Quarterly Report • May 20, 2010
Quarterly Report
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| Three months ended March 31, 2010 |
Three months ended March 31, 2009 |
|
|---|---|---|
| Earnings | ||
| Revenues in EUR thousands | 10,076 | 10,692 |
| EBIT in EUR thousands | 666 | - 2,240 |
| EBT in EUR thousands | 1,838 | - 2,287 |
| Group net earnings in EUR thousands | 1,375 | - 2,493 |
| Return on sales in % | 13.65 | - 23.32 |
| EBIT margin in % | 6.61 | - 20.95 |
| Earnings per share in EUR | 0.06 | - 0.10 |
| Placed equity in EUR million | 17.9 | 30.1 |
| Balance sheet | March 31, 2010 | December 31, 2009 |
| Total assets in EUR thousands | 109,387 | 112,449 |
| Equity in EUR thousands | 34,459 | 33,084 |
| Equity ratio in % | 31.50 | 29.42 |
| Staff | March 31, 2010 | March 31, 2009 |
| Average employees | 260 | 295 |
| Personnel costs in EUR thousands | 5,047 | 6,045 |
| Personnel costs in % of revenue | 50.1 | 56.5 |
following a turnaround in the second half of last year, the global economy continued to develop positively overall in the fi rst quarter of 2010. Economic sentiment indicators are now pointing upwards. Everything suggests that the economy has bottomed out and is now regaining momentum. This is a good climate in which to revitalise business in the fi eld of closed-end funds, and we are confi dent that we will experience a trend reversal here too as the year progresses. However, the reporting period showed us that no such recovery has materialised on the market as yet. Given the delayed effects which continue to dog ship funds in particular, it will take some more time before investors fully regain confi dence in closed-end funds. Against this backdrop of persistently diffi cult market conditions, the HCI Group succeeded in raising equity of around EUR 17.9 million in the fi rst quarter of 2010. This enabled the company to post a positive consolidated net result of EUR 1.4 million – a quarterly turnaround. In addition to this, investors furnished equity of some EUR 20.9 million for existing funds.
The HCI Group was able to maintain revenues on a par with last year at EUR 10.1 million thanks to new placements with much higher margins than in 2009 along with stable regular earnings from After-Sales Services and Asset Management. In addition to this, a EUR 1.3 million reduction in costs helped the HCI Group to generate earnings before interest and taxes (EBIT) of approximately EUR 0.7 million from its operating activities alone. The consolidated net result after tax came in at EUR 1.4 million, thus showing a signifi cant improvement of EUR 3.9 million compared to previous year's result. Other key fi nancial indicators also developed soundly, with the equity ratio improving to 31.5 % in the fi rst quarter. As at 31 March 2010, cash and cash equivalents totalled EUR 21.3 million.
In addition to the original placement of equity in new closed-end funds, the HCI Group has achieved considerable success in generating additional fi nancing for existing ship funds. In the fi rst quarter of 2010, more than 2,000 HCI fund investors agreed to reinvest dividends from ship funds totalling approximately EUR 20.9 million in order to secure their funds' future market opportunities. As the market environment remained weak, the HCI Group's placement result for new business came in at EUR 17.9 million in the fi rst quarter of 2010. The Transport and Logistics product area accounted for EUR 16.4 million. New equity totalling approximately EUR 1.5 million was placed in the Real Estate, Energy and Commodities, and Secondary Life Insurance Market product areas.
Back in summer 2009, the HCI Group developed a comprehensive restructuring plan which set a benchmark for other issuing houses affected by the shipping crisis. The restructuring agreement was signed by all the banks involved in February 2010. The most important element of this arrangement is the banks' assurance not to make any claims against the HCI Group for contingent liabilities which substantially relate to ordered ships in the period to 30 September 2013. This gives the HCI Group crucial fi nancial stability and provides a sound footing for its operating business. As a further step, it is intended to completely exempt the HCI Group from these fi nancial obligations. Progress is also being made with this process, which is already at an advanced stage.
A positive trend is now also being seen again on the shipping markets. This applies in particular to container ships, which are developing positively as global trade picks up once more. We have seen a noticeable recovery in charter rates and an increasingly improving employment situation in this fi eld since February 2010. Since the beginning of the year, more than 180 idle ships have gone back into service. All of these factors are positive indications that the shipping markets have now also bottomed out.
In the light of all this, there are currently good opportunities for entering into ship investments. We are convinced that ships continue to represent sound, attractive investments in tangible assets for our clients. Within the fi rst half of this year, the HCI Group will launch further traditional ship funds on the market – relating to a platform supplier and a Supramax bulker – along with a newly designed ship asset creation plan. We also expect HCI Shipping Opportunity in particular to benefi t from the current market trends.
In addition to this, we rolled out an innovative real estate investment concept in the fi rst quarter. HCI Wohnkonzept Hamburg focuses on new, energy-effi cient apartments in the greater Hamburg area. We also launched our second solar energy fund – HCI Energy 2 Solar – on the market in the fi rst quarter. This fund already invests in two solar energy parks in southern Germany and is geared towards additional investments. We are now offering this fund in Austria as well.
We launched a series of sales initiatives at the beginning of the second quarter and are confi dent that, in conjunction with our broad product portfolio, this will help to stimulate placement volumes in the months to come. As a result, we believe that we are well on the way for HCI Group's turnaround.
Best wishes,
Hamburg, May 2010
Dr. Ralf Friedrichs (Chairman of the Management Board)
The international stock markets remained relatively volatile in the fi rst quarter of 2010. However, the indices improved overall by the end of the reporting period. On 31 March 2010, the US Dow Jones closed up 4.1 %. In Germany, the DAX gained 3.3 %, the MDAX 8.5 % and the SDAX 9.8 % compared with the end of 2009.
HCI's share price rose in the course of the fi rst quarter of 2010 from EUR 1.35 at the start of the year to EUR 1.64 as at 31 March 2010. This corresponds to a 21.5 % increase. The publication of the restructuring agreement concluded by the HCI Group on 11 February 2010 was particularly well received and helped to boost the share price by more than 10 %.
