19OCT Semi-Annual Report. to Shareholders

Transcription

1 Semi-Annual Report to Shareholders September 10, 2017

2 Notice: The unaudited interim condensed financial statements of the Company have been prepared by and are the responsibility of the Company s management. The Company s independent auditor has not reviewed these financial statements.

3 REPORT TO SHAREHOLDERS The following presents the financial results of Allbanc Split Corp. (the Company ) for the six months ended September 10, Financial Performance At September 10, 2017, the net assets attributable to holders of Capital Shares were $66.18 per Capital Share as compared to $73.90 per Capital Share at March 10, 2017, representing a decrease of 10.4% due to depreciation in the fair value of the portfolio shares. The total fair value of the Company s portfolio at September 10, 2017 was $51.4 million (March 10, 2017 $55.5 million), reflecting unrealized appreciation of $20.6 million (March 10, 2017 $24.6 million). For the six months ended September 10, 2017, dividends and interest income less total operating expenses ( Net Investment Income ) was $0.9 million or $1.65 per Unit (2016 $0.9 million or $1.56 per Unit), with a Unit consisting of one Capital Share and one Preferred Share. The increase of $0.09 per Unit, or 5.8%, is primarily due to increased dividend income of $0.12 per Unit offset by increased expenses of $0.03 per Unit mainly due to fixed operating expenses spread over fewer Units as a result of the March 10, 2017 annual retraction. The Company s Capital Share distribution policy is to pay holders of Capital Shares quarterly dividends in an amount equal to the Net Investment Income minus the fixed quarterly distribution payable on the Preferred Shares provided the net asset value per Unit at the time of declaration, after giving effect to the dividend, would be greater than the original issue price of the Preferred Shares. Accordingly, for the six months ended September 10, 2017, the Company paid ordinary dividends of $0.53 million or $1.01 per Capital Share (2016 $0.54 million or $0.93 per Capital Share). Holders of Preferred Shares are entitled to receive quarterly fixed cumulative distributions equal to $ ($ per annum) per Preferred Share, representing a yield of 4% per annum on their $31.64 offering price. For the six months ended September 10, 2017, the Company paid dividends of $0.33 million or $ per Preferred Share (2016 $0.37 million or $ per Preferred Share). Capital Share and Preferred Share Redemption The Capital Shares and Preferred Shares are scheduled to be redeemed by the Company on March 9, 2018 (the Redemption Date ). The Board of Directors may consider alternatives to termination including a possible extension of the Company, but there can be no assurance that any alternative will be approved or implemented. Notice of Redemption is required to be given by the Company at least 45 days prior to the Redemption Date. 1

4 Recent Development On June 13, 2017, The Bank of Nova Scotia announced that Marquest Asset Management Inc. agreed to acquire all the outstanding shares of Scotia Managed Companies Administration Inc., the administrator of the Company, subject to regulatory approvals and customary closing conditions. This report, along with the accompanying financial statements of the Company, is respectfully submitted to you on behalf of the Board of Directors of Allbanc Split Corp. Toronto, Canada October 19, MAY Brian D. McChesney President and Chief Executive Officer 2

5 INTERIM CONDENSED STATEMENTS OF FINANCIAL POSITION As at (unaudited) September 10, March 10, Assets Current assets Investments, at fair value $ 51,410,866 $ 55,470,458 Cash 26,389 24,106 51,437,255 55,494,564 Liabilities Current liabilities Accrued liabilities 10,000 10,000 Class A and Class S shares (note 4) Preferred Shares (note 4) 16,634,287 16,634,287 16,644,487 16,644,487 Net assets attributable to holders of Capital Shares $ 34,792,768 $ 38,850,077 Redeemable shares outstanding (note 4) Capital Shares 525, ,736 Preferred Shares 525, ,736 Net assets attributable to holders of Capital Shares per Capital Share $ $ Redemption Value per Preferred Share $ $ See accompanying notes to the interim condensed financial statements. On behalf of the Board: 6MAY Brian D. McChesney President and Chief Executive Officer 6JAN E. Stuart Griffith Chairman of the Board 3

