13th Nov 2006 14:15
Queen's Walk Investment Limited13 November 2006 13 November 2006 Queen's Walk Investment Limited Financial Results for the Quarter and Six Months ended 30 September 2006 Queen's Walk Investment Limited is a Guernsey-incorporated investment companylisted on the London Stock Exchange. The Company's investment objective is topreserve capital and to provide stable returns to shareholders in the form ofquarterly dividends. To achieve this, Queen's Walk invests primarily in adiversified portfolio of subordinated tranches of asset backed securities,including the unrated "equity" or "first loss" residual income positiontypically retained by the banks or other financial institutions which haveoriginated the loan assets that collateralise a securitisation transaction. TheCompany makes such investments where its investment manager, Cheyne CapitalManagement Limited, considers the coupon or cashflows from the investment to beattractive relative to the credit exposure of the underlying asset collateral.For more information regarding Queen's Walk, please visit www.queenswalkinv.comor call Andrea Bonafe: +44 207 031 7480. Half Year Highlights •Queen's Walk continues to exceed the targets set at the time of its IPO in December 2005 and continues to deliver on its strategic objectives •The Company has generated distributable net profit of €10.6 million and earnings per ordinary share of €0.26 for the second quarter and distributable net profit of €21.2 million and earnings per ordinary share of €0.52 for the six months ended 30 September 2006 •An interim quarterly dividend of €0.26 per share has been declared, resulting in a cumulative interim dividend of €0.52 for the financial year to date •Given the continued strong performance of its investment portfolio, the Company has increased its target dividend for the quarter ended 31 December to not less than €0.27 per share •The Company has increased its aggregate target dividend for its first full financial year from the €1.00 announced at the time of its IPO to a target of not less than €1.07 per share •The Company's diversified investment portfolio totals €531.0 million, with net indebtedness of €126.1 million, representing approximately 23.7% of the investment portfolio •The Company believes there is a strong asset pipeline to support future growth •Cheyne Capital continues to evaluate attractive investment opportunities in residential mortgage-backed transactions as well as reviewing an increased pipeline of investments backed by small-and-medium enterprise (SME) loans Financial Highlights +--------------------+------------+------------+------------+------------+ | |Q2 - Quarter|Q1 - Quarter|Six months |Period from | | |ended 30 |ended 30 |ended 30 |6 September | | |September |June 2006 |September |2005 to 31 | | |2006 | |2006 |March 2006 | | | | | | | +--------------------+------------+------------+------------+------------+ |Operating income | €15,674,473| €14,992,921| €30,667,394| €12,480,487| +--------------------+------------+------------+------------+------------+ |Operating expenses | (3,349,855)| (2,813,090)| (6,162,945)| (2,455,408)| +--------------------+------------+------------+------------+------------+ |Finance costs | (1,772,011)| (1,182,461)| (2,954,472)| (260,052)| +--------------------+------------+------------+------------+------------+ |Net profit | 10,552,607| 10,997,370| 21,549,977| 9,765,027| +--------------------+------------+------------+------------+------------+ |Distributable net | 10,583,319| 10,599,894| 21,183,213| 9,765,027| |profit | | | | | +--------------------+------------+------------+------------+------------+ |Earnings per share | 0.26| 0.27| 0.53| 0.24| +--------------------+------------+------------+------------+------------+ |Distributable | 0.26| 0.26| 0.52| 0.24| |earnings per share | | | | | +--------------------+------------+------------+------------+------------+ | | +--------------------+------------+------------+------------+------------+ |Total assets | 520,550,381| 531,153,613| 520,550,381| 493,842,561| +--------------------+------------+------------+------------+------------+ |Equity capital | 403,355,430| 403,364,220| 403,355,430| 402,069,116| +--------------------+------------+------------+------------+------------+ |Total liabilities | 117,194,951| 127,789,393| 117,194,951| 91,773,445| |(incl. financing) | | | | | +--------------------+------------+------------+------------+------------+ Extracts from the unaudited quarterly accounts of the Company for the quarterended 30 June 2006 and the unaudited interim accounts of the Company for the sixmonths ended 30 September 2006 accompany this statement. The Company Summaryfrom the unaudited interim accounts for the six months ended 30 September 2006is set out below. Second Quarter Dividend The Board of Directors has declared an interim quarterly dividend for the periodended 30 September 2006 of €0.26 payable on 18 December 2006 to shareholders ofrecord on 24 November 2006. Conference Call A conference call to review the Company's financial results for the quarter andsix months ended 30 September 2006 will take place at 2:00 P.M. London time (9:00 A.M. New York time) on 14 November 2006. All interested parties are welcometo participate on the live call. You can access the conference call by dialing+1 718 354 1361 (from within the U.S.) or +44 (0) 20 7138 0819 (from outside ofthe U.S.) ten minutes prior to the scheduled start of the call; please referenceQueen's Walk Investment Limited Financial Results. A webcast of the conference call will be available to the public on alisten-only basis at www.queenswalkinv.com. Please allow extra time prior tothe call to visit the site and download the necessary software required tolisten to the internet broadcast. A replay of the webcast will be available forthree months following the call. A replay of the conference call will be available until midnight UK time on 20thNovember 2006. The replay can be accessed at +44 (0) 20 7806 1970 or +1 718 3541112. The passcode for the replay is 6459732#. Company Performance The Company continued to perform strongly in the six-month period ended 30September 2006, with total revenues having reached €30.7 million. While operating and finance expenses of the Company were increased in the second quarter (in line with the larger portfolio held over an entire quarter), distributable net profit remained in line with the previous quarter, resulting in earnings per share of €0.26 consistent with the previous quarter. Net profit for the second quarter of €10.6 million was relatively unchanged from the firstquarter after taking into account a mark-to-market gain on certain bondpositions that was recognised in the first quarter. These bonds were sold(realising a gain of €366,764) as part of a portfolio rebalancing exercise thatwas undertaken in the second quarter to reduce refinancing risk and to furtheroptimise the yield on the Company's investment portfolio. The Company's investment portfolio (including amounts receivable under totalreturn swap agreements but excluding cash) totalled €531.0 million as at 30September 2006, compared to €530.7 million as at 30 June 2006 and approximately€496 million as at 31 March 2006. While bond positions were sold in the secondquarter, three new residual income positions with an aggregate value of €67.7million were added to the Company's investment portfolio in the second quarter.These acquisitions were effected by having the Company's subsidiary, TrebuchetFinance Limited, enter into total return swap agreements with CitigroupFinancial Products Inc. ("Citigroup") that reference the relevant assets. Theacquisition of these assets was partly funded through portfolio principalreceipts, the proceeds of sale of bond positions and, in the case of two of theassets, financing provided by Citigroup. The Company uses leverage to finance its investment portfolio where it believesthis will enhance returns to shareholders, subject to the leverage limitscontained in the Company's investment policy. The Company's leverage as at 30September 2006 (including repurchase agreements and the leverage effectedthrough two of the total return swap agreements, net of cash) totalled €126.1million, or 23.7% of the investment portfolio (compared to €115.8 million(22.8%) at the end of the first quarter and €88.9 million (17.9%) as at 31 March2006). Portfolio Overview The Company's investment portfolio as at 30 September 2006 is comprised of 25investments in total. While the portfolio remains well diversified bothgeographically and by asset class, it continues to be backed predominantly byresidential mortgages - the largest European asset class. As at 30 September2006, the portfolio was comprised of: 86% RMBS (80% as at 31 March 2006); 4%Small-and-Medium Enterprise (SME) (9%); and 15% diversified ABS (10%). Thegeographic breakdown of the portfolio as at 30 September 2006 relative to theportfolio as at 31 March 2006 is set out in the charts that follow. +-------------------------------------------------+|Queen's Walk Portfolio by Jurisdiction as at 30 ||September 2006 |+------------------------+------------------------+|UK |51% |+------------------------+------------------------+|US |13% |+------------------------+------------------------+|Italy |6% |+------------------------+------------------------+|Holland |2% |+------------------------+------------------------+|Germany |3% |+------------------------+------------------------+|Portugal |15% |+------------------------+------------------------+|Diversified ABS |10% |+------------------------+------------------------+ +-------------------------------------------------+|Queen's Walk Portfolio by Jurisdiction as at 31 ||March 2006 |+------------------------+------------------------+|UK |35% |+------------------------+------------------------+|US |18% |+------------------------+------------------------+|Italy |6% |+------------------------+------------------------+|Holland |10% |+------------------------+------------------------+|Germany |3% |+------------------------+------------------------+|Portugal |17% |+------------------------+------------------------+|Diversified ABS |11% |+------------------------+------------------------+ A summary of the Company's ten largest investments as at 30 September 2006,which account for 55.7% of the total portfolio by gross asset value, is set outin the following table. +---------+----------+---------+------------+----------------+-------------+|Issuer |Asset Type|% of ABS |Description |Description of |Servicer / || | |Portfolio|of |Underlying |Administrator|| | | |Investment |Assets | |+---------+----------+---------+------------+----------------+-------------+| |UK RMBS |8.87% |Series |Approximately |Mortgages Plc|| | | |2006-1 |5,900 | ||Newgate | | |Detachable |first-ranking | ||Funding | | |Coupons, MER|near prime and | ||plc | | |Payment |non-conforming | || | | |Receivables |residential | || | | |and Residual|mortgages | || | | |Payment | | || | | |Receivables | | |+---------+----------+---------+------------+----------------+-------------+|Eurosail |UK RMBS |6.64% |Residual |Approximately |Capstone ||2006-1 | | |Certificates|9,800 |Mortgage ||plc | | | |first-ranking |Services || | | | |prime, |Limited || | | | |non-conforming | || | | | |and buy-to-let | || | | | |residential | || | | | |mortgages | |+---------+----------+---------+------------+----------------+-------------+|RMAC |UK RMBS |6.13% |Mortgage |Approximately |Homeloan ||2004-NSP4| | |Early |8,100 |Management ||plc | | |Redemption |first-ranking |Limited || | | |Certificates|prime, near | || | | |and Residual|prime and | || | | |Certificates|non-conforming | || | | | |residential | || | | | |mortgages | |+---------+----------+---------+------------+----------------+-------------+|Southern |UK RMBS |5.58% |Class DTc |Approximately |Capstone ||Pacific | | |Notes, Class|4,500 first |Mortgage ||Financing| | |F Notes and |ranking, |Services ||06-A plc | | |Residual |near-prime |Limited || | | |Certificates|residential | || | | | |mortgages | |+---------+----------+---------+------------+----------------+-------------+|Sestante |Italian |5.55% |Class D and |Approximately |Meliorbanca ||Finance |RMBS | |Class E |3,500 |S.p.A. ||S.R.L. | | |Notes |first-ranking | || | | | |prime | || | | | |residential | || | | | |mortgages | |+---------+----------+---------+------------+----------------+-------------+|RMAC 2005|UK RMBS |5.08% |Mortgage |Approximately |Homeloan ||NS3 plc | | |Early |6,500 |Management || | | |Redemption |first-ranking |Limited || | | |Certificates|prime, near | || | | |and Residual|prime and | || | | |Certificates|non-conforming | || | | | |residential | || | | | |mortgages | |+---------+----------+---------+------------+----------------+-------------+|RMAC 2005|UK RMBS |4.99% |Mortgage |Approximately |Homeloan ||NSP2 plc | | |Early |11,000 |Management || | | |Redemption |first-ranking |Limited || | | |Certificates|prime, near | || | | |and Residual|prime and | || | | |Certificates|non-conforming | || | | | |residential | || | | | |mortgages | |+---------+----------+---------+------------+----------------+-------------+|RMAC |UK RMBS |4.54% |Mortgage |Approximately |Homeloan ||2005-NS1 | | |Early |7,800 |Management ||plc | | |Redemption |first-ranking |Limited || | | |Certificates|prime, near | || | | |and Residual|prime and | || | | |Certificates|non-conforming | || | | | |residential | || | | | |mortgages | |+---------+----------+---------+------------+----------------+-------------+|Southern |UK RMBS |4.45% |Subordinated|Approximately |Southern ||Pacific | | |Loan |3,000 first |Pacific ||Financing| | |Agreement |ranking |Mortgage ||05-B plc | | | |near-prime |Limited and || | | | |residential |Homeloan || | | | |mortgages |Management || | | | | |Limited |+---------+----------+---------+------------+----------------+-------------+|Magellan |Portuguese|3.91% |Class D |Approximately |Banco ||Mortgages|RMBS | |Notes and |23,000 first |Comercial ||No. 1 plc| | |Subordinated|ranking, |Portugues SA || | | |Loan |fully-amortising| || | | |Facility |residential | || | | |Agreement |mortgages | |+---------+----------+---------+------------+----------------+-------------+ Outlook The Company's investment manager, Cheyne Capital, continues to evaluateattractive investment opportunities in the both the UK and continental Europe.In addition to the significant pipeline of residential mortgage-backedinvestment opportunities brought by the continued growth of the globalsecuritisation market, the regulatory capital changes brought by Basel II havemotivated many banks to securitise their portfolios of SME loans. The investmentmanager sees significant potential opportunity for further investment in thisasset class, particularly in the short and medium term. Where the underlying SMEloan portfolios are sufficiently diverse and granular (in terms of the number ofunderlying borrowers), the Company views this asset class as providing a goodcompliment to its consumer finance-backed investments and, consequently, aspotentially providing significant benefit to shareholders in terms of portfoliodiversification as well as investment returns. Dividend Policy While the Company does not provide profit forecasts, it has provided guidance toshareholders since the time of its IPO on target dividends for specificfinancial periods. While these target dividends were not profit forecasts, achange in the application of certain disclosure requirements relevant to theCompany and other investment companies since the time of the Company's IPO hasrequired the Company to alter its stated dividend policy in order to be able tocontinue to provide this guidance to shareholders As the Company believes that the provision of target dividends is important andmeaningful information for shareholders, the Company confirms that it remainsits intention to continue to announce, from time to time, target dividends forits then current financial period (or periods). While the Company maintains itsobjective of providing shareholders with stable returns in the form of quarterlydividends, its dividend policy is no longer necessarily to distributesubstantially all of its distributable net income. The Company may in futureretain a portion of its distributable net income as a reserve for payment insubsequent periods. This change in the Company's stated dividend policy is noreflection on the Company's outlook for future performance and has been effectedsolely for the purpose of being able to continue to provide shareholders withinformation regarding target dividends. Due to the strong performance of the Company since its IPO and as a result of this change to the Company's dividend policy, the Company is now able to announce a target dividend of not less than €0.27 per share for the quarter ended 31 December 2006 and an increase in its aggregate target dividend for the financial year ending 31 March 2007 from the €1.00 target announced at the time of its IPO to an aggregate target dividend amount of not less than €1.07. Any target dividends that the Company may announce from time to time should notbe regarded as providing any guidance regarding the level of the Company'sdistributable net income for any period. For further information please contact: Investor Relations:Caroline Villiers +44 (0) 20 7153 1521 Cheyne Capital:Andrea Bonafe +44 (0) 20 7031 7480 About the Company: Queen's Walk Investment Limited is a Guernsey-incorporated investment companylisted on the London Stock Exchange. The Company's investment objective is topreserve capital and to provide stable returns to shareholders in the form ofquarterly dividends. To achieve this, Queen's Walk invests primarily in adiversified portfolio of subordinated tranches of asset backed securities,including the unrated "equity" or "first loss" residual income positiontypically retained by the banks or other financial institutions which haveoriginated the loan assets that collateralise a securitisation transaction. TheCompany makes such investments where its investment manager, Cheyne CapitalManagement Limited, considers the coupon or cashflows from the investment to beattractive relative to the credit exposure of the underlying asset collateral.The Company believes that its investment focus provides equity investors withexposure to a relatively new investment opportunity in this asset class. The content of this announcement includes statements that are, or may be