Final Results

RNS Number : 4076I

Charlemagne Capital Limited

11 March 2010

 

11 March 2010

 

 

 

Charlemagne Capital Limited

 

Audited Results for the year ended 31 December 2009

 

Charlemagne Capital Limited ("Charlemagne", or the "Group"), the specialist emerging markets equity investment manager, today announces audited results for the year ended 31 December 2009.

 

Key Highlights

 

·; Assets Under Management - US$3.05 billion - an increase of 40%

 

 

·; Net Profit after Tax and Minority Interest - US$5.7million - a decrease of 59.1%

 

 

·; Earnings per share - 2.0 US cents per share - a decrease of 58.7%

 

 

·; Management Fees - US$18.6 million - a decrease of 52.9%

 

 

·; Performance Fees - US$4.2 million - an increase of 14.4%

 

 

·; Operating Profit Margin - 23.9% - decreased from 38.0%

 

 

·; Total Dividends paid and declared in 2009 - US$4.7million (2008: US$10.6 million) - a decrease of 55.7%

 

·; Share Buy Back US$0.1 million representing 0.15% of the issued capital for cancellation (2008: US$ 2.6 million, 1.6%)

 

 

 

Commenting on the results, Jayne Sutcliffe, Chief Executive :

 

"The first half of the year was extremely challenging with emerging markets hitting an all time low in the first quarter, but we are delighted to have seen the dramatic recovery in the second half of 2009. The long term investment case for emerging markets remains compelling and Charlemagne is well placed to take advantage of these attractive investment opportunities."

 

 

Enquiries:

 

Charlemagne Capital	Tel. 020 7518 2100
Jayne Sutcliffe, Chief Executive
David McMahon, Finance Director

 

Smithfield Consultants	Tel. 020 7360 4900
John Kiely / Gemma Froggatt

 

There is a presentation for analysts and investors at 09.30am today at the offices of Smithfield Consultants, 10 Aldersgate St., London EC1A 4HJ.

 

 

Notes to Editors:

 

Charlemagne Capital is a specialist emerging markets equity investment management group. Charlemagne Capital Limited was admitted to the AIM market of the London Stock Exchange on 4 April 2006.

 

Charlemagne's product range comprises mutual funds, hedge funds and institutional and specialist fund products primarily covering GEMs, Eastern Europe, Latin America and Asia. Charlemagne Capital employs a range of investment strategies including: long only, long/short, structured products and private equity. Charlemagne Capital's funds aim to exploit the inefficiencies in the market via a strict bottom up approach and focused stock selection.

 

Through the strong long-term investment performance track record of its principal funds, Charlemagne Capital has established itself as a market leader in emerging markets investment management. Its performance has been recognised through numerous awards and top rankings for its funds, including the 2005 Standard and Poor's 5-year best performing fund award in Austria, the 2006 Swiss Lipper Leaders 5-year award winner for Emerging Markets Europe and an AAA-rating by Standard & Poor's for its Magna Eastern European Fund (a sub-fund of Magna Umbrella Fund Plc).

 

 

Chairman's Statement

 

Markets staged a dramatic recovery in the latter part of 2009, erasing the losses experienced in the first few months. Our announcement of the annual results for 2008 fell on the day which the record shows as the low point of many emerging markets in which we invest and thus at about the point of maximum pessimism. How the world turns and confounds! The recovery that we have seen in share prices since then has been remarkable and many markets have more than doubled. Despite that, there remains some way to go to recover the high points of the past but we remain optimistic for emerging markets around the world in which the Group operates.

I concluded my statement last year with a comment that it was "when and not if" market fundamentals in emerging economies were recognised which would determine the Group's fortunes. Such a swift recovery was not envisaged at that point but, this time last year, some in the investment community urged us to slash our costs by making cuts in our infrastructure. The Board believed it was right to resist this and has been proved correct. Our financial performance throughout 2009 continued to improve and indeed the outlook remains positive.

The downturn did encourage a thorough review of costs and a belt tightening, starting at the top. Every area of cost has been minutely examined and savings have been made whenever possible. In this the Board was greatly impressed by the fact that our Chief Executive, Jayne Sutcliffe, insisted that she be paid only a nominal salary in 2009 and no bonus allocation.

Unfortunately many of our clients have been through difficult times of their own in the past 18 months. However the tide does appear to have turned, even if the inward flow remains sluggish. Strong investment performance in our key strategies since mid 2009 has seen the Group benefit from positive fund flows in 2010 to date.

Due to the lower average level of assets managed, it was inevitable that our fee income would diminish in 2009. The fall of 53% in regular management fees was therefore to be expected. What is of more immediate and encouraging interest is the trend that shows that fees were 23% higher in the second half than the first. Another gratifying factor is the ability of the business to earn performance fees on some of its mandates in 2009 despite the overall state of markets. We do not forecast performance fees in advance and many of our funds remain below their high water marks but we are hopeful of earnings from this source in 2010 also.

Additionally we have seen the resolution of certain matters which have taken several years to conclude in one of our private equity vehicles. This produced an income of US$1.2m, net of costs, in 2009 and is expected to result in the receipt of additional performance fees of up to US$3.7m, net of costs, in 2010 as distributions are made to shareholders of the vehicle. Since this is not in the nature of a recurring item, we have treated it as we have in previous years as a non-operational item to avoid distorting our regular income history.

Our basic strategy remains the same for the future. We will continue to focus on our core emerging markets expertise to take advantage of what we still see as under valued and under owned asset classes. We will also continue to operate as cost effectively as possible to produce maximum returns for our shareholders. We continue to foster an environment which will encourage our talented individuals to remain and be supplemented where necessary.

Chairman's Statement (continued)

 

As has been the case throughout our history, it is our intention and policy to declare regular dividends which reflect the earnings and cash flow of the Group. Shareholders have already received dividends of US$1.1 million in respect of the first interim distribution for 2009 (2008: US$7.0 million). A further amount of US$1.7 million is now being declared in respect of the second interim distribution for 2009 (2008: US$ 3.6 million) alongside a special interim dividend of US$2.1 million (2008: US$ nil). Additionally the company has bought back shares for cancellation in the amount of US$0.1 million (2008: US$2.6 million). Repurchases of shares may continue when conditions are deemed appropriate but directors have noted that illiquidity in the Group's shares is making such programmes increasingly difficult to implement. The Group continues to hold the bulk of its assets in cash and has no borrowings.

As always, the overall outlook for the future clearly depends on the fundamental characteristics in emerging economies and the willingness and financial resources of investors to recognise them as well as our experienced team who are able to maximise these to fund shareholders' advantage.

Every year, I thank the staff at Charlemagne Capital for their efforts. This year this statement is truer than ever. 2009, and especially its first few months, was an exceptionally difficult period. The hard work, loyalty and determination shown got the Group through in great shape and will stand it in good stead going forward.

 

Michael Baer

11 March 2010 Financial and Operating Review

 

Financial Results

 

The results for the year ended 31 December 2009 show the effect of the depressed market conditions experienced in the first quarter of the year in particular. The Group showed that it did remain profitable throughout when announcing its interim figures to 30 June. Profits in the second half were considerably better than those for the first six months. During the year as market conditions improved certain funds returned to accruing performance fees.

 

AuM at the end of 2009 were US$3.1 billion, an increase of 40% over the prior year (2008: US$2.2 billion). Net redemptions were US$405 million as the subcriptions seen towards the end of the year could not counterbalance the redemptions seen earlier in 2009. AuM are the prime driver of the Group's recurring profits and continued improvement of the trends in the second six months of 2009 should lead to improved figures in 2010.

 

Revenues from net management fees in the period decreased by 53% from those of the prior year to stand at US$18.6 million (2008: US$39.5 million). However most of this decrease is attributable to the first half of the year which is comparable with a period where AuM were much higher. 2010 should see an increase on the 2009 figure provided present conditions continue. The Group's net management fee margin reduced to 74 basis points ("bps") for the year (2008: 82 bps). This fall mainly reflects falls in fees negotiated in 2008 on one Institutional Advisory mandate as well as some changes in product mix. It is believed that the 2009 level should be repeatable going forward and further falls in management fee margin are not anticipated.

 

The investment performance of funds managed and advised by the Group had been impacted by both the general fall in market values and an underperformance by our own funds, beyond that of the general fall, until the end of the first quarter. The Group firmly believed that this position would change going forward and this has been seen to be the case since the second quarter of the year. This improvement will assist in gaining new mandates in the future. Nevertheless, the falls in market values early in the year were reflected in crystallised performance fees only rising to US$4.2 million (2008: US$3.7 million) during the year. The majority of this fee was earned on the Group's remaining Hedge Fund product. Whilst it may still take more than one year before significant performance fees are once again being earned on the remainder of the funds managed by the Group, they are much nearer to their targets than they were at the time of writing this review last year.

