6th Mar 2007 07:04
Queen's Walk Investment Limited06 March 2007 6 March 2007 Queen's Walk Investment Limited Financial Results for the Quarter ended 31 December 2006 Queen's Walk Investment Limited ("Queen's Walk") is a Guernsey-incorporatedinvestment company listed on the London Stock Exchange. The Company's investmentobjective is to preserve capital and to provide stable returns to shareholdersin the form of quarterly dividends. To achieve this, Queen's Walk investsprimarily in a diversified portfolio of subordinated tranches of asset backedsecurities, including the unrated "equity" or "first loss" residual incomepositions typically retained by the banks or other financial institutions whichhave originated the loan assets that collateralise a securitisation transaction.The Company makes such investments where its investment manager, Cheyne CapitalManagement (UK) LLP ("Cheyne Capital"), considers the coupon or cashflows fromthe investment to be attractive relative to the credit exposure of theunderlying asset collateral. For more information regarding Queen's Walk, pleasevisit www.queenswalkinv.com or call Caroline Villiers: +44 20 7153 1521. Highlights •Queen's Walk generated distributable net profit of €9.5 million and earnings per ordinary share of €0.23 for the quarter •An interim quarterly dividend of €0.23 per share has been declared, resulting in a cumulative interim dividend of €0.75 for the financial year to date •Although the majority of the Company's investments continued to perform better than or in line with expectations, the performance of certain UK assets led to an adjustment to current prepayment and default assumptions. The net effect of all adjustments was a reduction of the Company's asset portfolio and a charge to income of €2.7 million for the quarter •The Company's diversified investment portfolio totals €565.0 million as at 31 December 2006, with net indebtedness of €160.8 million, representing approximately 28.5% of the investment portfolio •NAV per share has declined marginally to €9.90 from €9.93 per share as at 30 September 2006 •The weighted average yield of new assets added to the Company's investment portfolio was 13.5% in local currency terms. After taking both new assets and valuation adjustments into account, the weighted average yield for the investment portfolio as a whole decreased slightly to 12.9% from 13.1% as at 30 September 2006 •The Company added five new assets to its investment portfolio in the quarter and Cheyne Capital continues to evaluate new investment opportunities •The Directors will seek the requisite shareholder authorities to enable the Company to buy back shares up to 9.99% of its existing share capital without requiring an offer to be made for the Company's shares by the "concert party" Financial Highlights +--------------------+------------+------------+-----------+------------+ | |Q3 - Quarter|Q2 - Quarter|Q1 - |Period from | | |ended 31 |ended 30 |Quarter |6 September | | |December |September |ended 30 |2005 to 31 | | |2006 |2006 |June 2006 |March 2006 | | | | | | | +--------------------+------------+------------+-----------+------------+ |Operating income | €14,484,653| €15,674,473|€14,992,921| €12,480,487| +--------------------+------------+------------+-----------+------------+ |Operating expenses | (2,658,532)| (3,349,855)|(2,813,090)| (2,455,408)| +--------------------+------------+------------+-----------+------------+ |Finance costs | (2,317,658)| (1,772,011)|(1,182,461)| (260,052)| +--------------------+------------+------------+-----------+------------+ |Net profit | 9,508,463| 10,552,607| 10,997,370| 9,765,027| +--------------------+------------+------------+-----------+------------+ |Distributable net | 9,508,463| 10,583,319| 10,599,894| 9,765,027| |profit | | | | | +--------------------+------------+------------+-----------+------------+ |Earnings per share | 0.23| 0.26| 0.27| 0.24| +--------------------+------------+------------+-----------+------------+ |Distributable | 0.23| 0.26| 0.26| 0.24| |earnings per share | | | | | +--------------------+------------+------------+-----------+------------+ | | | | | | +--------------------+------------+------------+-----------+------------+ |Total assets | 517,883,247| 520,550,381|531,153,613| 493,842,561| +--------------------+------------+------------+-----------+------------+ |Total liabilities | 132,475,401| 117,194,951|127,789,393| 