SWGI Growth Fund - 2009 Annual Report
SWGI Growth Fund - 2009 Annual Report
SWGI Growth Fund - 2009 Annual Report
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CONTENTS
Page Directors, Investment Manager and Advisers Report of the Directors Investment Report Auditor's Report Audited Financial Statements Notes to the Audited Financial Statements Group Financial Summary 1 3 5 6 8 13 48
DIRECTORS, INVESTMENT MANAGER AND ADVISERS Directors of the Fund Dr Gerd Jakob (Chairman) (German) Rhoenstrasse, 88 63571 Gelnhausen Germany Mr Igor Ryaskov (Russian) 7 Verginas Zavos Cypress Gardens, Flat/Office F17 P.O. 4532 Limassol, Cyprus
Mr Allan Cooper (British) Neugustrasse 9 8002 Kilchberg Switzerland Investment Manager SWGI Asset Management Limited Third Floor, Withfield Towers, 4792 Coney Drive Belize City Belize Custodians ING Bank (Eurasia) ZAO 31 Krasnoproletarskya 127473 Moscow Russia RBS Coutts Bank AG Stauffacherstrasse 1 CH-8022 Zurich Sponsoring Broker First Bermuda Group PO Box HM 3216 Hamilton HM NX Bermuda Administrator Millennium Wealth Management AG Clarrdenstr. 36 P.O. Box 8027 Zurich Switzerland Auditors Lubbock Fine Chartered Accountants Russell Bedford House City Forum 250 City Road London EC1V 2QQ
DIRECTORS, INVESTMENT MANAGER AND ADVISERS (continued) Legal Advisers to the Fund in the Cayman Islands Maples and Calder PO Box 309 Ugland House South Church Street George Town, Grand Cayman Cayman Islands British West Indies In Cyprus Antis Triantafyiildes & Sons, Advocates Capital Centre, 9th Floor 2-4 Arch. Makarios 11 Avenue 1 Nicosia Cyprus Registered Office of the Fund PO Box 309 Ugland House South Church Street George Town, Grand Cayman Cayman Islands British West Indies In Russia Vinson & Elkins LLP Novinsky Boulevard 31 Moscow 123242 Russia
REPORT OF THE DIRECTORS The Directors are pleased to present the Annual Report {including the Audited Consolidated Financial Statements) of SWGI Growth Fund ("the Fund") for the year ended 31 December 2009. Organisation The Fund is an exempt closed-ended company incorporated and registered on 17 September 1997 under the Companies Law (revised) Chapter 22 of the Cayman Islands. The shares of the Fund have been admitted to the Official List of the Bermuda Stock Exchange, On 22 November 2000, an Extraordinary Resolution was passed in order to convert the Fund into an openended investment company as contemplated by Article 11 of the Articles of Association of the Fund in order to permit redemption of the issued shares of the Fund at that date. On 23 May 2001 new shares in the Fund were issued and it was proposed to close-end the Fund again for a further four years. By a Special Resolution dated 20 June 2001, Article 11 of the Articles of Association of the Fund was changed and the Fund was closed-ended for four years from that date. On 6 February 2006, an Extraordinary Resolution was passed authorising the directors to open-end the Fund for a period of 30 days in the 2006 calendar year by written notice to each shareholder in advance of such period so that shareholders may redeem their shares in accordance with Article 43 of the Fund's Articles of Association. Following this period the Fund would again become close-ended. On the 30 June 2006 the Directors open-ended the fund for the period from the 30 June 2006 to 7 July 2006. On the 7 July 2006 3,515,037 of the ordinary shares were redeemed at a Net Asset Value of US$ 488.6649 per share and the Fund reverted to a close-ended fund. Investment Objective The investment objective of the Fund is to provide capital appreciation through investments in medium sized companies or projects with the potential to experience rapid and consistent growth. Other than the investment in OAO Novatek, the Directors' beiieve that the time between making the initial investment and creating an exit from the investment will be between 24 and 48 months. On the 19 August 2004 the Directors amended the Investments Restriction section of the SWGI Growth Fund Continuing Offer letter dated 5 March 2003 to allow the Fund and its subsidiary SWGI Growth Fund Cyprus Limited to invest in "non-marketable" securities for periods in excess of 18 months. Further details of the Fund's Investment Objectives are set out in the Investment Report.
