PR Newswire
London, April 30
The Ukraine Opportunity Trust PLC
Annual Financial Report for the year ended 31 December 2014
The full Annual Report and Financial Statements can be accessed via the
Company's website at www.ukrotrust.co.uk or by contacting the Company Secretary
on 01392 412122.
COMPANY SUMMARY
Investment objective and policy Presented below.
Management Company FPP Asset Management LLP (see the full
Annual Report for further details.)
Assets attributable to Shareholders US$12,883,000 as at 31 December 2014.
Market capitalisation US$11,174,000 as at 31 December 2014.
Capital structure Presented below.
Management fee US$414,000 (2 per cent of Net Asset
Value ("NAV") of the Company).
Performance fee US$nil (20 per cent of increase in the
NAV of the Company since the
performance period when such fee was
last earned).
Ongoing charges 4.8 per cent (based on average net
assets throughout the year).
ISA status The Company is fully eligible for
inclusion in ISAs.
AIC The Company is a member of the
Association of Investment Companies.
SUMMARY OF RESULTS
As at As at
31 December 2014 31 December 2013
Assets attributable to Shareholders US$12.88m US$23.29m
NAV per Ordinary Share US$3.57 US$6.46
Mid market Ordinary Share price US$3.10 US$3.85
Discount to diluted NAV 13.17% 40.40%
Dividend declared Nil Nil
Year to Year to
31 December 2014 31 December 2013
Total earnings per Ordinary Share: basic US$(2.8868) US$0.8772
and diluted
STRATEGIC REPORT
The Company
The Strategic Report has been prepared in accordance with Section 414A of the
Companies Act 2006 (the "Act"). Its purpose is to inform members of the Company
and help them to assess how the Directors have performed their duty under
Section 172 of the Companies Act 2006 to promote the success of the Company for
the benefit of Shareholders.
The Ukraine Opportunity Trust PLC ("UKRO" or the "Company") was incorporated on
16 August 2005. All of the Company's Ordinary Shares were admitted to the
Official List of the UK Listing Authority and commenced trading 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 31 December
2014 was 4,404,381 (2013: 4,404,381), of which 800,000 (2013: 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.
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 may be 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.
Details of all investments are shown below.
Chairman's Statement
As our investors are fully aware, this has been a most difficult year for
Ukraine. Annexation of Crimea, war in the east of the country and, both during
the year and subsequently, a huge devaluation of the currency, coupled with
inflation and lower consumer purchasing power, have all contributed to the
impact on our investments. While matters have stabilised, both politically and
with regards to the IMF and international support, significant uncertainties
remain and the Company was obliged to take a substantial write down of
US$6,117,000 in the valuations of its investments at 31 December 2014, which is
reflected throughout the report.
Without doubt, our most exciting investment is our 19 per cent stake in Food
Master, whose impressive management continues to grow the business, both within
and outside Ukraine. Although our fund manager, FPP, had obtained agreement for
Food Master to open restaurants of a leading franchise in Ukraine, the Board,
together with FPP, decided early in 2014 that the economic conditions in the
country did not warrant it. However, FPP did substantial further work in seeing
whether they could arrange further opportunities for Food Master in countries
other than Ukraine, and was successful in coming up with an alternative
strategy which would involve us investing with Food Master in France and
Germany in the roll out of two leading high-end restaurant franchises. This
plan is the subject of a revised proposed Investment Policy which the Company
intends to write to you about shortly, and which will require your permission
to proceed with. This comes after Food Master opened one of its 'Murakami'
branded Japanese restaurants in St Martin's Lane in London last December, which
is performing very well.
There were a number of directorate changes during the year. Fabien Pictet was
appointed to the Board as a non-executive on 14 February 2014, resuming the
position of having a representative of the Investment Manager on the Board. He
resigned on 17 June 2014. Gordon Lawson resigned as Chairman and Director on
19 February 2014 after five years of service in this capacity. Beatrice Hollond
was appointed as a non-executive Director on 10 September 2014.
The Board will look into taking measures to reduce ongoing running costs,
including a reduction in the number of Directors. Bertrand Lipworth, who joined
the Board in 2007, has agreed to step down at the Annual General Meeting. On
behalf of the Board, I would like to take this opportunity to thank him for the
service he has provided the Company as Deputy Chairman, and latterly as
Chairman of the Audit Committee.
Due to ill health, following eight years as Audit Committee Chairman, and most
recently as Chairman, I will be stepping down from the Board at the forthcoming
Annual General Meeting. I would like to thank all my co-Directors for the great
amount of work they have put into making every effort that the Company has a
prosperous future. The Company will announce my successor in due course.
Proposed Change to Investment Policy and Company Strategy
As mentioned above, the Board intends to write to Shareholders by way of
Shareholder circular in relation to the future strategy of the Company. The
circular, which will be subject to UK Listing Authority approval before being
sent to Shareholders, is envisaged to include two alternate Shareholder
proposals to be voted on by Shareholders in relation to the ongoing Investment
Policy for the Company. The circular, which has been compiled following
discussions with FPP, will include the Board's views on the best way forward
for the Company in the light of prevailing economic conditions in Ukraine. The
first Shareholder proposal seeks to allow the Company to increase its exposure
outside of Ukraine by way of further expansion into the consumer sector, while
the alternate proposal would result in the Company not deploying further
capital but instead seeking to maximise value from its existing portfolio of
investments. Shareholders are advised to take no action until they have read
the full detail of the future strategy in the Shareholder circular.
Robin Monro-Davies
Chairman
30 April 2015
Investment Manager's Report
It is difficult to know where to start in summarising 2014 for Ukraine and UKRO.
In short, former President Yanukovych lost his mandate to govern following the
February riots in Kyiv, and the indefensible decision to use live ammunition and
snipers against demonstrators on the Maidan and other central areas. After the
President fled the country, an interim government struggled to deal with his
legacy of a weak currency, an empty Treasury and a system of government enfeebled
by endemic corruption and the promotion of regional fiefdoms. During the interregnum
(the Russians term it a 'coup'), Russia seized the opportunity to annex the Crimean
peninsula (which had historically been a part of Russia) and to foment unrest in
the Donbass region (which has no such historical ambiguity). In this, Russia hoped
to further hamper any new government's freedom of action. The Kremlin's
principal aim appears to us to be to prevent Ukraine furthering its European
ambitions, and most particularly to prevent NATO accession, although, that was
not really on the cards until the Russian intervention in Crimea!
During such a period of uncertainty, it was perhaps no surprise to see the
local currency weaken by some 50 per cent from just over 8 to around 16 per US
Dollar at year end. This has major implications for local companies as well as
consumers as US Dollar purchasing power halved in 2014. Meanwhile, local price
inflation accelerated from effectively zero to 25 per cent. This inflation
poses great challenges for our companies, which must try to pass these price
increases on to an increasingly pressed consumer. Wages have notably lagged
inflation, whilst imports, including energy, have increased markedly in local
currency terms, although the fall in oil prices late in the year is to be
welcomed. Ukraine closed 2014 in recession and the economy is expected to
shrink in 2015 too.
In political terms, the situation has stabilised following the election of
President Poroshenko and the constitution of a new Rada with a working
reform-minded majority. Moreover, this new government has been supported
unilaterally and multilaterally by the likes of the US, the EU and the IMF. Of
course, the state of civil war in the East has persisted with the connivance,
if not the physical aid of Russia, but this should not be allowed to eclipse
the progress that has been made in replacing a corrupt and tired ancien regime
with a new and more outward-looking government. That is not to say the
challenges for this new government are inconsiderable. They must successfully
negotiate further multilateral financing in 2015 in order to plug the gaps left
by a lack of foreign investment and fiscal instability as a result of the
annexations and a depressed economy. The government must also endeavour to
bring down inflation, protect living standards from further erosion, and
thereby allow the economy to recover in the medium term. At the same time, the
government must pursue a full programme of fiscal, legal and political reform,
embedding the rule of law and addressing corruption and the black economy.
There is also the civil war in the East to bring to an end. It's quite a
challenge, one which the current Prime Minister has described as
self-destructive political 'kamikaze'. It is difficult to be optimistic about
Ukraine's position as of early 2015, but a pragmatic government with
international support is a first step to a better future.
During this difficult period, the Company has focussed on reducing the risk to
our investments as much as possible. We have continued to run the private
equity companies without recourse to debt; this is especially important in
times of high currency volatility and high interest rates. Where we are able,
as in the case of Food Master, we have pursued a policy of international
diversification, such that Food Master will have over one-third of sales
outside Ukraine this year. Where such international diversification is not
feasible, we have concentrated on protecting gross margins by raising local
currency prices. As such US Dollar top line growth may be hard to come by, but
our companies have preserved their financial health and profitability in a very
difficult environment. The Company itself maintained a significant cash
position in US Dollars throughout 2014.