91,773,445| |(incl. financing) | | | | | +--------------------+------------+------------+-----------+------------+ |Equity capital | 402,302,497| 403,355,430|403,364,220| 402,069,116| +--------------------+------------+------------+-----------+------------+ |NAV per share | 9.90| 9.93| 9.93| 9.90| +--------------------+------------+------------+-----------+------------+ Third Quarter Dividend The Board of Directors has declared an interim quarterly dividend for the periodended 31 December 2006 of €0.23 payable on 9 April 2007 to shareholders ofrecord on 16 March 2007. Conference Call A conference call to review the Company's financial results for the quarter ended 31 December 2006 will take place at 8:30 a.m. London time on 6 March 2007. All interested parties are welcome to participate on the live call. You can access the conference call by dialing +44 20 7138 0835 (or +1 718 354 1172 from the US) ten minutes prior to the scheduled start of the call; please reference Queen's Walk Investment Limited Financial Results. A webcast of the conference call will be available on a listen-only basis at www.queenswalkinv.com. Please allow extra time prior to the call to visit the site and download the necessary software required to listen to the internet broadcast. A replay of the webcast will be available for three months following the call. Company Performance In accordance with the Investment Manager's valuation methodology, adjustmentswere made to default and prepayments assumptions in respect of the quarter ended31 December 2006. Generally, the curves used to value the assets were adjustedto reflect higher default rates in the UK, stable default rates in Europe andthe US, and generally lower prepayment rates globally. While the Investment Manager's initial changes to asset valuations in the courseof the quarter had a relatively muted impact on income and NAV, performance datasubsequently received in respect of certain UK assets reflected a higher thanexpected upturn in prepayment rates that was not offset by an increase in incomefrom prepayment charges. While prepayment rates appear to be slowing generallyin the UK, this upturn was related to borrowers whose mortgage loans hadrecently reverted from a discounted (or "teaser") mortgage interest rate to afull mortgage interest rate. This performance data led the Investment Manager tofurther adjust its valuations in respect of these assets. The net effect ofthese and all other adjustments to asset valuations was a reduction of theCompany's investment portfolio and a charge to income in the quarter of €2.7million. The Company issued a press release on 20 February 2007 to announce thischarge to income and to adjust its dividend targets. As a result of the charge taken to income in the quarter, the Company's totalrevenues for the quarter declined by 7.6% to €14.5 million. Net profit for thequarter was €9.5 million, a decrease of 9.9% on the previous quarter. This netprofit translates into distributable earnings of €0.23 per share. The Company's investment portfolio as at 31 December 2006 (including amountsreceivable under total return swap agreements but excluding cash) totalled €565million, compared to €531 million as at 30 September 2006. The Company's netindebtedness as at 31 December 2006 (including amounts payable under totalreturn swaps and net of cash) totalled €160.8 million, compared to €126.1million as at 30 September 2006. In percentage terms, leverage on the portfolioat the end of the quarter was 28.5%, compared to 23.7% as at 30 September 2006.The weighted average leverage ratio during the quarter was 26.5%. Five assets were added to the Company's portfolio in the quarter. As highlightedat the end of the previous quarter, the Company has sought to increase portfolioexposure to the Small-and-Medium Enterprise (SME) sector. Over the quarter ended31 December 2006, SME residual positions totalling approximately €39.4 millionwere added to the portfolio. Consequently, the Company's exposure to the SMEsector has increased from approximately 4% to 9.3% of the portfolio. Theseacquisitions were funded with proceeds from the redemption of certaininvestments, principal repayments and external financing. The weighted average yield of the Company's investment portfolio in localcurrency terms decreased slightly to 12.9% from 13.1% as at 30 September 2006.This reduction is due to a decrease in the overall portfolio yield that resultedfrom