STATEMENT OF COMPREHENSIVE INCOME

for the year ended 30 April 2012

 

	Notes	Year ended 30/04/2012 €		Year ended 30/04/2011 € (as restated)
Interest income on financial assets designated at fair value through profit or loss	5	10,966,300		10,596,316
Interest expense on financial liabilities designated at fair value through profit or loss	6	(8,511,516)		(7,230,637)
Realised gain/(loss) on financial assets designated at fair value through profit or loss		627,579		(2,324,220)
Realised gain/(loss) on financial liabilities designated at fair value through profit or loss		1,498,271		(1,654,227)
Movement in unrealised loss/gain on financial assets designated at fair value through profit or loss		4,842,058		(1,274,695)
Movement in unrealised loss on financial liabilities designated at fair value through profit or loss		(453,830)		2,840,388
Net expense from derivatives held for trading	7	(8,951,851)		(709,983)
Net foreign exchange gain		591,161		229,759
Net investment income		608,172		472,701
Other income	8	19,880		8,094
Other expenses	9	(627,052)		(479,795)
Profit from ordinary activities before taxation		1,000		1,000
Taxation	10	(281)		(438)
Profit and total comprehensive income for the year		719		562

 

 

The accompanying notes to the financial statements from page 13 to 35 form an integral part of the financial statements.

 

 

On behalf of the board

 

 

John Fitzpatrick                                                        Michael Boyce

Director                                                                      Director             

 

Date: 30 August 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

STATEMENT OF FINANCIAL POSITION

as at 30 April 2012

 

	Notes		As at 30/04/2012                 €		As at 30/04/2011                 €		As at 01/05/2010 €
Assets
Non-current assets
Financial assets designated at fair value through profit or loss	11		259,535,597		240,574,591		418,747,462
Derivatives held for trading	12		1,473,763		3,845,579		11,557,102
Current assets
Cash and cash equivalents	13		446,256		191,697		587,379
Amounts receivable from custodian			135		-		-
Interest receivable on investments			3,329,439		2,540,675		2,640,588
Financial assets designated at fair value through profit or loss	11		108,488,817		263,601,062		144,310,107
Derivatives held for trading	12		2,627,618		6,010,984		790,190
Total assets			375,901,625		516,764,588		578,632,828
Liabilities
Current liabilities
Amounts payable to custodian			-		45,535		-
Interest payable on notes issued			1,418,359		1,572,473		1,421,695
Expense accruals			13,838		18,747		78,785
Derivatives held for trading	12		737,385		738,339		773,151
Non-current liabilities
Financial liabilities designated at fair value through profit or loss	14		360,918,689		510,901,304		565,798,458
Derivatives held for trading	12		12,771,573		3,446,628		10,519,739
Total liabilities			375,859,844		516,723,026		578,591,828
Equity
Called up share capital	15		40,000		40,000		40,000
Profit and loss account			1,781		1,562		1,000
Total equity			41,781		41,562		41,000
Total liabilities and equity			375,901,625		516,764,588		578,632,828

 

The accompanying notes to the financial statements from page 13 to 35 form an integral part of the financial statements.

 

 

On behalf of the board

 

 

John Fitzpatrick                                                    Michael Boyce

Director                                                                  Director 

 

Date: 30 August 2012

 

 

 

 

 

 

STATEMENT OF CHANGES IN EQUITY

for the year ended 30 April 2012

 

		Share capital €	Profit and loss account €	Total equity €
Balance as at 30 April 2010		40,000	1,000	41,000
Total comprehensive income for the year
Result for the year		-	562	562
Other comprehensive income		-	-	-
		-	562	562
Balance as at 30 April 2011		40,000	1,562	41,562
Total comprehensive income for the year
Result for the year		-	719	719
Other comprehensive income		-	-	-
		-	719	719
Dividend paid during the year		-	(500)	(500)
Balance as at 30 April 2012		40,000	1,781	41,781

 

The accompanying notes to the financial statements from page 13 to 35 form an integral part of the financial statements.

 

 

 

 

 

 

 

 

 

 

 

 

STATEMENT OF CASH FLOWS

for the year ended 30 April 2012

 

	Notes	Year ended 30/04/2012 €	Year ended 30/04/2011 € (as restated)
Cash flows from operating activities
Interest received on investments		10,177,401	10,696,229
Interest paid on notes issued		(8,665,630)	(7,079,859)
Derivative receipts		16,852,428	10,047,775
Derivative payments		(10,725,106)	(15,374,952)
Other income		19,880	8,094
Other expenses		(677,496)	(494,298)
Cash generated from/used in operating activities		6,981,477	(2,197,011)
Taxes paid		(281)	(438)
Net cash generated from/used in operating activities		6,981,196	(2,197,449)
Cash flows from investing activities
Investment purchases		(596,439,380)	(555,151,886)
Investment paydowns and disposals		738,060,256	610,434,887
Net cash from investing activities		141,620,876	55,283,001
Cash flows from financing activities
Proceeds from note issuance		116,385,330	236,391,872
Redemption and repurchase of notes		(265,323,504)	(290,102,865)
Dividend paid		(500)	-
Net cash used in financing activities		(148,938,674)	(53,710,993)
Net decrease in cash and cash equivalents		(336,602)	(625,441)
Cash and cash equivalents at beginning of the year		191,697	587,379
Effect of exchange rate changes on cash and cash equivalents		591,161	229,759
Cash and cash equivalents at end of the year	13	446,256	191,697

 

The accompanying notes to the financial statements from page 13 to 35 form an integral part of the financial statements.

  

 

 

 

 

 

 

 

 

 

 

NOTES TO THE FINANCIAL STATEMENTS

 

1.     General Information

Waterford Capital Investments Plc (the "Company"), an Irish registered Company was incorporated on 5 September 2006 to issue Notes. The cash proceeds are used to invest in commercial papers, bonds and time deposits.

 

2.     Basis of Preparation

 

(a)    Statement of compliance

         The financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRSs") as adopted by the European Union and the Companies Acts 1963 to 2012 and the Listing Rules issued by the Irish Stock Exchange.

 

(b)    New standards and interpretations adopted

The accounting policies adopted are consistent with those of the previous financial year.

 

The following amended IFRS and IFRIC interpretations were adopted by the Company during the accounting period beginning 1 May 2011. The amendments did not have any impact on the accounting policies, financial position or performance of the Company:

·      IAS 24 Related Party Disclosures (amendment) effective 1 January 2011

·      IAS 32 Financial Instruments: Presentation (amendment) effective 1 February 2010

·      IFRIC14 Prepayments of a Minimum Funding Requirement (amendment) effective 1 January 2011

·      Improvements to IFRS (2010)

§ IFRS 3 Business Combinations

§ IFRS 7 Financial Instruments

§ IAS 1 Presentation of Financial Statements

§ IFRS 3 Business Combinations (Contingent consideration arising from business combination prior to adoption of IFRS 3 (as revised in 2008))

§ IFRS 3 Business Combinations (Un-replaced and voluntarily replaced share-based payment awards)

§ IAS 27 Consolidated and Separate Financial Statements

§ IAS 34 Interim Financial Statements

§ IFRIC 13 Customer Loyalty Programmes (determining the fair value of award credits)

 

(c)    New standards and interpretations not yet adopted

The IFRSs applied by the Company in the preparation of these financial statements are those effective for accounting periods beginning on or before 1 May 2011. A number of new standards, amendments to standards and interpretations in issue are not yet effective for accounting periods beginning on or before 1 May 2011, and the Company has not early adopted them. None of these will have an effect on the financial statements of the Company with the possible exceptions of IFRS 9 "Financial Instruments" and IFRS 13 "Fair Value Measurement". 