Food Master closed the year with 57 restaurants, having opened a further 4
Moscow sites and 1 'Murakami' in London. Some smaller Ukraine sites were
closed, including the only site outside Kyiv, in Kharkiv. A new burger format,
'Lucky Luciano', is being trialled in Kyiv on a 'Coffee Time' site. The company
continues to explore franchising opportunities in Western Europe, in part to
compensate for the likely shrinkage in US Dollar earnings in Ukraine as a
result of the sharp devaluation of the local currency. 2014 sales in US Dollars
were down just below 10 per cent, which reflected the effects of the
devaluation and the difficulty in passing through all the higher costs of
imported goods. EBITDA margins in both Ukraine and Russia were also down, but
remain positive. Food Master closed the year with around US$3 million of net
cash on its balance sheet and will remain circumspect in opening sites in Kyiv
this year.
Vitalux (Chalsen Trade) saw a sharper sales decline of near 20 per cent in US
Dollars as consumers reduced consumption of higher cost imported
pharmaceuticals and beauty products. Nevertheless, strict inventory controls
and buying policies kept 2014 EBITDA margins at 2.3 per cent, down from 3 per
cent in 2013. This represented a not inconsiderable achievement as during the
initial stages of the devaluation many competitors struggled to even fill the
shelves as distributors reduced credit terms. Vitalux's strong balance sheet
may have helped here; the company closed 2014 with over US$700,000 net cash,
broadly in line with 2013's US$800,000 levels. The company is looking to
develop some joint purchasing agreements for pharmaceuticals in 2015 and
continues to explore M&A options with similar sized operators.
The Company completed the restructuring of its holding in Korsando, splitting
the company into its constituent parts, a holding company for its land assets,
UKRO Land Invest, and an operating company for the office building, Elcinory.
This split should result in lower administrative costs in the future. Both
assets have been priced in line with the valuations provided by a leading
international property consultant, based on the year end 2014 analysis.
Ekipazh, the internet food delivery business, continues to build its network,
now regularly exceeding 8,000 online orders per month. The company has seen
excellent growth in 2014, especially in major regional markets outside Kyiv,
which compensated for the loss of some sales in Crimea and Donbass due to the
Russian-inspired annexations there.
FPP Asset Management LLP
Investment Manager
30 April 2015
Other Statutory Information
Principal Activity and Status
The principal activity of the Company is to carry on business as an investment
company. The Company has been granted approval from HM Revenue & Customs
("HMRC") as an authorised investment trust under Sections 1158/1159 of the
Corporation Tax Act 2010 ("CTA") in June 2012 for each subsequent accounting
period, subject to there being no serious breaches of the regulations.
Key Performance Indicators
At each Board meeting, the Directors consider a number of performance measures
to assess the Company's success in achieving its objective. The key performance
indicators ("KPIs") used to measure the progress and performance of the Company
during the period under review are as follows:
NAV
In the year to 31 December 2014, the NAV per Share decreased by 44.74 per cent
from US$6.46 to US$3.57. This compares to a decrease in the total return of
2.19 per cent from the Global Listed Private Equity Total Return Index.
Share Price
In the year to 31 December 2014, the Company's Share price decreased by 19.48
per cent from US$3.85 to US$3.10.
Discount of the Share price in relation to NAV
The Share price discount to NAV per share narrowed from 40.40 per cent to 13.17
per cent, in the year to 31 December 2014.
Principal Risks
The Board considers the following as the principal risks facing the Company.
Mitigation of these risks is sought and achieved in a number of ways.
Information regarding the risk assessment and control procedures is given in
the Corporate Governance Statement in the full Annual Report and also in the
notes to the Financial Statements.
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
this causes. 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. Independent 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. More
details regarding this function of the Board can be found in the Corporate
Governance Statement in the full Annual Report.
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, or have their accounts
subject to external audit, 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.
Risks Relating to the Company
The Company by its nature is exposed to market risk due to fluctuations in the
market prices of its investments, interest rates, exchange rates and currency
markets, credit risk, liquidity risk, cash flow risk and political risk as
detailed in note 17. The Investment Manager actively monitors the Company's
performance and the performance of the market in which it invests and formally
reports to the Board on a quarterly basis.
The Company, as part of its investment strategy, invests in certain securities
that are not listed or admitted to trading on any recognised stock exchange and
as a consequence, such securities are not readily tradeable.
The Company seeks to provide attractive long-term absolute returns, rather than
returns relative to a particular index or benchmark. Its portfolio is managed
without reference to the composition of any stock market index. Therefore, it
is quite likely that there will be periods when the Company's performance will
be quite unlike that of any index, which may or may not be to the advantage of
Shareholders.
Failure by the Company to satisfy the requirements of Sections 1158/1159 of the
CTA could result in the Company being subject to capital gains tax. In order to
minimise the impact of taxation costs, the Directors, Investment Manager and
Company Secretary 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 had, in late 2013, 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 review concluded that the Company was not, and had not
been, a close company; the Board regularly monitors this. The Board
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
Board monitors the risk diversification and the Company's compliance with the
Listing Rules and the CTA.
Operational Risk and Third Party Advisers
Like most Investment Trust Companies, the Company has no employees. All of the
Directors are non-executive. The Company relies on services provided by third
parties, including, in particular, the Investment Manager, FPP Asset Management
LLP ("FPP") and Capita Sinclair Henderson Limited, who provide company
secretarial and administrative services. The Company reviews the internal
control procedures of its service providers on an annual basis.
Full details of the internal control assessment process are given in the
Corporate Governance Statement in the full Annual Report.
Environmental, Human Rights, Employee, Social and Community Issues
The Board recognises the requirement under Section 414C of the Act to detail
information about environmental matters, human rights, social and community
issues; including information about any policies it has in relation to these
matters and the effectiveness of these policies. These requirements do not
apply to the Company as it has no employees, all the Directors are
non-executive and it has outsourced its functions to third party service
providers; the Company has therefore not reported further in respect of these
provisions.
Gender Diversity
The Board of Directors comprised of four male Directors and one female Director
as at 31 December 2014. The appointment of a Director is made on the basis of
merit.
On behalf of the Board
Robin Monro-Davies
Chairman
30 April 2015
PORTFOLIO VALUATION
as at 31 December 2014
Fair value % of Country of
Currency Cost valuation net business
US$'000 US$'000 assets operations
Private fixed income
securities
Bank Nadra 2.5% Loan 10 April USD 3,044 241 1.9 Ukraine
2018
Total fixed income securities 3,044 241 1.9
Equity
Listed equity
Astarta PLN 137 48 0.4 Ukraine
Azovstal Iron & Steelworks UAH 427 65 0.5 Ukraine
Centrenergo UAH 248 76 0.6 Ukraine
Creative Industrial Group UAH 1,255 632 4.9 Ukraine
Ferrexpo GBP 368 165 1.3 Ukraine
Kernel PLN 340 211 1.6 Ukraine
Ukproduct Group GBP 144 42 0.3 Ukraine
Ukrsotsbank UAH 249 23 0.2 Ukraine
Zakhidenergo UAH 167 24 0.2 Ukraine
3,335 1,286 10.0
Private equity
Food Master (Anthoreal UAH 5,663 5,522 42.9 Ukraine/Russia
Estates)
Vitalux (Chalsen Trade) UAH 2,118 633 4.9 Ukraine
Ekipazh UAH 520 456 3.5 Ukraine
Elcinory UAH 1,131 668 5.2 Ukraine
UKRO Land Invest UAH 2,513 1,000 7.7 Ukraine
11,945 8,279 64.2
Total equity 15,280 9,565 74.2
Total portfolio valuation 18,324 9,806 76.1
Cash and cash equivalents 3,245 25.2
Other net liabilities (168) (1.3)
Net assets 12,883 100.0
As at 31 December 2014, the portfolio was held in the following denominations:
2.5% in USD (US Dollar); 92.8% in UAH (Ukrainian Hryvnia); 2.1% in GBP
(Sterling); and 2.6% in PLN (Polish Zloty).
Net Assets Composition by Industry
Restaurants 46%
Cash and other net 24%
assets and liabilities
Real Estate 13%
Food Producers 7%
Pharmacies 5%
Banks 2%
Industrial Metals & 2%
Mining
Electricity 1%
100%
EXTRACTS FROM THE DIRECTORS' REPORT
Management of Capital
As part of capital, the Company manages assets attributable to Shareholders,
which includes the following components:
Share Capital
The Company's share capital consists of Ordinary Shares of US$0.01 each.
The number of Shares in issue as at 31 December 2014 and at the date of this
report was 4,404,381 (2013: 4,404,381), of which 800,000 Shares were held in
Treasury (2013: 800,000) and 3,604,381 were in circulation. At general meetings
of the Company, Shareholders are entitled to one vote on a show of hands and on
a poll, to one vote for every Share held. The total voting rights of the
Company at 31 December 2014 were 3,604,381.
Treasury Shares
The Company indicated in its prospectus, published on 27 September 2005, that
it intended to make market purchases of its own Shares for Treasury where it
was cost effective and positive for the management of the Company's capital
base to do so under the authority granted by Shareholders. The Company is
permitted to hold issued share capital in Treasury and to subsequently cancel
or sell such shares for cash. At the year end and as at the date of this
report, the Company held 800,000 Shares in Treasury, equating to 18.16 per cent
of the issued Share capital.
Purchase of Own Shares
At the Company's Annual General Meeting held on 17 June 2014, Shareholders gave
authority for the Company to buy back a total of 540,296 Ordinary Shares
representing 14.99 per cent of the then shares in circulation, for cancellation
or for placing into Treasury in accordance with the Company's published
discount management and share buy-back policy. This authority remained unused
during the period.
