UKRAINE OPPORTUNITY TRUST PLC
The Ukraine Opportunity Trust PLC
Half-Yearly Report for the Period Ended 30 June 2014
Introduction
The Ukraine Opportunity Trust PLC ("the Company" or "UKRO") was incorporated on
16 August 2005 and commenced operations on 4 November 2005.
The Company's Articles of Association contain provisions designed to ensure
that, unless the Company is wound up earlier, it will be wound up on
30 September 2020. Furthermore, the Directors may, at their discretion, convene
a General Meeting of the Company in 2015 for the purpose of winding-up the
Company and the Articles contain provisions designed to ensure that a Special
Resolution to wind up the Company proposed at that meeting will be passed.
Capital Structure
The Company's share capital consists of Ordinary Shares of US$0.01 each (the
"Ordinary Shares").
The number of Ordinary Shares in issue as at 30 June 2014 was 4,404,381, of
which 800,000 were held in Treasury and 3,604,381 were in circulation.
Investment Objective
The Company's investment objective is to achieve long-term capital growth
primarily from a diversified portfolio of companies incorporated, headquartered
or domiciled in, or whose businesses are primarily carried on in Ukraine
(including the non-Ukrainian holding companies of any such companies).
Investments may be made in private equity, listed shares and money market
investments.
Proposed change to Investment Policy
The Board intends to write to shareholders shortly with a proposed updated
Investment Policy for the Company, which will among other things reiterate the
Company's investment focus on the consumer sector in Ukraine, and the food and
restaurant sector in particular.
Current Investment Policy
The Company seeks to achieve long-term capital growth through investment in
selected listed equities (including pre-IPO and IPO transactions), private
equity, money market investments and fixed income securities. Fixed income
securities are held principally for liquidity purposes.
The Company may invest in companies incorporated, resident or domiciled outside
Ukraine that directly or indirectly invest in, or that have a substantial link
with, Ukraine, and may invest up to 15 per cent of the portfolio in companies
incorporated, headquartered or domiciled in, or whose businesses are primarily
carried on in, other eastern European countries.
It is expected that the Company's portfolio will comprise at least ten
investments and that investment will be diversified across industries and
sectors exposed to the Ukraine marketplace. In addition, the Company will seek
diversification in terms of the capitalisation size of the investments in which
it participates.
The Company does not currently hedge its exposure to changes in the US Dollar/
Hryvnia exchange rate but has the power to do so. However, hedging will only
take place if the Directors, on the recommendation of the Investment Manager,
consider this to be in the Company's interests.
The Company has the ability under its Articles of Association to borrow up to
30 per cent of its Net Assets. Examples of when the Directors may exercise the
power to borrow include where necessary to make an investment where disposable
proceeds from a realisation have not been received or where the Company wishes
to purchase its own Shares.
Investment Process
The investment approach is bottom-up, founded largely on sector-based company
analysis. The Investment Manager will continue to procure extensive research
based on reliable local sources. Regular company visits are, and will be, made
in order to understand the management objectives and to seek to establish the
quality of the assets. In Ukraine, factors such as corporate governance,
management, economic instability and institutional reform continue to need to
be given greater prominence in reaching an investment decision and give rise to
greater risks in comparison to more developed markets.
The investment process for the Company's private equity investments may involve
deal origination and due diligence carried out by the Investment Manager. Once
a final private equity proposal has been agreed by the Investment Manager, it
will be presented to the Board for review and, if thought fit, approved. The
Investment Manager has discretionary authority to invest and divest in respect
of all non private equity investments, but remains subject to the ultimate
supervision and control of the Directors at all times.
The Investment Manager has the discretion to make equity investments and
disposals involving less than 2.5 per cent (subject to an aggregate maximum of
10 per cent) of the Company's Gross Assets without prior reference to the
Board.
Following the implementation of the Alternative Investment Fund Managers'
Directive, the Company has appointed FPP Asset Management LLP, as its
Alternative Investment Fund Manager. The day-to-day investment management
arrangements remain unchanged, as set out on pages 11 and 12 of the Company's
Report and Financial Statements for the year ended 31 December 2013.
Company Summary
Management Company FPP Asset Management LLP.
Assets attributable to Shareholders US$21,675,000 as at 30 June 2014.
Market capitalisation US$14,147,000 as at 30 June 2014.
Management fee US$225,000 (2 per cent of Net Asset
Value ("NAV") of the Company) for the
six months to 30 June 2014.
Performance fee US$nil (20 per cent of increase in the
NAV of the Company since the
performance period when such fee was
last earned).
Ongoing charges* 2.2 per cent.
ISA status The Company's shares are fully eligible
for inclusion in ISAs.
AIC The Company is a member of the
Association of Investment Companies.