6 INTERIM CONDENSED STATEMENTS OF COMPREHENSIVE INCOME For the six months ended September 10 (unaudited) Income Investments Dividends $ 1,034,938 $ 1,079,813 Unrealized (depreciation) appreciation of investments (4,059,592) 4,536,243 Net (loss) gain on investments (3,024,654) 5,616,056 Interest Total (loss) income, net (3,024,456) 5,616,588 Expenses Administrative fees (note 5) 75,630 72,207 Directors fees 33,666 33,666 Audit fees 14,387 11,250 Insurance premiums 11,050 10,500 Filing fees 7,287 6,150 Listing fees 6,890 6,680 Transfer agent fees 5,350 5,600 Printing and mailing charges 4,623 7,250 Independent Review Committee fees 3,750 3,750 Legal fees 1,382 3,000 Custodian fees 533 1,550 Other 4,626 9,376 Total operating expenses 169, ,979 Distributions on Preferred Shares 332, ,860 Total expenses 501, ,839 (Decrease) increase in net assets attributable to holders of Capital Shares $ (3,526,316) $ 5,075,749 (Decrease) increase in net assets attributable to holders of Capital Shares per Capital Share $ (6.71) $ 8.68 See accompanying notes to the interim condensed financial statements. 4

7 INTERIM CONDENSED STATEMENTS OF CASH FLOWS For the six months ended September 10 (unaudited) Operating activities (Decrease) increase in net assets attributable to holders of Capital Shares $ (3,526,316) $ 5,075,749 Adjustments for: Unrealized depreciation (appreciation) of investments 4,059,592 (4,536,243) Payable from purchase of investments (5,392,569) Net cash flow provided by (used in) operating activities 533,276 (4,853,063) Financing activities Dividends paid on Capital Shares (530,993) (543,567) Net cash flow used in financing activities (530,993) (543,567) Net increase (decrease) in cash 2,283 (5,396,630) Cash, beginning of period 24,106 5,426,065 Cash, end of period $ 26,389 $ 29,435 Supplemental cash flow information* Dividends received $ 1,034,938 $ 1,079,813 Interest received $ 198 $ 532 * Classified as operating activities See accompanying notes to the interim condensed financial statements. 5

8 INTERIM CONDENSED STATEMENTS OF CHANGES IN NET ASSETS ATTRIBUTABLE TO HOLDERS OF CAPITAL SHARES For the six months ended September 10 (unaudited) Net assets attributable to holders of Capital Shares, beginning of period $ 38,850,077 $ 29,690,943 (Decrease) increase in net assets attributable to holders of Capital Shares (3,526,316) 5,075,749 Capital Share transactions Dividends paid on Capital Shares (530,993) (543,567) Net assets attributable to holders of Capital Shares, end of period $ 34,792,768 $ 34,223,125 See accompanying notes to the interim condensed financial statements. 6

9 SCHEDULE OF INVESTMENTS As at (unaudited) Number of % of Portfolio Common Shares Company Adjusted Cost Base Fair Value at Fair Value September 10, March 10, September 10, March 10, September 10, March 10, September 10, March 10, , ,262 Bank of Montreal $ 7,293,143 $ 7,293,143 $11,529,471 $13,217, , ,358 The Bank of Nova Scotia 5,507,265 5,507,265 9,010,595 9,346, ,865 87,865 Canadian Imperial Bank of Commerce 6,464,999 6,464,999 9,245,155 10,486, , ,465 Royal Bank of Canada 5,677,679 5,677,679 10,362,516 11,178, , ,318 The Toronto-Dominion Bank 5,910,744 5,910,744 11,263,129 11,240, Adjustment for transaction costs (9,593) (9,593) $30,844,237 $30,844,237 $51,410,866 $55,470, See accompanying notes to the interim condensed financial statements. 7

