22nd Feb 2007 07:02
Commoditrade Inc.22 February 2007 22 February 2007 Commoditrade Inc. ("Commoditrade" or "the Company") Preliminary Results Commoditrade, the AIM-listed group specialising in the commodities sector,announces its audited preliminary results for the year ended 31 December 2006. Summary of 2006 During the year Commoditrade completed its first two acquisitions since beingadmitted to AIM: • Acquisition of interest in revenue stream from largest trading team on the London Metal Exchange - acquisition was for £24.4 million in cash and shares completed 24 April 2006. Deferred consideration in the form of 6 million ordinary shares is payable if certain performance targets are met. Chris Adams, head LME trader of LME Trading Team, and Geoffrey Conway-Henderson, 35 years experience international finance, joined the Board of Commoditrade as non-executive directors. • AMCO Commodities LLP - economic interest acquired for £1.4 million before costs in cash and shares completed 4 August 2006 Board changes announced on 17 November - Graham Butt moving to Chief Executiveand Chris Adams to Non-Executive Chairman and Andrew Dobie a new appointment toBoard as Non-Executive Director. Results 2006 • Strong trading performance from the LME Trading Team generated gross revenues in 2006 of £41.7 million of which £30.9 million relates to the period since acquisition. After deduction of Sucden (UK) Ltd's proportion of clearing and administration costs of £7.7 million Commoditrade's gross revenue from the LME Trading Team for the eight months was £23.2 million • Commoditrade's net income for the period was £13.98 million (after direct costs, financing charges and trader bonuses) giving profit for the year before amortisation of £13.41 million. After amortisation of £7.49 million the net profit for the year was £5.92 million. • Earnings per share before amortisation of 4.64 pence. Basic earnings per ordinary share of 2.05 pence (2005: 0.20 pence). There was no debt at the year end and cash balances stood at £6.9 million Current Trading and Outlook Graham Butt, Chief Executive of Commoditrade Inc, said: "Our strategy has been successful in delivering very profitable growth forshareholders. The LME Trading Team has produced a very strong tradingperformance during 2006 which has produced an excellent level of profits forCommoditrade for the year. We are very encouraged by the performance of the LMETrading Team in the current year to date which continues to see good volumes andhigh volatility levels in the base metals market. We are also seeing continuedgrowth in the base metals open interest market from international institutions. Discussions which may or may not lead to an offer being made for Commoditradeare ongoing and the Board will update shareholders when it is appropriate to doso." Enquiries: John Bickt: +44 (0) 20 7451 9800 (on 22 February 2007)m:+44 (0)7917 649362 www.commoditrade.net CHAIRMAN'S STATEMENT Results The Board is pleased to report Commoditrade's audited results for the year ended31 December 2006 which includes eight months contribution from the LME TradingTeam since the completion by the Company of its acquisition of the TambelanInterest. The LME Trading Team produced a very strong trading performance over the fullyear generating gross revenues in 2006 of £41.7 million, of which £30.9 millionrelates to the period since acquisition. After deduction of Sucden (UK) Ltd'sproportion of clearing and administration costs of £7.7 million Commoditrade'sgross revenue from the LME Trading Team for the eight months was £23.2 million.After direct costs, financing charges and trader bonuses net income for theCompany was £13.98 million prior to amortisation of the intangible asset (2005:£nil) and profit before tax was £13.41 million. The Company has prepared its accounts under International Financial ReportingStandards (IFRS) and as a consequence, for the reasons detailed in the attachednotes, the acquisition of the Tambelan Interest is deemed to be an acquisitionof an associate. The underlying asset acquired is deemed to be an intangibleasset which the Directors consider is appropriate to amortise over three years,again as detailed in the attached notes. As a consequence, the net income ofthe Company produced by the LME Trading Team attributable to Commoditrade of£13.98 million is reduced by the amortisation of the intangible asset of £7.49million, with the resulting net income of £6.49 million being treated as incomefrom an associate. The profit before taxation after amortisation was £5.92million (2005: loss of £180,000). Basic earnings per share before amortisation was 4.58 pence and afteramortisation was 2.05 pence (2005: loss per share of 0.20 pence). Acquisitions Commoditrade joined AIM in March 2005 with the primary objective of building,through investment and acquisition, a group specialising in the commoditiessector and during the year it completed two acquisitions. On 24 April 2006 the Company completed its first acquisition for an initialaggregate consideration of £24.4 million plus costs, acquiring 75 per cent ofthe net revenue stream produced by the largest trading team on the London MetalExchange (the Tambelan Interest), the world's premier non-ferrous metals marketwith highly liquid contracts and a worldwide reputation. The consideration wassatisfied by the payment of £14 million in cash and by the issue of 83.4 millionnew ordinary shares at a price of 12.5p pence per share. In addition, a further6 million deferred consideration shares may be issued on the achievement ofcertain performance criteria. The Directors considered at the date ofacquisition, and