Signs of a global economic recovery emerged in the second half of 2009. On the whole, this upturn continued in the fi rst quarter of 2010. However, the pace of this expansion varies widely in the different economic areas. While the industrialised nations are experiencing relatively moderate growth, a number of emerging market countries – especially in Asia – are already seeing a return to extremely dynamic growth. Leading institutes forecast slight growth in economic output in both the euro zone and the USA for the period under review (+0.2% and +2.4% respectively). Asia's emerging market countries began growing again last year and continued to do so, with China experiencing 11.9 % growth in Q1, for instance. The German economy has also bottomed out and succeeded in maintaining the growth path which commenced in mid-2009. This upwards trend remained very modest, however, as indicated by the 0.3 % growth projected for the fi rst quarter of 2010.
The crisis of confi dence which rocked the international fi nancial markets has not yet been overcome. In the period under review, the fi nancial markets were troubled in particular by the impending insolvency of Greece and to some extent a number of other EU countries. Accordingly, developments on the stock markets were positive overall despite remaining relatively volatile. In general, interest rates remained at an all-time low. The fi rst sign of a possible turning point in interest policy came from the Federal Reserve in February 2010 when it raised its discount rate (the interest rate for current loans to commercial banks) by 25 base points to 0.75 %. However, neither the European Central Bank nor the Bank of England adjusted their base rates in the reporting period.
After stabilising at around USD 78 per barrel in the fourth quarter of 2009, the oil price (Brent) rose slightly in Q1 2010. It was around USD 81 per barrel at the end of the period under review. The oil price is expected to increase further in the course of the year.
The current debt crisis in Greece is impacting on both the euro zone and the euro. After reaching a high of EUR / USD 1.51 in the fourth quarter of 2009 and starting the year at EUR / USD 1.43, the exchange rate slumped to EUR / USD 1.35 as at 31 March 2010.
Initial signs of a market recovery have been emerging on the shipping markets – especially in container shipping – since the beginning of the year.
The container shipping segment remains under pressure due to surplus tonnage capacity. However, the number of idle ships is steadily falling. While almost 600 ships – approximately 11 % of capacity – were idle at the peak of the crisis in 2009, just 400 ships or 7.5 % of capacity were redundant at the beginning of April 2010. Charter rates remain at a low level. However, longer charter contracts are now being concluded again for the fi rst time. Following an all-time low last November, the Container Ship Time Charter Rate Index (ConTex) has improved by approximately 18 % since January 2010, from 239 to 283 points.
Charter rates on the bulker markets continue to move sideways. Although they are no longer at the record level seen in 2008, rates are remaining stable or trending slightly upwards. This is due in part to sustained high demand for iron ore imports from the People's Republic of China. At the end of March 2010, the Baltic Dry Index (which indicates the shipping prices of various bulk goods) stood at 2,998 points, compared with 2,714 points in mid-February 2010.
The tanker market remains volatile. Following a seasonal increase in demand, the BDTI (Baltic Dirty Tanker Index) stood at 964 points at the end of March 2010 versus 814 points at the end of 2009. It remains to be seen how this segment will continue to develop as the reduction in tonnage prompted by the decommissioning of singlehull tankers is twinned with an increase in capacity from newbuild tonnage.
Initial indications suggest that the overall market for closedend funds remained very low-key at the beginning of 2010. This is illustrated by the BaFin (German Federal Financial Supervisory Authority) fi gures for new issues approved in Q1, which fell by a third compared to the fi rst quarter of 2009. Based on these fi gures, the total prospective equity fell to EUR 1.25 billion, a reduction of around 16 %. By reducing their product portfolios in this way, providers of closed-end funds have adapted to extended placement periods. In the light of this, no sustainable turnaround can be identifi ed on the market for closed-end funds in the fi rst quarter of 2010.
In addition to the original placement of equity in new closed-end funds, the HCI Group achieved considerable success in Q1 2010 in generating additional fi nancing for existing ship funds. More than 2,000 HCI fund investors agreed to reinvest dividends totalling approximately EUR 20.9 million from ship funds in order to secure their funds' future market opportunities.
Against the backdrop of a persistently weak market environment, the HCI Group's placement result for new business in the fi rst quarter of 2010 was EUR 17.9 million and thus below the previous year (EUR 30.1 million). Placement results in the individual product areas were as follows:
The Transport and Logistics product area comprises the asset classes Ship and Aircraft. The HCI Group placed EUR 16.4 million (2009: EUR 22.9 million) in this product area in the reporting period. This consists almost solely of traditional closed-end funds, asset creation plans and guarantee products from the Ship product area, which thereby remained by far the strongest area at HCI.
In the Real Estate area, HCI rolled out a new fund, HCI Wohnkonzept Hamburg, in Q1 2010. HCI also began selling its second solar energy fund – HCI Energy 2 Solar – in the Energy and Commodities area. Together with traditional closed-end funds and asset creation plans in the Secondary Life Insurance Market product area, the equity placed in these areas amounted to EUR 1.5 million (previous year: EUR 7.2 million) in the period under review.
| Q1 2010 | Q1 2009 | |
|---|---|---|
| Ship | 16.3 | 21.5 |
| Traditional investments | 15.5 | 10.4 |
| Of which placed via: asset creation plans | 7.5 | 2.4 |
| guarantee products | 2.0 | 0.1 |
| Guarantee products | 0.1 | 5.4 |
| Asset creation plans | 0.7 | 5.7 |
| Aircraft2) | 0.1 | 1.4 |
| Traditional investments | 0.0 | 0.8 |
| Of which placed via: asset creation plans | 0.0 | 0.2 |
| Asset creation plans | 0.1 | 0.5 |
| Transport and Logistics | 16.4 | 22.9 |
| Traditional investments | 0.1 | 0.8 |
| Real Estate | 0.1 | 0.8 |
| Traditional investments | 0.7 | 3.3 |
| Of which placed via: asset creation plans | 0.1 | 0.0 |
| guarantee products | 0.6 | 0.0 |
| Asset creation plans | 0.1 | 1.1 |
| Secondary Life Insurance Market | 0.8 | 4.4 |
| Deepsea Oil Explorer | 0.0 | 2.0 |
| Renewable energy | 0.6 | 0.0 |
| Energy and Commodities | 0.6 | 2.0 |
| Total | 17.9 | 30.1 |
1) The equity placed by the HCI Group is defi ned as commission-bearing equity which the HCI Group has raised from investors. The commission-bearing equity also includes equity placed, for which the HCI Group does not receive any commission due to specifi c fee structures at the time it was placed. It does not include cancelled shares from investors that lead to a repayment of commission. Capital reductions, which also lead to a reduction in sales commission, also reduce the
amount of equity placed. Capital reductions that did not result in a reduction in sales commissions in the fi rst quarter of 2010 totalled EUR 0.1 million. 2) The HCI Aircraft One fund was withdrawn from sale in May 2009 and closed in January 2010 in connection with a new fi nancing concept. The HCI Group has not offered any other aircraft funds since then. However, Asset Creation Plan 8 continues to invest in shares in closed-end funds specialising in the assets classes Ship, Aircraft and Secondary Life Insurance Market.