REPORT OF THE DIRECTORS (continued) Results and Dividends The results for the year ended 31 December 2009 are set out in the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position and the Statement of Changes in Equity included in the Financial Statements. No dividends have been declared for the year ended 31 December 2009 (2008 - U S $ 41,177,638). Directors The following Directors held office during the period: Dr Gerd Jakob Mr Igor Ryaskov (appointed 11 August 2009) Mr Allan Cooper Substantial Interests As at 31 December 2009 the Directors were aware of the following shareholders who held more than 3% of the share capital of the Fund: Registered Name SWGI Asset Management Limited SWGI Asset Management Limited Total Shareholding 100 Founder Shares 3,860,198 Shares Percentage 100.00% 100.00%
As at 31 December 2009, none of the Directors had any interests in the shares of the Fund. Share Capital The details of the issued share capital of the Fund are set out in note 15 to the financial statements. Independent Auditors The Independent Auditors, Lubbock Fine, have expressed their willingness to continue in office. A resolution giving authority to the Board of Directors to fix their remuneration will be proposed at the Annual General
Board
29 June! 2010
Dear Shareholder of SWGI Growth Fund As we reflect on the shifting fortunes of 2009 and consider the year ahead we find the steadily unfolding global economic recovery reassuring but incomplete. Europe's debt crisis is increasing the risk of a downturn in the global economic economy and lower prices for oil and gas, Russia's biggest export, and SWGI Growth Fund's ("SWGI") major sphere of interests. Nevertheless, our baseline forecast for the global economy assumes further revival and we enter 2010 with a cautiously optimistic stance, Our share price increase over the past year was robust, growing with the NOVATEK share price performance and the overall benchmark Russian index. By the end of 2009 our Net Asset Value was US$ 2.6 billion, representing a growth of around 374%. We believe most major emerging market economies will continue to outpace economic growth in the developed world. We anticipate that this will translate into faster earnings growth and ultimately higher equity market returns. Although valuations of emerging market equities are less attractive than at the beginning of 2009, we do not regard current prices as expensive given the improving economic fundamentals. Among the markets of the largest emerging nations or so called BRIC (Brazil, Russia, India and China) countries, the Moscow Interbank Currency Exchange (MICEX) has the highest earnings yield and it is almost double the 6.1% yield on Standard & Poor's 500 index, the benchmark measure for U.S equities. When the global economy stabilises, the strengths of Russia will come to the fore, and the market will be seen as cheap given Russia's higher earnings growth prospects, lower debt levels and smaller government budget deficit. Looking forward to 2010, we expect that SWGI's activities will focus on seeking new investments in Russian real estate projects as well as on increasing its shareholdings in the Russian crude oil and natural gas production sectors, mainly reflected by growth of our share in the capital of OJSC NOVATEK.
Ltd., Belize
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SWGI GROWTH FUND AND ITS SUBSIDIARY UNDERTAKINGS INDEPENDENT AUDITOR'S REPORT
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FOR THE YEAR ENDED 31 DECEMBER 2009 Report on the Consolidated Financial Statements We have audited the accompanying consolidated financial statements of SWGI Growth Fund ("the Fund") and its subsidiary Undertakings (collectively referred to as "the Group") which comprise the consolidated statement of financial position, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year ended 31 December 2009, and a summary of significant accounting policies and other explanatory notes. This report is made solely to the Fund's shareholders as a body. Our audit work has been undertaken so that we might state to the Fund's shareholders those matters that we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Fund and the Fund's shareholders as a body, for our audit work, for this report or for the opinions formed. Management's Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards. This responsibility includes; designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditor's Responsibility
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( ( < ( f , . Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error, in making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
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SWGI GROWTH FUND AND ITS SUBSIDIARIES INDEPENDENT AUDITOR'S REPORT FOR THE YEAR ENDED 31 DECEMBER 2009 (continued) Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Fund as at 31 December 2009 and the results of its operations and its cash flows for the year then ended in accordance with International Financial Reporting Standards.
Russell Bedford House City Forum, 250 City Road London EC1V2QQ England
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2009 {Expressed in United States Dollars) 31-Dec 2009 Note Non-Current Assets Aircraft, furniture and equipment Loans due from related party Loans due from third parties Promissory notes receivable 7 24(a) 8 24(b) 74,154,594
-
US$
11.198,579
-
85,353,173 Current Assets Investments Held for Trading Securities at cost It nrealised a pp neciation/{dep recia(ion) Directors Valuation OtherCurrent Assets Loans due from related parties Loans due from third parties Promissory notes receivable Proceeds due for sale of investments Prepayments and accrued income receivable Dual currency deposits Cash and cash equivalents 9 10 11 24{a) 8 24(b)
-
28,342,282 92,235,445
-
3,276,198,242
12
75,000,000 (75,000,000)
Currant Liabilities Consideration payable for acquisition of investments Loans due to related parties Bank loans Unpaid dividends Current tax payable Accrued expenses and other payables
-
24(a) 12 24(d) 13 14
49,213,625 (637,912,446)
(637,912,446) 2,638,285,796
The notes on pages 13 to 47 are an integral part of these consolidated financial statements
