TIDMAQT3
RNS Number : 2124E
Acuity VCT 3 PLC
16 December 2009
ACUITY VCT 3 PLC
Final Results for the Year Ended 30 September 2009
In accordance with DTR 6.3.5 the Final Results of Acuity VCT 3 Plc for the year
ended 30 September 2009 are made available below.
The full Annual Report and Accounts can be accessed via the website
www.acuitycapital.co.uk
References in this announcement to Acuity VCT 3 Plc have been abbreviated to
"the Company" or "the Fund". References to the Investment Manager, Acuity
Capital Management Limited, have been abbreviated to "Acuity Capital".
+-----------------------------------------------------+--------------+------------+
| Year ended 30 September | 2009 | 2008 |
+-----------------------------------------------------+--------------+------------+
| | | |
+-----------------------------------------------------+--------------+------------+
| Net assets | GBP30.0m | GBP33.6m |
+-----------------------------------------------------+--------------+------------+
| | | |
+-----------------------------------------------------+--------------+------------+
| | | |
+-----------------------------------------------------+--------------+------------+
| Net asset value per Ordinary Share | 85.7p | 96.1p |
+-----------------------------------------------------+--------------+------------+
| | | |
+-----------------------------------------------------+--------------+------------+
| Dividend paid per Ordinary Share | 0.0p | 2.0p |
+-----------------------------------------------------+--------------+------------+
| | | |
+-----------------------------------------------------+--------------+------------+
| Cumulative return to Shareholders since launch | | |
+-----------------------------------------------------+--------------+------------+
| | | |
+-----------------------------------------------------+--------------+------------+
| Dividends paid per Ordinary Share | 3.5p | 3.5p |
+-----------------------------------------------------+--------------+------------+
| | | |
+-----------------------------------------------------+--------------+------------+
| Net asset value plus dividends paid per Ordinary | 89.2p | 99.6p |
| Share | | |
+-----------------------------------------------------+--------------+------------+
| | | |
+-----------------------------------------------------+--------------+------------+
+--------------------------------+----------------------------------------------+
| Key Dates:- | 16 December 2009 |
| Results Announced | Wednesday 3 March 2010 at 1pm |
| Annual General Meeting | Paternoster House, 65 St Paul's Churchyard, |
| Venue | London, EC4M 8AB |
| | |
+--------------------------------+----------------------------------------------+
Chairman's Statement
Overview
Following a particularly difficult year ended 30 September 2008, in which the
FTSE All Share Index fell by 25.5% and the AIM market fell by 44.4%, the year
just ended on 30 September 2009 was by contrast more stable with the FTSE All
Share Index increasing by approximately 7% and the AIM market by 3%. However,
the relative stability of the year overall masks a story of two halves, with
dramatic falls of 21% and 32% in the FTSE All Share Index and FTSE AIM All Share
respectively followed by a rebound in both indices. Against this background and
investing in smaller companies which are by their nature more risky, the decline
in NAV becomes understandable.
Ordinary Shares
As at 30 September 2009 the Net Asset Value (NAV) per ordinary share was 85.7p.
When cumulative dividends of 3.5p are included, the total NAV was 89.2p per
ordinary share, 6% less than the starting NAV of the Fund of 94.5p and a fall of
just over 10p or 11% during the year.
A principal reason for the decline was the difficult decision by the Investment
Manager to no longer support Emote Games which had been unable to source
additional external financing despite positive early signs on the acceptance of
its online game, The Hunter. As a result, the Company made a GBP2.5m provision
against its holding value, representing 7p per ordinary share.
Co-Investment
As a result of co-investing alongside the other two VCTs managed by Acuity
Capital, the ability to support portfolio companies has been enhanced and
contributed to the resilience of the Company's investments as a whole.
Portfolio Activity
During the year the Fund invested a total of GBP3.6m. Details of these
transactions are in the Investment Manager's review.
In addition, the Company has preserved its liquidity with investments in Electra
Private Equity PLC of GBP3.6m and in CF Acuity Active Management Fund of
GBP0.2m, both funds associated with the Investment Manager. Further, as at 30
September 2009 the Company had a cash balance of GBP1.8m.
Dividend
No dividends were paid during the year to preserve the Company's liquidity;
total dividends paid to date to ordinary shareholders are 3.5p. However the
Board declared an interim dividend of 1p per ordinary share in respect of the
year to 30 September 2009. It will be paid on 5 February 2010 to ordinary
shareholders on the Register of Members at the close of business on 29 December
2009.
Share buy backs
In light of the continuing stabilisation of market conditions, the Board has
also decided to re-instate its buy back programme. The Board has therefore
authorised the purchase of its own shares in the market up to the lesser amount
of 10% of the issued share capital of the Company and the value of GBP500,000 at
a maximum price representing a discount of 15% to the last published NAV of the
Company. To facilitate the share buy back programme and to act as a market maker
in the shares, the Company has entered an agreement with Matrix Corporate
Capital LLP who have been appointed to act as corporate broker with the
intention to minimize the difference between the price paid under the buy back
programme and the price received by a selling shareholder as well as matching
buyers and sellers of the shares. The Company is unable to buy shares directly
from shareholders. If an investor wishes to sell shares, please contact Matrix
Corporate Capital on 0203 206 7176.
Top Up Offer
The Board intends to invite shareholders to participate in a Top Up Offer to
improve the overall liquidity of the Company and also take advantage of
investing at a time when company acquisition prices remain historically low. The
Top Up Offer will represent an issue of up to 10% of the issued share capital of
the ordinary shares of the Company. The Board will be writing to shareholders
early next year with details of the Offer.
Self Invested Pension Plan (SIPP) service
Working with Cavendish Ware (www.cavendishware.co.uk), the Investment Manager
has arranged, if desired, that shareholders will be able to place their shares
in the Company in a SIPP, thereby accessing additional tax incentives. It should
be noted that moving VCT shares into a SIPP is treated as a disposal for tax
purposes, and so has implications for investors sheltering CGT gains or whose
VCTs have not yet reached the end of the minimum holding period for income tax
relief. Details of this service will be sent to shareholders alongside this
report.
Shareholder Communication
If shareholders have any general queries, they should contact the Investment
Manager by telephone or email. The Investment Manager's website provides
information on Acuity Capital and the Fund.
As the Investment Manager is keen to increase communication with shareholders,
its website (www.acuitycapital.co.uk) will include regular investment updates.
Shareholders are encouraged to register their email addresses with the
Investment Manager if they have not already done so.
We would welcome as many shareholders as possible to come to the Annual General
Meeting on 3 March 2010 when two portfolio companies will present to
shareholders. Over time, we would hope that all the Company's principal
investments will make presentations and this will allow shareholders a better
insight into the potential of the Company's portfolio.
Risks
Risks associated with the Company are set out in detail in the Report of the
Directors and in Note 20 of the Notes to the Accounts. The Board believes that
opportunities for selling both quoted and unquoted investments may be reduced by
recent events in the financial markets. In addition, the fair market value of
its unquoted holdings may also suffer by reference to comparable quoted
companies and publicly announced transactions. However, the Company believes
that it has insignificant exchange risk and minor credit or interest rate risk.
Outlook
While the Company is not leaving a particularly turbulent period unscathed,
nevertheless it is emerging with a portfolio of promising investments which
should provide a considerable uplift in your Company's value as they thrive in a
more stable economic environment.
Stuart Stradling
Chairman
11 December 2009
Investment Strategy
Investment Objective
In accordance with the Prospectus dated 14 October 2005, the Company's objective
is to achieve capital gains and maximise UK tax-free income to its shareholders
from dividends and capital distributions. It is intended that this objective is
to be achieved by investing the majority of the Company's funds in a portfolio
of Qualifying Investments as described under "Investment Strategy" below.
Investment Strategy
The Company offers investors the opportunity to gain access to the venture
capital market.
The investment focus of the Investment Manager has been to seek out established
companies, most of whom are cash positive, in preference to early stage
opportunities.
In addition, investments are normally structured as a mixture of equity and loan
stock. The loan stock represents the majority of the finance provided.
Typically, funds managed by Acuity Capital own a significant portion of the
equity of the investee companies.
This investment focus, combined with a diversified sector strategy and the
typical investment structure, will, in the opinion of the Directors, contribute
materially to reducing the overall risk of investing in smaller companies.
As at 30 September 2009, the Company was invested in 16 qualifying companies and
1 non-qualifying company that have been selected for their growth potential and
in a further 5 qualifying companies which are preparing to trade.
The Directors believe that current economic conditions favour opportunistic
investment and the use of companies preparing to trade allows for the
acquisition of qualifying trades on the most advantageous terms as they are
permitted an additional 18 months in which to identify the trades.
As at 30 September 2009, the Company had no bank indebtedness.
The Directors do not wish the Company to be restricted by having a fixed limit
on what exposure to gearing it may have, apart from the restriction in the
Company's Articles, which limits borrowing to an amount equal to its adjusted
capital and reserves.
Co-investment
The Company also invests alongside the other Acuity VCTs which enables
shareholders to participate in larger unquoted transactions, which tend to have
a lower risk profile than smaller venture capital investments.
Qualifying Investments
The Company intends to invest in companies that it believes have a high growth
potential. In the Directors' opinion, each of these companies should generally
reflect the following criteria:
* A well defined business plan and ability to demonstrate strong demand for its
products or services;
* Products or services that can be supplied at sustainable high margins and be
cash generative;
* Objectives of management and shareholders to be similarly aligned;
* Adequate capital resources or access to further resources to achieve the targets
set out in the business plan; and
* High calibre management teams.
The Company seeks to invest in a diversified portfolio of unquoted, PLUS traded
and AIM quoted companies and will not specialise unduly in any particular
industry sector. Unquoted investments will typically be in companies where the
Company believes that there are reasonable prospects of an exit through a trade
sale or flotation in the medium term.
There are no criteria set by the Directors regarding the size of the target
companies, except that an investee company's gross assets must comply with
current UK VCT legislation. Investments in start-up companies where, in the
opinion of the Company, levels of risk are unacceptably high, in particular the
technology sector, will generally be avoided.
As at 30 September 2009, the Company had invested approximately 77% of its net
assets by valuation in a total of 21 qualifying companies. The average
investment size at cost is GBP1.1m.
Non-Qualifying Investments
Associated Funds
As at 30 September 2009, 13% of net assets by valuation of the Company was
invested in associated funds, CF Acuity Real Active Management Fund and Electra
Private Equity PLC.
Cash Management
In addition to investments held in associated funds, as at 30 September 2009, 6%
of its net assets by valuation of the Company was invested in cash deposits to
provide immediate liquidity, pending suitable qualifying investments being
identified.
Risk Management
Since the Company is flexible with regard to those areas in which it invests, it
aims to achieve a significant degree of diversification and to spread risk by
investing in unquoted, PLUS traded and AIM quoted companies. In addition, there
is no emphasis on any particular industry sector and the non-qualifying
investments have a high level of in-built diversification. The Company is
restricted to investing no more than 15% of the value of its total assets at the
time of investment in any one individual qualifying investment or non-qualifying
investment.
Investment Portfolio
The investment classification expressed as a percentage of the value of the
assets of the ordinary share pool as at 30 September 2009 was as follows :
By Sector
+-------------------------+------------+
| Media | 37% |
+-------------------------+------------+
| Manufacturing | 29% |
+-------------------------+------------+
| Business Services | 24% |
+-------------------------+------------+
| Consumer | 10% |
+-------------------------+------------+
By Asset Type
+-------------------------+------------+
| Unquoted - Loan Stock | 37% |
+-------------------------+------------+
| Unquoted - Ordinary and | 34% |
| Preference shares | |
+-------------------------+------------+
| AIM | 5% |
+-------------------------+------------+
| Associated Funds | 12% |
+-------------------------+------------+
| Cash | 6% |
+-------------------------+------------+
| Accrued Income | 4% |
+-------------------------+------------+
| Creditors | 2% |
+-------------------------+------------+
By Time Investments Held
+-------------------------+------------+
| Between 1 and 3 years | 84% |
+-------------------------+------------+
| Between 3 and 5 years | 16% |
+-------------------------+------------+
Investment Manager's Review
As set out in the Investment Strategy , our aim has been to concentrate our
investments in unquoted companies with significant existing revenues and profits
and to seek to add value through organic growth and "buy & build" strategies.
Access to these types of investment is enhanced through co-investing with the
other Acuity VCTs.
Ordinary Shares
During the year the main portfolio uplifts were in three unquoted companies
where your Company's holdings increased in value. These were The Fin Machine
Company, Factory Media and Loseley Diary Ice Cream. The holding in The Fin
Machine Company increased in value by GBP1.1m, the holding in Factory Media
increased in value by GBP0.7m and that of Loseley Dairy Ice Cream by GBP0.5m.
A supplier of capital equipment used to manufacture heat exchangers in the
automotive and air conditioning industries, The Fin Machine Company has entered
its new financial year with an order book representing 65% of budgeted revenues.
In 2009, the business opened a new factory in China and has benefited from
increased margins and greater access to a market with growth rates of over 8%
p.a. The potential for the company is significant with long-term forecasts
representing an increase in sales of over 100%.
The strategy of investing heavily in Factory Media, a publisher of extreme
sports titles, digital offering through its central website, www.mpora.com, as
well as individual title websites, has now begun to see the benefits, with total
digital traffic now exceeding 1.7 million monthly unique users from a comparison
figure of 0.4 million last year. This break through in traffic has permitted a
substantial increase in the business' value.
In October 2008, Hill Station, an AIM listed company, was forced into
administration due to a wet Summer diminishing sales and tighter credit
conditions hampering cash flow. However, we decided that the business was worth
supporting as a private equity investment and the Company invested GBP0.7m
alongside its sister VCTs to acquire the business from the Administrator and
support its development, renaming the business Loseley Dairy Ice Cream. We are
pleased to note that Loseley is beginning to show substantial traction which has
allowed an increase in its value over the year. We are hopeful that Loseley will
attract considerable levels of new business from the major retailers and lead to
a substantial uplift in value.
On the downward side, Future Noise Music (formerly the business of Acrobat Music
Group) saw a net decrease in value of GBP1.9m and Target Entertainment Group saw
a decrease in value of GBP0.9m. Unfortunately the year also saw a full provision
against the GBP2.5m holding value in Emote Games.
In order to secure the Company's investment with a fixed charge over its music
catalogue, we restructured Acrobat Music Group with the business emerging as
Future Noise Music. The business also saw a decrease in its revenues as the
failure of Woolworths and Zavvi severely effected its historic distribution
channels. The company has worked hard at establishing new channels and signing
new artists, and we are hopeful that much of the value in the business can be
recovered.
Target Entertainment Group, one of the UK's leading television producers and
distributors, benefited from the production of the 7th season of Foyle's War but
the overall TV industry was weak leading to a lower than expected performance in
Target's distribution division. While expected to generate revenues of over
GBP20m, we reduced its holding value until we can see clearer signs of a rebound
in the TV industry.
Lastly, we took the difficult decision to no longer support the losses arising
from the cash burn of Emote Games when it became clear that the company was
unable to access additional financing from other investors. The decision was
particularly difficult as there was considerable positive early data on the
acceptance of its online game, The Hunter. However, the investment case was
based on estimated rates of user growth which did not materialise in the
necessary time frame and on securing a US distribution deal which was not
secured.
In addition to the funding provided to Emote Games over the year and to Loseley
Dairy Ice Cream, as noted above, we invested GBP0.7m in Red Reef Media and
GBP0.5m in Amber Taverns.
The investment in Red Reef Media was predominantly as part of a commitment made
at the initial investment in February 2008 to meet the payment of deferred
consideration to the previous owner of the business. Red Reef is the publisher
of a free circulation magazine, TNT (www.tntonline.co.uk), aimed historically at
Antipodeans living in London. The company is seeking to expand its readership
and the use of its website beyond its loyal but niche market. As part of this
strategy it will be launching a new website at the significantly larger gap year
market.
During the year, we invested GBP0.5m in Amber Taverns, memorably described by
its chairman as the "Aldi and Lidl of the pub market", and an investment held by
the Company's sister VCTs. Amber Taverns acquired a portfolio of 23 pubs at
distressed prices and so increased the number of pubs under management after the
sale of 8 unwanted units to a net 45. The acquisition of the additional pubs has
been a success with the retained units responding well to Amber Tavern's
management with its emphasis on the supply of competitively priced beer and a
welcoming modern décor in depressed or city centre locations. With its original
portfolio matching its budget, due to the overall performance of the company, we
have already increased the value of the investment.
