27th Feb 2008 07:01
Charlemagne Capital Limited27 February 2008 27 February 2008 Charlemagne Capital Limited Audited Results for the year ended 31 December 2007 Charlemagne Capital Limited ("Charlemagne", or the "Group"), the specialistemerging markets equity investment manager, today announces audited results forthe year ended 31 December 2007. Key Highlights • Group Assets under Management ("AuM") up 39.9% to US$6.5bn (2006: US$4.65bn) • Net profit after tax and minority interest up 57.3% to US$58.8m (2006: US$37.4m) • Earnings per share up 62.9% to 20.5 US cents (2006: 12.6 US cents) • Net management fees up 12.9% to US$43.5m (2006: US$38.6m) • Performance fees up 63% to US$83.8m (2006: US$51.4m) • Operating profit margin of 52.7% (2006: 51.5%) • Second interim dividend of 2.4 US cents and second interim special dividend of 10.35 US cents declared • Total dividends of 16.6 US cents paid and declared for 2007 of US$47.0m (2006: US$24.3m) • Share buy backs totalling US$12.7m representing 3.02% of issued shares (2006: US$4.7m, 1.23%) • Launched the Charlemagne Capital Global Emerging Markets Fund • Magna Africa Fund launched, raising US$70m • Naya Bharat Property Company launched, raising US$57m • Capital raising and listing on AIM of European Convergence Development Company, raising US$78m Commenting on the results, Jayne Sutcliffe, Chief Executive said: "Despite the recent instability in global markets, fundamentals in the marketsin which the Group operates remain attractive and we continue to see value in abroad range of investment opportunities. We remain focused on deliveringinvestment out-performance across our product range. We are confident in thestrength of the Group's business model and strategy and its ability to deliverstrong, 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 / Tom Hardman 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 report a record year. 2007 was remarkable for the Group, thesixth such year of positive developments. We enjoyed continued success in keyareas. Assets under Management ("AuM") increased by almost 40% in 2007 to US$6.5billion. This growth was generated by both investment performance and assetflows into existing and new products. Of particular note is the growth of theGroup's institutional business, which was essentially a new operation during2007 and which has already resulted in a number of mandate appointments.We have continued to deliver very satisfactory returns to our clients across arange of strategies. Our disciplined investment process within the emergingmarkets seeks to generate consistent, low risk returns through an active, bottomup, risk aware process. We remain confident that this strategy will continue toproduce superior returns over the long term. Annual management fees increased by 12.9% to US$43.5 million, enhancing theGroup's core earnings. The development of the institutional business, togetherwith the new closed end product initiatives, enhance the balance of the Group'sproduct blend, diversify its revenue streams and reduce the volatility of flowswithin overall AuM. The Group's funds once again generated significantperformance fees of US$83.8 million, up 63% from 2006. Given the turbulentinvestment conditions experienced in the middle part of the year, this is anoutstanding performance. Our basic strategy remains unchanged. We continue to focus on our core globalemerging market specialisation, operating within an asset class which we believeremains highly attractive. Fundamentals in emerging markets remain strong andthe outlook for GDP and earnings growth still remains positive. Valuationscompare favourably with those in developed markets. We also believe that,generally speaking, emerging markets are better placed to withstand recessionarypressures than developed markets. The Group combines the flexibility and enterprise of an entrepreneurial businesswith the organisational structure of an institutional asset manager. In thisway, we aim to provide consistently superior returns to investors and to buildvalue for our shareholders. We also aim to foster a culture and framework whichattracts the talented individuals whose efforts make this possible. As previously stated, it is our intention and policy to declare regulardividends which reflect the long term earnings and cash flow potential of theGroup. This includes managing our capital structure by returning surplus profitsfrom performance fees to shareholders through special dividends and buying backof the Company's shares. Shareholders have already received total dividends ofUS$11.0 million in respect of the first interim distribution for 2007 (2006:US$10.9 million). A further amount of US$35.9 million is now being declared inrespect of the second interim distribution for 2007 (2006:US$13.4 million).Additionally the Company has bought back shares for cancellation in the amountof US$12.7 million (2006: US$4.7 million). These distributions total US$59.6million (2006: US$29.0 million). The overall outlook for 2008 depends, as always, on market movements. However,the Group's strong reputation, track record and pipeline of new business,together with an underlying confidence in the continued growth in the keymarkets in which we invest, results in the Group being well positioned to growits business further this year. Finally I wish to thank Charlemagne Capital's staff for their efforts. Theirhard work, motivation, skill and commitment are essential to the Group'sdevelopment. The team has successfully managed the firm through yet another yearof change and growth. All shareholders will, I am sure, join me in beinggrateful for their contribution. Michael Baer26 February 2008 Financial and Operating Review Financial Results The results for the year ended 31 December 2007 demonstrate the continued growthand progress towards delivering the strategic objectives of the Group.Charlemagne has delivered growth in revenues, operating profit and earnings pershare. AuM at 2 January 2008 were US$6.5 billion, an increase of 39.9% over the prioryear (2006: US$4.65 billion). Net subscriptions were US$387 million, reflectingstrong inflows from new institutional mandates as well as steady inflows to theMagna and OCCO funds, especially in the second half of the year. AuM are theprime driver of the Group's recurring profits. Revenues from net management fees in the period increased significantly and were12.9% higher than the prior year at US$43.5 million (2006: US$38.6 million). TheGroup's net management fee margin averaged 82 basis points ("bps") for the year(2006: 83 bps). The funds managed and advised by the Group continue to deliver strongperformance and this was reflected in the crystallised performance fees ofUS$83.8 million (2006: US$51.4 million) during the year. Operating expenses rose to US$63.3 million from US$44.2 million with themajority of the increase reflecting the rise in profit related staff performanceawards earned during the year. The Directors do not believe that the portionrelating to non-performance related elements will rise materially in futureyears unless there is a significant increase in AuM. The Group's operatingprofit margin for the year was 52.7% (2006: 51.5%). It is expected that theoperating margin will remain relatively stable given the Group's bonusstructure. Operating earnings before taxation and non-recurring items, were US$70.6 millionin 2007 substantially higher than the US$46.9 million earned in 2006, reflectingboth the rise in AuM during the year and the additional performance fees earned. Profit, after taxation provisions of US$11.9 million, was US$58.8 million during2007 compared with US$37.4 million in 2006, again reflecting the net effect ofthe same factors. Operating earnings per share rose by 56% to 24.7 US cents (2006: 15.8 US cents).The operating earnings per share calculation has been arrived at before taxationand non-recurring forms of income and expenditure as we believe that this betterreflects the underlying profitability of the business. After taxation and otherincome and expenditure, earnings per share attributable to shareholders were20.5 US cents per share (2006: 12.6 US cents per share) on a fully dilutedbasis. 