Oslo, London, Luxembourg, Scottsdale
The Chairman's report
We are a private investment company with a diversified portfolio of both stocks and bonds listed on a stock exchange as well as privately held businesses. During the last 20 years we have taken an active role in the development of most of the companies and businesses we have an interest in, with generally speaking positive results.
The conservative risk profile which we follow every year has not stopped us from earning an average of about 9 % p.a. on our equity capital during the last two decades. The year 2008 was not very different for our company while most investment funds – not excluding the Norwegian Sovereign Fund - lost around 40% of investors' money. It is often forgotten how hard it is to re-build asset value from 60 back up to 100. If in the first year after the crash you earn 10%, you are only back to 66, a long way behind the 109 which we could show at the end of 2008.
During 2016 we consolidated our Norwegian property portfolio by selling the last 25 freehold apartments which were built for us by Skanska in conjunction with our successful Haslekollen project. It is pleasing to observe how the 5 hectare property of the former ABB factory now presents itself as a modern and well designed residential area with its own park and school as well as a convenience store. The fact that the new tram station (direct to Oslo city) was opened recently next door to our development, is a great plus for the residents and for the users of our business centre.
Generally, our property investments in Arizona and in Monaco were steadily improving while some sales generated reasonable returns both for Centennial and its local managers.
We continued our engagement with new businesses, notably in the area of “voice and signals over the internet”. Our long struggle to make a success of the “Vyke” business may finally show some return. In the meantime we have managed to transfer some of the technology and principles to “COM4” where we have increased our ownership interest in order to support the impressive organic growth of their “machine to machine” internet sim-card business. A buy-out offer from a US private equity firm was declined as we believe COM4 has a technological advantage and will continue growing even without certain possible acquisitions.
Another fast growing business is that of drones. We decided to support the Drone team of "Robot Aviation” based next door to Prox at Eggemoen airport. The goal is to build up a national drone industry with specialist applications.
“Robot Aviation” have delivered an impressive array of working drones based on its triple secure navigation system. There are important orders signed for the use of the fixed wing long endurance drone for surveying activities.
In October we bought 75% of a small dry cargo ship-owning company managed from Bergen, Norway, containing three 10 years old dry cargo vessels trading internationally with a small monthly positive contribution.
Last year we participated actively in the start-up of a new bank, “Maritime and Merchant Bank ASA” to be based in Oslo but with an international outlook to the shipping industry which is suffering from the inability of bigger banks to lend to (at least) smaller ship-owners. Centennial will together with its Chairman, control 25% of the shares of the bank. We are pleased that the regulatory Authorities decided to provide an exception to the usual limit of 10% (of bank-ownership) to our group. This should enable us to put all our experience and energy into building a solid and useful financial institution, which hopefully will have a long, profitable and independent life.
The accounting year 2017 produced a deficit for the Centennial group of companies due to inclusion of Robot Aviation and its deficit in the overall accounts.
In smaller private investment firms a certain volatility in earnings from year to year is only to be expected. As at the end of 3rd quarter 2018, Centennial's consolidated accounts show a substantial increase in revenues compared to 2017 and an unaudited result from operations of NOK 200 million.
Maritime and Merchant Bank ASA has had a successful two-year start-up period and by year end USD 300 million will have been lent to a number of diversified shipping projects with first priority mortgages and other security in place. The shares were listed mid November on the Norwegian OTC and opened with a 10% premium over book value.
Compared to the speculative consumer credit banks which have popped up all over Norway, the Maritime and Merchant Bank ASA operates on the lower end of the risk scale and the relatively modest expected initial return on capital should be seen in the light of this.
We are continuing to support the development of COM4, a market leader in Norway in the area of Machine to Machine communication with more than 500,000 dedicated sim-cards installed or under order. The most recent acquisition of a similar operator was made in October 2018 by a PE fund in the UK, pricing each sim-card at around Euros 140.
