6th May 2008 07:02
Promethean India PLC06 May 2008 PROMETHEAN INDIA Interim Results for the period ended 29 February 2008 Chairman's Statement The past six months have been relatively quiet for your company, primarilybecause of external circumstances. For both public and private companies,vendors' price expectations reached levels at which we believed did notrepresent value. For public companies, the problem was compounded by theSecurities and Exchange Board of India's (SEBI) restriction on the issuance of"P Notes", the route by which Promethean India plc previously invested in publiccompanies. We reviewed a number of investment opportunities but our onlyinvestments were modest follow-on investments in Mahindra Forgings Limited andin Nitco Tiles Limited. However, we were very pleased to receive ForeignInstitutional Investor (FII) approval from SEBI, thus allowing us to investdirectly rather than through the P Note mechanism. At the half year date our investment portfolio was showing an unrealised gain todate of £5.3 million, representing an uplift of 31.2% on cost. However ourcaution has been vindicated by the subsequent fall in the Indian market since 29February 2008 which has reduced the unrealised gains by £2.5 million to £2.8million as at 29 April 2008. In spite of these circumstances, I remain satisfiedwith the quality and performance of the companies in which we are invested.The Indian market remains very volatile but we are hopeful that there will bemore opportunities in both the public and private markets in the coming year.In short, it has been a very quiet half year. Although the lack of opportunityhas been challenging, we are pleased that we did not allow the money to burn ahole in our corporate pocket. More details on each investment are given in the Investment Managers' review. Sir Peter BurtChairman6 May 2008 Investment Manager's Review Overview As at 29 February 2008 the Group had net assets of £54.0 million, equivalent to108p per share (31 August 2007: £48.7 million equivalent to 97p per share) and aportfolio of four investments. During the six month period, there was a 10.9%uplift in Promethean India plc's net asset value due to our public marketinvestments rising. This increase was in part driven by the volatility inemerging markets, and in particular, the Indian market. While we were pleased with the valuations our investee companies commanded, itdid not make it easy for us to build our position in those companies, or indeedin other new prospects. As we are long term investors, it becomes morecomplicated to execute our added-value strategy. During the period the Manager successfully executed the merger of MahindraForgings Mauritius Limited (which in turn owned 100% of Schoneweiss & Co. GmbH,one of the leading private forging companies in Germany), with Mahindra ForgingsLimited, a company listed on the Bombay Stock Exchange. Promethean India plc isnow a shareholder in the Indian listed entity and Mohit Burman sits on the boardof the company. During the period Promethean India plc invested a total of £2.5 million, ofwhich £1.4 million was a follow-on investment in Nitco Tiles Limited and £1.1million was a follow-on investment in Mahindra Forgings Limited. Further tothis, Gaurav Burman was appointed to the board of Nitco Tiles Limited.Investments in the current portfolio are still relatively immature and we expectto see continued capital growth in these investments over the next two years. Inaddition we are actively working with the companies in order to generateshareholder value and improve investment returns.To date, the Manager has invested £16.9 million in four investments.Investment Strategy The Company was established in order to execute a value activist investmentstrategy in both public and private businesses, building a concentratedportfolio of investments in which the Manager and Advisor can act as a catalystfor change and value creation. All investments, whether in public or private companies, are preceded byextensive due diligence to assess risks and opportunities in any one investment.This will include an overview of the target's market, management, businessmodel, financial track record, prospects and the likely realisation strategy. Portfolio As at 29 February 2008, the portfolio was as follows: Company Sector Cost Valuation* Gain/ (Loss) £'000 £'000 £'000 Mahindra Automotive 3,544 3,406 (138)Forgings Limited**Obopay Inc Mobile Banking 729 729 - ServicesNitco Tiles Building 5,502 6,313 811Limited MaterialsEIH Limited Hospitality 7,131 11,731 4,600 ______ ______ ______ 16,906 22,179 5,273 ______ ______ ______ * The valuations are in accordance with IFRS / IPEVCA guidelines. Valuation oflisted investments is based on the closing bid price as at 29 February 2008.Unlisted investments are held at fair value, which for a limited period is cost.All investments are recognised at the transaction date.