Interim Results

RNS Number : 3354R

Craven House Capital PLC

27 February 2019

 

This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014.

Craven House Capital Plc

("Craven House" or the "Company")

Unaudited Interim Report for the period ended 30 November 2018

INVESTMENT MANAGER'S REPORT FOR THE SIX MONTH PERIOD ENDED 30 NOVEMBER 2018

For the unaudited six months to 30 November 2018, Craven House Capital ended the period with a Net Asset Value of $21,426,000 which equates to $8.57 per share. This represents a decrease of $3,439,000 from the NAV reported at the year ending May 2018. This change was largely the result of mark-to-market prices of liquid securities we intend to hold for an extended period of time. During the period the company acquired a significant asset in the shares of IIU, Inc. This acquisition marks our first significant presence in the United States. As mentioned in previous communications we see the US as an attractive investment destination given the global investment markets and the current stage of the debt and business cycles. We remain concerned about asset values in emerging markets and Europe and have a current preference for smaller private and listed enterprises in North America. It remains a difficult environment for value investors, however, we have recently identified what we believe are pockets of opportunity. 

Portfolio Update

The summary of the valuations of Craven's investment holdings as at the period end is as follows;

Investment	Value at 30 Nov 2018	Value at 31 May 2018
Shares in Craven Industrial Holdings Plc	$23,892,006	$26,993,468
Comprising:
Shares in DLC Holdings Corp.	$6,491,893	$11,083,190
Shares in Qeton Ltd	$1,551,814	$1,787,286
Shares in Craven House Angola LDA	$8,903,150	$8,733,274
Shares in Craven House Capital North America LLC	$4,528,396	$2,677,994
Shares in Kwikbuild Corporation Ltd	$2,416,753	$2,711,724

DLC Holdings Corp. (TSX:DLC)

DLC Holdings Corp. is a primary investment subsidiary focused on agricultural related investments in Brazil and South Africa. As a micro-cap listed company, its share price can fluctuate significantly without any change to the intrinsic value of the company. Despite the shares trading recently at CAD $0.25 per share on significant volume, the shares closed the period at CAD $0.15 resulting in an accounting valuation significantly lower than the prior period. We remain highly confident in the long term value of DLC's current portfolio and in the listed platform providing a platform to consolidate other assets.

Craven House Angola LDA.

Craven House Angola is primarily engaged in the provision of working capital, as previously announced, to successful European and US entrepreneurs operating in Angola for many years. Oil revenues comprise the vast majority of Angola's foreign currency earnings and a multi-year weakness in the oil price has created a scarcity of foreign currency within the banking system. As a result, good companies have had to seek funding beyond the traditional banks to finance imports. We are fortunate to have good partners in Angola who have managed the difficult operating environment profitably. The recent peaceful transition of political power combined with higher oil prices have increased the likelihood of an economic recovery. While we believe this does not present a threat to our capital it is a threat to continued profitability and margins. Should capital controls be reduced or lifted our funds will no longer be needed by our partners. If this were to happen we would need to find an alternative opportunity to deploy capital or seek to expatriate funds. It is important to note that our investment success in Angola is primarily the result of an economic anomaly created by exogenous forces rather than business acumen or operational expertise. 

INVESTMENT MANAGER'S REPORT FOR THE SIX MONTH PERIOD ENDED

30 NOVEMBER 2018

Qeton Ltd

Qeton is a trading company which specialises in the purchase of globally sourced products for importation into capital constrained economies. At present the focus is on consumer goods and industrial products into Angola where capital controls continue to add significant friction to funds flow and trade. Our relationship with on the ground operators in the region provide insights into the shifting market dynamics. The current economic and political situation remains positive for Qeton, however, this could change at any moment if the Kwanza becomes more freely convertible or capital controls are lifted entirely. Should this happen we would seek to repatriate capital from Angola for investment elsewhere.

Craven House Capital North America LLC

As mentioned above, the United States is becoming an investment focus for Craven House. Our holding in IIU, Inc. has been rewarding as is demonstrated by the transaction announced on January 17, 2019 with LM Funding America, Inc. Additionally, we are finding investment opportunities in small-cap and micro-cap listed securities traded on the NYSE and NASDAQ. These companies have largely been abandoned by investors as market dynamics have moved towards passive index funds and other structured products. Additionally, many US brokerages restrict shareholders buying shares trading at less than $5 or with a market capitalisation of under $50 million. We believe this presents significant opportunities as many of these very small listed companies are trading at a discount to their orderly liquidation value and/or intrinsic value. 