Deal Flow
With greater stability in the economy, although remaining cautious, we would
hope to capitalise on the opportunities we are seeing and increase the number of
investments made by the Company in new companies as well as supporting existing
portfolio companies where appropriate.
+----------------------------------+------------+------------+------------+------------+
| Investments | Cost | Valuation | Valuation | % of |
| at 30 September 2009 | GBP'000 | GBP'000 | movement | Portfolio |
| | | | in the | by |
| | | | year | Value |
| | | | GBP'000 | |
+----------------------------------+------------+------------+------------+------------+
| Acuity Business Services | 250 | 232 | (18) | 0.8 |
+----------------------------------+------------+------------+------------+------------+
| Acuity Energy | 250 | 232 | (18) | 0.8 |
+----------------------------------+------------+------------+------------+------------+
| Acuity Manufacturing | 250 | 237 | (13) | 0.8 |
+----------------------------------+------------+------------+------------+------------+
| Acuity Rights | 250 | 227 | (23) | 0.8 |
+----------------------------------+------------+------------+------------+------------+
| Acuity Support Services | 250 | 232 | (18) | 0.8 |
+----------------------------------+------------+------------+------------+------------+
| Amber Taverns | 500 | 542 | 42 | 2.0 |
+----------------------------------+------------+------------+------------+------------+
| Brand Acquisitions | 1,800 | 1,777 | (23) | 6.4 |
+----------------------------------+------------+------------+------------+------------+
| CF Acuity Real Active Management | 218 | 223 | 45 | 0.8 |
| Fund | | | | |
+----------------------------------+------------+------------+------------+------------+
| Connect2Media | 2,000 | 2,200 | 200 | 7.9 |
+----------------------------------+------------+------------+------------+------------+
| Defaqto | 1,285 | 1,465 | (223) | 5.3 |
+----------------------------------+------------+------------+------------+------------+
| Electra Private Equity | 3,847 | 3,611 | (33) | 13.0 |
+----------------------------------+------------+------------+------------+------------+
| Emote Games | 2,766 | - | (2,509) | 0.0 |
+----------------------------------+------------+------------+------------+------------+
| Factory Media | 1,925 | 2,850 | 721 | 10.3 |
+----------------------------------+------------+------------+------------+------------+
| Future Noise | 798 | 766 | (32) | 2.8 |
+----------------------------------+------------+------------+------------+------------+
| The Fin Machine Company | 2,150 | 5,814 | 1,115 | 21.0 |
+----------------------------------+------------+------------+------------+------------+
| Jelf Group | 250 | 141 | (230) | 0.5 |
+----------------------------------+------------+------------+------------+------------+
| Loseley Dairy Ice Cream | 709 | 1,169 | 460 | 4.2 |
+----------------------------------+------------+------------+------------+------------+
| Managed Support Services | 888 | 169 | 18 | 0.6 |
+----------------------------------+------------+------------+------------+------------+
| Mount Engineering | 759 | 629 | (43) | 2.3 |
+----------------------------------+------------+------------+------------+------------+
| Munro Global | 1,615 | 2,085 | (7) | 7.5 |
+----------------------------------+------------+------------+------------+------------+
| Red Reef Media | 1,263 | 1,058 | (205) | 3.8 |
+----------------------------------+------------+------------+------------+------------+
| Sports Media Group | 500 | 27 | (80) | 0.1 |
+----------------------------------+------------+------------+------------+------------+
| Target Entertainment Group | 2,000 | 1,467 | (923) | 5.3 |
+----------------------------------+------------+------------+------------+------------+
| Zamano | 750 | 578 | 31 | 2.2 |
+----------------------------------+------------+------------+------------+------------+
| Total Investments | 27,273 | 27,731 | (1,766) | 100.00 |
+----------------------------------+------------+------------+------------+------------+
| Other Assets | | | | |
+----------------------------------+------------+------------+------------+------------+
| Cash | | 1,826 | | |
+----------------------------------+------------+------------+------------+------------+
| Total | | 29,557 | | |
+----------------------------------+------------+------------+------------+------------+
Investment Manager
The Fund's investments are managed by Acuity Capital. Acuity Capital was
established in 1981 and is authorised and regulated by the Financial Services
Authority.
Acuity Capital has considerable expertise in quoted and unquoted investments and
has a well developed deal flow, including unquoted company proposals that
originate from its own contacts and network, pre-float finance opportunities and
broker led AIM flotations.
Acuity Capital is also the Investment Manager of Acuity VCT Plc, Acuity VCT 2
Plc and CF Acuity Real Active Management Fund, the successor fund to Electra
Active Management Plc.
The Investment Manager has established an Investment Committee comprising three
Acuity Capital executives and two independent members. The independent members
of the Investment Committee are Angela Lane and Tony Everett. After 18 years
working in private equity at 3i, Angela's final role was as a partner in 3i's
Growth Capital business managing the UK Portfolio. Tony has a background as an
entrepreneur and business owner and acts as a consultant to Fleming Family and
Partners Private Equity. In addition, the Investment Committee is chaired by
Hugh Mumford, a senior executive of Electra Partners Group. The Investment
Committee meets as required to consider and review investment proposals.
Co-investment Arrangements with other Acuity VCTs
The Directors welcome the fact that the Investment Manager has five VCT pools of
funds, Acuity VCT Plc Ordinary Share pool, Acuity VCT Plc 'C' Share pool, Acuity
VCT 2 Plc Ordinary Share pool, Acuity VCT 2 Plc 'C' Share pool and Acuity VCT 3
Plc (together "the Acuity VCTs"), it can use for co-investment. This allows each
fund to spread its investment risk and gain access to larger investments than it
could do on its own. Where a co-investment opportunity arises between the
Company and one or more of the other funds, the Company will invest in an agreed
and consistent proportion, on the same terms and in the same securities as the
funds with which it co-invests. Costs associated with any such investment will
be borne by each fund pro-rata to its investment.
In more detail, the Board has adopted a set of guidelines on its co-investment
arrangements with the Acuity VCTs and the Investment Manager as follows:-
* Other than as set out below, investments will be allocated between the Company
and the Acuity VCTs by reference to the size of each fund and to each fund's
available cash resources.
* Where an opportunity arises for a second or subsequent round of investment in a
company in which one of the Acuity VCTs has invested at an earlier stage, the
fund holding the existing investment will have a preferential right to take up
any pro-rata entitlement it may have in the new financing round. The amount it
invests on this basis will not be taken into account in determining its
co-investment share thereafter.
* The Company will make an investment in which one or more of the Acuity VCTs have
existing investments only when the Board considers that to be in the best
interests of the Company.
* Any potential conflict of interest in a proposed investment by one or more of
the Acuity VCTs will be referred by the Investment Manager to the Board of the
Company and the other relevant Boards.
* In the event of a possible conflict of interest between the Investment Manager
and the Company, the matter will be decided by those Directors who are
independent of the Investment Manager.
The Board of the Company acknowledges that the Investment Manager may
occasionally recommend an allocation of investments on a different basis from
the one described above. For example, an exception may be made to ensure that
one or more of the Company, Acuity VCT Plc or Acuity VCT 2 Plc maintain their
status as a HMRC approved VCT, or in the interests of balancing their
portfolios. A different basis may also be necessary to meet the requirements of
potential investee companies. In these cases the Directors may use their
judgement.
Largest 10 Investments
Fin Machine Company
+-------------------------+----------------+----------------------+--------+--------+
| Cost | GBP2,150,000 | Audited Financial | | |
| | | Information | | |
+-------------------------+----------------+----------------------+--------+--------+
| Valuation | GBP5,814.00 | Year Ended 30 | 2008 | 2007 |
| | | September | GBPm | GBPm |
+-------------------------+----------------+----------------------+--------+--------+
| Basis of Valuation | EV/EBITDA | Sales | 19.5 | 17.0 |
| | Multiple | | | |
+-------------------------+----------------+----------------------+--------+--------+
| Equity held | 19.5% | Profit before tax | 2.8 | 1.0 |
+-------------------------+----------------+----------------------+--------+--------+
| Business | Specialist | Retained profit | 2.1 | 0.7 |
| | Engineering | | | |
+-------------------------+----------------+----------------------+--------+--------+
| Other Acuity Funds | Acuity VCT, | Net assets | 4.4 | 2.3 |
| Investing | Acuity VCT 2 | | | |
+-------------------------+----------------+----------------------+--------+--------+
Electra Private Equity
+-------------------------+----------------+----------------------+--------+--------+
| Cost | GBP3,847,000 | Audited Financial | | |
| | | Information | | |
+-------------------------+----------------+----------------------+--------+--------+
| Valuation | GBP3,611,000 | Year Ended 30 | 2008 | 2007 |
| | | September | GBPm | GBPm |
| | | | | |
+-------------------------+----------------+----------------------+--------+--------+
| Basis of Valuation | Bid price | Sales | (38.7) | 269.4 |
+-------------------------+----------------+----------------------+--------+--------+
| Equity held | 0.8% | (Loss)/Profit before | (65.6) | 185.1 |
| | | tax | | |
+-------------------------+----------------+----------------------+--------+--------+
| Business | Investment | Retained | (69.4) | 174.3 |
| | Trust | (loss)/profit | | |
+-------------------------+----------------+----------------------+--------+--------+
| Other Acuity Funds | Acuity VCT, | Net assets | 641.0 | 745.5 |
| Investing | Acuity VCT 2 | | | |
+-------------------------+----------------+----------------------+--------+--------+
Factory Media
+-------------------------+----------------+----------------------+--------+--------+
| Cost | GBP1,925,000 | Audited Financial | | |
| | | Information | | |
+-------------------------+----------------+----------------------+--------+--------+
| Valuation | GBP2,850,000 | Year Ended 31 | 2008 | 2007 |
| | | December | GBPm | GBPm |
| | | | | |
+-------------------------+----------------+----------------------+--------+--------+
| Basis of Valuation | EV/Sales | Sales | 8.4 | 7.5 |
| | Multiple | | | |
+-------------------------+----------------+----------------------+--------+--------+
| Equity held | 25.0% | Loss before tax | (0.5) | (0.3) |
+-------------------------+----------------+----------------------+--------+--------+
| Business | Sports | Retained loss | (0.5) | (0.3) |
| | Publishing | | | |
| | Company | | | |
+-------------------------+----------------+----------------------+--------+--------+
| Other Acuity Funds | Acuity VCT 2 | Net | (0.2) | 0.3 |
| Investing | | (liabilities)/assets | | |
+-------------------------+----------------+----------------------+--------+--------+
Connect2Media
+-------------------------+----------------+----------------------+---------------+
| Cost | GBP2,000,000 | Audited Financial | |
| | | Information | |
+-------------------------+----------------+----------------------+---------------+
| Valuation | GBP2,200,000 | Period 16 June 2008 | 2008 |
| | | to 31 December 2008 | GBPm |
+-------------------------+----------------+----------------------+---------------+
| Basis of Valuation | EV/Sales | Sales | 2.4 |
| | Multiple | | |
+-------------------------+----------------+----------------------+---------------+
| Equity held | 17.6% | Loss before tax | (0.7) |
+-------------------------+----------------+----------------------+---------------+
| Business | Mobile Games | Retained loss | (0.7) |
+-------------------------+----------------+----------------------+---------------+
| Other Acuity Funds | Acuity VCT, | Net assets | 3.8 |
| Investing | Acuity VCT 2 | | |
+-------------------------+----------------+----------------------+---------------+
Munro Global
+-------------------------+----------------+----------------------+--------+--------+
| Cost | GBP1,615,000 | Audited Financial | | |
| | | Information | | |
+-------------------------+----------------+----------------------+--------+--------+
| Valuation | GBP2,085,000 | Year Ended 31 July | 2008 | 2007 |
| | | | GBPm | GBPm |
| | | | | |
+-------------------------+----------------+----------------------+--------+--------+
| Basis of Valuation | EV/EBITDA | Sales | 10.2 | 8.0 |
| | Multiple | | | |
+-------------------------+----------------+----------------------+--------+--------+
| Equity held | 24.8% | Profit before tax | 0.0 | 0.1 |
+-------------------------+----------------+----------------------+--------+--------+
| Business | Market | Profit after tax | 0.0 | 0.1 |
| | Research | | | |
| | Company | | | |
+-------------------------+----------------+----------------------+--------+--------+
| Other Acuity Funds | Acuity VCT 2 | Net assets | 0.6 | 0.6 |
| Investing | | | | |
+-------------------------+----------------+----------------------+--------+--------+
Brand Acquisitions
+-------------------------+----------------+----------------------+--------+--------+
| Cost | GBP1,800,000 | Audited Financial | | |
| | | Information | | |
+-------------------------+----------------+----------------------+--------+--------+
| Valuation | GBP1,777,000 | Period Ended 31 | Year | 3 |
| | | January | ended | Months |
| | | | 2009 | ended |
| | | | GBPm | 2008 |
| | | | | GBPm |
| | | | | |
+-------------------------+----------------+----------------------+--------+--------+
| Basis of Valuation | EV/EBITDA | Sales | 11.3 | 1.1 |
| | Multiple | | | |
+-------------------------+----------------+----------------------+--------+--------+
| Equity held | 16.6% | Profit/(loss) before | 0.3 | (0.3) |
| | | tax | | |
+-------------------------+----------------+----------------------+--------+--------+
| Business | Branded | Profit/(loss) after | 0.2 | (0.2) |
| | Menswear | tax | | |
+-------------------------+----------------+----------------------+--------+--------+
| Other Acuity Funds | Acuity VCT, | Net | 0.7 | (0.5) |
| Investing | Acuity VCT 2 | assets/(liabilities) | | |
+-------------------------+----------------+----------------------+--------+--------+
Target Entertainment Group
+-------------------------+----------------+----------------------+--------+--------+
| Cost | GBP2,000,000 | Audited Financial | | |
| | | Information | | |
+-------------------------+----------------+----------------------+--------+--------+
| Valuation | GBP1,467,000 | Year Ended 31 | 2007 | 2006 |
| | | December | GBPm | GBPm |
| | | | | |
+-------------------------+----------------+----------------------+--------+--------+
| Basis of Valuation | EV/Sales | Sales | 17.1 | 10.3 |
| | Multiple | | | |
+-------------------------+----------------+----------------------+--------+--------+
| Equity held | 13.3% | Loss before tax | (0.5) | (0.3) |
+-------------------------+----------------+----------------------+--------+--------+
| Business | Television | Retained Loss | (0.3) | (0.4) |
| | Distribution | | | |
| | Company | | | |
+-------------------------+----------------+----------------------+--------+--------+
| Other Acuity Funds | Acuity VCT, | Net Liabilities | (0.5) | (1.8) |
| Investing | Acuity VCT 2 | | | |
+-------------------------+----------------+----------------------+--------+--------+
Defaqto Group
+-------------------------+----------------+----------------------+--------+--------+
| Cost | GBP1,285,000 | Audited Financial | | |
| | | Information | | |
+-------------------------+----------------+----------------------+--------+--------+
| Valuation | GBP1,465,000 | Year Ended 31 March | 2009 | 2008 |
| | | | GBPm | GBPm |
| | | | | |
+-------------------------+----------------+----------------------+--------+--------+
| Basis of Valuation | EV/Sales | Sales | 8.3 | 7.8 |
| | Multiple | | | |
+-------------------------+----------------+----------------------+--------+--------+
| Equity held | 8.1% | Loss before tax | (0.4) | (1.8) |
+-------------------------+----------------+----------------------+--------+--------+
| Business | Financial | Retained Loss | (0.5) | (1.7) |
| | product data | | | |
| | provider | | | |
+-------------------------+----------------+----------------------+--------+--------+
| Other Acuity Funds | Acuity VCT, | Net Liabilities | (8.1) | (7.9) |
| Investing | Acuity VCT 2 | | | |
+-------------------------+----------------+----------------------+--------+--------+
Loseley Dairy Ice Cream
+-------------------------+--------------------------------------+-----------------+
| Cost | GBP709,000 | No Audited |
| | | Financial |
| | | Information |
| | | Available |
+-------------------------+--------------------------------------+-----------------+
| Valuation | GBP1,169,000 | |
+-------------------------+--------------------------------------+-----------------+
| Basis of Valuation | EV/Sales Multiple | |
+-------------------------+--------------------------------------+-----------------+
| Equity held | 15.0% | |
+-------------------------+--------------------------------------+-----------------+
| Business | Producer of Fine Dairy Ice Cream | |
+-------------------------+--------------------------------------+-----------------+
| Other Acuity Funds | Acuity VCT, Acuity VCT 2 | |
| Investing | | |
+-------------------------+--------------------------------------+-----------------+
Red Reef Media
+-------------------------+----------------+------------------------------+---------+
| Cost | GBP1,263,000 | Audited Financial | |
| | | Information | |
+-------------------------+----------------+------------------------------+---------+
| Valuation | GBP1,058,000 | Period from 4 September 2007 | 2008 |
| | | to 30 March 2008 | GBPm |
+-------------------------+----------------+------------------------------+---------+
| Basis of Valuation | Bid Price | Sales | 0.5 |
+-------------------------+----------------+------------------------------+---------+
| Equity held | 14.4% | Profit before tax | 0.0 |
+-------------------------+----------------+------------------------------+---------+
| Business | Magazine | Retained Profit | 0.0 |
| | Publishing | | |
+-------------------------+----------------+------------------------------+---------+
| Other Acuity Funds | Acuity VCT, | Net Assets | 1.2 |
| Investing | Acuity VCT 2 | | |
+-------------------------+----------------+------------------------------+---------+
Note:-
In many cases, the qualifying investment is made substantially in the form of
loan notes which both carry a high interest rate and are treated as debt for
statutory purposes. Shareholders should therefore be advised that often the
investee companies report both retained losses and net liabilities as a result.