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 2007 were US$57.6 million compared to US$33.8million at the beginning of the year, reflecting the fact that the Group spentUS$12.7 million in repurchasing shares for cancellation and paid a furtherUS$24.4 million in dividends during the year, with movements in reservesaccounting for the remainder. A first interim ordinary dividend of 2.2 US cents per share was declaredtogether with a first interim special dividend of 1.65 US cents and both werepaid on 12 October 2007. A second interim ordinary dividend of 2.4 US cents,together with a second interim special dividend of 10.35 US cents, has beendeclared by directors and will be paid on 4 April 2008 at a total cost ofUS$35.9 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 slightly negative in the firsthalf of the year, but turned positive in the second half to reach a net inflowof US$263 million for the full year (after allowing for planned restructures ofUS$124 million). This comprises flows into existing and new products, whichincluded the launch of a new Magna Africa Fund, the Naya Bharat AIM listedcompany, the secondary placing of European Convergence Development Company plcand the launch of the institutional pooled vehicle, Charlemagne Capital GlobalEmerging Markets Fund, as detailed below. During the year, we were appointed toa number of new mandates from institutional managers around the world who arelooking to utilise the Group's acknowledged expertise in certain sectors of theemerging market universe. Increases in Group AuM will continue to be sought from an expansion of existingproducts and strategies, taking into account investment performance, continuedflows into our Magna and OCCO products, further private equity and structuredproducts, and an expansion of our institutional business to a wider audience toinclude pension fund investors. During the year, the Charlemagne stable of funds delivered significant absoluteinvestment growth and each product category experienced strong performancegrowth. Magna In March 2007 the Magna EMEA sub-fund was relaunched as the Magna Africasub-fund. We have been pleased with the performance of the product range andevery sub-fund produced performance fees in the year ending December 2007. Atthe end of 2007, there were nine sub-funds within the Magna Umbrella Fund with atotal AuM of US$1.65 billion (2006: US$1.26 billion). OCCO All four funds produced positive returns during the year and contributedperformance fees. We continue to believe that the OCCO funds have the ability toproduce positive returns uncorrelated to the performance of the associatedmarkets and we will continue to look to improve the overall offer. At the end of2007, the four funds had a total AuM of US$473 million (2006: US$333 million). Specialist During the year, one new product was added to the category, being Naya BharatProperty Company plc. This is a closed end, AIM listed investment vehiclespecialising in Indian stocks, especially those focusing on property.Additionally European Convergence Development Company plc, which was launched inJune 2006, was listed on AIM in the second quarter of the year contemporaneouswith a secondary placing. Towards the end of the year a planned realisation ofinvestments by European Convergence Property Corporation plc ("ECPC"), led to anasset restructure of US$89 million. Further to this assets realisation ECPCreturned US$87 million to investors in the early part of 2008. During the year,two of the funds in the category contributed performance fees. At the end of2007, Specialist funds had a total AuM of US$562 million (2006: US$472 million). Institutional - White Label The institutional category has been sub-categorised for this year in order toshow white label advisory relationships and third party institutional mandatesseparately. During the year, all of the four institutional white label accountswith performance fee criteria generated performance fees. At the end of the yearthe six white label advisory funds had a total AuM of US$2.66 billion (2006:US$2.26 million). Institutional - Mandates This new sub-category contains a number of individual mandates together with arange of products tailored to the needs of institutions. A significant number ofnew mandates together with investment growth across the range saw AuM riseduring the year from US$326 million to US$1.15 billion. Consolidated Income StatementExpressed in United States Dollars Notes Year ended Year ended 31 December 31 December 2007 2006 US$'000 US$'000 -------------------------- ------- ------------ ------------ Revenue 2 133,902 91,167 ExpensesPersonnel expenses 3 (56,069) (39,192)Other costs (7,232) (5,041)-------------------------- ------- ------------ ------------ Operating Profit 5 70,601 46,934Share of profit of jointlycontrolled 14 195 -entityListing costs 7 - (3,540) -------------------------- ------- ------------ ------------Profit before tax 70,796 43,394 Taxation 8 (11,933) (6,003)-------------------------- ------- ------------ ------------ Profit after tax 58,863 37,391Minority Interest 13 (104) (29) -------------------------- ------- ------------ ------------Profit after tax and MinorityInterest 58,759 37,362 Dividends 10 (24,362) (17,473)-------------------------- ------- ------------ ------------ Retained earnings for the year 34,397 19,889-------------------------- ------- ------------ ------------ US$ US$Earnings per shareBasic 11 0.205279 0.126031-------------------------- ------- ------------ ------------Diluted 11 0.205279 0.126031-------------------------- ------- ------------ ------------ The directors believe that all results derive from continuing activities. Consolidated Statement of Recognised Income and Expense Expressed in United States Notes Year ended Year endedDollars 31 December 31 December 2007 2006 US$'000 US$'000 -------------------------- ------- ------------ ------------ Movements in exchange differencesonthe translationof the financialstatements of entities notaccounted 21 1,310 (74)forin United States DollarsDecrease in fair value of cashflowhedge 21 - (400)-------------------------- ------- ------------ ------------Net income / (expense) for the yearrecognised directly in equity 1,310 (474)-------------------------- ------- ------------ ------------Net profit for the year 58,863 37,391-------------------------- ------- ------------ ------------Total recognised income for the 60,173 36,917year ------- ------------ -------------------------------------- Attributable to:Equity holders of the Company 60,069 36,888Minority Interest 104 29-------------------------- ------- ------------ ------------Total recognised income for the 60,173 36,917year ------- ------------ -------------------------------------- Consolidated Balance SheetExpressed in United States Dollars Notes As at As at 31 December 31 December 2007 2006 US$'000 US$'000 -------------------------- ------- ------------ ------------ Non-current assetsProperty and equipment 12 1,282 470Interest in jointly controlled 14 220 25entity ------- ------------ -------------------------------------- Total non-current assets 1,502 495-------------------------- ------- ------------ ------------ Current assetsCurrent investments 15 8,975 4,671Receivables 17 81,429 43,205Cash and cash equivalents 18 33,168 15,479-------------------------- ------- ------------ ------------Total current assets 123,572 63,355-------------------------- ------- ------------ ------------ Total assets 125,074 63,850-------------------------- ------- ------------ ------------ Issued share capital 20 2,853 2,941Reserves 54,624 30,906-------------------------- ------- ------------ ------------Shareholders' equity 21 57,477 33,847Minority Interest 13 133 29-------------------------- ------- ------------ ------------Total equity 57,610 33,876-------------------------- ------- ------------ ------------ Current liabilitiesAccounts payable, accruals and otherpayables 19 57,752 27,843Taxation 9,712 2,131-------------------------- ------- ------------ ------------Total current liabilities 67,464 29,974-------------------------- ------- ------------ ------------ Total equity and liabilities 125,074 63,850-------------------------- ------- ------------ ------------ Approved by the Board of Directors on 26 February 2008. Anderson Whamond David McMahon Director Director Consolidated Cash Flow StatementExpressed in United States Dollars Notes Year ended Year ended 31 December 31 December 2007 2006 US$'000 US$'000 Operating Profit 70,601 46,934Adjustments for:Depreciation 5 406 207Exchange loss/(gain) on property andequipment 5 (43)Provision for unrealised (gain)/losson foreign exchangecontracts andinvestments 5 (1,459) 4,615Foreign currency transactionadjustment 1,310 (74)Profit on disposal of investments 5 (745) (2,425)Share based incentive scheme - (6,280)(increase)/decrease/in receivables (38,224) 29,977Increase/(decrease) in accountspayable, accruals and other payables 29,909 (12,682)Tax paid (4,145) (9,293)-------------------------- ------- ------------ ------------ Net cash from operating activities 57,658 50,936-------------------------- ------- ------------ ------------ Investing activitiesDistribution received from jointlycontrolled entity - 4,558Proceeds from sale of investments 2,666 15,151Purchase of investments (4,374) (2,567)Purchase of property and equipment 12 (1,223) (221)-------------------------- ------- ------------ ------------Net cash used in investing (2,931) 16,921activities ------- ------------ -------------------------------------- Financing activitiesShares repurchased 21 (12,676) (48,157)Listing cost - (3,540)Shares issued 21 - 6,280Dividends paid 10 (24,362) (17,473)-------------------------- ------- ------------ ------------Net cash flows used in financingactivities (37,038) (62,890)-------------------------- ------- ------------ ------------ Net increase in cash and cashequivalents 17,689 4,967 Cash and cash equivalents at thebeginning of the year 18 15,479 10,512-------------------------- ------- ------------ ------------ Cash and cash equivalents at the endof the year 18 33,168 15,479-------------------------- ------- ------------ ------------ Company Balance SheetExpressed in United States Dollars Notes As at As at 31 December 31 December 2007 2006 US$'000 US$'000 -------------------------- ------- ------------ ------------ Non-current assetsInterests in subsidiaries 13 2,785 2,785Interest in jointly controlled 14 220 25entity ------- ------------ -------------------------------------- Total non-current assets 3,005 2,810-------------------------- ------- ------------ ------------ Current assetsReceivables 17 64 262Due from subsidiaries 25 30,400 23,441Cash and cash equivalents 18 170 972-------------------------- ------- ------------ ------------Total current assets 30,634 24,675-------------------------- ------- ------------ ------------ Total assets 33,639 27,485-------------------------- ------- ------------ ------------ Issued share capital 20 2,853 2,941Reserves 21 8,377 204-------------------------- ------- ------------ ------------Shareholders' equity 21 11,230 3,145-------------------------- ------- ------------ ------------ Current liabilitiesAccounts payable, accruals and otherpayables 135 156Due to subsidiaries 25 22,274 24,184-------------------------- ------- ------------ ------------ 22,409 24,340 -------------------------- ------- ------------ ------------ Total equity and liabilities 33,639 27,485-------------------------- ------- ------------ ------------ Approved by the Board of Directors on 26 February 2008. Anderson Whamond David McMahon Director Director 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 December2007 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 26 February 2008. 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"). In preparing these consolidated financial statements, the Group hasadopted IFRS 7 Financial Instruments: Disclosures and IAS 1 Presentation ofFinancial Statements - Capital Disclosures. The adoption of IFRS 7 and theamendment to IAS 1 impacted the type and amount of disclosures made in thesefinancial statements, but had no impact on the reported profits or financialposition of the Group. In accordance with the transitional requirements of thestandards, the Group has provided full comparative information. 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 profit or loss including derivative financial instruments.Recognised assets and liabilities that are hedged are stated at fair value inrespect 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 and presentational currency ofthe financial statements is US Dollars and not Cayman Islands Dollars reflectingthe fact that the transactions are denominated in US Dollars. The preparation of financial statements in conformity with IFRS 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, uncertaintyand critical judgements in applying accounting policies that have the mostsignificant effect on the amount recognised in the financial statements aredescribed in note 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, and are accounted forusing the equity accounting method in the consolidated financial statements. Theinterest in jointly controlled entities is accounted for in the Company'sbalance sheet as a financial asset at fair value through profit or loss inaccordance with IAS 39. In the absence of a quoted market price for the jointlycontrolled entity, share of net assets is considered to approximate fair value. Notes to the Financial Statements (continued) 1. Significant Accounting Policies (continued) Basis of Consolidation (continued) 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 companies Certain 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 2007. 