1st May 2007 12:14
Crosby Capital Partners Inc01 May 2007 CROSBY CAPITAL PARTNERS INC. REVISED FINANCIAL FORECAST AT IB DAIWA London, 1 May 2007 - Crosby Capital Partners Inc. ("Crosby") notes theannouncement made today by IB Daiwa Corporation ("IB Daiwa" - JASDAQ 3587) thatrelate to write-downs and provisions against assets within IB Daiwa's Lodoresubsidiary. These are non-cash items within the profit and loss account thatresult in extraordinary charges that impact the net profit for the year endedMarch 2007 - the sales revenue and ordinary profit forecasts are unchanged. Crosby owns, through two wholly owned subsidiaries, 102,425,000 shares in IBDaiwa, representing 24.02% of its issued share capital. The holdings haveremained unchanged from the 2006 Interim Report of Crosby and are classified as'financial assets at fair value through profit and loss' and are, therefore,marked to market with gains and losses being recognised in the income statement. Crosby's CEO, Simon Fry, commented: 'Lodore is a high risk/high impact oil andgas exploration business and, whilst these write-downs reflect disappointingdrilling results and a related decrease in Lodore's balance sheet position, wewelcome IBDs moves to create a stable, realistic financial base and operatingplan that will enable Lodore to fully exploit the potential of its remainingasset portfolio. Within Lodore's current exploration programme, Endevour iscurrently being drilled and we look forward to hearing about the results in duecourse.' IB Daiwa's JASDAQ announcement can be found below and is also available on IBDaiwa's website: www.ibdaiwa.co.jp. About Crosby Capital Partners Crosby Capital Partners Inc. is a leading independent deal-focused Asia-orientedmerchant banking and asset management group. Crosby is quoted on the AIM marketof the London Stock Exchange. Further details can be found on the Company'swebsite www.crosby.com. For further information on Crosby please contact: Steve Fletcher, Chief Operating Officer on +44 20 7590 2800 Revisions to Forecasts for Consolidated and Unconsolidated Financials for Fiscal Year Ended March 2007 As part of their business planning process, IB Daiwa Corporation and itsconsolidated subsidiaries (IB Daiwa Corporation as individual or together, the"Company") review their operational and financial plans in their annual fiscalclosing. The accounts for the fiscal year ended March 2007 ("FY2006") of IBDaiwa Corporation and its consolidated subsidiaries are also currently beingreviewed by their respective auditors in the annual audit process. During thecourse of this audit review and business planning process, the Company hasconcluded that the consolidated and unconsolidated financials for FY2006 willdiffer from the forecasts announced in the "Revisions to Forecasts forConsolidated and Unconsolidated Financials for Current Fiscal Year" dated 9March 2007. The differences result from the write-down of certain sunk well andlease costs captilised on Lodore's balance sheet and the write-down ofLodore-related goodwill, as described below, and reflect the Company's prudentapproach towards the valuation of its assets. These costs are sunk and thereforehave no cash impact. As such, the Company hereby announces the followingrevisions to the consolidated and unconsolidated financial forecasts for FY2006. Lodore mainly engages in business of exploration of oil and gas prospects.Tremendous return could be achieved if a discovery of resources could be made.However, in the event of failures, the company has to write off capitalisedcosts (which include leases costs and drilling costs, amongst others). InDecember 2005, IB Daiwa acquired Lodore, which was at the time listed on the AIMmarket of the London Stock Exchange, for a consideration of approximately JPY 24billion in a share offer. The consideration was mainly determined based on atechnical report prepared by an independent technical consultant on theprospective resources of the 19 prospects in which Lodore has rights toparticipate, the market price of the shares of Lodore as quoted on the AIMmarket and an independent accountant's valuation report. Since IB Daiwa'sacquisition, Lodore has elected to participate in 4 exploration projects. 2 haveturned out to have found gas successfully (Kami and Big Mouth Bayou), 1 is inprogress (Endeavors AMI), and 1 is to be tested (Plum Deep). Although Lodore hasmade good progress in exploration so far, given the delays in certainexploration projects and cost over-runs, and constraints faced by the Company inobtaining financings, Lodore finds it necessary to seek to farm out certainhigher priority prospects while opting out of certain low priority projects.Under these circumstances, in consultation with its auditor, Lodore decidedtoday to take a prudent approach and provide against the exploration costs forcertain projects, and IB Daiwa decided today to write-down Lodore relatedgoodwill. 