* Ongoing charges incurred in the six months to 30 June 2014 (excluding
interest costs and certain non-recurring items) as a percentage of average Net
Assets.
Summary of Results
30 June 2014 30 June 2013 31 December 2013
Assets attributable to US$21.68m US$20.33m US$23.29m
Shareholders
NAV per Ordinary Share US$6.01 US$5.56 US$6.46
Mid market Ordinary Share price US$3.925 US$2.25 US$3.85
Discount to NAV 34.69% 59.53% 40.40%
Dividend declared Nil Nil Nil
Six months to Six months to Year to
30 June 2014 30 June 2013 31 December 2013
Total earnings per Ordinary (US$0.4472) US$0.0257 US$0.8772
Share
Risks
The following risks are monitored and assessed by the Investment Manager and
are reported regularly to the Board and the Audit Committee:
Market risk - the market price of the Company's investments is subject to
fluctuations. By investing in Ukraine, the Company's investments involve
certain additional risks not typically associated with investments in developed
and other developing market economies.
Currency risk - investments are subject to movements in exchange rates.
Liquidity risk - it may not be possible to sell assets if there are no buyers
or they may trade at prices significantly different from the market quote.
Discount volatility risk - the discount of the Company's share price to the NAV
may fluctuate.
Regulatory risk - failure by the Company to satisfy the requirements of
Sections 1158/1159 of the Corporation Tax Act 2010 ("CTA") could result in the
Company being subject to Capital Gains Tax. In order to minimise the impact of
taxation costs, the Directors and Investment Manager monitor the Company's
position on a monthly basis. On a quarterly basis, a more detailed assessment
is made between the Board and the Investment Manager. The Board has previously
engaged lawyers to carry out a review of the share register to ensure the
Company is not a close company (as defined in the CTA). The Board regularly
monitors the share register, but acknowledges that it has no control over
shareholders purchasing shares, nor their concentration on the share register.
A further prerequisite to qualify as an Investment Trust Company is the
requirement to diversify risk in the portfolio; this is also a requirement of
the Listing Rules. As the Company increases its focus on the successful private
equity investments, the portfolio will become increasingly concentrated. The
Company is addressing this and updates will be made in due course.
Risks Specific to Investing in Ukraine and Ukrainian Companies
The Company's investments involve certain additional risks not typically
associated with investments in developed and other developing market economies.
This is increased with the unresolved conflict with Russia and the uncertainty
and added risk this causes. In addition, sanctions being applied by both the
West and Russia could have an impact on our business.
The Investment Manager manages the Company's assets in a manner that will limit
the exposure to such risks insofar as is practicable, and formally reports to
the Board on a quarterly basis. The members of the Board undertake the role of
the Investment Committee which reviews and comments on the research into
potential private equity investments for the Company.
The quality of financial reporting of Ukrainian companies is not at the same
level as that of Western European companies. Most Ukrainian companies do not
use internationally accepted accounting standards, which may create a lack of
transparency.
There are differences between Western European and Ukrainian securities
markets, including the relative underdevelopment and illiquidity of the
Ukrainian securities market, together with less government supervision and
regulation. The Ukrainian legal framework governing securities transactions is
underdeveloped, incomplete and provides guidance only with respect to the most
basic and unsophisticated transactions. There is an inherent lack of minority
investor protection in Ukrainian law, however a change in political will would
hopefully see this improve in the future.
The value of the Company's investments is affected by growing fluctuations in
the value of the Hryvnia against the US Dollar and by tightening in local
exchange control regulations, tax laws and economic or monetary policies. The
Company is also subject to the risks in Ukraine of continued inflation and
significant currency devaluation.
Due to the limited number of investment opportunities available to the Company,
the portfolio is concentrated and therefore the insolvency or other business
failure of any one or more of the Company's investment enterprises could have a
material effect on the Company, its operations and ability to achieve its
objective. Laws on the insolvency of enterprises have been enacted in Ukraine
but, as yet there has been little practical experience in the manner of
implementation of these laws. In order to mitigate this risk the Company has
sought to invest in a diversified portfolio of assets, however, changing asset
values and commercial investment decisions have impacted this policy.
The Directors do not envisage that there will be any specific risks over and
above those previously set out in the Company's last Annual Report and
Financial Statements and any referred to in the Investment Management Report
below.
Related Party Transactions
FPP Asset Management LLP, as Investment Manager of the Company, is a related
party by virtue of its management contract with the Company (novated to it on
7 December 2008). During the six months to 30 June 2014, services with a total
value of US$225,000 (six months to 30 June 2013: US$203,000; year ended
31 December 2013: US$415,000) were purchased under the contract. No investment
management performance fee was payable for the six months to 30 June 2014 (six
months to 30 June 2013: US$nil; year ended 31 December 2013: US$nil). At
30 June 2014, the amount due to the Investment Manager, included within creditors,
was US$36,000 (30 June 2013: US$33,000; 31 December 2013: US$40,000).