continue to consider, that these criteria will be met and sohave included the cost of the deferred consideration shares in the cost of theacquisition. On completion of the LME Trading Team transaction Chris Adams andGeoffrey Conway-Henderson joined the board of Commoditrade as non-executivedirectors. Chris is the head LME trader of the LME Trading Team. He has 19years experience in the commodities industry, the last 10 years in seniormanagement and has previously held positions at Billiton Enthoven MetalsLimited, Credit Lyonnais Rouse and AIG International. The LME Trading Team is well established and has strong client and marketrelationships. The LME Trading Team generates income by acting as amarket-maker, buying and selling the metals traded on the exchange and alsodealing as principal trader taking positions subject to pre-set "caps andcollars". Metals traded by the LME Trading Team on the LME are copper,aluminium, nickel, zinc, lead and tin; with copper, gold and silver also beingtraded on New York's Commodity Exchange Inc. There are 11 category one membersof the LME and the LME Trading Team is the largest on the LME. It makes marketsin base metals in the 'open outcry' ring as well as telephone trading andtrading on the LME's electronic trading platform. Since the acquisition wascompleted the LME Trading Team has continued to perform very strongly On 4 August 2006 Commoditrade acquired a 75 per cent interest in the net profitsof commodities investment management company, AMCO Commodities LLP ("AMCO") fora total consideration of £1.4 million before costs. AMCO, which is regulated bythe FSA, manages the AMCO Commodities Fund Limited which was launched in May2006 with the objective of raising up to USD500 million over the first threeyears of the fund's life. The Company has not received nor is due at 31December 2006 any income from this interest since acquisition. The fund's investment strategy is based on identifying fundamental tradingopportunities across a range of base metals including opportunities in thechanges in the directional price of the underlying commodities; relative valuetrades in calendar spreads; location arbitrage; and changes in the volatility ofthe underlying futures markets. The fund has continued to grow its assets undermanagement and has a broad investment base with a current value of US$59.5million. Performance of the fund during the period has also been ahead ofexpectations. Finances and Share Issues In order to satisfy the cash consideration in respect of the LME Trading Teamacquisition, and to provide working capital for Commoditrade, 144,000,000 newordinary shares in Commoditrade were placed with institutional investors at aprice of 12.5 pence per share on 24 April 2006. The consideration for the AMCO acquisition of £1.4 million was satisfied by£0.5 million in cash and the issue of 5,000,000 new Ordinary Shares at a priceof 17.75 pence per share on 4 August 2006. Commoditrade had cash of £6.93 million as at 31 December 2006 and the totalnumber of ordinary shares in issue was 376.27 million. Board Changes On 17 November 2006 the Company announced further Board changes, reflecting thesignificant progress made with the business as it continues to grow. GrahamButt, Executive Chairman was appointed Chief Executive and Chris Adams,Non-Executive Director, was appointed Non-Executive Chairman. Andrew Dobie (age42) was appointed to the Board of Commoditrade as Non-Executive Director.Andrew has worked in the commodities industry for 18 years and joined the LME in1998 firstly as Assistant Manager in the LME's Market Operations taking over asManager of LME's trade floor in 2001 where he managed a team of 11 in the LME'sMarket Operations and a further 150 brokers representing 11 Category 1 memberson the trade floor. Andrew had previously operated as a trader on the LME since1995. Update on potential offer for the Company On 7 December 2006 the Directors confirmed that it was in preliminarydiscussions with a number of parties regarding a possible offer for the Companyand that there was no certainty that these discussions would lead to a formaloffer being made for the issued share capital of the Company. These discussionsare ongoing and the Company will inform shareholders of further developments asis appropriate. Jefferies International Limited was appointed strategic adviser to the Companyearlier in the year. It is wholly owned by Jefferies & Company, Inc, the globalinvestment bank and institutional securities firm, headquartered in New York. Current Trading and Outlook Our strategy has been successful in delivering very profitable growth forshareholders. The LME Trading Team has produced a very strong tradingperformance during 2006 which has produced an excellent level of profits forCommoditrade for the year. In the current year to date we are very encouraged by the performance of the LMETrading Team which continues to see good volumes and high volatility levels inthe base metals market. We are also seeing continued growth in this openinterest market from international institutions. Graham Butt, Chief Executive Chris Adams, Chairman 22 February 2007 22 February 2007 www.commoditrade.net Income Statement For the Year ended 31 December 2006 Year Year Year Period from ended 31 ended 31 ended 31 6 January 2005 to December December December 31 December 2005 Note 2006 2006 2006 Result prior to Amortisation amortisation of of intangible intangible asset asset within within associate associate Total TotalContinuing operations £'000 £'000 £'000 £'000 Income from associate 6 13,979 (7,494) 6,485 - Administrative expenses (663) - (663) (180) Operating