Despite the lower placement result, revenues totalling EUR 10.1 million were generated in the period under review. This was just EUR 0.6 million down on the same period last year (EUR 10.7 million). The HCI Group achieved this by selling products with strong margins. Furthermore, continous earnings from After-Sales Services had a higher impact in relation to total revenues.
In the fi rst quarter of 2010, sales and design revenues shrank noticeably year on year, coming in at EUR 3.3 million (EUR 4.1 million). Income from the trust management and service segments totalled EUR 5.5 million, up slightly on last year's fi gure of EUR 5.3 million. Income from management fees dipped slightly by EUR 0.1 million to EUR 1.2 million.
At EUR 0.4 million and EUR 0.1 million respectively, other operating income and changes in inventories remained on a par with Q1 2009 in the fi rst three months of 2010.
The cost of purchased services, which primarily comprises commission paid to sales partners, fell by approximately 65.8 % year on year, decreasing from EUR 3.3 million to EUR 1.1 million. Commission expenses shrank more dramatically than revenues, refl ecting the fact that earnings from trust management accounted for a higher percentage of revenues. At 90.0 %, the gross yield margin was signifi cantly higher in the fi rst quarter of 2010 than in Q1 2009 (70.0 %).
In the fi rst three months of the current fi nancial year, personnel expenses were EUR 1.0 million lower than in the same period of last year at EUR 5.0 million. This was primarily due to a reduction in the average number of employees, from 295 in Q1 2009 to 260. Staff numbers did not change in comparison with the fourth quarter of the 2009 fi nancial year (260).
Other operating expenses as at the reporting date amounted to EUR 3.9 million, putting them 8.1 % below the previous year's fi gure (EUR 4.2 million). This year-onyear reduction was largely due to lower material costs.
Investment income from associated companies and joint ventures accounted for under the equity method amounted to EUR 0.3 million in the reporting period. It was therefore down on the previous year (EUR 0.4 million).
Due to business developments in the fi rst three months of 2010, as described above earnings before interest and taxes (EBIT) climbed to EUR 0.7 million – a signifi cant increase compared with last year's fi gure (EUR -2.2 million).
At EUR 1.2 million, the fi nancial result was EUR 1.3 million higher than in the fi rst quarter of the previous year (EUR -0.1 million). Interest income grew by EUR 0.3 million to EUR 0.6 million, while interest expenses remained comparable year on year at EUR 0.6 million. Other fi nancial income rose by EUR 0.9 million.
Earnings before taxes (EBT) came in at EUR 1.8 million in the reporting period – a signifi cant increase on last year's fi gure (EUR -2.3 million).
Income taxes in the fi rst three months of the 2010 fi nancial year totalled EUR -0.5 million (EUR -0.2 million).
This resulted in a consolidated net result for the period of EUR 1.4 million, a clear improvement on the previous year's EUR -2.5 million.
As at 31 March 2010, the cash fl ow from operating activities generated by the HCI Group was slightly negative at EUR -0.3 million. Compared to the fi rst quarter of the previous year, this was a decline of EUR 6.4 million. The reduction was predominantly caused by the payment of taxes amounting to EUR 1.9 million. By contrast, income taxes of EUR 5.5 million were received in Q1 2009.
The positive cash fl ow from investing activities of EUR 0.1 million was derived primarily from capital expenditure on other investments and associated companies, which was offset by the positive cash fl ow from the disposal of other investments. Compared to last year's fi rst quarter, the cash fl ow from investing activities improved by EUR 1.2 million.
Repayment of liabilities to banks led to a negative cash fl ow from fi nancing activities amounting to EUR -1.6 million. Compared to the fi rst quarter of 2009, the cash fl ow from fi nancing activities improved by EUR 0.9 million.
All of this caused cash and cash equivalents to contract by EUR 1.7 million to EUR 21.3 million. Compared with the same period last year, cash and cash equivalents were down EUR 9.9 million.
As at 31 March 2010, total assets fell by EUR 3.0 million vis-à-vis 31 December 2009 to EUR 109.4 million. This change was mainly due to lower receivables from related parties (EUR 1.8 million) and cash and cash equivalents (EUR 2.0 million).
The fall in receivables from related parties was prompted largely by offsetting receivables from ship brokerage amounting to EUR 2.0 million.
Please refer to the notes on cash fl ows for information on the change in cash and cash equivalents.
Equity grew by EUR 1.4 million between 31 December 2009 and 31 March 2010 to come in at EUR 34.5 million. Thanks to the positive overall consolidated result and the reduction in current liabilities, the equity ratio rose from 29.4 % to 31.5 % as at 31 March 2010.
Current provisions and liabilities were cut by EUR 4.2 million. This change was primarily attributable to the EUR 1.7 million reduction in trade payables to EUR 5.9 million and the EUR 1.7 million fall in income taxes to EUR 14.2 million. In addition to this, other liabilities dropped by EUR 0.9 million.
No events of material signifi cance to the HCI Group occurred in the course of business since the balance sheet date.
Both the relevant business risks inherent in the HCI Group's business model and its risk management system are described in detail on pp. 57 to 64 of the 2009 Annual Report. In the light of business developments in the fi rst quarter of 2010, special mention must be made of the following issues:
The business model of the HCI Group, which comprises the design, initiation and sale of closed-end funds, is dependent upon securing the availability of the investment assets held in the closed-end funds. This product availability must be secured long-term, and the HCI Group has regularly given large guarantees and acquisition commitments to secure investments or construction phase loans for ships, and placement guarantees for the funds to be raised.