 

IFRS 9 deals with classification and measurement of financial assets and liabilities and its requirements represent a significant change from the existing requirements in IAS 39 in respect of financial assets. The standard contains two primary measurement categories for financial assets: amortised cost and fair value. A financial asset would be measured at amortised cost if it is held within a business model whose objective is to hold assets in order to collect contractual cash flows, and the asset's contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal outstanding. All other financial assets would be measured at fair value. The standard eliminates the existing IAS 39 categories of held to maturity, available-for-sale and loans and receivables. For an investment in an equity instrument which is not held for trading, the standard permits an irrevocable election, on initial recognition, on an individual share-by-share basis, to present all fair value changes from the investment in other comprehensive income. No amount recognised in other comprehensive income would ever be reclassified to profit or loss. However, dividends on such investments are recognised in profit or loss, rather than other comprehensive income unless they clearly represent a partial recovery of the cost of the investment. Investments in equity instruments in respect of which an entity does not elect to present fair value changes in other comprehensive income would be measured at fair value with changes in fair value recognised in profit or loss.

 

 

NOTES TO THE FINANCIAL STATEMENTS (continued)

 

2.     Basis of Preparation (continued)

 

(c)    New standards and interpretations not yet adopted (continued)

The standard requires that derivatives embedded in contracts with a host that is a financial asset within the scope of the standard are not separated; instead the hybrid financial instrument is assessed in its entirety as to whether it should be measured at amortised cost or fair value.

 

IFRS 9 is effective for annual periods beginning on or after 1 January 2015.  Earlier application is permitted once the standard is endorsed by the European Union.  The Company does not plan to adopt this standard early.

 

In May 2011, the IASB issued IFRS 13, Fair Value Measurement.  The standard defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e. an exit price). IFRS 13 is effective for annual periods beginning on or after 1 January 2013.  Earlier application is permitted once the standard is endorsed by the European Union.  The Company does not plan to adopt this standard early.

 

The Company is currently assessing the impact of adopting IFRS 9 and IFRS 13; however, the impact of adoption depends on the assets held by the Company at the date of adoption, so therefore it is not practical to quantify the effect.

 

(d)    Basis of measurement

         The financial statements have been prepared on the historical cost basis except for certain financial assets and financial liabilities designated at fair value through profit or loss and derivatives held for trading which are also measured at fair value.

 

(e)    Functional and presentation currency

         These financial statements are presented in Euro which is the Company's functional currency. The functional currency is the currency of the primary economic environment in which the entity operates. The Company has issued notes primarily in Euro and the directors of the Company believe that Euro most faithfully represents the economic effects of the underlying transactions, events and conditions. Transactions in foreign currencies are translated at the foreign currency exchange rate ruling at the date of transaction. Monetary assets and liabilities denominated in foreign currencies are translated to the functional currency at the foreign currency closing exchange rate ruling at the statement of financial position date. Foreign currency exchange differences arising on translation and realised gains and losses on disposals or settlements of monetary assets and liabilities are recognised in the statement of comprehensive income.  Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated to the functional currency at the foreign currency exchange rates ruling at the dates that the values were determined.

 

(f)     Use of estimates and judgements

The preparation of the financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that may affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and underlying assumptions are reviewed on an ongoing basis.  Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects current and future periods.

 

A key area of estimation for this Company would be in the determination of fair values for financial assets and liabilities for which there is no observable market price.  The valuation techniques used and the accounting judgements applied when determining the fair value of financial assets and liabilities for which there is no observable market price is described in the significant accounting policy Note 3(e) "Financial instruments: Fair Value Measurement Principles".

 

 

 

 

 

 

NOTES TO THE FINANCIAL STATEMENTS (continued)

 

2.     Basis of Preparation (continued)

 

(f)     Use of estimates and judgements (continued)

IFRS 7 "Financial Instruments: Disclosures" establishes a fair value hierarchy that prioritises the inputs to valuation techniques used to measure fair value.  The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).  The three levels of the fair value hierarchy are as follows:

·      Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities

·      Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices), including inputs from markets that are not considered to be active

·      Level 3 - Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs)

 

Inputs are used in applying the various valuation techniques and broadly refer to the assumptions that market participants use to make valuation decisions, including assumptions about risk.  Inputs may include price information, volatility statistics, specific and broad credit data, liquidity statistics and other factors.  A financial instruments level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.  However, the determination of what constitutes "observable" requires significant judgement by the Company.  The Company considers observable data to be that market data which is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, provided by independent sources that are actively involved in the relevant market.  The categorisation of a financial instrument within the hierarchy is based upon the pricing transparency of the financial instrument and does not necessarily correspond to the Company's perceived risk inherent in such financial instruments.  The fair value hierarchy is set out in Note 17(h).

 

3.     Significant accounting policies

 

(a)    Interest income and expense

Interest income is accounted for on an effective interest rate basis. Due to the limited recourse nature of the notes issued, the Company is only required to pay the interest if it has collected sufficient funds to cover the amount due after having retained a reserved profit of €1,000 per annum for the Company.

 

(b)    Taxation

The tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the period as calculated in accordance with Irish Tax Laws. Taxable profit differs from profit before tax as reported in the statement of comprehensive income because it excludes items of income or expense that are not taxable or deductible. The Company's liability for current tax is calculated using tax rates that have been enacted or substantively enacted at the statement of financial position date.

 

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profits, and is accounted for using the statement of financial position method. Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary difference can be utilised.

 

(c)    Net expense from derivatives

The net expense from derivatives includes the fair value movements, settlement receipts and settlement payments for derivatives.

 

(d)    Cash and cash equivalents

Cash and cash equivalents includes cash held with banks which are subject to insignificant risk of changes in their values and are used by the Company in the management of its short term commitments.

 

(e)    Financial instruments          

         Classification

A financial asset or financial liability at fair value through profit or loss is a financial asset or liability that is classified as held-for-trading or designated as at fair value through profit or loss.

 

 

NOTES TO THE FINANCIAL STATEMENTS (continued)

 

3.     Significant accounting policies (continued)

 

(e)    Financial instruments (continued)

 

Classification (continued)

The Company has designated its investments held and notes issued at fair value through profit or loss on the basis that they form part of a group of financial assets and financial liabilities which is managed, and the performance of which is evaluated, on a fair value basis in accordance with a documented investment strategy and information about these financial assets and financial liabilities is provided internally on a fair value basis to the entity's key management personnel.

 

The Company has classified the cross currency swaps and interest rate swaps which it has entered into as derivatives held for trading.  These derivatives have not been formally designated into a hedging relationship and as such changes in their fair value are recognised in the statement of comprehensive income.

        

         Measurement

Financial instruments are recognised initially at fair value.  Transaction costs on financial assets and financial liabilities at fair value through profit or loss are expensed immediately.

Subsequent to initial recognition, all instruments classified at fair value through profit or loss, are measured at fair value with changes in their fair value recognised in the statement of comprehensive income.

 

         Fair Value Measurement Principles

         The determination of fair values of financial assets, financial liabilities and derivatives are based on a combination of quoted prices and valuation models, which are developed from recognised valuation models.  Some or all of the inputs into these models may not be market observable, and are derived from market prices or rates or are estimated based on assumptions. Due to the limited recourse nature of the notes issued, the determination of fair values of financial liabilities is based on a valuation model which will include the fair value of financial assets and derivatives held for trading and the carrying value of cash and cash equivalents, interest receivable, interest payable, other assets and other liabilities. The fair value of the notes issued falls within Level 3 of the fair value hierarchy.

 

         The fair value for commercial papers and time deposits are based on a discounted cash flow model which uses market interest rates as an input.  The fair value for commercial papers and time deposits falls within Level 2 of the fair value hierarchy. The fair value for bonds is based on quoted bid market prices. The fair value of bonds based on quoted bid prices fall within Level 1 on the fair value hierarchy.  If quoted prices are not available for bonds the fair value is based on a model which uses credit default spreads or analogue bond spreads as an input.  The fair value of bonds based on a model which used credit default spreads or analogue bond spreads as an input fall within Level 2 on the fair value hierarchy.

