Condensed Interim Report and Unaudited Financial Statements For the six month period ended (Unaudited) GlobalReach Kestrel Plc is an open-ended umbrella investment company with variable capital and with segregated liability between sub-funds, incorporated and registered in Ireland on 29 July 2011 with registered number 501760 under the Companies Acts 1963 to 2012 as an undertaking for collective investment in transferable securities pursuant to the European Union (Undertakings for Collective Investment in Transferable Securities) (Amendment) Regulations 2012.
CONTENTS Condensed Interim Report and Unaudited Financial Statements Management and Administration of the Company 1-2 Investment Manager's Report 3-6 Statement of Financial Position 7 Statement of Comprehensive Income 8 Statement of Changes in Net Assets Attributable to Holders of Redeemable Participating Shares 9 Statement of Cash Flows 10 Notes to the Unaudited Financial Statements 11-25 Portfolio Statements - Kestrel Global Portfolio 26-30 Significant Portfolio Changes - Kestrel Global Portfolio 31-32 Page
Management and Administration of the Company Board of Directors Stephen Carty (Irish) Paul Phelan (Irish) Bronwyn Wright (Irish) * Dan McCausland (British) (resigned 13 December 2013) John Ricciardi (British) *Independent Director Registered Office Secretary Investment Manager & UK Facilities Agent Promoter and Distributor Custodian Administrator Representative Agent - Sweden 2nd Floor Beaux Lane House Mercer Street Lower Dublin 2 Ireland MFD Secretaries Limited 2nd Floor Beaux Lane House Mercer Street Lower Dublin 2 Ireland Kestrel Partners LLP The Mews 1A Birkenhead Street London WC1H 8BA United Kingdom GlobalReach Securities Limited 118 Lower Baggot Street Dublin 2 Ireland SMT Trustees (Ireland) Limited Block 5 Harcourt Centre Harcourt Road Dublin 2 Ireland Maples Fund Services (Ireland) Limited 2nd Floor Beaux Lane House Mercer Street Lower Dublin 2 Ireland Nordea Bank AB (publ) Smalandsgaten 17 105 71 Stockholm Sweden 1
Management and Administration of the Company (continued) Independent Auditor Legal Advisers as to Irish Law Listing Sponsor Grant Thornton Chartered Accountants & Registered Auditors 24-26 City Quay Dublin 2 Ireland Maples and Calder 75 St Stephen's Green Dublin 2 Ireland Kinetic Financial Services (Ireland) Limited Iveagh Court Floor 5, Block D Harcourt Road Dublin 2 Ireland 2
Investment Manager's Report Over the period from 1 October 2013 to, the Fund performed in line with expectations. At the end of the period it was up 4.86% over the previous six months, which was inline with the Bloomberg Global Asset Allocation Index which was up +4.96%. Commentary on performance, strategy and outlook on a month by month basis is set out below. October 2013 In October the Fund price rose by +2.50%. This compares to a monthly rise of +2.07% in the Bloomberg Global Asset Allocation Active Index (BBOOGLAA) and a rise of +2.80% in a 60%:40% balanced index of MSCI World Equity Total Return:Barclays Aggregate Bond Total Return.. Our managers expected valuations for risk assets in early Q4 2013 to find further support in stronger economic activity in developed markets and in Asia, as major central bank policies had been favourable to expansions in global activity, overall prices, and aggregate demand. Kestrel models suggested that while growth in US housing, investment, and production would show some improvement late in Q3 2013, trends in core inflation and employment would not be sufficiently robust as to bring an end to the Federal Reserve s use of credit easing policy tools in the immediate. This meant that bond yields would continue to stabilize in major markets, with something of a positive effect on prices for emerging market shares and real estate investment trusts. In such an environment commodity prices would be more likely to attract investor interest than has been the case for some time. Although major equity market valuations had remained somewhat high compared to measures over the past several years, the earnings anticipations implicit in those levels were likely to hold up in light of better data for OECD economies to be released during the quarter. Kestrel s managers continued to interpret the context as favourable to share prices worldwide. China and Japan were to show continued signs of good growth prospects, and European markets could be evaluated with reference to strong German support for deeper EMU integration. With the US having shut down its government more than a dozen times in the past few years, the temporary resolution of US budgetary uncertainties with great political posturings and small effects on output was nothing out of the ordinary.. November 2013 In November the Fund price rose by +0.31%. This compares to a monthly rise of +0.49% in the Bloomberg Global Asset Allocation Active Index (BBOOGLAA) and a rise of +1.02% in a 60%:40% balanced index of MSCI World Equity Total Return:Barclays Aggregate Bond Total Return. Our managers expected valuations for risk assets in mid Q4 2013 to find continued support in higher output from the US, UK and China in particular, showing that central bank policies thus far have been effective in countering global deflationary pressures. Kestrel models showed strength in underlying trends for employment in the US, consumption in the UK, and production in China, with improving trends in EMU and Japan. Overall inflation was to remain low but positive in all zones but in EMU, where some downward price pressures would still be in effect. This meant that the chances of change in monetary policy interventions by the US Federal Reserve were low, and that continued loose monetary policies in EMU and in China should be anticipated. Bond yields would stabilize in major markets; emerging market shares and real estate investment trusts would find some support; and commodity prices again would attract some investor interest. Major equity market valuations remained somewhat high compared to their measures earlier this year. They would require the kind of positive data our managers expected in order to provide support for corporate top-line earnings growth and allow for higher earnings expectations. 3