10 NOTES TO INTERIM CONDENSED FINANCIAL STATEMENTS September 10, 2017 (unaudited) 1. GENERAL INFORMATION Allbanc Split Corp. (the Company ) is a mutual fund corporation incorporated under the laws of Ontario on December 17, The address of the Company s registered office is 40 King Street West, Toronto, Ontario M5W 2X6. Scotia Managed Companies Administration Inc. ( SMCAI or the Administrator ), a wholly-owned subsidiary of Scotia Capital Inc. ( SCI ) which in turn is a wholly-owned subsidiary of The Bank of Nova Scotia, provides all administrative services for the Company. The Capital Shares and Preferred Shares are scheduled to be redeemed by the Company on March 9, 2018 (the Redemption Date ). The Company holds a portfolio of common shares (the Portfolio Shares ) of Bank of Montreal, The Bank of Nova Scotia, Canadian Imperial Bank of Commerce, Royal Bank of Canada and The Toronto-Dominion Bank in order to generate income for the holders of the Company s preferred shares (the Preferred Shares ) and to enable the holders of the Company s capital shares (the Capital Shares ) to participate in any capital appreciation in the Portfolio Shares and to benefit from any increase in the dividends payable on the Portfolio Shares. The policy of the Company is to invest in Portfolio Shares and not engage in trading except in limited circumstances, including to fund retractions or redemptions of Capital Shares and Preferred Shares. The Company will sell or purchase Portfolio Shares on a pro rata basis based on the weightings of Portfolio Shares at the time of the purchase or sale. The Company s Capital Share distribution policy is to pay holders of Capital Shares quarterly dividends in an amount equal to the dividends received by the Company on the Portfolio Shares minus the fixed quarterly distributions payable on the Preferred Shares and all administrative and operating expenses provided the net asset value per Unit at the time of declaration, after giving effect to the dividend, would be greater than the $31.64 original issue price of the Preferred Shares. These financial statements were authorized for issuance by the Board of Directors (the Board ) of the Company on October 19, BASIS OF PRESENTATION Statement of Compliance These interim condensed financial statements have been prepared in compliance with International Financial Reporting Standards ( IFRS ), including IAS 34, Interim Financial Reporting as issued by the International Accounting Standards Board ( IASB ). 8

11 Accordingly, certain information and footnote disclosure included in the annual financial statements prepared in accordance with IFRS, as issued by the IASB, have been omitted or condensed. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES These interim condensed financial statements have been prepared using the same accounting policies as the annual financial statements for the year ended March 10, The disclosure in these interim condensed financial statements does not include all requirements of IAS I, Presentation of Financial Statements. Accordingly, the interim condensed financial statements should be read in conjunction with the audited financial statements for the year ended March 10, Accounting Standards Issued But Not Yet Adopted The final version of IFRS 9 Financial Instruments was issued by the IASB in July 2014 and will replace IAS 39 Financial Instruments: Recognition and Measurement and applies to the classification and measurement of financial assets and liabilities as defined in IAS 39. IFRS 9 is effective for annual periods beginning on or after January 1, The Company is in the process of assessing the impact of IFRS REDEEMABLE SHARES The Company is authorized to issue an unlimited number of Capital Shares, Preferred Shares, Class A shares and Class S shares. A summary of the Company s issued and outstanding shares is as follows: Preferred Capital Class A Class S Shares outstanding on March 10, 2016 and September 10, , , Retractions on March 10, 2017 (58,745) (58,745) Shares outstanding on March 10, 2017 and September 10, , , The weighted average number of Preferred Shares and Capital Shares outstanding for the six months ended September 10, 2017 was 525,736 (March 10, ,481) for each class. The Company will ensure that an equal number of Capital Shares and Preferred Shares continue to be outstanding. The market value of the Capital Shares on September 10, 2017 was $66.00 (March 10, 2017 $73.50) per share and the market value of the Preferred Shares on September 10, 2017 was $31.65 (March 10, 2017 $31.86) per share. 9