There were no changes in the transactions or arrangements with related parties
as described in the Company's Annual Report and Financial Statements for the
year ended 31 December 2013 that would have a material effect on the financial
position or performance of the Company in the first six months of the current
financial year.
Interim Management Report and Responsibility Statement of the Directors in
respect of the Half-Yearly Financial Report
Interim Management Report
Under the Disclosure and Transparency Rules the Company is required to make a
number of disclosures, including the following:
Important events that have occurred during the period under review; key factors
influencing the financial statements; and principal risks and uncertainties for
the remaining six months of the financial year. These are set out in this
Half-Yearly Report.
Responsibility Statement
The Directors confirm that to the best of their knowledge:
(a) the condensed set of financial statements has been prepared in accordance
with International Accounting Standard ("IAS") 34, Interim Financial Reporting,
as adopted by the European Union, and gives a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company;
(b) the Half-Yearly Report includes a fair review of the information required
to be disclosed under the Disclosure and Transparency Rule 4.2.7R. This
includes (i) an indication of important events that have occurred during the
first six months of the financial year and their impact on the condensed
interim financial information presented in the Half-Yearly Report and (ii) a
description of the principal risks and uncertainties for the remaining six
months of the financial year; and
(c) the Half-Yearly Report includes a fair review of the information required
to be disclosed under Disclosure and Transparency Rule 4.2.8R, being any
changes in related party transactions described in the last annual report.
On behalf of the Board
Robin Monro-Davies - Chairman
29 August 2014
Investment Management Report for The Ukraine Opportunity Trust PLC for the six
months to 30 June 2014
Over the quarter, the share price rallied 29 per cent as the discount to NAV
narrowed from 52 per cent to 35 per cent, offsetting a 6.4 per cent decline in
NAV.
The main impact of the ongoing political crisis in Ukraine on our portfolio of
companies will come from two factors: the movement in the local currency, the
Hryvnia, vs. the US Dollar ("Dollar"), and the effect of the crisis on overall
consumption. Whilst we welcome the decision to float the currency, especially
in the context of an agreed lending package with the IMF, this could impact our
Dollar valuations. In the longer term, the currency float will allow for
healthier and higher economic growth, but it will have a cost this year. The
hryvnia closed 30 June 2014 at 11.75/US$, down 43 per cent from year-end, but
only down 3 per cent in Q2 after agreement was struck with the IMF.
Consumption, most notably in Kiev, has remained robust. Nevertheless, the
effect of higher inflation, imported via the currency devaluation, will
inevitably eat into consumers' real purchasing power. Most consumer businesses,
including our companies, may not be able to pass all of the inflation increases
onto the consumer without losing sales, as goods and services become less
affordable.
The preliminary management accounts for Q1 2014 showed a relatively good
performance from UKRO's companies. Food Master's ("FM") Q1 sales in dollars
were up more than 6 per cent year-on-year. As FM had opened a number of new
restaurants, like-for-like sales in Dollars were weaker than this. Nonetheless,
given the currency's devaluation of over 29 per cent on the quarter, the
overall top line dollar growth is welcome. For the rest of 2014, it will be a
question of how much of the effects of the devaluation and its attendant
inflation can be passed through to consumers. With forecasts of Ukrainian GDP
falling by up to 5 per cent in 2014, management will remain cautious and may
have to accept lower margins in order to maintain sales. FM continues to work
on the opening of its first KFC sites. The expectation is that this low price,
fast food format, will prove a timely offering for pressed consumers and
thereby help to maintain FM's sales growth. FM succeeded in raising prices in
local currency in April, which will help maintain margins, despite higher
inflation, which has hit 12 per cent annualised as of June 2014.
Vitalux, the pharmacy chain investment, saw Q1 dollar sales down 15.5 per cent
year-on-year to US$4.75m vs US$5.6m last year. With plenty of inventory bought
at the old exchange rates, however, the company remained profitable, with net
profits for the quarter of US$90,000 vs US$116,000 in Q1 2013 and US$134,000 in
Q4 2013.
Ekipazh, the web-based food delivery investment, continues to grow, with Dollar
sales 5 per cent higher quarter-on-quarter and 29 per cent higher year-on-year.
Korsando continues to proceed with its restructuring. The aim is to
deconsolidate the land holdings, leaving just the office building in Kiev to
manage. This process will further lower general legal and administrative costs
and should thus help the process of finding buyers for both the land plots and
the office building.