The Directors are seeking to renew this authority at the forthcoming Annual
General Meeting. Further details are disclosed in the full Annual Report.
Gearing
The Company has no borrowings.
Dividend
The Directors do not propose the payment of a dividend in respect of the year
ended 31 December 2014 (2013: nil).
Continuing Appointment of the Investment Manager
The Board, acting as the Management Engagement Committee, keeps the performance
of the Investment Manager under review. It is the opinion of the Directors that
the continuing appointment of FPP is in the interests of Shareholders as a
whole. The reasons for this view are that, in the opinion of the Directors, the
investment performance of the Company is satisfactory, particularly when
considering the status of the markets in which it invests. The Board believes
that the remuneration of the Investment Manager is reasonable both in absolute
terms and compared to that of the managers of comparable investment companies.
The investment Manager has detailed knowledge of doing business in the areas in
which the Company invests.
AIFM
On 22 July 2014, following implementation of the Alternative Investment Fund
Managers' Directive, the Company appointed FPP as its Alternative Investment
Fund Manager (Small Authorised UK AIFM Sub-Threshold). The day-to-day
investment management agreements remain unchanged.
Going concern
The Company's business activities, together with the factors likely to affect
its future development, performance and position are described in the Strategic
Report above. The financial position of the Company, its cash flows and
liquidity position can be found in the Financial Statements. In addition, note
17 to the Financial Statements includes the Company's objectives, policies and
processes for managing its capital; its financial risk management objectives;
details of its financial instruments and hedging activities; and its exposure
to credit risk, liquidity risk and other risks. 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 meet its
obligations for at least a further 12 months and therefore to continue in
operational existence for the foreseeable future despite the current political
situation in Ukraine. Accordingly, the Directors have concluded that it is
appropriate to continue to adopt the going concern basis in preparing the
Financial Statements.
STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE ANNUAL REPORT AND
THE FINANCIAL STATEMENTS
The Directors are responsible for preparing the Annual Report, the Directors'
Remuneration 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 as
adopted by the EU and applicable law.
Under company law the Directors must not approve the Financial Statements
unless they are satisfied that they 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 accounting estimates that are reasonable and prudent;
• state whether they have been prepared in accordance with International
Financial Reporting Standards as adopted by EU law; 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 adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the Financial Statements and the Directors'
Remuneration Report comply with the Act. They have general responsibility for
taking such steps as are reasonably open to them to safeguard the assets of the
Company and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for
preparing a Strategic Report, Directors' Remuneration Report and Corporate
Governance Statement that comply with that law and those regulations.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website.
Legislation in the UK governing the preparation and dissemination of Financial
Statements may differ from legislation in other jurisdictions.
The Directors confirm to the best of their knowledge:
• the Financial Statements, prepared in accordance with International Financial
Reporting Standards as adopted by the EU and applicable law, give a true and
fair view of the assets, liabilities, financial position and return of the
Company;
• the Strategic Report and the Directors' Report include a fair review of the
development and performance of the business and the position of the Company,
together with a description of the principal risks and uncertainties that it
faces; and
• the Annual Report and Financial Statements, taken as a whole, are fair,
balanced and understandable and provide the information necessary for
Shareholders to assess the Company's performance, business model and strategy.
On behalf of the Board
Robin Monro-Davies
Chairman
30 April 2015
Non-Statutory Accounts
The financial information set out below does not constitute the Company's
statutory accounts for the years ended 31 December 2014 and 31 December 2013,
but is derived from those accounts. Statutory accounts for 2013 have been
delivered to the Registrar of Companies, and those for 2014 will be delivered
in due course. The Auditors have reported on those accounts; their report was
(i) unqualified, (ii) included a reference to the post balance sheet events
note, relating to the continuing economic uncertainty in Ukraine and its impact
on the valuation of the Company's investments, to which the Auditor drew
attention by way of emphasis without qualifying their report and (iii) did not
contain a statement under Section 498 (2) or (3) of the Companies Act 2006.
The text of the Auditor's report can be found in the Company's full Annual
Report and Financial Statements.
STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 December 2014
Year ended 31 December 2014 Year ended 31 December 2013
Revenue Capital Total Revenue Capital Total
Note US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Income 2 35 80 115 60 - 60
(Losses)/gains on
investments
(Losses)/gains on fair 8 - (9,338) (9,338) - 4,073 4,073
value through profit
or loss investments
Exchange losses - (15) (15) - (10) (10)
- (9,353) (9,353) - 4,063 4,063
Expenses
Investment management 3 (414) - (414) (415) - (415)
fee
Other expenses 4 (747) - (747) (507) - (507)
(1,161) - (1,161) (922) - (922)
Net return before tax (1,126) (9,273) (10,399) (862) 4,063 3,201
Tax 5 (5) - (5) - - -
Net return for the (1,131) (9,273) (10,404) (862) 4,063 3,201
year
US$ US$ US$ US$ US$ US$
Return per Ordinary
Share
- Basic and diluted 6 (0.3138) (2.5730) (2.8868) (0.2362) 1.1134 0.8772
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. See note 1 for further information on the
presentation of the Statement of Comprehensive Income.
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 the net
return for the year, and therefore the "Net return for the year" is also the
"Total comprehensive income for the year", as defined in International
Accounting Standard 1 (revised). All of the return and total comprehensive
income for the year is attributable to the owners of the Company.
The notes form an integral part of these financial statements.
STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 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$'000
As at 1 January 44 6,494 47,227 18 (25,695) (4,801) 23,287
2014
Revenue return - - - - - (1,131) (1,131)
for the year
Losses on - - - - (2,997) - (2,997)
realisation of
investments
Capital dividend - - - - 80 - 80
received
Movement in fair - - - - (6,341) - (6,341)
value of
investments
Exchange losses - - - - (15) - (15)
Total recognised - - - - (9,273) (1,131) (10,404)
income and
expenses
Balance at 44 6,494 47,227 18 (34,968) (5,932) 12,883
31 December 2014
Share Capital
Share premium Special redemption Capital Revenue
capital account reserve reserve reserve reserve Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
As at 1 January 46 6,494 47,379 16 (29,758) (3,939) 20,238
2013
Revenue return for - - - - - (862) (862)
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 fair - - - - (657) - (657)
value of
investments
Movement in fair - - - - 22,671 - 22,671
value of
investments
written off
portfolio
Exchange losses - - - - (10) - (10)
Total recognised - - - - 4,603 (862) 3,201
income and
expenses
Cancellation of (2) - - 2 - - -
Shares from
Treasury
Share purchases - - (152) - - - (152)
for Treasury
Balance at 44 6,494 47,227 18 (25,695) (4,801) 23,287
31 December 2013
The notes form an integral part of these Financial Statements.
STATEMENT OF FINANCIAL POSITION
as at 31 December 2014
Note 31 December 31 December
2014 2013
US$'000 US$'000
Non-current assets
Investments at fair value 8 9,806 16,803
through profit or loss
Current assets
Other receivables 10 81 55
Cash and cash equivalents 3,245 6,618
3,326 6,673
Total assets 13,132 23,476
Current liabilities
Other payables 11 249 189
249 189
Total assets less current 12,883 23,287
liabilities
Net assets 12,883 23,287
Represented by:
Capital and reserves
Share capital 12 44 44
Special reserve* 47,227 47,227
Capital redemption reserve 18 18
Capital reserve* (34,968) (25,695)
Share premium 6,494 6,494
Revenue reserve* (5,932) (4,801)
Total Shareholders' funds 14 12,883 23,287
US$ US$
NAV per Ordinary Share 14 3.57 6.46
* These reserves are distributable (by way of dividend).
The above financial information has been prepared in accordance with IFRS (as
adopted by the EU) and the accounting policies detailed below.
These Financial Statements were approved by the Board of Directors of The
Ukraine Opportunity Trust plc on 30 April 2015, and signed on its behalf by:
Robin Monro-Davies
Chairman
Company Registered Number
5537892
The notes below form an integral part of these Financial Statements.
STATEMENT OF CASH FLOWS
for the year ended 31 December 2014
Year ended Year ended
31 December 31 December
2014 2013
Note US$'000 US$'000
Cash flows from
operating activities
Net return before tax (10,399) 3,201
Adjustments to
reconcile net return
before tax to net cash
flows from operating
activities:
Add back: losses/ 9,338 (4,073)
(gains) on investments
Add back: exchange 15 10
losses
Increase in other (25) (24)
receivables
Increase in other 60 9
payables
Net cash outflow from (1,011) (877)
operating activities
Taxation
Irrecoverable overseas (5) -
tax paid
(5) -
Cash flows from
investing activities
Purchases of (2,430) (1,068)
investments
Sales of investments 87 8,534
Net cash flows (used (2,343) 7,466
in)/generated from
investing activities
Cash flows from
financing activities
Cost of Share buybacks - (152)
for cancellation
Net cash flows used in - (152)
financing activities
(Decrease)/increase in (3,359) 6,437
cash and cash
equivalents
Cash and cash 6,618 189
equivalents at the
start of the year
Effects of exchange (14) (8)
movements
Cash and cash 15 3,245 6,618
equivalents at
31 December
The notes form an integral part of these Financial Statements.