12 5. RELATED PARTY INFORMATION For its services to the Company, which includes the provision of key management personnel, SMCAI is entitled to receive an administrative fee of 0.25% per annum of the market value of the Portfolio Shares. For the six month period ended September 10, 2017, the total administrative fees paid to SMCAI were $75,630 (2016 $72,207). For the six month period ended September 10, 2017, administrative and operating expenses of $169,174 (2016 $170,979) were paid and satisfied by way of dividends on the Company s Class S shares. At September 10, 2017, the Company had cash on deposit with SCI and The Bank of Nova Scotia of $21,950 (March 10, 2017 $18,723). At September 10, 2017, the Company held investments in The Bank of Nova Scotia common shares with an aggregate fair value of $9,010,595 (March 10, 2017 $9,346,731). SCI and Allbanc Split Holdings Corp. each own 50% of the issued and outstanding Class A shares of the Company and two former employees of SCI each own 50% of the common shares of Allbanc Split Holdings Corp. SMCAI owns the 100 issued and outstanding Class S shares of the Company. 6. CAPITAL MANAGEMENT The Company s capital is represented by net assets attributable to holders of Capital Shares and Preferred Shares. The Administrator, with oversight from the Board, is responsible for managing the Company s Portfolio Shares in line with its mandate and the business affairs of the Company, including receipt of income and the payment of distributions to shareholders. The Company s Capital Share distribution policy is to pay holders of Capital Shares quarterly dividends in an amount equal to the dividends received by the Company on the Portfolio Shares minus the fixed preferential distributions payable on the Preferred Shares and all administrative, operating and income tax expenses provided the net asset value per Unit at the time of declaration, after giving effect to the Capital Share dividend, would be greater than or equal to the original issue price of the Preferred Shares. Any excess cash will be reinvested in short-term money market instruments or underlying Portfolio Shares. 7. FAIR VALUE OF FINANCIAL INSTRUMENTS The following table outlines the fair value hierarchy of the financial instruments as at September 10, 2017 and March 10, 2017 as follows: Level 1 Level 2 Level 3 Total As at September 10, 2017 Investments $ 51,410,866 $ $ $ 51,410,866 As at March 10, 2017 Investments $ 55,470,458 $ $ $ 55,470,458 10

13 All fair value measurements are recurring. The carrying amounts of cash and accrued liabilities approximate their fair value because of the short term nature of these items. Instruments are classified as Level 1 when the related security or derivative is actively traded and a quoted price is available. Instruments are classified as Level 2 when the related security or derivative has inputs other than quoted prices included in Level 1 that are observable for the asset or liability either directly or indirectly. If an instrument classified as Level 1 subsequently ceases to be actively traded, it is transferred out of Level 1. In such cases, instruments are reclassified into Level 2, unless the measurement of its fair value requires the use of significant unobservable inputs, in which case it is classified as Level 3. The Company s policy is to recognize transfers into and out of fair value hierarchy levels as of the date of the event or change in circumstances giving rise to the transfer. There were no transfers between levels during the current period and prior year presented. 8. FINANCIAL INSTRUMENT RISK MANAGEMENT In the normal course of business, the Company is exposed to a variety of financial risks: market risk (including price risk, interest rate risk and currency risk), credit risk and liquidity risk. As it is the Company s mandate to be fully invested in a fixed portfolio and pay distributions from cash flows to the maximum extent possible, the Company s overall risk management program focuses on compliance and execution of the Company s investment objectives. Price Risk The value of the Capital Shares is dependent on the value of the Portfolio Shares. The value of the Portfolio Shares will be influenced by factors outside of the Company s control, including the financial performance, operational risks relating to the specific business activities, quality of assets owned by the respective issuers, exchange rates, interest rates, environmental risks, political risks, issues relating to government regulation and other financial market conditions. If the prices of the Portfolio Shares as at September 10, 2017 increased or decreased by 5%, all other variables held constant, the net assets attributable to holders of Capital Shares would have increased or decreased, respectively, by $4.89 (March 10, 2017 $5.28) per Capital Share or 7.4% (March 10, %) of which $1.58 (March 10, 2017 $1.58) per Capital Share or 2.4% (March 10, %) is the result of leverage to which holders of Capital Shares are exposed. In practice, the actual trading results may differ materially from this sensitivity analysis. The value of the Preferred Shares is dependent on the prevailing level of market interest rates and on the level of downside protection on the Preferred Shares which is a function of the price of the Portfolio Shares. Downside protection is the percentage by which the net assets can decline and still cover the $31.64 redemption price of a Preferred Share. Downside protection on the Preferred Shares was 67.7% as at September 10, 2017 (March 10, %). 11