Investment Manager's Report (continued) November 2013 (continued) Chinese and Japanese authorities would most likely advance pro-growth, pro-market policies for their economies, while Europe would benefit from a further push from the ECB towards resolving liquidity and lending issues within the common currency zone. Germany s leaders certainly were in a position to take action in this sphere, given their recent electoral success. The US leaders at present appear to be more concerned with the implementation of their new health care regime than with confrontations over the budget. December 2013 The Fund rose +14.45% net of fees in the year to 31 December 2013. In December the Fund price rose by +1.32%. This compares to a monthly rise of +1.34% in the Bloomberg Global Asset Allocation Active Index (BBOOGLAA) and a rise of +1.18% in a 60%:40% balanced index of MSCI World Equity Total Return:Barclays Aggregate Bond Total Return. Our managers expected valuations for risk assets in late Q4 2013 to continue to find support in stronger figures for US, UK, Continental European and Japanese economic activity as the beneficial effects of very loose worldwide monetary policies would become ever more pronounced. Kestrel models showed strength in consumption and in production across all nearly all regions, with clear signs that an improving outlook for emerging markets and commodity prices would be in evidence. With domestic prices projected to rise year on year in Japan, and inflation to remain modest and stable in the other regions, the chances were high that global central banks had successfully countered worldwide deflationary pressures. Such conditions were likely to lift valuations for the risk assets that find favour as accelerations in nominal output translate into higher top-line revenue growth. Given that the US central bank s mid-2013 announcements had warned investors to expect some pullback in Federal Reserve credit easing policy tools, and that improvements in US economic growth and employment were interpreted positively for equity markets despite the broad sell-off in government bond markets, better news for economic growth in the major regions was likely to translate into more of the same whenever the Federal Reserve began tapering its extraordinary bond purchases. Although in Q4 major equity market valuations were higher than earlier in 2013, earnings yields were not excessive relative to fixed income yields, even after these last rose closer to historical norms. Our managers anticipated that sufficient positive economic data would be released during Q4 to raise earnings estimates and support prices for global shares. January 2014 The Fund price fell by (2.56)% in January 2014, after a rise of +14.45% net of fees in the year to 31 December 2013, This compares to a monthly fall of 2.30% in the Bloomberg Global Asset Allocation Active Index (BBOOGLAA. Our managers expected valuations for risk assets in Q1 2014 to continue to benefit from reports of significantly stronger US, UK, Continental European and Japanese economic activity, with continued monetary policy support from global central banks, as the outlook for inflation in most major regions remained stable. Kestrel models showed likely increases in GDP towards long-term trends for the US, UK, and Japan, with recovery in EMU, and no major shifts in outlook for Chinese output. Headline inflation looked to be within acceptable bands for the monetary authorities across nearly all regions, and credit growth looked likely to remain at satisfactory rates in light of past deflationary pressures. The recent fall to lower valuations for risk assets may have as much to do with a reversal of very high investor sentiment as with a recognition that emerging market liquidity conditions had been tightening for some time. 4
Investment Manager's Report (continued) January 2014 (continued) The very long lead times for monetary policy effects on real output and prices suggested that despite the US central bank s decision last year to reduce the extent of its credit easing policy tool interventions for US fixed-income markets, it would be some time before investors would need to discount further moves towards global monetary tightening. Although by the end of last year major equity market valuations had moved somewhat higher than at the start of 2013, increases in corporate earnings, and downward shifts in risk asset prices in January 2014 left valuations little changed from their recent trends. In our managers assessment major market earnings yields were sufficiently high relative to major market bond yields to justify allocations to risk assets across the portfolio. With elections over in Germany and Japan, and yet to come in the US and EMU, fiscal policies were likely to remain in line with trends already established in the major regions. February 2014 The Fund price rose by +3.72% in February 2014, to give +1.07% YTD at end February 2014 after a rise of +14.45% net of fees in 2013. The Fund s February 2014 return compares to a monthly rise of +3.53% in the Bloomberg Global Asset Allocation Active Index (BBOOGLAA). Our managers expected valuations for risk assets to continue benefiting from positive reports for US payrolls, retail sales, house prices, and consumer confidence, despite the weather-related disruptions reflected in the data. The UK and Continental Europe also were expected to publish robust figures for recent trends in industrial activity among signs that the EMU economies were expanding as a whole. The combination of further policy support from major central banks, improving OECD employment and output conditions, and generally stable inflation pressures was interpreted as beneficial for risk asset prices. Kestrel models showed accelerations in GDP growth for the US and UK in particular, with sustained modest, positive growth for EMU. The path for China s output growth was likely to be within the Chinese authorities targeted range; while monetary and fiscal policies in Japan were to be aimed at countering the effects of an impending VAT rise. The risks of deflation in the major blocs were receding still, as all major central banks reaffirmed their commitments to restoring long-term