities Current (368,601) - - - (368,601) non-current - - - (116,024) (116,024) (368,601) - - (116,024) (484,625) ----------------- ----------- ----------- ------------------ -----------
Liquidity Risk, continued:
At 30 September less than No fixed 2010 1 year 2-3 years 4-5 years maturity Total --------------------------------- ---------------- ----------- ------------- ------------ ------------ Assets US$ US$ US$ US$ US$ Financial assets at fair value through profit or loss: Listed equity securities (freely tradeable) - - - 28,717,222 28,717,222 Listed equity securities (restricted) - - - 70,979,465 70,979,465 Warrants - 33,506,497 582,573 - 34,089,070 Cash and cash equivalents 6,162,090 - - - 6,162,090 Other prepayments 52,792 - - - 52,792 ---------------- ----------- ------------- ------------ ------------ 6,214,882 33,506,497 582,573 99,696,687 140,000,639 ---------------- ----------- ------------- ------------ ------------ Liabilities Current (586,206) - - - (586,206) non-current - - - (100,000) (100,000) ---------------- ----------- ------------- ------------ ------------ (586,206) - - (100,000) (686,206) ---------------- ----------- ------------- ------------ ------------
Credit Risk:
Credit risk is the risk that an issuer or counterparty will be unable or unwilling to meet a commitment that it has entered into with the Group. The maximum exposure to credit risk that the Group faces is equal to the fair value of the cash and cash equivalents held by the Group. The credit risk on cash and cash equivalents is partially mitigated as it is held with counterparties that are regulated entities with credit-ratings assigned by international credit-rating agencies.
The Group's credit risk exposure is moderated by the careful selection of securities and other financial instruments by the Investment Manager. The Group's portfolio and investment strategy is reviewed continuously by the Investment Manager and on a quarterly basis by the Board. The credit risk on cash transactions is partially mitigated as the transactions are through counterparties that are regulated entities subject to prudential supervision or with credit-ratings assigned by international credit-rating agencies.
Concentration Risk:
As the Group's assets are being sold, at times the Group may hold a relatively small number of investments each representing a relatively large portion of the Group's net assets. Losses incurred in such investments could have a materially adverse effect on the Group's overall financial condition.
Classification of Fair Value Measurements
The Company adopted the amendment to IFRS 7, effective 1 January 2009. This requires the Company to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:
-- Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1);
-- Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2); and
-- Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).
The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, the measurement is a level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability.
Classification of Fair Value Measurements, continued
The determination of what constitutes "observable" requires significant judgement by the Company. The Company considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.
The following table analyses within the fair value hierarchy the Company's financial assets (by class) measured at fair value at 30 September 2011:
Fair Value as at 30 September 2011 Level 1 Level 2 Level 3 Total ----------- ---------- -------- ----------- US$ US$ US$ US$ Financial assets at fair value through profit or loss: Listed equity securities (freely tradable) 4,180,905 - - 4,180,905 Listed equity securities (restricted) - 5,606,263 - 5,606,263 Warrants - - 767,629 767,629 ----------- ---------- -------- ----------- 4,180,905 5,606,263 767,629 10,554,797 ----------- ---------- -------- ----------- Fair Value as at 30 September 2010 Level 1 Level 2 Level 3 Total ------------ ----------- ----------- ------------ US$ US$ US$ US$ Financial assets at fair value through profit or loss: Listed equity securities (freely tradable) 28,717,222 - - 28,717,222 Listed equity securities (restricted) - 70,979,465 - 70,979,465 Warrants - - 34,089,070 34,089,070 ------------ ----------- ----------- ------------ 28,717,222 70,979,465 34,089,070 133,785,757 ------------ ----------- ----------- ------------
Investments whose values are based on quoted market prices in active markets, and therefore classified within level 1, include active listed equities. No adjustments are made to 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 may 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.
Investments classified within level 3 have significant unobservable inputs, as they trade infrequently. Level 3 instruments include unquoted equity instruments which the Company values in accordance with the International Private Equity and Venture Capital valuation guidelines or any other valuation model and techniques which can provide a reasonable estimate of fair value of the investment involved. The Company considers liquidity, credit and other market risk factors.
