ABRAXAS_CAPITAL_MANAGEMEN - Accounts

The directors present the strategic report for the year ended 31 December 2019.

The Group performance is wholly dependent on the performance of Abraxas Capital Management (“ACML”), the sole asset of Abraxas CM Ltd.

ACML’s performance in 2019 generated profits of £268k, a significant improvement on 2018 profits of £62k. This was due to large performance fees received from both the Elysium Crypto currency arbitrage fund and the Sustainable Investment Fund. The firm suffered some small losses on its investment in Certificates linked to the Global Macro Strategy. The Italian Branch, which began its activities as planned on 1st January 2018, traded profitably in 2019 broadly in line with expectations.

Assets under management fell quite sharply in 2019 largely due to a Euro 50 million redemption from the largest investor in the Trade Finance fund. Further redemptions are possible, however the Trade Finance Fund is the firm’s lowest margin product, and the firm has been able to attract assets into the much more profitable Elysium fund. Assets in other funds were broadly stable although the Sustainable Investment Fund is in the process of restructuring its portfolio. This uncertainty may result in some investors redeeming their shares, so the outlook is somewhat uncertain although there are potential new investors in the pipeline. Overall, AUM at year end was approximately Euro 145 million.

Two non-executive Directors resigned at the end of 2019, but these were the only changes to ACML’s Directors and senior staff. Barbara Dotti was approved by the FCA to take on the roles of Compliance Officer and MLRO. Italian branch staffing was steady with four employees.

The investment in Certificates linked to the Global Macro Strategy is a leveraged investment and as such is subject to volatile returns. A loss in the order of 10% in the Global Macro Strategy would result in 100% loss on the capital invested by ACML although, as in previous years, some of these losses would be offset by a loan linked to the Certificate provided by two directors of the firm. However, the firm intends to sell these certificates in early 2020.

As set out above, the firm’s assets under management fell quite sharply in 2019, highlighting the risk that its products still have a limited number of investors and consequently concentration risk remains high. Whilst ACML foresees further client redemptions in the Trade Finance Fund and possibly the Sustainable Investment Fund, it expects increased assets in the very profitable Elysium Crypto Currency arbitrage fund and stability in the other strategies it manages. Nevertheless, the risk of client redemptions is fundamentally difficult to mitigate against as it depends on individual client decisions and on the performance of various instruments and strategies. ACML will continue to seek opportunities to grow and diversify its client base and mitigate the concentration risks detailed above.

The other important risk facing the firm is the possibility of volatile currency movements as the Brexit transition period ends on 31/12/2020. ACML’s revenues are largely in Euros whereas a large proportion of costs are Sterling based. The eventual outcome of the Brexit process and the implications for the financial services sector is also a risk facing ACML. It is probable that the current marketing and passporting rights will no longer be available to ACML as a UK FCA regulated entity when the transition period ends. The Directors are confident that short term structural changes could be made to allow the firm to continue its core operations at the end of the transition period although longer term the firm may need to consider opening a full stand-alone Investment Management Company in the EEA.

At the time of writing, the Coronavirus scare is impacting everyone’s lives and causing sharp falls in equity markets. Abraxas is fully prepared from an operational point of view to be able to continue its activities. Abraxas has had a full Business Continuity Plan in place for several years as required by the FCA. This BCP is tested annually and has been activated over the last few weeks and we can confirm that there have been no issues to report. ACML revenues depend on management and performance fees earned on the funds they manage and as such revenues will depend on how well these funds perform during these turbulent times rather than on the level of equity markets themselves or even the general economic background. Nevertheless, the Amagis Dynamic Allocation fund is naturally long equities and corporate bonds and has suffered losses in February 2020 which will impact future revenues for this fund. In contrast, the Elysium crypto currency fund is a pure arbitrage fund and is finding many opportunities in volatile markets. This is also the firm’s most profitable product. Other funds are longer term illiquid funds, sheltered from day to day volatility, so the impact should be minimised, although the complex restructuring of assets in the Sustainable Investment Fund could be delayed or jeopardised in the current environment. To summarise, the firm is continuing to operate normally and is not currently forecasting any dramatic changes to its 2020 revenue projections for the time being. Nevertheless, the earnings of asset management firms are always volatile and difficult to predict and the Coronavirus issue has clearly added another level of uncertainty. A lack of liquidity in financial markets and/or total economic disruption could lead to many unforeseen circumstances and possible client redemptions despite positive fund performance.