positive growth trends in their nominal GDP. Our managers assessments for impacts on markets from political events reflected pan-european concerns over lender of last resort responsibilities for the continent s major banks, and over accession and integration processes on EMU s eastern borders. Changes to forward guidance criteria issued by several central banks implied yet further lead times before investors should anticipate reversals of the monetary policies currently supportive of world credit and output growth. This meant that global equity earnings multiples, in line with their five year averages, were likely to be maintained as corporate earnings growth met expectations. Accordingly, our managers held significant allocations to risk assets across the portfolio. With elections over in Germany and Japan, and yet to come in the US and EMU, fiscal policies were likely to remain in line with trends already established in the major regions. 5
Investment Manager's Report (continued) March 2014 The Fund price fell by 0.42% in March 2014, to give +0.65% YTD at end March 2014 after a rise of +14.45% net of fees in 2013. The Fund s March 2014 return compares to a monthly fall of 0.30% in the Bloomberg Global Asset Allocation Active Index (BBOOGLAA). Our managers expected valuations for risk assets to benefit from positive developments in the US economy that had been delayed by severe weather at the start of the quarter, and from encouraging reports for industrial activity and earnings in continental Europe. The implications for stronger corporate profits from the data published in March for US employment, manufacturing, and consumption growth, as well as from the projections for a sustained recovery in EMU GDP, were sufficient to counterbalance to a great extent the negative effects of Russia s invasion and annexation of the Crimea on Europe s southern border. The expectation of further policy support from major central banks for global prices and activity, and of stable inflation pressures in all major regions save EMU, was estimated to have additional beneficial effects on risk asset prices. Kestrel models showed further accelerations in GDP growth for the US and UK, about 1% real GDP growth for EMU, and higher than trend year on year growth for Japanese GDP associated with continued positive reports for Japanese inflation. China s output growth was likely to be close to the 7.5% rate targeted by the Chinese authorities, while Chinese inflation was to remain at subdued levels as domestic credit growth was brought into line with the BoC s desired ranges. EMU negotiations on establishing the Single Resolution Mechanism, creating a lender of last resort for troubled banks, were expected to progress. Our managers interpreted the set of economic, financial and political trends as likely to have the monetary authorities maintaining extraordinary policy support for prices and output in nearly all major regions. Global equity earnings multiples had remained about equivalent to their five year averages, and corporate profits were not likely to disappoint. Our managers held significant allocations to risk assets across the portfolio, with the anticipation that sound fundamentals would compensate for political uncertainties. 6
Statement of Financial Position As at (Unaudited) Note Kestrel Global Portfolio Kestrel Global Portfolio 30 September 2013 Assets Financial assets at fair value through profit or loss 3,16 91,592,060 53,137,504 Due from broker - 1,920,272 Other receivables 4 35,401 51,528 Unrealised gain on forward currency contracts 5,16 368,962 181,564 Cash and cash equivalents 14 5,559,993 5,705,471 Other debtors and prepayments 95,911 103,910 Total assets 97,652,327 61,100,249 Liabilities Unrealised loss on forward currency contracts 5,16 102,557 113,461 Due to broker - 2,189,456 Distributor fees payable 10(b) 52,209 87,272 Administration fees payable 10(c) 29,802 47,464 Custodian fees payable 10(d) 9,613 2,438 Withholding tax payable 7,264 7,398 Investment Management fees payable 10(a) 108,843 58,345 Other liabilities 6 112,101 93,611 Professional fees payables 9,115 - Total liabilities (excluding net assets attributable to holders of redeemable participating shares) 431,504 2,599,445 Net assets attributable to holders of redeemable participating shares 97,220,823 58,500,804 Kestrel Global Portfolio Redeemable participating shares in issue Redeemable participating shares in issue 30 September 2013 Net asset value per redeemable share in issue Net asset value per redeemable share in issue 30 September 2013 Class A - 1,235,316.72 530,828.65 12.51 11.98 Class A - USD 1,146,318.83 941,143.08 7.46 7.36 Class A - EUR 1,700,581.83 761,214.19 10.28 9.97 Class A - CHF 139,102.80 104,580.71 8.43 8.15 Class A - SEK 17,782.94 10,080.03 9.89 9.79 Class C - 23,657.40 32,121.10 11.61 11.17 Class C - EUR 4,193.96 1,981.96 9.52 9.28 Class I - 4,501,833.57 2,876,219.19 12.01 11.46 Class I - USD - 175,584.31-7.06 Class I - EUR - 220,840.45-9.55 The financial statements were approved by the Board of Directors on 22 May 2014 and signed on its behalf by: Director Director The notes on pages 11 to 25 are integral part of these unaudited financial statements. 7
Statement of Comprehensive Income (Unaudited) Note Kestrel Global Portfolio For the 6 months to Kestrel Global Portfolio For the 6 months to 31 March 2013 Investment Income Interest income 34,358 325 Dividend income 940,192 405,406 Net realized gain on financial assets at fair value through profit and loss 7 3,103,959 4,226,971 Net realized gain on derivative contracts 8 198,302 86,329 Other income 18,281 29 Total investment income 4,295,092 4,719,060 Operating Expenses Administration fees 10(c) (50,685) (14,008) Audit fees 10(g) (8,111) (3,181) Custodian fees 10(d) (18,603) (7,555) Distributor fees 10(b),11 (93,359) (41,702) Investment management fees 10(a),11 (513,635) (194,333) Directors' fees 10(e),11 (24,973) (16,419) Transaction costs (41,209) (20,952) Interest expense (35,315) (23) Other expenses 9 (158,302) (80,185) Legal and professional fees - (39,418) Total operating expenses (944,192) (417,776) Increase in net assets from operations attributable to holders of redeemable participating shares before tax 3,350,900 4,301,284 Withholding tax expense (247,174) (105,452) Increase in net assets from operations attributable to holders of redeemable participating shares 3,103,726 4,195,832 The financial statements were approved by the Board of Directors on 22 May 2014 and signed on its behalf by: Director Director The notes on pages 11 to 25 are integral part of these unaudited financial statements. 8