Kwikbuild Corp.

As mentioned in previous communication we are bearish on South Africa given the political and economic climate. Our portfolio in South Africa is in the process of being liquidated and we intend to allocate the capital elsewhere. Fortunately, the bulk of our portfolio consists of debt secured by assets and the proceeds can be freely repatriated through the banking system unless further currency controls are enacted. This is not an insignificant risk given the state of the South African economy.

 Reduction in Capital

We continue to move forward with the legal process to buy back Craven House shares for cancellation. However, given the current share price combined with the expected liquidity over then next year, we expect share buybacks to be a central aspect of our capital allocation process until such time as the share price closes the gap with the intrinsic value of the company. Craven House has consistently issued shares at a premium and will endeavour to buy back as many shares as are available at a discount. As highlighted in the May 2018 year-end accounts, the Board will continue to assess the value of the AIM quote and will provide any material updates to shareholders in due course.

Transaction after the end of period

After the period, Craven House announced a significant transaction with LM Funding America, Inc. (NASDAQ:LMFA) whereby LMFA would acquire IIU, Inc in a transaction which will likely result in Craven House becoming the controlling shareholder in the Nasdaq listed company. The conversion of funds due following the sale in common stock of LMFA requires shareholder approval from LMFA shareholders and is not certain. Should LMFA shareholder approval be granted, Craven House will have another listed subsidiary, with high market liquidity which could serve as a platform for further growth. The likely result will be that Craven House's primary holdings will be two subsidiary listed companies in LMFA and DLC Holdings with the balance of the portfolio comprised of African related assets concentrated in loan portfolios in Angola and South Africa and a trading company focused on the export of consumer and industrial products to Angola.

            Desmond Holdings Ltd

            Investment Manager to Craven House Capital Plc    

For further information please contact:

Craven House Capital Plc Mark Pajak www.Cravenhousecapital.com	Tel:   [phone]
SI Capital Broker Nick Emerson www.sicapital.co.uk	Tel: [phone]
SPARK Advisory Partners Limited Nominated Adviser Matt Davis/Mark Brady www.Sparkadvisorypartners.com	Tel:   [phone]

About Craven House Capital:

The Company's Investing Policy is to invest in or acquire a portfolio of companies, partnerships, joint ventures, businesses or other assets globally in any geographic jurisdiction. The company will invest in both developed and developing markets providing long term patient capital and is often involved in special situations, restructuring, expansion and turn around investments in crisis and transitioning economies.

             CRAVEN HOUSE CAPITAL PLC

STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTH PERIOD ENDED 30 NOVEMBER 2018

			Six months ended				Year Ended
			30 Nov 2018		30 Nov 2017		31 May 2018
			(Unaudited)		(Unaudited)		(Audited)
			$'000		$'000		$'000
CONTINUING OPERATIONS
Changes in fair value			(3,101)		42		590
Other operating income			-		-		3
Administrative expenses			(339)		(591)		(988)
OPERATING LOSS			(3,440)		(549)		(395)
Finance income	2		1		-		-
LOSS BEFORE INCOME TAX			(3,439)		(549)		(395)
Income tax	3		-		-		-
LOSS FOR THE PERIOD			(3,439)		(549)		(395)
Earnings per share expressed
In cents per share:
Basic and diluted	6		(137.61)		(21.96)		(15.80)

             CRAVEN HOUSE CAPITAL PLC

STATEMENT OF FINANCIAL POSITION

AS AT 30 NOVEMBER 2018

			Six months ended							Year Ended
			30 Nov 2018			30 Nov 2017				31 May 2018
			(Unaudited)			(Unaudited)				(Audited)
			$'000			$'000				$'000
ASSETS
NON-CURRENT ASSETS
Investments at fair value through
profit or loss	4			23,892			26,445			26,993
				23,892			26,445			26,993
CURRENT ASSETS
Trade and other receivables				910			79			924
Cash and cash equivalents				27			96			213
				937			175			1,137
TOTAL ASSETS				24,829			26,620			28,130
EQUITY
SHAREHOLDERS' EQUITY
Called up share capital	5			12,594			12,594			12,594
Share premium				25,128			25,128			25,128
Accumulated deficit				(16,296)			(13,011)			(12,857)
TOTAL EQUITY				21,426			24,711			24,865
LIABILITIES
CURRENT LIABILITIES
Trade and other payables				2,603			1,109			2,465
NON-CURRENT LIABILITIES
Loans and borrowings	7			800			800			800
TOTAL LIABILITIES				3,403			1,909			3,265
TOTAL EQUITY AND LIABILITIES				24,829			26,620			28,130