14 Interest Rate Risk Interest rate risk arises from changes in the prevailing levels of market interest rates, resulting in fluctuations in the value of interest-bearing financial instruments. The majority of the Company s assets are non-interest bearing, however the Company is indirectly exposed to risks associated with the effects of fluctuations in the prevailing levels of market interest rates on its Portfolio Shares, all of which are banks where interest rate fluctuations can impact their profits and therefore (among other factors) the ability to pay dividends. Any excess cash is invested in short-term money market instruments. Currency Risk The assets and liabilities are predominately held in the functional currency of the Company which is the Canadian dollar. The Company is not exposed to direct significant foreign currency risks except to the extent that the business activities of the issuers of the Portfolio Shares are subject to foreign currency fluctuations. Credit Risk Credit risk is the risk that the counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company. The Company maintains all its cash and cash equivalents at its custodian or in bankers acceptances or term deposits with financial institutions with a minimum debt rating of A. All transactions in listed securities are settled/paid for upon delivery using approved brokers. The risk of default is considered minimal, as delivery of securities sold is made only when the Company has received payment. Payment is made on purchases once the securities have been received by the Company. Should either party not meet its obligation, the trade will fail. Liquidity Risk The Company is exposed to annual retractions and receives notification on or before the 24 th day of the preceding month. The Portfolio Shares are traded in an active market and can normally be readily disposed of. There can be no assurance that an adequate market for the Portfolio Shares will exist at all times, or that the prices at which the Portfolio Shares trade, accurately reflect their net asset values. Low trading volumes for a security could make it difficult to liquidate holdings quickly. The Company s redeemable Capital Shares and Preferred Shares represent a financial liability. The Capital Shares become payable when retracted by shareholders in accordance with the retraction rights described in the prospectus dated February 26, 2013 and ultimately on the Redemption Date. The Preferred Shares are redeemable on demand. 12

15 As at September 10, 2017, the maturity of the Company s financial liabilities, other than the redeemable shares, based on the remaining period between the financial statement date and the contractual maturity date was $0.01 million (March 10, 2017 $0.01 million) due less than 1 year. 13

16 NOTES 19OCT

17 CORPORATE INFORMATION PRINCIPAL OFFICE 40 King Street West Scotia Plaza, 26th Floor P.O. Box 4085, Station A Toronto, Ontario M5W 2X6 Telephone: (416) Facsimile: (416) mc.allbanc@scotiabank.com Web Site: REGISTRAR & TRANSFER AGENT Computershare Investor Services Inc. 100 University Avenue Toronto, Ontario M5J 2Y1 LEGAL COUNSEL Osler, Hoskin & Harcourt LLP Toronto, Ontario DIRECTORS & OFFICERS AUDITOR PricewaterhouseCoopers LLP E. Stuart Griffith * Toronto, Ontario Director and Chairman of the Board Terry A. Jackson * Director and Chairman of the Audit Committee Brian D. McChesney Director, President and Chief Executive Officer Stephen D. Pearce, CPA, CA Director, Chief Financial Officer and Secretary STOCK EXCHANGE LISTING The Toronto Stock Exchange SYMBOLS Capital Shares ABK.A Preferred Shares ABK.PR.C Michael K. Warman, CPA, CA Director James D. Hinds * Director Robert C. Williams Director Robert Hall Director * Audit Committee Member INDEPENDENT REVIEW COMMITTEE James D. Hinds (Chairman) E. Stuart Griffith Terry A. Jackson

18 allbanc SPLIT CORP. 40 KING STREET WEST, SCOTIA PLAZA, 26TH FLOOR TORONTO, ONTARIO M5W 2X6