 

The fair values of cross currency swaps and interest rate swaps are based on net present values of future cash flows within the swap contracts. Valuation models are used to value swaps which use market interest and foreign exchange rates to obtain a fair value for cross currency swaps and market interest rates for interest rate swaps.  The fair value of cross currency swaps and interest rate swaps fall within Level 2 on the fair value hierarchy.

 

         Recognition

The Company initially recognises all financial assets and liabilities on the trade date at which the Company becomes a party to the contractual provisions of the instruments. From trade date, any gains and losses arising from changes in fair value of the financial assets or financial liabilities are recorded in the statement of comprehensive income.

 

Derecognition

The Company derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Company is recognised as a separate asset or liability. The Company derecognises a financial liability when its contractual obligations are discharged or cancelled or expired.

 

NOTES TO THE FINANCIAL STATEMENTS (continued)

 

3.     Significant accounting policies (continued)

 

(e)     Financial instruments (continued)

 

Offsetting

Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Company has a legal right to set off the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. Income and expenses are presented on a net basis only when permitted by the accounting standards, or for gains and losses arising from a group of similar transactions.

 

(f)     Segment Reporting

         An operating segment is a component of the Company:

·      that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity),

·      whose operating results are regularly reviewed by the Company's chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and

·      for which discrete financial information is available.

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker.  The chief operating decision maker is the person or group that allocates resources to and assesses the performance of the operating segments of a company.

 

4.      Financial assets and liabilities

The following table details the categories of financial assets and liabilities held by the Company at the reporting date

	Fair value As at 30/04/12	Carrying value As at 30/04/12	Fair value As at 30/04/11	Carrying value As at 30/04/11
	€	€	€	€
Assets
Financial assets designated at fair value through profit or loss
Investments at fair value	368,024,414	368,024,414	504,175,653	504,175,653
Derivatives held for trading	4,101,381	4,101,381	9,856,563	9,856,563
Other assets	3,775,830	3,775,830	2,732,372	2,732,372
Total assets	375,901,625	375,901,625	516,764,588	516,764,588
Liabilities
Financial liabilities designated at fair value through profit or loss
Notes issued at fair value	(360,918,689)	(360,918,689)	(510,901,304)	(510,901,304)
Derivatives held for trading	(13,508,958)	(13,508,958)	(4,184,967)	(4,184,967)
Other liabilities	(1,432,197)	(1,432,197)	(1,636,755)	(1,636,755)
Total liabilities	(375,859,844)	(375,859,844)	(516,723,026)	(516,723,026)

 

Other assets as presented above represent cash and cash equivalents, interest receivable on investments and amounts receivable on custodian as detailed in the statement of financial position.

 

Other liabilities as presented above represent expense accruals, interest payable on notes and amounts payable to custodian as detailed in the statement of financial position.

 

 

 

 

NOTES TO THE FINANCIAL STATEMENTS (continued)

 

5.     Interest income on financial assets designated at fair value through profit or loss		Year ended 30/04/2012 €		Year ended 30/04/2011 €
	Interest income on investments	10,966,300		10,595,316

 

6.     Interest expense on financial liabilities designated at fair value through profit or loss		Year ended 30/04/2012 €		Year ended 30/04/2011 €
	Interest expense on notes issued	8,511,516		7,230,637

 

7.     Net expense from derivatives held for trading		Year ended 30/04/2012 €		Year ended 30/04/2011 € (as restated)
	Derivative receipts	16,852,428		10,047,775
	Derivative payments	(10,725,106)		(15,374,952)
	Fair value movement on derivatives held for trading	(15,079,173)		4,617,194
		(8,951,851)		(709,983)

 

8.     Other income		Year ended 30/04/2012 €		Year ended 30/04/2011 €
	Interest income from cash and cash equivalents	17,660		8,094
	Compensation income	2,220		-
		19,880		8,094

 

9.     Other expenses		Year ended 30/04/2012 €		Year ended 30/04/2011 €
	Portfolio management fees	470,155		322,608
	Legal fees	4,057		3,932
	Auditors fees	11,475		11,495
	Directors' fees (for services as role of director)	3,000		2,500
	Tax compliance fees	2,875		2,874
	Custody fees	42,989		54,282
	Other expenses	92,501		82,104
		627,052		479,795

 

Fees charged by the Company's auditors in respect of the financial year, (excluding VAT) were as follows

 

		Year ended 30/04/2012 €		Year ended 30/04/2011 €
	Audit of financial statements	9,500		9,500
	Other assurance services	-		-
	Tax advisory services	2,375		2,375
	Non-audit services	-		-
		11,875		11,875

 

 

 

 

 

 

 

 

 

 

NOTES TO THE FINANCIAL STATEMENTS (continued)

 

10.   Taxation

The Company is subject to Irish Corporation tax at the Irish Corporation tax rate that applies to income other than trading income. The effective tax rate is 25% in accordance with Section 110 of the Taxes Consolidation Act, 1997.

		Year ended 30/04/2012		Year ended 30/04/2011
		€		€
	Corporation tax charge	281		438
	Factor affecting tax charge for the year has been calculated as follows
	Profit on ordinary activities before tax	1,000		1,000
	Current tax at 25%	250		250
	Effects of
	Under provision	31		219
	Utilised losses brought forward	-		(31)
	Taxation charge for the year	281		438

 

The Company will continue to be taxed in accordance with Section 110 of the Taxes Consolidation Act 1997.

 

11.   Financial assets designated at fair value through profit or loss		As at 30/04/2012		As at 30/04/2011
		€		€
	Financial assets with a maturity greater than 1 year
	Investments in EUR Bonds	221,090,503		211,478,252
	Investments in USD Bonds	36,562,772		19,634,229
	Investments in GBP Bonds	-		7,551,394
	Investments in CZK Bonds	1,882,322		1,910,716
		259,535,597		240,574,591
	Financial assets with a maturity within 1 year
	Investments in EUR Bonds	46,849,339		163,200,296
	Investments in GBP Bonds	8,281,358		6,467,804
	Investments in USD Bonds	-		2,354,526
	Investments in EUR Commercial Papers	35,231,739		71,505,994
	Investments in USD Commercial Papers	6,014,874		3,496,102
	Investments in CZK Time Deposits	5,857,025		6,199,989
	Investments in PLN Time Deposits	6,195,050		10,251,100
	Investments in HUF Time Deposits	59,432		125,251
		108,488,817		263,601,062
	Total financial assets designated at fair value through profit or loss	368,024,414		504,175,653

 

The Company invests into a large diverse portfolio of investments with a mixture of floating and fixed rate bonds, fixed rate commercial papers and fixed rate term deposits.  The breakdown of the interest risk profile is provided in Note 17(d) (ii) "Financial instruments, principal risks and uncertainties: Market risk: Interest rate risk".  The credit quality of the investments held is set out in Note 17(a) "Financial instruments, principal risks and uncertainties: Credit risk".  The geographical concentrations and industrial sector concentrations of the investments held is set out in Note 17(b) "Financial instruments, principal risks and uncertainties: Concentration risk".

