- • Net loss for the six month period of $4.1 million
- • Positive operating result of $2 million offset by impairment charges in shipping portfolio
- • Net tangible assets equal to 26 cents per share
- • Material reduction of $56.5 million in debt facility achieved in past six months
- • Discussions underway with Company's lenders to extend term of debt facility
-
Keybridge Capital reported a net loss of $4.1 million for the half-year to 31 December 2011. The
positive operating result of $2.0 million was negatively impacted by a $6.5 million provision against
one of the Company's shipping investments.
A breakdown of the result is provided in Attachment 1. Currency amounts in this announcement are
denominated in Australian Dollars, unless otherwise specified.
During the last half year, $62.3 million of investment realisations were achieved. The majority of this
capital inflow has been used to significantly reduce the Company's borrowings.
The Managing Director of Keybridge, Mark Worrall, said: "The Company has achieved several
significant milestones over the past six months. Two of its major assets have been sold, resulting in a
material reduction in the level of corporate borrowings. As a consequence, the Company has
surpassed its required interim debt repayment milestones and significantly reduced its ongoing
interest and operating costs. Additionally, for the first time in the past three years, Keybridge is now in
a cash flow positive position, with its forecast cash income for the remainder of the financial year
exceeding its aggregate operating costs and interest expenses.
Keybridge's objective is the continued orderly realisation of assets to enable the retirement of the
Company's debt in full as quickly as practically possible. This will then allow the Company the liberty
to make decisions about its future - be it to continue an orderly wind down process or to determine a
new investment strategy to regrow the business.
It has however been necessary to take a further impairment on one of the Company's remaining
Shipping investments, given the continued decline in, and poor outlook for, the global shipping
industry, and the recent circumstances surrounding the particular investment".
Investments
As at 31 December 2011, the written-down value of the Company's investments by asset class was as follows:
|
$m |
% of total |
Aviation |
44.6 |
53% |
Lending |
20.7 |
25% |
Property |
9.6 |
11% |
Infrastructure |
7.0 |
8% |
Shipping |
2.6 |
3% |
|
84.5 |
100% |
The only variance compared with that advised in the Quarterly Update issued on 6 January 2012 is in
the Company's Shipping portfolio, which has been reduced by $6.5 million.
It is important however to note that Keybridge's assets represent the present value to the Company,
at the contractually agreed investment rate, of all cash flows that are expected to be realised on that
particular asset over the assumed investment period. Some of these cash flows deliver the cash
earnings reported by the Company, however the majority of the future income inherent in the current
carrying values is yet to be received. For example, the carrying value of investments in the aircraft
portfolio take into account Keybridge's cash component of rents received from the underlying lessee
of that asset, together with Keybridge's contractual share of the net residual value of that aircraft (as
independently appraised by aircraft valuation experts).
These carrying values, and hence all income expectations in determining these values, are
continuously reviewed and analysed having regard to the positive and negative impacts on the
income expectations (e.g. extended lease terms, lessee solvency etc) and residual values of each of
the assets in the Company's portfolio.
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 31 December 2011:
|
$m |
Investments |
84.5 |
Cash & Other Assets |
4.3 |
Liabilities |
(43.9) |
Shareholders' Funds |
44.9 |
This level of shareholders' funds equates to net tangible assets of approximately 26 cents per share.
As at 31 December 2011, approximately 63% of the Company's total assets were denominated in US
Dollars and approximately 8% was denominated in Euros. The balance is in Australian dollars. The
terms of Keybridge's present debt facility do not allow the Company to hedge these foreign currency
assets. The Company has partially mitigated this situation by denominating its corporate borrowings
in US Dollars; however the Company is still long in USD and Euros.
Because there is this unhedged component of foreign currency assets, Keybridge's profitability and
shareholders' funds will vary with changes in the value of the Australian Dollar against the US Dollar
and, to a lesser extent, the Euro. For example, over the past six month period, the Australian Dollar
depreciated in value against the US Dollar but appreciated against the Euro, leading to a small overall
net increase in value to the Company. As at 31 December 2011, exchange rates were: AUD1.00 =
USD1.0154 and EUR0.7850.
The following is the net position in each currency of the Company's balance sheet as at 31 December
2011:
Currency |
Assets |
Liabilities |
Net |
US Dollars |
54.3m |
43.9m |
10.4m |
Australian Dollars |
28.3m |
0.6m |
27.7m |
Euros |
5.5m |
- |
5.5m |
Cashflow
Over the last three years, many 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.
For the first time since the Company's asset realisation strategy was implemented three years ago, as
a result of the material reduction in debt achieved via the significant investment realisations of the
past six months, Keybridge was able to achieve a positive cashflow over the past six months from
operating income together with an above book value realisation of one lending investment.
Corporate Debt Facility
The outstanding principal amount under Keybridge's corporate debt facility as at 31 December 2011
was $43.2 million. Over the last six months, the debt facility has been reduced by $56.5 million. All
interim repayment milestones under the current debt facility have been met, including satisfaction of
repayment targets that resulted in the removal of an additional fee that would otherwise have been
payable to the Company's lenders. A further amount of USD1.9millon has been repaid since 1
January 2012, resulting in a current outstanding debt of USD42.0million.
The current debt facility matures in June 2012. The Company has commenced discussions with its
banks to extend the maturity date of its debt facility.
As has been the case since June 2009, the Company continues to operate under a cash sweep with
its lenders, whereby all cash flow surplus to certain minimum working capital requirements, is applied
to debt reduction. For so long as this sweep persists, the Company is unable to make new
investments or pay dividends to shareholders.
Outlook
As stated above, for the time being, the Company is not making new investments. Its priority is to
achieve investment realisations to allow it to repay its debt facility in full.
Improvements initially seen in key markets in which the Company operates have been clouded
somewhat by the delicate situation in European financial markets. Overall, secondary markets for the
assets remaining in the Company's portfolio continue to be characterised by relatively low levels of
liquidity and lending. Thus, realising Keybridge's outstanding investments in the shorter term at
acceptable prices remains challenging. Expectation is that realisation of remaining investments will
occur over a period of approximately two to three years, however all efforts will continue to be made
to accelerate this process.
A key objective for the Company in the current half year will be extending the term of its corporate
debt on reasonable terms from its lenders that enable it to continue realising assets in the ordinary
course. The Company is in constructive discussions with its banks to achieve this.
In due course, the objective is to position Keybridge to rebuild a long-term viable and valuable
business or to permit a return of capital to shareholders. Whilst the Company is focused for now on
debt repayment, it continues to look for ways in which it may create a profitable and growth orientated
business. Implementation of any such strategy will only be possible after further progress has been
made with regards to repayment, or refinancing of the outstanding debt.