deemedto be, "forward-looking statements". These forward-looking statements can beidentified by the use of forward-looking terminology, including the terms"believes", "estimates", "anticipates", "expects", "intends", "may", "will" or"should". They include the statement regarding the target aggregate dividend. Bytheir nature, forward-looking statements involve risks and uncertainties andreaders are cautioned that any such forward-looking statements are notguarantees of future performance. The Company's actual results and performancemay differ materially from the impression created by the forward-lookingstatements. The Company undertakes no obligation to publicly update or reviseforward-looking statements, except as may be required by applicable law andregulation (including the Listing Rules). Any target dividends are based on certain assumptions as to future events whichmay not prove to be realised. Due to the uncertainty surrounding these futureevents, the targets are not intended to be and should not be regarded as profitsor earnings forecasts. There can be no assurance that these targets will beachieved or that the Company will be able to pay dividends at the target levelsor at all. The payment of any target dividends is subject to the Companygenerating sufficient profits or having sufficient retained earnings and therecan be no assurance that this will be the case. The Company may revise itsdividend policy from time to time. The following extract from the quarterly accounts of the Company for the quarterended 30 September 2006 are unaudited. Unaudited Consolidated Income Statement For the quarter ended 30 September 2006 Note Quarter ended Quarter ended Period from 6 30 September 30 June 2006 September 2006 2005 to 31 March 2006 * Euro Euro Euro Operating income 15,674,473 14,992,921 12,480,487 Operating expensesOther operating expenses (3,349,855) (2,813,090) (2,455,408)Finance costs (1,772,011) (1,182,461) (260,052)Total operating expenses (5,121,866) (3,995,551) (2,715,460) Net profit 10,552,607 10,997,370 9,765,027 Distributable profits 2 10,583,319 10,599,894 9,765,027Non-distributable profits 2 (30,712) 397,476 - 10,552,607 10,997,370 9,765,027 Earnings per Ordinary ShareBasic Euro 0.26 Euro 0.27 Euro 0.24Diluted Euro 0.26 Euro 0.27 Euro 0.24 Distributable earnings per OrdinaryShare Basic Euro 0.26 Euro 0.26 Euro 0.24Diluted Euro 0.26 Euro 0.26 Euro 0.24 Weighted average Ordinary Shares Number Number NumberoutstandingBasic 40,620,756 40,620,756 40,620,756Diluted 40,721,759 40,852,819 41,053,527 All items in the above statement are derived from continuing operations. All income is attributable to the Ordinary Shareholders of the Company. * The Company commenced its operations on 8 December 2005. Unaudited Consolidated Statement of Changes in Shareholders' Equity For the quarter ended 30 September 2006 Share Share Other Capital Accumulated Total Capital Premium Reserve Reserve Profits Euro Euro Euro Euro Euro Euro Balance at inception - - - - - - Net profit for the - - - - 9,765,027 9,765,027period Issuance of Ordinary - 406,207,540 - - - 406,207,540Shares Share options issued - - - 7,672,500 - 7,672,500 Costs related to - (21,575,951) - - - (21,575,951)issuance of OrdinaryShares Cancellation of share - (384,631,589) 384,631,589 - - -premium Balance at 31 March - - 384,631,589 7,672,500 9,765,027 402,069,1162006 Net profit for the - - - - 10,997,370 10,997,370quarter Over accrual of costs - - 46,715 - - 46,715related to issuance ofOrdinary Shares Distributions to the - - - - (9,748,981) (9,748,981)Ordinary Shareholdersof the Company Balance at 30 June 2006 - - 384,678,304 7,672,500 11,013,416 403,364,220 Net profit for the - - - - 10,552,607 10,552,607quarter Costs related to - - - - - -issuance of OrdinaryShares Distributions to the - - - - (10,561,397) (10,561,397)Ordinary Shareholdersof the Company Balance at 30 September - - 384,678,304 7,672,500 11,004,626 403,355,4302006 Unaudited Consolidated Balance Sheet As at 30 September 2006 30 September 30 June 2006 31 March 2006 2006 Euro Euro EuroNon-current assetsInvestments at fair value through profit or 449,585,317 501,439,102 487,890,499loss Current assetsCash and cash equivalents 13,557,006 20,735,431 -Other assets 57,408,058 8,979,080 5,952,062 70,965,064 29,714,511 5,952,062 Total assets 520,550,381 531,153,613 493,842,561 Equity and liabilities EquityShare capital - - -Share premium account - - -Other reserve 384,678,304 384,678,304 384,631,589Capital reserve in respect of share options 7,672,500 7,672,500 7,672,500Accumulated profits 11,004,626 11,013,416 9,765,027 403,355,430 403,364,220 402,069,116Current liabilitiesDistribution payable - 9,748,981 -Repurchase agreements 113,724,744 115,783,806 88,880,531Other liabilities 3,470,207 2,256,606 2,892,914Total liabilities 117,194,951 127,789,393 91,773,445 Total equity and liabilities 520,550,381 531,153,613 493,842,561 1. General information Queen's Walk Investment Limited (the "Company") was registered on 6 September2005 with registered number 43634 and is domiciled in Guernsey, Channel Islands.The Company commenced its operations on 8 December 2005. The Company is aclosed-ended investment company with limited liability formed under TheCompanies (Guernsey) Law, 1994 and its Ordinary Shares are listed on the LondonStock Exchange. The registered office of the Company is Dorey Court, AdmiralPark, St Peter Port, Guernsey, GY1 3BG, Channel Islands. "Group" is defined asthe Company and its subsidiary. At 30 September 2006, the Company's onlysubsidiary was Trebuchet Finance Limited. The Company's investment objective is to preserve capital and provide stablereturns to Shareholders in the form of quarterly dividends. It seeks to achievethis by investing primarily in a diversified portfolio of tranches ofasset-backed securities ("ABS") where the Investment Manager considers that thecoupon or cash flows on the tranche are attractive relative to the underlyingcredit. These are and will be, in most cases, below investment grade or unratedand do or will, in many cases, represent the residual income positions typicallyretained by the originator of a securitisation transaction as the "equity" or"first loss" position. The Group's investment management activities are managed by its InvestmentManager, Cheyne Capital Management Limited (the "Investment Manager"), aninvestment management firm authorised and regulated by the Financial ServicesAuthority. The Company has entered into an Investment Management Agreement (the"Investment Management Agreement") under which the Investment Manager managesits day-to-day investment operations, subject to the supervision of theCompany's Board of Directors. The Company has no direct employees. For itsservices, the Investment Manager receives a monthly management fee (whichincludes a reimbursement of expenses) and a quarterly performance-related fee.The Company has no ownership interest in the Investment Manager. The Company isadministered by Kleinwort Benson (Channel Islands) Fund Services Limited (the"Administrator"). 2. Distributable and non-distributable profits Non-distributable profits relate to gains from investments which under theUnited Kingdom Listing Rules are prohibited from being distributed to investors.All other income is classed as distributable income. Distributable profitsrepresent the net of this distributable income less operating expenses. QUEEN'S WALK INVESTMENT LIMITED INTERIM REPORT AND ACCOUNTS (UNAUDITED) FOR THE PERIOD ENDED 30 SEPTEMBER 2006 Company Summary Company Performance The Company continued to perform strongly in the six-month period ended 30September 2006, with total revenues having reached €30.7 million. While operating and finance expenses of the Company were increased in the second quarter (in line with the larger portfolio held over an entire quarter), distributable net profit remained in line with the previous quarter, resulting in earnings per share of €0.26 consistent with the previous quarter. Net profit for the second quarter of €10.6 million was relatively unchanged from the first quarter after taking into account a mark-to-market gain on certain bondpositions that was recognised in the first quarter. These bonds were sold(realising a gain of €366,764) as part of a portfolio rebalancing exercise thatwas undertaken in the second quarter to reduce refinancing risk and to furtheroptimise the yield on the Company's investment portfolio. The Company's investment portfolio (including amounts receivable under totalreturn swap agreements but excluding cash) totalled €531.0 million as at 30September 2006, compared to €530.7 million as at 30 June 2006 and approximately€496 million as at 31 March 2006. While bond positions were sold in the secondquarter, three new residual income positions with an aggregate value of €67.7million were added to the Company's investment portfolio in the second quarter.These acquisitions were effected by having the Company's subsidiary, TrebuchetFinance Limited, enter into total return swap agreements with CitigroupFinancial Products Inc. ("Citigroup") that reference the relevant assets. Theacquisition of these assets was partly funded through portfolio principalreceipts, the proceeds of sale of bond positions and, in