 

 

 

 

 

 

 

NOTES TO THE FINANCIAL STATEMENTS (continued)

 

11.  Financial assets designated at fair value through profit or loss (continued)

		As at 30/04/2012		As at 30/04/2011
		€		€
	Opening balance	504,175,653		563,057,569
	Purchases of investments	596,439,380		555,151,886
	Sales of investments	(738,060,256)		(610,434,887)
	Realised gain/(loss) on investments	627,579		(2,324,220)
	Movement in unrealised loss/gain on investments	4,842,058		(1,274,695)
	Closing balance	368,024,414		504,175,653

 

12.   Derivatives held for trading		As at 30/04/2012		As at 30/04/2011
		€		€
	Derivatives with a maturity greater than 1 year
	Derivative assets
	Cross currency swaps	1,203,542		3,146,800
	Interest rate swaps	270,221		698,779
		1,473,763		3,845,579
	Derivative liabilities
	Cross currency swaps	(5,129,707)		(2,391,041)
	Interest rate swaps	(7,641,866)		(1,055,587)
		(12,771,573)		(3,446,628)
	Derivatives with a maturity within 1 year
	Derivative assets
	Cross currency swaps	2,451,255		5,483,918
	Interest rate swaps	176,363		527,066
		2,627,618		6,010,984
	Derivative liabilities
	Cross currency swaps	(529,077)		(20,797)
	Interest rate swaps	(208,308)		(717,542)
		(737,385)		(738,339)

 

		As at 30/04/2012		As at 30/04/2011
		€		€
	Currency analysis
	Cross currency swaps
	EUR	(1,103,176)		1,667,104
	USD	(2,605,735)		(43,519)
	GBP	1,704,924		4,595,295
	Interest rate swaps
	USD	(346,646)		-
	EUR	(6,959,536)		(468,154)
	CZK	(97,408)		(79,130)

 

13.   Cash and cash equivalents		As at 30/04/2012		As at 30/04/2011
		€		€
	Cash held with KBC Bank NV	446,256		191,697

Cash is held in KBC Bank NV current accounts which have no special terms and conditions.  Cash is available on demand.

 

 

 

 

NOTES TO THE FINANCIAL STATEMENTS (continued)

 

13.   Cash and cash equivalents (continued)

		As at 30/04/2012		As at 30/04/2011
	Currency analysis	€		€
	EUR	233,693		169,017
	USD	196,617		10,885
	GBP	74		23
	CZK	7,219		7,663
	HUF	123		399
	PLN	8,530		3,710

 

14.   Financial liabilities designated at fair value through profit or loss		As at 30/04/2012		As at 30/04/2011
		€		€
	CLASS                                  COUPON
	EUR Notes issued                6 month EURIBOR less 0.07%	235,636,273		368,533,390
	CZK Notes issued               6 month PRIBOR less 0.10%	49,155,868		59,728,472
	USD Notes issued               6 month USD LIBOR less 0.07%	51,690,484		54,250,489
	HUF Notes issued               6 month BUBOR less 0.15%	53,402		119,939
	PLN Notes issued                6 month WIBOR less 0.15%	24,382,662		28,269,014
		360,918,689		510,901,304

 

In addition to the floating rate coupon, the notes issued also carry a return in the form of a profit participating "excess spread". Due to this profit participating excess spread, the notes effectively receive all realised income and gains in excess of a reserved profit amount net of other expenses.  The Company is entitled to retain a reserved profit of €1,000 per annum.  All of the notes issued by the Company are held by KBC Life Assurance companies, Capital Protected Funds and Arcade Finance Plc, which have KBC Asset Management NV acting as portfolio manager. All notes issued are listed on the Irish Stock Exchange and are limited recourse. The noteholders have the right to early redeem notes until the final maturity date by providing an exercise notice to the paying agent.

 

The maturity profile of the Notes issued is as follows:	As at 30/04/2012		As at 30/04/2011
	€		€
EUR Notes issued
Maturing on 23/09/2014	58,020,408		112,600,249
Maturing on 23/10/2014	41,901,979		71,151,195
Maturing on 10/11/2014	40,528,986		65,048,279
Maturing on 23/12/2014	35,540,540		47,977,204
Maturing on 10/01/2015	45,862,127		56,190,349
Maturing on 10/02/2015	13,782,233		15,566,114
	235,636,273		368,533,390
CZK Notes issued
Maturing on 23/03/2015	20,468,690		24,801,537
Maturing on 23/04/2015	-		-
Maturing on 10/05/2015	2,816,452		2,562,802
Maturing on 10/07/2015	25,870,726		32,364,133
	49,155,868		59,728,472
USD Notes issued
Maturing on 10/01/2015	33,472,773		32,503,125
Maturing on 23/09/2015	18,217,711		21,747,364
	51,690,484		54,250,489

HUF Notes issued

Maturing on 10/07/2015

53,402

119,939

 

PLN Notes issued

Maturing on 23/03/2015	5,712,114		6,192,015
Maturing on 10/07/2015	18,670,548		22,076,999
	24,382,662		28,269,014

NOTES TO THE FINANCIAL STATEMENTS (continued)

 

14.   Financial liabilities designated at fair value through profit or loss (continued)

 

A summary maturity analysis of the Notes issued is as follows:	As at 30/04/2012		As at 30/04/2011
Amounts falling due	€		€
< 1 year	-		-
1 - 2 years	-		-
2 - 5 years	360,918,689		510,901,304
> 5 years	-		-
	360,918,689		510,901,304

 

The notes issued are designated as financial liabilities at fair value through profit or loss.  The fair value movement on financial liabilities is due to a combination of market and credit risk factors but information regarding the split is not available.

 

15.   Share Capital                                                                                             

		As at 30/04/2012		As at 30/04/2011
		€		€
Authorised
40,000 ordinary shares at €1 each		40,000		40,000
Issued and fully paid up
40,000 ordinary shares at €1 each		40,000		40,000

 

The holders of shares have the right to receive notice of, attend and vote at general meetings of the Company.  The holder of each share has the right to one vote.  Upon winding up, if net assets are insufficient to repay the whole paid up share capital, then the net assets will be distributed in proportion to the shares held by a shareholder.  Upon winding up, if net assets are in excess of the whole paid up share capital, then the excess will also be distributed in proportion to the shares held by a shareholder.

 

The holders of shares are entitled to receive dividends when they are declared according to the proportion of shares held.

 

16.   Segment analysis

The Company has one reportable segment. The reportable segment involves the repacking of investments on behalf of investors, which are bought from the market and subsequently securitised to avail of potential market opportunities and risk-return asymmetries.  KBC Asset Management NV has been appointed as portfolio manager to the Company. At the start date of the Company KBC Asset Management NV entered into a portfolio management agreement with the Company. Under this portfolio management agreement KBC Asset Management NV decides on how the resources of the Company are allocated in line with the strict terms and eligibility criteria as set out in the Company's Prospectus and assesses the performance of the investments held by the Company. The Prospectus was agreed upon by the directors at the start date of the Company and the directors have approved all subsequent updates to the Prospectus. The directors review the performance of the Company and KBC Asset Management NV report to the directors on a quarterly basis. 

KBC Asset Management NV is deemed to be the chief operating decision maker as it decides on how the resources of the Company are allocated as well as assessing the performance of the investments held. 

 

The following is the information reviewed by KBC Asset Management NV in deciding how resources are allocated and assessing the performance of the investments held:

 

KBC Asset Management NV is deemed to be the chief operating decision maker as it decides on how the resources of the Company are allocated as well as assessing the performance of the investments held. 

 

The following is the information reviewed by KBC Asset Management NV in deciding how resources are allocated and assessing the performance of the investments held:

 

 

 

 

NOTES TO THE FINANCIAL STATEMENTS (continued)

 

16.   Segment analysis (continued)

·      Credit quality of investments held - the credit quality of investments held are reviewed on a monthly basis by KBC Asset Management NV.  The breakdown of the credit ratings of the investments held by the Company is set out in Note 17(a) "Credit risk". The KBC Asset Management NV Risk department also rate the notes issued by the Company.  This rating is based on the weighted average credit rating of the investments held by the Company.  At 30 April 2012 the credit rating assigned to the notes issued by the Company by the KBC Asset Management Risk department was AA-.

 

·      Liquidity and Asset Liability Management ("ALM") ratios - the liquidity and ALM ratios of the Company are reviewed on a monthly basis.  The ALM ratio is reviewed to see if the Company is underinvested and whether the maturity/liquidity breakdown of the investments held is sufficient to meet the obligations to repay the notes. The liquidity breakdown is set out in Note 17(c) "Liquidity risk".  At 30 April 2012 the Company is deemed to be overinvested by 1.50% (2011: overinvested by 0.23%).  The levels of note redemptions/subscriptions are also reviewed as this is a key driver in whether the Company has to sell investments or whether it can buy investments as note redemptions will primarily have to be funded through investment disposals.  The net note redemptions for the year ended 30 April 2012 are set out in the cash flow from financing activities in the Statement of Cash Flows.

