Source - RNS
RNS Number : 6620J
Qannas Investments Limited
30 June 2017
 



 

 

Qannas Investments Limited

("Qannas" or the "Company")

Audited Financial Statements and Posting of Audited Financial Statements

Qannas (AIM:QIL), the closed-ended investment company listed on the AIM market, is pleased to announce the release of its audited financial statements for the period ending 31 December 2016. Extracts from these statements are enclosed below.

 

 
QANNAS INVESTMENTS LIMITED


GENERAL INFORMATION




FOR THE YEAR ENDED 31 DECEMBER 2016

 

 

Jassim Mohamed Alseddiqi (resigned 16 March 2016)

First Gulf Bank


Main Branch

Christopher Ward (Chairman)

P.O. Box 6316


Abu Dhabi

Richard John Stobart Prosser

United Arab Emirates



Richard Green



REGISTRAR

Mustafa Kheriba

Capita Registrars (Jersey) Limited


12 Castle Street


St Helier

COMPANY NUMBER

Jersey JE2 3RT

CT 286543 (registered in Cayman Islands)

Channel Islands





COMPANY SECRETARY

NOMINATED ADVISOR

Codan Trust Company (Cayman) Limited

finnCap Ltd

Cricket Square, Hutchins Drive, P.O. Box 2681

60 New Broad Street

George Town, Grand Cayman KY1-1111

London EC2M 1JJ

Cayman Islands

England





REGISTERED OFFICE

NOMINATED BROKER

Codan Trust Company (Cayman) Limited

finnCap Ltd

Cricket Square, Hutchins Drive, P.O. Box 2681

60 New Broad Street

George Town, Grand Cayman KY1-1111

London EC2M 1JJ

Cayman Islands

England





ADMINISTRATOR

LEGAL ADVISORS

Estera Fund Administrators (Jersey) Limited

Appleby

13-14 Esplanade

13-14 Esplanade

St Helier

St Helier

Jersey JE1 1EE

Jersey JE1 1BD

Channel Islands

Channel Islands




Herbert Smith LLP

AUDITOR

Exchange House

BDO Limited

Primrose Street

Windward House

London EC2A 2HS

La Route de la Liberation

England

St Helier


Jersey JE1 1BG

Conyers Dill & Pearman Limited

Channel Islands

Level 2, Gate Village 4


Dubai International Financial Centre


P.O. Box 506528

INVESTMENT MANAGER

Dubai

ADCM Ltd

United Arab Emirates

Codan Trust Company (Cayman) Limited


Cricket Square, Hutchins Drive, P.O. Box 2681


George Town, Grand Cayman KY1-1111

COMPANY WEBSITE

Cayman Islands

www.qannasinvestments.com

Jassim Mohamed Alseddiqi (resigned 16 March 2016)

First Gulf Bank


Main Branch



 

 

 

QANNAS INVESTMENTS LIMITED


CHAIRMAN'S REPORT




FOR THE YEAR ENDED 31 DECEMBER 2016

 

It is with pleasure that I present my fifth annual report on the performance of Qannas Investments Limited ("QIL" or the "Company"). Since its IPO in March 2012, QIL has invested across different investment themes and has successfully built up a diverse portfolio of investments spread across the Middle East, Eastern Europe and Central London. However, our investment strategy has been less successful in attracting investors from outside the Gulf region, which in turn has held back our growth plans and has failed to generate the liquidity in the Company's shares which we would have liked. The Board is therefore embarking on a review of the Company's investment strategy, which will be presented to shareholders in due course, and in the meantime, is recommending that substantially all of the existing investments be realised.

 

Accordingly, the Company intends to propose at the forthcoming AGM certain changes to the Company's investment policy which will result in existing investments being realised in an orderly fashion over the next one to two years pending a decision on a new investment strategy. These exits will seek to achieve a balance between an efficient return of cash to shareholders and maximizing the value of QIL's investments. Proceeds will be used to repay debt and make distributions to shareholders, with the first distribution proposed in July 2017.

 

As part of the year-end accounts, the Board chose to take a provision and impair certain assets held by QIL, primarily its Limited Partnership interests in funds held through ADCM Secondary Private Equity Fund L.P. and SPE Qannas C Limited. These discounts have been applied to the reported net asset value provided by the General Partners of the underlying funds and reflect a marketing exercise conducted by the investment manager in exploring the exit of these positions. These provisions were a significant factor behind the reduction in the Company's Net Asset Value to $0.94 at the year end.

 

However, an investment highlight in 2016 was QIL's US$6.5 million investment in Goldilocks, an investment strategy used by QIL's investment manager to invest in public equities listed on the GCC stock exchanges. The investment was made in two tranches during Q1 2016 and had generated a return of 185% by 31 December 2016. Subsequent to the year end, QIL received back approximately 89% of its invested capital in Goldilocks by redeeming 25% of its interest in April 2017, generating a significant realised profit and making it one of QIL's most successful investments.

 

The investment in the Goldilocks strategy was originally via a co-mingled investment pool, alongside over 100 other investors, which, pending regulatory approval being obtained for the establishment of an investment Fund under limited liability law of  Abu Dhabi Global Markets ("ADGM"), was managed by Integrated Capital PJSC, an investment manager authorised and regulated by the UAE Central Bank and a wholly-owned subsidiary of  Integrated Financial Group LLC in which company QIL has a 47.4% equity stake. The Company's investment is now represented by units in Goldilocks Investment Company Limited, managed by ADCM Altus Investment Management Limited, with an independent fund administrator Apex Fund Services Limited and with the Bloomberg ticker GOLDILK. As at 8th June 2017, the value of the Company's units in Goldilocks was $14.8m, even after redeeming 25% of the original investment for $ 5.8m.

 

Confirmations of the Company's investment (share held and valuation) in the co-mingled pool have been regularly supplied by Integrated Capital, itself a highly regulated entity which is subject to regular inspections by the UAE Central Bank as is their policy; and following the establishment of the fund in ADGM, Apex too have confirmed the number and value of our units in the Fund. It is disappointing that the Company's auditors have not accepted these confirmations as evidence of the ownership, existence and valuation of this investment, particularly as we understand that these have been accepted by auditors acting on behalf of other investors in the co-mingled pool, but nevertheless, I want to assure shareholders that the Board is confident that the details of the investment in Goldilocks contained in these accounts are accurate, and that the financial position of the Company is fairly stated.

 

QIL has always sought to deploy and return capital efficiently for its shareholders and believes the current exits are appropriate given the current investment climate and focus of the fund. The Board and the investment manager will continue to update shareholders on its progress in liquidating assets and returning capital. As always I would like to thank the shareholders, the board of directors, service providers, and the investment manager for their continued support.

 

 

QANNAS INVESTMENTS LIMITED


INVESTMENT MANAGER'S REPORT




FOR THE YEAR ENDED 31 DECEMBER 2016

 

 

ADCM Ltd. ("ADCM"), the investment manager for QIL, is pleased to present the annual investment manager's report for the year ended 31 December 2016.

 

Investment Summary

During FY 2016, QIL's NAV decreased by US$5.1 million. This was primarily due to:

 

·      US$0.85 million share buy back in March 2016.

 

·      US$11.6 million decline in the carrying value of ADCM Secondary Private Equity Fund L.P. ("ADCM SPEF") and SPE Qannas C Limited (" SPE Qannas C") as a result of the investment manager taking a provision against the carrying value reported by the General Partners of the underlying Limited Partnership positions as at 31 December 2016.

 

·      US$1.6 million decline in the carrying value of the Project HRC as a result of the investment manager taking an impairment against the carrying value of Project HRC.

 

The decline in above investments was largely offset by a US$12.1 million gain in Project Goldilocks. The balance $3.15m decline is due to expenses and interest cost.

 

2016 was a year of consolidation where QIL exited its smaller investments, consolidated its investments in Eastern Europe and made an investment in Project Goldilocks.

 

During 2016 QIL exited 4 investments (2 completely and 2 partially).

 

Exits during FY 2016

1.   Project IEEF: realized a partial exit (70%) on the €7 million loan to IEEF generation an IRR of 4%.

2.   Project Taj: exited US$1.2 million investment in VPL generating an IRR of 13%.

 

3.   Project Broadway: redeemed £3.8 million preferred shares in BLD generating an IRR of 3% (USD).

 

4.   Project PPP: realized a partial exit (52%) on the £4.4 million investment in PPP generating an IRR of 5.4%.

 

Investments in FY 2016

·      Goldilocks: invested a total of US$6.5 million in two tranches during Q1 2016 (subsequent to the year end, redeemed 25% of this investment, thereby recovering US$5.8 million (89%) of the invested capital and generating an IRR of 185%).

 

·      Project Adriatic (CentreVille Hotel): US$10.2 million investment in CentreVille Hotel (previously named as TCP[1] Hotel), as part of a €11 million commitment made in the year 2014.

 

 

 
QANNAS INVESTMENTS LIMITED


INVESTMENT MANAGER'S REPORT


FOR THE YEAR ENDED 31 DECEMBER 2016

 

 

Summary on QIL's investments leading up to year end 2016 are as below:

 

QIL's Investments

Project

 Name


Investment

 Type

Sector

/Type

Geography

Committed[2]

(in millions)

Invested

(in millions)

  Committed in 2016

Goldilocks


Equity

Financial Services

UAE

AED24.0

US$6.5

Committed in 2015

Taj


Murabaha Debt

Real Estate

Central London

AED 4.0

AED 4.0

Broadway


Preferred equity

Real Estate

Central London

£3.5

£3.5

Apex


Equity

Real Estate

UAE

AED 9.1

AED 2.9

  Committed in 2014

Integration


Equity

Financial Services

UAE

$20.4

$18.7

HRC[3]


Equity

Hospitality

Eastern Europe

€4.0

€4.0

CentreVille Hotel


Equity

Hospitality

Eastern Europe

€9.2

€9.2

PPP[4]


L.P. Interest[5]

Real Estate

Central London

£11.0

£4.4

IEEF[6]


Debt

Real Estate Fund

Eastern Europe

€7.0

€7.0

Beast


L.P. Interests

Fund of Funds

Diversified

$40.6

$40.6

  Committed prior to 2014

Scholar


Equity

Education

UAE

$0.07

$0.07

 



 

QANNAS INVESTMENTS LIMITED


INVESTMENT MANAGER'S REPORT




FOR THE YEAR ENDED 31 DECEMBER 2016

 

 

Summary of QIL's complete exits up to year-end 2016 and the subsequent two quarters in 2017 are as below:

 

QIL's Exits so far

Project Name

Date of

Exit

Date of Acquisition

Ownership sold

Holding  Period

Cost

(in millions)

NAV at exit

(in millions)

Exit Multiple

Exit

IRR

Exits in 2016









PPP[7]

31-Oct-16

29-Oct-14

52%

25 months

$3.6

$4.0

1.11x

5.4%

IEEF[8]

21-Jul-17

21-Aug-14

70%

23 months

$6.6

$7.1

1.08x

4.0%

Taj

26-Feb-16

02-Jun-15

100%

9 months

$1.1

$1.2[9]

1.09x

12.6%

Broadway

19-Feb-16

16-Apr-15

100%

11 months

$5.3

$5.4

1.02x

2.8%

Exits in 2014

Marina

19-May-14

20-May-12

100%

24 months

$9.9

$14.9

1.51x

22.8%

Gazelle

6-Mar-14

17-May-13

100%

10 months

$3.3

$6.1

1.87x

118.1%

Previous Exits

Oilco

8-Dec-13

6-Mar-12

100%

21 months

$3.9

$6.7

1.73x

39.1%

Oasis

13-Feb-13

10-Oct-12

100%

4 months

$3.3

$4.1

1.24x

87.9%

 

 

 

 

 

 

 


QANNAS INVESTMENTS LIMITED


INVESTMENT MANAGER'S REPORT




FOR THE YEAR ENDED 31 DECEMBER 2016

 

 

Net Asset Value ("NAV") Summary

 

As of 31 December 2016, QIL had an NAV of approximately $64.7 million or $0.94 per share and total cash of $1.6 million.