Statement of Changes in Net Assets Attributable to Holders of Redeemable Participating Shares (Unaudited) Kestrel Global Portfolio Opening balance at 1 October 2013 58,500,804 Increase in net assets from operations attributable to holders of redeemable participating shares 3,103,726 Contributions and redemptions by holders of redeemable participating shares: Issue of redeemable participating shares 42,088,756 Redemptions of redeemable participating shares (6,472,463) Total contributions and redemptions by holders of redeemable participating shares 35,616,293 Balance at 97,220,823 Opening balance at 1 October 2012 31,436,541 Increase in net assets from operations attributable to holders of redeemable participating shares 4,195,832 Contributions and redemptions by holders of redeemable participating shares: Issue of redeemable participating shares 4,616,235 Redemptions of redeemable participating shares (290,685) Total contributions and redemptions by holders of redeemable participating shares 4,325,550 Balance at 31 March 2013 39,957,923 The notes on pages 11 to 25 are integral part of these unaudited financial statements. 9
Statement of Cash Flows (Unaudited) Note Kestrel Global Portfolio For the 6 months to Kestrel Global Portfolio For the 6 months to 31 March 2013 Increase in net assets from operations attributable to holders of redeemable participating shares before tax 3,350,900 4,301,285 Adjustments for: Realised gain on financial assets at fair value through profit or loss 7 (289,996) (720,565) Unrealised gain on financial assets at fair value through profit or loss 7 (2,103,766) (3,740,521) Net gain on forward currency contracts at fair value through profit or loss (198,302) (86,329) Withholding tax paid (247,308) (115,552) Operating cash flow before movement in working capital 511,528 (361,682) Decrease in Due from broker 1,920,272 - Decrease in Other receivables 16,127 43,418 Decrease in Other debtors and prepayments 7,999 - Decrease in Due to broker (2,189,456) - (Decrease)/increase in Distributor fees payable (35,063) 40,155 (Decrease)/increase in Administration fees payable (17,662) 565 Increase in Custodian fees payable 7,175 1,593 Increase in Investment management fees payable 50,498 7,332 Increase in Other liabilities 18,490 900 Increase in Professional fees payable 9,115 - Payments for purchase of investments (54,560,295) (21,200,461) Proceeds from sale of investments 18,499,501 18,059,837 Net cash used in operating activities (35,761,771) (3,408,343) Cash flows from financing activities Proceeds from issue of redeemable participating shares 42,088,756 4,616,235 Payments for redeemable participating shares redeemed (6,472,463) (290,685) Net cash provided by financing activities 35,616,293 4,325,550 Net (decrease)/increase in cash and cash equivalents (145,478) 917,207 Cash and cash equivalents at beginning of the period 5,705,471 1,793,997 Cash and cash equivalents at end of the period 5,559,993 2,711,204 The notes on pages 11 to 25 are integral part of these unaudited financial statements. 10
Notes to the Unaudited Financial Statements 1. General information GlobalReach Kestrel Plc (the "Company") is an open-ended umbrella investment company with variable capital and with segregated liability between sub-funds, incorporated and registered in Ireland on 29 July 2011 with registered number 501760 under the Companies Acts 1963 to 2012 as an undertaking for collective investment in transferable securities pursuant to the European Union (Undertakings for Collective Investment in Transferable Securities) (Amendment) Regulations 2012. Kestrel Global Portfolio (the "sub-fund") was launched on 2 April 2012. The investment objective is to achieve attractive return primarily by current income and secondarily by capital appreciation through investments in debt securities and equities. Class A, Class C and Class I shares are listed on the Irish Stock Exchange. At, no other sub-funds of the Company were in existence. The Company has voluntarily adopted and is in compliance with the provisions of the Corporate Governance Code for Collective Investment Schemes and Management Companies issued by the Irish Funds Industry Association. 2. Significant accounting policies (a) Basis of preparation The financial statements for the Company have been prepared in accordance with International Financial Reporting Standards ("IFRS"), as adopted by the European Union, and comply with Irish Statute comprising the Companies Acts, 1963 to 2012 and with the European Union (Undertakings for Collective Investment in Transferable Securities) (Amendment) Regulations 2012. The condensed interim financial statements comply with IAS 34 Interim Financial Reporting. The comparative period of the Statement of Financial Position is 30 September 2013. The comparative period of the Statement of Comprehensive Income, Statement of Changes in Net Assets and Statement of Cash Flows is for the six month period ended 31 March 2013. The preparation of financial statements in conformity with IFRS requires the use of accounting estimates. It also requires management to exercise its judgement in the process of applying the Company's accounting policies. The functional and presentation currency of the Company and sub-fund is the Great British Pound ( ). is the currency noted in the Prospectus and is relevant to the stated investment strategy. (i) New and revised IFRSs not yet adopted At the date of authorisation of these financial statements, other than the Standards and Interpretations adopted by the Company (as described below) the following Standards and Interpretations were in issue but not yet effective: IFRS 10, IFRS 12 and IAS 27 Investment Entities (amendments) 1 IAS 32 Offsetting Financial Assets and Financial Liabilities (amendments) 1 1 Effective for annual periods beginning on or after 1 January 2014. The management anticipates that all of the above Standards and Interpretations will be adopted by the Company to the extent applicable to them from their effective dates. The adoption of these Standards, amendments and interpretations is not expected to have any material impact on the financial statements of the Company in the period of their initial application. 11