the case of two of theassets, financing provided by Citigroup. The Company uses leverage to finance its investment portfolio where it believesthis will enhance returns to shareholders, subject to the leverage limitscontained in the Company's investment policy. The Company's leverage as at 30September 2006 (including repurchase agreements and the leverage effectedthrough two of the total return swap agreements, net of cash) totalled €126.1million, or 23.7% of the investment portfolio (compared to €115.8 million(22.8%) at the end of the first quarter and €88.9 million (17.9%) as at 31 March2006). Portfolio Overview The Company's investment portfolio as at 30 September 2006 is comprised of 25investments in total. While the portfolio remains well diversified bothgeographically and by asset class, it continues to be backed predominantly byresidential mortgages - the largest European asset class. As at 30 September2006, the portfolio was comprised of: 86% RMBS (80% as at 31 March 2006); 4%Small-and-Medium Enterprise (SME) (9%); and 15% diversified ABS (10%). Thegeographic breakdown of the portfolio as at 30 September 2006 relative to theportfolio as at 31 March 2006 is set out in the charts that follow. +-------------------------------------------------+|Queen's Walk Portfolio by Jurisdiction as at 30 ||September 2006 |+------------------------+------------------------+|UK |51% |+------------------------+------------------------+|US |13% |+------------------------+------------------------+|Italy |6% |+------------------------+------------------------+|Holland |2% |+------------------------+------------------------+|Germany |3% |+------------------------+------------------------+|Portugal |15% |+------------------------+------------------------+|Diversified ABS |10% |+------------------------+------------------------+ +-------------------------------------------------+|Queen's Walk Portfolio by Jurisdiction as at 31 ||March 2006 |+------------------------+------------------------+|UK |35% |+------------------------+------------------------+|US |18% |+------------------------+------------------------+|Italy |6% |+------------------------+------------------------+|Holland |10% |+------------------------+------------------------+|Germany |3% |+------------------------+------------------------+|Portugal |17% |+------------------------+------------------------+|Diversified ABS |11% |+------------------------+------------------------+ A summary of the Company's ten largest investments as at 30 September 2006,which account for 55.7% of the total portfolio by gross asset value, is set outin the following table. +---------+----------+---------+------------+----------------+-------------+|Issuer |Asset Type|% of ABS |Description |Description of |Servicer / || | |Portfolio|of |Underlying |Administrator|| | | |Investment |Assets | |+---------+----------+---------+------------+----------------+-------------+| |UK RMBS |8.87% |Series |Approximately |Mortgages Plc|| | | |2006-1 |5,900 | ||Newgate | | |Detachable |first-ranking | ||Funding | | |Coupons, MER|near prime and | ||plc | | |Payment |non-conforming | || | | |Receivables |residential | || | | |and Residual|mortgages | || | | |Payment | | || | | |Receivables | | |+---------+----------+---------+------------+----------------+-------------+|Eurosail |UK RMBS |6.64% |Residual |Approximately |Capstone ||2006-1 | | |Certificates|9,800 |Mortgage ||plc | | | |first-ranking |Services || | | | |prime, |Limited || | | | |non-conforming | || | | | |and buy-to-let | || | | | |residential | || | | | |mortgages | |+---------+----------+---------+------------+----------------+-------------+|RMAC |UK RMBS |6.13% |Mortgage |Approximately |Homeloan ||2004-NSP4| | |Early |8,100 |Management ||plc | | |Redemption |first-ranking |Limited || | | |Certificates|prime, near | || | | |and Residual|prime and | || | | |Certificates|non-conforming | || | | | |residential | || | | | |mortgages | |+---------+----------+---------+------------+----------------+-------------+|Southern |UK RMBS |5.58% |Class DTc |Approximately |Capstone ||Pacific | | |Notes, Class|4,500 first |Mortgage ||Financing| | |F Notes and |ranking, |Services ||06-A plc | | |Residual |near-prime |Limited || | | |Certificates|residential | || | | | |mortgages | |+---------+----------+---------+------------+----------------+-------------+|Sestante |Italian |5.55% |Class D and |Approximately |Meliorbanca ||Finance |RMBS | |Class E |3,500 |S.p.A. ||S.R.L. | | |Notes |first-ranking | || | | | |prime | || | | | |residential | || | | | |mortgages | |+---------+----------+---------+------------+----------------+-------------+|RMAC 2005|UK RMBS |5.08% |Mortgage |Approximately |Homeloan ||NS3 plc | | |Early |6,500 |Management || | | |Redemption |first-ranking |Limited || | | |Certificates|prime, near | || | | |and Residual|prime and | || | | |Certificates|non-conforming | || | | | |residential | || | | | |mortgages | |+---------+----------+---------+------------+----------------+-------------+|RMAC 2005|UK RMBS |4.99% |Mortgage |Approximately |Homeloan ||NSP2 plc | | |Early |11,000 |Management || | | |Redemption |first-ranking |Limited || | | |Certificates|prime, near | || | | |and Residual|prime and | || | | |Certificates|non-conforming | || | | | |residential | || | | | |mortgages | |+---------+----------+---------+------------+----------------+-------------+|RMAC |UK RMBS |4.54% |Mortgage |Approximately |Homeloan ||2005-NS1 | | |Early |7,800 |Management ||plc | | |Redemption |first-ranking |Limited || | | |Certificates|prime, near | || | | |and Residual|prime and | || | | |Certificates|non-conforming | || | | | |residential | || | | | |mortgages | |+---------+----------+---------+------------+----------------+-------------+|Southern |UK RMBS |4.45% |Subordinated|Approximately |Southern ||Pacific | | |Loan |3,000 first |Pacific ||Financing| | |Agreement |ranking |Mortgage ||05-B plc | | | |near-prime |Limited and || | | | |residential |Homeloan || | | | |mortgages |Management || | | | | |Limited |+---------+----------+---------+------------+----------------+-------------+|Magellan |Portuguese|3.91% |Class D |Approximately |Banco ||Mortgages|RMBS | |Notes and |23,000 first |Comercial ||No. 1 plc| | |Subordinated|ranking, |Portugues SA || | | |Loan |fully-amortising| || | | |Facility |residential | || | | |Agreement |mortgages | |+---------+----------+---------+------------+----------------+-------------+ Outlook The Company's investment manager, Cheyne Capital, continues to evaluateattractive investment opportunities in the both the UK and continental Europe.In addition to the significant pipeline of residential mortgage-backedinvestment opportunities brought by the continued growth of the globalsecuritisation market, the regulatory capital changes brought by Basel II havemotivated many banks to securitise their portfolios of SME loans. The investmentmanager sees significant potential opportunity for further investment in thisasset class, particularly in the short and medium term. Where the underlying SMEloan portfolios are sufficiently diverse and granular (in terms of the number ofunderlying borrowers), the Company views this asset class as providing a goodcompliment to its consumer finance-backed investments and, consequently, aspotentially providing significant benefit to shareholders in terms of portfoliodiversification as well as investment returns. INDEPENDENT REVIEW REPORT TO QUEEN'S WALK INVESTMENT LIMITED Introduction We have been instructed by the company to review the financial information forthe six months ended 30 September 2006 which comprises the consolidated incomestatement, the consolidated balance sheet, the consolidated statement of changesin equity, the consolidated cash flow statement and related notes 1 to 17. Wehave read the other information contained in the interim report and consideredwhether it contains any apparent misstatements or material inconsistencies withthe financial information. This report is made solely to the company in accordance with Bulletin 1999/4issued by the Auditing Practices Board. Our work has been undertaken so that wemight state to the company those matters we are required to state to them in anindependent review report and for no other purpose. To the fullest extentpermitted by law, we do not accept or assume responsibility to anyone other thanthe company, for our review work, for this report, or for the conclusions wehave formed. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the directors. The directorsare responsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority which require that the accountingpolicies and presentation applied to the interim figures are consistent withthose applied in preparing the preceding annual accounts except where anychanges, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with the guidance contained in Bulletin1999/4 issued by the Auditing Practices Board for use in the United Kingdom. Areview consists principally of making enquiries of group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the accounting policies and presentationhave been consistently applied unless otherwise disclosed. A review excludesaudit procedures such as tests of controls and verification of assets,liabilities and transactions. It is substantially less in scope than an auditperformed in accordance with International Standards on Auditing (UK andIreland) and therefore provides a lower level of assurance than an audit.Accordingly, we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 September 2006. Deloitte & Touche Unaudited Consolidated Income Statement For the period from 1 April 2006 to 30 September 2006 Note Period from Period from 1 April 2006 to 6 September 2005 to 31 March 2006 30 September 2006 Euro Euro Operating income 3 30,667,394 12,480,487 Operating expensesOther operating expenses 4 (6,162,945) (2,455,408)Finance costs 5 (2,954,472) (260,052)Total operating expenses (9,117,417) (2,715,460) Net profit 21,549,977 9,765,027 Distributable profits 6 21,183,213 9,765,027Non-distributable profits 6 366,764 - 21,549,977 9,765,027Earnings per Ordinary Share 8Basic Euro 0.53 Euro 0.24Diluted Euro 0.53 Euro 0.24 Weighted average Ordinary Shares 8 Number NumberoutstandingBasic 40,620,756 40,620,756Diluted 40,721,759 41,063,527 All items in the above statement are derived from continuing operations. All income is attributable to the Ordinary Shareholders of the Company. The accompanying notes form an integral part of the financial statements. Unaudited Consolidated Statement of Changes in Shareholders' Equity For the period from 1 April 2006 to 30 September 2006 Share Share Other Capital Accumulated Total Capital Premium Reserve Reserve Profits Note Euro Euro Euro Euro Euro EuroNet profit for the - - - - 9,765,027 9,765,027period sinceincorporation Total recognised income - - - - 9,765,027 9,765,027and expense Issuance of 14,15 - 406,207,540 - - - 406,207,540Ordinary Shares Share options 14,17 - - - 7,672,500 - 7,672,500issued Costs related 15 - (21,575,951) - - - (21,575,951)to issuance ofOrdinary Shares Cancellation of 15 - (384,631,589) 384,631,589- - -share premium Balance at 31 March 2006 - - 384,631,589 7,672,500 9,765,027 402,069,116 Net profit for - - - - 21,549,977 21,549,977the period Total recognised income - - - - 21,549,977 21,549,977and expense Overaccrual of - - 46,715 - - 46,715costs related toissuance ofOrdinary Shares Distribution to 7 - - - - (20,310,378) (20,310,378)the OrdinaryShareholders ofthe Company Balance at 30 September - - 384,678,304 7,672,500 11,004,626 403,355,4302006 The accompanying notes form an integral part of the financial statements. Unaudited Consolidated Balance Sheet As at 30 September 2006 Note 30 September 31 March 2006 2006 Euro EuroNon-current assetsInvestments at fair value through profit or loss 10 449,585,317 487,890,499 Current assetsCash and cash equivalents 13,557,006 -Derivative financial assets - total return swap 11 41,755,253 -agreementsDerivative financial assets - unrealised gain on 11 1,156,997 680,569forward exchange contracts Other assets 11 14,495,808 5,271,493 70,965,064 5,952,062 Total assets 520,550,381 493,842,561 Equity and liabilities EquityShare capital 14 - -Share premium account 15 - -Other reserve 384,678,304 384,631,589Capital reserve in respect of share options 7,672,500 7,672,500Accumulated profits 11,004,626 9,765,027 403,355,430 402,069,116Current liabilitiesOverdraft and repurchase agreements 12 113,724,744 88,880,531Other liabilities 13 3,470,207 2,892,914Total liabilities 117,194,951 91,773,445 Total equity and liabilities 520,550,381 493,842,561 The accompanying notes form an integral part of the financial statements. These financial statements were approved by the Board of Directors on 13November 2006. Signed on behalf of the Board of Directors by: Christopher Spencer Talmai MorganDirector Director Unaudited Consolidated Cash Flow Statement For the period from 1 April 2006 to 30 September 2006 Note Period from Period from 6 1 April 2006 to September 2005 30 September to 31 March 2006 2006 Euro EuroNet cash inflow/(outflow) from operating 16 47,720,124 (406,156,829)activities Financing activitiesProceeds from issuance of Ordinary Shares - 406,207,540Costs related to issuance of Ordinary - (13,903,451)SharesDividends paid to shareholders 7 (20,310,378) -Cash flows from financing activities (20,310,378) 392,304,089 Net increase/(decrease) in cash 27,409,746 (13,852,740) Reconciliation of net cash flow to movementin net cashNet increase/(decrease) in cash and cash 27,409,746 (13,852,740)equivalentsCash and cash equivalents at 31 March 2006 (13,852,740) -Effect of exchange rate fluctuations on - -cash and cash equivalentsCash and cash equivalents at end of period 13,557,006 (13,852,740) The accompanying notes form an integral part of the financial statements. Notes to the Unaudited Financial Statements for the period from 1 April to 30September 2006 1. General information Queen's Walk Investment Limited (the "Company") was registered on 6 September2005 with registered number 43634 and is domiciled in Guernsey, Channel Islands.The Company commenced its operations on 8 December 2005. The Company is aclosed-ended investment company with limited liability formed under TheCompanies (Guernsey) Law, 1994 and its Ordinary Shares are listed on the LondonStock Exchange. The registered office of the Company is Dorey Court, AdmiralPark, St Peter Port, Guernsey, GY1 3BG, Channel Islands. "Group" is defined asthe Company and its subsidiary. At 30 September 2006, the Company's onlysubsidiary was Trebuchet Finance Limited. The Company's investment objective is to preserve capital and provide stablereturns to Shareholders in the form of quarterly dividends. It seeks to achievethis by investing primarily in a diversified portfolio of tranches ofasset-backed securities ("ABS") where the Investment Manager considers that thecoupon or cash flows on the tranche are attractive relative to the underlyingcredit. These are and will be, in most cases, below investment grade or unratedand do or will, in many cases, represent the residual income positions typicallyretained by the originator of a securitisation transaction as the "equity" or"first loss" position. The Group's investment management activities are managed by its InvestmentManager, Cheyne Capital Management Limited (the "Investment Manager"), aninvestment management firm authorised and regulated by the Financial ServicesAuthority. The Company has entered into an Investment Management Agreement (the"Investment Management Agreement") under which the Investment Manager managesits day-to-day investment operations, subject to the supervision of theCompany's Board of Directors. The Company has no direct employees. For itsservices, the Investment Manager receives a monthly management fee (whichincludes a reimbursement of expenses) and a quarterly performance-related fee.The Company has no ownership interest in the Investment Manager. The Company isadministered by Kleinwort Benson (Channel Islands) Fund Services Limited (the"Administrator"). At the date of authorisation of these financial statements, the followingStandard, which has not been applied in these financial statements, was in issuebut not yet effective: IFRS 7 Financial Instruments: Disclosures; and the related amendment to IAS 1 oncapital disclosures. The Directors anticipate that the adoption of the above Standard in futureperiods will not have a material impact on the financial statements of theCompany and Group except for additional disclosures on capital and financialinstruments when the Standard comes into force for periods commencing on orafter 1 January 2007. The comparative period figures disclosed relate to the period from incorporation(6 September 2005) to 31 March 2006. 2. Significant accounting policies Statement of compliance The financial statements of the Group have been prepared in accordance withInternational Financial Reporting Standards ("IFRS"), which comprise standardsand interpretations approved by the International Accounting Standards Board("the IASB"), and International Accounting Standards and StandingInterpretations Committee interpretations approved by the InternationalAccounting Standards Committee ("IASC") that remain in effect, together withapplicable legal and regulatory requirements of Guernsey Law and the ListingRules of the UK Listing Authority. Basis of preparation The Financial Statements of the Group are prepared under International FinancialReporting Standards on the historical cost or amortised cost basis except thatthe following assets and liabilities are stated at their fair value: derivativefinancial instruments, financial instruments held for trading and financialinstruments classified as fair value through profit or loss. The principal accounting policies are set out below. The preparation offinancial statements in conformity with IFRS requires the Group to makeestimates and assumptions that affect the reported amounts of assets andliabilities at the date of the financial statements and the reported amounts ofrevenues and expenses during the reporting period. Actual results could differfrom those estimates. These financial statements are presented in Euros becausethat is the currency of the primary economic environment in which the Groupoperates. The functional currency of the Group is also considered to be Euros. Basis of consolidation Subsidiaries are entities controlled