Centennial Italia SRL has received all construction permits in San Remo, which was not touched by the devastating storms around the Italian coast this autumn. The foundations are now being finished and we are hoping for good weather in the construction period ahead. Our penthouse flat project overlooking the Monte Carlo Casino is still awaiting the final rebuilding permit from the Authorities. Prices for freehold apartments in the “golden triangle” of Monaco have increased to more than Euros 50,000/m2, especially if undisturbed sea views are in place.
In the UK, we sold our North Cottage in Woodstock (at the main entrance to Blenheim Palace) with a good return on the investment. With the proceeds, we are purchasing the “Leasow Farm”, in Whichford, Shipston of Stour – a very attractive area not far from Woodstock. The current Brexit-scare has reduced property prices in the UK generally, compensating for the excessive 12% stamp duty on above average priced properties.
At the old ABB-factory office building at Haslekollen, Oslo, extensive work has been carried out in order to complete the conversion of four storeys of offices to five storeys of apartments and studios in 2019. The adjacent office-building has been completely refurbished and we are planning to build a spectacular penthouse floor on top of this building in due course. The ground floor now has a popular “Kiwi”-shop which is thriving within this new section of Oslo.
Early in the year, we completed the purchase of a neighbouring commercial building next to our Økernveien 121, (which housed the long-distance telephone nodes for Telenor ASA when we bought the property). Together, the two buildings cover more than 11,000 m2 and a total of 2,2 hectares of buildable land when a roof is constructed over the local train lines running between the properties.
During the first quarter of 2018, we received an unsolicited cash offer from “Nordea Life insurance company” for these two properties en-block and decided reluctantly to sell, albeit with a healthy profit resulting chiefly from the many years of refurbishment and upgrading of Økernveien 121. For Centennial AS this means that the level of bank debt is substantially reduced in 2018 as compared to the year before.
In our 75% owned ship-owning company, R-Bulk KS, the three dry cargo vessels have been performing without any apparent problems. The manager, Christian Sundt in Bergen, Norway has obtained a refinancing of R-Bulk KS through a local savings bank.
The loan facility includes a potential additional loan to assist in the agreed purchase of one of the chartered-in vessels in the 2nd quarter of 2019 at a price below the current “Vessels’ Value” price indication. Through longer term contracts, R-Bulk KS is enjoying monthly cash contributions of around $ 300,00 per month, which provide a safe margin over finance costs and ensure normal depreciation of the vessels. Our associated firm, C.H.Rugg & Co SA, (www.chrugg.co.uk) has built a portfolio of part ownerships in a number of different types of ocean going vessels, several of these are financed through 1st priority mortgages from Maritime and Merchant Bank ASA.
Pinemont Securities Ltd in London has received authorisation from the Financial Conduct Authority in the UK to manage funds and also a written confirmation from the Financial Authorities in Luxembourg that the current management of the Luxembourg based “Pinemont Investment Grade Bond Fund” (www.pinemont.global) can continue regardless of the Brexit outcome. This Fund has by November 2018 reached the 3 year running period needed to produce a universally accepted track record. We believe that the timing of this development is reasonably good, inasmuch as most observers of the financial markets around the world are expecting high volatility and risk, most certainly in the valuation of stocks. This Fund is currently averaging 4.93% return p.a. and should withstand relatively high negative fluctuations in the stock markets and the high yield bond markets.
Centennial will be entering 2019 with a healthy financial position and with very good margins to pay for the remaining bank debt. In many ways we are prepared for some stormy financial times while we have, at the same time, capacity to invest in new projects.
We are receiving good reports from our Scholarship candidate at Harvard Business School, Hans Kristian Furuseth, a former NHH graduate. Centennial AS is setting aside funds each profitable year to cover the next full 2 year students which we shall pay for at Harvard University. This arrangement is intended for perpetuity.
Centennial AS is also sponsoring a student onboard the school-sailing-ship “SV Sørlandet” for the current one-year course.