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2009 (Continued) (Expressed In United States Dollars) 31-Dec 200 9 Note SHAREHOLDERS'EQUITY REPRESENTED BY : Share capital Excess of redemptions over subscriptions Retained profit brought forward Retained (loss) / profit for the year (including net lealised (lossesj/gains on investments) Accumulated net unrealised appreciation/(depreciation) on investments 17 15 16 38,702 (1,649,996,775) 2,724,715,986 (313,346,962) 1.876,874,845 2,638,285,796 38,702 (1,649,996,775) 2,677,254,807 47,461,179 (518,279,415) 556,478,498 31-Dec
2008
uss
uss
Weighted average number of ordinary shares in issue Weighted average number of founder shares in issue
3,860,198 100
3,860,198
100
The notes on pages 13 to 47 are an integral part of these consolidated financial statements
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the Year Ended 31 December2009 (Expressed in United States Dollars) Year Ended 31/12/2009 US* 42,209,547 3,694,477 2,364,616 12,557,033 3,693,500 21,717,962 66,637,136 Expenses Bank overdraft interest Loan interest Interest payable on Promissory Notes Audit, legal & professional fees Salaries and related costs Administration fees Depreciation Aircraft running costs Custodyfees Loan waived Provision against loan receivable and accrued interest thereto Commission Operating lease rentals Directors'fees Directors'expenses Other operating expenses Interest on overdue taxation Loss on liquidation of investee companies Year Ended 31/1212008 USJ 44,951,151 9,550,422 10,392,310 13,869,743 1,106,246 31,631,949 111.501,B21
Note Income Dividend income Deposit interest Loan interest Interest on promissory notes Sale of share options Otherincome Foreign exchange gains 24(e)
24(b)
(25,121,832) (2,861) (945,196) (179,728) (86,667) (2,597,114) (4,184,236) (1,671,699) (30,976,436) (199,889) (301,040) (1,666,441) (1,053) (31,442) (67,965,636)
(73) (20,540,998) (522,973) (246,793) (106,000) (2,631,923) (5,028,468) (1,569,573) (3,390,021) (196,306) (29,648) (143,167) (374,160) (1,331,918) (1,165) (51,023) (36,164,209) 75,337,612 (2,619,683)
4 19.4 7 19.5
4 and 22 22
Net Profit for the Year Before Tax and Investment Result Tax on income 6 and 20
13,671,500 (1,984,587)
Net Profit for the Year After Tax and Before Investment Result Net realised/(loss) gain on investments In securities Movement in net unrealised appreciation/(depreciatlon) on investment in securities Total Comprehensive lncoma/(Loss) for the Year
Weighted average number of ordinary shares in issue Weighted average number of founder shares in issue lncrease/(deorease) in net assets per share - Ordinary Share - Foundershare
The results from the current year and prior period are derived from continuing operations.
The notes on pages 13 to 47 are an integral part of these consolidated financial statements
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CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the Year Ended 31 December 2009 (Expressed in United States Dollars) Year Ended 31/12/2009 Note US* Year Ended 31/12/2008 US$
Net assets attributable to shareholders at 1 January 2009 Total Comprehensive Profit/(Loss) for the Year Dividend payable Net assets attributable to shareholders at 31 December 2009 21
556,478,498 2,081,807,298
2,638,285,796
556,478,498
The notes on pages 13 to 47 are an integral part of these consolidated financial statements
CONSOLIDATED STATEMENT OF CASH FLOWS For the Year Ended 31 December 2009 (Expressed in United Stales Dollars) Year Ended 31/12/2009 Notes Cash lnflow/(Outflow) from Operating Activities Tax paid Net Cash lnflow/(Outflow)from Operating Activities Investing Activities Loan interest received - related parties Sale of share options Interest income received on bonds Interest income received on asset management Interest income received on Promissory Notes Deposit interest received Dividends received {net of withholding tax) Issue of loans to related parties - Non-current assets Issue of loans to related parties - Current assets issue of other loans - Non-current assets Repayment of loans by related parties Purchase of aircraft, furniture and equipment Purchase of investments held for trading Proceeds from sale of investments held for trading Purchase of Promissory Notes Receipts from Promissory Notes Investment in dual currency deposits Proceeds from dual currency deposits Met Cash (Outflow)flnflqw From Investing Activities Financing Activities Loan from related parties Repayment of loans from related parties Receipt of bank loans Repayment of bank loans Interest paid on bank borrowings Dividend's paid to the Fundus shareholders Net Cash Inflow From Financing Activities Decrease in Cash and Cash Equivalents Cash and Cash Equivalents at Beginning of Year Cash and Cash Equivalents at End of Year 11 21 7 (8,500,000) (1,665,333) 18,111,368 (34,547,150) (227,339,730) 118,207,284 (192,360,103) 287,124,658 (416,819,440) 329,683,640 (67,697,299) (1,041,776,037) 11,655,157 3,771,257 40,300,014 787,579 3,893,500 318,112 788,134 10,434,707 9,680,747 42,729,480 (12,721,266) (131,000,000) (52,736,485) 15,683,089 (7,005,789) (732,567,173) 5,462 (187,000,000) 1,614,945 26 US$ Year Ended 31/12/2009 US$ 1,889,302 (86,476) Year Ended 31/12/2008 USS Year Ended 31/12/2008 US* (32,276,444) (439,464) (32,715,908)
1,802,826
120,000,000
(100,000,000)
(7,727,417) (11,752,902) 519,681 (65,374,792) 122,184,822 56,310,030
The notes o n pages 13 to 47 are a n integral part of these consolidated financial statements
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The following interpretations are mandatory for accounting periods beginning on or after 1 July 2009 or later periods, but the Fund has not adopted them early. IAS 27 (revised) "Consolidate and separate financial statements" (effective from 1 July 2009); IAS 39 (amendment) "Financial instruments: Recognition and measurement" (effective from 1 July 2009); IFRS1 (amendments) "Additional exemptions for first-time adopters" (effective from 1 January
2010);
IFRS 2 (amendments) "Group cash-settled share-based payments transactions" (effective from 1 January 2010); IFRS 3 (revised) "Business combinations" (effective from 1 July 2009); IFRIC 17 "Distributions of non-cash assets to owners" (effective from 1 July 2009); IFRIC 18 "Transfers of assets from customers" (effective from 1 July 2009).