CRAVEN HOUSE CAPITAL PLC

STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTH PERIOD ENDED 30 NOVEMBER 2018

	Called up share capital $'000		Share premium $'000			Accumulated deficit $'000	Total $'000
Balance at 1 June 2017	12,594		25,128			(12,462)	25,260
Changes in equity
Issue of share capital	-		-			-	-
Transactions with owners	12,594		25,128			(12,462)	25,260
Loss for the period	-		-			(549)	(549)
Balance at 30 November 2017	12,594		25,128			(13,011)	24,711
Changes in equity
Issue of share capital	-		-			-	-
Transactions with owners	12,594		25,128			(12,462)	25,260
Loss for the period	-		-			(395)	(395)
Balance at 31 May 2018	12,594		25,128			(12,857)	24,865
Changes in equity
Issue of share capital	-		-			-	-
Transactions with owners	12,594		25,128			(12,857)	24,865
Loss for the period	-		-			(3,439)	(3,439)
Balance at 30 November 2018	12,594		25,128			(16,296)	21,426

CRAVEN HOUSE CAPITAL PLC

STATEMENT OF CASH FLOWS

FOR THE SIX MONTH PERIOD ENDED 30 NOVEMBER 2018

				Six months ended				Year Ended
			30 Nov 2018			30 Nov 2017		31 May 2018
			(Unaudited)			(Unaudited)		(Audited)
			$'000			$'000		$'000
Cash flows from operating activities Loss before income tax Adjustments for non-cash items Fair value movement arising on investments Decrease/(increase) in trade and other receivables Increase/(decrease) in trade and other payables Increase in loans and borrowings			(3,439) 3,101 14 137 -			(549) (42) (4) (120) 800		(395) (590) (849) 1,236 800
Net cash (used)/generated by operating activities Cash flows from investing activities			(187)			85		202
Acquisition of investments Proceeds from loan advances repaid			- -			- -		(2,500) 2,500
Net cash used in investing activities			-			-		-
Cash flows from financing activities
Interest received			1			-		-
Net cash from financing activities			1			-		-
Net (decrease)/increase in cash and cash equivalents			(186)			85		202
Cash and cash equivalents at the beginning
of the period			213			11		11
Cash and cash equivalents at the end of the period			27			96		213

             CRAVEN HOUSE CAPITAL PLC

NOTES TO THE FINANCIAL INFORMATION

FOR THE SIX MONTH PERIOD ENDED 30 NOVEMBER 2018

1.       ACCOUNTING POLICIES

          General Information

Craven House Capital Plc is a company incorporated in the United Kingdom under the Companies Act 2006. The address of the registered office is given on the company information page. The Company is listed on the AIM Market of the London Stock Exchange (ticker: CRV).

The next annual financial statements of Craven House Capital Plc will be prepared in accordance with applicable International Financial Reporting Standards (IFRS) as adopted for use by the European Union. Accordingly, the interim financial information in this report has been prepared using accounting policies consistent with IFRS. IFRS are subject to amendment and interpretation by the International Accounting Standards Board (IASB) and the International Financial Reporting Interpretations Committee (IFRIC) and there is an on-going process of review and endorsement by the European Commission. The financial information has been prepared on the basis of the IFRS that the directors expect to be applicable as at 31 May 2019.

The financial information has been prepared under the historical cost convention, except to the extent varied for fair value adjustments required by accounting standards, and in accordance with applicable International Financial Reporting Standards (IFRS) as adopted for use by the European Union. The principal accounting policies have been applied to all periods presented.

This financial information is unaudited and does not constitute statutory financial statements within the meaning of Section 434 of the Companies Act 2006. The financial statements of the Company for the year ended 31 May 2018, which were prepared in accordance with IFRS as adopted for use by the European Union, have been reported on by the Company's auditors and delivered to the Registrar of Companies. The report of the auditors was unqualified and did not include any statement under Section 498 of the Companies Act 2006.

This financial information is presented in United States dollar, rounded to the nearest $'000.

The directors do not propose the issuance of a dividend.