 

Net Asset Value Summary

In $,m 

 Investments

31-Dec-16

Project Beast (ADCM SPEF)

$26.6 

Project Beast (SPE Qannas C Limited)

$5.8 

Project Goldilocks

$18.7 

Project Integration

$19.6 

Project Adriatic (CentreVille Hotel)

$9.7 

Project Adriatic (HRC)

$3.3 

Project Palace

$3.4 

Project Demeter (IEEF)

$3.1 

Project Apex

$0.8 

Project Scholar

$0.1 

Cash

$1.6 

Non-Current Liabilities

($27.4)

Other Net Assets

($0.4)

NAV

$64.9 

Shares Outstanding

68.8 

NAV per share

$0.94 

 


QANNAS INVESTMENTS LIMITED


INVESTMENT MANAGER'S REPORT




FOR THE YEAR ENDED 31 DECEMBER 2016

 

 

Investment Update

 

Project PPP

 

In Q3-2016, QIL exited 52% (£2.3 million) of the £4.4 million investment (which was part of a total commitment of £11 million) in Project PPP. Post exit, QIL's interest in the project stands at £2.1 million with £6.6 million of outstanding commitment. The investment is part of an overall tranche of £50 million investment in Palace Preferred Partners L.P., an SPV created for the redevelopment of 1 Palace Street ("1PS"), London in 2014.

 

Project Integration

 

QIL's 47% stake in Integrated Financial Group ("IFG") was valued at $19.6 million as at 31 December 2016. During Q1 2017, IFG announced its intention to sell its subsidiaries (Integrated Securities and Integrated Capital) to SHUAA Capital PSC, a public listed financial services company in the UAE.

 

QIL invested in IFG in November 2014 to acquire and consolidate two financial services companies, namely First Gulf Financial Services (renamed as "Integrated Securities") and Injazmena Investment Company (renamed as "Integrated Capital").

 

Project Adriatic (HRC)

 

QIL recognised an impairment of USD1.5million (€1.8 million) on Hard Rock Café ("HRC") in FY 2016, of which US$0.5 million related to the loan and the remainder to the investment, given the lack of profitability and slow growth in the business. The impairment primarily reflects operating losses capitalized during the ramp up phase.

 

Project Demeter (IEEF)

 

During the year, QIL exited 70% of the senior secured term loan of €7.0 million it made to Integrated Eastern European Fund ("IEEF") in 2014. The original term of the loan was two years at 15% interest per annum being rolled up until maturity. The loan proceeds were deployed to enable IEEF to buy out third party investors and acquire full control in two land holding companies and to subsequently develop plots in Bulgaria and Montenegro into hospitality-focused assets.

 

The remaining portion of the loan (€2.75 million) was extended by two years at an interest rate of 12% per annum (USD based) with a 3% arrangement fee on the extended amount.

 

 

 

 

 

 

 

 


QANNAS INVESTMENTS LIMITED


INVESTMENT MANAGER'S REPORT




FOR THE YEAR ENDED 31 DECEMBER 2016

 

 

Project Beast

 

During 2016, QIL received a total of US$1.5 million in distributions from ADCM SPEF reflecting the distributions received from the underlying funds. Subsequent to the year end, QIL received a further distribution of US$4.8 million, which includes US$3.8 million from the sale of Gulf Capital Equity Partners Fund II, L.P. ("GCEP").

 

ADCM SPEF is also in the process of exiting its Limited Partnership positions in Goldman Sachs PEP IX and Glouston PEH 2000 FTE LTD funds by 30 June 2017. The ADCM SPEF portfolio will continue to liquidate its holdings and use proceeds to pay down debt and make distributions to shareholders.

 

During FY 2016, QIL took a provision of US$11.6 million on its investment in ADCM SPEF and SPE Qannas C Limited, reflecting the carrying value of underlying funds in the secondary market. This is a discount to the carrying value reported by General Partners of the Limited Partnership positions; however the investment manager chose to impair these assets based on market testing possible sale values of these assets.

 

NAV of ADCM SPEF (as of 31 December, 2016)

 in US$'000

Fund Name

NAV

The Abraaj Buyout Fund II L.P.

$2,866 

Infrastructure Growth Capital Fund L.P.

$13,600 

Abraaj Real Estate Fund L.P.

$1,890 

Glouston PEH 2000 FTE LTD[10]

$201 

Goldman Sachs PEP IX

$1,688 

Global Opportunistic Fund I

$92 

Global Opportunistic Fund II

$331 

Abraaj Real Estate Fund L.P.

$378 

Havenvest Private Equity Middle East L.P.

$2,724 

Gulf Capital Equity Partners Fund II, L.P.

$3,889 

TNI Growth Capital Fund, L.P.

$2,374 

Lumina Real Estate SSF I L.P.

$339 

 Net Current Assets (Liabilities)

$(3,770)

Carry Refund from SPEF (included within trade and other receivables)

$4,183 

NAV

$30,785 

 

QANNAS INVESTMENTS LIMITED


INVESTMENT MANAGER'S REPORT - continued




FOR THE YEAR ENDED 31 DECEMBER 2016

 

 

Exits

 

During FY 2016, QIL exited the following investments:

 

·      Project Broadway

In February 2016, QIL completed the redemption of preferred shares in BLD and received ₤3.8 million in proceeds (including accrued preference dividends). QIL invested a total of ₤3.5 million in 2015 and generated (in USD) an IRR of 2.8% and a return multiple of 1.08x on exit.

 

·      Project Taj

In February 2016, QIL announced the exit of its investment in the secured Murabaha debt in Verne Preferred Limited ("VPL") and received US$1.06 million (AED 3.9 million) in exit proceeds. QIL invested a total of US$1.09 million (AED 4 million) in VPL in 2015 and received US$0.13 million in proceeds during the holding period. QIL generated an IRR of 12.9% and a return multiple of 1.1x on exit.

 

In addition to the above investment, QIL also exited partially from IEEF and Project PPP as highlighted in the Investment Update section. 

 

Corporate Activity

 

In Q1-2016, QIL bought back 889,840 Ordinary Shares at a price of $0.95 per Ordinary Share.

 

In Q1-2016, Jassim Alansaari Alseddiqi has resigned from his position as a Board Director of QIL.

 

QANNAS INVESTMENTS LIMITED


DIRECTORS' REPORT




FOR THE YEAR ENDED 31 DECEMBER 2016

 

 

The Directors present their report and the audited financial statements of the Company for the year ended 31 December 2016.

 

Principal activities

 

The Company's principal activity is that of generating value for shareholders by creating a portfolio of opportunistic investments in real estate, debt, and equities (both public and private) in the MENA region and Europe. Investments are made where there is liquidity requirement or portfolio repositioning on the part of a vendor such that assets become available at a discount to their intrinsic value. The Company aims to acquire such assets and subsequently dispose of them at a premium to their acquisition cost.

 

Results and dividends

 

The Statement of Comprehensive Income for the year is set out on page 13. The Company suffered Total Comprehensive Loss of $4,250,397 for the year ended 31 December 2016 (2015: $1,307,130). The Company made no distributions during the current or prior year.

 

Directors

 

The Directors who held office throughout the year and up to the date of approving the financial statements (unless otherwise indicated) were:

 

Jassim Mohamed Alseddiqi (resigned 16 March 2016)

            Richard John Stobart Prosser

            Christopher Ward (Chairman)

            Richard Green

            Mustafa Kheriba

 

Details of the financial interests of Directors are disclosed in note 3 of the financial statements.

 

Secretary

 

Codan Trust Company (Cayman) Limited were company secretary throughout the year and up to the date of approval of the financial statements.

 

Registered office

 

The registered office of the Company throughout the year and up to the date of approving the financial statements was that of Codan Trust Company (Cayman) Limited, Cricket Square, Hutchins Drive, P.O. Box 2681, George Town, Grand Cayman KY1-1111, Cayman Islands.

 

Independent auditor

 

BDO Limited is the independent auditor and has expressed its willingness to continue in office.

 

 

 

QANNAS INVESTMENTS LIMITED


DIRECTORS' REPORT




FOR THE YEAR ENDED 31 DECEMBER 2016


 

 

Responsibilities of the Directors

 

The Directors are responsible for preparing the annual report and financial statements in accordance with International Financial Reporting Standards as endorsed for use in the European Union ("IFRS"). In preparing these financial statements, the Directors are required to:

 

·      select suitable accounting policies and then apply them consistently;

 

·      make judgements and estimates that are reasonable and prudent;

 

·      specify which generally accepted accounting principles have been followed, subject to any material departures disclosed and explained in the financial statements; and

 

·      prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

 

The Directors are responsible for keeping accounting records which are sufficient to show and explain the Company's transactions and are such as to disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements prepared by the Company comply with the requirements of the Alternative Investment Market listing rules. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

 

The Directors confirm that they have complied with the above requirements.

 

Statement of disclosure to auditors

 

The Directors confirm that:

 

·      so far as they are aware there is no relevant audit information of which the Company's auditors are unaware; and

 

·      they have taken all steps they ought to have taken to make themselves aware of any relevant audit information and to establish that the Company's auditors are aware of that information.

 

 

By order of the board

 

 

 

 

 

 

Director

 

 

 

Date: ………………………………………..

 

 

 


 






INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF QANNAS INVESTMENTS LIMITED

 

We have audited the financial statements of Qannas Investments Limited (the 'Company') for the year ended 31 December 2016 which comprise the Statement of Comprehensive Income, Statement of Financial Position, Statement of Changes in Equity, Statement of Cash Flows and the related notes 1 to 22.  The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards as endorsed for use in the European Union.

 

This report is made solely to the Company's members as a body.  Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditors' report and for no other purpose.  To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.

 

Respective responsibilities of directors and auditor

As explained more fully in the Statement of Directors' Responsibilities, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view.  Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland).  Those standards require us to comply with the Financial Reporting Council's (FRC) Ethical Standards for Auditors.

 

Scope of the audit of the financial statements

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error.  This includes an assessment of: whether the accounting policies are appropriate to the Company's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements.

 

In addition, we read all the financial and non-financial information in the Chairman's Report, Investment Manager's Report and the Directors' Report to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit.  If we become aware of any apparent material misstatements or inconsistencies we consider the implication for our report.

 

Basis for qualified opinion on the financial statements

As disclosed in note 4 of the financial statements, included within investments at fair value through profit or loss with a carrying value of $74,114,197, is an investment in Goldilocks Fund with a carrying value of $18,662,159. The evidence available to us in relation to this investment is limited as the Directors of the Company have been unable to provide sufficient and appropriate audit evidence to verify its ownership, existence and valuation.

 

The following are also directly linked to the above limitation given the investment in Goldilocks Fund's carrying value and movement therein contribute to their measurement and disclosure:

 

-     Included within the net unrealised gain on investments at fair value through profit or loss of $159,597 is an unrealised gain of $12,122,241 on the Goldilocks Fund investment;

-     Included within the performance fee payable, with a carrying value of $2,537,372, is an amount of $1,818,336 which is as a result of the unrealised gain of the Goldilocks Fund investment;

-     Included within the movement in performance fee expense of $490,869 is the impact of the $1,818,336 which is as a result of the unrealised gain of the Goldilocks Fund investment;

-     The investment management fee payable, with a carrying value of $655,608, and the investment management fee expense for the year of $1,291,840, will have increased as a direct result of the unrealised gain on the Goldilocks Fund investment throughout the year;

-     The completeness and accuracy of the corresponding related party transactions connected to this investment included in note 20 and other disclosures noted in the Director's Report, Chariman's Report and Investment Manager's Report in respect of the investment in the Goldilocks Fund.