"Improvements to IFRS" were issued in May 2008 and April 2009 respectively and contain numerous amendments to IFRS, which the Internationa! Accounting Standards Board (IASB) consider non-urgent but necessary. 'Improvements to IFRS" comprise amendments that result in accounting changes for presentation, recognition or measurement purposes as well as terminology or editorial amendments related to a variety of individual standards. Most of the amendments are effective for actual periods beginning on or after 1 January 2009 and 1 January 2010 respectively, with earlier application permitted. No material changes to accounting policies are expected as a result of these amendments. 2.3 Basis of Consolidation The investment objective of the Fund is to provide capital appreciation through investments in medium sized companies or projects with the potential to experience rapid and consistent growth. Other than the investment in OAO Novatek, the Directors believe that the time between making the initial investment and creating an exit from the investment will be between 24 and 48 months. On the 19 August 2004 the Directors amended the Investments Restriction section of the SWGI Growth Fund Continuing Offer letter dated 5 March 2003 to allow the Fund and its subsidiary SWGI Growth Fund Cyprus Limited to invest in "non-marketable" securities for periods in excess of 18 months. Investments acquired in accordance with the above mentioned investment objectives are included in the Financial Statements as investments available for trading and excluded from consolidation.
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The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, the measurement is a level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement considering factors specific to the asset or liability. The determination of what constituters "observable" requires significant judgement by the Fund. The Fund considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provide by independent sources that are actively involved in the relevant market. c) Valuation of Investments Quoted Investments The value of securities which are quoted or dealt in on any stock exchange or other regulated market (including any securities traded on an "over the counter market") is based on the latest available prices on the relevant stock exchange or market, or if there is more than one stock exchange on which the securities are traded or admitted for trading, that which is normally the principal stock exchange for such security, provided that any such securities which are not freely transferable, or which are not regularly traded, or which for any other reason are subject to limited marketability, shall be valued at a discount (the amount of such discount being determined by the Directors in their absolute discretion or in a manner so approved by the Directors).
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(ii) Impairment of financial assets Financial assets are assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset. An impaired loss in respect of a financial asset measured at amortised costs is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. All impairment losses are recognised in the Statement of Comprehensive Income. An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. The reversal is recognised in the Statement of Comprehensive Income. (Hi) Financial liabilities The classification of financial liabilities at initial recognition depends on the purpose for which the financial liability was issued and its characteristics. All financial liabilities are initially recognised at fair value net of transaction costs incurred. All purchases of financial liabilities are recorded on trade date, being the date on which the Group becomes party to the contractual requirements of the financial liability. Unless otherwise indicated the carrying amounts of the Group's financial liabilities approximate to their fair values. Financial liabilities are measured at cost and have not been amortised. These include loans, payables and other short-term monetary liabilities, which are initially recognised at fair value and subsequently carried at cost. The affect of amortising these liabilities using the effective interest rate method is not considered to be material.
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b)
c)
2.9
2.10 Tax Current tax liabilities and assets for the current and prior periods are measured at the amount expected to be paid or recovered from the taxation authorities using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred tax is determined using tax rates and iaws that have been enacted or substantively enacted by the year end date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. The Fund also incurs withholding taxes imposed by certain countries on investment income. Such income is recorded gross of withholding taxes in the Statement of Comprehensive Income. Withholding taxes are included in the tax charge for the year. 2.11 Dividend Distribution Dividend distribution to the Fund's shareholders is recognised as a liability in the Fund's Financial Statements in the period in which the dividends are declared.
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The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount. Payments on account for the acquisition of fixed assets are not depreciated. Expenditure for repairs and maintenance of aircraft and equipment is charged to the Statement of Comprehensive Income for the year in which they are incurred. The cost of major renovations and other subsequent expenditure are included in the carrying amount of the asset when it is probable that future economic benefits in excess of the originally assessed standard of performance of the existing asset will flow to the Group. Major renovations are depreciated over the remaining useful life of the related asset. Gains and losses on disposal of aircraft, furniture and equipment are determined by comparing proceeds with carrying amount and are included in the Statement of Comprehensive Income. 2.13 Leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating teases. Payments made under operating leases are charged to the Statement of Comprehensive Income on a straight-line basis over the period of the lease. 2.14 Share Capital Founder and Ordinary Shares are classified as equity. 2.15 Provisions Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, and it is more likely than not that an outflow of resources will be required to settle the obligation, and the amount has been reliably estimated. Where the Group expects a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain.
