13th Mar 2007 07:02
Charlemagne Capital Limited13 March 2007 13 March 2007 Charlemagne Capital Limited Audited Results for the year ended 31 December 2006 Charlemagne Capital Limited ("Charlemagne", or the "Group"), the specialistemerging markets equity investment manager, today announces audited results forthe year ended 31 December 2006. Key Highlights • Net management fees up 41.5% to US$38.6m (2005: US$27.3m) • Average management fee margin on AUM of 83 bps (2005: 84 bps) • Performance fees of US$51.4m (2005: US$60.7m) • Assets under Management ("AuM") up 13.7% to US$4.65bn (2005: US$4.08bn) • Operating profit margin 51.5% (2005: 54.6%) • EPS of 12.5 US cents, up 28.4% (2005: 9.7 US cents) • First interim dividend of 2.1 US cents paid, second interim dividend of 2.2 US cents declared • First special interim dividend of 1.65 US cents paid, second special interim dividend of 2.4 US cents declared • Share buy backs since IPO totalling $4.7m (1.23% of issued shares) Commenting on the results, Michael Baer, Chairman, said: "We are pleased to report strong progress in a number of areas. We havecontinued to deliver superior returns across a range of strategies. Ourinvestment process seeks to benefit from pricing inefficiencies within theemerging markets in order to generate consistent, low risk returns through apragmatic, active, bottom up process. We remain confident that this strategywill continue to produce superior returns over the long-term." Commenting on the results, Jayne Sutcliffe, Chief Executive said: "Despite the recent correction in global markets, fundamentals in the markets inwhich the Group operates remain attractive and we continue to see value in abroad range of investment opportunities. We remain focussed on deliveringinvestment out performance across our product range. While fund flows intoemerging markets have been muted, we believe the prospects for emerging marketsremain attractive and that Charlemagne remains well-positioned to benefit fromfuture allocations to the asset class. The Directors remain confident in the strength of the Group's business model andstrategy and its ability to deliver strong, long-term growth." Enquiries: Charlemagne Capital Tel. 020 7518 2100Jayne Sutcliffe, Chief ExecutiveDavid Curl, Finance Director Smithfield Consultants Tel. 020 7360 4900John Kiely / George Hudson There is a presentation for analysts and investors at 2.30pm today at theoffices of Smithfield Consultants, 10 Aldersgate St., London EC1A 4HJ. Notes to Editors: Charlemagne Capital is a specialist emerging markets equity investmentmanagement group. Charlemagne Capital Limited was admitted to the AIM market ofthe London Stock Exchange on 4 April 2006. Charlemagne's product range comprises mutual funds, hedge funds andinstitutional and specialist fund products primarily covering GEMs, EasternEurope, Latin America and Asia. Charlemagne Capital employs a range ofinvestment strategies including: long only, long/short, structured products andprivate equity. Charlemagne Capital's funds aim to exploit the inefficiencies inthe market via a strict bottom up approach and focused stock selection. Through the strong long-term investment performance track record of itsprincipal funds, Charlemagne Capital has established itself as a market leaderin emerging markets investment management. Its performance has been recognisedthrough numerous awards and top rankings for its funds, including the 2005Standard and Poor's 5-year best performing fund award in Austria, the 2006 SwissLipper Leaders 5-year award winner for Emerging Markets Europe and an AAA-ratingby Standard & Poor's for its Magna Eastern European Fund (a sub-fund of MagnaUmbrella Fund Plc). Chairman's Statement I am pleased to be making my first Chairman's statement since the Company listedon the London AIM market. A year that was not without challenges has also been ayear of very positive developments for the Group, with continued success in keyareas. Having decided at the end of 2005 that it would be appropriate to seek alisting for the Company's shares, admission to the London Stock Exchange's AIMmarket was achieved at the beginning of April 2006. Following the listing almost40% of the Group's equity remains in the ownership of Directors and staffworking within the business. Assets under Management ("AuM") are the Group's principal source of revenues andfuture earnings potential. Against a backdrop of turbulent market conditions midyear and reduced levels of mutual fund flows into the emerging market mutualfunds, AuM increased by 13.7% to US$4.65 billion. This is after taking intoaccount the planned realisation of Novy Neft, the Gazprom local share vehiclewhich returned US$440 million to shareholders in June. After adjustment for NovyNeft, the increase in AuM would have been 25.8%. We have continued to deliver superior returns across a range of strategies. Ourinvestment process seeks to benefit from pricing inefficiencies within theemerging markets in order to generate consistent, low risk returns through apragmatic, active, bottom up process. We remain confident that this strategywill continue to produce superior returns over the long term. August 2006 markedthe three year anniversary of the Group's flagship Magna GEMs Fund, with aperformance record which is first decile since inception as ranked and measuredby Standard and Poors. This has significantly enhanced Charlemagne's ability todevelop and grow the business going forward. Core annual management fees increased by 41.5% to US$38.6 million, enhancing theGroup's core earnings basis. The Group's funds again generated significantperformance fees of US$51.4 million. These performance fees are a valuable assetfor the shareholders of the Group. Given the turbulent investment conditionsexperienced in the middle part of the year, this is a creditable performance andthe Group remains well placed to improve on this performance in 2007.During 2006, I joined the board along with Jaap van Duijn and Ian Lang, both ofwhom bring many years of business experience in fields related to the Group'sbusiness. We are all enthused by the Group's prospects for growth in the comingyears based on its strength in emerging market expertise and an operatingplatform which can be scaled easily to support growth. Our strategy remains unchanged. We will continue to focus the business on ourcore global emerging market specialisation, operating within an asset classwhich we believe remains highly attractive. Built on increasingly strongfundamentals, the outlook for GDP and earnings growth remains positive andvaluations compare favourably with developed markets. The Group combines theflexibility and enterprise of an entrepreneurial business with theorganisational infrastructure of an institutional asset manager. In this way, weaim to provide consistently superior returns to investors, build value for ourshareholders and to provide a culture and framework to attract and developtalented individuals whose efforts make this possible. As previously stated, it is our intention and policy to declare dividends whichreflect the long term earnings and cash flow potential of the group. Thisincludes managing our capital structure by returning surplus profits fromperformance fees to shareholders through special dividends and buying back ofthe Company's shares. This process began in 2006 with special dividends paid anddeclared for the year of US$11.8 million and buy back for cancellation of sharesfor US$4.7 million, totalling US$16.5 million in addition to ordinary dividendsof US$12.5 million. Finally I wish to thank our employees for their efforts in 2006. Their hardwork, motivation, skill and commitment continue to be essential to the Group'sdevelopment. The team has managed the firm through another year of change andgrowth, not to mention the listing on AIM. On behalf of all shareholders I wouldlike to thank them for their efforts. Michael Baer12 March 2007Financial and Operating Review Financial Results The table below sets out the Group's AuM as at 2 January 2007 and the movementsexperienced in each product range during 2006. 1 January 2 January Movement 2006 Net Novy Neft Net 2007 in AuM subscriptions reorganisation performance AuM Year (US$m) (US$m) (%) (US$m) (%) (US$m) (%) (US$m) (%)-------- -------- ------- ------ ------ ------ ------ ------ ---------- --------Magna 988 (67) (6.8%) 59 6.0% 275 27.9% 1,255 27.0%OCCO 254 52 20.5% - - 27 9.6% 333 31.1%Institutional 1,998 4 0.2% 77 3.9% 506 24.8% 2,585 29.4%Specialist 844 16 1.9% (576) (68.2%) 188 33.3% 472 (44.1%)-------- -------- ------- ------ ------ ------ ------ ------ ---------- --------Total 4,084 5 0.1% (440) (10.8%) 996 25.8% 4,645 13.7%-------- -------- ------- ------ ------ ------ ------ ------ ---------- -------- The results for the year ended 31 December 2006 demonstrate another period ofstrong growth and progress towards delivering the strategic objectives of theGroup. Charlemagne has delivered growth in revenues, operating profit andearnings per share. AuM at 2 January 2007 were US$4.65 billion, an increase of 13.7% over the year(2005: US$4.08 billion). Net subscriptions over the year were flat, reflectingstrong inflows in the first four months followed by redemptions after the marketcorrection in the second quarter. Net subscriptions were achieved in the Hedge,Institutional and Specialist (excluding Novy Neft) business areas with smalloutflows from Magna Funds over the year. Additionally, as anticipated at thetime of the Group's IPO, one of the structured products, Novy Neft, wasrestructured in June and returned