 

·      Country and industry exposure - the exposure the Company has to countries and industries is reviewed by KBC Asset Management NV on a monthly basis.  The level of exposure to countries and industries is decided upon by the KBC Asset Management NV Allocation Committee.  The country and industrial exposure limits set by the KBC Asset Management NV Allocations Committee is a driver in what investments are purchased and sold. The industrial sector and country breakdown of investments held at 30 April 2012 is set out in Note 17(b) "Concentration risk".

 

·      Market prices and market price fluctuations - daily market price fluctuations on all investments held are reviewed by relevant KBC Asset Management NV front office staff. The market value of investments is also a key driver in what investments are purchased and sold and the movement in market value is a key performance indicator reviewed by the KBC Asset Management NV front office staff assigned to the Company. The market value as at 30 April 2012 for investments held is set out in Note 11 "Financial assets designated at fair value through profit or loss". The movement in market value for the year ended 30 April 2012 ("movement in unrealised gain/loss on investments") is also set out in Note 11 "Financial assets designated at fair value through profit or loss".

 

The Company earns interest income from its portfolio of investments which includes bonds, commercial papers and time deposits.  The breakdown of interest income for the year is as follows:

	Year ended  30/04/2012 €		Year ended  30/04/2011 €
Interest income from bonds	6,353,434		9,350,771
Interest income from commercial papers	1,035,372		964,092
Interest income from time deposits	3,577,494		281,453
	10,966,300		10,596,316

 

The country breakdown of interest income for the year is as follows:

	Year ended  30/04/2012 €		Year ended  30/04/2011 €
Ireland	283,745		1,078,395
Belgium	1,596,255		1,411,296
United States of America	2,203,483		1,816,510
The Netherlands	992,233		512,969
United Kingdom	1,197,413		658,122
Germany	544,072		571,001
France	1,842,083		666,091
Italy	495,873		766,168
Rest of Europe	1,279,904		2,274,602
Rest of World	531,239		841,162
	10,966,300		10,596,316

NOTES TO THE FINANCIAL STATEMENTS (continued)

 

16.   Segment analysis (continued)

        

         The country breakdown of non-current investments and derivatives held at year end is as follows:

	As at  30/04/2012 €		As at  30/04/2011 €
Non-current investments
Ireland	13,486,356		19,621,272
Belgium	17,509,772		25,882,029
The Netherlands	28,154,241		33,422,432
Spain	-		2,576,988
France	57,410,941		17,848,750
Italy	5,830,638		26,403,618
Austria	-		195,288
Czech Republic	1,882,322		1,910,716
Germany	9,754,092		6,618,532
Australia	-		6,004,959
United Kingdom	18,448,015		23,433,207
United States of America	60,136,676		66,428,828
Rest of Europe	29,321,634		10,227,972
Rest of World	17,600,910		-
	259,535,597		240,574,591
Non-current derivatives
Belgium	(11,297,810)		398,951
	(11,297,810)		398,951

 

Due to the diversity of the portfolio of investments held no interest income earned from an individual investment exceeds 10% of total interest income for the year ended 30 April 2012.

 

17.   Financial instruments, principal risks and uncertainties

The principal risks and uncertainties of the business relate to credit risk, concentration risk, liquidity risk, market risk and operational risk.

 

(a)    Credit risk

Credit risk is the risk of financial loss to the Company if a counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company's portfolio of investments and derivatives. The maximum gross exposure to credit risk at the statement of financial position date was:

 

		As at 30/04/2012		As at 30/04/2011
		€		€
Financial assets designated at fair value through profit or loss		368,024,414		504,175,653
Derivatives held for trading		4,101,381		9,856,563
Cash and cash equivalents		446,256		191,697
Interest receivable on investments		3,329,439		2,540,675
Amounts receivable from custodian		135		-
		375,901,625		516,764,588

 

No financial asset is past due. 

 

The Company's net exposure to credit risk is minimal as the notes issued by it are limited recourse.  Consequently, any loss suffered on the assets held will reduce the amount which the Company is required to pay to the note holders and therefore does not result in a loss to the Company.  Management have outsourced the responsibility of monitoring credit risk to KBC Asset Management NV.

 

 

 

 

 

NOTES TO THE FINANCIAL STATEMENTS (continued)

 

17.   Financial instruments, principal risks and uncertainties

 

(a)   Credit risk (continued)

KBC Asset Management NV's Risk department monitors the credit risk for the Company by monitoring external credit ratings for the investments held by the Company on a monthly basis. The following are the minimum credit ratings for investments held by the Company, which the KBC Asset Management NV's Risk department monitors during its review:

·      The minimum short term credit rating is at least A-1 from Standard & Poor's or an equivalent short term credit rating from Moody's or Fitch.  If a short term security is not rated by any of these credit rating agencies, it must have a short term credit risk profile equivalent to, or better than, in the opinion of the KBC Asset Management NV's Risk department, a short term credit rating of A-1 from Standard & Poor's.

·      The minimum longer term credit rating is at least A- from Standard & Poor's or an equivalent long term credit rating from Moody's or Fitch.  If a long term security is not rated by any of these credit rating agencies, it must have a long term credit risk profile equivalent to, or better than, in the opinion of the KBC Asset Management NV's Risk department, a long term credit rating of A- from Standard & Poor's.

·      There are certain specified securities in the Company's prospectus that may be invested into even if they fall outside the above credit ratings.  There is a maximum notional amount that can be invested into these specified securities.

 

The following is the breakdown of the credit ratings for the financial assets designated at fair value through profit or loss held by the Company:

 

			As at 30/04/2012	As at 30/04/2011
Rating	Rating agency		%	%
Long term
AAA	Standard & Poor's		9.45	13.72
AA+	Standard & Poor's		2.19	6.75
AA	Standard & Poor's		6.38	10.55
AA-	Standard & Poor's		11.69	4.37
A+	Standard & Poor's		14.81	20.00
A	Standard & Poor's		11.97	13.26
A-	Standard & Poor's		9.49	1.23
BBB+	Standard & Poor's		-	1.37
B-	Standard & Poor's		0.96	-
Aaa	Moody's		5.48	0.27
Aa2	Moody's		-	5.04
Aa3	Moody's		5.01	-
A1	Moody's		2.83	-
A2	Moody's		1.58	-
Baa3	Moody's		3.66	2.75
A	Fitch		-	2.48
BB+	Fitch		-	0.05
			85.50	81.84

 

Short term
A-1+	Standard & Poor's		2.72	3.09
A-1	Standard & Poor's		5.85	15.07
P-1	Moody's		5.42	-
F1+	Fitch		0.51	-
			14.50	18.16

 

 

 

 

NOTES TO THE FINANCIAL STATEMENTS (continued)

 

17.   Financial instruments, principal risks and uncertainties (continued)

 

(a)   Credit risk (continued)

Two Bank bonds had a Moody's rating of Baa3 and  Standard & Poor's rating of B-.  At the date these bonds were purchased they did meet the minimum credit rating.  The holding of these investments was approved by the KBC Asset Management NV Allocation Committee.  The bond with a Baa3 Moody's rating is included in the specified securities listing in the Company's prospectus.  Therefore it is allowable for the Company to hold these investments.

 

       KBC Bank NV is the swap counterparty for all derivatives held for trading as at 30 April 2012.  All cash balances are also held with KBC Bank NV. KBC Bank NV had an "A-2" (30 April 2011: "A-1") short term rating and an "A-" (30 April 2011: "A") long term credit rating from Standard & Poor's as at 30 April 2012.