Name of subsidiary SWGI Growth Fund (Cyprus) Limited Kerden Trading Limited Londers Property S.A. Lancister Enterprises Corp Leitrim Management S.A 4. Staff Costs
Place of incorporation or registration Cyprus Cyprus British Virgin Islands British Virgin Islands Panama
100%
100% 100% 100%
Principal activity Investment company Investment company Operation of Aircraft Operation of Aircraft O peration of Aircraft
2009 us$ Wages and salaries Directors' salaries and fees (see Note 22) 179,728 199,889 379,617
3 11 14
22
a) Direct Holdings 171,803,583 29,185,573 1,000 9,999 OAO Novatek Ordinary Shares OAO Novatek Global Depositary Receipts Warnerfiekf Investments Limited OAO Northern Energy Company OOO Novafininvest (Note 1) Russia Russia Cyprus Russia Russia 654,441,594 376,143,153 10,338 379,655 6,786,821 1,037,761,561 b) indirect Holdings The following interests are held through the Fund's direct holdings OOO NovaEnergo (Note 2) OOO Profil (Note 2) OOO Nova (Note 2) TNG Power GmbH (Note 2,3) Russia Russia Russia Germany 3,500,000 3,000,000 9,000,000 70,721 15,570,721 Total Investments 1,037,761,561 2,914,636,406 92.72% 99.26% 25.51% 100.00% 965,893,947 1,926,247,818 10,338 126,761 6,786,821 2,899,065,685 5.66% 9.61% 100.00% 2.17% 46.24%
Note 1 The cost of investment in OOO Novafininvesl represents the capital contributions made by the Fund in the company. Note 2 The indirect holdings in OOO NovaEnergo, OOO Profil, OOO Nova and TNG Power GmbH are held through Kerden Trading Limited. c) Movements 2009 US$ At Valuation: Opening valuation at 1 January 2009 Purchases Disposals Increase in unrealised appreciation Closing valuation at 31 December 2009 916,139,628 272,459,886 (669,117,363) 2,395,154,255 2,914,636,406
23
2008
US$ 2,221,684 397,999 2,619,683
The withholding tax is in respect of dividends received from the Fund's investments in Russia. Cypriot taxation is payable in respect of the profits of Kerden Trading Limited and SWGI Growth Fund (Cyprus) Limited (see Note 20). No provision has been made for deferred taxation as there were no material temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements. 7. Aircraft, Furniture and Equipment Aircraft Payments on Account US$ Furniture, fixtures and office equipment US$
Aircraft US$ 2009 Cost At 1 January 2009 Additions At 31 December 2009 Depreciation At 1 January 2009 For the year At 31 December 2009 Net Book Value 31 December 2009 2008 Cost At 1 January 2008 Additions At 31 December 2008 Depreciation At 1 January 2008 For the year At 31 December 2008 Net Book Value 31 December 2008
Total US$
38,589,674
-
38,589,674
22,849
-
279,213
-
22,849
279,213
41,547,150
38,589,674
-
38,589,674
7,000,000 7,000,000
279,213
-
279,213
7,000,000
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Receivable
US$ 2 to 3 years 1 to 2 years 11,198,579 11,198,579 Within 1 year Within 1 year 27,542,282 800,000 28,342,282 39,540,861
30,000,000 68,657,874
9.
Prepayments and Accrued Income Receivable As at 31 December 2009 and 31 December 2008 prepayment and accrued income receivable were as follows: 2009 US$ Accrued bank interest receivable Accrued loan interest receivable Accrued interest on Promissory Notes Other prepaid expenses and receivables 316,510 5,164,978 4,336,912 636,733 10,455,133 2008 US$ 190,759 4,587,315 3,435,036 57,974 8,271,084
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I.
11. Cash and Cash Equivalents Cash and cash equivalents include the following for the purposes of the Cash Flow Statement. 2009 US$ Cash at bank Short term bank deposits 47,758,672 9,051,358 56,810,030 2008 US$ 11,163,449 111,021,373 122,184,822
The effective interest rate on short-term bank deposits was 5.12% (2008 - 3.44%).
