- Net profit after tax for six months to 31 December 2008 of $1.3 million
- Market conditions remain challenging
- Debt to be paid down ahead of longer term return of capital to shareholders
Keybridge Capital's net profit after tax for the six months to 31 December 2008 was $1.3 million, equal to earnings of 0.7 cents per share.
As previously announced, the Directors have resolved, given current market conditions and the low level of profitability in the period, to declare no interim dividend.
Components of the Company's performance in the half year were as follows:
- Total investments grew from $418 million to $453 million.
- This growth in investments occurred predominantly in the asset classes of shipping and aviation and was principally due to the fall in value of the Australian dollar, which increased the amount of these US dollar-denominated investments.
- The average level of investments during the half year was $435 million and the average return on investments was 17.2% per annum.
- Expenses associated with the impairment of investments were $25.2 million.
Investments
As at 31 December 2008, Keybridge Capital's investment portfolio totalled $453 million, split by asset class as follows:
| |
Investment
Balance |
Share of
Portfolio |
| Property |
$ 93m |
20% |
| Aviation |
$139m |
31% |
Shipping
|
$ 99m |
22% |
Infrastructure
|
$ 62m |
14% |
| Other |
$ 60m |
13% |
| Total |
$453m |
100% |
The Company has 30 individual investments.
Conditions in most markets in which the Company has invested remain challenging. A number of cashflows from investments, both income payments and principal reductions, were not received as scheduled in the December quarter. Until global financing conditions improve, we expect similar delays in cashflows to continue to occur.
Keybridge Capital has released today an investor presentation that provides a detailed review of the Company's investment portfolio. Information was also provided in the Quarterly Investment Update released on 16 January 2009.
Debt Facility
The Company's debt facility totals $215 million. It matures in June 2011 and is provided by Commonwealth Bank, BankWest, St.George and NAB.
The financial undertakings within the facility are being satisfied.
A majority of the Company's investments are denominated in foreign currencies, predominantly US dollars. As foreign exchange hedges relevant to these investments were renewed in the December quarter, the lower value of the Australia dollar required the Company to increase the amount invested in these transactions. This utilised much of the Company's surplus liquidity.
To remove the short to medium term cashflow variability associated with our foreign exchange hedges, we are in discussion with our banks to convert the denomination of our corporate debt facility from Australian dollars to US dollars and Euro. This would reduce the need for forward foreign exchange contracts and reduce much of the variability in liquidity.
Capital Management
The Board of Keybridge Capital has resolved to manage the Company's capital as follows:
- Using cash as it becomes available to reduce the Company's corporate debt facility; and
- Once debt has been reduced, using investment repayments to return capital to shareholders.
We anticipate that returns of capital to shareholders are most likely to begin in 2 to 3 years' time and be spread over the subsequent 3 to 4 years.
Outlook
Trading outlooks for most markets in which Keybridge Capital invests remain uncertain, with the risk that conditions will worsen before improvements emerge.
The Company is motivated to realise value from its investments as quickly as possible so as to bring forward the ultimate return of capital to shareholders. Conditions in financing and banking markets, however, are such that accelerated realisations of investments are unlikely to be achieved in the short-term.
Given this, the Company's strategy is to:
- Manage its investments to preserve value, whilst taking advantage of any opportunities for earlier repayment;
- Manage its liquidity and banking facilities to ensure that it is able to realise value from its investments in the ordinary course;
- Lower its operating costs, in part by reducing staff numbers, to enhance its profitability as it works through the repayment of its investments; and
- Resume the payment of dividends to shareholders as soon as the Company's profitability and cashflow permit.
Mark Phillips, Managing Director of Keybridge Capital, said: "Despite the difficult environment, the Company remains confident that material value for shareholders can emerge over time."
Keybridge Capital is a financial services company that invests in, or lends to, transactions backed by real assets, financial assets or cashflow. Its core asset classes are property, aviation, shipping and infrastructure.
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