 

Had the information described in the basis for qualified opinion on the financial statements paragraph been available, we might have formed a different opinion on the financial statements.

 

Qualified opinion on financial statements

In our opinion, except for the possible effects of the matters as discussed in the basis for qualified opinion section of our report, the financial statements:

 

·      give a true and fair view of the state of the Company's affairs as at 31 December 2016 and of its loss for the year then ended; and

·      have been properly prepared in accordance with International Financial Reporting Standards as endorsed for use in the European Union.

 

 

 

BDO Limited

Chartered Accountants

Jersey

29 June 2017

 






 

QANNAS INVESTMENTS LIMITED


STATEMENT OF COMPREHENSIVE INCOME




FOR THE YEAR ENDED 31 DECEMBER 2016


 

 


Notes



2016



2015





$



$

Income








Movement in management and performance fee rebate receivable

17



(1,961,987)



138,531 

Investment income

4



766,108 



1,258,699 





(1,195,879)



1,397,230 

Expenditure








Secretarial and administration fees




(111,071)



(118,346)

Directors' remuneration

3



(75,017)



(92,026)

Insurance expense




(8,767)



(9,666)

Investment manager fees




(1,291,840)



(1,339,963)

Movement in performance fees

17



(490,869)



246,535 

Legal and professional fees




(227,270)



(263,042)

Audit fees




(43,253)



(65,399)

Sundry expenses




(82,336)



(34,138)

Bank charges




(861)



(2,083)

Realised loss on disposal of investments

4



(27,956)



-





(2,359,240)



(1,678,128)









Net loss




(3,555,119)



(280,898)









Net movement on changes in fair value of investments

4



159,597 



(569,253)

 

Impairment of loans receivable

 

 

5



 

(512,689)

 



 

Finance costs








Loan interest payable




(1,211,791)



(729,499)

Foreign exchange losses on loans receivable

5



(475,819)



(957,149)

Gain / (loss) on foreign exchange




144,197 



(109,353)









Finance income








Interest income - cash and cash equivalents




1,115 



4,172 

Interest income - loans receivable

5



1,200,112 



1,334,850 

Loss for the year before taxation




(4,250,397)



(1,307,130)









Taxation provision for the year

15





Loss for the year after taxation




(4,250,397)



(1,307,130)









Other comprehensive income






Total comprehensive (loss) for the year




(4,250,397)



(1,307,130)









Earnings per share








Basic EPS on (loss) for the year

14



(0.06)



(0.02)

 

 

QANNAS INVESTMENTS LIMITED


STATEMENT OF FINANCIAL POSITION




AS AT 31 DECEMBER 2016


 

 






31.12.16




31.12.15


Notes


$


$


$


$

Assets










Non-current assets










Investments at fair value










through profit and loss

4


55,370,362 




75,231,608 



Loans receivable

5


16,220,609 






Property investments

6





779,560 



Trade and other receivables

7


4,663,572 




7,027,920 



Total non-current assets





76,254,543 




83,039,088











Current assets










Investments at fair value










through profit and loss

4


18,743,835 




5,168,179 



Loans receivable

5





10,743,138 



Property investments

6


779,560 






Trade and other receivables

7


406,304 




1,178,927 



Receivable from investment manager

8





397,575 



Cash and cash equivalents

9


1,619,011 




7,264,513 



Total current assets





21,548,710 




24,752,332 











Total assets





97,803,253 




107,791,420 











Equity and liabilities










Equity










Management shares

12







Participating shares

12


67,799,019 




68,644,367 



Retained earnings

13, 19


(2,833,944) 




1,416,453 



Total equity





64,965,077 




70,060,822 











Liabilities










Current liabilities










Trade and other payables

10


904,411 




5,869,740 



Loans payable

11


4,500,000 




29,811,219 



Total current liabilities





5,404,411 




35,680,959 











Non-current liabilities










Trade and other payables

10


2,537,372 




2,049,639 



Loans payable

11


24,896,393 











27,433,765 




2,049,639 











Total liabilities and equity





97,803,253 




107,791,420 











Representing net asset value per Participating share





 

$0.94 




 

$1.00

 

The financial statements were approved and authorised for issue by the Board of Directors of Qannas Investments Limited and signed on their behalf by:

………………………………….                              

Director                                                                               Date

 

 

 

QANNAS INVESTMENTS LIMITED


STATEMENT OF CHANGES IN EQUITY




FOR THE YEAR ENDED 31 DECEMBER 2016


 

 


Management

Participating


Retained




share capital

share capital


earnings


Total



$


$


$


$










At 1 January 2015



76,638,586 


2,723,583 


79,362,171 










Purchase of participating shares under tender offer


(7,994,219)



(7,994,219)










Total comprehensive loss




(1,307,130)


(1,307,130)










At 31 December 2015



68,644,367 


1,416,453 


70,060,822 



















At 1 January 2016



68,644,367 


1,416,453 


70,060,822 









Purchase of participating shares under tender offer


(845,348)



(845,348)










Total comprehensive loss




(4,250,397)


(4,250,397)










At 31 December 2016



67,799,019 


(2,833,944)


64,965,077 

 

 

QANNAS INVESTMENTS LIMITED


STATEMENT OF CASH FLOWS




FOR THE YEAR ENDED 31 DECEMBER 2016


 

 


 



2016



2015





$



$









Operating activities








(Loss) for the year before taxation




(4,250,397)



(1,307,130)

Net movement on changes in fair value of investments




(159,597)



569,253 

Realised loss on disposal of investments




27,956 



Interest income




(1,201,227)



(1,339,022)

Loan interest payable




1,211,791 



729,499 

Foreign exchange losses on loans receivable




475,819 



957,149 

Impairment of loans receivable




512,689 



(Gain) / loss on foreign exchange




(144,197)



109,353 

Decrease in trade receivables




2,926,700 



85,286 

Decrease in receivable from investment manager




397,575 



17,602,425 

Decrease in trade payables




(4,470,174)



(406,710)

Net cash flow from operating activities




(4,673,062)



17,000,103 









Investing activities








Interest received - cash and cash equivalents




1,115 



66,774 

Interest received - loans receivable




1,227,724 




Issue of loans receivable




(10,251,246) 



(1,027,247)

Repayment of loans receivable




6,948,710 



Purchase of investments




(6,539,919)



(23,802,457)

Proceeds from disposal of investments




9,144,301 



Capital distributions received from investments




848,051 



1,339,457 

Purchase of property investments






(779,560)

Net cash flow from investing activities




1,378,736 



(24,203,033)









Financing activities








Drawdown of bank loan






19,800,000 

Loan interest paid




(940,872)



(502,084)

Loan fees




(640,000)



Purchase of own participating shares under tender offer




(845,348)



(7,994,219)

Net cash flow from financing activities




(2,426,220)



11,303,697 









Net (decrease) / increase in cash and cash equivalents




(5,720,546)



4,100,767 









Effect of foreign exchange movements




75,044 



(109,353)









Cash and cash equivalents at 1 January




7,264,513 



3,273,099 









Cash and cash equivalents at 31 December




1,619,011 



7,264,513 

 

 

 

 

 

QANNAS INVESTMENTS LIMITED


NOTES TO THE FINANCIAL STATEMENTS




FOR THE YEAR ENDED 31 DECEMBER 2016


 

 

1.       GENERAL INFORMATION

 

The Company is an exempt closed-end investment company listed on London's Alternative Investment Market ("AIM"), with an unlimited life, incorporated in the Cayman Islands. The registered office of the Company is that of Codan Trust Company (Cayman) Limited, Cricket Square, Hutchins Drive, P.O. Box 2681, George Town, Grand Cayman KY1-1111, Cayman Islands.

 

The Company's principal activity is that of investing, centred around a theme-based investment approach, which has evolved over the years, starting with a focus on distressed / opportunistic investments in the UAE in 2012 and 2013 and broadening to the acquisition of secondary portfolios of regional PE funds and European real estate investments since 2014. The Company's investment objective is to generate value for shareholders by creating a portfolio of opportunistic investments in real estate, debt, and equities (both public and private) in the MENA region and Europe. Investments will be made where there is a liquidity requirement or portfolio repositioning on the part of a vendor such that assets become available at a discount to their intrinsic value. The Company will aim to acquire such assets and then to dispose of them at a premium to their acquisition cost.

 

 

2.       SIGNIFICANT ACCOUNTING POLICIES

 

Basis of preparation

The financial statements have been prepared under the historical cost convention, except for the revaluation of certain financial instruments and investments which are included at fair value, and in accordance with applicable International Financial Reporting Standards as endorsed for use in the European Union ("IFRS") and, where applicable, the Association of Investment Companies Statement of Recommended Practice ("AIC SORP"). The principal accounting policies are set out below.

 

Basis of measurement

The Company classifies its investments in the following categories: investments at fair value through profit or loss and loans and receivables. The classification depends on the nature and purpose of each investment. The Directors determine the classification of its investments at initial recognition.

 

Investments at fair value through profit and loss

The Company classifies its investments in equity and limited partnership interests as financial assets at fair value through profit or loss.

 

Investments are recognised and de-recognised on the trade date - the date on which the Company commits to purchase or sell an investment. Investments are initially recognised at cost. Transaction costs are expensed as incurred in the Statement of Comprehensive Income. Investments are de-recognised when the rights to receive cash flows from the investments have expired or the Company has transferred substantially all risks and rewards of ownership.

 

Subsequent to initial recognition, investments are measured at their fair value. Gains and losses arising from changes in the fair value are presented in the Statement of Comprehensive Income in the period in which they arise.

 

Dividend income is recognised in the Statement of Comprehensive Income when the Company's right to receive payments is established.

 

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of financial assets and liabilities traded in active markets (such as publicly traded securities) are based on quoted market prices at the close of trading on the reporting date. The Company utilises the last traded market price for both financial assets and financial liabilities where the last traded price falls within the bid-ask spread. In circumstances where the last traded price is not within the bid-ask spread, the Directors will determine the point within the bid-ask spread that is most representative of fair value.


QANNAS INVESTMENTS LIMITED


NOTES TO THE FINANCIAL STATEMENTS




FOR THE YEAR ENDED 31 DECEMBER 2016


 

 

2.       SIGNIFICANT ACCOUNTING POLICIES

 

Investments at fair value through profit and loss - continued

The fair value of financial assets and liabilities that are not traded in an active market is determined using valuation techniques. The Company uses a variety of methods and makes assumptions that are based on market conditions existing at each reporting date. Valuation techniques used include the use of comparable recent arm's length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants making the maximum use of market inputs and relying as little as possible on entity-specific inputs.

 

Loans receivable

Loans receivable are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are classified as loans and receivables.

 

Loans receivable are recognised on the date on which the Company commits to provide a loan. The loans are initially recognised at cost. Transaction costs associated with the loans are spread over the life of the facility using the effective interest rate method. Loans receivable are derecognised when the rights to receive interest income have expired and the loan has been repaid.

 

Subsequent to initial recognition, loans receivable are measured at amortised cost using the effective interest rate method, less provision for impairment.

 

Interest income is recognised in the Statement of Comprehensive Income when the Company's right to receive payments is established.

 

Property investments

The Company classifies property investments at fair value through profit or loss.

 

Acquisition of property under construction is made in stages with deposits paid to secure the Company's investment.  Such payments are recognised at cost and subsequently measured at fair value on completion of the development.

 

These investments are recognised and de-recognised on the trade date - the date on which the Company commits to purchase or sale. Transaction costs are expensed as incurred in the Statement of Comprehensive Income. These investments are derecognised when the rights to receive cash flows have expired or the Company has transferred substantially all risks and rewards of ownership.

 

Subsequent to initial recognition, these investments are measured at fair value. Gains and losses arising from changes in the fair value are presented in the Statement of Comprehensive Income in the period in which they arise.