Given the effects of the fi nancial market crisis on the ability to place closed-end funds – especially in the shipping segment – the HCI Group initiated talks with its main fi nancing partners at an early stage in order to prevent the utilisation of its contingent liabilities. On 11 February 2010, the HCI Group concluded a comprehensive restructuring agreement with all of the banks involved. Under this agreement, the banks have declared their willingness not to make any claims against the HCI Group arising from signifi cant contingent liabilities to these banks before 30 September 2013. It is also intended that these contingent liabilities will be cancelled. The restructuring agreement with the banks is subject to certain conditions, including the involvement of both principal shareholders – MPC Münchmeyer Petersen Capital AG and the Döhle Group – in the restructuring measures.
Moves to release the Group from its responsibility for all contingent liabilities covered by the moratorium are already well under way. The other contingent liabilities which are not included in the restructuring agreement are monitored and controlled as part of the risk management system.
The risk of liability under Sections 171, 172 (4) of the German Commercial Code (HGB) is explained in detail in section 3.2.2 of the 2009 Annual Report on page 62. This remains unchanged.
As regards other risks arising from the HCI Group's business operations, there have been no changes to the risk position described in the 2009 Annual Report.
The opportunities for the HCI Group's business in the 2010 fi nancial year are described in detail in the report on risks and opportunities in the 2009 Annual Report (see pages 64 – 65). These still apply unchanged. Considering current market developments, special mention must be made of the following opportunities:
Future fi nancing arrangements will mean higher equity requirements. As a publicly listed company and an industry leader, the HCI Group is able to position itself better than its competitors in this environment.
The restructuring plan agreed with the banks in February 2010 offers considerable opportunities to sustainably boost the confi dence that shareholders, the capital market, sales partners and investors have in the fi nancial strength of the HCI Group. Implementation of this plan has allowed the HCI Group to make a considerable reduction in risks from contingent liabilities that fall within the long-term moratorium until 30 September 2013. As well as this, the planned capital increase of EUR 22 million subsequent to the intended move to release the Group from its responsibility for these contingent liabilities should considerably strengthen the HCI Group's equity base and liquidity position. All this provides opportunities to improve fi nancial leeway and to give a perceptible boost to the placement volumes of the HCI Group.
Economic research institutes agree that the global economy has been in recovery mode since the middle of last year and that this trend will continue in 2010 and 2011. However, the speed of growth is expected to differ in the various economic areas. In the industrialised countries in particular, it is uncertain how this growth will progress. This uncertainty stems from the governments' expiring economic packages and high levels of national debt in a number of countries, which gives rise to a considerable need to consolidate the relevant governments' budgets. By contrast, emerging market countries are expected to keep experiencing strong growth, which will also support the industrialised nations by stimulating higher demand for goods.
The International Monetary Fund (IMF) has corrected its latest growth forecasts for the full year 2010 upwards, but the various economic institutes' expectations still differ greatly. It is expected that the global economy will grow in the region of 2.9 % (source: German Institute for Economic Research [ifo] / Institute for the World Economy [ifw]) to 4.2 % (source: International Monetary Fund [IMF]). Gross domestic product in the USA is forecast to grow by 1.9 % (source: Hamburg Institute of International Economics [HWWI]) to 3.1 % (source: IFM). The institutes anticipate growth of 1.2 % (source: IFM) to 1.5 % (source: ifo / ifw, HWWI) for the German economy. According to the ifo Business Climate Index, the mood in Germany has recently brightened to a surprising degree.
There have been no major changes to the outlook as portrayed in the 2009 Annual Report (see pages 65–66) regarding the continuation of the global upturn in 2011. Forecasts still vary widely between 2.7 % (source: ifo / ifw) and 4.3 % (source: IMF). The lower growth expectations at the bottom end of the scale are primarily justifi ed by the expiry of global economic packages, the ongoing restrictive lending policies of banks and the growing need for governments to consolidate their budgets.
In terms of the development prospects for shipping markets, initial signs of a recovery can be seen – especially in the fi eld of container ships – in both the capacity utilisation of the container fl eet and charter rates. The recovery of the shipping markets will mainly depend on whether global economic production and trade can pick up and be sustained, and what level of growth can be achieved in coming years. Another important factor is fl eet expansion and, in particular, the question of whether this expansion can be slowed by the further cancellation of newbuild orders and the premature scrapping of old vessels.
Following a muted start to 2010 for the closed-end fund sector, we believe we were correct in our prediction that no sustainable recovery with considerable growth rates has emerged as yet. On balance, it is still diffi cult to say how the market will develop in 2010. As the economic recovery becomes increasingly stable, this will essentially depend on how quickly investor confi dence returns. In this respect, we believe there is a chance of a stronger market upturn in the second half of the year.
As it is diffi cult to predict the future development of the economy and the industry at present, it is not yet possible to make any reliable forecasts on the HCI Group's placements and results for the 2010 fi nancial year. As there are initial signs of a recovery in the overall market and the shipping markets in particular, we still anticipate that the HCI Group will achieve a placement volume in the fi nancial year 2010 that will at least match that of the previous year, and a considerable improvement in the consolidated net result after tax.