The listed equity market has not been immune from the effects of devaluation.
Creative Industrial Group, our largest listed holding, held up well in local
currency in the period ended 30 June 2014, perhaps reflecting that it exports
over 80 per cent of its edible oils production. We have also marked down the
Bank Nadra loan note to reflect the increase in country risk. The other
substantial listed equity holdings, Kernel, Ferrexpo and Astarta Holding, are
all companies with export activities, which will benefit to some extent from
Hryvnia devaluation. At present, investors are understandably very cautious of
Ukrainian names, but these exporting companies represent a natural hedge for
those already exposed to domestic risk.
FPP Asset Management LLP
Investment Manager
29 August 2014
ukro@fpictet.com
Forward-looking statements
This Half-Yearly Report may contain certain "forward-looking statements" which
reflect the Company's and/or the Directors' current views with respect to
financial performance, business strategy and future plans, both with respect to
the group and the sectors and industries in which the Company invests.
Statements which include the words "expects", "intends", "plans", "believes",
"projects", "anticipates", "will", "targets", "aims", "may", "would", "could",
"continue" and similar statements are of a future or forward-looking nature.
All forward-looking statements address matters that involve risks and
uncertainties. Accordingly, there are or will be important factors that could
cause the Company's actual results to differ materially from those indicated in
these statements. Any forward-looking statements in this Half-Yearly Report
reflect the Company's current views with respect to future events and are
subject to risks, uncertainties and assumptions relating to the Company's
investments, results and growth strategy. These forward-looking statements
speak only as of the date of this Half-Yearly Report. Subject to any legal or
regulatory obligations, the Company undertakes no obligation publicly to update
or review any forward-looking statement, whether as a result of new
information, future developments or otherwise. All subsequent written and oral
forward-looking statements attributable to the Company or individuals acting on
behalf of the Company are expressly qualified in their entirety by this
paragraph. Nothing in this publication should be considered as a profit
forecast.
Portfolio Valuation as at 30 June 2014
Fair value % of net
valuation assets
Security Name as at as at
Currency Cost 30 June 2014 30 June 2014
US$'000 US$'000
Fixed income securities
Private fixed income
securities
Bank Nadra 2.5% Loan 10 USD 3,044 371 1.7
April 2018
Total fixed income 3,044 371 1.7
securities
Equities
Listed equity
Astarta Holding PLN 137 143 0.7
Azovstal Iron & Steelworks UAH 427 92 0.4
Centrenergo UAH 248 100 0.5
Creative Industrial Group UAH 1,255 851 3.9
Ferrexpo GBP 291 224 1.0
Kernel PLN 377 330 1.5
Ukrproduct Group GBP 144 48 0.2
Ukrsotsbank UAH 249 56 0.3
Zakhidenergo UAH 167 36 0.2
3,295 1,880 8.7
Private equity
Food Master (Anthoreal USD 5,663 10,245 47.3
Estates)
Vitalux (Chalsen Trade) USD 2,118 1,355 6.3
Ekipazh USD 400 400 1.8
Korsando USD 6,596 3,624 16.7
14,777 15,624 72.1
Total equity 18,072 17,504 80.8
Total portfolio valuation 21,116 17,875 82.5
Cash and cash equivalents 3,963 18.3
Other net liabilities (163) (0.8)
Net assets 21,675 100.0
As at 30 June 2014, the portfolio held 89.5 per cent in US$ (US Dollar)
denominated investments, 6.4 per cent in UAH (Ukrainian Hryvnia) denominated
investments, 1.5 per cent in GBP (Sterling) denominated investments and 2.6 per
cent in PLN (Polish Zloty) denominated investments.
Statement of Comprehensive Income (unaudited)
for the six months to 30 June 2014
Six months to 30 June 2014 Six months to 30 June 2013 Year ended 31 December 2013
Revenue Capital Revenue Capital Revenue Capital
return return Total return return Total return return Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Income 44 - 44 31 - 31 60 - 60
(Losses)/gains
on investments
(Losses)/gains - (1,064) (1,064) - 501 501 - 4,073 4,073
on fair value
through profit
or loss
investments
Exchange losses - (3) (3) - (7) (7) - (10) (10)
- (1,067) (1,067) - 494 494 - 4,063 4,063
Expenses
Investment (225) - (225) (203) - (203) (415) - (415)
management fee
Other expenses (360) - (360) (228) - (228) (507) - (507)
(585) - (585) (431) - (431) (922) - (922)
Net return (541) (1,067) (1,608) (400) 494 94 (862) 4,063 3,201
before tax
Tax (Note 3) (4) - (4) - - - - - -
Net return for (545) (1,067) (1,612) (400) 494 94 (862) 4,063 3,201
the period
US$ US$ US$ US$ US$ US$ US$ US$ US$
Return per (0.1512) (0.2960) (0.4472) (0.1095) 0.1352 0.0257 (0.2362) 1.1134 0.8772
Ordinary Share
(Note 4)
The total column of this statement is the Statement of Comprehensive Income of
the Company prepared in accordance with International Financial Reporting
Standards ("IFRS") as adopted by the EU. The supplementary revenue return and
capital return columns have been prepared under guidance published by the
Association of Investment Companies.