 

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

 

Functional and presentational currency

The performance of the Company is measured and reported to the investors in US dollars. The Board of Directors considers the US dollar as the currency that most faithfully represents the economic effects of the underlying transactions, events and conditions. The financial statements are presented in US dollars, which is the Company's functional and presentation currency.


QANNAS INVESTMENTS LIMITED


NOTES TO THE FINANCIAL STATEMENTS




FOR THE YEAR ENDED 31 DECEMBER 2016


 

 

2.       SIGNIFICANT ACCOUNTING POLICIES

 

Use of estimates and judgements

The preparation of the financial statements in conformity with IFRS and applicable law requires the Directors to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates with the most significant effects on the carrying amounts of the assets and liabilities in the financial statements are outlined below:

 

(i)    Valuation of unquoted investments - The fair value of these is determined via valuation techniques. For further details of the judgements and assumptions made see note 18.

 

(ii)    Valuation of quoted investments - These are valued at the last traded price on the reporting date and in accordance with IFRS, no discount is applied for the liquidity of the stock or any dealing restrictions.

 

(iii)   Valuation of loans receivable - Loans receivable are held at amortised cost. The Directors undertake regular impairment reviews of loans receivable to ensure that they remain recoverable.

 

(iv)   Valuation of property investments - These are valued with reference to similar sales transactions. Prices of comparable transactions in similar locations are adjusted for key differences in attributes such as size.

 

Foreign currencies

 

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign currency assets and liabilities are translated into the functional currency using the exchange rate prevailing at the Statement of Financial Position date.

 

Foreign exchange gains and losses arising from translation are included in the Statement of Comprehensive Income. Foreign exchange gains and losses relating to cash and cash equivalents are presented in the Statement of Comprehensive Income. Foreign exchange gains and losses relating to the financial assets and liabilities carried at fair value through profit or loss are presented in the Statement of Comprehensive Income within 'net movement on changes in fair value of investments'.

 

Financial assets and liabilities

The Company classifies its financial assets and liabilities as follows:

 

Cash and cash equivalents

Cash and cash equivalents comprises deposits held at call with banks.

 

Trade and other receivables

Trade and other receivables are initially recognised at fair value and subsequently carried at amortised cost; their carrying values are a reasonable approximation of fair value.

 

Trade receivables include the contractual amounts for the settlement of trades and other obligations due to the Company.

 

 

 


QANNAS INVESTMENTS LIMITED


NOTES TO THE FINANCIAL STATEMENTS




FOR THE YEAR ENDED 31 DECEMBER 2016


 

 

2.       SIGNIFICANT ACCOUNTING POLICIES

 

Financial assets and liabilities - continued

 

Receivable from investment manager

Receivable from investment manager comprises deposits held by the Investment Manager in order to allow them to facilitate on-going transactions arising from structures at different stages of formation.

 

Trade and other payables

Trade and other payables are initially recognised at fair value and subsequently carried at amortised cost; their carrying values are a reasonable approximation of fair value.

 

Trade and other payables represent contractual amounts and obligations due by the Company.

 

Loans payable

Loans payable are measured initially at cost. Subsequent to initial recognition, they are measured at amortised cost using the effective interest rate method. They are classified as loans and receivables. These financial liabilities are recognised when the Company enters into a loan agreement and are derecognised when the loan agreement is terminated.

 

The effective interest rate method is a method of calculating the amortised cost of a financial liability and of allocating the interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts over the expected life of the financial instrument, in order that the present value of the future cash flows, including fees or transaction costs, is equal to the carrying amount of the financial instrument.

 

Finance costs associated with loans payable have been spread on an effective interest rate constant basis over the life of the loan.

 

Shares in issue

Management Shares are not redeemable, do not participate in the net income or dividends of the Company and are recorded at $1.00 per share.

 

Participating shares in issue are not redeemable at the shareholder's option.

 

Participating shares which are acquired by the Company are recognised at cost and deducted from equity. No gain or loss is recognised in the Statement of Comprehensive Income on the purchase, sale, issue or cancellation of the Company's own equity instruments. Any differences between the carrying amount and the consideration are recognised in retained earnings.

 

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable in the normal course of business. The Company recognises revenue when the amount of revenue can be reliably measured and when it is probable that the future economic benefits will flow into the Company.

 

Taxation

The Company is domiciled in the Cayman Islands and is treated as resident for tax purposes and is subject to the zero per cent standard income tax rate.

 

Expenditure and transaction costs

All items of expenditure, including the performance and management fees, are recognised on an accruals basis.

 

Distributions payable

The payment of dividends will depend on the availability of distributable reserves, cash resources and the working capital requirements of the Company. Dividends paid are included in the Company financial statements in the period in which the related dividends are declared.


QANNAS INVESTMENTS LIMITED


NOTES TO THE FINANCIAL STATEMENTS




FOR THE YEAR ENDED 31 DECEMBER 2016


 

 

2. SIGNIFICANT ACCOUNTING POLICIES

 

Non consolidation

The Company fulfils the definition of an investment entity under IFRS 10 ("Consolidated Financial Statements") and as a result does not consolidate investments in subsidiaries but instead measures its investment at fair value through profit and loss. IFRS 10 defines an investment entity as one that obtains funds from investors for the purpose of providing investors with investment management services, commits to its investors that its purpose is to invest funds solely for returns from capital appreciation, investment income or both and measures and evaluates the performance of substantially all its investments on a fair value basis.

 

Going concern

The Directors, after making due enquiries, continue to adopt the going concern basis in preparing the financial statements which assumes that the Company will continue in operation for the foreseeable future.

 

Segmental reporting

The Company is operated as one segment by the Board of Directors (which is considered to be the Chief Operating Decision Maker).

 

Operating segments are reported in a manner consistent with the internal reporting used by the Chief Operating Decision Maker. The Board of Directors is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors.

 

The Directors make the strategic resource allocations on behalf of the Company. The Company has determined the operating segments based on the reports reviewed by the Board of Directors, which are used to make strategic decisions.

 

The Board of Directors is responsible for the Company's entire portfolio and considers the business to have a single operating segment. The Board of Directors asset allocation decisions are based on a single, integrated investment strategy, and the Company's performance is evaluated on an overall basis.

 

The Company trades in a diversified portfolio of securities with the objective of generating value for shareholders.

 

The internal reporting provided to the Board of Directors for the Company's assets, liabilities and performance is prepared on a consistent basis with the measurement and recognition principles of IFRS.

 

There were no changes in the reportable segments during the year.

 

Adoption of new and revised standards

The Directors have assessed the impact, or potential impact, of all new accounting requirements. In the opinion of the Directors, there are no mandatory new accounting requirements applicable in the current year that have any material effect on the reported performance, financial position, or disclosures of the Company. The Company has not adopted any new accounting requirements that are not mandatory.

 

Amendments adopted early by the Company

There were no standards, amendments and interpretations which are effective for the financial year beginning on 1 January 2016 that were material to the Company, except for the amendments to IFRS10, IFRS12 and IAS28 in respect of the application of the consolidation exemption to investment entities.

 

The changes to IFRS10, IFRS12 and IAS28 have been applied within these financial statements historically.

 

New standards and interpretations not yet adopted

A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after 1 January 2017, and have not been adopted in preparing these financial statements: -

 

 

 

QANNAS INVESTMENTS LIMITED


NOTES TO THE FINANCIAL STATEMENTS




FOR THE YEAR ENDED 31 DECEMBER 2016


 

 

2.       SIGNIFICANT ACCOUNTING POLICIES

 

Adoption of new and revised standards

 

New standards and interpretations not yet adopted

 

IFRS 9 Financial Instruments

IFRS 9 addresses the classification, measurement and recognition of financial assets and financial liabilities. The complete version of IFRS 9 was issued in July 2014. It replaces the guidance in IAS 39 that relates to the classification and measurement of financial instruments. IFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortised cost, fair value through OCI and fair value through P&L. The basis of classification depends on the entity's business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are required to be measured at fair value through profit or loss with the irrevocable option at inception to present changes in fair value in OCI not recycling. There is now a new expected credit losses model that replaces the incurred loss impairment model used in IAS 39.

 

For financial liabilities there were no changes to classification and measurement except for the recognition of changes in own credit risk in other comprehensive income, for liabilities designated at fair value through profit or loss. IFRS 9 relaxes the requirements for hedge effectiveness by replacing the bright line hedge effectiveness tests. It requires an economic relationship between the hedged item and hedging instrument and for the 'hedged ratio' to be the same as the one the Directors actually use for risk management purposes. Contemporaneous documentation is still required but is different to that currently prepared under IAS 39. The standard is effective for accounting periods beginning on or after 1 January 2018. Early adoption is permitted, subject to EU endorsement.

 

The Directors anticipate that the application of IFRS 9 in the future may have an impact on the presentation of the Company's financial assets. However, it is not practicable to provide a reasonable estimate of the effect of IFRS 9 until a detailed review has been completed. The Directors will undertake this review in due course.

 

IFRS 15 Revenue from Contracts with Customers

IFRS 15 deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers. Revenue is recognised when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service. The standard replaces IAS 18 'Revenue' and IAS 11 'Construction contracts' and related interpretations. The standard is effective for annual periods beginning on or after 1 January 2018 and earlier application is permitted, subject to EU adoption. The Company is in the process of assessing the impact of IFRS 15.

 

3.   DIRECTORS' REMUNERATION AND INTERESTS

 

The remuneration of the individual Directors who served in the year to 31 December 2016 was:

 



31.12.16


31.12.15



$


$






Jassim Mohamed Alseddiqi



Richard John Stobart Prosser


24,546 


26,344 

Christopher Ward


25,255 


35,759 

Richard Green


25,216 


29,923 

Mustafa Kheriba





75,017 


92,026 


QANNAS INVESTMENTS LIMITED


NOTES TO THE FINANCIAL STATEMENTS




FOR THE YEAR ENDED 31 DECEMBER 2016


 

 

3.       DIRECTORS' REMUNERATION AND INTERESTS

 

Directors' interests in the shares of the Company, including family interest, at 31 December 2016 were:

 


Share

Nominal


% Held






Jassim Mohamed Alseddiqi

Participating shares

2,018,778

*

2.90%

Christopher Ward

Participating shares

100,000


0.14%

Richard Green

Participating shares

100,000


0.14%

Mustafa Kheriba

Participating shares

531,278


0.76%

 

* In addition to the above, Jassim Mohamed Alseddiqi also has an indirect interest in 5,601,579 shares.

 

 

4.       INVESTMENTS AT FAIR VALUE THROUGH PROFIT AND LOSS

 



31.12.16


31.12.15



$


$






Fair value brought forward


80,399,787 


53,213,946 

Additions


6,539,918 


29,094,551 

Disposals


(12,109,098)


Realised losses


(27,956)


Capital distributions


(848,051)


(1,339,457)

Unrealised gain/(losses) on the revaluation of investments


159,597 


(569,253)

Fair value at 31 December


74,114,197 


80,399,787 

 

Investments comprise:







31.12.16


31.12.15







Fair Value


Fair Value







$


$

Non-current assets









Madaares PJSC





68,063 

SPE Qannas C Limited






5,789,942 


8,193,775 

ADCM Secondary Private Equity Fund L.P. ("ADCM SPEF")


26,602,072 


35,791,687 

EE F&B Holding Limited






4,089,162 

Palace Preferred Partners L.P.





3,370,229 


7,480,803 

BL Development Limited






5,167,180 

Verne Preferred Limited






999 

Integrated Financial Group, LLC






19,608,118 


19,608,118 






55,370,362 


80,399,787 

           

Current assets









Goldilocks Fund






18,662,159 


Madaares PJSC




81,676 






18,743,835 


-

 

Total





74,114,197 


80,399,787 

 

The fair values of the investments are based on the latest available net asset value reports and / or financial information available of the underlying companies.