 

(b)     Concentration risk

The Company's financial assets designated at fair value through profit or loss were concentrated in the following industrial sector types and geographical locations:

		As at 30/04/2012		As at 30/04/2011
		%		%
Industrial sector
Banking and financial services		90.97		89.13
Government		6.67		10.04
Commercial Services & Supplies		-		0.83
Automobiles		2.36		-
		100.00		100.00

 

		As at 30/04/2012		As at 30/04/2011
		%		%
Country
United States of America		20.70		20.40
Belgium		9.67		12.34
Ireland		3.66		5.26
The Netherlands		9.22		8.69
United Kingdom		7.29		9.87
Italy		3.34		7.25
Spain		0.72		2.69
Australia		4.78		6.53
France		20.20		14.75
Germany		3.67		3.22
Austria		1.10		2.52
Norway		-		2.98
Luxembourg		2.72		-
Sweden		8.18		-
Denmark		3.10		2.97
Other		1.65		0.53
		100.00		100.00

 

(c)    Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due.  The Company hedges liquidity risk through the issuance of notes with similar maturity dates as the investments to be acquired with the issuance proceeds and with corresponding payment dates on the notes issued and investments held. It also hedges liquidity risk by investing a significant percentage of the issuance proceeds into short term liquid investments.  Management have outsourced the responsibility of monitoring liquidity risk to KBC Asset Management NV.

 

 

 

 

 

 

NOTES TO THE FINANCIAL STATEMENTS (continued)

   

17.   Financial instruments, principal risks and uncertainties (continued)

 

(c)    Liquidity risk (continued)

 

As at 30 April 2012

	Carrying amount   €	Gross contractual cash flows €	Less than one year   €	Greater than one year   €
Financial assets designated at fair value through profit or loss	368,024,414	366,483,813	108,685,727	257,798,086
Derivatives held for trading	4,101,381	4,101,381	2,627,618	1,473,763
Cash and cash equivalents	446,256	446,256	446,256	-
Interest receivable on investments	3,329,439	26,082,813	12,524,334	13,558,479
Amounts receivable from custodian	135	135	135	-
	375,901,625	397,114,398	124,284,070	272,830,328
Financial liabilities designated at fair value through profit or loss	(360,918,689)	(359,378,087)	-	(359,378,087)
Derivatives held for trading	(13,508,958)	(13,508,958)	(737,385)	(12,771,573)
Interest payable on notes issued	(1,418,359)	(24,171,734)	(10,613,254)	(13,558,480)
Expense accruals	(13,838)	(13,838)	(13,838)	-
	(375,859,844)	(397,072,617)	(11,364,477)	(385,708,140)
	41,781	41,781	112,919,593	(112,877,813)

 

         As at 30 April 2011

	Carrying amount   €	Gross contractual cash flows €	Less than one year   €	Greater than one year   €
Financial assets designated at fair value through profit or loss	504,175,653	507,690,716	264,562,618	243,128,098
Derivatives held for trading	9,856,563	9,856,563	6,010,984	3,845,579
Cash and cash equivalents	191,697	191,697	191,697	-
Interest receivable on investments	2,540,675	45,281,527	12,556,216	32,725,311
	516,764,588	563,020,503	283,321,515	279,698,988
Financial liabilities designated at fair value through profit or loss	(510,901,304)	(531,610,985)	-	(531,610,985)
Derivatives held for trading	(4,184,967)	(4,184,966)	(738,339)	(3,446,627)
Amounts payable to custodian	(45,535)	(45,535)	(45,535)	-
Interest payable on notes issued	(1,572,473)	(27,118,708)	(8,422,213)	(18,696,495)
Expense accruals	(18,747)	(18,747)	(18,747)
	(516,723,026)	(562,978,941)	(9,224,834)	(553,754,107)
	41,562	41,562	274,096,681	(274,055,119)

 

 (d)  Market risk

Market risk represents the potential for both loss and gains and includes currency risk, interest rate risk and other price risk. Management have outsourced the responsibility of monitoring market risk to KBC Asset Management NV.

 

 

 

 

 

 

 

 

 

NOTES TO THE FINANCIAL STATEMENTS (continued)

   

17.   Financial instruments, principal risks and uncertainties (continued)

 

(d)    Market risk (continued)

 

(i)    Currency risk

The Company is exposed to exchange rate movements between EUR, its functional currency, and certain foreign currencies, namely Czech Koruna (CZK), US Dollar (USD), British Pound (GBP), Hungarian Forint (HUF) and Polish Zloty (PLN).  The Company's financial statements are denominated in EUR while the investments purchased by the Company can be denominated in other currencies.

 

Changes in rates of exchange may have an effect on the value of or the income from these investments. The Company manage currency risk by issuing notes in currencies other than EUR and through entering into cross currency swaps.

 

The Company used the following exchange rates to retranslate balances denominated in foreign currencies at the statement of financial position date:

		As at 30/04/2012		As at 30/04/2011
		€		€
USD		1.3236		1.4836
GBP		0.8151		0.8895
CZK		24.9390		24.2010
HUF		286.1500		264.5800
PLN		4.1740		3.9330

 

Details of the foreign currency investments held by and notes issued by the Company are shown below along with the foreign currency swaps entered into to mitigate currency risk on investments acquired in different currencies to the notes issued.

     

    As at 30 April 2012

			CZK €		USD €		GBP €		HUF €	PLN €		Total €
Investments held (at nominal amounts)		7,656,682		40,797,824		8,281,192		59,409	6,190,704		62,985,811
	Cash and cash equivalents		7,219		196,617		74		123	8,530		212,563
	Notes issued (at nominal amounts)		(49,882,714)		(52,445,225)		-		(54,167)	(24,754,432)		(127,136,538)
			(42,218,813)		(11,450,784)		8,281,266		5,365	(18,555,198)		(63,938,164)

 

As at 30 April 2011

			CZK €		USD €		GBP €		HUF €	PLN €		Total €
Investments held (at nominal amounts)		8,053,386		24,063,090		14,064,872		125,482	10,261,887		56,568,717
	Cash and cash equivalents		7,663		10,885		23		399	3,710		22,680
	Notes issued (at nominal amounts)		(60,160,737)		(54,659,612)		-		(120,946)	(28,498,602)		(143,439,897)
			(52,099,688)		(30,585,637)		14,064,895		4,935	(18,233,005)		(86,848,500)

 

 

 

 

 

 

 

 

NOTES TO THE FINANCIAL STATEMENTS (continued)

   

17.   Financial instruments, principal risks and uncertainties (continued)

 

(d)    Market risk (continued)

 

(i)    Currency risk (continued)

 

The cross currency swaps entered into to mitigate currency risk on investments acquired in different currencies to the notes issued are as follows:

 

As at 30 April 2012

			CZK €		USD €		GBP €	PLN €		Total €
Swaps (at nominal amounts)		(40,633,617)		3,637,156		8,281,192	(20,018,000)		(48,733,269)

 

As at 30 April 2011

			CZK €		USD €		GBP €	PLN €		Total €
Swaps (at nominal amounts)		(47,018,837)		(31,173,970)		14,064,872	(18,668,000)		(82,795,935)

 

 (ii)         Interest rate risk

The Company is exposed to changes in its cost of financing arising from movements in the EURIBOR, GBP and USD LIBOR, PRIBOR, BUBOR and WIBOR rates which respectively form the basis of the interest payments on the EUR, USD, CZK, HUF and PLN senior notes issued by it.  Increases in these rates increase the cost of funding.  Due to the limited recourse nature of the notes issued, the Company is only required to pay the interest if it has collected sufficient funds to cover the amount due after having retained a reserved profit of €1,000 per annum for the Company.  As such the Company has no net exposure to interest rate risk.