1. Revisions to Forecasts (Consolidated) (Unit: JPY in millions)+-----------------------+-----------------+-----------------+-----------------+| | Sales Revenue| Ordinary Profit| Net Profit|+-----------------------+-----------------+-----------------+-----------------+|Previous Forecast (A) | 2,923| - 3,246| - 1,710|+-----------------------+-----------------+-----------------+-----------------+|Revised Forecast (B) | 2,923| - 3,246| - 23,635|+-----------------------+-----------------+-----------------+-----------------+|Variance (B-A) | -| -| - 21,925|+-----------------------+-----------------+-----------------+-----------------+|Variance (%) | -| -| - 1,282%|+-----------------------+-----------------+-----------------+-----------------+|Reference: Actual | 2,433| - 165| - 239||Results for Previous | | | ||Period | | | || | | | ||(1 Apr 05 - 31 Mar 06) | | | |+-----------------------+-----------------+-----------------+-----------------+ (Unconsolidated) (Unit: JPY in millions)+-----------------------+-----------------+-----------------+-----------------+| | Sales Revenue| Ordinary Profit| Net Profit|+-----------------------+-----------------+-----------------+-----------------+|Previous Forecast (A) | 1,129| - 703| - 928|+-----------------------+-----------------+-----------------+-----------------+|Revised Forecast (B) | 1,129| - 703| - 20,964|+-----------------------+-----------------+-----------------+-----------------+|Variance (B-A) | -| -| - 20,036|+-----------------------+-----------------+-----------------+-----------------+|Variance (%) | -| -| - 2,159%|+-----------------------+-----------------+-----------------+-----------------+|Reference: Actual | 2,140| - 250| - 294||Results for Previous | | | ||Period | | | || | | | ||(1 Apr 05 - 31 Mar 06) | | | |+-----------------------+-----------------+-----------------+-----------------+ 2. Reasons for Revisions to Forecast for Consolidated Financials (Consolidated) No revision is made to the projection for the consolidated sales revenue norordinary loss for FY2006. The revised forecast for the consolidated net loss for FY2006 is JPY 23,635million, which is JPY 21,925 million larger than the previous forecast. The revision to the consolidated net loss is attributable to the extraordinarylosses as described below. (1) Write-off of certain capitalised well and lease costs on Lodore's book In consultation with its auditor, Lodore has decided to write off and provideagainst certain capitalised sunk well and lease costs as described below. Thetotal of these write-offs and provisions is JPY 2,841 million Lodore capitalises both lease costs and exploration costs incurred during thedrilling process. In the case of success, capitalised costs are amortised whenproduction commences, and in the case of failure, capitalised costs atwritten-off immediately. The provisions for FY 2006 relate to (i) the capitalised well and lease costsfor the Plum Deep area, (ii) the capitalised well costs for the Big Mouth Bayouarea, and (iii) the capitalised costs for several leases (including the MurdochSouth prospect, the Little Cheniere prospect and the Pumpkin Ridge prospect). (i) Provisions for the capitalised well and lease costs for the Plum Deep area At Plum Deep, Lodore and its joint venture partners found four prospective gasbearing zones. In January 2007, it was concluded that the three deeper zones arenon-commercial. There is some evidence of hydrocarbon-bearing sands in theshallowest zone and testing is scheduled to commence when a rig becomesavailable. Originally, the Company planned to write off the capitalised drillingand lease costs for the well only if it is determined that the shallow zone isnon-commercial after testing is completed. However, as the timing of the testingof the shallow zone has not yet been confirmed, Lodore after consulting with itsauditor has decided to take a prudent approach in providing against the entirewell and associated costs of the Plum Deep area in this fiscal year. It is the current estimate that the testing result for the shallow zone willbecome available sometime in FY2007. As all the costs related to the Plum Deepprospect have been provided for already, there will not be material negativeimpacts to FY2007 consolidated financials of the Company even if the testingresults turn out to be negative. In case of a success, the Company will book theincome to be generated from its share of the production from the acreage in itsconsolidated profit