Board of Directors
Stuart Stradling, Chairman, Appointed a Director on 14 September 2005
He is a chartered accountant with 36 years experience in the City of London. He
was Managing Director of investment banking and Chairman of corporate banking at
Dresdner Kleinwort Wasserstein until he retired in April 2006. He previously
held a similar position at SG Warburg and was partner in charge of corporate
broking at Rowe and Pitman for 10 years prior to the firm's sale to SG Warburg
in 1986. In addition, he holds a number of non-executive positions in small
companies in several fields, including media and technology. He is Chairman of
the Nomination Committee.
Kevin D'Silva*, Appointed a Director on 14 September 2005.
He is a chemical engineer who has specialised in the medical devices industry.
He was formerly Group Managing Director of Ferraris Group Plc and he has managed
the growth of a number of publicly quoted and unquoted companies. He is Chairman
of Hallmarq Veterinary Systems Limited, a MRI scanning products business,
Chairman of Ai2, antimicrobial peptides and Chairman of Surface Transforms plc,
a publicly listed company specialising in carbon ceramic brakes. He is also a
partner in SalusInvest LP that invests and manages a portfolio of medical
products businesses. He is Chairman of the Remuneration Committee.
David Hurst-Brown*, Appointed a Director on 14 September 2005.
Having graduated as a Production Engineer he worked for over 25 years in the
investment banking industry. Prior to his retirement from UBS in 2002 he had
worked for 15 years as an executive in the corporate finance division of UBS
Warburg. Presently he is a non-executive director of Anite Plc, Imagination
Technologies Plc, Ffastfill Plc, Hargreave-Hale VCT and Hargreave-Hale VCT 2. He
is Chairman of the Audit Committee and has been nominated the Senior Independent
Director under the Combined Code on Corporate Governance.
Nicholas Ross, Appointed a Director on 14 September 2005.
He is a founding member of Acuity Capital LLP, prior to the Management buy-out
he had been at Electra Quoted Management since 1993. Previously he had several
years in investment analysis and fund management. He has been responsible for
the launch of the three Acuity Capital VCT funds. He is a Managing Partner of
Acuity Capital LLP and a Director of Acuity Capital and all three Acuity VCT
funds. He also sits on a number of investee company boards.
* Member of the Audit, Remuneration and Nomination Committees
Report Of The Directors
To the Members of Acuity VCT 3 Plc
The Directors present the audited accounts of the Company for the year ended 30
September 2009 and their Report on its affairs.
Investment Company Status
Throughout the year under review the Company was an investment company as
defined under Section 833 of the Companies Act 2006.
VCT Status
HM Revenue and Customs has granted the Company approval under Section 274 of the
Income Tax Act 2007 (ITA 2007) as a VCT, the approval being effective from the
first day on which the Company's ordinary shares were listed on the London Stock
Exchange (being 1 December 2005). The Board continues to direct the affairs of
the Company to enable it to maintain approval as a VCT.
Business Review
Objective and Investment Strategy
A review of the Company's Objective and Investment Strategy is detailed above in
this announcement.
Current and Future Development
A review of the main features of the year is contained in the Chairman's
Statement and the Investment Manager's Review above in this announcement.
The Board regularly reviews the development and strategic direction of the
Company. The Board's main focus continues to be on the Company's long-term
investment return. Attention is paid to the integrity and success of an
investment process and on factors which may have an impact on this approach. Due
regard is given to the marketing and promotion of the Company, including
effective communication with shareholders and other external parties.
Social, Community, Employee and Environmental Issues
In carrying out its activities and in relationships with the community, the
Company aims to conduct itself responsibly, ethically and fairly. The Company
has no employees and the Board is comprised entirely of Non-Executive Directors.
The Company has no direct impact on the environment. However, the Company
believes that it is in the shareholders interests to consider environmental,
social and ethical factors when selecting and retaining investments. Further
details of how the Company views socially responsible investment is set out
below in this announcement.
Performance
A detailed review of performance during the year under review is contained in
the Investment Manager's Review.
A number of performance measures are considered by the Board and Investment
Manager in assessing the Company's success in achieving its objectives.
The key performance indicators ('KPIs") used to measure the progress and
performance of the Company are established industry measures and are as
follows:-
* The movement in net asset value per ordinary share
* The movement in share price
* The movement of net asset value and share price performance compared to the FTSE
All-Share Index
Details of the KPIs are shown in the Financial Highlights and through a graph
comparing the Company's total return on a share price and net asset value basis
over the period since shares were first issued with the FTSE All-Share Index
total return over the same period as set out in the Directors' Remuneration
Report.
The Board recognises that it is in the long term interests of shareholders to
reduce discount volatility and believes that the prime driver of discounts over
the longer term is performance. As outlined in the Report of the Directors on
the Board intends to seek renewal of its annual share buy-back authority at the
Company's Annual General Meeting in 2010. As noted in the Chairman's Statement,
the Board has reinstated the share buy-back programme but will continue to
monitor the position closely.
Risk Management
Since the Company is flexible with regard to those areas in which it invests, it
aims to achieve a significant degree of diversification and to spread risk by
investing in unquoted, PLUS traded and AIM quoted companies. In addition, there
is no emphasis on any particular industry sector and even the non-qualifying
investments have quite a high level of in-built diversification. The Company is
restricted to investing no more than 15% of the value of its total assets at the
time of investment in any one individual qualifying investment or non-qualifying
investment.
The key risks facing the Company include Market Risk, Interest Rate Risk, Credit
Risk and Liquidity Risk as further detailed in Note 20 of the Notes to the
Accounts.
In addition the Company is also focused on the following risks:
Macroeconomic risks
The performance of the Company's underlying investment portfolio is principally
influenced by a combination of economic growth, interest rates, the availability
of well-priced debt finance, the number of active trade and private equity
buyers and the level of merger and acquisition activity. All of these factors
have an impact on the Company's ability to invest and on the Company's ability
to exit from its underlying portfolio or on the levels of profitability achieved
on exit.
Long-term strategic risk
The Company is subject to the risk that its long-term strategy and its level of
performance fails to meet the expectations of its shareholders. The Company
constantly monitors the level of discount of its Net Asset Value to its share
price and considers the most effective methodologies to keep this at a minimum
including its share buy-back policy.
In addition the Company regularly reviews its Objectives and Investment Strategy
in light of prevailing investor sentiment to ensure the Company remains
attractive to its shareholders.
Government policy and regulation risk
The Company carries on business as a VCT under section 274 of the Income Tax Act
2007 (ICTA 2007). Continuation of this status is subject to the Company
directing its affairs in line with the relevant requirements of the legislation.
Anticipated and actual changes in government policy and related tax treatment of
VCTs' are closely monitored, as are other changes which could affect results of
operations or financial position.
Acuity Capital is an authorised person under the Financial Services and Markets
Act 2000 and regulated by the FSA. Changes to the regulatory framework under
which Acuity Capital operates are closely monitored and reported upon as
necessary by Acuity Capital to the Company.
Socially Responsible Investment
The Company believes that high standards of corporate social responsibility
('CSR') make good business sense and have the potential to protect and enhance
investment returns. Consequently, the investment process takes social,
environmental and ethical issues into account when, in the Company's view, these
have a material impact on either investment risk or return.
The Company recognises and supports the view that social, environmental and
ethical best practice should be encouraged. It favours investing in companies
committed to high standards of CSR and to the principles of sustainable
development.
The Company does not screen out companies from its investment universe purely on
the grounds of poor social, environmental or ethical performance. Instead, it
adopts a positive engagement approach whereby, if it is appropriate, it
discusses these issues with the management of the companies in which it invests.
The information gathered during these meetings is used both to assist the
Company's investment decisions and also to encourage investee company management
to improve procedures and attitudes. The Company strongly believes that this is
the most effective way to improve the CSR polices of the businesses in which it
invests and the Board endorses this view.
Investment risks
The Company operates in a very competitive market. Changes in the number of
market participants, the availability of funds within the market, the pricing of
assets, or in the ability of Acuity Capital to access deals on a proprietary
basis, could have a significant effect on the Company's competitive position and
on the sustainability of returns.
In order to source and execute good quality investments the Company is primarily
dependent on Acuity Capital having the ability to attract and retain people with
the requisite investment experience and whose compensation is in line with the
Company's objectives.
Once invested, the performance of the Company's portfolio is dependent upon a
range of factors. These include but are not limited to: (i) the quality of the
initial investment decision described above; (ii) the ability of the portfolio
company to execute its business strategy successfully; and (iii) actual outcomes
against the key assumptions underlying the portfolio company's financial
projections. Any one of these factors could have an impact on the valuation of a
portfolio company and upon the Company's ability to make a profitable exit from
the investment within the desired timeframe.
A rigorous process is put in place by Acuity Capital for managing the
relationship with each investee company for the period prior to anticipated
realisation. This includes regular asset reviews and, in many cases, board
representation by one of Acuity Capital's executives.
The Company reviews both the performance of Acuity Capital and its incentive
arrangements on a regular basis to ensure that both are appropriate to the
objectives of the Company.
Operational risks
The Company's investment management, custody of assets and all administrative
systems are provided or arranged for the Company by Acuity Capital. Therefore
the Company is exposed to a range of operational risks at Acuity Capital which
can arise from inadequate or failed processes, people and systems or from
external factors affecting these.
The Company's system of internal control mainly comprises the monitoring of the
services provided by Acuity Capital, including the operating controls
established by them to ensure they meet the Company's business objectives, as
discussed further below in this announcement.
Share Capital
The current authorised share capital of the Company is GBP600,000 divided into
60,000,000 ordinary shares of 1p each. The ordinary shares have voting rights
attached, holders are entitled to receive notice of and attend shareholder
meetings and to receive dividends once declared and approved. The other rights
and obligations attaching to the ordinary shares are set out in the Company's
Articles of Association.
Authority to make Market Purchases of Shares
At the Annual General Meeting of the Company held on 4 March 2009 authority was
given to make market purchases of up to 3,495,667 of the Company's issued
ordinary share capital.
The Company does not hold any shares in treasury.
Accordingly, at 30 September 2009 authority remained to purchase a further
3,495,667 ordinary shares.
At 30 September 2009, a total of 34,956,673 ordinary shares of 1p each of the
Company were in issue.
A Special Resolution will be proposed at the Annual General Meeting to be held
on 3 March 2010 to renew, for one year, the Board's authority to buy up to
5,208,544 of the Company's ordinary shares, or such lesser number of shares as
is equal to 14.9% of the total number of ordinary shares in issue as at the date
of the passing of the resolution, subject to the constraints set out in the
Special Resolution. Should any shares be purchased under this authority, it is
the intention of the Board that such shares be cancelled.
The Directors do not intend to use this authority to purchase shares unless this
would result in an increase in the net asset value per share and would be in the
best interests of shareholders generally. The Directors recommend shareholders
to vote in favour of this Special Resolution.
Renewal of Authority to Allot Shares and Disapply Pre-emption Rights
At the Annual General Meeting to be held in 2010 an Ordinary Resolution will be
proposed seeking to renew the authority granted at the Annual General Meeting
held on 4 March 2009 to allot additional shares, up to an aggregate nominal
amount of GBP116,522.24, representing one third of the current issued share
capital. It is standard practice for most public companies to renew this
authority to allot shares annually. The Directors are seeking to renew this
authority to provide them with the ability to make further small share issues if
considered suitable. Otherwise, the Directors have no present intention of
exercising this authority. The authority conferred on the Directors will expire
at the conclusion of the Company's Annual General Meeting in 2011.
A Special Resolution will be proposed at the Annual General Meeting in 2010
seeking to renew the authority granted at the Annual General Meeting held on 4
March 2009 to issue equity securities of the Company for cash without the
application of the pre-emption rights provided by the Companies Act 2006. The
authority contained in this Resolution is sought in connection with a rights
issue or similar issue, or otherwise in connection with an allotment of up to
10% of the nominal value of the issued ordinary share capital of the Company
shown in the accounts for the year ended 30 September 2009. The Directors'
authority will expire at the conclusion of the Company's Annual General Meeting
in 2011.
Power of Directors to change the name of the Company
A Special Resolution will be proposed at the Annual General Meeting in 2010
seeking shareholders' approval to an alteration of the Articles of Association
of the Company to include a new power for directors to be able to resolve to
change the name of the Company in the future. This will allow the Company to
take advantage of new provisions contained in the Companies Act to provide
companies with an administratively simpler and faster method to change their
names.
Results and Dividend
Revenue returns attributable to shareholders amounted to GBP139,000 (2008:
GBP637,000). Capital (losses)/returns attributable to shareholders amounted to
GBP(3,780,000) (2008: GBP1,666,000). The Directors recommend an interim dividend
in respect of the year ended 30 September 2009.
Directors
The current Directors of the Company are listed above in this announcement. Mr
SR Stradling, Mr D Hurst-Brown, Mr KA D'Silva and Mr NRW Ross all served as
Directors throughout the year ended 30 September 2009. No other person was a
Director of the Company during any part of the year under review. Mr S Stradling
and Mr NRW Ross will retire at the Annual General Meeting in 2010 and, being
eligible, offer themselves for re-election. Short biographical details of all
the Directors are provided above in this announcement. Following performance
appraisals of all of the Directors, details of which are to be found below in
this announcement, the Board considers that the performance of each Director
retiring at the Annual General Meeting and offering himself for re-election
continues to be effective and that each Director continues to show commitment to
his role. Accordingly, the Board recommends that those Directors retiring at the
Annual General Meeting in 2010 and offering themselves for re-election be
re-elected.
Directors' Interests
The beneficial interests of the Directors in the ordinary shares of the Company
are shown below. Save as disclosed, no Director had any notifiable interest in
the securities of the Company.
No Director bought or sold any ordinary shares of the Company during the year
under review. There have been no changes in the interests of any of the
Directors in the ordinary shares of the Company between 1 October 2008 and 11
December 2009. No options over ordinary shares in the capital of the Company
have been granted to the Directors.
+-------------+------------+--------------+
| 30 September 2009 | 1 October |
| Ordinary Shares | 2008 |
| of 1p each | Ordinary |
| | Shares |
| | of 1p each |
+--------------------------+--------------+
| SR | 51,500 | 51,500 |
| Stradling | 10,300 | 10,300 |
| KA | 25,750 | 25,750 |
| D'Silva | 51,600 | 51,600 |
| D | | |
| Hurst-Brown | | |
| NRW Ross** | | |
+-------------+------------+--------------+
** NRW Ross also has an interest in GBP22,462 (2008: GBP22,462) of the 3.75%
Loan Notes issued by the Company.
Directors' Remuneration Report
An Ordinary Resolution to approve the Directors' Remuneration Report will be put
to the Annual General Meeting in 2010.
Contracts with Directors
No Director has a service contract with the Company. As a result of being a
Partner of Acuity Capital LLP, Mr NRW Ross is deemed to have an interest in the
Management Contract between the Company and Acuity Capital.
Directors' and Officers' Liability Insurance
Directors' and Officers' Liability Insurance is maintained on behalf of the
Directors in respect of their positions as Directors of the Company.
Substantial Shareholders
At 11 December 2009 the Directors had not been notified of any interests of 3%
or more in the Company's issued share capital.
Independent Auditors
A resolution to re-appoint KPMG Audit Plc as Auditors to the Company will be
proposed at the Annual General Meeting in 2010. A separate resolution will be
proposed at the Annual General Meeting in 2010 authorising the Directors to fix
the remuneration of the Auditors.
