Attachment 1
Profitability
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|
6 Months To
31 Dec 2013
$m |
6 Months To
31 Dec 2012
$m |
| Income(1) |
6.4 |
3.9 |
| Operating Costs(2) |
(7.9) |
(1.1) |
| Borrowing Costs(3) |
(0.1) |
(1.2) |
| Pre Tax Operating Profit/(Loss) |
(1.6) |
1.6 |
| Foreign Exchange |
0.7 |
(0.1) |
| Net Impairments Provisions(4) |
(0.4) |
(3.6) |
| Shipping Goodwill Impairments(5) |
(0.4) |
- |
| Shipping Vessel Impairment(5) |
(3.7) |
- |
| Shipping Gain on Reversal on Loan liability(6) |
4.1 |
- |
| Income Tax |
- |
(0.4) |
| Net Profit/(Loss) after Tax |
(1.3) |
(2.5) |
| (1) |
Income (excluding shipping) is recognised on two assets, one of which is paying quarterly disbursements with the next payment due in March 2014. The balance of income is interest earned at an average rate of 4.11% per annum on average cash on deposit of $16.2 million for the six months to 31 December 2013. |
| (2) |
Operating expenses (excluding shipping operating and shipping financing costs) were higher in the period to 31 December 2013 at $1.7 million compared with $1.1 million in 2012. The increase was due to higher legal and professional costs of approximately $0.6 million associated with the acquisition of PRFG and responding to the off-market takeover bid for Keybridge.
|
| (3) |
Borrowing costs of $0.1 million for the six months to 31 December 2013 are related to the asset- specific loans held by Oceanic Shipping. Keybridge has no corporate debt in its own right. |
| (4) |
Since 30 June 2013, the Group has recognised a further $0.4 million of net impairments across its portfolio, of which $1.85 million is represented by the provision of the equity investment in PRFG and $1.5 million against the equity investment in the Spanish solar farm. The impairments were offset with a reversal of impairment of $3.0 million against the property mezzanine loan. |
| (5) |
Goodwill impairment and the impairment of vessels are related to the asset-specific investment heldbyOceanicShipping. ThethreevesselshavebeensoldinFebruary2014andareforecastto realise $18.1 million which is approximately $3.7 million lower than the carrying value of the vessels. This has required Oceanic Shipping to recognise an impairment for the six months to 31 December 2013. |
| (6) |
The senior loan provided to Oceanic Shipping is secured by the three underlying vessels. These vessels have been sold in February 2014 and are forecast to realise $18.1 million which is approximately $4.1 million lower than the outstanding debt. Due to the non-recourse nature of the loan, Oceanic Shipping will realise a gain on the extinguishment of the unpaid balance of the debt to the senior lenders. |
Attachment 2
Performance By Asset Class
Infrastructure: (Total book value $7 million)
In March 2008, Keybridge developed a 1.05MW solar photovoltaic electricity facility in southern Spain. Previously this plant had some production issues that have now been rectified under warranty and it is now functioning in accordance with the original contract.
The original agreement with the Spanish government provided for a fixed feed-in tariff per kWh with partial CPI based increases. The agreed tariff was significantly above market rates. In December 2010 the Spanish government placed a cap on the volumes able to receive the feed-in tariff until 31 December 2013. From 1 January 2014 the cap increases with a further increase to occur on 1 January 2015.
The investment is currently generating approximately EUR680,000 per annum in cash income for Keybridge. However, there are significant uncertainties involving the sustainability of this income as there have been reports that the Spanish government may increase taxes on solar plants and again change the laws regarding feed-in tariffs.
In total, Keybridge recognised impairments of $1.5 million against its solar farm investment in the six months to December 2013. The Group received income as expected during the period to 31 December 2013.
Private Equity: (Total book value $5.4 million)
In 2007 and 2008, Keybridge invested $5.95 million in mezzanine loans against a residential and retail property development located in an inner Sydney suburb. The project involves the progressive development of four lots. Three out of the four lots have completed development with the majority of the properties having been sold. Keybridge’s loans are currently in default and accumulating interest such that the face value of the loans outstanding at 31 December 2013 was approximately $9.3 million. The Company previously considered that there was significant risk that the Company would not recover its loans in full, and had been carrying the loan on its Balance Sheet at nil as at 30 June 2013.
As discussed above, on 17 February 2014, Keybridge was repaid approximately $3.0 million as partial repayment of its outstanding loan. As it became likley that this payment would occur, a reversal of the impairment was made, which had the impact of increasing the carrying value of the loan during the six months to 31 December 2013. There may be further recovery from this asset in due course, however the Company continue to value future recoveries at nil.
The other property investment is a loan to a fund which invested in first ranking mortgage loans over commercial properties. Keybridge is currently the sole lender to a portfolio with three loans outstanding, two of which relate to a property in the Sydney suburb of Manly. These two loans are under active management with a receiver appointed to the loans in June 2009. The fund manager has commenced a claim against the valuer who provided the initial valuation for the Manly property funding. Keybridge expects that the claim will be defended and accordingly at this time the likelihood of any additional recovery under the claim is unknown.