profit/(loss) 13,316 (7,494) 5,822 (180) Finance income 94 - 94 - Profit/(loss) for the period before taxation 5,916 (180) 13,410 (7,494) Tax charge 4 - - - - Net profit/(loss) for the period 13,410 (7,494) 5,916 (180) Earnings/(loss) per ordinary share 5- Basic 2.05p (0.20p)- Diluted 2.02p - Income from associates relates to activities acquired in the year. Statement of changes in equity For the year ended 31 December 2006 Share Profit Share based and capital Share Shares to Translation payment loss premium be issued reserve reserve account Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 At 6 January 2005 - - - - - - -Issue of new shares 103 524 - - - - 627Issue costs - (165) - - - - (165)Net loss for the period - - - - - (180) (180)Share based payment - (20) - - 20 - -At 31 December 2005 103 339 - - 20 (180) 282 Issue of new shares 273 34,123 1,800 - - - 36,196Issue costs - (1,010) - - - - (1,010)Currency translation - - - (459) - - (459)Net profit for the year - - - - - 5,916 5,916At 31 December 2006 376 33,452 1,800 (459) 20 5,736 40,925 The shares to be issued relate to the estimated value of shares to be issued inrespect of the acquisition of the associated undertaking. Balance Sheet For the year ended 31 December 2006 At 31 At 31 December December 2006 2005 Note £'000 £'000Assets Non-current assetsInvestment in associate 6 26,231 -Other receivable 1,052 - 27,283 - CurrentAvailable for sale financial assets 7 2,064 -Trade and other receivables 4,772 1,087Cash and cash equivalents 6,928 179Total current assets 13,764 1,266 Total assets 41,047 1,266 LiabilitiesCurrentTrade and other payables 122 984Total liabilities 122 984 EquityShare capital 376 103Share premium 33,452 339Shares to be issued 1,800 -Translation reserve (459) -Share based payment reserve 20 20Profit and loss account 5,736 (180)Total equity 40,925 282 Total equity and liabilities 41,047 1,266 Cash flow statement For the year ended 31 December 2006 Year ended 31 Period from 6 December January 2005 to 31 2006 December 2005 £'000 £'000 Operating activitiesProfit/(loss) after tax 5,916 (180)Amortisation of intangible asset in associate 7,494 -Change in trade and other receivables (4,737) (1,087)Change in trade and other payables (862) 984Foreign exchange (459) -Net cash inflow/(outflow) from operating 7,352 (283)activities Investing activitiesPurchase of associate (16,416) -Purchase of available for sale financial assets (1,177) - (17,593) - Financing activitiesIssue of shares 18,000 607Share issue costs (1,010) (145)Net cash inflow from financing activities 16,990 462 Net increase in cash and cash equivalents 6,749 179Cash and cash equivalents at beginning of year 179 -Cash and cash equivalents at end of year 6,928 179 FOR THE YEAR ENDED 31 DECEMBER 2006 1 ACCOUNTING POLICIES Basis of preparation The preliminary announcement has been prepared in accordance with applicableaccounting standards and under the historical cost convention. The Company wasincorporated as a Corporation in the Cayman Islands which does not prescribe theadoption of any particular accounting framework. The Board had previouslyresolved that the Company would follow United Kingdom Accounting Standards andapply the Companies Act 1985 when preparing its annual financial statements. The Board have now resolved that Commoditrade Inc. will adopt InternationalFinancial Reporting Standards as adopted by the European Union (IFRS), asdeveloped and published by the International Accounting Standards Board (IASB),for the first time in its financial statements for the year ended 31 December2006. This financial report has therefore been prepared under the historicalcost convention and in accordance the requirements of International FinancialReporting Standard 1 "First Time Adoption of International Reporting Standards"relevant to financial reports. The transition to IFRS reporting has resulted in a number of changes in thereported financial statements, notes thereto and accounting principals comparedto the previous annual report. Note 2 provides further details on the transitionfrom UK GAAP to IFRS. The principal accounting policies of the Company, which have been appliedconsistently are set out below. Associates Associates are those entities over which the Company is able to exertsignificant influence but which are neither subsidiaries nor interests in ajoint venture. Investments in associates are initially recognised at cost andsubsequently accounted for using the equity method. On initial acquisition of an associate, the investor's share of the net fairvalue of the associate's identifiable assets, liabilities and contingentliabilities is accounted for under IFRS 3 using the purchase method. Anygoodwill arising is treated in accordance with IFRS 3 and is not amortised butinstead is subject to an annual impairment review. Included in the identifiableassets are intangible assets which meet the relevant recognition criteria. Theunderlying intangible assets are thereafter amortised over their useful life. All subsequent changes to the share of interest in the equity of the associateare recognised in the Company's carrying amount of the investment. Changesresulting from the profit or loss generated by the associate are charged against"income from associates" in the income statement and therefore affect netresults of the Company. These changes include subsequent depreciation,amortisation or impairment of the fair value adjustments of assets andliabilities. However, when the Company's share of losses in an associate equals or exceedsits interest in the associate, including any other unsecured receivables, theCompany does not