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 including forward exchangecontracts to manage its exposure to foreign exchange, interest rate and equitymarket risks arising from operational, financing and investment activities andfor trading 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 hedge 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. Notes to the Financial Statements (continued) 1. Significant Accounting Policies (continued) Derivative Financial Instruments (continued) Cash flow hedges (continued) 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 yearsComputer equipment 3 yearsOther equipment 4 years Depreciation methods, useful lives and residual values are reviewed at eachreporting date. Investments Classification An instrument is classified at fair value through profit or loss if it is heldfor trading or is designated as such upon initial recognition. Financialinstruments are designated at fair value through profit or loss if the Groupmanages such investments and makes purchase and sale decisions based on theirfair value in accordance with the Group's risk management or investmentstrategy. Upon initial recognition attributable transaction costs are recognisedin profit or loss when incurred. Financial instruments at fair value throughprofit or loss are measured at fair value, and changes therein are recognised inprofit or loss. All investments are designated at fair value through profit orloss, except for derivative financial instruments which are classified as heldfor trading. Recognition and derecognition The Group recognises financial assets at fair value through profit or loss onthe 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. Notes to the Financial Statements (continued) 1. Significant Accounting Policies (continued) Investments (continued) Gains and losses on subsequent measurementGains 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 cancelled shares andpresented as a deduction from total equity. Treasury shares Shares issued to the Charlemagne 2005 Employee Benefit Trust (note 22) areaccounted for as treasury shares within equity (see nore 21). Dividends Dividends are recognised as a liability in the year in which they are declaredand approved. Notes to the Financial Statements (continued) 1. Significant Accounting Policies (continued) 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 an accruals 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 employees' 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 expected to 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. Notes to the Financial Statements (continued) Income Tax (continued) 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 the substance of any settlementis 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 profit or loss in accordance withIAS 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 2007 31 December 2006 US$'000 US$'000 --------------------------------- ----------- -----------Fund management and related fees, net ofrebates 43,526 38,557Performance fees 83,775 51,403Investment income on assets designatedat fair value through profit or loss 2,563 4,211Investment income on assets held fortrading 343 (3,321)Other income 3,695 317--------------------------------- ----------- ----------- 133,902 91,167 ----------- ----------- 3. Personnel Expenses Year ended Year ended 31 December 2007 31 December 2006 US$'000 US$'000 ------------------------------ ----------- -------------Salaries 8,594 6,644Performance Related Bonuses 19,656 18,947Contributions to Employee Benefit Trust 23,072 10,614Pension Contributions 960 212Compulsory social security contributions 3,787 2,775------------------------------ ----------- ------------- 56,069 39,192 ----------- ------------- Year ended Year endedDirectors' Emoluments 31 December 2007 31 December 2006 US$'000 US$'000 ------------------------------ ----------- -------------Fees 278 244Salaries 1,276 1,153Performance Related Bonuses 1,880 1,191Pension Contributions 800 100------------------------------ ----------- ------------- 4,234 2,688 ----------- ------------- Notes to the Financial Statements (continued) 3. Personnel Expenses (continued) The number of employees of the Group as at the end of the year was 67 (2006:60)full time equivalent. 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. In 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 2007, the Directors ofCharlemagne Capital Services Limited ("CCSL"), the Group's global employmentcompany, have recommended to the Trustee that the sum of US$10.3m (2006:US$8.4m) 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$2.15 million (2006: US$1.29million). 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 officersAs at 31 December 2007, Directors of the Company and their immediate interestscontrolled 38% (2006: 36%) 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$146,899 (2006: US$136,750) was paid to Burnbrae Ltd, a company where ultimate ownership is connected with James Mellon, a director of Charlemagne Capital Limited, for rental of property. Anderson Whamond was a Director of Burnbrae Ltd during 2007.b. Over 74% (2006: 75%) of the turnover from investment management, administration, performance incentive fees, advisory fees and commissions is derived from funds over which the Directors consider the Group has influence by virtue of its management, administration and advisory roles.c. Certain Directors have shareholdings in certain funds managed by Charlemagne Capital Group companies. Notes to the Financial Statements (continued) 5. Profit from Operations The Group's profit from operations was arrived Year ended Year endedat:- 31 December 31 December 2007 2006 US$'000 US$'000 ----------------------------- ------------ -------------After charging and (crediting): Revenue ItemsRealised profit on disposal of currentinvestments (745) (2,425)Unrealised (profit)/loss on currentinvestments (1,459) 4,615Interest income (1,745) (1,456)Net foreign exchange gain net (153) (1,634) Expense ItemsDepreciation 406 207Auditors' remuneration 195 181Operating lease rental on property 611 315----------------------------- ------------ ------------- 6. Segment Reporting Year to 31December2007 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 Magna OCCO Institutional Institutional Specialist Other Total White Labels MandatesNetManagement 13,573 5,626 12,749 4,898 6,680 - 43,526FeesNetPerformanceFees 43,850 16,389 7,976 10,474 5,086 - 83,775Return onInvestment - - - - - 2,906 2,906Other - - - - 3,305 585 3,890Income ------- ------- -------- -------- ------- ------- -------SegmentRevenue 