** The investment in Mahindra Forgings Ltd made by Promethean India InvestmentsFund 1 is held via an intermediary holding company.Mahindra Forgings Limited In May 2007 Promethean India plc secured exclusivity to purchase a 10% stake inMahindra Forgings Mauritius Limited (MFML). MFML in turn owned 100% ofSchoneweiss & Co. GmbH. (Schoneweiss), one of the leading private forgingcompanies in Germany with 140 years of experience allowing it to become one ofthe leading axle beam manufacturers in the world, specialising in suspension,power train and engine parts. The Mahindra group is one of the best known industrial groups in India and aleader in the automotive sector with over US$4.0 billion per year in revenues.The Mahindra group had decided that the automotive components sector hassignificant growth potential and is key to their automotive strategy. As aresult they have adopted a buy and build strategy in this sector. We invested alongside them in MFML which purchased Schoneweiss. During theperiod MFML was merged into Mahindra Forgings Limited, an Indian listedbusiness, in an all share transaction. As a result we are now shareholders inthe Indian listed business which has been created as a result of multipleacquisitions in the automotive component space. We are pleased with thecompany's performance and continue to be involved in the strategy going forward.Mohit Burman is on the board of the company and we have an excellent workingrelationship with the Mahindra family. Obopay Inc. In June 2007 the Advisor was introduced to Obopay Inc., a privately heldCalifornian based company. After initial due diligence on the company and itsmanagement the Advisor was impressed by their comprehensive mobile paymenttechnology. The Obopay service allows an individual to instantly obtain, spend,and send money anywhere, anytime with anyone using their mobile phone. GivenIndia is home to over 200 million mobile subscribers and this base is growingrapidly, the Advisor approached Obopay to discuss the possibility of helpingthem scale their operations in India. During the period we have helped the company establish their operations inIndia. We have made a number of introductions both in the banking industry andwith a number of mobile service providers with whom we have good relationships.Although we are disappointed that the company does not seem to be willing toallow us to fund its India business as a stand-alone entity, we take somecomfort from the fact that the business is successfully executing its strategyand has signed a number of partner relationships. The company has signed anagreement with Centurion Bank and Yes Bank in India, and is rolling out a trialof the product with Citibank in Boston and Chicago. We continue to work closely with the management of Obopay and are beginning towitness plenty of interest in the business globally, especially amongst thecellular service provider network in India due to the company's ability to offerinclusive banking in a country with relatively little banking infrastructure. Nitco Tiles Limited The Advisor first became interested in Nitco Tiles Limited in June 2007. It wasclear to the Advisor that Promethean India plc should participate in thesignificant real estate growth in India, but the question was how to do thisgiven the high valuations the private and listed real estate businesses in Indiawere commanding. As a result the Advisor started to look at businesses that itfelt would benefit from the significant amount of commercial, residential andretail construction in India. Nitco was interesting for a number of reasons, thefirst and foremost being that the company since being founded in 1956 has grownto become the second largest tile manufacturer in India producing in excess of250 million square feet of floor tiles per year. Over and above this, theAdvisor was very impressed by the management team and their ambitions for thefuture growth of the business. Nitco had also recently announced that they were moving their production out ofthe Mumbai region to take advantage of the tax subsidies that some of the lessindustrial states in India were offering to businesses that set up manufacturingunits in those regions. As a result some of the valuable real