1: Interim Accounts
We have just published our September 2019 Interim Accounts. These are the results for the half-year to the end of September 2019. They are prepared with accounting policies consistent with our annual accounts, which were prepared in accordance with NZ IFRS (Tier 1). The Interim Accounts comply with the New Zealand’s equivalent to the International Accounting Standard 34 (NZ IAS 34) Interim Financial Reporting, but unlike the year-end accounts they are not audited.
As well as long term performance of the portfolio, I always say to judge us on our efficiency through the ratio of our net operating costs to our assets. In this 6-month period we had net cash used in operating activities of $750,000 and assets at the quarter-end of $49.3 million, giving a ratio of 1.52%. This was up from $349,000 in net cash used in operating activities in the same period last year, and, with $42.2 million in assets reported, a ratio of 0.8%.
The net operating costs to assets ratio of 1.52% for the 6-month period would annualise to 3.04%, which is the highest result we have experienced. This was due to higher than expected net cash used in operating activities, which increased due to three factors.
The first reason is the rise in management fees from $367,000 to $479,000, due to the increase in the net asset value of the fund. The management fee is charged quarterly in advance, based on 2% (plus GST) of the net asset value at the end of the prior quarter. There are two pieces of good news here. The first is that, after taking external advice, the GST attached to our management fee has been reduced to 1.5% rather than 15%. This is because a significant amount of the management service provided by LWCM is considered a financial service, and so is zero rated for GST. The revised invoicing commenced from 1 October, and will save the fund around $25,000 per year. The second change is that, after the successful Retail Offer and Rights Issue the accounting net asset value is estimated to be $53.6 million, which is over $50 million. With the management fee falling to 1.5% per year for everything above $50 million we can expect downward pressure from that part of the net operating costs.
The second reason we saw higher net operating costs was the introduction of the administration fee, with $180,000 paid to LWCM during the half-year. However $100,000 of this was a one-off payment related to previous accounting periods.
Thirdly and finally the timing of dividends was not in our favour. We received $102,000 from Onceit during the same period last year, but did not receive a dividend for the same period this year. The good news is that we have just received a dividend, for $152,000, and that will be applied to the full year accounts.
If the Onceit dividend had been received in the first half of the year, and if we removed the impact of the $100,000 administrative fee relating to prior periods then the net operating costs to assets ratio would have been 1.0%, annualising to 2.0%. That’s a level we are far more comfortable with.
While it is always hard to predict future asset values I expect that ratio will be lower for the full-year accounts and hopefully drop thereafter. In particular we are always looking at ways of increasing dividend streams – with the eventual goal of receiving enough in dividends to meet our cash operating expenses.
2: Results from Retail Offer and Rights Issue
The shares are issued from the 2019 Retail Offer and Rights Issue. We raised $5.43 million, essentially the same as the provisional results but with a handful of investors unable to get their shortfall share payments to us on time. We had 45 new investors and 591 investors participating, and now have $54.5 million of assets. We are very happy with the result.
The new iNAV/Share would, on the basis of the company valuations used for the Interim Accounts and the product disclosure statement, move to $22.10 per share, down from $22.95 for the offer and $22.93 for the interim accounts. This is a 3.7% dilution effect compared to the start of the offer. Please read the Quarterly Report, below, for more details.
3: Quarterly Report
The September 2019 Quarterly Report is late this quarter due to the Retail Offer and Rights Issue. Read for Chris’s interview with Belinda and Richard from Mindfull, the expanded set of results from the retail offer and more.