 

 

QANNAS INVESTMENTS LIMITED


NOTES TO THE FINANCIAL STATEMENTS




FOR THE YEAR ENDED 31 DECEMBER 2016


 

 

4.       INVESTMENTS AT FAIR VALUE THROUGH PROFIT AND LOSS

 

Investments at 31 December 2016 comprise:



Class of


No. of


Percentage


Book



shares


shares held


holding


Cost









$










Madaares PJSC


Ordinary


250,000


0.03%


68,063 

SPE Qannas C Limited


Preference


8,039,559


74.3%


7,930,886 

ADCM Secondary Private Equity Fund L.P.


-


-


96.5%


32,679,105 

EE F&B Holding Limited



1,000


100%


Palace Preferred Partners L.P.



-


10.57%


3,343,247 

Goldilocks Fund



17,341,475


7.7%


6,539,918 

Integrated Financial Group, LLC



73,908


47.4%


18,667,177 








69,228,397 

 

In February 2016, the Company made an equity investment of $5.45 million in Project Goldilocks ("Goldilocks"), an investment strategy used by the Company's investment manager to invest in public equities listed on the GCC stock exchanges. The investment was in units in a co-mingled pool and made at the then NAV of $0.37 per unit. In the same month, the Company made another $1.1m investment as a follow-on investment in Goldilocks at the then NAV of $0.44 per unit.

 

Goldilocks was managed by Integrated Capital ("IC"), a UAE Central Bank licensed Investment Firm based in Abu Dhabi, UAE and a wholly-owned subsidiary of Integrated Financial Group, LLC. QIL made the investments in Goldilocks on the basis of a Subscription Service Agreement with IC signed in February 2016.

 

Subsequent to the year end, the investment was transferred to Goldilocks Investment Company Limited (the "Fund"), a company incorporated under limited liability law of Abu Dhabi Global Market. The Fund is managed by ADCM Altus Investment Management Limited, with an independent fund administrator Apex Fund Services Limited.

 

During the year ended 31 December 2016, the Company divested the following investments: -

·      The holding in BL Development, realising proceeds of $5,000,100 (GBP3,500,000). The disposal resulted in a reduction of $167,080 over cost as at 31 December 2015;

·      The holding in Verne Preferred Limited realising proceeds of $999. There was no gain or loss arising on disposal; and

·      Part of the holding in Palace Preferred Partners L.P. for proceeds of $4,025,741 (GBP3,300,000). The disposal resulted in a gain of $139,124 over cost as at 31 December 2015.

·      Part of the holding in EE F&B Holding Limited, which was previously invested through Abu Dhabi Financial Group, amounting to $2,963,798 (€2,695,710) was converted into a loan receivable during the year. The remaining balance of the investment was written down to $1 based on anticipated cash flows, which are considered to relate to the loan balance.

 

During the year ended 31 December 2016, the Company received the following income from its investments: -

·      $693,856 (2015: $892,971) from ADCM Secondary Private Equity Fund L.P.; and

·      $72,252 (2015: $365,728) from BL Development Limited.

 

At 31 December 2016 the Company had entered into the following commitment:


Total


Commitment


Commitment


Outstanding at




31.12.16

Palace Preferred Partners L.P.

£8,741,641


£6,600,000

 

The loan due to First Gulf Bank PJSC (as detailed in note 11) is secured by way of a charge over the Company's investment in ADCM Secondary Private Equity Fund L.P., SPE Qannas C Limited and Palace Preferred Partners L.P.

QANNAS INVESTMENTS LIMITED


NOTES TO THE FINANCIAL STATEMENTS




FOR THE YEAR ENDED 31 DECEMBER 2016


 

5.       LOANS RECEIVABLE

 



31.12.16


31.12.15



$


$






Brought forward


10,743,138 


9,463,120 

Additions


13,215,045 


1,089,918 

Capitalised loan interest


160,775 


1,147,249 

Disposals


(6,909,841)


Impairment


(512,689)


Losses on foreign exchange


(475,819)


(957,149)



16,220,609 


10,743,138 

 

At 31 December 2016, loans receivable comprise: -

 


Interest


Maturity


Carrying


Carrying



rate


Date


value


Value







CCY


$










Capital Hotel d.o.o.


4%


24 July 2018


EUR9,237,638


9,732,406 

EE F&B Holding Limited


4%


Not defined


EUR3,480,710


3,308,753 

Integrated Eastern European Fund


12%


August 2018


EUR1,386,490


1,521,950 

Integrated Eastern European Fund


12%


August 2018


EUR1,103,457


1,211,265 

Lucice Montenegro d.o.o.


12%


August 2018


EUR23,177


25,441 

Arqutino EAD


12%


August 2018


EUR236,876


Capitalised interest






EUR146,466










16,220,609 

 

Each of the loans is denominated in EUR with movements arising on revaluation included within the Statement of Comprehensive Income as foreign exchange losses on loans receivable.

 

During the year the loan facility with Verne Preferred Limited was repaid in full as were parts of the loan facilities with Integrated Eastern European Fund, Lucice Montenegro d.o.o. and Arquinto EAD.

 

In July 2016, the company granted a loan facility to Capital Hotel d.o.o.. The loan term is for 2 years from issue and bears interest at the rate 4%.

 

The company increased the loan facility with EE F&B Holding Limited during 2016 by $2,693,798 (€2,595,710) in July 2016 following a reassignment of its investment. This loan and investment was subsequently impaired by $512,689 at the year-end following a review of the counterparty by the investment manager.

 

Loan interest in respect of the above loans totalling $1,200,112 (2015: $1,334,850) is included in the Statement of Comprehensive Income for the year.

 

The loans to Integrated Eastern European Fund (formerly European Injaz Eastern Property Development Company Limited), Lucice Montenegro d.o.o. and Arqutino EAD are secured by way of share pledges and mortgage agreements in the underlying companies.

 

 

 

 

 

QANNAS INVESTMENTS LIMITED


NOTES TO THE FINANCIAL STATEMENTS




FOR THE YEAR ENDED 31 DECEMBER 2016


 

 

6.       PROPERTY INVESTMENTS

 



31.12.16


31.12.15



$


$






Fair value brought forward


779,560 


Additions



779,560 

Fair value at 31 December


779,560 


779,560 

 

This represents the deposit paid by the Company to acquire 2 premium units (the 'units') in the development Marina 101 at Dubai Marina. The total cost of the units will be AED 9.1m ($2.5m), of which AED 2.9m ($779,560) had been paid at 31 December 2016.

 

The units each have three bedrooms and are located on the 88th floor, one with a seaside view and one with a view over the Sheikh Zayed Road. The units are 3,653 square feet in size and come with underground parking spaces.

 

 

7.       TRADE AND OTHER RECEIVABLES

 



31.12.16


31.12.15



$


$

Non-current





Performance fee rebate receivable (see note 17)


4,663,572 


7,027,920 






Current





Sundry debtors


34 


34 

Management fee rebate receivable (see note 17)


98,618 


318,552 

Loan interest and income receivable


286,872 


497,143 

Investment income receivable



352,687 

Prepayments


20,780 


10,511 



406,304 


1,178,927 

 

The performance fee rebate receivable will become due at the time of completion of the liquidation of the funds of ADCM Secondary Private Equity Fund L.P. and SPE Qannas C Limited.

 

The Directors consider that the carrying amount of trade and other receivables approximates to their fair value.

 

 

8.       RECEIVABLE FROM INVESTMENT MANAGER

 

Receivable from investment manager represented amounts advanced to ADCM Ltd during the year ended 31 December 2014 for deployment into various investments following the year end.

 

As at 31 December 2016 all of the funds have been utilised and either converted into investments or returned to the Company. At 31 December 2015 $397,575 remained uninvested.

 

 

 

 


QANNAS INVESTMENTS LIMITED


NOTES TO THE FINANCIAL STATEMENTS




FOR THE YEAR ENDED 31 DECEMBER 2016


 

 

9.       CASH AND CASH EQUIVALENTS

 



31.12.16


31.12.15



$


$






First Gulf Bank


1,545,898 


7,001,437 

Royal Bank of Scotland International


73,113 


263,076 



1,619,011 


7,264,513 

 

 

10.     TRADE AND OTHER PAYABLES

 



31.12.16


31.12.15



$


$

Non-current





Performance fees


2,537,372 


2,049,639 






Current





Secretarial, administration and accountancy fees


24,790 


73,414 

Director fees


13,565 


30,080 

Investment manager fees


655,608 


313,822 

Performance fees


13,911 


10,774 

Legal and professional fees        


28,060 


58,651 

Audit fees


28,364 


31,092 

Sundry expenses


 3,263 


3,552 

Loan interest payable


136,849 


91,104 

Loan interest received in advance



52,169 

Investments payable



999 

Unquoted investment purchase payable



5,204,082 

Participating shares





904,411 


5,869,740 

 

The Directors consider that the carrying amount of trade and other payables approximates to their fair value.

 

 


QANNAS INVESTMENTS LIMITED


NOTES TO THE FINANCIAL STATEMENTS




FOR THE YEAR ENDED 31 DECEMBER 2016


 

 

11.     LOANS PAYABLE

 



31.12.16


31.12.15



$


$

Loan Capital





Brought forward


30,000,000


10,000,000 

Drawn down in year



20,000,000 






Issue Costs





Brought forward


(188,781)


(152,767)

Incurred in the year


(640,000)


(200,000)

Amortised during the year


225,174 


163,986 



29,396,393 


29,811,219 

 

The Company has a loan facility with First Gulf Bank for up to $30,000,000. The loan facility was refinanced in November 2016 and now bears interest at the rate of LIBOR + 3.5% per annum (previously LIBOR + 2.5% per annum) and is repayable in quarterly instalments commencing 30 June 2017, with a final repayment date of 31 December 2019. Amounts due within the next 12 months total $4,500,000.

 

The loan is secured by way of a pledge with First Gulf Bank PJSC in respect of the receivable accounts held by the Company and by way of a charge over the Company's investment in ADCM Second Private Equity Fund L.P., SPE Qannas C Limited, Palace Preferred Partners L.P., Integrated Financial Group LLC and Marina 101.

 

The loan is measured at its net proceeds with the issue costs being spread at a constant rate using the effective interest rate over the life of the loan.

 

 

12.     SHARE CAPITAL

 



31.12.16


31.12.15

Management shares










Authorised:





2 ordinary non-participating shares of no par value


2


2








$


$

Issued and fully paid:





2 shares of $1 each


2


2











Participating shares










Authorised:





Unlimited participating shares of no par value


-


-








$


$

Issued and fully paid:





68,828,605 (2015: 69,718,445) participating shares of





no par value at various issue prices


76,638,587


76,638,587






Treasury shares:





10,502,749 (2015: 9,612,909) participating shares of no par value redeemed at various prices


 

(8,839,568)


 

(7,994,220)

 

 

 

QANNAS INVESTMENTS LIMITED


NOTES TO THE FINANCIAL STATEMENTS




FOR THE YEAR ENDED 31 DECEMBER 2016


 

 

12.     SHARE CAPITAL - continued

 

In addition to the above, the Company has two further share classes - redeemable 'B' and redeemable 'C'. Both of these share classes have an unlimited number of participating shares of no par value authorised for issue. At 31 December 2016 and 31 December 2015 no redeemable 'B' shares and redeemable 'C' shares were in issue.

 

Management shares

 

The Management Shares carry no right to receive any dividends, whether by way of finance costs, return of capital or otherwise, other than the return (on a winding up) of the issue price paid on such shares, are non-redeemable and are recorded at $1.00 per share.

 

Participating shares

 

Participating Shares carry the right to receive a dividend out of the income of the Company in such amounts and at such times that the Directors shall determine, and to receive a dividend on a return of capital of the assets of the Company on a winding up, in proportion to the number of shares held. Participating shares in issue are redeemable at the option of the Company.

 

During the year, the Company redeemed 889,840 $1 participating shares at a price of $0.95 per share. These shares are held as treasury shares and as such are not entitled to any dividends paid by the Company or any rights to vote at meetings of the Company.