Property: (Total book value $5.2 million)
In 2007 and 2008, Keybridge invested $5.95 million in mezzanine loans against a residential and retail property development located in an inner Sydney suburb. The project involves the progressive development of four lots. Three out of the four lots have completed development with the majority of the properties having been sold. Keybridge’s loans are currently in default and accumulating interest such that the face value of the loans outstanding at 31 December 2013 was approximately $9.3 million. The Company previously considered that there was significant risk that the Company would not recover its loans in full, and had been carrying the loan on its Balance Sheet at nil as at 30 June 2013.
As discussed above, on 17 February 2014, Keybridge was repaid approximately $3.0 million as partial repayment of its outstanding loan. As it became likley that this payment would occur, a reversal of the impairment was made, which had the impact of increasing the carrying value of the loan during the six months to 31 December 2013. There may be further recovery from this asset in due course, however the Company continue to value future recoveries at nil.
The other property investment is a loan to a fund which invested in first ranking mortgage loans over commercial properties. Keybridge is currently the sole lender to a portfolio with three loans outstanding, two of which relate to a property in the Sydney suburb of Manly. These two loans are under active management with a receiver appointed to the loans in June 2009. The fund manager has commenced a claim against the valuer who provided the initial valuation for the Manly property funding. Keybridge expects that the claim will be defended and accordingly at this time the likelihood of any additional recovery under the claim is unknown.
Listed Equity: (Total book value $2.9 million)
Keybridge holds an 18.5% investment in ASX-listed PTB Group Limited (PTB), which is a turbo-prop aircraft parts and services supply organisation with operations in Queensland and New South Wales. This investment is marked-to-market at each balance date, which, as at 31 December 2013, resulted in a decline in value of $0.8 million from 30 June 2013 due to a fall in its share price on the ASX.
The other listed investment held by Keybridge is a 14.99% holding (as at 31 December 2013) in ASX- listed Aurora Funds Limited (AFV). Keybridge initially purchased 548,000 shares or 5% of the paid up capital in August 2013 at 45 cents per share, which were marked-to-market as at 31 December 2013 resulting in an $0.1 million uplift. The remaining 1,097,150 or 10% shares were purchased on 31 December 2013 at 65 cents per share. The closing price of AFV as at 31 December was 65 cents per share.
Lending: (Total book value $1.5 million)
Keybridge has two lending investments being a loan outstanding to PR Finance Group Limited (PRFG) and a loan to Carbon Polymers Ltd (CBP).
In June 2007 Keybridge provided a $15 million interest-only mezzanine loan to PRFG to assist in financing its portfolio of automobile loans to non-conforming borrowers.
The loan was extended several times and in January 2013 the loan went into default and interest payments ceased. On 28 June 2013, to support its interests, Keybridge acquired 100% of the shares and voting interests in PRFG for $1.5 million cash plus 2.5 million Keybridge shares. The acquisition of PRFG was achieved by way of Scheme of Arrangement in June 2013. Keybridge was required to consolidate the assets and liabilities of PRFG as at 18 August 2013.
On 18 September 2013 the motor vehicle division was sold to enable PRFG to repay third party senior debt in full plus $10.5 million of Keybridge's mezzanine loan. Including accumulated interest, Keybridge continues to hold a $6.3 million secured loan to PRFG. Keybridge is carrying this loan on its Balance Sheet at $1.2 million.
PRFG's remaining significant asset is its ownership of Australian Money Exchange Pty Ltd (AMX), a short-term lender of personal loans. AMX was placed into Administration on 21 October 2013 by PRFG after ASIC expressed concern that AMX may be breaching certain National Consumer Credit Laws.
AMX has continued to trade under Administration while offering a limited range of products in accordance with ASIC requirements and is pursuing alternative licencing arrangements which will allow it to expand its product offering in due course.
As a result of the relationship with PRFG, in September 2013, Keybridge lent $300,000 to CBP for 90 days at 15% interest per month. Security is a first-ranking fixed and floating charge over all company assets, which are valued at more than $3 million. Full repayment is expected by mid March 2014, following an extension granted in December 2013.
Shipping: (Total asset value $24.5 million)
At 30 June 2013, Keybridge held junior non-recourse loans for financing of three ships owned by Oceanic Shipping. Recent independent valuations indicated that the market value of these ships was less than the outstanding debt balances. Keybridge has been carrying these loans at nil value.
During the half year to 31 December, the Group provided new loans of $0.5 million to fund working capital associated with these assets and to prevent foreclosure on these assets. These loans rank in front of other secured loans and are carried at face value.
In July 2013, Keybridge acquired 48.5% of the equity it did not already own in Oceanic Shipping for a nominal sum. Upon acquisition of the additional equity to 97%, Keybridge was required to consolidate Oceanic’s Statement of Financial Position into the Group’s results for the period ended 31 December 2013. As a result of consolidating both the assets and the substantial debt in Oceanic Shipping, this resulted in an impairment of $0.7 million to Goodwill on Keybridge’s Balance Sheet. Further details of the acquisition of Oceanic are contained in note 9 of the financial statements.
No repayments were received from its Shipping investment and a nil profit on the equity-accounted investments was recognised in the period to 31 December 2013.
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