| EUR '000 Note |
Three months ended March 31, 2010 |
Three months ended March 31, 2009 (restated) |
|---|---|---|
| Revenues (3) |
10,076 | 10,692 |
| Other operating income | 443 | 382 |
| Change in inventories | 114 | 132 |
| Cost of purchased services | - 1,143 | - 3,340 |
| Personnel expenses (4) |
- 5,047 | - 6,045 |
| Depreciation, amortisation and impairment of property, plant and equipment and intangible assets |
- 211 | - 259 |
| Other operating expenses | - 3,899 | - 4,243 |
| Results of associated companies and joint ventures accounted for using the equity method | 333 | 441 |
| Earnings before interest and taxes (EBIT) | 666 | - 2,240 |
| Interest income | 643 | 369 |
| Interest expenses | - 644 | - 680 |
| Other fi nancial result (5) |
1,173 | 264 |
| Earnings before taxes (EBT) | 1,838 | - 2,287 |
| Income taxes (6) |
- 463 | - 206 |
| Consolidated net result for the period | 1,375 | - 2,493 |
| Consolidated net result for the period attributable to the shareholders of the parent company |
1,375 | - 2,493 |
| Earnings per share (basic) in EUR (7) |
0.06 | - 0.10 |
| Earnings per share (diluted) in EUR (7) |
0.06 | - 0.10 |
| EUR '000 | Three months ended March 31, 2010 |
Three months ended March 31, 2009 (restated) |
|---|---|---|
| Consolidated net result for the period | 1,375 | - 2,493 |
| Income and expenses recognised directly in equity for associated companies and joint ventures |
0 | 952 |
| Foreign currency translation adjustment | 0 | - 1,334 |
| Other comprehensive income | 0 | - 382 |
| Total comprehensive result | 1,375 | - 2,875 |
| Total comprehensive result for the period attributable to the shareholders of the parent company |
1,375 | - 2,875 |
| Consolidated balance sheet as at March 31, 2010 | |||
|---|---|---|---|
| ASSETS | Note | March 31, 2010 | December 31, 2009 |
| EUR '000 | |||
| Non-current assets | 47,430 | 47,650 | |
| Intangible assets | 1,723 | 1,849 | |
| Property, plant and equipment | 1,136 | 1,286 | |
| Investments in associated companies and interests in joint ventures accounted for using the equity method |
20,652 | 20,781 | |
| Other investments | 14,512 | 14,185 | |
| Other fi nancial assets | 9,200 | 9,342 | |
| Deferred taxes | 207 | 207 | |
| Current assets | 61,957 | 64,799 | |
| Work in progress and fi nished services | 726 | 622 | |
| Trade receivables | 14,055 | 14,276 | |
| Receivables from related parties | 950 | 2,714 | |
| Income tax receivables | 5,309 | 5,375 | |
| Other assets | 17,209 | 16,443 | |
| Income tax receivables | 5,309 | 5,375 |
|---|---|---|
| Other assets | 17,209 | 16,443 |
| Other fi nancial assets | 16,469 | 15,623 |
| Other miscellaneous assets | 740 | 820 |
| Securities | 1,370 | 1,530 |
| Cash and cash equivalents | 21,298 | 23,334 |
| Assets held for sale | 1,040 | 505 |
| Total assets | 109,387 | 112,449 |
| EQUITY AND LIABILITIES Note |
March 31, 2010 | December 31, 2009 |
|---|---|---|
| EUR '000 | ||
| Equity | 34,459 | 33,084 |
| Subscribed capital | 24,000 | 24,000 |
| Capital reserve | 75,943 | 75,943 |
| Retained earnings | - 50,564 | - 51,939 |
| Accumulated other equity (8) |
- 388 | - 388 |
| Net cost in excess of net assets acquired on the acquisition of companies under common control and successive share acquisitions |
- 14,532 | - 14,532 |
| Non-current provisions and liabilities | 7,887 | 8,128 |
| Pension provisions | 28 | 27 |
| Liabilities due to related parties | 4,050 | 4,375 |
| Deferred taxes | 3,809 | 3,726 |
| Current provisions and liabilities | 67,041 | 71,237 |
| Other provisions | 2,184 | 2,081 |
| Debts (9) |
35,438 | 35,597 |
| Trade payables | 5,913 | 7,619 |
| Liabilities due to related parties | 3,883 | 3,683 |
| Income tax payables | 14,202 | 15,928 |
| Other current liabilities | 5,421 | 6,329 |
| Other fi nancial liabilities | 3,790 | 5,217 |
| Other miscellaneous liabilities | 1,631 | 1,112 |
| Total equity and liabilities | 109,387 | 112,449 |
| EUR '000 | Three months ended March 31, 2010 |
Three months ended March 31, 2009 (restated) |
|---|---|---|
| Consolidated net result for the period | 1,375 | - 2,493 |
| Depreciation, amortisation and impairment of intangible assets and property, plant and equipment | 211 | 260 |
| Impairment on loans, interests and other fi nancial receivables | 470 | 0 |
| Impairment on assets held for sale | 374 | 0 |
| Losses(+) / Gains(-) from associated companies and joint ventures | - 333 | - 441 |
| Losses(+)Gains(-) from the disposal of intangible assets and property, plant, equipment and securities | 0 | - 17 |
| Gains from the disposal of investments and long term loans to related parties | - 1,606 | 0 |
| Increase in pension provisions | 1 | 1 |
| Elimination of income taxes | 463 | 206 |
| Elimination of net interest result and net investment result | 391 | 541 |
| Other non-cash income and expenses | 780 | 1,847 |
| Decrease / Increase in working capital | - 622 | 1,699 |
| Increase in inventories | - 104 | - 132 |
| Decrease / Increase in trade receivables | - 101 | 8,042 |
| Increase / Decrease in other assets | 694 | - 1,196 |
| Increase in current provisions | 103 | 102 |
| Decrease in trade payables | - 1,706 | - 2,434 |
| Increase / Decrease in receivables from and payables to related parties | 1,639 | - 239 |
| Decrease in other liabilities | - 975 | - 2,049 |
| Other movements in operating activities | - 172 | - 395 |
| Income taxes paid | - 1,940 | - 657 |
| Income tax refunds | 127 | 5,533 |
| Interest paid | 0 | - 499 |
| Interest received | 28 | 130 |
| Distributions received | 6 | 29 |
| Cash fl ows from operating activities | - 275 | 6,139 |
| Proceeds from disposals of other investments and securities | 1,648 | 306 |
| Payments for intangible assets and property, plant and equipment | - 128 | - 40 |
| Payments for investments in associated companies and interest in joint ventures | 0 | - 708 |
| Payments for investments, securities and long-term loans to related parties | - 1,375 | - 621 |
| Cash fl ows from investing activities | 145 | - 1,063 |
| Proceeds from additions to debts | 55 | 0 |
| Repayments of debts | - 1,642 | - 2,448 |
| Cash fl ow from fi nancing activities | - 1,587 | - 2,448 |
| Net Changes in cash and cash equivalents | - 1,717 | 2,628 |
| Changes in cash and cash equivialents due to foreign exchange rate changes | - 319 | - 689 |
| Cash and cash equivalents at beginning of period | 23,334 | 29,304 |
| Cash and cash equivalents at end of period | 21,298 | 31,243 |
| EUR '000 | Subscribed capital |
Capital reserve | Retained earnings |
gains and losses recog nised directly in equity from associated companies |
Foreign curren cy translation adjustment |
