Keybridge Capital Limited

Media Releases

Chairman's Address to Annual General Meeting
9 October 2012


Before moving to the formal business of the meeting, I would like to comment on Keybridge's performance over the past 12 months and provide you with our thoughts on the outlook for the Company.

Keybridge Capital has a portfolio of investments with a focus on the asset classes of aviation, lending, property, private equity and infrastructure.

The majority of our investments are mezzanine loans, or preference equity, ranking ahead of equity, but behind senior debt specific to the asset. In most transactions, Keybridge has lent to single purpose entities established to own the physical assets, be they aircraft, property projects or renewable electricity facilities. These entities also borrowed limited recourse asset-specific debt, and derive income from the lease or use of those assets by third party operators (for example, leases of aircraft to airlines).

In late 2008 / early 2009, Keybridge's investment and loan portfolio was severely impacted by the effects of the global financial crisis. Falling asset values exposed the Group to cash flow lock-ups at the asset level due to senior loan-to-value breaches. A significant portion of the Company's income stream essentially evaporated resulting in it being unable to service its own corporate debt obligations through normal operating cash flow. Keybridge was forced into survival mode in June 2009 and, with the ongoing support of its banks, began the challenging process of progressively realising assets across its portfolio in order to pay down its corporate debt.

With the support of our bankers, this process has, to date, been successful, albeit at a significant cost to shareholders. The Company has reduced its corporate debt from $215 million in 2009 to $30 million at 30 September 2012. Our gross assets now total $74.4 million with net equity of $45.1 million. The focus for Keybridge continues to be to achieve realisations across its portfolio at fair value so as to reduce the Group's level of debt whilst at the same time protecting the value of remaining assets as much as possible.

The markets in which the Group has invested remained challenged for the 2012 financial year (particularly shipping). Since 30 June 2011, the Group has recognised a further $11.4 million of net impairments across its portfolio, of which $4.9 million of impairments were in the second half of the financial year.

Shipping globally continues to be a severely challenged asset class, and given the circumstances surrounding the Group's remaining shipping assets, the Board determined that is was prudent to provide in full for these assets.

Since the implementation of the Group's managed wind down strategy began in June 2009; Keybridge's financial position has changed materially. This is especially the case over the past twelve months during which the Group's debt to equity position has improved from a gearing of over 200% at June 2011 to 85% as at 30 June 2012. As of today, our gearing is at 65%.

The Group's net loss after tax attributable to ordinary shareholders for the year to 30 June 2012 was $3.2 million, compared with a loss of $34.0 million in the prior year. In the year to 30 June 2012 Keybridge had, for the first time since June 2009, a net operating profit from normal activities and pre impairments (but post Foreign Exchange (FX) adjustments) of $8.2 million, compared with a loss to June 2011 of $19.9 million.

The operating profit in the year to 30 June 2012 was primarily due to lower borrowing and operating costs arising from:

  • a significantly lower average level of corporate debt through the material repayments achieved throughout the year, especially during the first half;
  • reduced employee costs from reductions in staff numbers by 40%; and
  • lower legal expenses.

The average cost of borrowings in 2012 was 4.4% per annum (versus 9.6% per annum in 2011 arising from a lower base interest rate and the expiry of "out of the money" interest rate swaps).

This turnaround was delivered primarily as a result of the Group being able to achieve realisations of assets that have not generally been income producing for several years, hence reducing debt and interest costs, whilst still retaining some cash income producing assets. Note that as, and from June 2009, the Group has only brought income to account received as cash, and has not included any accrued income from its underlying portfolio, other than its recent recognition of income from its investment in a US Private Equity Fund for the year to 30 June 2012.

Of the Group's total assets as at 30 June 2012, approximately 65% were denominated in either US Dollars or Euros. On average during 2012, just over 70% of these foreign currency assets were hedged by corporate borrowings in the same currency.

For the remaining unhedged component of foreign currency assets, Keybridge's profitability was subject to variability from changes in the value of the Australian Dollar against the US Dollar and Euro.

The small gain from foreign exchange in 2012 reflects the depreciation of the Australian Dollar across the year by approximately 5.2% against the US Dollar and a 9.0% appreciation against the Euro.


As has been the case for the past three years, Keybridge is not able to make new investments due to the covenants contained in its corporate loan facility. Our priority has been, and remains the continuing orderly realisation of existing investments in order to repay our debt facility. The Group is close to achieving this goal and has managed, thanks to the support of its banks, to deliver material reductions in this debt, whilst managing its divestments in a manner quite obviously aimed at preserving as much value as possible for shareholders.

Keybridge is currently cash flow positive, and for the first time since June 2008 has more equity than debt.

We remain subject to a debt milestone of corporate debt being no greater than USD25.0 million by the end of February 2013, however as our debt now stands at USD29.3 million, we are confident that this milestone will be achieved on or before its due date.

On behalf of the Board and the small management team at Keybridge, I thank shareholders, our bankers, our advisers and other stakeholders for their patience and forbearance over the past three years and I look forward to working with you to create improved outcomes for Keybridge in the years ahead.

Keybridge Capital is a financial services company that has invested in, or lent to, transactions which predominantly are in the core asset classes of property, aviation, shipping, finance receivables and infrastructure.


For further information, please contact:

Mark Worrall
Managing Director
Tel: +61 2 9321 9000