Notes to the Unaudited Financial Statements (continued) 2. Significant accounting policies (continued) (a) Basis of preparation (continued) (i) New and revised IFRSs not yet adopted (continued) In the current period, the Company has applied a number of new and revised IFRS issued by the IASB that are mandatorily effective for an accounting period that begins on or after 1 January 2013. Amendments to IFRS 7 Disclosures: Offsetting Financial Assets and Financial Liabilities ("Amendments to IFRS 7"). The Company has applied the Amendments to IFRS 7 for the first time in the current year. The Amendments to IFRS 7 require entities to disclose information about rights of offset and related arrangements (such as collateral posting requirements) for financial instruments under an enforceable master netting agreement or similar arrangement. The Amendments to IFRS 7 have been applied retrospectively. As the Company does not have any offsetting arrangements in place, the application of the amendments has had no material impact on the amounts recognised in the financial statements. (b) Financial assets and liabilities at fair value through profit or loss Accounting for investments The Company records investment transactions on a trade date basis, matching the cost of investments for the purpose of calculating realised gains and losses on a first-in, first-out basis. The Company records an unrealised gain or loss to the extent of the difference between the cost and the fair value of the position at any particular point in time. The Company records a realised gain or loss when the position is sold or closed. Realised gains and losses and the movement in unrealised gains and losses are recorded in the Statement of Comprehensive Income within Net gain on financial assets at fair value through profit or loss. The Company designates its financial assets and financial liabilities into the categories below in accordance with IAS 39. Financial assets designated at fair value through profit or loss. These include debt and equity instruments. Financial assets held for trading - a sub category of financial assets at fair value through profit or loss. These include foreign currency forward contracts. Financial liabilities held for trading - a sub category of financial liabilities at fair value through profit or loss. These include foreign currency forward contracts. Financial assets or financial liabilities held for trading are those acquired or incurred principally for the purposes of selling or repurchasing in the short term. Financial instruments designated at fair value through profit or loss upon initial recognition include financial assets that are not held for trading purposes and which may be sold. Derivatives are categorised as financial assets or financial liabilities held for trading. The Company does not classify any derivatives as hedges in a hedging relationship. 12
Notes to the Unaudited Financial Statements (continued) 2. Significant accounting policies (continued) (b) Financial assets and liabilities at fair value through profit or loss (continued) Recognition The Company initially recognises financial assets and financial liabilities at fair value on the date it becomes a party to the contractual provisions of the instruments. A regular way purchase of financial assets is recognised using trade date accounting. From this date any gains and losses arising from changes in fair value of the financial assets or financial liabilities are recorded. Derecognition The Company derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire or it transfers the financial asset and the transfer qualifies for derecognition in accordance with IAS 39. The Company derecognises a financial liability when the obligation specified in the contract is discharged, cancelled or expires. Measurement Financial instruments are measured initially at fair value (transactions price). Transactions 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. Financial liabilities, other than those at fair value through profit or loss, are measured at amortised cost using the effective interest rate. Valuation of investments The fair value of financial instruments is based on their quoted market prices where available at the period end date. Quoted investments and investments traded on over the counter markets are valued at last traded price. Forward contracts are valued at market settlement price. Where prices are not available, investments are valued on the basis of the probable realisation value, estimated by the Directors. There were no such valuations for the period ended or year ended 30 September 2013. Specific financial instruments The unrealised gain or loss on forward currency contracts is calculated by reference to the difference between the contracted rate and the market rate to close out such contracts and is included in the Statement of Financial Position and in the Statement of Comprehensive Income. 13