 

Operating expenses fell to US$18.1 million from US$27.1 million. Much of the decrease reflected the fall in profit related staff performance awards earned during the year. However, the majority of the fixed costs of the Group are incurred in GBP and the average conversion factor for that currency against the dollar fell by 14.7% compared to the previous year. In November 2008 and again in March 2009, the Directors instigated a currency purchase such that an amount of GBP approximately equal to the expected fixed costs of the Group until the end of 2009 was converted to Sterling. It is the Directors policy not to hold GBP for more than two or three months future expenditure under normal circumstances.

 

In addition to the above factors, savings of around 10% were made in staff salaries during the period from April to September and, indeed, the Chief Executive took only a nominal salary for the whole year. There has also been some reduction of headcount, particularly at senior levels, through natural wastage during the year. Some of these factors will not be repeated in 2010 and thus it should be expected that operating expenses, excluding profit related bonuses, will rise by at least 15% over the 2009 figures unless there is a continued weakening of GBP against USD.

 

The Group's operating profit margin for the year was 23.9% (2008: 38.0%) mainly reflecting the reduction in revenues, offset by reduced staff performance awards. Should AuM remain at present levels or increase, this margin can be expected to be maintained or increase in 2010, although it is unlikely that it will return to the levels of 2008 and earlier years until assets under management increase further and more significant perfomance fees are once again being earned.

 

Financial and Operating Review (continued)

 

Financial Results (continued)

 

Operating earnings before taxation and non-recurring items, were US$5.7 million in 2009, substantially lower than the US$16.6 million earned in 2008 mainly reflecting the fall in AuM during the year.

 

After some years of waiting for resolution of various legal and taxation issues, the Group has finally seen an uplift in its stake in a private equity vehicle amounting to US$1.2 million, after deduction of applicable bonus provisions. Further, following distributions to the fund's shareholders in January 2010, and another planned for March 2010, the Group will book a performance fee of US$3.7 million, net of applicable bonuses, which will appear in the figures for the first half of 2010. As these items are non recurring in nature, the Group has elected to account for them below the operating level so that recurring income figures are not distorted.

 

Profit, after taxation provisions of US$0.4 million, was US$6.4 million during 2009 compared with US$13.9 million in 2008. The reduction mainly reflects the fall in AuM and performance fees, offset by reduced expenditure and the one off private equity uplift.

 

Operating earnings per share fell by 66% to 2.0 US cents (2008: 5.9 US cents). The operating earnings per share calculation has been arrived at before both taxation and non-recurring forms of income and expenditure as we believe that this better reflects the underlying profitability of the business. After taxation and other income and expenditure, earnings per share attributable to shareholders were 2.0 US cents per share (2008: 4.9 US cents per share) on a fully diluted basis.

 

The Group's business model has been cash generative throughout the trough in markets and remains so. In the absence of unforeseen circumstances it continues to be the Directors' intention that substantially all cash generated will be returned to shareholders by means of dividends and share buy back programmes, where appropriate.

 

Group net assets at the end of 2009 were US$27.5 million compared to US$25.3 million at the beginning of the year, reflecting the fact that the Group paid US$4.7 million in dividends during the year, with movements in reserves and retained profits accounting for the remainder.

 

A first interim ordinary dividend of 0.4 US cents per share was declared and was paid on 30 October 2009. A second interim ordinary dividend of 0.6 US cents has been declared by directors and will be paid on 23 April 2010 at a cost of US$1.7 million. A special interim dividend has been declared in respect of 2009 of 0.75 US cents at a cost of US$2.1 million. This dividend will also be paid on 23 April 2010. It is not proposed to recommend a final dividend. Interim dividends have been recommended by the board in order that the funds can be paid to shareholders more quickly than would otherwise be the case.

 

Operations and Investment Review

 

Net outflows of money from the Group's products were dwarfed by the effects of increases in market values during 2009. The effects of the latter caused AuM to increase by US$1.28 billion whilst net outflows from redemptions totalled US$0.41 billion for the full year.

Institutional managers around the world generally remain committed investors in the sector and the Group's acknowledged expertise in many sectors of the emerging market universe should continue to mean that we gain new mandates on a regular basis.

Increases in Group AuM will continue to be sought from an expansion of existing products and strategies when market conditions allow, and will hopefully continue to be augmented by investment performance.

Financial and Operating Review (continued)

 

Operations and Investment Review (continued)

 

Magna

 

During 2009 there were no changes to the Magna range. Over the longer term, we have been pleased with the performance of the product range but, whilst most sub-funds are considerably closer to their performance fee targets, it will probably be some time before we can forecast performance fees with any certainty. At the end of 2009, there were eight sub-funds within the Magna Umbrella Fund with a total AuM of US$0.56 billion (2008: US$0.39 billion).

 

OCCO

 

During the year the OCCO fund specialising in Global Emerging Markets was placed into liquidation and monies returned to investors. This action was taken due to the weight of redemptions requested by investors seeking liquidity wherever it could be sourced. Unfortunately events around the world have changed sentiment for Hedge funds markedly since mid 2008. The remaining fund, specialising in producing absolute returns utilising mostly Eastern European positions, also suffered significant redemptions, falling to around US$50 million at its lowest point, before recovering with net subscriptions being recorded in each month since the middle of the year. The performance of this fund has been significantly above its target in 2009 such that it has recovered the underperformance of 2008 and has earned performance fees of US$3.3 million in 2009. We continue to believe that this fund has the ability to produce positive returns uncorrelated to the performance of the associated markets and we will continue to look to source new clients. At the end of 2009, the fund had a total AuM of US$105 million (2008: US$247 million, two funds).

 

Specialist

 

This fund area includes private equity property funds amongst other miscellanous products. Unfortunately 2009 was a year in which there was almost no appetite at all for new product offerings amongst investors in such funds, such was the overhang of similar funds trading at significant discounts on global stockmarkets. Thus our ability to source new monies was severely constrained.

 

Given underlying market conditions, no performance fees were earned in this category in 2009 and it is not possible to predict when conditions may be such that asset sales can be made within the vehicles which may then lead to such fees becoming payable.

 

Institutional - Advisory

 

The institutional advisory relationships have continued to suffer from client redemptions during the year although these were much reduced from 2008. As with other sectors, these redemptions have been far outweighed by market appreciation during 2009. No performance fees were generated during the year. At the end of the year the institutional advisory accounts, covering five funds from two organisations, had a total AuM of US$0.91 billion (2008: US$0.53 billion).

 

Institutional - Mandates

 

This category contains a number of individual mandates together with a range of products tailored to the needs of institutions. This segment also saw net redemptions in the year but, in common with other areas, saw significant rises in asset values due to market movement. On the whole, clients have continued to support the Group by adding to their mandates but no completely new clients were won. Of those whose money was withdrawn, this was often for reasons entirely outside the Group's control as managers and trustees decided to move to other asset classes. Performance fees of US$1.0 million were generated during the year. At the end of the year, Institutional Mandates had a total AuM of US$1.23 billion (2008: US$0.75 billion).

 

Consolidated Statement of Comprehensive Income

Expressed in United States Dollars	Notes	Year ended	Year ended
		31 December 2009	31 December 2008
		US$'000	US$'000
Revenue	4	23,819	43,664
Expenses
Personnel expenses	5	(13,381)	(20,421)
Other costs		(4,758)	(6,634)
Operating Profit	7	5,680	16,609
Share of profit of jointly controlled entity	15	2,598	-
Performance awards relating to jointly controlled entity	15	(1,399)	-
Profit before tax		6,879	16,609
Taxation	9	(439)	(2,695)
Profit after tax		6,440	13,914
Profit after Tax attributable to
Minority Interests	14	778	57
Owners of the Company		5,662	13,857
Profit after tax		6,440	13,914
Other Comprehensive Income
Foreign currency translation differences		1,180	(629)
Total Comprehensive Income for the Year		7,620	13,285
Total Comprehensive income attributable to
Minority Interests	14	778	57
Owners of the Company		6,842	13,228
Total Comprehensive Income for the Year		7,620	13,285
		US$	US$
Earnings per share
Basic	12	0.020416	0.049452
Diluted	12	0.020416	0.049410

 

The directors consider that all results derive from continuing activities.

