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SIGNATURE CAPITAL INVESTMENTS LIMITED
CHAIRMAN AND
INVESTMENT ADVISER’S ADDRESSES
2012 ANNUAL GENERAL MEETING
14 NOVEMBER 2012 – 10:30AM (AEDT)
KPMG, GROUND FLOOR THEATRETTE, COLLINS STREET, MELBOURNE
14 November 2012
CHAIRMAN’S ADDRESS
Ladies and gentlemen
Today I will provide you with a brief overview of the Company’s financial results for the year ended
30 June 2012 and then John Shin, Chief Investment Officer of the Company’s Investment Adviser, AR
Management Co (ARM), will provide a review of the Company’s investment portfolio and overall
investment outlook.
Financial results
[Slide 5 – Key Financial Highlights]
For the year ended 30 June 2012, the Company recorded a net investment gain of $0.9 million
however an overall loss of $0.6 million. Notwithstanding this statutory earnings result, NTA per share
increased during the year.
The net investment gain for the year was primarily driven by the positive effect of currency
movements on those investments held in foreign currencies. For example, during the year the AUD
declined against the USD by approximately 5.1% from 1.0739 to 1.0191 which had a positive effect
on the AUD value of the USD investments.
The net investment gain would have been $3.2 million if the Company had elected to recognise a
foreign currency gain of $2.3 million in relation to settlement of the off-market share buy-back
liability through profit and loss rather than through equity.
Operating costs continued to reduce through the year with operating expenses reducing from $1.0
million in the first half to $0.5 million in the second half. The first half did include a number of one-off
items relating to the off-market buy-back and shareholder meetings. Further reductions have been
made since 30 June 2012 and operating costs can be expected to continue to trend down in the
current financial year, reducing significantly from past levels (albeit on a lower capital base).
[Slide 6 – Net Tangible Asset Backing]
NTA per share increased from $0.359 to $0.379 over the year, an increase of 5.6% or 2.0 cents per
share. The impact of foreign exchange movements on the Company’s reported NTA continues to
be significant.
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The Company holds its investments in four underlying base currencies, namely, AUD, USD, GBP and
EUR. The net exposure to these base currencies at 30 June 2012 was 48% AUD, 34% USD, 10% GBP
and 8% EUR. The investment portfolio continues to remain unhedged.
Investment Portfolio
[Slide 7 – Investment Portfolio]
The Company’s investment portfolio comprises direct holdings in high quality hedge funds centred
around several core investment strategies, namely equity hedge, trading and arbitrage. Each of
the managers of the underlying funds are highly regarded with impressive track records and are
expected to generate superior risk adjusted returns.
During the financial year, there were some significant changes to the investment portfolio as is
illustrated in the chart.
At the start of the year, the portfolio totalled $65.2 million and comprised 10 hedge fund
investments.
In October 2011, the Company increased the portfolio with the acquisition of six international hedge
fund investments valued at $9.2 million as part of a strategic alliance with ARM. These funds
comprised a mix of high quality equity hedge, arbitrage and global trading funds.
During December 2011, the Company commenced a redemption process in order to fund a large
off-market share buy-back which was completed at the end of January 2012. The portfolio
reduced by $45.9 million as a result of the completion of the off-market share buy-back.
In March 2012, the Company made investments in two Australian equity hedge funds and a
European equity hedge fund, valued at $7.6 million.
At year end, the investment portfolio was valued at $25.5 million and comprised seven hedge fund
investments and 45% cash. The Company continues to hold higher than usual levels of cash. The
Company’s investment adviser continues to assess a variety of new investment opportunities and it
is expected that further investments will be made in the near future.
Capital Management
[Slide 8 – Capital Management]
The Company continued its focus on capital management during the year.
During the period to November 2011, the on-market share buy-back program resulted in the
Company acquiring 6.9 million shares at an average cost of $0.308 cash per share.
In October 2011, as part of the ARM strategic alliance, the Company issued 26.25 million new shares
at an average price of $0.352 per share in consideration for a portfolio of high quality hedge funds.