57,423 22,015 20,725 15,372 15,071 3,491 134,097 ------- ------- -------- -------- ------- ------- ------- Segment 36,642 14,068 14,330 10,233 10,390 3,491 89,154ResultUnallocatedExpenses 18,358 -------ResultsfromOperating 70,796Activities ------- Year to 31December2006 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 Magna OCCO Institutional Institutional Specialist Other Total White Labels MandatesNetManagement 11,308 4,893 12,754 1,783 7,819 - 38,557FeesNetPerformanceFees 24,449 5,010 3,548 1,161 17,235 - 51,403Return onInvestment - - - - (3,321) 4,211 890Other - - - - - 317 317Income ------- ------- -------- -------- ------- ------- -------SegmentRevenue 35,757 9,903 16,302 2,944 23,733 4,528 91,167 ------- ------- -------- -------- ------- ------- ------- Segment 22,590 6,306 11,492 2,082 13,853 4,528 60,850ResultUnallocatedExpenses (13,916) -------ResultsfromOperating 46,934Activities ------- Notes to the Financial Statements (continued) 6. Segment Reporting (continued) IFRS 8 Operating Segments introduces the "management approach" to segmentreporting. IFRS 8, which becomes mandatory for the Group's 2009 financialstatements, will require the disclosure of segment information based on theinternal reports regularly reviewed by the Group's Chief Operating DecisionMaker in order to assess each segment's performance and to allocate resources tothem. Currently the Group presents segment information in respect of itsbusiness segments. Management believe that the information currently presentedis consistent with information reviewed by management and therefore nosignificant changes will result from adoption of IFRS8. 7. Listing costs The Company was admitted to the AIM market of the London Stock Exchange on 4April 2006. Total costs related to listing amounted to US$3.5m. 8. TaxationRecognised in the income statement Year ended Year ended 31 December 2007 31 December 2006 US$'000 US$'000 ----------------------------- ------------- -------------Current tax expense:Current year 8,494 5,841Underprovided in prior years 3,439 162----------------------------- ------------- -------------Total income tax expense in incomestatement 11,933 6,003----------------------------- ------------- ------------- Reconciliation of effective tax rate Year ended Year ended 31 December 2007 31 December 2006 US$'000 US$'000 ----------------------------- ------------- -------------Profit before tax 70,796 43,394----------------------------- ------------- -------------Income tax using the domesticcorporation tax rate 0% - 0% -Effect of different tax rates in foreignjurisdictions 12.00% 8,494 13.46% 5,841Underprovided in prior years 4.86% 3,439 0.37% 162----------------------------- -------- ------- -------- ------- 16.86% 11,933 13.83% 6,003 ----------------------------- -------- ------- -------- ------- 9. Profit Attributable to ShareholdersThe net profit attributable to shareholders reflected in the financialstatements of the Company itself amounts to US$45.12m (2006: US$37.63m). Notes to the Financial Statements (continued)10. Dividends Year ended Year ended 31 December 2007 31 December 2006 US$'000 US$'000 ----------------------------- ------------- ------------- Dividends per share of 8.45 US cents(2006: 5.75 US cents) 24,362 17,473----------------------------- ------------- ------------- A second interim dividend of 2.2 US cents (GB 1.1405p) per ordinary share and asecond interim special divdend of 2.4 US cents (GB 1.2442p) in respect of theyear ended 31 December 2006 was paid on 24 April 2007 to those shareholders onthe register on 24 March 2007 and distributed from retained earnings in 2007.An interim ordinary dividend of 2.2 US cents (GB 1.0967p) per ordinary share andan interim special dividend of 1.65 US cents (GB 0.8225p) per ordinary share waspaid on 12 October 2007 to those shareholders on the register on 14 September2007 and distributed from retained earnings in 2007. A second interim ordinary dividend of 2.4 US cents (GB 1.2179p) per ordinaryshare and a second interim special dividend of US 10.35 cents (GB 5.2522p) perordinary share in respect of the year ended 31 December 2007 will be paid on 4April 2008 to those shareholders on the register on 7 March 2008 and will bedistributed from retained earnings in 2008. 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$58.76m (2006: US$37.36m)and the weighted average number of shares of 286,239,590 (2006: 296,449,830) inissue during the year. The calculation of diluted earnings per share of the Group is the same as basicearnings per share as the share options outstanding have been issued contingentupon specified performance conditions being satisfied. As at 31 December 2007these performance conditions had not been met. Shares issued during the year ended 31 December 2006 to Sanne Trust CompanyLimited (note 22) have been excluded from the earnings per share calculation assuch shares are currently accounted for as treasury shares. Notes to the Financial Statements (continued) 12. Property and equipment Group Furniture and Computer and Other Fixtures Equipment TotalCost: US$'000 US$'000 US$'000At 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-------------------------- --------- ------------ ---------At 1 January 2007 678 1,727 2,405Acquisitions 947 276 1,223Disposals (421) (720) (1,141)Exchange adjustment 4 30 34-------------------------- --------- ------------ ---------At 31 December 2007 1,208 1,313 2,521-------------------------- --------- ------------ --------- Depreciation and impairment: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-------------------------- --------- ------------ ---------At 1 January 2007 626 1,309 1,935Provided during the year 146 260 406Disposals (421) (716) (1,137)Exchange adjustment 12 23 35-------------------------- --------- ------------ ---------At 31 December 2007 363 876 1,239-------------------------- --------- ------------ --------- -------------------------- --------- ------------ ---------Carrying amounts:At 1 January 2006 57 356 413-------------------------- --------- ------------ ---------At 31 December 2006 52 418 470-------------------------- --------- ------------ ---------At 1 January 2007 52 418 470-------------------------- --------- ------------ ---------At 31 December 2007 845 437 1,282-------------------------- --------- ------------ --------- There was no property and equipment in the Company. 