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Payable
The bank loans are secured on certain of the Global Depositary Receipts issued by OAO Novatek and held by the Group. 13. Current Tax Payable As at 31 December 2009 and 31 December 2008, current tax payable was as follows: 2009 US$ Corporation tax 2008 US$ 37,667 37,667
14. Accrued Expenses and Other Payables As at 31 December 2009 and 2008, creditors and accrued expenses payable were as follows: 2009 US$ Loan interest payable Audit fees Legal and professional fees Administration fees Directors' fees accrued Other payables 34,923,301 132,000 93,452
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14,064,872 49,213,625
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The voting rights, dividend rights, amounts receivable on a winding up and redemption rights attached to the Founder Shares and Shares are as follows: Voting Rights The Founder Shares and Shares carry one vote per share. Dividend Rights The holders of the Shares are only entitled to dividends to the extent that the Directors' of the Fund authorise payment of dividends out of the funds of the Fund. No dividend is payable to the holders of the Founder Shares. Amounts Receivable on a Winding Up The holders of the Shares have a right to a return of the nominal amount paid up in respect of such Shares and an exclusive right to share, pari passu inter se, in surplus assets remaining after the return of the nominal amount paid up on the Shares and Founder Shares. The Founder Shares rank parri passu inter se for return of the nominal amount paid up on the shares but have no rights in respect of surplus assets remaining after the return of the nominal amount paid up on the Shares and Founder Shares.
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17. Net Unrealised Appreciation/(Depreciation) in Investments 2009 US$ At 1 January 2008 Net increase in unrealised appreciation At 31 December 2008 (518,279,415) 2,395,154,260 1,876,874,845
1.274.428.307
95.11%
70.45%
c) Financial risk management objectives The Group's activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk, and price risk), credit risk and liquidity risk. The Group's overall risk management program focuses on the unpredictability of financial markets and seeks to minimise the potential adverse effects on the Group's financial performance. The Group's investment objective is to provide capital appreciation through investments in medium sized companies or projects with the potential to experience rapid and consistent growth. The Group is mainly seeking lower risk investments in East European real estate and oil and gas production. Other than the investment in OAO Novatek, the Directors' believe that the time limit between making the initial investment and creating an exit from the investment will be between 24 and 48 months.
30
e) interest rate risk The Group is exposed to risks associated with the effects of fluctuations in the prevailing levels of market interest rates on its financial instruments and future cash flows. Other than bank loans and deposits ail interest bearing financial assets and liabilities have fixed interest rates. Accordingly, the Directors believe that the Group does not have a significant interest rate risk. For floating rate assets and liabilities, the calculation is prepared assuming the amounts outstanding at the year end date were outstanding for the whole year. If interest rates had been 50 basis points higher, for financial assets and liabilities as at 31 December 2009 that are subject to changing interest rates, and all other variables were held constant, the Group's increase in net assets attributable to equity shareholders for the period ended 31 December 2009 would have been an increase of US$ 112,086 (2008 - a decrease of US$ 319,893). If interest rates had been 50 basis points lower, for financial assets and liabilities as at 31 December 2009 that are subject to changing interest rates, and all other variables were held constant, the Group's decrease in net assets attributable to equity shareholders for the period ended 31 December 2009 would have been a decrease of US$ 112,086 (2008 - an increase of US$ 319,893). The Fund's sensitivity to interest rates has decreased during the current period due mainly to the reduction in bank loans.
31
Cash at Bank
Total
US$ 9,083,874
88,365,773 88,365,773
22,315,096 31,398,970
Cash at Bank
Total
At the year end the relevant exchange rate were 1US$ = RUR 30.2717 (2008 1US$ = RUR 29.4766) and 1 US$ = 0.6977 (2008 1 US$ = 0.7095). The Group is mainly exposed to the currency of Russia (RUR). On the 14 January 2010 loans denominated in Russian Roubles totalling RUR 1,145,587,000 were converted into US$ denominated loans totalling US$ 45,001,734. At 31 December 2009 these loans were included in the Statement of Financial Position at a value of US$ 38,140,805.
32
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33
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h) Credit and liquidity risk (Continued) The following table details the Group's expected maturity for its loans and other receivables (including short term bank deposits). At 31 December 2009 Less than 1 month US$ Non interest bearing loans and receivables Interest bearing loans and receivables Dual currency deposits Interest bearing bank deposits 10,303,161 2-3 months US$ 64,444 87,526 3 months to 1 year 1 to 5 years US$ Total US$ 10,455,131
106,554,518
14,023,209
11,198,579
131,776,306
34,000,000
54,365,773
88,365,773
9,051,358
9,051,358
159,909,037 At 31 December 2008 Less than 1 month US$ Non interest bearing loans and receivables Interest bearing loans and receivables Dual currency deposits Interest bearing bank deposits 5,573,480 85,688,249
54,430,217
14,110,735
11,198,579
239,648,568
3 months to 1 year
1 to 5 years US$
2,590,299
4,455,614
30,000,000
115,246,643
120,307,874
265,554,517
105,447,893
111,021,373
121,261,729
105,447,893 34
117,836,942
124,763,488
469,310,052
4-12 months
Over 12 months
(
{ \
492,152,428
75,000,000
567,152,428
561,648,482
76,263,966
637,912,448
{
/ <
(
<,
(
2 -3 months US$
101,069,203
4-12 months
Over 12 months
1,309,583
Total US$
74,369,855
296,322,047
( { (
107,017,145
100,000,000
304,000,000
75,000,000
586,017,145
226,590,551
201,069,203
378,369,855
76,309,583
882,339,192
35
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L
Investments held for trading Loans receivable Promissory notes receivable Dual currency deposits
Investments whose values are based on quoted market prices in active markets, and are therefore classified within level I, include active listed Ordinary Shares and Global Depository Receipts and Dual currency deposits. The Company does not adjust the quoted price for these instruments. Financial instruments that trade in markets that are not considered to be active but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs are classified within level 2. As level 2 investments may include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or nontransferability, which are generally based on available market information. None of the Company's investments are categorised as level 2 financial assets. Investments classified within level 3 have significant unobservable inputs, as they trade infrequently. Level 3 instruments include unquoted equity instruments, loans and Promissory Notes receivable which the Company values in accordance with generally accepted valuation principles and procedures. 19.1 Management Fees The Investment Manager is entitled to a fee equivalent to 1.5% per annum of the average monthly Net Asset Value of the Fund. This fee accrues monthly on each valuation date and is payable quarterly in arrears. During the year ended 31 December 2009 the fees due to the Investment Manager amounted to US$ 23,960,732. Subsequent to the year end, the Investment Manager waived their right to these fees in full (2008 - Management fees totalled US$ 28,238,701 which were waived in full).