by the Company. The financial statements ofsubsidiaries are included in the consolidated financial statements from the datethat control commences until the date that control ceases. In accordance with the Standing Interpretations Committee Interpretation 12"Consolidation-Special Purpose Entities" ("SIC 12"), the Company consolidatesonly entities over which control is indicated by activities, decision making,benefits and residual risks of ownership. Where the Company does consolidate aspecial purpose entity ("SPE"), the interest in the notes not held by theCompany will be shown as a liability in the balance sheet. Any income orexpenses attributable to these note holders will be shown as an expense in theincome statement. In accordance with SIC 12 the Company does not consolidate anSPE in which it holds less than a substantial interest in the residual incomeposition. Where it holds more than a substantial interest, it does notconsolidate the SPE where the residual income position represents only a smallpart of the gross assets of the SPE and the Company was neither involved in theestablishment of the SPE or the origination of the assets owned by the SPE, onthe basis that the Company is not exposed to the majority of the risks andbenefits of the assets owned by the SPE, provided control is not otherwiseindicated by the Company's activities, decision making, benefits and residualrisks or ownership. Investments Financial assets are classified as at fair value through profit or loss and arestated at fair value, with any resultant gain or loss being recognised in theincome statement. Where these investments are interest-bearing, interestcalculated using the effective interest method is recognised in the incomestatement. Financial assets classified as at fair value through profit or loss arerecognised/derecognised by the Group on the date it commits to purchase/sell theinvestments in regular way trades. Non-tradeable loans provided by the Group to third parties are accounted for atamortised cost. Cash and cash equivalents Cash and cash equivalents includes amounts held in interest bearing accounts andoverdraft facilities. Derivative financial instruments Derivative financial instruments used by the Group to hedge its exposure toforeign exchange and interest rate risks arising from operational, financing andinvestment activities that do not qualify for hedge accounting are accounted foras trading instruments. The Group may also enter into credit default or totalreturn swap arrangements where the underlying asset or assets would otherwise bewithin the Group's investment policy in order to obtain substantially the sameeconomic exposure to the returns and risks associated with holding suchunderlying asset or assets. Derivative financial instruments (including embedded derivatives) are recognisedinitially at fair value. Subsequent to initial recognition, derivative financialinstruments are stated at fair value. The gain or loss on remeasurement to fairvalue is recognised immediately in the income statement. However, wherederivatives qualify for hedge accounting, recognition of any resultant gain orloss depends on the nature of the item being hedged. Forward exchange contracts Fair value of forward exchange contracts is their quoted market price at thebalance sheet date, being the present value of the quoted forward price. Fair value All financial assets carried at fair value are initially recognised at fairvalue and subsequently re-measured at fair value based on quoted bid priceswhere such bids are available from a third party in a liquid market. If quotedbid prices are unavailable, the fair value of the financial asset is estimatedusing pricing models incorporating discounted cash flow techniques. Thesepricing models apply assumptions regarding asset-specific factors and economicconditions generally, including delinquency rates, prepayment rates, defaultrates, maturity profiles, interest rates and other factors that may be relevantto each financial asset. Where such pricing models are used, inputs are based onmarket related measures at the balance sheet date. Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported withinassets and liabilities when there is a legally enforceable right to set off therecognised amounts and there is an intention to settle on a net basis, orrealise the asset and settle the liability simultaneously. Repurchase agreements The Company may finance the acquisition of some of its investments through theuse of repurchase agreements. Repurchase agreements are treated ascollateralised financing transactions and are carried at their contractualamounts, including accrued interest, as specified in the respective agreements.Accrued interest is recorded as a separate line item on the balance sheet. Derecognition of a financial asset A transfer of a financial asset is accounted for as a derecognition only ifsubstantially all of the asset's risks and rewards of ownership are transferredor control is transferred in the event that not substantially all of the asset'srisks and rewards of ownership are transferred. However, if substantially all ofthe risks and rewards are retained, the asset is not derecognised. Control istransferred if the transferee has the practical ability to sell the assetunilaterally without needing to impose additional restrictions on the transfer. Interest-bearing loans and borrowings Interest-bearing borrowings are recognised initially at fair value lessattributable transaction costs. Subsequent to initial recognition,interest-bearing borrowings are stated at amortised cost with any differencebetween cost and redemption value being recognised in the income statement overthe period of the borrowings on an effective interest basis. Financing costs associated with the issuance of financings are deferred andamortised over the term of the financings using the effective interest ratemethod, in line with market practice. Foreign currency transactions Transactions in foreign currencies are translated at the foreign exchange rateruling at the date of the transaction. Monetary assets and liabilitiesdenominated in foreign currencies at the balance sheet date are translated toEuro at the foreign exchange rate ruling at that date. Foreign exchangedifferences arising on translation are recognised in the income statement.Non-monetary assets and liabilities that are measured in terms of historicalcost in a foreign currency are translated using the exchange rate at the date oftransaction. Non-monetary assets and liabilities denominated in foreigncurrencies that are stated at fair value are translated to Euro at foreignexchange rates ruling at the dates the fair value was determined. Provisions A provision is recognised in the balance sheet when the Group has a presentlegal or constructive obligation as a result of a past event, and it is probablethat an outflow of economic benefits will be required to settle the obligation,and the obligation can be reliably measured. If the effect is material,provisions are determined by discounting the expected future cash flows at apre-tax rate that reflects current market assessments of the time value of moneyand, where appropriate, the risks specific to the liability. Transaction expenses The preliminary expenses of the Company directly attributable to its initialpublic offering and any costs associated with the establishment of the Companyare charged to the share premium or other reserve account. Share options granted to the Investment Manager are treated as a transactionexpense on the basis that they are granted by the Company as a fee for theInvestment Manager's work in raising capital for the Company. The fair value ofsuch options is charged to the share premium account. The share premium accountis credited with the fair value of such options at the time that such optionsare vested. Interest income Interest income is accrued based on the outstanding principal amount of theCompany's financial assets and their contractual terms. Premiums and discountsassociated with the purchase of financial assets are amortised or accreted intointerest income over the projected lives of the investments using the effectiveinterest method as defined under International Accounting Standard 39. TheCompany's policy for estimating prepayment speeds for calculating the effectiveyield is to evaluate historical performance, market consensus indicators andcurrent market conditions. Where the Company adjusts its effective yieldcalculation to take account of any change in underlying assumptions, suchadjustments are recognised in the income statement. Taxation The Company is a tax-exempt Guernsey limited company. Accordingly, no provisionfor income taxes is made. Trebuchet Finance Limited is a "qualifying company"within the meaning of section 110 of the Irish Taxes Consolidation Act 1997 andaccordingly its taxable profits are subject to tax at a rate of 25 per cent.Payments under the Participation Note are paid gross to the Company and theincome portion of such payments is deductible by Trebuchet Finance Limited.Consequently, Trebuchet Finance Limited has a minimal amount of taxable income.The activities of Trebuchet Finance Limited are exempt for Value Added Tax (VAT)purposes under the VAT Act of 1972. Other receivables Other receivables do not carry any interest and are short-term in nature and areaccordingly stated at their nominal value as reduced by appropriate allowancesfor estimated irrecoverable amounts. Financial liabilities and equity Financial liabilities and equity are classified according to the substance ofthe contractual arrangements entered into. An equity instrument is any contractthat evidences a residual interest in the assets of the Company after deductingall of its liabilities. Financial liabilities and equity are recorded at theproceeds received, net of issue costs. Other accruals and payables Other accruals and payables are not interest-bearing and are stated at theirnominal value. 