The Directors confirm that so far as each Director is aware, there is no
relevant audit information of which the Company's auditors are unaware and that
each Director has taken all the steps that he ought to have taken as a Director
in order to make himself aware of any relevant audit information and to
establish that the Company's auditors are aware of that information.
Creditor Payment Policy
The Company agrees the terms of payment with its suppliers when agreeing the
terms of each agreement. Suppliers are aware of the terms of payment and the
Company abides by the terms of payment. The Company's average creditor payment
period at 30 September 2009 was one day.
Investment Manager
Acuity Capital Management Limited was the Investment Manager of the Company
during the year under review. The Board regularly reviews the performance of the
Investment Manager and as a result believes the continuing appointment of the
Investment Manager on the terms agreed is in the interests of the Company's
shareholders as a whole.
Management Fees and Arrangements
Acuity Capital was appointed as Investment Manager under an agreement dated 14
October 2005. The agreement is for an initial period of five years and
thereafter until terminated by not less than one year's notice. Fees are paid
quarterly in arrears, as a percentage of net assets (less a rebate of fees
suffered on investments on funds managed by Acuity Capital Management), at the
following annual rates:
Period ended 30 June 2006 1.5%
Year ended 30 June 20072.0%
Year ended 30 June 2008 and thereafter 2.5%
Incentive Schemes
Certain persons engaged in the business of the Investment Manager will be
entitled to receive a performance fee based upon returns to shareholders. The
incentives are designed to encourage significant dividend payments to
shareholders and a Net Asset Value performance that would equate to a historic
top quartile industry ranking, before any performance fee payment is made.
Therefore, if, by the end of a financial year, aggregate distributions of 30p
per share have been declared and if the Performance Value, which is equal to the
Net Asset Value plus distributions, at that date exceeds 130p per share, then
the beneficiaries will be entitled to a performance fee equal to 20% of the
excess of such Performance Value over 100p per share. If, on a subsequent
financial year end, the performance of the Company falls short of the
performance of the Company on the previous financial year end, the beneficiaries
will not be entitled to any incentive. If, on a subsequent financial year end,
the performance of the Company exceeds the previous performance of the Company,
the beneficiaries will be entitled to 20% of such excess. To give effect to this
performance fee, Loan Notes have been issued by the Company to certain persons
engaged in the business of the Investment Manager. No Loan Notes have been
issued directly to the Investment Manager. Further details of the terms of the
Loan Notes are set out in Note 13 of the Financial Statements. At 30 September
2009 there was no amount due under the Incentive Schemes.
Going Concern
The Directors believe that it is appropriate to continue to adopt the going
concern basis in preparing the Accounts as the Company has adequate resources to
continue in operational existence for the foreseeable future. The board took
into consideration cashflow forecasts and that there was no debt at the year end
when arriving at this conclusion.
Annual General Meeting
The Annual General Meeting of the Company will be held on 3 March 2010. In
addition to the ordinary business, the following special business will be
considered:-
Authority to Allot Shares: Resolution 7
At the Annual General Meeting an Ordinary Resolution will be proposed seeking to
renew the authority conferred upon the Directors at the Annual General Meeting
held on 4 March 2009 to allot additional shares, up to an aggregate nominal
amount of GBP116,522.24, representing one third of the nominal value of the
issued share capital of the Company at the date of this Directors' Report. The
Directors have no present intention of exercising this authority.
The authority conferred on the Directors will expire at the conclusion of the
Company's Annual General Meeting in 2011. This Ordinary Resolution will also
remove the concept of an authorised share capital from the Company's articles of
association, in accordance with the provisions of the Companies Act 2006. The
Directors recommend shareholders to vote in favour of this Ordinary Resolution.
Authority to Disapply Pre-emption Rights: Resolution 8
A Special Resolution will be proposed at the Annual General Meeting seeking to
renew the authority conferred upon the Directors at the Annual General Meeting
held on 4 March 2009 to issue equity securities of the Company for cash without
the application of the pre-emption rights provided by the Companies Act 2006.
The authority contained in this Resolution is sought in connection with a rights
issue or similar issue, or otherwise in connection with an allotment of up to
10% of the nominal value of the issued ordinary share capital of the Company
shown in the accounts for the year ended 30 September 2009. The
Directors' authority will expire at the conclusion of the Company's Annual
General Meeting in 2011. The Directors recommend shareholders to vote in favour
of this Special Resolution.
Authority to Make Market Purchases of Shares: Resolution 9
As set out in the Chairman's Statement, the Board has decided to reinstate the
Company's buy back programme. Therefore, the Board wishes to have in place the
authority to purchase the Company's own shares so that the buy back programme
can be re-instated as and when conditions permit. Accordingly, a Special
Resolution will be proposed to renew, for one year, the Board's authority to buy
up to 5,208,544 of the Company's ordinary shares, or such lesser number of
shares as is equal to 14.9% of the total number of ordinary shares in issue
immediately prior to the passing of the resolution, subject to the constraints
set out in the Special Resolution. Should any shares be purchased under this
authority, it is the intention of the Board that such shares be cancelled and
not held as treasury shares.
The Directors do not intend to use this authority to purchase shares unless this
would result in an increase in the net asset value per share and would be in the
best interests of shareholders generally. The Directors recommend shareholders
to vote in favour of this Special Resolution.
Power of Directors to change the name of the Company: Resolution 10
To take advantage of new provisions contained in the Companies Act 2006, and for
reasons of administrative simplicity and speed, the directors propose that the
Articles of Association of the Company be amended to include a new power for
directors to be able to resolve to change the name of the Company in the future.
Corporate Governance
Arrangements in respect of corporate governance, appropriate to a venture
capital trust, have been made by the Board. The Board has considered the
principles and recommendations of the Association of Investment Companies' Code
of Corporate Governance issued in March 2009 ('AIC Code') by reference to the
AIC Corporate Governance Guide for Investment Companies ('AIC Guide'). The AIC
Code, as explained by the AIC Guide, addresses all the principles set out in
Section 1 of the Combined Code on Corporate Governance issued by the Financial
Reporting Council ('FRC') ('the Combined Code'), as well as setting out
additional principles and recommendations on issues which are of specific
relevance to the Company. The FRC confirmed in February 2009 that it remained
their view that the AIC Guide was appropriate and that investment companies may
report against the AIC Code.
The Board considers that reporting against the principles and recommendations of
the AIC Code, and by reference to the AIC Guide (which incorporates the Combined
Code) will provide better information to shareholders.
Except as disclosed below, the Company complied throughout the year with the
recommendations of the AIC Code and the relevant provisions of Section 1 of the
Combined Code. Since all the Directors are non-executive the provisions of the
Combined Code in respect of the role of the chief executive are not relevant to
the Company and, likewise, the provisions of the Combined Code relating to
Directors' remuneration are not relevant except in so far as they relate
specifically to non-executive Directors. For the reasons set out in the AIC
Guide, and in the preamble to the Combined Code, the Board considers that these
provisions are not relevant to the Company, being an externally managed venture
capital trust. The Company has therefore not reported further in respect of
these provisions.
The Directors confirm that during the year under review the Company has complied
with Section 1 of the Combined Code on Corporate Governance ("the Code") issued
by the Financial Reporting Council in June 2008.
Directors' Attendance at Scheduled Meetings of the Board and Committees of the
Board
+----------------+----------+----------+----------+----------+----------+----------+
| | Board | Audit Committee | AGM/EGM |
+----------------+---------------------+---------------------+---------------------+
| | Held | Attended | Held | Attended | Held | Attended |
+----------------+----------+----------+----------+----------+----------+----------+
| Stuart | 4 | 4 | 2 | 2 | 2 | 2 |
| Stradling | | | | | | |
+----------------+----------+----------+----------+----------+----------+----------+
| Kevin D'Silva | 4 | 3 | 2 | 2 | 2 | 2 |
+----------------+----------+----------+----------+----------+----------+----------+
| Nicholas Ross | 4 | 4 | 2 | 2 | 2 | 2 |
+----------------+----------+----------+----------+----------+----------+----------+
| David | 4 | 3 | 2 | 2 | 2 | 2 |
| Hurst-Brown | | | | | | |
+----------------+----------+----------+----------+----------+----------+----------+
In addition, a number of Directors attended further Board meetings at short
notice to address specific issues.
The Board of Directors
The Board, which meets regularly, comprised four Directors at 30 September 2009,
all of whom were non-executive. All of the Directors who held office at 30
September 2009, apart from Mr NRW Ross, have been considered by the Board to be
independent from the Investment Manager. The Board has nominated Mr David
Hurst-Brown as the Senior Independent Director.
Acuity VCT Plc and Acuity VCT 2 Plc are also managed by Acuity Capital and Mr
NRW Ross is one of its Directors. The Board has considered the independence of
each Director in light of the Code's provisions on that subject.
The Board believes that each of the Company's Directors, apart from Mr NRW Ross,
continues to be wholly independent under the Code. Independence is a state of
mind and the character and judgement which accompany this are distinct from and,
in the Board's opinion, are not compromised by having cross directorships with
other
Directors.
The Board has agreed a schedule of matters reserved for its specific approval,
which includes a regular review of the Company's Management Agreement with
Acuity Capital, together with the monitoring of the performance thereunder. The
Management Agreement sets out the matters over which Acuity Capital has
authority in accordance with the policies and directions of the Board. The Board
Meetings consider as appropriate such matters as overall strategy, investment
performance, share price performance, share price discount and communication
with shareholders. The Board considers that it meets sufficiently regularly to
discharge its duties effectively. The numbers of scheduled meetings of the Board
and the Audit Committee are shown in the table above.
The Board receives information that it considers to be sufficient and
appropriate to enable it to discharge its duties. Each Director receives board
papers several days in advance of each scheduled Board meeting and is able to
consider in detail the Company's performance and any issues to be discussed at
the relevant meeting.
The Directors believe that the Board has the balance, skills and experience
which enable it to provide effective strategic leadership and proper governance
of the Company. Information about the Directors, including their relevant
experience, can be found above in this announcement.
Performance Appraisal
The Board carried out a formal appraisal process of its own and of its
Committees' operation and performance during the year under review. This was
implemented by means of questionnaires circulated to the Directors, the results
of which were then reviewed by the Board. Issues covered included board
composition, meeting arrangements and communication. The process was considered
by the Board to be constructive in identifying areas for improving the
functioning and performance of the Board and of its Committees. The Board
concluded that its performance and that of its Committees was satisfactory.
The Chairman carried out a formal appraisal of each of the Directors during the
year under review and the Board, under the leadership of the Senior Independent
Director, similarly appraised the Chairman. Relevant matters considered included
the attendance and participation at Board and Committee meetings, commitment to
Board activities and the effectiveness of the contribution made by the relevant
Director. As a result of this process the Chairman has confirmed that the
performance of each of the Directors being proposed for re-election continues to
be effective and that each of them continues to show commitment to his role. The
Senior Independent Director has also confirmed the continuing effectiveness and
commitment of the Chairman.
Re-election of Directors
In accordance with either the Code's provisions or the Company's Articles, Mr S
Stradling and Mr NRW Ross will retire at the Annual General Meeting to be held
in 2010 and offer themselves for re-election.
Independent Professional Advice
Individual Directors may seek independent professional advice in furtherance of
their duties at the Company's expense within certain parameters. All Directors
have access to the advice and services of the Company Secretary. Any appointment
or removal of the Company Secretary would be a matter for consideration by the
entire Board.
The Audit Committee
The Board has an Audit Committee established in compliance with the Code. It
comprises all the Directors other than the Chairman of the Board and Mr NRW
Ross, with Mr David Hurst-Brown as Chairman of the Committee. The Board has
taken note of the suggestion that at least one member of the Committee should
have recent and relevant experience and is satisfied that the Committee is
properly constituted in this respect. Its authority and duties are clearly
defined in its written terms of reference which are available on Acuity
Capital's website.
The Committee's Responsibilities include:
* monitoring and reviewing the integrity of the financial statements, the internal
financial controls and the independence, objectivity and effectiveness of the
external auditors;
* making recommendations to the Board in relation to the appointment of the
external auditors and approving the remuneration and terms of their engagement;
* developing and implementing the Company's policy on the provision of non-audit
services by the external auditors;
* reviewing the arrangements in place within Acuity Capital whereby their staff
may, in confidence, raise concerns about possible improprieties in matters of
financial reporting or other matters insofar as they may affect the Company; and
* considering annually whether there is a need for the Company to have its own
internal audit function.
The Committee has reviewed the provision of non-audit services provided by the
external auditors and believes them to be cost effective and not an impediment
to the external auditors' objectivity and independence. It has been agreed that
all non-audit work to be carried out by the external auditors, must be approved
by the Committee and that any special projects must be approved in advance.
The Committee annually reviews the performance of KPMG Audit Plc, the Company's
external auditor. In doing so, the Committee considers a range of factors
including the quality of service, the auditor's specialist expertise and the
level of audit fees. There are no contractual obligations restricting the choice
of external auditor. Under Company Law the reappointment of the external auditor
is subject to shareholder approval at the AGM.
Internal Audit
Following the review carried out by the Committee as to whether there is a need
for the Company to have its own internal audit function, the Board has
considered and continues to believe that the internal control systems in place
within Acuity Capital provide sufficient assurance that a sound system of
internal control, which safeguards shareholders' investment and the Company's
assets is maintained. An internal audit function, specific to the Company, is
therefore considered unnecessary.
The Remuneration Committee
During the year under review the Remuneration Committee comprised all the
Directors of the Company other than the Chairman of the Board and Mr NRW Ross,
with Mr KA D'Silva as Chairman of the Committee. The Committee met once during
the year. It was agreed for there to be no change in Directors fees. The
Committee has written terms of reference which are available on Acuity Capital's
website. Full details of its role are set out in the Directors' Remuneration
Report.
The Nomination Committee
The Nomination Committee meets on an ad hoc basis to consider suitable
candidates for appointment as Director. It comprises all the Directors apart
from Mr NRW Ross, with Mr Stuart Stradling as Chairman of the Committee. It was
not necessary to hold any meeting of the Committee during the course of this
year. The Committee has written terms of reference which are available on Acuity
Capital's website. The Committee is responsible for identifying and nominating,
for the approval of the Board, candidates to fill board vacancies to maintain a
balanced Board.
Letters of appointment, which specify the terms of appointment, are issued to
new Directors.
The current Directors of the Company were appointed with regard to their
independence, suitability for the position and their experience in related
business areas.
Induction and Training
New Directors are provided with an induction programme which is tailored to the
particular circumstances of the appointee and which includes being briefed fully
about the Company by the Chairman and senior executives of Acuity Capital.
Following appointment, Directors continue to receive other relevant training and
advice as necessary to enable them to discharge their duties.
The Company's Relationship with its Shareholders
The Company places great importance on communication with the Company's
shareholders. In addition to the Annual and Half Yearly Reports shareholders
will be sent regular newsletters from the Investment Manager.
At the Annual General Meeting all shareholders are welcome to attend and have
the opportunity to put questions to the Board.
The notice of the Annual General Meeting and related papers are sent to
shareholders at least 13 working days before the Meeting. A separate resolution
is proposed on each substantially separate issue including the annual report and
accounts.
All proxy votes are counted and, except where a poll is called, the level of
proxies lodged for each resolution is announced at the Meeting and is published
on Acuity Capital's website. The Chairman and the Senior Independent Director
can always be contacted either through the Company Secretary or care of the
Company's registered office at Paternoster House, 65 St Paul's Churchyard,
London EC4M 8AB.
Internal Control
The Code requires the Directors to review the effectiveness of the Company's
system of internal control and report to shareholders that they have done so.
The Code extended the earlier reporting requirements and now includes financial,
operational and compliance controls and risk management.
The Board confirms that it has an ongoing process for identifying, evaluating
and managing the significant risks faced by the Company. This process has been
in place throughout the year and has continued since the year end and up to the
date of this report. It is reviewed at regular intervals by the Board and
accords with the Financial Reporting Council's 'Internal Control: Revised
Guidance for Directors on the Combined Code'.
The Board is responsible for the Company's system of internal control and it has
reviewed its effectiveness for the year ended 30 September 2009. The system of
internal control is designed to manage, rather than eliminate, the risk of
failure to achieve business objectives and can only provide reasonable and not
absolute assurance against material misstatement or loss.