US$440 million to investors, representing10.8% of the Group's assets under management at the start of the year. Revenues from net management fees in the period increased substantially and were41.5% higher than the comparative period in the prior financial year at US$38.6million (2005: US$27.3 million). The Group's net management fee margin averaged83 basis points for the year (2005: 84 bps). The Group continues to deliver strong investment performance and crystallisedperformance fees were US$51.4 million. This compares to US$60.7 million in theprevious year and demonstrates the Group's ability, through the diversificationof its products, to earn performance fees, also in periods of market volatility. Costs continue to be tightly controlled. Operating expenses, including profitrelated bonus pool allocations, rose to US$44.2 million from US$41.2 millionreflecting an investment in additional resources both in the latter part of2005, now being reflected for a full year, and in 2006. The cost of providing ashare option incentive scheme for staff amounting to US$1.5 million is alsoreflected for the first time this year. The Directors do not believe that theelement relating to non performance related elements will rise materially infuture years unless there is a significant increase in AuM. The Group'soperating profit margin for the period was 51.5% (2005: 54.6%). It is expectedthat operating margins will remain relatively stable given the Group's bonusstructure. Operating earnings before taxation and non-recurring items were US$46.9 millionin 2006 compared to US$49.6 million in 2005, as a result of lower performancefees and higher operating expenses as investment in new personnel continued. Profit after taxation provisions of US$6.0 million and the third party costs oflisting amounting to US$3.5 million, was US$37.4 million during 2006 comparedwith US$56.3 million in 2005. In underlying terms, pre tax profit in 2005 washeavily influenced by the one off gain on the maturity of a private equityproject in 2005 which contributed US$13.2 million, net of expenses. Operating earnings per share rose by 83% to 15.7 US cents (2005: 8.6 US cents).This reflects in part the buy back of a number of the Company's shares duringthe year. The operating earnings per share calculation has been arrived atbefore taxation and non-recurring forms of income and expenditure as we believethat this better reflects the underlying profitability of the business. Aftertaxation and other income and expenditure, earnings per share attributable toshareholders were 12.5 US cents per share (2005: 9.7 US cents per share) on afully diluted basis. The Group's business model remains highly cash generative and in the absence ofunforeseen circumstances it is the Directors' intention that substantially allcash generated will be returned to shareholders by means of dividends and sharebuy back programmes. Group net assets at the end of 2006 were US$33.8 million compared to US$62.1million at the beginning of the year, reflecting the fact that the Group spentUS$47.8 million, pre and post listing, in repurchasing shares for cancellationand paid a further US$17.5 million in dividends during the year. A first interim ordinary dividend of 2.1 US cents per share was declaredtogether with a first interim special dividend of 1.65 US cents and both werepaid on 13 October 2006. A second interim ordinary dividend of 2.2 US cents,together with a second interim special dividend of 2.4 US cents, has beendeclared by directors and will be paid on 24 April 2007 at a total cost ofUS$13.4 million. It is not proposed to recommend a final dividend. Interimdividends have been recommended by the board in order that the funds can be paidto shareholders more quickly than would otherwise be the case. Operations and Investment Review Flows of new money into the Group's products were very strong in the first fewmonths of the year. In the latter part of the year, in common with the industry,flows into our Global Emerging Market focused vehicles were generally negativeand as a result, the year as a whole was largely flat in terms of new moneyflows. During the year, we were appointed to a number of new mandates frominstitutional managers around the world who are looking to utilise the Group'sacknowledged expertise in certain sectors of the emerging market universe,including EMEA, Russia and Turkey. Additionally the Group launched a secondclosed end property fund focusing on developments in south east Europe followedin the early part of 2007 by an AIM listed fund which invests in propertyopportunities in India. Our global marketing effort remains targeted with recent additional commitmentof resources to the markets of the Middle East and to the USA, where we seesignificant potential to generate long term institutional support. Increase inGroup AUM will derive principally from an expansion of existing products andstrategies, derived from investment performance, continued flows into our Magnaand OCCO products, an expansion of our institutional business to a wideraudience to include pension fund investors and further private equity andstructured products. During the year, the Charlemagne stable of funds delivered solid absoluteinvestment performance and each product category experienced growth afterallowance for the capital return on Novy Neft. Magna In June 2006 the Magna Asia sub-fund was added to the Magna Umbrella Fund. Inline with our strategy, the product range has seen further geographicdiversification. We have been pleased with the performance of the product rangeand all produced performance fees in the year ending December 2006 and allexcept Magna Turkey finished above their high water mark. At the end of 2006,there were nine sub-funds within the Magna Umbrella Fund with a total AuM ofUS$1.25 billion. OCCO All four funds produced positive returns during the year and contributedperformance fees. As with Magna, we have been seeking to further diversifygeographic diversification of the product range. At the end of 2006, the fourfunds had a total AuM of US$333 million. Specialist During the year, one new product was added in the category, being the EuropeanConvergence Development Company. This is a private equity vehicle that it isproposed will be listed on AIM in 2007. In the second quarter, a capital returnof Novy Neft funds was undertaken returning, a total of US$440 million toinvestors. During the year, one of the funds in the category (CharlemagneCapital Russia Fund) contributed performance fees. Institutional The institutional category is dominated by white label relationships with thirdparty distributors. During the year, one new relationship was established thatled to two new accounts being received and one existing relationship providedtwo further accounts. During the year, four of the six institutional accountswith performance fee criteria have generated performance fees. Current trading and outlook Despite the recent correction in global markets, fundamentals in the markets inwhich the Group operates remain attractive and we continue to see value in abroad range of investment opportunities. We remain focussed on deliveringinvestment out performance across our product range. While fund flows intoemerging markets have been muted, we believe the prospects for emerging marketsremain attractive and that Charlemagne remains well-positioned to benefit fromfuture allocations to the asset class. The Directors remain confident in the strength of the Group's business model andstrategy and its ability to deliver strong, long-term growth. Consolidated Income Statement Expressed in United States Dollars Notes Year ended Year ended 31 December 31 December 2006 2005 US$'000 US$'000-------------------------- ------- ------------ ------------ Revenue 2 91,167 90,839 ExpensesPersonnel expenses 3 (39,192) (36,258)Other costs (5,041) (4,981)-------------------------- ------- ------------ ------------ Operating Profit 5 46,934 49,600Share of profit of jointlycontrolled - 25,767entityUplift in holding in jointlycontrolled entity 14 - 684Performance awards relating tojointly controlled entity - (13,258)Listing costs (3,540) --------------------------- ------- ------------ ------------Profit before tax 43,394 62,793 Taxation 8 (6,003) (6,474)-------------------------- ------- ------------ ------------ Profit after tax 37,391 56,319Minority Interest 13 (29) --------------------------- ------- ------------ ------------Profit after tax and MinorityInterest 37,362 56,319 Dividends 10 (17,473) (4,912)-------------------------- ------- ------------ ------------ Retained earnings for the year 19,889 51,407-------------------------- ------- ------------ ------------ US$ US$Earnings per shareBasic 11 0.124929 0.097341-------------------------- ------- ------------ ------------Diluted 11 0.124929 0.097341-------------------------- ------- ------------ ------------ The directors believe that all results derive from continuing activities. Consolidated Statement of Recognised Income and Expense Expressed in United States Dollars Notes Year ended Year ended 31 December 31 December 2006 2005 US$'000 US$'000-------------------------- ------- ------------ ------------ Movements in exchange differences onthe translation of the financialstatements of entities not accountedfor in United States Dollars 21 (74) (3,682)Movement in other reserves injointly controlled entity 21 - (128)Decrease in fair value of cashflowhedge 21 (400) (852)-------------------------- ------- ------------ ------------Net expense for the year recogniseddirectly in equity (474) (4,662)-------------------------- ------- ------------ ------------Net profit for the year 37,391 56,319-------------------------- ------- ------------ ------------Total recognised income for the year 36,917 51,657-------------------------- ------- ------------ ------------ Consolidated Balance Sheet Expressed in United States Dollars Notes As at As at 31 December 31 December 2006 2005 US$'000 US$'000-------------------------- ------- ------------ ------------ Non-current assetsProperty and equipment 12 470 413Interest in jointly controlled entity 14 25 4,261-------------------------- ------- ------------ ------------ Total non-current assets 495 4,674-------------------------- ------- ------------ ------------ Current assetsCurrent investments 15 4,671 15,863Receivables 17 43,205 78,931Cash and cash equivalents 18 15,479 10,512-------------------------- ------- ------------ ------------Total current assets 63,355 105,306-------------------------- ------- ------------ ------------ Total assets 63,850 109,980-------------------------- ------- ------------ ------------ Issued share capital 20 2,941 3,270Reserves 30,906 58,861-------------------------- ------- ------------ ------------Shareholders' equity 21 33,847 62,131Minority Interest 13 29 --------------------------- ------- ------------ ------------Total equity 33,876 62,131-------------------------- ------- ------------ ------------ Current liabilities Accounts payable, accruals and otherpayables 19 27,843 40,309Financial liability held for trading 23 - 2,438Taxation 2,131 5,102-------------------------- ------- ------------ ------------Total current liabilities 29,974 47,849-------------------------- ------- ------------ ------------ Total equity and liabilities 63,850 109,980-------------------------- ------- ------------ ------------ Consolidated Cash Flow StatementExpressed in United States Dollars Notes Year ended Year ended 31 December 31 December 2006 2005 US$'000 US$'000Operating Profit 46,934 49,600Adjustments for:Depreciation 207 161Exchange (gain)/loss on propertyand equipment (43) 44Provision for unrealised loss onforeign exchangecontracts andinvestments 4,615 312Foreign currency transactionadjustment (74) 508Profit on disposal of investments (2,425) (6,126)Share based incentive scheme (6,280) -Decrease/(increase) in receivables 29,977 (51,073)(Decrease)/increase in accountspayable, accruals and other payables (12,682) 15,456Dividend and Distribution receivedfrom jointly controlled entity 4,558 33,101Proceeds from sale of investments 15,151 11,567Purchase of investments (2,567) (6,341)Tax paid (9,293) (1,397)-------------------------- ------- ------------ ------------ Net Cash from operating activities 68,078 45,812-------------------------- ------- ------------ ------------ Investing activitiesPurchase of property and equipment (221) (393)-------------------------- ------- ------------ ------------Cash used in investing activities (221) (393)-------------------------- ------- ------------ ------------ Financing activitiesShares repurchased 21 (48,157) (40,338)Listing cost (3,540) -Shares issued 21 6,280 -Dividends paid (17,473) (4,912)-------------------------- ------- ------------ ------------Cash flows used in financingactivities (62,890) (45,250)-------------------------- ------- ------------ ------------ Net increase in cash and cashequivalents 4,967 169 Cash and cash equivalents at thebeginning of the year 18 10,512 10,343-------------------------- ------- ------------ ------------ Cash and cash equivalents at theend of the year 18 15,479 10,512-------------------------- ------- ------------ ------------ Company Balance SheetExpressed in United States Dollars Notes As at As at 31 December 2006 31 December 2005 US$'000 US$'000-------------------------- ------- ------------ ------------ Non-current assetsInterests in subsidiaries 13 2,785 2,785Interest in jointly controlled entity 14 25 4,261-------------------------- ------- ------------ ------------ Total non-current assets 2,810 7,046-------------------------- ------- ------------ ------------ Current assetsCurrent investments 15 - 400Receivables 17 262 154Due from subsidiaries 25 23,441 58,173Cash and cash equivalents 18 972 985-------------------------- ------- ------------ ------------Total current assets 24,675 59,712-------------------------- ------- ------------ ------------ Total assets 27,485 66,758-------------------------- ------- ------------ ------------ Issued share capital 20 2,941 3,270Reserves 21 204 22,000-------------------------- ------- ------------ ------------Shareholders' equity 21 3,145 25,270-------------------------- ------- ------------ ------------ Current liabilitiesAccounts payable, accruals and otherpayables 156 3,000Due to subsidiaries 25 24,184 38,488-------------------------- ------- ------------ ------------ 24,340 41,488-------------------------- ------- ------------ ------------ Total equity and liabilities 27,485 66,758-------------------------- ------- ------------ ------------ Notes to the Financial Statements 1. Significant Accounting Policies Charlemagne Capital Limited (formerly Regent Fund Management (Cayman) Limitedand Regent Europe Limited) was incorporated in the Cayman Islands as an exemptcompany with limited liability (registered number CR-75327) on 29 July 1997. TheCompany's registered office is at P.O. Box 309GT, Ugland House, South ChurchStreet, George Town, Grand Cayman, Cayman Islands, British West Indies. Theconsolidated financial statements of the Company for the year ended 31 December2006 comprise the Company and its subsidiaries (together referred to as the"Group") and the Group's interest in a jointly controlled entity. The financialstatements were authorised for issue by the Directors on 12 March 2007. Statement of Compliance The consolidated financial statements have been prepared in accordance with therequirements of International Financial Reporting Standards ("IFRS") and theirinterpretations adopted by the International Accounting Standards Board("IASB"). Basis of Preparation The consolidated financial statements are prepared on the historical cost basisexcept that the following are stated at their fair value: financial instrumentsat fair value through the income statement including derivative financialinstruments. Recognised assets and liabilities that are hedged are stated atfair value in respect of the risk that is hedged. The Company's shares are issued in United States Dollars ("US Dollars") as theUS Dollar is a more widely recognised currency internationally than the localcurrency of the Cayman Islands. The functional currency of the financialstatements is US Dollars and not Cayman Islands Dollars reflecting the fact thatthe transactions are denominated in US Dollars. The preparation of financial statements in conformity with IFRSs requiresmanagement to make judgements, estimates and assumptions that affect theapplication of policies and reported amounts of assets and liabilities, incomeand expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisionsto accounting estimates are recognised in the period in which the estimate isrevised and in any future periods affected. In particular, information about significant areas of estimation uncertainty andcritical judgements in applying accounting policies that have the most significant effect on the amount recognised in the financial statements are described innote 26. Basis of Consolidation Subsidiaries Subsidiaries are those enterprises controlled by the Group. Control exists wherethe Group has the power to govern the financial and operating policies of anentity 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 consolidatedfinancial statements from the date that control commences until the date thatcontrol ceases. Jointly controlled entities Jointly controlled entities are those entities over whose activities the Grouphas joint control, established by contractual agreement. The consolidatedfinancial statements include the Group's proportionate share of the entities'assets, liabilities, revenue and expenses with items of a similar nature on aline basis, from the date that joint control commences until the date that jointcontrol ceases. The interest in jointly controlled entities is accounted for inthe individual financial statements of the Company as a financial asset at fairvalue through the income statement in accordance with IAS 39. Transactions eliminated on consolidation Intra-group balances and any unrealised income and expenses arising fromintra-group transactions, are eliminated in preparing the consolidated financialstatements. Unrealised losses are eliminated in the same way as unrealisedgains, but to the extent that there is no evidence of impairment. Investment in funds managed by Charlemagne Capital Group companiesCertain Group companies, from time to time, purchase shares in funds managed byother Charlemagne Capital Group companies. Such holdings can amount to over 20%of the issued share capital and occasionally more than 50%. Those holdings over50% of the issued share capital, are treated as subsidiaries. Those holdingswhich are over 20% but not more than 50% of the issued share capital are treatedas associates and equity accounted in the consolidated financial statements forthe Group. No holdings of over 20% but below 50%, and no holdings of over 50% inCharlemagne managed funds existed at 31 December 2006. Foreign Currency Foreign currency transactions Transactions in foreign currencies are translated to US Dollars at the foreignexchange rate ruling at the date of the transaction. Monetary