 

 Consolidated Statement of Financial Position

Expressed in United States Dollars	Notes	As at	As at
		31 December 2009	31 December 2008
		US$'000	US$'000
Non-current assets
Property and equipment	13	587	746
Interest in jointly controlled entity	15	2,684	220
Total non-current assets		3,271	966
Current assets
Current investments	16	918	681
Trade and other receivables	18	11,317	7,533
Cash and cash equivalents	19	21,847	28,098
Total current assets		34,082	36,312
Total assets		37,353	37,278
Issued share capital	21	2,804	2,808
Reserves		23,764	22,263
Shareholders' equity	22	26,568	25,071
Minority Interest	14	968	190
Total equity		27,536	25,261
Current liabilities
Trade and other payables	20	9,557	10,947
Taxation		260	1,070
Total current liabilities		9,817	12,017
Total equity and liabilities		37,353	37,278

 

  

Consolidated Statement of Changes in Equity

	Share Capital	Share Premium	Retained Earnings	Treasury Shares	Share Option Reserve	Foreign Currency Exchange Reserve	Total attributable to the Owners of the Company	Minority Interest	Total Equity
	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000
At 1 January 2009	2,808	6,520	19,314	(6,280)	737	1,972	25,071	190	25,261
Shares repurchased	(4)	-	(99)	-	-	-	(103)	-	(103)
Share based payment plans (note 23)	-	-	(4,312)	4,106	(320)	-	(526)	-	(526)
Comprehensive income for the period	-	-	5,662	-	-	1,180	6,842	778	7,620
Dividends	-	-	(4,716)	-	-	-	(4,716)	-	(4,716)
At 31 December 2009	2,804	6,520	15,849	(2,174)	417	3,152	26,568	968	27,536

 

	Share Capital	Share Premium	Retained Earnings	Treasury Shares	Share Option Reserve	Foreign Currency Exchange Reserve	Total attributable to the Owners of the Company	Minority Interest	Total Equity
	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000
At 1 January 2008	2,853	6,520	50,726	(6,280)	1,057	2,601	57,477	133	57,610
Shares repurchased	(45)	-	(2,503)	-	-	-	(2,548)	-	(2,548)
Share based payment plans (note 23)	-	-	-	-	(320)	-	(320)	-	(320)
Comprehensive income for the year	-	-	13,857	-	-	(629)	13,228	57	13,285
Dividends	-	-	(42,766)	-	-	-	(42,766)	-	(42,766)
At 31 December 2008	2,808	6,520	19,314	(6,280)	737	1,972	25,071	190	25,261

 

Consolidated Cash Flow Statement

Expressed in United States Dollars	Notes	Year ended	Year ended
		31 December 2009	31 December 2008
		US$'000	US$'000
Operating Profit		5,680	16,609
Adjustments for:
Depreciation	7	325	428
Exchange (gain)/loss on property and equipment		(73)	289
Provision for unrealised (gain)/loss on foreign exchange contracts and investments	7	(261)	857
Foreign currency translation adjustment		1,180	(629)
(Profit)/loss on disposal of investments	7	(31)	863
Dividend received from jointly controlled entity		133	-
Share based option plan		(526)	(320)
(Increase)/decrease in trade and other receivables		(3,784)	74,674
(Decrease) in trade and other payables		(2,789)	(46,805)
Tax paid		(1,248)	(11,337)
Net cash (used in) / generated from operating activities		(1,394)	34,629
Investing activities
Proceeds from sale of investments		55	8,684
Purchase of investments		-	(2,888)
Proceeds from sale of property and equipment		-	33
Purchase of property and equipment	13	(93)	(214)
Net cash (used in) / generated from investing activities		(38)	5,615
Financing activities
Shares repurchased	21	(103)	(2,548)
Dividends paid	11	(4,716)	(42,766)
Net cash used in financing activities		(4,819)	(45,314)
Net (decrease) in cash and cash equivalents		(6,251)	(5,070)
Cash and cash equivalents at the beginning of the year	19	28,098	33,168
Cash and cash equivalents at the end of the year	19	21,847	28,098

 

Company Statement of Financial Position

Expressed in United States Dollars	Notes	As at	As at
		31 December 2009	31 December 2008
		US$'000	US$'000
Non-current assets
Interests in subsidiaries	14	2,747	2,622
Interest in jointly controlled entity	15	2,684	220
Total non-current assets		5,431	2,842
Current assets
Trade and other receivables	18	124	48
Amounts due from subsidiaries	26	28,921	15,460
Cash and cash equivalents	19	117	10,213
Total current assets		29,162	25,721
Total assets		34,593	28,563
Issued share capital	21	2,804	2,808
Reserves	22	(881)	2,042
Shareholders' equity	22	1,923	4,850
Current liabilities
Trade and other payables		90	77
Amounts due to subsidiaries	26	32,580	23,636
		32,670	23,713
Total equity and liabilities		34,593	28,563

 

 

Notes to the Financial Statements

1. The Company

Charlemagne Capital Limited (formerly Regent Fund Management (Cayman) Limited and Regent Europe Limited) was incorporated in the Cayman Islands as an exempt company with limited liability (registered number CR-75327) on 29 July 1997. The Company's registered office is at P.O. Box 309GT, Ugland House, South Church Street, George Town, Grand Cayman, Cayman Islands, British West Indies. The consolidated financial statements of the Company for the year ended 31 December 2009 comprise the Company and its subsidiaries (together referred to as the "Group") and the Group's interest in a jointly controlled entity.

2. Basis of Preparation

Statement of Compliance

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") and their interpretations adopted by the International Accounting Standards Board ("IASB"). The financial statements were authorised for issue by the Directors on 11 March 2010.

Basis of Measurement

The consolidated financial statements are prepared on the historical cost basis except that the following are stated at their fair value: financial instruments at fair value through profit or loss including derivative financial instruments. Recognised assets and liabilities that are hedged are stated at fair value in respect of the risk that is hedged.

Functional and Presentation Currency

The Company's shares are issued in United States Dollars ("US Dollars") as the US Dollar is a more widely recognised currency internationally than the local currency of the Cayman Islands. The functional and presentation currency of the financial statements is US Dollars and not Cayman Islands Dollars reflecting the fact that the transactions are denominated in US Dollars.

Use of Estimates and Judgements

The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.

 

In particular, information about significant areas of estimation, uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amount recognised in the financial statements are described in note 27.

 

Changes in Accounting Policies

For the 2009 financial statements the Group has adopted IAS 1 "Presentation of Financial Statements" (Revised 2007) and IFRS 8 "Operating Segments" and it has also decided on early adoption of IFRS 2 amendments regarding cash settled share based payment transactions.

The adoption of IAS 1 (Revised 2007) makes certain changes to the format and titles of the primary financial statements and to the presentation of some items within these statements. It also gives rise to additional disclosures. The measurement and recognition of the Group's assets, liabilities, income and expenses are unchanged. However, some items that were recognised directly in equity are now recognised in other comprehensive income. IAS 1 affects the presentation of owner changes in equity and introduces a "Statement of comprehensive income".

The adoption of IFRS 8 has not affected the disclosure of segment reporting for the Group as the information previously presented was already consistent with the segmental reporting structure reviewed by management.

The early adoption of IFRS 2 (amended 2009) has not affected the disclosure of Group cash-settled transactions as the information previously presented was already consistent with the requirements of the amendments to the IFRS.

Notes to the Financial Statements (continued)

2. Basis of Preparation (continued)

Changes in Accounting Policies (continued)

The Group adopted the amendments to IFRS 7 Improving Disclosures about Financial Instruments effective from 1 January 2009. These amendments require the Group to disclose certain information about financial instruments measured at fair value in the statement of financial position. In the first year of application, comparative information need not be presented for the disclosures required by the amendment. Accordingly, the disclosure for the fair value hierarchy is only presented for the 31 December 2009 year end.

The following represents the fair value hierarchy of financial instruments measured at fair value in the statement of financial position. The hierarchy groups financial assets and liabilities into three levels based on the significance of inputs used in measuring the fair value of the financial assets and liabilities. The fair value hierarchy has the following levels:

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The level within which the financial asset or liability is classified is determined based on the lowest level of significant input to the fair value measurement.