Since investment management, custody of assets and all administrative services
are provided or arranged for the Company by Acuity Capital, the Company's system
of internal control mainly comprises the monitoring of services provided by
Acuity Capital, including the operating controls established by them, to ensure
they meet the Company's business objectives. The key elements designed to
provide effective internal control for the Company are as follows:
* Financial Reporting - Regular and comprehensive review by the Board of key
investment and financial data including management accounts, revenue
projections, analyses of transactions and performance comparisons.
* Investment Strategy - Agreement by the Board of the Company's investment
strategy and monitoring of all large investments.
* Management Agreements - The Board regularly monitors the performance of Acuity
Capital to ensure that the Company's assets and affairs are managed in
accordance with the guidelines determined by the Board.
* Investment Performance - The investment transactions and performance of the
Company's assets and affairs are managed in accordance with the guidelines
determined by the Board.
* Management Systems - Acuity Capital's system of internal control includes clear
lines of responsibility, delegated authority, control procedures and systems.
Acuity Capital's compliance department monitors compliance with the Financial
Services Authority rules.
The Board keeps under review the effectiveness of the Company's system of
internal control by monitoring the operation of key controls of Acuity Capital
as follows:
* The Board reviews the terms of the Management Agreement and receives regular
reports from Acuity Capital executives.
* The Board reviews the certificates provided by Acuity Capital on a six monthly
basis, verifying compliance with documented controls.
Voting Policy
The Company's investee companies are principally a mixture of quoted and
unquoted companies in which the Company is a significant shareholder and the
Company is usually a party to all issues requiring shareholder approval. The
Company has given discretionary voting power to Acuity Capital to vote on its
behalf.
Acuity Capital's voting policy as agent for the Company has adopted and applies
the Statement of Principles drawn up by the Institutional Shareholders Committee
when it considers these in its reasonable judgement to best serve the financial
interests of the Company's shareholders. Acuity Capital's voting policy has been
reviewed and endorsed by the Board.
Acuity Capital Management Limited
Secretary
Registered Office:
Paternoster House
65 St Paul's Churchyard
London EC4M 8AB
11 December 2009
STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE ANNUAL REPORT, THE
DIRECTORS' REMUNERATION REPORT AND THE FINANCIAL STATEMENTS
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 they have elected to prepare the Financial
Statements in accordance with UK Accounting Standards and applicable law (UK
Generally Accepted Accounting Practice).
The Financial Statements are required by law to 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 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; and
* 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 proper accounting records that
disclose with reasonable accuracy at any time the financial position of the
Company and enable them to ensure that its Financial Statements comply with the
Companies Act 2006. They have general responsibility for taking such steps as
are reasonably open to them to safeguard the assets of the Company and to
prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for
preparing a Directors' Report and Directors' Remuneration Report, that complies
with that law and those regulations.
The accounts of the Company are published on www.acuitycapital.co.uk which is a
website maintained by the Company's Investment Manager, Acuity Capital.
The Directors are responsible for the maintenance and integrity of the corporate
and financial information included on the Management Company's website.
Legislation in the UK governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
In accordance with the FSA's Disclosure and Transparency Rules, the Directors
confirm to the best of their knowledge that:-
* the accounts, prepared in accordance with applicable accounting standards, give
a true and fair view of the assets, liabilities, financial position and profit
or loss of the Company; and
* the Report of the Directors includes a fair review of the development and
performance of the business and position of the Company together with a
description of the principal risks and uncertainties that it faces.
By order of the Board of Directors
Stuart Stradling, Chairman
Registered Office:
Paternoster House
65 St Paul's Churchyard
London EC4M 8AB
11 December 2009
Directors Remuneration Report
The Directors submit this report in accordance with the requirements of Section
3 of the Small Companies and Groups (Accounts and Directors' Report) Regulations
2008. An Ordinary Resolution for the approval of this report will be put to
members at the forthcoming Annual General Meeting. The law requires the
Company's Auditors to audit certain of the disclosures provided. Where
disclosures have been audited they are indicated as such.
Remuneration Committee
During the year under review the Remuneration Committee comprised all the
Directors of the Company other than the Chairman of the Board and Mr NRW Ross.
Mr KA D'Silva was Chairman of the Remuneration Committee throughout the year.
The Committee met once during the year. The current annual fee rates are
GBP20,000 for the Chairman and Mr David Hurst-Brown and GBP15,000 for the other
Directors, apart from Mr NRW Ross who receives no remuneration from the Company.
The Company has not been provided with advice or services by any person in
respect of Directors' remuneration during the year.
Policy on Directors' Remuneration
In accordance with the Articles of Association of the Company, the aggregate
remuneration of the Directors may not exceed GBP100,000 per annum or such higher
amount as may from time to time be determined by an Ordinary Resolution of the
Company. Subject to this overall limit, the Remuneration Committee's policy is
that remuneration of non-executive Directors should be sufficient to attract and
retain the Directors needed to oversee the Company and reflect the specific
circumstances of the Company, the duties and responsibilities of the Directors
and the value and amount of time committed to the Company's affairs. It is
intended that this policy will continue for the year ended 30 September 2010 and
subsequent years. Non-executive Directors are not eligible to receive bonuses,
pension benefits, share options and other benefits.
Directors' Service Contracts
None of the Directors has a service contract with the Company. No arrangements
have been entered into between the Company and the Directors to entitle any of
the Directors for compensation for loss of office.
Performance Graph
Pursuant to the Directors' Remuneration Report Regulations 2002, the Company is
required to show a graph of total shareholder return against a suitable
benchmark index in its Directors' Remuneration Report for the last five
financial years.
The table below shows the Company's performance being measured in terms of its
Total Shareholder Return and its Net Asset Value per share since the date on
which the shares were first issued, being 25 November 2005, against the Total
Shareholder Return of the FTSE All-Share Index.
The table has incorporated the change in net asset value per share because
changes in net asset value per share relative to the FTSE All-Share Index are an
important indicator of the performance of the Company's assets.
The Directors consider that since the Company invests in a broad range of
commercial sectors, the FTSE All-Share Index is the most appropriate index
against which to compare the Company's performance.
Acuity VCT 3 Share Price Total Return v Acuity VCT 3 Net Asset Value v FTSE All
Share Index (Total Return)
+-------------------+-------------------+-------------------+-------------------+
| Date | NAV Total Return | FTSE All-Share | Share Price |
| | (gross dividend | Index Total | |
| | re-invested) | Return | |
+-------------------+-------------------+-------------------+-------------------+
| 30/11/2005 | 100.00 | 100.00 | 100.00 |
+-------------------+-------------------+-------------------+-------------------+
| 31/03/2006 | 94.19 | 112.16 | 100.00 |
+-------------------+-------------------+-------------------+-------------------+
| 30/09/2006 | 99.23 | 114.57 | 100.00 |
+-------------------+-------------------+-------------------+-------------------+
| 31/03/2007 | 113.03 | 122.42 | 95.00 |
+-------------------+-------------------+-------------------+-------------------+
| 30/09/2007 | 102.50 | 126.01 | 100.00 |
+-------------------+-------------------+-------------------+-------------------+
| 31/03/2008 | 98.20 | 113.09 | 94.00 |
+-------------------+-------------------+-------------------+-------------------+
| 30/09/2008 | 99.60 | 90.61 | 82.00 |
+-------------------+-------------------+-------------------+-------------------+
| 31/03/2009 | 78.90 | 72.39 | 45.00 |
+-------------------+-------------------+-------------------+-------------------+
| 30/09/2009 | 85.71 | 96.12 | 36.00 |
+-------------------+-------------------+-------------------+-------------------+
Directors' Remuneration for the Year (audited)
The Directors who served during the year received the following emoluments in
the form of fees:
+-------------------+--------------+----------------+
| For the year ended | For the year |
| 30 September 2009 | ended |
| GBP'000 | 30 September |
| | 2008 |
| | GBP'000 |
+----------------------------------+----------------+
| SR Stradling | 20 | 20 |
| (Chairman & joint | 20 | 20 |
| highest paid | 15 | 15 |
| Director) | - | - |
| D Hurst-Brown | | |
| (Joint highest | | |
| paid Director) | | |
| KA D'Silva | | |
| NRW Ross | | |
+-------------------+--------------+----------------+
| Total | 55 | 55 |
+-------------------+--------------+----------------+
As a former executive of the Electra Partners Group and as a current executive
of Acuity Capital, NRW Ross has an interest in the Management Contract between
the Company and Acuity Capital and also holds loan notes. NRW Ross has waived
his right to receive Directors fees from the Company.
By order of the Board of Directors
Mr KA D'Silva
Chairman of the Remuneration Committee
Registered Office: Paternoster House, 65 St Paul's Churchyard,
London, EC4M 8AB
11 December 2009
Income Statement
+----------------+----------+----------+----------+----------+----------+----------+----------+----------+
| | | | For the year ended 30 | For the year ended 30 |
| | | | September 2009 | September 2008 |
+----------------+----------+----------+--------------------------------+--------------------------------+
| | | | Revenue | Capital | Total | Revenue | Capital | Total |
+----------------+----------+----------+----------+----------+----------+----------+----------+----------+
| | Notes | | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 |
+----------------+----------+----------+----------+----------+----------+----------+----------+----------+
| | | | | | | | | |
+----------------+----------+----------+----------+----------+----------+----------+----------+----------+
| Realised | 9 | | - | (1,154) | (1,154) | - | (396) | (396) |
| (losses)/gains | | | | | | | | |
| on investments | | | | | | | | |
| sold | | | | | | | | |
+----------------+----------+----------+----------+----------+----------+----------+----------+----------+
| Investment | 9 | | - | (2,332) | (2,332) | - | (755) | (755) |
| holding | | | | | | | | |
| losses | | | | | | | | |
+----------------+----------+----------+----------+----------+----------+----------+----------+----------+
| Income | 1 | | 670 | - | 670 | 1,324 | - | 1,324 |
+----------------+----------+----------+----------+----------+----------+----------+----------+----------+
| Recoverable | 2 | | 33 | 98 | 131 | - | - | - |
| VAT | | | | | | | | |
+----------------+----------+----------+----------+----------+----------+----------+----------+----------+
| | | | | | | | | |
+----------------+----------+----------+----------+----------+----------+----------+----------+----------+
| | | | 703 | (3,388) | (2,685) | 1,324 | (1,151) | 173 |
+----------------+----------+----------+----------+----------+----------+----------+----------+----------+
| | | | | | | | | |
+----------------+----------+----------+----------+----------+----------+----------+----------+----------+
| Investment | 2 | | (185) | (556) | (741) | (239) | (719) | (958) |
| management | | | | | | | | |
| fees | | | | | | | | |
+----------------+----------+----------+----------+----------+----------+----------+----------+----------+
| Other | 3 | | (297) | 124 | (173) | (257) | 63 | (194) |
| expenses | | | | | | | | |
+----------------+----------+----------+----------+----------+----------+----------+----------+----------+
| | | | (482) | (432) | (914) | (496) | (656) | (1,152) |
+----------------+----------+----------+----------+----------+----------+----------+----------+----------+
| | | | | | | | | |
+----------------+----------+----------+----------+----------+----------+----------+----------+----------+
| Return | | | 221 | (3,820) | (3,599) | 828 | (1,807) | (979) |
| on | | | | | | | | |
| Ordinary | | | | | | | | |
| Activities | | | | | | | | |
| before | | | | | | | | |
| Interest | | | | | | | | |
| and | | | | | | | | |
| Taxation | | | | | | | | |
+----------------+----------+----------+----------+----------+----------+----------+----------+----------+
| | | | | | | | | |
+----------------+----------+----------+----------+----------+----------+----------+----------+----------+
| Finance | 4 | | (42) | - | (42) | (50) | - | (50) |
| Cost | | | | | | | | |
+----------------+----------+----------+----------+----------+----------+----------+----------+----------+
| | | | | | | | | |
+----------------+----------+----------+----------+----------+----------+----------+----------+----------+
| Return | | | 179 | (3,820) | (3,641) | 778 | (1,807) | (1,029) |
| on | | | | | | | | |
| Ordinary | | | | | | | | |
| Activities | | | | | | | | |
| before | | | | | | | | |
| Taxation | | | | | | | | |
+----------------+----------+----------+----------+----------+----------+----------+----------+----------+
| | | | | | | | | |
+----------------+----------+----------+----------+----------+----------+----------+----------+----------+
| Tax on | 6 | | (40) | 40 | - | (141) | 141 | - |
| ordinary | | | | | | | | |
| activities | | | | | | | | |
+----------------+----------+----------+----------+----------+----------+----------+----------+----------+
| | | | | | | | | |
+----------------+----------+----------+----------+----------+----------+----------+----------+----------+
| Return | | | 139 | (3,780) | (3,641) | 637 | (1,666) | (1,029) |
| on | | | | | | | | |
| Ordinary | | | | | | | | |
| Activities | | | | | | | | |
| after | | | | | | | | |
| Taxation | | | | | | | | |
+----------------+----------+----------+----------+----------+----------+----------+----------+----------+
| | | | | | | | | |
+----------------+----------+----------+----------+----------+----------+----------+----------+----------+
| Return | | | | | | | | |
| to | | | | | | | | |
| Shareholders | | | | | | | | |
+----------------+----------+----------+----------+----------+----------+----------+----------+----------+
| per | 7 | | 0.4p | (10.8)p | (10.4)p | 1.8p | (4.7)p | (2.9)p |
| Ordinary | | | | | | | | |
| Share | | | | | | | | |
+----------------+----------+----------+----------+----------+----------+----------+----------+----------+
| | | | | | | | | |
+----------------+----------+----------+----------+----------+----------+----------+----------+----------+
The total column of this statement represents the Company's Income Statement,
prepared in accordance with UK GAAP. The revenue return and capital return
columns are supplementary to this and are prepared under guidance published by
the Association of Investment Companies. All revenue and capital items in the
above statement derive from continuing operations. No operations were acquired
or discontinued in the year. A Statement of Total Recognised Gains and Losses is
not required as all gains and losses of the Company have been reflected in the
above statement.