 

During the prior year, the Company redeemed 8,414,964 $1 participating shares as part of a tender offer at a price of $0.95 per share. These shares are held as treasury shares and as such are not entitled to any dividends paid by the Company or any rights to vote at meetings of the Company.

 

B Shares

This class of share has no rights to receive dividends, to receive notice of or vote at general meetings of the Company or to receive amounts available for distribution on a winding up, for the purpose of a reorganisation or otherwise or upon any distribution of capital.

 

C Shares

The Directors are authorised to issue C Shares of different classes which are convertible into Participating Shares. If the shares were converted into Participating Shares, then these shares would rank equal to, and hold the same rights attaching to, Participating Shares currently in issue at the date of conversion.

 

This class of share will be entitled to receive such dividends as the Directors may resolve to pay to such shares out of the assets attributable to this class of share. This class of share carries no right to attend or vote at any general meeting of the Company. The capital and assets of the Company on a winding up or on a return of capital attributable to this class of share shall be divided amongst the shareholders of this class of share according to their holding.

 

  

 


 

QANNAS INVESTMENTS LIMITED


NOTES TO THE FINANCIAL STATEMENTS




FOR THE YEAR ENDED 31 DECEMBER 2016


 

 

13.     RETAINED EARNINGS - UNREALISED AND REALISED SPLIT

 

Retained earnings at 31 December 2016 comprise the following revenue items, split between realised and unrealised income: -

 



Unrealised


Realised


Total



$


$


$

Balance at 1 January 2016


9,769,524 


(8,353,071)


1,416,453 

Income


(1,961,987)


766,108 


(1,195,879)

Expenditure



(2,359,240)


(2,359,240)

Net gains and losses on investments


159,597



159,597 

Impairment of loans receivable


(512,689)



Loan interest payable



(1,211,791)


(1,211,791)

Foreign exchange losses on loans receivable


(475,819)



Gain on foreign exchange



144,197 


Interest income - cash and cash equivalents



1,115 


Interest income - loans receivable



1,200,112 


1,200,112 

Balance at 31 December 2016


6,978,626 


(9,812,570)


(2,833,944) 

 

The retained earnings are distributable to the investors at the discretion of the Directors if, in their opinion, the profits of the Company justify such payments. The Directors consider the future requirements of the Company when making such distributions.

 

 

14.     EARNINGS PER SHARE

 

Earnings per share is calculated by dividing the profit attributable to the participating shareholders of the Company by the weighted average number of participating shares in issue during the year, excluding the average number of participating shares purchased by the Company and held as treasury shares.

 

Up until 18 March 2016, there were 69,718,445 preference shares in issue. On 18 March 2016 the Company repurchased 889,840 preference shares which are held in equity as treasury shares. The average number of shares in issue during the year ended 31 December 2016 was 69,013,416.

 



31.12.16


31.12.15






Total loss for the year after taxation ($)


(4,250,397)


(1,307,130)

Weighted average number of participating shares in issue


69,013,416 


77,369,081 

Basic earnings per share ($ per share)


(0.06)


(0.02)

 

The Company has not issued any shares or other instruments that are considered to have dilutive potential.

 

 

15.     TAXATION

 

Provision has been made in these financial statements for Cayman Islands income tax at 0%.

 

 

16.     DISTRIBUTIONS

 

Distributions of $nil (2015: $nil) were paid during the year.

 

 

 


QANNAS INVESTMENTS LIMITED


NOTES TO THE FINANCIAL STATEMENTS




FOR THE YEAR ENDED 31 DECEMBER 2016


 

 

17.     PERFORMANCE FEES

 

The Investment Manager is entitled to a fee based upon the performance of the investments (the "Performance Fee"). The calculation for this fee changed in 2014 following the acquisition of interests in ADCM SPEF and SPE Qannas C Limited.

 

Performance Fee calculation to 27 March 2014

 

Up until 27 March 2014, the Performance Fee was payable once the Company had made aggregate distributions in cash to the shareholders, in accordance with the following methodology:

 

The Company firstly had to make distributions to shareholders equivalent to:

 

i)          their gross share subscription price paid (the "contributed capital"), and

 

ii)          a premium of "simple" interest of 7% per annum on the contributed capital (the "preferred return").

 

When the thresholds had been met then:

 

i)          on the event of any further cash distributions to shareholders the Investment Manager was entitled to an equal amount until they have received payments which in total are equivalent to 20% of the amounts distributed to the shareholders in excess of the contributed capital.

 

ii)          when the 20% has been achieved, the Investment Manager is entitled to 20% of any further cash distributions.

 

The above calculation was replaced by a new method of calculation that was applied from 27 March 2014.

 

Performance Fee calculation since 27 March 2014

 

Under the new method of calculation, the Investment Manager is entitled to be paid a performance fee in respect of each asset in the Company's portfolio from time to time.

 

On the disposal by the Company of the whole or part of its interest in any Asset, the Investment Manager shall be entitled to a Performance Fee equal to 15 percent of the amount by which the net disposal proceeds (after deducting the costs incurred and any taxes payable in connection with such disposal) together with the net proceeds of any previous disposal of interests in such Asset (together, the "Total Proceeds") are greater than the cost (including any fees and expenses) of acquiring the Asset (the "Acquisition Cost").

 

For the unquoted investments of ADCM SPEF and SPE Qannas C Limited, acquired in March 2014, each of their underlying fund investments will be considered as separate Assets. As such the Acquisition Cost in respect of each underlying fund investment shall be deemed to be such proportion of the ADCM SPEF and SPE Qannas C Limited consideration (after being adjusted for the net receivables from ADCM SPEF and SPE Qannas C Limited investors (on an individual basis)) as is attributable to such ADCM SPEF and SPE Qannas C Limited Assets. Similarly, the date of acquisition of any ADCM SPEF and SPE Qannas C Limited asset shall be deemed to be the effective date of 27 March 2014 relating to ADCM SPEF and SPE Qannas C Limited.

 

Any Performance Fee payable by the Company to the Investment Manager shall be reduced to the extent required to ensure that, in respect of the Asset to which the Performance Fee relates, an amount equal to a simple 7 per cent per annum return on the Acquisition Cost of such Asset from the date of its acquisition to the date on which the Total Proceeds first exceed the Acquisition Cost has been retained by the Company before the payment of any Performance Fee to the Investment Manager.

 

Any Performance Fee payable by the Company to the Investment Manager shall be paid to the Investment Manager within 10 days of the receipt by the Company of the relevant disposal proceeds.

 

As a result of the above mentioned change in Performance Fee structure, the Performance Fee accrual was reduced by $1,149,109.69 during 2014. The Investment Manager also returned 1,197,945 participating shares for an aggregate price of $1 which were issued under original agreement to the Investment Manager in lieu of management fee before 27 March 2014.

 

 

QANNAS INVESTMENTS LIMITED


NOTES TO THE FINANCIAL STATEMENTS




FOR THE YEAR ENDED 31 DECEMBER 2016


 

 

17.     PERFORMANCE FEES - continued

 

Rebates

Following the acquisition of ADCM SPEF, in order to prevent the double-charging of Management and Performance Fees ADCM Ltd (in its capacity as Investment Manager to ADCM SPEF) and ADCM SPEF GP Limited (in its capacity as general partner of ADCM SPEF) entered into an agreement with the Company, such that they shall rebate to the Company any Management Fee or Performance Fee that they receive from ADCM SPEF, which is attributable to the Company's percentage ownership of ADCM SPEF.

 

Following the acquisition of SPE Qannas C Limited, in order to prevent the double-charging of Performance Fees, ADCM Ltd (in its capacity as Investment Manager to SPE Qannas C Limited) entered into an agreement with the Company, such that they shall rebate to the Company any Performance Fee that they receive from SPE Qannas C Limited.

 

The Company has accrued Management Fee rebate income in respect of ADCM SPEF of $98,618 at 31 December 2016 (2015: $318,552). The Company has accrued Performance Fee rebate income in respect of ADCM SPEF and SPE Qannas C Ltd of $4,663,572 at 31 December 2016 (2015: $7,027,920).

 

The timing of receipt of the Performance Fee rebate is uncertain and is dependent on the realisation of the underlying investments held by ADCM SPEF and SPE Qannas C Limited. As such, the Performance Fee rebate has been classified as a non-current asset within the Statement of Financial Position.

 

A reconciliation of the rebate recognised in the statement of comprehensive income can be seen below:

 



31.12.16


31.12.15



$


$






Opening performance fee rebate receivable (note 7)


(7,027,920)


(7,315,202)

Opening management fee rebate receivable (note 7)


(318,552)


(465,925)

Management fee rebate received in the year


622,295 


573,186 

Closing performance fee rebate receivable (note 7)


4,663,572 


7,027,920 

Closing management fee rebate receivable (note 7)


98,618 


318,552 



(1,961,987)


138,531 

 

18.     FINANCIAL RISK MANAGEMENT

 

          The Company's activities expose it to a variety of financial risks: market risk (including price risk, interest rate risk and foreign currency risk), credit risk and liquidity risk. The Company's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Company's financial performance.

 

          The management of these risks is performed by the Board of Directors. The policies for managing each of these risks are summarised below.

 

          Management of market risk

 

          Price risk

          The Company is exposed to market price risk in respect of its portfolio of investments via equity securities price risk. The risk arises from investments held by the Company for which prices in the future are uncertain. Where non-monetary financial instruments are denominated in currencies other than the US dollar, the price initially expressed in foreign currency and then converted into US dollar will also fluctuate because of changes in foreign exchange rates (further details on the foreign exchange risk can be seen later in this note).

 

The Company mitigates price risk by having established investment appraisal processes and asset monitoring procedures which are subject to overall review by the board. The Company also manages the risk by appropriate diversification of its assets.

 

          Details of the Company's investments are given in notes 4, 5 and 6.

 

 

 

QANNAS INVESTMENTS LIMITED


NOTES TO THE FINANCIAL STATEMENTS




FOR THE YEAR ENDED 31 DECEMBER 2016


 

 

18.     FINANCIAL RISK MANAGEMENT - continued

         

          Management of market risk - continued

 

Price risk sensitivity

          The table below summarises the impact on the Company's profit before taxation for the year and on equity of a 10 per cent increase / decrease in the price of the investment portfolio. The sensitivity is based on the effect of the market volatility in the current climate and previous experience with regards to the Company's quoted investment.

           



2016


2015

Impact of a 10% price change


Investments

Total


Investments

Total

Investment portfolio

$1,874,385

$1,874,385


$6,806

$6,806

 

Interest rate risk

          The Company's interest rate risk principally arises from borrowings in the form of the loan payable (see note 11) and receivables in the form of loans receivable (see note 5).

 

The Company relies on receipt of investment income and realised gains on investments to meet interest obligations due on the Loan Payable. The loan payable bears interest at 3.5% plus US LIBOR. The board has, in consultation with the Investment Manager, reviewed the terms of the loan and are satisfied that the risk of significant movements in US LIBOR over the term of the loan is low. Through cash flow projections and the structuring of the Company, the Board of Directors believe the Company will have sufficient cash available to meets its obligations as they fall due and therefore, there is no material interest rate risk.

 

          The Loans receivable carry fixed rates of interest and so there is no risk arising from movement in interest rates on income receivable by the Company.

 

          Foreign exchange risk

          The Company operates internationally and is exposed to foreign exchange risk arising from various currency exposures.

 

          Foreign exchange risk is the risk that the fair value of future transactions, recognised monetary and non-monetary assets and liabilities denominated in other currencies fluctuate due to changes in foreign exchange rates. Trade payables are settled within short time periods in order to minimise the fluctuation between expected and actual expenditure.

 

          The Company's investments in financial instruments are valued in US dollars. The Company holds cash deposits denominated in currencies other than US dollars, the functional and presentational currency. Some of the Company's payables are transacted in currencies other than US dollars.