recognise further losses, unless it has incurred obligations ormade payments on behalf of the associate. Once the associate then becomesprofit making profits are not recognised until they exceed the share of the lossthat had not previously been recognised. Unrealised gains on transactions between the Company and its associates areeliminated to the extent of the Company's interest in the associates.Unrealised losses are also eliminated unless the transaction provides evidenceof an impairment of the asset transferred. Intangible assets Expenditure on intangible assets, including those in the Company's associates,is capitalised at cost and amortised over its estimated useful economic life. Impairment reviews The Company's assets are subject to impairment testing. For the purposes of assessing impairment, assets are grouped at the lowestlevels for which there are separately identifiable cash flows (cash-generatingunits). As a result, some assets are tested individually for impairment and someare tested at cash-generating unit level. Goodwill in particular is allocatedto those cash-generating units that are expected to benefit from synergies ofthe related business combination and represent the lowest level within theCompany at which management controls the related cash flows. Individual assets or cash-generating units that include goodwill and otherintangible assets with an indefinite useful life or those not yet available foruse are tested for impairment at least annually. All other individual assets orcash-generating units are tested for impairment whenever events or changes incircumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's orcash-generating unit's carrying amount exceeds its recoverable amount. Therecoverable amount is the higher of fair value, reflecting market conditionsless costs to sell and value in use, based on an internal discounted cash flowevaluation. Impairment losses recognised for cash-generating units, to whichgoodwill has been allocated, are credited initially to the carrying amount ofgoodwill. Any remaining impairment loss is charged pro rata to the other assetsin the cash generating unit. With the exception of goodwill, all assets aresubsequently reassessed for indications that an impairment loss previouslyrecognised may no longer exist. Financial assets The Company's financial assets include available for sale financial assets, cashand amounts due from associate and other receivables. All financial assets are recognised on entering into contractual arrangements.All financial assets are initially recognised at fair value, plus transactioncosts. Derecognition of financial assets occurs when the rights to receive cash flowsfrom the investments expire or are transferred and substantially all of therisks and rewards of ownership have been transferred. An assessment forimpairment is undertaken at least at each balance sheet date whether or notthere is objective evidence that a financial asset or a group of financialassets is impaired. Amounts due from associate and other receivables are provided against whenobjective evidence is received that the Company will not be able to collect allamounts due to it in accordance with the original terms of the receivables. Theamount of the write-down is determined as the difference between the asset'scarrying amount and the present value of estimated future cash flows. Available for sale financial assets include non - derivative financial assetsthat are either designated to this category or do not qualify for inclusion inany other categories of financial assets. All financial assets of the categoryare subsequently measured at fair value, unless otherwise disclosed, withchanges in value recognised in equity, net of any effects arising from incometaxes. Gains and losses arising from securities classified as available forsale financial are recognised in the income statement when they are sold or whenthe investment is impaired. In the case of impairment any loss previouslyrecognised in equity is transferred to the income statement. Gains on equityinstruments are not then recycled through the income statement as these aredealt with in reserves. Cash and cash equivalents For the purposes of the cash flow statement, cash and cash equivalents comprisecash in hand and amounts repayable on demand with banks and short-term highlyliquid investments which are readily convertible into known amounts of cashwithout notice and which were within three months of maturity when acquired. Equity An equity instrument is any contract that evidences a residual interest in theassets of an entity after deducting all of its liabilities. Share capital is determined using the nominal value of shares that have beenissued. The share premium account represents premiums received on the initial issuing ofthe share capital. Any transaction costs associated with the issuing of sharesare deducted from share premium, net of any related income tax benefits. Shares to be issued represent future shares to be issued under arrangements inplace at the balance sheet date. Foreign currency translation differences are included in the translationreserve. The share based payment reserve represents the value of services provided undershare based payments. The profit and loss account includes all current and prior period results asdisclosed in the income statement. Share based payments All share based payment arrangements are recognised in the financial statements.The Company does not currently operate equity settled share based remunerationplans for remuneration of its employees but has issued a share warrant. All services received in exchange