Net cost in excess of net assets acquired on the acquisition of companies under common control and successive share acquisi tions |
Consolidated equity |
|---|---|---|---|---|---|---|---|
| Balance at 01.01.2009 (restated) |
24,000 | 75,943 | 2,437 | - 333 | - 1,315 | - 14,532 | 86,200 |
| Total compre hensive result |
- 2,493 | 952 | - 1,334 | - 2,875 | |||
| Balance at 31.03.2009 |
24,000 | 75,943 | - 56 | 619 | - 2,649 | - 14,532 | 83,325 |
| Balance at 01.01.2010 |
24,000 | 75,943 | - 51,939 | - 33 | - 355 | - 14,532 | 33,084 |
| Total compre hensive result |
1,375 | 0 | 0 | 1,375 | |||
| Balance at 31.03.2010 |
24,000 | 75,943 | - 50,564 | - 33 | - 355 | - 14,532 | 34,459 |
13
| Design & Sales | After Sales Services | Asset Management | |||||
|---|---|---|---|---|---|---|---|
| EUR '000 | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 (restated) |
|
| Revenues | 3,346 | 4,231 | 5,493 | 5,196 | 1,237 | 1,265 | |
| Change in inventories | 114 | 132 | |||||
| Cost of purchased services | - 1,143 | - 3,340 | |||||
| Gross Margin | 2,317 | 1,023 | 5,493 | 5,196 | 1,237 | 1,265 | |
| Other operating income | 22 | 78 | 267 | 327 | 89 | 101 | |
| Personnel expenses | - 1,922 | - 2,725 | - 1,604 | - 1,536 | - 335 | - 252 | |
| Depreciation, amortisation and impairment |
- 2 | - 42 | - 13 | - 11 | - 88 | - 90 | |
| Other operating expenses | - 1,423 | - 1,783 | - 1,503 | - 1,154 | - 574 | - 189 | |
| Results of associated companies and joint ventures accounted for using the equity method |
- 257 | 333 | 698 | ||||
| Earnings before interest and taxes (EBIT) |
- 1,008 | - 3,706 | 2,640 | 2,822 | 662 | 1,533 | |
| Segment assets | 14,884 | 20,742 | 28,852 | 33,171 | 17,791 | 37,087 |
| Operating Segment Total | Holding / Others | Consolidation | HCI Group | ||||
|---|---|---|---|---|---|---|---|
| 2010 | 2009 (restated) |
2010 | 2009 (restated) |
2010 | 2009 | 2010 | 2009 (restated) |
| 10,076 | 10,692 | 10,076 | 10,692 | ||||
| 114 | 132 | 114 | 132 | ||||
| - 1,143 | - 3,340 | - 1,143 | - 3,340 | ||||
| 9,047 | 7,484 | 9,047 | 7,484 | ||||
| 378 | 506 | 766 | 778 | - 701 | - 902 | 443 | 382 |
| - 3,861 | - 4,513 | - 1,186 | - 1,532 | - 5,047 | - 6,045 | ||
| - 103 | - 143 | - 108 | - 116 | - 211 | - 259 | ||
| - 3,500 | - 3,126 | - 1,100 | - 2,019 | 701 | 902 | - 3,899 | - 4,243 |
| 333 | 441 | 333 | 441 | ||||
| 2,294 | 649 | - 1,628 | - 2,889 | 666 | - 2,240 | ||
| 61,527 | 91,000 | 61,527 | 91,000 | ||||
HCI Capital AG, with its registered offi ce at Burchardstraße 8, 20095 Hamburg, Federal Republic of Germany, is registered with the Register of Companies (Handelsregister) of Hamburg District Court (Amtsgericht Hamburg, HRB 93324).
The Company's subscribed capital amounts to EUR 24,000,000 and is divided into 24,000,000 no-par value bearer shares. Since its initial public offering (IPO) in October 2005 and the related admission to trading on the regulated market, the Company has been listed in the Prime Standard segment of the Frankfurt Stock Exchange and on the Hamburg Stock Exchange.
HCI Capital AG and its subsidiaries (hereinafter referred to as "the HCI Group") together constitute a service group that operates mainly in Germany. The Group's business activities consist primarily of the design and initiation of closed-end funds in the main product areas Transport and Logistics, Real Estate, Life Insurance, Energy and Commodities, as well as the subsequent raising of capital from institutional and private investors. The Group also operates as the fi duciary manager of equity placed (After-Sales Services) and in the management of fund assets (Asset Management).
HCI Capital AG's interim consolidated fi nancial statements as at 31 March 2010 were prepared in accordance with the provisions of IAS 34, with the notes presented in a condensed form in accordance with the option permitted by IAS 34.10.
With the exception of the following changes, the accounting policies used in the preparation of the Group's interim consolidated fi nancial statements correspond to those used in HCI Capital AG's IFRS consolidated fi nancial statements as at 31 December 2009. The interim consolidated fi nancial statements as at 31 March 2010 must therefore be read in conjunction with the consolidated fi nancial statements as at 31 December 2009.
The consolidated fi nancial statements were prepared under the assumption of the Company's ability to continue as a going concern. As for the risks arising from contingent liabilities and their potential effects and the risks arising from the HCI Group's liquidity requirements in relation to this assumption, reference is hereby made to Note (11), Note (9) and to the interim Group management report.
In the fi rst quarter of 2010, the HCI Group changed the presentation of fees received by the HCI Group as part of contractual agreements in the form of advance payouts from Secondary Life Insurance Market funds. While fees from Secondary Life Insurance Market funds have been included in other fi nancial income until 31 December 2009, such fees are now included in revenues. This alteration was prompted by the changing commission structures in the Secondary Life Insurance Market area and the HCI Group's associated obligations to realise this contractual remuneration. It also brings the accounting method into line with internal management and the product area's reporting system. In Q1 2010, the relevant income totalled EUR 703 thousand. In conjunction with the amended reporting method, the previous year's fi gure was adjusted accordingly by EUR 703 thousand as per IAS 8 to ensure comparability of the fi nancial statements.
Amendments to IAS 27 "Consolidated and Separate Financial Statements" and IFRS 3 "Business Combinations" became applicable for the fi rst time. However, these had no effect on the fi nancial performance, cash fl ows and fi nancial position as no sale of relevant shares in subsidiaries or applicable business combinations occurred. Other standards or interpretations applied for the fi rst time also had no impact on the HCI Group's assets, fi nancial and earnings position.
Application of the following standards and interpretations published by the IASB or IFRIC prior to the preparation of the interim consolidated fi nancial statements was not mandatory as at the balance sheet date because they had either not yet been endorsed by the EU or the date for their fi rst-time mandatory use had not yet been reached:
They will be implemented when their application becomes mandatory. The HCI Group does not currently expect the application of these standards to have a material impact on the presentation of its assets, fi nancial and earnings position.