 

The interest rate risk profile of the Company's financial assets and liabilities designated at fair value was as follows:

	As at 30/04/2012			As at 30/04/2011
	Maturity less than 1 year	Maturity greater than 1 year		Maturity less than 1 year	Maturity greater than 1 year
	€	€		€	€
Financial assets designated at fair value through profit or loss
Floating rate	49,962,847	70,747,197		137,051,374	157,634,289
Fixed rate	58,525,970	188,788,400		126,549,688	82,940,301
	108,488,817	259,535,597		263,601,062	240,574,591
Financial liabilities designated at fair value through profit or loss
Floating rate	-	(360,918,689)		-	510,901,304
	-	(360,918,689)		-	510,901,304

 

(iii) Other price risk

Price risk is the risk that the value of financial instruments will fluctuate as a result of changes in the market prices, whether caused by factors specific to an individual investment, its issuer or all factors affecting all instruments traded in the market. The financial assets designated at fair value through profit or loss held by the Company, as disclosed in Note 11, are exposed to price risk but the Company has no net exposure to price risk due to the fact that the notes issued by it are limited recourse to the investments acquired with the issuance proceeds. Consequently, any price gains or losses on the investments held are exactly offset by corresponding gains or losses on the notes issued with no loss to the Company. There are no differences in the exposure to price risk between individual series of notes issued by the Company.

 

 

NOTES TO THE FINANCIAL STATEMENTS (continued)

   

17.   Financial instruments, principal risks and uncertainties (continued)

 

(d)    Market risk (continued)

 

(iii) Other price risk (continued)

Each series of note is exposed to a pro-rata share of the gains or losses on the investments held. KBC Asset Management NV, the Company's portfolio manager monitors market price fluctuations on the investments held by the Company on a daily basis. Market price fluctuations are one of the key drivers in the investment allocations made by the portfolio manager. Market prices are obtained from independent price sources. KBC Asset Management NV also monitors the Company's exposures to countries and industries. The limiting of exposures to various countries and industries is a key method of managing price risk. The Company's exposure to countries and industries is set out in Note 17(b) "Concentration risk". Another key method is that the Company can only hold investments with a minimum credit rating.  The credit rating breakdown of investments held is set out in Note 17(a) "Credit risk". The Company also manages price risk by investing in a diverse portfolio of investments. The Company may not hold 10% of investments in the same issuer and is limited to an aggregate investment of 40% in individual issuers of greater than 5% of investments held.

 

(e)   Sensitivity analysis

 

(i)    Currency risk

The Company purchases investments in multiple currencies. These investment purchases are funded through the issuance of notes in either the same currency as the investment purchased or in a different currency to the investments acquired with currency risk being hedged through the use of swap agreements. Any gains or losses in terms of currency movements on the investments are offset by corresponding movements on the related notes issued or swap agreements entered into.

 

The Company's sensitivity to a movement in each applicable currency exchange rate is set out below (prior to the impact of derivative movements).  The rates used in the sensitivity analysis per currency are as follows:

 

	2012	2011
USD	9%	10%
CZK	7%	7%
HUF	9%	10%
PLN	9%	11%
GBP	9%	10%

 

    As at 30 April 2012

	CZK €	USD €	GBP €	HUF €	PLN €
Investments held (at nominal amounts)	500,904	3,368,628	683,768	4,905	511,159
Cash and cash equivalents	505	17,695	7	11	768
Notes issued (at nominal amounts)	3,263,355	4,330,340	-	4,473	2,043,944

 

    As at 30 April 2011

	CZK €	USD €	GBP €	HUF €	PLN €
Investments held (at nominal amounts)	526,857	2,187,554	1,278,625	11,407	1,016,944
Cash and cash equivalents	501	990	2	36	368
Notes issued (at nominal amounts)	3,935,749	4,969,056	-	10,995	2,824,186

 

 (ii)  Interest rate risk

Due to the limited recourse nature of the notes issued the Company is only required to pay the interest if it has collected sufficient funds to cover the amount due after having retained a reserved profit of €1,000 per annum for the Company.  As such the Company has no net exposure to interest rate risk.

NOTES TO THE FINANCIAL STATEMENTS (continued)

 

17.   Financial instruments, principal risks and uncertainties (continued)

 

(e)    Sensitivity analysis (continued)

 

(ii)   Interest rate risk (continued)

The Company's sensitivity to an increase and decrease in interest rates is set out below.  The rates used in the sensitivity analysis are as follows:

 

	2012	2011
EUR	4%	4%
USD	3%	3%
CZK	2%	2%
PLN	3%	6%

 

The Company does not monitor HUF due to the low level of notes issued in this currency.

 

		As at  30/04/2012 €		As at  30/04/2011 €
EUR interest payable on notes issued		+/- 34,010		+/- 40,784
USD interest payable on notes issued		+/- 2,723		+/- 1,433
CZK interest payable on notes issued		+/- 3,219		+/- 4,016
PLN interest payable on notes issued		+/- 9,387		+/- 18,128

 

(iii) Other price risk

The financial assets of the Company are subject to market fluctuations and the risks inherent in all investments.  Any change in the fair value of the investments will be offset by a corresponding change in the fair value of the notes.  The Company's sensitivity to a 5% increase and decrease in market prices is as follows:

 

		As at  30/04/2012 €		As at  30/04/2011 €
Movement in fair value of bonds held for 5% change in market prices		+/- 15,733,315		+/- 20,629,861
Movement in fair value of commercial papers held for 5% change in market prices		+/- 2,062,331		+/- 3,750,105
Movement in fair value of time deposits held for 5% change in market prices		+/- 605,575		+/- 828,817

 

(f)     Operational risk exposure

The Company has appointed KBC Asset Management NV as portfolio manager and administrator, KBC Bank NV as custodian and KBC Bank Ireland plc as corporate accounting administrator. The successful operation of this Company is therefore reliant on KBC Group NV companies.

 

(g)    Collateral

The total financial assets of the Company with a carrying value of €368,024,414 (2011: €504,175,653) and the total cash and cash equivalents of the Company with a carrying value of €446,256 (2011: €191,697) are charged to BNY Corporate Trustee Services Limited (the "Trustee") by way of first fixed security.

 

The Trustee is required once the first fixed security becomes enforceable and the net proceeds are realised to apply the proceeds to clear the following ranked obligations on a pro rata basis:

·      receivership costs

·      general administrative costs

·      interest to noteholders

·      repayment of principal to noteholders

·      any amounts payable to a swap counterparty

·      the balance of proceeds (if any) to the Company

 

 

 

NOTES TO THE FINANCIAL STATEMENTS (continued)

   

17.   Financial instruments, principal risks and uncertainties (continued)

 

(g)    Collateral (continued)

The first fixed security is only enforceable on the occurrence of a continuing general event of default as described in the Company's Master Trust Deed.  On such event the Trustee may at its discretion, or shall, if so requested in writing by the noteholders of at least one-fifth of the notes then outstanding or, if so directed by an Extraordinary Resolution of such noteholders, enforce the first fixed security.  The following events are deemed to be general events of default:

·      The Company defaults in the payment of any redemption amount or defaults for a period of 14 days or more in the payment of any sum other than redemption amounts due to noteholders

·      The Company fails to perform or observe any of its obligations under the note term sheets or Trust Deed and such failure continues for a period of 30 days

·      The Company is deemed to be unable to pay its debts as and when they fall due

·      The Company is subject to any order made by any competent court or any resolution passed for the winding-up or dissolution of the company or subject to any insolvency, bankruptcy, compulsory liquidation, examination, controlled management procedures or suspension of payments

The terms and conditions for the first fixed security are set out in the in the Company's €40,000,000,000 Base Prospectus and Master Trust Deed and are usual and customary for note issuers.