New and Forthcoming Accounting Standards and Interpretations

IASB and IFRIC have issued the following standards and interpretations with an effective date after the date of these financial statements:

 

New/Revised International Financial Reporting Standards (IAS/IFRS)	Effective date (accounting periods commencing after)
IAS 7 Statement of Cash Flows (Revised April 2009)*	1 January 2010
IAS 24 Related Party Disclosures - Revised definition of related parties	1 January 2011
IAS 31 Interests in Joint Ventures - Consequential amendments resulting from amendments to IFRS 3 (2008)	1 July 2009
IAS 36 Impairment of Assets (Revised April 2009)*	1 January 2010
IAS 39 Financial Instruments: Recognition and Measurement - Amendments for eligible hedged items	1 July 2009
IAS 39 Financial Instruments: Recognition and Measurement (Revised April 2009)*	1 January 2010
IFRS 2 Share-based Payment - Amendments relating to group cash-settled share-based payment transactions	1 January 2010
IFRS 9 Financial Instruments - Classification and Measurement	1 January 2013

 

*Amendments resulting from April 2009 Annual Improvements to IFRSs

 

The Directors do not expect the adoption of the standards and interpretations to have a material impact on the Group's financial statements in the period of initial application.

 

Notes to the Financial Statements (continued)

3. Significant Accounting Policies

The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements and have been applied consistently by the Group entities except as explained in note 2, which addresses changes in accounting policies.

Basis of Consolidation

Subsidiaries

Subsidiaries are those enterprises controlled by the Group. Control exists where the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

Jointly controlled entities

Jointly controlled entities are those entities over whose activities the Group has joint control, established by contractual agreement, and are accounted for using the equity accounting method in the consolidated financial statements.

Transactions eliminated on consolidation

Intra-group balances and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised losses are eliminated in the same way as unrealised gains, but to the extent that there is no evidence of impairment.

Investment in funds managed by Charlemagne Capital Group companies

Certain Group companies, from time to time, purchase shares in funds managed by other Charlemagne Capital Group companies. Such holdings can amount to over 20% of the issued share capital and occasionally more than 50%. Those holdings over 50% of the issued share capital, are treated as subsidiaries. Those holdings which are over 20% but not more than 50% of the issued share capital are treated as associates and equity accounted in the consolidated financial statements for the Group. No holdings of over 20% but below 50%, and no holdings of over 50% in Charlemagne managed funds existed at 31 December 2009 or 2008.

Foreign Currency

Foreign currency transactions

Transactions in foreign currencies are translated to US Dollars at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to US Dollars at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in profit or loss. Non-monetary assets and liabilities denominated in foreign currencies, which are stated at historical cost, are translated to US Dollars at the foreign exchange rate ruling at the date of the transaction.

Foreign operations

The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to US Dollars at foreign exchange rates ruling at the reporting date. The income and expenses of foreign operations are translated to US Dollars at the foreign exchange rates at the dates of the transactions. Foreign currency differences are recognised in "foreign currency exchange reserve" directly in equity. When a foreign operation is disposed of, in part or in full, the relevant amount in the foreign currency exchange reserve is transferred to profit or loss.

Notes to the Financial Statements (continued)

3. Significant Accounting Policies (continued)

Derivative Financial Instruments

The Group uses derivative financial instruments including forward exchange contracts to manage its exposure to foreign exchange, interest rate and equity market risks arising from operational, financing and investment activities and for trading purposes.

Derivative financial instruments are recognised initially at fair value. Subsequent to initial recognition, derivative financial instruments are stated at fair value. The gain or loss on remeasurement to fair value is recognised immediately in profit or loss. However, where derivatives qualify for hedge accounting, recognition of the resultant gain or loss depends on the nature of the item being hedged (see Cash flow hedges below).

Cash flow hedges

Where a derivative is designated as a hedge of the variability in cash flows attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction that could affect profit or loss, the effective portion of changes in the fair value of the derivative are recognised directly in equity. The amount recognised in equity is removed and recognised in profit or loss in the same period as the hedged cash flows affect profit or loss under the same profit or loss line item as the hedged item. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in the profit or loss.

If the derivative expires or is sold, terminated, or exercised, or no longer meets the criteria for cash flow hedge accounting, or the designation is revoked, then hedge accounting is discontinued and the amount recognised in equity until the forecast transaction affects profit or loss. If the forecast transaction is no longer expected to occur, then hedge accounting is discontinued and the balance in equity is recognised immediately in profit or loss.

Property and Equipment

Items of property and equipment are measured at cost less accumulated depreciation and impairment losses.

Depreciation

Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of items of property and equipment. The estimated useful lives are as follows:

Furniture and fixtures 5 years

Computer equipment 3 years

Other equipment 4 years

Depreciation methods, useful lives and residual values are reviewed at each reporting date.

Investments

Classification and measurement

An instrument is classified at fair value through profit or loss if it is held for trading or is designated as such upon initial recognition. Financial instruments are designated at fair value through profit or loss if the Group manages such investments and makes purchase and sale decisions based on their fair value in accordance with the Group's risk management or investment strategy. Upon initial recognition attributable transaction costs are recognised in profit or loss when incurred. Financial instruments at fair value through profit or loss are measured at fair value, and changes therein are recognised in profit or loss. All investments are designated at fair value through profit or loss, except for derivative financial instruments which are classified as held for trading.

Notes to the Financial Statements (continued)

3. Significant Accounting Policies (continued)

Investments (continued)

Recognition and derecognition

The Group recognises financial assets at fair value through profit or loss on the date it commits to purchase the instruments. From this date any gains and losses arising from changes in fair value of the assets are recorded. These assets are derecognised when the rights to receive cash flows from the assets have expired or when the Group has transferred substantially all risks and rewards of ownership.

Fair value measurement principles

The value of financial instruments is based on their quoted market bid price, where available, at the balance sheet date without any deduction for transactions costs. If a quoted market price is not available on a recognised exchange or from a broker/dealer for non-exchange traded financial instruments, the fair value of the instrument is estimated by the Board of Directors.

Trade and Other Receivables

Trade and other receivables are measured at amortised cost less impairment losses.

Trade and Other Payables

Trade and other payables are measured at amortised cost.

Cash and Cash Equivalents

Cash and cash equivalents comprise cash balances and call deposits. For the purpose of the statement of cash flows, cash and cash equivalents would be presented net of bank overdrafts if any existed.

Impairment of Non Financial Assets

The carrying amounts of the Group's assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset's recoverable amount is estimated. All impairment losses and reversals are recognised in profit or loss.

Share Capital

Ordinary shares

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity, net of tax effects.

Repurchase of share capital

When share capital recognised as equity is repurchased, the amount of the consideration paid, including directly attributable costs, is recognised as a change in equity. Repurchased shares are classified as cancelled shares and presented as a deduction from total equity.

Treasury shares

Shares issued to the Charlemagne 2005 Employee Benefit Trust (note 23) are accounted for as treasury shares within equity (see note 21).

Dividends

Dividends are recognised as a liability in the year in which they are declared and approved.

Notes to the Financial Statements (continued)

3. Significant Accounting Policies (continued)

Revenue Recognition

Provided it is probable that the economic benefits will flow to the Group and the revenue and costs, if applicable, can be measured reliably, revenue is recognised in profit or loss as follows:-

(a) investment management, administration and advisory fees contractually receivable by the Group are recognised in the year in which the respective fees are earned. Performance fees arising upon the achievement of specified targets are recognised at the respective funds' year-ends, when such performance fees are confirmed as receivable, or when there is a crystallising event, including but not limited to, redemption of shares against which performance fees have been accrued;

(b) profit or loss on sale of investments is recognised when title is passed;

(c) interest is recognised on a time apportioned basis the effective interest rate basis;

(d) dividend income from unlisted investments is recognised when the shareholder's right to receive payment is established. Dividend income from listed investments is recognised when the share price of the investment turns ex-dividend;

(e) revenue related to provision of services is recognised on an accruals basis.

Operating Lease Payments

Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease.

Employee Benefits

Obligations for contributions to employees' International Pension Plans are recognised as an expense in profit or loss as incurred. Obligations to the Charlemagne 2005 Employee Benefit Trust are recognised as an expense in profit or loss to the extent that these have been provisionally allocated to discretionary revocable sub-trusts of which certain directors and employees of the Group may become beneficiaries.

In common with other groups which have initiated employee benefit trusts, from time to time the Group may receive inquiries from revenue authorities regarding taxation aspects. It is the policy of the Group to account for any taxation due as a result of such inquiry in the year in which the substance of any settlement is agreed.

The grant date fair value of options granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period in which the employees become unconditionally entitled to the options. The amount recognised as an expense is adjusted to reflect the actual number of share options expected to vest.

The fair value of the amount payable to employees in respect of share appreciation rights, which are settled in cash, is recognised as an expense, with a corresponding increase in liabilities, over the period the employees become unconditionally entitled to payment. The liability is remeasured at each reporting date and at settlement date. Any changes in the fair value of the liability are recognised as personnel expense in profit or loss.