for the grant of any share based remunerationare measured at their fair values. These are indirectly determined by referenceto the fair value of the share options/warrants awarded. Their value isappraised at the grant date and excludes the impact of any non-market vestingconditions (for example, profitability and sales growth targets). Share based payments are ultimately recognised as an expense in profit or lossor included as part of the cost of share issues with a corresponding credit tothe share based payment reserve, net of deferred tax where applicable. Ifvesting periods or other vesting conditions apply, the expense is allocated overthe vesting period, based on the best available estimate of the number of shareoptions/warrants expected to vest. Non-market vesting conditions are included inassumptions about the number of options that are expected to become exercisable.Estimates are subsequently revised, if there is any indication that the numberof share options/warrants expected to vest differs from previous estimates. Noadjustment is made to the expense or share issue cost recognised in priorperiods if fewer share options/warrants ultimately are exercised than originallyestimated. Upon exercise of share options/warrants, the proceeds received net of anydirectly attributable transaction costs up to the nominal value of the sharesissued are allocated to share capital with any excess being recorded as sharepremium. Financial liabilities Financial liabilities represent obligations to deliver cash or another financialasset to another entity. The Company's financial liabilities include trade andother payables. Financial liabilities are recognised when the Company becomes a party to thecontractual agreements of the instrument. All interest related charges arerecognised as an expense in "finance cost" in the income statement. Trade payables are recognised at their nominal value. Taxation Current income tax assets and/or liabilities comprise those obligations to, orclaims from, fiscal authorities relating to the current or prior reportingperiod, that are unpaid at the balance sheet date. They are calculated accordingto the tax rates and tax laws applicable to the fiscal periods to which theyrelate, based on the taxable result for the year. All changes to current taxassets or liabilities are recognised as a component of tax expense in the incomestatement. Deferred income taxes are calculated using the liability method on temporarydifferences. This involves the comparison of the carrying amounts of assets andliabilities in the consolidated financial statements with their respective taxbases. In addition, tax losses available to be carried forward as well as otherincome tax credits to the Company are assessed for recognition as deferred taxassets. Deferred tax liabilities are always provided for in full. Deferred tax assetsare recognised to the extent that it is probable that they will be able to beoffset against future taxable income. Deferred tax assets and liabilities arecalculated, without discounting, at tax rates that are expected to apply totheir respective period of realisation, provided they are enacted orsubstantively enacted at the balance sheet date. Most changes in deferred tax assets or liabilities are recognised as a componentof tax expense in the income statement. Only changes in deferred tax assets orliabilities that relate to a change in value of assets or liabilities that ischarged directly to equity are charged or credited directly to equity. Dividends Dividend distributions to shareholders are included in 'other short termfinancial liabilities' when the dividends are approved by the shareholders'meeting. Other provisions, contingent liabilities and contingent assets Other provisions are recognised when present obligations will probably lead toan outflow of economic resources from the Company and they can be estimatedreliably. Timing or amount of the outflow may still be uncertain. A presentobligation arises from the presence of a legal or constructive commitment thathas resulted from past events, for example, legal disputes or onerous contracts. Provisions are measured at the estimated expenditure required to settle thepresent obligation, based on the most reliable evidence available at the balancesheet date, including the risks and uncertainties associated with the presentobligation. Any reimbursement expected to be received in the course ofsettlement of the present obligation is recognised, if virtually certain as aseparate asset, not exceeding the amount of the related provision. Where thereare a number of similar obligations, the likelihood that an outflow will berequired in settlement is determined by considering the class of obligations asa whole. In addition, long term provisions are discounted to their presentvalues, where time value of money is material. All provisions are reviewed at each balance sheet date and adjusted to reflectthe current best estimate. In those cases where the possible outflow of economic resource as a result ofpresent obligations is considered improbable or remote, or the amount to beprovided for cannot be measured reliably, no liability is recognised in thebalance sheet. Probable inflows of economic benefits to the Company that do notyet meet the recognition criteria of an asset are considered contingent assets. Functional currency The functional currency of the Company is United States dollars. However, forpresentation purposes, the financial statements are prepared in United Kingdomsterling. Transactions in foreign currencies are translated into the presentationalcurrency at the approximate rates ruling on