assets andliabilities denominated in foreign currencies at the reporting date aretranslated to US Dollars at the foreign exchange rate ruling at that date.Foreign exchange differences arising on translation are recognised in the incomestatement. Non-monetary assets and liabilities denominated in foreigncurrencies, which are stated at historical cost, are translated to US Dollars atthe foreign exchange rate ruling at the date of the transaction. Foreign operations The assets and liabilities of foreign operations, including goodwill and fairvalue adjustments arising on acquisition, are translated to US Dollars atforeign exchange rates ruling at the reporting date. The income and expenses offoreign operations are translated to US Dollars at the foreign exchange rates atthe dates of the transactions. Foreign currency differences are recognised in"foreign currency exchange reserve" directly in equity. When a foreign operationis disposed of, in part or in full, the relevant amount in the foreign currencyexchange reserve is transferred to the income statement. Derivative Financial Instruments The Group uses derivative financial instruments and forward exchange contractsto manage its exposure to foreign exchange, interest rate and equity marketrisks arising from operational, financing and investment activities and fortrading purposes. Derivative financial instruments are recognised initially at fair value.Subsequent to initial recognition, derivative financial instruments are statedat fair value. The gain or loss on remeasurement to fair value is recognisedimmediately in the income statement. However, where derivatives qualify forhedge accounting, recognition of the resultant gain or loss depends on thenature of the item being hedged (see Cash flow hedges below). Cash flow hedges Where a derivative is designated as a hedged of the variability in cash flowsattributable to a particular risk associated with a recognised asset orliability or a highly probable forecast transaction that could affect profit orloss, the effective portion of changes in the fair value of the derivative arerecognised directly in equity. The amount recognised in equity is removed andrecognised in the income statement in the same period as the hedged cash flowsaffect profit or loss under the same income statement line item as the hedgeditem. Any ineffective portion of changes in the fair value of the derivative isrecognised immediately in the income statement. If the derivative expires or is sold, terminated, or exercised, or no longermeets the criteria for cash flow hedge accounting, or the designation isrevoked, then hedge accounting is discontinued and the amount recognised inequity until the forecast transaction affects profit or loss. If the forecasttransaction is no longer expected to occur, then hedge accounting isdiscontinued and the balance in equity is recognised immediately in the incomestatement. Property and equipment Owned assets Items of property and equipment are measured at cost less accumulateddepreciation and impairment losses. Depreciation Depreciation is recognised in the income statement on a straight-line basis overthe estimated useful lives of items of property and equipment. The estimateduseful lives are as follows: Furniture and fixtures 5 years Computer equipment 3 years Other equipment 4 years Investments Classification All equity and debt securities are stated at fair value in accordance with IAS39. Recognition and derecognition The Group recognises financial assets at fair value through the income statementon the date it commits to purchase the instruments. From this date any gains andlosses arising from changes in fair value of the assets are recorded. Theseassets are derecognised when the rights to receive cash flows from the assetshave expired or when the Group has transferred substantially all risks andrewards of ownership. Measurement Investments are measured initially at cost. Subsequent to initial recognitionall investments are measured at fair value. 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 fortransactions costs. If a quoted market price is not available on a recognisedexchange or from a broker/dealer for non-exchange traded financial instruments,the fair value of the instrument is estimated by the Board of Directors. Gains and losses on subsequent measurement Gains and losses arising from a change in the fair value of investments arerecognised in the income statement. Other receivables Other receivables are measured at amortised cost less impairment losses. Other payables Other payables are measured at amortised cost. Cash and Cash Equivalents Cash and cash equivalents comprise cash balances and call deposits. For thepurpose of the statement of cash flows, cash and cash equivalents would bepresented net of bank overdrafts if any existed. Impairment of assets carried at cost or amortised cost The carrying amounts of the Group's assets are reviewed at each balance sheetdate to determine whether there is any indication of impairment. If any suchindication exists, the asset's recoverable amount is estimated. All impairmentlosses and reversals are recognised in the income statement. Share Capital Repurchase of share capital When share capital recognised as equity is repurchased, the amount of theconsideration paid, including directly attributable costs, is recognised as achange in equity. Repurchased shares are classified as treasury shares andpresented as a deduction from total equity. Dividends Dividends are recognised as a liability in the year in which they are declaredand approved. Revenue Recognition Provided it is probable that the economic benefits will flow to the Group andthe revenue and costs, if applicable, can be measured reliably, revenue isrecognised in the income statement as follows:- (a) investment management, administration and advisory fees contractuallyreceivable by the Group are recognised in the year in which the respective feesare earned. Performance fees arising upon the achievement of specified targetsare recognised at the respective funds' year-ends, when such performance feesare confirmed as receivable, or when there is a crystallising event, includingbut not limited to redemption of shares against which performance fees have beenaccrued; (b) profit or loss on sale of investments is recognised when title is passed; (c) interest is recognised on the effective interest basis; (d) dividend income from unlisted investments is recognised when theshareholder's right to receive payment is established. Dividend income fromlisted investments is recognised when the share price of the investment turnsex-dividend; (e) revenue related to provision of services is recognised on anaccruals basis. Operating Lease Payments Payments made under operating leases are recognised in the income statement on astraight-line basis over the term of the lease. Employee benefits Obligations for contributions to employee's International Pension Plans arerecognised as an expense in the income statement as incurred. Obligations to theCharlemagne 2005 Employee Benefit Trust are recognised as an expense in theincome statement to the extent that these have been provisionally allocated todiscretionary revocable sub-trusts of which certain directors and employees ofthe company may become beneficiaries. The grant date fair value of options granted to employees is recognised as anemployee expense, with a corresponding increase in equity, over the period inwhich the employees become unconditionally entitled to the options. The amountrecognised as an expense is adjusted to reflect the actual number of shareoptions that vest. The fair value of the amount payable to employees in respect of shareappreciation rights, which are settled in cash, is recognised as an expense,with a corresponding increase in liabilities, over the period the employeesbecome unconditionally entitled to payment. The liability is remeasured at eachreporting date and at settlement date. Any changes in the fair value of theliability are recognised as personnel expense in the income statement. The fair value of employee stock options is measured using binomial latticemodel. Measurement inputs include share price on measurement date, exerciseprice of the instrument, expected volatility (based on weighted averagecompetitor volatility), weighted average expected life of the instruments (basedon general option holder behaviour), expected dividends, and a risk-freeinterest rate. Service and non-market performance conditions attached to thetransactions are not taken into account in determining fair value. Income Tax Income tax on the profit or loss for the year comprises current and deferredtax. Income tax is recognised in the income statement except to the extent thatit relates to items recognised directly in equity, in which case it isrecognised 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, andany adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method, providing fortemporary differences between the carrying amounts of assets and liabilities forfinancial reporting purposes and the amounts used for taxation purposes.A deferred tax asset is recognised only to the extent that it is probable thatfuture taxable profits will be available against which the asset can beutilised. A deferred tax asset is reduced to the extent that it is no longerprobable that the related tax benefit will be realised. From time to time the Group receives inquiries from revenue authorities into itstaxation affairs, as is common for entities operating international transferpricing policies. It is