The table below provides a reconciliation from brought forward to carried forward balances of financial instruments categorised under level 3:
Held for Trading Investments at Fair Value based on Level 3: Warrants Total --------------- --------------- US$ US$ Opening Fair value 34,089,070 34,089,070 Movement in net unrealised gains (33,321,441) (33,321,441) Closing fair value at 30 September 767,629 767,629 --------------- ---------------
The movement in net unrealised gains was an unrealised loss of US$33,321,441 (30 September 2010: US$1,984,936 unrealised gains) relating to level 3 investments has been included in the net unrealised losses on investments in the Consolidated Statement of Comprehensive Income.
Classification of Fair Value Measurements, continued
Held for Trading Investments at Fair Value based on Level 3: Warrants Total --------------- --------------- US$ US$ Opening Fair value 35,987,698 35,987,698 Purchases 86,308 86,308 Movement in net unrealised gains (1,984,936) (1,984,936) Closing fair value at 30 September 34,089,070 34,089,070 --------------- ---------------
15. Dividend:
The Directors do not recommend the payment of a dividend for the year ended 30 September 2011 (30 September 2010: US$Nil).
16. Distribution:
On 14 December 2010, in accordance with the Company's buy-back programme in relation to its distribution policy in respect of the year ended 30 September 2010, the Company acquired 900,000 Ordinary Shares from Shareholders for an aggregate price of US$1.44 million. On 17 December 2010, those Ordinary Shares of the Company that were being held in treasury were cancelled. Following the cancellation, as at 30 September 2011, the number of issued Ordinary Shares of the Company was 65,289,574.
On 17 August 2011, the Company paid to Shareholders a return of capital amounting to US$20 million in aggregate (30 September 2010: US$3.31 million). The remaining amount to be distributed to Shareholders as at 30 September 2011 was US$Nil (30 September 2010: US$1.44 million).
.
17. Taxation:
The Company is exempt from Guernsey income tax under the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989 and is charged an annual exemption fee of GBP600.
18. Capital Management:
The Company has the ability to borrow up to 25% of net assets in order to meet ongoing expenses and obligations. Any such borrowing requires Board approval.
The Company has been granted authority to make market purchases of up to 14.99% of its own Ordinary Shares. Any such purchases require Shareholders' approval.
19. Contingent Liability:
In 2010, legal proceedings were brought against the Company, the Limited Partnership and other defendants in the Nevada courts by the Trustee of the Litigation Trust of Astrata Group Inc, a former investee of the Company. At a hearing on 23 January 2012, the court allowed certain causes of action against the Company and the Limited Partnership to continue but dismissed the more substantial damage claims related to the loss of certain contracts. The remaining damage claims are those related to other lost "key contracts", bankruptcy administrative claims and loss of enterprise value and loss of cash flow. However, neither details of the remaining claims nor any supporting evidence for them, including to which contracts the claims relate and how the level of purported damages has been calculated, have yet been provided. The Directors, on the basis of legal advice taken on the pleaded case, dispute the merits of the remaining claims and are strenuously defending them on behalf of the Group.
The alleged value of the claims is now approximately US$35 million, plus punitive and exemplary damages, attorneys' fees and pre-judgment interest. An amount has not yet been alleged in relation to the claims for loss of enterprise value and loss of cash flow. At the time of approving these financial statements, the outcome of the remaining claims is not known. The legal costs incurred to date have been expensed. After the year end date, the Directors have decided to make a provision of US$250,000 against the future costs of vigorously defending the proceedings and pursuing counter-claims against the plaintiffs.
20. Post Year End Events:
Post the year end date, there was a significant increase in the insurance premium for the Group's D&O and professional indemnity cover. The Group's new cover, obtained on 23 December 2011 cost GBP276,000 per annum (prior year: GBP84,000 per annum).
On 24 January 2012, Mr Benway resigned as a Director of the Company.
There were no other significant post year end events that require disclosure in these financial statements.