Avenues for future growth would be to increase the number of clients and/or launch new funds, in effect increasing the assets under management, upon which firm revenue is based. The Firm foresees restrained growth in the number of employees as the assets under management grow and operational workload increases.

The Firm enjoyed a successful year in 2019 due to the performance fee payable to the Sustainable Investment Fund and the excellent performance of the Elysium fund that was launched at the end of 2018. The Directors believe that the Elysium fund is well placed to produce strong returns once again in 2020. The SIF is in the process of restructuring its portfolio and this uncertainty may result in some investors redeeming their shares.

On behalf of the board

The directors present their annual report and financial statements for the year ended 31 December 2019.

The principal activity of the company in the year under review was that of investment management and advisory services.

In January 2018, a branch in Italy was setup and began trading.

The directors who held office during the year and up to the date of signature of the financial statements were as follows:

The results for the year are set out on page 6.

During the year, dividends amounting to £45,000 (2018: £25,000) were paid to Abraxas CM Limited.

The auditor, Perrys Accountants Limited, is deemed to be reappointed under section 487(2) of the Companies Act 2006.

So far as each person who was a director at the date of approving this report is aware, there is no relevant audit information of which the company’s auditor is unaware. Additionally, the directors individually have taken all the necessary steps that they ought to have taken as directors in order to make themselves aware of all relevant audit information and to establish that the company’s auditor is aware of that information.

The directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing these financial statements, the directors are required to:

•     select suitable accounting policies and then apply them consistently;

•     make judgements and accounting estimates that are reasonable and prudent;

•     state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements;

•     prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company’s transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The profit and loss account has been prepared on the basis that all operations are continuing operations.

Abraxas Capital Management Limited is a private company limited by shares incorporated in England and Wales. The registered office is 1st Floor, 12 Old Bond Street, Mayfair, London, W1S 4PW.

These financial statements have been prepared in accordance with FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (“FRS 102”) and the requirements of the Companies Act 2006.

The financial statements are prepared in sterling, which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest £1.

The financial statements have been prepared under the historical cost convention, modified to include the revaluation of certain financial instruments at fair value. The principal accounting policies adopted are set out below.

Since the balance sheet date, the Coronavirus issue has affected economies across the world. The directors have assessed the potential impact of the Coronavirus issue on the company’s ability to continue as a going concern. The strategic report details the directors’ assessment and review of this issue on the company’s financial position and future. true

At the time of approving the financial statements, the directors have a reasonable expectation that the company has adequate resources to continue in operational existence for the foreseeable future. Thus the directors continue to adopt the going concern basis of accounting in preparing the financial statements.

Turnover is recognised at the fair value of the consideration received or receivable for services provided in the normal course of business, and is shown net of VAT and other sales related taxes. The fair value of consideration takes into account trade discounts, settlement discounts and volume rebates.

Turnover is recognised in the period in which the services were provided.

Tangible fixed assets are initially measured at cost and subsequently measured at cost or valuation, net of depreciation and any impairment losses.

Depreciation is recognised so as to write off the cost or valuation of assets less their residual values over their useful lives on the following bases:

The gain or loss arising on the disposal of an asset is determined as the difference between the sale proceeds and the carrying value of the asset, and is credited or charged to profit or loss.

Cash and cash equivalents are basic financial assets and include cash in hand, deposits held at call with banks, other short-term liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities.

Basic financial assets, which include debtors and cash and bank balances, are initially measured at transaction price including transaction costs and are subsequently carried at amortised cost using the effective interest method unless the arrangement constitutes a financing transaction, where the transaction is measured at the present value of the future receipts discounted at a market rate of interest. Financial assets classified as receivable within one year are not amortised.

Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire or are settled, or when the company transfers the financial asset and substantially all the risks and rewards of ownership to another entity, or if some significant risks and rewards of ownership are retained but control of the asset has transferred to another party that is able to sell the asset in its entirety to an unrelated third party.

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the company after deducting all of its liabilities.

Basic financial liabilities, including creditors, bank loans, loans from fellow group companies and preference shares that are classified as debt, are initially recognised at transaction price unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future payments discounted at a market rate of interest. Financial liabilities classified as payable within one year are not amortised.

Debt instruments are subsequently carried at amortised cost, using the effective interest rate method.

Trade creditors are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Amounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade creditors are recognised initially at transaction price and subsequently measured at amortised cost using the effective interest method.

Financial liabilities are derecognised when the company’s contractual obligations expire or are discharged or cancelled.

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 year. Taxable profit differs from net profit as reported in the profit and loss account because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The company’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting end date.