the policy of the Group to account for any taxation dueas a result of such inquiry in the year in which settlement is agreed.Investment in subsidiaries, associates and jointly controlled entitiesThe Company's investment in the subsidiaries and associates is stated at costless impairment losses. The interest in jointly controlled entities is accountedfor as a financial asset at fair value through the income statement inaccordance with IAS 39. Comparative Figures Where necessary, comparative figures have been adjusted to conform to changes inpresentation for the current year. 2. Revenue Year ended Year ended 31 December 2006 31 December 2005 US$'000 US$'000----------------------------- ------------ -------------Fund management and related fees, net ofrebates 38,557 27,258Performance fees 51,403 60,658Investment Income (including profit oninvestments and derivatives) 890 533Other income 317 2,390----------------------------- ------------ ------------- 91,167 90,839----------------------------- ------------ ------------- Notes to the Financial Statements (continued)3. Personnel Expenses Year ended Year ended 31 December 2006 31 December 2005 US$'000 US$'000----------------------------- ------------ -------------Salaries 6,644 4,962Performance Related Bonuses 18,947 7,385Contributions to Employee Benefit Trust 10,614 30,796Pension Contributions - relating tocurrent year - 5,687Pension Contributions - relating toprior year 212 -Compulsory social security contributions 2,775 686------------------------------ ----------- ------------- 39,192 49,516----------------------------- ------------ ------------- Year ended Year endedDirectors' Emoluments 31 December 2006 31 December 2005 US$'000 US$'000----------------------------- ------------ -------------Fees 244 105Salaries 1,153 795Performance Related Bonuses 1,191 5,333Pension Contributions - relating tocurrent year - 2,438Pension Contributions - relating toprior year 100 ------------------------------- ----------- ------------- 2,688 8,671------------------------------ ----------- ------------- The number of employees of the Group as at the end of the year was 60 (2005: 48)full time. The Group operates a discretionary bonus scheme, as approved by the Board, whichis based on the Group's profit before taxation. Bonuses are accounted for in thefinancial year in which the bonus is earned. During 2005 the Group created an employee benefit trust, the Charlemagne 2005Employee 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'sdirectors 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 2006, the Directors ofCharlemagne Capital Services Limited ("CCSL"), the Group's global employmentcompany, have recommended to the Trustee that the sum of US$8.4m (2005:US$18.3m) be provisionally allocated to discretionary revocable sub-trusts ofwhich certain directors of the company may be potential beneficiaries. Howeverno amount has been included in directors' emoluments since the amounts have notbeen allocated to any director or employee with any certainty. Highest Paid Director The highest paid Director had emoluments of US$1,293k (2005: US$2,427k). 4. Related Party Transactions Identity of related parties The Group is related to its jointly controlled entity (note 14) and to itsDirectors and executive officers. Transactions with Directors and executive officers As at 31 December 2006, Directors of the Company and their immediate interestscontrolled 36% (2005: 59%) of the voting shares of the Company. 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. During the year US$178,123 (2005: US$133,493) was paid toBurnbrae Ltd, a company where ultimate ownership is connected with James Mellon,a director of Charlemagne Capital Limited, for rental of property. AndersonWhamond was a Director of Burnbrae Ltd during 2006. b. During the period US$38,480 (2005: US$Nil) was paid to DavidMcMahon, a director of Charlemagne Capital Limited, for consultancy services fora period prior to him becoming an employee. c. Over 75% (2005: 92%) of the turnover from investmentmanagement, administration, performance incentive fees, advisory fees andcommissions is derived from funds over which the Directors consider the Grouphas influence by virtue of its management, administration and advisory roles. d. Certain Directors have shareholdings in certain funds managedby Charlemagne Capital Group companies. 5. Profit from Operations The Group's profit from operations was arrived Year ended Year endedat:- 31 December 31 December 2006 2005 US$'000 US$'000----------------------------- ------------ -------------After charging and (crediting): Revenue ItemsRealised (profit) on disposal of currentinvestments (2,425) (6,126)Unrealised loss on current investments 4,615 312Interest income (1,456) (676)Exchange (gain)/loss net (1,634) 403 Expense ItemsDepreciation 207 161Auditors' remuneration 181 161Operating lease rental on property 315 307----------------------------- ------------ ------------- 6. Segment Reporting Year to 31December2006 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 Magna OCCO Institutional Specialist Other TotalNetManagement Fees 11,308 4,939 14,065 8,245 - 38,557NetPerformance Fees 24,449 5,010 4,709 17,235 - 51,403Return onInvestment - - - (3,321) 4,211 890Other - - - - 317 317Income -------- ------- -------- -------- -------- --------Segment 35,757 9,949 18,774 22,159 4,528 91,167Revenue -------- ------- -------- -------- -------- -------- Segment Result 22,590 6,341 13,212 14,179 4,528 60,850UnallocatedExpenses (13,916) --------ResultsfromOperating 46,934Activities -------- Year to 31December2005 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 Magna OCCO Institutional Specialist Other TotalNetManagement Fees 7,437 3,033 8,753 8,035 - 27,258NetPerformance Fees 47,780 4,483 1,407 6,988 - 60,658Return onInvestment (3,530) - - (174) 4,237 533Other - - - 2,014 376 2,390Income -------- ------- -------- -------- -------- --------Segment Revenue 51,687 7,516 10,160 16,863 4,613 90,839 -------- ------- -------- -------- -------- -------- Segment Result 33,102 5,184 7,804 10,653 4,613 61,356UnallocatedExpenses (11,756) --------ResultsfromOperating Activities 49,600 -------- 7. Listing costsThe Company was admitted to the AIM market of the London Stock Exchange on 4 April 2006. Total costs related to listing amounted to US$3.5m. 8. Taxation Recognised in the income statement Year ended Year ended 31 December 2006 31 December 2005 US$'000 US$'000----------------------------- ------------- -------------Current tax expense:Current year 5,841 6,282Underprovided in prior years 162 192----------------------------- ------------- -------------Total income tax expense in incomestatement 6,003 6,474----------------------------- ------------- ------------- Reconciliation of effective tax rateProfit before tax 43,394 62,793----------------------------- ------------- -------------Income tax using the domesticcorporation tax rate 0% - 0% -Effect of different tax rates inforeign jurisdictions 13.46% 5,841 10.00% 6,282Underprovided in prior years 0.37% 162 0.31% 192----------------------------- -------- ------- -------- ------- 13.83% 6,003 10.31% 6,474----------------------------- ------------- ------------- 9. Profit Attributable to Shareholders The net profit attributable to shareholders reflected in the financialstatements of the Company itself amounts to US$37.63m (2005: US$ 39.35m). 10. Dividend Year ended Year ended 31 December 2006 31 December 2005 US$'000 US$'000----------------------------- ------------- ------------- Dividends per share of 5.75 US cents(2005: 0.6 US cents) 17,473 4,912----------------------------- ------------- ------------- An interim dividend of 2.0 US cents per ordinary share in respect of the yearended 31 December 2005 was paid on 30 January 2006 to those shareholders on theregister on 24 January 2006 and distributed from retained earnings in 2006. An interim ordinary dividend of 2.1 US cents (GB 1.1025p) per ordinary share andan interim special dividend of 1.65 US cents (GB 0.8662p) per ordinary share waspaid on 13 October 2006 to those shareholders on the register on 15 September2006 and distributed from retained earnings in 2006. An interim ordinary dividend of 2.2 US cents (GB 1.1405p) per ordinary share andan interim special dividend of US 2.4 cents (GB 1.2442p) per ordinary share inrespect of the year ended 31 December 2006 will be paid on 24 April 2007 tothose shareholders on the register on 23 March 2007 and will be distributed fromretained earnings in 2007. 11. Earnings Per Share The calculation of basic earnings per share of the Group is based on the netprofit attributable to shareholders for the year of US$37.36m (2005: US$56.32m)and the weighted average number of shares of 299,065,692 (2005: 578,574,879) inissue during the year. The calculation of diluted earnings per share of the Group is the same as basicearnings per share as the share options outstanding have been issued contingentupon specified performance conditions being satisfied. As at 31 December 2006these performance conditions had not been met. Shares issued during the year to Sanne Trust Company Limited (note 22) have beenexcluded from the earnings per share calculation as such shares are currentlyaccounted for as treasury shares. 