3. Operating Income Period from Period from 6 1 April 2006 to September 2005 30 September 2006 to 31 March 2006 Euro Euro Interest income from cash and cash 147,289 78,188equivalentsInterest income from investments inasset-backed securities 32,063,787 13,299,260Interest income from commercial paper 240,196 485,169Interest income from swap agreements 795,925 36,923Net realised foreign exchange (losses)/gains 2,731,702) 3,710,904Net realised gains on investments 366,764 -Net realised gains on swap agreements 78,052 -Net unrealised foreign exchange losses (292,917) (5,129,957)Total operating income 30,667,394 12,480,487 4. Other operating expenses Period from Period from 6 1 April 2006 to September 2005 30 September 2006 to 31 March 2006 Euro EuroInvestment management, custodian andadministration feesInvestment management and incentive fee (Note 17) 4,734,552 1,814,524Administration fee (Note 17) 180,210 97,785Custodian fee (Note 17) 55,399 29,356 4,970,161 1,941,665Other operating expensesAudit and accounting fees 329,771 54,467Directors' fees payable to Directors ofQueen's Walk Investment Limited 120,000 135,652Directors' fees payable to Directors ofTrebuchet Finance Limited 25,000 8,500Legal fees 123,294 189,210Other expenses 594,719 125,914 1,192,784 513,743 Total other operating expenses 6,162,945 2,455,408 The Company has no employees. 5. Finance costs Period from Period from 6 1 April 2006 to September 2005 30 September 2006 to 31 March 2006 Euro EuroFinance costs arises from:Overdraft - 2,713Total return swap agreements 224,748 -Repurchase agreements 2,729,724 257,339Total finance costs 2,954,472 260,052 6. Distributable and non-distributable profits Non-distributable profits relate to gains from investments which under theUnited Kingdom Listing Rules are prohibited from being distributed to investors.All other income is classed as distributable income. Distributable profitsrepresent the net of this distributable income less operating expenses. Period from Period from 6 1 April 2006 to September 2005 30 September 2006 to 31 March 2006 Euro EuroDistributable earningsDistributable profits 21,183,213 9,765,027Distribution made for quarter end June 2006 (10,561,397) - 10,621,816 9,765,027 Distributable earnings per Ordinary ShareBasic Euro 0.26 Euro 0.24Diluted Euro 0.26 Euro 0.24 7. Dividends Period from Period from 6 1 April 2006 to September 2005 30 September 2006 to 31 March 2006 Euro EuroInterim dividend for the period ended 31 9,748,981 -March 2006Interim dividend for the quarter ended 30 10,561,397 -June 2006Interim amounts recognised as distributionsto equity holders in the period 20,310,378 - Proposed interim dividend for the quarter ended 30 September 2006 of Euro 0.26per share, total proposed distribution of Euro 10,561,397 (period ended 31 March2006 Euro 0.24 per share, total distribution Euro 9,748,981). 8. Earnings per share Period from Period from 6 1 April 2006 to September 2005 30 September 2006 to 31 March 2006 Euro EuroThe calculation of the basic and dilutedearnings per share is based on the followingdata:Earnings for the purposes of basic earningsper share being net profit attributable toequity holders 21,549,977 9,765,027 Weighted average number of Ordinary Shares 40,620,756 40,620,756for the purposes of basic earnings per share Effect of dilutive potential Ordinary Shares:Share options 101,003 442,771Weighted average number of Ordinary Shares 40,721,759 41,063,527for the purposes of diluted earnings pershare 9. Subsidiary Trebuchet Finance Limited was incorporated in Ireland on 19 May 2005 and,pursuant to the Articles of Association of Trebuchet Finance Limited, theCompany has the right to appoint a majority of the Board of Directors ofTrebuchet Finance Limited. Two of the Directors of the Company have beenappointed directors of Trebuchet Finance Limited. To ensure that the Companywill be able to maintain a majority of the Board of directors of TrebuchetFinance Limited in the future, the Company has been allotted a single share inTrebuchet Finance Limited carrying the right to appoint a majority of the Boardof directors. Trebuchet Finance Limited was established for the sole purpose ofacquiring and holding interests in certain assets. 10. Investments Investments are classified as at fair value through profit or loss and arestated at fair value, with any resultant gain or loss being recognised in theincome statement. Amortised cost as derived by the models represents fair valueat the date of this report. Where these investments are interest-bearing,interest calculated using the effective interest method is recognised in theincome statement. The following is a summary of the Group's investments at fairvalue through profit or loss at 30 September 2006 and 31 March 2006: 30 September 31 March 2006 2006Asset-backed securities Euro Euro Opening amortised cost 487,890,499 -Purchases 38,187,842 512,741,882Sales proceeds (45,547,861) -Realised gain 366,764 -Principal paydown received (31,239,686) (18,936,309)Unrealised foreign exchange losses(1) (72,241) (5,915,074)Closing amortised cost 449,585,317 487,890,499 (1)The Group's policy is to hedge foreign exchange exposure resulting fromnon-Euro denominated investments by both entering into foreign exchange hedgingarrangements and, where investments are financed, by entering into financingarrangements that are denominated in the same currencies. 11. Other assets 30 September 31 March 2006 2006 Euro Euro Interest receivable 4,204,782 4,777,493Amounts receivable on securities sold 9,606,914 -Margin amounts held with brokers - 494,000Prepayments 684,112 - 14,495,808 5,271,493 The Directors consider that the carrying amount of other assets approximatestheir fair value. The following foreign exchange forward contracts were unsettled at 30 September2006: Maturity Date Amount Bought Amount Sold Unrealised Gain/(Loss) Euro 29 December 2006 Euro 179,506,136 GBP 121,400,000 1,156,997 29 December 2006 Euro 112,034,949 USD 143,100,000 (408,630) 748,367 On 9 August 2006, the Company's subsidiary, Trebuchet Finance Limited("Trebuchet"), entered into three total return swap transactions with CitigroupFinancial Products Inc. ("Citigroup"). All of the transactions provideTrebuchet with economic ownership of the reference assets and two of thetransactions effect leverage. The transactions are summarised in the followingtable. Reference Asset % of Reference Reference Servicer/ Notional Amount Asset Purchase Asset Type AdministratorReference Asset Price Posted as CollateralRMAC 2005-NS4 Plc GBP 8,970,000 100% UK RMBS HomeloanResidual ManagementCertificates and LimitedMortgage EarlyRedemptionCertificatesRMAC 2005-NS3 Plc GBP 17,565,000 50% UK RMBS HomeloanResidual ManagementCertificates and LimitedMortgage EarlyRedemptionCertificatesRMAC 2005-NSP2 GBP 17,665,000 50% UK RMBS HomeloanPlc Residual ManagementCertificates and LimitedMortgage EarlyRedemptionCertificates The fair value of the amounts receivable on the total return swap transactionsat the period end was Euro 41,755,253. 12. Overdraft and repurchase agreements 30 September 31 March 2006 2006 Euro Euro Net overdraft and cash equivalents - 13,852,740Repurchase agreements 113,724,744 75,027,791 113,724,744 88,880,531 Asset-backed securities totalling Euro 113,474,656 have been granted as securityin relation to the repurchase agreements. The weighted average interest rates onthe repurchase agreements as at 30 September 2006 were 3.49% (Euro), 5.86% (GBP)and 6.33% (USD). The repurchase agreements outstanding at 30 September 2006matured between 4 October 2006 and 31 October 2006 and have been rolled. 13. Other liabilities 30 September 31 March 2006 2006 Euro Euro Interest payable 282,570 196,634Due to related parties - Investment Manager (Note 1,316,500 1,814,52417)Derivative financial liabilities - unrealised losson forward exchange contracts 408,630 -Accrued expenses 1,462,507 881,756 3,470,207 2,892,914 Other liabilities principally comprise amounts outstanding in respect ofinterest payable and ongoing costs. The Directors consider the carrying amountof other liabilities approximates to their fair value. 