the dates of the transactions.Monetary assets and liabilities denominated in foreign currencies are translatedinto the presentational currency at the approximate rates ruling on the balancesheet date. Gains and losses arising on exchange from the functional to thepresentational currency are taken to the currency translation reserve in equity. Financial instruments Financial liabilities and equity instruments are classified according to thesubstance of the contractual arrangements entered into. An equity instrument isany contract that evidences a residual interest in the assets of the entityafter deducting all of its financial liabilities. Where the contractual obligations of financial instruments (including sharecapital) are equivalent to a similar debt instrument, those financialinstruments are classed as financial liabilities. Financial liabilities arepresented as such in the balance sheet. Finance costs and gains or lossesrelating to financial liabilities are included in the statement of total return.Finance costs are calculated so as to produce a constant rate of return on theoutstanding liability. Where the contractual terms of share capital do not have any terms meeting thedefinition of a financial liability then this is classed as an equityinstrument. Dividends and distributions relating to equity instruments aredebited direct to equity. Impact of recently issued IFRSs The revised, amended and new IFRSs which are effective for accounting periodsbeginning on or after 1 January 2007 may result in changes in the future as tohow the Company's financial performance and financial position are prepared andpresented. The Company has not early adopted these revised, amended and new standards forthe year ended 31 December 2006. The Company has commenced its assessment ofthe impact of these standards but it is not yet in a position to state whetherthese standards would have a material impact on its results of operations andfinancial position. Critical judgments The key judgment the directors have made in preparing these financial statementsis the accounting treatment of the acquisition of the Tambelan Interest. TheDirectors have carefully considered the substance of the acquisition and haveconcluded that the acquisition represents an investment in an associate and thatthe acquisition consideration should be allocated to intangible fixed assets inrespect of the investors share in the underlying net assets of the associate asdetermined on acquisition. The rationale supporting these judgments is detailedin note 6. Key sources of estimation uncertainty The key source of estimation uncertainty in preparing the financial statementsis the period over which the underlying intangible asset acquired with theTambelan Interest is amortised. The Directors have decided an amortisationperiod of three years is appropriate, the rationale for which is detailed innote 6. 2 TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS The transition from previous UK GAAP to IFRS has been made in accordance withIFRS 1, "First-time Adoption of International Financial Reporting Standards".The Company's financial statements for the year ended 31 December 2006 and thecomparatives presented for the period ended 31 December 2005 comply with allpresentation recognition and measurement requirements of IFRS applicable foraccounting periods commencing on or after 1 January 2005. The following reconciliations and explanatory notes thereto describe the effectsof the transition for the financial period ended 31 December 2005. Allexplanations should be read in conjunction with the IFRS accounting policies ofCommoditrade Inc.. Since Commoditrade Inc. was incorporated on 6 January 2005 that is thetransition date to IFRS. As that was the date of incorporation of the Companyno reconciliation of equity is required at that date. The re-measurement of balance sheet items as at 31 December 2005 may besummarised as follows: Reconciliation as at 31 December 2005 Effect of IFRS UK GAAP transition £'000 £'000 £'000 Share premium 359 (20) 339Share based payment reserve - 20 20Total adjustment to assets and equity 359 - 359 There is no difference between the profit and loss reported under UK GAAP forthe period ended 31 December 2005 and the profit and loss as reported underIFRS. The Company has modified its former balance sheet and income statement structureon transition to IFRS. The only change is to recognise the share based paymentin connection with the warrants issued to the Company's Nominated Advisor aspart of their fee for services provided in connection with the Admission of theCompany to the AIM market in March 2005. 3 SEGMENTAL REPORTING (a) By business segment (primary segment): As defined under International Accounting Standard 14 (IAS14), the only materialbusiness segment the Company has is that of an investment company specialisingin investments in the commodities trading sector. (b) By geographical segment (secondary segment): Under the definitions contained in IAS 14, the only material geographic segmentthat the Company operates in is currently Switzerland. 