36
37
38
{
I L I I
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c
e
r
(
( ( ( ( Loans Advanced Non-current Assets OOO EkropromStroy Total Advances USS Total Repayments USS Balance Outstanding 2009 2008 US$ US$ Interest Income/Expense 2009 2008 US$ US$
8,500,000
(14,950,000)
6,450,000
237,450
511.761
(
Current Assets OOO Premier Real Estate SWGI Asset Management Limited Kanwal Trading Limited
8,500,000
(14,950,000) (3,246,643)
6,450,000 3,246,643
237,450 189,095
(3,246,643) (18,196,643)
3,246,643 9,696,643
189,095 426,545
779,293 1,291,054
8,500,000
120,000,000
(38,864,716)
492,152,428
411,017,144
19,008,092
14,417,590
120,000,000
(38,864,716)
492,152,428
411,017,144
19,008,092
14,417,590
( ( ( (
(.
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us$
107,017,144 100,000,000 204,000,000 411,017,144
us$
120,000,000 120,000,000
us$
(38,864,716) (38,864,716)
us$
107,017,144 100,000,000 285,135,284 492,152,428
%
5.0% 4.5% 3.5%
The loans are repayable 12 months after the date of the loan agreement. During the year ended 31 December 2009 interest payable on these loans totalled US$ 19,008,092 (2008 - US$ 14,417,590). At 31 December 2009, the value of the loans due to SWGI Growth Fund was US$ 492,152,428 (2008 - US$ 411,017,144) and accrued interest payable was US$ 33,659,335 (2008 - US$ 14,651,243). The loan repayments during the year ended 31 December 2009 totalling US$ 38,864,716 were paid byway of assignments of Promissory Notes (see note 27).
t I
41
c
L
2009
US$
2008
US$
2009
US*
2008
US$
Cash at bank Short term bank deposits Promissory Notes Bonds Asset management
12,557,033 . 12,557,033
All Promissory Notes fall due for repayment in less than 12 months and have an effective interest rate of 7.5%. c) During the year ended 31 December 2009 the Group purchased 10,930,702 ordinary shares in OAO Novatek from Energy Production Improvement Fund (SPV) Limited, an investee company for US$ 21,861,404. The total consideration due was settled by assignment of a Promissory Note (see note 27). During the year ended 31 December 2009 SWGI Asset Management Limited earned management fees totalling US$ 23,960,732. Subsequent to the year end they waived their right to these fees in full (2008 - Management fees totalled US$ US$ 28,238,701 which were waived in full). During the year ended 31 December 2009 performance fees due to SWGI Asset Management Limited totalled US$ 208,608,526, Subsequent to the year end, the Investment Manager waived their right to these fees in full (2008 -US$ Nil). At 31 December 2009 there were unpaid dividends due to SWGI Asset Management Limited totalling US$ 21,546,393 (2008 - US$ 33,460,992).
d)
42
e)
During the year the following dividends, including withholding tax, were receivable from investee companies: 2009 US$ OAO Novatek Energy Improvement Fund {SPV} Limited OOO Nova OOO Kopitek Kanwal Trading Limited 38,190,656 3,744,605 274,286 42,209,547 2008 US$ 44,221,196
During the year the Group received dividends totalling US$ 41,935,261 and at 31 December 2009 there were dividends receivable from OOO Nova totalling US$ 295,131 after taking into account changes in the year-end exchange rate. f) During the year ended 31 December 2009, TNG Power GmbH an investee company charged the Group Euro 48,000 (US$ 68,243) (2008 - Nil) for consultancy services. At the 31 December 2009 this amount was included in accrued expenses and other payables.