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2014
1.1 Corporate information
The Company is an investment trust company domiciled in the United Kingdom and
its Shares are traded on the London Stock Exchange.
The address of the Company's registered office is Beaufort House, 51 New North
Road, Exeter, EX4 4EP.
The Company's objective is to achieve long-term capital growth 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).
1.2 Basis of preparation
The Financial Statements have been prepared in accordance with IFRS as adopted
by the EU. These comprise standards and interpretations approved by the
International Accounting Standards Board ("IASB"), together with
interpretations of the International Accounting Standards and Standing
Interpretations Committee approved by the International Accounting Standards
Committee that remain in effect, to the extent that IFRS have been adopted by
the EU.
Where presentation guidance set out in the Statement of Recommended Practice
("SORP") for Investment Trust Companies and Venture Capital Trusts issued by
the Association of Investment Companies in January 2009 is consistent with the
requirements of IFRS, the Directors have sought to prepare the Financial
Statements on a basis compliant with the recommendations of the SORP.
Fair value measurement of financial assets
Fair value is the amount for which an asset could be exchanged, or a liability
settled, between knowledgeable, willing parties in an arm's length transaction
on the measurement date.
When available, the Company measures the fair value of an instrument using
quoted prices in an active market for that instrument. A market is regarded as
active if quoted prices are readily and regularly available from an exchange,
dealer, broker, industry group, pricing service or regulatory agency and
represent actual and regularly occurring market transactions on an arm's length
basis.
If a market for a financial instrument is not active, the Company establishes
fair value using a valuation technique. The chosen valuation technique makes
maximum use of market inputs, relies as little as possible on estimates
specific to the company, incorporates all factors that market participants
would consider in setting a price, and is consistent with accepted economic
methodologies for pricing financial instruments. Inputs to valuation techniques
reasonably represent market expectations and measures of the risk-return
factors inherent in the financial instrument. The Company calibrates valuation
techniques and tests them for validity using prices from observable current
market transactions in the same instrument or based on other available
observable market data.
Assets are measured at bid price; liabilities are measured at ask price. Fair
values reflect the credit risk of the instrument and include adjustments to
take account of the credit risk of the entity or counterparty where
appropriate. Fair value estimates obtained from models are adjusted for any
other factors, such as liquidity risk or model uncertainties, to the extent
that the Company believes a third-party market participant would take them into
account in pricing a transaction.
Investments in equity securities
The fair value of quoted equity securities and interests in pooled investment
funds is determined by reference to their closing prices at the reporting date.
Fair values for private equity investments are determined in accordance with
International Private Equity and Venture Capital ("IPEV") Valuation Guidelines.
Investments in debt securities
The fair value of fixed income securities is based on quoted market prices at
the reporting date, where the quotes are binding and reflect the price of
recent transactions in an active market. For those securities not actively
traded, 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.
Independent pricing services will normally derive the security prices through
recently reported trades for identical or similar securities, making
adjustments through to the reporting date based upon available market
observable information. Some debt securities are valued by assessing the credit
quality of the underlying borrowers and the credit spreads on comparable quoted
debt securities to derive a suitable discount rate relative to government
securities.
1.3 Accounting policies
The accounting policies which follow set out those policies which apply in
preparing the Financial Statements for the year ended 31 December 2014.
Functional and presentational currency
The Financial Statements are presented in US Dollars. All values are rounded to
the nearest thousand dollars (US$'000) except where otherwise indicated.
Use of estimates and judgements
The preparation of Financial Statements in conformity with IFRS requires
management to make judgements, estimates and assumptions that affect the
application of accounting policies and the reported amounts of assets,
liabilities, income and expenses. Actual results may differ from these
estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimates are revised and in any future periods affected.
In particular, information about significant areas of estimation uncertainty in
applying accounting policies that have the most significant effect on the
amounts recognised in the Financial Statements is included in note 8 -
Investments at fair value through profit or loss.
In order to value the private equity investments, there are a number of
valuation techniques that can be used. Judgement is used to determine the best
methodology to obtain the most accurate valuation. The types of valuation
techniques used are disclosed in note 17.
Going concern
The Financial Statements have been prepared on a going concern basis. The
Directors are confident that, given the nature of the current investment
holdings and based on advice from the Investment Manager, the net realisable
value for the portfolio as at the year end date and as at the date of this
report would not differ significantly from the bid value in current market
conditions. However, if the Company were to be wound up, there is a risk that
liquidation of the portfolio might take place at a time when liquidity is poor
and prices achievable would be lower in some cases than prevailing market
prices.
The Directors have a reasonable expectation that the Company has adequate
available financial resources to meet its obligations for at least a further 12
months and therefore to continue in operational existence for the foreseeable
future despite the current political situation in Ukraine. Accordingly, the
Directors have concluded that it is appropriate to continue to adopt the going
concern basis in preparing the Financial Statements.
1.4 Significant accounting policies
The accounting policies set out below have been applied consistently to all
periods presented in these Financial Statements.
Income recognition
Dividends receivable on quoted equity and non-equity shares are included in the
Financial Statements when the investments concerned are quoted ex-dividend or,
where no ex-dividend date is quoted, when the Company's right to receive
payment is established. The fixed return on a debt security is recognised on a
time apportionment basis so as to reflect the effective yield on the debt
security. All other income is included on an accruals basis.
Expenses and finance costs
All expenses are accounted for on an accruals basis and charged through the
revenue account in the Statement of Comprehensive Income except as follows:
- transaction costs incurred on the purchase and sale of investments are
expensed through the capital account of the Statement of Comprehensive Income;
and
- the investment management performance fee (if due), is charged in total to
the capital account of the Statement of Comprehensive Income, on the basis that
the underlying growth in net assets over the course of the life of the Company
will be predominantly of a capital nature.
Foreign currency transactions
The currency of the Primary Economic Environment in which the Company operates
(the functional currency) is US Dollars which is also the presentational
currency. This was adopted as this is the major currency in which the majority
of transactions are enacted. Transactions denominated in foreign currencies are
translated into US Dollars at the rates of exchange ruling at the date of the
transaction.
Monetary assets and liabilities are converted to US Dollars at the rates of
exchange ruling at the year end date. Exchange gains and losses relating to
capital items are treated as components of capital elements of Other
Comprehensive Income. Realised and unrealised exchange gains and losses on
non-capital items are taken to the Statement of Comprehensive Income in the
period in which they arise.
Financial instruments - Group of financial assets or financial liabilities
managed on a fair value basis
Designation of financial instruments as at FVTPL (fair value through profit or
loss) under this criterion is based on the manner in which the Company manages
and evaluates the performance of a group of financial assets or financial
liabilities rather than the nature of those financial instruments.
Designations as at FVTPL made on this basis shall be made at initial
recognition and shall be in accordance with the risk management policies and
investment objective.
Items that are not deemed financial assets or financial liabilities (accruals
and prepayments) are shown at their face value.
Investments at fair value through profit or loss
All investments are initially recognised at fair value which is equal to the
cost of the consideration given.
Investments are designated as being at FVTPL in accordance with IAS 39. For
investments actively traded in organised financial markets, fair value is
generally determined by reference to quoted market bid prices.
Investments where there is no active market and unquoted investments are valued
at fair value determined in accordance with IPEV Valuation Guidelines. This
valuation incorporates all factors that market participants would consider in
setting a price.
The net movement arising from changes in fair value is included in the capital
account in the Statement of Comprehensive Income. The net movement arising from
changes in fair value of investments that can be readily converted to cash is
treated as realised gains/losses and that which cannot be readily converted to
cash is treated as unrealised gains/losses. Investments written off result in a
transfer from unrealised losses to realised losses.
Under IFRS 10, as an Investment Trust Company UKRO is exempt from equity
accounting and consolidation. Where UKRO have ownership above 20 per cent of an
investment, the investment is accounted for at fair value.
The use of fair value prices in UKRO's portfolio is in compliance with IFRS 13.
Trade date accounting
All regular way purchases and sales of financial assets are recognised on the
'trade date', i.e. the date the Company commits to purchase or sell the asset.
Regular way purchases or sales of financial assets are those that require
delivery of the asset within a timeframe generally established by regulation or
convention in the market place.
Other purchases and sales of financial assets are recognised at the date of
commitment.
Other receivables
Fixed returns on debt securities are recognised on a time apportionment basis
so as to reflect the effective yield on the debt security.
Other receivables are non-interest bearing and are short term in nature and are
accordingly stated at fair value, with the exception of payments and accrued
income.
Cash and cash equivalents
Cash and cash equivalents are defined as cash in hand, demand deposits and
short-term highly liquid investments readily convertible to known amounts of
cash and subject to insignificant risk of changes in value.
Other payables
Other payables are non-interest bearing and are stated at fair value, with the
exception of accruals.
Taxation
The charge for taxation is based on the net revenue for the period. Tax
deferred or accelerated is accounted for in respect of all material temporary
differences to the extent that it is probable that a liability or asset will
crystallise. Temporary differences arise from the inclusion of items of income
and expenditure in tax computations in periods different from those in which
they are included in the Financial Statements. Provision is made at the rate
which is expected to be applied when the liability or asset is expected to
crystallise.