The interim financial information for the six months ended 30 November 2018 was approved by the directors on 27 February 2019.

Going concern

            The Company has considerable financial resources. As a consequence, the directors believe that the Company is well placed to manage its business risks successfully. The directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the financial information.

             CRAVEN HOUSE CAPITAL PLC

NOTES TO THE FINANCIAL INFORMATION - continued

FOR THE SIX MONTH PERIOD ENDED 30 NOVEMBER 2018

2.  Finance income

			Six months ended							Year Ended
			30 Nov 2018			30 Nov 2017				31 May 2018
			(Unaudited)			(Unaudited)				(Audited)
			$'000			$'000				$'000
Interest receivable				1			-			-
				1			-			-

3.  Taxation

No tax charges arose in the period or in comparative periods as a result of losses incurred.

4.  Investments at fair value through profit or loss

					Quoted equity investments $'000		Unquoted equity investments $'000	Total  $'000
At 1 June 2018					11,083		15,910	26,993
Fair value movement					(4,591)		1,490	(3,101)
At 30 November 2018					6,492		17,400	23,892

Following a corporate restructuring undertaken during 2016, investments and loans were transferred from Craven House Capital Plc to its wholly owned subsidiary, Craven Industrial Holdings Plc. The revaluation outlined above therefore represents the valuation applied to the resulting investments held by Craven Industrial Holdings Plc or its subsidiaries as at 30 November 2018 and are described in further detail below.

Unquoted investments at 30 November 2018 have been measured on a Level 3 basis as no observable market data was available.

Shares in Craven Industrial Holdings Plc are valued at $23,892,006 representing a 100% holding. These have been valued based on the underlying investments within Craven Industrial Holdings Plc as at 30 November 2018. The value of Craven Industrial Holdings Plc is segmented across its principal investments as follows:

Shares in DLC Holdings Corp. are valued at $6,491,893 representing 13,676,700 common shares and 43,785,206 preferred shares, which are freely convertible into common shares. Shares in DLC Holdings Corp. are quoted on the Toronto Stock Exchange and were valued at $CAD 0.15 per share as at 30 November 2018.

             CRAVEN HOUSE CAPITAL PLC

NOTES TO THE FINANCIAL INFORMATION - continued

FOR THE SIX MONTH PERIOD ENDED 30 NOVEMBER 2018

4. Investments at fair value through profit or loss (continued) Shares in Qeton Ltd are valued at $1,551,814 representing a 50% holding. This shareholding has been valued on an earnings multiple basis which the directors consider represents the best indication of the fair value at the period end. Qeton Ltd generated EBITDA earnings of €544,873 during the year to 30 November 2018. Shares in Qeton Ltd have been valued at 5x EBITDA earnings. Qeton Ltd has no debt and no material liabilities. Shares in Craven House Angola LDA are valued at $8,903,150 representing a 100% holding. This shareholding has been valued on the net assets of Craven House Angola LDA, which the directors consider represents the best indication of the fair value at the period end. The vast majority of the net assets of Craven House Angola LDA comprise principal and accrued interest on loan facilities made to companies operating in Angola. As of 30 November 2018 all of these loans are performing according to their contractual terms and have therefore been valued at face value plus accrued interest. Craven House Angola LDA has no debt and no material liabilities. Shares in Craven House Capital North America LLC are valued at $4,528,396 representing a 100% holding. This shareholding has been valued on the net assets of Craven House Capital North America LLC, which the directors consider represents the best indication of the fair value at the period end. The vast majority of the assets of Craven House Capital North America LLC comprise shares in IIU, Inc and LM Funding America, Inc. (Nasdaq: LMFA). Shares in Kwikbuild Corporation Ltd are valued at $2,416,753 representing a 97% shareholding. This valuation is based on the value of the net assets of KwikBuild Corporation Ltd, which the directors believe represent the best indication of the fair value at the period end. The vast majority of the net assets of Kwikbuild Corporation Ltd comprise shares in its wholly owned South African subsidiary, which are valued on a net asset basis. The South African subsidiary's assets comprise loan facilities, which are performing according to their contractual terms and real-estate holdings valued on market-comparables. Kwikbuild Corporation Ltd has no debt and no material liabilities. 5.  Called up share capital Authorised, issued and fully paid share capital as at 30 November 2018 are as follows:   Number Class: Nominal 30 Nov   31 May Value 2018 2018 (Unaudited) (Audited) $'000 $'000   2,499,039 Ordinary $1.00 2,437 2,437  77,979,412 Deferred £0.09 9,234 9,234  77,979,412 Deferred £0.009 923 923 12,594 12,594