DEFINITIONS
Adjusted Closing NAV the NAV at the end of a performance period per Ordinary Share (for the avoidance of doubt, after deducting the performance allocation accrued in any previous performance period) divided by the number of Ordinary Shares in issue at the time Administrator Praxis Fund Services Limited Admission the admission of the Ordinary Shares to trading on AIM which occurred on 28 November 2007 AIM AIM, a Market operated by the London Stock Exchange AIM Rules the AIM Rules for Companies of the London Stock Exchange A Ordinary Shares A Ordinary Shares issued by GPCo B Redeemable Preference B Redeemable Preference Shares issued by GPCo Shares Board the board of directors of the Company Canaccord Canaccord Genuity Limited, the Company's nominated adviser & broker, with effect from 1 October 2009 Company or VOC Vision Opportunity China Fund Limited C Ordinary Shares C Ordinary Shares issued by GPCo Custodian Jefferies & Company Inc. Directors the directors of the Company Fairfax Option an option issued to Fairfax I.S. PLC , the Company's former NOMAD & Broker, in connection with the Placing and Admission to purchase up to 2,000,000 of the Ordinary Shares at an exercise price of US$1.00 per Ordinary Share GPCo Vision Opportunity China GP Limited Greater China a collective term referring both to the territories administered by the PRC (including Hong Kong and Macau), territories administered by the Republic of China (Taiwan and some neighbouring islands) and Singapore Group the Company, GPCo, the Limited Partnership and their subsidiary undertakings from time to time High Watermark the highest previously recorded Opening NAV per Ordinary Share as reduced by the sum of all dividends and distributions paid, made or declared per Ordinary Share since the date such highest Opening NAV per Ordinary Share was established Hurdle NAV the greater of (a) the Opening NAV per Ordinary Share and (b) the High Watermark, increased over the relevant performance period by a rate equal to 10% per annum Investee Company a company in which an investment is held Investment Management the investment management agreement dated 16 Agreement November 2007 between the Company and the Investment Manager Investment Manager Vision Capital Advisors, LLC, a limited liability or Vision Capital Advisors corporation incorporated in Delaware, US and the investment manager of the Company Limited Partnership Vision Opportunity China LP Limited Partnership the agreement between VOC and GPCo establishing Agreement the Limited Partnership London Stock Exchange London Stock Exchange plc Master Fund Vision Opportunity Master Fund, Ltd, a Cayman Island exempt corporation managed by Vision Capital Advisors, including any other fund to which Vision Opportunity Master Fund, Ltd transfers a portion of its assets and which will continue to be managed by Vision Capital Advisors NAV the net asset value of the Group or of an Ordinary Share (as the context requires) calculated in accordance with the investment valuation policy and the accounting policies of the Group from time to time NOMAD & Broker Canaccord Official List the Official List of the Financial Services Authority pursuant to Part VI of the Financial Services and Markets Act 2000, as amended from time to time Opening NAV per Ordinary the NAV at the beginning of a performance period Share (for the avoidance of doubt, after deducting the performance allocation accrued in any previous performance period) divided by the number of Ordinary Shares in issue at the time Ordinary Shares or ordinary shares of no par value in the share Shares capital of the Company Over-The-Counter Bulletin an electronic quotation system in the United Board or OTCBB States that displays real-time quotes, last-sale prices, and volume information for many over-the-counter (OTC) equity securities that are not listed on the NASDAQ stock exchange or a national securities exchange Pink Sheets an electronic system, published by Pink Sheet LLC, compiled by the National Quotation Bureau with bid and ask prices of over-the-counter stocks in the US, including the market makers who trade such stocks Placing the placing of the Placing Shares which was completed on Admission Placing Shares the 100,000,000 Ordinary Shares allotted and sold pursuant to the Placing PRC the People's Republic of China Prime Broker Jefferies & Company Inc. Registrar Capita Registrars (Guernsey) Limited RMB renminbi, the lawful currency of the PRC Shareholders the shareholders of the Company Treasury Shares Ordinary Shares held in treasury by the Company US the United States of America US$ US dollars, the lawful currency of the US GBP or Sterling pounds sterling, the lawful currency of the United Kingdom
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR BXLFLLLFLBBF
1 Year Vision OP China Chart |
1 Month Vision OP China Chart |
It looks like you are not logged in. Click the button below to log in and keep track of your recent history.
Support: +44 (0) 203 8794 460 | support@advfn.com
By accessing the services available at ADVFN you are agreeing to be bound by ADVFN's Terms & Conditions