13. Interests in Subsidiaries Company US$'000CostAt 1 January 2006 4,027------------------------------------------- ---------At 31 December 2006 4,027------------------------------------------- ---------At 1 January 2007 4,027------------------------------------------- ---------At 31 December 2007 4,027------------------------------------------- ---------ImpairmentAt 1 January 2006 1,242------------------------------------------- ---------At 31 December 2006 1,242------------------------------------------- ---------At 1 January 2007 1,242------------------------------------------- ---------At 31 December 2007 1,242------------------------------------------- --------- Notes to the Financial Statements (continued) 13. Interests in Subsidiaries (continued) US$'000 ------------------------------------------- ---------Carrying Amount------------------------------------------- ---------At 31 December 2006 2,785------------------------------------------- ---------At 31 December 2007 2,785------------------------------------------- --------- Balances with subsidiaries are included within current assets and currentliabilities within the parent company balance sheet.Particulars of the principal subsidiaries of the Company at 31 December 2007 areas follows: Name Place of Issued and Fully Percentage of Equity Principal Incorporation/ Paid Share Interest Attributable Activities Operation Capital to the Company Direct Indirect Charlemagne Capital(IOM) Limited Isle of Man Ordinary 100% - Investment GBP20,000 Management Charlemagne Capital(UK) Limited United Ordinary 100% - Investment Kingdom GBP100 Advice and Marketing Charlemagne Capital(Investments)Limited Isle of Man Ordinary 100% - Investment and GBP1 Investment Research Charlemagne Capital(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 2007 31 December 2006 US$'000 US$'000 ------------------------------- ------------ ----------- Share of net assets 220 25------------------------------- ------------ ----------- The Group has a 12.86% (2006: 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. Notes to the Financial Statements (continued) 15. Investments 31 December 31 December 2007 2006 US$'000 US$'000 -------------------------------- ----------- -----------Group Current investments - at fair value throughprofit or lossEquity securities held for trading 1,816 2,821Equity securities held for deferredbonus payments 7,159 1,850-------------------------------- ----------- ----------- 8,975 4,671 -------------------------------- ----------- ----------- There were no investments held by the Company. 16. Deferred Taxation There is an unrecognised deferred taxation liability of US$9k (2006:unrecognised asset of US$13k) representing the tax effect of depreciation inexcess of capital allowances. 17. Receivables Group Company 31 December 31 December 31 December 31 December 2007 2006 2007 2006 US$'000 US$'000 US$'000 US$'000 ---------------------- --------- --------- --------- ---------Trade receivables 77,517 42,021 - -Amount due fromjointly controlledentity - 8 - 8Other receivables 3,230 679 41 217Prepayments 682 497 23 37---------------------- --------- --------- --------- --------- 81,429 43,205 64 262 ---------------------- --------- --------- --------- --------- As at 31 December 2007 margin deposits of nil (2006:US$45k) were held by theGroup in respect of their normal trading in currencies, futures and options(note 23). 18. Cash and Cash Equivalents Group Company 31 December 31 December 31 December 31 December 2007 2006 2007 2006 US$'000 US$'000 US$'000 US$'000 ---------------------- --------- --------- --------- ---------Bank balances 563 174 170 148Call deposits 267 637 - -Term deposits 32,338 14,668 - 824---------------------- --------- --------- --------- ---------Cash and cashequivalents 33,168 15,479 170 972---------------------- --------- --------- --------- --------- 19. Accounts Payable, Accruals and Other Payables Group Company 31 December 31 December 31 December 31 December 2007 2006 2007 2006 US$'000 US$'000 US$'000 US$'000 ---------------------- --------- --------- --------- ---------Provision forperformance awards 34,851 13,482 - -Accruals and otherpayables 22,901 14,361 135 156---------------------- --------- --------- --------- --------- 57,752 27,843 135 156 ---------------------- --------- --------- --------- --------- Notes to the Financial Statements (continued)20. Issued Share Capital Shares 31 December 31 December 2007 2006 US$'000 US$'000 ------------------------------------ --------- ---------Authorised 2,000,000,000 ordinary shares of US$0.01 each 20,000 20,000------------------------------------ --------- --------- Issued and fully paidAt beginning of year 294,061,772 (2006: 326,988,423) ordinary shares of US$0.01 each 2,941 3,270Shares issued nil; (2006: 3,422,185) - 34Shares repurchased; 8,787,599 (2006: 36,348,836) (88) (363)------------------------------------ --------- ---------At end of year; 285,274,173 (2006: 294,061,772)fully paid 2,853 2,941------------------------------------ --------- --------- During the year ended 31 December 2007, the Company repurchased 8,787,599 of itsown shares at market value for cancellation. As at the date of signing the financial statements there were 285,274,173ordinary shares of US$0.01 each issued and fully paid. 21. Shareholders' Equity 2007 Share Share Retained Treasury Share Foreign Total Capital Premium Earnings Shares Option Currency Reserve Exchange Reserve US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000-------------- ------- -------- ------- ------- -------- -------- ------GroupAt 1 January2007 2,941 6,520 28,917 (6,280) 458 1,291 33,847Sharesrepurchased (88) - (12,588) - - - (12,676)Foreigncurrencytranslationadjustment - - - - - 1,310 1,310Share basedoption plans - - - - 599 - 599Profit for theyear - - 58,759 - - 58,759Dividends - - (24,362) - - - (24,362)-------------- ------- -------- ------- ------- -------- -------- ------At 31 December2007 2,853 6,520 50,726 (6,280) 1,057 2,601 57,477-------------- ------- -------- ------- ------- -------- -------- ------ 2007 Share Share Retained Foreign Total Capital Premium Earnings Currency Exchange Reserve US$'000 US$'000 US$'000 US$'000 US$'000---------------------- -------- -------- -------- -------- --------CompanyAt 1 January 2007 2,941 6,520 (6,297) (19) 3,145Shares repurchased (88) - (12,588) - (12,676)Profit for the year - - 45,123 - 45,123Dividends - - (24,362) - (24,362)---------------------- -------- -------- -------- -------- --------At 31 December 2007 2,853 6,520 1,876 (19) 11,230---------------------- -------- -------- -------- -------- -------- Notes to the Financial Statements (continued) 21. Shareholders' Equity (continued) 2006 Share Share Retained Treasury Share Foreign Total Capital Premium Earnings Shares Option Currency Reserve Exchange Reserve US$'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 34 6,246 - (6,280) 458 - 458issuedForeigncurrencytranslationadjustment - - - - - (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---------------------- -------- -------- -------- -------- -------- 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 2007 was transferred toretained earnings. Notes to the Financial Statements (continued) 22. Share Based Incentive Plans Equity Settled The Group has established several share based incentive programmes that entitlecertain employees to acquire shares in the Company subject to the vestingconditions set out below at an exercise price that was set at the date of grant. The fair value of options granted is recognised as an employee expense with 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 are expected to vest. Grant Date Number of Vesting Conditions Contractual------------- shares ----------------------- life of --------- Options -----------27 March 1,013,578 Equal parts vesting over three, four and 7 Years2006 five years service plus