             CRAVEN HOUSE CAPITAL PLC

NOTES TO THE FINANCIAL INFORMATION - continued

FOR THE SIX MONTH PERIOD ENDED 30 NOVEMBER 2018

5.    Called up share capital (continued) The aggregate nominal values of the ordinary and deferred shares include exchange differences arising from the translation of shares at historic rates and the translation at the rate prevailing at the date of the change in functional currency. The deferred shares carry no entitlement to receive notice of any general meeting, to attend, speak or vote at such general meeting. Holders are not entitled to receive dividends, and on a winding up of the Company holders of deferred shares are entitled to a return of capital only after the holder of each Ordinary share has received a return of capital together with a payment of £1 million per share. The deferred shares may be cancelled at any time for no consideration by way of a reduction in capital. In the year ended 31 May 2018, the Company extended the time scale of 78,632 fully transferable exercisable warrants which were originally issued in the year ended 31 May 2012. At the date of issue, the warrants could be exercised on or before 30 June 2014, this period has now been extended to 30 June 2020. The warrants are exercisable at a price of $15.00 per share. 6.    Earnings per share

The calculation of basic earnings per share is based on the loss attributable to the equity holders of $3,439,000 divided by the weighted average number of shares in issue during the period of 2,499,038 (six months ended 30 November 2017: loss of $549,000 and 2,499,039 shares; year ended 31 May 2018: loss of $395,000 and 2,499,038 shares).

Diluted earnings per share has not been disclosed as the inclusion of the unexercised warrants described in note 5 would be non-dilutive.

7.      Convertible loan note

During the year ended 31 May 2018, the Company entered into a $800,000 convertible loan note by way of settlement of a supplier's outstanding fees in the sum of £600,000. The note holder, GEM Investments America, has the right to convert the note at any time prior to maturity.

The loan note bears no interest and has a five year term. 

8.      Related party disclosures

Craven Industrial Holdings Plc

During the period, the Company made a number of loans to its subsidiary Craven Industrial Holdings Plc. At the period end the outstanding balance of these loans was $41,364 (May 2018: $38,969).

Craven House Capital North America LLC

During the period, the Company received a repayment against loans from its subsidiary Craven House Capital North America LLC. At the period end the outstanding balance of these loans was $743,638 (May 2018: $793,629).

Craven House Angola LDA

During the period, there was no movement in the $896,781 loan balance outstanding between Company and its subsidiary Craven House Angola LDA.

Kwikbuild Corporation Ltd

During the period, the Company received a number of loans from its subsidiary Kwikbuild Corporation Ltd. At the period end the outstanding balance of these loans was $828,545 (May 2018: $785,294).

             CRAVEN HOUSE CAPITAL PLC

NOTES TO THE FINANCIAL INFORMATION - continued

FOR THE SIX MONTH PERIOD ENDED 30 NOVEMBER 2018

8.      Related party disclosures (continued)

7Mobile LDA

During the period, the Company's subsidiary, Qeton Ltd, made sales totalling €320,300 to 7Mobile LDA. 7Mobile LDA shares a director with Craven House Capital Angola LDA. At the period end, amounts receivable by Qeton Ltd from 7Mobile LDA were €1,151,700 (May 2018: $1,485,747).

Desmond Holdings Limited

During the period the Company incurred management fees of $120,000 from Desmond Holdings Limited, the Investment Manager of the Company. It also received a loan of $75,000 from Desmond Holdings Limited, $25,000 of which was repaid before the period end. At the period end, included in trade and other payables is an amount of $572,400 due to Desmond Holdings Limited.

                        All amounts owed to related parties are interest free and repayable on demand.

              9.      Events after the reporting period

4 January 2019: The Company passed a resolution to extend its capital reduction program to include the cancellation of 155,958,824 deferred shares. This, along with the previously announced resolution to cancel up to $5,000,000 of ordinary common shares, is currently subject to approval by the High Court.

17 January 2019: The Company completed the sale of its wholly owned subsidiary, IIU Inc., to LM Funding America Inc. (NASDAQ: LMFA) for a consideration of c. $5.1 million.

The Interim Results for the six months ended 30 November 2018 will be available to download from the Company's website at: http://www.cravenhousecapital.com

 

END

 

 

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