25. Directors' Responsibilities International Financial Reporting Standards, the Bermuda Stock Exchange and the Fund's Charter require the Directors to produce financial statements for each financial year which give a true and fair view of the state of affairs of the Fund and of the profit or loss of the Fund for that period. In preparing those financial statements, the Directors are required to: - select suitable accounting policies and then apply them consistently; - make judgements and estimates that are reasonable and prudent; - prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Fund will continue in business. The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Fund. They are also responsible for safeguarding the assets of the Fund and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
43
18,761,500
44
The two Promissory Notes bore interest at 1 % per annum. c) On the 6 November 2009 Energy Production Improvement Fund (SPV) Limited, an investee company, was dissolved under Voluntary Liquidation. Prior to the liquidation of the Company, there was, on the 31 March 2009, a reduction in the share capital of the Company amounting to US$ 60,728,981. The capital reduction was settled by the reassignment of the three Promissory Notes by Energy Production Improvement Fund (SPV) Limited to the Group as follows on 1 April 2009: I
(.
(
(.
d) On the 11 January 2009 the Group entered into an agreement for the withdrawal of its participating interest of 64.9988% in OOO Kopitek. The value of the Group's interest in OOO Kopitek at that date was RUR 2,601,689,476 (USS 88,306,450) which was settled as follows: USS 52,515 88,253,935 88,306,450
e) During the year ended 31 December 2009 the Group sold 57,350,000 Ordinary Shares in OAO Novatek for a total consideration of USS 125,078,361 and purchased GDRs in OAO Novatek for a total price of USS 120,722,361. The purchase consideration due for the GDRs was offset against the sale consideration due resulting in a net cash receipt by the Group of USS 4,356,000.
45
Cash By set-off against purchase agreement for aircraft (see Note 28 (b) Total
The balance due under the sale agreement of US$ 16,000,000 is receivable during the first quarter of 2010. At the date that the ownership of the shares will be transferred the only asset held by Londers Property S.A. will be the aircraft currently owned by the Group. 28. Commitments a) On the 4 December 2008,Lancister Enterprises Corp, a subsidiary undertaking, entered into a Share Purchase Agreement to acquire the entire issued share capital of Golden Star Aviation S.A. for US$ 9,000,000. During the year ended 31 December 2008 the first payment due for the shares totalling US$ 7,000,000 was paid and the balance due of US$ 2,000,000 was paid on 25 June 2009 when ownership of the shares in Golden Star Aviation S.A. passed to Lancister Enterprises Corp. On the 25 June 2009, the sole asset of Golden Star Aviation S.A. was an agreement to purchase an aeroplane for a consideration of US$ 66,000,000 of which US$ 9,000,000 had been paid. The balance due under the purchase agreement of US$ 57,000,000 is payable as follows:
b) On the 23 April 2009, the Group entered into a Share Purchase Agreement to acquire the entire issued share capital of Leitrim Management S.A. for US$ 2,500,000. The consideration was paid on 15 April 2009 when ownership of the shares in Leitrim Management S.A. passed to the Group. On the 23 April 2009, the sole asset of Leitrim Management S.A. was an agreement to purchase an aeroplane for a consideration of US$ 43,000,000 of which US$ 2,500,000 had been paid. During the year ended 31 December 2009 the Group made the following additional payments: US$ 20,500,000 9,000,000 29,500,000
Cash By set-off against sale agreement for aircraft (see Note 27) Total
The balance due under the purchase agreement of US$ 11,000,000 is payable during the first quarter of 2010.
46
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L
47
18,671,505 (1,984,587)
75,337,612 (2,619,683)
(94,832,352) (2,882,977)
(260,634,269) (2,107,070)
(188,149,844) (1,354,092)
2,395,154,253
(2,633,551,051)
(489,013,223)
1,561,917,129
56,739,061
< (
I
lncrease/(Decrease) in Net Assets as a Result of Operations Net Assets at Beginning of Period Redemption of Shares Treasury shares sold Treasury shares purchased Net Assets at End of Period
2,081,807,296 556,478,498
-
(2,586,089,872) 3,142,568,370
-
346,444,511 2,697,789,109
-
821,950,359 1,234,559,049
-
(
(.
98,334,750
-
(63,473,977) 2,697,789,109
<
2,638,285,794
556,478,498
3,142,568,370
2,056,509,408
48
L L
Non-current Assets Aircraft, plant and equipment Promissory notes Loans due Available for sale investments
37,830,695 189,148,183
226,978,878
Current Assets Investments Securities at cost Unrealised a ppreciation/(depreciation) Directors' Valuation Other Current Assets Inventories Sale consideration for investments Trade receivables Loans (due within one year) Promissory notes Prepayments and accrued income Dual currency deposits Cash at bank
75,000,000 (75,000,000)
Liabilities (amounts falling due within one year) Purchase consideration for investments Trade payables Loans due to related parties Bank loans and overdrafts Unpaid dividends Other loans Current tax payable Creditors and accrued expenses
244,806,107
-
651,830,733
-
730,825,713
-
51,738,417
-
426,416,417 80,000,000
-
4,762,258
-
49,213,627 (637,912,448)
(637,912,448) 2,638,285,794
L (
L
49