- •Loss for full year of $34.0 million, with a further negative contribution from foreign
exchange
- •Aviation repayment results in increased asset writedowns but places Keybridge in
stronger financial position
- •Net tangible assets equal to 29 cents per share
- •Objective is to reduce borrowings further to enable consideration of resuming
distributions to shareholders
Keybridge Capital reported a loss of $34.0 million for the year to 30 June 2011. A material portion of
this loss arose from foreign exchange losses caused by the continuing appreciation in the value of the
Australian Dollar.
A breakdown of the result is provided in Attachment 1. (Currency amounts in this release are
denominated in Australian Dollars, unless otherwise specified.)
The Company earned a small operating profit in the second half of the year, although this was offset
by foreign exchange losses and asset impairments. The impairment in asset values in the second
half reflected continuing weakness in shipping markets but also a strategy of seeking to accelerate
the repayment of one of the Company’s aviation investments.
The pace of repayments slowed as the year progressed. This was due to the investments remaining
in the portfolio being subject to illiquid underlying markets, particularly in aviation and shipping. With
the priority remaining on reducing borrowings further, the Company has been focused on achieving a
repayment of at least one of its aviation investments. The carrying value of one investment was
reduced, as a result, to recognise that such an accelerated realisation would likely need to be
achieved at a discount to book value.
Contracts have now been entered into for the repayment of this aviation investment. This will result in
Keybridge receiving a repayment amount of no less than USD45 million by mid October 2011, which
is consistent with the revised carrying value for this transaction. This repayment will allow a material
further reduction in outstanding borrowings and, as a result, will place the Company in a stronger
financial position.
During the 2011 financial year, Keybridge realised $33 million of recoveries from its investments.
With the Company not making new investments, the bulk of this cashflow was used to pay down
corporate borrowings. All repayment obligations required to be met during the year under the
Company’s banking facility were more than satisfied. The maturity of this facility was extended during
the year to June 2012.
Investments
As at 30 June 2011, the written-down value of the Company’s investments by asset class was as follows:
| |
$m |
% |
| Aviation |
86 |
59% |
| Lending |
33 |
23% |
| Property |
10 |
7% |
| Shipping |
9 |
6% |
| Infrastructure |
7 |
5% |
| |
145 |
100% |
Attachment 2 includes a summary of the performance of the Company’s investments by asset class.
Balance Sheet
The following is a simplified balance sheet for the Company as at 30 June 2011:
| |
$m |
| Investments |
145.1 |
| Cash-on-Hand & Other Assets |
5.4 |
| Liabilities |
(101.1) |
| Shareholders’ Funds |
49.4 |
This level of shareholders’ funds equates to net tangible assets of approximately 29 cents per share.
As at year end, 75% of the Company’s total assets were denominated in US Dollars with a further
smaller amount in Euros. The terms of Keybridge’s debt facility do not allow access to forward
contracts to hedge these foreign currency assets. The Company partially mitigated this situation by
denominating the majority of its corporate borrowings in US Dollars.
During 2011, the US Dollar assets were hedged, on average, as to almost two-thirds by borrowings
also in US Dollars. Because there was an unhedged component of foreign currency assets,
Keybridge’s profitability and shareholders’ funds varied with changes in the value of the Australian
Dollar against the US Dollar and, to a lesser extent, the Euro. In 2011, the Australian Dollar
appreciated in value materially against these currencies. As a result, the Company incurred foreign
currency losses.
By year-end, Keybridge had converted its remaining Australian Dollar borrowings into US Dollars. As
a result, as at 30 June 2011, approximately 89% of its US Dollar assets were hedged by borrowings
in the same currency. This has reduced the net currency exposure of the Company’s balance sheet
to a level which is materially lower than applied during the 2010 and 2011 financial years.
The following is the net position in each currency of the Company’s balance sheet as at 30 June
2011:
Currency |
Assets |
Liabilities |
Net |
| US Dollars |
121m |
107m |
14m |
| Australian Dollars |
30m |
1m |
29m |
| Euros |
6m |
- |
6m |
Cashflow
Over the last two years, a range of the Company’s investments have stopped paying cash income to
Keybridge. This has been due principally to the effects of the global financial crisis on underlying
asset markets, which required cashflows from the various assets to be used to accelerate repayment
of transaction-specific senior debt, rather than being paid to subordinated investors such as
Keybridge.
In addition, a number of the Company’s income-producing investments have been repaid over the
past 12 months. As a result of these factors, there is presently a shortfall between the Company’s
cash income and its fixed commitments of bank interest and operating costs. This shortfall has been
more than met by cash generated from investment realisations, as well as from cash-on-hand.
This cashflow shortfall is expected to be reduced over the course of the 2012 financial year. The key
factors contributing to this improvement are as follows:
•The maturity during the half year to June 2011 of the Company’s interest rate swaps, which had
been adding materially to the cost of borrowings;
•The further reduction in outstanding borrowings facilitated by the aviation repayment; and
•An anticipated reduction in operating costs.
Corporate Debt Facility
By 30 June 2011, Keybridge had reduced its outstanding corporate borrowings to $100 million. Over
the course of the year, borrowings fell by $45 million.
In April 2011, the Company and its banks agreed an extension in the maturity of Keybridge’s debt
facility to 2 June 2012. The revised terms include a minimum repayment obligation of $12.5 million
for the period from 31 December 2010 to 2 December 2011. By today’s date, $9.4 million of this
requirement has been satisfied. The repayment of the aviation transaction will allow this banking
obligation to be met in full. It will also allow satisfaction of a minimum repayment threshold of $20
million, which triggers a reduction in the effective borrowing margin under the debt facility from 5.25%
per annum to 3.75% per annum.
The lending facility continues to require the Company to sweep all spare cash to the banks. This
prevents the making of new investments and the payment of dividends to shareholders.
Outlook
For the time being, the Company is not making new investments. Its priority is to achieve realisations
of investments to repay its debt facility.
The repayment of the aviation investment that is contracted to occur no later than mid October 2011
places the Company in a materially improved financial position. The key objective for Keybridge is to
continue achieving investment repayments so as to reduce borrowings even further.
If this is achieved, as the 2012 financial year progresses, the Keybridge Board can begin to consider
when distributions to shareholders may be able to resume and whether the Company should
commence investing again.
| 