Notes to the Unaudited Financial Statements (continued) 2. Significant accounting policies (continued) (c) Income recognition Interest and dividends receivable are recognised on an accruals basis as they are earned. Income arising on investments, as well as deposit interest, is accounted for on an effective interest basis. The effective interest method is a method of calculating the amortised cost of a financial asset or financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts throughout the expected life of the financial instrument, or shorter period where appropriate, to the net carrying amount of the financial assets or financial liabilities. (d) Expenses The Company is responsible for all normal operating expenses including administration fees, fees and expenses of the Investment Manager and the Custodian, audit fees, stamp and other duties and charges incurred on the acquisition and realisation of investments. Such costs are expensed in the period to which they relate. Interest expense is accrued on an effective interest basis. (e) Transaction costs In accordance with the requirement under the UCITS IV directive, the Company has disclosed transaction costs as a separate line item within the Statement of Comprehensive Income in order to enhance investor information in relation to the costs incurred by the Company. The UCITS IV directive defines transaction costs as 'incremental costs, which are separately identifiable and directly attributable to the acquisition, issue or disposal of a financial asset or financial liability.' (f) Foreign exchange translation The functional currency of the Company is. The presentation currency of the Company is also. Transactions in foreign currencies are translated at the foreign currency exchange rate ruling at the date of the transaction. Assets and liabilities denominated in foreign currencies are translated to at the foreign currency closing exchange rate ruling at the period end date. Foreign currency exchange differences arising on translation are recognised in the Statement of Comprehensive Income. Foreign currency exchange differences relating to investments at fair value through profit or loss and derivative financial instruments are included in net gain on financial assets and liabilities at fair value through profit or loss. (g) Redeemable participating shares Redeemable participating shares are redeemable at the shareholder's option and are classified as financial liabilities. The redeemable shares can be put back to the sub-fund at any time for cash equal to a proportionate share of the sub-fund's NAV. The redeemable share is carried at the redemption amount that is payable at the period end date if the shareholder exercised its right to put the share back to the sub-fund. (h) Cash and cash equivalents Cash and cash equivalents are valued at their face value together with interest accrued using the effective interest method, where applicable. 14
Notes to the Unaudited Financial Statements (continued) 3. Financial assets at fair value through profit or loss 30 September 2013 Designated at fair value through profit or loss upon initial recognition: Equity investments 91,592,060 53,137,504 Total financial assets at fair value through profit or loss 91,592,060 53,137,504 4. Other receivables 30 September 2013 Dividends receivable 28,885 40,231 Fund rating fee - 1,821 Stock exchange listing fees 6,516 4,755 Other receivables - 4,721 Total other receivables 35,401 51,528 5. Unrealised gain on forward currency contracts 30 September 2013 Derivative financial assets/(liabilities): Unrealised gain on forward currency contracts 368,962 181,564 Unrealised loss on forward currency contracts (102,557) (113,461) Total unrealised gain on forward currency contracts 266,405 68,103 15
Notes to the Unaudited Financial Statements (continued) 6. Other liabilities 30 September 2013 Audit fees payable 1,092 3,740 Directors fees payable 54,122 35,128 Financial statement preparation expense payable 15,504 12,382 Legal and professional fees payable 5,185 15,192 Consultancy fee payable 18,389 8,732 Commission payable - 1,323 Organisation costs payable 6,000 6,000 Registration fees payable - 2,345 Directors & other insurance payable 1,165 3,104 Sub Custody fees payable 3,127 1,784 Other payables 7,517 3,881 Total other liabilities 112,101 93,611 7. Net gain on financial assets at fair value through profit or loss 31 March 2013 Net gain on financial assets at fair value through profit or loss 3,103,959 4,226,971 Equity investments 2,393,762 4,461,086 Foreign exchange transactions 710,197 (234,115) Net gain on financial assets at fair value through profit or loss Equity investments Realised gain 289,996 720,565 Movement in unrealised gain 2,103,766 3,740,521 2,393,762 4,461,086 Foreign exchange transactions Realised gain/(loss) 697,250 (232,966) Movement in unrealised gain/(loss) 12,947 (1,149) 710,197 (234,115) Net gain on financial assets at fair value through profit or loss 3,103,959 4,226,971 16
Notes to the Unaudited Financial Statements (continued) 8. Net realised gain on derivative contracts 31 March 2013 Derivative financial assets and liabilities: Foreign currency forward contracts 198,302 86,329 Total net realised gain on derivative contracts 198,302 86,329 9. Other expenses 31 March 2013 Consultancy fees (18,917) (22,188) Directors and other insurance (9,060) (9,968) Financial statement preparation expense (3,122) (3,181) Fund rating fees (1,822) (7,928) Organisation costs (14,797) (14,715) Registration fees (3,429) (2,463) Stock exchange listing fees (11,065) (3,776) Sub custody fees (21,754) (11,835) Other expenses (17,696) (4,131) Legal and professional fees (43,222) - Corporate secretarial fees (13,418) - Total other expenses (158,302) (80,185) 10. Fees (a) Investment management fees Kestrel Partners LLP (the "Investment Manager") makes a charge in respect of the sub-fund up to the percentage rate per annum of the net asset value of each class, as follows: Class A Shares 1.75% Class C Shares 1.75% Class I Shares 1.00% The Investment Manager's fees are calculated on each business day ( Dealing Day ) and are payable monthly in arrears. 17