 

The significant currency assets of the Company are held in AED, GBP and EUR. The Board considers that its exposure to foreign exchange risk is limited. The AED is 'pegged' to USD and the Investment Manager monitors EUR and GBP currency movements and proposes any action deemed appropriate.

 

The table below summarises the Company's assets and liabilities, monetary and non-monetary, which are denominated in a currency other than the US dollar.

 

(amounts in US dollars)

31.12.16


31.12.15


EUR

GBP

AED


EUR

GBP

AED

Assets








Monetary assets

1,549,799

137


-

262,881

137

Non-monetary assets

16,507,481

3,376,648

862,632


10,150,363

12,759,568

1,870,477









Liabilities








Monetary liabilities

-

-

-


-

-

-

Non-monetary liabilities

-

92,031

13,911


-

168,165

-

 

 

QANNAS INVESTMENTS LIMITED


NOTES TO THE FINANCIAL STATEMENTS




FOR THE YEAR ENDED 31 DECEMBER 2016


 

 

18.     FINANCIAL RISK MANAGEMENT

 

          Management of market risk

 

Foreign exchange risk - continued

The below table summarises the sensitivity of the Company's monetary and non-monetary assets and liabilities to changes in foreign exchange movements at 31 December. The analysis is based on the assumptions that the relevant foreign exchange rate increased/decreased by the percentage disclosed in the table below, with all other variables held constant. This represents the Directors' best estimate of a reasonable possible shift in the foreign exchange rates, having regard to historical volatility of those rates.

 

 

 

Currency


Reasonable

possible rate

shift

 

 

31.12.16


Reasonable

possible rate

shift

 

 

31.12.15




$



$

Euros (EUR)







Monetary


+ / - 5%

-


+ / - 5%

-

Non-monetary


+ / - 5%

+ / - 825,374


+ / - 5%

+ / - 507,518








Pound Sterling (GBP)







Monetary


+ / - 5%

+ / - 77,490


+ / - 5%

+ / - 13,144

Non-monetary


+ / - 5%

+ / - 164,231


+ / - 5%

+ / - 629,570

 

As disclosed above, the AED is 'pegged' to the USD and so no sensitivity analysis has been prepared for AED denominated amounts.

 

Credit risk

          The Company's principal financial assets are trade and other receivables, receivable from investment manager, cash & cash equivalents and loans receivable.

 

          Credit risk on trade and other receivables is managed by regular review by the Board of Directors of the positions with debtors to ensure that amounts included remain recoverable. The Board of Directors is satisfied that amounts included within trade and other receivables are recoverable. The Company's maximum exposure in respect of Trade & other receivables is detailed in note 7.

           

The Company seeks to limit the level of credit risk on the cash balances by only depositing surplus liquid funds with counterparty banks with high credit ratings. The Company does not hold any derivative financial instruments.

 

          The credit risk associated with trading and portfolio investments is considered minimal.

 

          Credit quality



31.12.16


31.12.15



$


$

Cash and cash equivalents





AA


1,545,898


7,001,437

A


73,113


263,076



1,619,011


7,264,513

         

The maximum exposure to credit risk on the Company's financial assets is represented by their carrying amount, as outlined in the categorisation of bank balances as seen in note 9.

 

 

QANNAS INVESTMENTS LIMITED


NOTES TO THE FINANCIAL STATEMENTS




FOR THE YEAR ENDED 31 DECEMBER 2016


 

 

18.     FINANCIAL RISK MANAGEMENT

 

Credit risk

The Company has significant loans receivable at the year end. The Board of the Directors reviews the position of the counterparty prior to entering into any loan arrangement and the Investment Manager provides subsequent quarterly updates. The Investment Manager's review includes review of external ratings, where available, and financial information in respect of the counterparty. Further disclosure in respect of loans receivable can be seen in note 5.

 

Further, Goldilocks Fund is managed by Integrated Capital, a central bank licensed investment firm in Abu Dhabi, UAE. The Investment Manager's review includes review of external ratings, where available, and financial information in respect of the counterparty. Further disclosure in respect of this investment can be seen in note 4.

 

The Company does not consider that any changes in fair value of financial assets in the year are attributable to credit risk.

 

No aged analysis of financial assets is presented as no financial assets are past due at the reporting date.

 

The maximum exposure to credit risk before any credit enhancements at 31 December is the carrying amount of the financial assets as set out below:

 



31.12.16


31.12.15



$


$






Loans receivable


16,220,609 


10,743,138 

Trade and other receivables


5,069,876 


8,206,847 

Receivable from investment manager



397,575 

Cash and cash equivalents


1,619,011 


7,264,513 



22,909,496 


26,612,073 

 

          Liquidity risk

          The Company seeks to manage liquidity risk to ensure that sufficient liquidity is available to meet foreseeable needs and to invest cash assets safely and profitably. The Company deems there is sufficient liquidity for the foreseeable future. The Company has a strong relationship with various financial institutions and has utilised these relationships to borrow funds when necessary. The Board of Directors is comfortable that the Company has sufficient resources to meet the requirements of the Company.

 

During 2014 the Company entered into a facility for $30 million from First Gulf Bank and drew down the full loan during the prior year. The loan was refinanced in November 2016 and is now due for repayment quarterly from 30 June 2017 (see note 11). The Directors are confident that, if required, a new loan facility can be obtained before the existing loan facility expires.

 

          The table below analyses the Company's financial liabilities into relevant maturity groupings based on the remaining period at the statement of financial position date. The amounts in the table are the undiscounted cash flows.

 

 

 


Less than 1 month

1 to 3 months

3 to 6 months

6 to 12 months

More than 12 months



$

$

$

$

$








Trade and other payables


248,803 

327,804 

327,804 

2,537,372 

Loans payable


1,500,000 

3,000,000 

24,896,393 



248,803 

327,804 

1,827,804 

3,000,000 

27,433,765 

 

 

 

QANNAS INVESTMENTS LIMITED


NOTES TO THE FINANCIAL STATEMENTS




FOR THE YEAR ENDED 31 DECEMBER 2016


 

 

18.     FINANCIAL RISK MANAGEMENT

 

          Capital risk management

          The Company manages its capital to ensure that it will be able to continue as a going concern while maximising the return to stakeholders.

 

          The capital of the Company is represented by the share capital of the Company. The Company has sufficient assets to cover the Company's liabilities at the Statement of Financial Position date and for the foreseeable future. As such at 31 December 2016 the Company had $67,799,021 of share capital (2015: $68,644,369).

 

          To maintain or adjust the capital structure, the Company may propose dividend payment to the shareholders, buy back shares or issue new shares.

 

Concentration risk

          The Company aims to mitigate concentration risk through investing in companies that operate in a variety of different markets.

 

Fair value measurements recognised in the Statement of Comprehensive Income

          IFRS 13 requires the disclosure of fair value measurements by level of the following fair value measurement hierarchy:

 

·      Quoted prices (unadjusted) in active markets for identical assets (level 1);

 

·      Inputs other than quoted prices included within level 1 that are observable for the asset, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2); or

 

·      Inputs for the asset that are not based on observable market data (that is, unobservable inputs) (level 3).

 

The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3.

         

The following table shows an analysis of the fair values of the financial instrument recognised in the Statement of Financial Position by level of the fair value hierarchy:

 


Level 1

$

Level 2

$

Level 3

$

Total

$

2016





Investments

18,662,159

55,452,038

74,114,197






2015





Investments

80,399,787

80,399,787

 

Investments whose values are based on quoted market prices in active markets, and are therefore classified within level 1, include active listed equities. The Company does not adjust the quoted price for these instruments.

 

Financial instruments that trade in markets that are not considered to be active but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs are classified within level 2. As level 2 investments include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available market information.

 

The following table sets out the valuation technique used in determination of fair values within level 2 including the key inputs used.

 

 

 

QANNAS INVESTMENTS LIMITED


NOTES TO THE FINANCIAL STATEMENTS




FOR THE YEAR ENDED 31 DECEMBER 2016


 

 

18.     FINANCIAL RISK MANAGEMENT

 

Fair value measurements recognised in the Statement of Comprehensive Income - continued

 

The valuation of the level 2 investment, Goldilocks Fund, is based upon market prices of underlying assets, which comprise publically listed companies in the UAE, held by the Fund.

 

Item

Valuation approach and inputs used



Investments at fair value through profit and loss - Goldilocks Fund

The fair value is determined based on market values of underlying assets, which comprise publically listed companies in the UAE.

 

Investments classified within level 3 have significant unobservable inputs, as they trade infrequently. Level 3 instruments include corporate debt positions. As observable prices are not available for these securities, the Company has used valuation techniques to derive the fair value. The following table sets out the valuation techniques used in the determination of fair values within level 3 including the key unobservable inputs used and the relationship between unobservable inputs to fair value.

 

Item and valuation approach

Fair value at

31.12.16

$

Fair value at

31.12.15

$

Key un-observable inputs

Input value 31.12.16

 

Input value 31.12.15

 

Relationship between unobservable inputs and fair value

Investments at fair value through profit and loss - ADCM Secondary Private Equity Fund L.P.

 

The carrying value of the investments is based on valuations provided by the General Partners of the underlying funds. A multiple if then applied to the valuations by the Investment Manager to consider the funds the Company can expect to realise if disposed in the short term.

 

26,602,072

35,791,687

Value of the underlying investments within the funds.

Management

Accounts

Management

Accounts

An increase in the value shown in the financial reports of the underlying fund and premium / discount on underlying assets in the secondary market would result in the year end valuation being higher and vice-versa.








 

 

 

 

QANNAS INVESTMENTS LIMITED


NOTES TO THE FINANCIAL STATEMENTS




FOR THE YEAR ENDED 31 DECEMBER 2016


 

 

18.     FINANCIAL RISK MANAGEMENT - continued

 

Fair value measurements recognised in the Statement of Comprehensive Income - continued

 

Item and valuation approach

Fair value at

31.12.16

$

Fair value at

31.12.15

$

Key un-observable inputs

Input value 31.12.16

 

Input value 31.12.15

 

Relationship between unobservable inputs and fair value

Investments at fair value through profit and loss - SPE Qannas C Limited

 

The carrying value of the investments is based on valuations provided by the General Partners of the underlying funds. A multiple if then applied to the valuations by the Investment Manager to consider the funds the Company can expect to realise if disposed in the short term.

5,789,942

8,193,775

Value of the underlying investments within the funds.

Management

Accounts

Management

Accounts

An increase in the value shown in the financial reports of the underlying fund and premium / discount on underlying assets in the secondary market would result in the year end valuation being higher and vice-versa.

Investments at fair value through profit and loss - Madaares PJSC

 

The carrying value is based on the price achieved in a recent exit.

81,676

68,063

Share price in the recent exit proposal from the investment position.

 

AED1.2

AED1

For 2016, if the share price increased to AED1.4 the fair value would be $95,288 whilst if the share price decreased to AED1.0 the fair value would be $68,063.

 

Investments at fair value through profit and loss - EE F&B Holding Limited

 

The carrying value is based on the applying a multiple to project EBITDA forecasts.

 

1

4,089,162

The discount rate and multiple utilised in the valuations.

Multiple of 13x

Discount rate of 10%

N / A

An increase in the multiple applied would result in a higher valuation and a decrease would result in a lower valuation.

 

 

 

 

 

 

QANNAS INVESTMENTS LIMITED


NOTES TO THE FINANCIAL STATEMENTS




FOR THE YEAR ENDED 31 DECEMBER 2016


 

 

18.     FINANCIAL RISK MANAGEMENT - continued

 

Fair value measurements recognised in the Statement of Comprehensive Income - continued

 

Item and valuation approach

Fair value at

31.12.16

$

Fair value at

31.12.15

$

Key un-observable inputs

Input value 31.12.16

 

Input value 31.12.15

 

Relationship between unobservable inputs and fair value

Investments at fair value through profit and loss - Palace Preferred Partners LP

 

The carrying value of the investment is based on the valuation provided by the General Partner of Palace Preferred Partners LP. These valuations are based on the latest available report for the quarter ending 31-Dec-16 prepared in line with IPEV Guidelines

 

3,370,229

7,480,803

The value of the underlying investments of Palace Preferred Partners LP

Management

Accounts

Management

Accounts

An increase in the value of Palace Preferred Partners LP investment would result in the year end valuation being higher and vice-versa.