All revenue and capital items in the above statement are derived from
continuing operations.
The Company does not have any income or expense that is not included in net
return for the period, and therefore the "Net return for the period" is also
the "Total comprehensive income for the period", as defined in IAS 1 (revised).
All of the net return and total comprehensive income for the period is
attributable to the owners of the Company.
Statement of Changes in Equity (unaudited)
for the six months to 30 June 2014
Share Capital
Share premium Special redemption Capital Revenue
capital account reserve reserve reserve reserve Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
As at 44 6,494 47,227 18 (25,695) (4,801) 23,287
1 January
2014
Revenue - - - - - (545) (545)
return for
the period
Movement in - - - - (1,064) - (1,064)
fair value
of
investments
Exchange - - - - (3) - (3)
losses
Total - - - - (1,067) (545) (1,612)
recognised
income and
expenses
Balance at 44 6,494 47,227 18 (26,762) (5,346) 21,675
30 June
2014
Statement of Changes in Equity (unaudited)
for the six months to 30 June 2013
Share Capital
Share premium Special redemption Capital Revenue
capital account reserve reserve reserve reserve Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
As at 1 46 6,494 47,379 16 (29,758) (3,939) 20,238
January
2013
Revenue - - - - - (400) (400)
return for
the period
Losses on - - - - (1,222) - (1,222)
realisation
of
investments
Losses on - - - - (22,671) - (22,671)
realisation
of
investments
written off
portfolio *
Movement in - - - - 1,723 - 1,723
fair value
of
investments
Movement in - - - - 22,671 - 22,671
fair value
of
investments
written off
portfolio *
Exchange - - - - (7) - (7)
losses
Total - - - - 494 (400) 94
recognised
income and
expenses
Balance at 46 6,494 47,379 16 (29,264) (4,339) 20,332
30 June
2013
* During the period to 30 June 2013, several investments were written off
(which were all previously valued at nil), resulting in the realisation of
$22,671,000 of losses.
Statement of Changes in Equity (audited)
for the year ended 31 December 2013
Share Capital
Share premium Special redemption Capital Revenue
capital account reserve reserve reserve reserve Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
As at 46 6,494 47,379 16 (29,758) (3,939) 20,238
1 January
2013
Revenue - - - - - (862) (862)
return for
the year
Gains on - - - - 4,730 - 4,730
realisation
of
investments
Losses on - - - - (22,671) - (22,671)
realisation
of
investments
written off
portfolio *
Movement in - - - - (657) - (657)
fair value
of
investments
Movement in - - - - 22,671 - 22,671
fair value
of
investments
written off
portfolio *
Exchange - - - - (10) - (10)
losses
Total - - - - 4,063 (862) 3,201
recognised
income and
expenses
Cancellation (2) - - 2 - - -
of Shares
from
Treasury
Share - - (152) - - - (152)
purchases
for Treasury
Balance at 44 6,494 47,227 18 (25,695) (4,801) 23,287
31 December
2013
* During the period to 30 June 2013, several investments were written off
(which were all previously valued at nil), resulting in the realisation of
$22,671,000 of losses.
Statement of Financial Position (unaudited)
as at 30 June 2014
As at 30 June As at 30 June As at 31 December
2014 2013 2013
US$'000 US$'000 US$'000
Non-current assets
Investments at fair value 17,875 20,166 16,803
through profit or loss
Current assets
Other receivables 33 41 55
Cash and cash equivalents 3,963 263 6,618
3,996 304 6,673
Total assets 21,871 20,470 23,476
Current liabilities
Other payables (196) (138) (189)
(196) (138) (189)
Total assets less current 21,675 20,332 23,287
liabilities/net assets
Represented by:
Capital and reserves
Share capital 44 46 44
Share premium 6,494 6,494 6,494
Special reserve* 47,227 47,379 47,227
Capital redemption 18 16 18
reserve
Capital reserve* (26,762) (29,264) (25,695)
Revenue reserve* (5,346) (4,339) (4,801)
Total Shareholders' funds 21,675 20,332 23,287
US$ US$ US$
NAV per 6.01 5.56 6.46
Ordinary Share (Note 6)
The above financial information has been prepared in accordance with IFRS (as
adopted by the EU).
* These reserves are distributable (by way of dividend).