Notes to the Unaudited Financial Statements (continued) 10. Fees (continued) (a) Investment management fees (continued) The Investment Manager may, at its sole discretion and out of its own resources, decide to rebate to certain shareholders all or part of the management fee. Any such rebates may be applied in paying up additional shares to be issued to the shareholder, or may (at the discretion of the Investment Manager) be paid in cash to the relevant shareholder's account. During the period ended, the Investment Manager charged investment management fees of 513,635 (2013: 194,333), of which 108,843 (2013: 58,345) was payable at that date. (b) Distributor fees The Company pays the Distributor a fee of up to 0.25% per annum of the Net Asset Value of the sub-fund attributable to the Class A Shares and the Class I Shares and a fee of up to 1.25% per annum of the Net Asset Value of the sub-fund attributable to the Class C Shares. The fees are calculated on each Dealing Day and are payable monthly in arrears. During the period ended, distributor fees amounted to 93,359 (2013: 41,702), of which 52,209 (2013: 87,272) was payable at that date. (c) Administration fees The Company pays the Administrator a fee of up to 0.10% per annum of the Net Asset Value of the sub-fund. The fees are calculated on each Dealing Day and are payable monthly in arrears. The fees are subject to a minimum monthly fee of 1,667 for the first 12 months of the term of the administration agreement and a minimum monthly fee of 5,000 thereafter. In addition, the Administrator is entitled to be reimbursed all reasonable out of pocket expenses and transaction charges as may be agreed between the Company and the Administrator from time to time. During the period ended, administration fees amounted to 50,685 (2013: 14,008), of which 29,802 (2013: 47,464) was payable at that date. (d) Custodian fees The Company agrees to pay to the Custodian a fee, pro-rated as at each Dealing Day and calculated as follows: (i) During the first year of the sub-fund s operations, 0.045% per annum of the Net Asset Value of the sub-fund on the first 100 million and 0.035% per annum on the balance, subject to a minimum of 1,250 per month. (ii) During subsequent years, 0.045% per annum of the Net Asset Value of the sub-fund on the first 100 million and 0.035% per annum on the balance, subject to a minimum of 3,250 per month. Such fees are paid monthly in arrears. In addition, the Custodian or its affiliate is entitled to be reimbursed all reasonable out of pocket expenses and the reasonable safekeeping fees and transaction charges of sub-custodians appointed by it which shall be charged at normal commercial rates. 18
Notes to the Unaudited Financial Statements (continued) 10. Fees (continued) (d) Custodian fees (continued) During the period ended, custodian fees amounted to 18,603 (2013: 7,555), of which 9,613 (2013: 2,438) was payable at that date. (e) Directors' fees The Directors are entitled to an initial remuneration of 15,000 (exclusive of VAT) per annum per director for the first year post incorporation of the Company. Thereafter, the Directors will receive an annual fee of 20,000 (exclusive of VAT) per annum per director in respect of the Company or such other amount as may be approved by a resolution of the Directors and approved by or notified in advance to shareholders (as appropriate). Directors fees for the period ended amounted to 24,973 (2013: 16,419) of which 54,122 (2013: 35,128) is payable at that date. (f) Other service providers The Company agrees to pay Hilltop Fund Management LLP ("Hilltop") an advisory fee of 0.05% on the first 250 million of assets under management, 0.03% on the next 600 million and 0.02% on any remaining balance (without limit), subject to a minimum of 2,500 per month. The Company also agrees to pay any research related travel costs reasonably incurred by Hilltop, up to 4,500 per annum. During the year ended, the Company paid Hilltop advisory fees of 24,019. (2013: nil) of which nil (2013: 8,732) is payable at that date. The Company agrees to pay LPR Consulting LLP ("LPRC") a fee of 7,500 per quarter in arrears for risk analysis services. During the period ended, the Company paid LPRC 21,329 (2013: nil), of which 3,328 (2013: nil) was payable at that date. (g) Auditors' fees 31 March 2013 Statutory auditors' remuneration 8,111 3,181 Tax advisory services - - Other assurance services - - Other non-audit services - - 8,111 3,181 19
Notes to the Unaudited Financial Statements (continued) 11. Related/Connected party disclosures The Company's related parties include key management and the Investment Manager as described below. The Company operates under an investment management agreement with Kestrel Partners LLP. All fees paid and payable to the Investment Manager are disclosed separately in the Statement of Comprehensive Income and Statement of Financial Position, respectively. During the period ended, the Company paid 513,635 (2013: 194,333) to Kestrel Partners LLP of which 108,843 (2013: 58,345) is payable at that date. Dan McCausland and John Ricciardi, members of Kestrel Partners LLP, the Investment Manager of the Company, waived their Director fees for the period. Paul Phelan is the chief executive and a shareholder of GlobalReach Securities Limited, the Promoter and Distributor of the Company. The Company paid 93,359 (2013: 41,702) to GlobalReach Securities Limited for the period ended, of which 52,209 (2013: 87,272) remains payable at that date. Stephen Carty is a partner of Maples and Calder, the Company s Irish legal advisors. Maples Fund Services (Ireland) Limited and MFD Secretaries Limited, the Administrator and Secretary to the Company respectively are part of the Maples Group. The Central Bank of Ireland UCITS Notice 14.5 - 'Dealings by promoter, manager, trustee, investment adviser and group companies' states that any transaction carried out with a UCITS by a promoter, manager, trustee, investment adviser and/or associated or group companies of these ("connected parties") must be carried out as if negotiated at arm's length and in the best interests of the shareholders. The Directors are satisfied that there are arrangements (evidenced by written procedures) in place, to ensure that the obligations set out in UCITS 14.5 are applied to all transactions with connected parties; and the Board is satisfied that transactions with connected parties entered into during the period complied with the obligations set out. 12. Taxation Under current law and practice, the Company qualifies as an investment undertaking as defined in Section 739B of the Taxes Consolidation Act, 1997, as amended. On that basis, it is not liable to Irish tax on its income or gains. However, Irish tax can arise on the happening of a "chargeable event". A chargeable event includes any distribution payments to shareholders or any encashment, redemption, cancellation or transfer of shares. 20