estate that thecompany owned would be released and potentially developed into lucrativeresidential or commercial use. During the period we increased our stake in Nitco by purchasing shares in theopen market. We also started working with the management to help them begin toseparate their tile business and their property business into two separatereporting entities. Shortly after we increased our stake, Gaurav Burman joinedthe board of the company. We also helped the company raise a qualifiedinstitutional placement (QIP) of approximately US$40 million from a number oflarge investors such as Merrill Lynch and Citibank, which was completed at apremium to the valuation at which we invested. We continue to be excited aboutthe progress the business is making and we are working closely with managementto create value. EIH Limited The Advisor had for some time been looking at East India Hotels, one of thelargest branded hospitality businesses in India. Given the growth in domesticand international tourism and the growth in the aviation sector which hasresulted in both Indian and foreign visitors having access to air travel, we arewitnessing a period of major growth in the hospitality and catering industries.The hospitality sector in India historically has suffered from significant underinvestment and as a result there are less 5 star luxury hotel rooms in Indiathan there are in Manhattan. The Advisor believes they have found an assetwhich, despite being one of the best portfolio of properties in India, has beenundervalued by the public markets. The Advisor believes this undervaluation maychange in the medium term and has identified ways in which Promethean India plccan act as a catalyst for this change. During the period we continued to look to starting a dialogue with themanagement of the business. This became more difficult as the share price of thecompany started to rise very quickly after we had started building our stake andat one point had effectively doubled from the price we paid. This appreciationhappened without any major changes to the manner in which the business was beingmanaged. Although we are pleased the market is starting to realise the truevalue of the asset, we are still working to engage with the management toencourage them to divest some of their non-core assets and increase shareholdervalue. While we believe there is plenty of work to be done, we are encouraged bysome of the recent announcements and actions. We continue to believe the assetis still considerably undervalued. Events after the Balance Sheet Date Since 29 February 2008, the Indian stock market has seen a fall in price levels,and as such the accumulated £5.3 million unrealised gain as at 29 February 2008relating to listed investments had reduced by £2.5 million to £2.8 million as at29 April 2008. A detailed summary is contained within the notes to the accounts.On 24 April 2008, the company invested a further £0.5 million in Obopay Inc. Ourinvestment was part of a fourth round of funding, raising an additional US$20.0million. This round values the company at US$220 million, an uplift of 2.5 timescost on our original investment of £0.7 million made in May 2007. In March 2008 one new investment of £1.3 million was made in "Project Einstein",an undisclosed listed company. As at 29 April 2008, there had been a slightuplift in the valuation.Outlook The Manager is pleased with the progress we have made in terms of investingcapital and the progress we are making with our investee companies. We haveachieved this in a relatively short amount of time. We continue to be encouragedby the opportunities we are seeing and although we are heading toward a periodof economic difficulty, we continue to believe that India will grow faster thanmost other economies and feel this is the right environment to be buying assetsand investing the capital that our discipline has allowed us to protect. Gaurav Burmanon behalf ofPromethean Investments LLP6 May 2008 All statements of opinion and/or belief contained in the Investment Manager'sreview and all views expressed and all projections, forecasts or statementsrelating to expectations regarding future events of the possible futureperformance of the Company represent Promethean Investments LLP's own assessmentand interpretation of information available to it as at the date of this report.As a result of various risks and uncertainties, actual events or results maydiffer materially from such statements, views, projections or forecasts. Norepresentation is made or assurance given that such