The fair value of employee stock options is measured using a Black-Scholes or binomial lattice model. Measurement inputs include share price on measurement date, exercise price of the instrument, expected volatility (based on weighted average competitor volatility), weighted average expected life of the instruments (based on general option holder behaviour), expected dividends, and a risk-free interest rate. Service and non-market performance conditions attached to the transactions are not taken into account in determining fair value.

Notes to the Financial Statements (continued)

3. Significant Accounting Policies (continued)

Income Tax

Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in profit or loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.

Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. A deferred tax asset is reduced to the extent that it is no longer probable that the related tax benefit will be realised.

From time to time the Group receives inquiries from revenue authorities into its taxation affairs, as is common for entities operating international transfer pricing policies. It is the policy of the Group to account for any taxation due as a result of such inquiry in the year in which the substance of any settlement is agreed.

Investment in Subsidiaries, Associates and Jointly Controlled Entities

The Company's investments in the subsidiaries and associates are stated at cost less impairment losses. The interest in jointly controlled entities is accounted for in the Company's balance sheet as a financial asset at fair value through profit or loss in accordance with IAS 39. In the absence of a quoted market price for the jointly controlled entity share of net assets is considered to approximate fair value.

Comparative Figures

Where necessary, comparative figures have been adjusted to conform to changes in presentation for the current year.

Earnings per Share

The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period, adjusted for own shares held. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding, adjusted for own shares held, for the effects of all dilutive potential ordinary shares, which comprise convertible notes and share options granted to employees.

4. Revenue 

	Year ended	Year ended
	31 December 2009	31 December 2008
	US$'000	US$'000
Fund management and related fees, net of rebates	18,647	39,515
Performance fees	4,222	3,690
Investment income on assets designated at fair value through profit or loss	566	(316)
Other income	384	775
	23,819	43,664

Notes to the Financial Statements (continued)

 

5. Personnel Expenses

	Year ended	Year ended
	31 December 2009	31 December 2008
	US$'000	US$'000
Salaries	7,467	8,820
Performance related bonuses	2,702	1,628
Share Based Incentive Plans (see note 23)	504	(1,434)
Contributions to Employee Benefit Trust	1,363	10,133
Pension contributions	96	184
Compulsory social security contributions	1,249	1,090
	13,381	20,421

 

In addition to the operational expenses in 2009 there were also one-off performance awards of US$1.4 million relating to the share of profit of a jointly controlled entity.

 

	Year ended	Year ended
Directors' Emoluments	31 December 2009	31 December 2008
	US$'000	US$'000
Fees	248	278
Salaries	542	1,416
Performance related bonuses	1,036	500
Pension contributions	13	9
	1,839	2,203

 

The number of employees of the Group as at the end of the year was 63 (2008: 68) full time equivalent.

The Group operates a discretionary bonus scheme, as approved by the Board, which is based on the Group's profit before taxation. Bonuses are accounted for in the financial year in which the bonus is earned.

In 2005 the Group created an employee benefit trust, the Charlemagne 2005 Employee Benefit Trust ("EBT"). The EBT is controlled by an independent Trustee (the "Trustee"). The EBT was created in order to motivate and retain the Group's directors and employees, each of whom is a potential beneficiary from the trust. These contributions have been expensed through Personnel Expenses.

 

Of the total amount contributed to the EBT relating to 2009, the Directors of Charlemagne Capital Services Limited ("CCSL"), the Group's global employment company, have recommended that the Trustee not allocate any amount this year to discretionary revocable sub-trusts of which certain directors of the Company may be potential beneficiaries (2008: US$2.1million). However no amount has been included in directors' emoluments since the amounts have not been allocated to any director or employee with any certainty.

 

Highest Paid Director

 

The highest paid Director had emoluments of US$1.18 million (2008: US$0.65 million).

 

6. Related Party Transactions

Identity of related parties

The Group is related to its subsidiaries (note 14), its jointly controlled entity (note 15) and to its Directors and executive officers.

Transactions with Directors and executive officers

As at 31 December 2009, Directors of the Company and their immediate interests controlled 33% (2008: 40%) of the voting shares of the Company.

Notes to the Financial Statements (continued)

6. Related Party Transactions (continued)

Summary of transactions

The following is a summary of transactions with related parties during the year. All such transactions were entered into in the ordinary course of business.

a. Approximately 58% (2008: 59%) of the turnover from investment management, administration, performance incentive fees, advisory fees and commissions is derived from funds over which the Directors consider the Group has influence by virtue of its management, administration and advisory roles.

b. Certain Directors have shareholdings in certain funds managed by Charlemagne Capital Group companies.

c. During the year the Group established a new subsidiary entity and entered into an economic interest agreement with this entity in respect of one of the management contracts held by the Group. An employee of the Group holds a 49.9% minority interest in the shares of this entity and has an option to acquire a further 12.6% of the shares in issue (see notes 14 and 23).

7. Profit from Operations

The Group's profit from operations was arrived at:-	Year ended	Year ended
	31 December 2009	31 December 2008
	US$'000	US$'000
After charging and (crediting):
Revenue Items
Realised (profit)/loss on disposal of current investments	(31)	863
Unrealised (profit)/loss on current investments	(261)	857
Interest income	(53)	(1,307)
Net foreign exchange gain net	(222)	(97)
Expense Items
Depreciation	325	428
Auditors' remuneration	151	168
Operating lease rental on property	632	723

 

Notes to the Financial Statements (continued)

8. Segment Reporting

Year to 31 December 2009
	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000
	Magna	OCCO	Institutional Advisory	Institutional Mandates	Specialist	Other	Total
Net Management Fees	4,660	1,805	1,550	7,088	3,544	-	18,647
Net Performance Fees	(115)	3,263	-	1,074	-	-	4,222
Return on Investment	-	-	-	-	-	566	566
Other Income	-	-	-	-	-	384	384
Segment Revenue	4,545	5,068	1,550	8,162	3,544	950	23,819
Segment Result	3,766	3,497	1,361	6,707	3,217	546	19,094
Unallocated Expenses							(13,414)
Results from Operating Activities							5,680

 

Year to 31 December 2008
	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000
	Magna	OCCO	Institutional Advisory	Institutional Mandates	Specialist	Other	Total
Net Management Fees	11,141	5,206	9,434	7,764	5,970	-	39,515
Net Performance Fees	264	1,323	222	831	1,050	-	3,690
Return on Investment	-	-	-	-	-	(1,720)	(1,720)
Other Income	-	-	-	-	345	1,834	2,179
Segment Revenue	11,405	6,529	9,656	8,595	7,365	114	43,664
Segment Result	7,179	3,955	6,713	5,802	5,338	114	29,101
Unallocated Expenses							(12,492)
Results from Operating Activities							16,609

 

 

IFRS 8 Operating Segments introduces the "management approach" to segment reporting. IFRS 8, became mandatory for the Group's 2009 financial statements, requires the disclosure of segment information based on the internal reports regularly reviewed by the Group's Chief Operating Decision Maker in order to assess each segment's performance and to allocate resources to them. Currently the Group presents segment information in respect of its business segments. Management believe that the information currently presented is consistent with information reviewed by management and therefore no significant changes have resulted from adoption of IFRS 8.

Notes to the Financial Statements (continued) 

9. Taxation

Recognised in the income statement	Year ended	Year ended
	31 December 2009	31 December 2008
	US$'000	US$'000
Current tax expense:
Current year	451	2,797
Overprovided in prior years	(12)	(102)
Total income tax expense	439	2,695

 

Reconciliation of effective tax rate	Year ended		Year ended
	31 December 2009		31 December 2008
	US$'000		US$'000
Profit before tax	6,879		16,609
Income tax using the domestic corporation tax rate	0%	-	0%	-
Effect of different tax rates in foreign jurisdictions	6.56%	451	16.84%	2,797
Overprovided in prior years	(0.17%)	(12)	(0.61%)	(102)
	6.38%	439	16.23%	2,695

 

10. Profit Attributable to Shareholders

The net profit attributable to shareholders reflected in the financial statements of the Company itself amounts to US$1.89 million (2008: US$38.93 million).

11. Dividends

	Year ended	Year ended
	31 December 2009	31 December 2008
	US$'000	US$'000
Dividends per share of 1.7 US cents (2008: 15.25 US cents)	4,716	42,766

A second interim ordinary dividend of 1.3 US cents (GB 0.9205p) per ordinary share in respect of the year ended 31 December 2008 was paid on 7 April 2009 to those shareholders on the register on 13 March 2009 and was distributed from retained earnings in 2009.