Statement of Cash Flows (unaudited)
for the six months to 30 June 2014
Six months to Six months to Year ended
30 June 2014 30 June 2013 31 December 2013
US$'000 US$'000 US$'000
Cash flows from operating
activities
Net return before tax (1,612) 94 3,201
Adjustments to reconcile net
return before tax to net
cash flows from operating
activities:
Add back: losses/(gains) on 1,064 (501) (4,073)
investments
Add back: exchange losses 3 7 10
Decrease/(increase) in other 22 (10) (24)
receivables
Increase/(decrease) in other 7 (42) 9
payables
Net cash outflow from (516) (452) (877)
operating activities
Cash flows from investing
activities
Purchases of investments (2,136) (200) (1,068)
Sales of investments - 733 8,534
Net cash flows (used in)/ (2,136) 533 7,466
generated from investing
activities
Cash flows from financing
activities
Cost of Share buybacks for - - (152)
cancellation
Net cash flows used in - - (152)
financing activities
(Decrease)/increase in cash (2,652) 81 6,437
and cash equivalents (Note 8)
Cash and cash equivalents at 6,618 189 189
start of period/year
Effect of exchange movements (3) (7) (8)
Cash and cash equivalents at 3,963 263 6,618
end of period/year (Note 8)
Notes
1. Accounting policies
The interim financial information has been prepared in accordance with IAS34,
'Interim Financial Reporting' and also in accordance with the accounting
policies set out in the statutory accounts for the year ended 31 December 2013.
The interim financial information should be read in conjunction with the
statutory accounts for the year ended 31 December 2013, which have been
prepared in accordance with IFRS.
The Company has adequate financial resources and no significant investment
commitments and as a consequence, the Directors believe that the Company is
well placed to manage its business risks successfully. After making appropriate
enquiries, the Directors have a reasonable expectation that the Company has
adequate available financial resources to continue in operational existence for
the foreseeable future and accordingly have concluded that it is appropriate to
continue to adopt the going concern basis in preparing the Half-Yearly Report.
2. Financial information
The financial information contained in this Half-Yearly Report does not
constitute full statutory accounts as defined in sections 434-436 of the
Companies Act 2006. The financial information for the six months to 30 June
2014 and 30 June 2013 has not been audited or reviewed.
The information for the year ended 31 December 2013 has been extracted from the
latest published audited accounts. Those statutory accounts have been filed
with the Registrar of Companies and included a report of the auditors which was
unqualified and did not contain a statement under sections 498(2) or (3) of the
Companies Act 2006.
3. Tax credit/charge on ordinary activities
The tax charge for the six months to 30 June 2014 is US$4,000 (six months to
30 June 2013: US$nil; year ended 31 December 2013: US$nil). The tax charge for
the six months to 30 June 2014 relates entirely to irrecoverable overseas
withholding tax. The estimated effective tax rate is zero per cent for the year
ending 31 December 2014 as investment gains are exempt from Capital Gains Tax
owing to the Company's status as an Investment Trust Company. There is expected
to be an excess of management expenses over taxable income in the year ending
31 December 2014 and therefore there is no liability to Corporation Tax during
the six months to 30 June 2014 (six months to 30 June 2013: US$nil; year ended
31 December 2013: US$nil).
4. Return per Ordinary Share
Six months to
30 June 2014
Weighted Return
average per
Net number of Ordinary
return Ordinary Share
US$'000 Shares US$
Total return (1,612) 3,604,000 (0.4472)
Revenue return (545) 3,604,000 (0.1512)
Capital return (1,067) 3,604,000 (0.2960)
Six months to
30 June 2013
Weighted Return
average per
Net number of Ordinary
return Ordinary Share
US$'000 Shares US$
Total return 94 3,654,000 0.0257
Revenue return (400) 3,654,000 (0.1095)
Capital return 494 3,654,000 0.1352
Year to
31 December 2013
Weighted Return
average per
Net number of Ordinary
return Ordinary Share
US$'000 Shares US$
Total return 3,201 3,649,000 0.8772
Revenue return (862) 3,649,000 (0.2362)
Capital return 4,063 3,649,000 1.1134
5. Segment reporting
As detailed in the Company's Report and Financial Statements for the year ended
31 December 2013, the Company operates in a single geographical segment (being
an investment business mainly operating in Ukraine-based entities) but
identifies two key areas based on the decision making process by the Board and
Investment Manager and has therefore prepared an analysis of results by segment
based on these key decision making processes. These two identifiable segments
are:
1) the listed investment portfolio (both equity and fixed income securities);
and
2) the private investment portfolio (both equity and fixed income securities).
The listed investment portfolio and the private investment portfolio are shown
above. Information regarding the Company's reportable operating segments is
presented below.