4 TAX There is no tax charge/income for either period. The Company does not operatein the United Kingdom and there is no tax arising on its operations. The profitof the associate is not taxable as profits are remitted to Switzerland to a nonSwiss company and are therefore not taxable. The relationship between theexpected tax expense/income at 30% and the tax expense/income actuallyrecognised in the income statement can be reconciled as follows: Year Period from 6 ended 31 January December 2005 to 31 2006 December 2005 £'000 £'000 Profit/(loss) for the period before taxation 5,916 (180) Tax rate 30% 30% Expected tax expense/(credit) 1,775 (54)Income not subject to tax (1,775) -Losses not recognised as deferred tax asset - 54Actual tax income - - 5 EARNINGS/(LOSS) PER SHARE The calculation of the basic earnings/(loss) per share is based on the netprofit for the year of £5,916,000 (period ended 31 December 2005 : loss£180,000) divided by the weighted average number of shares in issue during theyear of 288,715,832 (period ended 31 December 2005 : 89,529,528). The diluted profit per share for the year ended 31 December 2006 is based on aweighted average number of shares in issue on a fully diluted basis of292,478,563 calculated as follows: Year ended 31 December 2006 Weighted average shares in issue 288,715,832Dilutive impact of warrants 3,762,731Weighted average diluted shares in issue 292,478,563 The impact of the warrants on the loss per share for the period ended 31December 2005 is anti-dilutive. An adjusted earnings per share has also been calculated for the year ended 31December 2006 based on the profit for the year prior to amortisation of theintangible asset within the associate of £7.494 million. The adjusted earningsper share is therefore based on the adjusted net profit for the year of £13.410million divided by the weighted average number of shares in issue during theyear of 288,715,832 which results is an adjusted earnings per share of 4.64pence. The diluted adjusted profit per share for the year ended 31 December 2006 isbased on a weighted average number of shares in issue on a fully diluted basisof 292,478,563 which results is an adjusted diluted earnings per share is 4.58pence. 6 INVESTMENT IN ASSOCIATE UNDERTAKING 31 December 31 December 2006 2005 £'000 £'000 Additions in the year at cost 33,725 -Profit for the financial year 13,979 -Foreign exchange (239) -Amortisation (7,494) - 39,971 -Included in trade and other receivables (4,473) -Cash received from associate (9,267) -Net book value at 31 December 26,231 - The investors underlying share of the assets of the associate acquiredrepresents an intangible asset of £33,725,000 against which amortisation of£7,494,000 has been charged, leaving a net book value of £26,231,000 togetherwith a offsetting debtor and creditor of £4,473,000 due from Sucden (UK) Limited(Sucden) to the associate and from the associate to the Company. On 25 April 2006 the Company acquired the Tambelan Interest for the an initialaggregation consideration of £24.4 million, of which £14 million was settled incash and the balance in shares, together with deferred consideration in the formof 6 million ordinary shares payable if certain performance targets are met.The professional costs incurred on the acquisition amounted to £7.5 millionwhich includes cash expenses and the value of new ordinary shares issued tosettle certain transaction costs. The value of the deferred consideration hasbeen estimated at £1.8 million. The cash element of the consideration and thecosts were funded by a placing of 144 million ordinary shares at 12.5p per shareraising £18 million before expenses. The Tambelan Interest was an agreement entered into between Tambelan CompanyLimited (Tambelan) and Sucden pursuant to which Tambelan introduced a LondonMetals Exchange Trading Team (the LME Trading Team) to Sucden. Tambelan agreedto underwrite losses generated by the LME Trading Team in consideration forTambelan receiving 75% of the trading profits (which is gross income from buyingand selling metals contracts plus commission received from clients less thedirect personnel costs (including bonuses) of the LME Trading Team, executioncharges, credit facility charges and the cost of maintaining the requiredinitial margin funding at cost) attributable to that team. Sucden is one of the11 "category one" members of the LME and the LME Trading Team makes markets inbase metals in the ring as well as via telephone trading. It also trades on theLME's electronic trading platform. The current key terms of the Tambelan Agreement, which were revised at the timeof the acquisition, are: • The Tambelan Agreement has an indefinite term but can be terminatedafter 12 months by either party giving 12 months notice to the other or bySucden immediately upon the occurrence of an event of default (as described bythe Tambelan Agreement). The remaining minimum term of the Tambelan Agreementfrom acquisition was therefore two years. • Tambelan undertakes to compensate Sucden for all trading losses afterdirect costs, without limit, incurred as a result of trading LME contracts; • Sucden will employ the LME Trading Team, and authorises the LME TradingTeam to trade instruments and investments on behalf of Sucden. Trading by theLME Trading Team is subject to FSA requirements, the rules of the LME andSucden's internal rules. 