achievement of 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 7 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 targets13 March 134,851 Equal parts vesting over three, four and 7 Years2007 --------- five years service plus achievement of ------------------------ EPS performance targets -----------------------Total ShareOptions 1,940,060------------- --------- ----------------------- ----------- The number and weighted average exercise price of outstanding share options isas follows: Weighted average exercise price Number of OptionsOutstanding at beginningof period GBP0.40 1,742,959Granted during theperiod GBP0.75 134,851Forfeited during theperiod GBP0.04 335,063---------------------- ---------------- ----------------Outstanding at the endof the period GBP0.46 1,542,747---------------------- ---------------- ---------------- The options outstanding at 31 December 2007 have an exercise price betweenGBPNil and GBP1.05 and a weighted average contractual life of 5.85 years.Outstanding share options are contingent upon specified performance and servicecriteria being satisfied. As at 31 December 2007 some of the performancecriteria had been achieved however, as none of the service criteria have yetbeen met, none of the options are exercisable at this time. The weighted average fair value of the options issued during the period wasGBP0.21 (2006: GBP0.79) Notes to the Financial Statements (continued) 22. Share Based Incentive Plans (continued) 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 model the early exercise behaviour. Thecontractual life of the options, 7-10 years, is used as an input to this model. ------------------ ------- ------- ------- --------- --------- -------Fair value of share 27 March 27 March 8 May 21 21 13 Marchoptions and 2006 2006 November November 2007assumptions 2006 2006 EPS AUM 2006 EPS AUM EPS Targets Targets AUM Targets Targets Targets ------------------ ------- ------- Targets --------- --------- ------- -------Fair value atmeasurementdate (GBP) 0.86 0.38 0.39 0.20 0.20 0.21Share price atgrant date(GBP) 1.05 1.05 1.035 0.705 0.705 0.7475Exercise price(GBP) Nil 1.05 1.035 0.705 0.705 0.7475Expectedvolatility (%p.a.) 50.0 50.0 50.0 40.0 40.0 40.0Option life(years) 7 7 10 7 10 7Assumeddividend yield(% p.a.) 5.0 5.0 5.0 5.0 5.0 5.0Risk-freeinterest rate(% p.a.) 4.4 4.4 4.9 4.8 4.8 5.0 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 was estimated at around 50% which wascomparable to that of its competitors over a longer period. For those optionslisted substantially after listing the share price volatility has been assumedto be 40% relating the average volatility between listing and the grant date. 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$4,563,279 as at 31 December 2007, based on the market price as at thatdate, after adjusting for the waiver of dividend rights at an assumed dividendyield of 5%. The fair value of the future cash settlement is spread over the vesting period,and recognised as an expense in the accounts with a corresponding increase inliabilities. The fair value is re-measured at each reporting date, with anyadjustment in the cumulative fair value being recognised in the reportingperiod. Expenses in respect of share based incentive plans The following amounts have been charged as an expense within these financialstatements ---------------------------- ------------- -------------- Year to Year to 31 December 2007 31 December 2006 US$ US$ ---------------------------- ------------- --------------Equity settled incentive plans 599,114 457,697Amount relating to cash-settledtransaction liabilities 940,258 1,006,775---------------------------- ------------- --------------Total expense recognised as employeecosts 1,539,372 1,464,472---------------------------- ------------- -------------- As at 31 December 2007, total liabilities in respect of cash-settled share-basedincentive plans were US$1,947,033 (2006: US$1,006,775). No liabilities had vested by the end of the period. Notes to the Financial Statements (continued) 23. Financial Instruments and Concentration Risk Financial assets of the Group include cash and cash equivalents, investments andother receivables. Financial liabilities include accruals and other payables.The carrying amounts of these other assets approximate their fair values.The Group's trading in derivatives is partly for hedging purposes, and partlyfor speculative investment. Where hedging is involved, the policy is fully orpartly to match positions held in other assets. Speculative investment iscarefully used, in accordance with parameters set by the Board, in short termsituations where physical assets are inappropriate. Derivatives refer to financial contracts whose value depends on the face valueof one or more underlying assets or indices. At 31 December 2007 and 2006 theGroup did not hold any derivatives. Notional amounts are the underlying reference amounts to stock exchangedifferences, equities and foreign currencies upon which the fair value of thefutures, forwards and option contracts traded by the Group are based. Whilenotional amounts do not represent the current fair value and are not necessarilyindicative of the future cash flows of the Group's futures, and forwardcontracts, the underlying price changes in relation to the variables specifiedby the notional amounts affect the fair value of these derivative financialinstruments. The following is a summary of amounts included recognised in profit or loss inrespect of derivatives: 31 December 2007 31 December 2006 US$'000 US$'000 ------------------------------ ------------- ------------Group Realised gain / (loss) on derivativestrading in the year 343 (3,321) 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 2007, the amount of these margin deposits was nil (2006: US$45k),such deposits being included within other receivables in the balance sheet (note17). Hedging Details of the nominal and fair values of all contracts as at 31 December 2007are disclosed earlier in this note. In accordance with IAS39, FinancialInstruments: Recognition and Measurement, as these instruments represent cashflow hedges all gains and losses relating to these contracts have beenrecognised in equity rather than within the income statement for the currentyear. Notes to the Financial Statements (continued) 23. Financial Instruments and Concentration Risk (continued) Liquidity risk The Group is exposed to liquidity risk to the extent that it holds stakes incertain financial instruments for which no developed market exists. Therefore,the Group might be unable to sell such stakes quickly at close to fair value.This risk is managed by the Group by means of cash flow planning to ensure thatfuture cash requirements are anticipated and, where financial instruments haveto be sold to meet these requirements, the process is carried out in acontrolled manner intended to minimize the liquidity risk involved. The Groupmaintains an overdraft facility with its bankers which can be used if necessary.Residual contractual maturities of financial liabilities: As at 31 December Falling due: Falling due: Falling due:2007 less than 1 Between 1-3 