In January 2012, the off-market share buy-back program resulted in the Company acquiring 134.3
million shares at an average cost of $0.342 cash per share. The buy-back price was based on a 2%
discount to NTA per share at 31 December 2011 and adjusted for foreign currency movements at
the payment date.
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Outlook
[Slide 9 - Outlook]
The Board and its investment adviser remain cautious on the outlook for global investment markets
and have maintained a defensive position with relatively high levels of cash. The Company will seek
to take advantage of market opportunities and make further investments when it believes that the
entry point and risk adjusted returns on offer are attractive.
I will now hand over to John Shin who will provide a more detailed review of the Company’s
investment portfolio.
INVESTMENT ADVISER’S ADDRESS
Good morning ladies and gentlemen. My name is John Shin of AR Management Co Pty Ltd, the
Investment Adviser for Signature Capital Investments.
Market Overview
[Slide 11 – Overview]
The year ended 30 June 2012 was a year characterised by periods of volatility and alternating risk-
on/risk-off sentiment.
The first half of the period was marked by a credit crisis in Europe and periods of severe risk aversion.
During this period, the markets became increasingly frustrated over a lack of credible policy on the
European debt crisis, which was compounded by fading growth prospects in the US and concerns
over the sustainability of growth in China. There were extreme and frequent short-term reversals,
which were difficult for most strategies and asset classes
The second half of the period was characterised with initial periods of optimism on the back of
relatively strong economic data in the US (employment, consumer sentiment, housing and
manufacturing data), tailwinds from the European LTRO program, seemingly positive developments
in the Eurozone and hopes for central bank action. However, these initial periods of optimism were
offset in the latter months, with alternating periods of risk aversion associated with the European
debt crisis and uncertainty around the Greek government, escalating concerns over Italy and Spain
and diminished growth expectations of China.
[Slide 12 – Overview Cont]
For the full year, the HFRI Fund Weighted Composite Index was down 4.3%, the HFRI Equity Hedge
Index was down 7.4% and the HFRI Event Driven Index was down 4.1%. The MSCI World All Countries
(Net) AUD index was down 1.4% for the full period. The NTA after tax for the Company for the full
period was up 5.6%.
Investment Portfolio
[Slide 13 – Investment Portfolio]
At year end, the Company’s investment portfolio totaled $25.5 million. The portfolio includes seven
high quality hedge funds in the following strategies:
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Equity Hedge strategies - Within this strategy, each of the managers currently being held by the
Company run very tight net exposures, to limit market impact during volatile periods. The
managers in the portfolio follow either a quantitative market neutral approach to investing, or a
more fundamental hedged bottom-up approach to investing in the Asia Pacific and in Europe.
Event Driven strategies - Within this strategy, the managers currently being held by the
Company invest into long/short credit, event driven, arbitrage, distressed and special situations
in Asia Pacific, Europe and the US. Positions held within these funds should continue to benefit
from improving credit-specific fundamentals and do not necessarily require stronger economic
conditions or bullish markets to generate returns. A worsening of macroeconomic fundamentals
may also provide opportunities for these mangers to acquire distressed assets at attractive
levels.
Global Macro - This fund trades on a thematic basis, built on views of global economic
fundamentals, market pricing, demographic, social, political and other factors. This fund should
be in a relatively stronger position to generate returns in a market that is being driven in a large
part by macro factors, news flow and sentiment.
Outlook
[Slide 14 – Outlook]
Our outlook for investment markets remains cautious and expectations are that volatility will remain
high. Consequently, as illustrated on the previous slide, the investment portfolio is defensively
positioned, holding strategies which should experience lower levels of volatility (market neutral and
event driven strategies) or are able to take advantage of macro themes, as well as holding
reasonably high levels of cash. The Company will seek to take advantage and make further
investments when it believes that the entry point and the risk adjusted returns on offer are attractive.