12. Property and equipment Group Furniture and Computer and Other Fixtures Equipment Total US$'000 US$'000 US$'000Cost:At 1 January 2005 593 1,128 1,721Acquisitions 64 329 393Exchange adjustment (63) (140) (203)-------------------------- --------- ------------ ---------At 31 December 2005 594 1,317 1,911-------------------------- --------- ------------ ---------At 1 January 2006 594 1,317 1,911Acquisitions 2 219 221Disposals - (2) (2)Exchange adjustment 82 193 275-------------------------- --------- ------------ ---------At 31 December 2006 678 1,727 2,405-------------------------- --------- ------------ --------- Depreciation and impairment:At 1 January 2005 586 910 1,496Provided during the year 10 151 161Exchange adjustment (59) (100) (159)-------------------------- --------- ------------ ---------At 31 December 2005 537 961 1,498-------------------------- --------- ------------ ---------At 1 January 2006 537 961 1,498Provided during the year 14 205 219Disposals - (1) (1)Exchange adjustment 75 144 219-------------------------- --------- ------------ ---------At 31 December 2006 626 1,309 1,935-------------------------- --------- ------------ ----------------------------------- --------- ------------ ---------Carrying amounts:At 1 January 2005 7 218 225-------------------------- --------- ------------ ---------At 31 December 2005 57 356 413-------------------------- --------- ------------ ---------At 1 January 2006 57 356 413-------------------------- --------- ------------ ---------At 31 December 2006 52 418 470-------------------------- --------- ------------ --------- There was no property and equipment in the Company. 13. Interests in Subsidiaries US$'000 CostAt 1 January 2005 4,025Addition during the year 2------------------------------------------- ---------At 31 December 2005 4,027------------------------------------------- ---------At 1 January 2006 4,027------------------------------------------- ---------At 31 December 2006 4,027------------------------------------------- ---------ImpairmentAt 1 January 2005 1,242------------------------------------------- ---------At 31 December 2005 1,242------------------------------------------- ---------At 1 January 2006 1,242------------------------------------------- ---------At 31 December 2006 1,242------------------------------------------- --------- US$'000------------------------------------------- ---------Carrying Amount------------------------------------------- ---------At 31 December 2005 2,785------------------------------------------- ---------At 31 December 2006 2,785------------------------------------------- --------- Balances with subsidiaries are included within current assets and currentliabilities. Particulars of the principal subsidiaries of the Company at 31 December 2006 areas follows: Name Place of Issued and Percentage of Principal Incorporation/ Fully Equity Activities Operation Paid Share Interest Capital Attributable to the Company Direct Indirect----------------- ------------------------- ------- ------- -------------- CharlemagneCapital Isle of Man Ordinary 100% - Investment(IOM) Limited GBP20,000 Management CharlemagneCapital United Kingdom Ordinary 100% - Investment Advice(UK) Limited GBP100 and Marketing CharlemagneCapital Isle of Man Ordinary 100% - Investment and(Investments) GBP1 InvestmentLimited Research CharlemagneCapital(Services)Limited* Isle of Man Ordinary 60% - Personnel GBP2,000 ----------------- ------------------------- ------- ------- -------------- *40% of the shares of Charlemagne Capital (Services) Limited, the Group's globalemployment company, are held by the Trustee of the Charlemagne 2005 EmployeeBenefit Trust. The trust is controlled by an independent trustee. 14. Interest in Jointly Controlled Entity Group 31 December 2006 31 December 2005 US$'000 US$'000------------------------------- ------------ ----------- Share of net tangible assets 25 4,261------------------------------- ------------ ----------- The Group has a 12.86% (2005: 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 ofthe fact that the Group retains a significant influence over the management ofSWR, an equity accounting approach has continued with regard to this investment. 15. Investments 31 December 31 December 2006 2005 US$'000 US$'000-------------------------------- ----------- ----------- Group Current investments - at fair value through theincome statementEquity securities held for trading 4,671 15,446Equity securities designated at fairvalue through the income statement - 17Derivative financial instruments (seenote 23) - 400-------------------------------- ----------- ----------- 4,671 15,863-------------------------------- ----------- ----------- Company Current InvestmentsDerivative financial instruments (seenote 23) - 400-------------------------------- ----------- ----------- 16. Deferred Taxation There is an unrecognised deferred taxation asset of US$13k (2005: US$13k)representing the tax effect of depreciation in excess of capital allowances. 17. Receivables Group Company 31 December 31 December 31 December 31 December 2006 2005 2006 2005 US$'000 US$'000 US$'000 US$'000---------------------- --------- --------- --------- ---------Trade receivables 42,021 70,061 - -Amount due fromjointly controlledentity 8 4 8 4Other receivables 679 8,493 217 145Prepayments 497 373 37 5---------------------- --------- --------- --------- --------- 43,205 78,931 262 154---------------------- --------- --------- --------- --------- Other receivables include amounts totalling US$45k (2005:US$4.5m) in respect ofmargin deposits held by the Group in respect of their normal trading incurrencies, futures and options (note 23). 18. Cash and Cash Equivalents Group Company 31 December 31 December 31 December 31 December 2006 2005 2006 2005 US$'000 US$'000 US$'000 US$'000---------------------- --------- --------- --------- ---------Bank balances 174 71 148 13Call deposits 637 4,399 - 972Term deposits 14,668 6,042 824 ----------------------- --------- --------- --------- ---------Cash and cashequivalents 15,479 10,512 972 985---------------------- --------- --------- --------- --------- Notes to the Financial Statements (continued)19. Accounts Payable, Accruals and Other Payables Group Company 31 December 31 December 31 December 31 December 2006 2005 2006 2005 US$'000 US$'000 US$'000 US$'000---------------------- --------- --------- --------- ---------Provision forperformance awards 13,482 22,310 - 2,830Accruals and otherpayables 14,361 17,999 156 170---------------------- --------- --------- --------- --------- 27,843 40,309 156 3,000---------------------- --------- --------- --------- --------- 20. Issued Share Capital Shares 31 December 31 December 2006 2005 US$'000 US$'000------------------------------------ --------- ---------Authorised2,000,000,000 ordinary shares of US$0.01 each 20,000 20,000------------------------------------ --------- --------- Issued and fully paidAt beginning of year 326,988,423 (2005:821,987,311) ordinary shares of US$0.01 each 3,270 8,220Shares issued; 3,422,185 (2005: nil) 34 -Shares repurchased; 36,348,836 (2005: 494,998,888) (363) (4,950)------------------------------------ --------- ---------At end of year; 294,061,772 (2005: 326,988,423)fully paid 2,941 3,270------------------------------------ --------- --------- During the year ended 31 December 2006, the Company repurchased 36,348,836 ofits own shares, of which 32,698,836 (10% of the total shares in issue at thecommencement of the period) were the result of a compulsory repurchase by theCompany. The remainder were purchased at market value for cancellation afterlisting. During the year ended 31 December 2006, the Company issued 3,422,185 shares forUS$6.28m to Sanne Trust Company Limited (Trustee of the Charlemagne 2005Employee Benefit Trust) on 27 March 2006. Dividends on these shares have beenwaived by Sanne Trust Company Limited until further notice. As at the date of signing the financial statements there were 294,061,772ordinary shares of US$0.01 each issued and fully paid. 21. Shareholders' Equity 2006 Share Share Retained Treasury Share Foreign Total Capital Premium Earnings Shares Option Currency Reserve Exchange Reserve US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000-------------- ------- -------- ------- ------- -------- -------- ------GroupAt 1 January2006 3,270 305 57,191 - - 1,365 62,131Sharesrepurchased (363) (31) (47,763) - - - (48,157)Shares issued 34 6,246 - (6,280) 458 - 458Foreigncurrencytranslationadjustment - - - - - (74) (74)Decrease infair value ofcashflow hedge - - (400) - - - (400)Profit for theyear - - 37,362 - - - 37,362Dividends - - (17,473) - - - (17,473)-------------- ------- -------- ------- ------- -------- -------- ------At 31 December2006 2,941 6,520 28,917 (6,280) 458 1,291 33,847-------------- ------- -------- ------- ------- -------- -------- ------ 2006 Share Share Retained Foreign Total Capital Premium Earnings Currency Exchange Reserve US$'000 US$'000 US$'000 US$'000 US$'000---------------------- -------- -------- -------- -------- -------- CompanyAt 1 January 2006 3,270 305 21,714 (19) 25,270Shares repurchased (363) (31) (47,763) - (48,157)Shares issued 34 6,246 - - 6,280Decrease in fair value ofcashflow hedge - - (400) - (400)Profit for the year - - 37,625 - 37,625Dividends - - (17,473) - (17,473)---------------------- -------- -------- -------- -------- --------At 31 December 2006 2,941 6,520 (6,297) (19) 3,145---------------------- -------- -------- -------- -------- -------- 2005 Share Share Retained Capital Capital Other Foreign Total Capital Premium Earnings Reserve Redemption Reserves* Currency Reserves Exchange Reserve US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000----------- ------ ------- ------- ------ -------- ------- ------- ------GroupAt 1January 2005 8,220 763 30,671 8,306 2,589 128 5,047 55,724Sharesrepurchased (4,950) (458) (24,035) (8,306) (2,589) - - (40,338)Jointlycontrolledentity - - - - - (128) (4,190) (4,318)Foreigncurrencytranslationadjustment - - - - - - 508 508Decrease infair valueof cashflow hedge - - (852) - - - - (852)Profit forthe year - - 56,319 - - - - 56,319Dividends - - (4,912) - - - - (4,912)----------- ------ ------- ------- ------ -------- ------- ------- ------At 31December 2005 3,270 305 57,191 - - - 1,365 62,131----------- ------ ------- ------- ------ -------- ------- ------- ------ 2005 Share Share Retained Capital Capital Other Foreign Total Capital Premium Earnings Reserve Redemption Reserves* Currency Reserves Exchange Reserve US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000----------- ------ ------- ------- ------ -------- ------- ------- ------CompanyAt 1January 2005 8,220 763 12,167 8,306 2,589 - (19) 32,026Sharesrepurchased (4,950) (458) (24,035) (8,306) (2,589) - - (40,338)Decrease infair valueof cashflow hedge - - (852) - - - - (852)Profit forthe year - - 39,346 - - - - 39,346Dividends - - (4,912) - - - - (4,912)----------- ------ ------- ------- ------ -------- ------- ------- ------At 31December 3,270 305 21,714 - - - (19) 25,2702005 ----------- ------ ------- ------- ------ -------- ------- ------- ------ Under Cayman Island law all categories of reserves are distributable. However,under normal circumstances the Company considers that only retained profits aredistributable to shareholders. In the current and previous periods, the Companyrepurchased some of its own shares. These shares were cancelled upon repurchaseand accordingly the issued share capital of the Company was reduced by theirnominal value. The premium on shares repurchased during 2006 was charged toretained earnings. The premium on shares repurchased during 2005 was chargedagainst the capital reserve and the capital redemption reserve with theremaining balance being charged to retained earnings. 22. Share Based Incentive Plans Equity Settled At 27 March 2006 and 8 May 2006 the Group established several share basedincentive programmes that entitle certain employees to acquire shares in theCompany subject to the vesting conditions set out below at an exercise pricethat was set at the date of grant. The fair value of options granted is recognised as an employee expense with acorresponding increase in equity. The fair value is measured at grant date andspread over the vesting period. The amount recognised as an expense is adjustedto reflect the actual number of share options that vest. Grant Date Number of Vesting Conditions Contractual shares life of Options------------- --------- ----------------------- -----------27 March 1,013,578 Equal parts vesting over three, four and 5 - 72006 five years service plus achievement of Years EPS performance targets27 March 471,427 Three years service plus achievement of 7 years2006 Assets Under Management (AUM) performance targets8 May 2006 212,564 Three years service plus achievement of 10 years Assets Under Management (AUM) performance targets21 November2006 50,903 Equal parts vesting over three, four and 5 years five years service plus achievement of EPS performance targets21 November2006 56,737 Three years service plus achievement of 10 Years Assets Under Management (AUM) performance targets------------- --------- ----------------------- -----------Total ShareOptions 1,805,209------------- --------- ----------------------- ----------- The number and weighted average exercise price of share options is as follows: Weighted average exercise Number of price OptionsOutstanding at beginning of period N/A NilGranted during theperiod GBP0.42 1,805,209Forfeited during theperiod GBP1.04 62,250---------------------- ---------------- ----------------Outstanding at the endof the period GBP0.40 1,742,959---------------------- ---------------- ---------------- The options outstanding at 31 December 2006 have an exercise price betweenGBPNil and GBP1.05 and a weighted average contractual life of 5.7 years.Outstanding share options are contingent upon specified performance and servicecriteria being satisfied. As at 31 December 2006 none of the performance orservice criteria had been achieved and therefore none of the options areexercisable at this time. There were no share option programmes in place in the prior year. The weighted average fair value of the options issued during the period wasGBP0.67 The estimate of the fair value of the share options granted with a grant priceof GBP Nil has been calculated by reference to the face value of the awardadjusted for the loss of dividends over the vesting period. All other optionsare measured using a binomial lattice to model the early exercise behaviour. Thecontractual life of the options, 5-10 years, is used as an input to this model. Fair value of share 27 March 2006 and 27 March 8 May 2006 21 Novemberoptions and 21 November 2006 2006 AUM 2006 AUM EPS targets AUM Targets Targets TargetsFair value atmeasurementdate (GBP) 0.86 0.38 0.39 0.25Share price atgrant date(GBP) 1.05 1.05 1.035 0.705Exercise price(GBP) Nil 1.05 1.035 0.705Expectedvolatility (%p.a.) Nil 50.0 50.0 50.0Option life(years) 5-7 7 10 10Assumeddividend yield(% p.a.) 5.0 5.0 5.0 5.0Risk-freeinterest rate(% p.a.) Nil 4.4 4.9 5.3 The Company's shares were not traded before the majority of the options weregranted. In setting the volatility assumption therefore regard was given to theshare price volatilities of the Company's closest traded comparator companies,as well as the share price since listing. Based on daily and weekly priceobservations, the share price volatility has been around 50% which is comparableto that of its competitors over a longer period. The share options are granted under service and non-market performanceconditions. Such conditions are not taken into account in the grant date fairvalue measurement of the services received. There are no market conditionsassociated with the share option grants. Cash Settled At 24 March 2006, the Group's global employment company, Charlemagne CapitalServices Limited (CCSL), made a contribution of US$6.28m to the Charlemagne 2005Employee Benefit Trust (EBT). The Directors of CCSL recommended to the Trusteeof the EBT that this sum be used to purchase Company shares and those shares beheld until EPS performances targets and service targets are met, after whichtime the shares should be sold. The Trustee of the EBT (Sanne Trust Limited, anindependent trustee company) may at its discretion allocate the proceeds todiscretionary sub-trusts of which certain employees and their families arebeneficiaries. The EBT subsequently purchased 3,422,185 Company shares, which had a fair valueof US$5,478,331 as at 31 December 2006, based on the market price as at thatdate, after adjusting for the waiver of dividend rights at an assumed dividendyield of 5%. The fair value of the future cash settlement is spread over the vesting period,and recognised as an expense in the accounts with a corresponding increase inliabilities. The fair value is re-measured at each reporting date, with anyadjustment in the cumulative fair value being recognised in the reportingperiod. Expenses in respect of share based incentive plans The following amounts have been charged as an expense within these financialstatements Year to 31 December 2006 US$ Equity settled incentive plans 457,697Amount relating to cash-settled transaction liabilities 1,006,775Total expense recognised as employee costs 1,464,472 As at 31 December 2006, total liabilities in respect of cash-settled share-basedincentive plans were US$1,006,775. No liabilities had vested by the end of theperiod. 23. Financial Instruments and Concentration Risk Financial assets of the Group include cash and cash equivalents, investments andother receivables. Financial liabilities include accruals and other payables.The carrying amounts of these other assets approximate their fair values.The Group's trading in derivatives is partly for hedging purposes, and partlyfor speculative investment. Where hedging is involved, the policy is fully orpartly to match positions held in other assets. Speculative investment iscarefully used, in accordance with parameters set by the Board, in short termsituations where physical assets are inappropriate. Derivatives refer to financial contracts whose value depends on the face valueof one or more underlying assets or indices. At 31 December 2006 and 2005 theGroup's holdings in derivatives translated into US Dollars were as specified inthe tables below. As at 31 December 2006 NilAs at 31 December 2005 Type of Expiration Underlying Notional Amount of Fair Fair Valuecontract Contracts Value (Liabilities) Outstanding (Assets) US$'000 US$'000 US$'000Futures March 06 Equity 11,327 - 1,586 IndicesForwards March 06 Foreign 4,558 400 - CurrenciesOptions January 06 Equities 2,784 - 852 Notional amounts are the underlying reference amounts to stock exchangedifferences, equities and foreign currencies upon which the fair value of thefutures, forwards and option contracts traded by the Group are based. Whilenotional amounts do not represent the current fair value and are not necessarilyindicative of the future cash flows of the Group's futures, and forwardcontracts, the underlying price changes in relation to the variables specifiedby the notional amounts affect the fair value of these derivative financialinstruments. The following is a summary of amounts included within the income statement inrespect of derivatives: 31 December 2006 31 December 2005 US$'000 US$'000Group Realised loss on derivatives trading inthe year (3,321) (3,873)Unrealised (but