more than 3 Month Months Months US$'000 US$'000 US$'000 --------------------- ----------- ------------ -----------Trade Payables 15,228 - -Performancerelated awards - 23,744 18,270Other 8,556 - 1,665--------------------- ----------- ------------ ----------- Total 23,784 23,744 19,936 --------------------- ----------- ------------ ----------- As at 31 December Falling due: Falling due: Falling due:2006 less than 1 Between 1-3 more than 3 Month Months Months US$'000 US$'000 US$'000 --------------------- ----------- ------------ -----------Trade Payables 8,780 - -Performancerelated awards - 10,551 7,185Other 2,561 - 897--------------------- ----------- ------------ ----------- Total 11,341 10,551 8,082 --------------------- ----------- ------------ ----------- Credit risk The majority of debtors arise from fund management and related activities of theGroup. As such the Group is able to determine that the credit risk is consideredminimal in relation to the majority of its debtors. For other debtors a creditevaluation is undertaken on a case by case basis. To reduce exposure to creditrisk arising from non-performance by counterparties in derivative transactions,the Group's policy is to transact business through brokers with high creditratings wherever practicable. The Group invests available cash and cashequivalents with various banks. The Group is exposed to credit-related losses inthe event of non-performance by counterparties to financial instruments but,given their high credit ratings, management does not expect any counterparty tofail to meet its obligations. At the reporting date, the Group's financial assets exposed to credit riskamounted to the following: As at 31 December Falling due: Falling due: Falling due:2007 less than 1 Between 1-3 more than 3 Month Months Months US$'000 US$'000 US$'000 --------------------- ----------- ------------ -----------Amounts due fromfunds 78,058 - -Interest andotherreceivables 1,956 560 855--------------------- ----------- ------------ ----------- Total 80,014 560 855 --------------------- ----------- ------------ ----------- As at 31 December Falling due: Falling due: Falling due:2006 less than 1 Between 1-3 more than 3 Month Months Months US$'000 US$'000 US$'000 --------------------- ----------- ------------ -----------Amounts due fromfunds 42,382 - -Interest andotherreceivables 362 166 295--------------------- ----------- ------------ ----------- Total 42,744 166 295 --------------------- ----------- ------------ ----------- Notes to the Financial Statements (continued) 23. Financial Instruments and Concentration Risk (continued) Credit risk (continued) The credit risk on transactions with funds primarily relates to transactionsawaiting settlement. This risk is considered small due to the short settlementperiod involved and the high credit quality of the funds involved.The cash and cash equivalents held by the Group is held by a number ofinternational banks and it is the Group's policy to avoid concentrating creditrisk in any one institution. The credit risk is also managed by by carrying outregular reviews of each institutiuon's credit ratings and of their publishedfinancial position. Market risk Market risk is the risk that changes in market prices, such as foreign exchangerates and equity prices will affect the Group's income or the value of itsholding of financial instruments. 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 markets, there is a concentration of this risk and any general movementin these markets would have a significant impact on the Group's income and thevalue of the Group's investments. Foreign currency risk The Group is exposed to foreign currency risk on investments and expensesdenominated in currencies other than US Dollars. The Group will normally hedgelarge exposures to foreign currency risk by using forward exchange contracts.In respect of monetary assets and liabilities denominated in foreign currencies,the Group ensures that its net exposure is kept to an acceptable level by buyingor selling foreign currencies at spot rates when necessary to address short termimbalances. The Group's exposure as at the balance sheet date were as follows: 31 December 2007 31 December 2006 EUR GBP PLN EUR GBP PLNUSD ' 000s US$'000 US$'000 US$'000 US$'000 US$'000 US$'000equivalent -------- -------- ------- -------- --------- -----------------------Cash and CashEquivalents 1,823 1,356 - 745 158 -Investments 7,618 - - 2,829 - 373Trade Debtors 51,342 2,620 - 33,370 1,278 -Trade Creditors 13,607 5,413 - 8,159 2,068 -------------- -------- -------- ------- -------- --------- --------- Total 74390 9,389 - 45,103 3,504 373 ------------- -------- -------- ------- -------- --------- --------- As at 31 December 2007, had the US Dollar strengthened by 1% in relation to allother currencies, with all other variables held constant, the net assets of theGroup would have been decreased both profit and equity by US$820k, (2006:US$490k). A weakening of the US Dollar against the above currencies would havehad the opposite effect. Interest rate risk The Group is exposed to interest rate risk with regard to holdings in cash andcash equivalents. All cash holdings and cash equivalents are held at maturitydates of less than one month and are at variable rates. The Group does not haveany borrowings. Surplus funds are placed on short term deposit. Notes to the Financial Statements (continued) 23. Financial Instruments and Concentration Risk (continued) Other price risk Price risk arises from available-for-sale equity securities held by the Group.As at the reporting date these assets amounted to the following: Investment Assets 31 December 2007 31 December 2006 US$'000 US$'000 ------------------------------ ------------- ------------Assets held for trading: Equities - Listed 1,070 1,126Equities - Unlisted 7,905 3,545------------------------------ ------------- ------------Total Investment Assets 8,975 4,671------------------------------ ------------- ------------ The majority of the Group's investments are in readily tradable collectivefunds. A 3% increase in the reported Net Asset Values of these assets at thereporting date would lead to a US$269k increase in the value of thoseinvestments (2006: US$140k). An equal and opposite decrease in the reported NetAsset Values would have decreased the value of the investments by an equal andopposite amount. 24. Commitments Operating lease commitments during the next twelve months are as follows: 31 December 2007 31 December 2006 US$'000 US$'000 -------------------------------- ----------- -----------GroupProperty, expiring:Within 1 year 22 129In the second to fifth years, inclusive 535 495Over five years 195 -CompanyLease 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 policiesThe 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. Notes to the Financial Statements (continued) 26. Critical accounting estimates, and judgement in applying accounting policies(conitnued) 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 an active market are determinedby the 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. 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