30 June 2014 Listed Private
equity/ equity/
fixed fixed
income income
Total securities securities Unallocated
US$'000 US$'000 US$'000 US$'000
Segment income and expenses
Investment income (net of 40 11 29 -
irrecoverable tax)
Total losses on investments taken (1,064) (76) (988) -
to profit or loss
Other losses (3) - - (3)
Expenses (585) - - (585)
Total net return after tax as per (1,608) (65) (959) (588)
Statement of Comprehensive Income
30 June 2013 Listed Private
equity/ equity/
fixed fixed
income income
Total securities securities Unallocated
US$'000 US$'000 US$'000 US$'000
Segment income and expenses
Investment income (net of 31 2 29 -
irrecoverable tax)
Total gains/(losses) on 501 (13) 514 -
investments taken to profit or
loss
Other losses (7) - - (7)
Expenses (431) - - (431)
Total net return after tax as per 94 (11) 543 (438)
Statement of Comprehensive Income
31 December 2013 Listed Private
equity/ equity/
fixed fixed
income income
Total securities securities Unallocated
US$'000 US$'000 US$'000 US$'000
Segment income and expenses
Investment income (net of 60 3 57 -
irrecoverable tax)
Total gains/(losses) on 4,073 (156) 4,229 -
investments taken to profit or
loss
Other losses (10) - - (10)
Expenses (922) - - (922)
Total net return after tax as per 3,201 (153) 4,286 (932)
Statement of Comprehensive Income
6. Net assets attributable to Ordinary Shares
The total net assets attributable to Shareholders are calculated as follows:
30 June 2014 30 June 2013 31 December 2013
US$'000 US$'000 US$'000
Shareholders' funds 21,675 20,332 23,287
The basic NAV per Ordinary Share is as follows:
NAV US$6.01 US$5.56 US$6.46
Number of Ordinary Shares 3,604,381 3,654,381 3,604,381
7. Fair value hierarchy
Financial assets and financial liabilities of the Company are carried in the
Statement of Financial Position at their fair value. The fair value is the
amount at which the asset could be sold or the liability transferred in a
current transaction between market participants, other than a forced or
liquidation sale. For investments actively traded in organised financial
markets, fair value is generally determined by reference to quoted market bid
prices.
The Company measures fair values using the following hierarchy that reflects
the significance of the inputs used in making the measurements.
Categorisation within the hierarchy has been determined on the basis of the
lowest level input that is significant to the fair value measurement of the
relevant assets as follows:
• Level 1 - valued using quoted prices, unadjusted in active markets for
identical assets or liabilities.
• Level 2 - valued by reference to valuation techniques using observable inputs
for the asset or liability other than quoted prices included in level 1.
• Level 3 - valued by reference to valuation techniques using inputs that are
not based on observable market data for the asset or liability.
The tables below set out fair value measurements of financial instruments as at
the respective period ends, by the level in the fair value hierarchy into which
the fair value measurement is categorised.
Financial assets at fair value
though profit or loss at 30 June
2014
Total Level 1 Level 2 Level 3
US$'000 US$'000 US$'000 US$'000
Equity investments 17,504 1,029 851 15,624
Fixed income securities 371 - - 371
Total 17,875 1,029 851 15,995
Financial assets at fair value
though profit or loss at 30 June
2013
Total Level 1 Level 2 Level 3
US$'000 US$'000 US$'000 US$'000
Equity investments 20,002 508 1,459 18,035
Fixed income securities 164 - - 164
Total 20,166 508 1,459 18,199
Financial assets at fair value
though profit or loss at
31 December 2013
Total Level 1 Level 2 Level 3
US$'000 US$'000 US$'000 US$'000
Equity investments 16,338 1,091 728 14,519
Fixed income securities 465 - - 465
Total 16,803 1,091 728 14,984
There have been no transfers during the period between levels 1 and 2 fair
value measurements and no transfers into or out of level 3 fair value
measurements.
Investments classified within level 3 have significant unobservable inputs.
Level 3 instruments include private equity and fixed income securities. As
observable prices are not available for these securities, the Company has used
valuation techniques to derive the fair value. In respect of debt securities,
fair value is determined by management based on an analysis of available market
inputs, which may include values obtained from one or more independent pricing
services or by discounting expected future cash flows using a current market
rate applicable to the yield, credit quality, liquidity and maturity of the
investment. Cash flows are estimated using issuer-specific default statistics
and prepayment assumptions. In respect of unquoted instruments, or where the
market for a financial instrument is not active, fair value is established by
using recognised valuation methodologies, in accordance with International
Private Equity and Venture Capital ("IPEVC") Valuation Guidelines. New
investments are initially carried at cost, for a limited period, being the
price of the most recent investment in the investee. This is in accordance with
IPEVC Valuation Guidelines as the cost of recent investments will generally
provide a good indication of fair value. Details of the valuation can be seen
above. Fair value is the amount for which an asset could be exchanged between
knowledgeable, willing parties in an arm's length transaction.