 

(h)    Fair values

The accounting policies regarding the fair value hierarchy are set out in Note 2(f) "Use of estimates and judgements" and Note 3(e) "Financial instruments: Fair Value Measurement Principles". The following table analyses within the fair value hierarchy the Company's financial assets and liabilities measured at fair value:

 

As at 30 April 2012

	Level 1   €	Level 2   €	Level 3   €	Total balance €
Financial assets designated at fair value through profit or loss
Bonds	292,459,830	22,206,464	-	314,666,294
Commercial Papers	-	41,246,613	-	41,246,613
Time Deposits	-	12,111,507	-	12,111,507
	292,459,830	75,564,584	-	368,024,414
Derivatives held for trading
Cross currency swaps	-	(2,003,987)	-	(2,003,987)
Interest rate swaps	-	(7,403,590)	-	(7,403,590)
	-	(9,407,577)	-	(9,407,577)
Financial liabilities designated at fair value through profit or loss
Notes issued	-	-	(360,918,689)	(360,918,689)
	-	-	(360,918,689)	(360,918,689)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOTES TO THE FINANCIAL STATEMENTS (continued)

   

17.   Financial instruments, principal risks and uncertainties (continued)

 

(h)   Fair values (continued)

 

As at 30 April 2011

	Level 1   €	Level 2   €	Level 3   €	Total balance €
Financial assets designated at fair value through profit or loss
Bonds	398,712,917	13,884,300	-	412,597,217
Commercial Papers	-	75,002,096	-	75,002,096
Time Deposits	-	16,576,340	-	16,576,340
	398,712,917	105,462,736	-	504,175,653
Derivatives held for trading
Cross currency swaps	-	6,218,880	-	6,218,880
Interest rate swaps	-	(547,284)	-	(547,284)
	-	5,671,596	-	5,671,596
Financial liabilities designated at fair value through profit or loss
Notes issued	-	-	(510,901,304)	(510,901,304)
	-	-	(510,901,304)	(510,901,304)

 

There were no transfers between levels during the year.                 

 

A reconciliation of all movements in the fair value of financial liabilities categorised within Level 3 is presented below:

		Level 3 Notes issued 30/04/2012		Level 3 Notes issued 30/04/2011
		€		€
Opening balance		510,901,304		565,798,458
Redemption of notes issued		(265,323,504)		(290,102,865)
Issuance of notes issued		116,385,330		236,391,872
Gain on notes issued		(1,044,441)		(1,186,161)
Closing balance		360,918,689		510,901,304

 

The inputs into the model used to determine the fair value of the notes issued which fall under Level 3 of the fair value hierarchy are set out in Note 3(e) "Financial Instruments: Fair Value Measurement Principles".

 

No sensitivity analysis for the impact of changes in these inputs is disclosed as

·      It is not practical to do so due to the diverse portfolio of the underlying investments and derivatives held by the Company

·      The Company has no net exposure to changes in fair valuation movements due to the limited recourse nature of the notes issued by the Company.

 

18.   Related party transactions

All of the notes issued by the Company for the current and prior year are held by KBC Life Assurance companies, Capital Protected Funds and Arcade Finance Plc which have KBC Asset Management NV acting as portfolio manager.  All interest expense for the current and prior year was paid to these companies.  The directors of the Company are also directors of Arcade Finance Plc.

The Bank of New York Mellon (Ireland) Limited, the Company secretary, earned fees of €1,813 for the year, €453 of which was payable as at 30 April 2012.

 

 

 

NOTES TO THE FINANCIAL STATEMENTS (continued)

 

18.   Related party transactions (continued)

Klaus Vandewalle was and Luc Vanbriel is a director of KBC Fund Management Limited (formerly Eperon Asset Management Limited), a 100% subsidiary of the Company's portfolio manager and administrator.  Johan Dewolfs was and Christiaan Sterckx is a director of KBC Asset Management NV. KBC Asset Management NV earned fees of €470,155 (2011: €322,608) and €13,500 (2011: €13,500) respectively for its role as portfolio manager and administrator.  Portfolio management fees and administrator fees payable as at 30 April 2012 was €Nil (2011: €Nil) and €Nil (2011: €Nil) respectively.

 

Johan Tyteca is a director of KBC Bank NV, the Company's custodian.  KBC Bank NV earned fees of €42,989 (2010: €54,282) for its role as custodian, €Nil of which was payable as at 30 April 2012 (2011: €Nil).

 

KBC Bank Ireland plc is a 100% subsidiary of KBC Bank NV.  KBC Bank Ireland plc earned fees of €17,234 (2011: €16,902) for its role as corporate accounting administrator, €Nil (2011: €4,332) of which was payable as at 30 April 2012.

 

Klaus Vandewalle, Johan Dewolfs, Johan Tyteca, Christiaan Sterckx and Luc Vanbriel did not earn fees for their roles as directors. John Fitzpatrick and Michael Boyce each receive €1,500 per year for their roles as independent directors.  Directors' fees prepaid as at 30 April 2012 were €Nil (2011:€ 1,042).

 

19.   Ownership of the Company

39,994 of the issued shares are held in trust by BNY Corporate Trustee Services Limited. In addition, as of 30 April 2012 Mr. Patrick Joseph Duffy, Ms. Arlene Allen, Mr. Paul Murphy, Ms. Siobhan Burke, Mr. Anthony Grace and Mr. Michael Devane hold one share each as the "Share Trustees" under the terms of declarations of trust for BNY Corporate Trustee Services Limited. The Board of Directors have considered the issue as to who is the controlling party of the Company.  It has determined that the control of the activities of the Company rests with the Board.

 

20.   Dividends

A dividend of €500 (€0.0125 per ordinary share) was paid during the year (2011: €Nil).  On 30 August 2012 the directors proposed a dividend of €1,000 (€0.025 per ordinary share).

 

21.   Comparatives

The prior year figures have been reclassified for the following reasons:

 

Some realised foreign exchange gains and losses due to cross currency swaps were included in the prior year in the effect of exchange rate changes on cash and cash equivalents in the statement of cash flows and in net foreign exchange gain in the statement of comprehensive income. The gains have been reclassified to derivative receipts and the losses have been reclassified to derivative payments in the statement of cash flows.  They have been reclassified from net foreign exchange gain to net income from derivatives in the statement of comprehensive income.

 

Due to the restatements a third statement of financial position has been presented as at 1 May 2010 in line with the requirements of IAS 1 "Presentation of Financial Statements". Note disclosures as at 1 May 2010 were not presented as no amounts in the statement of financial position have been restated.

	Year ended 30/04/2011 per signed financial statements	Prior year reclassification	Year ended 30/04/2011 (as restated)
	€	€	€
Net expense from derivatives	(1,787,824)	1,077,841	(709,983)
Net foreign exchange gain	1,307,600	(1,077,841)	229,759
Derivative receipts	8,471,720	1,576,055	10,047,775
Derivative payments	(14,876,738)	(498,214)	(15,374,952)
Effect of exchange rate changes on   cash and cash equivalent	1,307,600	(1,077,841)	229,759

 

 

 

 

 

 

 

NOTES TO THE FINANCIAL STATEMENTS (continued)

 

22.   Subsequent events

The structure of the Company changed at the start of June. The Company's portfolio was split between a short duration portfolio and a long duration portfolio. On 1 June 2012, the Company issued three new series of notes to fund the investments on the long duration portfolio. The existing series of notes fund the investments on the short duration portfolio.  The maturity on the investments on the short duration portfolio is on average between 1 and 2 years.  The maturity on the investments on the long duration portfolio is on average between 4 and 5 years.   The Company issued the following series of notes on 1 June 2012:

 

EUR 40,000,000        Series No. 2012-21      Floating Rate Secured Senior Notes due 2017

EUR 55,000,000        Series No. 2012-22      Floating Rate Secured Senior Notes due 2017

EUR 45,000,000        Series No. 2012-23      Floating Rate Secured Senior Notes due 2016

 

Johan Tyteca resigned as a director on 1 June 2012.  The directors proposed a dividend of €1,000 on 30 August 2012.

 

23.   Approval of financial statements

The financial statements were approved by the board of directors on 30 August 2012.

 

 

This announcement has been issued through the Companies Announcement Service of

The Irish Stock Exchange.