revising the individual booking yields for the assets in the portfolio totake account of changes to assumptions. The reduction was partially offset bythe addition of new assets in the quarter, including SME residual positions. Theweighted average yield of assets added during the quarter was 13.5% in localcurrency terms. Portfolio Overview The Company's investment portfolio as at 31 December 2006 is comprised of 28investments in total. While the portfolio remains well diversified bothgeographically and by asset class, it continues to be backed predominantly byresidential mortgages - the largest European asset class. As at 31 December2006, the portfolio was comprised of: 86% RMBS (87% as at 30 September 2006); 9%(SME) (4%); and 5% ABS CDO (9%). The geographic breakdown of the portfolio as at31 December 2006 relative to the portfolio as at 30 September 2006 (net offoreign exchange movements) is set out in the tables that follow. +----------------------------------------------------------+|Queen's Walk Portfolio Breakdown by Jurisdiction as at 31 ||December 2006 || || |+------------------------+---------------------------------+|UK |54% |+------------------------+---------------------------------+|US |12% |+------------------------+---------------------------------+|ABS CDO |5% |+------------------------+---------------------------------+|Germany |7% |+------------------------+---------------------------------+|Holland |3% |+------------------------+---------------------------------+|Italy |5% |+------------------------+---------------------------------+|Portugal |14% |+------------------------+---------------------------------+ +----------------------------------------------------------+|Queen's Walk PortfolioBreakdown by Jurisdiction as at 30 ||September 2006 || || |+------------------------+---------------------------------+|UK |52% |+------------------------+---------------------------------+|US |13% |+------------------------+---------------------------------+|Italy |6% |+------------------------+---------------------------------+|Holland |2% |+------------------------+---------------------------------+|Germany |3% |+------------------------+---------------------------------+|Portugal |15% |+------------------------+---------------------------------+|ABS CDO |9% |+------------------------+---------------------------------+ Buy Back of Company Shares The Directors are mindful of the need to manage the share capital of the Companyfor the benefit of all shareholders and have decided that they wish to have inplace all necessary authorities to enable a managed programme of share buybacksof up to 9.99% of the issued share capital of the Company to commence as soon aspracticable. On listing, the Directors were given authority to purchase the Company's ownshares up to a maximum of 9.99% of the Company's share capital on completion ofthe initial public offering. However, as disclosed in the Company's prospectus,Cheyne ABS Opportunities Fund LP holds 44.1% of the Company's shares and partiesdeemed by the City Code on Takeover and Mergers (the "Code") to be acting inconcert with it (together the "Concert Party") hold a further 1.7% of theCompany's shares. If the Company were to repurchase shares such that the ConcertParty's percentage holding were to increase, the Concert Party would, unless thePanel on Takeovers and Mergers (the "Panel") agreed otherwise, be required bythe Code to make an offer for all the shares in the Company not held by it.Following consultation with the Panel, the Company intends, at the earliestpracticable opportunity, to seek the approval of shareholders, in accordancewith the "whitewash" procedures in the Code to effect repurchases of shares incircumstances where as a result of such repurchases the holdings of the ConcertParty and of Cheyne ABS Opportunities Fund LP may increase. Outlook While the Company has limited exposure to US assets (which account forapproximately 12% of the Company's investment portfolio as at 31 December 2006)and while those assets have performed broadly in line with expectations, recentmovements in the US ABS market indicate that a negative sentiment has spreadfrom concerns regarding particular sub-prime loan vintages to the entire USsub-prime market and to other segments of the mortgage market. These marketmovements reflect a wider and higher range of discount rates as well as anincrease in implied future cumulative