The following table presents the movement in level 3 instruments for the period
ended 30 June 2014:
Fair value Equity Fixed income
total investments investments
US$'000 US$'000 US$'000
Opening fair value 14,984 14,519 465
Purchases 1,999 1,999 -
Total losses for the period (988) (894) (94)
included in the Statement of
Comprehensive Income
Closing fair value 15,995 15,624 371
8. Reconciliation of net cash flow to net funds
Six months to Six months to Year ended
30 June 2014 30 June 2013 31 December 2013
US$'000 US$'000 US$'000
Opening net funds 6,618 189 189
(Decrease)/increase in cash in (2,652) 81 6,437
period
3,966 270 6,626
Effects of exchange movements (3) (7) (8)
Closing net funds 3,963 263 6,618
9. Principal financial risks
The principal financial risks which the Company faces in its investment
portfolio management activities are:
* credit risk;
* market price risk, i.e. the movements in value of investment holdings
caused by factors other than interest rate movement;
* interest rate risk;
* liquidity risk;
* political risk; and
* foreign currency risk.
Further details of the Company's management of these risks and exposure to them
is set out in the Strategic Report on pages 6 and 7 and Note 19 of the
Company's Report and Financial Statements for the year ended 31 December 2013,
as issued on 29 April 2014. There have been no changes to the management of or
exposure to these risks since that date.
Shareholder Information
Share dealing
The Company's Ordinary Shares (Code UKRO) are traded on the London Stock
Exchange and can be traded through your usual stockbroker.
Share register enquires
The register for the Ordinary Shares is maintained by Computershare Investor
Services PLC. In the event of queries regarding your holding, please contact
the Registrar on 0870 707 1380 or email web.queries@computershare.co.uk.
Changes of name and/or address must be notified in writing to the Registrar to
the address shown below.
Share capital and NAV information as at 30 June 2014
Ordinary Shares US$0.01 4,404,381 (of which 800,000 held in
Treasury)
SEDOL number B0HW611
ISIN number GB00B0HW6117
The Company releases its NAV per Ordinary Share to the London Stock Exchange
following each month end.
Investment Manager: FPP Asset Management LLP
The Investment Manager was incorporated in 1998 to offer specialist fund
management services to sophisticated investors worldwide and is regulated by
the FCA in the conduct of this investment business in the UK.
Sources of information
Information about the Company, including copies of Annual and Half-Yearly
Reports and announcements released to the London Stock Exchange, can be
obtained from the Company's website: www.ukrotrust.co.uk. Copies of the Annual
and Half-Yearly Reports are available from the Company Secretary, telephone:
01392 412122.
Directors and Advisers
Directors (all non-executive) Custodians
Robin Monro-Davies (Chairman) Raiffeisen Zentralbank Österreich
Bertrand Lipworth (Deputy Chairman) Am Stadtpark 9
Dmitry Chernobay 1030 Vienna
Nigel Pilkington
CJSC OTP Bank
Zhylyanska St. 43
Secretary and Registered Office 01033 Kiev
Capita Sinclair Henderson Limited Ukraine
(trading as Capita Asset Services -
Fund Solutions) Bankers
Beaufort House Lloyds TSB Bank Plc
51 New North Road 234 High Street
Exeter EX4 4EP Exeter EH4 3NL
Tel: 01392 412122
Fax: 01392 253282 Registrar and Transfer Office
Computershare Investor Services PLC
The Pavilions
Investment Manager and AIFM Bridgwater Road
FPP Asset Management LLP Bristol BS99 6ZZ
34 Brook Street
London W1K 5DN
Solicitors
Auditor Slaughter and May
KPMG Audit Plc One Bunhill Row
100 Temple Street London EC1Y 8YY
Bristol BS1 6AG
Corporate Broker
finnCap Limited
60 New Broad Street
London EC2M 1JJ
An investment company as defined under Section 833 of the Companies Act 2006.
Registered in England and Wales No.5537892
This is a Half-Yearly Report and full details of the Company including the NAV,
report and accounts and factsheets are available at www.ukrotrust.co.uk. The
information provided in this statement should not be considered as a financial
promotion.
END
Neither the contents of the Company's website nor the contents of any website
accessible from hyperlinks on this announcement (or any other website) is
incorporated into, or forms part of, this announcement.UKRAINE OPPORTUNITY () : Half-yearly Report
August 29, 2014 at 08:13 pm IST
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