Notes to the Unaudited Financial Statements (continued) 12. Taxation (continued) No Irish tax will arise on the Company in respect of chargeable events in respect of: (i) a shareholder who is neither Irish resident nor ordinarily resident in Ireland for tax purposes at the time of the chargeable event, provided appropriate valid declarations in accordance with the provisions of the Taxes Consolidation Act, 1997, as amended, are held by the Company; and (ii) certain exempted Irish tax resident shareholders who have provided the Company with the necessary signed statutory declarations. Dividends, interest and capital gains (if any) received on investments made by the Company may be subject to withholding taxes imposed by the country from which the investment income/gains are received and such taxes may not be recoverable by the Company or its shareholders. 13. Share capital As at the Company has authorised eight share classes (2013: ten). Redeemable participating shares The authorised share capital of the Company is 2 subscriber shares of 1 each and 1,000,000,000,000 shares of no par value initially designated as unclassified shares and available for issue as shares. The share capital of the Company is equal to the Net Assets attributable to holders of redeemable participating shares. As at the Company had the following redeemable participating shares in issue of no par value: Class A CHF Class A EUR Class A Class A USD Class A Opening balance 104,580.71 761,214.19 530,828.65 941,143.08 10,080.03 Subscriptions 113,150.00 1,092,205.22 798,729.57 244,877.68 17,826.82 Redemptions (78,627.91) (152,837.58) (94,241.50) (39,701.93) (10,123.91) Closing balance 139,102.80 1,700,581.83 1,235,316.72 1,146,318.83 17,782.94 Class C EUR Class C Class I Class I USD SEK Class I Opening balance 1,981.96 32,121.10 2,876,219.19 175,584.31 220,840.45 Subscriptions 2,212.00-1,625,614.38 - - Redemptions - (8,463.70) - (175,584.31) (220,840.45) Closing balance 4,193.96 23,657.40 4,501,833.57 - - EUR 21
Notes to the Unaudited Financial Statements (continued) 13. Share capital (continued) As at 30 September 2013 the Company had the following redeemable participating shares in issue of no par value: Class A CHF Class A EUR Class A Class A USD Class A Opening balance - - 223,837.68 488,932.51 - Subscriptions 104,580.71 769,272.55 539,196.71 593,255.20 10,080.03 Redemptions - (8,058.36) (232,205.74) (141,044.63) - Closing balance 104,580.71 761,214.19 530,828.65 941,143.08 10,080.03 Class C EUR Class C Class I Class I USD SEK Class I Opening balance - 32,518.49 2,505,161.95 - - Subscriptions 1,981.96 15,484.80 371,057.24 191,190.32 220,840.45 Redemptions - (15,882.19) - (15,606.01) - Closing balance 1,981.96 32,121.10 2,876,219.19 175,584.31 220,840.45 EUR Redeemable participating shares of the sub-fund are freely transferable and all are entitled to participate equally in the profits and distributions of the sub-fund and its assets in the event of termination. All classes have the same voting rights at Company meetings (one vote per share). To determine the NAV of the Company for subscriptions and redemptions, investments have been valued based on the last traded market prices as of the close of business on the relevant trading day. Shareholders may subscribe for shares on and with effect from any Dealing Day at the subscription price per share on the relevant Dealing Day. Applications for shares must be received by close of business (UK time) on the business day preceding the relevant Dealing Day in order for shares to be allotted on that Dealing Day. If any application is received late, the Administrator will deal with the application on the following Dealing Day. Redemption requests for all sub-fund must be received no later than close of business (UK time) four business days preceding the relevant Dealing Day. 14. Cash and cash equivalents At cash was held with the following institutions: 30 September 2013 Brown Brothers Harriman & Co 2,051,284 3,492,232 Newedge UK Financial Limited 3,508,709 2,213,239 5,559,993 5,705,471 22
Notes to the Unaudited Financial Statements (continued) 15. Financial instruments and associated risk The Company's risks are set out in the Prospectus and any consideration of risk here should be viewed in the context of the Prospectus which is the primary document governing the operation of the Company. The Company s investments expose it to a variety of financial risks including risks from the use of derivatives and other financial instruments, currency risk, interest rate risk, credit risk and liquidity risk. The Company's overall risk management programme seeks to minimise potential adverse effects on the Company's financial performance. The Investment Manager monitors the Company's risk factors on a daily basis and produces reports detailing the sub-fund's exposures as well as cash and liquidity reports which are circulated to the relevant fund management teams and compliance. The Company employs the standard commitment approach to comply with the UCITS IV directive which requires each UCITS fund to calculate its global risk exposure. The standard commitment approach requires the Investment Manager to convert each financial derivative instrument position into the market value of an equivalent position in the underlying asset of that derivative taking account of netting and hedging arrangements. The sub-fund's total commitment of financial derivative instruments is limited to 100% of its total net value. The Company employs a risk management process which enables it to accurately monitor, measure and manage the risks attached to financial derivative positions and details of this process has been provided to the Central Bank. 16. Fair value of financial instruments The following tables show financial instruments recognised at fair value, analysed between those whose fair value is based on: Quoted prices in active markets for identical assets or liabilities (Level 1); Those involving inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) (Level 2); and Those with inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3). The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability. The determination of what constitutes 'observable' requires significant judgement by the Directors. The Directors consider observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market. 23