Deferred tax arising from unrelieved foreign tax is recognised only if it is
considered more likely than not that there will be suitable profits from which
the future reversal of the underlying temporary differences can be deducted.
The tax effect of different items of income/gain and expenditure/loss is
allocated between capital and revenue on the same basis as the particular item
to which it relates, using the Company's effective rate of tax for the
accounting period.
Reserves
The following are non-statutory reserves, with the exception of the share
premium and capital redemption reserve which are statutory reserves.
Capital reserve
The following are accounted for in this reserve:
- gains and losses on the realisation of investments;
- net movement arising from changes in fair value of investments that can be
readily converted to cash;
- realised exchange differences of a capital nature;
- expenses, together with related taxation effect, charged to this account in
accordance with the above policies;
- movement on fair value of Warrants. Such movements are then transferred to
the special reserve; and
- net movement arising from changes in fair value of investments (excluding
those that can be readily converted to cash) held at the year end.
Share premium
The share premium account may be applied by the Company in paying up unissued
Shares to be allotted to Shareholders as fully paid bonus Shares or in writing
off the expenses of, or commission paid on any issue of Shares.
Special reserve
The special reserve was created by a reduction in the share premium reserve by
order of the High Court on 7 December 2005. It can be used for the repurchase
of the Company's Ordinary Shares.
Capital redemption reserve
The capital redemption reserve was created with the amount that the share
capital had been reduced, equivalent to the nominal value of the Shares
repurchased for cancellation.
Revenue reserve
The revenue reserve represents the excess or deficit of revenue income less
expenses. The reserve can be utilised in the distribution of dividends and the
purchase of the Company's own Shares.
New standards and interpretations not applied
IASB and IFRIC have issued and endorsed the following standards and
interpretations, applicable to the Company, which are not yet effective for the
year ended 31 December 2014 and have therefore not been applied in preparing
these Financial Statements.
New/Revised International Financial Issued Effective date
Reporting Standards forannual
periods beginning
on or after
IFRS 7 Financial Instruments: December 2011 1 January 2015
Disclosures (or otherwise
- Amendments requiring when IFRS 9 is
disclosures about the initial first applied)
application of IFRS 9
IFRS 9 Financial Instruments Original 1 January 2018
- Classification and issue (mandatory
measurement of financial November 2009 application date
assets amended July
2014)
IFRS 9 Financial Instruments Original 1 January 2018
- Accounting for financial issue (mandatory
liabilities and derecognition application date
October 2010 amended July
2014)
The Directors do not anticipate that the initial adoption of the above
standards, amendments and interpretations will have a material impact in future
periods.
The Company will only adopt standards at the beginning of its financial year,
therefore any standards or interpretations with an effective date after
1 January 2014 will not have been adopted.
1.5 Segmental reporting
A segment is a distinguishable component of the Company that is engaged in
business activities from which it may earn revenues and incur expenses for
which discrete financial information is available and whose operating results
are regularly renewed and reviewed by the Company's decision makers.
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).
Information regarding the Company's reportable operating segments is presented
below.
31 December 2014 Listed equity/ Private equity/
fixed income fixed income
Total securities securities Unallocated
US$'000 US$'000 US$'000 US$'000
Segment income and
expenses
Investment income 115 19 96 -
Total losses on (9,338) (754) (8,584) -
investments taken
to profit or loss
Other losses (15) - - (15)
Expenses (1,161) - - (1,161)
Total net return (10,399) (735) (8,488) (1,176)
before tax as per
Statement of
Comprehensive
Income
31 December 2013
Listed equity/ Private equity/
fixed income fixed income
Total securities securities Unallocated
US$'000 US$'000 US$'000 US$'000
Segment income and
expenses
Investment income 60 3 57 -
Total gains/ 4,073 (156) 4,229 -
(losses) on
investments taken
to profit or loss
Other losses (10) - - (10)
Expenses (922) - - (922)
Total net return 3,201 (153) 4,286 (932)
before tax as per
Statement of
Comprehensive
Income
31 December 2014
Listed equity/ Private equity/
fixed income fixed income
Total securities securities Unallocated
US$'000 US$'000 US$'000 US$'000
Segment assets
Investments at fair 9,806 1,286 8,520 -
value through
profit or loss
Receivables 81 - - 81
Cash and cash 3,245 - - 3,245
equivalents
Total assets as per 13,132 1,286 8,520 3,326
Statement of
Financial Position
Segment liabilities
Payables (249) - - (249)
Total liabilities (249) - - (249)
as per Statement of
Financial Position
Net assets 12,883 1,286 8,520 3,077
31 December 2013
Listed equity/ Private equity/
fixed income fixed income
Total securities securities Unallocated
US$'000 US$'000 US$'000 US$'000
Segment assets
Investments at fair 16,803 1,819 14,984 -
value through
profit or loss
Receivables 55 - 13 42
Cash and cash 6,618 - - 6,618
equivalents
Total assets as per 23,476 1,819 14,997 6,660
Statement of
Financial Position
Segment liabilities
Payables (189) - - (189)
Total liabilities (189) - - (189)
as per Statement of
Financial Position
Net assets 23,287 1,819 14,997 6,471
All assets are allocated to reportable segments other than cash and prepayments
as these are not directly attributable to either segment. All liabilities are
unallocated to reportable segments as these are not directly attributable to
either segment.
The accounting policies of each reported segment are the same as those for the
Company as described in note 1. Segmental net return represents the net return
earned by each segment without allocation of expenses as they are deemed to be
expensed regardless of decisions made in accordance with each investment
segment and are incurred during the normal course of the day-to-day running of
the Company.
2. Income
Year Year
ended ended
31 December 31 December
2014 2013
US$'000 US$'000
Investment income
Income from fixed income 16 57
securities
Overseas dividends 19 3
Capital distribution 80 -
115 60
Total income comprises
Dividends 99 3
Interest 16 57
115 60
3. Investment management fee
Year ended Year ended
31 December 2014 31 December 2013
Revenue Capital Total Revenue Capital Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Basic fee 414 - 414 415 - 415
414 - 414 415 - 415
The basic investment management fee is calculated at the annual rate of 2 per
cent of the NAV attributable to Shareholders of the Company on the last
business day of each calendar month. The basic management fee accrues daily and
is payable in arrears in respect of each calendar month.
The Investment Manager is also entitled to a performance fee of 20 per cent of
the increase in the NAV of the Company (before deduction of accruals in respect
of performance fees, in respect of such performance period) net of any issues
and repurchases of Shares made by the Company and after adding back any
dividends paid by the Company over the course of a performance period.
The first performance period began on the admission to listing and ended on 31
December 2005 (there was no fee earned for this period). Each subsequent
performance period is a period of one year ending on 31 December in each year.
The performance fee is 20 per cent of the increase in the NAV of the Company
(adjusted as above) since the performance period in respect of which a
performance fee was last earned.
No performance fee was payable for either the year ended 31 December 2014 or
31 December 2013.
4. Other expenses
Year ended Year ended
31 December 31 December
2014 2013
US$'000 US$'000
Secretarial services 113 105
Auditor's remuneration:
- audit 94 64
- taxation services 8 7
Directors' remuneration 134 150
Legal and professional fees 190* 27
Other expenses 208 154
747 507
* Includes additional fees in relation to ongoing discussions around the future
strategy and direction of the Company, and the close company review.
The Auditor's remuneration comprises audit fees of US$92,000 (2013: US$58,000),
expenses of US$2,000 (2013: US$6,000) and fees for taxation services of
US$8,000 (2013: US$7,000).
5. Tax
Year ended Year ended
31 December 2014 31 December 2013
Revenue Capital Total Revenue Capital Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Overseas tax 5 - 5 - - -
suffered
5 - 5 - - -
The current taxation charge for the year is higher than the standard rate of
corporation tax in the UK of 23 per cent to 31 March 2014 and 21 per cent from
1 April 2014 (2013: 24 per cent to March 2013 and 23 per cent from 1 April
2013). The differences are explained below:
Year ended Year ended
31 December 2014 31 December 2013
Revenue Capital Total Revenue Capital Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Net return before (1,126) (9,273) (10,399) (862) 4,063 3,201
taxation
Theoretical tax at (242) (1,994) (2,236) (200) 945 745
an average rate of
UK corporation tax
of 21.5 per cent
(2013: 23.25 per
cent)
Effects of:
- Losses/(gains) - 2,011 2,011 - (945) (945)
on investments and
exchange losses on
capital items
- Unrelieved 210 - 210 200 - 200
expenses
- Non-taxable (3) - (3) - - -
overseas dividends
- Capital dividend - (17) (17) - - -
- Disallowed 35 - 35 - - -
expenses
- Irrecoverable 5 - 5 - - -
overseas tax
Actual current tax 5 - 5 - - -
charge
Factors that may affect future tax charges
The Company has met the conditions for approval as an investment trust company
for the year ended 31 December 2014 and therefore no deferred tax has been
provided on capital gains and losses arising on the revaluation or disposal of
investments.
The Company has unrelieved losses of US$8,230,000 (2013: US$7,336,000). It is
unlikely that the Company will generate sufficient taxable profits in the
future to utilise these losses and therefore no deferred tax asset has been
recognised.