and loss statement. (ii) Provisions for the capitalised well costs for the Big Mouth Bayou area At Big Mouth Bayou, Lodore and its joint venture partners, whilst drillingtowards the deep target zones at the Millrich Properties LLC #1 well, drilledthrough relatively shallow gas-bearing CR sands. Due to technical constraints,bringing the CR sands into production from the existing well has been takingmore time than the Company originally expected and, although there is no changein the Company's intention to commercialise the CR sands, it is currentlyexpected that the Company will require further time and capital to do so. Assuch, after consulting with its auditor, Lodore has decided to take a similarprudent approach to that taken at the Plum Deep prospect in deciding to provideagainst the relevant sunk capitalised well costs. However, Lodore has not provided against the capitalised lease costs for theacreage, as it has not changed its intention to commercialise the CR sands andit also intends to drill new wells to explore deeper prospects within the sameacreage in the future. In the event that Lodore successfully brings the CR sands into production, theCompany will book the income to be generated from its share of the productionfrom the acreage in its consolidated profit and loss statement. (iii) Write-offs and provisions for the capitalised costs for certain leases In addition, Lodore has also decided to provide against capitalised costs forcertain leases including the Murdoch South prospect, the Little Cheniereprospect and the Pumpkin Ridge prospect, as there is no concrete plan fordrilling the prospects and the leases will expire unless drilling commences thisyear. These prospects are of relatively lower priority to Lodore as they arebelieved to have either lower potentials or lower probability of success. Thefinal decisions on whether or not to explore each of these prospects will bemade before each of the leases expires, taking into consideration Lodore'sfinancial position, business environment and other factors. The capitalised costs related to the Endeavor, North West Kaplan and Manzanoprospects have not been provided against as drilling at Endeavor has not yetbeen completed, Lodore intends to commence drilling at North West Kaplan duringFY 2007, and the Manzano lease expiration will not come during FY2007 and thecurrent intention of Lodore is to participate in drilling of Manzano in thefuture. The capitalised lease costs and other costs related to the Kami wellhave not been provided for. (2) Write-down of the goodwill arising from the consolidation of Lodore'saccounts. The provisions against certain capitalised costs at Lodore described above hastriggered a re-evaluation of the Lodore-related goodwill on the Company'sconsolidated balance sheet. In re-evaluating the Lodore-related goodwill, theCompany allocated the Lodore-related goodwill (JPY 22,863 million as at theacquisition of Lodore) to all the prospects in which Lodore had rights toparticipate as at the time of its acquisition by the Company, based on theunrisked mean estimated reserve potentials for each of the prospects. TheCompany has decided to write-down the goodwill by JPY 19,085 million, which isJPY 20,036 million of the Lodore-related goodwill attributable to the prospectswhose well and/or lease costs have been provided for by Lodore, less JPY 951million already amortised in Q1 of Q3 of FY2006. The above extraordinary losses are all related to Lodore and as of today therehas been no write-down of Darcy-related goodwill or Darcy's assets. However,please note that the audit review processes at Darcy and at the Company arestill in progress and there may be further changes to the financial forecastrelated to Darcy. (Unconsolidated) No revision is made to the projection for the unconsolidated sales revenue norordinary loss for FY2006. The revised forecast for the unconsolidated net loss for FY2006 is JPY 20,964million, which is JPY 20,036 million larger than the previous forecast. The revised forecast for the unconsolidated net loss is attributable to JPY20,036 million of write-down of the investment in subsidiaries account, whichhas been triggered by the write-down of Lodore-related goodwill on theconsolidated balance sheet, as described above. Notes: The above forecast is estimated based on currently available information and maybe subject to further changes during the course of the audit process which isstill in progress. The Company will announce further changes, if any, to itsforecast as soon as they become known. The Company plans to make FY2006 financial results available to the market on 15May 2007. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
ZOL.L