statements, views,projections or forecasts are correct or that the objectives of the Company willbe achieved. Independent review report to Promethean India plc Introduction We have been engaged by the company to review the condensed set of financialstatements in the half-yearly financial report for the six months ended 29February 2008 which comprises the unaudited Group Income Statement, theunaudited Group Balance Sheet, the unaudited Company Balance Sheet, theunaudited Statement of changes in equity, the unaudited Group Cash FlowStatement and notes 1 to 4. We have read the other information contained in thehalf yearly financial report which comprises only the Chairman's Statement andInvestment Manager's Review and considered whether it contains any apparentmisstatements or material inconsistencies with the information in the financialstatements. This report is made solely to the company in accordance with guidance containedin ISRE (UK and Ireland) 2410, 'Review of Interim Financial Informationperformed by the Independent Auditor of the Entity'. Our review work has beenundertaken so that we might state to the company those matters we are requiredto state to them in a review report and for no other purpose. To the fullestextent permitted by law, we do not accept or assume responsibility to anyoneother than the company, for our review work, for this report, or for theconclusion we have formed. Directors' responsibilities The half-yearly financial report is the responsibility of, and has been approvedby, the directors. As disclosed in Note 2, the annual financial statements of the group areprepared in accordance with IFRSs as adopted by the European Union. Thecondensed set of financial statements included in this half-yearly financialreport has been prepared in accordance with International Accounting Standard34, 'Interim Financial Reporting,' as adopted by the European Union.Our responsibility Our responsibility is to express to the Company a conclusion on the condensedset of financial statements in the half-yearly financial report based on ourreview.Scope of review We conducted our review in accordance with International Standard on ReviewEngagements (UK and Ireland) 2410, 'Review of Interim Financial InformationPerformed by the Independent Auditor of the Entity' issued by the AuditingPractices Board for use in the United Kingdom. A review of interim financialinformation consists of making enquiries, primarily of persons responsible forfinancial and accounting matters, and applying analytical and other reviewprocedures. A review is substantially less in scope than an audit conducted inaccordance with International Standards on Auditing (UK and Ireland) andconsequently does not enable us to obtain assurance that we would become awareof all significant matters that might be identified in an audit. Accordingly, wedo not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believethat the condensed set of financial statements in the half-yearly financialreport for the six months ended 29 February 2008 is not prepared, in allmaterial respects, in accordance with International Accounting Standard 34 asadopted by the European Union. Grant ThorntonChartered AccountantsIsle of Man6 May 2008 Promethean India plc Group Income Statement for the period to 29 February 2008 Unaudited Unaudited Audited Period Period Period 1 Sept 2007 1 Sept 2006 16 May 2006 to to to 29 Feb 2008 29 Feb 2007 31 Aug 2007 £'000 £'000 £'000RevenueInvestment and other income 1,024 - 885Realised and unrealised gain 4,929 - 344on financial investments 5,953 - 1,229 Management expenses (630) - (779) Profit before finance costs 5,323 - 450and taxation Finance costs (5) - (1) Profit before tax from 5,318 - 449trading operations Income tax expense - - - Group profit after tax from 5,318 - 449trading operations Attributable to:Equity holders of the parent 5,318 - 449 5,318 - 449 Earnings per share - (basic 10.6p - 0.9pand diluted) Promethean India plcGroup Balance Sheet as at 29 February 2008 Unaudited Audited 29 Feb 2008 31 Aug 2007 £'000 £'000Non-current assetsInvestments held at fair value through 22,179 14,718profit or lossNon current loans 3,708 3,766 25,887 18,484 Current assetsTrade and other receivables 838 947Cash and cash equivalents 28,503 32,920 29,341 33,867 Total assets 55,228 52,351 Current liabilitiesTrade and other payables 1,208 3,650 Net assets 54,020 48,701 EquityShare capital 500 500Share premium 47,752 47,752Unrealised investment revaluation reserve 5,281 352Retained earnings 487 97Equity attributable to equity holders of 54,020 