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Signature Capital Investments Limited ACN 110 247 393
Annual General Meeting 14 November 2012 at 10:30am
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Important Notice
The information contained in this presentation is provided to each recipient on the following basis:
• this presentation has been produced by Signature Capital Investments Limited (SGI) (ASX:SGI). This presentation does not purport to contain all the information that the recipient may require to evaluate a possible investment in SGI. The recipient should conduct its own independent review, investigations and analysis of SGI and of the information contained or referred to in this presentation.
• none of SGI, AR Management Pty Ltd and their respective directors, officers, employees, advisers or representatives (collectively, the Beneficiaries) make any representation or warranty, express or implied, as to the accuracy, reliability or completeness of the information contained in this presentation and nothing contained in this presentation is, or shall be relied upon as a promise of representation, whether as to the past or the future;
• except insofar as liability under any law cannot be excluded, the Beneficiaries shall have no liability arising in respect of the information contained in or not contained in this presentation;
• statements in this presentation are made as of the date of this presentation unless otherwise stated; • any forecast, forward looking statement or statement concerning constructed past performance
contained in this presentation may involve significant elements of subjective judgment and assumptions as to future events which may or may not be correct. There are usually differences between forecast and actual results (and between constructed and actual results) because events and actual circumstances frequently do not occur as forecast and these differences may be material;
• no Beneficiary guarantees the success of the investment opportunities discussed in this presentation, the repayment of capital or any particular rate of income or capital return on an investment in SGI. Past performance does not guarantee that future performance will be the same or even similar; and
• this presentation does not and will not form part of any contract for the acquisition of shares in SGI.
Past performance and asset allocation is not a reliable indicator of future performance.
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Agenda
1. Chairman’s Address – John Morrison
2. Investment Adviser’s Address – John Shin
3. Formal Business
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Chairman’s Address
John Morrison
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Key Financial Highlights
Year ending 30 June 2012 2011 Change
Net investment income $0.88m ($12.51m) $11.63m
Operating expenses $1.5m $1.6m (5.6%)
Net profit/loss (after tax) ($0.63m) ($14.26m) $13.63m
Earnings per share (EPS) (cents) (0.45) (7.8) 94.2%
Net Tangible Assets per share (after tax) $0.379 $0.359 5.6%
Total shares on issue (million) 66.95 181.94 (63.2%)
Unrecognised deferred tax asset $40.5m
($0.61 per share) $40.3m
($0.22 per share) 177% per
share on issue
AUD:USD at 30 June 1.0191 $1.0739 (5.1%)
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Net Tangible Asset Backing
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Investment Portfolio F
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Capital Management
• Continued on-market share buy-back to November 2011, acquiring 6.9 million shares ($2.1 million)
• Off-market share buy-back in January 2012:
– 134.34 million shares bought back at A$0.3415 per share
– Total consideration $45.88 million
– FX adjustment on buy-back price resulted in $2.3 million net gain
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Outlook
• Company remains cautious on the outlook for global investment markets
• Retaining a defensive position at present
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Investment Adviser’s Address John Shin Chief Investment Officer AR Management Co Pty Ltd
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Overview
• FY12 was characterised by periods of volatility and alternating risk-on/risk-off sentiment
• FY12 was marked by:
– Credit crisis in Europe and periods of severe risk aversion
– Periods of optimism in the latter part of the FY on the back of improving economic data in the US
– Concerns over sustainability of growth in China
– Extreme and frequent short-term reversals that impacted each of the major strategies in the hedge fund space
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Overview (continued)
• The HFRI Fund Weighted Composite Index was down -4.3% for FY12 and the MSCI World All Countries (Net) AUD Index was down -1.4% for FY12
• The Company‘s NTA (after tax) was up 5.6% for FY12
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Investment Portfolio F
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Outlook
• Outlook for investment markets remain cautious and expectations are the volatility will remain high
• Portfolio is positioned with allocations to strategies which should experience lower levels of volatility (market neutral and event driven strategies) or are able to trade and take advantage of macro themes
• As part of its investment approach, the Company also holds cash and will seek to take advantage and make further investments when it believes the entry point and risk adjusted returns on offer are attractive
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