6. Return per Ordinary Share
Year ended Year ended
31 December 2014 31 December 2013
Weighted Weighted
average average
number of number of
Net Ordinary Ordinary Net Ordinary Ordinary
return Shares Share return Shares Share
US$'000 '000 US$ US$'000 '000 US$
Basic and diluted
Total return per (10,404) 3,604 (2.8868) 3,201 3,649 0.8772
Ordinary Share
Revenue return (1,131) 3,604 (0.3138) (862) 3,649 (0.2362)
per Ordinary
Share
Capital return (9,273) 3,604 (2.5730) 4,063 3,649 1.1134
per Ordinary
Share
The return per Ordinary Share is calculated based on the return for the year of
negative US$10,404,000 (2013: positive US$3,201,000) and on 3,604,000 (2013:
3,649,000) Ordinary Shares, being the weighted average number of Ordinary
Shares in issue for the year.
7. Dividend
The Company does not propose the payment of a dividend in respect of the year
ended 31 December 2014 (2013: nil).
8. Investments at fair value through profit or loss
Year ended Year ended
31 December 31 December
2014 2013
US$'000 US$'000
Investment portfolio summary
Listed equity investments at fair 1,286 1,819
value
Private equity investments at fair 8,279 14,519
value
Fixed income securities 241 465
9,806 16,803
2014 2013
2014 2014 Total Total
Listed Private portfolio portfolio
US$'000 US$'000 US$'000 US$'000
Analysis of
investment
portfolio movements
Opening book cost 3,158 15,822 18,980 44,389
Opening investment (1,339) (838) (2,177) (24,191)
holding losses
Opening valuation 1,819 14,984 16,803 20,198
Movements in the
year:
Purchases at cost 291 5,762 6,053 1,068
Sales - proceeds (70) (3,642) (3,712) (8,536)
Sales - realised (44) (2,953) (2,997) (17,941)
losses on sales
Movement in fair (710) (5,631) (6,341) 22,014
value
Closing valuation 1,286 8,520 9,806 16,803
Closing book cost 3,335 14,989 18,324 18,980
Closing investment (2,049) (6,469) (8,518) (2,177)
holding losses
Closing valuation 1,286 8,520 9,806 16,803
Year ended Year ended
31 December 31 December
2014 2013
US$'000 US$'000
Analysis of capital (losses)/gains
Realised (losses)/gains on sales (2,997) 4,730
Realised losses on investments - (22,671)
written off portfolio
Movement in fair value of fixed (224) 317
income securities
Movement in fair value of other (6,117) (974)
investments
Movement in fair value of - 22,671
investments written off portfolio
(Losses)/gains on investments (9,338) 4,073
A list of the portfolio holdings by their aggregate market value is given in
the Portfolio Valuation above.
Transaction costs incidental to the acquisition of investments totalled
US$1,000 (2013: US$3,000) and to the disposal of investments totalled US$nil
(2013: US$1,000) for the year.
Material changes in the value of unlisted investments in the year:
• Korsando has been restructured into its components of Office Buildings and
Land and are shown as Elcinory and UKRO Land Invest. The combined value of
these at 31 December 2014 was US$1,668,000, a decrease from the value in
Korsando of $3,665,000 at 31 December 2013.
• The value of Food Master (Anthoreal Estates) decreased at 31 December 2014 to
US$5,522,000. The carrying value at 31 December 2013 was US$8,857,000.
• Vitalux's (Chalsen Trade) value decreased at 31 December 2014 to US$633,000.
The carrying value at 31 December 2013 was US$1,597,000.
• The movements in the fair values above reflect in the main the effect of the
devaluation in the local currency, the Hryvnia, prompted by 2014's political
crisis and the ongoing economic uncertainty created by Russia's intervention in
the East of Ukraine and Crimea.
The table below shows the detail of the private equity investments with a value
greater than 3 per cent in the portfolio:
As at 31 December 2014
Net assets/
equity due to
Proportion Turnover Net profit/ shareholders
of capital Date of at date of (loss)at at date of Net income
Fair value at owned at last last date of last last recognised
31 December 31 December financial financial financial financial by the
2014 2014 statements statements statements statements Company
US$'000 % US$'000 US$'000 US$'000 US$'000
Food Master 5,522 19.0 2013 53,060 9,920 39,503 -
(Anthoreal
Estates)
Vitalux (Chalsen 633 17.1 2013 20,659 299 3,083 -
Trade)
Ekipazh" 456 20.7 2013 1,953 (190) N/A -
Elcinory 668 17.1 N/A N/A N/A -
UKRO Land Invest*" 1,000 99.0 N/A N/A N/A -
" Although meeting the definition of an associate or a subsidiary, these
investments are carried at fair value, in line with the requirements of IFRS 10
and the company's accounting policy.
* Created in 2014, UKRO Land Invest, as a holding company for UKRO's land
holdings, does not report a meaningful turnover or net income.
As at 31 December 2013
Net assets/
equity due to
Proportion Turnover Net profit shareholders
of capital Date of at date of at date of at date of Net income
Fair value at owned at last audited last audited last audited last audited recognised
31 December 31 December financial financial financial financial by the
2013 2013 statements statements statements statements Company
US$'000 % US$'000 US$'000 US$'000 US$'000
Food Master 8,857 17.1 2012 41,092 7,740 29,583 -
(Anthoreal Estates)
Vitalux (Chalsen 1,597 19.3 2012 21,251 2 2,853 -
Trade)
Korsando 3,665 19.2 2012 1,283 (28) 33,794 -
9. Significant interests
The Company had equity holdings of 3 per cent or more that are material in the
context of the Financial Statements in the following companies' securities:
Name of Equity 31 December 2014
investment holding % held
Ekipazh 539 shares 20.7
Food Master (Anthoreal Estates) 7,256 shares 19.0
Vitalux (Chalsen Trade) 5,563 shares 17.1
Elcinory 1,284 shares 17.1
UKRO Land Invest 100 shares 99.0
10. Other receivables
31 December 31 December
2014 2013
US$'000 US$'000
Accrued income - 13
Prepayments 41 21
VAT recoverable 40 21
81 55
11. Other payables
31 December 31 December
2014 2013
US$'000 US$'000
Audit fee 78 66
Investment management fee 22 40
Accruals 149 83
Other payables due within one year 249 189
12. Called up share capital
31 December 31 December
2014 2013
US$'000 US$'000
Allotted, called up and fully paid:
4,404,381 (2013: 4,404,381) Ordinary Shares of 44 44
US$0.01 each
The number of Ordinary Shares in issue at 31 December 2014 is 4,404,381, of
which 800,000 are held in Treasury and 3,604,381 are in circulation.
Ordinary Shares in circulation can carry one vote each on a poll.
13. Own Shares held in Treasury
There were no changes to the number of Shares held in Treasury during the year.
The Board had originally agreed the purchase of the Shares for capital
management reasons with a view to reducing the discount of the Company's NAV.
Year ended Year ended
31 December 31 December
2014 2013
Number Number
of Shares of Shares
Opening balance 800,000 900,000
Additions during the year - 50,000
Cancelled during the year - (150,000)
Closing balance at 31 December 800,000 800,000
Nominal value of own Shares held in Treasury US$8,000 US$8,000
Per cent of issued share capital held in 18.16% 18.16%
Treasury
14. Issued capital and reserves attributable to Ordinary Shares
The basic NAV per Ordinary Share is:
31 December 31 December
2014 2013
US$ US$
Basic NAV 3.57 6.46
The NAV per Ordinary Share is calculated on the net assets attributable to
Ordinary Shareholders of US$12,883,000 (2013: US$23,287,000) and on 3,604,381
(2013: 3,604,381) Ordinary Shares, being the number of Ordinary Shares in issue
at 31 December 2014 excluding 800,000 (2013: 800,000) Ordinary Shares held in
Treasury.
15. Reconciliation of net cash flow to net funds
Year ended Year ended
31 December 31 December
2014 2013
US$'000 US$'000
Opening net funds 6,618 189
(Decrease)/increase in cash and cash equivalents in (3,359) 6,437
year
3,259 6,626
Effects of exchange movements (14) (8)
Closing net funds 3,245 6,618
16. Capital commitments and contingent liabilities
As at 31 December 2014, there were no contingent liabilities or capital
commitments.
17. Analysis of financial assets and liabilities
The Company's financial instruments comprise its investment portfolio, cash
balances and debtors and creditors that arise from its operations, for example,
in respect of sales and purchases awaiting settlement and debtors for accrued
income.
The Company finances its operations through its issued capital and existing
reserves.
The principal risks 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.
The policies for managing these risks are summarised below and have been
applied throughout the year:
Policy
(i)Credit risk
Credit risk is the risk of financial loss to the Company if the contractual
party to a financial instrument fails to meet its contractual obligations, and
arises principally from the Company's fixed income securities.
Where the Company makes an investment in a loan or other security with credit
risk, that risk is assessed and considered as part of the investment decision
making process by the Investment Manager.
The Company seeks to manage credit risk by undertaking transactions with
reputable counterparties and also ensuring that transactions are settled upon
delivery. The receipt of fixed income interest is also closely monitored.
The Board reviews the value of its fixed income security on a regular basis
using reports provided by the Investment Manager. In addition, short-term
flexibility can be achieved via the option to borrow up to 30 per cent of the
Company's net assets.