Investments at fair value through profit and loss - Integrated Financial Group

 

The carrying value of the investment is derived from applying a multiple to earnings based on other similar entities. The multiple is subject to a discount to reflect the specific circumstances of Integrated Financial Group.

19,608,118

19,608,118

The discount rate and multiple applied to earnings.

Discount rate: 30%

 

EBITDA multiple: 13x

Discount rate: 30%

 

EBITDA multiple: 14.1x

An increase in the multiple applied would result in a higher valuation and a decrease would result in a lower valuation.

 

An increase in the discount rate applied would result in a lower valuation and a increase would result in a lower valuation.

 

 

 

 

 

 

 


QANNAS INVESTMENTS LIMITED

41.

NOTES TO THE FINANCIAL STATEMENTS




FOR THE YEAR ENDED 31 DECEMBER 2016


 

 

18.     FINANCIAL RISK MANAGEMENT

 

Reconciliation of level 3 fair value measurements of financial assets



31.12.16


31.12.15



$


$






Balance brought forward


80,399,787 


53,213,946 

Purchases



29,094,551 

Capital distributions


(848,051)


(1,339,457)

Disposals


(12,109,098)


Revaluations


(11,990,600)


(569,253)

Balance at 31 December


55,452,038 


80,399,787 

 

The Company's policy is to recognise transfers into and out of fair value hierarchy levels as at the date of the event of change in circumstances that cause the transfer.

 

Fair value measurements recognised in the Statement of Comprehensive Income - continued

 

The following table analyses the Company's financial assets and liabilities by category: -

 

Assets per statement of financial position

Loans and receivables

 

$

Assets at fair value through profit and loss

$

Total

 

 

$

31 December 2016




Investments at fair value through profit and loss

74,114,197 

74,114,197 

Loans receivable

16,220,609 

16,220,609 

Trade and other receivables

5,069,876 

5,069,876 

Cash and cash equivalents

1,619,011 

1,619,011 

Total assets

22,909,496 

74,114,197  

97,023,693 





31 December 2015




Investments at fair value through profit and loss

80,399,787 

80,399,787 

Receivable from investment manager

397,575 

397,575 

Loans receivable

10,743,138 

10,743,138 

Trade and other receivables

8,206,847 

8,206,847 

Cash and cash equivalents

7,264,513 

7,264,513 

Total assets

26,612,073 

80,399,787 

107,011,860 









Liabilities per statement of financial position

Liabilities at fair value through profit and loss

$

Other financial liabilities

 

$

Total

 

 

$

31 December 2016




Trade and other payables

3,441,783 

3,441,783 

Loans payable

29,396,393 

29,396,393 

Total liabilities

32,838,176 

32,838,176 





31 December 2015




Trade and other payables

-

7,919,379 

7,919,379 

Loans payable

-

29,811,219 

29,811,219 

Total liabilities

-

37,730,598 

37,730,598 

 

 

 

 

QANNAS INVESTMENTS LIMITED


NOTES TO THE FINANCIAL STATEMENTS




FOR THE YEAR ENDED 31 DECEMBER 2016


 

 

19.     RETAINED EARNINGS



31.12.16


31.12.15



$


$






Balance brought forward


1,416,453 


2,723,583 

Total (loss) after taxation


(4,250,397)


(1,307,130)

Dividend paid



Balance at 31 December


(2,833,944)


1,416,453 

 

Retained earnings represent the cumulative Comprehensive Income net of distributions to owners.

 

 

20.     RELATED PARTY TRANSACTIONS

 

          Richard John Stobart Prosser, a Director of the Company, is also an officer of Estera Fund Administrators (Jersey) Limited (formerly Appleby Fund Administrator (Jersey) Limited), which acts as administrator. Secretarial and administration fees incurred by the Company with Estera Fund Administrator (Jersey) Limited for the year ended 31 December 2016 were $111,071 (2015: $126,382), of which $24,790 (2015: $73,932) was outstanding at 31 December 2016.

 

Jassim Alseddiqi, a former Director of the Company, is also a director of ADCM Ltd, which acts as Investment Manager to the Company. Investment manager fees incurred by the Company with ADCM Ltd for the year ended 31 December 2016 were $1,291,840 (2015: $1,339,963), of which $655,608 (2015: $313,822) was outstanding at 31 December 2016. At 31 December 2016, the Investment Manager held $nil (2015: $397,575) on behalf of the Company for onward investment.

 

            The Investment Manager will be entitled to be paid a performance fee by the Company, full details of which can be seen in note 17. Movement in performance fees incurred by the Company with ADCM Ltd for the year ended 31 December 2016 were $490,869 (2015: $(246,535)). A total of $2,551,283 (2015: $2,060,413) was accrued at 31 December 2016.

 

ADCM Ltd, the Investment Manager, owns 2 (2015: 2) management shares in the Company.

 

Richard John Stobart Prosser, a Director of the Company, is also a director of Palace Investors Holdings Limited and Mustafa Kheriba, a Director of the Company, is also a director of Palace Real Estate Partners GP Ltd. The Company has an investment of $3,370,229 in Palace Preferred Partners LP at 31 December 2016 (2015: $7,480,803) which hold shares indirectly in Palace Investors Holdings Limited and of which Palace Real Estate Partners GP is the general partner. Part of the holding in Palace Preferred Partners LP was divested during the year ended 31 December 2016 realising proceeds of $4,025,741 (£3,300,000) and a gain on disposal of $139,124.

 

Mustafa Kheriba, a Director of the Company, is also a director of SPE Qannas C Limited. The Company has an investment of $5,789,942 at 31 December 2016 (2015: $8,193,775) in SPE Qannas C Limited. No dividends were received from SPE Qannas C Limited during the current or prior year.

 

Mustafa Kheriba, a Director of the Company, is also a director of ADCM SPEF GP Ltd. ADCM SPEF GP Ltd is the general partner of ADCM SPEF, an investment of the Company. As at 31 December 2016 this was held at fair value of $26,602,073 (2015: $35,791,687). Dividends totalling $693,856 (2015: $892,971) were received from ADCM SPEF during the year.

 

Mustafa Kheriba, a Director of the Company, is also a director of EE F&B Holding Limited. The Company has loan of $3,308,753 at 31 December 2016 (2015: $857,644) and an investment of $1 (2015: $4,089,162) in EE F&B Holding Limited. Interest totalling $63,516 (2015: $34,306) was receivable from EE F&B Holding Limited during the year of which $63,516 (2015: $34,306) remained outstanding at the year end.

 

           

QANNAS INVESTMENTS LIMITED


NOTES TO THE FINANCIAL STATEMENTS




FOR THE YEAR ENDED 31 DECEMBER 2016


 

 

20.     RELATED PARTY TRANSACTIONS

 

The loans receivable from Integrated Eastern European Fund, Lucice Montenegro d.o.o. and Arqutino EAD (the "IEEF") which totalled $3,189,450 at 31 December 2016 (2015: $8,795,576), were arranged by Integrated Alternative Finance ("IAF"), a wholly owned subsidiary of Abu Dhabi Financial Group (which is the ultimate parent company of ADCM Ltd, the Company's Investment Manager) and regulated by the Dubai Financial Services Authority. Jassim Alseddiqi, a former Director of the Company, is also managing director of Abu Dhabi Financial Group ("ADFG"), and chairman and director of Integrated Capital ("IC"). IEEF will pay a fee to IAF of 3% of the value of the Loan on completion. Interest of $1,015,100 (2015: $1,226,918) was recognised in the Statement of Comprehensive Income of the Company in respect of loans to IEEF.

 

The Company operated an investment account with IC in the year and invested USD 6,539,918 (AED 24 millions), shown as an investment in Goldilocks Fund in note 4. ADFG holds no units in Goldilocks Fund and charges 1.5% management fee and 15% performance fee on Goldilocks through its wholy owned subsidiary, ADCM Altus.

 

Integrated Capital owned 907,030 participating shares in the Company as at 31 December 2016 (2015: nil).

 

ADFG, the ultimate controlling shareholder of the Company's Investment Manager, is a co-investor in the issue of shares by Verne Preferred Limited. The Issue was arranged by IAF, a related company to ADFG, which is regulated by the Dubai Financial Services Authority. Mustafa Kheriba, Director of the Company, is also a director of IAF. On completion, the Verne Preferred Limited's investment (Downtown Hotel Limited) will pay a fee to IAF of 1.75% of the value of the Issue. At 31 December 2016, the Company's loan to Verne Preferred Limited was carried at $nil (2015: $1,089,918) and the Company had recognised loan interest amounting to $18,352 (2015: $73,104). Included in trade and other payables at 31 December 2016 is interest income received in advance of $nil (2015: $52,169) in respect of this facility. The loan was fully repaid during the year ended 31 December 2016 (see note 5).

 

ADFG, the ultimate controlling shareholder of the Company's Investment Manager, is also the owner of BL Development Limited and Jassim Alseddiqi, a former Director of the Company, is also a director of BL Development Limited. At 31 December 2016 the Company had an investment of $nil (2015: $5,167,180) in BL Development Limited. Preference dividend income of $72,252 was included within investment income for the year ended 31 December 2016 (2015: $365,728). The holding in BL Development Limited was divested during the year ended 31 December 2016 realising proceeds of $5,000,100 (£3,500,000) and a loss on disposal of $167,080.

 

ADFG, the ultimate controlling shareholder of the Company's Investment Manager, has a 10% shareholding in Integrated Financial Group, LLC. At 31 December 2016, the Company's investment in Integrated Financial Group, LLC was carried at $19,608,118 (2015: $19,608,118). No dividends were received from Integrated Financial Group, LLC during the current or prior year.

 

ADFG owned 12,997,235 participating shares in the Company as at 31 December 2016 (2015: nil).

 

21.     IMMEDIATE HOLDING COMPANY AND ULTIMATE CONTROLLING PARTY

 

          In the Directors' opinion there is no controlling or ultimate controlling party.

 

22.     POST BALANCE SHEET EVENTS

 

In February 2017, the Company exited its investment in Marina 101, at cost, realising proceeds of $779,560.

 

In February 2017, the Company sold its entire holding (250,000 shares) in Madaares at a price of AED 1.2 per share, realising proceeds of approximately $80,000, equating approximately to its fair value at 31 December 2016.

 

In April 2017, the Company redeemed 25% of its stake in Goldilocks realising proceeds of approximately $5.8 million. The remaining stake was transferred to Goldilocks Investment Company Limited (the "Fund"), a company incorporated under limited liability law of Abu Dhabi Global Market.

 

ADCM SPEF is also in the process of exiting its Limited Partnership positions in Goldman Sachs PEP IX and Glouston PEH 2000 FTE LTD funds by 30 June 2017.



[1] The Capital Plaza

 

[2] Amount committed indicates the total amount to be invested in the deal by QIL

 

[3] Hard Rock Café operated through Podcafe Montenegro doo

 

[4] Palace Preferred Partners L.P.

 

[5] Investment in Project PPP is made as part of an overall tranche of £50 million (as a L.P. interest in the partnership) which in turn is invested in the project as preferred equity

 

 with a preferred return rate of 15%.

[6] Integrated Eastern European Fund

 

[7] Cost and NAV at exit represents 52% interest

 

[8] Cost and NAV at exit represents 70% interest

 

[9] Including the interest payments received

 

[10] Previously named as Permal Private Equity Holdings 2000 L.P.

 

 

 


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