14. Share capital Authorised share capital 30 September 30 September 2006 2006 Number of Euro Ordinary SharesOrdinary shares of no par value each Unlimited - Issued and fully paid Number of Euro Ordinary SharesBalance at start of period 40,620,756 -Issue of new Ordinary Shares with no par value during - -the periodBalance at 30 September 2006 40,620,756 - Authorised share capital 31 March 2006 31 March 2006 Number of Euro Ordinary SharesOrdinary shares of no par value each Unlimited - Issued and fully paid Number of Euro Ordinary SharesBalance at date of incorporation 2 -Issue of new Ordinary Shares with no par value during 40,620,754 -the periodBalance at 31 March 2006 40,620,756 - Upon incorporation 2 Ordinary Shares of no par value were issued. On 13 December2005 the Company issued 22,500,000 Ordinary Shares for subscription in itsInitial Public Offering at an Offer Price of Euro 10 per share. In addition, theCompany simultaneously issued 17,900,754 Ordinary Shares to Cheyne ABSOpportunities Fund LP (along with transferring the two Ordinary Shares issued onincorporation) in exchange for a portfolio of investments and 220,000 OrdinaryShares were also issued to the Directors. In recognition of the work performed by the Investment Manager in raisingcapital for the Company, the Company granted to Cheyne Global Services Limitedon 8 December 2005 options representing the right to acquire 2,250,000 Shares,being 10 per cent of the number of Offer Shares (that is, excluding the Sharesissued to Cheyne ABS Opportunities Fund LP and the Shares issued to theDirectors), at an exercise price per share equal to the Offer Price. 15. Share premium account 30 September 31 March 2006 2006 Euro Euro Balance at start of period - -Premium arising from issue of Ordinary Shares - 406,207,540Expenses of issue of Ordinary Shares - (13,903,451)Share options granted on issue of Ordinary - (7,672,500)SharesCancellation of share premium transferred to - (384,631,589)other reserveBalance at end of period - - The Ordinary Shares of the Company have no par value. As such, the proceeds ofthe Initial Public Offering represent the premium on the issue of the OrdinaryShares. In accordance with the accounting policies of the Company and as allowedby The Companies (Guernsey) Law, 1994, the costs of the Initial Public Offeringhave been written off against the share premium/other reserve account. The issuecosts associated with the Initial Public Offering amounted to Euro 13,856,736and share options with a value of Euro 7,672,500 (Notes 14 and 17). The Company has passed a special resolution cancelling the amount standing tothe credit of its share premium account immediately following admission to theLondon Stock Exchange. In accordance with The Companies (Guernsey) Law, 1994 (asamended) (the "Companies Law"), the Directors applied to the Royal Court inGuernsey for an order confirming such cancellation of the share premium accountfollowing admission. The Other reserve created on cancellation is available asdistributable profits to be used for all purposes permitted by the CompaniesLaw, including the buy back of Ordinary Shares and the payment of dividends. 16. Notes to cashflow statement Period from Period from 6 1 April 2006 to September 2005 30 September to 31 March 2006 2006 Euro Euro Net profit 21,549,977 9,765,027Adjustments for:Realised gains on sale of investments (366,764) -Unrealised foreign exchange losses 72,241 5,915,074Unrealised gains on derivatives foreign (67,798) (680,569)exchange losses 21,187,656 14,999,532 Purchases of investments and swap agreements (79,943,095) (512,741,882)Sales proceeds 35,940,947 -Principal paydown received 31,239,686 18,936,309 (12,762,462) (493,805,573) Net borrowings under repurchase agreements 38,696,953 75,027,791 Decrease/(increase) in receivables 382,599 (5,271,493)Increase in payables 215,378 2,892,914 597,977 (2,378,579) Net cash inflow/(outflow) from operating 47,720,124 (406,156,829)activities Purchases and sales of investments are considered to be operating activities ofthe Group, given its purpose, rather than investing activities. Cash and cash equivalents includes amounts held in interest bearing accounts andoverdraft facilities. 17. Material agreements and related parties Investment Manager The Company and Trebuchet Finance Limited are parties to an InvestmentManagement Agreement with the Investment Manager, dated 8 December 2005,pursuant to which each of the Company and Trebuchet Finance Limited hasappointed the Investment Manager to manage their respective assets on aday-to-day basis in accordance with their respective investment objectives andpolicies, subject to the overall supervision and direction of their respectiveBoards of Directors. The Company pays the Investment Manager a Management Fee and Incentive Fee (seeNotes 4 and 13). Management Fee Under the terms of the Investment Management Agreement, the Investment Manageris entitled to receive from the Company an annual management fee of 1.75 percent of the net asset value of the Company other than to the extent that suchvalue is comprised of any investment where the underlying asset portfolio ismanaged by the Investment Manager (as is the case with Cheyne ABS Investments Iplc, Cheyne Finance plc, Cheyne High Grade ABS CDO Ltd and Cheyne CLOInvestments I Limited). The management fee is calculated and payable monthly inarrears. Incentive Fee Under the terms of the Investment Management Agreement, the Investment Manageris entitled to receive an incentive compensation fee in respect of eachincentive period that is paid quarterly in arrears. An incentive period willcomprise each successive quarter, except the first such period was the periodfrom admission to the London Stock Exchange to 31 March 2006. The Incentive Fee for each incentive period is an amount equivalent to 25 percent of the amount by which A exceeds (B x C) where: A The Company's consolidated net income taking into account any realised or= unrealised losses (but only to the extent they have not been deducted in a prior incentive period) and excluding any gains from the revaluation of investments, as shown in the Company's latest consolidated management accounts for the relevant quarter, before payment of any Incentive Fee;B An amount equal to a simple interest rate equal to two per cent per quarter,= subject to the reset mechanic described below (the "Hurdle Rate"); andC The weighted average number of Shares outstanding during the relevant quarter= multiplied by the weighted average offer price of such Shares. For the purposes of calculating the Incentive Fee, the Hurdle Rate will be reseton 1 April 2009, and on each 1 April thereafter to equal the greater of (i) asimple interest rate equal to two per cent per quarter, or (ii) one quarter ofthe sum of the then-prevailing yield per annum on ten-year German Bunds and300 basis points. While the Company will not pay a Management Fee in respect ofthat portion of its portfolio that is comprised of investments where theInvestment Manager receives fees for its management of the underlying assetportfolio, the income from such investments will be included in the consolidatednet income of the Company for the purpose of calculating the Incentive Fee. Administration Fee Under the terms of the Administration Agreement, the Administrator is entitledto receive from the Company an administration fee of 0.125 per cent of the grossasset value of the Company up to Euro 80,000,000 and 0.0325 per cent of thegross asset value of the Company greater than Euro 80,000,000. Investments in other entities managed by the Investment Manager As at 30 September 2006, the Company held investments with a total value of Euro50,362,887 in the following entities, which are managed by the InvestmentManager: Cheyne Finance Plc; Cheyne ABS Investments I PLC; Cheyne High Grade ABSCDO Ltd; and Cheyne CLO Investments I Limited. Custodian Fee Under the terms of the Custodian Agreement, the Custodian is entitled to receivefrom the Company a custodian fee of 0.03 per cent of the gross asset value ofthe Company up to Euro 80,000,000 and 0.02 per cent of the gross asset value ofthe Company greater than Euro 80,000,000, plus additional fees in relation totransaction fees, statutory reporting, corporate secretarial fees and other outof pocket expenses. Investment Manager Options In recognition of the work performed by the Investment Manager in raisingcapital for the Company, the Company granted to Cheyne Global Services Limitedon 8 December 2005 options representing the right to acquire 2,250,000 Shares,being 10 per cent of the number of Offer Shares (that is, excluding the Sharesissued to Cheyne ABS Opportunities Fund LP and the Shares issued to theDirectors), at an exercise price per share equal to the Offer Price. TheInvestment Manager Options are fully vested and immediately exercisable on thedate of admission to the London Stock Exchange and will remain exercisable untilthe 10th anniversary of that date. The Company may grant further InvestmentManager Options in connection with any future offering of Shares. Such options,if any, will represent the right to acquire Shares equal to not more than 10 percent of the number of Shares being offered in respect of that future offeringand will have an exercise price equal to the offer price for that offering. Theaggregate fair value of the options granted at the time of the Initial PublicOffering using a Black-Scholes valuation model was Euro 7,672,500 (reflecting avaluation of Euro 3.41 per option). This amount has been treated as a cost ofthe Initial Public Offering. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Real Est.cred