48,701the parent Net asset per share £1.08 £0.97 Promethean India plcCompany Balance Sheet as at 29 February 2008 Unaudited Audited 29 Feb 2008 31 Aug 2007 £'000 £'000 Non-current assetsInvestments held at fair value through 20,735 18,985profit or loss Current assetsTrade and other receivables 757 431Cash and cash equivalents 28,389 29,854 29,146 30,285 Total assets 49,881 49,270 Current liabilitiesTrade and other payables 308 342Net assets 49,573 48,928 EquityShare capital 500 500Share premium 47,752 47,752Retained earnings 1,321 676 Equity attributable to equity holders of 49,573 48,928the parent Promethean India plcGroup Statement of changes in equity for the period ended 29 February 2008Unaudited Share Share Unrealised Retained Total Capital Premium investment Earnings revaluation distributable reserve £'000 £'000 £'000 £'000 £'000 Balance as at 31 500 47,752 352 97 48,701August 2007Profit for the - - - 5,319 5,319periodUnrealised gains - - 4,929 (4,929) -reserve transferBalance as at29 February 2008 500 47,752 5,281 487 54,020 Audited Share Share Unrealised Retained Total Capital Premium investment Earnings revaluation distributable reserve £'000 £'000 £'000 £'000 £'000 Balance as at 16 May - - - - -2006 Issue of share capital 500 - - - 500Premium on shares - 49,500 - - 49,500issuedExpenses relating tothe issue of shares - (1,748) - - (1,748)Profit for the period - - - 449 449Unrealised gains - - 352 (352) -reserve transfer Balance as at31 August 2007 500 47,752 352 97 48,701 Promethean India plcGroup Cash Flow Statement for the period ended 29 February 2008 Unaudited Unaudited Audited 1 Sept 2007 to 1 Sept 2006 to 16 May 2006 to 29 Feb 2008 29 Feb 2007 31 Aug 2007 £'000 £'000 £'000 Cash flows from operatingactivitiesProfit after taxation 5,318 - 449 Adjustments for:Interest income (1,024) - (885)Unrealised investment losses (4,929) - (344)/(gains)Exchange loss 5 - -Decrease/(increase) in trade 110 - (947)and other receivables(Decrease)/increase in trade (2,442) - 3,650and other payables (2,962) - 1,923 Income tax paid - - -Cash flows from investingactivitiesPurchase of investments (2,537) - (18,715)Proceeds from sale of - - 4,341investmentsInterest received 1,024 - 885 Net cash used in investing (1,513) - (13,489)activities Proceeds from issue of share - - 48,252capital Issue of loans 58 - (3,766)Net cash used in financing 58 - 44,486activities Net (decrease)/increase in (4,417) - 32,920cash and cash equivalents Cash and cash equivalents at 32,920 - -beginning of period Cash and cash equivalents at 28,503 - 32,920end of period Note 1 - General InformationThe information for the six month period ended 29 February 2008 and the period 1September 2006 to 29 February 2007 does not constitute statutory accounts asreferred to in section 9 of the Companies Act 1982. Comparative figures for theperiod 16 May 2006 to 31 August 2007 are taken from the full statutory accounts,which contain an unqualified audit report. Note 2 - Basis of accountingThis statement has been prepared using accounting policies and presentationconsistent with those applied in the preparation of the accounts for the Companyfor the period ended 31 August 2007, and in accordance with InternationalAccounting Standard 34, "Interim Financial Reporting". Note 3 - Valuation of listed investmentsListed investments are valued at closing bid prices in accordance with IPEVCAand IFRS guidelines. Where two exchanges exist, the closing bid price isobtained from the exchange which demonstrates the largest transaction volumes. Note 4 - Events after the Balance Sheet DateSubsequent to the period end, there has been a fall in the value of the Indianstock markets. This has reduced the unrealised gains reported by £2.5 million,resulting in the following valuations: • EIH Limited: £10.4 million (29 February 2008: £11.7 million)• Nitco Tiles Limited: £5.4 million (29 February 2008: £6.3 million)• Mahindra Forgings Limited: £3.1 million (29 February 2008: £3.4 million) On 24 April 2008, the Company invested a further £0.5 million in Obopay Inc. Ourinvestment was part of a fourth round of funding, raising an additional US$20.0million. This round values the company at US$220 million, an uplift of 2.5 timescost on our original investment of £0.7 million made in May 2007. In March 2008 one new investment of £1.3 million was made in "Project Einstein",an undisclosed listed company. As at 29 April 2008, there had been a slightuplift in the valuation. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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