6 INVESTMENT IN ASSOCIATE UNDERTAKING (CONTINUED) • Sucden will pay Tambelan 75% of: i the amount calculated by Sucden as representing the net profitresulting from buying and selling contracts (which include both open positionsand realised positions) and shall be deemed to be the whole amount of suchprofit or loss whether or not the LME Trading Team were trading within limitsset by Sucden; and ii commission received from clients, less: i direct personnel costs of the LME Trading Team, execution charges,credit facility charges and the cost of maintaining the required initial marginfunding at cost; and ii the total discretionary bonus payable by Sucden to the members of theLME trading team. Coterminous with the acquisition of the Tambelan Interest, the Company alsoentered into an agreement with each of the LME Trading Team pursuant to which,in the event that Sucden terminates the Tambelan Agreement, each member of theLME Trading Team agreed upon received by him of a written request from theCompany, at any time up until 30 April 2008 to serve notice upon Sucden toterminate his employment with Sucden; and accept the written offer of employmentthat will accompany the Company's request, providing that the offer ofemployment is from a company with relevant resources that would allow therelevant member of the LME Trading Team to trade on the LME and provides forremuneration and benefits that are not less than those to which the relevantmember of the LME Trading Team is entitled and contains other key termssubstantially similar to those in his current contract of employment withSucden. Any offer made to any member of the LME Trading Team will be subject tothat member not being in breach of his legal and fiduciary obligations to Sucdenand to obtaining all necessary regulatory consents. The Directors consider that the Company has acquired a business as they haveacquired an integrated set of activities, in that they have the access to a seaton the LME through Sucden and their consequential access to the LME TradingTeam, from which the Company obtains a return. Therefore the substance of thetransaction between the Company and Sucden is that the Company acquired aninterest in a business in accordance with IFRS 3 Business combinations. TheCompany has the rights to receive 75% of the profits and is responsible for allof the losses of the business, the right to terminate the agreement byexercising due notice and until 30 April 2008, if Sucden terminates thecontract, then the Company has the legal right to obtain the employment servicesof the LME Trading Team. However, the Company does not employ the LME TradingTeam, nor can it direct how they operate. As a consequence the Company is in aposition to exercise significant influence, but not control, over the businessand therefore the acquisition of the Tambelan Interest has been accounted for asan associate. IFRS 3 requires the fair value of the underlying balance sheet value of theassociate to be considered on acquisition. The assets of the business are acombination of access to an exclusive license to allow it to earn income fromthe London Metal Exchange together with access to the services of a specialistteam of traders. The Directors consider that the only intangible asset acquiredis the exclusive licence to allow it to earn income from the LME, the fair valueof which also comprises the back-up, including the LME Trading Team, required toexploit the value of that licence. 6 INVESTMENT IN ASSOCIATE UNDERTAKING (CONTINUED) Given the influence the Company is able to exert over the LME Trading Team, asdetailed above, it is considered unlikely that Sucden will give notice toterminate until 30 April 2008 at the earliest with the result being that the LMETrading Team will trade for the Company's benefit (for 75% of the net revenuestream) until at least 30 April 2009 and even after 30 April 2008 they couldstill give notice to terminate to Sucden, without being forced to by theCompany. On this basis the Directors consider that the useful economic life ofthe intangible asset acquired on acquisition of the business is three years. Itshould also be noted that the Tambelan Agreement has operated for approximatelysix years without either party to the agreement giving notice to terminate. As the Company's activities comprise that of an investment company the Directorsconsider the share of the profit of the associate forms part of the operatingactivities and have therefore included it as part of the operating profit in theincome statement 7 AVAILABLE FOR SALE FINANCIAL ASSETS On 4 August 2006 the Company acquired a 75% interest in the net profits ofcommodities investment management company, AMCO Commodities LLP ("AMCO") for atotal consideration of £1.4 million before costs which was satisfied £0.5million in cash and the issue of 5,000 000 ordinary shares at a price of 17.75p. AMCO manages the AMCO Commodities Fund Limited, whose investment strategy isbased on a research driven approach of seeking out fundamental tradingopportunities across a range of base metals, into which the Company has investedUS$1million during the year. The Company is unable to exert any influence over the above assets and thereforethey have been designated as available for sale financial assets in accordancewith IAS 39. In the opinion of the directors the fair value of these financialasset at 31 December 2006 is not materially different to their original cost andtherefore the directors consider it reasonable to continue to carry the assetsat this value as at 31 December 2006. 8 PUBLICATION OF NON-STATUTORY ACCOUNTS The financial information set out in this preliminary announcement does notconstitute statutory accounts as defined in section 240 of the Companies Act1985. The balance sheet at 31 December 2006 and the income statement, statement ofchanges in equity, cash flow statement and associated notes for the year thenended have been extracted from the Company's 2006 statutory financial statementsupon which the auditors opinion is unqualified and does include any statementunder Section 237 of the Companies Act 1985. The annual report for the year ended 31 December 2006 will be sent toshareholders shortly. The Annual General Meeting of the Company will be held at30 Quai Gustave-Ador, 1207, Geneva 3, Switzerland on 22 March 2007 at 10.00am. -------------------------- This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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