Reconciliation of Movements in Shareholders' Funds
+--------------------------------------------+------------------+---------------+
| | For the year | For the year |
| | ended | ended |
| | 30 September | 30 September |
| | 2009 | 2008 |
| | GBP'000 | GBP'000 |
+--------------------------------------------+------------------+---------------+
| | | |
+--------------------------------------------+------------------+---------------+
| Total Return on Ordinary Activities after | (3,641) | (1,029) |
| Taxation | | |
+--------------------------------------------+------------------+---------------+
| Repurchase of ordinary shares | - | (100) |
+--------------------------------------------+------------------+---------------+
| Dividend payment on ordinary shares | - | (701) |
+--------------------------------------------+------------------+---------------+
| | | |
+--------------------------------------------+------------------+---------------+
| Movements in Total Shareholders' Funds | (3,641) | (1,830) |
+--------------------------------------------+------------------+---------------+
| | | |
+--------------------------------------------+------------------+---------------+
| Total Shareholders' Funds at start of year | 33,606 | 35,436 |
+--------------------------------------------+------------------+---------------+
| | | |
+--------------------------------------------+------------------+---------------+
| | | |
+--------------------------------------------+------------------+---------------+
| Total Shareholders' Funds at the end of | 29,965 | 33,606 |
| the Year | | |
+--------------------------------------------+------------------+---------------+
Balance Sheet
+------------------------------------+-------+---------+------------+---------+------------+
| | | As at | As at |
| | | 30 September 2009 | 30 September 2008 |
+------------------------------------+-------+----------------------+----------------------+
| | Notes | GBP'000 | GBP'000 | GBP'000 | GBP'000 |
+------------------------------------+-------+---------+------------+---------+------------+
| | | | | | |
+------------------------------------+-------+---------+------------+---------+------------+
| Fixed Assets | | | | | |
+------------------------------------+-------+---------+------------+---------+------------+
| | | | | | |
+------------------------------------+-------+---------+------------+---------+------------+
| Investments held at fair value | 9 | | 27,731 | | 31,019 |
+------------------------------------+-------+---------+------------+---------+------------+
| Current Assets | | | | | |
+------------------------------------+-------+---------+------------+---------+------------+
| | | | | | |
+------------------------------------+-------+---------+------------+---------+------------+
| Debtors | 10 | 1,159 | | 723 | |
+------------------------------------+-------+---------+------------+---------+------------+
| Other investments | 11 | - | | 630 | |
+------------------------------------+-------+---------+------------+---------+------------+
| Cash at bank | | 1,826 | | 2,404 | |
+------------------------------------+-------+---------+------------+---------+------------+
| | | | 2,985 | | 3,757 |
+------------------------------------+-------+---------+------------+---------+------------+
| Current Liabilities | | | | | |
+------------------------------------+-------+---------+------------+---------+------------+
| Creditors: amounts falling due | 12 | 297 | | 566 | |
| within one year | | | | | |
+------------------------------------+-------+---------+------------+---------+------------+
| | | | | | |
+------------------------------------+-------+---------+------------+---------+------------+
| | | | 297 | | 566 |
+------------------------------------+-------+---------+------------+---------+------------+
| | | | | | |
+------------------------------------+-------+---------+------------+---------+------------+
| Net Current Assets | | | 2,688 | | 3,191 |
+------------------------------------+-------+---------+------------+---------+------------+
| | | | | | |
+------------------------------------+-------+---------+------------+---------+------------+
| Total assets less current | | | 30,419 | | 34,210 |
| liabilities | | | | | |
+------------------------------------+-------+---------+------------+---------+------------+
| | | | | | |
+------------------------------------+-------+---------+------------+---------+------------+
| Creditors: amounts falling due | 13 | | 454 | | 604 |
| after more than one year | | | | | |
+------------------------------------+-------+---------+------------+---------+------------+
| Net Assets | | | 29,965 | | 33,606 |
+------------------------------------+-------+---------+------------+---------+------------+
| | | | | | |
+------------------------------------+-------+---------+------------+---------+------------+
| Capital and Reserves | | | | | |
+------------------------------------+-------+---------+------------+---------+------------+
| | | | | | |
+------------------------------------+-------+---------+------------+---------+------------+
| Called-up share capital | 15 | | 350 | | 350 |
+------------------------------------+-------+---------+------------+---------+------------+
| | | | | | |
+------------------------------------+-------+---------+------------+---------+------------+
| Special Reserve | 16 | | 31,907 | | 31,907 |
+------------------------------------+-------+---------+------------+---------+------------+
| | | | | | |
+------------------------------------+-------+---------+------------+---------+------------+
| Capital reserve | 16 | | (2,953) | | 827 |
+------------------------------------+-------+---------+------------+---------+------------+
| | | | | | |
+------------------------------------+-------+---------+------------+---------+------------+
| Revenue reserve | 16 | | 661 | | 522 |
+------------------------------------+-------+---------+------------+---------+------------+
| Total Equity Shareholders' Funds | 17 | | 29,965 | | 33,606 |
+------------------------------------+-------+---------+------------+---------+------------+
| | | | | | |
+------------------------------------+-------+---------+------------+---------+------------+
| Net Asset Value per Ordinary Share | | | 85.7p | | 96.1p |
+------------------------------------+-------+---------+------------+---------+------------+
| | | | | | |
+------------------------------------+-------+---------+------------+---------+------------+
| Number of Ordinary Shares in issue | | | 34,956,673 | | 34,956,673 |
| at end of year | | | | | |
+------------------------------------+-------+---------+------------+---------+------------+
The Financial Statements were approved and authorised for issue by the Board of
Directors on 11 December 2009 and were signed on their behalf by:
Stuart Stradling
Chairman
Cash Flow Statement
+--------------------------------------+--------+---------+---------+----------+----------+
| | | For the year | For the year ended |
| | | ended | 30 September 2008 |
| | | 30 September | |
| | | 2009 | |
+--------------------------------------+--------+-------------------+---------------------+
| | Notes | GBP'000 | GBP'000 | GBP'000 | GBP'000 |
+--------------------------------------+--------+---------+---------+----------+----------+
| | | | | | |
+--------------------------------------+--------+---------+---------+----------+----------+
| Operating Activities | | | | | |
+--------------------------------------+--------+---------+---------+----------+----------+
| | | | | | |
+--------------------------------------+--------+---------+---------+----------+----------+
| Investment income received | | 215 | | 814 | |
+--------------------------------------+--------+---------+---------+----------+----------+
| Bank deposit interest received | | 1 | | 35 | |
+--------------------------------------+--------+---------+---------+----------+----------+
| Investment management fees paid | | (584) | | (1,224) | |
+--------------------------------------+--------+---------+---------+----------+----------+
| Other cash payments | | (337) | | (354) | |
+--------------------------------------+--------+---------+---------+----------+----------+
| Recoverable VAT | | 140 | | - | |
+--------------------------------------+--------+---------+---------+----------+----------+
| | | | | | |
+--------------------------------------+--------+---------+---------+----------+----------+
| Net Cash Outflow from Operating | 18 | | (565) | | (729) |
| Activities | | | | | |
+--------------------------------------+--------+---------+---------+----------+----------+
| | | | | | |
+--------------------------------------+--------+---------+---------+----------+----------+
| Taxation | | | | | |
+--------------------------------------+--------+---------+---------+----------+----------+
| Corporation Tax Paid | | | - | | (34) |
+--------------------------------------+--------+---------+---------+----------+----------+
| | | | | | |
+--------------------------------------+--------+---------+---------+----------+----------+
| | | | | | |
+--------------------------------------+--------+---------+---------+----------+----------+
| Capital Expenditure and Financial | | | | | |
| Investments | | | | | |
+--------------------------------------+--------+---------+---------+----------+----------+
| Purchase of investments | | (5,167) | | (14,192) | |
+--------------------------------------+--------+---------+---------+----------+----------+
| Sale of investments | | 4,969 | | 2,727 | |
+--------------------------------------+--------+---------+---------+----------+----------+
| (Payment)/Receipt of funds from | | (445) | | 445 | |
| related parties for Co-investment | | | | | |
+--------------------------------------+--------+---------+---------+----------+----------+
| | | | | | |
+--------------------------------------+--------+---------+---------+----------+----------+
| Net Cash Outflow from Investing | | | (643) | | (11,020) |
| Activities | | | | | |
+--------------------------------------+--------+---------+---------+----------+----------+
| | | | | | |
+--------------------------------------+--------+---------+---------+----------+----------+
| Equity Dividends Paid | | | - | | (701) |
+--------------------------------------+--------+---------+---------+----------+----------+
| | | | | | |
+--------------------------------------+--------+---------+---------+----------+----------+
| | | | | | |
+--------------------------------------+--------+---------+---------+----------+----------+
| Cash Outflow before Financing and | | | (1,208) | | (12,484) |
| Management of Liquid Resources | | | | | |
+--------------------------------------+--------+---------+---------+----------+----------+
| | | | | | |
+--------------------------------------+--------+---------+---------+----------+----------+
| Management of Liquid Resources | | | | | |
+--------------------------------------+--------+---------+---------+----------+----------+
| | | | | | |
+--------------------------------------+--------+---------+---------+----------+----------+
| Sale of current asset investments | | 630 | | 13,445 | |
+--------------------------------------+--------+---------+---------+----------+----------+
| | | | | | |
+--------------------------------------+--------+---------+---------+----------+----------+
| Net Cash Inflow from Management of | | | 630 | | 13,445 |
| Liquid Resources | | | | | |
+--------------------------------------+--------+---------+---------+----------+----------+
| | | | | | |
+--------------------------------------+--------+---------+---------+----------+----------+
| Financing | | | | | |
+--------------------------------------+--------+---------+---------+----------+----------+
| | | | | | |
+--------------------------------------+--------+---------+---------+----------+----------+
| Repurchase of shares | | | - | | (114) |
+--------------------------------------+--------+---------+---------+----------+----------+
| | | | | | |
+--------------------------------------+--------+---------+---------+----------+----------+
| Net Cash Outflow from Financing | | | - | | (114) |
+--------------------------------------+--------+---------+---------+----------+----------+
| | | | | | |
+--------------------------------------+--------+---------+---------+----------+----------+
| (Decrease)/Increase in Cash for the | 19 | | (578) | | 847 |
| Period | | | | | |
+--------------------------------------+--------+---------+---------+----------+----------+
| | | | | | |
+--------------------------------------+--------+---------+---------+----------+----------+
Statement of Accounting Policies
Basis of Accounting
The accounts are prepared on a going concern basis and on the historical cost
basis of accounting, modified to include the revaluation of fixed asset
investments, and in accordance with the Companies Act 2006 United Kingdom
Generally Accepted Accounting Practice (UK GAAP) and the Statement of
Recommended Practice for investment trust companies and venture capital trusts
issued by the Association of Investment Companies in December 2005 and revised
in January 2009 (the "SORP").
In order to reflect the activities of an investment company, supplementary
information which analyses the financial statements between items of a revenue
and capital nature has been presented alongside the financial statements. In
analysing total income between capital and revenue returns, the Directors have
followed the guidance contained in the SORP.
The management fee is allocated between revenue and capital in accordance with
the Board's expected long term split of returns, and other expenses are charged
to capital only to the extent that a clear connection with the maintenance or
enhancement of the value of investments can be demonstrated.
A summary of the principal accounting policies, all of which have been applied
consistently throughout the current year, follows:
Investments
Purchases and sales of quoted investments are recognised on the trade date where
a contract exists whose terms require delivery within a timeframe determined by
the relevant market. Purchases and sales of unlisted investments are recognised
when the contract for acquisition or sale becomes unconditional. Investments are
designated at fair value through profit or loss (described in the Accounts as
investments held at fair value) and are subsequently measured at reporting dates
at fair value. The fair value of direct unquoted investments is calculated in
accordance with the Principles of Valuation of Investments below. Changes in the
fair value of investments are recognised in the income statement through the
capital account.
Quoted Investments
Quoted investments are stated at the bid market prices on the balance sheet date
without discount.
Unquoted Investments
Unquoted investments are held at fair value as fixed asset investments. The fair
value is calculated in accordance with International Private Equity and Venture
Capital Valuation Guidelines issued in September 2009 following the methodology
outlined below.
Principles of Valuation of Investments
General
In valuing investments, the Directors follow the principles recommended in the
International Private Equity and Venture Capital Valuation Guidelines issued in
September 2009. Investments are valued at fair value at the reporting date.
Fair value represents the amount for which an asset could be exchanged between
knowledgeable, willing parties in an arm's length transaction. In estimating
fair value, the Directors use a methodology which is appropriate in light of the
nature, facts and circumstances of the investment and its materiality in the
context of the total investment portfolio. Methodologies are applied
consistently from one period to another except where a change results in a
better estimate of fair value. Because of the inherent uncertainties in
estimating the value of private equity investments, the Directors exercise
appropriate prudence in applying the various methodologies.
As part of the valuation process, the proposed valuations are reviewed by the
independent members of the Investment Committee before being examined by the
auditors and then approved by the Directors.
Unquoted Investments
The principal methodologies applied in valuing unquoted investments, including
PLUS investments (a UK market focussed on small and medium companies which the
Directors do not regard as an active market with sufficient liquidity), include
the following:
- Earnings multiple
- Price of recent investment
- Net assets
In applying the Earnings Multiple methodology, the Directors apply a market
based multiple that is appropriate and reasonable to the maintainable earnings
of the company. In the majority of cases the Enterprise Value of the underlying
business is derived by the use of an Earnings Before Interest, Tax and
Depreciation multiple applied to current year's earnings where these can be
forecast with a reasonable degree of certainty and are deemed to represent the
best estimate of maintainable earnings. Where this is not the case, historic
earnings will generally be used in their place.
Where a recent investment has been made, either by the Company or by a third
party in one of Company's investments, this price will be used as the estimate
of fair value for a period of up to one year from the date on which the
investment was made. One of the principal methodologies, as above, may be used
at any time if this is deemed to provide a better assessment of the fair value
of the investment. Unquoted investments may be subject to an impairment
adjustment to valuation where necessary. The fair value of an investment in a
company will be arrived at through the following process:
* The Enterprise Value of the underlying business will be calculated using one of
the above methodologies;
* The Enterprise Value of the underlying business will then be adjusted for
surplus assets or excess liabilities to arrive at an Enterprise Value for the
company; and
* The valuation of the Company's investment will be calculated from the Enterprise
Value for the company after deduction of prior ranking debt and other financial
instruments and an appropriate marketability discount.
A discount will normally be applied to the earnings multiple. The amount of the
discount is a question of judgement and will reflect several factors including
the ability of the Company to influence the timing and nature of any
realisation. Where the Company has the ability to influence an exit, or is part
of a syndicate of like-minded investors who initiate the exit, a marketability
discount will be applied. This may vary according to market and investee company
circumstances. Where the likelihood of an exit is high, the discount is likely
to be lower. Where there is no ability to initiate an exit and exit is not under
discussion, the discount is likely to be higher. In cases where no exit is
contemplated by controlling shareholders, the investment may be valued by
discounting the cash flow from the investment itself.
Although the Company holds more than 20% of the equity of certain companies, it
is considered that the investments are held as part of the investment portfolio.
Accordingly, and as permitted by FRS 9 'Associates and joint ventures', their
value to the Company lies in their marketable value as part of that portfolio.
It is not considered that any of the holdings represent investments in
associated undertakings.
Under FRS 2 'Accounting for subsidiary undertakings' control is presumed to
exist when the parent owns, directly or indirectly more than half of the voting
power by a number of means. The Company does not hold more than 50% of the
equity of any of the companies within the portfolio. In addition, it does not
control any of the companies held as part of the investment portfolio. It is not
considered that any of the holdings represent investments in subsidiary
undertakings.
Income
Dividends receivable from equity investments are brought into account on the
ex-dividend date or, where no ex-dividend date is quoted, are brought into
account when the Company's right to receive payment is established. Fixed
returns on non-equity investments and on debt securities are recognised on a
time apportionment basis, which reflects the effective interest rate. Where
there is reasonable doubt that a return, which falls within the accounting
period, will actually be received by the Company, the recognition of the return
is deferred until the reasonable doubt has been removed.
Interest receivable on cash deposits is accounted for on an accruals basis.
Expenses
All expenses are accounted for on an accruals basis. Expenses are charged
through the revenue account except for expenses in connection with the disposal
of fixed asset investments, which are deducted from the disposal proceeds of the
investment and investment management and incentive fees which are dealt with
below.
Investment Management and Incentive Fees
The investment management fees for the Investment Manager's services are charged
25% to the revenue account and 75% to the capital account. This is in line with
the Board's long-term expected split of returns from the investment portfolio of
the Company. Incentive fees are fully charged to the capital account. The
incentive fee on realisations in the period is charged to the realised capital
reserve and the incentive fee provision in respect of unrealised value growth in
the portfolio is charged to the unrealised capital reserve.
Revenue and Capital Reserves
The revenue return in the Income Statement is taken to the revenue reserve.
Gains and losses on the realisation of investments are taken to the realised
capital reserve.
Gains and losses arising from changes in fair value are considered to be
realised only to the extent that they are readily convertible to cash in full at
the balance sheet date. Otherwise, gains and losses are treated as unrealised.
Taxation
The tax effects of different items in the Income Statement are allocated between
capital and revenue on the same basis as the particular item to which they
relate using the Company's effective rate of tax for the accounting period. Due
to the Company's status as a venture capital trust and the continued intention
to meet the conditions required to comply with Section 274 of the Income Tax Act
2007 (ITA 2007), no provision for taxation is required in respect of any
realised or unrealised appreciation of the Company's investments which arises.
Deferred tax is provided on all timing differences that have originated but not
reversed by the balance sheet date. Deferred tax assets are only recognised to
the extent that they are recoverable.
Dividends Payable
Dividend distributions to shareholders are recognised as a liability in the
period in which they are paid in respect of interim dividends or when approved
by members in respect of final dividends.
Trail Commission
The fair value of trail commission payable on new share issues is estimated on
the date the new shares are issued based on the net asset value of the trust at
that time, an estimate of annualised growth in NAV over the life of the contract
and an appropriate discount rate. Subsequent to initial recognition, changes in
the value of the creditor arising through the unwinding of the discount rate are
recognised in the revenue column of the Income Statement and movements in the
value of the creditor resulting from changes in assumptions are recognised in
the capital column of the Income Statement.
Notes to the Accounts
1. Income
+-------------------------------------------+------------------+------------------+
| | For the year | For the year |
| | ended | ended |
| | 30 September | 30 September |
| | 2009 | 2008 |
| | GBP'000 | GBP'000 |
+-------------------------------------------+------------------+------------------+
| Franked investment income* | 25 | 174 |
+-------------------------------------------+------------------+------------------+
| Income from liquidity funds# | 1 | 539 |
+-------------------------------------------+------------------+------------------+
| Unfranked investment income* | 634 | 576 |
+-------------------------------------------+------------------+------------------+
| Interest from bank deposits# | 1 | 35 |
+-------------------------------------------+------------------+------------------+
| Interest on Recoverable VAT# | 9 | - |
+-------------------------------------------+------------------+------------------+
| | 670 | 1,324 |
| | | |
+-------------------------------------------+------------------+------------------+
| | | |
+-------------------------------------------+------------------+------------------+
*Denotes income arising from investments designated as fair value through profit
or loss on initial recognition.