Revenues break down as follows:
| EUR '000 | 01.01.– 31.03.2010 |
01.01.– 31.03.2009 (restated) |
|---|---|---|
| Transport and Logistics | 2,772 | 2,980 |
| Real Estate | 219 | 174 |
| Energy and Commodities | 285 | 417 |
| Secondary Life Insurance Market | 60 | 507 |
| Other | 0 | 0 |
| Design and Sales | 3,336 | 4,078 |
| Transport and Logistics | 4,379 | 4,202 |
| Real Estate | 605 | 609 |
| Energy and Commodities | 64 | 53 |
| Secondary Life Insurance Market | 357 | 342 |
| Other | 88 | 99 |
| After-Sales Services | 5,493 | 5,305 |
| Asset Management | 1,237 | 1,275 |
| Other remuneration | 10 | 34 |
| Total revenues | 10,076 | 10,692 |
The Transport and Logistics product area consists of the asset classes Ship and Aircraft, while the Energy and Commodities product area includes the HCI Deepsea Oil Explorer fund and is being expanded to include the HCI Energy Solar fund.
Income from Asset Management includes fees received by the HCI Group as part of contractual agreements in the form of advance payouts from Secondary Life Insurance Market funds. In Q1 2010, the relevant income totalled EUR 703 thousand. In conjunction with the amended reporting method, the previous year's fi gure was adjusted accordingly by EUR 703 thousand as per IAS 8 to ensure comparability of the fi nancial statements.
Personnel expenses are comprised as follows:
| EUR '000 | 01.01.– 31.03.2010 |
01.01.– 31.03.2009 |
|---|---|---|
| Wages and salaries | 4,423 | 5,363 |
| Social security contributions | 539 | 591 |
| Other social security costs | 85 | 91 |
| Personnel expenses | 5,047 | 6,045 |
Employer contributions to statutory pension schemes are included in social security contributions.
Other fi nancial income includes earnings from the disposal of investments and the renouncement to the repayment of loans granted to ship-ordering companies amounting to EUR 1,596 thousand (Q1 2009: EUR 16 thousand). In addition to this, other fi nancial income comprises exchange rate gains of EUR 182 thousand (Q1 2009: EUR 754 thousand). Impairments of EUR 558 thousand were recorded in the fi rst quarter of last year.
As the company intends to sell its shares in three shipordering companies previously accounted for under the equity method, such interests were classifi ed as assets held for sale in accordance with IFRS 5 as at 31 March 2010. Management considers it most likely that the sale will take place within 12 months after reclassifi cation. The interests were measured at fair value less costs to sell, resulting in an impairment loss of EUR 374 thousand. Prior to the reclassifi cation in accordance with IFRS 5, no pro rata shares of the companies' profi ts have been received and recognised under results from associated companies and joint ventures.
Income taxes include current tax expenditure amounting to EUR 380 thousand, including EUR 277 thousand in expenses for previous years, and deferred tax expenses of EUR 83 thousand.
Basic and diluted earnings per share were calculated as follows:
| 01.01.– 31.03.2010 |
01.01.– 31.03.2009 |
||
|---|---|---|---|
| Group share of the net result for the period | EUR '000 | 1,375 | - 2,493 |
| Weighted average number of shares issued | In thousands | 24,000 | 24,000 |
| Earnings per share for the reporting period | EUR | 0,06 | - 0.10 |
There were no dilutive instruments in the periods presented, with the result that diluted and basic earnings per share were the same.
Accumulated other equity consists of changes in the fair value of available-for-sale fi nancial instruments and translation adjustments for fi nancial statements denominated in a foreign currency. In addition, it includes pro rata gains and losses recognised directly in equity from associated companies and joint ventures accounted for under the equity method.
Financial liabilities comprise amounts owed to banks by the HCI Group. The terms and conditions of the principal amounts owed to banks are as follows:
| Loans | Carrying value 31.03.2010 EUR '000 |
Carrying value 31.12.2009 EUR '000 |
Loan currency |
Interest rate in % |
Final due date |
|---|---|---|---|---|---|
| HSH Nordbank AG | 26,026 | 25,657 | EUR | 3M-LIBOR + 3 |
2010 |
| Bankhaus Wölbern & CO. | 3,640 | 4,932 | USD | EURIBOR + 3.86 |
2010 |
| Commerzbank AG | 4,602 | 4,528 | EUR | 6.89 | 2010 |
| HSH Nordbank AG | 1,115 | 480 | EUR | 0 | 2010 |
Segment data was prepared on the basis of fi nancial information used in internal management and corresponds to the accounting policies used for the consolidated fi nancial statements.
Reportable operating segments as per IFRS 8 are as follows:
In addition, there is a Holding / Other area which comprises items not directly attributable to segments as well as holding functions.
Segment results are stated as earnings before interest and taxes (EBIT), which is the result for the period before interest, other fi nancial income and income taxes. It is used in internal controlling as the segment management fi gure on the basis of IFRS. The revenue and cost categories used in internal reporting are the same as those presented in the consolidated statement of operations.
The segment assets held by the operating segments include the assets that are relevant for operating activities in the relevant segment. They consist of inventories, trade receivables, loans granted and loans to sales partners, funds and ordering companies along with the HCI Group's interests in funds or ordering companies and in associated companies and joint ventures accounted for under the equity method. The HCI Group recorded goodwill of EUR 875 thousand as at 31 March 2010, which is not allocated to segment assets.
Internal reporting does not include segment liabilities. Therefore they are not stated in segment reporting in accordance with IFRS 8.