loss rates, some of which aresignificantly in excess of the cumulative loss rates projected for the Company'sassets and historic cumulative loss rates across the entire market. As theaccounting policies of the Company require valuation of the Company's assets atfair value, these higher discount rates and the increased credit risk implied bythe market may have a material adverse impact on the valuation of the Company'sUS assets for the quarter ended 31 March 2007. Any resulting adjustment tovaluations will be charged through the income statement and will reduce the netasset value of the Company (in accordance with the Company's accounting policy).As valuation changes arising from higher discount rates do not have an impact onthe cash flows generated by its portfolio, the Company does not expect that anysignificant adjustments will be made to distributable profits or that the amountof future dividends will be affected. The Company's dividend target for the quarter ended 31 March 2007 is €0.22 to€0.25 per share. The reason for this range is that the Investment Manager iscontinuing to assess the significance of recent prepayment activity by borrowersreverting to full mortgage interest rates. As the level of actual prepaymentactivity relative to the Investment Manager's assumptions will impact theeffective yield and valuation of a particular asset, the Company's earnings andtarget dividends may be affected. While the Investment Manager has made prudentadjustments to its prepayment assumptions in respect of the Company's UK assetportfolio, it will continue to evaluate them further as additional performancedata is received. Consistent with its increased focus on SME investments in recent quarters, theCompany expects to continue rebalancing its investment portfolio in order todiversify risk and to further enhance portfolio yield. While asset dispositionsto effect this rebalancing may entail some minor volatility in both quarterlyearnings and NAV going forward, the Company maintains its dividend target forthe financial year ended 31 March 2008 of not less than €1.00 per share. For further information please contact: Investor Relations:Caroline Villiers +44 (0) 20 7153 1521 Cheyne Capital:Nicole von Westenholz +44 (0) 20 7031 7482 About the Company: Queen's Walk Investment Limited is a Guernsey-incorporated investment companylisted on the London Stock Exchange. The Company's investment objective is topreserve capital and to provide stable returns to shareholders in the form ofquarterly dividends. To achieve this, Queen's Walk invests primarily in adiversified portfolio of subordinated tranches of asset backed securities,including the unrated "equity" or "first loss" residual income positionstypically retained by the banks or other financial institutions which haveoriginated the loan assets that collateralise a securitisation transaction. TheCompany makes such investments where its investment manager, Cheyne CapitalManagement (UK) LLP, considers the coupon or cashflows from the investment to beattractive relative to the credit exposure of the underlying asset collateral.The Company believes that its investment focus provides equity investors withexposure to a relatively new investment opportunity in this asset class. The content of this announcement includes statements that are, or may be deemedto be, "forward-looking statements". These forward-looking statements can beidentified by the use of forward-looking terminology, including the terms"believes", "estimates", "anticipates", "expects", "intends", "may", "will" or"should". They include the statement regarding the target aggregate dividend. Bytheir nature, forward-looking statements involve risks and uncertainties andreaders are cautioned that any such forward-looking statements are notguarantees of future performance. The Company's actual results and performancemay differ materially from the impression created by the forward-lookingstatements. The Company undertakes no obligation to publicly update or reviseforward-looking statements, except as may be required by applicable law andregulation (including the Listing Rules). Any target dividends are based on certain assumptions as to future events whichmay not prove to be realised. Due to the uncertainty surrounding these futureevents, the targets are not intended to be and should not be regarded as profitsor earnings forecasts. There can be no assurance that these