#Denotes Income arising on financial assets not designated as fair value through
profit or loss.
2. Investment Manager's Fees
+---------------------+---------+---------+----------+---------+---------+---------+
| | For the year ended 30 | For the year ended 30 |
| | September 2009 | September 2008 |
+---------------------+------------------------------+-----------------------------+
| | Revenue | Capital | Total | Revenue | Capital | Total |
| | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 |
+---------------------+---------+---------+----------+---------+---------+---------+
| Acuity Capital | 185 | 556 | 741 | 239 | 719 | 958 |
| Management | | | | | | |
+---------------------+---------+---------+----------+---------+---------+---------+
The Management Fee includes irrecoverable VAT of GBPnil (2008: GBP145,000).
Acuity Capital also received an administration fee of GBP68,000 (2008:
GBP65,000), net of VAT, which increases each year in line with RPI. The
administration fee is included in the administration expenses of GBP146,000
(2008: GBP140,000) in Note 3.
Included in other expenses is an amount payable to the investment manager of
GBP50,000 as a contribution toward the increase in non-recoverable VAT to Acuity
Capital as a result of the changes to VAT on investment management fees.
HM Revenue & Customs has accepted that under European Union VAT law the
exemption of VCT management fees from VAT should have applied from January 1990
onwards and has indicated that claims may be made for repayment of VAT
previously paid by VCTs on management fees, subject to such claims being limited
to a period of three years prior to the date of claim. During the year ended 30
September 2009 the company received a repayment of GBP131,000 in respect of VAT
previously suffered on management fees and this amount has been recognised as a
separate credit in the income statement, allocated between revenue and capital
return in the same proportion as that in which the irrecoverable VAT was
originally charged.
Management Fees and Arrangements
Acuity Capital was appointed as Investment Manager under an agreement dated 14
October 2005. The agreement is for an initial period of five years and
thereafter until terminated by not less than one year's notice to expire at any
time after the initial period. Fees are paid quarterly in arrears, as a
percentage of net assets (less a rebate of fees suffered in the investment in CF
Acuity Real Active Fund which is managed by Acuity Capital), at the following
annual rates:
Period ended 30 June 2006 1.5%
Year ended 30 June 2007 2.0%
Year ended 30 June 2008 and thereafter 2.5%
Annual running expenses of the Fund are capped at 3.6% of the Net Asset Value at
30 September 2009. Any excess will be redeemed against the Management Fee
payable to the Investment Manager.
Incentive Schemes
Certain employees of, and persons engaged in, the business of the Investment
Manager, will be entitled to receive a performance fee based upon returns to
shareholders. The incentives are designed to encourage significant dividend
payments to shareholders and a NAV performance that would equate to a historic
top decile industry ranking, before any performance fee payment is made.
Therefore, if by the end of a financial year, aggregate distributions of 30p per
share have been declared and if the Performance Value, which is equal to the Net
Asset Value plus distributions, at that date exceeds 130p per share, then the
beneficiaries will be entitled to an incentive equal to 20% of the excess of
such Performance Value over 100p per share. If, on a subsequent financial year
end, the performance of the Company falls short of the performance of the
Company on the previous financial year end, the beneficiaries will not be
entitled to any incentive. If, on a subsequent financial year end, the
performance of the Company exceeds the previous performance of the Company, the
beneficiaries will be entitled to 20% of such excess. To give effect to this
performance fee, Loan Notes have been issued by the Company to certain employees
of, and persons engaged in, the business of the Investment Manager. No Loan
Notes have been issued directly to the Investment Manager. Further details of
the terms of the Loan Notes are set out in Note 13 of the Financial Statements.
At 30 September 2009 there was no amount due under the Incentive Schemes.
3. Other Expenses
+----------------------------------------+--------------------+--------------------+
| | For the year ended | For the year ended |
| | 30 September 2009 | 30 September 2008 |
| | GBP'000 | GBP'000 |
+----------------------------------------+--------------------+--------------------+
| | | |
+----------------------------------------+--------------------+--------------------+
| Directors' remuneration | 55 | 55 |
+----------------------------------------+--------------------+--------------------+
| Employer's NIC | 8 | 4 |
+----------------------------------------+--------------------+--------------------+
| Auditors' fees | | |
+----------------------------------------+--------------------+--------------------+
| Audit:- | | |
+----------------------------------------+--------------------+--------------------+
| KPMG | 18 | 19 |
+----------------------------------------+--------------------+--------------------+
| PwC | - | 8 |
+----------------------------------------+--------------------+--------------------+
| Non audit:- | | |
+----------------------------------------+--------------------+--------------------+
| PwC - Taxation Services | 11 | 17 |
+----------------------------------------+--------------------+--------------------+
| KPMG - Other services | - | 1 |
+----------------------------------------+--------------------+--------------------+
| Legal fees | 9 | 13 |
+----------------------------------------+--------------------+--------------------+
| Re-estimation of Trail Commission | (124) | (63) |
| creditor | | |
+----------------------------------------+--------------------+--------------------+
| Recharge of non-recoverable VAT from | 50 | - |
| ACML | | |
+----------------------------------------+--------------------+--------------------+
| Administration expenses | 146 | 140 |
+----------------------------------------+--------------------+--------------------+
| | | |
+----------------------------------------+--------------------+--------------------+
| | 173 | 194 |
+----------------------------------------+--------------------+--------------------+
In addition to the audit fees above, an amount of GBP13,000 was settled by
Acuity Capital in relation to the period to 30 September 2008.
4. Finance Cost
+----------------------------+--------+----------+----------+----------+----------+
| | | As at 30 September | As at 30 September |
| | | 2009 | 2008 |
| | | | |
+----------------------------+--------+---------------------+---------------------+
| | | Ordinary | Total | Ordinary | Total |
| | | Shares | GBP'000 | Shares | GBP'000 |
| | | GBP'000 | | GBP'000 | |
+----------------------------+--------+----------+----------+----------+----------+
| Deferred trail commission | | 42 | 42 | 50 | 50 |
| expense amortisation | | | | | |
+----------------------------+--------+----------+----------+----------+----------+
| | | 42 | 42 | 50 | 50 |
+----------------------------+--------+----------+----------+----------+----------+
5. Directors' Remuneration
Details of Directors' remuneration are shown in the table in the "Directors
Remuneration for the Year (audited)" section of the Directors' Remuneration
Report.
The Company had no employees or employee costs in 2009 GBPnil (2008: GBPnil).
6. Taxation on Ordinary Activities
+-------------------------------------------------+-----------+-----------+
| | For the | For the |
| | year | year |
| | ended | ended |
| | 30 | 30 |
| | September | September |
| | 2009 | 2008 |
| | GBP'000 | GBP'000 |
+-------------------------------------------------+ + +
| | | |
+-------------------------------------------------+ + +
| | | |
+-------------------------------------------------+-----------+-----------+
| | | |
+-------------------------------------------------+-----------+-----------+
| Analysis of charge in the period | | |
+-------------------------------------------------+-----------+-----------+
| Current tax: | | |
+-------------------------------------------------+-----------+-----------+
| | | |
+-------------------------------------------------+-----------+-----------+
| UK Corporation tax at 21% (2008: 20.5%) | - | - |
+-------------------------------------------------+-----------+-----------+
| | | |
+-------------------------------------------------+-----------+-----------+
| Total Current Tax | - | - |
+-------------------------------------------------+-----------+-----------+
| | | |
+-------------------------------------------------+-----------+-----------+
| Factors affecting tax charge for the period | | |
+-------------------------------------------------+-----------+-----------+
| Return on ordinary activities before tax | (3,641) | (1,029) |
+-------------------------------------------------+-----------+-----------+
| | | |
+-------------------------------------------------+-----------+-----------+
| Revenue return multiplied by corporate tax rate | (765) | (216) |
| (21%) | | |
+-------------------------------------------------+-----------+-----------+
| Effects of: | | |
+-------------------------------------------------+-----------+-----------+
| Dividend income not subject to tax | (5) | (36) |
+-------------------------------------------------+-----------+-----------+
| Expenses not deductible for tax purposes | (17) | - |
+-------------------------------------------------+-----------+-----------+
| (Losses)/gains on investments | 732 | 159 |
+-------------------------------------------------+-----------+-----------+
| Unutilised tax losses arising in the year | 55 | 93 |
+-------------------------------------------------+-----------+-----------+
| | | |
+-------------------------------------------------+-----------+-----------+
| Total Current Tax | - | - |
+-------------------------------------------------+-----------+-----------+
| | | |
+-------------------------------------------------+-----------+-----------+
In light of the Company's status as a venture capital trust and the Directors'
intention to continue to meet the conditions necessary to obtain such approval
in the foreseeable future, the Company has not provided for deferred tax on any
capital gains and losses arising on the revaluation or disposal of investments.
There is no unprovided deferred tax liability at 30 September 2009. There has
been no recognition of a deferred tax asset of GBP68,000 (2008: GBP13,000) as
the Directors do not anticipate these being used.
7. Return per Ordinary Share
The revenue return per ordinary share is based on the net revenue from ordinary
activities after taxation of GBP139,000 (2008: GBP637,000) and on 34,956,673
(2008: 35,024,962) ordinary shares, being the weighted average number of
ordinary shares in issue during the year.
The capital return per ordinary share is based on net capital losses of
GBP3,780,000 (2008: GBP1,666,000) and on 34,956,673 (2008: 35,024,962) ordinary
shares, being the weighted average number of ordinary shares in issue during the
year.
The total return per ordinary share is based on the net (deficit)/revenue from
ordinary activities after taxation of (GBP3,641,000) (2008: GBP1,029,000) and on
34,956,673 (2008: 35,024,962) ordinary shares, being the weighted average number
of shares in issue during the year.
8. Dividend
+------------------------+---------+---------+---------+----------+---------+---------+
| | For the year ended | For the year ended |
| | 30 September 2009 | 30 September 2008 |
+------------------------+-----------------------------+------------------------------+
| | Revenue | Capital | Total | Revenue | Capital | Total |
| | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 |
+------------------------+---------+---------+---------+----------+---------+---------+
| Recognised as | - | - | - | 351 | - | 351 |
| distribution in | - | - | - | 350 | - | 350 |
| the financial | | | | | | |
| statements for the | | | | | | |
| year | | | | | | |
| First interim paid | | | | | | |
| of GBPnil (2008 | | | | | | |
| 1.0p) per share | | | | | | |
| Second interim | | | | | | |
| dividend of GBPnil | | | | | | |
| (2008: 1.0p) per | | | | | | |
| share | | | | | | |
+------------------------+---------+---------+---------+----------+---------+---------+
| Total | - | - | - | 701 | - | 701 |
+------------------------+---------+---------+---------+----------+---------+---------+
+------------------------+---------+---------+---------+----------+---------+---------+
| For the year ended | For the year ended |
| 30 September 2009 | 30 September 2008 |
+------------------------------------------------------+------------------------------+
| | Revenue | Capital | Total | Revenue | Capital | Total |
| | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 |
+------------------------+---------+---------+---------+----------+---------+---------+
| Paid and proposed | 350 | - | 350 | 351 | - | 351 |
| in respect for the | - | - | - | 350 | - | 350 |
| period | | | | | | |
| First interim of | | | | | | |
| GBP1.0p (2008 | | | | | | |
| 1.0p) per share | | | | | | |
| Second interim | | | | | | |
| dividend of GBPnil | | | | | | |
| (2008: 1.0p) per | | | | | | |
| share | | | | | | |
+------------------------+---------+---------+---------+----------+---------+---------+
| Total | 350 | - | 350 | 701 | - | 701 |
+------------------------+---------+---------+---------+----------+---------+---------+
9 Investments
+------------------------+-----------------------+------------------------+--------------------------+----------------------------+-----------------------+
| | Qualifying | Non-qualifying | |
| | Investments | Investments | |
| | | | |
+------------------------+------------------------------------------------+-------------------------------------------------------+-----------------------+
| | Traded | Unlisted | Open-ended | Closed-ended | Total |
| | on AIM | GBP'000 | Investment | Investment | GBP'000 |
| | GBP'000 | | Company | Company | |
| | | | GBP'000 | GBP'000 | |
+------------------------+-----------------------+------------------------+--------------------------+----------------------------+-----------------------+
| Costs at 1 October | 3,147 | 21,064 | 273 | 5,151 | 29,635 |
| 2008 | (1,300) | 2,983 | (27) | (272) | 1,384 |
| Investment holdings | | | | | |
| (losses)/gains at 1 | | | | | |
| October 2008 | | | | | |
| | | | | | |
+------------------------+-----------------------+------------------------+--------------------------+----------------------------+-----------------------+
| Valuation at 1 October | 1,847 | 24,047 | 246 | 4,879 | 31,019 |
| 2008 | | | | | |
| | | | | | |
+------------------------+-----------------------+------------------------+--------------------------+----------------------------+-----------------------+
| Purchases at cost | - | 5,746 | 184 | - | 5,930 |
| Proceeds | - | (4,513) | (201) | (1,018) | (5,732) |
| Realised losses on | - | (896) | (41) | (217) | (1,154) |
| disposals in year | - | (1,340) | 3 | (69) | (1,406) |
| Unrealised losses | (303) | (691) | 32 | 36 | (926) |
| realised during the | | | | | |
| year | | | | | |
| Investment holding | | | | | |
| (losses)/gains in year | | | | | |
| | | | | | |
+------------------------+-----------------------+------------------------+--------------------------+----------------------------+-----------------------+
| Valuation at 30 | 1,544 | 22,353 | 223 | 3,611 | 27,731 |
| September 2009 | | | | | |
| | | | | | |
+------------------------+-----------------------+------------------------+--------------------------+----------------------------+-----------------------+
| Cost at 30 September | 3,147 | 20,061 | 218 | 3,847 | 27,273 |
| 2009 | (1,603) | 2,292 | 5 | (236) | 458 |
| Investment holdings | | | | | |
| (losses)/gains at 30 | | | | | |
| September 2009 | | | | | |
| | | | | | |
+------------------------+-----------------------+------------------------+--------------------------+----------------------------+-----------------------+
| Valuation at 30 | 1,544 | 22,353 | 223 | 3,611 | 27,731 |
| September 2009 | | | | | |
| | | | | | |
+------------------------+-----------------------+------------------------+--------------------------+----------------------------+-----------------------+
The purchases and sales proceeds figures above include transaction costs of
GBPnil (2008: GBPnil) and GBP2,000 (2008: GBPnil) respectively.
All investments are designated as fair value through profit or loss on initial
recognition; therefore all gains and losses arise on investments designated as
fair value through profit or loss.
10 Debtors
+---------------------------------------------+----------------+----------------+
| | 2009 | 2008 |
+---------------------------------------------+----------------+----------------+
| | GBP'000 | GBP'000 |
+---------------------------------------------+----------------+----------------+
| | | |
+---------------------------------------------+----------------+----------------+
| Amounts receivable within one year: | | |
+---------------------------------------------+----------------+----------------+
| Other debtors | 26 | 35 |
+---------------------------------------------+----------------+----------------+
| Amounts receivable after one year | 1,133 | 688 |
| Accrued income | | |
+---------------------------------------------+----------------+----------------+
| | 1,159 | 723 |
+---------------------------------------------+----------------+----------------+
11 Other investments
+------------------------------------------------+----------------+--------------+
| | 2009 | 2008 |
+------------------------------------------------+----------------+--------------+
| | GBP'000 | GBP'000 |
+------------------------------------------------+----------------+--------------+
| | | |
+------------------------------------------------+----------------+--------------+
| Liquidity Funds: | | |
+------------------------------------------------+----------------+--------------+
| JP Morgan | - | 5 |
+------------------------------------------------+----------------+--------------+
| Scottish Widows | - | 625 |
| | | |
+------------------------------------------------+----------------+--------------+
| | - | 630 |
+------------------------------------------------+----------------+--------------+
| | | |
+------------------------------------------------+----------------+--------------+
The market value of the Liquidity Funds is GBPnil (2008: GBP630,000). The funds
earned a floating rate of interest.