recognised) loss onderivatives held at year end - (2,438) The purchase and sale of derivatives are subject to limits established by theBoard. These are monitored on a regular basis and the Group continues to developits statistical techniques for monitoring purposes. There is strict segregation between the investment management and dealsettlement 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. Asat 31 December 2006, the amount of these margin deposits was US$45k (2005:US$4.5m), such deposits being included within other receivables in the balancesheet (note 17). Hedging Details of the nominal and fair values of all contracts as at 31 December 2006are disclosed within note 23. In accordance with IAS39, Financial Instruments:Recognition and Measurement, as these instruments represent cash flow hedges allgains and losses relating to these contracts have been recognised in equityrather than within the income statement for the current year. Market risk The Group is exposed to market risk directly via its investment holdings andindirectly via assets under its management, from which its fee income isderived. As the investments held directly and indirectly are mostly in theemerging European market, there is a concentration of this risk and any generalmovement in this market would have a significant impact on the Group's incomeand the value of the Group's investments. Liquidity risk The Group is exposed to liquidity risk to the extent that it holds significantstakes in certain financial instruments for which no developed market exists.Therefore, the Group might be unable to sell such stakes quickly at close tofair value. This risk is managed by the Group by means of cash flow planning toensure that future cash requirements are anticipated and, where financialinstruments have to be sold to meet these requirements, the process is carriedout in a controlled manner intended to minimize the liquidity risk involved. TheGroup maintains an overdraft facility with its bankers which can be used ifnecessary. Credit risk The majority of debtors arise from fund management and related activities of theGroup. As such the Group is able to determine that the credit risk is minimal inrelation to the majority of its debtors. For other debtors a credit evaluationis undertaken on a case by case basis. To reduce exposure to credit risk arisingfrom non-performance by counterparties in derivative transactions, the Group'spolicy is to transact business through brokers with high credit ratings whereverpracticable. The Group invests available cash and cash equivalents with variousbanks. The Group is exposed to credit-related losses in the event ofnon-performance by counterparties to financial instruments but, given their highcredit ratings, management does not expect any counterparty to fail to meet itsobligations. Interest rate risk The Group is exposed to interest rate risk with regard to holdings in cash andcash equivalents. All cash holdings are at variable rates. The Group does nothave any borrowings. Surplus funds are placed on short term deposit. Foreign currency risk The Group incurs foreign currency risk on investments and expenses denominatedin currencies other than US Dollars. In normal circumstances the Group does notactively hedge these foreign currency risks, except as noted below. Group Company 31 December 31 December 31 December 31 December 2006 2005 2006 2005 US$'000 US$'000 US$'000 US$'000 Currentinvestments- Euros 2,829 1,903 - -- Polish Zloty 373 - - - Cash and cashequivalents- Euros 745 750 95 151- BritishPounds 158 70 29 5 24. Commitments Operating lease commitments during the next twelve months are as follows: 31 December 2006 31 December 2005 US$'000 US$'000-------------------------------- ----------- -----------GroupProperty, expiring:Within 1 year 129 -In the second to fifth years, inclusive 495 126Over five years - 174CompanyLease commitments - --------------------------------- ----------- ----------- 25. Amounts due to and from Subsidiaries The amounts due to and from subsidiaries are unsecured, repayable on demand andbear interest at commercial rates. 26. Critical accounting estimates, and judgement in applying accounting policies The directors considered the development, selection and disclosure of theGroup's critical accounting policies and estimates and the application of thesepolicies and estimates. Estimates and judgements are continually evaluated andare based on historical and other factors, including expectations of futureevents that are believed to be reasonable under the circumstances. Fair value of financial instruments Note 23 contains information about the assumptions and the risk factors relatingto the fair value of financial instruments including derivatives. The fair valueof financial instruments that are not quoted in active market are determined bythe directors by using valuation techniques. Where valuation techniques are used to determine fair values, they are validatedand periodically reviewed by qualified personnel independent of the area thatcreated them. To the extent practical, models use only observable data. Howeverareas such as credit risk, volatilities and correlations require the directorsto make estimates. Changes to the assumptions about these factors could affectreported fair values of financial instruments. 27. Contingent Liabilities The Group has no significant contingent liabilities. Report of the Independent Auditors Report of the Independent Auditors, KPMG Audit LLC, to the shareholders of Charlemagne Capital Limited We have audited the accompanying financial statements of Charlemagne CapitalLtd. ("the Company"), which comprise the Consolidated and Company Balance Sheetsas at December 31, 2006, and the Consolidated Income Statement, ConsolidatedStatement of Recognised Income and Expenses and Consolidated Cash Flow Statementfor the year then ended, and a summary of significant accounting policies andother explanatory notes. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of thesefinancial statements in accordance with International Financial ReportingStandards. This responsibility includes: designing, implementing and maintaininginternal control relevant to the preparation and fair presentation of financialstatements that are free from material misstatements, whether due to fraud orerror; selecting and applying appropriate accounting policies; and makingaccounting estimates that are reasonable in the circumstances. Auditors' Responsibility Our responsibility is to express an opinion on these financial statements basedon our audit. We conducted our audit in accordance with International Standardson Auditing. Those standards require that we comply with relevant ethicalrequirements and plan and perform the audit to obtain reasonable assurancewhether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about theamounts and disclosures in the financial statements. The procedures selecteddepend on our judgment, including the assessment of the risks of materialmisstatement of the financial statements, whether due to fraud or error. Inmaking those risk assessments, we consider internal control relevant to theCompany's preparation and fair presentation of the financial statements in orderto design audit procedures that are appropriate in the circumstances, but notfor the purpose of expressing an opinion on the effectiveness of the Company'sinternal control. An audit also includes evaluating the appropriateness ofaccounting principles used and the reasonableness of accounting estimates madeby management, as well as evaluating the overall presentation of the financialstatements. We believe that the audit evidence we have obtained is sufficient andappropriate to provide a basis for our opinion. Opinion In our opinion, the financial statements present fairly, in all materialrespects, the financial position of the Group and Company as at December 31,2006, and its financial performance and its cash flows for the year then endedin accordance with International Financial Reporting Standards. KPMG Audit LLCChartered AccountantsHeritage Court41 Athol StreetDouglasIsle of ManIM99 1HN 12 March 2007 This announcement is not for publication or distribution to persons in theUnited States of America, its territories or possessions or to any US person(within the meaning of Regulation S of the US Securities Act of 1933, asamended). Neither this announcement nor any copy of it may be taken ortransmitted into Australia, Canada or Japan or to Canadian persons or to anysecurities analyst or other person in any of those jurisdictions. Any failure tocomply with this restriction may constitute a violation of United States,Australian, Canadian or Japanese securities law. The distribution of thisannouncement in other jurisdictions may be restricted by law and persons intowhose possession this announcement comes should inform themselves about andobserve any such restrictions. This announcement contains certain forward-looking statements with respect tothe financial condition, results of operations and businesses of the CharlemagneCapital Group. These statements and forecasts involve risk and uncertaintybecause they relate to events and depend upon circumstances that will occur inthe future. There are a number of factors that could cause actual results ordevelopments to differ materially from those expressed or implied by theseforward-looking statements and forecasts. Nothing in this announcement shouldbe construed as a profit forecast. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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