targets will beachieved or that the Company will be able to pay dividends at the target levelsor at all. The payment of any target dividends is subject to the Companygenerating sufficient profits or having sufficient retained earnings and therecan be no assurance that this will be the case. Any target dividends that theCompany may announce from time to time should not be regarded as providing anyguidance regarding the level of the Company's distributable net income for anyperiod. The Company may revise its dividend policy from time to time. The following extracts from the accounts of the Company for the quarter ended 31December 2006 are unaudited. Unaudited Consolidated Income StatementFor the quarter ended 31 December 2006 Note Quarter Quarter Quarter Period from ended 31 ended 30 ended 30 6 September December September June 2006 2005 to 2006 2006 March 2006* Euro Euro Euro Euro Operating income 14,484,653 15,674,473 14,992,921 12,480,487 Operating expensesOther operating expenses (2,658,532) (3,349,855) (2,813,090) (2,455,408)Finance costs (2,317,658) (1,772,011) (1,182,461) (260,052)Total operating expenses (4,976,190) (5,121,866) (3,995,551) (2,715,460) Net profit 9,508,463 10,552,607 10,997,370 9,765,027 Distributable profits 2 9,508,463 10,583,319 10,599,894 9,765,027Non-distributable profits 2 - (30,712) 397,476 - 9,508,463 10,552,607 10,997,370 9,765,027 Retained distributable profits at the start of the quarter 2 10,637,862 10,615,940 9,765,027 - Distributions to the Ordinary Shareholders 2 (10,561,396) (10,561,397) (9,748,971) - Distributable profits for the quarter 2 9,508,463 10,583,319 10,599,894 9,765,027 Retained distributable profits at the end of the 9,584,929 10,637,862 10,615,940 9,765,027quarter Earnings per Ordinary ShareBasic Euro 0.234 Euro 0.260 Euro 0.271 Euro 0.240Diluted Euro 0.234 Euro 0.259 Euro 0.269 Euro 0.238 Retained distributable profitsper Ordinary ShareBasic Euro 0.23 Euro 0.26 Euro 0.26 Euro 0.24Diluted Euro 0.23 Euro 0.26 Euro 0.26 Euro 0.23 Weighted average Ordinary Number Number Number NumberShares outstandingBasic 40,620,756 40,620,756 40,620,756 40,620,756Diluted 40,661,625 40,721,759 40,852,819 41,053,527 All items in the above statement are derived from continuing operations. All income is attributable to the Ordinary Shareholders of the Company. * The Company commenced its operations on 8 December 2005. Unaudited Consolidated Statement of Changes in Shareholders' EquityFor the quarter ended 31 December 2006 Share Share Other Capital Accumulated Total Capital Premium Reserve Reserve Profits Euro Euro Euro Euro Euro Euro Balance at inception - - - - - - Net profit for the period - - - - 9,765,027 9,765,027 Issuance of Ordinary Shares - 406,207,540 - - - 406,207,540 Share options issued - - - 7,672,500 - 7,672,500 Costs related to issuance of - (21,575,951) - - - (21,575,951)OrdinaryShares Cancellation of share premium - (384,631,589) 384,631,589 - - - Balance at 31 March 2006 - - 384,631,589 7,672,500 9,765,027 402,069,116 Net profit for the quarter - - - - 10,997,370 10,997,370 Over accrual of costs related to - - 46,715 - 46,715issuance ofOrdinary Shares - Distributions to the Ordinary - - - - (9,748,981) (9,748,981)Shareholdersof the Company Balance at 30 June 2006 - - 384,678,304 7,672,500 11,013,416 403,364,220 Net profit for the quarter - - - - 10,552,607 10,552,607 Distributions to the Ordinary - - - - (10,561,397) (10,561,397)Shareholdersof the Company Balance at 30 September 2006 - - 384,678,304 7,672,500 11,004,626 403,355,430 Net profit for the quarter - - - - 9,508,463 9,508,463 Distributions to the Ordinary - - - - (10,561,396) (10,561,396)Shareholdersof the Company Balance at 31 December 2006 - - 384,678,304 7,672,500 9,951,693 402,302,497 Unaudited Consolidated Balance SheetAs at 31 December 2006 31 December 30 September 30 June 2006 31 March 2006 2006 2006 Euro Euro Euro EuroNon-current assetsInvestments at fair value through 517,883,247 491,340,570 501,439,102 487,890,499profit or Loss Current assetsCash and cash equivalents 6,466,179 13,557,006 20,735,431 -Other assets 10,428,472 15,652,805 8,979,080 5,952,062 16,894,651 29,209,811 29,714,511 5,952,062 Total assets 534,777,898 520,550,381 531,153,613 493,842,561 Equity and liabilities EquityShare capital - - - -Share premium account - - - -Other reserve 384,678,304 384,678,304 384,678,304 384,631,589Capital reserve in respect of share options 7,672,500 