An interim ordinary dividend of 0.4 US cents (GB 0.2453p) per ordinary share was paid on 30 October 2009 to those shareholders on the register on 2 October 2009 and distributed from retained earnings in 2009.

A second interim ordinary dividend of 0.6 US cents (GB 0.4011p) and a special interim dividend of 0.75 US cents (GB 0.5014p) per ordinary share in respect of the year ended 31 December 2009 will be paid on 23 April 2010 to those shareholders on the register on 26 March 2010 and will be distributed from retained earnings in 2010.

12. Earnings Per Share

The calculation of basic earnings per share of the Group is based on the net profit attributable to shareholders for the year of US$5.66 million (2008: US$13.86 million) and the weighted average number of shares of 277,380,078 (2008: 280,209,015) in issue during the year.

Notes to the Financial Statements (continued) 

12. Earnings Per Share (continued)

The calculation of diluted earnings per share of the Group includes options that have vested but not yet been exercised and the weighted average number of share options where the specified performance conditions have been satisfied, but the service criteria have not yet been met (note 23).

Shares issued during the year ended 31 December 2006 to Sanne Trust Company Limited (note 23) have been excluded from the earnings per share calculation as such shares are currently accounted for as treasury shares.

13. Property and equipment

Group	Furniture and	Computer and Other
	Fixtures	Equipment	Total
Cost:	US$'000	US$'000	US$'000
At 1 January 2008	1,208	1,313	2,521
Acquisitions	30	184	214
Disposals	-	(78)	(78)
Exchange adjustment	(327)	(372)	(699)
At 31 December 2008	911	1,047	1,958
At 1 January 2009	911	1,047	1,958
Acquisitions	12	81	93
Disposals	(160)	(403)	(563)
Exchange adjustment	94	103	197
At 31 December 2009	857	828	1,685
Depreciation and impairment:
At 1 January 2008	363	876	1,239
Provided during the year	193	235	428
Disposals	-	(45)	(45)
Exchange adjustment	(137)	(273)	(410)
At 31 December 2008	419	793	1,212
At 1 January 2009	419	793	1,212
Provided during the year	171	154	325
Disposals	(160)	(403)	(563)
Exchange adjustment	45	79	124
At 31 December 2009	475	623	1,098
Carrying amounts:
At 1 January 2008	845	437	1,282
At 31 December 2008	492	254	746
At 1 January 2009	492	254	746
At 31 December 2009	382	205	587

There was no property and equipment in the Company.

Assets which were purchased at a historic cost of US$0.4 million and are fully depreciated are still being used by the company.

Notes to the Financial Statements (continued) 

14. Interests in Subsidiaries

Company	US$'000
Cost
At 1 January 2008	4,027
At 31 December 2008	2,622
At 1 January 2009	2,622
Addition	125
At 31 December 2009	2,747

 

Impairment
At 1 January 2008	1,242
At 31 December 2008	-
At 1 January 2009	-
Disposal
At 31 December 2009	-

 

	US$'000
Carrying Amount
At 31 December 2008	2,622
At 31 December 2009	2,747

Balances with subsidiaries are included within current assets and current liabilities within the parent company statement of financial position.

Particulars of the principal subsidiaries of the Company at 31 December 2009 are as follows:

Name	Place of Incorporation/ Operation	Issued and Fully Paid Share Capital	Percentage of Equity Interest Attributable to the Company		Principal Activities
			Direct	Indirect
Charlemagne Capital (IOM) Limited	Isle of Man	Ordinary GBP20,000	100%	-	Investment Management
Charlemagne Capital (UK) Limited	United Kingdom	Ordinary GBP100	100%	-	Investment Advice and Marketing
Charlemagne Capital (Investments) Limited	Isle of Man	Ordinary GBP1	100%	-	Investment
Charlemagne Capital (Services) Limited*	Isle of Man	Ordinary GBP2,000	100%	-	Personnel
Charlemagne Capital (OCCO EE) Limited**	Isle of Man	Ordinary GBP100,000	50.1%	-	Internal Servicing Company

*During the year, Charlemagne Capital Limited acquired the remaining 40% of the shares of Charlemagne Capital (Services) Limited from the Trustee of the Charlemagne 2005 Employee Benefit Trust.

**During the year the Group established a new subsidiary entity. An employee of the Group holds a 49.9% minority interest in the shares of this entity and has an option to acquire a further 12.6% of the shares in issue (see notes 6 and 23)

Notes to the Financial Statements (continued)

15. Interest in Jointly Controlled Entity

	Group
	31 December 2009	31 December 2008
	US$'000	US$'000
Share of net assets	2,684	220

The Group has a 12.86% (2008: 12.86%) interest in a jointly controlled entity, SWR Investments Limited ("SWR"), a company incorporated in the Cayman Islands, which invested in banking and financial entities in Eastern Europe. In view of the fact that the Group retains a significant influence over the management of SWR, an equity accounting approach has continued with regard to this investment.

During the year SWR resolved outstanding taxation matters and subsequently released significant provisions. The valuation of the Group's interest represents its share of SWR's net assets at fair market value. The subsequent distribution of the net assets of SWR triggered the payment of a performance fee of US$3.7m net of applicable bonuses to the Group in the first quarter of 2010.

The results, assets and liabilities of this equity accounted jointly controlled entity are as follows:

 

Name	Assets	Liabilities	Profit/ (Loss)	% interest
	US$'000	US$'000	US$'000
SWR Investments Limited	27,544	6,670	20,045	12.86%

 

16. Investments

	31 December 2009	31 December 2008
	US$'000	US$'000
Group
Current investments - at fair value through profit or loss
Equity securities	282	281
Equity securities held for deferred bonus payments	636	400
	918	681

There were no investments held by the Company.

17. Deferred Taxation

There is an unrecognised deferred taxation asset of US$11,308 (2008: unrecognised asset of US$19,732) representing the tax effect of depreciation in excess of capital allowances.

18. Trade and Other Receivables

	Group		Company
	31 December	31 December	31 December	31 December
	2009	2008	2009	2008
	US$'000	US$'000	US$'000	US$'000
Trade customers	8,774	3,767	-	-
Other receivables	1,901	3,237	97	14
Prepayments	642	529	27	34
	11,317	7,533	124	48

As at 31 December 2009 margin deposits of US$5,214 (2008:US$4,860) were held by the Group in respect of their normal trading in currencies, futures and options (note 24).

Notes to the Financial Statements (continued)

19. Cash and Cash Equivalents

	Group		Company
	31 December	31 December	31 December	31 December
	2009	2008	2009	2008
	US$'000	US$'000	US$'000	US$'000
Bank balances	289	459	6	37
Call deposits	263	6,501	111	176
Term deposits	21,295	11,138	-	-
US treasury bills	-	10,000	-	10,000
Cash and cash equivalents	21,847	28,098	117	10,213

20. Trade and Other Payables

	Group		Company
	31 December	31 December	31 December	31 December
	2009	2008	2009	2008
	US$'000	US$'000	US$'000	US$'000
Provision for performance awards	5,647	5,413	-	-
Accruals and other payables	3,910	5,534	90	77
	9,557	10,947	90	77

 

21. Issued Share Capital

Shares	31 December	31 December
	2009	2008
	US$'000	US$'000
Authorised
2,000,000,000 ordinary shares of US$0.01 each	20,000	20,000
Issued and fully paid
At beginning of year 280,810,673 (2008: 285,274,173)
ordinary shares of US$0.01 each	2,808	2,853
Shares repurchased; 425,057 (2008: 4,463,500)	(4)	(45)
At end of year; 280,385,616 (2008: 280,810,673) fully paid	2,804	2,808

 

During the year ended 31 December 2009, the Company repurchased 425,057 (2008: 4,463,500) of its own shares at market value for cancellation.

As at the date of signing the financial statements there were 280,385,616 (2008: 280,810,673) ordinary shares of US$0.01 each issued and fully paid.

Included within share capital are 3,422,185 shares which are held on behalf of a subsidiary of the Company (see note 23). These are accounted for as treasury shares and are included as a debit reserve within equity.

Notes to the Financial Statements (continued)

22. Share Capital and Reserves

Under Cayman Island law all categories of reserves are distributable. However, under normal circumstances the Company considers that only retained profits are distributable to shareholders. In the current and previous periods, the Company has repurchased some of its own shares. These shares were cancelled upon repurchase and accordingly the issued share capital of the Company was reduced by their nominal value. The premium on shares repurchased during 2009 was transferred to retained earnings.

The Board's policy is to maintain an adequate capital base so as to maintain investor, creditor and market confidence and to sustain future development of business. The Board of Directors monitors the return on capital and the level of dividends to ordinary shareholders.