The carrying amount of the fixed income security, cash and other debtors
(excluding prepayments and VAT recoverable) represents the maximum credit
exposure. Therefore, the maximum exposure to credit risk at the year-end date
was US$3,486,000 (2013: US$7,096,000), which comprises US$241,000 (2013:
US$465,000) being the total of the carrying amount of the fixed income
security, plus US$3,245,000 (2013: US$6,618,000) being the carrying amount of
cash. There were trade debtors amounting to US$nil (2013: US$13,000).
None of the debtors due to the Company are considered to be past due or
impaired (2013: nil).
(ii) Market price risk
In line with the investment policy, in order to limit exposure, the Company
would not normally invest more than 15 per cent of the portfolio in any one
company at the time of purchase.
Details of the Company's investment portfolio as at 31 December 2014 are
disclosed in the Portfolio Valuation, detailed above.
The Company's investment portfolio is exposed to market price fluctuations
which are monitored by the Investment Manager. Detailed valuation reports from
the Investment Manager are regularly sent to the Board.
Private equity investments are not immediately sensitive to market moves.
However, over the medium/long term, the valuation techniques applied to certain
private equity investments will be affected by significant changes in the
listed equity markets.
Fixed income securities are mostly exposed to general changes in interest
rates: when interest rates go up, bond prices go down and vice versa.
Listed equity positions in Ukraine may be exposed to general market moves
(refer to liquidity risk).
A significant proportion of the Company's portfolio is invested in overseas
securities and movements in foreign currencies can affect their value (refer to
foreign currency risk).
The Directors are conscious of the fact that the nature of investments are such
that prices can be volatile. Investors should be aware that the Company is
exposed to a higher rate of risk than exists within a fund which holds
traditional blue-chip securities.
Private equity investments in the portfolio have been valued following the IPEV
Valuation Guidelines. Methods applied include cost of additional investments,
net assets, market value of underlying assets, sales multiples, and earnings
multiples. The Investment Manager pays due consideration to the liquidity of
the holding when assessing the fair value of the security. An indication of how
each investment may be affected by a 10 per cent movement in valuation is
illustrated in the table below. In the case of quoted investments, the price is
sourced from the stock exchange in which it is traded.
Private equity investment
Sensitivity analysis
Resultant Resultant
valuation valuation
after 10% after 10%
2014 fair increase in decrease in 2013 fair
value 2014 valuation 2014 valuation value
US$'000 US$'000 US$'000 US$'000
Food Master (Anthoreal 5,522 6,074 4,970 8,857
Estates)
Vitalux (Chalsen Trade) 633 696 570 1,597
Ekipazh 456 502 410 400
Elcinory* 668 735 601 -
UKRO Land Invest* 1,000 1,100 900 -
Korsando* - - - 3,665
Private equity valuation 8,279 9,107 7,451 14,519
* Korsando has been restructured into its components of Office Buildings and
Land and are shown above as Elcinory and UKRO Land Invest respectively.
The valuation techniques applied are based on the following assumptions:
For Vitalux (Chalsen Trade) and Food Master (Anthoreal Estates), the valuations
are based on comparable multiples (deemed an appropriate assumption in relation
to the economic environment that the companies operate in) plus the application
of a 60 per cent discount to comparable multiples for Vitalux and a 46.6 per
cent discount to comparable multiples for Food Master. Where the 46.6 per cent
number reflects the forecast 2015 sales breakdown of Food Master, employing a
60 per cent discount for Ukraine sales, a 30 per cent discount for Russia sales
and a 20 per cent discount for UK sales. The use of a 60 per cent discount to
peer multiples for Ukraine reflects the Company's judgement as to the
relatively subdued nature of the M&A market in Ukraine at present and the
difficulty in applying international multiples to Ukraine-based assets.
For Elcinory and UKRO Land Invest, the valuation is based upon year-end 2014
reports provided by an independent property valuation expert. These valuations
amount to just over US$1.30/m2 for the land holdings and US$3.9 m for the
office buildings, the latter of which is only 17.1 per cent owned by UKRO.
For Ekipazh, the valuation applied is the cost that Ekipazh shares were
acquired for in November 2014.
Adherence to the investment objective and the limits on investment set by the
Company mitigates the risk of excessive exposure to any one particular type of
security or issuer.
If the investment portfolio valuation fell by 10 per cent from the 31 December
2014 valuation, with all other variables held constant, there would have been a
reduction of US$981,000 (2013: US$1,680,000) in the return before taxation. An
increase of 10 per cent in the investment portfolio valuation would have had an
equal and opposite effect in the return before taxation.
(iii) Interest rate risk
The Company holds a fixed income security (intended to provide liquidity) and
is therefore subject to interest rate risk.
The Board sets an overall investment strategy and also has limits within the
investment portfolio which aim to spread the portfolio investments and to
reduce the impact of interest rate risk on the valuations.
The Company's fixed income security is held over a medium to long term period
and pays a fixed rate of interest which does not fluctuate with the market.
The Company has the option to borrow funds and hedge currency, but currently
chooses not to, therefore limiting exposure to interest rate risk.
Details of the Company's interest rate exposure as at 31 December 2014 is
disclosed below.
There is currently no income accrued on the fixed income security.
(iv) Liquidity risk
The Company invests in securities that are not listed or admitted to trading
upon any recognised stock exchange and as a consequence such securities may not
be readily tradeable. Private equity investments are expected to have an
average holding period of approximately five to seven years. Listed equities in
Ukraine are often not liquid and the free float may be placed in the hands of
very few investors.
At 31 December 2014, the Company held approximately 2 per cent (2013: 3 per
cent) of its investments in a fixed income security, intended to provide
liquidity on short notice for purchasing equities or to be converted into
Shares.
The Company's policy is to continue to hold fixed income securities to maintain
this flexibility.
The Company also assesses the creditworthiness of its receivables regularly to
ensure they are neither past due nor impaired.
The Company maintains appropriate levels of cash in order to finance its
operations.
Liquidity risk is mitigated by the fact that as a closed end fund, assets will
not need to be liquidated to meet redemptions.
(v) Political risk
The Ukrainian political situation is under constant observation by both the
Investment Manager and the Board. It is commented upon in the Strategic Report,
including the Chairman's Statement and the Investment Manager's Report above.
There are political risks in respect of the Company's investments which are
greater than those which exist in countries which have a longer established
political system.
(vi) Foreign currency risk
The Company invests primarily in US Dollars (USD), Ukrainian Hryvania (UAH),
Sterling (GBP) and Polish Zloty (PLN) equities and fixed income securities and
is therefore subject to foreign currency risk.
The functional and presentational currency of the Company is USD and,
therefore, the principal exposure to foreign currency risk comprises
investments priced in other currencies, principally the GBP, UAH and PLN. The
Investment Manager monitors the exposure to foreign currencies on a daily basis
and reports to the Board on a regular basis. The Investment Manager measures
the risk of the foreign currency exposure by considering the effect on the NAV
and income of a movement in the rates of exchange to which the Company's
assets, liabilities, income and expenses are exposed.
The Company does not use financial instruments to mitigate the currency
exposure in the period between the time that income is included in the
Financial Statements and is converted into USD. The Company may hold cash
balances in USD, UAH and GBP. Shareholders investing in the Company's Ordinary
Shares are exposed to currency fluctuations between these currencies.
The interest rate and currency cash flow profile of the Company's financial
assets and liabilities at 31 December 2014 was:
Financial assets
Floating Fixed
No interest interest interest
rate risk rate risk rate risk Maturity Maturity Maturity Maturity
financial financial financial within 2-3 3-5 5+
Total assets assets assets one year years years years
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
USD
Cash 3,201 - 3,201 -
UAH
Equities 9,099 9,099 - -
Fixed 241 - - 241 - - 241 -
income
securities*
9,340 9,099 - 241
GBP
Equities 207 207 - -
Cash 44 - 44 -
251 207 44 -
PLN
Equities 259 259 - -
Interest
rate
sensitivity 13,051 9,565 3,245 241
gap
* The contractual maturity date of the fixed income securities is shown in the
Portfolio Valuation above.
Of all the financial assets, only the fixed income security has a contractual
maturity date.
The investments are generally traded in US Dollars, but, since the removal of
the peg between UAH and the US Dollar, the Board now considers that the value
of those investments is more closely related to UAH than to the US Dollar.
The interest rate and currency cash flow profile of the Company's financial
assets and liabilities at 31 December 2013 was:
Financial
assets
Floating Fixed
No interest interest interest
rate risk rate risk rate risk Maturity Maturity Maturity Maturity
financial financial financial within 2-3 3-5 5+
Total assets assets assets one year years years years
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
USD
Equities 14,519 14,519 - -
Fixed 465 - - 465 - - 465 -
income
securities*
Cash 6,570 - 6,570 -
21,554 14,519 6,570 465
UAH
Equities 1,058 1,058 - -
GBP
Equities 382 382 - -
Cash 48 - 48 -
430 382 48 -
PLN
Equities 379 379 - -
Interest
rate
sensitivity 23,421 16,338 6,618 465
gap
* The contractual maturity date of the fixed income security is shown in the
Portfolio Valuation above.