Segment assets are reconciled with the Group's total assets as follows:
| EUR '000 | 31.03.2010 | 31.12.2009 |
|---|---|---|
| Segment assets | 61,527 | 63,506 |
| Cash and cash equivalents | 21,298 | 23,334 |
| Other assets and receivables | 20,275 | 19,841 |
| Deferred taxes | 207 | 207 |
| Intangible assets | 1,723 | 1,849 |
| Securities | 1,370 | 1,530 |
| Property, plant and equipment | 1,136 | 1,286 |
| Assets held for sale | 1.040 | 505 |
| Other investments | 811 | 391 |
| Group assets | 109,387 | 112,449 |
As at 31 March 2010, the company had the following contingencies and other fi nancial commitments:
| 31.03.2010 | 31.12.2009 | |||||
|---|---|---|---|---|---|---|
| EUR '000 | EUR '000 | USD '000 | EUR '000 | EUR '000 | USD '000 | |
| Guarantees and other commitments |
1,118,247 | 305,846 | 1,092,598 | 1,121,526 | 314,049 | 1,158,268 |
| Placement and equity guarantees |
465,733 | 202,870 | 353,526 | 496,931 | 224,220 | 392,051 |
| of which for funds not yet in distribution |
189,238 | 40,100 | 200,576 | 206,419 | 40,100 | 239,101 |
| Acquisition commitments | 77,050 | 4,800 | 97,170 | 35,719 | 6,580 | 44,450 |
| Future payments under operating leases |
5,787 | 5,787 | 5,890 | 5,890 | -- |
The business model of the HCI Group, which comprises the design, initiation and sale of closed-end funds, is dependent upon securing the availability of the investment assets held in the closed-end funds. This product availability must be secured long-term, and the HCI Group has regularly given large guarantees and acquisition commitments to secure investments or construction phase loans for ships, and placement guarantees for the funds to be raised.
If weak markets mean that these loans cannot be repaid as scheduled, the HCI Group is exposed to the risk – particularly in the shipping segment – that its contingent liabilities will be called upon if the special-purpose entity concerned does not obtain an extension or prolongation of the fi nancing commitment from the banks involved. The liquidity currently available to the HCI Group would not be suffi cient if it were called upon to a signifi cant extent, and this would result in insolvency for the Group.
At the end of 2008, the HCI Group began to conduct intensive talks with its main creditor banks HSH Nordbank AG and Commerzbank AG, and with its principal shareholders MPC Münchmeyer Petersen Capital AG and the Döhle Group in order to develop economically sustainable solutions together.
After long negotiations, the HCI Group agreed on a comprehensive restructuring plan with its main creditor banks in August 2009 and after further negotiations this was approved by all the banks involved on 11 February 2010.
It is intended that after the full release from liability, the banks should receive compensation of EUR 12.5 million that is payable when the agreed release from liability has been fully completed and the HCI Group has met specifi ed earnings and liquidity thresholds. In the course of implementing the release from liability, the HCI Group will also incur one-off expenses for compensation payments for each ship released from liability, up to a maximum amount of EUR 2.8 million.
The implementation of this restructuring plan will release the HCI Group from signifi cant risks and secure the Group's liquidity. The HCI Group is proceeding on the assumption that the conditions for successful implementation of the restructuring agreement will be met. Given that this will make it unlikely that the HCI Group's contingent liabilities will be utilised, it will not be necessary to recognise any provisions pursuant to IAS 37.
Therefore, the fi nancial guarantees that the HCI Group recognised in exercising its option under IFRS 4 – particularly relating to the guarantees and acquisition commitments in the shipping sector – will not result in any liabilities or expenses. Since the HCI Group received no premium for undertaking these commitments, no assets or income were recognised. With respect to the fi nancial guarantees, the HCI Group is exposed to a risk of having to reimburse the fi nancing bank for all or part of the losses arising from the loan granted to the debtor if the debtor defaults. In order to minimise risks such as these, the HCI Group began at an early stage to conduct negotiations with shipowners and shipyards with regard to cancellation options, purchase price deferments, purchase price reductions, postponement of delivery dates and changes to deployment plans. Active management of the ship pipeline and related fi nancing is one of the core competencies of the HCI Group; it is a high priority in this diffi cult market environment. The HCI Group also began negotiations with all of the banks involved at the end of 2008, which resulted in the above-mentioned restructuring agreement.
The HCI Group issued guarantees for real estate funds it brokered in the amount of EUR 8.9 million in the 2008 fi nancial year. Under these guarantees, in the event of a sale of real estate held by the funds and subsequent liquidation of the fund, the purchaser will be compensated for any difference between 90 % of the amount invested and the liquidity surplus actually distributed, if lower. On the basis of current performance data reported by the real estate funds, the HCI Group believes that it is unlikely to be called upon to honour these guarantees.
Individual companies in the HCI Group are registered in the commercial register as limited liability trustees for existing funds on behalf of investors and with the relevant liability contributions of these investors. In line with the intended distribution of liquidity surplusses not covered by profi ts to investors, a number of funds may be liable in accordance with Sections 171 and 172 (4) of the German Commercial Code (HGB). This means that distributions which lead to a failure to meet the liability contributions might have to be paid back to the relevant fund companies. Any compensating individual recourse claims by the limited liability trustee against investors would have to be dealt with individually. The amount resulting from this situation is a double-digit million amount of a aproximately between EUR 20 and 60 million. There is a corresponding refund claim against the individual investor in the case of such distributions.
The HCI Group has also provided fund companies that have invested in US life insurance policies with credit lines (or liquidity pledges) totalling EUR 7.45 million and USD 3.5 million, which run until 30 June 2012. As at 31 March 2010, these lines had not been used. In view of the funds' current performance, the fund companies are unlikely to make use of these liquidity commitments.
No events of special signifi cance that exercise a material effect on the HCI Group's fi nancial performance, cash fl ows and fi nancial position have occurred since the balance sheet date.
Hamburg, May 2010
HCI Capital AG The Management Board
Dr. Ralf Friedrichs Dr. Oliver Moosmayer Dr. Andreas Pres
These documents include certain forward-looking statements and information regarding future developments; these are based on the views and convictions of the Management Board of HCI Capital AG, and on assumptions and information currently available to HCI Capital AG. Words such as 'expect', 'assess', 'assume', 'intend', 'plan', 'should', 'might', 'project', or similar concepts referring to the company are designed to identify such forward-looking statements, which are subject to a number of uncertainties.
Many factors could cause the actual results achieved by HCI Group to be materially different from the forecasts expressed in such forward-looking statements.
HCI Capital AG accepts no responsibility or liability to the general public for updating or correcting any forward-looking statements. All forward-looking statements are subject to differing risks and levels of uncertainty: as a result, the actual fi gures may deviate from projected values. Forwardlooking statements refl ect the prevailing opinion at the time they were made.
HCI Capital AG Burchardstraße 8 D-20095 Hamburg Telefon +49 40 88 88 1-1100 Telefax +49 40 88 88 1-1109 [email protected] oder www.hci-capital.de
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