12 Creditors: amounts falling due within one year
+------------------------------------------------+----------------+--------------+
| | 2009 | 2008 |
+------------------------------------------------+----------------+--------------+
| | GBP'000 | GBP'000 |
+------------------------------------------------+----------------+--------------+
| | | |
+------------------------------------------------+----------------+--------------+
| Due to Acuity Capital | 198 | - |
+------------------------------------------------+----------------+--------------+
| Trail Commission Payable | 69 | 84 |
+------------------------------------------------+----------------+--------------+
| Other creditors | 30 | 37 |
| Related Party Liability | - | 445 |
| | | |
+------------------------------------------------+----------------+--------------+
| | 297 | 566 |
+------------------------------------------------+----------------+--------------+
| | | |
+------------------------------------------------+----------------+--------------+
The related party liability related to a co-investment with Acuity VCT and
Acuity VCT 2 as at 30 September 2008.
13 Creditors: amounts falling due after one year
+---------------------------------------------------------+----------+----------+
| | 2009 | 2008 |
+---------------------------------------------------------+----------+----------+
| | GBP'000 | GBP'000 |
+---------------------------------------------------------+----------+----------+
| Trail Commission Payable | 378 | 528 |
+---------------------------------------------------------+----------+----------+
| Unsecured 3.75% Loan Notes | 76 | 76 |
+---------------------------------------------------------+----------+----------+
| Issued at 30 September 2009 | 454 | 604 |
+---------------------------------------------------------+----------+----------+
The Loan Notes are redeemable in certain circumstances at par including the
termination of the Investment Management Agreement with the Investment Manager.
They carry a 3.75% interest coupon and also the right to additional interest
payments under the terms of the incentive schemes set out in Note 2 to the
Financial Statements.
14 Significant Interests
At 30 September 2009 the Company held significant investments, amounting to 3%
or more of the equity capital in the following companies:-
+----------------------+---------------------+---------------------+---------------------+--------------------+
| | Equity | Investments | Total | Percentage |
| | Investment | Loan Stock | Investments | of Investee |
| | (Ordinary | And | GBP'000 | Company's |
| | Shares) | Preference | | Total Equity |
| | GBP'000 | Shares | | % |
| | | GBP'000 | | |
+----------------------+---------------------+---------------------+---------------------+--------------------+
| Acuity Business | 100 | 150 | 250 | 33.0 |
| Services Ltd | 100 | 150 | 250 | 33.0 |
| Acuity Energy Ltd | 100 | 150 | 250 | 33.0 |
| Acuity Manufacturing | 100 | 150 | 250 | 33.0 |
| Ltd | 100 | 150 | 250 | 33.0 |
| Acuity Rights Ltd | 229 | 2,537 | 2,766 | 27.4 |
| Acuity Support | 193 | 1,733 | 1,925 | 25.0 |
| Services ltd | 162 | 1,454 | 1,615 | 24.8 |
| Emote Games | 215 | 1,935 | 2,150 | 19.5 |
| Factory Media | 2,000 | - | 2,000 | 17.6 |
| Munro Global | 200 | 1,600 | 1,800 | 16.6 |
| Fin Machine Company | 309 | 954 | 1,263 | 14.4 |
| Connect 2 Play | 533 | 1,467 | 2,000 | 13.3 |
| Brand Acquisitions | 0 | 709 | 709 | 15.0 |
| Red Reef Media Ltd | 129 | 1,156 | 1,285 | 8.1 |
| Target Group | 759 | - | 759 | 4.4 |
| Loseley Dairy Ice | 750 | - | 750 | 3.9 |
| Cream Ltd | | | | |
| Defaqto | | | | |
| Mount Engineering | | | | |
| Zamano | | | | |
+----------------------+---------------------+---------------------+---------------------+--------------------+
It is considered that, as permitted by FRS 9 "Associates and Joint Ventures",
the above investments are held as part of an investment portfolio and that,
accordingly, their value to the Company lies in their marketable value as part
of its portfolio.
In view of this, it is not considered that the above represent investments in
associated undertakings. The above companies are incorporated in the United
Kingdom, except for Zamano, which is incorporated in the Republic of Ireland.
15 Called Up Share Capital
+----------------------------+------------+------------+------------+------------+
| | | 2009 | | 2008 |
+----------------------------+------------+------------+------------+------------+
| | Number | GBP000 | Number | GBP000 |
+----------------------------+------------+------------+------------+------------+
| Authorised | | | | |
| Ordinary Shares of 1p each | 60,000,000 | 600 | 60,000,000 | 600 |
+----------------------------+------------+------------+------------+------------+
+----------------------------+------------+------------+------------+------------+
| Issued: | | | | |
| | | | | |
| At 1 October 2008 | 34,956,673 | 350 | 35,069,648 | 351 |
| | | | | |
+----------------------------+------------+------------+------------+------------+
| Ordinary Shares of 1p each | | | | |
| repurchased during the | - | - | (112,975) | (1) |
| year | | | | |
+----------------------------+------------+------------+------------+------------+
| | | | | |
| As at 30 September 2009 | 34,956,673 | 350 | 34,956,673 | 350 |
+----------------------------+------------+------------+------------+------------+
During the year under review, the Company made no purchases of its own ordinary
shares in the market under the authority granted by shareholders at the Annual
General Meeting held in March 2009, as the Board continues its suspension of the
Company's share buy-back policy.
Management of Capital
The Capital of the Company is managed in accordance with the Company's
investment objective, detailed in the Investment Strategy detailed above in this
announcement.
The Company does not have any externally imposed capital requirements.
16 Reserves
+--------------------------------+---------------+----------------+-----------------+
| As at 30 September 2009 | Special | Capital | Revenue |
| | Reserve | Reserve | Reserve |
| | | (Non | (Distributable) |
| | | distributable) | |
+--------------------------------+---------------+----------------+-----------------+
| | GBP'000 | GBP'000 | GBP'000 |
+--------------------------------+---------------+----------------+-----------------+
| At 1 October 2008 | 31,907 | 827 | 522 |
| | | | |
+--------------------------------+---------------+----------------+-----------------+
| Investment holding losses | - | (2,332) | - |
| | | | |
+--------------------------------+---------------+----------------+-----------------+
| Realised Loss on disposal of | - | (1,154) | - |
| investments in the year | | | |
| | | | |
+--------------------------------+---------------+----------------+-----------------+
| Investment management fees | - | (418) | - |
| charged to capital account | | | |
| (net of recoverable VAT and | | | |
| tax) | | | |
| | | | |
+--------------------------------+---------------+----------------+-----------------+
| Re-estimation of trail | - | 124 | - |
| commission creditor charged to | | | |
| capital account | | | |
| | | | |
+--------------------------------+---------------+----------------+-----------------+
| Retained revenue for the year | - | - | 139 |
| | | | |
+--------------------------------+---------------+----------------+-----------------+
| At 30 September 2009 | 31,907 | (2,953) | 661 |
| | | | |
+--------------------------------+---------------+----------------+-----------------+
At 30 September 2009, distributable reserves by way of dividend amounted to
GBP32,568,000 (2008: GBP32,429,000), comprising the revenue reserve.
17 Net Asset Value per Ordinary Share
Net asset value per ordinary share is based on net assets at 30 September 2009
of GBP29,965,000 (2008: GBP33,606,000) and on 34,956,673 (2008: 34,956,673)
ordinary shares, being the number of ordinary shares in issue on that date.
18 Reconciliation of Net Return on Ordinary Activities Before Taxation to Net
Cash (Outflow) from Operating Activities
+---------------------+--------------------+----------------+
| | For the year ended | For the year |
| | | ended |
+---------------------+--------------------+----------------+
| | 30 September 2009 | 30 September |
| | | 2008 |
+---------------------+--------------------+----------------+
| | GBP'000 | GBP'000 |
+---------------------+--------------------+----------------+
| | | |
+---------------------+--------------------+----------------+
| Return | (3,599) | 828 |
| on | | |
| ordinary | | |
| activities | | |
| before | | |
| finance | | |
| costs and | | |
| taxation | | |
+---------------------+--------------------+----------------+
| (Losses)/gains | 3,486 | (719) |
| in investments | | |
+---------------------+--------------------+----------------+
| Non cash | (124) | - |
| movements | | |
+---------------------+--------------------+----------------+
| (Decrease) | (436) | (465) |
| in debtors | | |
+---------------------+--------------------+----------------+
| Increase/(Decrease) | 108 | (373) |
| in creditors and | | |
| accruals | | |
+---------------------+--------------------+----------------+
| Net cash | (565) | (729) |
| (Outflow) | | |
| from | | |
| operating | | |
| activities | | |
+---------------------+--------------------+----------------+
19 Analysis of Changes in Cash
+-----------+----------------------------+-------------------+----------------+
| | | For the year | For the year |
| | | ended | ended |
| | | 30 September 2009 | 30 September |
| | | GBP'000 | 2008 |
| | | | GBP'000 |
+-----------+----------------------------+ + +
| | | | |
+-----------+----------------------------+ + +
| | | | |
+-----------+----------------------------+-------------------+----------------+
| | | | |
+-----------+----------------------------+-------------------+----------------+
| At | | 2,404 | 1,557 |
| beginning | | | |
| of the | | | |
| period | | | |
+-----------+----------------------------+-------------------+----------------+
| Net cash | | (578) | 847 |
| inflow | | | |
+-----------+----------------------------+-------------------+----------------+
| | | | |
+-----------+----------------------------+-------------------+----------------+
| At 30 | | 1,826 | 2,404 |
| September | | | |
+-----------+----------------------------+-------------------+----------------+
Included within the cast balance there is a restricted cash balance of GBPnil
(2008: GBP2,000,000).
20 Financial Statements
Market Risk: Market Risk incorporates the possibility for losses and gains from
Investments and encompasses interest risk and price risk.
Investment risk management is governed by the Investment Strategy of these
accounts and Market Risk is within that process. On a regular basis the
Investment Manager monitors the Fund's Market Risk, in accordance with policies
and procedures documented in the Report of the Directors. The Board meets
regularly to review the Fund's market position.
Details of the nature of the Fund's investment portfolio at the balance sheet
date can be found above in this announcement within the Portfolio Summary. The
constituent parts of those investments are set out below.
The investment note, Note 9, details the split between listed and unlisted
investments, which shows that at the balance sheet date 19% was invested in
quoted investments (2008:22%) A 5% increase in the bid price of the quoted
investments as at the balance sheet date would have increased net assets and the
total return for the year by GBP269,000 (2008: GBP348,000), an equivalent change
in the opposite direction would have reduced net assets and the total return for
the year by the same amount. A 5% increase in the value of unquoted investments
held at the Balance Sheet date would have increased net assets and the total
return for the year by GBP1,118,000 (2008:GBP1,202,000); an equivalent change in
the opposite direction would have reduced net asset and the total return for the
year by the same amount.
Interest Rate Risk: A proportion of the Fund's financial assets are interest
bearing, earning a fixed or a variable rate. Therefore, the Fund has exposure to
fair value Interest Rate risk due to fluctuations in the market interest rates.
The interest rate profile of the Company's financial assets as at 30 September
2009 was:
+---------------------+-----------+-----------+-----------+---------+----------+----------+
| | Financial | Fixed | Variable | Total | Weighted | Weighted |
| | Assets on | Rate | Rate | GBP'000 | Average | Average |
| | which no | Financial | Financial | | Interest | Period |
| | Interest | Assets | Assets | | Rates | for |
| | Paid | GBP'000 | GBP'000 | | % | which |
| | GBP'000 | | | | | rate is |
| | | | | | | fixed |
| | | | | | | (Years) |
+---------------------+-----------+-----------+-----------+---------+----------+----------+
| Equity shares | 15,766 | - | - | 15,766 | - | - |
| Non-Equity shares | - | 860 | - | 860 | 8.0 | 3.1 |
| Loan stock | - | 11,105 | - | 11,105 | 8.0 | 2.3 |
| Liquidity Funds | - | - | - | - | - | - |
| Cash | - | - | 1,826 | 1,826 | 2.0 | - |
| Debtors | 1,159 | - | - | 1,159 | - | - |
+---------------------+-----------+-----------+-----------+---------+----------+----------+
| Total | 16,925 | 11,965 | 1,826 | 30,716 | - | - |
+---------------------+-----------+-----------+-----------+---------+----------+----------+
The only financial liabilities were the unsecured Loan Notes of GBP76,000 which
carry a 3.75% coupon and trail commission creditor of GBP447,000.
The interest rate profile of the Company's financial assets as at 30 September
2008 was:
+---------------------+-----------+-----------+-----------+---------+----------+----------+
| | Financial | Fixed | Variable | Total | Weighted | Weighted |
| | Assets on | Rate | Rate | GBP'000 | Average | Average |
| | which no | Financial | Financial | | Interest | Period |
| | Interest | Assets | Assets | | Rates | for |
| | Paid | GBP'000 | GBP'000 | | % | which |
| | GBP'000 | | | | | rate is |
| | | | | | | fixed |
| | | | | | | (Years) |
+---------------------+-----------+-----------+-----------+---------+----------+----------+
| Equity shares | 14,235 | - | - | 14,235 | - | - |
| Non-Equity shares | - | 1,061 | - | 1,061 | 8.0 | - |
| Loan stock | - | 15,670 | 53 | 15,723 | 8.1 | 3.7 |
| Liquidity Funds | - | - | 630 | 630 | 5.5 | - |
| Cash | - | - | 2,404 | 2,404 | 4.9 | - |
| Debtors | 723 | - | - | 723 | - | - |
+---------------------+-----------+-----------+-----------+---------+----------+----------+
| Total | 14,958 | 16,731 | 3,087 | 34,776 | - | - |
+---------------------+-----------+-----------+-----------+---------+----------+----------+
The only financial liabilities were the unsecured Loan Notes of GBP76,000 which
carry a 3.75% coupon and trail commission creditor of GBP612,000.
Fixed Rate Assets: Represent investments with predetermined yield targets. The
fixed rate investments are held for the medium term and have a predetermined
interest rate, in-line with their risk profile. Therefore a change of 25 basis
points in the interest rate at the balance sheet date would not have a
significant impact on the company's net assets.
Variable Rate Assets: Represent investments with interest rates linked, by
formula, to utilisation of funds by investee companies and cash held in
interest-bearing deposit accounts.
Credit Risk: Credit risk is the risk that a counterparty to a financial
instrument is unable to discharge an obligation or commitment entered into with
the Company. The Investment Manager has in place a monitoring procedure in
respect of counterparty risk which is monitored on an ongoing basis. The
carrying amounts of financial assets best represent the maximum credit risk
exposure at the balance sheet date.
At the reporting date, the Company's financial assets exposed to credit risk
amounted to the following:
+------------------------------------------+--------------------+---------------+
| Credit Risk | 2009 | 2008 |
| | GBP'000 | GBP'000 |
+------------------------------------------+--------------------+---------------+
| Investments in fixed interest | 11,965 | 16,731 |
| instruments | | |
+------------------------------------------+--------------------+---------------+
| Investments in variable interest | - | 683 |
| instruments | | |
+------------------------------------------+--------------------+---------------+
| Cash | 1,826 | 2,404 |
+------------------------------------------+--------------------+---------------+
| Interest, dividends and other | 1,159 | 723 |
| receivables | | |
+------------------------------------------+--------------------+---------------+
Credit risk on fixed interest instruments which are solely comprised of loan
stock is part of the Fund's venture capital procedures and are managed within
the main investment management procedures.
All the assets of the Company which are traded on a recognised exchange are held
in a secured facility on site. This mitigates the risk of a third party
custodian going into liquidation or becoming bankrupt.
The cash of the Company was held by HSBC Bank Plc.
Liquidity risk: The liquidity risk is the risk that the Company might encounter
difficulty in meeting its obligations arising from holding financial
instruments.
The Company's fixed assets include unquoted equity securities which are not
listed on a recognised stock exchange and which generally are illiquid. As a
result, the Company may not be able to realise some of its investments in these
securities quickly at an amount close to their fair value.
The Company's liquidity risk is managed on an ongoing basis by the Investment
Manager as presented in the Report of the Directors.
The Company maintains sufficient investments in cash to pay all accounts payable
and accrued expenses as they become due.
21 Post Balance Sheet Events
There were no significant post balance sheet events.
22 Geographical Analysis
The operations of the Company are wholly in the United Kingdom.
23 Contingencies, Guarantees and Financial Commitments
There were no contingencies, guarantees or financial commitments of the Company
at 30 September 2009.
24 Transactions with the Investment Manager
During the year ended 30 September 2009, GBP809,000 was payable (2008:
GBP1,302,000) to Acuity Capital, the Investment Manager. At 30 September 2009,
the Company owed GBP148,000 (2008: GBPnil) to the Investment Manager. Details of
the Investment Manager's fee arrangements are included in Note 2.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR FQLFFKLBLFBF
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