Of all the financial assets, only the fixed income security has a contractual
maturity date.
Fair values of financial assets and financial liabilities
All of the financial assets and liabilities of the Company are held at fair
value. For investments actively traded in organised financial markets, fair
value is generally determined by reference to quoted market bid prices.
Fair value hierarchy disclosures
In accordance with IFRS 7, the Company is required 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 consists of
the following three levels:
- Level 1 - Quoted prices (unadjusted) in active markets for identical assets
or liabilities.
An active market is a market in which transactions for the asset or liability
occur with sufficient frequency and volume on an ongoing basis such that quoted
prices reflect prices at which an orderly transaction would take place between
market participants at the measurement date. Quoted prices provided by external
pricing services, brokers and vendors are included in level 1 if they reflect
actual and regularly occurring market transactions on an arm's length basis.
- Level 2 - 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 inputs include the following:
* Quoted prices for similar (i.e. not identical) assets in active markets.
* Quoted prices for identical or similar assets or liabilities in markets
that are not active. Characteristics of an inactive market include a
significant decline in the volume and level of trading activity, the
available prices vary significantly over time or among market participants
or the prices are not current.
* Inputs other than quoted prices that are observable for the asset (for
example, interest rates and yield curves observable at commonly quoted
intervals).
* Inputs that are derived principally from, or corroborated by, observable
market data by correlation or other means (market-corroborated inputs).
- Level 3 - Inputs for the asset or liability that are not based on observable
market data (unobservable inputs).
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, that 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.
The determination of what constitutes 'observable' requires significant
judgement by the Company. The Company considers observable data to investments
actively traded in organised financial markets. Fair value is generally
determined by reference to stock exchange quoted market bid prices at the close
of business at the year end date, without adjustment for transaction costs
necessary to realise the asset.
The table below sets out fair value measurements of financial assets and
liabilities in accordance with the IFRS fair value hierarchy system:
Financial assets at fair value
through profit or loss at Total Level 1 Level 2 Level 3
31 December 2014 US$'000 US$'000 US$'000 US$'000
Equity investments 9,565 654 632 8,279
Fixed income securities 241 - - 241
Total 9,806 654 632 8,520
Financial assets at fair value
through profit or loss at Total Level 1 Level 2 Level 3
31 December 2013 US$'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 are no other financial assets or liabilities other than those disclosed
above. Receivables consist purely of accrued income and prepayments and
payables consist purely of accruals and are not restated at fair value. Cash is
also not restated at fair value. Investments whose values are based on quoted
market prices in active markets, and therefore classified within level 1,
include active listed equities. The Company does not adjust the quoted price
for these instruments.
Financial instruments that trade in markets that are not considered to be
active but are valued based on quoted market prices, dealer quotations or
alternative pricing sources supported by observable inputs are classified
within level 2. As level 2 investments include positions that are not traded in
active markets and/or are subject to transfer restrictions, valuations may be
adjusted to reflect illiquidity and/or non-transferability, which are generally
based on available market information.
Investments classified within level 3 have significant unobservable inputs.
Level 3 instruments include private equity and corporate debt 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 IPEV Valuation
Guidelines. New investments are initially carried at cost, for a limited
period, being the price of the most recent investment in the company. This is
in accordance with IPEV 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.
There were no transfers between levels for the year ended 31 December 2014 for
the financial assets.
The following table presents the movement in level 3 instruments for the year
ended 31 December 2014:
Fair value Equity Fixed income
total investments investments
US$'000 US$'000 US$'000
Opening fair value 14,984 14,519 465
Purchases 5,762 5,762 -
Sales - proceeds (3,642) (3,642) -
Total losses for the year included in the (8,584) (8,360) (224)
Statement of Comprehensive Income
Closing fair value 8,520 8,279 241
The following table presents the movement in level 3 instruments for the year
ended 31 December 2013:
Fair value Equity Fixed income
total investments investments
US$'000 US$'000 US$'000
Opening fair value 18,012 17,864 148
Purchases 400 400 -
Sales - proceeds (7,657) (7,657) -
Total gains for the year included in the 4,229 3,912 317
Statement of Comprehensive Income
Closing fair value 14,984 14,519 465
Although the Company believes that its estimates of fair values are
appropriate, the use of different methodologies or assumptions could lead to
different measurements of fair values. The table below shows how certain
different assumptions would have affected the valuation of the level 3
investments as at 31 December 2014:
2014 Using Net Alternate Resulting
Fair value Cost multiples assets yield variance
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Food Master 5,522 5,663 - - - 141
(Anthoreal Estates)
Vitalux (Chalsen 633 2,118 - - - 1,485
Trade)
Ekipazh 456 - 2,193" - - 1,737
Elcinory 668 - - 1,372" - 704
UKRO Land Invest 1,000 - 500* - - (500)
Bank Nadra 2.5% 241 - - - -# (241)
10 April 2018
8,520 7,781 2,693 1,372 - 3,326
" Using peer sales multiple and 60 per cent discount.
" Using year end net assets.
* Using CBRE valuation and 50 per cent discount.
# Zero, assuming liquidation rather than a restructuring as expected.
Capital management policies
The Company's capital management objectives are to ensure that it will be able
to continue as a going concern and to maximise the income and capital return to
its equity Shareholders through an appropriate balance of equity capital and
"debt".
The Board with the assistance of the Investment Manager monitors and reviews
the broad structure of the Company's capital on an ongoing basis. This review
includes:
- the Investment Manager's view of the market;
- a review of the Shareholders' funds, which takes account of the difference
between the NAV per share and the share price (i.e. the level of share price
discount or premium);
- the need for any potential new issues of equity shares; and
- the extent to which revenue in excess of that which is required to be
distributed should be retained.
The Company's objectives, policies and processes for managing capital are
detailed in the full Annual Report, and are unchanged from the prior period.
18. Related party transactions
FPP Asset Management LLP, the Investment Manager, is a related party. Shares
held by funds managed by FPP Asset Management LLP can be seen in the full
Annual Report.
The total investment management charge payable to FPP Asset Management LLP in
the Statement of Comprehensive Income for the year was US$414,000 (2013:
US$415,000), of which US$22,000 (2013: US$40,000) was outstanding at
31 December 2014. No investment management performance fee was due to FPP Asset
Management LLP for the year ended 31 December 2014 (2013: nil) (see notes 3 and
11).
There are no transactions or payments to the Directors other than the
remuneration of US$134,000 as detailed in the Directors' Remuneration Report in
the full Annual Report.
19. Post balance sheet event
The fair values of investments were calculated as at the balance sheet date,
and reflect the political and economic circumstances at that time. Those
values will be affected by events since the balance sheet date. At the time of
writing, the political situation in Ukraine has stabilised since the year end.
However, there remains significant continuing economic uncertainty, which could
affect the valuation of our investments in ways that are difficult to predict
and quantify.
Public sources (Bloomberg) quoted the Ukraine Hryvnia at 15.82 UAH per US
Dollar as of 31 December 2014. This represented a fall of 7.58 UAH in 2014 from
31 December 2013 closing exchange rate of 8.24 UAH per US Dollar, a nominal
devaluation of some 47.9 per cent for 2014. On 26 February 2015, the UAH/US
Dollar rate reached 33.75, a further fall of some 53.1 per cent. As at the time
of writing, the rate has since strengthened back to 22.5 UAH per US Dollar.
This fall of 6.68 UAH from 31 December 2014 represents a still large 29.7 per
cent devaluation for 2015 year-to-date vs the US Dollar. These movements show
how volatile the exchange rate in Ukraine remains. This volatility reflects the
disruption of trade with Russia, the low level of reserves at the National Bank
and the economic cost of higher interest rates. It should be noted that the
substantial devaluations of both 2014 and 2015-to-date have significantly
lowered the US Dollar purchasing power of the Ukraine consumer. The lower
exchange rate has also raised the cost of imports, leading to considerable
inflation in many sectors, despite a large nominal fall in the US Dollar cost
of oil and oil-linked energy purchases since mid-2014. As such, Ukraine's
inflation rate has risen from effectively zero in 2013 to 24.9 per cent as at
31 December 2014, and some 45.8 per cent as at March 2015. The profitability of
our private equity investments depends in large measure on their ability to
pass through any local inflation in their costs to the end consumer. In such a
high inflation environment it may be difficult for them to do this without some
concomitant loss of sales or market share and, as a result, overall margins and
sales growth may suffer, particularly if the trend of currency depreciation
persists.
ANNUAL GENERAL MEETING
The Company's Annual General Meeting will be held at the offices of FPP Asset
Management LLP, 34 Brook Street, London W1K 5DN on Thursday, 18 June 2015 at
2.30 pm.
The Notice of this Meeting can be found in the full Annual Report via the
Company's website at www.ukrotrust.co.uk or by contacting the Company Secretary
on 01392 412122.
NATIONAL STORAGE MECHANISM
A copy of the Annual Report and Financial Statements will be submitted shortly
to the National Storage Mechanism ("NSM") and will be available for inspection
at the NSM, which is situated at: www.morningstar.co.uk/uk/nsm.
Neither the contents of the Company's website nor the contents of any website
accessible from hyperlinks on the Company's website (or any other website) is
incorporated into, or forms part of, this announcement.