There were no changes to the Group's approach to capital management during the year.

Two of the Company's subsidiaries are subject to externally imposed capital requirements and are required to submit periodic returns summarising their financial resources. These companies have complied with relevant regulatory requirments in all material respects during the year.

23. Share Based Incentive Plans

 

Equity Settled

 

The Group has established several share based incentive programmes that entitle certain employees to acquire shares in the Company subject to the vesting conditions set out below at an exercise price that was set at the date of grant.

 

The fair value of options granted is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the vesting period. The amount recognised as an expense is adjusted to reflect the actual number of share options that are expected to vest.

 

Grant Date	Options Issued	Options Remaining	Vesting Conditions	Contractual life of Options
27 March 2006	1,013,578	151,491	Equal parts vesting over three, four and five years service plus achievement of EPS performance targets	7 Years
21 November 2006	50,903	35,109	Equal parts vesting over three, four and five years service plus achievement of EPS performance targets	7 years
13 March 2007	134,851	104,913	Equal parts vesting over three, four and five years service plus achievement of EPS performance targets	7 Years
18 March 2008	356,430	356,430	Three years service plus achievement of Assets under Management (AuM) performance targets	10 years
18 March 2008	200,000	200,000	Equal parts vesting over three, four and five years service plus achievement of Assets under Management (AuM) performance targets	7 years
27 March 2009	9,309,510	9,309,510	Three years service plus achievement of Assets under Management (AuM) performance targets	7 years
27 March 2009	3,943,702	3,943,702	Three years service plus achievement of Assets under Management (AuM) performance targets	10 years
Total Share Options	15,008,974	14,101,155

 

The number and weighted average exercise price of outstanding share options is as follows:

 

	Weighted average exercise price	Number of Options
Outstanding at beginning of period	GBP0.31	1,297,626
Granted during the period	GBP0.09	13,253,212
Failed to vest during the period	GBP0.19	(97,306)
Cancelled during the period	GBPNil	(352,377)
Outstanding at the end of the period	GBP0.11	14,101,155

 

Notes to the Financial Statements (continued)

23. Share Based Incentive Plans (continued)

 

Equity Settled (continued)

 

The options outstanding at 31 December 2009 have an exercise price between GBPNil and GBP0.748 and a weighted average contractual life of 6.2 years. Outstanding share options are contingent upon specified performance and service criteria being satisfied.

 

During the period 352,468 options were cancelled for cash. In these instances the company recognised as an expense in profit or loss the remaining original fair values of these options. The Company did not recognise any gain in profit or loss where the cash award was less than the fair value of the options.

 

During the period 97,306 options reached the end of their vesting period but failed to meet the required performance criteria. Any amounts previously provided for these options were written back to profit or loss.

 

As at 31 December 2009 39,954 options had vested but had not been exercised. The average exercise price of these options is GBP0.74.

 

As at 31 December 2009 the performance criteria of some of the remaining options had been achieved however, the service criteria have yet to be met, so none of the remaining options are exercisable at this time.

 

The fair values of the options granted during the year are measured at the grant date using a Black-Scholes or binomial lattice model and spread over the three year vesting period of these schemes. The values are adjusted to reflect the actual number of shares that are expected to vest and recognised as an employee expense with a corresponding increase in equity.

 

The weighted average fair value of the options issued during the period was GBP0.03 (2008: GBP0.14)

 

The estimate of the fair value of the share options granted with a grant price of GBP Nil has been calculated by reference to the face value of the award adjusted for the loss of dividends over the vesting period. All other options are measured using a binomial lattice model to estimate the early exercise behaviour. The contractual life of the options, 7-10 years, is used as an input to this model.

 

Fair value of share options and assumptions	27 Mar 2006  EPS Targets	21 Nov 2006 EPS Targets	13 Mar 2007 EPS Targets	18 Mar 2008 AuM Targets	18 Mar 2008 EPS Targets	27 Mar 2009 AUM Targets	27 Mar 2009 AUM Targets
Fair value at measurement date (GBP)	0.86	0.20	0.21	0.14	0.14	0.03	0.03
Share price at grant date (GBP)	1.05	0.705	0.7475	0.505	0.505	0.089	0.089
Exercise price (GBP)	Nil	0.705	0.7475	0.505	0.505	0.089	0.089
Expected volatility (% p.a.)	50.0	40.0	40.0	37.4	37.4	40.0	40.0
Option life (years)	7	7	7	10	7	7	10
Assumed dividend yield (% p.a.)	5.0	5.0	5.0	5.0	5.0	5.0	5.0
Risk-free interest rate (% p.a.)	4.4	4.8	5.0	5.0	5.0	5.0	5.0

 

The Company's shares were not traded before the initial options were granted. In setting the volatility assumption therefore regard was given to the share price volatilities of the Company's closest traded comparator companies, as well as the share price since listing. Based on daily and weekly price observations, the share price volatility was estimated at around 50% which was comparable to that of its competitors over a longer period. For those options issued substantially after listing the share price volatility has been assumed to be 40% or 37.4% relating the average volatility between listing and the grant dates.

 

An employee of the Group holds a 49.9% minority interest in the shares of a group entity and has an option to acquire a further 12.6% of the shares in issue. The Group has retained an option to re-acquire the shares held by the employee for a nominal sum under certain conditions, should the employee's option no longer be exercisable for any reason. As at the grant date, the Directors believe that the option granted to the employee had no significant value. All options involved in this arrangement expire on 31 December 2018.

 

The share options are granted under service and non-market performance conditions. Such conditions are not taken into account in the grant date fair value measurement of the services received. There are no market conditions associated with the share option grants.

 

Notes to the Financial Statements (continued)

23. Share Based Incentive Plans (continued)

 

Cash Settled

 

At 24 March 2006, the Group's global employment company, Charlemagne Capital Services Limited (CCSL), made a contribution of US$6.28m to the Charlemagne 2005 Employee Benefit Trust (EBT). The Directors of CCSL recommended to the Trustee of the EBT that this sum be used to purchase Company shares and those shares be held until EPS performances targets and service targets are met, after which time the shares should be sold. The Trustee of the EBT (Sanne Trust Limited, an independent trustee company) may at its discretion allocate the proceeds to discretionary sub-trusts of which certain employees and their families are beneficiaries.

 

The EBT subsequently purchased 3,422,185 Company shares, which had a fair value of US$919,290 as at 31 December 2009 (2008: US$368,264), based on the market price as at that date, after adjusting for the waiver of dividend rights at an assumed dividend yield of 5%.

 

The fair value of the future cash settlement is spread over the vesting period, and recognised as an expense in the accounts with a corresponding increase in liabilities. The fair value is re-measured at each reporting date, with any adjustment in the cumulative fair value being recognised in the reporting period.

 

During the year, the performance targets for 186,310 awards were not met and the awards did not vest (2008: 364,754). Any amounts previously provided for these options were written back to profit or loss.

 

During the year 729,460 awards which had previously met their performance criteria also met their service criteria and the associated liabilities were met at fair market value.

During the year 1,072,239 awards were cancelled for cash at fair market value. Any increase or decrease in the fair market value of the cancelled awards against the liability previously provided for was written to profit or loss.

 

In addition to the awards which have been cancelled, or have not vested or have been funded by other means, the Directors of CCSL, believe that a number of awards are unlikely to meet their future performance awards. In the event that these awards do vest, alternative funding will be provided. Therefore, during the year the Directors of CCSL recommended to the Trustee of the EBT that 2,404,236 of the Company shares held by the EBT should be sold. The value of these shares as at the date of recommended disposal was less than the original cost of these shares and the difference of US$4.3 million was transferred from retained earnings to treasury shares within reserves.

 

The Directors of CCSL also recommended that the Trustee of the EBT should use the proceeds of the sale to immediately purchase a further 2,404,236 Company shares which will be held until new AuM performances targets and service targets associated with new cash-settled awards issued during the year have been satisfied, after which time the shares should be sold. The Trustee of the EBT may at its discretion allocate the proceeds to discretionary sub-trusts of which certain employees and their families are beneficiaries.

 

The fair value of the future cash settlement is spread over the vesting period, and recognised as an expense in the accounts with a corresponding increase in liabilities. The fair value is re-measured at each reporting date, with any adjustment in the cumulative fair value being recognised in the reporting period.

 

Expenses in respect of share based incentive plans

 

The following amounts have been charged / (credited) as an expense within these financial statements:

 

	Year to 31 December 2009 US$	Year to 31 December 2008 US$
Equity settled incentive plans	225,464	72,843
Amount relating to cash-settled transaction liabilities	278,352	(1,506,787)
Total charged / (credited) to employee costs	503,816	(1,433,944)

 

As at 31 December 2009, total liabilities in respect of cash-settled share-based incentive plans were US$285,431 (2008: US$199,160). No liabilities had vested by the end of the period.

