Keybridge Capital Limited
 

Media Releases

 
Half Yearly Results
25 February 2014

Completed the acquisition of PR Finance Group the sale of Motor Finance Wizard division resulted in a cash return to the Company of $10.5 million
$20.1 million cash-on-hand at 31 December 2013
$3.0 million repayment received from a property asset received post 31 December 2013. The transaction was $3.0 million above carrying value at 30 June 2013
Normalised loss of $0.4 million for the half-year excluding takeover costs and consolidation adjustments
Reported net loss after tax for the half-year of $1.3 million
On-market buy-back has been activated with 15.5 million shares already acquired
Audited Net Tangible Assets of 23.6 cents per share at 31 December 2013
Estimated unaudited Net Tangible Asset of 23.9 cents per share as at 31 January 2014
 

Keybridge Capital continued to successfully realise non-core assets in its portfolio during the half year to 31 December 2013. The Company‘s cash balance has increased from $12.5 million at 30 June 2013 to $20.1 million by 31 December 2013.

During the period, the Company completed the acquisition of all the shares in PR Finance Group Limited (PRFG) by way of Scheme of Arrangement for consideration of $1.35 million in cash and 2.5 million Keybridge shares. PRFG subsequently sold its Motor Finance Wizard division to a foreign- domiciled investment company for $52 million. The sale generated sufficient funds to fully repay PRFG’s senior debt to the CBA and $10.5 million in cash as partial repayment of the mezzanine loan initially made by Keybridge to PRFG in 2007.

PRFG’s only other significant asset was Australian Money Exchange Pty Ltd (AMX), a short-term lender of personal loans. Keybridge appointed an Administrator to AMX after ASIC expressed concern that AMX may be breaching certain National Consumer Credit Laws. With Keybridge support, 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 may allow it to expand its product offering in due course.

Although the Company concluded a number of complicated transactions during the period to realise illiquid assets, and has built a strong cash holding available to pursue new investments, the Company incurred a normalised net loss after tax of $0.4 million, and a reported net loss after tax of $1.3 million for the half year to 31 December 2013.

These losses are largely due to impairments on the Totana Solar farm and the impacts of consolidating the assets and non-recourse liabilities of Oceanic Shipping Company 8 Limited (Oceanic Shipping) which were acquired by Keybridge during the period, and the impairment of the acquisition of shares in PRFG which facilitated a significant asset realisation. Further details are contained in Attachments 1 and 2.

The balance of the loss for the half year can be attributed to one-off legal and professional costs of approximately $0.4 million incurred in responding to the takeover bid for Keybridge by its then largest shareholder Oceania Capital Partners.

A breakdown of the result is provided in Attachment 1. Currency amounts in this announcement are denominated in Australian Dollars, unless otherwise specified.

Investments

As at 31 December 2013, the value of the Company’s investments by asset class was as follows:

 
$m
% of total
Cash

20.1

32%
Infrastructure

7.0

11%
Private Equity

5.4

9%
Property

5.2

8%
Listed Equity

3.0

5%
Lending

1.4

2%
Shipping*

20.2

33%
 
62.4
100%

* includes $18.1 million of ships held in Oceanic Shipping, a 97% owned subsidiary. This asset is fully offset by a related liability.

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 2013:

 
$m
Investments*
42.40
Cash-on-hand & Other Assets
20.34
Liabilities**
(21.48)
Shareholders' Funds
41.26

* includes $18.1 million of shipping vessels in Oceanic Shipping

** includes $20.27 million of non-recourse liabilities in Oceanic Shipping

With 174.5 million listed shares on issue as at 31 December 2013, shareholders’ funds equates to net tangible assets of approximately 23.6 cents per share.

The total liabilities in the table above include $20.27 million of loans secured by the underlying vessels held in Oceanic Shipping. These loans are non-recourse to Keybridge. These vessels have been sold post 31 December 2013 resulting in an estimated return of cash of $0.8 million including fees charged, which will be accounted for in the current half year.

Of the Group’s other investments at 31 December 2013, approximately 77% were denominated in either US Dollars or Euros, of which 29% are unhedged against the Australian Dollar. The Group’s profitability remains subject to the variability of the Australian Dollar exchange rate to the US Dollar and Euro. During the period the Australian Dollar depreciated by approximately 3.5% against the US Dollar and by 8.7% against the Euro resulting in an unrealised gain of $0.7 million (2012: loss of $0.9 million) in the value of the Group’s unhedged foreign currency assets.

Cash Flow

During the period the Company increased its cash holdings by approximately $7.6 million predominantly as a result of the PRFG and Motor Finance Wizard transactions.

As of today’s date, the Company has approximately $19.1 million of cash-on-hand after returning $2.9 million to shareholders through its on-market share buy-back.

Off-market takeover bid of Keybridge

On 28 November 2013, Oceania Capital Partners Limited (OCP) announced an unsolicited off-market takeover bid for all of the shares in Keybridge for a consideration of $0.16 cents per share in cash for all Keybridge shares. On 7 February 2014, OCP increased their bid to $0.19 cents per share.

In responding to this bid from OCP, Keybridge has incurred approximately $0.4 million in additional legal costs and professional fees.

On 21 February 2014, OCP’s takeover bid expired leaving OCP with a total shareholding in Keybridge of 27.6%. On 20 February 2014, OCP announced that it has entered into Put Option arrangements to sell its shares to a number of third parties in order to exit its holding in the Company. For further details regarding the bid refer to Keybridge’s announcements made to the ASX in December 2013, January 2014 and February 2014.

Outlook

Having largely completed the difficult program of complex asset realisations and workouts over the last few years, the Company is now in a position to initiate new investments.

The Company recently invested $1.1 million to acquire 16% of Aurora Funds Ltd (ASX: AFV) with a view to assisting AFV to fund its future growth. With approximately $400 million in funds under management, AFV is in a strong position to build a larger business in an industry expected to grow rapidly.

The Company is currently reviewing a number of other investment opportunities and will keep the market informed as they progress.

 
Attachment 1

Profitability

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.







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



For further information, please contact:

Nicholas Bolton
Executive Director
Tel: +61 2 9321 9000
www.keybridge.com.au
Adrian Martin
Chief Financial Officer
Tel: +61 2 9321 9000
www.keybridge.com.au