7,672,500 7,672,500 7,672,500Accumulated profits 9,951,693 11,004,626 11,013,416 9,765,027 402,302,497 403,355,430 403,364,220 402,069,116Current liabilitiesDistribution payable - - 9,748,981 -Repurchase agreements 129,434,953 113,724,744 115,783,806 88,880,531Other liabilities 3,040,448 3,470,207 2,256,606 2,892,914Total liabilities 132,475,401 117,194,951 127,789,393 91,773,445 Total equity and liabilities 534,777,898 520,550,381 531,153,613 493,842,561 Notes to the Unaudited Financial StatementsAs at 31 December 2006 1. General information Queen's Walk Investment Limited (the "Company") was registered on 6 September2005 with registered number 43634 and is domiciled in Guernsey, Channel Islands.The Company commenced its operations on 8 December 2005. The Company is aclosed-ended investment company with limited liability formed under TheCompanies (Guernsey) Law, 1994 and its Ordinary Shares are listed on the LondonStock Exchange. The registered office of the Company is Dorey Court, AdmiralPark, St Peter Port, Guernsey, GY1 3BG, Channel Islands. "Group" is defined asthe Company and its subsidiary. At 31 December 2006, the Company's onlysubsidiary was Trebuchet Finance Limited. The Company's investment objective is to preserve capital and provide stablereturns to Shareholders in the form of quarterly dividends. It seeks to achievethis by investing primarily in a diversified portfolio of tranches ofasset-backed securities ("ABS") where the Investment Manager considers that thecoupon or cash flows on the tranche are attractive relative to the underlyingcredit. These are and will be, in most cases, below investment grade or unratedand do or will, in many cases, represent the residual income positions typicallyretained by the originator of a securitisation transaction as the "equity" or"first loss" position. The Group's investment management activities are managed by its InvestmentManager, Cheyne Capital Management (UK) LLP (the "Investment Manager"), aninvestment management firm authorised and regulated by the Financial ServicesAuthority. The Company has entered into an Investment Management Agreement (the"Investment Management Agreement") under which the Investment Manager managesits day-to-day investment operations, subject to the supervision of theCompany's Board of Directors. The Company has no direct employees. For itsservices, the Investment Manager receives a monthly management fee (whichincludes a reimbursement of expenses) and a quarterly performance-related fee.The Company has no ownership interest in the Investment Manager. The Company isadministered by Kleinwort Benson (Channel Islands) Fund Services Limited (the"Administrator"). 2. Distributable and non-distributable profits Non-distributable profits relate to gains from investments which under theUnited Kingdom Listing Rules are prohibited from being distributed to investors.All other income is classed as distributable income. Distributable profitsrepresent the net of this distributable income less operating expenses. 3. Subsequent Event The Company's Investment Manager believes that recent movements in the US ABSmarket indicate that a negative sentiment has spread from concerns regardingparticular sub-prime loan vintages to the entire US sub prime market and toother segments of the mortgage market, and that these market movements reflect awider and higher range of discount rates as well as an increase in impliedfuture cumulative loss rates, some of which are significantly in excess of thedefault rates projected for the Company's assets as well as historic defaultrates across the entire market. As the accounting policies of the Companyrequire valuation of the Company's assets at fair value, these higher discountrates and the increased credit risk implied by the market may have a materialadverse impact on the valuation of the Company's US assets for the quarter ended31 March 2007. Any resulting adjustment to valuations will be charged throughthe income statement and will reduce the net asset value of the Company (inaccordance with the Company's accounting policy). As valuation changes arisingfrom higher discount rates do not have an impact on the cash flows generated byits portfolio, the Company does not expect that any significant adjustments willbe made to distributable profits or that the amount of future dividends will beaffected. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Real Est.cred