Deferred tax liabilities are generally recognised for all timing differences and deferred tax assets are recognised to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits. Such assets and liabilities are not recognised if the timing difference arises from goodwill or from the initial recognition of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.

The carrying amount of deferred tax assets is reviewed at each reporting end date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the profit and loss account, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when the company has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority.

The costs of short-term employee benefits are recognised as a liability and an expense, unless those costs are required to be recognised as part of the cost of stock or fixed assets.

The cost of any unused holiday entitlement is recognised in the period in which the employee’s services are received.

Termination benefits are recognised immediately as an expense when the company is demonstrably committed to terminate the employment of an employee or to provide termination benefits.

Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due.

Rentals payable under operating leases, including any lease incentives received, are charged to profit or loss on a straight line basis over the term of the relevant lease except where another more systematic basis is more representative of the time pattern in which economic benefits from the leases asset are consumed.

Transactions in currencies other than pounds sterling are recorded at the rates of exchange prevailing at the dates of the transactions. At each reporting end date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the reporting end date. Gains and losses arising on translation are included in the profit and loss account for the period.

In the application of the company’s accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

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 where the revision affects only that period, or in the period of the revision and future periods where the revision affects both current and future periods.

Exchange differences recognised in profit or loss during the year, except for those arising on financial instruments measured at fair value through profit or loss, amounted to £5,769 (2018 - £3,922).

The average monthly number of persons (including directors) employed by the company during the year was:

Their aggregate remuneration comprised:

The number of directors for whom retirement benefits are accruing under defined contribution schemes amounted to 2 (2018 - 2).

Investment income includes the following:

The actual charge for the year can be reconciled to the expected charge for the year based on the profit or loss and the standard rate of tax as follows:

Hedging Relationships

The company currently holds a number of investments in Deutsche Bank issued certificates ("DB Certificates") (above, the "derivative") in the Abraxas Alpha Index.

The investments have been partly funded by derivative loans from a number of parties.

The derivatives loans (above, the "derivative loan") are adjusted to reflect the inverse movement of the revaluation of the DB certificates.

The hedging relationship hedges the risk of movement in the market value of the investment.

INVESTMENTS

At the reporting date, the investment in the Deutsche Bank Certificates had a fair value of £756,943 (2018: £1,434,661).

During the year, the company acquired other investments which at the reporting date had a fair value of £1,270,153 (2018: £Nil).

The company operates a defined contribution pension scheme for all qualifying employees. The assets of the scheme are held separately from those of the company in an independently administered fund.

At the reporting end date the company had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:

Abraxas Capital Advisors SA is related by virtue of having common directors.

Consultancy charges totalling £1,062,616 (2018: £255,930) were incurred by the company from Abraxas Capital Advisors SA. At the balance sheet date, the company owed £175,493 (2018: £25,295 debtor) to Abraxas Capital Advisors SA.

At the balance sheet date, the company owed Mr L Frontini (a former director of the company) £435,339 (2018: £528,074).

The company also owed Mr F Frontini (a director of the company) £363,472 (2018: £417,859) at the balance sheet date.

At the balance sheet date, the company was owed £107,440 (2018: £Nil) from a company with a common director.

The parent company is Abraxas CM Limited, a company incorporated in the United Kingdom,

The ultimate controlling parties are S Ruggiero, F Frontini, N Nathoo, L Filotto and I Matsis by virtue of their ownership of the parent company.

We have audited the financial statements of Abraxas Capital Management Limited (the 'company') for the year ended 31 December 2019 which comprise the profit and loss account, the statement of comprehensive income, the balance sheet, the statement of changes in equity, the statement of cash flows and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland (United Kingdom Generally Accepted Accounting Practice).

In our opinion the financial statements:

•     give a true and fair view of the state of the company's affairs as at 31 December 2019 and of its profit for the year then ended;

•     have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and

•     have been prepared in accordance with the requirements of the Companies Act 2006.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Conclusions relating to going concern

We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:

• the directors' use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or

• the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue.

Other information

The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.

We have nothing to report in this regard.

Opinions on other matters prescribed by the Companies Act 2006

In our opinion, based on the work undertaken in the course of our audit:

• the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and

• the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.

In the light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report and the directors' report.

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

•     adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or

•     the financial statements are not in agreement with the accounting records and returns; or

•     certain disclosures of directors' remuneration specified by law are not made; or

•     we have not received all the information and explanations we require for our audit.

As explained more fully in the directors' responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: http://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.

Use of our report

This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members, as a body, for our audit work, for this report, or for the opinions we have formed.