Notes to the Financial Statements (continued)

24. Financial Risk Management

Financial assets of the Group include cash and cash equivalents, investments and other receivables. Financial liabilities include accruals and other payables. The carrying amounts of these other assets approximate their fair values.

The Group operates a central Treasury function based upon weekly cash flow forecasts for each of the operating entities and the Group as a whole. This enables the regulatory liquidity requirements to be managed accurately for each entity subject to them. The Group normally operates a position of holding US dollars for all amounts in excess of working capital needs held in local currencies. Such balances are placed on deposit with major banks taking account of prudent spreading of risk. Where a decision is taken to hold local currency balances in excess of working capital needs, it is required that an executive director approves the position. All currency positions are formally monitored monthly by the Board as part of the Group's reporting procedures.

The Group's periodic use of derivatives is partly for hedging purposes, and partly for speculative investment. Where hedging is involved, the policy is fully or partly to match positions held in other assets. Speculative investment is carefully used, in accordance with parameters set by the Board, in short term situations where physical assets are inappropriate.

There is strict segregation between the investment management and deal settlement functions.

In the course of the Group's normal trading in currencies, futures and options, margin deposits of varying amounts of cash are held by the Group's brokers. As at 31 December 2009, the amount of these margin deposits was US$5,214 (2008: US$4,860), such deposits being included within other receivables in the statement of financial position (note 18).

Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation.

The Group is exposed to liquidity risk to the extent that it holds stakes in certain financial instruments for which no developed market exists. Therefore, the Group might be unable to sell such stakes quickly at close to fair value. This risk is managed by the Group by means of cash flow planning to ensure that future cash requirements are anticipated and, where financial instruments have to be sold to meet these requirements, the process is carried out in a controlled manner intended to minimize the liquidity risk involved. The Group maintains an overdraft facility with its bankers which can be used if necessary.

Residual contractual maturities of financial liabilities:

As at 31 December 2009	Falling due: less than 1 Month	Falling due: Between 1-3 Months	Falling due: more than 3 Months
	US$'000	US$'000	US$'000
Trade Payables	1,855	-	-
Performance related awards	-	2,655	2,992
Other	1,383	99	833
Total	3,238	2,754	3,825

 

As at 31 December 2008	Falling due: less than 1 Month	Falling due: Between 1-3 Months	Falling due: more than 3 Months
	US$'000	US$'000	US$'000
Trade Payables	1,410	-	-
Performance related awards	-	4,056	4,617
Other	864	-	1,070
Total	2,274	4,056	5,687

 

Notes to the Financial Statements (continued)

24. Financial Risk Management (continued)

Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group's receivables from customers and investment securities.

The majority of debtors arise from fund management and related activities of the Group. As such the Group is able to determine that the credit risk is considered minimal in relation to the majority of its debtors. For other debtors a credit evaluation is undertaken on a case by case basis. To reduce exposure to credit risk arising from non-performance by counterparties in derivative transactions, the Group's policy is to transact business through brokers with high credit ratings wherever practicable. The Group invests available cash and cash equivalents with various banks. The Group is exposed to credit-related losses in the event of non-performance by counterparties to financial instruments but, given their high credit ratings, management does not expect any counterparty to fail to meet its obligations.

At the reporting date, the Group's financial assets exposed to credit risk amounted to the following:

As at 31 December 2009	Falling due: less than 1 Month	Falling due: Between 1-3 Months	Falling due: more than 3 Months
	US$'000	US$'000	US$'000
Amounts due from funds	9,057	-	557
Interest and other receivables	547	191	965
Cash and cash equivalents	16,847	5,000	-
Total	26,451	5,191	1,522

 

As at 31 December 2008	Falling due: less than 1 Month	Falling due: Between 1-3 Months	Falling due: more than 3 Months
	US$'000	US$'000	US$'000
Amounts due from funds	4,192	-	778
Interest and other receivables	1,218	311	1,034
Cash and cash equivalents	28,098	-	-
Total	33,508	311	1,812

 

The credit risk on transactions with funds primarily relates to transactions awaiting settlement. This risk is considered small due to the short settlement period involved and the high credit quality of the funds involved.

The cash and cash equivalents held by the Group are held by a number of international banks and it is the Group's policy to avoid concentrating credit risk in any one institution. The credit risk is also managed by carrying out regular reviews of each institution's credit ratings and of their published financial position.

Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates and equity prices will affect the Group's income or the value of its holding of financial instruments.

The Group is exposed to market risk directly via its investment holdings and indirectly via assets under its management, from which its fee income is derived. As the investments held directly and indirectly are mostly in the emerging markets, there is a concentration of this risk and any general movement in these markets would have a significant impact on the Group's income and the value of the Group's investments.

Notes to the Financial Statements (continued)

24. Financial Risk Management (continued)

Foreign currency risk

The Group is exposed to foreign currency risk on investments and expenses denominated in currencies other than US Dollars. The Group will normally hedge large exposures to foreign currency risk by using forward exchange contracts.

In respect of monetary assets and liabilities denominated in foreign currencies, the Group ensures that its net exposure is kept to an acceptable level by buying or selling foreign currencies at spot rates when necessary to address short term imbalances.

The Group's exposure as at the balance sheet date was as follows:

		31 December 2009			31 December 2008
	AUD		EUR	GBP	AUD	EUR	GBP
USD ' 000s equivalent	US$'000		US$'000	US$'000	US$'000	US$'000	US$'000
Cash and Cash Equivalents	59		23	5,439	-	2,927	8,640
Investments	-		41	191	-	112	-
Trade Debtors	191		2,165	1,890	174	1,853	3,570
Trade Creditors	(27)		(702)	(3,129)	-	(1,244)	(1,987)
Total	223		1,527	4,391	174	3,648	10,223

 

As at 31 December 2009, had the US Dollar strengthened by 1% in relation to all other currencies, with all other variables held constant, the net assets of the Group would have been decreased both profit and equity by US$61,417 (2008: US$140,453). A weakening of the US Dollar against the above currencies would have had the opposite effect.

Interest rate risk

The Group is exposed to interest rate risk with regard to holdings in cash and cash equivalents. All cash holdings and cash equivalents are held at maturity dates of less than one month and are at variable rates. The Group does not have any borrowings. Surplus funds are placed on short term deposit.

Other price risk

Price risk arises from equity securities held by the Group. As at the reporting date these assets amounted to the following:

Investment Assets	31 December 2009	31 December 2008
	US$'000	US$'000
Assets held for trading:
Equities - Listed	918	657
Equities - Unlisted	-	24
Total Investment Assets	918	681

 

The majority of the Group's investments are readily realisable into cash. A 3% increase in the reported Net Asset Values of these assets at the reporting date would lead to a US$43,770 increase in the value of those investments (2008: US$43,770). An equal and opposite decrease in the reported Net Asset Values would have decreased the value of the investments by an equal and opposite amount.

Notes to the Financial Statements (continued)

24. Financial Risk Management (continued)

Fair value hierarchy

The table below analyses financial instruments measured at fair value at the end of the reporting period, by the level of the fair value hierachy (see note 2)

31 December 2009	Level 1	Level 2	Level 3	Total
	US$'000	US$'000	US$'000	US$'000
Assets held for trading:	195	723	-	918

 

25. Commitments

Operating lease commitments during the next twelve months are as follows:

	31 December 2009	31 December 2008
	US$'000	US$'000
Group
Property, expiring:
Within 1 year	-	21
In the second to fifth years, inclusive	487	388
Over five years	157	141

26. Amounts due to and from Subsidiaries

The amounts due to and from subsidiaries are unsecured, repayable on demand and bear interest at commercial rates.

27. Critical accounting estimates, and judgement in applying accounting policies

The directors considered the development, selection and disclosure of the Group's critical accounting policies and estimates and the application of these policies and estimates. Estimates and judgements are continually evaluated and are based on historical and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Fair value of financial instruments

The fair value of financial instruments that are not quoted in an active market are determined by the directors by using valuation techniques.

Where valuation techniques are used to determine fair values, they are validated and periodically reviewed by qualified personnel independent of the area that created them. To the extent practical, models use only observable data. However areas such as credit risk, volatilities and correlations require the directors to make estimates. Changes to the assumptions about these factors could affect reported fair values of financial instruments.

28. Contingent Liabilities

The Group has no significant contingent liabilities.

 

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